Phillips 66 Annual Report 2014

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FY2014 Annual Report · Phillips 66

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2014 ANNUAL REPORT

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Phillips 66

P.O. Box 4428

Houston, TX 77210

www.phillips66.com

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Financial Highlights

(Millions of Dollars Except Per Share Amounts)

Sales and other operating revenues

Income from continuing operations

Income from continuing operations attributable to Phillips 66

Per common share

Basic

Diluted

Net income

Net income attributable to Phillips 66

Per common share

Basic

Diluted

Cash and cash equivalents

Total assets

Long-term debt

Total equity

Cash from operating activities

Cash dividends declared per common share

2014

2013

$ 161,212

$ 171,596

4,091

4,056

7.15

7.10

4,797

4,762

8.40

8.33

5,207

48,741

7,842

22,037

3,529

1.8900

3,682

3,665

5.97

5.92

3,743

3,726

6.07

6.02

5,400

49,798

6,131

22,392

6,027

1.3275

CUMULATIVE TOTAL
SHAREHOLDER RETURN

($100 invested May 1, 2012)

ADJUSTED EARNINGS

($ in millions)

ADJUSTED RETURN ON CAPITAL
EMPLOYED (ROCE)

Phillips 66
Peer Group*
S&P 500
S&P 100

$250

$200

$150

$100

3,782
3,643
5,339

14%
14%
22%

5/1/12

12/31/12

12/31/13

12/31/14

*Dow, Marathon Petroleum, Tesoro and Valero

ON THE FRONT COVER:
Phillips 66 is building the Clemens
storage caverns near Sweeny, Texas,
which will initially have the capacity
to hold 6 million barrels of propane,
butane, and other natural gas liquids.

Shareholder Information

ANNUAL MEETING

INFORMATION REQUESTS

Phillips 66’s annual meeting of
stockholders will be held:
Wednesday, May 6, 2015 at the
Marriott Houston Westchase, 2900
Briarpark Drive, Houston, TX 77042

Notice of the meeting and proxy materials
are being provided to all shareholders.

DIRECT STOCK PURCHASE AND DIVIDEND
REINVESTMENT PLAN

Phillips 66’s Investor Services Program
is a direct stock purchase and
dividend reinvestment plan that offers
shareholders a convenient way to buy
additional shares and reinvest their
common stock dividends. Purchases
of company stock through direct cash
payment are commission-free.

For information about dividends and
certificates or to request a chan(cid:74)e of
address form, shareholders may contact:

Computershare
P.O. Box 30170
College Station, TX 77842-3170
Toll-free number: 1-866-437-0009
Outside the U.S.: 201-680-6578
TDD for hearing impaired: 800-231-5469
TDD outside the U.S.: 201-680-6610
www.computershare.com/investor

Personnel in the follo(cid:90)in(cid:74) offices also
can answer investors’ questions about
the company:

INSTITUTIONAL INVESTORS

800-624-6440
investorrelations@p66.com

Please call Computershare to request
an enrollment package:
Toll-free number: 1-866-437-0009

INDIVIDUAL INVESTORS

866-437-0009
web.queries@computershare.com

You may also enroll online at
www.computershare.com/investor.

Registered shareholders can access
important investor communications online
and sign up to receive future shareholder
materials electronically by going to
www.computershare.com/investor and
following the enrollment instructions.

PRINCIPAL AND REGISTERED OFFICES

Phillips 66
P.O. Box 4428
Houston, TX 77210

2711 Centerville Road
Wilmington, DE 19808

COMPLIANCE AND ETHICS

For guidance, to express concerns
or to ask questions about compliance
and ethics issues, call Phillips 66’s
Ethics Helpline toll free: 855-318-5390,
available 24 hours a day, seven days
a week.

(cid:55)he ethics office also may (cid:69)e contacted
via email at ethics@p66.com, the Internet
at www.phillips66.ethicspoint.com or
by writing:

Attn(cid:29) (cid:42)lo(cid:69)al (cid:40)thics (cid:50)ffice
Phillips 66
3010 Briarpark Drive
Houston, TX 77042

COPIES OF FORM 10-K AND
PROXY STATEMENT

Copies of the Annual Report on Form
(cid:20)(cid:19)(cid:16)(cid:46) and the Proxy (cid:54)tatement, as filed
with the U.S. Securities and Exchange
Commission, are available free by making
a request on the company’s website,
calling 918-977-4133 or writing:

Phillips 66
2014 Form 10-K
310 W 5th
PRN-252
Bartlesville, OK 74003

Additional copies of this Annual Report
may be obtained by calling 918-977-4133
or writing:

Phillips 66
2014 Annual Report
310 W 5th
PRN-252
Bartlesville, OK 74003

INTERNET

www.phillips66.com

The website includes resources of interest
to investors, including news releases
and presentations to securities analysts;
copies of Phillips 66’s Annual Report
and Proxy Statement; reports to the U.S.
Securities and Exchange Commission; and
data on Phillips 66’s health, safety and
environmental performance.

Other websites with information on topics
included in this annual report include:
www.cpchem.com
www.dcpmidstream.com
www.phillips66partners.com

STOCK TRANSFER AGENT AND REGISTRAR

Computershare
250 Royall Street
Canton, MA 02021
www.computershare.com/investor

DISCLOSURE STATEMENTS

Certain disclosures in this Annual Report may be considered “forward-looking” statements. These are made pursuant to “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995. The “Cautionary Statement” in Management’s Discussion and Analysis should be read in conjunction
with such statements. “Phillips 66,” “the company,” “we,” “us” and “our” are used interchangeably in this report to refer to the businesses of Phillips 66
and its consolidated subsidiaries.

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(cid:42)(cid:53)(cid:40)(cid:42) (cid:38)(cid:17) (cid:42)A(cid:53)(cid:47)A(cid:49)D
Chairman and
Chief Executive Officer

MARCH 20 1 5

Dear shareholders,

The 14,000 people of Phillips 66 are executing the plan that
has guided the company since our creation almost three years
ago: deliver growth, returns and distributions on a foundation
of operating excellence and a highly performing organization.

In 2014, we achieved our safest year ever, delivered
on Midstream growth initiatives and generated solid
operatin(cid:74) and financial results(cid:17) (cid:58)e achie(cid:89)ed a
14 percent adjusted return on capital employed
(ROCE) and continued our disciplined capital approach,
returnin(cid:74) (cid:7)(cid:23)(cid:17)(cid:26) (cid:69)illion of capital to our shareholders
(cid:90)hile in(cid:89)estin(cid:74) in our (cid:69)usinesses(cid:17)

(cid:48)aintainin(cid:74) a stron(cid:74) (cid:69)alance sheet ena(cid:69)les us to
(cid:74)ro(cid:90) our (cid:69)usinesses and shareholder distri(cid:69)utions
throu(cid:74)h the commodity cycles of our industry(cid:17) (cid:55)he
company ended (cid:21)(cid:19)(cid:20)(cid:23) (cid:90)ith a net(cid:16)de(cid:69)t(cid:16)to(cid:16)capital
ratio of (cid:20)(cid:23) percent(cid:17)

OPERATING EXCELLENCE

(cid:55)here is nothin(cid:74) more important to all of us (cid:90)ho
work at Phillips 66 than achieving the highest levels
of operatin(cid:74) excellence(cid:17) (cid:58)e stri(cid:89)e for (cid:93)ero in(cid:77)uries
and incidents and work to reduce our environmental
footprint(cid:17) (cid:40)nsurin(cid:74) safety is paramount, and (cid:90)e are
determined to (cid:69)e the safest and most relia(cid:69)le company
in our industry(cid:17)

(cid:37)y focusin(cid:74) on safe, relia(cid:69)le and efficient operations,
(cid:90)e protect each other, contri(cid:69)ute to the (cid:90)ell(cid:16)(cid:69)ein(cid:74) of
the communities that support us and deliver quality
products to our customers(cid:17)

There is nothing more important to all of us
who work at Phillips 66 than achieving the
highest levels of operating excellence.

CREATING SHAREHOLDER VALUE THROUGH
DISCIPLINED GROWTH

Value creation is the focus of our four energy
manufacturing and logistics businesses: Midstream,
(cid:38)hemicals, (cid:53)efinin(cid:74), and (cid:48)ar(cid:78)etin(cid:74) and (cid:54)pecialties(cid:17)
(cid:55)hese di(cid:89)erse and complementary (cid:69)usinesses ena(cid:69)le
us to spot trends early, mo(cid:89)e quic(cid:78)ly and allocate
capital to the hi(cid:74)hest(cid:16)returnin(cid:74) opportunities(cid:17)

A (cid:78)ey element in our strate(cid:74)y is to reshape the
company’s portfolio (cid:69)y deployin(cid:74) capital to hi(cid:74)her(cid:16)
valued businesses, and we continuously test our
allocation decisions through a range of economic
and mar(cid:78)et scenarios(cid:17)

(cid:41)or (cid:21)(cid:19)(cid:20)(cid:24), (cid:7)(cid:22) (cid:69)illion of our (cid:7)(cid:23)(cid:17)(cid:25) (cid:69)illion capital (cid:69)ud(cid:74)et
(cid:90)ill fund (cid:74)ro(cid:90)th in our (cid:48)idstream se(cid:74)ment(cid:17) (cid:55)he
remainder will focus on enhancing returns in our
(cid:53)efinin(cid:74) (cid:69)usiness and maintainin(cid:74) its hi(cid:74)h le(cid:89)els of
safety and relia(cid:69)ility(cid:17) (cid:53)efinin(cid:74) is a (cid:78)ey (cid:69)usiness for us,
(cid:74)eneratin(cid:74) free cash (cid:193)o(cid:90) for rein(cid:89)estment as (cid:90)ell as
distri(cid:69)utions to shareholders(cid:17)

DELIVERING MIDSTREAM GROWTH

Our Midstream segment is at the core of our business
de(cid:89)elopment acti(cid:89)ities(cid:17) (cid:55)he (cid:69)usiness includes
our natural (cid:74)as, natural (cid:74)as liquids (cid:11)(cid:49)(cid:42)(cid:47)s(cid:12) and
transportation (cid:69)usinesses, Phillips (cid:25)(cid:25) Partners (cid:47)P,
and our (cid:24)(cid:19) percent interest in D(cid:38)P (cid:48)idstream, (cid:47)(cid:47)(cid:38)(cid:17)
(cid:44)t is (cid:90)ell(cid:16)positioned to support the si(cid:74)nificant increase
in oil, (cid:74)as and (cid:49)(cid:42)(cid:47) production in (cid:49)orth America(cid:17)

(cid:44)n (cid:21)(cid:19)(cid:20)(cid:23) (cid:48)idstream (cid:74)enerated approximately (cid:7)(cid:26)(cid:19)(cid:19)
million of earnin(cid:74)s (cid:69)efore interest, taxes, depreciation
and amorti(cid:93)ation (cid:11)(cid:40)(cid:37)(cid:44)(cid:55)DA(cid:12), excludin(cid:74) earnin(cid:74)s from
D(cid:38)P (cid:48)idstream(cid:17) (cid:58)ith the pro(cid:77)ects (cid:90)e ha(cid:89)e under(cid:90)ay,

0.3

0.2

0.1

TOTAL RECORDABLE INJURY RATE
FOR COMBINED WORKFORCE

(Incidents per 200,000 hours worked)

2010

2011

2012

2013

2014

Contractors

(cid:40)mployees

Combined

BEST YEAR

EVER FOR TOTAL
RECORDABLE RATE AND
LOST WORKDAY
CASE RATE

COMBINED TOTAL
RECORDABLE RATE OF

0.19

LOST WORKDAY
RATE OF

0.03

PHILLIPS 66 2014 ANNUAL REPORT

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EXPAND ING OUR EXP OR T CAPABILI T Y

Phillips (cid:25)(cid:25)’s (cid:41)reeport (cid:47)iquefied Petroleum (cid:42)as (cid:40)xport

(cid:55)erminal is located in our existin(cid:74) marine terminal

in (cid:41)reeport, (cid:55)exas, and (cid:90)ill le(cid:89)era(cid:74)e our midstream,

transportation and stora(cid:74)e infrastructure to supply

petrochemical, heatin(cid:74) and transportation mar(cid:78)ets

(cid:74)lo(cid:69)ally(cid:17) (cid:55)he (cid:47)P(cid:42) export terminal (cid:90)ill ha(cid:89)e an initial

export capacity of (cid:23)(cid:17)(cid:23) million (cid:69)arrels per month,

(cid:90)ith a ship(cid:16)loadin(cid:74) rate of (cid:22)(cid:25),(cid:19)(cid:19)(cid:19) (cid:69)arrels per hour(cid:17)

(cid:58)e expect the export terminal to start up in the

second half of (cid:21)(cid:19)(cid:20)(cid:25)(cid:17)

THE LPG EXPORT
TERMINAL WILL HAVE
AN INITIAL EXPORT
CAPACITY OF

4.4 MILLION

BARRELS PER MONTH.

(cid:22)

BUILDI NG STORAGE CAV ERNS

We are installing a new salt dome storage facility

near Sweeny, Texas, with an initial 6 million

barrels of underground storage. This capacity

will be expandable to 32 million barrels and will

facilitate the rapid and efficient loadin(cid:74) of (cid:89)ery

large LPG transport ships.

OUR STORAGE
CAVERNS CAPACITY
IS EXPANDABLE TO

32 MILLION

BARRELS.

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 10

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(cid:90)e expect to si(cid:74)nificantly increase (cid:48)idstream’s
(cid:40)(cid:37)(cid:44)(cid:55)DA (cid:69)y (cid:21)(cid:19)(cid:20)(cid:27)(cid:17) (cid:48)ost of this (cid:74)ro(cid:90)th (cid:90)ill come from
the fees (cid:90)e char(cid:74)e for transportin(cid:74), storin(cid:74) and
processin(cid:74) crude oil, natural (cid:74)as and (cid:49)(cid:42)(cid:47)s(cid:17)

(cid:47)aunched in (cid:21)(cid:19)(cid:20)(cid:22), Phillips (cid:25)(cid:25) Partners, (cid:90)ith its
lon(cid:74)(cid:16)term contracts and sta(cid:69)le cash (cid:193)o(cid:90)s, pro(cid:89)ides
a cost(cid:16)efficient (cid:89)ehicle to in(cid:89)est in fee(cid:16)(cid:69)ased
infrastructure needed for the industry’s on(cid:74)oin(cid:74)
production increase and helps fund (cid:48)idstream’s
(cid:74)ro(cid:90)th(cid:17) At the end of (cid:21)(cid:19)(cid:20)(cid:23), Phillips (cid:25)(cid:25) o(cid:90)ned o(cid:89)er
(cid:26)(cid:19) percent of the Phillips (cid:25)(cid:25) Partners limited
partnership units as (cid:90)ell as the (cid:74)eneral partnership
interest(cid:17) Durin(cid:74) the year, the company contri(cid:69)uted
assets (cid:89)alued at more than (cid:7)(cid:20) (cid:69)illion to the partnership(cid:17)

D(cid:38)P (cid:48)idstream and its master limited partnership,
D(cid:38)P (cid:48)idstream Partners, completed pro(cid:77)ects durin(cid:74)
(cid:21)(cid:19)(cid:20)(cid:23) that increased their natural (cid:74)as processin(cid:74)
capacity (cid:69)y (cid:21)(cid:24)(cid:19) million standard cu(cid:69)ic feet per day,
(cid:69)rin(cid:74)in(cid:74) their total net natural (cid:74)as processin(cid:74) capacity
across all re(cid:74)ions to approximately (cid:26)(cid:17)(cid:26) (cid:69)illion standard
cu(cid:69)ic feet per day (cid:69)y year’s end(cid:17)

(cid:50)ur (cid:56)(cid:17)(cid:54)(cid:17) (cid:42)ulf (cid:38)oast (cid:49)(cid:42)(cid:47) net(cid:90)or(cid:78) continues to expand,
and our current capital pro(cid:77)ects are on schedule and
on (cid:69)ud(cid:74)et(cid:17) (cid:54)(cid:90)eeny (cid:41)ractionator (cid:50)ne, (cid:90)hich (cid:90)ill process
(cid:20)(cid:19)(cid:19),(cid:19)(cid:19)(cid:19) (cid:69)arrels a day of ra(cid:90) (cid:49)(cid:42)(cid:47) streams, is scheduled
to start up later this year, and the (cid:41)reeport (cid:47)iquefied
Petroleum (cid:42)as (cid:40)xport (cid:55)erminal should (cid:69)e completed
in the second half of (cid:21)(cid:19)(cid:20)(cid:25)(cid:17)

Pipelines (cid:90)ill connect our (cid:54)(cid:90)eeny facilities to the
terminal, (cid:90)hich (cid:90)ill ha(cid:89)e the capacity to handle a(cid:69)out
(cid:20)(cid:24)(cid:19),(cid:19)(cid:19)(cid:19) (cid:69)arrels per day of product exports(cid:17) (cid:44)n addition,
(cid:90)e’re (cid:69)uildin(cid:74) the (cid:38)lemens stora(cid:74)e ca(cid:89)erns near
(cid:54)(cid:90)eeny that (cid:90)ill initially ha(cid:89)e the capacity to hold
(cid:25) million (cid:69)arrels of propane, (cid:69)utane and other (cid:49)(cid:42)(cid:47)s(cid:17)

Phillips (cid:25)(cid:25) has a si(cid:74)nificant net(cid:90)or(cid:78) of pipelines,
stora(cid:74)e terminals, railcars, truc(cid:78)s and marine (cid:89)essels
to mo(cid:89)e crude oil and refined products(cid:17) (cid:58)e operate one
of the industry’s most modern crude rail (cid:193)eets, usin(cid:74)
railcars that meet or exceed current re(cid:74)ulatory safety
standards(cid:17) (cid:44)n (cid:21)(cid:19)(cid:20)(cid:23) (cid:90)e (cid:69)uilt and placed in ser(cid:89)ice a
(cid:26)(cid:24),(cid:19)(cid:19)(cid:19)(cid:16)(cid:69)arrel(cid:16)per(cid:16)day crude railcar unloadin(cid:74) facility at
our (cid:37)ay(cid:90)ay (cid:53)efinery and a (cid:22)(cid:19),(cid:19)(cid:19)(cid:19)(cid:16)(cid:69)arrel(cid:16)per(cid:16)day facility
at our (cid:41)erndale (cid:53)efinery(cid:17) (cid:37)oth facilities are no(cid:90) o(cid:90)ned
(cid:69)y Phillips (cid:25)(cid:25) Partners(cid:17)

(cid:44)n (cid:21)(cid:19)(cid:20)(cid:23) (cid:90)e entered into (cid:77)oint (cid:89)entures to (cid:69)uild pipeline
infrastructure (cid:90)ith the capacity to mo(cid:89)e up to (cid:23)(cid:24)(cid:19),(cid:19)(cid:19)(cid:19)
(cid:69)arrels per day of crude oil from the (cid:37)a(cid:78)(cid:78)en fields to
processin(cid:74) and stora(cid:74)e facilities in the (cid:48)id(cid:90)est and
alon(cid:74) the (cid:42)ulf (cid:38)oast(cid:17) (cid:55)he pipeline system should (cid:69)e(cid:74)in
operatin(cid:74) (cid:69)y the end of (cid:21)(cid:19)(cid:20)(cid:25) and (cid:90)ill connect to our
(cid:37)eaumont (cid:55)erminal in (cid:49)ederland, (cid:55)exas(cid:17) Acquired
in (cid:21)(cid:19)(cid:20)(cid:23), this facility has marine doc(cid:78)s, in(cid:69)ound and
out(cid:69)ound pipeline connections, truc(cid:78) and rail loadin(cid:74)
and unloadin(cid:74) capa(cid:69)ilities, and a current stora(cid:74)e
capacity of (cid:26)(cid:17)(cid:20) million (cid:69)arrels(cid:17) (cid:55)he terminal has (cid:25)(cid:19)(cid:19),(cid:19)(cid:19)(cid:19)
(cid:69)arrels per day of export capacity, raisin(cid:74) our total export
capacity to more than (cid:20) million (cid:69)arrels per day(cid:17)

2015 CAPITAL BUDGET

$4.6 BILLION

$3.4 BILLION

GROWTH CAPITAL

$1.2 BILLION

SUSTAINING CAPITAL

P(cid:54)(cid:59) (cid:54)ustainin(cid:74)
(cid:53)efinin(cid:74) (cid:53)eturns
(cid:48)&(cid:54) (cid:42)ro(cid:90)th
(cid:48)idstream (cid:42)ro(cid:90)th
P(cid:54)(cid:59)P (cid:42)ro(cid:90)th

(cid:135) (cid:54)(cid:90)eeny (cid:41)ractionator (cid:50)ne

(cid:135) (cid:47)P(cid:42) (cid:40)xport (cid:55)erminal

(cid:135) (cid:37)a(cid:78)(cid:78)en to Pato(cid:78)a(cid:18)
(cid:37)eaumont pipelines

(cid:135) (cid:37)eaumont (cid:55)erminal

expansion

73708phiD1R4.indd 11

(cid:24)

3/12/15 9:39 PM

PHILLIPS 66 2014 ANNUAL REPORT

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EXPAND ING OUR GUL F COAS T MIDS T REA M N ET WORK

We are more than halfway through building Sweeny Fractionator

(cid:50)ne, located in (cid:50)ld (cid:50)cean, (cid:55)exas, close to our (cid:54)(cid:90)eeny (cid:53)efinery(cid:17)

It will supply NGL products to the petrochemical industry and

heatin(cid:74) mar(cid:78)ets(cid:17) (cid:53)a(cid:90) (cid:49)(cid:42)(cid:47) supply to the fractionator is expected

from near(cid:69)y ma(cid:77)or pipelines, includin(cid:74) the (cid:54)and (cid:43)ills Pipeline(cid:17)

The 100,000-barrel-per-day NGL fractionator is expected to

start up in the second half of (cid:21)(cid:19)(cid:20)(cid:24)(cid:17)

WE SUCCESSFULLY
LAUNCHED SEVERAL

LARGE-SCALE

INFRASTRUCTURE
PROJECTS DURING
THE YEAR.

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TRANSPOR TING CR UDE OI L

At our (cid:41)erndale (cid:53)efinery, (cid:90)hich produces transportation

fuels such as (cid:74)asoline and diesel fuels, (cid:90)e’(cid:89)e constructed

and de(cid:89)eloped a rail rac(cid:78) (cid:90)ith an of(cid:193)oadin(cid:74) capa(cid:69)ility

of (cid:22)(cid:19),(cid:19)(cid:19)(cid:19) (cid:69)arrels per day(cid:17) (cid:58)ithin the first month of its

operation, the (cid:41)erndale rail rac(cid:78) recei(cid:89)ed more than

(cid:21)(cid:19)(cid:19),(cid:19)(cid:19)(cid:19) (cid:69)arrels of (cid:37)a(cid:78)(cid:78)en crude(cid:17) (cid:58)e also ha(cid:89)e a

(cid:26)(cid:24),(cid:19)(cid:19)(cid:19)(cid:16)(cid:69)arrel(cid:16)per(cid:16)day crude railcar unloadin(cid:74) facility

at our (cid:37)ay(cid:90)ay (cid:53)efinery(cid:17) Phillips (cid:25)(cid:25) Partners o(cid:90)ns and

operates (cid:69)oth facilities(cid:17)

WE OPERATE ONE OF
THE INDUSTRY’S MOST

MODERN

CRUDE RAIL FLEETS, USING
RAILCARS THAT MEET OR
EXCEED CURRENT REGULATORY
SAFETY STANDARDS.

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 14

3/12/15 3:27 PM

A key element in our strategy is to
reshape the company’s portfolio by
deploying capital to higher-valued
businesses.

CHEMICALS EXPANSION ON TRACK

Growth in our Chemicals segment is an important
element in our strategy of creating shareholder value.
This business, a 50-50 joint venture with Chevron,
operates as Chevron Phillips Chemical Company LLC
(CPChem) and is one of the world’s leading
petrochemical companies.

(cid:38)P(cid:38)hem’s olefins and polyolefins (cid:69)usiness has
consistently been one of the highest-returning
operations in our portfolio. It has advanced, proprietary
product and process technologies, global marketing
reach, cost-advantaged assets concentrated in
resource-rich North America and the Middle East,
and expertise in executing very large projects.

(cid:38)P(cid:38)hem is in(cid:89)estin(cid:74) to capture the (cid:69)enefit of lo(cid:90)(cid:16)cost
petrochemical feedstocks. The $6 billion Gulf Coast
Petrochemicals Pro(cid:77)ect includes one of the first ma(cid:77)or
ethane cracker and derivative complexes to be built in
the U.S. in over a decade. The project is expected to
increase (cid:38)P(cid:38)hem’s (cid:56)(cid:17)(cid:54)(cid:17) olefin and polyolefin capacity
by about 30 percent and to be operational by the
middle of 2017.

ENHANCING REFINING RETURNS

Phillips (cid:25)(cid:25)’s (cid:53)efinin(cid:74) se(cid:74)ment is a si(cid:74)nificant
competitor in the domestic fuels industry, with 11
of our 14 facilities located in the United States. Our
global throughput capacity is approximately 2.2 million
(cid:69)arrels per day(cid:17) (cid:55)he (cid:53)efinin(cid:74) (cid:69)usiness focuses on
increasin(cid:74) the mar(cid:74)in (cid:69)et(cid:90)een feedstoc(cid:78) and refined
products, (cid:90)hile impro(cid:89)in(cid:74) efficiency(cid:17)

(cid:44)n (cid:21)(cid:19)(cid:20)(cid:23) (cid:53)efinin(cid:74)’s ad(cid:77)usted (cid:53)(cid:50)(cid:38)(cid:40) a(cid:89)era(cid:74)ed (cid:20)(cid:21) percent,
and, through additional planned operating enhancements,
(cid:90)e expect to impro(cid:89)e capital efficiency(cid:17) (cid:55)he ma(cid:77)ority
of the improvement will come from increased runs of
advantaged crude oil, higher product yields and a focus
on controllable costs.

We continue to manage our portfolio to improve returns.
Late last year we completed the sale of our interest in
the (cid:48)ela(cid:78)a (cid:53)efinery in (cid:48)alaysia, ena(cid:69)lin(cid:74) us to focus
on our larger operations in the U.S. and Europe.

MARKETING AND SPECIALTIES

Our Marketing and Specialties business generated
returns in excess of 30 percent in 2014. This business
mar(cid:78)ets refined petroleum products and specialty
products such as commercial lubricants, base oils,
premium cokes and polypropylene.

In the U.S., fuel is distributed through about 8,600
branded outlets and third-party retailers under the
well-known Phillips 66®, Conoco® and 76® brands.
In Europe, we distribute fuel through approximately
1,500 Jet® and COOP® branded outlets. During the
year we acquired Spectrum Corporation, a leading
specialty lubricants company. We expect this
acquisition to be synergistic and create new
opportunities to expand our global customer base.

FINANCIAL PERFORMANCE AND CAPITAL ALLOCATION

Full-year earnings in 2014 were $4.8 billion, or
$8.33 per share, compared with $3.7 billion, or
$6.02 a share, in 2013. Adjusted earnings for the
year were $3.8 billion, or $6.62 per share, compared
with $3.6 billion, or $5.89 per share, in 2013.

We reinvested $3.8 billion in the business,
increased the dividend by 28 percent and returned
$4.7 billion of capital to shareholders through dividends,
share repurchases and the exchange of Phillips
Specialty Products Inc. shares for Phillips 66 shares.

73708phiD1R4.indd 15

3/12/15 3:27 PM

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 16

3/12/15 3:27 PM

DEL IV ERING D IF F ERENT IATED RES ULTS

The talented and dedicated people of Phillips 66

embody our company’s values of safety, honor and

commitment. They are executing our strategy and

have achieved a decade of improved operating

excellence that is among the very best in the

energy industry.

THE

14,000 PEOPLE

OF PHILLIPS 66 KEEP
MOVING THE COMPANY
FORWARD.

73708phiD1R4.indd 11

3/13/15 8:45 AM

SHARE COUNT AND CAPITAL RETURNED

624 MM

$6.2 B

590 MM

546 MM

4Q
2012

4Q
2013

4Q
2014

Number of shares
outstanding.

Capital returned via
share repurchase or
exchange.

DIVIDEND GROWTH

Quarterly ¢/share

3Q
2012

1Q
2015

150%

DIVIDEND GROWTH

Phillips 66 is committed to paying a regular dividend
that is secure, has a competitive yield and increases
annually. Since the company’s 2012 inception, we have
returned over $8.4 billion of capital to shareholders.

During 2014, we delivered approximately $3.5 billion
in cash from continuing operations and issued
$2.5 billion of debt, ending the year with $8.7 billion
of debt and $5.2 billion of cash and cash equivalents.

OUR PEOPLE AND THE PHILLIPS 66 CULTURE

Our purpose is to provide energy and improve lives, and
we are governed by three strongly held values: safety,
honor and commitment. The people of Phillips 66
embody these values, and their capabilities and
lon(cid:74)(cid:16)term relationships define our company(cid:17)

We have built an organization designed to deliver
differentiated operatin(cid:74) and financial results the ri(cid:74)ht (cid:90)ay
while being a great place to work. We are committed to
encouraging collaboration, valuing diversity, developing
our people’s skills and recognizing outstanding team
and individual performances.

The company is dedicated to being a positive force
in the communities where we live and work, as well
as a creator of value for all stakeholders. Our social
outreach focuses on advancing science, technology,

engineering and math education, promoting literacy
and funding energy research. We engage with our
communities regularly to listen, exchange information
and ensure that investments are directed toward the
programs that provide the greatest value.

One element of our mission to improve lives is to
support the direct contributions our employees and
their families make to their communities. In 2014 our
employees volunteered more than 40,000 hours of
time, and the company made financial contri(cid:69)utions
of $25 million to charitable organizations.

We are enthusiastic about our future at Phillips 66.
We have a clear vision, are making prudent decisions
and plan to grow value for all our stakeholders. We have
the people, strate(cid:74)y, assets and financial capacity to
generate differentiated performance for years to come
and look forward to sharing that success with you.

In safety, honor and commitment,

Greg C. Garland
(cid:38)hairman and (cid:38)hief (cid:40)xecuti(cid:89)e (cid:50)fficer

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 18

3/12/15 6:51 PM

Non-GAAP Reconciliations

RECONCILIATION OF ADJUSTED EARNINGS TO EARNINGS

(Millions of Dollars)

Net income attributable to Phillips 66 (earnings)

2014

2013

2012

$ 4,762

$ 3,726

$ 4,124

Adjustments:

Asset dispositions

Impairments

Pending claims and settlements

Exit of business line

Tax law impacts

Premium on early debt retirement

Repositioning

Hurricane related

Lower-of-cost-or-market inventory adjustments

Discontinued operations

Adjusted earnings

Earnings per share of common stock (dollars)

Adjusted earnings per share of common stock (dollars)

RECONCILIATION OF EBITDA TO NET INCOME

(Millions of Dollars)

Net income

Plus:

Depreciation and amortization

Net interest expense

Income taxes

EBITDA

Plus:

Proportionate share of equity affiliates’ D&A, interest and income taxes

Special items†

Less:

(494 )

200

(10 )

–

(706 )

(23 )

–

(16 )

(17 )

–

(106 )

979

–

232

–

(61 )

(48 )

$ 3,782

$ 3,643

$ 5,339

8.33

6.62

6.02

5.89

6.48

8.38

Midstream *

2014

406

–

232

729

–

EBITDA is earnings before net interest,
income taxes and depreciation and
amortization. Adjusted EBITDA excludes
noncontrolling interest and includes
proportional share of equity affiliates’
EBITDA.
* Transportation and NGL business lines.

Excludes DCP Midstream.

† Primarily impairments and premium on

early debt retirements.

EBITDA attributable to noncontrolling interests

Adjusted EBITDA

(45 )

684

RECONCILIATION OF ADJUSTED ROCE TO ROCE

(Millions of Dollars)

Numerator
Net income

After-tax interest expense

GAAP ROCE earnings

Special items

Adjusted ROCE earnings

Denominator
GAAP average capital employed

Discontinued operations

Adjusted average capital employed

GAAP ROCE (percent)

Adjusted ROCE (percent)

Consolidated
2014

Consolidated
2013

Consolidated
2012

Refining
2014

M&S
2014

$ 4,797

$ 3,743

$ 4,131

$ 1,771

$ 1,034

173

4,970

(980 )

178

3,921

(83 )

160

4,291

1,215

–

1,771

1,034

(195 )

(152 )

$ 3,990

$ 3,838

$ 5,506

$ 1,576

882

$ 29,634

$ 28,163

$ 25,732

$ 13,377

$ 2,743

(96 )

(191 )

(176 )

–

$ 29,538

$ 27,972

$ 25,556

$ 13,377

$ 2,743

17 %

14 %

17 %

22 %

13 %

12 %

38 %

32 %

73708phiD1R4.indd 19

3/12/15 3:28 PM

Board of Directors

Standing from left to right:
Harold W. McGraw III, Marna C. Whittington,
Greg C. Garland, Glenn F. Tilton

Seated from left to right:
John E. Lowe, Victoria J. Tschinkel,
J. Brian Ferguson, William R. Loomis Jr.

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 20

3/12/15 3:28 PM

GREG C. GARLAND, 57

(cid:45)(cid:17) (cid:37)(cid:53)(cid:44)A(cid:49) (cid:41)(cid:40)(cid:53)(cid:42)(cid:56)(cid:54)(cid:50)(cid:49), (cid:25)(cid:19)

(cid:58)(cid:44)(cid:47)(cid:47)(cid:44)A(cid:48) (cid:53)(cid:17) (cid:47)(cid:50)(cid:50)(cid:48)(cid:44)(cid:54) (cid:45)(cid:53)(cid:17), 66

JOHN E. LOWE, 56

Mr. Garland is chairman and
chief executi(cid:89)e officer of Phillips
(cid:25)(cid:25)(cid:17) Pre(cid:89)iously, he ser(cid:89)ed as
senior (cid:89)ice president, (cid:40)xploration
and Production(cid:179)Americas for
(cid:38)onocoPhillips (cid:69)e(cid:74)innin(cid:74) in (cid:21)(cid:19)(cid:20)(cid:19)(cid:17)
(cid:48)r(cid:17) (cid:42)arland (cid:90)as president and
chief executi(cid:89)e officer of (cid:38)he(cid:89)ron
Phillips (cid:38)hemical (cid:38)ompany
(cid:11)(cid:38)P(cid:38)hem(cid:12) from (cid:21)(cid:19)(cid:19)(cid:27) to (cid:21)(cid:19)(cid:20)(cid:19),
ha(cid:89)in(cid:74) ser(cid:89)ed as senior (cid:89)ice
president, Plannin(cid:74) and (cid:54)pecialty
Products, (cid:38)P(cid:38)hem, from (cid:21)(cid:19)(cid:19)(cid:19)
to (cid:21)(cid:19)(cid:19)(cid:27)(cid:17) (cid:48)r(cid:17) (cid:42)arland currently
ser(cid:89)es on the (cid:69)oards of Am(cid:74)en (cid:44)nc(cid:17)
and Phillips (cid:25)(cid:25) Partners (cid:42)P (cid:47)(cid:47)(cid:38),
the (cid:74)eneral partner of Phillips (cid:25)(cid:25)
Partners (cid:47)P (cid:11)Phillips (cid:25)(cid:25) Partners
(cid:42)P(cid:12), as (cid:90)ell as on the (cid:69)oard of
D(cid:38)P (cid:48)idstream(cid:17) (cid:11)(cid:21)(cid:12)

(cid:48)r(cid:17) (cid:41)er(cid:74)uson retired as chairman
of (cid:40)astman (cid:38)hemical (cid:38)ompany
(cid:11)(cid:40)astman(cid:12) in (cid:21)(cid:19)(cid:20)(cid:19) and as chief
executi(cid:89)e officer of (cid:40)astman in
(cid:21)(cid:19)(cid:19)(cid:28)(cid:17) (cid:43)e (cid:69)ecame the chairman
and (cid:38)(cid:40)(cid:50) of (cid:40)astman in (cid:21)(cid:19)(cid:19)(cid:21)(cid:17)
He was chairman of the American
(cid:38)hemistry (cid:38)ouncil in (cid:21)(cid:19)(cid:20)(cid:19), and
(cid:90)as a mem(cid:69)er of the (cid:37)usiness
(cid:53)oundta(cid:69)le and the (cid:69)oard
of the National Association
of (cid:48)anufacturers prior to his
retirement from Eastman.
(cid:48)r(cid:17) (cid:41)er(cid:74)uson ser(cid:89)es as a director
of (cid:50)(cid:90)ens (cid:38)ornin(cid:74) and is a mem(cid:69)er
of (cid:55)he (cid:56)ni(cid:89)ersity of (cid:55)ennessee
Board of Trustees. (cid:11)(cid:21), (cid:22), (cid:23)(cid:12)

(cid:48)r(cid:17) (cid:47)oomis has (cid:69)een an
independent financial ad(cid:89)isor
since (cid:21)(cid:19)(cid:19)(cid:28)(cid:17) (cid:43)e (cid:90)as a (cid:74)eneral
partner and mana(cid:74)in(cid:74) director of
(cid:47)a(cid:93)ard (cid:41)reres & (cid:38)o(cid:17) from (cid:20)(cid:28)(cid:27)(cid:23) to
(cid:21)(cid:19)(cid:19)(cid:21), the chief executi(cid:89)e officer
of (cid:47)a(cid:93)ard (cid:47)(cid:47)(cid:38) from (cid:21)(cid:19)(cid:19)(cid:19) to (cid:21)(cid:19)(cid:19)(cid:20)
and a limited mana(cid:74)in(cid:74) director of
(cid:47)a(cid:93)ard (cid:47)(cid:47)(cid:38) from (cid:21)(cid:19)(cid:19)(cid:21) to (cid:21)(cid:19)(cid:19)(cid:23)(cid:17) (cid:43)e
currently ser(cid:89)es on the (cid:69)oard of
(cid:47) (cid:37)rands, (cid:44)nc(cid:17) and is a senior
advisor to Lazard LLC. (cid:11)(cid:20), (cid:21), (cid:24)(cid:12)

Mr. Lowe served as assistant
to the chief executi(cid:89)e officer
of (cid:38)onocoPhillips, a position
he held from (cid:21)(cid:19)(cid:19)(cid:27) until (cid:48)ay
(cid:21)(cid:19)(cid:20)(cid:21)(cid:17) (cid:43)e pre(cid:89)iously held a
series of executi(cid:89)e positions (cid:90)ith
(cid:38)onocoPhillips, includin(cid:74) executi(cid:89)e
(cid:89)ice president, (cid:40)xploration and
Production, from (cid:21)(cid:19)(cid:19)(cid:26) to (cid:21)(cid:19)(cid:19)(cid:27),
and executi(cid:89)e (cid:89)ice president,
(cid:38)ommercial, from (cid:21)(cid:19)(cid:19)(cid:25) to (cid:21)(cid:19)(cid:19)(cid:26)(cid:17)
(cid:43)e is a former (cid:69)oard mem(cid:69)er of
(cid:38)P(cid:38)hem and D(cid:38)P (cid:48)idstream(cid:17)
Mr. Lowe is a senior executive
ad(cid:89)isor to (cid:55)udor, Pic(cid:78)erin(cid:74), (cid:43)olt
& (cid:38)o(cid:17) and ser(cid:89)es on the (cid:69)oards
of A(cid:74)rium (cid:44)nc(cid:17) and Apache
(cid:38)orporation(cid:17) (cid:11)(cid:24)(cid:12)

HAROLD W. Mc(cid:42)(cid:53)A(cid:58) (cid:44)(cid:44)(cid:44), 66

(cid:42)(cid:47)(cid:40)(cid:49)(cid:49) (cid:41)(cid:17) (cid:55)(cid:44)(cid:47)(cid:55)(cid:50)(cid:49), 66

(cid:57)(cid:44)(cid:38)(cid:55)(cid:50)(cid:53)(cid:44)A (cid:45)(cid:17) (cid:55)(cid:54)(cid:38)(cid:43)(cid:44)(cid:49)(cid:46)(cid:40)(cid:47), 67

(cid:48)A(cid:53)(cid:49)A (cid:38)(cid:17) (cid:58)(cid:43)(cid:44)(cid:55)(cid:55)(cid:44)(cid:49)(cid:42)(cid:55)(cid:50)(cid:49), 67

(cid:48)r(cid:17) (cid:48)c(cid:42)ra(cid:90) has (cid:69)een chairman
of the (cid:69)oard of (cid:48)c(cid:42)ra(cid:90) (cid:43)ill
(cid:41)inancial since (cid:20)(cid:28)(cid:28)(cid:28)(cid:17) (cid:43)e also
ser(cid:89)ed as chief executi(cid:89)e officer
for McGraw Hill Financial from
(cid:20)(cid:28)(cid:28)(cid:27) to (cid:49)o(cid:89)em(cid:69)er (cid:21)(cid:19)(cid:20)(cid:22) and as
president and chief operatin(cid:74)
officer from (cid:20)(cid:28)(cid:28)(cid:22) to (cid:20)(cid:28)(cid:28)(cid:27)(cid:17) (cid:48)r(cid:17)
(cid:48)c(cid:42)ra(cid:90) (cid:69)ecame the chairman
of the (cid:44)nternational (cid:38)ham(cid:69)er of
(cid:38)ommerce in (cid:45)uly (cid:21)(cid:19)(cid:20)(cid:22)(cid:17) (cid:44)n addition
to McGraw Hill Financial, Mr.
McGraw is also a director of United
(cid:55)echnolo(cid:74)ies (cid:38)orporation(cid:17) (cid:11)(cid:21), (cid:22), (cid:23)(cid:12)

Mr. Tilton was chairman of the
(cid:48)id(cid:90)est of (cid:45)P(cid:48)or(cid:74)an (cid:38)hase & (cid:38)o(cid:17)
from (cid:21)(cid:19)(cid:20)(cid:20) to (cid:45)une (cid:21)(cid:19)(cid:20)(cid:23)(cid:17) (cid:41)rom
(cid:21)(cid:19)(cid:19)(cid:21) to (cid:21)(cid:19)(cid:20)(cid:19), he ser(cid:89)ed
as chairman, president and
chief executi(cid:89)e officer of (cid:56)A(cid:47)
(cid:38)orporation, a holdin(cid:74) company,
and (cid:56)nited Air (cid:47)ines (cid:44)nc(cid:17), an air
transportation company and
(cid:90)holly o(cid:90)ned su(cid:69)sidiary of (cid:56)A(cid:47)
(cid:38)orporation(cid:17) (cid:43)e pre(cid:89)iously spent
more than (cid:22)(cid:19) years in increasin(cid:74)ly
senior roles (cid:90)ith (cid:55)exaco (cid:44)nc(cid:17),
includin(cid:74) chairman and chief
executi(cid:89)e officer in (cid:21)(cid:19)(cid:19)(cid:20)(cid:17) (cid:43)e
currently ser(cid:89)es on the (cid:69)oards of
A(cid:69)(cid:69)ott (cid:47)a(cid:69)oratories and A(cid:69)(cid:69)(cid:57)ie (cid:44)nc(cid:17)
(cid:11)as lead director(cid:12)(cid:17) (cid:11)(cid:22), (cid:23)(cid:12)

(cid:48)s(cid:17) (cid:55)schin(cid:78)el currently ser(cid:89)es
as the vice-chairwoman of
(cid:20)(cid:19)(cid:19)(cid:19) (cid:41)riends of (cid:41)lorida and (cid:90)as
pre(cid:89)iously its chair(cid:90)oman(cid:17) (cid:44)n
addition, Ms. Tschinkel is a director
of the National Fish and Wildlife
(cid:41)oundation, ser(cid:89)in(cid:74) on the (cid:42)ulf
(cid:37)enefits (cid:38)ommittee(cid:17) (cid:54)he ser(cid:89)ed as
state director of the Florida Nature
(cid:38)onser(cid:89)ancy from (cid:21)(cid:19)(cid:19)(cid:22) to (cid:21)(cid:19)(cid:19)(cid:25),
was the senior environmental
consultant to the la(cid:90) firm (cid:47)anders
& Parsons from (cid:20)(cid:28)(cid:27)(cid:26) to (cid:21)(cid:19)(cid:19)(cid:21), and
(cid:90)as the (cid:54)ecretary of the (cid:41)lorida
Department of (cid:40)n(cid:89)ironmental
(cid:53)e(cid:74)ulation from (cid:20)(cid:28)(cid:27)(cid:20) to (cid:20)(cid:28)(cid:27)(cid:26)(cid:17)

(cid:11)(cid:20), (cid:21), (cid:24)(cid:12)

Dr(cid:17) (cid:58)hittin(cid:74)ton (cid:90)as chief executi(cid:89)e
officer of Allian(cid:93) (cid:42)lo(cid:69)al (cid:44)n(cid:89)estors
(cid:38)apital from (cid:21)(cid:19)(cid:19)(cid:21) until her
retirement in (cid:21)(cid:19)(cid:20)(cid:21)(cid:17) (cid:54)he (cid:90)as chief
operatin(cid:74) officer of Allian(cid:93) (cid:42)lo(cid:69)al
(cid:44)n(cid:89)estors, the parent company of
Allian(cid:93) (cid:42)lo(cid:69)al (cid:44)n(cid:89)estors (cid:38)apital,
from (cid:21)(cid:19)(cid:19)(cid:20) to (cid:21)(cid:19)(cid:20)(cid:20)(cid:17) Prior to that,
Dr(cid:17) (cid:58)hittin(cid:74)ton (cid:90)as mana(cid:74)in(cid:74)
director and chief operatin(cid:74)
officer of (cid:48)or(cid:74)an (cid:54)tanley Asset
(cid:48)ana(cid:74)ement(cid:17) (cid:54)he (cid:90)as executi(cid:89)e
(cid:89)ice president and chief financial
officer of (cid:55)he (cid:56)ni(cid:89)ersity of
Pennsyl(cid:89)ania from (cid:20)(cid:28)(cid:27)(cid:23) to (cid:20)(cid:28)(cid:28)(cid:21)(cid:17)
(cid:40)arlier, she ser(cid:89)ed as (cid:69)ud(cid:74)et
director and, su(cid:69)sequently,
(cid:54)ecretary of (cid:41)inance for the (cid:54)tate
of Dela(cid:90)are(cid:17) (cid:54)he currently ser(cid:89)es
on the (cid:69)oards of (cid:48)acy’s, (cid:44)nc(cid:17) and
(cid:50)a(cid:78)tree (cid:38)apital (cid:42)roup, (cid:47)(cid:47)(cid:38)(cid:17) (cid:11)(cid:20), (cid:24)(cid:12)

(cid:11)(cid:20)(cid:12) (cid:48)em(cid:69)er of the Audit and (cid:41)inance (cid:38)ommittee(cid:17)
(cid:11)(cid:21)(cid:12) (cid:48)em(cid:69)er of the (cid:40)xecuti(cid:89)e (cid:38)ommittee(cid:17)
(cid:11)(cid:22)(cid:12) (cid:48)em(cid:69)er of the (cid:43)uman (cid:53)esources and (cid:38)ompensation (cid:38)ommittee(cid:17)
(cid:11)(cid:23)(cid:12) (cid:48)em(cid:69)er of the (cid:49)ominatin(cid:74) and (cid:42)o(cid:89)ernance (cid:38)ommittee(cid:17)
(cid:11)(cid:24)(cid:12) (cid:48)em(cid:69)er of the Pu(cid:69)lic Policy (cid:38)ommittee(cid:17)

As of March 2, 2015.

73708phiD1R4.indd 21

(cid:20)(cid:24)

3/12/15 3:28 PM

Executive Leadership Team

Greg C. Garland

Tim G. Taylor

Deborah G. Adams

Robert A. Herman

Paula A. Johnson

Merl R. Lindstrom

Greg G. Maxwell

C. Clayton Reasor

Lawrence M. Ziemba

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 22

3/12/15 3:28 PM

GREG C. GARLAND
Chairman and
Chief Executive Officer

TIM G. TAYLOR
President

DEBORAH G. ADAMS
Senior Vice President,
Health, Safety and
Environment, Projects
and Procurement

ROBERT A. HERMAN
Executive Vice President,
Midstream

PAULA A. JOHNSON
Executive Vice President,
Legal, General Counsel and
Corporate Secretary

Garland has more than 30
years of industry experience
in technical and executive
leadership positions within
the energy and chemical
industries. Previously,
he served as senior vice
president, Exploration and
Production—Americas, for
ConocoPhillips beginning
in 2010. He serves on the
boards of Amgen Inc. and
Phillips 66 Partners GP,
as well as on the board of
DCP Midstream.

Taylor has more than
35 years of experience in
the chemical and energy
industries. Before being
named to his current
role, Taylor served as
chief operatin(cid:74) officer of
CPChem. Taylor currently
serves on the boards of
CPChem and Phillips 66
Partners GP.

Adams has more than 30
years of industry experience
in various international
and technical leadership
roles. Prior to assuming her
current role, Adams was
president of Transportation
for Phillips 66 and held the
same role at ConocoPhillips.
At ConocoPhillips, she
also served as the chief
procurement officer, amon(cid:74)
other roles.

Herman has more than
30 years of experience
in various technical and
leadership roles within the
energy industry. He joined
Phillips 66 as senior vice
president, Health, Safety
and Environment (HSE),
Projects and Procurement.
Herman serves on the
boards of CPChem and
Phillips 66 Partners GP.

Johnson has more than
25 years of legal experience.
Before assuming her current
role, Johnson was deputy
general counsel, Corporate,
and chief compliance officer
for ConocoPhillips. Prior
roles with ConocoPhillips
included managing counsel
for litigation and claims.

MERL R. LINDSTROM
Vice President, Technology

GREG G. MAXWELL
Executive Vice President
and Chief Financial Officer

Lindstrom has more than
35 years of experience in
research and development
roles focusing on the
downstream business.
Before assuming his current
role, he was senior vice
president, Technology, for
ConocoPhillips. He served
as a manager in a number
of technology and research
and development roles with
ConocoPhillips.

Maxwell has more than
35 years of experience
in (cid:89)arious financial roles
within the chemical and
energy industries. Prior to
his current role, Maxwell
served as senior vice
president, chief financial
officer and controller for
CPChem. Maxwell currently
serves on the boards of
CPChem, DCP Midstream
and Phillips 66 Partners GP.

C. CLAYTON REASOR
Executive Vice President,
Investor Relations,
Strategy, Corporate and
Government Affairs

Reasor has more than
30 years of experience
in the energy industry.
Before assuming his
current role, he was vice
president, Corporate and
Investor Relations, for
ConocoPhillips. Reasor
currently serves on the
boards of Stage Stores Inc.
and Phillips 66 Partners GP.

LAWRENCE M. ZIEMBA
Executive Vice President,
Refining

Ziemba has more than
35 years of experience
in the energy industry.
Before assuming his
current role, Ziemba served
ConocoPhillips as president,
(cid:42)lo(cid:69)al (cid:53)efinin(cid:74), a role he
took on after serving as
president, (cid:56)(cid:17)(cid:54)(cid:17) (cid:53)efinin(cid:74)(cid:17)

Other Corporate Officers

Operational and Functional Organizations

JOE C. FRANA, General Auditor
CHUKWUEMEKA A. OYOLU, Vice President and Controller
AUDREY L. MILLER, General Tax Officer
BRIAN R. WENZEL, Vice President and Treasurer

REX W. BENNETT, President, Specialties and Business Development
MARIA A. HOOPER, Vice President, Global Trading
J. MICHAEL KENNEY, Vice President, Regional Manager–Refineries
KEVIN J. MITCHELL, Vice President, Investor Relations
KAY M. SALLEE, Chief Information Officer
KAREN C. TRIPP, Vice President, Communications and Public Affairs
ANDREW E. VIENS, President, Global Marketing
JOHN W. WRIGHT, Senior Vice President, Commercial

As of December 31, 2014.

73708phiD1R4.indd 23

3/12/15 3:28 PM

Phillips 66

Form 10-K

PHILLIPS 66 2014 ANNUAL REPORT

73708phiD1R4.indd 18

3/13/15 10:21 AM

2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
[X]

For the fiscal year ended

[ ]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 31, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
Commission file number: 001-35349

Phillips 66
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

45-3779385
(I.R.S. Employer
Identification No.)

3010 Briarpark Drive, Houston, Texas 77042
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 281-293-6600

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

Title of each class
Common Stock, $.01 Par Value

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[X] Yes [ ] No
[ ] Yes [X] No

[X] Yes [ ] No

[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Smaller reporting company [ ]

Non-accelerated filer [ ]

Accelerated filer [ ]

[ ] Yes [X] No

The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2014, the last business day of the registrant’s
most recently completed second fiscal quarter, based on the closing price on that date of $80.43, was $44.9 billion. The registrant, solely for
the purpose of this required presentation, had deemed its Board of Directors and executive officers to be affiliates, and deducted their
stockholdings in determining the aggregate market value.

The registrant had 543,497,802 shares of common stock outstanding at January 31, 2015.

Documents incorporated by reference:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 2015 (Part III).

This Page Intentionally Left Blank

Item

TABLE OF CONTENTS

PART I

1 and 2. Business and Properties

Corporate Structure
Segment and Geographic Information

Midstream
Chemicals
Refining
Marketing and Specialties
Discontinued Operations
Technology Development

Competition
General
1A. Risk Factors
1B. Unresolved Staff Comments

3. Legal Proceedings
4. Mine Safety Disclosures

Executive Officers of the Registrant

PART II

5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of Operations

7A. Quantitative and Qualitative Disclosures About Market Risk

Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities

Litigation Reform Act of 1995

8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

9A. Controls and Procedures
9B. Other Information

PART III

10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accounting Fees and Services

15. Exhibits, Financial Statement Schedules

Signatures

PART IV

Page

1
1
2
2
9
12
16
18
18
18
18
20
27
27
28
29

30
31
32
62

64
65
135
135
135

136
136

136
136
136

137
143

This Page Intentionally Left Blank

Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses
of Phillips 66 and its consolidated subsidiaries. This Annual Report on Form 10-K contains forward-looking statements
including, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions that are made
pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,”
“estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,”
“would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar
expressions identify forward-looking statements. The company does not undertake to update, revise or correct any forward-
looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking
statements should be read in conjunction with the company’s disclosures under the heading “CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995,” beginning on page 64.

PART I

Items 1 and 2. BUSINESS AND PROPERTIES

CORPORATE STRUCTURE

Phillips 66, headquartered in Houston, Texas, was incorporated in Delaware in 2011, in connection with, and in
anticipation of, a restructuring of ConocoPhillips resulting in the separation of its downstream businesses into an
independent, publicly traded company named Phillips 66. The two companies were separated by ConocoPhillips
distributing to its stockholders all the shares of common stock of Phillips 66 after the market closed on April 30, 2012
(the Separation). Each ConocoPhillips stockholder received one share of Phillips 66 stock for every two shares of
ConocoPhillips stock held at the close of business on the record date of April 16, 2012. On May 1, 2012, Phillips 66
stock began trading “regular-way” on the New York Stock Exchange under the “PSX” stock symbol.

Our business is organized into four operating segments:

1) Midstream—Gathers, processes, transports and markets natural gas; and transports, fractionates and markets

natural gas liquids (NGL) in the United States. In addition, this segment transports crude oil and other
feedstocks to our refineries and other locations, delivers refined and specialty products to market, and provides
storage services for crude oil and petroleum products. The Midstream segment includes, among other
businesses, our 50 percent equity investment in DCP Midstream, LLC (DCP Midstream) and our investment in
Phillips 66 Partners LP.

2) Chemicals—Manufactures and markets petrochemicals and plastics on a worldwide basis. The Chemicals

segment consists of our 50 percent equity investment in Chevron Phillips Chemical Company LLC (CPChem).

3) Refining—Buys, sells and refines crude oil and other feedstocks at 14 refineries, mainly in the United States and

Europe.

4) Marketing and Specialties (M&S)—Purchases for resale and markets refined petroleum products (such as
gasolines, distillates and aviation fuels), mainly in the United States and Europe. In addition, this segment
includes the manufacturing and marketing of specialty products, as well as power generation operations.

Corporate and Other includes general corporate overhead, interest expense, our investment in new technologies and
various other corporate activities. Corporate assets include all cash and cash equivalents.

Effective January 1, 2014, we changed the organizational structure of the internal financial information reviewed by our
chief executive officer, and determined this resulted in a change in the composition of our operating segments. The
primary effects of this reporting reorganization were as follows:

• We moved two of our equity investments, Excel Paralubes and Jupiter Sulphur, LLC, as well as the commission
revenues related to needle and anode coke, polypropylene and solvents, from the Refining segment to the M&S
segment.

• We moved several refining logistics projects from the Refining segment to the Midstream segment.

The new segment alignment is presented for the periods ending December 31, 2014, with prior periods recast for
comparability.

At December 31, 2014, Phillips 66 had approximately 14,000 employees.

SEGMENT AND GEOGRAPHIC INFORMATION

For operating segment and geographic information, see Note 27—Segment Disclosures and Related Information, in the
Notes to Consolidated Financial Statements, which is incorporated herein by reference.

MIDSTREAM

The Midstream segment consists of three business lines:

• Transportation—transports crude oil and other feedstocks to our refineries and other locations, delivers refined
and specialty products to market, and provides storage services for crude oil and petroleum products. The
operations of our master limited partnership, Phillips 66 Partners LP, are included in this business line.

• DCP Midstream—gathers, processes, transports and markets natural gas and transports, fractionates and markets

NGL.

• NGL—transports, fractionates and markets natural gas liquids.

Transportation

We own or lease various assets to provide environmentally safe, strategic and timely delivery and storage of crude oil,
refined products, natural gas and NGL. These assets include pipeline systems; petroleum product, crude oil and liquefied
petroleum gas (LPG) terminals; a petroleum coke handling facility; marine vessels; railcars and trucks.

Pipelines and Terminals
At December 31, 2014, our Transportation business managed over 18,000 miles of crude oil, natural gas, NGL and
petroleum products pipeline systems in the United States, including those partially owned or operated by affiliates. We
owned or operated 39 finished product terminals, 37 storage locations, 5 LPG terminals, 15 crude oil terminals and 1
petroleum coke exporting facility.

In 2014, we acquired a 7.1 million-barrel-storage-capacity crude oil and petroleum products terminal located near
Beaumont, Texas (Beaumont Terminal), and purchased an additional 5.7 percent interest in Explorer Pipeline Company,
which transports refined petroleum products. The Beaumont Terminal is the largest terminal in the Phillips 66 portfolio
and is strategically located on the U.S. Gulf Coast. It provides deep-water access and multiple interconnections with major
crude oil and refined product pipelines serving 3.6 million barrels per day of refining capacity. The terminal has:

•

4.7 million barrels of crude oil storage capacity and 2.4 million barrels of refined product storage capacity.

• Two marine docks capable of handling Aframax tankers and one barge dock.

• Rail and truck loading and unloading facilities.

The following table depicts our ownership interest in major pipeline systems as of December 31, 2014:

Name

Origination/Terminus

Interest

Size

Length
(Miles)

Capacity
(MBD)

Crude and Feedstocks
Glacier
Line 80
Line (cid:50)
WA Line
Cushing
North Texas Crude
(cid:50)klahoma Mainline
Clifton Ridge (cid:130)
Louisiana Crude Gathering
Sweeny Crude
Line 100
Line 200
Line 300
Line 400

Petroleum Product
(cid:43)arbor
Pioneer
Seminoe
(cid:60)ellowstone
(cid:37)orger to Amarillo
ATA Line
(cid:37)orger(cid:16)Denver
Gold Line (cid:130)
SAAL
SAAL
Cherokee South
(cid:43)eartland(cid:13)
Paola Products (cid:130)
Standish
Cherokee North
Cherokee East
Explorer
Sweeny to Pasadena (cid:130)
LA(cid:59) Jet Line
Torrance Products
Los Angeles Products
Watson Products Line
Richmond

Cut (cid:37)ank, MT(cid:18)(cid:37)illings, MT
Gaines, T(cid:59)(cid:18)(cid:37)orger, T(cid:59)
Cushing, (cid:50)(cid:46)(cid:18)(cid:37)orger, T(cid:59)
(cid:50)dessa, T(cid:59)(cid:18)(cid:37)orger, T(cid:59)
Cushing, (cid:50)(cid:46)(cid:18)Ponca City, (cid:50)(cid:46)
Wichita Falls, T(cid:59)
Wichita Falls, T(cid:59)(cid:18)Ponca City, (cid:50)(cid:46)
Clifton Ridge, LA(cid:18)Westlake, LA
Rayne, LA(cid:18)Westlake, LA
Sweeny, T(cid:59)(cid:18)Freeport, T(cid:59)
Taft, CA(cid:18)Lost (cid:43)ills, CA
Lost (cid:43)ills, CA(cid:18)Rodeo, CA
Nipomo, CA(cid:18)Arroyo Grande, CA
Arroyo Grande, CA(cid:18)Lost (cid:43)ills, CA

Woodbury, NJ(cid:18)Linden, NJ
Sinclair, W(cid:60)(cid:18)Salt Lake City, UT
(cid:37)illings, MT(cid:18)Sinclair, W(cid:60)
(cid:37)illings, MT(cid:18)Moses Lake, WA
(cid:37)orger, T(cid:59)(cid:18)Amarillo, T(cid:59)
Amarillo, T(cid:59)(cid:18)Albuquerque, NM
Mc(cid:46)ee, T(cid:59)(cid:18)Denver, C(cid:50)
(cid:37)orger, T(cid:59)(cid:18)East St. Louis, IL
Amarillo, T(cid:59)(cid:18)Abernathy, T(cid:59)
Abernathy, T(cid:59)(cid:18)Lubbock, T(cid:59)
Ponca City, (cid:50)(cid:46)(cid:18)(cid:50)klahoma City, (cid:50)(cid:46)
McPherson, (cid:46)S(cid:18)Des Moines, IA
Paola, (cid:46)S(cid:18)(cid:46)ansas City, (cid:46)S
Marland Junction, (cid:50)(cid:46)(cid:18)Wichita, (cid:46)S
Ponca City, (cid:50)(cid:46)(cid:18)Wichita, (cid:46)S
Medford, (cid:50)(cid:46)(cid:18)Mount (cid:57)ernon, M(cid:50)
Texas Gulf Coast(cid:18)Chicago, IL
Sweeny, T(cid:59)(cid:18)Pasadena, T(cid:59)
Wilmington, CA(cid:18)Los Angeles, CA
Wilmington, CA(cid:18)Torrance, CA
Torrance, CA(cid:18)Los Angeles, CA
Wilmington, CA(cid:18)Long (cid:37)each, CA
Rodeo, CA(cid:18)Richmond, CA

79(cid:8)
100
100
100
100
100
100
75
100
100
100
100
100
100

8(cid:179)(cid:16)12(cid:179)
8(cid:179), 12(cid:179)
10(cid:179)
12(cid:179), 14(cid:179)
18(cid:179)
2(cid:179)(cid:16)16(cid:179)
12(cid:179)
20(cid:179)
4(cid:179)(cid:16)8(cid:179)
12(cid:179), 24(cid:179), 30(cid:179)
8(cid:179), 10(cid:179), 12(cid:179)
12(cid:179), 16(cid:179)
8(cid:179), 10(cid:179), 12(cid:179)
8(cid:179), 10(cid:179), 12(cid:179)

33
50
100
46
100
50
70
75
33
54
100
50
75
100
100
100
19
75
50
100
100
100
100

16(cid:179)
8(cid:179), 12(cid:179)
6(cid:179)(cid:16)10(cid:179)
6(cid:179)(cid:16)10(cid:179)
8(cid:179), 10(cid:179)
6(cid:179), 10(cid:179)
6(cid:179)(cid:16)12(cid:179)
8(cid:179)(cid:16)16(cid:179)
6(cid:179)
6(cid:179)
8(cid:179)
8(cid:179), 6(cid:179)
8(cid:179), 10(cid:179)
18(cid:179)
8(cid:179), 10(cid:179)
10(cid:179), 12(cid:179)
24(cid:179), 28(cid:179)
12(cid:179), 18(cid:179)
8(cid:5)
10(cid:179), 12(cid:179)
6(cid:179), 12(cid:179)
20(cid:179)
6(cid:179)

865
237
276
289
62
301
217
10
80
56
79
228
56
147

80
562
342
710
93
293
405
681
102
19
90
49
106
92
105
287
1,830
120
19
8
22
9
14

100
28
37
104
130
28
100
260
25
265
54
93
48
40

57
63
33
66
76
17
38
120
11
16
46
30
96
72
55
55
660
264
25
161
112
238
26

Name

Origination/Terminus

Interest

Size

Length
(Miles)

Capacity
(MBD)

NGL
Powder River
Skelly-Belvieu
TX Panhandle Y1/Y2
Chisholm
Sand Hills**
Southern Hills**

LPG
Blue Line
Conway to Wichita
Medford

Natural Gas
Rockies Express

Sage Creek, WY/Borger, TX
Skellytown, TX/Mont Belvieu, TX
Sher-Han, TX/Borger, TX
Kingfisher, OK/Conway, KS
Permian Basin/Mont Belvieu, TX
U.S. Midcontinent/Mont Belvieu, TX

Borger, TX/East St. Louis, IL
Conway, KS/Wichita, KS
Ponca City, OK/Medford, OK

100%
50
100
50
33
33

100
100
100

6”-8”
8”
3”-10”
4”-10”
20”
20”

8”-12”
12”
4”-6”

695
571
299
202
905
895

667
55
42

14
45
61
42
200
175

29
38
10

Meeker, CO/Clarington, OH

36”-42”

1,698

1.8 BCFD

*Total pipeline system is 419 miles. Phillips 66 has ownership interest in multiple segments totaling 49 miles.

**Operated by DCP Midstream Partners; Phillips 66 has a direct one-third ownership in the pipeline entities; reported within NGL.

†Owned by Phillips 66 Partners LP.

The following table depicts our ownership interest in finished product terminals as of December 31, 2014:

Facility Name

Location

Albuquerque
Amarillo
Beaumont
Billings
Bozeman
Colton
Denver
Des Moines
East St. Louis*
Glenpool North
Great Falls
Hartford*
Helena
Jefferson City*
Kansas City*
La Junta
Lincoln
Linden
Los Angeles
Lubbock
Missoula
Moses Lake
Mount Vernon
North Salt Lake
Oklahoma City
Pasadena*
Ponca City
Portland
Renton
Richmond
Rock Springs
Sacramento
Sheridan
Spokane
Tacoma
Tremley Point
Westlake
Wichita Falls
Wichita North*
*Owned by Phillips 66 Partners LP.

New Mexico
Texas
Texas
Montana
Montana
California
Colorado
Iowa
Illinois
Oklahoma
Montana
Illinois
Montana
Missouri
Kansas
Colorado
Nebraska
New Jersey
California
Texas
Montana
Washington
Missouri
Utah
Oklahoma
Texas
Oklahoma
Oregon
Washington
California
Wyoming
California
Wyoming
Washington
Washington
New Jersey
Louisiana
Texas
Kansas

Interest
100%
100
100
100
100
100
100
50
75
100
100
75
100
75
75
100
100
100
100
100
50
50
100
50
100
75
100
100
100
100
100
100
100
100
100
100
100
100
75

Storage Capacity
(MBbl)
244
277
2,400
88
113
211
310
206
2,245
366
157
1,075
178
110
1,294
101
219
429
116
179
348
186
363
657
341
3,210
51
664
228
334
125
141
86
351
307
1,593
128
303
679

Rack Capacity
(MBD)
18
29
8
16
13
21
43
15
78
19
12
25
10
16
66
10
21
121
75
17
29
13
46
41
48
65
23
33
20
28
19
13
15
24
17
39
16
15
19

The following table depicts our ownership interest in crude and other terminals as of December 31, 2014:

Facility Name

Location

Interest

Storage Capacity
(MBbl)

Loading
Capacity**

Crude
Beaumont
Billings
Borger
Clifton Ridge*
Cushing
Junction
McKittrick
Odessa
Pecan Grove*
Ponca City
Santa Margarita
Santa Maria
Tepetate
Torrance
Wichita Falls

Coke
Lake Charles

Rail
Bayway*
Beaumont
Ferndale*
Missoula
Thompson Falls

Marine
Beaumont
Clifton Ridge*
Hartford*
Pecan Grove*
Portland
Richmond
Tacoma
Tremley Point

Texas
Montana
Texas
Louisiana
Oklahoma
California
California
Texas
Louisiana
Oklahoma
California
California
Louisiana
California
Texas

Louisiana

New Jersey
Texas
Washington
Montana
Montana

Texas
Louisiana
Illinois
Louisiana
Oregon
California
Washington
New Jersey

100%
100
100
75
100
100
100
100
75
100
100
100
100
100
100

75
100
75
50
50

100
75
75
75
100
100
100
100

4,704
270
678
3,410
700
523
237
523
142
1,200
335
112
152
309
240

N/A

N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A

75
20
30
41
42

13
48
3
6
10
3
12
7

*Owned by Phillips 66 Partners LP.
**Rail in thousands of barrels daily (MBD); Marine in thousands of barrels per hour.

Rockies Express Pipeline LLC (REX)
We have a 25 percent interest in REX. The REX natural gas pipeline runs 1,698 miles from Meeker, Colorado, to
Clarington, Ohio, and has a natural gas transmission capacity of 1.8 billion cubic feet per day (BCFD), with most of its
system having a pipeline diameter of 42 inches. Numerous compression facilities support the pipeline system. The REX
pipeline is designed to enable natural gas producers in the Rocky Mountain region to deliver natural gas supplies to the
Midwest and eastern regions of the United States. Additionally, REX is exploring opportunities to bring Appalachian
production into the system.

Phillips 66 Partners LP
In 2013, we formed Phillips 66 Partners, a master limited partnership (MLP), to own, operate, develop and acquire
primarily fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation
and midstream assets. At December 31, 2014, we owned a 73 percent limited partner interest and a 2 percent general
partner interest in Phillips 66 Partners, while the public owned a 25 percent limited partner interest.

Headquartered in Houston, Texas, Phillips 66 Partners’ assets consist of crude oil and refined petroleum product pipeline,
terminal, rail rack and storage systems in the Central, Gulf Coast, Atlantic Basin and Western regions of the United
States, each of which is integral to a Phillips 66-operated refinery.

During 2014, Phillips 66 Partners expanded its business through acquisitions from us:

• Effective March 1, 2014, Phillips 66 Partners acquired the Gold Line products system and the Medford spheres.

The Gold Line products system includes a refined petroleum product pipeline system that runs from the (cid:37)orger
Refinery in Texas to Cahokia, Illinois. The system includes four terminals. The Medford spheres are two
recently constructed refinery(cid:16)grade propylene storage spheres located in Medford, (cid:50)klahoma, that connect to the
Ponca City Refinery.

• (cid:50)n December 1, 2014, Phillips 66 Partners acquired two newly constructed rail unloading facilities connected to

the Bayway and Ferndale refineries.

Phillips 66 Partners also made several smaller acquisitions from us in late 2014, consisting of terminal and pipeline
projects under development. Phillips 66 Partners is a consolidated subsidiary of Phillips 66.

Marine Vessels
At December 31, 2014, we had 13 double-hulled, international-flagged crude oil and product tankers under term charter,
with capacities ranging in size from 300,000 to 1,100,000 barrels. Additionally, we had under term charter two Jones Act
compliant tankers and 59 barges. These vessels are used primarily to transport feedstocks or provide product
transportation for certain of our refineries, including delivery of domestic crude oil to our Gulf Coast and East Coast
refineries.

Truck and Rail
Truck and rail operations support our feedstock and distribution operations. Rail movements are provided via a fleet of
more than 11,400 owned and leased railcars. Truck movements are provided through approximately 150 third(cid:16)party truck
companies, as well as through Sentinel Transportation LLC, in which we hold an equity interest.

DCP Midstream

(cid:50)ur Midstream segment includes our 50 percent equity investment in DCP Midstream, which is headquartered in Denver,
Colorado. As of December 31, 2014, DCP Midstream owned or operated 64 natural gas processing facilities, with a net
processing capacity of approximately 7.8 (cid:37)CFD. DCP Midstream(cid:181)s owned or operated natural gas pipeline systems
included gathering services for these facilities, as well as natural gas transmission, and totaled approximately 67,900
miles of pipeline. DCP Midstream also owned or operated 12 NGL fractionation plants, along with natural gas and NGL
storage facilities, a propane wholesale marketing business and NGL pipeline assets.

In 2014, DCP Midstream gathered, processed and(cid:18)or transported an average of 7.3 trillion (cid:37)ritish thermal units (T(cid:37)TU)
per day of natural gas, and produced approximately 454,000 barrels per day of NGL, compared with 7.1 T(cid:37)TU per day
and 426,000 barrels per day in 2013.

The residual natural gas, primarily methane, which results from processing raw natural gas, is sold by DCP Midstream at
market-based prices to marketers and end users, including large industrial companies, natural gas distribution companies
and electric utilities. DCP Midstream purchases or takes custody of substantially all of its raw natural gas from
producers, principally under contractual arrangements that expose DCP Midstream to the prices of NGL, natural gas and
condensate. DCP Midstream also has fee(cid:16)based arrangements with producers to provide midstream services such as
gathering and processing.

DCP Midstream markets a portion of its NGL to us and CPChem under existing 15(cid:16)year contracts, the primary
commitment of which expired in December 2014. The contracts provide for a wind(cid:16)down period which expires in
January 2019, if not renegotiated or renewed. These purchase commitments are on an “if-produced, will-purchase” basis.

During 2014, DCP Midstream and DCP Midstream Partners, LP (DCP Partners), the MLP formed by DCP Midstream,
completed or advanced natural gas processing capacity increases in the Denver-Julesburg (DJ) and the Eagle Ford Shale
basins:

•

In the DJ (cid:37)asin, DCP Partners is constructing the Lucerne 2 gas processing plant, which has a planned capacity
of 200 million cubic feet per day. The plant is expected to go into service in the second quarter of 2015.

• Also in the DJ (cid:37)asin, the (cid:50)(cid:181)Connor natural gas processing plant expansion, which increased processing capacity
from 110 to 160 million cubic feet per day, was placed into service. (cid:37)oth the Lucerne 2 and (cid:50)(cid:181)Connor plants
connect to the Front Range NGL pipeline, in which DCP Partners owns a one(cid:16)third interest. The Front Range
NGL pipeline was placed into service in the first quarter of 2014.

•

In the Eagle Ford Shale (cid:37)asin, the Goliad gas processing plant was placed into service during the first quarter of
2014. The Goliad plant has a processing capacity of 200 million cubic feet per day, and its completion brought
the collective natural gas processing capacity of DCP Midstream and DCP Partners in the Eagle Ford Shale
(cid:37)asin to 1.2 billion cubic feet per day. The Goliad plant is connected to the Sand (cid:43)ills pipeline.

The Sand (cid:43)ills pipeline is engaged in the business of transporting NGL and provides takeaway service from the Permian
and Eagle Ford Shale basins to fractionation facilities along the Texas Gulf Coast and at the Mont (cid:37)elvieu, Texas, market
hub. The Southern (cid:43)ills pipeline is also engaged in the business of transporting NGL and provides takeaway service
from the Midcontinent to fractionation facilities at the Mont (cid:37)elvieu, Texas, market hub. Phillips 66, Spectra Energy
Partners, and DCP Partners each have a one(cid:16)third direct interest in each of the DCP Southern (cid:43)ills and DCP Sand (cid:43)ills
pipeline entities, the owners of these NGL pipelines.

NGL

(cid:50)ur NGL business includes the following(cid:29)

• A 22.5 percent equity interest in Gulf Coast Fractionators, which owns an NGL fractionation plant in Mont

(cid:37)elvieu, Texas. We operate the facility, and our net share of capacity is 32,625 barrels per day.

• A 12.5 percent equity interest in a fractionation plant in Mont (cid:37)elvieu, Texas. (cid:50)ur net share of capacity is 26,000

barrels per day.

• A 40 percent interest in a fractionation plant in Conway, (cid:46)ansas. (cid:50)ur net share of capacity is 43,200 barrels per

day.

• A one(cid:16)third direct interest in both the DCP Sand (cid:43)ills and DCP Southern (cid:43)ills pipeline entities, connecting Eagle

Ford, Permian and Midcontinent production to the Mont (cid:37)elvieu, Texas, market.

During 2014, final (cid:37)oard of Directors approval was received on the Sweeny Fractionator (cid:50)ne and Freeport LPG Export
Terminal projects. These two projects represent an estimated investment of more than (cid:7)3 billion as part of the company(cid:181)s
Midstream growth program.

The Sweeny Fractionator (cid:50)ne is located in (cid:50)ld (cid:50)cean, Texas, close to our Sweeny Refinery, and will supply NGL
products to the petrochemical industry and heating markets. Raw NGL supply to the fractionator is expected from nearby
major pipelines, including the Sand (cid:43)ills pipeline. The 100,000 barrel(cid:16)per(cid:16)day NGL fractionator is expected to start up
in the second half of 2015.

The Freeport LPG Export Terminal is located at the site of our existing marine terminal in Freeport, Texas, and will
leverage our midstream, transportation and storage infrastructure to supply petrochemical, heating and transportation
markets globally. The terminal will have an initial export capacity of 4.4 million barrels per month with a ship loading
rate of 36,000 barrels per hour. Startup of the export terminal is expected in the second half of 2016.

Each of these projects will include NGL storage and additional pipelines with connectivity to market hubs in Mont
Belvieu, Texas. Also included with these projects is a 100,000 barrel-per-day de-ethanizer unit that will be installed close
to the Sweeny Refinery to upgrade domestic propane for export.

To support these facilities, we are also installing significant infrastructure, including connectivity to three NGL supply
pipelines, a new salt dome storage facility with an initial 6 million barrels of underground storage (expandable to 32
million barrels) and a 180,000 barrel-per-day, bi-directional pipeline connecting Sweeny to the Mont Belvieu market
center. In support of these projects, we have successfully secured long-term fee-based commitments for the majority of
the feedstocks and products for Sweeny Fractionator One.

In response to the challenging market conditions driven by the recent decline in global crude oil prices, we have delayed
the timing of investment decisions on a second-phase of Midstream projects in Texas, including our plans to build a
second NGL fractionator, a crude and condensate pipeline, and a condensate splitter.

CHEMICALS

The Chemicals segment consists of our 50 percent equity investment in CPChem, which is headquartered in The
Woodlands, Texas. At the end of 2014, CPChem owned or had joint-venture interests in 34 manufacturing facilities and
two research and development centers located around the world.

CPChem’s business is structured around two primary operating segments: Olefins and Polyolefins (O&P) and Specialties,
Aromatics and Styrenics (SA&S). The O&P segment produces and markets ethylene and other olefin products; the
ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and
polyethylene pipe. The SA&S segment manufactures and markets aromatics products, such as benzene, styrene,
paraxylene and cyclohexane, as well as polystyrene and styrene-butadiene copolymers. SA&S also manufactures and/or
markets a variety of specialty chemical products including organosulfur chemicals, solvents, catalysts, drilling chemicals
and mining chemicals.

The manufacturing of petrochemicals and plastics involves the conversion of hydrocarbon-based raw material feedstock
into higher-value products, often through a thermal process referred to in the industry as “cracking.” For example,
ethylene can be produced from cracking the feedstocks ethane, propane, butane, natural gasoline or certain refinery
liquids, such as naphtha and gas oil. The produced ethylene has a number of uses, primarily as a raw material for the
production of plastics, such as polyethylene and polyvinyl chloride. Plastic resins, such as polyethylene, are
manufactured in a thermal/catalyst process, and the produced output is used as a further raw material for various
applications, such as packaging and plastic pipe.

CPChem, including through its subsidiaries and equity affiliates, has manufacturing facilities located in Belgium, China,
Colombia, Qatar, Saudi Arabia, Singapore, South Korea and the United States.

The following table reflects CPChem’s petrochemicals and plastics product capacities at December 31, 2014:

O&P
Ethylene
Propylene
High-density polyethylene
Low-density polyethylene
Linear low-density polyethylene
Polypropylene
Normal alpha olefins
Polyalphaolefins
Polyethylene pipe
Total O&P

SA&S
Benzene
Cyclohexane
Paraxylene
Styrene
Polystyrene
K-Resin® SBC
Specialty chemicals
Polymer conversion
Total SA&S
Total O&P and SA&S
Capacities include CPChem’s share in equity affiliates and excludes CPChem’s NGL fractionation capacity.

Millions of Pounds per Year
Worldwide

U.S.

8,030
2,675
4,205
620
490
—
2,115
105
590
18,830

1,600
1,060
1,000
1,050
835
—
425
—
5,970
24,800

10,505
3,180
6,500
620
490
310
2,630
235
590
25,060

2,530
1,455
1,000
1,875
1,070
70
545
64
8,609
33,669

In 2014, CPChem began the construction of a world-scale ethane cracker and polyethylene facilities in the U.S. Gulf
Coast region. The project will leverage the development of the significant shale resources in the United States.
CPChem’s Cedar Bayou facility, in Baytown, Texas, will be the location of the 3.3 billion-pound-per-year ethylene unit.
The polyethylene facility will have two polyethylene units, each with an annual capacity of 1.1 billion pounds, and will
be located near CPChem’s Sweeny facility in Old Ocean, Texas. The project is expected to be completed in 2017.

In June 2014, CPChem completed the commissioning and start-up of an on-purpose 1-hexene plant, capable of producing
up to 550 million pounds per year at its Cedar Bayou facility in Baytown, Texas. 1-hexene, a normal alpha olefin, is a
critical component used in the manufacturing of polyethylene, a plastic resin commonly converted into film, plastic pipe,
milk jugs, detergent bottles and food and beverage containers. The new plant is the third such plant to utilize CPChem’s
proprietary selective 1-hexene technology, which produces co-monomer-grade 1-hexene from ethylene with exceptional
product purity.

In June 2014, CPChem’s Board of Directors approved construction to expand normal alpha olefin (NAO) production
capacity at its Cedar Bayou plant in Baytown, Texas. This investment will provide an additional 220 million pounds per
year of capacity. Completion of construction is anticipated in July 2015. NAO and its derivatives are used extensively as
polyethylene co-monomers, synthetic motor oils, lubricants, automotive additives and in a wide range of specialty
applications.

In the second quarter of 2014, CPChem completed its sulfur-based products expansion and the new on-purpose hydrogen
sulfide unit project at its facility in Tessenderlo, Belgium.

In July 2014, a localized fire occurred in the olefins unit at CPChem’s Port Arthur, Texas facility, shutting down ethylene
production. The Port Arthur ethylene unit restarted in November. Because the Port Arthur ethylene unit was down due to
the fire, CPChem experienced a significant reduction in production and sales in several of its product lines stemming
from the lack of the Port Arthur ethylene supply.

In December 2014, CPChem completed an ethylene expansion at its Sweeny complex in Old Ocean, Texas. With the
addition of a tenth furnace to ethylene unit 33 at the Sweeny complex, the expansion is expected to increase annual
production by 200 million pounds per year.

During 2014, CPChem made a decision to permanently shut down the K-Resin® styrene-butadiene copolymer (SBC)
plant at its Pasadena Plastics Complex in Pasadena, Texas. The plant was temporarily idled in February 2013. In
December 2014, CPChem completed the sale of substantially all of the assets of its Ryton® polyphenylene sulfide (PPS)
product line.

Saudi Polymers Company (SPCo), a 35-percent-owned joint venture company of CPChem, owns an integrated
petrochemicals complex adjacent to S-Chem (two 50/50 SA&S joint ventures) at Jubail Industrial City, Saudi Arabia.
SPCo produces ethylene, propylene, polyethylene, polypropylene, polystyrene and 1-hexene.

In association with the SPCo project, CPChem committed to build a nylon 6,6 manufacturing plant and a number of
polymer conversion projects at Jubail Industrial City, Saudi Arabia. The projects are being undertaken through
CPChem’s 50-percent-owned joint venture company, Petrochemical Conversion Company Ltd. The projects are slated to
begin operations in stages through 2015. During 2014, commercial operations began on two polymer conversion units,
polyethylene pipe and drip irrigation.

Our agreement with Chevron U.S.A. Inc. (Chevron), an indirect, wholly owned subsidiary of Chevron Corporation,
regarding CPChem permits Chevron to buy our 50 percent interest in CPChem for fair market value if, at any time after
the Separation, we experience a change in control or if both Standard & Poor’s Ratings Services (S&P) and Moody’s
Investors Service (Moody’s) lower our credit ratings below investment grade and the credit rating from either rating
agency remains below investment grade for 365 days thereafter, with fair market value determined by agreement or by
nationally recognized investment banks.

REFINING

Our Refining segment buys, sells, and refines crude oil and other feedstocks into petroleum products (such as gasolines,
distillates and aviation fuels) at 14 refineries, mainly in the United States and Europe.

The table below depicts information for each of our U.S. and international refineries at December 31, 2014:

Thousands of Barrels Daily

Region/
Refinery
Atlantic Basin/
Europe
Bayway
Humber

Whitegate
MiRO*

Location

Interest

Linden, NJ
N. Lincolnshire,
United Kingdom
Cork, Ireland
Karlsruhe,
Germany

100.00%

100.00
100.00

18.75

Gulf Coast
Alliance

Lake Charles
Sweeny

Central
Corridor
Wood River
Borger
Ponca City
Billings

Western/
Pacific
Ferndale
Los Angeles

San Francisco

Belle Chasse, LA

Westlake, LA
Old Ocean, TX

100.00
100.00
100.00

Roxana, IL
Borger, TX
Ponca City, OK
Billings, MT

50.00
50.00
100.00
100.00

100.00

Ferndale, WA
Carson/
Wilmington, CA
Arroyo Grande/
San Francisco, CA 100.00

100.00

Net Crude Throughput
Capacity
At
December 31
2014

Effective
January 1

Net Clean Product
Capacity**

2015 Gasolines Distillates

238

221
71

58
588

247
239
247
733

157
73
196
59
485

101

139

120
360
2,166

238

221
71

58
588

247
244
247
738

157
73
203
59
492

101

139

120
360
2,178

145

85
15

125
90
125

75
50
110
35

115

115
30

120
115
120

55
25
90
25

Clean
Product
Yield
Capability

91%

81
65

87
70
87

81
90
92
89

*Mineraloelraffinerie Oberrhein GmbH.
**Clean product capacities are maximum rates for each clean product category, independent of each other. They are not additive when calculating the clean

product yield capability for each refinery.

Primary crude oil characteristics and sources of crude oil for our refineries are as follows:

Characteristics

Sources

Sweet

Medium
Sour

Heavy
Sour

High
TAN*

United
States

Canada

South
America

Europe

Middle East
& Africa

Bayway
Humber
Whitegate
MiRO
Alliance
Lake Charles
Sweeny
Wood River
Borger
Ponca City
Billings
Ferndale
Los Angeles
San Francisco

*High TAN (Total Acid Number): acid content greater than or equal to 1.0 milligram of potassium hydroxide (KOH) per gram.

Atlantic Basin/Europe Region

Bayway Refinery
The Bayway Refinery is located on the New York Harbor in Linden, New Jersey. Bayway refining units include a fluid
catalytic cracking unit, two hydrodesulfurization units, a naphtha reformer, an alkylation unit and other processing
equipment. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel and jet fuels, as well
as petrochemical feedstocks, residual fuel oil and home heating oil. Refined products are distributed to East Coast
customers by pipeline, barge, railcar and truck. The complex also includes a 775-million-pound-per-year polypropylene
plant.

Humber Refinery
The Humber Refinery is located on the east coast of England in North Lincolnshire, United Kingdom. It produces a high
percentage of transportation fuels, such as gasoline, diesel and jet fuels. Humber’s facilities encompass fluid catalytic
cracking, thermal cracking and coking. The refinery has two coking units with associated calcining plants, which
upgrade the heaviest part of the crude barrel and imported feedstocks into light oil products and high-value graphite and
anode petroleum cokes. Humber is the only coking refinery in the United Kingdom, and a major producer of specialty
graphite cokes and anode coke. Approximately 70 percent of the light oils produced in the refinery are marketed in the
United Kingdom, while the other products are exported to the rest of Europe, West Africa and the United States.

Whitegate Refinery
The Whitegate Refinery is located in Cork, Ireland, and is Ireland’s only refinery. The refinery primarily produces
transportation fuels, such as gasoline, diesel and fuel oil, which are distributed to the inland market, as well as being
exported to international markets. In the first quarter of 2015 we sold the Bantry Bay terminal, a crude oil and products
storage complex located in Bantry Bay, about 80 miles southwest of the refinery in southern Cork County.

MiRO Refinery
The Mineraloelraffinerie Oberrhein GmbH (MiRO) Refinery, located on the Rhine River in Karlsruhe in southwest
Germany, is a joint venture in which we own an 18.75 percent interest. Facilities include three crude unit trains, fluid
catalytic cracking, petroleum coking and calcining, hydrodesulfurization, naphtha reformer, isomerization, ethyl tert-
butyl ether and alkylation units. MiRO produces a high percentage of transportation fuels, such as gasoline and diesel
fuels. Other products include petrochemical feedstocks, home heating oil, bitumen, and anode- and fuel-grade petroleum
coke. Refined products are delivered to customers in southwest Germany, northern Switzerland and western Austria by
truck, railcar and barge.

Gulf Coast Region

Alliance Refinery
The Alliance Refinery is located on the Mississippi River in Belle Chasse, Louisiana. The single-train facility includes
fluid catalytic cracking units, alkylation, delayed coking, hydrodesulfurization units, a naphtha reformer and aromatics
unit. Alliance produces a high percentage of transportation fuels, such as gasoline, diesel and jet fuels. Other products
include petrochemical feedstocks, home heating oil and anode-grade petroleum coke. The majority of the refined
products are distributed to customers in the southeastern and eastern United States through major common carrier
pipeline systems and by barge. Refined products are also sold into export markets through the refinery’s marine terminal.

Lake Charles Refinery
The Lake Charles Refinery is located in Westlake, Louisiana. Its facilities include fluid catalytic cracking,
hydrocracking, delayed coking and hydrodesulfurization units. The refinery produces a high percentage of transportation
fuels, such as low-sulfur gasoline and off-road diesel, along with home heating oil. The majority of its refined products
are distributed by truck, railcar, barge or major common carrier pipelines to customers in the southeastern and eastern
United States. Refined products can also be sold into export markets through the refinery’s marine terminal. Refinery
facilities also include a specialty coker and calciner, which produce graphite petroleum coke for the steel industry.

Sweeny Refinery
The Sweeny Refinery is located in Old Ocean, Texas, approximately 65 miles southwest of Houston. Refinery facilities
include fluid catalytic cracking, delayed coking, alkylation, a naphtha reformer and hydrodesulfurization units. The
refinery receives crude oil primarily via tankers, through wholly and jointly owned terminals on the Gulf Coast, including
a deepwater terminal at Freeport, Texas. It produces a high percentage of transportation fuels, such as gasoline, diesel
and jet fuels. Other products include petrochemical feedstocks, home heating oil and fuel-grade petroleum coke. We
operate nearby terminals and storage facilities, along with pipelines that connect these facilities to the refinery. Refined
products are distributed throughout the Midwest and southeastern United States by pipeline, barge and railcar.

MSLP
Merey Sweeny, L.P. (MSLP) owns a delayed coker and related facilities at the Sweeny Refinery. MSLP processes long
residue, which is produced from heavy sour crude oil, for a processing fee. Fuel-grade petroleum coke is produced as a
by-product and becomes the property of MSLP. See the “Other” section of Note 8—Investments, Loans and Long-Term
Receivables, in the Notes to Consolidated Financial Statements, for information on the ownership of MSLP.

Central Corridor Region

WRB Refining LP (WRB)
We are the operator and managing partner of WRB, a 50/50 joint venture with Cenovus Energy Inc., which consists of
the Wood River and Borger refineries.

WRB’s gross processing capability of heavy Canadian or similar crudes ranges between 235,000 and 255,000 barrels per
day.

• Wood River Refinery

The Wood River Refinery is located in Roxana, Illinois, about 15 miles northeast of St. Louis, Missouri, at the
confluence of the Mississippi and Missouri rivers. Operations include three distilling units, two fluid catalytic
cracking units, alkylation, hydrocracking, two delayed coking units, naphtha reforming, hydrotreating and sulfur
recovery. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel and jet fuels.
Other products include petrochemical feedstocks, asphalt and coke. Finished product leaves Wood River by
pipeline, rail, barge and truck.

• Borger Refinery

The Borger Refinery is located in Borger, Texas, in the Texas Panhandle, approximately 50 miles north of
Amarillo. The refinery facilities encompass coking, fluid catalytic cracking, alkylation, hydrodesulfurization and
naphtha reforming, and a 45,000-barrel-per-day NGL fractionation facility. It produces a high percentage of
transportation fuels, such as gasoline, diesel and jet fuels, as well as coke, NGL and solvents. Refined products are
transported via pipelines from the refinery to West Texas, New Mexico, Colorado and the Midcontinent region.

Ponca City Refinery
The Ponca City Refinery is located in Ponca City, Oklahoma. Its facilities include fluid catalytic cracking, alkylation,
delayed coking and hydrodesulfurization units. It produces a high percentage of transportation fuels, such as gasoline,
diesel, and jet fuels, as well as LPG and anode-grade petroleum coke. Finished petroleum products are primarily shipped
by company-owned and common-carrier pipelines to markets throughout the Midcontinent region.

Billings Refinery
The Billings Refinery is located in Billings, Montana. Its facilities include fluid catalytic cracking and
hydrodesulfurization units, in addition to a delayed coker, which converts heavy, high-sulfur residue into higher-value
light oils. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel and aviation fuels, as
well as fuel-grade petroleum coke. Finished petroleum products from the refinery are delivered by pipeline, railcar and
truck. The pipelines transport most of the refined products to markets in Montana, Wyoming, Idaho, Utah, Colorado and
Washington State.

Western/Pacific Region

Ferndale Refinery
The Ferndale Refinery is located on Puget Sound in Ferndale, Washington, approximately 20 miles south of the U.S.-
Canada border. Facilities include a fluid catalytic cracker, an alkylation unit and a diesel hydrotreater unit. The refinery
produces transportation fuels such as gasoline and diesel fuels. Other products include residual fuel oil, which supplies
the northwest marine transportation market. Most refined products are distributed by pipeline and barge to major markets
in the northwest United States.

Los Angeles Refinery
The Los Angeles Refinery consists of two linked facilities located about five miles apart in Carson and Wilmington,
California, approximately 15 miles southeast of Los Angeles International Airport. Carson serves as the front end of the
refinery by processing crude oil, and Wilmington serves as the back end by upgrading the intermediate products to
finished products. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel and jet fuels.
Other products include fuel-grade petroleum coke. The facilities include fluid catalytic cracking, alkylation,
hydrocracking, coking, and naphtha reforming units. The refinery produces California Air Resources Board (CARB)-
grade gasoline. Refined products are distributed to customers in California, Nevada and Arizona by pipeline and truck.

San Francisco Refinery
The San Francisco Refinery consists of two facilities linked by a 200-mile pipeline. The Santa Maria facility is located in
Arroyo Grande, California, about 200 miles south of San Francisco, California, while the Rodeo facility is in the San
Francisco Bay Area. Semi-refined liquid products from the Santa Maria facility are sent by pipeline to the Rodeo facility
for upgrading into finished petroleum products. The refinery produces a high percentage of transportation fuels, such as
gasoline and diesel fuels. Other products include petroleum coke. Process facilities include coking, hydrocracking,
hydrotreating and naphtha reforming units. It also produces CARB-grade gasoline. The majority of the refined products
are distributed by pipeline, railcar and barge to customers in California.

Melaka Refinery
In December 2014, we sold our interest in the Melaka Refinery, in Melaka, Malaysia.

MARKETING AND SPECIALTIES

Our M&S segment purchases for resale and markets refined petroleum products (such as gasolines, distillates and
aviation fuels), mainly in the United States and Europe. In addition, this segment includes the manufacturing and
marketing of specialty products, as well as power generation operations.

Marketing

Marketing—United States
In the United States, as of December 31, 2014, we marketed gasoline, diesel and aviation fuel through approximately
8,600 marketer-owned or -supplied outlets in 48 states. These sites utilize the Phillips 66, Conoco or 76 brands.

At December 31, 2014, our wholesale operations utilized a network of marketers operating approximately 7,000 outlets.
We have placed a strong emphasis on the wholesale channel of trade because of its lower capital requirements. In
addition, we held brand-licensing agreements with approximately 700 sites. Our refined products are marketed on both a
branded and unbranded basis. A high percentage of our branded marketing sales are made in the Midcontinent, Rockies
and West Coast regions, where our wholesale marketing operations provide efficient off-take from our refineries.

The Gulf Coast and East Coast regions do not require a highly integrated marketing and distribution infrastructure to
secure product placement for refinery pull through. In these markets, most sales are conducted via unbranded sales. We
are expanding our export capability at our U.S. coastal refineries to meet growing international demand and increase
flexibility to provide product to the highest-value markets.

During 2013, we entered into multi-year consignment fuels agreements with several marketers. We own the fuel
inventory and control the selling of fuel at the retail sites and the marketer is paid a fixed monthly fee. Also in 2013, we
temporarily acquired a small number of retail sites, some of which were sold in 2013 and 2014, with the remainder
expected to be sold in the future. The consignment fuels agreements and the temporary retail site acquisitions were
designed to support branded pull through of our refinery production.

During 2014, we acquired a 50 percent interest in OnCue Holdings, LLC, which operated 44 convenience stores in
Oklahoma as of December 31, 2014. We are evaluating growth opportunities within this joint venture.

In addition to automotive gasoline and diesel, we produce and market jet fuel and aviation gasoline, which is used by
smaller piston-engine aircraft. At December 31, 2014, aviation gasoline and jet fuel were sold through dealers and
independent marketers at approximately 900 Phillips 66-branded locations in the United States.

Marketing—International
We have marketing operations in five European countries. Our European marketing strategy is to sell primarily through
owned, leased or joint venture retail sites using a low-cost, high-volume approach. We use the JET brand name to market
retail and wholesale products in Austria, Germany and the United Kingdom. In addition, a joint venture in which we
have an equity interest markets products in Switzerland under the Coop brand name.

We also market aviation fuels, LPG, heating oils, transportation fuels, marine bunker fuels, bitumen and fuel coke
specialty products to commercial customers and into the bulk or spot markets in the above countries and Ireland.

As of December 31, 2014, we had approximately 1,235 marketing outlets in our European operations, of which
approximately 940 were company owned and 295 were dealer owned. In addition, through our joint venture operations
in Switzerland, we have interests in 285 additional sites.

Specialties

We manufacture and sell a variety of specialty products, including petroleum coke products, waxes, solvents, and
polypropylene. Certain manufacturing operations are included in the Refining segment, while the marketing function for
these products is included in the Specialties business.

Premium Coke & Polypropylene
We market high-quality graphite and anode-grade petroleum cokes in the United States and Europe for use in the global
steel and aluminum industries. We also market polypropylene in North America under the COPYLENE brand name.

Excel Paralubes
We own a 50 percent interest in Excel Paralubes, a joint venture which owns a hydrocracked lubricant base oil
manufacturing plant located adjacent to the Lake Charles Refinery. The facility produces approximately
22,000 barrels per day of high-quality, clear hydrocracked base oils.

Lubricants
We manufacture and sell automotive, commercial and industrial lubricants which are marketed worldwide under the
Phillips 66, Conoco, 76 and Kendall brands, as well as other private label brands. We also market Group II Pure
Performance base oils globally as well as import and market Group III Ultra-S base oils through an agreement with
Korea’s S-Oil corporation. In July 2014, we acquired Spectrum Corporation, a private label and specialty lubricants
business headquartered in Memphis, Tennessee.

Other

Power Generation
In 2014, we acquired our co-venturer’s interest in Sweeny Cogeneration, L.P., which owns a cogeneration power plant
located adjacent to the Sweeny Refinery. The plant generates electricity and provides process steam to the refinery, as
well as merchant power into the Texas market. The plant has a net electrical output of 440 megawatts and is capable of
generating up to 3.6 million pounds per hour of process steam.

DISCONTINUED OPERATIONS

In December 2013, we entered into an agreement to exchange the stock of Phillips Specialty Products Inc. (PSPI), a flow
improver business, which was included in our M&S segment, for shares of Phillips 66 common stock owned by the other
party. On February 25, 2014, we completed the PSPI share exchange. See Note 7—Assets Held for Sale or Sold, in the
Notes to Consolidated Financial Statements, for additional information on this transaction.

TECHNOLOGY DEVELOPMENT

Our Technology organization focuses in three areas: 1) advanced engineering optimization for our existing businesses, 2)
sustainability technologies for a changing regulatory environment, and 3) future growth opportunities. Technology
creates value through evaluation of advantaged crudes, models for increasing clean product yield, and research to
increase safety and reliability. Research allows Phillips 66 to be well positioned to address issues like corrosion, water
consumption, and changing climate regulations, as well as to reduce risk and generate novel solutions for our growing
Midstream operations.

COMPETITION

The Midstream segment, through our equity investment in DCP Midstream and our other operations, competes with
numerous integrated petroleum companies, as well as natural gas transmission and distribution companies, to deliver
components of natural gas to end users in the commodity natural gas markets. DCP Midstream is one of the leading
natural gas gatherers and processors in the United States based on wellhead volumes, and one of the largest U.S.
producers and marketers of NGL, based on published industry sources. Principal methods of competing include
economically securing the right to purchase raw natural gas for gathering systems, managing the pressure of those
systems, operating efficient NGL processing plants and securing markets for the products produced.

In the Chemicals segment, CPChem is generally ranked within the top 10 producers of many of its major product lines,
based on average 2014 production capacity, as published by industry sources. Petroleum products, petrochemicals and
plastics are typically delivered into the worldwide commodity markets. Our Refining and M&S segments compete
primarily in the United States and Europe. Based on the statistics published in the December 1, 2014, issue of the Oil &
Gas Journal, we are one of the largest refiners of petroleum products in the United States. Worldwide, our refining
capacity ranked in the top 10 among non-government-controlled companies. Elements of competition for both our
Chemicals and Refining segments include product improvement, new product development, low-cost structures, and
efficient manufacturing and distribution systems. In the marketing portion of the business, competitive factors include
product properties and processibility, reliability of supply, customer service, price and credit terms, advertising and sales
promotion, and development of customer loyalty to branded products.

GENERAL

At December 31, 2014, we held a total of 523 active patents in 50 countries worldwide, including 252 active U.S.
patents. During 2014, we received 41 patents in the United States and 13 foreign patents. Included in these amounts are
patents associated with our flow improver business, which is presented as discontinued operations at year-end 2013. Our
products and processes generated licensing revenues of $8 million in 2014. The overall profitability of any business
segment is not dependent on any single patent, trademark, license or franchise.

Company-sponsored research and development activities charged against earnings were $62 million, $69 million and $70
million in 2014, 2013 and 2012, respectively.

In support of our goal to attain zero incidents, we have implemented a comprehensive Health, Safety and Environmental
(HSE) management system to support our business units in achieving consistent management of HSE risks across our
enterprise. The management system is designed to ensure that personal safety, process safety, and environmental impact
risks are identified and mitigation steps are taken to reduce the risk. The management system requires periodic audits to

ensure compliance with government regulations, as well as our internal requirements. Our commitment to continuous
improvement is reflected in annual goal setting and performance measurement.

See the environmental information contained in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Capital Resources and Liquidity—Contingencies” under the captions “Environmental” and
“Climate Change.” It includes information on expensed and capitalized environmental costs for 2014 and those expected
for 2015 and 2016.

Website Access to SEC Reports
Our Internet website address is http://www.phillips66.com. Information contained on our Internet website is not part of
this report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or
furnished to, the U.S. Securities and Exchange Commission (SEC). Alternatively, you may access these reports at the
SEC’s website at http://www.sec.gov.

Item 1A. RISK FACTORS

You should carefully consider the following risk factors in addition to the other information included in this Annual
Report on Form 10-K. Each of these risk factors could adversely affect our business, operating results and financial
condition, as well as adversely affect the value of an investment in our common stock.

Our operating results and future rate of growth are exposed to the effects of changing commodity prices and refining,
petrochemical and plastics margins.

Our revenues, operating results and future rate of growth are highly dependent on a number of factors, including fixed
and variable expenses (including the cost of crude oil, NGLs, and other refinery and petrochemicals feedstocks) and the
margin relative to those expenses at which we are able to sell refined and Chemicals segment products. During the last
half of 2014 and other periods in recent years, the prices of feedstocks and our products have fluctuated substantially.
These prices depend on numerous factors beyond our control, including the global supply and demand for feedstocks and
our products, which are subject to, among other things:

• Changes in the global economy and the level of foreign and domestic production of crude oil, natural gas and

NGLs and refined, petrochemical and plastics products.

• Availability of feedstocks and refined products and the infrastructure to transport feedstocks and refined products.
• Local factors, including market conditions, the level of operations of other facilities in our markets, and the volume

of products imported and exported.

• Threatened or actual terrorist incidents, acts of war and other global political conditions.
• Government regulations.
• Weather conditions, hurricanes or other natural disasters.

The price of crude oil influences prices for refined products. We do not produce crude oil and must purchase all of the
crude oil we process. Many crude oils available on the world market will not meet the quality restrictions for use in our
refineries. Others are not economical to use due to excessive transportation costs or for other reasons. The prices for
crude oil and refined products can fluctuate differently based on global, regional and local market conditions. In
addition, the timing of the relative movement of the prices (both among different classes of refined products and among
various global markets for similar refined products), as well as the overall change in refined product prices, can reduce
refining margins and could have a significant impact on our refining, wholesale marketing and retail operations,
revenues, operating income and cash flows. Also, crude oil supply contracts generally have market-responsive pricing
provisions. We normally purchase our refinery feedstocks weeks before manufacturing and selling the refined products.
Price level changes during the period between purchasing feedstocks and selling the refined products from these
feedstocks could have a significant effect on our financial results. We also purchase refined products produced by others
for sale to our customers. Price level changes during the periods between purchasing and selling these refined products
also could have a material adverse effect on our business, financial condition and results of operations.

The price of feedstocks also influences prices for petrochemical and plastics products. Although our Chemicals segment
gathers, transports, and fractionates feedstocks to meet a portion of their demand and has certain long-term feedstock
supply contracts with others, it is still subject to volatile feedstock prices. In addition, the petrochemicals industry is both
cyclical and volatile. Cyclicality occurs when periods of tight supply, resulting in increased prices and profit margins, are
followed by periods of capacity expansion, resulting in oversupply and declining prices and profit margins. Volatility
occurs as a result of changes in supply and demand for products, changes in energy prices, and changes in various other
economic conditions around the world.

Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on
acceptable terms and can adversely affect the financial strength of our business partners.

Our ability to obtain credit and capital depends in large measure on the state of the credit and capital markets, which is
beyond our control. Our ability to access credit and capital markets may be restricted at a time when we would like, or
need, access to those markets, which could constrain our flexibility to react to changing economic and business
conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or
illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on
our lenders, commodity hedging counterparties, or our customers, preventing them from meeting their obligations to us.

From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially
and adversely affected if we are unable to obtain necessary funds from financing activities. From time to time, we may
need to supplement our cash generated from operations with proceeds from financing activities. Uncertainty and
illiquidity in financial markets may materially impact the ability of the participating financial institutions to fund their
commitments to us under our liquidity facilities. Accordingly, we may not be able to obtain the full amount of the funds
available under our liquidity facilities to satisfy our cash requirements, and our failure to do so could have a material
adverse effect on our operations and financial position.

Deterioration in our credit profile could increase our costs of borrowing money and limit our access to the capital
markets and commercial credit, and could trigger co-venturer rights under joint venture arrangements.

Our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances
warrant. If a rating agency were to downgrade our rating below investment grade, our borrowing costs would increase,
and our funding sources could decrease. In addition, a failure by us to maintain an investment grade rating could affect
our business relationships with suppliers and operating partners. For example, our agreement with Chevron regarding
CPChem permits Chevron to buy our 50 percent interest in CPChem for fair market value if we experience a change in
control or if both S&P and Moody’s lower our credit ratings below investment grade and the credit rating from either
rating agency remains below investment grade for 365 days thereafter, with fair market value determined by agreement
or by nationally recognized investment banks. As a result of these factors, a downgrade of our credit ratings could have a
materially adverse impact on our future operations and financial position.

We expect to continue to incur substantial capital expenditures and operating costs as a result of our compliance with
existing and future environmental laws and regulations. Likewise, future environmental laws and regulations may
impact or limit our current business plans and reduce demand for our products.

Our business is subject to numerous laws and regulations relating to the protection of the environment. These laws and
regulations continue to increase in both number and complexity and affect our operations with respect to, among other
things:

• The discharge of pollutants into the environment.
• Emissions into the atmosphere (such as nitrogen oxides, sulfur dioxide and mercury emissions, and greenhouse gas

emissions as they are, or may become, regulated).

• The quantity of renewable fuels that must be blended into motor fuels.
• The handling, use, storage, transportation, disposal and clean up of ha(cid:93)ardous materials and ha(cid:93)ardous and

nonhazardous wastes.

• The dismantlement, abandonment and restoration of our properties and facilities at the end of their useful lives.

We have incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures
as a result of these laws and regulations. To the extent these expenditures, as with all costs, are not ultimately reflected in
the prices of our products and services, our business, financial condition, results of operations and cash flows in future
periods could be materially adversely affected.

The U.S. Environmental Protection Agency (EPA) has implemented a Renewable Fuel Standard (RFS) pursuant to the
Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas
for the quantity of renewable fuels (such as ethanol) that must be blended into motor fuels consumed in the United States.
To provide certain flexibility in compliance options available to the industry, a Renewable Identification Number (RIN)
is assigned to each gallon of renewable fuel produced in, or imported into, the United States. As a producer of
petroleum-based motor fuels, we are obligated to blend renewable fuels into the products we produce at a rate that is at
least commensurate to the EPA(cid:181)s quota and, to the extent we do not, we must purchase RINs in the open market to satisfy
our obligation under the RFS program. To the extent the EPA mandates a quantity of renewable fuel that exceeds the
amount that is commercially feasible to blend into motor fuel (a situation commonly referred to as (cid:178)the blend wall(cid:179)), our
operations could be materially adversely impacted, up to and including a reduction in produced motor fuel.

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

The potential physical effects of climate change on our operations are highly uncertain and depend upon the unique
geographic and environmental factors present. Examples of such effects include rising sea levels at our coastal facilities,
changing storm patterns and intensities, and changing temperature levels. As many of our facilities are located near
coastal areas, rising sea levels may disrupt our ability to operate those facilities or transport crude oil and refined
petroleum products. Extended periods of such disruption could have an adverse effect on our results of operation. We
could also incur substantial costs to protect or repair these facilities.

Domestic and worldwide political and economic developments could damage our operations and materially reduce our
profitability and cash flows.

Actions of the U.S., state, local and international governments through tax and other legislation, executive order and
commercial restrictions could reduce our operating profitability both in the United States and abroad. The U.S.
government can prevent or restrict us from doing business in foreign countries. These restrictions and those of foreign
governments could limit our ability to operate in, or gain access to, opportunities in various countries, as well as limit our
ability to obtain the optimum slate of crude oil and other refinery feedstocks. Our foreign operations and those of our
joint ventures are further subject to risks of loss of revenue, equipment and property as a result of expropriation, acts of
terrorism, war, civil unrest and other political risks; unilateral or forced renegotiation, modification or nullification of
existing contracts with governmental entities; and difficulties enforcing rights against a governmental agency because of
the doctrine of sovereign immunity and foreign sovereignty over international operations. Our foreign operations and
those of our joint ventures are also subject to fluctuations in currency exchange rates. Actions by both the United States
and host governments may affect our operations significantly in the future.

Renewable fuels, alternative energy mandates and energy conservation efforts could reduce demand for refined products.
Tax incentives and other subsidies can make renewable fuels and alternative energy more competitive with refined
products than they otherwise might be, which may reduce refined product margins and hinder the ability of refined
products to compete with renewable fuels.

Large capital projects can take many years to complete, and market conditions could deteriorate significantly between
the project approval date and the project startup date, negatively impacting project returns.

To approve a large-scale capital project, the project must meet an acceptable level of return on the capital invested in the
project. We base these forecasted project economics on our best estimate of future market conditions. Most large-scale
projects take several years to complete. During this multi-year period, market conditions can change from those we
forecast, and these changes could be significant. Accordingly, we may not be able to realize our expected returns from a
large investment in a capital project, and this could negatively impact our results of operations, cash flows and our return
on capital employed.

Our investments in joint ventures decrease our ability to manage risk.

We conduct some of our operations, including parts of our Midstream, Refining and M&S segments, and our entire
Chemicals segment, through joint ventures in which we share control with our joint venture participants. Our joint
venture participants may have economic, business or legal interests or goals that are inconsistent with those of the joint
venture or us, or our joint venture participants may be unable to meet their economic or other obligations, and we may be
required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint-venture interest, to
adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on the
financial condition or results of operations of our joint ventures and, in turn, our business and operations.

Activities in our Chemicals and Midstream segments involve numerous risks that may result in accidents or otherwise
affect the ability of our equity affiliates to make distributions to us.

There are a variety of hazards and operating risks inherent in the manufacturing of petrochemicals and the gathering,
processing, transmission, storage, and distribution of natural gas and NGL, such as spills, leaks, explosions and
mechanical problems that could cause substantial financial losses. In addition, these risks could result in significant
injury, loss of human life, damage to property, environmental pollution and impairment of operations, any of which could

result in substantial losses. For assets located near populated areas, including residential areas, commercial business
centers, industrial sites and other public gathering areas, the level of damage resulting from these risks could be greater.
Should any of these risks materialize, it could have a material adverse effect on the business and financial condition of
CPChem, DCP Midstream or REX and negatively impact their ability to make future distributions to us.

Our operations present hazards and risks, which may not be fully covered by insurance, if insured. If a significant
accident or event occurs for which we are not adequately insured, our operations and financial results could be
adversely affected.

The scope and nature of our operations present a variety of operational hazards and risks, including explosions, fires,
toxic emissions, maritime hazards and natural catastrophes, that must be managed through continual oversight and
control. For example, the operation of refineries, power plants, fractionators, pipelines, terminals and vessels is
inherently subject to the risks of spills, discharges or other inadvertent releases of petroleum or hazardous substances. If
any of these events had previously occurred or occurs in the future in connection with any of our refineries, pipelines or
refined products terminals, or in connection with any facilities that receive our wastes or by-products for treatment or
disposal, other than events for which we are indemnified, we could be liable for all costs and penalties associated with
their remediation under federal, state, local and international environmental laws or common law, and could be liable for
property damage to third parties caused by contamination from releases and spills. These and other risks are present
throughout our operations. As protection against these hazards and risks, we maintain insurance against many, but not
all, potential losses or liabilities arising from such operating risks. As such, our insurance coverage may not be sufficient
to fully cover us against potential losses arising from such risks. Uninsured losses and liabilities arising from operating
risks could reduce the funds available to us for capital and investment spending and could have a material adverse effect
on our business, financial condition, results of operations and cash flows.

We are subject to interruptions of supply and increased costs as a result of our reliance on third-party transportation
of crude oil, NGL and refined products.

We often utilize the services of third parties to transport crude oil, NGL and refined products to and from our facilities.
In addition to our own operational risks discussed above, we could experience interruptions of supply or increases in
costs to deliver refined products to market if the ability of the pipelines or vessels to transport crude oil or refined
products is disrupted because of weather events, accidents, governmental regulations or third-party actions. A prolonged
disruption of the ability of a pipeline or vessel to transport crude oil, NGL or refined product to or from one or more of
our refineries or other facilities could have a material adverse effect on our business, financial condition, results of
operations and cash flows.

Increased regulation of hydraulic fracturing could result in reductions or delays in U.S. production of crude oil and
natural gas, which could adversely impact our results of operations.

An increasing percentage of crude oil supplied to our refineries and the crude oil and gas production of our Midstream
segment’s customers is being developed from unconventional sources, such as deep oil and gas shales. These reservoirs
require hydraulic fracturing completion processes to release the hydrocarbons from the rock so they can flow through
casing to the surface. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the
formation to stimulate hydrocarbon production. The U.S. Environmental Protection Agency, as well as several state
agencies, have commenced studies and/or convened hearings regarding the potential environmental impacts of hydraulic
fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed
to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed to provide for
such regulation. In addition, some communities have adopted measures to ban hydraulic fracking in their communities.
We cannot predict whether any such legislation will ever be enacted and, if so, what its provisions would be. Any
additional levels of regulation and permits required with the adoption of new laws and regulations at the federal or state
level could result in our having to rely on higher priced crude oil for our refineries and lead to delays, increased operating
costs and process prohibitions that could reduce the volumes of natural gas that move through DCP Midstream’s
gathering systems and could reduce supplies and increase costs of NGL feedstocks to CPChem ethylene facilities. This
could materially adversely affect our results of operations and the ability of DCP Midstream and CPChem to make cash
distributions to us.

Because of the natural decline in production from existing wells in DCP Midstream’s areas of operation, its success
depends on its ability to obtain new sources of natural gas and NGL. Any decrease in the volumes of natural gas DCP
Midstream gathers could adversely affect its business and operating results.

DCP Midstream’s gathering and transportation pipeline systems are connected to or dependent on the level of production
from natural gas wells, from which production will naturally decline over time. As a result, its cash flows associated with
these wells will also decline over time. In order to maintain or increase throughput levels on its gathering and
transportation pipeline systems and NGL pipelines and the asset utilization rates at its natural gas processing plants, DCP
Midstream must continually obtain new supplies. The primary factors affecting DCP Midstream’s ability to obtain new
supplies of natural gas and NGL, and to attract new customers to its assets, include the level of successful drilling activity
near these assets, pricing of and the demand for natural gas and crude oil, producers’ desire and ability to obtain
necessary permits in an efficient manner, natural gas field characteristics and production performance, surface access and
infrastructure issues, and its ability to compete for volumes from successful new wells. If DCP Midstream is not able to
obtain new supplies of natural gas to replace the natural decline in volumes from existing wells or because of
competition, throughput on its pipelines and the utilization rates of its treating and processing facilities would decline.
This could have a material adverse effect on its business, results of operations, financial position and cash flows, and its
ability to make cash distributions to us.

Competitors that produce their own supply of feedstocks, have more extensive retail outlets, or have greater financial
resources may have a competitive advantage.

The refining and marketing industry is highly competitive with respect to both feedstock supply and refined product
markets. We compete with many companies for available supplies of crude oil and other feedstocks and for outlets for
our refined products. We do not produce any of our crude oil feedstocks. Some of our competitors, however, obtain a
portion of their feedstocks from their own production and some have more extensive retail outlets than we have.
Competitors that have their own production or extensive retail outlets (and greater brand-name recognition) are at times
able to offset losses from refining operations with profits from producing or retailing operations, and may be better
positioned to withstand periods of depressed refining margins or feedstock shortages.

Some of our competitors also have materially greater financial and other resources than we have. Such competitors have
a greater ability to bear the economic risks inherent in all phases of our business. In addition, we compete with other
industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and
individual customers.

We may incur losses as a result of our forward-contract activities and derivative transactions.

We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments
we utilize to hedge our exposure to various types of risk are not effective, we may incur losses. Derivative transactions
involve the risk that counterparties may be unable to satisfy their obligations to us. If any of our counterparties were to
default on its obligations to us under the hedging contracts or seek bankruptcy protection, it could have an adverse effect
on our ability to fund our planned activities and could result in a larger percentage of our future production being subject
to commodity price changes. The risk of counterparty default is heightened in a poor economic environment.

One of our subsidiaries acts as the general partner of a publicly traded master limited partnership, Phillips 66
Partners LP, which may involve a greater exposure to legal liability than our historic business operations.

One of our subsidiaries acts as the general partner of Phillips 66 Partners LP, a publicly traded master limited partnership.
Our control of the general partner of Phillips 66 Partners may increase the possibility that we could be subject to claims
of breach of fiduciary duties, including claims of conflicts of interest, related to Phillips 66 Partners. Any liability
resulting from such claims could have a material adverse effect on our future business, financial condition, results of
operations and cash flows.

A significant interruption in one or more of our facilities could adversely affect our business.

Our operations could be subject to significant interruption if one or more of our facilities were to experience a major
accident, mechanical failure, or power outage, encounter work stoppages relating to organized labor issues, be damaged
by severe weather or other natural or man-made disaster, such as an act of terrorism, or otherwise be forced to shut down.
If any facility were to experience an interruption in operations, earnings from the facility could be materially adversely
affected (to the extent not recoverable through insurance, if insured) because of lost production and repair costs. A
significant interruption in one or more of our facilities could also lead to increased volatility in prices for feedstocks and
refined products, and could increase instability in the financial and insurance markets, making it more difficult for us to
access capital and to obtain insurance coverage that we consider adequate.

Our performance depends on the uninterrupted operation of our facilities, which are becoming increasingly
dependent on our information technology systems.

Our performance depends on the efficient and uninterrupted operation of the manufacturing equipment in our production
facilities. The inability to operate one or more of our facilities due to a natural disaster; power outage; labor dispute; or
failure of one or more of our information technology, telecommunications, or other systems could significantly impair
our ability to manufacture our products. Our manufacturing equipment is becoming increasingly dependent on our
information technology systems. A disruption in our information technology systems due to a catastrophic event or
security breach could interrupt or damage our operations.

Security breaches and other disruptions could compromise our information and expose us to liability, which would
cause our business and reputation to suffer.

In the ordinary course of our business, we collect sensitive data, including personally identifiable information of our
customers using credit cards at our branded retail outlets. Despite our security measures, our information technology and
infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other
disruptions. Although we have experienced occasional, actual or attempted breaches of our cybersecurity, none of these
breaches has had a material effect on our business, operations or reputation (or compromised any customer data). Any
such breaches could compromise our networks and the information stored there could be accessed, publicly disclosed,
lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings,
liability under laws that protect the privacy of customer information, disrupt the services we provide to customers, and
damage our reputation, any of which could adversely affect our business.

The level of returns on pension and postretirement plan assets and the actuarial assumptions used for valuation
purposes could affect our earnings and cash flows in future periods.

Assumptions used in determining projected benefit obligations and the expected return on plan assets for our pension
plan and other postretirement benefit plans are evaluated by us in consultation with outside actuaries. If we determine
that changes are warranted in the assumptions used, such as the discount rate, expected long-term rate of return, or health
care cost trend rate, our future pension and postretirement benefit expenses and funding requirements could increase. In
addition, several factors could cause actual results to differ significantly from the actuarial assumptions that we use.
Funding obligations are determined based on the value of assets and liabilities on a specific date as required under
relevant regulations. Future pension funding requirements, and the timing of funding payments, could be affected by
legislation enacted by governmental authorities.

In connection with the Separation, ConocoPhillips has agreed to indemnify us for certain liabilities and we have
agreed to indemnify ConocoPhillips for certain liabilities. If we are required to act on these indemnities to
ConocoPhillips, we may need to divert cash to meet those obligations and our financial results could be negatively
impacted. The ConocoPhillips indemnity may not be sufficient to insure us against the full amount of liabilities for
which it has been allocated responsibility, and ConocoPhillips may not be able to satisfy its indemnification
obligations in the future.

Pursuant to the Indemnification and Release Agreement and certain other agreements with ConocoPhillips entered into in
connection with the Separation, ConocoPhillips agreed to indemnify us for certain liabilities, and we agreed to indemnify
ConocoPhillips for certain liabilities. Indemnities that we may be required to provide ConocoPhillips are not subject to
any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that
could impact the tax-free nature of the distribution of Phillips 66 stock. Third parties could also seek to hold us
responsible for any of the liabilities that ConocoPhillips has agreed to retain. Further, the indemnity from ConocoPhillips
may not be sufficient to protect us against the full amount of such liabilities, and ConocoPhillips may not be able to fully
satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from ConocoPhillips any
amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks
could negatively affect our business, results of operations and financial condition.

We are subject to continuing contingent liabilities of ConocoPhillips following the Separation.

Notwithstanding the Separation, there are several significant areas where the liabilities of ConocoPhillips may become
our obligations. For example, under the Internal Revenue Code and the related rules and regulations, each corporation
that was a member of the ConocoPhillips consolidated U.S. federal income tax reporting group during any taxable period
or portion of any taxable period ending on or before the effective time of the Separation is jointly and severally liable for
the U.S. federal income tax liability of the entire ConocoPhillips consolidated tax reporting group for that taxable period.
In connection with the Separation, we entered into the Tax Sharing Agreement with ConocoPhillips that allocates the
responsibility for prior period taxes of the ConocoPhillips consolidated tax reporting group between us and
ConocoPhillips. ConocoPhillips may be unable to pay any prior period taxes for which it is responsible, and we could be
required to pay the entire amount of such taxes. Other provisions of federal law establish similar liability for other
matters, including laws governing tax-qualified pension plans as well as other contingent liabilities.

If the distribution in connection with the Separation, together with certain related transactions, does not qualify as a
transaction that is generally tax-free for U.S. federal income tax purposes, our stockholders and ConocoPhillips could
be subject to significant tax liability and, in certain circumstances, we could be required to indemnify ConocoPhillips
for material taxes pursuant to indemnification obligations under the Tax Sharing Agreement.

ConocoPhillips received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that,
among other things, the distribution, together with certain related transactions, qualified as a transaction that is generally
tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The private letter ruling
and the tax opinion that ConocoPhillips received relied on certain representations, assumptions and undertakings,
including those relating to the past and future conduct of our business, and neither the private letter ruling nor the opinion
would be valid if such representations, assumptions and undertakings were incorrect. Moreover, the private letter ruling
does not address all the issues that are relevant to determining whether the distribution qualified for tax-free treatment.
Notwithstanding the private letter ruling and the tax opinion, the IRS could determine the distribution should be treated
as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations, assumptions or
undertakings that were included in the request for the private letter ruling are false or have been violated or if it disagrees
with the conclusions in the opinion that are not covered by the IRS ruling.

If the IRS were to determine that the distribution failed to qualify for tax-free treatment, in general, ConocoPhillips
would be subject to tax as if it had sold the Phillips 66 common stock in a taxable sale for its fair market value, and
ConocoPhillips stockholders who received shares of Phillips 66 common stock in the distribution would be subject to tax
as if they had received a taxable distribution equal to the fair market value of such shares.

Under the Tax Sharing Agreement, we would generally be required to indemnify ConocoPhillips against any tax resulting
from the distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of our stock or assets,
whether by merger or otherwise, (ii) other actions or failures to act by us, or (iii) any of our representations or

undertakings being incorrect or violated. Our indemnification obligations to ConocoPhillips and its subsidiaries, officers
and directors are not limited by any maximum amount. If we are required to indemnify ConocoPhillips or such other
persons under the circumstances set forth in the Tax Sharing Agreement, we may be subject to substantial liabilities.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 3. LEGAL PROCEEDINGS

The following is a description of reportable legal proceedings, including those involving governmental authorities under
federal, state and local laws regulating the discharge of materials into the environment. While it is not possible to
accurately predict the final outcome of these pending proceedings, if any one or more of such proceedings were decided
adversely to Phillips 66, we expect there would be no material effect on our consolidated financial position.
Nevertheless, such proceedings are reported pursuant to SEC regulations.

Our U.S. refineries are implementing two separate consent decrees, regarding alleged violations of the Federal Clean Air
Act, with the U.S. Environmental Protection Agency (EPA), six states and one local air pollution agency. Some of the
requirements and limitations contained in the decrees provide for stipulated penalties for violations. Stipulated penalties
under the decrees are not automatic, but must be requested by one of the agency signatories. As part of periodic reports
under the decrees or other reports required by permits or regulations, we occasionally report matters that could be subject
to a request for stipulated penalties. If a specific request for stipulated penalties meeting the reporting threshold set forth
in SEC rules is made pursuant to these decrees based on a given reported exceedance, we will separately report that
matter and the amount of the proposed penalty.

New Matters
On January 5, 2015, the Bay Area Air Quality Management District (Bay Area AQMD) in California made a $262,000
demand to settle five Notices of Violation (NOVs) issued in 2012 with respect to an incident involving the release of
material from a sour water tank at the Rodeo facility on June 15, 2012. We are working with the Bay Area AQMD to
resolve this matter.

Matters Previously Reported
In October 2007, we received a Complaint from the EPA alleging violations of the Clean Water Act related to a 2006 oil
spill at the Bayway Refinery and proposing a penalty of $156,000. We are working with the EPA and the U.S. Coast
Guard to resolve this matter.

In May 2010, we received a Consolidated Compliance Order and Notice of Potential Penalty from the Louisiana
Department of Environmental Quality (LDEQ) alleging various violations of applicable air emission regulations at the
Lake Charles Refinery, as well as certain provisions of the consent decree in Civil Action No. H-01-4430. In July 2014,
we resolved the consent decree issues and are working with the LDEQ to resolve the remaining allegations.

In October 2011, we were notified by the Attorney General of the State of California that it was conducting an
investigation into possible violations of the regulations relating to the operation of underground storage tanks at gas
stations in California. On January 3, 2013, we were served with a lawsuit filed by the California Attorney General that
alleges such violations. We are contesting these allegations.

In May 2012, the Illinois Attorney General’s office filed and notified us of a complaint with respect to operations at the
WRB Wood River Refinery alleging violations of the Illinois groundwater standards and a third-party’s hazardous waste
permit. The complaint seeks as relief remediation of area groundwater; compliance with the hazardous waste permit;
enhanced pipeline and tank integrity measures; additional spill reporting; and yet-to-be specified amounts for fines and
penalties. We are working with the Illinois Environmental Protection Agency and Attorney General’s office to resolve
these allegations.

In October 2012, the Bay Area AQMD issued a $313,000 demand to settle 13 NOVs issued in 2010 and 2011 with
respect to alleged violations of regulatory and/or permit requirements at the Rodeo Refinery. We are working with the
Bay Area AQMD to resolve this matter.

In July 2014, Phillips 66 received a NOV from the EPA alleging various flaring-related violations between 2009 and
2013 at the Wood River Refinery. We are working with the EPA to resolve these allegations.

In July 2014, the Bay Area AQMD issued a $175,000 demand to settle 18 NOVs issued in 2010 with respect to alleged
violations of regulatory and/or permit requirements at the Rodeo Refinery. We are working with the Bay Area AQMD to
resolve this matter.

In July 2014, the Bay Area AQMD issued a $259,000 demand to settle 20 NOVs issued in 2011 with respect to alleged
violations of regulatory and/or permit requirements at the Rodeo Refinery. We are working with the Bay Area AQMD to
resolve this matter.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Name

Position Held

Greg C. Garland
Tim G. Taylor
Robert A. Herman
Paula A. Johnson
Greg G. Maxwell
Lawrence M. Ziemba
Chukwuemeka A. Oyolu
*On February 13, 2015.

Chairman and Chief Executive Officer
President
Executive Vice President, Midstream
Executive Vice President, Legal, General Counsel and Corporate Secretary
Executive Vice President, Finance and Chief Financial Officer
Executive Vice President, Refining
Vice President and Controller

Age*

57
61
55
51
58
59
45

There are no family relationships among any of the officers named above. The Board of Directors annually elects the
officers to serve until a successor is elected and qualified or as otherwise provided in our By-Laws. Set forth below is
information about the executive officers identified above.

Greg C. Garland is the Chairman and Chief Executive Officer of Phillips 66 after serving as Chairman, President and
Chief Executive Officer from April 2012 to June 2014. Mr. Garland was appointed Senior Vice President, Exploration
and Production—Americas for ConocoPhillips in October 2010, having previously served as President and Chief
Executive Officer of CPChem since 2008.

Tim G. Taylor is the President of Phillips 66 after serving as Executive Vice President, Commercial, Marketing,
Transportation and Business Development from April 2012 to June 2014. Mr. Taylor retired as Chief Operating Officer
of CPChem in 2011. Prior to this, Mr. Taylor served at CPChem as Executive Vice President, Olefins and Polyolefins
from 2008 to 2011.

Robert A. Herman is Executive Vice President, Midstream for Phillips 66, a position he has held since June 2014.
Previously, Mr. Herman served Phillips 66 as Senior Vice President, HSE, Projects and Procurement from February 2014
to June 2014, and Senior Vice President, Health, Safety, and Environment, from April 2012 to February 2014. Mr.
Herman worked for ConocoPhillips as Vice President, Health, Safety, and Environment, from 2010 to 2012; and
President, Refining, Marketing and Transportation - Europe, from 2008 to 2010.

Paula A. Johnson is Executive Vice President, Legal, General Counsel and Corporate Secretary of Phillips 66, a position
she has held since May 2013. Previously, Ms. Johnson served as Senior Vice President, Legal, General Counsel and
Corporate Secretary of Phillips 66 since April 2012. Ms. Johnson served as Deputy General Counsel, Corporate, and
Chief Compliance Officer of ConocoPhillips since 2010. Prior to this, she served as Deputy General Counsel, Corporate
from 2009 to 2010.

Greg G. Maxwell is Executive Vice President, Finance and Chief Financial Officer of Phillips 66, a position he has held
since April 2012. Mr. Maxwell retired as CPChem’s Senior Vice President, Chief Financial Officer and Controller in
2012, a position held since 2003.

Lawrence M. Ziemba is Executive Vice President, Refining of Phillips 66, a position he has held since February 2014.
Prior to this, Mr. Ziemba served Phillips 66 as Executive Vice President, Refining, Projects and Procurement since April
2012. Mr. Ziemba served as President, Global Refining, at ConocoPhillips since 2010, and as President, U.S. Refining,
from 2003 to 2010.

Chukwuemeka A. Oyolu is Vice President and Controller of Phillips 66, a position he has held since December 2014.
Mr. Oyolu was Phillips 66’s General Manager, Finance for Refining, Marketing and Transportation from May 2012 until
February 2014 when he became General Manager, Planning and Optimization. Prior to this Mr. Oyolu worked for
ConocoPhillips as Manager, Downstream Finance, from 2009 until April 2012.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

Quarterly Common Stock Prices and Cash Dividends Per Share

Phillips 66’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol “PSX.” The following
table reflects intraday high and low sales prices of, and dividends declared on, our common stock for each quarter
presented:

2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Closing Stock Price at December 31, 2014
Closing Stock Price at January 30, 2015
Number of Stockholders of Record at January 30, 2015

Issuer Purchases of Equity Securities

Stock Price
High

Low

Dividends

80.39
87.05
87.98
82.00

70.52
70.20
61.97
77.29

68.78
76.18
78.53
64.02

50.12
56.13
54.80
56.50

.3900
.5000
.5000
.5000

.3125
.3125
.3125
.3900

$
$

71.70
70.32
44,700

Period

Total Number of
Shares
Purchased*

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs**

Millions of Dollars
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs

October 1-31, 2014
November 1-30, 2014
December 1-31, 2014
Total
*Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when

2,439,453
1,988,000
2,795,241
7,222,694

75.86
74.97
70.81
73.66

2,463
2,314
2,116

applicable.

**During 2012 and 2013, our Board of Directors authorized the repurchase of up to $5 billion of our outstanding common stock. We began purchases under

this authorization, which has no expiration date, in the third quarter of 2012. In July 2014, our Board of Directors approved the repurchase of an additional
$2 billion of our outstanding common stock. The share repurchases are expected to be funded primarily through available cash. The shares under these
authorizations will be repurchased from time to time in the open market at the company’s discretion, subject to market conditions and other factors, and in
accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend
or discontinue purchases at any time or from time to time without prior notice. Shares of stock repurchased are held as treasury shares.

Item 6. SELECTED FINANCIAL DATA

For periods prior to the Separation, the following selected financial data consisted of the combined operations of the
downstream businesses of ConocoPhillips. All financial information presented for periods after the Separation represents
the consolidated results of operations, financial position and cash flows of Phillips 66. Accordingly:

• The selected income statement data for the years ended December 31, 2014 and 2013, consist entirely of the

consolidated results of Phillips 66. The selected income statement data for the year ended December 31, 2012,
consists of the consolidated results of Phillips 66 for the eight months ended December 31, 2012, and of the
combined results of the downstream businesses for the four months ended April 30, 2012. The selected income
statement data for the years ended December 31, 2011, and 2010, consist entirely of the combined results of the
downstream businesses.

• The selected balance sheet data at December 31, 2014, 2013 and 2012, consist of the consolidated balances of
Phillips 66, while the selected balance sheet data at December 31, 2011 and 2010, consist of the combined
balances of the downstream businesses.

Sales and other operating revenues
Income from continuing operations
Income from continuing operations

attributable to Phillips 66
Per common share

Basic
Diluted

Net income
Net income attributable to Phillips 66

Per common share*

Basic
Diluted

Total assets
Long-term debt
Cash dividends declared per common share
*See Note 13—Earnings Per Share, in the Notes to Consolidated Financial Statements.
Prior period amounts have been recast to reflect discontinued operations.

Millions of Dollars Except Per Share Amounts

2014

2013

2012

2011

2010

161,212
4,091

171,596
3,682

179,290
4,083

195,931
4,737

146,433
710

4,056

7.15
7.10
4,797
4,762

8.40
8.33
48,741
7,842
1.8900

3,665

4,076

4,732

5.97
5.92
3,743
3,726

6.07
6.02
49,798
6,131
1.3275

6.47
6.40
4,131
4,124

6.55
6.48
48,073
6,961
0.4500

7.54
7.45
4,780
4,775

7.61
7.52
43,211
361
—

705

1.13
1.12
740
735

1.17
1.16
44,955
388
—

To ensure full understanding, you should read the selected financial data presented above in conjunction with
(cid:178)Management(cid:181)s Discussion and Analysis of Financial Condition and Results of (cid:50)perations(cid:179) and the consolidated
financial statements and accompanying notes included elsewhere in this Annual Report on Form 10(cid:16)(cid:46).

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. It contains forward-looking
statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations
and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,”
“potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,”
“guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company
does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the
federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with
the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE
HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,” beginning on page
64.

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss)
attributable to Phillips 66.

BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and
specialties businesses. At December 31, 2014, we had total assets of $48.7 billion.

The Separation
On April 4, 2012, the ConocoPhillips Board of Directors approved the separation of its downstream businesses into an
independent, publicly traded company named Phillips 66. In accordance with the Separation and Distribution
Agreement, the two companies were separated by ConocoPhillips distributing to its stockholders all 625,272,302 shares
of common stock of Phillips 66 after the market closed on April 30, 2012 (the Separation). Each ConocoPhillips
stockholder received one share of Phillips 66 stock for every two shares of ConocoPhillips stock. Following the
Separation, ConocoPhillips retained no ownership interest in Phillips 66, and each company has separate public
ownership, boards of directors and management.

Executive Overview
In 2014, we reported earnings of $4.8 billion, generated $3.5 billion in cash from operating activities, and received $1.2
billion from asset dispositions, primarily reflecting the sale of our interest in the Malaysian Refining Company Sdn. Bdh.
(MRC) and a special distribution from WRB Refining. We used available cash primarily to fund capital expenditures and
investments of $3.8 billion, pay dividends of $1.1 billion, repurchase $2.3 billion of our common stock and finance $450
million of the Phillips Specialty Products Inc. (PSPI) share exchange. We issued $2.5 billion of debt, and ended 2014
with $5.2 billion of cash and cash equivalents and approximately $4.9 billion of total capacity under our available
liquidity facilities.

We continue to focus on the following strategic priorities:

• Maintain strong operating excellence. Safety and reliability are our first priority, and we are committed to

protecting the health and safety of everyone who has a role in our operations and the communities in which we
operate. Continuous improvement in safety, environmental stewardship, reliability and cost efficiency is a
fundamental requirement for our company and employees. We employ rigorous training and audit programs to
drive ongoing improvement in both personal and process safety as we strive for zero incidents. Since we cannot
control commodity prices, controlling operating expenses and overhead costs, within the context of our
commitment to safety and environmental stewardship, is a high priority. We actively monitor these costs using
various methodologies that are reported to senior management. We are committed to protecting the environment
and strive to reduce our environmental footprint throughout our operations. Optimizing utilization rates at our
refineries through reliable and safe operations enables us to capture the value available in the market in terms of
prices and margins. During 2014, our worldwide refining crude oil capacity utilization rate was 94 percent,
compared with 93 percent in 2013.

• Deliver profitable growth. We have budgeted $4.6 billion in capital expenditures and investments in 2015.
Including our share of expected capital spending by joint ventures DCP Midstream, LLC (DCP Midstream),
Chevron Phillips Chemical Company (CPChem) and WRB, our total 2015 capital program is expected to be $6.7
billion. This program is designed primarily to grow our Midstream and Chemicals segments, which have
planned expansions for manufacturing and logistics capacity. The need for additional new gathering and
processing, pipeline, storage and distribution infrastructure–driven by domestic unconventional crude oil, natural
gas liquids (NGL) and natural gas production–is creating capital investment opportunities in our Midstream
business. Over the next few years, CPChem plans significant reinvestment of its earnings to build additional
processing capacity benefiting from lower-cost NGL feedstocks. We continue to focus on funding the most
attractive growth opportunities across our portfolio.

In 2013, we formed Phillips 66 Partners, a master limited partnership, to own, operate, develop and acquire
primarily fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other
transportation and midstream assets. Its assets consist of crude oil and refined petroleum product pipeline,
terminal and storage systems in the Central and Gulf Coast regions of the United States, as well as two crude oil
rail-unloading facilities located at or adjacent to our Bayway and Ferndale refineries.

• Enhance returns. We plan to improve refining returns through greater use of advantaged feedstocks, disciplined
capital allocation and portfolio optimization. We expect to drive higher returns in Marketing and Specialties
(M&S) by selling finished products to higher-margin export markets. A disciplined capital allocation process
ensures that we focus investments in projects that generate competitive returns throughout the business cycle.
During 2014, 94 percent of the company's U.S. crude slate was advantaged, compared with 74 percent in 2013.

• Grow shareholder distributions. We believe shareholder value is enhanced through, among other things,

consistent and ongoing growth of regular dividends, supplemented by share repurchases. We increased our
dividend rate by 28 percent during 2014, and it has more than doubled since the Separation. Regular dividends
demonstrate the confidence our management has in our capital structure and its capability to generate free cash
flow throughout the business cycle. Cumulatively through December 31, 2014, we have repurchased $4.9
billion, or approximately 73.2 million shares, of our common stock. At the discretion of our Board of Directors,
we plan to increase dividends annually and fund our share repurchase program while continuing to invest in the
growth of our business.

• Build on a high-performing organization. We strive to attract, train, develop and retain individuals with the

knowledge and skills to implement our business strategy and who support our values and ethics. Throughout the
company, we focus on getting results in the right way and believe success is both what we do and how we do it.
We encourage collaboration throughout our company, while valuing differences, respecting diversity of thought,
and creating a great place to work. We foster an environment of learning and development through structured
programs focused on building functional and technical skills where employees are engaged in our business and
committed to their own, as well as the company’s, success.

Business Environment
The Midstream segment includes our 50 percent equity investment in DCP Midstream. Earnings of DCP Midstream are
closely linked to NGL prices, natural gas prices and crude oil prices. Industry NGL annual average prices decreased
from 2012 to 2013 and again from 2013 to 2014, due to relatively higher inventories driven by growing NGL production
from liquids-rich shale plays with limited corresponding domestic demand increase from the petrochemical industry and
constrained export capacity. Natural gas prices increased from 2012 to 2013, and continued to increase from 2013 to
2014. The increase in both periods reflected concerns over increasingly lower industry inventory levels, due to steep
inventory draws in 2013 and 2014, as well as domestic pipeline constraints.

The Chemicals segment consists of our 50 percent equity investment in CPChem. The chemicals and plastics industry is
mainly a commodity-based industry where the margins for key products are based on market factors. The chemicals and
plastics industry continued to experience higher ethylene margins in regions of the world where production is based upon
NGL versus crude-derived feedstocks. In particular, companies with North American ethane-based crackers benefited
from the lower-priced feedstocks and improved ethylene margins, as well as improved margins for polyethylene and
other ethylene derivatives.

Results for our Refining segment depend largely on refining margins, cost control, refinery throughput, and product
yields. The crack spread is a measure of the difference between market prices for refined petroleum products and crude
oil, and it is used within our industry as an indicator for refining margins. The U.S. 3:2:1 crack spread (three barrels of
crude oil producing two barrels of gasoline and one barrel of diesel) decreased from 2012 to 2013. However, for the first
three quarters of 2014, the U.S. crack spread improved over 2013, primarily resulting from increased access to
advantaged crude runs and a decrease in imports. Midcontinent refiners were especially strong, which was attributed to
the region’s crude feedstock advantage. The decrease in U.S. crack spreads during the fourth quarter of 2014 was
significant enough to drive the annual domestic industry average for 2014 lower than 2013. This decrease was largely
due to gasoline prices falling faster than crude prices, resulting in a tighter margin.

U.S. crude production continues to increase and nationwide growth is benefiting from slower decline rates in legacy
production areas, as well as improved drilling efficiency. Limited infrastructure for takeaway options resulted in
favorable feedstock prices for U.S. refiners with access to advantaged crudes. Midcontinent refiners were especially
advantaged. Sustained pressure on inventories and lack of local gathering infrastructure in the Midcontinent caused West
Texas Intermediate (WTI) crude to continue trading at a discount relative to crudes such as Light Louisiana Sweet (LLS)
and Brent during 2014. Refineries capable of processing WTI crude and crude oils that price relative to WTI, primarily
the Midcontinent and Gulf Coast refineries, benefited from these lower regional feedstock prices. The spread between
WTI and Brent narrowed considerably over the year, stemming from increased pipeline outlets from Cushing to the Gulf
Coast, as well as the gradual over supply of light crude in the Atlantic basin.

The Northwest Europe benchmark crack spread decreased from 2012 to 2013. In 2014, the crack spread increased in the
first three quarters of the year and then declined in the fourth quarter, resulting in an average decrease in 2014 compared
to 2013. The decline in benchmark crack spread was due to lower European domestic and export product demand on
weak refinery economics while large volumes of imported diesel from the United States, India, Asia Pacific and Russia
kept prices under pressure. Weak domestic European demand and reduced export markets for gasoline compounded the
declining product crack spreads.

Results for our M&S segment depend largely on marketing fuel margins, lubricant margins and other specialty product
margins. These margins are primarily based on market factors, largely determined by the relationship between demand
and supply. Marketing fuel margins are primarily determined by the trend of the spot prices for refined products.
Generally, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of
spot prices has an unfavorable impact on marketing fuel margins. Crude oil prices declined significantly during 2014,
which resulted in the expected benefit to marketing margins.

RESULTS OF OPERATIONS

Basis of Presentation

See Note 1—Separation and Basis of Presentation, in the Notes to Consolidated Financial Statements, for information on
the basis of presentation of our financial information that affects the comparability of financial information for periods
before and after the Separation.

• We moved several refining logistics projects from the Refining segment to the Midstream Segment.

The new segment alignment is presented for the periods ending December 31, 2014, with prior periods recast for
comparability.

Consolidated Results

A summary of the company’s earnings follows:

Millions of Dollars
Year Ended December 31

2014

507
1,137
1,771
1,034
(393)
706
4,762

2013

469
986
1,747
894
(431)
61
3,726

2012

52
823
3,091
544
(434)
48
4,124

Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Discontinued Operations
Net income attributable to Phillips 66

2014 vs. 2013

Our earnings increased $1,036 million, or 28 percent, in 2014, primarily resulting from:

• Recognition of a noncash (cid:7)696 million after(cid:16)tax gain related to the PSPI share exchange.

• A gain on disposition and related deferred tax adjustment associated with the sale of MRC, together totaling

(cid:7)369 million after(cid:16)tax.

•

Improved ethylene and polyethylene margins in our Chemicals segment.

Improved worldwide marketing margins.

• Recognition in 2014 of (cid:7)126 million, after(cid:16)tax, of the previously deferred gain related to the sale in 2013 of the

Immingham Combined (cid:43)eat and Power Plant (IC(cid:43)P).

•

Improved secondary products margins in our Refining segment.

These increases were partially offset by:

• A (cid:7)131 million after(cid:16)tax impairment related to the Whitegate Refinery in Cork, Ireland.

• Lower reali(cid:93)ed gasoline and distillate margins as a result of decreased market crack spreads and lower feedstock

advantage.

• Lower equity earnings from DCP Midstream, reflecting the sharp drop in NGL and crude oil prices in the second

half of 2014.

2013 vs. 2012

(cid:50)ur earnings decreased (cid:7)398 million, or 10 percent, in 2013, primarily resulting from a 26 percent decrease in reali(cid:93)ed
refining margins as a result of decreased market crack spreads and impacts related to lower feedstock advantage.

This decrease was partially offset by(cid:29)

• Lower impairment expense in 2013. We recorded impairments related to our equity investments in MRC, a

refining company in Melaka, Malaysia, and Rockies Express Pipeline LLC (RE(cid:59)), a natural gas transmission
system, in 2012.

•

Improved worldwide marketing margins.

• Lower CPChem interest expense and costs resulting from its early debt retirements in 2012.

See the (cid:178)Segment Results(cid:179) section for additional information on our segment results.

Income Statement Analysis

2014 vs. 2013

Sales and other operating revenues decreased 6 percent in 2014, while purchased crude oil and products decreased 8
percent. The decreases were primarily due to lower average prices for crude oil and petroleum products.

Equity in earnings of affiliates decreased 20 percent in 2014, primarily resulting from decreased earnings from WR(cid:37) and
DCP Midstream, partially offset by increased equity earnings from CPChem.

• Equity in earnings of WR(cid:37) decreased 69 percent, mainly due to lower refining margins in the Central Corridor
as a result of lower market crack spreads and a lower feedstock advantage, as well as lower interest income
received from equity affiliates.

• Equity in earnings of DCP Midstream decreased 36 percent, primarily due to a decrease in most commodity

prices, as well as increased costs associated with planned asset growth.

• Equity in earnings of CPChem increased 20 percent, primarily driven by improved ethylene and polyethylene

reali(cid:93)ed margins related to increased sales prices.

Net gain on dispositions in 2014 were (cid:7)295 million, compared with (cid:7)55 million in 2013, primarily resulting from net
gains associated with the sale of our interest in MRC in the amount of (cid:7)145 million, as well as the partial recognition of
the previously deferred gain related to the sale of IC(cid:43)P in the amount of (cid:7)126 million. In 2013, net gain on dispositions
primarily resulted from a (cid:7)48 million gain on the sale of our E(cid:16)GasTM Technology business. For additional information,
see Note 7—Assets (cid:43)eld for Sale or Sold, in the Notes to Consolidated Financial Statements.

Selling, general and administrative expenses increased 13 percent in 2014, primarily due to additional fees under
marketing consignment fuels agreements, as well as costs associated with acquisitions.

Impairments in 2014 were $150 million, compared with $29 million in 2013. In 2014, we recorded a $131 million
impairment of the Whitegate Refinery. For additional information, see Note 11—Impairments, in the Notes to
Consolidated Financial Statements.
See Note 22—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision
for income taxes and effective tax rates.

Income from discontinued operations increased $645 million in 2014, compared to 2013, due to the completion of the
PSPI share exchange in 2014. See Note 7—Assets Held for Sale or Sold, in the Notes to Consolidated Financial
Statements, for additional information on this transaction.

2013 vs. 2012

Sales and other operating revenues and purchased crude oil and products both decreased 4 percent in 2013. The decreases
were primarily due to lower average prices for crude oil and petroleum products.

Equity in earnings of affiliates decreased 2 percent in 2013, primarily resulting from decreased earnings from WRB,
partially offset by increased equity earnings from CPChem.

• Equity in earnings of WR(cid:37) decreased 21 percent, mainly due to lower refining margins in the Central Corridor

as a result of lower market crack spreads.

• Equity in earnings of CPChem increased 14 percent, primarily driven by the absence of costs and interest

associated with CPChem's early retirement of debt in 2012, improved realized margins, higher equity earnings
from CPChem's equity affiliates and the absence of 2012 fixed asset impairments. These increases were partially
offset by lower olefins and polyolefins sales volumes related to ethylene outages. In addition, increased
turnaround and maintenance activity resulted in lower volumes and higher costs.

Net gain on dispositions decreased 72 percent in 2013, primarily resulting from a net gain associated with the sale of the
Trainer Refinery and associated terminal and pipeline assets in 2012, compared with a gain resulting from the sale of our
E-GasTM Technology business in 2013. For additional information, see Note 7—Assets Held for Sale or Sold, in the Notes
to Consolidated Financial Statements.

Selling, general and administrative expenses decreased 13 percent in 2013, primarily due to costs associated with the
Separation and costs relating to a prior retail disposition program in 2012.

Impairments in 2013 were $29 million, compared with $1,158 million in 2012. Impairments in 2012 included our
investments in MRC and REX; a marine terminal and associated assets; and equipment formerly associated with the
canceled Wilhelmshaven Refinery (WRG) upgrade project. For additional information, see Note 11—Impairments, in the
Notes to Consolidated Financial Statements.

See Note 22—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision
for income taxes and effective tax rates.

Segment Results

Midstream

Year Ended December 31

2014

2013

2012

Millions of Dollars

Net Income (Loss) Attributable to Phillips 66
Transportation
DCP Midstream
NGL
Total Midstream

233
135
139
507

199
210
60
469

Dollars Per Unit

Weighted Average NGL Price*
DCP Midstream (per barrel)
DCP Midstream (per gallon)
*Based on index prices from the Mont Belvieu and Conway market hubs that are weighted by NGL component and location mix.

37.43
0.89

37.84
0.90

Transportation Volumes
Pipelines*
Terminals
Operating Statistics
NGL extracted**
NGL fractionated***

Thousands of Barrels Daily

3,206
1,683

454
109

3,144
1,274

426
115

(210)
179
83
52

34.24
0.82

2,880
1,169

402
105

*Pipelines represent the sum of volumes transported through each separately tariffed pipeline segment, including our share of equity volumes from

Yellowstone Pipe Line Company and Lake Charles Pipe Line Company.

**Includes 100 percent of DCP Midstream’s volumes.

***Excludes DCP Midstream.

The Midstream segment purchases raw natural gas from producers and gathers natural gas through an extensive network
of pipeline gathering systems. The natural gas is then processed to extract NGL from the raw gas stream. The remaining
“residue” gas is marketed to electric utilities, industrial users and gas marketing companies. Most of the NGLs are
fractionated—separated into individual components such as ethane, propane and butane—and marketed as chemical
feedstock, fuel or blendstock. In addition, the Midstream segment includes U.S. transportation, pipeline, terminaling, and
refining logistics services associated with the movement of crude oil, refined and specialty products, natural gas and
NGL, as well as NGL fractionation, trading, and marketing businesses in the United States. The Midstream segment
includes our 50 percent equity investment in DCP Midstream and the consolidated results of Phillips 66 Partners LP.

2014 vs. 2013

Earnings from the Midstream segment increased $38 million in 2014, compared with 2013. The improvement was
primarily driven by higher earnings from our Transportation and NGL businesses, partially offset by lower earnings from
DCP Midstream.

Transportation earnings increased $34 million in 2014, compared with 2013. This increase primarily resulted from
increased throughput fees, as well as higher earnings associated with railcar activity in 2014. These increases were
partially offset by higher earnings attributable to noncontrolling interests, reflecting the contribution of previously wholly
owned assets to Phillips 66 Partners.

The $75 million decrease in earnings of DCP Midstream in 2014 primarily resulted from a decrease in NGL and crude
prices in the latter part of 2014. NGL and crude prices have continued to decline in the early part of 2015. In addition,
earnings decreased as costs associated with asset growth and maintenance increased in 2014, compared with 2013.
Earnings further declined due to DCP Midstream’s contribution of assets to its publicly traded master limited partnership,
DCP Partners. Following the contribution, a percentage of the earnings from these assets are attributable to public
unitholders, thus decreasing income attributable to DCP Midstream and, thereby, Phillips 66. See the “Business
Environment and Executive Overview” section for additional information on market factors impacting DCP Midstream’s
results.

DCP Partners issues, from time to time, limited partner units to the public. These issuances benefited our equity in
earnings from DCP Midstream, on an after-tax basis, by approximately $45 million in 2014, compared with
approximately $62 million in 2013.

The NGL business had an increase in earnings of $79 million, compared with 2013. The increase was primarily due to
improved margins driven by strong propane prices in early 2014. Additionally, 2014 earnings benefited from gains
related to seasonal propane and butane storage activity. Also, earnings improved due to higher equity earnings from the
DCP Sand Hills and DCP Southern Hills pipeline entities. These increases were partially offset by an increase in costs
associated with growth projects.

2013 vs. 2012

Earnings from the Midstream segment increased $417 million in 2013, compared with 2012. The improvement was
primarily driven by higher earnings from our Transportation business and DCP Midstream, partially offset by lower
earnings from NGL.

Transportation earnings increased $409 million in 2013, compared with 2012. These increases primarily resulted from
lower impairments in 2013, as well as increased throughput fees. In 2012, we recorded impairments totaling $303
million after-tax on our equity investment in REX, primarily reflecting a diminished view of fair value of west-to-east
natural gas transmission, due to the impact of shale gas production in the northeast. For additional information on the
REX impairment, see Note 11—Impairments, in the Notes to Consolidated Financial Statements. Throughput fees were
higher in 2013, primarily due to the implementation of market-based intersegment transfer prices for transportation and
terminaling services during 2013.

The $31 million increase in earnings of DCP Midstream in 2013 primarily resulted from an increase in gains associated
with unit issuances by DCP Partners, as described below. In addition, higher natural gas and crude oil prices benefitted
earnings. These increases were partially offset by lower NGL prices and higher interest expense.

DCP Partners unit issuances benefited our equity in earnings from DCP Midstream, on an after-tax basis, by
approximately $62 million in 2013, compared with approximately $24 million in 2012.

NGL decreased $23 million in 2013, compared with 2012. The decrease was primarily due to inventory impacts,
reflecting inventory reductions in 2012 in anticipation of the Separation, which caused liquidations of LIFO inventory
values.

Chemicals

Year Ended December 31

2014

2013

2012

Millions of Dollars

Net Income Attributable to Phillips 66

1,137

986

823

CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins
Specialties, Aromatics and Styrenics

Millions of Pounds

16,815
6,294
23,109

16,071
6,230
22,301

14,967
6,719
21,686

*Represents 100 percent of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

Olefins and Polyolefins Capacity Utilization (percent)

88%

The Chemicals segment consists of our 50 percent 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’s business is structured around two primary operating
segments: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P segment 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. The SA&S segment manufactures and markets
aromatics products, such as benzene, styrene, paraxylene and cyclohexane, as well as polystyrene and styrene-butadiene
copolymers. SA&S also manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted,
amounts referenced below reflect our net 50 percent interest in CPChem.

2014 vs. 2013

Earnings from the Chemicals segment increased $151 million, or 15 percent, in 2014, compared with 2013. The increase
in earnings was primarily driven by improved ethylene and polyethylene realized margins due to higher sales prices.
Additionally, Chemicals benefited from higher equity earnings from CPChem’s O&P equity affiliates.

These increases were partially offset by lower ethylene and polyethylene sales volumes and increased costs related to the
Port Arthur facility fire. In addition, impairments of $69 million after-tax in 2014 further offset a portion of the increase
to earnings. See the “Business Environment and Executive Overview” section for information on market factors
impacting CPChem’s results.

In July 2014, a localized fire occurred in the olefins unit at CPChem’s Port Arthur, Texas facility, shutting down ethylene
production. The Port Arthur ethylene unit restarted in November. CPChem incurred, on a 100 percent basis, $85 million
of associated repair and rebuild costs. Because the Port Arthur ethylene unit was down due to the fire, CPChem
experienced a significant reduction in production and sales in several of its product lines stemming from the lack of the
Port Arthur ethylene supply. CPChem’s property damage and business interruption insurance coverage limited the
potential extent of the financial impact. In the fourth quarter of 2014, CPChem reached an agreement with insurers and
recognized into income $120 million related to advanced payments against its business interruption insurance claim.

2013 vs. 2012

CPChem continued to benefit from price-advantaged NGL feedstocks in 2013 due to the location of its manufacturing
facilities in the U.S. Gulf Coast and Middle East. Earnings from the Chemicals segment increased $163 million, or 20
percent, in 2013, compared with 2012. The increase in earnings was primarily driven by:

• Lower costs and interest associated with CPChem(cid:181)s 2012 early retirement of (cid:7)1 billion of debt.

•

Improved polyethylene reali(cid:93)ed margins.

• (cid:43)igher equity earnings from CPChem(cid:181)s equity affiliates, reflecting increased volumes and margins.

• Lower asset impairments.

These increases were partially offset by lower olefins sales volumes related to ethylene outages. In addition, increased
turnaround and maintenance activity resulted in lower volumes and higher costs.

Refining

Net Income (Loss) Attributable to Phillips 66
Atlantic Basin/Europe
Gulf Coast
Central Corridor
Western/Pacific
Other Refining
Worldwide

Refining Margins
Atlantic Basin/Europe
Gulf Coast
Central Corridor
Western/Pacific
Worldwide

Operating Statistics
Refining operations*

Atlantic Basin/Europe
Crude oil capacity
Crude oil processed
Capacity utilization (percent)
Refinery production

Gulf Coast

Crude oil capacity
Crude oil processed
Capacity utilization (percent)
Refinery production

Central Corridor

Crude oil capacity
Crude oil processed
Capacity utilization (percent)
Refinery production

Western/Pacific

Crude oil capacity
Crude oil processed
Capacity utilization (percent)
Refinery production

Worldwide

Crude oil capacity
Crude oil processed
Capacity utilization (percent)
Refinery production
*Includes our share of equity affiliates.

Year Ended December 31

2014

2013

2012

Millions of Dollars

203
250
942
306
70
1,771

8.65
7.50
15.26
8.22
9.93

27
59
1,481
44
136
1,747

Dollars Per Barrel

6.87
6.04
18.62
8.20
9.90

Thousands of Barrels Daily

588
554

94%
605

733
676

92%
771

485
475

98%
494

440
403

92%
435

588
546
93
578

733
651
89
736

477
472
99
489

440
410
93
445

545
491
2,257
(385)
183
3,091

9.28
8.29
26.37
11.04
13.35

588
555
94
599

733
657
90
743

470
454
97
471

439
398
91
419

2,246
2,108

94%

2,305

2,238
2,079
93
2,248

2,230
2,064
93
2,232

The Refining segment buys, sells and refines crude oil and other feedstocks into petroleum products (such as gasoline,
distillates and aviation fuels) at 14 refineries, mainly in the United States and Europe.

2014 vs. 2013

Earnings for the Refining segment were $1,771 million in 2014, an increase of $24 million, or 1 percent, compared with
2013. The slight increase in earnings in 2014 was primarily due to higher realized refining margins related to secondary
products, as well as increased volumes. In addition, earnings were impacted by a gain on disposition and a related
deferred tax adjustment associated with the sale of MRC, together totaling $369 million after-tax.

These increases were mostly offset by:

• Lower earnings from decreased gasoline and distillate margins.

• Negative impacts due to inventory draws in a declining price environment.

•

Impairment of the Whitegate Refinery of (cid:7)131 million after(cid:16)tax.

• Lower interest income received from equity affiliates.

See the “Business Environment and Executive Overview” section for information on industry crack spreads and other
market factors impacting this year’s results.

Our worldwide refining crude oil capacity utilization rate was 94 percent in 2014, compared to 93 percent in 2013. The
increase reflects lower unplanned downtime related to power outages that were experienced in the Gulf Coast region in
2013.

2013 vs. 2012

Earnings for the Refining segment were $1,747 million in 2013, a decrease of $1,344 million, or 43 percent, compared
with 2012. The decrease in earnings in 2013 was primarily due to lower realized refining margins as a result of a 16
percent reduction in market cracks and impacts related to lower feedstock advantage. In addition to margins, refining
results were also impacted by a $104 million after-tax gain from the sale of the Trainer Refinery and associated terminal
and pipeline assets in 2012. These decreases were partially offset by reduced impairments recorded in 2012, primarily
related to MRC and WRG.

Our worldwide refining crude oil capacity utilization rate was 93 percent in both 2013 and 2012, as the lack of weather
disruptions were offset by higher turnaround activities.

Marketing and Specialties

Net Income Attributable to Phillips 66
Marketing and Other
Specialties
Total Marketing and Specialties

Realized Marketing Fuel Margin*
U.S.
International
*On third-party petroleum products sales.

U.S. Average Wholesale Prices*
Gasoline
Distillates
*Excludes excise taxes.

Marketing Petroleum Products Sales
Gasoline
Distillates
Other

Year Ended December 31

2014

2013

2012

Millions of Dollars

836
198
1,034

1.51
5.22

2.72
2.95

688
206
894

Dollars Per Barrel

1.21
4.36

Dollars Per Gallon

2.88
3.10

Thousands of Barrels Daily

1,195
979
17
2,191

1,174
967
17
2,158

275
269
544

0.87
4.17

3.00
3.19

1,101
985
17
2,103

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

2014 vs. 2013

Earnings from the M&S segment increased $140 million, or 16 percent, in 2014, compared with 2013. See the “Business
Environment and Executive Overview” section for information on marketing fuel margins and other market factors
impacting this year’s results.

Both U.S. and international marketing margins benefited from the timing effect of falling gasoline prices experienced in
the second half of 2014. U.S. marketing also benefited from a full year of consignment agreements entered into in 2013,
while international marketing margins also benefited from foreign exchange gains in 2014.

In July 2013, we completed the sale of ICHP, and deferred the gain from the sale due to an indemnity provided to the
buyer. In 2014, we recognized $126 million after-tax of the previously deferred gain, increasing earnings. These
increases were partially offset by the lack of ICHP earnings in 2014, compared with earnings of $53 million in 2013.

Looking forward, absent claims under the ICHP indemnity, we expect the remaining deferred gain at December 31, 2014,
of $243 million to be recognized in M&S’s earnings in the first and second quarters of 2015. In addition, if the spot
prices of gasoline stabilize or begin to increase in 2015, we would expect a reduction in M&S’s margins in 2015, relative
to 2014.

2013 vs. 2012

Earnings from the M&S segment increased $350 million, or 64 percent, in 2013, compared with 2012.

During 2013, U.S. marketing margins benefited from higher Renewable Identification Numbers (RINs) values associated
with renewable fuels blending activities, particularly during the first three quarters. RIN prices decreased during the
fourth quarter, as concerns over their availability eased somewhat based on anticipated actions by the U.S. Environmental
Protection Agency. The increased RIN prices offset weaker underlying components of our U.S. marketing margins
during 2013.

M&S earnings benefited from higher international marketing margins in 2013, as well as an after-tax gain of $23 million
from the sale of our E-GasTM Technology business. Earnings in 2012 were lowered by income taxes associated with
foreign dividends, and 2012 included a full year of earnings from our U.K. power generation business, which was sold in
July 2013.

Corporate and Other

Net Loss Attributable to Phillips 66
Net interest expense
Corporate general and administrative expenses
Technology
Repositioning costs
Other
Total Corporate and Other

2014 vs. 2013

Millions of Dollars
Year Ended December 31

2014

(160)
(156)
(58)
—
(19)
(393)

2013

(166)
(145)
(50)
—
(70)
(431)

2012

(148)
(116)
(49)
(55)
(66)
(434)

Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net
interest expense decreased $6 million in 2014, compared with 2013, primarily due to increased capitalized interest. This
decrease in expense was partially offset due to an increase in average debt outstanding in 2014, reflecting the issuance of
debt in late 2014. For additional information, see Note 14—Debt, in the Notes to Consolidated Financial Statements.

Corporate general and administrative expenses increased $11 million in 2014, compared with 2013. The increase was
primarily due to increased employee benefit costs and charitable contributions.

The category “Other” includes certain income tax expenses, environmental costs associated with sites no longer in
operation, foreign currency transaction gains and losses and other costs not directly associated with an operating
segment. The decrease in costs was primarily due to increased utilization of foreign tax credit carryforwards. In
addition, our results in 2013 were negatively impacted by higher environmental costs.

2013 vs. 2012

Net interest expense increased $18 million in 2013, compared with 2012, primarily due to increased average debt
outstanding in 2013, reflecting the issuance of debt in early 2012 in connection with the Separation. For additional
information, see Note 14—Debt, in the Notes to Consolidated Financial Statements.

Corporate general and administrative expenses increased $29 million in 2013, compared with 2012. The increase was
primarily due to incremental costs and expenses associated with operating as a stand-alone company. Repositioning costs
decreased $55 million in 2013, compared with 2012.

Discontinued Operations

Net Income Attributable to Phillips 66
Discontinued operations

Millions of Dollars
Year Ended December 31

2014

706

2013

2012

In December 2013, we entered into an agreement to exchange the stock of PSPI, a flow improver business, which was
included in our M&S segment, for shares of Phillips 66 common stock owned by the other party to the transaction. On
February 25, 2014, we completed the PSPI share exchange, resulting in the receipt of approximately 17.4 million shares
of Phillips 66 common stock and the recognition of a before-tax noncash gain of $696 million. See Note 7—Assets Held
for Sale or Sold, in the Notes to Consolidated Financial Statements, for additional information on this transaction.

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

Net cash provided by operating activities
Short-term debt
Total debt
Total equity
Percent of total debt to capital*
Percent of floating-rate debt to total debt
*Capital includes total debt and total equity.

Millions of Dollars
Except as Indicated

2014

2013

2012

3,529
842
8,684
22,037

28%
1%

6,027
24
6,155
22,392
22
1

4,296
13
6,974
20,806
25
15

To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, but rely primarily on
cash generated from operating activities. During 2014, we generated $3.5 billion in cash from operations and received
$1.2 billion from asset dispositions, including return of investments in equity affiliates, and $2.5 billion in proceeds from
the issuance of debt. Available cash was primarily used for capital expenditures and investments ($3.8 billion),
repurchases of our common stock ($2.3 billion), the PSPI share exchange ($0.5 billion) and dividend payments on our
common stock ($1.1 billion). During 2014, cash and cash equivalents decreased by $0.2 billion to $5.2 billion.

In addition to cash flows from operating activities, we rely on our commercial paper and credit facility programs, asset
sales and our ability to issue securities using our shelf registration statement to support our short- and long-term liquidity
requirements. We believe current cash and cash equivalents and cash generated by operations, together with access to
external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our
funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan
contributions, debt repayment and share repurchases.

Significant Sources of Capital

Operating Activities
Although net income was higher in 2014 than in 2013, there were large noncash items benefiting 2014 earnings,
including the gain on the PSPI exchange, gains from asset dispositions and the deferred tax effects of certain asset
dispositions. After consideration of these items, underlying earnings in 2014 were similar to 2013. However, working
capital negatively impacted 2014 operating cash flow by $1,020 million, compared with a positive impact of $880
million in 2013. Working capital impacts in 2014 reflected the negative impact of lower commodity prices on accounts
payable, with a lesser positive impact on accounts receivable as we generally carry higher payables on our balance sheet
than receivables. See the following paragraph for a discussion of 2013 working capital effects. Benefiting 2014
operating cash flow, compared with 2013, was the receipt of a special distribution from WRB, of which $760 million was
considered an operating cash flow, partially offset by lower distributions from CPChem.

During 2013, cash of $6,027 million was provided by operating activities, a 40 percent increase from cash from
operations of $4,296 million in 2012. The increase in 2013 primarily reflected positive working capital impacts.
Accounts payable activity increased cash from operations by $360 million in 2013, reflecting both higher volumes and
commodity prices. By comparison, lower commodity prices and volumes reduced accounts payable by $985 million in
2012. Our distributions from CPChem increased over $500 million in 2013, compared with 2012, reflecting the
completion of CPChem’s debt repayments in 2012, which allowed increased dividends to us and our co-venturer.
Partially offsetting the positive impact of working capital changes in 2013 were lower refining margins during 2013,
reflecting less favorable market conditions and tightening crude differentials.

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. The output at our refineries is impacted
by such factors as operating efficiency, maintenance turnarounds, market conditions, feedstock availability and weather
conditions. We actively manage the operations of our refineries and, typically, any variability in their operations has not
been as significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity
utilization was 94 percent in 2014, compared with 93 percent in 2013. We are forecasting 2015 utilization to remain in
the low 90-percent range.

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including
DCP Midstream, CPChem and WRB. Over the three years ended December 31, 2014, we received distributions of $654
million from DCP Midstream, $1,948 million from CPChem and $4,220 million from WRB. We cannot control the
amount or timing of future distributions from equity affiliates; therefore, future distributions by these and other equity
affiliates are not assured. We and our co-venturer in DCP Midstream have agreed to forgo distributions from DCP
Midstream during the current low-commodity-price environment.

WRB
WRB is a 50-percent-owned business venture with Cenovus Energy Inc. (Cenovus). Cenovus was obligated to
contribute $7.5 billion, plus accrued interest, to WRB over a 10-year period that began in 2007. In 2014, Cenovus
prepaid its remaining balance under this obligation. As a result, WRB declared a special dividend, which was distributed
to the co-venturers in 2014. Of the $1,232 million that we received, $760 million was considered a return on our
investment in WRB (an operating cash inflow), and $472 million was considered a return of our investment in WRB (an
investing cash inflow). The return-of-investment portion of the dividend was included in the “Proceeds from asset
dispositions” line in our consolidated statement of cash flows. A further $129 million of distributions from WRB during
2014 was considered a return of investment.

Asset Sales
Proceeds from asset sales in 2014 were $1,244 million, compared with $1,214 million in 2013 and $286 million in 2012.
The 2014 proceeds included a portion of the WRB special dividend as discussed above, as well as the sale of our interest
in MRC. The 2013 proceeds included the sale of a power plant in the United Kingdom, as well as our gasification
technology. The 2012 proceeds included the sale of a refinery and associated terminal and pipeline assets located in
Trainer, Pennsylvania, as well as the sale of our Riverhead Terminal located in Riverhead, New York.

Phillips 66 Partners LP

Initial Public Offering
In 2013, we formed Phillips 66 Partners LP, a master limited partnership, to own, operate, develop and acquire primarily
fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation and
midstream assets. On July 26, 2013, Phillips 66 Partners completed its initial public offering (IPO) of 18,888,750
common units at a price of $23.00 per unit, which included a 2,463,750 common unit over-allotment option that was
fully exercised by the underwriters. Phillips 66 Partners received $404 million in net proceeds from the sale of the units,
after deducting underwriting discounts, commissions, structuring fees and offering expenses. Headquartered in Houston,
Texas, Phillips 66 Partners’ assets currently consist of crude oil and refined petroleum product pipeline, terminal, and
storage systems in the Central and Gulf Coast regions of the United States, as well as two crude oil rail-unloading
facilities, all of which are integral to a connected Phillips 66-operated refinery.

Contributions to Phillips 66 Partners LP
Effective March 1, 2014, we contributed to Phillips 66 Partners certain transportation, terminaling and storage assets for
total consideration of $700 million. These assets consisted of the Gold Line products system and the Medford spheres,
two recently constructed refinery-grade propylene storage spheres. Phillips 66 Partners financed the acquisition with
cash on hand of $400 million (primarily reflecting its IPO proceeds), the issuance to us of 3,530,595 and 72,053
additional common and general partner units, respectively, valued at $140 million, and a five-year, $160 million note
payable to a subsidiary of Phillips 66.

Effective December 1, 2014, we contributed to Phillips 66 Partners certain logistics assets for total consideration of $340
million. These assets consisted of two recently constructed crude oil rail-unloading facilities located at or adjacent to our
Bayway and Ferndale refineries, and the Cross Channel Connector pipeline assets located near the partnership’s Pasadena
terminal. Phillips 66 Partners financed the acquisition with the borrowing of $28 million under its revolving credit
facility, the assumption of a five-year, $244 million note payable to a subsidiary of Phillips 66, and the issuance to
Phillips 66 of 1,066,412 common and 21,764 general partner units valued at $68 million.

In addition to these two transactions, we made smaller contributions to Phillips 66 Partners of projects under
development in the fourth quarter, for consideration in the aggregate of approximately $55 million.

Ownership
At December 31, 2014, we owned a 73 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while its public unitholders owned a 25 percent limited partner interest. We consolidate Phillips 66 Partners
as a variable interest entity for financial reporting purposes. See Note 4—Variable Interest Entities (VIEs), in the Notes
to Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of
this consolidation, the public unitholders’ ownership interest in Phillips 66 Partners is reflected as a noncontrolling
interest in our financial statements, including $415 million in the equity section of our consolidated balance sheet at
December 31, 2014. Generally, contributions of assets by us to Phillips 66 Partners will eliminate in consolidation, other
than third-party debt or equity offerings made by Phillips 66 Partners to finance such transactions. For the 2014
contributions discussed above, the first did not impact our consolidated financial statements, while the second increased
consolidated cash and debt by $28 million at the time of the transaction.

Recent Transactions
On February 13, 2015, we entered into a contribution agreement with Phillips 66 Partners under which Phillips 66
Partners will acquire our equity interest in Explorer Pipeline Company (19.46 percent), DCP Sand Hills Pipeline, LLC
(33.33 percent), and DCP Southern Hills Pipeline, LLC (33.33 percent). We account for each of these investments under
the equity method of accounting. The total consideration for the transaction is expected to be $1,010 million, which will
consist of approximately $880 million in cash and the issuance of common units and general partner units to us with an
aggregate fair value of $130 million. The transaction is expected to close in early March 2015, subject to standard
closing conditions.

During February 2015, Phillips 66 Partners initiated two registered public offerings of securities:

•

5,250,000 common units representing limited partner interests, at a public offering price of (cid:7)75.50 per unit. The
net proceeds at closing are expected to be $384 million, not including an over-allotment option exercisable by
the underwriters to purchase up to an additional 787,500 common units.

(cid:7)1.1 billion aggregate principal amount of senior notes, which include (cid:7)300 million of 2.646(cid:8) Senior Notes due
2020, (cid:7)500 million of 3.605(cid:8) Senior Notes due 2025, and (cid:7)300 million of 4.680(cid:8) Senior Notes due 2045.

Closings of both public offerings are expected to occur in late February 2015. Phillips 66 Partners expects to use the net
proceeds of both offerings to fund the acquisition transaction discussed above, repay existing borrowings from a
subsidiary of Phillips 66, fund capital expenditures and for general partnership purposes.

Credit Facilities and Commercial Paper
During the fourth quarter of 2014, we amended our Phillips 66 revolving credit facility, primarily to increase its
borrowing capacity from $4.5 billion to $5 billion and to extend the term from June 2018 to December 2019. The
Phillips 66 facility may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for
our commercial paper program. The facility is with a broad syndicate of financial institutions and contains covenants
that we consider usual and customary for an agreement of this type for comparable commercial borrowers, including a
maximum consolidated net debt-to-capitalization ratio of 60 percent. The agreement has customary events of default,
such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-
payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of
control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin
based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s

Ratings Services (S&P) and Moody’s Investors Service (Moody’s). The facility also provides for customary fees,
including administrative agent fees and commitment fees. As of December 31, 2014, no amount had been directly drawn
under this facility and $51 million in letters of credit had been issued that were supported by the facility. As a result, we
ended 2014 with $4.9 billion of capacity under this facility.

We have a $5 billion commercial paper program for short-term working capital needs. Commercial paper maturities are
generally limited to 90 days. As of December 31, 2014, we had no borrowings under our commercial paper program.

During the fourth quarter of 2014, Phillips 66 Partners also amended its revolving credit facility, primarily to increase its
borrowing capacity from $250 million to $500 million and to extend the term from June 2018 to November 2019. The
Phillips 66 Partners facility is with a broad syndicate of financial institutions. As of December 31, 2014, $18 million had
been drawn under the facility, leaving $482 million of available capacity.

Trade Receivables Securitization Facility
In 2014, we terminated our $696 million trade receivables securitization facility. No amounts were drawn on this facility
throughout its duration, and at the time of termination no letters of credit were outstanding thereunder.

Debt Financing
In November 2014, we issued $2.5 billion of debt consisting of:

•

(cid:7)1.0 billion aggregate principal amount of 4.650(cid:8) Senior Notes due 2034.

(cid:7)1.5 billion aggregate principal amount of 4.875(cid:8) Senior Notes due 2044.

The notes are guaranteed by Phillips 66 Company, a 100-percent-owned subsidiary. Net proceeds received from these
offerings will be used to repay (cid:7)800 million in aggregate principal amount of our outstanding 1.950(cid:8) Senior Notes due
2015, for capital expenditures, and for general corporate purposes.

Our $8.3 billion of outstanding Senior Notes were issued by Phillips 66 and are guaranteed by Phillips 66 Company. Our
senior unsecured long-term debt has been rated investment grade by S&P (BBB+) and Moody’s (A3). 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 downgrade of our credit rating. If our credit rating deteriorated to a level prohibiting us from
accessing the commercial paper market, we would expect to be able to access funds under our liquidity facilities
mentioned above.

Shelf Registration
We have a universal shelf registration statement on file with the SEC under which we, as a well-known seasoned issuer,
have the ability to issue and sell an indeterminate amount of various types of debt and equity securities.

Other Financing
During 2014, we recorded capital lease obligations related to equipment and transportation assets. These leases mature
within the next fifteen years. During 2013, we entered into a capital lease obligation for use of an oil terminal in the
United Kingdom which matures in 2033. The present value of our minimum capital lease payments for these obligations
as of December 31, 2014, was $205 million.

Off-Balance Sheet Arrangements
As part of our normal ongoing business operations, we enter into agreements with other parties to pursue business
opportunities, with costs and risks apportioned among the parties as provided by the agreements. In April 2012, in
connection with the Separation, we entered into an agreement to guarantee 100 percent of certain outstanding debt
obligations of Merey Sweeny, L.P. (MSLP). At December 31, 2014, the aggregate principal amount of MSLP debt
guaranteed by us was $189 million.

For additional information about guarantees, see Note 15—Guarantees, in the Notes to Consolidated Financial
Statements.

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

Our debt balance at December 31, 2014, was $8.7 billion and our debt-to-capital ratio was 28 percent, within our target
range of 20-to-30 percent.

On February 4, 2015, our Board of Directors declared a quarterly cash dividend of $0.50 per common share, payable
March 2, 2015, to holders of record at the close of business on February 17, 2015. We are forecasting annual double-
digit percentage increases in our dividend rate in 2015 and 2016.

During the second half of 2013, we entered into a construction agency agreement and an operating lease agreement with
a financial institution for the construction of our new headquarters facility to be located in Houston, Texas. Under the
construction agency agreement, we act as construction agent for the financial institution over a construction period of up
to three years and eight months, during which time we request cash draws from the financial institution to fund
construction costs. Through December 31, 2014, approximately $225 million had been drawn, of which approximately
$205 million is recourse to us should certain events of default occur. The operating lease becomes effective after
construction is substantially complete and we are able to occupy the facility. The operating lease has a term of five years
and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility, or assist the
financial institution in marketing it for resale.

During 2012 and 2013, our Board of Directors authorized repurchases totaling up to $5 billion of our outstanding
common stock. In July 2014, our Board of Directors authorized additional share repurchases totaling up to $2 billion.
The share repurchases are expected to be funded primarily through available cash. The shares will be repurchased from
time to time in the open market at the company’s discretion, subject to market conditions and other factors, and in
accordance with applicable regulatory requirements and the Tax Sharing Agreement entered into in connection with the
Separation. We are not obligated to acquire any particular amount of common stock and may commence, suspend or
discontinue purchases at any time or from time to time without prior notice. Since the inception of our share repurchases
in 2012, we have repurchased a total of 73,227,369 shares at a cost of $4.9 billion through December 31, 2014. Shares of
stock repurchased are held as treasury shares.

On October 15, 2014, we signed agreements to form two joint ventures to develop the Dakota Access Pipeline (DAPL)
and Energy Transfer Crude Oil Pipeline (ETCOP) projects. We own a 25 percent interest in each joint venture, with our
co-venturer holding the remaining 75 percent interest and acting as operator of both the DAPL and ETCOP systems. Our
share of construction cost is estimated to be approximately $1.2 billion, which will be reflected as investments in equity-
method affiliates. We expect the majority of this capital spending commitment to be incurred in 2015 and 2016, and
anticipate it to be funded as part of our overall capital program.

Contractual Obligations
The following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2014.

Millions of Dollars
Payments Due by Period

Up to
1 Year

823
19
842
363
489
27,161

8
84
8
28,955

Years
2-3

1,556
19
1,575
682
685
17,023

10
113
(d)
20,088

Years
4-5

81
17
98
606
378
6,735

10
80
(d)
7,907

After
5 Years

6,014
155
6,169
4,722
456
32,462

251
219
(d)
44,279

Total

8,474
210
8,684
6,373
2,008
83,381

279
496
8
101,229

Debt obligations (a)
Capital lease obligations
Total debt
Interest on debt
Operating lease obligations
Purchase obligations (b)
Other long-term liabilities (c)
Asset retirement obligations
Accrued environmental costs
Unrecognized tax benefits (d)

Total

(a) For additional information, see Note 14—Debt, in the Notes to Consolidated Financial Statements.

(b) Represents any agreement to purchase goods or services that is enforceable and legally binding and that specifies

all significant terms. We expect these purchase obligations will be fulfilled by operating cash flows in the
applicable maturity period. The majority of the purchase obligations are market-based contracts, including
exchanges and futures, for the purchase of products such as crude oil and unfractionated NGL. The products are
mostly used to supply our refineries and fractionators, optimize the supply chain, and resell to customers.
Product purchase commitments with third parties totaled $39,822 million. In addition, $22,117 million are
product purchases from CPChem, mostly for natural gas and NGL over the remaining contractual term of
85 years, and $8,575 million from Excel Paralubes, for base oil over the remaining contractual term of 10 years.

Purchase obligations of $6,385 million are related to 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. The remainder is primarily our net share of purchase commitments for materials and services for
jointly owned facilities where we are the operator.

per year to our qualified and nonqualified pension and other postretirement benefit plans in the United States and
an average of $56 million per year to our non-U.S. plans, which are expected to be in excess of required
minimums in many cases. The U.S. five-year average consists of $30 million for 2015 and then approximately
$165 million per year for the remaining four years. Our minimum funding in 2015 is expected to be $30 million
in the United States and $70 million outside the United States.

(d) Excludes unrecognized tax benefits of $134 million because the ultimate disposition and timing of any payments
to be made with regard to such amounts are not reasonably estimable or the amounts relate to potential refunds.
Also excludes interest and penalties of $16 million. Although unrecognized tax benefits are not a contractual
obligation, they are presented in this table because they represent potential demands on our liquidity.

Capital Spending

Capital Expenditures and Investments
Midstream*
Chemicals
Refining**
Marketing and Specialties
Corporate and Other**

Total consolidated from continuing operations

Discontinued operations

2015
Budget

3,163
—
1,112
170
155
4,600

—

Millions of Dollars

2014

2,173
—
1,038
439
123
3,773

—

2013

597
—
820
226
136
1,779

2012

707
—
735
119
140
1,701

Selected Equity Affiliates***
DCP Midstream*
CPChem
WRB

1,324
371
136
1,831
*2012 consolidated amount includes acquisition of a one-third interest in the Sand Hills and Southern Hills pipeline projects from DCP Midstream for $459
million. This amount was also included in DCP Midstream’s capital spending, primarily in 2012.

400
1,453
203
2,056

971
613
109
1,693

776
897
140
1,813

**2015 budget includes non-cash capitalized leases of $11 million in Refining and $21 million in Corporate and Other.
***Our share of capital spending, which has been self-funded by the equity affiliate and is expected to be in 2015.

Midstream
During the three-year period ended December 31, 2014, DCP Midstream had a self-funded capital program, and thus
required no new capital infusions from us or our co-venturer, Spectra Energy Corp. During this three-year period, on a
100 percent basis, DCP Midstream’s capital expenditures and investments were $6.1 billion. In 2012, we invested
approximately $0.5 billion in total to acquire a one-third direct interest in DCP Sand Hills Pipeline, LLC (DCP Sand
Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). Phillips 66, Spectra Energy Partners and DCP
Midstream Partners each own a one-third interest in each of the two pipeline entities, and both pipelines are operated by
DCP Midstream. In 2013 and 2014, we made additional investments in both DCP Sand Hills and DCP Southern Hills,
increasing our total direct investment to $0.8 billion.

Other capital spending in our Midstream segment not related to DCP Midstream or the Sand Hills and Southern Hills
pipelines over the three-year period included construction activities in 2014 related to our Sweeny Fractionator One and
Freeport LPG Export Terminal projects, our acquisition in 2014 of a 7.1 million-barrel-storage-capacity crude oil and
petroleum products terminal located near Beaumont, Texas, the purchase in 2014 of an additional 5.7 percent interest in
the refined products Explorer Pipeline, and spending associated with return, reliability and maintenance projects. In
addition to our Sweeny Fractionator One and Freeport LPG Export Terminal projects, our major capital activities in 2013
and 2014 included the construction of rail racks to accept advantaged crude deliveries at our Bayway and Ferndale
refineries.

Chemicals
During the three-year period ended December 31, 2014, CPChem had a self-funded capital program, and thus required no
new capital infusions from us or our co-venturer, Chevron U.S.A. Inc. (Chevron), an indirect wholly-owned subsidiary of
Chevron Corporation. During the three-year period, on a 100 percent basis, CPChem’s capital expenditures and
investments were $3.8 billion. In addition, CPChem’s advances to equity affiliates, primarily used for project
construction and start-up activities, were $0.5 billion and its repayments received from equity affiliates were $0.4 billion.

Refining
Capital spending for the Refining segment during the three-year period ended December 31, 2014, was $2.6 billion,
primarily for air emission reduction and clean fuels projects to meet new environmental standards, refinery upgrade
projects to increase accessibility of advantaged crudes and improve product yields, improvements to the operating
integrity of key processing units, and safety-related projects.

Key projects completed during the three-year period included:

•

Installation of facilities to reduce nitrous oxide emissions from the crude furnace and installation of a new high(cid:16)
efficiency vacuum furnace at Bayway Refinery.

• Completion of gasoline ben(cid:93)ene reduction projects at the Alliance, (cid:37)ayway, and Ponca City refineries.

•

Installation of new coke drums at the (cid:37)illings and Ponca City refineries.

Installation of a new waste heat boiler at the (cid:37)ayway Refinery to reduce carbon monoxide emissions while
providing steam production.

Major construction activities in progress include:

•

Installation of facilities to reduce nitrous oxide emissions from the fluid catalytic cracker at the Alliance
Refinery.

•

Installation of a tail gas treating unit at the (cid:43)umber Refinery to reduce emissions from the sulfur recovery units.

Generally, our equity affiliates in the Refining segment are intended to have self-funding capital programs. During this
three(cid:16)year period, on a 100 percent basis, WR(cid:37)(cid:181)s capital expenditures and investments were (cid:7)0.8 billion. We expect
WRB’s 2015 capital program to be self-funding.

Marketing and Specialties
Capital spending for the M&S segment during the three-year period ended December 31, 2014, was primarily for the
acquisition of, and investments in, a limited number of retail sites in the Western and Midwestern portions of the United
States; the acquisition of Spectrum Corporation, a private label specialty lubricants business headquartered in Memphis,
Tennessee, as well as the remaining interest that we did not already own in an entity that operates a power and steam
generation plant; reliability and maintenance projects; and projects targeted at growing our international marketing
business.

Corporate and Other
Capital spending for Corporate and Other during the three-year period ended December 31, 2014, was primarily for
projects related to information technology and facilities.

2015 Budget
(cid:50)ur 2015 capital budget is (cid:7)4.6 billion. This excludes our portion of planned capital spending by joint ventures DCP
Midstream, CPChem and WR(cid:37) totaling (cid:7)2.1 billion, all of which are expected to be self(cid:16)funded. We continually
evaluate our capital budget in light of market conditions. As part of our disciplined approach to capital allocation, we
retain the flexibility to adjust the capital budget as the year progresses.

In Midstream, we plan to invest (cid:7)3.2 billion in our NGL and Transportation business lines. Midstream capital includes
approximately (cid:7)0.2 billion expected to be spent by Phillips 66 Partners to support organic growth projects. In NGL,
construction of the 100,000 barrel(cid:16)per(cid:16)day Sweeny Fractionator (cid:50)ne and the 4.4 million(cid:16)barrel(cid:16)per(cid:16)month Freeport LPG
Export Terminal on the U.S. Gulf Coast continues. In Transportation, we are investing in pipeline and rail infrastructure
projects to move crude oil from the (cid:37)akken(cid:18)Three Forks production area of North Dakota to market centers throughout
the United States. In addition, expansion of the (cid:37)eaumont Terminal and related infrastructure opportunities are being
pursued.

We plan to spend (cid:7)1.1 billion of capital in Refining, approximately 75 percent of which will be sustaining capital. These
investments are related to reliability and maintenance, safety and environmental projects, including compliance with the

new EPA Tier 3 gasoline specifications. Discretionary Refining capital investments are expected to be directed toward
small, high-return, quick pay-out projects, primarily to enhance the use of advantaged crudes and improve product yields.

In Marketing and Specialties, we plan to invest approximately $0.2 billion for growth and sustaining capital. The growth
investment reflects our continued plans to expand and enhance our fuel marketing business.

In Corporate and Other, we plan to fund approximately $0.2 billion in projects primarily related to information
technology and facilities.

Contingencies

A number of lawsuits involving a variety of claims have been brought against us in connection with matters that arise in
the ordinary course of business. 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 accounting recognition or disclosure of these contingencies. In the case
of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and
the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is
a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for
potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-
party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual
in cases where sustaining a tax position is less than certain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated
financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to
accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include 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 organization applies its knowledge, experience and professional judgment to the specific characteristics of our
cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process
facilitates the early evaluation and quantification of potential exposures in individual cases. This process also enables us
to track 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, are required. See Note 22—Income Taxes, in the Notes to Consolidated Financial
Statements, for additional information about income-tax-related contingencies.

Environmental
We are subject to the same numerous international, federal, state and local environmental laws and regulations as other
companies in our industry. The most significant of these environmental laws and regulations include, among others, the:

• U.S. Federal Clean Air Act, which governs air emissions.
• U.S. Federal Clean Water Act, which governs discharges to water bodies.
• European Union Regulation for Registration, Evaluation, Authori(cid:93)ation and Restriction of Chemicals (REAC(cid:43)),

which governs the manufacture, placing on the market or use of chemicals.

• 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(cid:16)to(cid:16)(cid:46)now Act (EPCRA), which requires facilities to report

toxic chemical inventories to local emergency planning committees and response departments.

• U.S. Federal Safe Drinking Water Act, which governs the disposal of wastewater in underground injection wells.
• U.S. Federal (cid:50)il Pollution Act of 1990 ((cid:50)PA90), under which owners and operators of onshore facilities and

pipelines, lessees or permittees of an area in which an offshore facility is located, and owners and operators of
vessels are liable for removal costs and damages that result from a discharge of oil into navigable waters of the
United States.

• European Union Trading Directive resulting in the European Emissions Trading Scheme, which uses a market(cid:16)

based mechanism to incentivi(cid:93)e the reduction of greenhouse gas emissions.

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(cid:181)s processing of the application. Many of the delays associated with the permitting process are beyond the control
of the applicant.

Many states and foreign countries 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 marketing or transporting products
across state and international borders.

The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor easily
determinable as new standards, such as air emission standards, water quality standards and stricter fuel regulations,
continue to evolve. (cid:43)owever, 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 emission compliance and
remediation obligations in the United States.

An example in the fuels area is the Energy Policy Act of 2005, which imposed obligations to provide increasing volumes
of renewable fuels in transportation motor fuels through 2012. These obligations were changed with the enactment of the
Energy Independence and Security Act of 2007 (EISA). EISA requires fuel producers and importers to provide
additional renewable fuels for transportation motor fuels and stipulates a mix of various types to be included through
2022. We have met the increasingly stringent requirements to date while establishing implementation, operating and
capital strategies, along with advanced technology development, to address projected future requirements. It is uncertain
how various future requirements contained in EISA, and the regulations promulgated thereunder, may be implemented
and what their full impact may be on our operations. Also, we may experience a decrease in demand for refined
petroleum products due to the regulatory program as currently promulgated. For the 2014 compliance year, the U.S.
Environmental Protection Agency (EPA) proposed to reduce the statutory volumes of advanced and total renewable fuel
using authority granted to it under EISA. We do not know whether this reduction will be finali(cid:93)ed as proposed or
whether the EPA will utili(cid:93)e its authority to reduce statutory volumes in future compliance years.

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 past and present owned and(cid:18)or operated petroleum(cid:16)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(cid:16)butyl ether (MT(cid:37)E) for both soil and groundwater.

At RCRA(cid:16)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
(cid:178)Superfund,(cid:179) the cost of corrective action activities under RCRA corrective action programs typically is 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(cid:16)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 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. As of December 31, 2013, we reported we had been notified
of potential liability under CERCLA and comparable state laws at 35 sites around the United States. During 2014, there
were no new sites for which we received notification of potential liability and one site was deemed resolved and closed,
leaving 34 unresolved sites with potential liability at December 31, 2014.

For most Superfund sites, our potential liability will be significantly 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 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.

Expensed environmental costs were $630 million in 2014 and are expected to be approximately $680 million in each of
2015 and 2016. Capitalized environmental costs were $411 million in 2014 and are expected to be approximately
$320 million in each of 2015 and 2016. This amount does not include capital expenditures made for another purpose 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 purchase 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.

At December 31, 2014, our balance sheet included total accrued environmental costs of $496 million, compared with
$492 million at December 31, 2013, and $530 million at December 31, 2012. We expect to incur a substantial amount of
these expenditures within the next 30 years.

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

The EPA’s Renewable Fuel Standard (RFS) program was implemented in accordance with the Energy Policy Act of 2005
and EISA. The RFS program sets annual quotas for the percentage of biofuels (such as ethanol) that must be blended
into motor fuels consumed in the United States. A Renewable Identification Number (RIN) represents a serial number
assigned to each gallon of biofuel produced or imported into the United States. As a producer of petroleum-based motor
fuels, we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the EPA’s quota
and, to the extent we do not, we must purchase RINs in the open market to satisfy our obligation under the RFS program.
The market for RINs has been the subject of fraudulent activity, and we have identified that we have unknowingly

purchased RINs in the past that were invalid due to fraudulent activity of third parties. Although costs to replace
fraudulently marketed RINs that have been determined to be invalid have not been material through December 31, 2014,
it is reasonably possible that some additional RINs that we have previously purchased may also be determined to be
invalid. Should that occur, we could incur additional replacement charges. Although the cost for replacing any
additional fraudulently marketed RINs is not reasonably estimable at this time, we could have a possible exposure of
approximately $150 million before tax. It could take several years for this possible exposure to reach ultimate resolution;
therefore, we would not expect to incur the full financial impact of additional fraudulent RINs replacement costs in any
single interim or annual period.

Climate Change
There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse
gas (GHG) reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or
may have interests in the future. Laws in this field 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, if enacted,
could have a material impact on our results of operations and financial condition. Examples of legislation or precursors
for possible regulation that do or could affect our operations include:

• European Union Emissions Trading Scheme (EU ETS), which is part of the European Union(cid:181)s policy to combat

climate change and is a key tool for reducing industrial greenhouse gas emissions. EU ETS impacts factories,
power stations and other installations across all EU member states.

• California(cid:181)s Global Warming Solutions Act, which requires the California Air Resources (cid:37)oard to develop

regulations and market mechanisms that will target reduction of California(cid:181)s G(cid:43)G emissions by 25 percent by
2020.

• 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 (cid:178)air pollutant(cid:179) under the Federal Clean Air Act.
• The EPA(cid:181)s announcement on March 29, 2010 (published as (cid:178)Interpretation of Regulations that Determine

Pollutants Covered by Clean Air Act Permitting Programs,(cid:179) 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA(cid:181)s
and U.S. Department of Transportation(cid:181)s joint promulgation of a Final Rule on April 1, 2010, that triggers
regulation of G(cid:43)Gs under the Clean Air Act. These collectively may lead to more climate(cid:16)based claims for
damages, and may result in longer agency review time for development projects to determine the extent of
potential climate change.

• Carbon taxes in certain jurisdictions.
• G(cid:43)G emission cap and trade programs in certain jurisdictions.

In the EU, the first phase of the EU ETS completed at the end of 2007 and Phase II was undertaken from 2008 through to
2012. The current phase (Phase III) runs from 2013 through to 2020, with the main changes being reduced allocation of
free allowances and increased auctioning of new allowances. Phillips 66 has assets that are subject to the EU ETS, and
the company is actively engaged in minimi(cid:93)ing any financial impact from the EU ETS.

In the United States, some additional form of regulation may be forthcoming in the future at the federal or state levels
with respect to GHG emissions. Such regulation could take any of several forms that may result in the creation of
additional costs 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. We are working to continuously improve
operational and energy efficiency through resource and energy conservation throughout our operations.

Compliance with changes in laws and regulations that create a G(cid:43)G emission trading program or G(cid:43)G reduction
requirements 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(cid:181)s cap and trade program, which
was promulgated pursuant to the State(cid:181)s Global Warming Solutions Act. The program has been limited to certain
stationary sources, which include our refineries in California, but beginning in January 2015 expanded to include
emissions from transportation fuels distributed in California. We expect inclusion of transportation fuels in California(cid:181)s
cap and trade program as currently promulgated will increase 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 G(cid:43)G reductions required.
• The price and availability of offsets.
• The 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.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles 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 2—Accounting Policies, in the Notes to Consolidated
Financial Statements, for descriptions of our major accounting policies. Certain 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, along with the discussion of contingencies in this report, address all important
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.

Impairments
Long(cid:16)lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a
possible significant deterioration in future cash flows is expected to be generated by an asset group. If, upon review, the
sum of the undiscounted pre(cid:16)tax cash flows is less than the carrying value of the asset group, including applicable
liabilities, the carrying value of the long(cid:16)lived assets included in the asset group 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 groups of assets (for example, at a
refinery complex level). (cid:37)ecause there usually is a lack of quoted market prices for long(cid:16)lived assets, the fair value of
impaired assets is typically determined using one or more of the following methods(cid:29) the present values 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 of earnings for similar assets; or historical market transactions of similar assets, adjusted
using principal market participant assumptions when necessary. The expected future cash flows used for impairment
reviews and related fair value calculations are based on judgmental assessments of future volumes, commodity prices,
operating costs, margins, discount rates and capital project decisions, considering all available information at the date of
review.

Investments in nonconsolidated entities accounted for under the equity method are reviewed for impairment when there
is evidence of a loss in value. Such evidence of a loss in value might include our inability to recover the carrying
amount, the lack of sustained earnings capacity which would justify the current investment amount, or a current fair
value less than the investment(cid:181)s carrying amount. When it is determined such a loss in value is other than temporary, an
impairment charge is recogni(cid:93)ed for the difference between the investment(cid:181)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 length
of time and extent of the decline, the investee(cid:181)s financial condition and near(cid:16)term prospects, and our ability and intention
to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the market value of the
investment. 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 a market analysis of comparable assets, if appropriate. Differing assumptions could affect the
timing and the amount of an impairment of an investment in any period.

Asset Retirement Obligations
Under various contracts, permits and regulations, we have legal obligations to remove tangible equipment and restore the
land at the end of operations at certain operational sites. Our largest asset removal obligations involve asbestos
abatement at refineries. Estimating the timing and amount of payments for future asset removal costs is difficult. Most
of these removal obligations are many years, or decades, in the future, and the contracts and regulations often have vague
descriptions of what removal practices and criteria must be met when the removal event actually occurs. Asset removal
technologies and costs, regulatory and other compliance considerations, expenditure timing, and other inputs into
valuation of the obligation, including discount and inflation rates, are also subject to change.

Environmental Costs
In addition to asset retirement obligations discussed above, under the above or similar contracts, permits and regulations,
we have certain obligations to complete environmental-related projects. These projects are primarily related to cleanup at
domestic refineries, underground storage sites and non-operated sites. Future environmental remediation costs are
difficult to estimate because they 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 responsible parties.

Intangible Assets and Goodwill
At December 31, 2014, we had $756 million of intangible assets determined to have indefinite useful lives, and thus they
are not amortized. This judgmental assessment of an indefinite useful life must be continuously evaluated in the future.
If, due to changes in facts and circumstances, management determines these intangible assets have finite useful lives,
amortization will commence at that time on a prospective basis. As long as these intangible assets are judged to have
indefinite lives, they will be subject to annual impairment tests that require management’s judgment of the estimated fair
value of these intangible assets.

At December 31, 2014, we had $3.3 billion of goodwill recorded in conjunction with past business combinations.
Goodwill is not amortized. Instead, goodwill is subject to at least annual reviews for impairment at a reporting unit level.
The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the
manner in which the business is managed. A reporting unit is an operating segment or a component that is one level
below an operating segment.

Effective January 1, 2014, we reallocated $52 million of goodwill from the Refining segment to the M&S segment based
upon the realignment of certain assets between the reporting units. Goodwill was reassigned to the reporting units using
a relative fair value approach. Goodwill impairment testing was completed and no impairment recognition was required.
See Note 27—Segment Disclosures and Related Information, for additional information on this segment realignment.
Sales or dispositions of significant assets within a reporting unit are allocated a portion of that reporting unit’s goodwill,
based on relative fair values, which adjusts the amount of gain or loss on the sale or disposition.

Because quoted market prices for our reporting units were not available, management applied judgment in determining
the estimated fair values of the reporting units for purposes of performing the goodwill impairment test. Management
used all available information to make this fair value determination, including observed market earnings multiples of
comparable companies, our common stock price and associated total company market capitalization and the present
values of expected future cash flows using discount rates commensurate with the risks involved in the assets.

We completed our annual impairment test, as of October 1, 2014, and concluded that the fair value of our reporting units
exceeded their recorded net book values (including goodwill). Our Refining reporting unit had a percentage excess of
fair value over recorded net book value of approximately 60 percent. Our Transportation and M&S reporting unit’s fair
values exceeded their recorded net book values by over 100 percent. However, a decline in the estimated fair value of
one or more of our reporting units in the future could result in an impairment. For example, a prolonged or significant
decline in our stock price or a significant decline in actual or forecasted earnings could provide evidence of a significant
decline in fair value and a need to record a material impairment of goodwill for one or more of our reporting units.

Tax Assets and Liabilities
Our operations are subject to various taxes, including federal, state and foreign income taxes and transactional taxes such
as excise, sales/use, property and payroll taxes. We record tax liabilities based on our assessment of existing tax laws and
regulations. The recording of tax liabilities requires significant judgment and estimates. We recognize the financial
statement effects of an income tax position when it is more likely than not that the position will be sustained upon
examination by a taxing authority. A contingent liability related to a transactional tax claim is recorded if the loss is both
probable and estimable. Actual incurred tax liabilities can vary from our estimates for a variety of reasons, including
different interpretations of tax laws and regulations and different assessments of the amount of tax due.

In determining our income tax provision, we assess the likelihood our deferred tax assets will be recovered through future
taxable income. Valuation allowances reduce deferred tax assets to an amount that will, more likely than not, be realized.
Judgment is required in estimating the amount of valuation allowance, if any, that should be recorded against our deferred
tax assets. Based on our historical taxable income, our expectations for the future, and available tax-planning strategies,
we expect the net deferred tax assets will more likely than not be realized as offsets to reversing deferred tax liabilities
and as reductions to future taxable income. If our actual results of operations differ from such estimates or our estimates
of future taxable income change, the valuation allowance may need to be revised.

New tax laws and regulations, as well as changes to existing tax laws and regulations, are continuously being proposed or
promulgated. The implementation of future legislative and regulatory tax initiatives could result in increased tax
liabilities that cannot be predicted at this time.

Projected Benefit Obligations
Determination of the projected benefit obligations for our defined benefit pension and postretirement plans are important
to the recorded amounts for such obligations on the balance sheet and to the amount of benefit expense in the income
statement. The actuarial determination of projected benefit obligations and company contribution requirements involves
judgment about uncertain future events, including estimated retirement dates, salary levels at retirement, mortality rates,
lump-sum election rates, rates of return on plan assets, future health care cost-trend rates, and rates of utilization of health
care services by retirees. Due to the specialized nature of these calculations, we engage outside actuarial firms to assist in
the determination of these projected benefit obligations and company contribution requirements. Due to differing
objectives and requirements between financial accounting rules and the pension plan funding regulations promulgated by
governmental agencies, the actuarial methods and assumptions for the two purposes differ in certain important respects.
Ultimately, we will be required to fund all promised benefits under pension and postretirement benefit plans not funded
by plan assets or investment returns, but the judgmental assumptions used in the actuarial calculations significantly affect
periodic financial statements and funding patterns over time. Benefit expense is particularly sensitive to the discount rate
and return on plan assets assumptions. A 1 percent decrease in the discount rate assumption would increase annual
benefit expense by an estimated $80 million, while a 1 percent decrease in the return on plan assets assumption would
increase annual benefit expense by an estimated $30 million. In determining the discount rate, we use yields on high-
quality fixed income investments with payments matched to the estimated distributions of benefits from our plans.

In 2014 and 2013, the company used an expected long-term rate of return of 7 percent for the U.S. pension plan assets,
which account for 75 percent of the company’s pension plan assets. The actual asset returns for 2014 and 2013 were 9
percent and 16 percent, respectively. For the eight years prior to the Separation, actual asset returns averaged 7 percent
for the U.S. pension plan assets. The 2013 asset returns of 16 percent were associated with a broad recovery in the
financial markets during the year.

NEW ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” The new standard converged guidance on recognizing revenues
in contracts with customers under accounting principles generally accepted in the United States and International
Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across
entities, industries, jurisdictions and capital markets. ASU 2014-09 is effective for annual and quarterly reporting periods
of public entities beginning after December 15, 2016. Early application for public entities is not permitted. We are
currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial
position and results of operations.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Instrument Market Risk

We and certain of our subsidiaries hold and issue derivative contracts and financial instruments that expose our cash
flows or earnings to changes in commodity prices, foreign currency exchange rates or interest rates. We may use
financial- and commodity-based derivative contracts to manage the risks produced by changes in the prices of crude oil
and related products, natural gas, NGL, and electric power; fluctuations in interest rates and foreign currency exchange
rates; or to capture market opportunities.

Our use of derivative instruments is governed by an “Authority Limitations” document approved by our Board of
Directors that prohibits the use of highly leveraged derivatives or derivative instruments without sufficient market
liquidity for comparable valuations. The Authority Limitations document also establishes the Value at Risk (VaR) limits
for us, and compliance with these limits is monitored daily. Our Chief Financial Officer monitors risks resulting from
foreign currency exchange rates and interest rates. Our President monitors commodity price risk. The Commercial
organization manages our commercial marketing, optimizes our commodity flows and positions, and monitors related
risks of our businesses.

Commodity Price Risk
We sell into or receive supply from the worldwide crude oil, refined products, natural gas, NGL, and electric power
markets and are exposed to fluctuations in the prices for these commodities.

These fluctuations can affect our revenues and purchases, as well as the cost of operating, investing and financing
activities. Generally, our policy is to remain exposed to the market prices of commodities.

Our Commercial organization uses futures, forwards, swaps and options in various markets to optimize the value of our
supply chain, which may move our risk profile away from market average prices to accomplish the following objectives:

• (cid:37)alance physical systems. In addition to cash settlement prior to contract expiration, exchange(cid:16)traded futures

contracts also may be settled by physical delivery of the commodity, providing another source of supply to meet
our refinery requirements or marketing demand.

• Meet customer needs. Consistent with our policy to generally remain exposed to market prices, we use swap
contracts to convert fixed-price sales contracts, which are often requested by refined product consumers, to a
floating-market price.

• Manage the risk to our cash flows from price exposures on specific crude oil, refined product, natural gas, and

electric power transactions.

• Enable us to use the market knowledge gained from these activities to capture market opportunities such as moving
physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and
blending commodities to capture quality upgrades. Derivatives may be utilized to optimize these activities.

We use a VaR model to estimate the loss in fair value that could potentially result on a single day from the effect of
adverse changes in market conditions on the derivative financial instruments and derivative commodity instruments held
or issued, including commodity purchase and sales contracts recorded on the balance sheet at December 31, 2014, as
derivative instruments. Using Monte Carlo simulation, a 95 percent confidence level and a one(cid:16)day holding period, the
VaR for those instruments issued or held for trading purposes at December 31, 2014 and 2013, was immaterial to our
cash flows and net income.

The VaR for instruments held for purposes other than trading at December 31, 2014 and 2013, was also immaterial to our
cash flows and net income.

Interest Rate Risk
The following tables provide information about our debt instruments that are sensitive to changes in U.S. interest rates.
These tables present principal cash flows and related weighted-average interest rates by expected maturity dates.
Weighted-average variable rates are based on effective rates at the reporting date. The carrying amount of our floating-
rate debt approximates its fair value. The fair value of the fixed-rate financial instruments is estimated based on quoted
market prices.

Expected Maturity Date
Year-End 2014
2015
2016
2017
2018
2019
Remaining years
Total
Fair value

Expected Maturity Date
Year-End 2013
2014
2015
2016
2017
2018
Remaining years
Total
Fair value

Millions of Dollars Except as Indicated

Fixed Rate
Maturity

Average
Interest
Rate

Floating Rate
Maturity

Average
Interest
Rate

825
27
1,529
26
24
6,020
8,451
8,806

2.11% $
7.24
3.03
7.19
7.12
4.90

$
$

—%
—
—
0.03
1.33
0.03

—
—
—
12
18
38
68
68

Millions of Dollars Except as Indicated

Fixed Rate
Maturity

Average
Interest
Rate

Floating Rate
Maturity

Average
Interest
Rate

13
815
15
1,516
17
3,535
5,911
6,168

7.00%
2.04
7.00
2.99
7.00
5.00

$
$

—%
—
—
—
0.05
0.05

—
—
—
—
13
37
50
50

$
$

For additional information about our use of derivative instruments, see Note 17—Derivatives and Financial Instruments,
in the Notes to Consolidated Financial Statements.

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

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words
“anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,”
“seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,”
“effort,” “target” and similar expressions.

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

•
•
•

•

•
•

•

•
•
•

•
•
•
•

Fluctuations in NGL, crude oil and natural gas prices and petrochemical and refining margins.
Failure of new products and services to achieve market acceptance.
Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or
transporting our products.
Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products,
including chemicals products.
Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined
products.
The level and success of drilling and quality of production volumes around DCP Midstream(cid:181)s assets and its
ability to connect supplies to its gathering and processing systems, residue gas and NGL infrastructure.
Inability to timely obtain or maintain permits, including those necessary for capital projects; comply with
government regulations; or make capital expenditures required to maintain compliance.
Failure to complete definitive agreements and feasibility studies for, and to timely complete construction of,
announced and future capital projects.
Potential disruption or interruption of our operations due to accidents, weather events, civil unrest, political
events, terrorism or cyber attacks.
International monetary conditions and exchange controls.
Substantial investment or reduced demand for products as a result of existing or future environmental rules and
regulations.
Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under
environmental regulations.
General domestic and international economic and political developments including(cid:29) armed hostilities;
expropriation of assets; changes in governmental policies relating to NGL, crude oil, natural gas or refined
product pricing, regulation or taxation; and other political, economic or diplomatic developments.
Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable
to our business.
Limited access to capital or significantly higher cost of capital related to changes to our credit profile or
illiquidity or uncertainty in the domestic or international financial markets.
The operation, financing and distribution decisions of our joint ventures.
Domestic and foreign supplies of crude oil and other feedstocks.
Domestic and foreign supplies of petrochemicals and refined products, such as gasoline, diesel, jet fuel and
home heating oil.
Governmental policies relating to exports of crude oil and natural gas.
(cid:50)vercapacity or undercapacity in the midstream, chemicals and refining industries.
Fluctuations in consumer demand for refined products.
The factors generally described in Item 1A.—Risk Factors in this report.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PHILLIPS 66

INDEX TO FINANCIAL STATEMENTS

Report of Management

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Consolidated Financial Statements of Phillips 66:

Consolidated Statement of Income for the years ended December 31, 2014, 2013 and 2012

Consolidated Statement of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012

Consolidated Balance Sheet at December 31, 2014 and 2013

Consolidated Statement of Cash Flows for the years ended December 31, 2014, 2013 and 2012

Consolidated Statement of Changes in Equity for the years ended December 31, 2014, 2013 and 2012

Notes to Consolidated Financial Statements

Supplementary Information

Selected Quarterly Financial Data (Unaudited)

Page

134

Report of Management

Management prepared, and is responsible for, the consolidated financial statements and the other information appearing
in this annual report. The consolidated financial statements present fairly the company’s financial position, results of
operations and cash flows in conformity with accounting principles generally accepted in the United States. In preparing
its consolidated financial statements, the company includes amounts that are based on estimates and judgments
management believes are reasonable under the circumstances. The company’s financial statements have been audited by
Ernst & Young LLP, an independent registered public accounting firm appointed by the Audit and Finance Committee of
the Board of Directors. Management has made available to Ernst & Young LLP all of the company’s financial records
and related data, as well as the minutes of stockholders’ and directors’ meetings.

Assessment of Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over financial reporting.
Phillips 66’s internal control system was designed to provide reasonable assurance to the company’s management and
directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.

Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31,
2014. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control—Integrated Framework (2013), adopted by the Company on December 15,
2014. Based on this assessment, management concluded the company’s internal control over financial reporting was
effective as of December 31, 2014.

Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of
December 31, 2014, and their report is included herein.

/s/ Greg C. Garland

/s/ Greg G. Maxwell

Greg C. Garland

Chairman and

Chief Executive Officer

February 20, 2015

Greg G. Maxwell

Executive Vice President, Finance

and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Phillips 66

We have audited the accompanying consolidated balance sheet of Phillips 66 as of December 31, 2014 and 2013, and the
related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three
years in the period ended December 31, 2014. Our audits also included the financial statement schedule included in Item
15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Phillips 66 at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Phillips 66’s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 20, 2015 expressed an unqualified opinion thereon.

Houston, Texas
February 20, 2015

/s/ Ernst & Young LLP

Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting

The Board of Directors and Stockholders
Phillips 66

We have audited Phillips 66’s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). Phillips 66’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included under the heading “Assessment of Internal Control Over Financial Reporting” in the
accompanying “Report of Management.” Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, Phillips 66 maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the 2014 consolidated financial statements of Phillips 66 and our report dated February 20, 2015 expressed an
unqualified opinion thereon.

/s/ Ernst & Young LLP

Houston, Texas
February 20, 2015

Consolidated Statement of Income

Phillips 66

Years Ended December 31
Revenues and Other Income
Sales and other operating revenues*
Equity in earnings of affiliates
Net gain on dispositions
Other income

Total Revenues and Other Income

Costs and Expenses
Purchased crude oil and products
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Impairments
Taxes other than income taxes*
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction (gains) losses

Total Costs and Expenses

Income from continuing operations before income taxes
Provision for income taxes
Income from Continuing Operations
Income from discontinued operations**
Net income
Less: net income attributable to noncontrolling interests
Net Income Attributable to Phillips 66

Amounts Attributable to Phillips 66 Common Stockholders:
Income from continuing operations
Income from discontinued operations
Net Income Attributable to Phillips 66

Net Income Attributable to Phillips 66 Per Share of

Common Stock (dollars)

Basic

Continuing operations
Discontinued operations

Net Income Attributable to Phillips 66 Per Share of Common Stock
Diluted

Continuing operations
Discontinued operations

Net Income Attributable to Phillips 66 Per Share of Common Stock

Dividends Paid Per Share of Common Stock (dollars)

Average Common Shares Outstanding (in thousands)
Basic
Diluted
*Includes excise taxes on petroleum product sales:
**Net of provision for income taxes on discontinued operations:
See Notes to Consolidated Financial Statements.

Millions of Dollars

2014

2013

2012

161,212
2,466
295
120
164,093

135,748
4,435
1,663
995
150
15,040
24
267
26
158,348
5,745
1,654
4,091
706
4,797
35
4,762

4,056
706
4,762

7.15
1.25
8.40

7.10
1.23
8.33

171,596
3,073
55
85
174,809

148,245
4,206
1,478
947
29
14,119
24
275
(40)
169,283
5,526
1,844
3,682
61
3,743
17
3,726

3,665
61
3,726

5.97
0.10
6.07

5.92
0.10
6.02

179,290
3,134
193
135
182,752

154,413
4,033
1,703
906
1,158
13,740
25
246
(28)
176,196
6,556
2,473
4,083
48
4,131
7
4,124

4,076
48
4,124

6.47
0.08
6.55

6.40
0.08
6.48

1.8900

1.3275

0.4500

565,902
571,504
14,698
5

612,918
618,989
13,866
34

628,835
636,764
13,371
27

$
$

Consolidated Statement of Comprehensive Income

Phillips 66

Millions of Dollars

Years Ended December 31

Net Income
Other comprehensive income (loss)

Defined benefit plans

Prior service cost/credit:

2014

4,797

Prior service credit arising during the period
Amortization to net income of prior service cost

Actuarial gain/loss:

Actuarial gain (loss) arising during the period
Amortization to net income of net actuarial loss

Plans sponsored by equity affiliates
Income taxes on defined benefit plans
Defined benefit plans, net of tax

Foreign currency translation adjustments
Income taxes on foreign currency translation adjustments

Foreign currency translation adjustments, net of tax

Hedging activities by equity affiliates
Income taxes on hedging activities by equity affiliates

Hedging activities by equity affiliates, net of tax

Other Comprehensive Income (Loss), Net of Tax
Comprehensive Income
Less: comprehensive income attributable to noncontrolling interests
Comprehensive Income Attributable to Phillips 66

See Notes to Consolidated Financial Statements.

—
—

(451)
56
(66)
169
(292)
(294)
18
(276)
—
—
—
(568)
4,229
35
4,194

2013

3,743

—
—

401
96
88
(211)
374
(21)
(2)
(23)
1
(1)
—
351
4,094
17
4,077

2012

4,131

18
1

(152)
55
(33)
18
(93)
148
48
196
1
—
1
104
4,235
7
4,228

Consolidated Balance Sheet

At December 31
Assets
Cash and cash equivalents
Accounts and notes receivable (net of allowances of $71 million in 2014

and $47 million in 2013)

Accounts and notes receivable—related parties
Inventories
Prepaid expenses and other current assets

Total Current Assets

Investments and long-term receivables
Net properties, plants and equipment
Goodwill
Intangibles
Other assets
Total Assets

Liabilities
Accounts payable
Accounts payable—related parties
Short-term debt
Accrued income and other taxes
Employee benefit obligations
Other accruals

Total Current Liabilities

Long-term debt
Asset retirement obligations and accrued environmental costs
Deferred income taxes
Employee benefit obligations
Other liabilities and deferred credits
Total Liabilities

Equity
Common stock (2,500,000,000 shares authorized at $.01 par value)
Issued (2014—637,031,760 shares; 2013—634,285,955 shares)

Par value
Capital in excess of par

Treasury stock (at cost: 2014—90,649,984 shares; 2013—44,106,380 shares)

Retained earnings
Accumulated other comprehensive income (loss)

Total Stockholders’ Equity

Noncontrolling interests
Total Equity
Total Liabilities and Equity

See Notes to Consolidated Financial Statements.

Phillips 66

Millions of Dollars

2014

2013

5,207

6,306
949
3,397
837
16,696
10,189
17,346
3,274
900
336
48,741

7,488
576
842
878
462
848
11,094
7,842
683
5,491
1,305
289
26,704

6
19,040
(6,234)
9,309
(531)
21,590
447
22,037

48,741

5,400

7,900
1,732
3,354
851
19,237
11,220
15,398
3,096
698
149
49,798

9,948
1,142
24
872
476
469
12,931
6,131
700
6,125
921
598
27,406

6
18,887
(2,602)
5,622
37
21,950
442
22,392

49,798

Consolidated Statement of Cash Flows

Phillips 66

Millions of Dollars

Years Ended December 31
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating

2014

4,797

activities

Depreciation and amortization
Impairments
Accretion on discounted liabilities
Deferred taxes
Undistributed equity earnings
Net gain on dispositions
Income from discontinued operations
Other
Working capital adjustments

Decrease (increase) in accounts and notes receivable
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses and other current assets
Increase (decrease) in accounts payable
Increase (decrease) in taxes and other accruals

Net cash provided by continuing operating activities
Net cash provided by discontinued operations
Net Cash Provided by Operating Activities

Cash Flows From Investing Activities
Capital expenditures and investments
Proceeds from asset dispositions
Advances/loans—related parties
Collection of advances/loans—related parties
Other
Net cash used in continuing investing activities
Net cash used in discontinued operations
Net Cash Used in Investing Activities

Cash Flows From Financing Activities
Distributions to ConocoPhillips
Issuance of debt
Repayment of debt
Issuance of common stock
Repurchase of common stock
Share exchange—PSPI transaction
Dividends paid on common stock
Distributions to noncontrolling interests
Net proceeds from issuance of Phillips 66 Partners LP common units
Other
Net cash provided by (used in) continuing financing activities
Net cash provided by (used in) discontinued operations
Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Net Change in Cash and Cash Equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
See Notes to Consolidated Financial Statements.

995
150
24
(488)
197
(295)
(706)
(127)

2,226
(85)
(316)
(3,323)
478
3,527
2
3,529

(3,773)
1,244
(3)
—
238
(2,294)
(2)
(2,296)

—
2,487
(49)
1
(2,282)
(450)
(1,062)
(30)
—
23
(1,362)
—
(1,362)

(64)

(193)
5,400
5,207

2013

3,743

947
29
24
594
(354)
(55)
(61)
195

481
38
20
360
(19)
5,942
85
6,027

(1,779)
1,214
(65)
165
48
(417)
(27)
(444)

—
—
(1,020)
6
(2,246)
—
(807)
(10)
404
(6)
(3,679)
—
(3,679)

1,926
3,474
5,400

2012

4,131

906
1,158
25
221
(872)
(193)
(48)
71

(132)
60
(48)
(985)
(35)
4,259
37
4,296

(1,701)
286
(100)
—
—
(1,515)
(20)
(1,535)

(5,255)
7,794
(1,210)
47
(356)
—
(282)
(5)
—
(34)
699
—
699

3,474
—
3,474

Consolidated Statement of Changes in Equity

Phillips 66

Millions of Dollars

Attributable to Phillips 66

Common Stock

Treasury
Stock

Retained
Earnings

Net Parent
Company
Investment

Accum. Other
Comprehensive
Income (Loss)

Noncontrolling
Interests

Total

Capital
in
Excess
of Par

—
—
—
—

Par
Value

$ —
—
—
—

—
—
— 2,999
—
—
—
—

23,142
1,125
(5,707)
—

— (18,560)

122
—
(540)
104

—

—
—
—

—
(314)
—
351

—
—
—

—

—
37
—
(568)

—
—
—
—

—
(531)

29 23,293
4,131
7
— (6,247)
104
—

—

— (282)
— (356)
168
—

(5)
(5)
31 20,806
3,743
17
351
—

— (807)
— (2,246)
154
—

404

(10)
(13)
442 22,392
35
4,797
— (568)

— (1,062)
— (2,282)
— (1,350)
140
—

(30)
(30)
447 22,037

December 31, 2011
Net income
Net transfers to ConocoPhillips

Other comprehensive income
Reclassification of net parent

company investment to capital in
excess of par

Issuance of common stock at the

Separation

Cash dividends paid on common

stock

Repurchase of common stock
Benefit plan activity
Distributions to noncontrolling

interests and other
December 31, 2012
Net income
Other comprehensive income
Cash dividends paid on common

stock

Repurchase of common stock
Benefit plan activity
Issuance of Phillips 66 Partners LP

common units

Distributions to noncontrolling

interests and other
December 31, 2013
Net income
Other comprehensive loss
Cash dividends paid on common

stock

Repurchase of common stock
Share exchange—PSPI transaction
Benefit plan activity
Distributions to noncontrolling

interests and other
December 31, 2014

—

—
—
—

—
—
—
—

—
—
—

—

—
—
—
—

—
—

— 18,560

—
—
—

(6)

—
—
172

—

—
(356)
—

—

(282)
—
(4)

—

—
6 18,726
—
—

—
—

—
(356)

—
2,713
— 3,726
—
—

—
—
—

—

—
—
— (2,246)
—

164

(807)
—
(10)

—

(3)
6 18,887
—
—

—
—

—
(2,602)

—
5,622
— 4,762
—
—

—
—
—
—

—
— (2,282)
— (1,350)
—

— (1,062)
—
—
(13)

153

—

—
6 19,040

—
(6,234)

—
9,309

December 31, 2011
Issuance of common stock at the Separation
Repurchase of common stock
Shares issued—share-based compensation
December 31, 2012
Repurchase of common stock
Shares issued—share-based compensation
December 31, 2013
Repurchase of common stock
Share exchange—PSPI transaction
Shares issued—share-based compensation
December 31, 2014
See Notes to Consolidated Financial Statements.

Shares in Thousands

Common Stock Issued
—
625,272
—
5,878
631,150
—
3,136
634,286
—
—
2,746
637,032

Treasury Stock
—
—
7,604
—
7,604
36,502
—
44,106
29,121
17,423
—
90,650

Notes to Consolidated Financial Statements

Phillips 66

Note 1—Separation and Basis of Presentation

The Separation
On April 4, 2012, the ConocoPhillips Board of Directors approved the separation of its downstream businesses (as
defined below) into an independent, publicly traded company named Phillips 66. In accordance with the Separation and
Distribution Agreement, the two companies were separated by ConocoPhillips distributing to its stockholders all
625,272,302 shares of common stock of Phillips 66 after the market closed on April 30, 2012 (the Separation). Each
ConocoPhillips stockholder received one share of Phillips 66 stock for every two shares of ConocoPhillips stock held at
the close of business on the record date of April 16, 2012. Following the Separation, ConocoPhillips retained no
ownership interest in Phillips 66, and each company has separate public ownership, boards of directors and management.

Basis of Presentation
Prior to the Separation, our results of operations, financial position and cash flows consisted of ConocoPhillips’ refining,
marketing and transportation operations; its natural gas gathering, processing, transmission and marketing operations,
primarily conducted through its equity investment in DCP Midstream, LLC (DCP Midstream); its petrochemical
operations, conducted through its equity investment in Chevron Phillips Chemical Company LLC (CPChem); its power
generation operations; and an allocable portion of its corporate costs (together, the “downstream businesses”). These
financial statements have been presented as if the downstream businesses had been combined for all periods presented
prior to the Separation. All intercompany transactions and accounts within the downstream businesses were eliminated.
The statement of income for the periods prior to the Separation includes expense allocations for certain corporate
functions historically performed by ConocoPhillips and not allocated to its operating segments, including allocations of
general corporate expenses related to executive oversight, accounting, treasury, tax, legal, procurement and information
technology. These allocations were based primarily on specific identification of time and/or activities associated with the
downstream businesses, employee headcount or capital expenditures, and our management believes the assumptions
underlying the allocations were reasonable. The combined financial statements may not necessarily reflect all of the
actual expenses that would have been incurred had we been a stand-alone company during the periods presented prior to
the Separation. All financial information presented after the Separation represents the consolidated results of operations,
financial position and cash flows of Phillips 66. Accordingly:

• (cid:50)ur consolidated statements of income, comprehensive income, cash flows and changes in equity for the years

ended December 31, 2013 and 2014, consist entirely of the consolidated results of Phillips 66. Our consolidated
statements of income, comprehensive income, cash flows and changes in equity for the year ended December 31,
2012, consist of the consolidated results of Phillips 66 for the eight months ended December 31, 2012, and of the
combined results of the downstream businesses for the four months ended April 30, 2012.

• (cid:50)ur consolidated balance sheet at December 31, 2014 and 2013, consists of the consolidated balances of Phillips

66.

Note 2—Accounting Policies

Consolidation Principles and Investments—Our consolidated financial statements include the accounts of
majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary. The
equity method is used to account for investments in affiliates in which we have the ability to exert significant
influence over the affiliates’ operating and financial policies. When we do not have the ability to exert
significant influence, the investment is either classified as available-for-sale if fair value is readily determinable,
or the cost method is used if fair value is not readily determinable. Undivided interests in pipelines, natural gas
plants and terminals are consolidated on a proportionate basis. Other securities and investments are generally
carried at cost.

Recasted Financial Information—Certain prior period financial information has been recasted to reflect the
current year’s presentation, including realignment of our operating segments.

Foreign Currency Translation—Adjustments resulting from the process of translating foreign functional
currency financial statements into U.S. dollars are included in accumulated other comprehensive income in
stockholders’ equity.

Foreign currency transaction gains and losses result from remeasuring monetary assets and liabilities
denominated in a foreign currency into the functional currency of our subsidiary holding the asset or liability; we
include these transaction gains and losses in current earnings. Most of our foreign operations use their local
currency as the functional currency.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities.
Actual results could differ from these estimates.

Revenue Recognition—Revenues associated with sales of crude oil, natural gas liquids (NGL), petroleum and
chemical products, and other items are recognized when title passes to the customer, which is when the risk of
ownership passes to the purchaser and physical delivery of goods occurs, either immediately or within a fixed
delivery schedule that is reasonable and customary in the industry.

Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of
inventory with the same counterparty are entered into in contemplation of one another, are combined and
reported net (i.e., on the same income statement line) in the “Purchased crude oil and products” line of our
consolidated statement of income.

Cash Equivalents—Cash equivalents are highly liquid, short-term investments that are readily convertible to
known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these at
cost plus accrued interest, which approximates fair value.

Shipping and Handling Costs—We record shipping and handling costs in purchased crude oil and products.
Freight costs billed to customers are recorded as a component of revenue.

Inventories—We have several valuation methods for our various types of inventories and consistently use the
following methods for each type of inventory. Crude oil and petroleum products inventories are valued at the
lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-
cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is
used to better match current inventory costs with current revenues and to meet tax-conformity requirements.
Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing
condition and location, but not unusual/nonrecurring costs or research and development costs. Materials and
supplies inventories are valued using the weighted-average-cost method.

Fair Value Measurements—We categorize assets and liabilities measured at fair value into one of three
different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are
quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than
quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-
corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting significant
modifications to observable related market data or our assumptions about pricing by market participants.

Derivative Instruments—Derivative instruments are recorded on the balance sheet at fair value. We have
elected to net derivative assets and liabilities with the same counterparty on the balance sheet if the right of offset
exists and certain other criteria are met. We also net collateral payables or receivables against derivative assets
and derivative liabilities, respectively.

Recognition and classification of the gain or loss that results from recording and adjusting a derivative to fair
value depends on the purpose for issuing or holding the derivative. Gains and losses from derivatives not
designated as cash-flow hedges are recognized immediately in earnings. For derivative instruments that are
designated and qualify as a fair value hedge, the gains or losses from adjusting the derivative to its fair value will

be immediately recognized in earnings and, to the extent the hedge is effective, offset the concurrent recognition
of changes in the fair value of the hedged item. Gains or losses from derivative instruments that are designated
and qualify as a cash flow hedge or hedge of a net investment in a foreign entity are recognized in other
comprehensive income and appear on the balance sheet in accumulated other comprehensive income until the
hedged transaction is recognized in earnings; however, to the extent the change in the value of the derivative
exceeds the change in the anticipated cash flows of the hedged transaction, the excess gains or losses will be
recognized immediately in earnings.

Capitalized Interest—Interest from external borrowings is capitalized on major projects with an expected
construction period of one year or longer. Capitalized interest is added to the cost of the underlying asset’s
properties, plants and equipment and is amortized over the useful life of the assets.

Intangible Assets Other Than Goodwill—Intangible assets with finite useful lives are amortized by the
straight-line method over their useful lives. Intangible assets with indefinite useful lives are not amortized but
are tested at least annually for impairment. Each reporting period, we evaluate the remaining useful lives of
intangible assets not being amortized to determine whether events and circumstances continue to support
indefinite useful lives. These indefinite-lived intangibles are considered impaired if the fair value of the
intangible asset is lower than net book value. The fair value of intangible assets is determined based on quoted
market prices in active markets, if available. If quoted market prices are not available, fair value of intangible
assets is determined based upon the present values of expected future cash flows using discount rates and other
assumptions believed to be consistent with those used by principal market participants, or upon estimated
replacement cost, if expected future cash flows from the intangible asset are not determinable.

Goodwill—Goodwill resulting from a business combination is not amortized but is tested at least annually for
impairment. If the fair value of a reporting unit is less than the recorded book value of the reporting unit’s assets
(including goodwill), less liabilities, then a hypothetical purchase price allocation is performed on the reporting
unit’s assets and liabilities using the fair value of the reporting unit as the purchase price in the calculation. If the
amount of goodwill resulting from this hypothetical purchase price allocation is less than the recorded amount of
goodwill, the recorded goodwill is written down to the new amount. For purposes of testing goodwill for
impairment, we have three reporting units with goodwill balances, Transportation, Refining and Marketing and
Specialties (M&S).

Depreciation and Amortization—Depreciation and amortization of properties, plants and equipment are
determined by either the individual-unit-straight-line method or the group-straight-line method (for those
individual units that are highly integrated with other units).

Impairment of Properties, Plants and Equipment—Properties, plants and equipment (PP&E) used in
operations are assessed for impairment whenever changes in facts and circumstances indicate a possible
significant deterioration in the future cash flows expected to be generated by an asset group. If indicators of
potential impairment exist, an undiscounted cash flow test is performed. If the sum of the undiscounted pre-tax
cash flows is less than the carrying value of the asset group, including applicable liabilities, the carrying value of
the PP&E included in the asset group is written down to estimated fair value through additional amortization or
depreciation provisions and reported in the “Impairment” line of our consolidated statement of income in the
period in which the determination of the impairment is made. Individual assets are grouped for impairment
purposes at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
groups of assets (for example, at a refinery complex level). 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 values 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 of earnings for
similar assets; or historical market transactions of similar assets, adjusted using principal market participant
assumptions when necessary. Long-lived assets held for sale are accounted for at the lower of amortized cost or
fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, or present
value of expected future cash flows as previously described.

The expected future cash flows used for impairment reviews and related fair value calculations are based on
estimated future volumes, prices, costs, margins, and capital project decisions, considering all available evidence
at the date of review.

Impairment of Investments in Nonconsolidated Entities—Investments in nonconsolidated entities are
assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred.
When indicators exist, the fair value is estimated and compared to the investment carrying value. If any
impairment is judgmentally determined to be other than temporary, the carrying value of the investment is
written down to fair value. The fair value of the impaired investment is based on quoted market prices, if
available, or upon 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 a market analysis of comparable
assets, if appropriate.

Maintenance and Repairs—Costs of maintenance and repairs, which are not significant improvements, are
expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred.

Property Dispositions—When complete units of depreciable property are sold, the asset cost and related
accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain on dispositions” line of
our consolidated statement of income. When less than complete units of depreciable property are disposed of or
retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.

Asset Retirement Obligations and Environmental Costs—Fair value of legal obligations to retire and remove
long-lived assets are recorded in the period in which the obligation is incurred. When the liability is initially
recorded, we capitalize this cost by increasing the carrying amount of the related PP&E. Over time, the liability
is increased for the change in its present value, and the capitalized cost in PP&E is depreciated over the useful
life of the related asset. Our estimate may change after initial recognition in which case we record an adjustment
to the liability and properties, plant, and equipment.

Environmental expenditures are expensed or capitalized, depending upon their future economic benefit.
Expenditures relating to an existing condition caused by past operations, and those having no future economic
benefit, are expensed. Liabilities for environmental expenditures are recorded on an undiscounted basis (unless
acquired in a purchase business combination) when environmental assessments or cleanups are probable and the
costs can be reasonably estimated. Recoveries of environmental remediation costs from other parties, such as
state reimbursement funds, are recorded as assets when their receipt is probable and estimable.

Guarantees—Fair value of a guarantee is determined and recorded as a liability at the time the guarantee is
given. The initial liability is subsequently reduced as we are released from exposure under the guarantee. We
amortize the guarantee liability over the relevant time period, if one exists, based on the facts and circumstances
surrounding each type of guarantee. In cases where the guarantee term is indefinite, we reverse the liability
when we have information indicating the liability is essentially relieved or amortize it over an appropriate time
period as the fair value of our guarantee exposure declines over time. We amortize the guarantee liability to the
related income statement line item based on the nature of the guarantee. When it becomes probable we will have
to perform on a guarantee, we accrue a separate liability if it is reasonably estimable, based on the facts and
circumstances at that time. We reverse the fair value liability only when there is no further exposure under the
guarantee.

Stock-Based Compensation—We recognize stock-based compensation expense over the shorter of: (1) the
service period (i.e., the time required to earn the award); or (2) the period beginning at the start of the service
period and ending when an employee first becomes eligible for retirement, but not less than six months, which is
the minimum time required for an award to not be subject to forfeiture. We have elected to recognize expense on
a straight-line basis over the service period for the entire award, whether the award was granted with ratable or
cliff vesting.

Income Taxes—For periods prior to the Separation, our taxable income was included in the U.S. federal income
tax returns and in a number of state income tax returns of ConocoPhillips. In the accompanying consolidated

financial statements for periods prior to the Separation, our provision for income taxes is computed as if we were
a stand-alone tax-paying entity.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Interest related to unrecognized tax benefits is reflected in interest expense, and penalties in operating
expenses.

Taxes Collected from Customers and Remitted to Governmental Authorities—Excise taxes are reported
gross within sales and other operating revenues and taxes other than income taxes, while other sales and value-
added taxes are recorded net in taxes other than income taxes.

Treasury Stock—We record treasury stock purchases at cost, which includes incremental direct transaction
costs. Amounts are recorded as reductions in stockholders’ equity in the consolidated balance sheet.

Note 3—Changes in Accounting Principles

Effective July 1, 2014, we early adopted the Financial Accounting Standards Board (FASB) Accounting Standards
Update (ASU) No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment
(Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU
amends the definition of discontinued operations so that only disposals of components of an entity representing major
strategic shifts that have a major effect on an entity’s operations and financial results will qualify for discontinued
operations reporting. The ASU also requires additional disclosures about discontinued operations and individually
material disposals that do not meet the definition of a discontinued operation. The adoption of this ASU did not have an
effect on our consolidated financial statements.

Note 4—Variable Interest Entities (VIEs)

In 2013, we formed Phillips 66 Partners LP, a master limited partnership, to own, operate, develop and acquire primarily
fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation and
midstream assets. We consolidate Phillips 66 Partners as we determined that Phillips 66 Partners is a VIE and we are the
primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as
well as the ability to direct the activities of Phillips 66 Partners that most significantly impact its economic performance.
See Note 28—Phillips 66 Partners LP, for additional information.

We hold significant variable interests in VIEs that have not been consolidated because we are not considered the primary
beneficiary. Information on these VIEs follows:

Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a delayed coker and related facilities at the Sweeny
Refinery. As discussed more fully in Note 8—Investments, Loans and Long-Term Receivables, in August 2009, a call
right was exercised to acquire the 50 percent ownership interest in MSLP of the co-venturer, Petróleos de Venezuela S.A.
(PDVSA). That exercise was challenged, and the dispute has been arbitrated. In April 2014, the arbitral tribunal upheld
the exercise of the call right and the acquisition of the 50 percent ownership interest. In July 2014, PDVSA filed a
petition to vacate the tribunal’s award. Until this matter is resolved, we will continue to use the equity method of
accounting for MSLP, and the VIE analysis below is based on the ownership and governance structure in place prior to
the exercise of the call right. MSLP is a VIE because, in securing lender consents in connection with the Separation, we
provided a 100 percent debt guarantee to the lender of the 8.85% senior notes issued by MSLP. PDVSA did not
participate in the debt guarantee. In our VIE assessment, this disproportionate debt guarantee, plus other liquidity
support provided jointly by us and PDVSA independently of equity ownership, results in MSLP not being exposed to all
potential losses. We have determined we are not the primary beneficiary while our call exercise award is subject to

vacatur because under the partnership agreement the co-venturers jointly direct the activities of MSLP that most
significantly impact economic performance. At December 31, 2014, our maximum exposure to loss represented the
outstanding debt principal balance of $189 million, and our investment of $128 million.

We have a 50 percent ownership interest with a 50 percent governance interest in Excel Paralubes (Excel). Excel is a
VIE because, in securing lender consents in connection with the Separation, ConocoPhillips provided a 50 percent debt
guarantee to the lender of the 7.43% senior secured bonds issued by Excel. We provided a full indemnity to
ConocoPhillips for this debt guarantee. Our co-venturer did not participate in the debt guarantee. In our assessment of
the VIE, this debt guarantee, plus other liquidity support up to $60 million provided jointly by us and our co-venturer
independently of equity ownership, results in Excel not being exposed to all potential losses. We have determined we are
not the primary beneficiary because we and our co-venturer jointly direct the activities of Excel that most significantly
impact economic performance. We use the equity method of accounting for this investment. At December 31, 2014, our
maximum exposure to loss represented 50 percent of the outstanding debt principal balance of $58 million, or $29
million, plus half of the $60 million liquidity support, or $30 million. The book value of our investment in Excel at
December 31, 2014, was $113 million.

In 2013, we entered into a multi-year consignment fuels agreement with a marketer who we supported with debt
guarantees. Pursuant to the consignment fuels agreement, we own the fuels inventory, control the fuel marketing at each
site, and pay a fixed monthly fee to the marketer. In November 2014, the marketer refinanced its debt which allowed us
to remove the debt guarantees in exchange for an extended term on the consignment fuels agreement. We determined the
consignment fuels agreement creates a variable interest in the marketer, with the marketer not being exposed to all
potential losses as the consignment fuels agreement provides liquidity to the marketer for its debt service costs. We
determined we are not the primary beneficiary because we do not have an ownership interest in the marketer or have the
power to direct the activities that most significantly impact the economic performance of the marketer.

Note 5—Inventories

Inventories at December 31 consisted of the following:

Crude oil and petroleum products
Materials and supplies

Millions of Dollars

2014

3,141
256
3,397

2013

3,093
261
3,354

Inventories valued on the LIFO basis totaled $3,004 million and $2,945 million at December 31, 2014 and 2013,
respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately
$3,000 million and $7,600 million at December 31, 2014 and 2013, respectively.

During each of the three years ending December 31, 2014, certain reductions in inventory caused liquidations of LIFO
inventory values. These liquidations decreased net income by approximately $8 million in 2014, and increased net
income by approximately $109 million and $162 million in 2013 and 2012, respectively.

Note 6—Business Combinations

We completed the following acquisitions in 2014:

•

In August 2014, we acquired a 7.1 million(cid:16)barrel(cid:16)storage(cid:16)capacity crude oil and petroleum products terminal
located near (cid:37)eaumont, Texas, to promote growth plans in our Midstream segment.

In July 2014, we acquired Spectrum Corporation, a private label and specialty lubricants business headquartered
in Memphis, Tennessee. The acquisition supports our plans to selectively grow stable(cid:16)return businesses in our
M&S segment.

In March 2014, we acquired our co(cid:16)venturer(cid:181)s interest in an entity that operates a power and steam generation
plant located in Texas that is included in our M&S segment. This acquisition provided us with full operational
control over a key facility providing utilities and other services to one of our refineries.

We funded each of these acquisitions with cash on hand. Total cash consideration paid was (cid:7)741 million, net of cash
acquired, and this amount is included in the (cid:178)Capital expenditures and investments(cid:179) line of our consolidated statement of
cash flows. In the aggregate, as of December 31, 2014, we provisionally recorded (cid:7)471 million of PP&E, (cid:7)232 million
of goodwill, (cid:7)196 million of intangible assets, (cid:7)70 million of net working capital and (cid:7)109 million of long(cid:16)term liabilities
for these acquisitions. (cid:50)ur acquisition accounting for the transactions completed in March and August of 2014 is
substantially complete. The completion of our acquisition accounting for the transaction completed in July of 2014 is
subject to finali(cid:93)ing the valuation of the assets acquired and liabilities assumed.

Note 7—Assets Held for Sale or Sold

Assets Sold or Exchanged
In December 2014, we completed the sale of our ownership interests in the Malaysia Refining Company Sdn. (cid:37)dh.
(MRC), which was included in our Refining segment. At the time of the disposition, the total carrying value of our
investment in MRC was (cid:7)334 million, including (cid:7)76 million of allocated goodwill and currency translation adjustments.
A before(cid:16)tax gain of (cid:7)145 million was recogni(cid:93)ed from this disposition.

In December 2013, we entered into an agreement to exchange the stock of PSPI, a flow improver business, which was
included in our M&S segment, for shares of Phillips 66 common stock owned by the other party. Accordingly, as of
December 31, 2013, the net assets of PSPI were classified as held for sale and the results of operations of PSPI were
reported as discontinued operations.

In February 2014, we completed the PSPI share exchange, resulting in the receipt of approximately 17.4 million shares of
Phillips 66 common stock, which are held as treasury shares, and the recognition of a before(cid:16)tax gain of (cid:7)696 million. At
the time of the disposition, PSPI had a net carrying value of (cid:7)685 million, which primarily included (cid:7)481 million of cash
and cash equivalents, (cid:7)60 million of net PP&E and (cid:7)117 million of allocated goodwill. Cash and cash equivalents of
(cid:7)450 million included in PSPI(cid:181)s net carrying value is reflected as a financing cash outflow in the (cid:178)Share exchange—PSPI
transaction(cid:179) line of our consolidated statement of cash flows.

The carrying amounts of the major classes of assets and liabilities of PSPI, excluding allocated goodwill of $117 million,
at December 31, 2013, are below. The 2013 amounts were reclassified to the “Prepaid expenses and other current assets”
and “Other accruals” lines of our consolidated balance sheet.

Millions of
Dollars

2013

Assets
Accounts and notes receivable
Inventories

Total current assets of discontinued operations

Net properties, plants and equipment
Intangibles
Total assets of discontinued operations

Liabilities
Accounts payable and other current liabilities

Total current liabilities of discontinued operations

Deferred income taxes
Total liabilities of discontinued operations

Sales and other operating revenues and income from discontinued operations related to PSPI were as follows:

Millions of Dollars
2013

2014

Sales and other operating revenues from discontinued

operations

Income from discontinued operations before-tax
Income tax expense
Income from discontinued operations

711
5
706

232

95
34
61

24
18
42
58
6
106

18
18
12
30

2012

180

75
27
48

In July 2013, we completed the sale of the Immingham Combined Heat and Power Plant (ICHP), which was included in
our M&S segment. At the time of the disposition, ICHP had a net carrying value of $762 million, which primarily
included $724 million of net PP&E, $110 million of allocated goodwill, and $111 million of deferred tax liabilities. A
gain was deferred due to an indemnity provided to the buyer. A portion of the deferred gain is denominated in a foreign
currency; accordingly, the amount of the deferred gain translated into U.S. dollars is subject to change based on currency
fluctuations. Absent claims under the indemnity, the deferred gain is recognized into earnings as our exposure under this
indemnity declines. As of December 31, 2013, the deferred gain was $375 million. In 2014, we recognized $126 million
of the gain and as of December 31, 2014, the remaining deferred gain was $243 million.

In May 2013, we sold our E-Gas™ Technology business. The business was included in our M&S segment and at the
time of the disposition had a net carrying value of approximately $13 million, including a goodwill allocation. A $48
million before-tax gain was recognized from this disposition.

In November 2012, we sold the Riverhead Terminal located in Riverhead, New York, for $36 million. The terminal and
associated assets were included in our Midstream segment and had a net carrying value of $34 million at the time of the

disposition, which included $33 million of net PP&E and $1 million of inventory. A $2 million before-tax gain was
recognized from this disposition.

In June 2012, we sold our refinery located on the Delaware River in Trainer, Pennsylvania, for $229 million. The
refinery and associated terminal and pipeline assets were primarily included in our Refining segment and at the time of
the disposition had a net carrying value of $38 million, which included $37 million of net PP&E, $25 million of allocated
goodwill and a $53 million asset retirement obligation. A $189 million before-tax gain was recognized from this
disposition.

Gains and losses recognized from asset sales, including sales of investments in unconsolidated entities and controlled
assets that meet the definition of a business, are included in the “Net gain on dispositions” line in the consolidated
statement of income, unless noted otherwise above.

Assets Held for Sale
In July 2014, we entered into an agreement to sell the Bantry Bay terminal in Ireland, which is included in our Refining
segment. The transaction closed in the first quarter of 2015. The classification of the terminal as held for sale resulted in
a before-tax impairment of $12 million from reducing the carrying value of the long-lived assets to estimated fair value
less costs to sell. As of December 31, 2014, we reclassified long-lived assets of $77 million to the “Prepaid expenses and
other current assets” line of our consolidated balance sheet. The long-term liabilities reclassified to the “Other accruals”
line of our consolidated balance sheet were not material.

Note 8—Investments, Loans and Long-Term Receivables

Components of investments, loans and long-term receivables at December 31 were:

Equity investments
Long-term receivables
Other investments

Millions of Dollars

2014

10,035
76
78
10,189

2013

11,080
74
66
11,220

Equity Investments
Affiliated companies in which we had a significant equity investment at December 31, 2014, included:

• WR(cid:37) Refining LP—50 percent owned business venture with Cenovus Energy Inc. (Cenovus)—owns the Wood

River and Borger refineries.

• DCP Midstream—50 percent owned joint venture with Spectra Energy Corp—owns and operates gas plants,

gathering systems, storage facilities and fractionation plants.

• CPChem—50 percent owned joint venture with Chevron U.S.A. Inc., an indirect wholly(cid:16)owned subsidiary of

Chevron Corporation—manufactures and markets petrochemicals and plastics.

• Rockies Express Pipeline LLC (RE(cid:59))—25 percent owned joint venture with Tallgrass Energy Partners L.P. and
Sempra Energy Corp.—owns and operates a natural gas pipeline system from Meeker, Colorado to Clarington,
Ohio.

• DCP Sand (cid:43)ills Pipeline, LLC—33 percent owned joint venture with DCP Midstream and Spectra Energy

Partners—owns and operates NGL pipeline systems from the Permian and Eagle Ford basins to Mont (cid:37)elvieu,
Texas.

• DCP Southern (cid:43)ills Pipeline, LLC—33 percent owned joint venture with DCP Midstream and Spectra Energy
Partners—owns and operates NGL pipeline systems from the Midcontinent region to Mont (cid:37)elvieu, Texas.

As discussed more fully in Note 7—Assets (cid:43)eld for Sale or Sold, in December 2014 we sold our 47 percent interest in
MRC.

Summarized 100 percent financial information for all equity method investments in affiliated companies, combined, was
as follows:

Revenues
Income before income taxes
Net income
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities

Millions of Dollars

2014

2013

2012

57,979
4,791
4,700
7,402
41,271
6,854
9,736

59,500
5,975
5,838
9,865
40,188
7,971
9,959

55,401
6,265
6,122
9,646
37,269
8,319
9,251

Our share of income taxes incurred directly by the equity companies is included in equity in earnings of affiliates, and as
such is not included in the provision for income taxes in our consolidated financial statements.

At December 31, 2014, retained earnings included $1,488 million related to the undistributed earnings of affiliated
companies. Dividends received from affiliates were $3,305 million, $2,752 million, and $2,304 million in 2014, 2013
and 2012, respectively.

WRB
WRB’s operating assets consist of the Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas,
respectively, and we are the operator and managing partner. As a result of our contribution of these two assets to WRB, a
basis difference was created because the fair value of the contributed assets recorded by WRB exceeded their historical
book value. The difference is primarily amortized and recognized as a benefit evenly over a period of 26 years, which
was the estimated remaining useful life of the refineries’ PP&E at the closing date. In the third quarter of 2013, we
increased our ownership interest in WRB to 50 percent by purchasing ConocoPhillips’ 0.4 percent interest. At
December 31, 2014, the book value of our investment in WRB was $1,809 million, and the basis difference was $3,373
million. Equity earnings in 2014, 2013 and 2012 were increased by $184 million, $185 million, and $180 million,
respectively, due to amortization of the basis difference. Cenovus was obligated to contribute $7.5 billion, plus accrued
interest, to WRB over a 10-year period that began in 2007. In the first quarter of 2014, Cenovus prepaid its remaining
balance under this obligation. As a result, WRB declared a special dividend, which was distributed to the co-venturers in
March 2014. Of the $1,232 million that we received, $760 million was considered a return on our investment in WRB
(an operating cash inflow), and $472 million was considered a return of our investment in WRB (an investing cash
inflow). The return of investment portion of the dividend was included in the “Proceeds from asset dispositions” line in
our consolidated statement of cash flows.

DCP Midstream
DCP Midstream owns and operates gas plants, gathering systems, storage facilities and fractionation plants. DCP
Midstream markets a portion of its NGL to us and CPChem under a supply agreement that continues at the current
volume commitment of which the primary term ended December 31, 2014. The agreement provides for a wind-down
period which expires in January 2019, if not renegotiated or renewed. This purchase commitment is on an “if-produced,
will-purchase” basis. NGL is purchased under this agreement at various published market index prices, less
transportation and fractionation fees.

In 2011, we sold our interest in the Seaway Products Pipeline Company to DCP Midstream and deferred $156 million
representing one-half of the total gain. In 2012, DCP Midstream sold a one-third interest in the entity then owning the
pipeline (DCP Southern Hills Pipeline, LLC) to us and a one-third interest to our co-venturer. The pipeline was
completed in the second quarter of 2013 with service from the Midcontinent region to Mont Belvieu, Texas. The portion
of the deferred gain assigned to DCP’s investment began amortizing in 2013 following the commencement of operations.
At December 31, 2014, the book value of our investment in DCP Midstream was $1,259 million, and the basis difference
was $54 million. The basis difference amortization was not material.

CPChem
CPChem manufactures and markets petrochemicals and plastics. At December 31, 2014, the book value of our equity
method investment in CPChem was $5,183 million. We have multiple supply and purchase agreements in place with
CPChem, ranging in initial terms from one to 99 years, with extension options. These agreements cover sales and
purchases of refined products, solvents, and petrochemical and NGL feedstocks, as well as fuel oils and gases. Delivery
quantities vary by product, and are generally on an “if-produced, will-purchase” basis. All products are purchased and
sold under specified pricing formulas based on various published pricing indices.

REX
REX owns a natural gas pipeline that runs from Meeker, Colorado to Clarington, Ohio, which became fully operational in
November 2009. Long-term, binding firm commitments have been secured for virtually all of the pipeline’s capacity
through 2019. At December 31, 2014, the book value of our equity method investment in REX was $267 million.
During 2012, we recorded before-tax impairments totaling $480 million on this investment. See Note 11—Impairments,
for additional information.

Sand Hills Pipeline
In 2012, we acquired from DCP Midstream a one-third ownership in DCP Sand Hills Pipeline, LLC. The Sand Hills
pipeline extends from Eagle Ford and the Permian Basin to Mont Belvieu, Texas. At December 31, 2014, the book value
of our equity investment in DCP Sand Hills Pipeline was $404 million.

Southern Hills Pipeline
In 2012, we acquired from DCP Midstream a one-third ownership in DCP Southern Hills Pipeline, LLC. A portion of the
deferred gain assigned to DCP Southern Hill’s investment began amortizing in 2013 following the commencing of
operations of the Southern Hills pipeline. At December 31, 2014, the book value of our investment in DCP Southern
Hills was $226 million, and the basis difference was $97 million. Equity earnings in 2014 were increased by $3 million
due to amortization of the basis difference.

Other
MSLP owns a delayed coker and related facilities at the Sweeny Refinery. MSLP processes long residue, which is
produced from heavy sour crude oil, for a processing fee. Fuel-grade petroleum coke is produced as a by-product and
becomes the property of MSLP. Prior to August 28, 2009, MSLP was owned 50/50 by ConocoPhillips and PDVSA.
Under the agreements that govern the relationships between the partners, certain defaults by PDVSA with respect to
supply of crude oil to the Sweeny Refinery triggered the right to acquire PDVSA’s 50 percent ownership interest in
MSLP, which was exercised on August 28, 2009. PDVSA initiated arbitration with the International Chamber of
Commerce challenging the exercise of the call right and claiming it was invalid. The arbitral tribunal held hearings on
the merits of the dispute in December 2012, and post-hearing briefs were exchanged in March 2013. The arbitral tribunal
issued its ruling in April 2014, which upheld the exercise of the call right and the acquisition of the 50 percent ownership
interest. In July 2014, PDVSA filed a petition in U.S. district court to vacate the tribunal’s ruling. Following the
Separation, Phillips 66 generally indemnifies ConocoPhillips for liabilities, if any, arising out of the exercise of the call
right or otherwise with respect to the joint venture or the refinery. Until this matter is settled, we will continue to use the
equity method of accounting for our investment in MSLP.

Loans and Long-term Receivables
We enter into agreements with other parties to pursue business opportunities. Included in such activity are loans and
long-term receivables to certain affiliated and non-affiliated companies. Loans are recorded when cash is transferred or
seller financing is provided to the affiliated or non-affiliated company pursuant to a loan agreement. The loan balance
will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are
received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are assessed for
impairment when events indicate the loan balance may not be fully recovered.

Note 9—Properties, Plants and Equipment

Our investment in PP&E is recorded at cost. Investments in refining manufacturing facilities are generally depreciated
on a straight-line basis over a 25-year life, and pipeline assets over a 45-year life. The company’s investment in PP&E,
with the associated accumulated depreciation and amortization (Accum. D&A), at December 31 was:

Millions of Dollars

Gross
PP&E

4,726
—
19,951
1,490
978
27,145

2014
Accum.
D&A

1,185
—
7,424
738
452
9,799

Net
PP&E

3,541
—
12,527
752
526
17,346

Gross
PP&E

2,865
—
19,191
1,395
975
24,426

2013
Accum.
D&A

1,104
—
6,718
749
457
9,028

Net
PP&E

1,761
—
12,473
646
518
15,398

Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other

Note 10—Goodwill and Intangibles

Goodwill
Effective January 1, 2014, we reallocated $52 million of goodwill from the Refining segment to the M&S segment based upon
the realignment of certain assets between the reporting units. Goodwill was reassigned to the reporting units using a relative
fair value approach. Goodwill impairment testing was completed and no impairment recognition was required. See Note 27—
Segment Disclosures and Related Information, for additional information on this segment realignment. See Note 6—Business
Combinations and Note 7—Assets Held for Sale or Sold for information on goodwill assigned to business acquisitions
and dispositions, respectively.

The carrying amount of goodwill was as follows:

Millions of Dollars

Midstream

Refining

Marketing and
Specialties

Balance at January 1, 2013
Tax and other adjustments
Goodwill allocated to assets held-for-sale or sold
Balance at December 31, 2013
Tax and other adjustments
Goodwill assigned to asset acquisitions
Goodwill allocated to assets held-for-sale or sold
Balance at December 31, 2014

518
—
—
518
—
105
—
623

1,934
(15)
—
1,919
(49)
—
(57)
1,813

892
—
(233)
659
52
127
—
838

Total

3,344
(15)
(233)
3,096
3
232
(57)
3,274

Intangible Assets
Information at December 31 on the carrying value of intangible assets follows:

Indefinite-Lived Intangible Assets
Trade names and trademarks
Refinery air and operating permits
Other

Millions of Dollars
Gross Carrying
Amount

2014

2013

503
239
14
756

494
200
—
694

At year-end 2014, our net amortized intangible asset balance was $144 million, which included accumulated amortization
of $132 million, compared with $4 million and $127 million, respectively, at year-end 2013. The increase is primarily
related to customer relationships and commercial contracts acquired in business acquisitions. These intangibles have a
weighted-average amortization of 14 years. See Note 6—Business Combinations for more information on intangible
assets acquired in business acquisitions. Amortization expense was not material for 2014 and 2013, and is not expected
to be material in future years.

Note 11—Impairments

During 2014, 2013 and 2012, we recognized the following before-tax impairment charges:

Midstream
Refining
Marketing and Specialties
Corporate and Other

Millions of Dollars
2013

2014

—
147
3
—
150

1
3
16
9
29

2012

524
608
1
25
1,158

2014
We recorded a $131 million held-for-use impairment in our Refining segment related to the Whitegate Refinery in Cork,
Ireland, due to the current and forecasted negative market conditions in this region.

In addition, we also recorded a $12 million held-for-sale impairment in our Refining segment related to the Bantry Bay
terminal. See Note 7—Assets Held for Sale or Sold for additional information.

2013
We recorded impairments of $16 million in our M&S segment, primarily related to PP&E associated with our planned
exit from the composite graphite business.

2012
We had a 47 percent interest in MRC, which was included in our Refining segment. Due to significantly lower estimated
future refining margins in this region, driven primarily by assumed increases in future crude oil pricing over the long
term, we determined that the fair value of our investment in MRC was lower than our carrying value, and that this loss in
value was other than temporary. Accordingly, we recorded a $564 million impairment of our investment in MRC.

We have a 25 percent interest in REX, which is included in our Midstream segment. During 2012, marketing activities
by a co-venturer that resulted in them recording an impairment charge and then subsequently selling their interest at an
amount below our adjusted carrying value were determined to be indicators of impairment. After identifying these
impairment indicators, we performed our own assessment of the fair value of our investment in REX. Based on these
assessments, we concluded our investment in REX was impaired, and the decline in fair value was other than temporary.
Accordingly, we recorded impairment charges totaling $480 million to write down the carrying amount of our investment
in REX to fair value.

We recorded an impairment of $43 million on the Riverhead Terminal in our Midstream segment and a held-for-sale
impairment of $42 million in our Refining segment related to equipment formerly associated with the canceled
Wilhelmshaven Refinery upgrade project. See Note 7—Assets Held for Sale or Sold, for additional information. In
addition, we recorded an impairment of $25 million on a corporate property.

Note 12—Asset Retirement Obligations and Accrued Environmental Costs

Asset retirement obligations and accrued environmental costs at December 31 were:

Asset retirement obligations
Accrued environmental costs
Total asset retirement obligations and accrued environmental costs
Asset retirement obligations and accrued environmental costs due within one

year*

Long-term asset retirement obligations and accrued environmental costs
*Classified as a current liability on the balance sheet, under the caption “Other accruals.”

Millions of Dollars

2014

279
496
775

(92)
683

2013

309
492
801

(101)
700

Asset Retirement Obligations
We have asset removal obligations that we are required to perform under law or contract once an asset is permanently
taken out of service. Most of these obligations are not expected to be paid until many years in the future and will be
funded from general company resources at the time of removal. Our largest individual obligations involve asbestos
abatement at refineries.

During 2014 and 2013, our overall asset retirement obligation changed as follows:

Balance at January 1
Accretion of discount
New obligations
Changes in estimates of existing obligations
Spending on existing obligations
Property dispositions
Foreign currency translation
Balance at December 31

Millions of Dollars

2014

2013

309
11
2
(16)
(17)
(1)
(9)
279

314
11
3
12
(13)
(20)
2
309

Accrued Environmental Costs
Total accrued environmental costs at December 31, 2014 and 2013, were $496 million and $492 million, respectively.
The 2014 increase in total accrued environmental costs is due to new accruals, accrual adjustments and accretion
exceeding payments and settlements during the year.

We had accrued environmental costs at December 31, 2014 and 2013, of $268 million and $255 million, respectively,
primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $178 million
and $184 million, respectively, associated with nonoperator sites; and $50 million and $53 million, respectively, where
the company has been named a potentially responsible party under the Federal Comprehensive Environmental Response,
Compensation and Liability Act, or similar state laws. Accrued environmental liabilities are expected to be paid over
periods extending up to 30 years. Because a large portion of the accrued environmental costs were acquired in various
business combinations, the obligations are recorded at a discount. Expected expenditures for acquired environmental
obligations are discounted using a weighted-average 5 percent discount factor, resulting in an accrued balance for
acquired environmental liabilities of $259 million at December 31, 2014. The expected future undiscounted payments
related to the portion of the accrued environmental costs that have been discounted are: $26 million in 2015, $30 million
in 2016, $33 million in 2017, $24 million in 2018, $26 million in 2019, and $177 million for all future years after 2019.

Note 13—Earnings Per Share

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

On April 30, 2012, 625.3 million shares of our common stock were distributed to ConocoPhillips stockholders in
conjunction with the Separation. For comparative purposes, and to provide a more meaningful calculation of weighted-
average shares outstanding, we have assumed this amount to be outstanding as of the beginning of each period prior to
the Separation presented in the calculation of weighted-average shares. In addition, we have assumed the fully vested
stock and unit awards outstanding at April 30, 2012, were also outstanding for each of the periods presented prior to the
Separation; and we have assumed the dilutive securities outstanding at April 30, 2012, were also outstanding for each
period prior to the Separation.

Amounts Attributed to Phillips 66 Common

Stockholders (millions):
Income from continuing operations attributable to

Phillips 66

Income allocated to participating securities
Income from continuing operations available to

common stockholders
Discontinued operations
Net income available to common stockholders

2014

2013

2012

Basic

Diluted

Basic

Diluted

Basic

Diluted

$ 4,056
(7)

4,049
706
$ 4,755

4,056
—

4,056
706
4,762

3,665
(5)

3,660
61
3,721

3,665
—

3,665
61
3,726

4,076
(2)

4,074
48
4,122

4,076
—

4,076
48
4,124

Weighted-average common shares outstanding

(thousands):

Effect of stock-based compensation
Weighted-average common shares outstanding—EPS

561,859 565,902
5,602
565,902 571,504

4,043

608,983 612,918
6,071
612,918 618,989

3,935

625,519 628,835
7,929
628,835 636,764

3,316

Earnings Per Share of Common Stock (dollars):

Income from continuing operations attributable to

Phillips 66

Discontinued operations

Earnings Per Share

7.15
1.25
8.40

7.10
1.23
8.33

5.97
0.10
6.07

5.92
0.10
6.02

6.47
0.08
6.55

6.40
0.08
6.48

Note 14—Debt

Long-term debt at December 31 was:

1.95% Senior Notes due 2015
2.95% Senior Notes due 2017
4.30% Senior Notes due 2022
4.65% Senior Notes due 2034
4.875% Senior Notes due 2044
5.875% Senior Notes due 2042
Industrial Development Bonds due 2018 through 2021 at 0.02%-0.05%
at year-end 2014 and 0.05%-0.07% at year-end 2013
Sweeny Cogeneration, L.P. notes due 2020 at 7.54%
Note payable to Merey Sweeny, L.P. due 2020 at 7% (related party)
Phillips 66 Partners revolving credit facility due 2019 at 1.33%
at year-end 2014
Other
Debt at face value
Capitalized leases
Net unamortized premiums and discounts
Total debt
Short-term debt
Long-term debt

Millions of Dollars

2014

800
1,500
2,000
1,000
1,500
1,500

50
53
97

18
1
8,519
210
(45)
8,684
(842)
7,842

2013

800
1,500
2,000
—
—
1,500

50
—
110

—
1
5,961
199
(5)
6,155
(24)
6,131

Maturities of long-term borrowings, inclusive of net unamortized premiums and discounts, in 2015 through 2019 are:
$842 million, $36 million, $1,539 million, $47 million and $51 million, respectively.

In November 2014, we issued $2.5 billion of Senior Notes comprised of $1 billion of 4.65% Senior Notes due 2034 and
$1.5 billion of 4.875% Senior Notes due 2044. The notes are guaranteed by Phillips 66 Company, a wholly owned
subsidiary. A portion of the net proceeds will be used to repay $800 million in aggregate principal amount of our
outstanding 1.95% Senior Notes due 2015.

Credit Facilities and Commercial Paper
During the fourth quarter of 2014, we amended our Phillips 66 revolving credit facility, primarily to increase its
borrowing capacity from $4.5 billion to $5 billion and to extend the term from June 2018 to December 2019. The
Phillips 66 facility may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for
our commercial paper program. The facility is with a broad syndicate of financial institutions and contains covenants
that we consider usual and customary for an agreement of this type for comparable commercial borrowers, including a
maximum consolidated net debt-to-capitalization ratio of 60 percent. The agreement has customary events of default,
such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-
payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and change of
control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin
based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s
Ratings Services (S&P) and Moody’s Investors Service (Moody’s). The facility also provides for customary fees,
including administrative agent fees and commitment fees. As of December 31, 2014, no amount had been directly drawn
under this facility and $51 million in letters of credit had been issued that were supported by the facility. As a result, we
ended 2014 with $4.9 billion of capacity under this facility.

Trade Receivables Securitization Facility
Effective September 30, 2014, we terminated our $696 million trade receivables securitization facility. No amounts were
drawn against this facility throughout its duration, and at the time of termination no letters of credit were outstanding
thereunder.

Note 15—Guarantees

At December 31, 2014, we were liable for certain contingent obligations under various contractual arrangements as
described below. We recognize a liability, at inception, for the fair value of our obligation as a guarantor for newly issued
or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability
either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is
immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the
guarantee and expect future performance to be either immaterial or have only a remote chance of occurrence.

Guarantees of Joint Venture Debt
In 2012, in connection with the Separation, we issued a guarantee for 100 percent of the 8.85% Senior Notes issued by
MSLP in July 1999. At December 31, 2014, the maximum potential amount of future payments to third parties under the
guarantee was estimated to be $189 million, which could become payable if MSLP fails to meet its obligations under the
senior notes agreement. The senior notes mature in 2019.

Other Guarantees
We have residual value guarantees associated with leases with maximum future potential payments totaling $384 million.
We have other guarantees with maximum future potential payment amounts totaling $112 million, which consist
primarily of guarantees to fund the short-term cash liquidity deficits of certain joint ventures, guarantees of third parties
related to prior asset dispositions, and guarantees of the lease payment obligations of a joint venture. These guarantees
generally extend up to 10 years or the life of the venture.

Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures
and assets that gave rise to qualifying indemnifications. Agreements associated with these sales include indemnifications
for taxes, litigation, environmental liabilities, permits and licenses, supply arrangements, and employee claims; and real
estate indemnity against tenant defaults. The provisions of these indemnifications vary greatly. The majority of these
indemnifications are related to environmental issues, the term is generally indefinite, and the maximum amount of future
payments is generally unlimited. The carrying amount recorded for indemnifications at December 31, 2014, was $220
million. We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and
circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse
the liability when we have information the liability is essentially relieved or amortize the liability over an appropriate
time period as the fair value of our indemnification exposure declines. Although it is reasonably possible future
payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable

estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were $102
million of environmental accruals for known contamination that were included in asset retirement obligations and
accrued environmental costs at December 31, 2014. For additional information about environmental liabilities, see Note
16—Contingencies and Commitments.

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

Note 16—Contingencies and Commitments

A number of lawsuits involving a variety of claims have been brought against us in connection with matters that arise in
the ordinary course of business. 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 accounting recognition or disclosure of these contingencies. In the case
of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and
the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is
a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for
potential insurance or third-party recoveries. If applicable, we record receivables for probable insurance or other third-
party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual
in cases where sustaining a tax position is less than certain. See Note 22—Income Taxes, for additional information
about income-tax-related contingencies.

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

Although liability of those potentially responsible for environmental remediation costs is generally joint and several for
federal sites and frequently so for state sites, we are usually only one of many companies cited at a particular site. Due to
such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been
designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other
financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by

the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site
conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no
liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be
financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we
adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental
obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit
and some of the indemnifications are subject to dollar and time limits.

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable
state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an
undiscounted basis (except those acquired in a purchase business combination, which we record on a discounted basis)
for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these
costs can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries. In the future,
we may be involved in additional environmental assessments, cleanups and proceedings. See Note 12—Asset
Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.

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

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

At December 31, 2014, we had performance obligations secured by letters of credit and bank guarantees of $490
million (of which $51 million was issued under the provisions of our revolving credit facility, and the remainder was
issued as direct bank letters of credit and bank guarantees) related to various purchase and other commitments incident to
the ordinary conduct of business.

Long-Term Throughput Agreements and Take-or-Pay Agreements
We have certain throughput agreements and take-or-pay agreements in support of financing arrangements. The
agreements typically provide for crude oil transportation to be used in the ordinary course of our business. The aggregate
amounts of estimated payments under these various agreements are $333 million each year for years 2015 through 2019
and $3,700 million in the aggregate for years 2020 and thereafter. Total payments under the agreements were $328
million in 2014, $342 million in 2013 and $343 million in 2012.

Note 17—Derivatives and Financial Instruments

Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in foreign currency
exchange rates and commodity prices or to capture market opportunities. Since we are not currently using cash-flow
hedge accounting, all gains and losses, realized or unrealized, from commodity derivative contracts have been recognized
in the consolidated statement of income. Gains and losses from derivative contracts held for trading not directly related
to our physical business, whether realized or unrealized, have been reported net in “Other income” on our consolidated
statement of income. Cash flows from all our derivative activity for the periods presented appear in the operating section
of the consolidated statement of cash flows.

Purchase and sales contracts with fixed minimum notional volumes for commodities that are readily convertible to cash
(e.g., crude oil and gasoline) are recorded on the balance sheet as derivatives unless the contracts are eligible for, and we

elect, the normal purchases and normal sales exception (i.e., contracts to purchase or sell quantities we expect to use or
sell over a reasonable period in the normal course of business). We generally apply this normal purchases and normal
sales exception to eligible crude oil, refined product, NGL, natural gas and power commodity purchase and sales
contracts; however, we may elect not to apply this exception (e.g., when another derivative instrument will be used to
mitigate the risk of the purchase or sales contract but hedge accounting will not be applied, in which case both the
purchase or sales contract and the derivative contract mitigating the resulting risk will be recorded on the balance sheet at
fair value). Our derivative instruments are held at fair value on our consolidated balance sheet. For further information
on the fair value of derivatives, see Note 18—Fair Value Measurements.

Commodity Derivative Contracts—We operate in the worldwide crude oil, refined products, NGL, natural gas and
electric power markets and are exposed to fluctuations in the prices for these commodities. These fluctuations can affect
our revenues, as well as the cost of operating, investing and financing activities. Generally, our policy is to remain
exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to
balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited,
immaterial amount of trading not directly related to our physical business. We also use the market knowledge gained
from these activities to capture market opportunities such as moving physical commodities to more profitable locations,
storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.
Derivatives may be used to optimize these activities, which may move our risk profile away from market average prices.

The following table indicates the balance sheet line items that include the fair values of commodity derivative assets and
liabilities presented net (i.e., commodity derivative assets and liabilities with the same counterparty are netted where the
right of setoff exists); however, the balances in the following table are presented gross. For information on the impact of
counterparty netting and collateral netting, see Note 18—Fair Value Measurements.

Assets
Accounts and notes receivable
Prepaid expenses and other current assets
Other assets
Liabilities
Other accruals
Other liabilities and deferred credits
Hedge accounting has not been used for any item in the table.

Millions of Dollars

2014

2013

(1)
3,839
29

3,472
1

2
592
2

633
1

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

Sales and other operating revenues
Equity in earnings of affiliates
Other income
Purchased crude oil and products
Hedge accounting has not been used for any item in the table.

Millions of Dollars

2014

2013

2012

658
66
20
136

17
(19)
3
95

3
6
39
32

The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts.
These financial and physical derivative contracts are primarily used to manage price exposure on our underlying
operations. The underlying exposures may be from non-derivative positions such as inventory volumes. Financial
derivative contracts may also offset physical derivative contracts, such as forward sales contracts. The percentage of our
derivative contract volumes expiring within the next 12 months was approximately 99 percent at both December 31,
2014 and 2013.

Commodity
Crude oil, refined products and NGL (millions of barrels)

Open Position
Long / (Short)
2014

2013

(11)

(9)

Credit Risk
Financial instruments potentially exposed to concentrations of credit risk consist primarily of over-the-counter (OTC)
derivative contracts and trade receivables.

The credit risk from our OTC derivative contracts, such as forwards and swaps, derives from the counterparty to the
transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of
cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps
and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse
and subject to mandatory margin requirements until settled; however, we are exposed to the credit risk of those exchange
brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin
requirements.

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

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

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a
liability position were not material at December 31, 2014 or 2013.

Note 18—Fair Value Measurements

Fair Values of Financial Instruments
We used the following methods and assumptions to estimate the fair value of financial instruments:

• Cash and cash equivalents(cid:29) The carrying amount reported on the consolidated balance sheet approximates fair

value.

• Accounts and notes receivable(cid:29) The carrying amount reported on the consolidated balance sheet approximates

fair value.

• Debt(cid:29) The carrying amount of our floating(cid:16)rate debt approximates fair value. The fair value of our fixed(cid:16)rate

debt is estimated based on quoted market prices.

• Commodity swaps(cid:29) Fair value is estimated based on forward market prices and approximates the exit price at
period end. When forward market prices are not available, we estimate fair value using the forward price of a
similar commodity, adjusted for the difference in quality or location.

•

Futures(cid:29) Fair values are based on quoted market prices obtained from the New (cid:60)ork Mercantile Exchange, the
InterContinentalExchange, or other traded exchanges.

Forward(cid:16)exchange contracts(cid:29) Fair value is estimated by comparing the contract rate to the forward rate in effect
at the end of the reporting period, which approximates the exit price at that date.

We carry certain assets and liabilities at fair value, which we measure at the reporting date using an exit price (i.e., the
price that would be received to sell an asset or paid to transfer a liability), and disclose the quality of these fair values
based on the valuation inputs used in these measurements under the following hierarchy(cid:29)

• Level 1(cid:29) Fair value measured with unadjusted quoted prices from an active market for identical assets or

liabilities.

• Level 2(cid:29) Fair value measured with(cid:29) 1) adjusted quoted prices from an active market for similar assets; or 2) other

valuation inputs that are directly or indirectly observable.

• Level 3(cid:29) Fair value measured with unobservable inputs that are significant to the measurement.

We classify the fair value of an asset or liability based on the lowest level of input significant to its measurement;
however, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the
unobservable inputs become inconsequential to its measurement or corroborating market data becomes available.
Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating
market data becomes unavailable. We made no material transfers in or out of Level 1 during the twelve(cid:16)month periods
ended December 31, 2014 and 2013.

Recurring Fair Value Measurements
Financial assets and liabilities recorded at fair value on a recurring basis consist primarily of investments to support
nonqualified deferred compensation plans and derivative instruments. The deferred compensation investments are
measured at fair value using unadjusted prices available from national securities exchanges; therefore, these assets are
categori(cid:93)ed as Level 1 in the fair value hierarchy. We value our exchange(cid:16)traded commodity derivatives using closing
prices provided by the exchange as of the balance sheet date, and these are also classified as Level 1 in the fair value
hierarchy. When exchange(cid:16)cleared contracts lack sufficient liquidity or are valued using either adjusted exchange(cid:16)
provided prices or non(cid:16)exchange quotes, we classify those contracts as Level 2. (cid:50)TC financial swaps and physical
commodity forward purchase and sales contracts are generally valued using quotations provided by brokers and price
index developers such as Platts and (cid:50)il Price Information Service. We corroborate these quotes with market data and
classify the resulting fair values as Level 2. In certain less liquid markets or for longer(cid:16)term contracts, forward prices are
not as readily available. In these circumstances, (cid:50)TC swaps and physical commodity purchase and sales contracts are
valued using internally developed methodologies that consider historical relationships among various commodities that
result in management(cid:181)s best estimate of fair value. We classify these contracts as Level 3. Financial (cid:50)TC and physical
commodity options are valued using industry(cid:16)standard models that consider various assumptions, including quoted
forward prices for commodities, time value, volatility factors, and contractual prices for the underlying instruments, as
well as other relevant economic measures. The degree to which these inputs are observable in the forward markets
determines whether the options are classified as Level 2 or 3. We use a mid(cid:16)market pricing convention (the mid(cid:16)point
between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based
on available market evidence.

The following tables display the fair value hierarchy for our material financial assets and liabilities either accounted for
or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental
unit of account; therefore, derivative assets and liabilities with the same counterparty are shown gross (i.e., without the
effect of netting where the legal right of setoff exists) in the hierarchy sections of these tables. These tables also show
that our Level 3 activity was not material.

We have master netting arrangements for all of our exchange-cleared derivative instruments, the majority of our OTC
derivative instruments, and certain physical commodity forward contracts (primarily pipeline crude oil deliveries). The
following tables show the fair values of these contracts on a net basis in the column “Effect of Counterparty Netting,”
which is how these also appear on the consolidated balance sheet.

The carrying values and fair values by hierarchy of our material financial instruments and physical commodity forward
contracts, either carried or disclosed at fair value, including any effects of netting derivative assets with liabilities and
netting collateral due to right of setoff or master netting agreements were:

Millions of Dollars

December 31, 2014

Fair Value Hierarchy

Level 1

Level 2

Level 3

Total Fair
Value of
Gross
Assets &
Liabilities

Effect of
Counterparty
Netting

Effect of
Collateral
Netting

Difference
in Carrying
Value and
Fair Value

Net
Carrying
Value
Presented
on the
Balance
Sheet

Cash
Collateral
Received
or Paid,
Not Offset
on Balance
Sheet

Commodity Derivative Assets

Exchange-cleared instruments

2,058

1,525

OTC instruments

Physical forward contracts*

Rabbi trust assets

—

253

—

2,134

1,802

Commodity Derivative Liabilities

Exchange-cleared instruments

1,833

1,422

OTC instruments

Physical forward contracts*

Floating-rate debt

Fixed-rate debt, excluding capital

leases**

—

1,901

189

—

8,806

10,446

—

3,583

(3,255)

(225)

260

(14)

(38)

N/A

3,943

(3,307)

3,255

(3,255)

189

8,806

12,347

(14)

(38)

N/A

(3,307)

—

N/A

(225)

—

N/A

—

103

222

411

—

151

(400)

8,406

8,640

—

N/A

—

N/A

*Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the

reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa.

**We carry fixed-rate debt on the balance sheet at amortized cost.

Millions of Dollars

December 31, 2013

Fair Value Hierarchy

Level 1

Level 2

Level 3

Total Fair
Value of
Gross
Assets &
Liabilities

Effect of
Counterparty
Netting

Effect of
Collateral
Netting

Difference
in Carrying
Value and
Fair Value

Net
Carrying
Value
Presented
on the
Balance
Sheet

Cash
Collateral
Received
or Paid,
Not Offset
on Balance
Sheet

Commodity Derivative Assets

Exchange-cleared instruments

227

OTC instruments

Physical forward contracts*

Rabbi trust assets

Commodity Derivative Liabilities

Exchange-cleared instruments

OTC instruments

Physical forward contracts*

Floating-rate debt

Fixed-rate debt, excluding capital

leases**

—

291

253

—

303

332

—

367

326

—

6,168

6,548

—

559

660

579

6,168

6,852

(538)

(8)

—

N/A

(546)

(538)

(8)

—

N/A

(546)

—

N/A

—

(41)

—

N/A

(41)

—

114

—

(262)

5,906

6,003

—

N/A

—

N/A

*Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the

reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa.

**We carry fixed-rate debt on the balance sheet at amortized cost.

The values presented in the preceding tables appear on our balance sheet as follows: for commodity derivative assets and
liabilities, see the first table in Note 17—Derivatives and Financial Instruments; rabbi trust assets appear in the
“Investments and long-term receivables” line; and floating-rate and fixed-rate debt appear in the “Short-term debt” and
“Long-term debt” lines.

Nonrecurring Fair Value Remeasurements
The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in
periods subsequent to their initial recognition during the years ended December 31, 2014 and 2013:

Year Ended December 31, 2014
Net properties, plants and equipment (held for use)
Net asset disposal group (held for sale)

Year Ended December 31, 2013
Net properties, plants and equipment (held for use)
*Represents the classification and fair value at the time of the impairment.

Millions of Dollars
Fair Value
Measurements Using

Fair Value*

Level 1
Inputs

Level 3
Inputs

Before-
Tax Loss

20
72

—
72

20
—

—

131
12

During 2014, net PP&E held for use related to our Whitegate Refinery in Ireland included in our Refining segment, with
a carrying amount of $151 million, was written down to its fair value of $20 million, resulting in a before-tax loss of
$131 million. The fair value was determined based on the highest and best use of these assets to a principal market
participant using market transactions of similar assets with adjustments to reflect the condition of the assets. In addition,

net assets held for sale related to the Bantry Bay terminal in our Refining segment, with a carrying amount of $84
million, primarily consisting of net PP&E, were written down to fair value less costs to sell, resulting in a before-tax loss
of $12 million. This impairment was attributed to the long-lived assets in the disposal group. The fair value was
determined by a negotiated selling price with a third party. See Note 7—Assets Held for Sale or Sold, for additional
information.

During 2013, net PP&E held for use related to the composite graphite business in our M&S segment, with a carrying
amount of $18 million, was written down to its fair value, resulting in a before-tax loss of $18 million. The fair value
was based on an internal assessment of expected discounted future cash flows. During this same period, corporate net
PP&E held for use, with a carrying amount of $31 million, was written down to its fair value of $22 million, resulting in
a before-tax loss of $9 million. The fair value was primarily determined by a third-party valuation.

Note 19—Equity

Preferred Stock
We have 500 million shares of preferred stock authorized, with a par value of $0.01 per share. No shares of preferred
stock were outstanding as of December 31, 2014 or 2013.

Treasury Stock
During 2012 and 2013, our Board of Directors authorized repurchases totaling up to $5 billion of our outstanding
common stock. In 2014, our Board of Directors authorized additional share repurchases totaling up to $2 billion. The share
repurchases are expected to be funded primarily through available cash. The shares will be repurchased from time to
time in the open market at the company’s discretion, subject to market conditions and other factors, and in accordance
with applicable regulatory requirements and the Tax Sharing Agreement entered into in connection with the Separation.
We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue
purchases at any time or from time to time without prior notice. Since the inception of our share repurchases in 2012,
through December 31, 2014, we have repurchased a total of 73,227,369 shares at a cost of $4.9 billion. Shares of stock
repurchased are held as treasury shares.

Common Stock Dividends
On February 4, 2015, our Board of Directors declared a quarterly cash dividend of $0.50 per common share, payable
March 2, 2015, to holders of record at the close of business on February 17, 2015.

100

Note 20—Leases

We lease ocean transport vessels, tugboats, barges, pipelines, railcars, service station sites, computers, office buildings,
corporate aircraft, land and other facilities and equipment. Certain leases include escalation clauses for adjusting rental
payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property.
There are no significant restrictions imposed on us by the leasing agreements with regard to dividends, asset dispositions
or borrowing ability. Our capital lease obligations relate primarily to the lease of an oil terminal in the United Kingdom.
The lease obligation is subject to foreign currency translation adjustments each reporting period. The total net PP&E
recorded for capital leases was $203 million and $206 million at December 31, 2014 and 2013, respectively.

Future minimum lease payments as of December 31, 2014, for capital lease obligations and operating lease obligations
having initial or remaining payments due under noncancelable leases were:

Millions of Dollars

Capital Lease
Obligations

Operating Lease
Obligations

2015
2016
2017
2018
2019
Remaining years

Total

Less: income from subleases

Net minimum lease payments
Less: amount representing interest

Capital lease obligations

26
16
17
15
15
191
280
—
280
70
210

Operating lease rental expense for the years ended December 31 was:

Minimum rentals
Contingent rentals
Less: sublease rental income

Millions of Dollars

2014

570
8
135
443

2013

572
7
133
446

489
387
298
218
160
456
2,008
96
1,912

2012

554
8
93
469

101

Note 21—Employee Benefit Plans

Pension and Postretirement Plans
The following table provides a reconciliation of the projected benefit obligations and plan assets for our pension plans
and accumulated benefit obligations for our other postretirement benefit plans:

Change in Benefit Obligation
Benefit obligation at January 1
Service cost
Interest cost
Plan participant contributions
Actuarial loss (gain)
Benefits paid
Foreign currency exchange rate change
Benefit obligation at December 31*
*Accumulated benefit obligation portion of above at

December 31:

Change in Fair Value of Plan Assets
Fair value of plan assets at January 1
Actual return on plan assets
Company contributions
Plan participant contributions
Benefits paid
Foreign currency exchange rate change
Fair value of plan assets at

December 31

Funded Status at December 31

Millions of Dollars

Pension Benefits

2014

2013

U.S.

Int’l.

U.S.

Int’l.

Other Benefits
2014

2013

2,473
121
108
—
409
(216)
—
2,895

2,553

2,008
168
164
—
(216)
—

2,124

840
38
35
4
116
(18)
(74)
941

729

645
89
60
4
(18)
(56)

724

2,624
125
91
—
(194)
(173)
—
2,473

2,151

1,762
283
136
—
(173)
—

2,008

757
36
31
4
1
(15)
26
840

627

527
60
50
4
(15)
19

645

189
7
8
1
4
(6)
—
203

—
—
5
1
(6)
—

—

191
8
7
—
(14)
(3)
—
189

—
—
3
—
(3)
—

—

(771)

(217)

(465)

(195)

(203)

(189)

Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at
December 31, 2014 and 2013, include:

Millions of Dollars

Pension Benefits

2014

2013

Other Benefits
2014

2013

U.S.

Int’l.

U.S.

Int’l.

Amounts Recognized in the

Consolidated Balance Sheet
at December 31
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total recognized

—
(8)
(763)
(771)

—
(8)
(457)
(465)

2
—
(197)
(195)

—
(6)
(197)
(203)

—
(3)
(186)
(189)

13
—
(230)
(217)

102

Included in accumulated other comprehensive income at December 31 were the following before-tax amounts that had
not been recognized in net periodic benefit cost:

Millions of Dollars

Pension Benefits

2014

2013

Other Benefits
2014

2013

U.S.

Int’l.

U.S.

Int’l.

Unrecognized net actuarial loss

(gain)

Unrecognized prior service cost

(credit)

741

165

(9)

399

120

(11)

(13)

(12)

(18)

(13)

Millions of Dollars

Pension Benefits

2014

2013

Other Benefits
2014

2013

U.S.

Int’l.

U.S.

Int’l.

Sources of Change in Other
Comprehensive Income
Net gain (loss) arising during

the period

Amortization of (gain) loss

included in income

Net change during the period

Prior service cost arising during

the period

Amortization of prior service
cost (credit) included in
income

Net change during the period

(382)

40
(342)

—

3
3

(57)

12
(45)

—

(2)
(2)

356

84
440

—

3
3

16
41

—

(1)
(1)

(3)

(2)
(5)

—

(1)
(1)

—
14

—

(2)
(2)

103

For our tax-qualified pension plans with projected benefit obligations in excess of plan assets, the projected benefit
obligation, the accumulated benefit obligation, and the fair value of plan assets were $3,189 million, $2,815 million, and
$2,295 million, respectively, at December 31, 2014, and $2,757 million, $2,407 million, and $2,177 million, respectively,
at December 31, 2013. For our unfunded nonqualified key employee supplemental pension plans, the projected benefit
obligation and the accumulated benefit obligation were $107 million and $83 million, respectively, at December 31,
2014, and $82 million and $58 million, respectively, at December 31, 2013.

The allocated benefit cost from Shared Plans, as well as the components of net periodic benefit cost associated with plans
sponsored by us, for 2014, 2013 and 2012 is shown in the table below:

Millions of Dollars

2014

Pension Benefits
2013

2012

2014

2013

2012

Other Benefits

U.S.

Int’l.

U.S.

Int’l.

U.S.

Int’l.

Components of Net
Periodic Benefit
Cost

Service cost
Interest cost
Expected return on

plan assets

Amortization of prior
service cost (credit)

Recognized net

actuarial loss (gain)
Subtotal net periodic

benefit cost

Allocated benefit cost
from ConocoPhillips

Total net periodic
benefit cost

121
108

38
35

125
91

36
31

82
65

22
25

(142)

(37)

(120)

(29)

(81)

(21)

130

—

130

(2)

—

183

—

183

(1)

—

117

188

(1)

7
8

—

(1)

(2)

—

8
7

—

(2)

—

4
5

—

(1)

In determining net periodic benefit cost, we amortize prior service costs on a straight-line basis over the average
remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we
amortize 10 percent of the unamortized balance each year. The amount subject to amortization is determined on a plan-
by-plan basis. Amounts included in accumulated other comprehensive income at December 31, 2014, that are expected
to be amortized into net periodic benefit cost during 2015 are provided below:

Unrecognized net actuarial loss (gain)
Unrecognized prior service cost (credit)

Millions of Dollars

Pension Benefits

U.S.

Int’l.

Other
Benefits

75
3

16
(2)

(1)
(1)

104

The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs
for years ended December 31:

Pension Benefits

2014

2013

Other Benefits
2014

2013

U.S.

Int’l.

U.S.

Int’l.

Assumptions Used to
Determine Benefit
Obligations:

Discount rate
Rate of compensation increase

3.90%
4.00

3.10
3.20

Assumptions Used to

Determine Net Periodic
Benefit Cost:

Discount rate
Expected return on plan assets
Rate of compensation increase

4.55%
7.00
4.00

4.30
5.50
3.90

4.55
4.00

3.60
7.00
3.85

4.30
3.90

4.20
5.50
3.60

3.70
—

4.40
—
—

4.40
—

3.70
—
—

For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected
future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a
variety of independent market forecasts in developing the expected rate of return for each class of assets.

Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated
the subsidy for retiree medical. On or after January 1, 2013, eligible employees are able to utilize notional amounts
credited to an account during their period of service with the company to pay all, or a portion, of their cost to participate
in postretirement health insurance through the company. In general, employees hired after December 31, 2012, will not
receive credits to an account, but will have unsubsidized access to health insurance through the plan. The cost of health
insurance will be adjusted annually by the company’s actuary to reflect actual experience and expected health care cost
trends. The measurement of the accumulated benefit obligation assumes a health care cost trend rate of 7.00 percent in
2015 that declines to 5.00 percent by 2023. A one percentage-point change in the assumed health care cost trend rate
would be immaterial to Phillips 66.

Plan Assets
The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate
level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of
broadly diversifying pension plan assets across asset classes, investment managers, and individual holdings. As a result,
our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include
equities, fixed income, cash, real estate and insurance contracts. Plan fiduciaries may consider and add other asset
classes to the investment program from time to time. The target allocations for plan assets are approximately 62 percent
equity securities, 37 percent debt securities and 1 percent in all other types of investments. Generally, the investments in
the plans are publicly traded, therefore minimizing the liquidity risk in the portfolio.

The following is a description of the valuation methodologies used for the pension plan assets.

•

Fair values of equity securities and government debt securities categori(cid:93)ed in Level 1 are primarily based on
quoted market prices.
Fair values of corporate debt securities, agency and mortgage(cid:16)backed securities and government debt securities
categori(cid:93)ed in Level 2 are estimated using recently executed transactions and market price quotations. If there
have been no market transactions in a particular fixed income security, its fair market value is calculated by
pricing models that benchmark the security against other securities with actual market prices.
Fair values of investments in common(cid:18)collective trusts are determined by the issuer of each fund based on the

105

•

fair value of the underlying assets.
Fair values of mutual funds are valued based on quoted market prices, which represent the net asset value of
shares held. Certain mutual funds are categori(cid:93)ed in Level 2 as they are not valued on a daily basis.

• Cash and cash equivalents are valued at cost, which approximates fair value.
•

Fair values of exchange(cid:16)traded derivatives classified in Level 1 are based on quoted market prices. For other
derivatives classified in Level 2, the fair values are generally calculated from pricing models with market input
parameters from third(cid:16)party sources.
Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the
insurance company to the plans(cid:181) participants.
Fair values of real estate investments are valued using real estate valuation techniques and other methods that
include reference to third(cid:16)party sources and sales comparables where available.

•

The fair values of our pension plan assets at December 31, by asset class, were as follows(cid:29)

Millions of Dollars

U.S.

International

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

2014
Equity Securities

U.S.
International
Common(cid:18)collective
trusts
Mutual funds
Debt Securities
Government
Corporate
Agency and mortgage(cid:16)
backed securities
Common(cid:18)collective
trusts
Mutual funds
Cash and cash
equivalents
Derivatives
Insurance contracts
Real estate
Total*

288
163

—
—

—

—
—

20
—
—
—
471

—
—

920
—

32
51

—

648
—

—
—
—
—
1,651

* Fair values in the table exclude net receivables of $2 million.

288
163

920
—

32
51

—

648
—

20
—
—
—
2,122

161
113

—
5

141
—

—

—
2

10
—
—
—
432

—
—

110
—

—
—

—

161
—

—
—
—
—
271

—
—

—

—
—

—
—
14
7
21

161
113

110
5

141
—

—

161
2

10
—
14
7
724

—
—

—

—
—

—
—
—
—
—

106

Millions of Dollars

U.S.

International

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

2013
Equity Securities

U.S.
International
Common/collective
trusts
Mutual funds
Debt Securities
Government
Corporate
Agency and mortgage-
backed securities
Common/collective
trusts
Mutual funds
Cash and cash
equivalents
Derivatives
Insurance contracts
Real estate
Total

552
439

—
—

114
—

—

—
—

77
(1)
—
—
1,181

—
—

302
42

70
305

17
—

—
1
—
—
827

—
—

—

—
—

—
—
—
—
—

552
439

302
42

184
305

17
—

77
—
—
—
2,008

129
104

—
5

117
—

—

—
1

14
—
—
—
370

—
—

103
—

—
—

—

148
—

—
—
—
—
251

—
—

—

—
—

—
—
16
8
24

129
104

103
5

117
—

—

148
1

14
—
16
8
645

As reflected in the table above, Level 3 activity was not material.

Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to international plans are
subject to local laws and tax regulations. Actual contribution amounts are dependent upon plan asset returns, changes in
pension obligations, regulatory environments, and other economic factors. In 2015, we expect to contribute
approximately $30 million to our U.S. pension plans and other postretirement benefit plans and $70 million to our
international pension plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by us in
the years indicated:

2015
2016
2017
2018
2019
2020-2023

Millions of Dollars

Pension Benefits

U.S.

Int’l.

Other
Benefits

252
254
262
277
300
1,405

17
22
24
23
26
149

13
15
17
18
19
104

107

Defined Contribution Plans
Most U.S. employees are eligible to participate in the Phillips 66 Savings Plan (Savings Plan). Employees can contribute
up to 75 percent of their eligible pay, subject to certain statutory limits, in the thrift feature of the Savings Plan to a choice
of investment funds. Phillips 66 provides a company match of participant thrift contributions up to 5 percent of eligible
pay. In addition, participants who contribute at least 1 percent to the Savings Plan are eligible for “Success Share,” a
semi-annual discretionary company contribution to the Savings Plan that can range from 0 to 6 percent of eligible pay,
with a target of 2 percent. For the period January 2014 through June 2014, Success Share had an actual payout of 4
percent and for the period July 2014 through December 2014, it had an actual payout of 4 percent. For the period
January 2013 through June 2013, Success Share had an actual payout of 3 percent and for the period July 2013 through
December 2013, it had an actual payout of 5 percent.

The Savings Plan was amended effective January 1, 2013. Prior to that date, the company matched up to 1.25 percent of
eligible pay, the Success Share did not exist, and instead the plan included a stock savings feature (discussed below). The
total expense related to participants in the Savings Plan and predecessor plans for Phillips 66 employees, excluding the
stock savings feature, was $112 million in 2014, $111 million in 2013 and $15 million in 2012.

Prior to the Separation, the stock savings feature of the Savings Plan was a leveraged employee stock ownership plan.
After the Separation, it was a non-leveraged employee stock ownership plan. Employees could elect to participate in the
stock savings feature by contributing 1 percent of eligible pay. Subsequently, they received a proportionate allocation of
shares of common stock. The total expense related to participants of Phillips 66 in this stock savings feature and
predecessor plans for Phillips 66 employees was $157 million in 2012, all of which was compensation expense. The
stock savings feature of the Savings Plan was terminated on December 31, 2012.

Share-Based Compensation Plans
Prior to the Separation, our employees participated in the “2011 Omnibus Stock and Performance Incentive Plan of
ConocoPhillips” (the COP Omnibus Plan), under which they were eligible to receive ConocoPhillips stock options,
restricted stock units (RSUs) and restricted performance share units (PSUs). Effective on the separation date of April 30,
2012, our employees and non-employee directors began participating in the “Omnibus Stock and Performance Incentive
Plan of Phillips 66” (the 2012 Plan). The 2012 Plan was superseded by the 2013 Omnibus Stock and Performance
Incentive Plan of Phillips 66 (the P66 Omnibus Plan) that was approved by shareholders in May 2013. Subsequent to
this approval, all new share-based awards are granted under the P66 Omnibus Plan.

The P66 Omnibus Plan authorizes the Human Resources and Compensation Committee of our Board of Directors (the
Committee) to grant stock options, stock appreciation rights, stock awards (including restricted stock and RSU awards),
cash awards, and performance awards to our employees, non-employee directors, and other plan participants. The
number of shares issued under the P66 Omnibus Plan to settle share-based awards may not exceed 45 million.

In connection with the Separation, share-based compensation awards granted under the COP Omnibus Plan and held by
grantees as of April 30, 2012, were adjusted or substituted to preserve the intrinsic value of the awards as of April 30, 2012,
as follows:

• Exercisable awards of stock options and stock appreciation rights were converted in accordance with the

Employee Matters Agreement providing the grantee with replacement options to purchase both ConocoPhillips
and Phillips 66 common stock.

• Unexercisable awards of stock options held by Phillips 66 employees were replaced with substitute options to

purchase only Phillips 66 common stock.

• Restricted stock and PSUs awarded for completed performance periods under the ConocoPhillips Performance

Share Program (PSP) were converted in accordance with the Employee Matters Agreement providing the grantee
with both ConocoPhillips and Phillips 66 restricted stock and PSUs.

• Restricted stock and RSUs held by Phillips 66 employees under all programs other than the PSP were replaced

entirely with Phillips 66 restricted stock and RSUs.

Awards granted in connection with the adjustment and substitution of awards originally issued under the COP Omnibus
Plan are a part of and became subject to the 2012 Plan.

108

The aforementioned adjustment and substitution of awards resulted in the recognition of $9 million of incremental
compensation expense in the second quarter of 2012.

Our share-based compensation programs generally provide accelerated vesting (i.e., a waiver of the remaining period of
service required to earn an award) for awards held by employees at the time they become eligible for retirement. For
share-based awards granted prior to our adoption of Statement of Financial Accounting Standards No. 123(R), codified
into Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, “Compensation—Stock
Compensation,” we recognize expense over the period of time during which the employee earns the award, accelerating
the recognition of expense only when an employee actually retires. For share-based awards granted after our adoption of
ASC 718 on January 1, 2006, we recognize share-based compensation expense over the shorter of: the service period
(i.e., the stated period of time required to earn the award); or the period beginning at the start of the service period and
ending when an employee first becomes eligible for retirement, but not less than six months, as this is the minimum
period of time required for an award to not be subject to forfeiture.

Some of our share-based awards vest ratably (i.e., portions of the award vest at different times) while some of our awards
cliff vest (i.e., all of the award vests at the same time). The company made a policy election under ASC 718 to recognize
expense on a straight-line basis over the service period for the entire award, whether the award was granted with ratable
or cliff vesting.

Total share-based compensation expense recognized in income and the associated tax benefit for the years ended
December 31 were as follows:

Compensation cost
Tax benefit

Millions of Dollars

2014

2013

2012

134
(50)

132
(50)

94
(35)

Stock Options
Stock options granted under the provisions of the P66 Omnibus Plan and earlier plans permit purchase of our common
stock at exercise prices equivalent to the average market price of the stock on the date the options were granted. The
options have terms of 10 years and generally vest ratably, with one-third of the options awarded vesting and becoming
exercisable on each anniversary date for the three years following the date of grant. Options awarded to employees
already eligible for retirement vest within six months of the grant date, but those options do not become exercisable until
the end of the normal vesting period.

109

The following summarizes our stock option activity from January 1, 2014, to December 31, 2014:

Weighted-
Average
Exercise Price

Weighted-
Average
Grant-Date
Fair Value

Millions of Dollars

Aggregate
Intrinsic Value

Outstanding at January 1, 2014
Granted
Forfeited
Exercised
Expired or canceled
Outstanding at December 31, 2014

Options

6,890,066
570,100
(13,967)
(1,602,642)
(2)
5,843,555

Vested at December 31, 2014

5,508,738

18.95

30.38
72.26
69.46
27.15
14.62
35.26

33.78

Exercisable at December 31, 2014
All option awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.

4,468,680

28.80

212

195

The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2014, were
5.71 years and 5.14 years, respectively. During 2014, we received $44 million in cash and realized a tax benefit of $9
million from the exercise of options. At December 31, 2014, the remaining unrecognized compensation expense from
unvested options held by employees of Phillips 66 was $3 million, which will be recognized over a weighted-average
period of 20 months, the longest period being 25 months. The calculations of realized tax benefit, unamortized expense
and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66
employees.

During 2013, we granted options with a weighted-average grant-date fair value of $16.77 and our employees exercised
options with an aggregate intrinsic value of $81 million.

The following table provides the significant assumptions used to calculate the grant date fair market values of options
granted over the years shown below, as calculated using the Black-Scholes-Merton option-pricing model:

Assumptions used

Risk-free interest rate
Dividend yield
Volatility factor
Expected life (years)

2014

2013

2012

1.96%
3.00%
34.97%
6.23

1.18
2.50
35.47
6.23

1.62
4.00
33.30
7.42

Prior to the Separation, we calculated volatility using the most recent ConocoPhillips end-of-week closing stock prices
spanning a period equal to the expected life of the options granted. We calculate the volatility of options granted after the
Separation using a formula that adjusts the pre-Separation historical volatility of ConocoPhillips by the ratio of Phillips
66 implied market volatility on the grant date divided by the pre-Separation implied market volatility of ConocoPhillips.

We periodically calculate the average period of time elapsed between grant dates and exercise dates of past grants to
estimate the expected life of new option grants.

110

Restricted Stock Unit Program
Generally, RSUs are granted annually under the provisions of the P66 Omnibus Plan and cliff vest at the end of three
years. Most RSU awards granted prior to the Separation vested ratably over five years, with one-third of the units
vesting in 36 months, one-third vesting in 48 months, and the final third vesting 60 months from the date of grant. In
addition to the regularly scheduled annual awards, RSUs are also granted ad hoc to attract or retain key personnel, and
the terms and conditions under which these RSUs vest vary by award. Upon vesting, RSUs are settled by issuing one
share of Phillips 66 common stock per RSU. RSUs awarded to employees already eligible for retirement vest within six
months of the grant date, but those units are not issued as shares until the end of the normal vesting period. Until issued
as stock, most recipients of RSUs receive a quarterly cash payment of a dividend equivalent, and for this reason the grant
date fair value of these units is deemed equal to the average Phillips 66 stock price on the date of grant. The grant date
fair market value of RSUs that do not receive a dividend equivalent while unvested is deemed equal to the average
Phillips 66 common stock price on the grant date, less the net present value of the dividend equivalents that will not be
received.

The following summarizes our stock unit activity from January 1, 2014, to December 31, 2014:

Outstanding at January 1, 2014
Granted
Forfeited
Issued
Outstanding at December 31, 2014

Stock Units

Weighted-Average

Grant-Date
Fair Value

Total Fair Value

Millions of Dollars

4,440,261
818,213
(84,272)
(1,527,286)
3,646,916

35.48
73.28
48.98
27.88
46.83

116

Not Vested at December 31, 2014
47.55
All RSU awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.

2,159,724

At December 31, 2014, the remaining unrecognized compensation cost from the unvested RSU awards held by
employees of Phillips 66 was $48 million, which will be recognized over a weighted-average period of 22 months, the
longest period being 34 months. The calculations of unamortized expense and weighted-average periods include awards
based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.

During 2013, we granted RSUs with a weighted-average grant-date fair value of $62.14 and issued shares with an
aggregate fair value of $100 million to settle RSUs.

Performance Share Program
Under the P66 Omnibus Plan, we also annually grant to senior management restricted PSUs that vest: (i) with respect to
awards for performance periods beginning before 2009, when the employee becomes eligible for retirement by reaching
age 55 with five years of service; or (ii) with respect to awards for performance periods beginning in 2009, five years
after the grant date of the award (although recipients can elect to defer the lapsing of restrictions until retirement after
reaching age 55 with five years of service); or (iii) with respect to awards for performance periods beginning in 2013 or
later, on the grant date.

For PSU awards with performance periods beginning before 2013, we recognize compensation expense beginning on the
date of grant and ending on the date the PSUs are scheduled to vest; however, since these awards are authorized three
years prior to the grant date, we recognize compensation expense for employees that will become eligible for retirement
by or shortly after the grant date over the period beginning on the date of authorization and ending on the date of grant.
Since PSU awards with performance periods beginning in 2013 or later vest on the grant date, we recognize
compensation expense beginning on the date of authorization and ending on the grant date for all employees participating
in the PSU grant.

111

We settle PSUs with performance periods that begin before 2013 by issuing one share of Phillips 66 common stock for
each PSU. Recipients of these PSUs receive a quarterly cash payment of a dividend equivalent beginning on the grant
date and ending on the settlement date.

We settle PSUs with performance periods beginning in 2013 or later by paying cash equal to the fair value of the PSU on
the grant date, which is also the date the PSU vests. Since these PSUs vest and settle on the grant date, dividend
equivalents are never paid on these awards.

The following summarizes our PSU activity from January 1, 2014, to December 31, 2014:

Outstanding at January 1, 2014
Granted
Forfeited
Issued
Outstanding at December 31, 2014

Millions of Dollars

Performance
Share Units

Weighted-Average
Grant-Date
Fair Value

Total Fair Value

2,712,968
635,632
(14,774)
(161,966)
3,171,860

37.12
72.26
52.39
39.68
43.96

43.86
Not Vested at December 31, 2014
All PSU awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.

631,017

At December 31, 2014, the remaining unrecognized compensation cost from unvested PSU awards held by employees of
Phillips 66 was $11 million, which will be recognized over a weighted-average period of 36 months, the longest period
being 12 years. The calculations of unamortized expense and weighted-average periods include awards based on both
Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.

During 2013, we granted PSUs with a weighted-average grant-date fair value of $62.17 and issued shares with an
aggregate fair value of $9 million to settle PSUs.

Note 22—Income Taxes

Income taxes charged to income were:

Income Taxes
Federal

Current
Deferred

Foreign

Current
Deferred

State and local

Current
Deferred

Millions of Dollars
2013

2014

1,661
(378)

22
80

274
(5)
1,654

1,054
526

98
(48)

146
68
1,844

2012

1,967
69

160
45

253
(21)
2,473

112

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax
liabilities and assets at December 31 were:

Deferred Tax Liabilities
Properties, plants and equipment, and intangibles
Investment in joint ventures
Investment in subsidiaries
Inventory
Other
Total deferred tax liabilities
Deferred Tax Assets
Benefit plan accruals
Inventory
Asset retirement obligations and accrued environmental costs
Other financial accruals and deferrals
Loss and credit carryforwards
Other
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Net deferred tax liabilities

Millions of Dollars

2014

3,799
2,331
115
152
29
6,426

647
—
207
131
149
2
1,136
107
1,029
5,397

2013

3,747
2,696
401
—
—
6,844

499
51
223
223
123
18
1,137
127
1,010
5,834

With the exception of certain foreign tax credit and separate company loss carryforwards, tax attributes were not
allocated to us from ConocoPhillips. The foreign tax credit carryforwards were fully utilized by the end of 2014. The
loss carryforwards, all of which are related to foreign operations, have indefinite carryforward periods.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be
realized. During 2014, valuation allowances decreased by a total of $20 million. This decrease was primarily related to
the utilization of certain foreign tax credits, partially offset by the recording of current year valuation allowances. Based
on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects
remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences
of future taxable income.

As of December 31, 2014, we had undistributed earnings related to foreign subsidiaries and foreign corporate joint
ventures of approximately $2 billion for which deferred income taxes have not been provided. We plan to reinvest these
earnings for the foreseeable future. If these amounts were distributed to the United States, we would be subject to
additional U.S. income taxes. Determination of the amount of unrecognized deferred income tax liability is not
practicable due to the number of unknown variables inherent in the calculation.

113

As a result of the Separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized tax
benefits related to our operations for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips,
and we have indemnified ConocoPhillips for such amounts. Those unrecognized tax benefits are reflected in the
following table which shows a reconciliation of the beginning and ending unrecognized tax benefits.

Millions of Dollars
2013

2014

Balance at January 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapse of statute
Balance at December 31

202
13
14
(68)
(19)
—
142

158
30
25
(8)
(3)
—
202

2012

169
3
35
(47)
(2)
—
158

Included in the balance of unrecognized tax benefits for 2014, 2013 and 2012 were $98 million, $161 million and $125
million, respectively, which, if recognized, would affect our effective tax rate. With respect to various unrecognized tax
benefits and the related accrued liability, approximately $44 million may be recognized or paid within the next twelve
months due to completion of audits.

At December 31, 2014, 2013 and 2012, accrued liabilities for interest and penalties totaled $16 million, $18 million and
$15 million, respectively, net of accrued income taxes. Interest and penalties had no impact on earnings during 2014 and
decreased earnings by $3 million and $6 million in 2013 and 2012, respectively.

We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in significant
jurisdictions are generally complete as follows: United Kingdom (2011), Germany (2011) and United States (2008).
Certain issues remain in dispute for audited years, and unrecognized tax benefits for years still subject to or currently
undergoing an audit are subject to change. As a consequence, the balance in unrecognized tax benefits can be expected to
fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared
with our total unrecognized tax benefits, the amount of change is not estimable.

114

The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of tax at the federal statutory
rate with the provision for income taxes, were:

Income from continuing

operations before income taxes

United States
Foreign

Federal statutory income tax
Goodwill allocated to assets sold
Sale of MRC
Tax on foreign operations
Federal manufacturing deduction
State income tax, net of federal

benefit

Other

Millions of Dollars

2014

2013

2012

Percent of Pre-tax Income
2014

2013

2012

5,121
624
5,745

2,011
18
(293)
(184)
(81)

180
3
1,654

5,158
368
5,526

1,934
—
—
(198)
(68)

139
37
1,844

6,192
364
6,556

2,295
9
—
141
(124)

151
1
2,473

89.1%
10.9
100.0%

35.0%
0.3
(5.1)
(3.2)
(1.4)

3.1
0.1
28.8%

93.3
6.7
100.0

35.0
—
—
(3.6)
(1.2)

2.5
0.7
33.4

94.4
5.6
100.0

35.0
0.1
—
2.2
(1.9)

2.3
—
37.7

During 2012, we impaired a foreign investment for which no tax benefit was recognized. No tax benefit was recognized
due to our ownership structure and assertion that the earnings of the foreign subsidiary that holds the investment will be
reinvested for the foreseeable future. This item is reflected in “Tax on foreign operations” in the table above. Included in
the line item “Sale of MRC” is a $224 million tax benefit related to the realization of excess tax basis during the fourth
quarter.

Income tax benefits of $37 million, $34 million and $13 million for the years 2014, 2013 and 2012, respectively, are
reflected in the “Capital in Excess of Par” column of the consolidated statement of equity.

Prior to the Separation, and except for certain state and dedicated foreign entity income tax returns, we were included in
the ConocoPhillips income tax returns for all applicable years. In accordance with the Tax Sharing Agreement, a cash
settlement was received from ConocoPhillips in 2013 upon the filing of the income tax return for the calendar year ended
December 31, 2011. We received a further cash settlement in January 2014 for the January 1, 2012, through April 30,
2012 period. In 2013, we filed our initial U.S. consolidated income tax returns for the period May 1, 2012, through
December 31, 2012.

115

Note 23—Accumulated Other Comprehensive Income (Loss)

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

Millions of Dollars

Defined
Benefit
Plans

Foreign
Currency
Translation

Hedging

Accumulated
Other
Comprehensive
Income (Loss)

(3)

—

(2)

—

—
—
(2)
—

—

—
(2)

122

104

(540)

(314)

268

62
351
37
(606)

(568)
(531)

December 31, 2011

Other comprehensive income (loss)

Net transfer from ConocoPhillips*

December 31, 2012

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive

income (loss)*

Foreign currency translation

Amortization of defined benefit plan items**

Actuarial losses

Net current period other comprehensive income (loss)

December 31, 2013
Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive

income (loss)*

Amortization of defined benefit plan items**

Actuarial losses

Net current period other comprehensive income (loss)
December 31, 2014

(145)

(93)

(540)

(778)

312

270

196

—

466

(44)

—

62
374
(404)
(330)

(292)
(696)

—
(23)
443
(276)

—

(276)
167

*See Consolidated Statement of Changes in Equity.
**Included in the computation of net periodic benefit cost. See Note 21—Employee Benefit Plans, for additional information.

116

Note 24—Cash Flow Information

Millions of Dollars

2014

2013

2012

Noncash Investing and Financing Activities
Increase in net PP&E and debt related to capital lease obligation

Transfer of net PP&E in accordance with the Separation and Distribution

Agreement with ConocoPhillips

Transfer of employee benefit obligations in accordance with the Separation

and Distribution Agreement with ConocoPhillips

Increase in deferred tax assets associated with the employee benefit

liabilities transferred in accordance with the Separation and Distribution
Agreement with ConocoPhillips

—

Cash Payments
Interest
Income taxes*

238
2,185
*Excludes our share of cash tax payments made directly by ConocoPhillips prior to the Separation on April 30, 2012.

177

—

259
1,021

—

374

1,234

461

176
2,183

PSPI Noncash Stock Exchange
As discussed more fully in Note 7—Assets Held for Sale or Sold, on February 25, 2014, we completed the exchange of
our flow improvers business for shares of Phillips 66 common stock owned by the other party to the transaction. The
noncash portion of the net assets surrendered by us in the exchange was $204 million, and we received approximately
17.4 million shares of our common stock, with a fair value at the time of the exchange of $1.35 billion.

117

221
25
246
—
246

18
117
135

—
—
(17)
(5)
—
(22)

Note 25—Other Financial Information

Interest and Debt Expense
Incurred
Debt
Other

Capitalized
Expensed

Other Income
Interest income
Other, net*

Millions of Dollars
Except Per Share Amounts

2014

2013

2012

265
22
287
(20)
267

21
99
120

251
24
275
—
275

20
65
85

*Includes derivatives-related activities. 2012 also includes a $37 million co-venturer contractual payment related to Rockies Express Pipeline.

Research and Development Expenditures—expensed

Advertising Expenses

Foreign Currency Transaction (Gains) Losses—after-tax
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other

—
—
6
8
—
14

—
—
(41)
(5)
2
(44)

118

Note 26—Related Party Transactions

Significant transactions with related parties were:

Operating revenues and other income (a)
Purchases (b)
Operating expenses and selling, general and

administrative expenses (c)

Net interest expense (d)

Millions of Dollars
2013

2014

6,514
15,647

133
7

7,907
18,320

109
8

2012

8,226
22,446

208
8

(a) We sold crude oil to MRC; NGL and other petrochemical feedstocks, along with solvents, to CPChem; gas oil and

hydrogen feedstocks to Excel; and certain feedstocks and intermediate products to WRB. We also acted as agent for
WRB in supplying other crude oil and feedstocks, wherein the transactional amounts did not impact operating
revenues. In addition, we charged several of our affiliates, including CPChem and MSLP, for the use of common
facilities, such as steam generators, waste and water treaters, and warehouse facilities.

(b) We purchased refined products from WRB. We also acted as agent for WRB in distributing asphalt and solvents,

wherein the transactional amounts did not impact purchases. We purchased natural gas and NGL from
DCP Midstream and CPChem for use in our refinery processes and other feedstocks from various affiliates. We
purchased refined products from MRC. We also paid fees to various pipeline equity companies for transporting
finished refined products. In addition, we paid a price upgrade to MSLP for heavy crude processing. We purchased
base oils and fuel products from Excel for use in our refining and specialty businesses.

(d) We incurred interest expense on a note payable to MSLP. See Note 8—Investments, Loans and Long-Term

Receivables and Note 14—Debt, for additional information on loans with affiliated companies.

Also included in the table above are transactions with ConocoPhillips through April 30, 2012, the effective date of the
Separation. These transactions included crude oil purchased from ConocoPhillips as feedstock for our refineries and
power sold to ConocoPhillips from our power generation facilities. For 2012, sales to ConocoPhillips, while it was a
related party, were $381 million, while purchases from ConocoPhillips were $5,328 million.

As discussed in Note 1—Separation and Basis of Presentation, the consolidated statement of income includes expense
allocations for certain corporate functions historically performed by ConocoPhillips and not allocated to its operating
segments, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax,
legal, procurement and information technology. Net charges from ConocoPhillips for these services, reflected in selling,
general and administrative expenses in the consolidated statement of income, were $70 million for 2012.

119

Note 27—Segment Disclosures and Related Information

Our operating segments are:

1) Midstream—Gathers, processes, transports and markets natural gas; and transports, fractionates and markets
NGL in the United States. In addition, this segment transports crude oil and other feedstocks to our refineries
and other locations, delivers refined and specialty products to market, and provides storage services for crude
and petroleum products. The Midstream segment includes, among other businesses, our 50 percent equity
investment in DCP Midstream and our investment in Phillips 66 Partners.

2) Chemicals—Manufactures and markets petrochemicals and plastics on a worldwide basis. The Chemicals

segment consists of our 50 percent equity investment in CPChem.

3) Refining—Buys, sells and refines crude oil and other feedstocks at 14 refineries, mainly in the United States and

Europe.

Corporate and Other includes general corporate overhead, interest expense, our investments in new technologies and
various other corporate activities. Corporate assets include all cash and cash equivalents.

We evaluate performance and allocate resources based on net income attributable to Phillips 66. Intersegment sales are at
prices that approximate market, except for certain 2012 transportation services provided by the Midstream segment to the
Refining and M&S segments.

• We moved several refining logistics projects from the Refining segment to the Midstream Segment.

120

Millions of Dollars
2013

2014

6,222
(1,104)
5,118
7

115,326
(68,263)
47,063

110,540
(1,548)
108,992
32
161,212

92
—
850
97
106
1,145

6,575
(933)
5,642
9

124,480
(72,503)
51,977

115,405
(1,467)
113,938
30
171,596

89
—
688
119
80
976

2012

7,179
(901)
6,278
11

131,113
(73,393)
57,720

116,681
(1,413)
115,268
13
179,290

607
—
1,262
148
47
2,064

Analysis of Results by Operating Segment

Sales and Other Operating Revenues
Midstream

Total sales
Intersegment eliminations

Total Midstream

Chemicals
Refining

Total sales
Intersegment eliminations

Total Refining

Marketing and Specialties

Total sales
Intersegment eliminations

Total Marketing and Specialties

Corporate and Other
Consolidated sales and other operating revenues

Depreciation, Amortization and Impairments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated depreciation, amortization and impairments

121

Millions of Dollars
2013

2014

360
1,634
311
162
(1)
2,466

310
495
696
440
(287)
1,654

507
1,137
1,771
1,034
(393)
706
4,762

436
1,362
1,107
169
(1)
3,073

264
375
1,035
433
(263)
1,844

469
986
1,747
894
(431)
61
3,726

2012

343
1,192
1,409
190
—
3,134

29
366
1,998
319
(239)
2,473

52
823
3,091
544
(434)
48
4,124

Equity in Earnings of Affiliates
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated equity in earnings of affiliates

Income Taxes from Continuing Operations
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated income taxes from continuing operations

Net Income Attributable to Phillips 66
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Discontinued Operations
Consolidated net income attributable to Phillips 66

122

Millions of Dollars
2013

2014

Investments In and Advances To Affiliates
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated investments in and advances to affiliates

2,461
5,183
2,103
290
1
10,038

2,328
4,241
4,192
318
1
11,080

2012

2,011
3,524
4,461
295
—
10,291

Total Assets
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Discontinued Operations*
Consolidated total assets
*In December 2013, $117 million of goodwill was allocated to assets held for sale in association with the planned disposition of PSPI. Although this

7,295
5,209
22,808
7,051
6,378
—
48,741

5,485
4,377
26,046
7,331
6,348
211
49,798

4,671
3,815
26,643
7,968
4,770
206
48,073

goodwill was included in the M&S segment at December 31, 2012, for more useful comparisons, it is included in the discontinued operations line of this
table for all periods presented.

Capital Expenditures and Investments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated capital expenditures and investments

Interest Income and Expense
Interest income

Corporate and Other
Interest and debt expense
Corporate and Other

Sales and Other Operating Revenues by Product Line
Refined products
Crude oil resales
NGL
Other
Consolidated sales and other operating revenues by product

line

2,173
—
1,038
439
123
3,773

267

597
—
820
226
136
1,779

275

707
—
735
119
140
1,701

246

133,625
19,832
6,447
1,308

140,488
22,777
7,431
900

140,986
28,730
8,533
1,041

161,212

171,596

179,290

123

Geographic Information

Sales and Other Operating Revenues*

Long-Lived Assets**

2014

2013

2012

2014

2013

2012

Millions of Dollars

United States
United Kingdom
Germany
Other foreign countries
Worldwide consolidated

110,713
20,131
9,424
20,944
161,212

115,378
21,868
9,799
24,551
171,596

120,332
22,129
9,908
26,921
179,290

25,255
1,469
534
126
27,384

23,641
1,485
587
765
26,478

22,285
2,018
567
828
25,698

*Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.
**Defined as net properties, plants and equipment plus investments in and advances to affiliated companies.

Note 28—Phillips 66 Partners LP

Initial Public Offering
In 2013, we formed Phillips 66 Partners, a master limited partnership, to own, operate, develop and acquire primarily fee-
based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other transportation and
midstream assets. On July 26, 2013, Phillips 66 Partners completed its initial public offering (IPO) of 18,888,750
common units at a price of $23.00 per unit, which included a 2,463,750 common unit over-allotment option that was
fully exercised by the underwriters. Phillips 66 Partners received $404 million in net proceeds from the sale of the units,
after deducting underwriting discounts, commissions, structuring fees and offering expenses. Headquartered in Houston,
Texas, Phillips 66 Partners’ assets currently consist of crude oil and refined petroleum product pipeline, terminal, and
storage systems in the Central and Gulf Coast regions of the United States, as well as two crude oil rail-unloading
facilities, all of which are integral to a connected Phillips 66-operated facility.

Contributions
Effective March 1, 2014, we contributed to Phillips 66 Partners certain transportation, terminaling and storage assets for
total consideration of $700 million. These assets consisted of the Gold Line products system and the Medford spheres,
two recently constructed refinery-grade propylene storage spheres. Phillips 66 Partners financed the acquisition with
cash on hand of $400 million (primarily consisting of its IPO proceeds), the issuance of 3,530,595 and 72,053 additional
common and general partner units, respectively, valued at $140 million, and a five-year, $160 million note payable to a
subsidiary of Phillips 66.

Effective December 1, 2014, we contributed to Phillips 66 Partners certain logistics assets for total consideration of $340
million. These assets consisted of two recently constructed crude oil rail-unloading facilities located at or adjacent to our
Bayway and Ferndale refineries, and the Cross-Channel Connector pipeline assets located near the partnership’s
Pasadena terminal. Phillips 66 Partners financed the acquisition with the borrowing of $28 million under its revolving
credit facility, the assumption of a five-year, $244 million note payable to a subsidiary of Phillips 66, and the issuance to
Phillips 66 of 1,066,412 common and 21,764 general partner units valued at $68 million.

In addition to these two major transactions, we made smaller contributions to Phillips 66 Partners of projects under
development in the fourth quarter, for consideration in the aggregate of approximately $55 million.

Ownership
At December 31, 2014, we owned a 73 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while the public owned a 25 percent limited partner interest. We consolidate Phillips 66 Partners as a
variable interest entity for financial reporting purposes. The most significant assets of Phillips 66 Partners that are
available to settle only its obligations were net PP&E of $485 million at December 31, 2014. See Note 4—Variable
Interest Entities (VIEs) for additional information on why we consolidate the partnership. As a result of this
consolidation, the public unitholders’ ownership interest in Phillips 66 Partners is reflected as a noncontrolling interest in
our financial statements, including $415 million and $409 million in the equity section of our consolidated balance sheet

124

as of December 31, 2014, and 2013, respectively. Generally, contributions of assets by us to Phillips 66 Partners will
eliminate in consolidation, other than third-party debt or equity offerings made by Phillips 66 Partners to finance such
transactions. For the 2014 contributions discussed above, the first did not impact our consolidated financial statements,
while the second increased consolidated cash and debt by $28 million at the time of the transaction.

During February 2015, Phillips 66 Partners initiated two registered public offerings of securities:

•

(cid:7)1.1 billion aggregate principal amount of senior notes, which include (cid:7)300 million of 2.646(cid:8) Senior Notes due
2020, (cid:7)500 million of 3.605(cid:8) Senior Notes due 2025 and (cid:7)300 million of 4.680(cid:8) Senior Notes due 2045.

Note 29—New Accounting Standards

In May 2014, the FAS(cid:37) issued ASU No. 2014(cid:16)09, (cid:178)Revenue from Contracts with Customers (Topic 606).(cid:179) The new
standard converged guidance on recognizing revenues in contracts with customers under accounting principles generally
accepted in the United States and International Financial Reporting Standards. This ASU is intended to improve
comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. ASU 2014-09
is effective for annual and quarterly reporting periods of public entities beginning after December 15, 2016. Early
application for public entities is not permitted. We are currently evaluating the provisions of ASU 2014-09 and assessing
the impact, if any, it may have on our financial position and results of operations.

Note 30—Condensed Consolidating Financial Information

(cid:50)ur (cid:7)8.3 billion of outstanding Senior Notes were issued by Phillips 66 and are guaranteed by Phillips 66 Company, a
100-percent-owned subsidiary. Phillips 66 Company has fully and unconditionally guaranteed the payment obligations
of Phillips 66 with respect to these debt securities. The following condensed consolidating financial information presents
the results of operations, financial position and cash flows for:

•

Phillips 66 and Phillips 66 Company (in each case, reflecting investments in subsidiaries utili(cid:93)ing the equity
method of accounting).

• All other nonguarantor subsidiaries.
• The consolidating adjustments necessary to present Phillips 66(cid:181)s results on a consolidated basis.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated
financial statements and notes. The 2013 and 2012 condensed consolidating financial information was revised to
eliminate intra-column lending transactions, to realign interest revenue from certain inter-column lending activities to the
appropriate column, and to make the associated adjustments required to equity earnings and investments. These changes
did not impact the total consolidated amounts.

125

Millions of Dollars
Year Ended December 31, 2014
All Other
Subsidiaries

Phillips 66
Company

Consolidating
Adjustments

109,078
3,021
(46)
105
2,411
114,569

97,783
3,600
1,224
761
3
5,478
18
18
—
108,885
5,684
1,427
4,257
—
4,257
—
4,257

3,689

—

52,134
444
341
15
18,772
71,706

58,984
870
502
234
147
9,563
6
20
26
70,352
1,354
330
1,024
10
1,034
35
999

721

—
(5,256)
—
—
(21,183)
(26,439)

(21,019)
(37)
(69)
—
—
(1)
—
(57)
—
(21,183)
(5,256)
—
(5,256)
—
(5,256)
—
(5,256)

(4,375)

—

Total
Consolidated

161,212
2,466
295
120
—
164,093

135,748
4,435
1,663
995
150
15,040
24
267
26
158,348
5,745
1,654
4,091
706
4,797
35
4,762

4,229

Statement of Income
Revenues and Other Income
Sales and other operating revenues
Equity in earnings of affiliates
Net gain (loss) on dispositions
Other income (loss)
Intercompany revenues

Total Revenues and Other Income

Costs and Expenses
Purchased crude oil and products
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction losses

Total Costs and Expenses

Income from continuing operations before income taxes
Provision (benefit) for income taxes
Income from Continuing Operations
Income from discontinued operations*
Net income
Less: net income attributable to noncontrolling interests
Net Income Attributable to Phillips 66

Comprehensive Income

*Net of provision for income taxes on discontinued operations:

Phillips 66

—
4,257
—
—
—
4,257

—
2
6
—
—
—
—
286
—
294
3,963
(103)
4,066
696
4,762
—
4,762

4,194

—

126

Millions of Dollars
Year Ended December 31, 2013
All Other
Subsidiaries

Phillips 66
Company

Consolidating
Adjustments

113,499
3,363
49
53
1,796
118,760

102,780
3,442
1,025
730
—
5,147
19
13
—
113,156
5,604
1,699
3,905
—
3,905
—
3,905

4,256

—

58,097
509
6
35
19,623
78,270

66,746
790
540
217
29
8,973
5
14
(40)
77,274
996
241
755
61
816
17
799

839

—
(4,704)
—
—
(21,419)
(26,123)

(21,281)
(26)
(93)
—
—
(1)
—
(18)
—
(21,419)
(4,704)
—
(4,704)
—
(4,704)
—
(4,704)

(5,078)

—

Total
Consolidated

171,596
3,073
55
85
—
174,809

148,245
4,206
1,478
947
29
14,119
24
275
(40)
169,283
5,526
1,844
3,682
61
3,743
17
3,726

4,094

Statement of Income
Revenues and Other Income
Sales and other operating revenues
Equity in earnings of affiliates
Net gain on dispositions
Other income (loss)
Intercompany revenues

Total Revenues and Other Income

Costs and Expenses
Purchased crude oil and products
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction gains

Total Costs and Expenses

Comprehensive Income

*Net of provision for income taxes on discontinued operations:

Phillips 66

—
3,905
—
(3)
—
3,902

—
—
6
—
—
—
—
266
—
272
3,630
(96)
3,726
—
3,726
—
3,726

4,077

—

127

Millions of Dollars
Year Ended December 31, 2012
All Other
Subsidiaries

Phillips 66
Company

Consolidating
Adjustments

117,574
3,064
192
(15)
2,951
123,766

106,687
3,329
1,319
668
71
5,155
18
29
—
117,276
6,490
2,206
4,284
—
4,284
—
4,284

4,388

—

61,716
445
1
148
23,134
85,444

73,715
760
421
238
1,087
8,586
7
4
(28)
84,790
654
320
334
48
382
7
375

418

—
(4,659)
—
—
(26,086)
(30,745)

(25,989)
(56)
(41)
—
—
(1)
—
1
—
(26,086)
(4,659)
—
(4,659)
—
(4,659)
—
(4,659)

(4,799)

—

Total
Consolidated

179,290
3,134
193
135
—
182,752

154,413
4,033
1,703
906
1,158
13,740
25
246
(28)
176,196
6,556
2,473
4,083
48
4,131
7
4,124

4,235

Statement of Income
Revenues and Other Income
Sales and other operating revenues
Equity in earnings of affiliates
Net gain on dispositions
Other income (loss)
Intercompany revenues

Total Revenues and Other Income

Costs and Expenses
Purchased crude oil and products
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Impairments
Taxes other than income taxes
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction gains

Total Costs and Expenses

Comprehensive Income

*Net of provision for income taxes on discontinued operations:

Phillips 66

—
4,284
—
2
1
4,287

—
—
4
—
—
—
—
212
—
216
4,071
(53)
4,124
—
4,124
—
4,124

4,228

—

128

Balance Sheet
Assets
Cash and cash equivalents
Accounts and notes receivable
Inventories
Prepaid expenses and other current assets

Total Current Assets

Investments and long-term receivables
Net properties, plants and equipment
Goodwill
Intangibles
Other assets
Total Assets

Liabilities and Equity
Accounts payable
Short-term debt
Accrued income and other taxes
Employee benefit obligations
Other accruals

Total Current Liabilities

Long-term debt

Asset retirement obligations and accrued

environmental costs
Deferred income taxes
Employee benefit obligations
Other liabilities and deferred credits
Total Liabilities
Common stock
Retained earnings
Accumulated other comprehensive income (loss)
Noncontrolling interests
Total Liabilities and Equity

Millions of Dollars
At December 31, 2014

Phillips 66

Phillips 66
Company

All Other
Subsidiaries

Consolidating
Adjustments

Total
Consolidated

2,045
5,069
2,026
429
9,569
18,896
12,267
3,040
694
159
44,625

5,618
26
356
409
242
6,651
159

494
4,240
1,074
1,919
14,537
25,405
5,214
(531)
—
44,625

3,162
3,274
1,371
399
8,206
4,631
5,079
234
206
121
18,477

3,548
18
522
53
541
4,682
226

189
1,255
231
2,126
8,709
8,240
1,074
7
447
18,477

—
(1,102)
—
—
(1,102)
(43,479)
—
—
—
(4)
(44,585)

(1,102)
—
—
—
—
(1,102)
—

—
(4)
—
(4,041)
(5,147)
(33,645)
(6,317)
524
—
(44,585)

5,207
7,255
3,397
837
16,696
10,189
17,346
3,274
900
336
48,741

8,064
842
878
462
848
11,094
7,842

683
5,491
1,305
289
26,704
12,812
9,309
(531)
447
48,741

—
14
—
9
23
30,141
—
—
—
60
30,224

—
798
—
—
65
863
7,457

—
—
—
285
8,605
12,812
9,338
(531)
—
30,224

129

Balance Sheet
Assets
Cash and cash equivalents
Accounts and notes receivable
Inventories
Prepaid expenses and other current assets

Total Current Assets

Investments and long-term receivables
Net properties, plants and equipment
Goodwill
Intangibles
Other assets
Total Assets

Liabilities and Equity
Accounts payable
Short-term debt
Accrued income and other taxes
Employee benefit obligations
Other accruals

Total Current Liabilities

Long-term debt

Asset retirement obligations and accrued

environmental costs
Deferred income taxes
Employee benefit obligations
Other liabilities and deferred credits
Total Liabilities
Common stock
Retained earnings
Accumulated other comprehensive income
Noncontrolling interests
Total Liabilities and Equity

Millions of Dollars
At December 31, 2013

Phillips 66

Phillips 66
Company

All Other
Subsidiaries

Consolidating
Adjustments

Total
Consolidated

2,162
2,169
1,962
368
6,661
27,416
12,031
3,094
694
112
50,008

7,502
18
250
422
179
8,371
152

527
5,045
724
2,153
16,972
25,942
7,057
37
—
50,008

3,238
8,013
1,392
473
13,116
6,571
3,367
2
4
1
23,061

4,146
6
622
54
241
5,069
183

173
1,084
197
6,694
13,400
8,302
598
319
442
23,061

—
(559)
—
—
(559)
(55,945)
—
—
—
(4)
(56,508)

(559)
—
—
—
—
(559)
—

—
(4)
—
(13,690)
(14,253)
(34,244)
(7,655)
(356)
—
(56,508)

5,400
9,632
3,354
851
19,237
11,220
15,398
3,096
698
149
49,798

11,090
24
872
476
469
12,931
6,131

700
6,125
921
598
27,406
16,291
5,622
37
442
49,798

—
9
—
10
19
33,178
—
—
—
40
33,237

1
—
—
—
49
50
5,796

—
—
—
5,441
11,287
16,291
5,622
37
—
33,237

130

Millions of Dollars
Year Ended December 31, 2014
All Other
Subsidiaries

Consolidating
Adjustments

Phillips 66
Company

Statement of Cash Flows
Cash Flows From Operating Activities

Phillips 66

Net cash provided by (used in) continuing operating

activities

Net cash provided by discontinued operations
Net Cash Provided by (Used in) Operating Activities

(47)
—
(47)

Cash Flows From Investing Activities
Capital expenditures and investments*
Proceeds from asset dispositions
Intercompany lending activities**
Advances/loans—related parties
Collection of advances/loans—related parties
Other

Net cash provided by (used in) continuing investing

activities

Net cash used in discontinued operations
Net Cash Provided by (Used in) Investing Activities

Cash Flows From Financing Activities
Issuance of debt
Repayment of debt
Issuance of common stock
Repurchase of common stock
Share exchange—PSPI transaction
Dividends paid on common stock
Distributions to controlling interests
Distributions to noncontrolling interests
Other*

Net cash provided by (used in) continuing financing

activities

Net cash provided by (used in) discontinued operations
Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash and Cash

Equivalents

—
—
1,397
—
—
—

1,397
—
1,397

2,459
—
1
(2,282)
(450)
(1,062)
—
—
(16)

(1,350)
—
(1,350)

—

2,551
—
2,551

(2,230)
960
(1,402)
—
—
(13)

(2,685)
—
(2,685)

—
(20)
—
—
—
—
—
—
37

17
—
17

—

Total
Consolidated

3,527
2
3,529

(3,773)
1,244
—
(3)
—
238

(2,294)
(2)
(2,296)

2,487
(49)
1
(2,282)
(450)
(1,062)
—
(30)
23

(1,362)
—
(1,362)

1,527
2
1,529

(2,532)
687
5
(3)
—
251

(1,592)
(2)
(1,594)

28
(29)
—
—
—
(443)
(323)
(30)
850

53
—
53

(504)
—
(504)

989
(403)
—
—
—
—

586
—
586

—
—
—
—
—
443
323
—
(848)

(82)
—
(82)

(64)

—

(64)

Net Change in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at End of Period
* Includes intercompany capital contributions.
** Non-cash investing activity: In the fourth quarter of 2014, Phillips 66 Company declared and distributed $6.1 billion of its Phillips 66 intercompany
receivables to Phillips 66.

(117)
2,162
2,045

(76)
3,238
3,162

—
—
—

(193)
5,400
5,207

131

Millions of Dollars
Year Ended December 31, 2013
All Other
Subsidiaries

Phillips 66
Company

Consolidating
Adjustments

4,972
—
4,972

(1,108)
63
(4,206)
—
—
42

(5,209)
—
(5,209)

(18)
—
—
—
—
—

—
7

(11)
—
(11)

—

1,045
85
1,130

(690)
1,151
151
(65)
165
6

718
(27)
691

(2)
—
—
(72)
(8)
(10)

404
19

331
—
331

(248)
2,410
2,162

2,174
1,064
3,238

(80)
—
(80)

19
—
—
—
—
—

19
—
19

—
—
—
72
8
—

—
(19)

61
—
61

—

—
—
—

Total
Consolidated

5,942
85
6,027

(1,779)
1,214
—
(65)
165
48

(417)
(27)
(444)

(1,020)
6
(2,246)
(807)
—
(10)

404
(6)

(3,679)
—
(3,679)

1,926
3,474
5,400

Statement of Cash Flows
Cash Flows From Operating Activities
Net cash provided by continuing operating activities
Net cash provided by discontinued operations
Net Cash Provided by Operating Activities

Cash Flows From Investing Activities
Capital expenditures and investments*
Proceeds from asset dispositions
Intercompany lending activities
Advances/loans—related parties
Collection of advances/loans—related parties
Other

Net cash provided by (used in) continuing investing

activities

Net cash used in discontinued operations
Net Cash Provided by (Used in) Investing Activities

Cash Flows From Financing Activities
Repayment of debt
Issuance of common stock
Repurchase of common stock
Dividends paid on common stock
Distributions to controlling interests
Distributions to noncontrolling interests

Net proceeds from issuance of Phillips 66 Partners LP

common units

Other*

Net cash provided by (used in) continuing financing

activities

Net cash provided by (used in) discontinued operations
Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash and Cash

Equivalents

Net Change in Cash and Cash Equivalents
Cash and cash equivalents at beginning of period
Cash and Cash Equivalents at End of Period

* Includes intercompany capital contributions.

Phillips 66

5
—
5

—
—
4,055
—
—
—

4,055
—
4,055

(1,000)
6
(2,246)
(807)
—
—

—
(13)

(4,060)
—
(4,060)

—

—
—
—

132

Millions of Dollars
Year Ended December 31, 2012
All Other
Subsidiaries

Phillips 66
Company

Consolidating
Adjustments

7,429

—

7,429

(861)
240
(4,334)
—

—

(4,955)
—
(4,955)

110

—
(208)
—

—

(64)

—
(64)

(3,128)
37
(3,091)

(850)
46

2,958
(100)
7

—

2,061
(20)
2,041

2,104

—
(9)
—

—

—
(5)
10

2,100

—

2,100

—

2,410

—

2,410

1,064

—

1,064

—

—
(7)
—

—

—
(10)

(3)

—
(3)

—

Total
Consolidated

4,259

4,296

(1,701)
286

—
(100)
—

—

(1,515)
(20)
(1,535)

(5,255)
7,794
(1,210)
47
(356)
(282)
—
(5)
(34)

699

—

699

3,474

—

3,474

Statement of Cash Flows
Cash Flows From Operating Activities

Net cash provided by (used in) continuing operating

activities

Net cash provided by discontinued operations

Net Cash Provided by (Used in) Operating Activities

Phillips 66

(42)
—
(42)

Cash Flows From Investing Activities

Capital expenditures and investments

Proceeds from asset dispositions

Intercompany lending activities

Advances/loans—related parties

Collection of advances/loans—related parties

Other

Net cash provided by (used in) continuing investing

activities

Net cash used in discontinued operations

Net Cash Provided by (Used in) Investing Activities

Cash Flows From Financing Activities

Contributions from (distributions to) ConocoPhillips

Issuance of debt

Repayment of debt

Issuance of common stock

Repurchase of common stock

Dividends paid on common stock

Distributions to controlling interests

Distributions to noncontrolling interests

Other

Net cash provided by (used in) continuing financing

activities

Net cash provided by (used in) discontinued

operations

Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash and

Cash Equivalents

Net Change in Cash and Cash Equivalents

Cash and cash equivalents at beginning of period

Cash and Cash Equivalents at End of Period

—

1,376

—

1,376

—

1,376

(7,469)
7,794
(1,000)
47
(356)
(282)
—

—
(68)

(1,334)

—
(1,334)

—

133

Selected Quarterly Financial Data (Unaudited)

Millions of Dollars

Per Share of Common Stock

Sales and
Other
Operating
Revenues*

Income From
Continuing
Operations
Before Income
Taxes

Net
Income

Net Income
Attributable
to Phillips 66

Net Income Attributable to
Phillips 66

Basic

Diluted

2014
First
Second
Third
Fourth

40,283
45,549
40,417
34,963

2013
41,211
First
43,190
Second
44,146
Third
43,049
Fourth
*Includes excise taxes on petroleum products sales.

1,298
1,359
1,727
1,361

2,058
1,453
804
1,211

1,578
872
1,189
1,158

1,410
960
540
833

1,572
863
1,180
1,147

1,407
958
535
826

2.69
1.52
2.11
2.07

2.25
1.55
0.88
1.38

2.67
1.51
2.09
2.05

2.23
1.53
0.87
1.37

134

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports
we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and
communicated to management, including our principal executive and principal financial officers, as appropriate, to allow
timely decisions regarding required disclosure. As of December 31, 2014, with the participation of management, our
Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer carried out
an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our
Executive Vice President, Finance and Chief Financial Officer concluded that our disclosure controls and procedures
were operating effectively as of December 31, 2014.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the
quarterly period ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

This report is included in Item 8 on page 66 and is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

This report is included in Item 8 on page 68 and is incorporated herein by reference.

Item 9B. OTHER INFORMATION

None.

135

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our executive officers appears in Part I of this report on page 29.

PART III

Information required by Item 10 of Part III is incorporated herein by reference from our 2015 Definitive Proxy
Statement.*

Item 11. EXECUTIVE COMPENSATION

Information required by Item 11 of Part III is incorporated herein by reference from our 2015 Definitive Proxy
Statement.*

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information required by Item 12 of Part III is incorporated herein by reference from our 2015 Definitive Proxy
Statement.*

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

Information required by Item 13 of Part III is incorporated herein by reference from our 2015 Definitive Proxy
Statement.*

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by Item 14 of Part III is incorporated herein by reference from our 2015 Definitive Proxy
Statement.*

_________________________
*Except for information or data specifically incorporated herein by reference under Items 10 through 14, other information and data appearing in our 2015
Definitive Proxy Statement are not deemed to be a part of this Annual Report on

or deemed to be filed with the Commission as a part of this report.

136

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

PART IV

(a) 1.

Financial Statements and Supplementary Data
The financial statements and supplementary information listed in the Index to Financial Statements, which
appears on page 65, are filed as part of this Annual Report on Form 10-K.

Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts appears below. All other schedules are omitted because they
are not required, not significant, not applicable or the information is shown in another schedule, the financial
statements or the notes to consolidated financial statements.

3. Exhibits

The exhibits listed in the Index to Exhibits, which appears on pages 139 to 142, are filed as part of this Annual
Report on Form 10-K.

(c)

Pursuant to Rule 3-09 of Regulation S-X, the financial statements of WRB Refining LP and Chevron Phillips
Chemical Company LLC, each as of, and for the three years ending, December 31, 2014, are included as
exhibits to this Annual Report on Form 10-K.

137

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (Consolidated)

Description
2014
Deducted from asset accounts:

Allowance for doubtful accounts

and notes receivable

Deferred tax asset valuation

allowance

2013
Deducted from asset accounts:

Allowance for doubtful accounts

and notes receivable

Deferred tax asset valuation

allowance

2012
Deducted from asset accounts:

Allowance for doubtful accounts

and notes receivable

Deferred tax asset valuation

allowance

Millions of Dollars

Balance at
January 1

Charged to
Expense

Other (a)

Deductions

Balance at
December 31

127

329

210

(13)

—

(7)

—

(222)

—

(5)

(b)

—

(13)

(b)

—

(b)

107

127

329

(a)Represents acquisitions/dispositions/revisions, net transfers associated with the Separation and the effect of translating foreign financial statements.
(b)Amounts charged off less recoveries of amounts previously charged off.

138

PHILLIPS 66

INDEX TO EXHIBITS

Exhibit
Number

Exhibit Description

Separation and Distribution Agreement between
ConocoPhillips and Phillips 66, dated April 26, 2012.

Amended and Restated Certificate of Incorporation of
Phillips 66.

Amended and Restated By-Laws of Phillips 66.

Indenture, dated as of March 12, 2012, among Phillips 66, as
issuer, Phillips 66 Company, as guarantor, and The Bank of
New York Mellon Trust Company, N.A., as trustee, in
respect of senior debt securities of Phillips 66.

Form of the terms of the 1.950% Senior Notes due 2015, the
2.950% Senior Notes due 2017, the 4.300% Senior Notes
due 2022 and the 5.875% Senior Notes due 2042, including
the form of the 1.950% Senior Notes due 2015, the 2.950%
Senior Notes due 2017, the 4.300% Senior Notes due 2022
and the 5.875% Senior Notes due 2042.

Incorporated by Reference

Form

Exhibit
Number

Filing
Date

SEC
File No.

8-K

2.1 05/01/12

001-35349

3.1 05/01/12

001-35349

3.2 05/01/12

001-35349

4.3 04/05/12

001-35349

10-K

4.2 02/22/13

001-35349

Form of the terms of the 4.650% Senior Notes due 2034 and
the 4.875% Senior Notes due 2044.

8-K

4.2 11/17/14 001-35349

Credit Agreement among Phillips 66, Phillips 66 Company,
JPMorgan Chase Bank, N.A., as Administrative Agent, and
the lenders named therein, dated as of February 22, 2012.

First Amendment to Credit Agreement among Phillips 66,
Phillips 66 Company, JPMorgan Chase Bank, N.A., and
lenders named therein, dated as of June 10, 2013.

Second Amendment to Credit Agreement among Phillips 66,
Phillips 66 Company, JPMorgan Chase Bank, N.A., and
lenders named therein, dated as of December 10, 2014.

Third Amended and Restated Limited Liability Company
Agreement of Chevron Phillips Chemical Company LLC,
effective as of May 1, 2012.

Second Amended and Restated Limited Liability Company
Agreement of Duke Energy Field Services, LLC, dated July
5, 2005, by and between ConocoPhillips Gas Company and
Duke Energy Enterprises Corporation.

First Amendment to Second Amended and Restated Limited
Liability Company Agreement of Duke Energy Field
Services, LLC, dated August 11, 2006, by and between
ConocoPhillips Gas Company and Duke Energy Enterprises
Corporation.

Second Amendment to Second Amended and Restated Limited
Liability Company Agreement of DCP Midstream, LLC
(formerly Duke Energy Field Services, LLC), dated February 1,
2007, by and between ConocoPhillips Gas Company, Spectra
Energy DEFS Holding, LLC, and Spectra Energy DEFS
Holding Corp.

139

4.1 03/01/12

001-35349

10-Q

10.1 05/01/14

001-35349

10-Q

10.14 08/03/12

001-35349

10.12 03/01/12

001-35349

10.13 03/01/12

001-35349

10.14 03/01/12

001-35349

2.1

3.1

3.2

4.1

4.2

4.3

10.1

10.2

10.3*

10.4

10.5

10.6

10.7

Exhibit
Number

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

Exhibit Description

Third Amendment to Second Amended and Restated Limited
Liability Company Agreement of DCP Midstream, LLC
(formerly Duke Energy Field Services, LLC), dated April
30, 2009, by and between ConocoPhillips Gas Company,
Spectra Energy DEFS Holding, LLC, and Spectra Energy
DEFS Holding Corp.

Fourth Amendment to Second Amended and Restated
Limited Liability Company Agreement of DCP Midstream,
LLC (formerly Duke Energy Field Services, LLC), dated
November 9, 2010, by and between ConocoPhillips Gas
Company, Spectra Energy DEFS Holding, LLC, and
Spectra Energy DEFS Holding Corp.

Fifth Amendment to July 5, 2005 Second Amended and
Restated Limited Liability Company Agreement of DCP
Midstream, LLC (formerly Duke Energy Field Services,
LLC) dated September 9, 2014, by and between Phillips Gas
Company (formerly ConocoPhillips Gas Company), Spectra
Energy DEFS Holding, LLC, and Spectra Energy DEFS
Holding II, LLC.

Indemnification and Release Agreement between
ConocoPhillips and Phillips 66, dated April 26, 2012.

Intellectual Property Assignment and License Agreement
between ConocoPhillips and Phillips 66, dated April 26,
2012.

Tax Sharing Agreement between ConocoPhillips and
Phillips 66, dated April 26, 2012.

Incorporated by Reference

Form

Exhibit
Number

Filing
Date

SEC
File No.

10.15 03/01/12

001-35349

10.16 03/01/12

001-35349

10-Q

10.1 10/30/14

001-35349

8-K

10.1 05/01/12

001-35349

8-K

10.2 05/01/12

001-35349

8-K

10.3 05/01/12

001-35349

Employee Matters Agreement between ConocoPhillips and
Phillips 66, dated April 26, 2012.

8-K

10.4 05/01/12

001-35349

Amendment to the Employee Matters Agreement by and
between ConocoPhillips and Phillips 66, dated April 26,
2012.

10-Q

10.1 05/02/13

001-35349

Transition Services Agreement between ConocoPhillips and
Phillips 66, dated April 26, 2012.

8-K

10.5 05/01/12

001-35349

2013 Omnibus Stock and Performance Incentive Plan of
Phillips 66.**

DEF14A

App. A 03/27/13

001-35349

Phillips 66 Key Employee Supplemental Retirement Plan.**

First Amendment to the Phillips 66 Key Employee
Supplemental Retirement Plan.**

Phillips 66 Executive Severance Plan.**

First Amendment to the Phillips 66 Executive Severance
Plan.**

10-Q

10-K

10-Q

10-K

10.15 08/03/12

001-35349

10.18 02/22/13

001-35349

10.16 08/03/12

001-35349

10.20 02/22/13

001-35349

Phillips 66 Deferred Compensation Plan for Non-Employee
Directors.**

10-Q

10.17 08/03/12

001-35349

Phillips 66 Key Employee Deferred Compensation Plan-
Title I.**

10-Q

10.18 08/03/12

001-35349

140

Exhibit
Number

Exhibit Description

Phillips 66 Key Employee Deferred Compensation Plan-
Title II.**

Incorporated by Reference

Form

Exhibit
Number

Filing
Date

SEC
File No.

10-Q

10.19 08/03/12

001-35349

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

12*

21*

23.1*

23.2*

23.3*

31.1*

31.2*

32*

99.1*

99.2*

First Amendment to the Phillips 66 Key Employee Deferred
Compensation Plan Title II.**

10-K

10.24 02/22/13

001-35349

10-Q

10-K

10.20 08/03/12

001-35349

10.26 02/22/13

001-35349

10.27 02/22/13

001-35349

8-K

10.1 11/08/13 001-35349

10-Q

10.23 08/03/12

001-35349

10-K

10.29 02/22/13

001-35349

10-K

10.30 02/22/13

001-35349

10-K

10.31 02/22/13

001-35349

Phillips 66 Defined Contribution Make-Up Plan Title I.**

Phillips 66 Defined Contribution Make-Up Plan Title II.**

Phillips 66 Key Employee Change in Control Severance
Plan.**

First Amendment to Phillips 66 Key Employee Change in
Control Severance Plan, Effective October 2, 2015.**

Annex to the Phillips 66 Nonqualified Deferred
Compensation Arrangements.**

Form of Stock Option Award Agreement under the 2013
Omnibus Stock and Performance Incentive Plan of Phillips
66.**

Form of Restricted Stock or Restricted Stock Unit Award
Agreement under the 2013 Omnibus Stock and Performance
Incentive Plan of Phillips 66.**

Form of Performance Share Unit Award Agreement under
the 2013 Omnibus Stock and Performance Incentive Plan of
Phillips 66.**

Computation of Ratio of Earnings to Fixed Charges.

List of Subsidiaries of Phillips 66.

Consent of Ernst & Young LLP, independent registered
public accounting firm.

Consent of Ernst & Young LLP, independent auditors for
WRB Refining LP.

Consent of Ernst & Young LLP, independent auditors for
Chevron Phillips Chemicals Company LLC.

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

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

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

The financial statements of WRB Refining LP, pursuant to
Rule 3-09 of Regulation S-X.

The financial statements of Chevron Phillips Chemical
Company, LLC, pursuant to Rule 3-09 of Regulation S-X.

141

Incorporated by Reference

Form

Exhibit
Number

Filing
Date

SEC
File No.

Exhibit
Number

Exhibit Description

101.INS* XBRL Instance Document.

101.SCH* XBRL Schema Document.

101.CAL* XBRL Calculation Linkbase Document.

101.LAB* XBRL Labels Linkbase Document.

101.PRE* XBRL Presentation Linkbase Document.

101.DEF* XBRL Definition Linkbase Document.

*Filed herewith.
**Management contracts and compensatory plans or arrangements.

142

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

February 20, 2015

PHILLIPS 66

/s/ Greg C. Garland
Greg C. Garland
Chairman of the Board of Directors
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed, as of February 20, 2015, on
behalf of the registrant by the following officers in the capacity indicated and by a majority of directors.

Signature

Title

/s/ Greg C. Garland
Greg C. Garland

/s/ Greg G. Maxwell
Greg G. Maxwell

Chairman of the Board of Directors

and Chief Executive Officer

(Principal executive officer)

Executive Vice President, Finance

and Chief Financial Officer

(Principal financial officer)

/s/ Chukwuemeka A. Oyolu
Chukwuemeka A. Oyolu

Vice President and Controller

(Principal accounting officer)

143

/s/ J. Brian Ferguson
J. Brian Ferguson

/s/ William R. Loomis Jr.
William R. Loomis Jr.

/s/ John E. Lowe
John E. Lowe

/s/ Harold W. McGraw III
Harold W. McGraw III

/s/ Glenn F. Tilton
Glenn F. Tilton

/s/ Victoria J. Tschinkel
Victoria J. Tschinkel

/s/ Marna C. Whittington
Marna C. Whittington

Director

144

Financial Highlights

(Millions of Dollars Except Per Share Amounts)

Sales and other operating revenues

Income from continuing operations

Income from continuing operations attributable to Phillips 66

Per common share

Basic

Diluted

Net income

Net income attributable to Phillips 66

Per common share

Basic

Diluted

Cash and cash equivalents

Total assets

Long-term debt

Total equity

Cash from operating activities

Cash dividends declared per common share

2014

2013

$ 161,212

$ 171,596

4,091

4,056

7.15

7.10

4,797

4,762

8.40

8.33

5,207

48,741

7,842

22,037

3,529

1.8900

3,682

3,665

5.97

5.92

3,743

3,726

6.07

6.02

5,400

49,798

6,131

22,392

6,027

1.3275

CUMULATIVE TOTAL
SHAREHOLDER RETURN

($100 invested May 1, 2012)

ADJUSTED EARNINGS

($ in millions)

ADJUSTED RETURN ON CAPITAL
EMPLOYED (ROCE)

Phillips 66
Peer Group*
S&P 500
S&P 100

$250

$200

$150

$100

3,782
3,643
5,339

14%
14%
22%

5/1/12

12/31/12

12/31/13

12/31/14

*Dow, Marathon Petroleum, Tesoro and Valero

Shareholder Information

ANNUAL MEETING

INFORMATION REQUESTS

Phillips 66’s annual meeting of
stockholders will be held:
Wednesday, May 6, 2015 at the
Marriott Houston Westchase, 2900
Briarpark Drive, Houston, TX 77042

Notice of the meeting and proxy materials
are being provided to all shareholders.

DIRECT STOCK PURCHASE AND DIVIDEND
REINVESTMENT PLAN

For information about dividends and
certificates or to request a chan(cid:74)e of
address form, shareholders may contact:

Personnel in the follo(cid:90)in(cid:74) offices also
can answer investors’ questions about
the company:

INSTITUTIONAL INVESTORS

800-624-6440
investorrelations@p66.com

Please call Computershare to request
an enrollment package:
Toll-free number: 1-866-437-0009

INDIVIDUAL INVESTORS

866-437-0009
web.queries@computershare.com

You may also enroll online at
www.computershare.com/investor.

PRINCIPAL AND REGISTERED OFFICES

Phillips 66
P.O. Box 4428
Houston, TX 77210

2711 Centerville Road
Wilmington, DE 19808

COMPLIANCE AND ETHICS

For guidance, to express concerns
or to ask questions about compliance
and ethics issues, call Phillips 66’s
Ethics Helpline toll free: 855-318-5390,
available 24 hours a day, seven days
a week.

(cid:55)he ethics office also may (cid:69)e contacted
via email at ethics@p66.com, the Internet
at www.phillips66.ethicspoint.com or
by writing:

Attn(cid:29) (cid:42)lo(cid:69)al (cid:40)thics (cid:50)ffice
Phillips 66
3010 Briarpark Drive
Houston, TX 77042

COPIES OF FORM 10-K AND
PROXY STATEMENT

Phillips 66
2014 Form 10-K
310 W 5th
PRN-252
Bartlesville, OK 74003

Additional copies of this Annual Report
may be obtained by calling 918-977-4133
or writing:

Phillips 66
2014 Annual Report
310 W 5th
PRN-252
Bartlesville, OK 74003

INTERNET

www.phillips66.com

Other websites with information on topics
included in this annual report include:
www.cpchem.com
www.dcpmidstream.com
www.phillips66partners.com

STOCK TRANSFER AGENT AND REGISTRAR

Computershare
250 Royall Street
Canton, MA 02021
www.computershare.com/investor

DISCLOSURE STATEMENTS

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Execution

2014 ANNUAL REPORT

P
H

I
L
L
I

P
S

6
6

2
0
1
4

A
N
N
U
A
L

R
E
P
O
R
T

Phillips 66

P.O. Box 4428

Houston, TX 77210

www.phillips66.com

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