2015 ANNUAL REPOR T
Disciplined
growth.
Delivering
value.
a
PHILLIPS 66 2015 ANNUAL REPORT
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
2015
2014
$ 98,975
$ 161,212
4,280
4,227
7.78
7.73
4,280
4,227
7.78
7.73
3,074
4,091
4,056
7.15
7.10
4,797
4,762
8.40
8.33
5,207
48,580
48,692
8,843
7,793
23,938
22,037
5,713
2.18
3,529
1.89
CUMULATIVE TOTAL
SHAREHOLDER RETURN
($100 invested on May 1, 2012)
ADJUSTED EARNINGS
($ in millions)
ADJUSTED RETURN ON CAPITAL
EMPLOYED (ROCE)
Phillips 66
Peer Group*
S&P 500
S&P 100
$300
$250
$200
$150
$100
4,193
3,782
3,643
14%
14%
14%
5/1/12
12/31/12 12/31/13
12/31/14
12/31/15
13
14
15
13
14
15
* Celanese, Delek, Dow, Eastman Chemical,
Energy Transfer, Enterprise Products, HollyFrontier,
Huntsman, Marathon Petroleum, Oneok,
PBF Energy, Targa Resources, Tesoro, Valero,
Western Refining, Westlake Chemical
ON THE FRONT COVER:
Phillips 66’s new 100,000 barrels-per-day natural gas
liquids fractionator, located at the company’s Sweeny
Complex in Old Ocean, Texas, supplies purity ethane
and liquefied petroleum gases to the petrochemical
industry and heating markets.
GREG C. GARLAND
Chairman and Chief Executive Officer
MARCH 2016
To Our Shareholders,
Phillips 66 achieved major project development milestones during
2015 while sustaining a high level of operating excellence.
Thanks to our 14,000 dedicated employees,
we performed well in 2015, both financially
and operationally. Our company delivered
a 14 percent return on capital employed
(ROCE), returned $2.7 billion of capital
to shareholders, invested $5.8 billion in
its future, including a $1.5 billion equity
contribution to DCP Midstream, and
generated adjusted earnings of $4.2 billion,
up 11 percent over the prior year.
Despite volatile global energy markets,
Phillips 66 is maintaining its approach to
capital allocation and continues to execute
its strategy. With four integrated businesses,
a diverse portfolio of assets and resilient
cash flow, Phillips 66 is able to capitalize
on investment opportunities across the
value chain.
Our most important focus remains
operating excellence, which drives
us to continuously improve in safety,
environmental stewardship, reliability
and cost efficiency. In 2015, Phillips 66
achieved first-quartile performance for
both combined total recordable rate and
lost workday case rate. We are determined
to be the industry’s safest, most reliable
and efficient company.
Phillips 66
Strategy
OPERATING EXCELLENCE
Committed to safety, reliability
and environmental stewardship while
protecting shareholder value.
GROWTH
Reshaping our portfolio by
capturing growth opportunities in
Midstream and Chemicals.
RETURNS
Enhancing Refining returns by
increasing throughput of advantaged
feedstocks, disciplined capital
allocation and portfolio optimization.
DISTRIBUTIONS
Committed to dividend
growth, share repurchases
and financial strength.
HIGH-PERFORMING ORGANIZA TION
Focused on culture, capability and
performance by pursuing excellence
and doing the right thing.
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STRATEGIC PLATFORMS
In Midstream, we completed significant
strategic projects while creating new
platforms for growth. Our Chemicals
business continued its expansion,
capturing the benefit of low-cost
petrochemical feedstocks. Driven by
strong market conditions, Refining
delivered its best earnings performance
since 2012. Marketing and Specialties
posted healthy earnings, capitalizing on
favorable global margins.
Midstream, the primary focus of the
company’s growth, consists of our natural
gas liquids (NGL) and transportation
businesses, Phillips 66 Partners (our
master limited partnership), and a
50 percent interest in DCP Midstream,
one of the nation’s largest natural gas
processors and NGL producers.
In 2015, Midstream generated $248 million
of adjusted earnings. With new organic
growth projects now online and others
starting up later in 2016 and 2017, we
expect to significantly increase Midstream’s
earnings by 2018.
Phillips 66 Partners owns, operates,
develops and acquires fee-based crude
oil, refined petroleum products, and NGL
pipelines, terminals and other facilities. The
partnership provides a cost-efficient way to
fund growth in Midstream infrastructure.
At year-end, Phillips 66 owned a 69 percent
limited partner interest in Phillips 66
Partners as well as the 2 percent general
partner interest. We contributed assets
valued at more than $1 billion to the
partnership during 2015.
TOTAL RECORDABLE RATES
(Incidents per 200,000 hours worked)
Phillips 66
CPChem
DCP
1.5
1.0
0.5
0
1.5
1.0
0.5
0
1.5
1.0
0.5
0
REFINING ENVIRONMENT AL METRICS
Industry
Average
279
300
317
430
12
13
14 15
12
13
14 15
12
13
14 15
12
13
14
15
OPERATING COSTS AND SG&A
REFINING CAPACITY UTILIZA TION
($ in billions)
(Percent)
3% 3%
4% 5%
Planned Maintenance
& Turnarounds
6.0
6.1
5.7
5.7
91%
94%
93%
93%
12
13
14
15
12
13
14
15
2
PHILLIPS 66 2015 ANNUAL REPORT
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DCP Midstream and its master limited
partnership, DCP Midstream Partners,
completed projects during 2015 that
increased their natural gas processing
capacity to approximately 8.0 billion
standard cubic feet per day. DCP Midstream
continues to work on reducing costs and
converting contracts to fee-based structures
to improve its financial strength. In the fourth
quarter, Phillips 66 and Spectra Energy, the
joint venture owners, contributed cash and
operating assets to strengthen the balance
sheet of DCP Midstream and better position
it to grow through future commodity cycles.
BUILDING A WORLD-CLASS MIDSTREAM
ENERGY COMPLEX
Across our Midstream business, we have a
portfolio of growth projects just completed
or under construction.
On the U.S. Gulf Coast, Phillips 66 is building
an energy complex that connects refining,
NGL fractionation, storage and export
capabilities. This hub is designed with
pipeline connectivity to production areas and
market centers to provide us with options on
feedstock and product placement.
In December 2015, we began operating our
new 100,000 barrels-per-day (BPD) NGL
fractionator in Old Ocean, Texas. It supplies
ethane and liquefied petroleum gases (LPG)
to the petrochemical industry and heating
markets, and is supported by 250 miles of
new pipelines and new multimillion barrel
storage caverns. A 25 percent interest in the
NGL fractionator, associated caverns and
ancillary facilities, valued at approximately
$235 million, was contributed to Phillips 66
Partners during the first quarter of 2016.
In Texas, our 150,000 BPD Freeport LPG
Export Terminal, scheduled for startup in
the second half of 2016, will help us meet
the growing global market demand for LPG.
Additional projects, such as expanding our
Beaumont Terminal in Nederland, Texas,
are underway for the U.S. Gulf Coast region
to increase storage capacity and enhance
connectivity to several major pipelines.
Phillips 66 owns a 25 percent interest in
two joint ventures that are constructing a
long-haul pipeline system from North Dakota
to the Gulf Coast, with startup expected
in the fourth quarter of 2016. In addition,
Phillips 66 Partners is developing projects
for crude oil gathering and rail-loading
systems in North Dakota. The Palermo
Rail Terminal began operating in the fourth
quarter, with the first unit train of crude
oil loaded in December.
In the fourth quarter of 2015, Phillips 66
Partners acquired Phillips 66’s 40 percent
interest in the Bayou Bridge Pipeline project,
which will deliver crude oil from terminals
in Nederland (including our Beaumont
Terminal) to Lake Charles, Louisiana, and
then on to St. James, Louisiana. The first
leg of the pipeline should begin commercial
operations during the first quarter of 2016.
CAPTURING GROWTH OPPOR TUNITIES
IN CHEMICALS
We continue to invest in our high-return
Chemicals business, which consists of our
50 percent equity investment in Chevron
Phillips Chemical Company (CPChem), the
world’s largest producer of high-density
polyethylene. Global demand for ethylene,
propylene and polyethylene continues to
grow, and CPChem’s primary assets are in
the two most cost-advantaged regions of the
world: North America and the Middle East.
Full-year Chemicals adjusted earnings were
$952 million, compared with $1.2 billion
in 2014. CPChem’s Olefins and Polyolefins
(O&P) global capacity utilization rate for
2015 was 91 percent. The 2015 adjusted
ROCE for the business was 19 percent.
Across our
expanding
Midstream
business, we
have a portfolio
of organic, high-
quality growth
projects.
79853phiD2R1.indd 3
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LAKE CHARLES REFINERY
LINE EZ
Pasadena
EXPLORER
Mont Belvieu
SWEENY REFINERY
S A N D H I L L S
Freeport LPG Export Terminal
Clemens Caverns
BAYOU BRIDGE
St. James
ALLIANCE REFINERY
LPG Export Terminal
(Under Construction)
Terminal (PSX)
Terminal (PSXP)
CPChem Petrochemical Project
(Under Construction)
Underground Storage Facility
(25% PSXP; 75% PSX)
Fractionator (25% PSXP; 75% PSX)
JV Fractionator (PSX)
Pipeline (PSX)
Pipeline (PSXP)
Proposed/Under Construction Pipeline
Pipeline (CPChem Owned; PSX Operated)
Excel Paralubes Base Oil
(Partially Owned)
Coke Handling Terminal (PSX)
Third Party Terminal
Phillips 66 Operated Refinery
4
PHILLIPS 66 2015 ANNUAL REPORT
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BUILDING A
WORLD-CLASS
ENERGY COMPLEX
On the U.S. Gulf Coast, we are
building a world-class energy hub
that brings together complex
refining, NGL fractionation,
storage and export assets.
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ENHANCING
REFINING
RETURNS
The Ponca City Refinery,
in Oklahoma, processes
a mixture of light,
medium and heavy
crude oils. Infrastructure
improvements have
enabled the delivery
of increased volumes
of locally produced
advantaged crude oil
by pipeline and truck.
14
REFINERIES,
11 OF THEM
IN THE U.S.
2.2
MILLION BARRELS
PER DAY OF NET
CRUDE OIL
PROCESSING
CAPACITY.
6
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PHILLIPS 66 2015 ANNUAL REPORT CPChem is in the midst of a large capital
development project on the U.S. Gulf Coast.
It is constructing a 3.3 billion-pounds-per-
year ethane cracker at its Cedar Bayou
facility in Baytown, Texas, and two
1.1 billion-pounds-per-year polyethylene
facilities in Old Ocean, Texas. More than
70 percent complete as of Jan. 31, 2016,
the approximately $6 billion project is
expected to begin operating in mid-2017
and will increase CPChem’s global ethylene
and polyethylene capacity by approximately
30 percent.
ENHANCING REFINING RETURNS
Phillips 66’s Refining segment is a
significant competitor in the domestic
fuels industry, with 11 of the company’s
14 refineries located in the United States.
Globally, the business has a refining
capacity of 2.2 million BPD.
In 2015, Refining’s adjusted ROCE
was 19 percent, reflecting our ability
to capture strong market conditions.
To enhance Refining returns, we are
maintaining cost and capital discipline,
expanding access to Gulf Coast export
markets, optimizing feedstock costs and
improving product yields.
Our Humber Refinery, located in the United
Kingdom, completed a major turnaround
during the year with zero process safety
events and no shutdown or startup issues.
Concurrent with this maintenance project,
the Humber team replaced a 2.8 mile
section of the Tetney Subsea Pipeline
on time and under budget.
SERVING OUR CUSTOMERS
Our Marketing and Specialties segment
generated adjusted ROCE of 35 percent
in 2015. The company markets refined
petroleum products in the United States
under the Phillips 66, Conoco and 76
brands, and in Europe through JET and
Coop branded outlets. In the United States,
we have a network of marketers operating
about 6,700 outlets, and in Europe, there
are more than 1,500 company-owned and
dealer-owned sites. Phillips 66 continues to
expand its marketing footprint in Germany,
the U.K. and Austria.
Our Specialties business, which
manufactures and sells lubricants,
petroleum coke products, solvents and
polypropylene to commercial and industrial
customers worldwide, continues to grow.
The Lubricants business completed the
integration of Spectrum Corporation, a
specialty lubricants blender, packager
and marketer, which we acquired in 2014.
Lubricants also achieved record base oil
sales volumes in 2015 by optimizing base
oil production at the Excel Paralubes Plant
in Louisiana.
2015 FINANCIAL PERFORMANCE AND
CAPITAL ALLOCATION
Full-year 2015 earnings were $4.2 billion,
or $7.73 per share, compared with
$4.8 billion, or $8.33 per share, in 2014.
Adjusted earnings for the year were $4.2
billion, or $7.67 per share, compared with
$3.8 billion, or $6.62 per share, in 2014.
In 2015, Phillips 66 generated $5.7 billion
in cash from operations, and Phillips 66
Partners issued $1.5 billion in debt and
equity securities. These funds were used to
invest $5.8 billion in capital spending, repay
$800 million of debt, increase the dividend
by 12 percent and return $2.7 billion to
shareholders in the form of dividends and
share repurchases. We ended the year with
cash of $3.1 billion and a debt-to-capital
ratio of 27 percent.
Phillips 66 markets fuels
and lubricants under
these brands.
79853phiD2R1.indd 7
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Underpinned by a diversified cash flow
and a strong balance sheet, Phillips 66
is funding a $3.9 billion consolidated
capital budget in 2016 as well as a growing
dividend. Projects to be completed between
now and 2018 will provide Phillips 66 with
additional cash flow to fund growth and
shareholder distributions.
Approximately two-thirds of the 2016
capital budget is for growth, mostly in the
Midstream business, with about $400
million allocated to Refining projects that will
improve product yields and lower feedstock
costs. The remainder of the capital to be
spent this year is sustaining capital, primarily
for investment in Refining reliability, safety
and environmental projects.
During 2016, Phillips 66 plans double-digit
growth in its regular dividends and to
continue share repurchases. Since 2012,
the company has increased quarterly
dividends by 180 percent, reduced
share count by over 15 percent, and
returned $11.1 billion to shareholders
through dividends, share repurchases
and share exchange.
CREATING DIFFERENTIA TED VALUE
We believe that our investments across the
business portfolio will generate significant
EBITDA growth over the next several years.
Phillips 66 Partners continues to deliver
on its plan for a five-year, 30 percent
distribution compound annual growth rate
(CAGR) for unitholders through 2018. This
growth will be driven by organic capital
spending at the partnership, drop-down
acquisitions of assets from Phillips 66 and
selective third-party acquisitions.
Looking further into the future, we have
a substantial backlog of high-quality
Midstream projects to invest in, many of
which will leverage our existing asset base.
SHARE COUNT AND CAPIT AL RETURNED
DIVIDEND GROWTH
(Quarterly ¢/share)
626 MM
$7.7 B
529 MM
Number of shares
outstanding
Capital returned*
37% CAGR
56
20
3Q2012
4Q2013
4Q2014
4Q2015
3Q2012
4Q2013
4Q2014
4Q2015
* Through share purchases and share exchange
2016 CONSOLIDA TED CAPIT AL BUDGET
$3.9 Billion
Sustaining
Refining Returns
Marketing and Specialties Growth
Midstream Growth
$2.6 Billion Growth Capital
• Sweeny NGL midstream hub
• Freeport LPG export terminal
• Crude pipelines and storage
• Refining cost and yield
improvement projects
$1.3 Billion Sustaining Capital
• Maintaining safe, reliable assets
8
PHILLIPS 66 2015 ANNUAL REPORT
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BUILDING
A GREAT
COMPANY
The 14,000 people of
Phillips 66 are committed
to delivering results the
right way. Every day they
strive to execute our strategy,
embody our values of safety,
honor and commitment, and
fulfill our shared purpose
to provide energy and
improve lives.
79853phiD2R1.indd 9
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OUR PEOPLE
The people of Phillips 66 are committed to
building capability, pursuing excellence and
doing the right thing. Every day they strive
to execute our strategy, embody our values
of safety, honor, and commitment, and fulfill
our shared purpose to provide energy and
improve lives.
We define our high-performing organization
with three words: culture, capability and
performance. These traits shape our
engagement with colleagues, customers,
partners and communities. In the workplace,
we collaborate to achieve success, while
holding ourselves individually accountable.
In our communities, employees volunteered
more than 50,000 hours during 2015. The
company contributes to local environmental
programs, champions safety and
preparedness and supports relief initiatives
to mitigate the effects of natural disasters.
We also help to develop the next generation
of leaders through scholarships and
mentoring, and by investing in literacy and
science, technology, engineering and math
education. During the year, the company
made financial contributions of $25 million
to charitable organizations.
INVESTING IN TECHNOLOGY
At the Phillips 66 Research Center in
Bartlesville, Oklahoma, we have more than
350 scientists, engineers and technicians
who develop technologies to advance our
business and solve energy challenges.
They conduct research to manage water
consumption, develop biofuels, reduce
greenhouse gas emissions and provide
technology to improve power generation.
The technical understanding we gain
enhances the safety, efficiency and
reliability of our current operations while
presenting new opportunities. To date,
their efforts have resulted in more than
400 active patents as well as industry-
leading models for process optimization.
DISCIPLINED GROWTH
Phillips 66 is a higher-valued, diversified
downstream energy leader. We are
confident about the quality of our growth
projects and the value they create for
shareholders. Investors can count on
Phillips 66 to maintain its financial strength
and flexibility and disciplined approach
to capital allocation. We have a sound
strategy that we are executing well and
expect tremendous opportunity in the
years to come.
In safety, honor and commitment,
Greg C. Garland
Chairman and Chief Executive Officer
The people of Phillips 66 are
committed to building capability,
pursuing excellence and doing
the right thing.
10
PHILLIPS 66 2015 ANNUAL REPORT
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Non-GAAP Reconciliations
RECONCILIA TION OF ADJUSTED EARNINGS TO EARNINGS
(Millions of Dollars)
Consolidated
2015
Consolidated
2014
Consolidated
2013
Midstream
2015
Chemicals
2015
Chemicals
2014
Net income attributable to Phillips 66 (earnings)
$ 4,227
4,762
3,726
13
962
1,137
Adjustments:
Asset dispositions
Impairments
Impairments by equity affiliates
Pending claims and settlements
Exit of business line
Lower-of-cost-or-market inventory adjustments
Pension settlement expenses
Certain tax impacts
Discontinued operations
(265 )
–
256
(23 )
–
33
49
(84 )
–
(494 )
131
69
(10 )
–
30
–
–
(706 )
(23 )
–
–
(16 )
34
–
–
(17 )
(61 )
Adjusted Earnings
$ 4,193
3,782
3,643
Earnings per share of common stock (dollars)
Adjusted earnings per share of common stock (dollars)
$ 7.73
$ 7.67
8.33
6.62
(18 )
–
232
–
–
–
6
15
–
248
–
–
24
–
–
–
–
(34 )
–
–
–
69
–
–
3
–
–
–
952
1,209
RECONCILIA TION OF ADJUSTED ROCE TO ROCE
(Millions of Dollars)
Numerator
Net income
After-tax interest expense
GAAP ROCE earnings
Special items
Adjusted ROCE earnings
Denominator
Consolidated
2015
Consolidated
2014
Consolidated
2013
Refining
2015
M&S
2015
Chemicals
2015
$ 4,280
4,797
3,743
2,555
1,187
962
201
173
178
–
–
–
4,481
4,970
3,921
2,555
1,187
962
(34 )
(980 )
(83 )
(28 )
(240 )
(10 )
$ 4,447
3,990
3,838
2,527
947
952
GAAP average capital employed
$ 31,749
29,595
28,130
13,582
2,735
4,921
Discontinued operations
–
(96 )
(191 )
–
–
–
Adjusted average capital employed
$ 31,749
29,499
27,939
13,582
2,735
4,921
GAAP ROCE (percent)
Adjusted ROCE (percent)
14 %
14 %
17 %
14 %
14 %
14 %
19 %
19 %
43 %
35 %
20 %
19 %
79853phiD2R1.indd 11
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Board of Directors
From left to right:
Harold W. McGraw III, Victoria J. Tschinkel, Greg C. Garland,
J. Brian Ferguson, Glenn F. Tilton, Marna C. Whittington,
John E. Lowe, William R. Loomis Jr.
12
PHILLIPS 66 2015 ANNUAL REPORT
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Greg C. Garland, 58
J. Brian Ferguson, 61
Mr. Garland is chairman and chief executive officer of Phillips 66.
Previously, he served as senior vice president, Exploration and
Production—Americas for ConocoPhillips beginning in 2010.
Mr. Garland was president and chief executive officer of Chevron
Phillips Chemical Company (CPChem) from 2008 to 2010, having
served as senior vice president, Planning and Specialty Products,
CPChem, from 2000 to 2008. Mr. Garland currently serves on
the boards of Amgen Inc. and Phillips 66 Partners GP LLC,
the general partner of Phillips 66 Partners LP (Phillips 66
Partners GP), as well as on the board of DCP Midstream. (2)
Mr. Ferguson retired as chairman of Eastman Chemical Company
(Eastman) in 2010 and as chief executive officer of Eastman in
2009. He became the chairman and CEO of Eastman in 2002.
He was chairman of the American Chemistry Council in 2010,
and was a member of the Business Roundtable and the board
of the National Association of Manufacturers prior to his
retirement from Eastman. Mr. Ferguson serves as a director
of Owens Corning. (2, 3, 4)
William R. Loomis Jr., 67
John E. Lowe, 57
Mr. Loomis has been an independent financial advisor since
2009. He was a general partner and managing director of
Lazard Freres & Co. from 1984 to 2002, the chief executive
officer of Lazard LLC from 2000 to 2001 and a limited managing
director of Lazard LLC from 2002 to 2004. He currently serves
on the board of L Brands, Inc. (1, 2, 5)
Mr. Lowe served as assistant to the chief executive officer of
ConocoPhillips, a position he held from 2008 until May 2012. He
previously held a series of executive positions with ConocoPhillips,
including executive vice president, Exploration and Production,
from 2007 to 2008, and executive vice president, Commercial,
from 2006 to 2007. He is a former board member of CPChem and
DCP Midstream. Mr. Lowe is a senior executive advisor to Tudor,
Pickering, Holt & Co. and serves on the boards of TransCanada
Corporation and Apache Corporation. (1, 5)
Harold W. McGraw III, 67
Glenn F. Tilton, 67
Mr. McGraw is chairman emeritus of McGraw Hill Financial having
served as chairman of the board from 1999 until 2015. He also
served as chief executive officer for McGraw Hill Financial from
1998 to November 2013 and as president and chief operating
officer from 1993 to 1998. Mr. McGraw became the chairman
of the International Chamber of Commerce in July 2013. In
addition to McGraw Hill Financial, Mr. McGraw is also a director
of United Technologies Corporation. (2, 3, 4)
Mr. Tilton was chairman of the Midwest of JPMorgan Chase & Co.
from 2011 to June 2014. From 2002 to 2010, he served as
chairman, president and chief executive officer of UAL Corporation,
a holding company, and United Air Lines Inc., an air transportation
company and wholly owned subsidiary of UAL Corporation. He
previously spent more than 30 years in increasingly senior roles
with Texaco Inc., including chairman and chief executive officer in
2001. He currently serves on the boards of Abbott Laboratories
and AbbVie Inc. (as lead director). (3, 4)
Victoria J. Tschinkel, 68
Marna C. Whittington, 68
Ms. Tschinkel currently serves as the vice-chairwoman of 1000
Friends of Florida and was previously its chairwoman. In addition,
Ms. Tschinkel is a director of the National Fish and Wildlife
Foundation, serving on the Gulf Benefits Committee. She served
as state director of the Florida Nature Conservancy from 2003
to 2006, was the senior environmental consultant to the law firm
Landers & Parsons from 1987 to 2002, and was the Secretary of
the Florida Department of Environmental Regulation from 1981
to 1987. (1, 2, 5)
Dr. Whittington was chief executive officer of Allianz Global
Investors Capital from 2002 until her retirement in 2012. She
was chief operating officer of Allianz Global Investors, the parent
company of Allianz Global Investors Capital, from 2001 to 2011.
Prior to that, Dr. Whittington was managing director and chief
operating officer of Morgan Stanley Asset Management. She was
executive vice president and chief financial officer of The University
of Pennsylvania from 1984 to 1992. Earlier, she served as budget
director and, subsequently, Secretary of Finance for the State of
Delaware. She currently serves on the boards of Macy’s, Inc. and
Oaktree Capital Group, LLC. (1, 5)
(1) Member of the Audit and Finance Committee.
(2) Member of the Executive Committee.
(3) Member of the Human Resources and Compensation Committee.
(4) Member of the Nominating and Governance Committee.
(5) Member of the Public Policy Committee.
As of March 2, 2016.
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Phillips 66
Form10-K
14
PHILLIPS 66 2015 ANNUAL REPORT
79853phiD2R1.indd 14
3/7/16 3:43 PM
2015
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, 2015
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.
[X] Yes [ ] No
[ ] Yes [X] No
[X] Yes [ ] No
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).
[X] Yes [ ] No
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]
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, 2015, the last business day of the registrant’s
most recently completed second fiscal quarter, based on the closing price on that date of $80.56, was $43.3 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 527,459,894 shares of common stock outstanding at January 31, 2016.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2016 (Part III).
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Item
TABLE OF CONTENTS
PART I
1 and 2. Business and Properties
Corporate Structure
Segment and Geographic Information
Midstream
Chemicals
Refining
Marketing and Specialties
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
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32
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133
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134
134
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141
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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.”
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). 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
terminaling and storage services for crude oil and petroleum products. The Midstream segment includes our
master limited partnership, Phillips 66 Partners LP, as well as our 50 percent equity investment in DCP
Midstream, LLC (DCP Midstream).
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.
At December 31, 2015, Phillips 66 had approximately 14,000 employees.
1
SEGMENT AND GEOGRAPHIC INFORMATION
For operating segment and geographic information, see Note 26—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 terminaling and storage services for crude oil and petroleum
products.
• DCP Midstream—gathers, processes, transports and markets natural gas and transports, fractionates and markets
NGL.
• NGL—transports, fractionates and markets natural gas liquids.
Phillips 66 Partners LP
In 2013, we formed Phillips 66 Partners LP, 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, 2015, we owned a 69 percent limited partner interest and a 2 percent general
partner interest in Phillips 66 Partners, while the public owned a 29 percent limited partner interest.
Headquartered in Houston, Texas, Phillips 66 Partners’ assets and equity investments consist of crude oil, NGL and
refined petroleum product pipelines, terminals, rail racks and storage systems that are geographically dispersed
throughout the United States, most of which are integral to a Phillips 66-operated refinery.
During 2015, Phillips 66 Partners expanded its business by acquiring from us:
• One-third equity interests in DCP Sand Hills Pipeline, LLC (Sand Hills) and DCP Southern Hills Pipeline, LLC
(Southern Hills), as well as a 19.5 percent equity interest in Explorer Pipeline Company (Explorer). This
acquisition closed in March 2015.
• A 40 percent equity interest in Bayou Bridge Pipeline, LLC (Bayou Bridge). This acquisition closed in
December 2015.
The operations and financial results of Phillips 66 Partners are included in either the Transportation or NGL business line,
based on the nature of the activity within the partnership.
Transportation
We own or lease various assets to provide environmentally safe, strategic and timely delivery and terminaling 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, 2015, 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, 16 crude oil terminals and 1
petroleum coke exporting facility.
During 2015, we continued to invest in our Beaumont Terminal, the largest terminal in the Phillips 66 portfolio, which
currently has 4.7 million barrels of crude oil storage capacity and 2.4 million barrels of refined product storage capacity.
As of December 31, 2015, we had 2.0 million barrels of incremental crude storage capacity under construction, which is
2
expected to be completed in the third quarter of 2016. In addition, we have initiated a variety of other projects aimed at
increasing storage and throughput capabilities as we continue the expansion of the Beaumont terminal from its current
7.1 million barrels of storage capacity to 16 million barrels.
Construction progressed in 2015 on our two crude oil pipeline systems being developed by our joint ventures, Dakota
Access LLC (DAPL) and Energy Transfer Crude Oil Company, LLC (ETCOP). Phillips 66 owns 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 pipeline systems. The DAPL pipeline is expected to deliver 470,000 barrels per day of crude oil from
the Bakken/Three Forks production area in North Dakota to market centers in the Midwest. The DAPL pipeline will
provide shippers with access to Midwestern refineries, unit-train rail loading facilities to facilitate deliveries to East Coast
refineries, and the Gulf Coast market through an interconnection in Patoka, Illinois, with ETCOP pipeline. The ETCOP
pipeline will provide crude oil transportation service from the Midwest to the Sunoco Logistics Partners L.P. (Sunoco
Logistics) and Phillips 66 storage terminals located in Nederland, Texas. The pipelines are expected to be operational in
fourth-quarter 2016.
In the third quarter of 2015, Phillips 66 became a joint venture partner with a 40 percent equity interest in Bayou Bridge.
Energy Transfer Partners, L.P. (ETP) and Sunoco Logistics each hold a 30 percent interest in the joint venture, with
Sunoco Logistics serving as the operator. The joint venture was formed for the funding and development of the Bayou
Bridge pipeline. The Bayou Bridge pipeline is a new-build 30” and 24” pipeline that will deliver crude oil from
Nederland, Texas, to Lake Charles, Louisiana and on to St. James, Louisiana. Phillips 66 is constructing the segment to
Lake Charles, which will be in service by the end of first-quarter 2016. The remaining section of the pipeline, which will
be constructed by ETP, is scheduled for completion in the second half of 2017. Effective December 1, 2015, Phillips 66
Partners acquired Phillips 66’s 40 percent equity interest in Bayou Bridge.
In the fourth quarter of 2015, Phillips 66 Partners commenced operation of the Palermo Rail Terminal, which is located
on a 710-acre site near Palermo, North Dakota. The crude terminal has an initial capacity of 100,000 barrels per day, with
the flexibility to be expanded to 200,000 barrels per day. It is located on a railway with two mainline switches, allowing
east- and west-bound deliveries. The terminal includes 6 truck unloading facilities and 206,000 barrels of operational
storage, with permits allowing total storage capacity of up to 2.4 million barrels, as well as space for 6 additional truck
unloading facilities. The terminal is owned by the joint venture Phillips 66 Partners Terminal LLC, of which Phillips 66
Partners holds a 70 percent interest, with Paradigm Energy Partners, LLC (Paradigm) owning the remaining 30 percent
interest. Phillips 66 Partners is the operator.
In 2016, the Palermo Rail Terminal is anticipated to include a pipeline delivery and receipt connection to the 76-mile
Sacagawea Pipeline, allowing the terminal to receive crude oil from areas in Dunn County and McKenzie County, North
Dakota, and deliver it to terminals and pipelines located in Stanley, North Dakota. The Sacagawea Pipeline is owned by
the joint venture Sacagawea Pipeline Company, LLC, of which Paradigm Pipeline LLC holds an 88 percent interest, with
the remaining 12 percent interest owned by Grey Wolf Midstream, LLC. Phillips 66 Partners and Paradigm each own a
50 percent interest in Paradigm Pipeline LLC. Paradigm is constructing the pipeline and Phillips 66 Partners will be the
operator.
3
The following table depicts our ownership interest in major pipeline systems as of December 31, 2015:
Name
Origination/Terminus
Interest
Size
Length
(Miles)
Gross Capacity
(MBD)
Crude and Feedstocks
Glacier
Line 80
Line O
WA Line
Cushing
North Texas Crude
Oklahoma Mainline
Clifton Ridge †
Eagle Ford Gathering †
Eagle Ford Gathering †
Louisiana Crude Gathering
Sweeny Crude
Line 100
Line 200
Line 300
Line 400
Petroleum Products
Harbor
Pioneer
Seminoe
Yellowstone
Borger to Amarillo
ATA Line
Borger-Denver
Gold Line †
SAAL
SAAL
Cherokee South
Heartland*
Paola Products †
Standish
Cherokee North
Cherokee East
Cross Channel Connector †
Explorer***†
Sweeny to Pasadena †
LAX Jet Line
Torrance Products
Los Angeles Products
Watson Products Line
Richmond
Cut Bank, MT/Billings, MT
Gaines, TX/Borger, TX
Cushing, OK/Borger, TX
Odessa, TX/Borger, TX
Cushing, OK/Ponca City, OK
Wichita Falls, TX
Wichita Falls, TX/Ponca City, OK
Clifton Ridge, LA/Westlake, LA
Helena, TX
Tilden, TX/Whitsett, TX
Rayne, LA/Westlake, LA
Sweeny, TX/Freeport, TX
Taft, CA/Lost Hills, CA
Lost Hills, CA/Rodeo, CA
Nipomo, CA/Arroyo Grande, CA
Arroyo Grande, CA/Lost Hills, CA
Woodbury, NJ/Linden, NJ
Sinclair, WY/Salt Lake City, UT
Billings, MT/Sinclair, WY
Billings, MT/Moses Lake, WA
Borger, TX/Amarillo, TX
Amarillo, TX/Albuquerque, NM
McKee, TX/Denver, CO
Borger, TX/East St. Louis, IL
Amarillo, TX/Abernathy, TX
Abernathy, TX/Lubbock, TX
Ponca City, OK/Oklahoma City, OK
McPherson, KS/Des Moines, IA
Paola, KS/Kansas City, KS
Marland Junction, OK/Wichita, KS
Ponca City, OK/Arkansas City, KS
Medford, OK/Mount Vernon, MO
Pasadena, TX/Galena Park, TX
Texas Gulf Coast/Chicago, IL
Sweeny, TX/Pasadena, TX
Wilmington, CA/Los Angeles, CA
Wilmington, CA/Torrance, CA
Torrance, CA/Los Angeles, CA
Wilmington, CA/Long Beach, CA
Rodeo, CA/Richmond, CA
79%
100
100
100
100
100
100
71
71
71
100
100
100
100
100
100
8”-12”
8”, 12”
10”
12”, 14”
18”
2”-16”
12”
20”
6”
6”, 10”
4”-8”
12”, 24”, 30”
8”, 10”, 12”
12”, 16”
8”, 10”, 12”
8”, 10”, 12”
33
50
100
46
100
50
70
71
33
54
100
50
71
100
100
100
71
14
71
50
100
100
100
100
16”
8”, 12”
6”-10”
6”-10”
8”, 10”
6”, 10”
6”-12”
8”-16”
6”
6”
8”
8”, 6”
8”, 10”
18”
10”
10”, 12”
20”
24”, 28”
12”, 18”
8”
10”, 12”
6”, 12”
20”
6”
865
237
276
289
62
224
217
10
6
22
80
56
79
228
56
147
80
562
342
710
93
293
405
681
102
19
90
49
106
92
29
287
5
1,830
120
19
8
22
9
14
126
28
37
104
130
28
100
260
20
34
25
265
54
93
48
40
171
63
33
66
76
34
38
120
33
30
46
30
96
72
57
55
180
660
294
50
161
112
238
26
4
Name
Origination/Terminus
Interest
Size
Length
(Miles)
Gross Capacity
(MBD)
Sage Creek, WY/Borger, TX
100%
6”-8”
NGL
Powder River
Skelly-Belvieu
Skellytown, TX/Mont Belvieu, TX
TX Panhandle Y1/Y2
Sher-Han, TX/Borger, TX
Chisholm
Sand Hills**†
Southern Hills**†
Sweeny NGL
LPG
Blue Line
Brown Line
Kingfisher, OK/Conway, KS
Permian Basin/Mont Belvieu, TX
U.S. Midcontinent/Mont Belvieu, TX
Brazoria, TX/Sweeny, TX
Borger, TX/East St. Louis, IL
Ponca City, OK/Wichita, KS
Conway to Wichita
Conway, KS/Wichita, KS
Ponca City, OK/Medford, OK
Sweeny/Mont Belvieu & Freeport, TX
Medford
Sweeny LPG Lines
Natural Gas
Rockies Express
50
100
50
24
24
100
100
100
100
100
100
8”
3”-10”
4”-10”
20”
20”
20”
8”-12”
8”, 10”
12”
4”-6”
10”-20”
705
571
299
202
1,190
940
18
688
76
55
42
246
14
45
61
42
250
175
204
29
26
38
10
842
Meeker, CO/Clarington, OH
25
36”-42”
1,712
1.8 BCFD
†Owned by Phillips 66 Partners LP; Phillips 66 held a 71 percent ownership interest in Phillips 66 Partners LP at December 31, 2015.
*Total pipeline system is 419 miles. Phillips 66 has ownership interest in multiple segments totaling 49 miles.
**Operated by DCP Midstream Partners, LP; Phillips 66 Partners holds a direct one-third ownership in the pipeline entities.
***Phillips 66 Partners holds a 19.5 percent ownership in Explorer.
5
The following table depicts our ownership interest in finished product terminals as of December 31, 2015:
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; Phillips 66 held a 71 percent ownership interest in Phillips 66 Partners LP at December 31, 2015.
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
Gross Storage
Capacity (MBbl)
244
277
2,400
88
113
211
310
206
2,085
366
198
1,075
178
110
1,294
101
219
429
116
179
368
186
363
657
352
3,210
51
664
228
334
125
141
86
351
307
1,593
128
303
679
Interest
100%
100
100
100
100
100
100
50
71
100
100
71
100
71
71
100
100
100
100
100
50
50
100
50
100
71
100
100
100
100
100
100
100
100
100
100
100
100
71
Gross 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
6
The following table depicts our ownership interest in crude and other terminals as of December 31, 2015:
Facility Name
Location
Interest
Gross Storage
Capacity (MBbl)
Gross Loading
Capacity**
Crude
Beaumont
Billings
Borger
Clifton Ridge †
Cushing
Junction
McKittrick
Odessa
Palermo*
Pecan Grove †
Ponca City
Santa Margarita
Santa Maria
Tepetate
Torrance
Wichita Falls
Petroleum Coke
Lake Charles
Rail
Bayway †
Beaumont
Ferndale †
Missoula
Palermo*
Thompson Falls
Marine
Beaumont
Clifton Ridge †
Hartford †
Pecan Grove †
Portland
Richmond
Tacoma
Tremley Point
Texas
Montana
Texas
Louisiana
Oklahoma
California
California
Texas
North Dakota
Louisiana
Oklahoma
California
California
Louisiana
California
Texas
Louisiana
New Jersey
Texas
Washington
Montana
North Dakota
Montana
Texas
Louisiana
Illinois
Louisiana
Oregon
California
Washington
New Jersey
100%
100
100
71
100
100
100
100
50
71
100
100
100
100
100
100
50
71
100
71
50
50
50
100
71
71
71
100
100
100
100
4,704
270
721
3,410
700
523
237
523
206
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
N/A
N/A
75
20
30
82
100
84
13
48
3
6
10
3
12
7
†Owned by Phillips 66 Partners LP; Phillips 66 held a 71 percent ownership interest in Phillips 66 Partners LP at December 31, 2015.
*Owned by Phillips 66 Partners Terminal LLC; Phillips 66 Partners holds a 70 percent ownership interest in Phillips 66 Partners Terminal LLC.
**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 1,712 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 was originally 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. During 2015, as a result of east-to-west expansion
projects, the REX Pipeline began transporting natural gas supplies from the Appalachian Basin to Midwest markets.
7
Marine Vessels
At December 31, 2015, we had 12 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 three Jones
Act compliant tankers and 66 tug/barge units. 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 12,300 owned and leased railcars. Truck movements are provided through approximately 170 third-party truck
companies, as well as through Sentinel Transportation LLC, in which we hold a 20 percent equity interest.
DCP Midstream
Our Midstream segment includes our 50 percent equity investment in DCP Midstream, which is headquartered in Denver,
Colorado. As of December 31, 2015, DCP Midstream owned or operated 64 natural gas processing facilities, with a net
processing capacity of approximately 8.0 BCFD. DCP Midstream’s owned or operated natural gas pipeline systems
included gathering services for these facilities, as well as natural gas transmission, and totaled approximately 68,000
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.
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-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-year contracts, the primary
commitment of which began a ratable wind-down period in December 2014 and expires in January 2019. These purchase
commitments are on an “if-produced, will-purchase” basis.
During 2015, DCP Midstream and DCP Midstream Partners, LP (DCP Partners), the MLP formed by DCP Midstream,
completed or advanced the following growth projects:
• The Sand Hills laterals were placed into service in the second and third quarters of 2015. The Sand Hills
pipeline capacity expansion is underway and expected to be in service in the middle of 2016.
•
In March 2015, construction began on a gathering system in the Denver-Julesburg (DJ) Basin, named the Grand
Parkway gathering project, with expected completion in the first quarter of 2016.
• The expansion of the Keathley Canyon natural gas gathering pipeline system, which is part of DCP Partners’
Discovery joint venture, was placed into service in the first quarter of 2015.
• The Lucerne 2 plant was placed into service in mid-2015.
8
NGL
Our NGL business includes the following:
• The 100,000 barrels-per-day (BPD) Sweeny Fractionator One is located in Old Ocean, Texas. The fractionator is
supported by 250 miles of new pipelines and the Clemens Caverns storage facility located near Brazoria, Texas,
with connectivity to local petrochemical customers, the Mont Belvieu market hub and our marine terminal in
Freeport, Texas.
• A 22.5 percent equity interest in Gulf Coast Fractionators, which owns an NGL fractionation plant in Mont
Belvieu, Texas. We operate the facility, and our net share of its capacity is 32,625 barrels per day.
• A 12.5 percent equity interest in a fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is
30,250 barrels per day.
• A 40 percent interest in a fractionation plant in Conway, Kansas. Our net share of its capacity is 43,200 barrels per
day.
•
Phillips 66 Partners owns a direct one-third interest in both Sand Hills and Southern Hills, whose pipelines connect
Eagle Ford, Permian and Midcontinent production to the Mont Belvieu, Texas market.
In December 2015, operations began at Sweeny Fractionator One. Sweeny Fractionator One is located adjacent to our
Sweeny Refinery and supplies purity ethane and LPG to the petrochemical industry and heating markets. Raw NGL
supply to the fractionator is delivered from nearby major pipelines, including the Sand Hills pipeline.
The fractionator is supported by significant new infrastructure including connectivity to two NGL supply pipelines, a
180,000 BPD bi-directional pipeline to the Mont Belvieu market center and a multi-million barrel salt dome storage
facility with access to our marine terminal in Freeport, Texas.
During 2015, construction progressed on the Freeport LPG Export Terminal located at the site of our existing marine
terminal in Freeport, Texas. The terminal expansion will leverage our transportation and storage infrastructure to supply
petrochemical, heating and transportation markets globally. In addition, a 100,000 BPD unit to upgrade domestic
propane for export is being installed near the Sweeny Fractionator One. The terminal will have an initial export capacity
of 150,000 BPD of LPG with a ship loading rate of 36,000 barrels per hour. The terminal is currently exporting 10,000 to
15,000 BPD of natural gasoline (C5+) from Sweeny Fractionator One.
The LPG produced at Sweeny Fractionator One is being delivered via pipeline to local petrochemical customers, as well
as to the market hub at Mont Belvieu, Texas. We will have the capability to place the LPG into global markets upon
completion of our Freeport LPG Export Terminal in the second half of 2016. Sweeny Fractionator One and the Freeport
LPG Export Terminal represent a combined capital investment of more than $3 billion.
CHEMICALS
The Chemicals segment consists of our 50 percent equity investment in CPChem, which is headquartered in The
Woodlands, Texas. At the end of 2015, CPChem owned or had joint-venture interests in 34 manufacturing facilities and
two research and development centers located around the world.
We structure our reporting of CPChem’s operations around two primary business segments: Olefins and Polyolefins
(O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P business 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 business segment manufactures and markets
aromatics and styrenics 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.
9
The manufacturing of petrochemicals and plastics involves the conversion of hydrocarbon-based raw material feedstocks
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, 2015:
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
Nylon 6,6
Nylon compounding
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
—
2,335
105
590
19,050
1,600
1,060
1,000
1,050
835
—
430
—
—
—
5,975
25,025
10,505
3,180
6,500
620
490
310
2,850
235
590
25,280
2,530
1,455
1,000
1,875
1,070
70
550
55
20
130
8,755
34,035
In 2015, CPChem continued 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 the second quarter of 2015, CPChem completed construction and started commercial operations of a 220-million-
pounds-per-year expansion of normal alpha olefin (NAO) production capacity at its Cedar Bayou plant. 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.
10
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 were undertaken through CPChem’s 50-
percent-owned joint venture company, Petrochemical Conversion Company Ltd. The projects started operations in stages
during 2014 through 2015, with the nylon 6,6 project achieving commercial production in December 2015.
11
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, 2015:
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
2015
Effective
January 1
Net Clean Product
Capacity**
2016 Gasolines Distillates
238
221
71
58
588
247
244
247
738
157
73
203
59
492
101
139
120
360
2,178
238
221
71
58
588
247
249
247
743
157
73
203
60
493
101
139
120
360
2,184
145
85
15
25
125
90
125
75
50
110
35
55
80
55
115
115
30
25
120
115
120
55
25
90
25
30
65
60
Clean
Product
Yield
Capability
92%
81
65
86
88
70
87
81
90
93
90
81
90
84
*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.
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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.
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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 Germany, Switzerland and 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 7—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.
14
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.
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 is
supplied to 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 and barge to customers in California.
15
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 (such as base oils and lubricants), as well as power generation operations.
Marketing
Marketing—United States
In the United States, as of December 31, 2015, we marketed gasoline, diesel and aviation fuel through approximately
8,350 marketer-owned or -supplied outlets in 48 states. These sites utilize the Phillips 66, Conoco or 76 brands.
At December 31, 2015, our wholesale operations utilized a network of marketers operating approximately 6,700 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 800 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. We
continue to utilize consignment fuels agreements with several marketers whereby we own the fuel inventory and pay the
marketers a fixed monthly fee.
In the Gulf Coast and East Coast regions, most sales are conducted via unbranded sales which do not require a highly
integrated marketing and distribution infrastructure to secure product placement for refinery pull through. 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.
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, 2015, aviation gasoline and jet fuel were sold through dealers and
independent marketers at approximately 850 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, 2015, we had approximately 1,280 marketing outlets in our European operations, of which
approximately 950 were company owned and 330 were dealer owned. In addition, through our joint venture operations
in Switzerland, we have interests in 295 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.
16
Lubricants
We manufacture and sell automotive, commercial, industrial and specialty lubricants which are marketed worldwide
under the Phillips 66, Conoco, 76, Kendall, Red Line and Smart Blend 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 South Korea’s S-Oil corporation.
Other
Power Generation
We own 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.
TECHNOLOGY DEVELOPMENT
Our Technology organization conducts applied and fundamental research in three areas: 1) support for our current
business, 2) new environmental solutions for governmental regulations and 3) future growth. Technology programs
include evaluating advantaged crudes, modeling for increased clean product yield, and increasing reliability. Our
sustainability group concentrates on alternative and renewable energy, carbon dioxide capture, processing improvements,
and product innovation. Another ongoing initiative studies whether fuel cells can be converted to use abundant natural
gas, as opposed to hydrogen, to produce electricity. Additionally, we research in the areas of solar panels and water use
and quality.
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 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 ranked among the top 10 producers of many of its major product lines, based on
average 2015 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 7, 2015, issue of the Oil & Gas Journal, we
are one of the largest refiners of petroleum products in the United States. 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, 2015, we held a total of 404 active patents in 30 countries worldwide, including 260 active U.S.
patents. During 2015, we received 31 patents in the United States and 14 foreign patents. 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 $65 million, $62 million and $69
million in 2015, 2014 and 2013, respectively.
17
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 2015 and those expected
for 2016 and 2017.
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.
18
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 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,
marketing and petrochemical 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 petrochemical feedstocks) and the
margin we can derive from selling refined and Chemicals segment products. The prices of feedstocks and our products
fluctuate 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.
During the period between the time we purchase feedstocks and sell the refined products from these feedstocks, price
changes could have a significant effect on our financial results. We also purchase refined products produced by others for
sale to our customers. Price 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.
19
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 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 or Phillips 66 Partners’ 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 or Phillips 66
Partners’ 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 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 cleanup of hazardous materials and hazardous 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’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 “the blend wall”), our
operations could be materially adversely impacted, up to and including a reduction in produced motor fuel.
20
The adoption of climate change legislation could result in increased operating costs and reduced demand for the
refined products we produce.
The U.S. government, including the EPA, as well as several state and international governments, have either considered
or adopted legislation or regulations in an effort to reduce greenhouse gas (GHG) emissions. These proposed or
promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the
future. In addition, various groups suggest that additional laws may be needed in an effort to address climate change. We
cannot predict the extent to which any such legislation will be enacted and, if so, what its provisions would be. To the
extent we incur additional costs required to comply with the adoption of new laws and regulations that 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. In addition, demand for the refined products we produce could
be adversely affected.
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
21
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 produced from unconventional sources. 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
22
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 fracturing 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. This could 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.
DCP Midstream’s 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, which 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,
prices 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 use them 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. A large percentage of our future
production is subject to commodity price changes and our ability to fund our planned activities could be adversely
affected if any of our counterparties were to default on their obligations to us under the hedging contracts or seek
bankruptcy protection. The risk of counterparty default is heightened in a poor economic environment.
23
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 based on a variety of independent market information and
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.
24
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) any of our representations or undertakings being
incorrect or violated, or (ii) other actions or failures to act by us. Our indemnification obligations to ConocoPhillips and
25
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
In November and December of 2015, the Bay Area Quality Management District (AQMD) issued demands to settle 17
Notices of Violation (NOVs) issued in 2013 and 2014 with respect to alleged violations of regulatory and/or permit
requirements at the Rodeo refining facility. The settlement demands aggregate to approximately $180,000. We are
working with the Bay Area AQMD to resolve these matters.
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 in January 2016 an agreement was reached with LDEQ to resolve the
remaining allegations.
In May 2012, the Illinois Attorney General’s office filed and notified us of a complaint with respect to operations at the
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, July 2014 and May 2015, the Bay Area AQMD issued demands to settle 64 NOVs issued in 2010
through 2013 with respect to alleged violations of regulatory and/or permit requirements at the Rodeo Refinery. The
settlement demands aggregate approximately $900,000. We are working with the Bay Area AQMD to resolve these
matters.
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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 September 2014, the EPA issued an NOV alleging a violation of hazardous air pollution regulations at the Wood River
Refinery during 2014. We are working with the EPA to resolve this NOV.
In January 2015, the Bay Area AQMD made a $262,000 demand to settle five NOVs issued in 2012 with respect to an
incident involving the release of material from a sour water tank at the Rodeo facility in June 2012. We are working with
the Bay Area AQMD to resolve this matter.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Position Held
Age*
Greg C. Garland
Tim G. Taylor
Robert A. Herman
Paula A. Johnson
Kevin J. Mitchell
Lawrence M. Ziemba
Chukwuemeka A. Oyolu
*On February 12, 2016.
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
58
62
56
52
49
60
46
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 Phillips 66’s Chairman,
President and Chief Executive Officer from April 2012 to June 2014. Mr. Garland previously served as ConocoPhillips’
Senior Vice President, Exploration and Production—Americas from October 2010 to April 2012, and as President and
Chief Executive Officer of CPChem from 2008 to 2010.
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 was Vice President, Health, Safety, and Environment for ConocoPhillips, from 2010 to 2012.
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 of ConocoPhillips
from 2009 to 2012.
Kevin J. Mitchell is Executive Vice President, Finance and Chief Financial Officer of Phillips 66, a position he has held
since January 2016. Previously, Mr. Mitchell served as Phillips 66’s Vice President, Investor Relations since joining the
company in September 2014. Prior to joining the company, he served as the General Auditor of ConocoPhillips from
May 2010 until September 2014.
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 from 2010 to 2012.
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.
28
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:
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Closing Stock Price at December 31, 2015
Closing Stock Price at January 29, 2016
Number of Stockholders of Record at January 29, 2016
Performance Graph
Stock Price
High
Low
Dividends
$
$
80.59
82.19
84.85
94.12
80.39
87.05
87.98
82.00
57.33
76.43
69.79
76.45
68.78
76.18
78.53
64.02
.50
.56
.56
.56
.39
.50
.50
.50
$
$
81.80
80.15
42,950
29
In the 2014 annual report, the performance graph included a peer index (the “Old Peer Group”) composed of Dow,
Marathon Petroleum, Tesoro and Valero. To better reflect our unique portfolio of assets, we revised our peer index for
2015 (the “New Peer Group”) to include an expanded representative population of companies with assets and operations
in all four of our major businesses; Midstream, Chemicals, Refining, and Marketing and Specialties. The New Peer Index
is composed of Celanese, Delek, Dow, Eastman Chemical, Energy Transfer, Enterprise Products, HollyFrontier,
Huntsman, Marathon Petroleum, Oneok, PBF Energy, Targa Resources, Tesoro, Valero, Western Refining, and Westlake
Chemical. We anticipate using the index identified as “New Peer Index” in future annual reports.
Issuer Purchases of Equity Securities
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
1,556,053
1,314,018
1,861,861
4,731,932
$
$
80.99
90.96
85.63
85.59
$
1,556,053
1,314,018
1,861,861
4,731,932
2,884
2,765
2,604
Period
October 1-31, 2015
November 1-30, 2015
December 1-31, 2015
Total
*Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when
applicable.
**Our Board of Directors has authorized repurchases totaling up to $9 billion of our outstanding common stock. The current authorization was announced in
July 2014, in the amount of $2 billion, and increased to $4 billion as announced in October 2015. The authorization does not have an expiration date. 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.
30
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, 2015, 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 the
combined results of the downstream businesses for the four months ended April 30, 2012. The selected income
statement data for the year ended December 31, 2011, consists entirely of the combined results of the
downstream businesses.
• The selected balance sheet data at December 31, 2015, 2014, 2013 and 2012, consist of the consolidated
balances of Phillips 66, while the selected balance sheet data at December 31, 2011, consists 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
Millions of Dollars Except Per Share Amounts
2015
2014
2013
2012
2011
$
98,975
4,280
161,212
4,091
171,596
3,682
179,290
4,083
195,931
4,737
4,227
7.78
7.73
4,280
4,227
7.78
7.73
48,580
8,843
2.1800
4,056
3,665
4,076
4,732
7.15
7.10
4,797
4,762
8.40
8.33
48,692
7,793
1.8900
5.97
5.92
3,743
3,726
6.07
6.02
49,769
6,101
1.3275
6.47
6.40
4,131
4,124
6.55
6.48
48,035
6,924
0.4500
7.54
7.45
4,780
4,775
7.61
7.52
43,211
361
—
Total assets*
Long-term debt*
Cash dividends declared per common share
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
To ensure full understanding, you should read the selected financial data presented above in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated
financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.
31
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.”
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, 2015, we had total assets of $48.6 billion.
Executive Overview
We reported earnings of $4.2 billion in 2015 and generated $5.7 billion in cash from operating activities. Phillips 66
Partners LP issued $1.1 billion of debt and $384 million of its common units to the public. We used available cash
primarily to fund capital expenditures and investments of $5.8 billion, pay dividends of $1.2 billion, repurchase $1.5
billion of our common stock, and repay $800 million of senior notes that came due in 2015. We ended 2015 with $3.1
billion of cash and cash equivalents and approximately $4.9 billion of total capacity under our available liquidity
facilities.
Our financial performance in 2015 demonstrated the benefit of a diversified portfolio of businesses in a low commodity
price environment. We continue to focus on the following strategic priorities:
• Operating Excellence. Our commitment to operating excellence guides everything we do. 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 2015, our worldwide refining crude oil capacity utilization rate was 91 percent.
• Growth. We have budgeted $3.9 billion in capital expenditures and investments in 2016, including $0.3 billion
for Phillips 66 Partners. Including our share of expected capital spending by joint ventures DCP Midstream,
LLC (DCP Midstream), Chevron Phillips Chemical Company LLC (CPChem) and WRB Refining LP (WRB),
our total 2016 capital program is expected to be $5.3 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
32
reinvestment of its earnings to build additional manufacturing capacity benefiting from cost-advantaged 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. Phillips 66 Partners provides a cost-efficient vehicle to fund Midstream
growth.
• Returns. We plan to improve refining returns by increasing throughput of advantaged feedstocks, disciplined
capital allocation and portfolio optimization. A disciplined capital allocation process ensures that we focus
investments in projects that generate competitive returns throughout the business cycle. During 2015, 93 percent
of the company's U.S. crude slate was advantaged.
• 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 quarterly dividend rate by 12
percent during 2015, and have increased it 180 percent since our separation from ConocoPhillips in 2012 (the
Separation). Regular dividends demonstrate the confidence our management has in our capital structure and
operation’s capability to generate free cash flow throughout the business cycle. Through December 31, 2015, we
have cumulatively repurchased $6.4 billion, or approximately 92.5 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. In October 2015, our Board of Directors
increased our current share repurchase authorization by $2 billion resulting in a total authorization of $4 billion.
Since July 2012, our Board of Directors has authorized repurchases of our outstanding common stock totaling up
to $9 billion.
• 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 culture. 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 enhancing functional and technical skills where employees are engaged in our business and
committed to their own, as well as the company’s, success.
33
Business Environment
The dramatic fall in commodity prices, which started during the second half of 2014, continued throughout 2015. The
U.S. oil rig count declined over 60 percent and crude oil production declined well below its peak which was set during
the second quarter of 2015. Additionally, the discount for U.S. benchmark West Texas Intermediate (WTI) vs. the
international benchmark Brent narrowed over the course of 2015 as logistical constraints between oil producing areas and
major refining centers were incrementally removed during the year. Falling commodity prices have had a variety of
impacts, both favorable and unfavorable, on our downstream businesses that vary by segment.
Earnings in the Midstream segment, which includes our 50 percent equity investment in DCP Midstream, are closely
linked to NGL prices, natural gas prices and crude oil prices. NGL prices weakened throughout 2015 as NGL production
growth from liquids-rich shale plays outpaced domestic demand growth from the petrochemical industry while export
capacity remained constrained—driving prices lower and pushing inventories higher. Natural gas prices weakened
throughout 2015 as well, as natural gas production growth continued and unseasonably warm weather limited demand.
During 2015, our Chemicals segment, which consists of our 50 percent equity investment in CPChem, continued to
benefit from feedstock cost advantages associated with manufacturing ethylene in regions of the world with significant
NGL production. The chemicals and plastics industry is mainly a commodity-based industry where the margins for key
products are based on supply and demand, as well as cost factors. The petrochemicals industry continues to experience
lower ethylene cash costs in regions of the world where ethylene manufacturing is based upon NGL rather than crude oil-
derived feedstocks. In particular, companies with North American light NGL-based crackers have benefited from lower-
priced feedstocks; however, the ethylene-to-polyethylene chain margins were compressed in 2015 because of the
significant decline in crude oil prices that began in 2014.
Our Refining segment is driven by several factors including refining margins, cost control, refinery throughput and
product yields. Refinery margins, often referred to as crack spreads, are measured as the difference between market
prices for refined petroleum products and crude oil. During 2015, the U.S. 3:2:1 crack spread (three barrels of crude oil
producing two barrels of gasoline and one barrel of diesel) improved over 2014 across all quarters, largely attributable to
strong gasoline crack spreads which were driven by robust demand growth both in the U.S. and globally. The diesel
crack spread weakened throughout 2015, driven by growing product inventories as a result of high refinery utilization to
capture robust gasoline cracks and an unseasonably warm fourth quarter. The U.S. West Coast crack spread increased
year over year as a result of significant refinery planned/unplanned maintenance in the region.
European refineries benefited during 2015 as domestic and export gasoline demand expanded considerably. Northwest
European crack spreads on average increased in the first three quarters of the year and declined in the fourth quarter
resulting in an average increase in 2015 compared to 2014. Strong margins were driven by the strength in gasoline
margins which offset subdued diesel cracks during much of the year as large volumes of imported diesel from the United
States, India, Asia Pacific and Russia kept diesel margins under pressure throughout the second half of the year.
Results for our Marketing and Specialties (M&S) segment depend largely on marketing fuel margins, lubricant margins
and other specialty product margins. While M&S margins are primarily based on market factors, largely determined by
the relationship between supply and demand, marketing fuel margins, in particular, are primarily determined by the trend
of spot prices for refined products. Generally speaking, 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.
34
RESULTS OF OPERATIONS
Consolidated Results
A summary of the company’s earnings follows:
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Income from continuing operations attributable to Phillips 66
Discontinued Operations
Net income attributable to Phillips 66
$
$
2015 vs. 2014
Millions of Dollars
Year Ended December 31
2015
13
962
2,555
1,187
(490)
4,227
—
4,227
2014
507
1,137
1,771
1,034
(393)
4,056
706
4,762
2013
469
986
1,747
894
(431)
3,665
61
3,726
Our earnings from continuing operations increased $171 million, or 4 percent, in 2015, primarily resulting from:
•
Improved realized refining margins as a result of increased gasoline crack spreads and improved secondary
product margins.
• Recognition of $242 million after-tax in 2015, compared with $126 million after-tax in 2014, of the deferred
gain related to the sale in 2013 of the Immingham Combined Heat and Power Plant (ICHP).
These increases were partially offset by:
• Lower equity earnings from DCP Midstream, primarily as a result of goodwill and other asset impairments and
lower commodity prices.
• Lower ethylene margins in our Chemicals segment.
2014 vs. 2013
Our earnings from continuing operations increased $391 million, or 11 percent, in 2014, primarily resulting from:
• A gain on disposition and related deferred tax adjustment associated with the sale of Malaysian Refining
Company Sdn. Bdh. (MRC), together totaling $369 million after-tax.
Improved ethylene and polyethylene margins in our Chemicals segment.
Improved worldwide marketing margins.
•
•
• Recognition in 2014 of $126 million, after-tax, of the previously deferred gain related to the sale in 2013 of the
ICHP.
•
Improved secondary products margins in our Refining segment.
35
These increases were partially offset by:
• A $131 million after-tax impairment related to the Whitegate Refinery in Cork, Ireland.
• Lower realized 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.
Discontinued operations in 2014 included the recognition of a noncash $696 million after-tax gain related to the Phillips
Specialty Products Inc. (PSPI) share exchange.
See the “Segment Results” section for additional information on our segment results.
Income Statement Analysis
2015 vs. 2014
Sales and other operating revenues decreased 39 percent in 2015, while purchased crude oil and products decreased 46
percent. The decreases were primarily due to lower average prices for petroleum products, crude oil and NGL.
Equity in earnings of affiliates decreased 36 percent in 2015, primarily resulting from decreased earnings from DCP
Midstream, CPChem and WRB.
• Equity in earnings of DCP Midstream decreased $676 million in 2015. The decrease was primarily due to lower
NGL, crude oil and natural gas prices. In addition, DCP Midstream recorded goodwill and other asset
impairments in 2015 due to the significant downturn in commodity prices since mid-2014.
• Equity in earnings of CPChem decreased 19 percent, primarily due to lower ethylene margins and lower equity
earnings from CPChem’s equity affiliates, partially offset by lower utility costs.
• Equity in earnings of WRB decreased 13 percent, primarily driven by its lower realized refining margins,
resulting from lower feedstock advantage partially offset by higher secondary product margins.
Impairments in 2015 were $7 million, compared with $150 million in 2014. There were no significant impairments in
2015, compared with a $131 million impairment of the Whitegate Refinery recorded in 2014. For additional information,
see Note 10—Impairments, in the Notes to Consolidated Financial Statements.
Interest and debt expense increased 16 percent in 2015. The increase was mainly due to a higher average debt principal
balance in 2015, partially offset by increased capitalized interest.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision
for income taxes and effective tax rates.
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.
36
Equity in earnings of affiliates decreased 20 percent in 2014, primarily resulting from decreased earnings from WRB and
DCP Midstream, partially offset by increased equity earnings from CPChem.
• Equity in earnings of WRB 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
realized margins related to increased sales prices.
Net gain on dispositions in 2014 was $295 million, compared with $55 million in 2013, primarily resulting from net gains
associated with the sale of our interest in MRC in the amount of $145 million, as well as the partial recognition of the
previously deferred gain related to the sale of ICHP in the amount of $126 million. In 2013, net gain on dispositions primarily
resulted from a $48 million gain on the sale of our E-GasTM Technology business. For additional information, see Note 6
—Assets Held 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 10—Impairments, in the Notes to
Consolidated Financial Statements.
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 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial
Statements, for additional information on this transaction.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision
for income taxes and effective tax rates.
37
Segment Results
Midstream
Year Ended December 31
2015
2014
2013
Millions of Dollars
Net Income (Loss) Attributable to Phillips 66
Transportation
DCP Midstream
NGL
Total Midstream
$
$
288
(324)
49
13
233
135
139
507
Dollars Per Unit
Weighted Average NGL Price*
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.
0.45
$
0.89
Transportation Volumes
Pipelines*
Terminals
Operating Statistics
NGL extracted**
NGL fractionated***
Thousands of Barrels Daily
3,264
1,981
410
112
3,206
1,683
454
109
199
210
60
469
0.90
3,144
1,274
426
115
*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.
**Represents 100 percent of DCP Midstream’s volumes.
***Excludes DCP Midstream.
The Midstream segment 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 terminaling and storage services for crude oil
and petroleum products. The Midstream segment includes our master limited partnership, Phillips 66 Partners LP, as well
as our 50 percent equity investment in DCP Midstream.
2015 vs. 2014
Earnings from the Midstream segment decreased $494 million in 2015, compared with 2014. The decrease was primarily
due to lower earnings from DCP Midstream and our NGL business, partially offset by higher earnings from our
transportation business.
Transportation earnings increased $55 million in 2015, compared with 2014. This increase reflects the startup of our
Bayway and Ferndale crude oil rail unloading facilities in the second half of 2014, as well as a full year of operations
from the Beaumont Terminal acquired in 2014. Increased railcar fleet activities, higher terminal revenues, and improved
earnings from equity affiliates also benefited earnings in 2015. These benefits were partially offset by higher earnings
attributable to noncontrolling interests.
38
Earnings associated with our investment in DCP Midstream decreased $459 million in 2015, compared with 2014. The
decrease in 2015 mainly resulted from lower NGL, crude oil, and natural gas prices, partially offset by increased volumes
due to asset growth, and lower operating costs as a result of cost saving initiatives. In addition, goodwill and other asset
impairments recorded by DCP Midstream in 2015 contributed to the loss recognized from our investment in DCP
Midstream. DCP Midstream performed a goodwill impairment assessment and other asset impairment assessments based
on internal discounted cash flow models taking into account various observable and non-observable factors, such as
prices, volumes, expenses and discount rates. The impairment tests resulted in DCP Midstream’s recognition of a $460
million goodwill impairment and $342 million in other asset impairments, net of tax impacts. Together, these
impairments reduced our equity earnings from DCP Midstream by $232 million after-tax.
DCP Midstream Partners, LP (DCP Partners), a master limited partnership formed by DCP Midstream, periodically issues
limited partner units to the public. These issuances benefited our equity in earnings from DCP Midstream, on an after-tax
basis, by approximately $1 million in 2015, compared with approximately $45 million in 2014.
The earnings from our NGL business decreased $90 million in 2015, compared with 2014. The decrease was primarily
driven by lower realized margins and higher earnings attributable to noncontrolling interests. We also incurred higher tax
expense in 2015, driven by a lower manufacturing deduction resulting from bonus depreciation associated with the start-
up of Sweeny Fractionator One. These decreases were partially offset by higher earnings from equity affiliates.
See the “Business Environment and Executive Overview” section for information on market factors impacting this year’s
results.
As previously disclosed, in early 2015 we and our co-venturer in DCP Midstream agreed to forgo cash distributions from
DCP Midstream due to the significant decrease in commodity prices since mid-2014. The sustained weak commodity
price environment during 2015 caused DCP Midstream to impair its goodwill in 2015 by $460 million, and impair certain
assets and in-process capital projects in the fourth quarter of 2015 by an additional $342 million. To strengthen its
balance sheet, during the fourth quarter of 2015 we contributed $1.5 billion of cash to DCP Midstream, while our co-
venturer contributed its interests in certain operating assets held as equity investments. At December 31, 2015, the
carrying value of our investment in DCP Midstream was approximately $2.3 billion. We will continue to monitor DCP
Midstream’s operations and the continued weak commodity price environment for any further impacts on DCP
Midstream or the carrying value of our investment.
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 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 unit 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.
39
Earnings from the NGL business increased $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 DCP
Sand Hills, LLC (Sand Hills) and DCP Southern Hills, LLC (Southern Hills). These increases were partially offset by an
increase in costs associated with growth projects.
Chemicals
Year Ended December 31
2015
2014
2013
Millions of Dollars
Net Income Attributable to Phillips 66
$
962
1,137
986
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins
Specialties, Aromatics and Styrenics
Millions of Pounds
16,916
5,301
22,217
16,815
6,294
23,109
16,071
6,230
22,301
*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)
91%
88
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. We structure our reporting of CPChem’s operations around two
primary business segments: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P
business 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 business
segment manufactures and markets aromatics and styrenics 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.
2015 vs. 2014
Earnings from the Chemicals segment decreased $175 million, or 15 percent, in 2015, compared with 2014. The
decrease in earnings was primarily due to lower margins resulting from lower sales prices, lower earnings from
CPChem’s O&P equity affiliates, and higher turnaround and maintenance activities.
These decreases were partially offset by higher ethylene and polyethylene sales volumes, as well as lower repair costs
due to the impact on 2014 costs of the fire at CPChem’s Port Arthur, Texas facility. Lower feedstock costs, lower utility
costs due to falling natural gas prices, and lower impairment charges also benefited the 2015 operating 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 2014. 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 in 2014. CPChem recorded earnings, on a 100 percent basis, of $88 million and $120
million for business interruption and property damage insurance proceeds in 2015 and 2014, respectively.
40
See the “Business Environment and Executive Overview” section for information on market factors impacting CPChem’s
results.
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.
41
Refining
Net Income Attributable to Phillips 66
Atlantic Basin/Europe
Gulf Coast
Central Corridor
Western/Pacific
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
2015
2014
2013
Millions of Dollars
$
$
$
569
551
857
578
2,555
9.39
9.29
14.88
16.86
11.84
198
252
967
354
1,771
Dollars Per Barrel
8.94
7.64
15.63
8.89
9.93
Thousands of Barrels Daily
588
539
92%
587
738
654
89%
733
492
465
95%
486
360
330
92%
359
588
554
94
605
733
676
92
771
485
475
98
494
440
403
92
435
9
113
1,540
85
1,747
7.09
6.49
19.30
8.83
9.90
588
546
93
578
733
651
89
736
477
472
99
489
440
410
93
445
2,178
1,988
91%
2,165
2,246
2,108
94
2,305
2,238
2,079
93
2,248
42
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.
2015 vs. 2014
Earnings for the Refining segment increased $784 million, or 44 percent, compared with 2014. The increase in earnings
in 2015 primarily resulted from higher realized refining margins due to higher gasoline crack spreads and improved
secondary product margins, as well as lower utility costs. These increases were partially offset by lower feedstock
advantage, lower distillate crack spreads, lower clean product differentials, and lower refining volumes as a result of
higher unplanned downtime and turnaround activities.
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 91 percent in 2015, compared to 94 percent in 2014. The
decrease reflects higher unplanned downtime and turnaround activities.
Effective January 1, 2015, we aligned the results of the activities previously included in “Other Refining” into the
Atlantic Basin/Europe, Gulf Coast, Central Corridor, and Western/Pacific refining regions. There were no changes to the
consolidated Refining operating segment as a result of this alignment. The new alignment is presented for the year ended
December 31, 2015, with the prior periods retrospectively adjusted for comparability.
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 $131 million after-tax.
• Lower interest income received from equity affiliates.
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 occurred in the Gulf Coast region in 2013.
43
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
2015
2014
2013
Millions of Dollars
1,004
183
1,187
1.65
4.40
1.92
1.77
836
198
1,034
Dollars Per Barrel
1.51
5.22
Dollars Per Gallon
2.72
2.95
Thousands of Barrels Daily
1,205
953
16
2,174
1,195
979
17
2,191
688
206
894
1.21
4.36
2.88
3.10
1,174
967
17
2,158
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.
2015 vs. 2014
Earnings from the M&S segment increased $153 million, or 15 percent, in 2015, compared with 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. We
recognized $242 million after-tax and $126 million after-tax of the deferred gain in 2015 and 2014, respectively.
Earnings from the M&S segment also benefited from higher domestic marketing activities, higher domestic marketing
and lubricants volumes, and increased tax credits from biodiesel blending activities. These benefits were partially offset
by lower international marketing margins and lubricants margins.
See the “Business Environment and Executive Overview” section for information on marketing fuel margins and other
market factors impacting 2015 results.
44
2014 vs. 2013
Earnings from the M&S segment increased $140 million, or 16 percent, in 2014, compared with 2013. 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 2014, we recognized $126 million after-tax of the deferred gain related to the sale in 2013 of the ICHP, increasing
earnings. These increases were partially offset by the lack of ICHP earnings in 2014, compared with earnings of $53
million in 2013.
Corporate and Other
Net Loss Attributable to Phillips 66
Net interest expense
Corporate general and administrative expenses
Technology
Other
Total Corporate and Other
2015 vs. 2014
Millions of Dollars
Year Ended December 31
2015
(186)
(157)
(60)
(87)
(490)
$
$
2014
(160)
(156)
(58)
(19)
(393)
2013
(166)
(145)
(50)
(70)
(431)
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net
interest expense increased $26 million in 2015, compared with 2014, primarily due to a higher average debt principal
balance as a result of the issuance of debt in the fourth quarter of 2014 and Phillips 66 Partners’ debt issuance in the first
quarter of 2015. The increase was partially offset by higher capitalized interest. For additional information, see Note 13
—Debt, in the Notes to Consolidated Financial Statements.
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 increase in costs in 2015 was primarily due to foreign tax credit carryforwards that were utilized in 2014
and other tax adjustments made in 2015.
2014 vs. 2013
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 13—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 decrease in other costs was primarily due to increased utilization of foreign tax credit carryforwards. In addition,
higher environmental costs negatively affected our 2013 results.
45
Discontinued Operations
Net Income Attributable to Phillips 66
Discontinued operations
Millions of Dollars
Year Ended December 31
2015
—
$
2014
706
2013
61
In December 2013, we entered into an agreement to exchange the stock of PSPI, a flow improver business that was
included in our M&S segment, for shares of Phillips 66 common stock owned by the other party to the transaction. In
February 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 6—Assets Held
for Sale or Sold, in the Notes to Consolidated Financial Statements, for additional information on this transaction.
46
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Cash and cash equivalents
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
2015
2014
2013
$
3,074
5,713
44
8,887
23,938
27%
1%
5,207
3,529
842
8,635
22,037
28
1
5,400
6,027
24
6,125
22,392
21
1
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources, including cash
generated from operating activities and Phillips 66 Partners’ debt and equity financings. During 2015, we generated $5.7
billion in cash from operations and received $1.1 billion from Phillips 66 Partners’ issuance of senior notes and $0.4
billion from the issuance of Phillips 66 Partners’ common units to the public. We used available cash primarily for
capital expenditures and investments ($5.8 billion), including a contribution to DCP Midstream ($1.5 billion); debt
repayments ($0.9 billion); repurchases of our common stock ($1.5 billion); and dividend payments on our common stock
($1.2 billion). During 2015, cash and cash equivalents decreased by $2.1 billion, to $3.1 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
During 2015, cash of $5,713 million was provided by operating activities, a 62 percent increase over 2014. Net income
in 2015 was lower than 2014; however, in both years large noncash items affected earnings, including the gain on the
PSPI exchange in 2014, recognition in 2015 and 2014 of a deferred gain from a 2013 asset disposition, and goodwill and
other asset impairments by DCP Midstream in 2015. Excluding these items, underlying earnings in 2015 were slightly
improved compared with 2014, primarily reflecting increased refining margins and increased domestic marketing
volumes, partially offset by lower midstream prices. Negative working capital impacted operating cash flow by $221
million and $1,020 million in 2015 and 2014, respectively. The lower negative working capital impact in 2015 was
driven by decreased refining payables due to lower feedstock costs in 2015 as compared with 2014, partially offset by a
reduction in receivables due to reduced commodity prices. See the following paragraph for a discussion of 2014 working
capital effects.
During 2014, cash of $3,529 million was provided by operating activities, a 41 percent decrease from cash from
operations of $6,027 million in 2013. Although net income was higher in 2014 than in 2013, certain large noncash items
benefitted 2014 earnings, including the gain on the PSPI exchange, gains from asset dispositions and the deferred tax
effects of certain asset dispositions. Excluding 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
47
balance sheet than receivables. By comparison, accounts payable activity increased cash from operations by $360
million in 2013, reflecting both higher volumes and commodity prices, while lower refining margins, reflecting less
favorable market conditions and tightening of crude differentials, negatively impacted 2013 working capital. 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.
Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices,
and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions
over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would
expect a corresponding change in our operating cash flows.
The level and quality of output from our refineries also impacts our cash flows. Factors such as operating efficiency,
maintenance turnarounds, market conditions, feedstock availability and weather conditions can affect output. We
actively manage the operations of our refineries, and any variability in their operations typically has not been as
significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity utilization was
91 percent in 2015, compared with 94 percent in 2014. We expect 2016 utilization to be in the mid 90-percent range.
Equity Affiliates
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, 2015, we received distributions of $452
million from DCP Midstream, $2,879 million from CPChem and $2,938 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.
During the second quarter of 2015, CPChem made a special distribution to its owners, with our share totaling $696
million. CPChem funded the distribution by issuing $1.4 billion of senior notes with maturities ranging from three to
five years, with a combination of fixed and variable interest rates. This cash inflow from CPChem was included in
operating cash flows, as we had cumulative undistributed equity earnings attributable to CPChem in excess of the amount
distributed.
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
Net proceeds from asset sales in 2015 were $70 million, compared with $1,244 million in 2014 and $1,214 million in
2013. The 2015 net proceeds were attributed to the sale of the Bantry Bay terminal in Ireland and the sale of certain
retail sites in Kansas and Missouri, and were partially offset by a working capital true-up related to the 2014 sale of our
interest in MRC. 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.
Foreign Cash Holdings
At December 31, 2015, approximately 44 percent of our consolidated cash and cash equivalents balance was available to
fund domestic opportunities without incurring material additional U.S. income taxes in excess of the amounts already
accrued in the financial statements. We believe the remaining amount, primarily attributable to cash we hold in foreign
locations where we have asserted our intention to indefinitely reinvest earnings, does not materially affect our
consolidated liquidity due to the following factors:
48
• A substantial portion of our foreign cash supports the liquidity needs and regulatory requirements of our foreign
operations.
• We have the ability to fund a significant portion of our domestic capital requirements with cash provided by
domestic operating activities.
• We have access to U.S. capital markets through our $5 billion committed revolving credit facility, commercial
paper program, and shelf registration statement.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information on income
taxes associated with foreign earnings.
Income Taxes
As part of our normal tax administrative process, we made scheduled U.S. federal income tax payments in 2015 using the
Internal Revenue Service (IRS) safe harbor method for estimated 2015 taxable income. We determined that a portion of
those payments is refundable as an overpayment of estimated tax, primarily due to U.S. tax legislation enacted late in the
year, and we filed a refund claim with the IRS in the first quarter of 2016. We expect this refund to benefit cash from
operations in the first quarter of 2016 by approximately $590 million.
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. 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.
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 of 2014, for consideration in the aggregate of approximately $55 million.
Effective March 2, 2015, we contributed to Phillips 66 Partners our one-third equity interests in Sand Hills and Southern
Hills, as well as our 19.5 percent equity interest in Explorer Pipeline Company (Explorer), for total consideration of
$1,010 million. Each of these investments is accounted for under the equity method of accounting. Phillips 66 Partners
financed the acquisition with $880 million in cash, partially funded by a public offering of common units representing
limited partner interests and debt financing, and the issuance to us of 1,587,376 and 139,538 additional common units
and general partner units, respectively, with an aggregate fair value of $130 million.
Effective December 1, 2015, we contributed to Phillips 66 Partners our 40 percent equity interest in Bayou Bridge
Pipeline, LLC (Bayou Bridge) for total consideration of $70 million. This investment is accounted for under the equity
method of accounting. Phillips 66 Partners financed one-half of the acquisition with a $35 million note payable to us and
one-half with the issuance to us of 606,056 and 12,369 additional common units and general partner units, respectively,
49
having an aggregate fair value of $35 million. Phillips 66 Partners immediately repaid the note payable. See Note 13—
Debt and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional
information.
Ownership
At December 31, 2015, we owned a 69 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while its public unitholders owned a 29 percent limited partner interest. We consolidate Phillips 66 Partners
as a variable interest entity for financial reporting purposes. See Note 3—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 an $809 million
noncontrolling interest in our financial statements at December 31, 2015. Generally, contributions of assets by us to
Phillips 66 Partners will eliminate in consolidation, except for third-party debt or equity offerings made by Phillips 66
Partners to finance such transactions. For the first contribution in 2015 together with the public offerings of common
units and senior notes discussed below, our consolidated cash increased by $1.5 billion, consolidated debt increased by
$1.1 billion and consolidated equity increased by $384 million as a result of the transactions. The Bayou Bridge
contribution in 2015 discussed above did not impact our consolidated financial statements. 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.
Debt and Equity Financings
In February 2015, Phillips 66 Partners closed on a public offering of $1.1 billion aggregate principal amount of
unsecured senior notes, consisting of:
•
•
•
$300 million of 2.646% Senior Notes due 2020.
$500 million of 3.605% Senior Notes due 2025.
$300 million of 4.680% Senior Notes due 2045.
Interest on each series of the senior notes is payable semi-annually in arrears.
In February 2015, Phillips 66 Partners completed a public offering of 5,250,000 common units representing limited
partner interests. The net proceeds received at closing were $384 million.
Phillips 66 Partners used a portion of the net proceeds of both the debt and equity offerings to fund its March 2015
acquisition transaction described above. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial
Statements, for additional information on this acquisition.
Credit Facilities and Commercial Paper
Phillips 66 has a $5 billion revolving credit facility that extends until December 2019. The 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, 2015, no amount had been directly drawn under our $5 billion credit facility;
however, $51 million in letters of credit had been issued that were supported by this facility. As a result, we ended 2015
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, 2015, we had no borrowings under our commercial paper program.
50
Phillips 66 Partners has a $500 million revolving credit facility that extends until November 2019. The Phillips 66
Partners facility is with a broad syndicate of financial institutions. As of December 31, 2015, no amounts were
outstanding under the facility.
Debt Financing
Our $7.5 billion of outstanding Senior Notes were issued by Phillips 66 and are guaranteed by Phillips 66 Company, a
100-percent-owned subsidiary. 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
We have capital lease obligations related to equipment and transportation assets, and the use of an oil terminal in the
United Kingdom. These leases mature within the next eighteen years. The present value of our minimum capital lease
payments for these obligations as of December 31, 2015, was $208 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, 2015, the aggregate principal amount of MSLP debt
guaranteed by us was $157 million.
For additional information about guarantees, see Note 14—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, 2015, was $8.9 billion and our debt-to-capital ratio was 27 percent. Excluding Phillips
66 Partners’ debt of $1.1 billion and its noncontrolling interest of $809 million, our adjusted debt-to-capital ratio at
December 31, 2015, was 25 percent. Our target adjusted debt-to-capital ratio, excluding the impact of Phillips 66
Partners, is between 20 and 30 percent.
On February 3, 2016, our Board of Directors declared a quarterly cash dividend of $0.56 per common share, payable
March 1, 2016, to holders of record at the close of business on February 16, 2016. We are forecasting a double-digit
percentage increase in our quarterly dividend rate in 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 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, 2015, approximately $486 million had been drawn to fund construction costs, of which
approximately $440 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. We expect the lease to commence in the first half of
2016.
On October 9, 2015, our Board of Directors increased our current share repurchase authorization by $2 billion resulting
in a total authorization of $4 billion. Since July 2012, our Board of Directors has authorized repurchases of our
51
outstanding common stock totaling up to $9 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 our 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. Since the inception of our share repurchases in 2012 through December 31, 2015, we have
repurchased a total of 92,503,292 shares at a cost of $6.4 billion. Shares of stock repurchased are held as treasury shares.
On May 1, 2015, the U.S. Department of Transportation issued a final rule focused on the safe transportation of
flammable liquids by rail. The final rule, which is being challenged, subjects new and existing railcars transporting crude
oil in high volumes to heightened design standards, including thicker tank walls and heat shields, improved pressure
relief valves and enhanced braking systems. We are currently evaluating the impact of the new regulations on our crude
oil railcar fleet, which is mostly held under operating leases. The regulations become effective subsequent to the
expiration dates of our leases. Although we have no direct contractual obligation to retrofit these leased railcars, certain
leases are subject to residual value guarantees. Under the lease terms, we have the option either to purchase the railcars
or to return them to the lessors. If railcars are returned to the lessors, we may be required to make the lessors whole
under the residual value guarantees, which are subject to a cap. The current market demand for crude oil railcars is low,
which has resulted in a significant decline in crude oil railcar prices. Due to current market uncertainties, it is not
currently possible to reasonably estimate the future market value for railcars at the end of their lease terms.
52
Contractual Obligations
The following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2015:
Millions of Dollars
Payments Due by Period
Up to
1 Year
28
16
44
394
510
23,502
7
64
13
24,534
Years
2-3
1,565
31
1,596
714
726
8,497
16
104
(d)
11,653
Years
4-5
352
22
374
678
405
5,530
10
70
(d)
7,067
After
5 Years
6,734
139
6,873
4,949
368
25,162
218
247
(d)
37,817
Total
8,679
208
8,887
6,735
2,009
62,691
251
485
13
81,071
$
$
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 13—Debt, in the Notes to Consolidated Financial Statements.
(b) Represents any agreement to purchase goods or services that is enforceable, legally binding and 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 $32,326 million. In addition, $16,807 million are
product purchases from CPChem, mostly for natural gas and NGL over the remaining contractual term of
84 years, and $4,409 million from Excel Paralubes, for base oil over the remaining contractual term of 9 years.
Purchase obligations of $5,600 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.
(c) Excludes pensions. For the 2016 through 2020 time period, we expect to contribute an average of $170 million
per year to our qualified and nonqualified pension and other postretirement benefit plans in the United States and
an average of $50 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 $50 million for 2016 and then approximately
$200 million per year for the remaining four years. Our minimum funding in 2016 is expected to be $50 million
in the United States and $50 million outside the United States.
(d) Excludes unrecognized tax benefits of $69 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 $19 million. Although unrecognized tax benefits are not a contractual
obligation, they are presented in this table because they represent potential demands on our liquidity.
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Capital Spending
Capital Expenditures and Investments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Total consolidated from continuing operations
Discontinued operations
Selected Equity Affiliates*
DCP Midstream
CPChem**
WRB
*Our share of capital spending.
**2014 amount restated.
2016
Budget
2,346
—
1,217
137
180
3,880
—
223
1,016
184
1,423
$
$
$
$
$
Millions of Dollars
2015
4,457
—
1,069
122
116
5,764
—
438
1,319
175
1,932
2014
2,173
—
1,038
439
123
3,773
—
776
886
140
1,802
2013
597
—
820
226
136
1,779
27
971
613
109
1,693
Midstream
During the three-year period ended December 31, 2015, DCP Midstream’s capital expenditures and investments were
$4.4 billion on a 100 percent basis. In 2013 and 2014, we made additional investments of $0.3 billion in both Sand Hills
and Southern Hills, increasing our total direct investment to $0.8 billion. In October 2015, we contributed $1.5 billion of
cash to DCP Midstream and our co-venturer contributed its interests in certain operating assets of equal value, that are
held as equity investments. Upon completion of this transaction, our interest in DCP Midstream remained at 50 percent.
Other capital spending in our Midstream segment during the three-year period ended December 31, 2015, included:
• Construction activities related to our Sweeny Fractionator One and Freeport LPG Export Terminal projects.
• Acquisition of a 7.1 million-barrel-storage-capacity crude oil and petroleum products terminal located near
Beaumont, Texas.
• Construction of rail racks to accept advantaged crude deliveries at our Bayway and Ferndale refineries.
•
•
Purchase of an additional 5.7 percent interest in the refined products Explorer pipeline.
Pipeline projects being developed by two of our joint ventures, Dakota Access LLC (DAPL) and Energy
Transfer Crude Oil Company, LLC (ETCOP). We own a 25 percent interest in each of these joint ventures.
•
Spending associated with return, reliability and maintenance projects in our Transportation and NGL businesses.
In April 2015, Rockies Express Pipeline LLC (REX) repaid $450 million of its debt, reducing its long-term debt to
approximately $2.6 billion. REX funded the repayment through member cash contributions. Our 25 percent share was
approximately $112 million, which we contributed to REX in April 2015.
54
Chemicals
During the three-year period ended December 31, 2015, CPChem had a self-funded capital program, and thus required no
new capital infusions from us or our co-venturer. During this period, on a 100 percent basis, CPChem’s capital
expenditures and investments were $5.6 billion. In addition, CPChem’s advances to equity affiliates, primarily used for
project construction and start-up activities, were $0.3 billion and its repayments received from equity affiliates were $0.1
billion.
Refining
Capital spending for the Refining segment during the three-year period ended December 31, 2015, was $2.9 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 new coke drums at the Ponca City refinery.
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 Humber Refinery to reduce emissions from the sulfur recovery units.
Installation of facilities to improve clean product yields at Sweeny and Lake Charles refineries.
Installation of facilities to improve processing of advantaged crudes at Alliance and Ponca City refineries.
Major construction activities in progress include:
•
•
•
•
Installation of a crude tank to increase accessibility of waterborne crude at the Los Angeles Refinery.
Installation of facilities to comply with U.S. Environmental Protection Agency (EPA) Tier 3 gasoline regulations
at the Sweeny, Alliance, Bayway and Lake Charles refineries.
Installation of facilities to improve processing of advantaged crudes at Billings refinery.
Installation of facilities to improve clean product yield at Bayway and Ponca City refineries.
Generally, our equity affiliates in the Refining segment are intended to have self-funding capital programs. During this
three-year period, on a 100 percent basis, WRB’s capital expenditures and investments were $0.9 billion. We expect
WRB’s 2016 capital program to be self-funding.
Marketing and Specialties
Capital spending for the M&S segment during the three-year period ended December 31, 2015, 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, which have subsequently been disposed of; the acquisition of Spectrum Corporation, a private label specialty
lubricants business headquartered in Memphis, Tennessee; the acquisition of 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, 2015, was primarily for
projects related to information technology and facilities.
2016 Budget
Our 2016 capital budget is $3.9 billion including Phillips 66 Partners’ capital budget of $0.3 billion. This excludes our
portion of planned capital spending by joint ventures DCP Midstream, CPChem and WRB totaling $1.4 billion, all of
which are expected to be self-funded.
55
The Midstream capital budget of $2.3 billion is focused on growth projects, such as continued construction of the
150,000 barrels-per-day Freeport LPG Export Terminal on the U.S. Gulf Coast, the new DAPL and ETCOP pipeline
projects, expansion of the Beaumont Terminal, and the Bayou Bridge pipeline project.
Refining’s capital budget of $1.2 billion is directed toward reliability, safety and environmental projects, including
compliance with the new Tier 3 gasoline specifications, as well as projects designed to improve product yields and lower
feedstock costs.
In Marketing and Specialties, we plan to invest approximately $0.1 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 that arose in the ordinary course of business have been filed against
us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the
environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at
various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these
contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability
when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and
no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do
not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for
probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative
probability-weighted loss accrual in cases where sustaining a tax position is 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 and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge,
experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ
a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the
early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that
have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation
management tools and available information about current developments in all our cases, our legal organization regularly
assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new
accruals, is required. In the case of income-tax-related contingencies, we monitor tax legislation and court decisions, the
status of tax audits and the statute of limitations within which a taxing authority can assert a liability. See Note 21—
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.
56
• European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (REACH),
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-to-Know 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 Oil Pollution Act of 1990 (OPA90), under which owners and operators of onshore facilities and
pipelines as well as owners and operators of vessels are liable for removal costs and damages that result from a
discharge of oil into navigable waters of the United States.
• European Union Trading Directive resulting in the European Union Emissions Trading Scheme (EU ETS), which
uses a market-based mechanism to incentivize the reduction of greenhouse gas 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’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. However, environmental laws and regulations, including those that may arise to address concerns
about global climate change, are expected to continue to have an increasing impact on our operations in the United States
and in other countries in which we operate. Notable areas of potential impacts include air emission compliance and
remediation obligations in the United States.
An example of this 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. For the 2016 compliance year, the U.S.
Environmental Protection Agency (EPA) will require greater volumes of advanced and total renewable fuel than
mandated in previous years; it is uncertain if these increased obligations will be achievable by fuel producers and
shippers without drawing on the Renewable Identification Number (RIN) bank. For compliance years after 2016, we do
not know whether the EPA will utilize its authority to reduce statutory volumes. Additionally, we may experience a
decrease in demand for refined petroleum products due to the regulatory program as currently promulgated. This
program continues to be the subject of possible Congressional review and re-promulgation in revised form, and the EPA’s
recently enacted regulations pertaining to the 2014, 2015, and 2016 compliance years are subject to legal challenge,
further creating uncertainty regarding renewable fuel volume requirements and obligations.
The EPA’s Renewable Fuel Standard (RFS) program was also 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 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
57
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. Costs to replace fraudulently marketed RINs that have been
determined to be invalid have not been material through December 31, 2015; however, 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.
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/or operated petroleum-marketing outlets throughout the United States.
Federal and state laws require contamination caused by such underground storage tank releases be assessed and
remediated to meet applicable standards. In addition to other cleanup standards, many states have adopted cleanup
criteria for methyl tertiary-butyl ether (MTBE) for both soil and groundwater.
At RCRA-permitted facilities, we are required to assess environmental conditions. If conditions warrant, we may be
required to remediate contamination caused by prior operations. In contrast to CERCLA, which is often referred to as
“Superfund,” the cost of corrective action activities under RCRA corrective action programs 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-term expenditures are subject to considerable uncertainty and may fluctuate significantly.
We occasionally receive requests for information or notices of potential liability from the EPA and state environmental
agencies alleging that we are a potentially responsible party under CERCLA or an equivalent state statute. On occasion,
we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests,
notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but
allegedly contain wastes attributable to our past operations. As of December 31, 2014, we reported that we had been
notified of potential liability under CERCLA and comparable state laws at 34 sites within the United States. During
2015, we were notified of four new sites, settled and closed one site, and resolved one site, leaving 36 unresolved sites
with potential liability at December 31, 2015.
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 $581 million in 2015 and are expected to be approximately $655 million in each of
the years 2016 and 2017. Capitalized environmental costs were $330 million in 2015 and are expected to be
approximately $235 million in each of the years 2016 and 2017. 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).
58
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, 2015, our balance sheet included total accrued environmental costs of $485 million, compared with
$496 million at December 31, 2014, and $492 million at December 31, 2013. 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 on our results of
operations or financial position as a result of compliance with current environmental laws and regulations.
Climate Change
There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse
gas (GHG) emissions reduction, including various regulations proposed or issued by the EPA. These proposed or
promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the
future. We consider and take into account future GHG emissions in designing and developing major facilities and
projects, and implement energy efficiency initiatives to reduce such emissions. Laws regulating GHG emissions
continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future
compliance costs relating to implementation, such laws, if enacted, potentially could have a material impact on our
results of operations and financial condition as a result of increasing costs of compliance, lengthening project
implementation and agency review items, or reducing demand for certain hydrocarbon products. Examples of legislation
or precursors for possible regulation that do or could affect our operations include:
• EU ETS, which is part of the European Union’s policy to combat climate change and is a key tool for reducing
industrial greenhouse gas emissions. EU ETS impacts factories, power stations and other installations across all
EU member states.
• California’s Global Warming Solutions Act, which requires the California Air Resources Board to develop
regulations and market mechanisms that will target reduction of California’s GHG emissions by 25 percent by
2020. Other GHG emissions programs in the western U.S. states have been enacted or are in the process of
development, including amendments to California's Low Carbon Fuel Standard, Oregon's Low Carbon Fuel
Standard, and Washington's cap and trade program.
• The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007), confirming that
the EPA has the authority to regulate carbon dioxide as an “air pollutant” under the Federal Clean Air Act.
• The EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine
Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s
and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers
regulation of GHGs under the Clean Air Act. These collectively may lead to more climate-based claims for
damages, and may result in longer agency review time for development projects to determine the extent of
potential climate change.
• EPA's 2015 Final Rule regulating GHG emissions from existing fossil fuel-fired electrical generating units under
the Federal Clean Air Act, commonly referred to as the Clean Power Plan.
• Carbon taxes in certain jurisdictions.
• GHG emission cap and trade programs in certain jurisdictions.
In the EU, the first phase of the EU ETS completed at the end of 2007 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
59
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 minimizing any financial impact from the EU ETS.
From November 30 to December 12, 2015, more than 190 countries, including the United States, participated in the
United Nations Climate Change Conference in Paris, France. The conference culminated in what is known as the “Paris
Agreement,” which is currently open for agreement by countries until April 22, 2016. The Paris Agreement establishes a
commitment by signatory parties to pursue domestic GHG emission reductions.
In the United States, some additional form of regulation is likely to 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 GHG emission trading program or GHG 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’s cap and trade program, which
was promulgated pursuant to the State’s Global Warming Solutions Act. The program had been limited to certain
stationary sources, which include our refineries in California, but beginning in January 2015 expanded to include
emissions from transportation fuels distributed in California. Inclusion of transportation fuels in California’s cap and
trade program as currently promulgated has increased our cap and trade program compliance costs. The ultimate impact
on our financial performance, either positive or negative, from this and similar programs, will depend on a number of
factors, including, but not limited to:
• Whether and to what extent legislation or regulation is enacted.
• The nature of the legislation or regulation (such as a cap and trade system or a tax on emissions).
• The GHG reductions required.
• The price and availability of offsets.
• The 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 1—Summary of Significant 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-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-tax cash flows is less than the carrying value of the asset group, including applicable
60
liabilities, the carrying value of the long-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). 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. 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
are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the
investment’s carrying amount. When it is determined that an indicated impairment is other than temporary, a charge is
recognized for the difference between the investment’s carrying value and its estimated fair value.
When determining whether a decline in value is other than temporary, management considers factors such as the length
of time and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention
to retain our investment for a period that allows for recovery. When quoted market prices are not available, the fair value
is usually based on the present value of expected future cash flows using discount rates and other assumptions believed to
be consistent with those used by principal market participants and 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, 2015, we had $770 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, 2015, 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.
61
Because quoted market prices for our reporting units are not available, management applies judgment in determining the
estimated fair values of the reporting units for purposes of performing the goodwill impairment test. Management uses
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 associated with the assets. 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 impacts the amount of gain or loss on the sale or disposition.
We completed our annual impairment test, as of October 1, 2015, and concluded that the fair value of our reporting units
exceeded their recorded net book values (including goodwill). The fair values of each of our Refining, Transportation
and M&S reporting units exceeded their respective 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. After we’ve completed our annual test, we continue to monitor for impairment indicators, which can
lead to further goodwill impairment testing.
Tax Assets and Liabilities
Our operations are subject to various taxes, including federal, state and foreign income taxes, property taxes, and
transactional taxes such as excise, sales/use 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 impacts the
obligations on the balance sheet and 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 percentage-point decrease in the discount rate assumption would increase annual benefit
expense by an estimated $60 million, while a 1 percentage-point 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.
62
In 2015 and 2014, the company used an expected long-term rate of return of 7 percent for the U.S. pension plan assets,
which account for 73 percent of the company’s pension plan assets. The actual asset returns were a loss of less than 1
percent in 2015 and a gain of 9 percent in 2014. For the past ten years, actual returns averaged 7 percent for the U.S.
pension plan assets.
NEW ACCOUNTING STANDARDS
In January 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-01, “Financial Instruments-Overall
(Subtopic 825-10),” to meet its objective of providing more decision-useful information about financial instruments. The
majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one
provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value
method of accounting, in accordance with current generally accepted accounting principles, will have to be carried at fair
value upon adoption of ASU 2016-01, with changes in fair value recorded in net income. For equity investments that do
not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any,
adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed.
Public business entities should apply the guidance in ASU 2016-01 for annual periods beginning after December 15,
2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the
provisions of ASU 2016-01 and assessing the impact, if any, it may have on our financial position and results of
operations.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes - Balance Sheet Classification of Deferred
Taxes.” The new update will simplify the presentation of deferred income taxes and will require deferred tax liabilities
and assets be classified as noncurrent in a classified statement of financial position. The classification shall be made at
the tax-paying component level of an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and
any related valuation allowances. Public business entities should apply the guidance in ASU 2015-17 for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early application for public entities
is permitted. The amendments can be applied either prospectively to all deferred tax liabilities and assets or
retrospectively to all periods presented. We are currently evaluating the provisions of ASU 2015-17.
In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915).” The new standard removes the
definition of a development stage entity from the Master Glossary of Accounting Standard Codification and the related
financial reporting requirements specific to development stage entities. This ASU is intended to reduce cost and
complexity of financial reporting for entities that have not commenced planned principal operations. For financial
reporting requirements other than the VIE guidance in ASC Topic 810, “Consolidation,” ASU 2014-10 was effective for
annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting
requirements related to VIEs in ASC Topic 810, “Consolidation,” ASU 2014-10 is effective for annual and quarterly
reporting periods of public entities beginning after December 15, 2015. Early application for public entities is permitted.
We are currently evaluating the provisions of ASU 2014-10. Our preliminary assessment indicates that additional
disclosures related to VIEs may be required for our joint ventures if the planned principal operations have not
commenced.
In May 2014, the FASB issued 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. In August
2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date.” The amendment in this ASU defers the effective date of ASU 2014-09 for all entities for one year. Public
business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period.
Retrospective or modified retrospective application of the accounting standard is required. 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. As part of our assessment work to-date, we have formed an implementation work team, completed training of
the new ASU’s revenue recognition model and begun contract review and documentation.
63
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, exposing our revenues, purchases, cost of operating activities, and cash flows to fluctuations in the prices for
these commodities. Generally, our policy is to remain exposed to the market prices of commodities. Consistent with this
policy, our Commercial organization uses derivative contracts to effectively convert our exposure from fixed-price sales
contracts, often requested by refined product customers, back to fluctuating market prices. Conversely, our Commercial
organization also uses futures, forwards, swaps and options in various markets to accomplish the following objectives to
optimize the value of our supply chain, and this may reduce our exposure to fluctuations in market prices:
•
In addition to cash settlement prior to contract expiration, exchange-traded futures contracts may be settled by
physical delivery of the commodity. This provides another source of supply to balance physical systems or to meet
our refinery requirements and marketing demand.
• Manage the risk to our cash flows from price exposures on specific crude oil, refined product, natural gas, NGL,
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, 2015, as
derivative instruments. Using Monte Carlo simulation, a 95 percent confidence level and a one-day holding period, the
VaR for those instruments issued or held for trading purposes at December 31, 2015 and 2014, was immaterial to our
cash flows and net income.
The VaR for instruments held for purposes other than trading at December 31, 2015 and 2014, was also immaterial to our
cash flows and net income.
64
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 2015
2016
2017
2018
2019
2020
Remaining years
Total
Fair value
Expected Maturity Date
Year-End 2014
2015
2016
2017
2018
2019
Remaining years
Total
Fair value
Millions of Dollars Except as Indicated
Fixed Rate
Maturity
Average
Interest
Rate
Floating Rate
Maturity
Average
Interest
Rate
27
1,529
26
24
319
6,800
8,725
8,434
7.24% $
3.03
7.18
7.12
2.90
4.79
$
$
—%
—
0.01
—
0.01
0.01
—
—
12
—
12
26
50
50
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
$
$
$
$
$
$
For additional information about our use of derivative instruments, see Note 16—Derivatives and Financial Instruments,
in the Notes to Consolidated Financial Statements.
65
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, petroleum products and natural gas prices and refining, marketing and
petrochemical 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’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: 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, aviation fuel and
home heating oil.
Governmental policies relating to exports of crude oil and natural gas.
Overcapacity 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.
66
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS 66
INDEX TO FINANCIAL STATEMENTS
Report of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Phillips 66:
Consolidated Statement of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Balance Sheet at December 31, 2015 and 2014
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Consolidated Statement of Changes in Equity for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Supplementary Information
Selected Quarterly Financial Data (Unaudited)
Page
68
69
71
72
73
74
75
77
132
67
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 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,
2015. 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). Based on this assessment, management
concluded the company’s internal control over financial reporting was effective as of December 31, 2015.
Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of
December 31, 2015, and their report is included herein.
/s/ Greg C. Garland
/s/ Kevin J. Mitchell
Greg C. Garland
Chairman and
Chief Executive Officer
February 19, 2016
Kevin J. Mitchell
Executive Vice President, Finance and
Chief Financial Officer
68
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2015, 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, 2015, 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 19, 2016 expressed an unqualified opinion thereon.
Houston, Texas
February 19, 2016
/s/ Ernst & Young LLP
69
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Phillips 66
We have audited Phillips 66’s internal control over financial reporting as of December 31, 2015, 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, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the 2015 consolidated financial statements of Phillips 66 and our report dated February 19, 2016 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
February 19, 2016
70
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.
$
$
$
$
$
$
$
$
$
$
71
Millions of Dollars
2015
2014
2013
$
98,975
1,573
283
118
100,949
73,399
4,294
1,670
1,078
7
14,077
21
310
49
94,905
6,044
1,764
4,280
—
4,280
53
4,227
4,227
—
4,227
7.78
—
7.78
7.73
—
7.73
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
2.1800
1.8900
1.3275
542,355
546,977
13,780
—
565,902
571,504
14,698
5
612,918
618,989
13,866
34
Consolidated Statement of Comprehensive Income
Phillips 66
Millions of Dollars
Years Ended December 31
Net Income
Other comprehensive income (loss)
Defined benefit plans
Actuarial gain/loss:
2015
$
4,280
Actuarial gain (loss) arising during the period
Amortization to net income of net actuarial loss and
settlements
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.
(138)
174
11
(13)
34
(163)
7
(156)
—
—
—
(122)
4,158
53
4,105
2014
4,797
(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
72
Consolidated Balance Sheet
At December 31
Assets
Cash and cash equivalents
Accounts and notes receivable (net of allowances of $55 million in 2015
and $71 million in 2014)
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 (2015—639,336,287 shares; 2014—637,031,760 shares)
Par value
Capital in excess of par
Treasury stock (at cost: 2015—109,925,907 shares; 2014—90,649,984 shares)
Retained earnings
Accumulated other comprehensive loss
Total Stockholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
See Notes to Consolidated Financial Statements.
73
Phillips 66
Millions of Dollars
2015
2014
$
3,074
4,411
762
3,477
532
12,256
12,143
19,721
3,275
906
279
48,580
5,155
500
44
878
576
378
7,531
8,843
665
6,041
1,285
277
24,642
6
19,145
(7,746)
12,348
(653)
23,100
838
23,938
48,580
$
$
$
5,207
6,306
949
3,397
833
16,692
10,189
17,346
3,274
900
291
48,692
7,488
576
842
878
462
848
11,094
7,793
683
5,491
1,305
289
26,655
6
19,040
(6,234)
9,309
(531)
21,590
447
22,037
48,692
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
2015
$
4,280
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
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 used in continuing financing activities
Net cash used in discontinued operations
Net Cash 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
* Includes return of investments in equity affiliates and working capital true-ups on dispositions.
See Notes to Consolidated Financial Statements.
74
1,078
7
21
529
185
(283)
—
117
2,129
(144)
324
(2,300)
(230)
5,713
—
5,713
(5,764)
70
(50)
50
(44)
(5,738)
—
(5,738)
1,169
(926)
(19)
(1,512)
—
(1,172)
(46)
384
5
(2,117)
—
(2,117)
9
(2,133)
5,207
3,074
2014
4,797
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)
22
1,926
3,474
5,400
Consolidated Statement of Changes in Equity
Phillips 66
Millions of Dollars
Attributable to Phillips 66
Common Stock
Treasury
Stock
Retained
Earnings
Accum. Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
(314)
—
351
—
—
—
—
—
37
—
(568)
—
—
—
—
—
(531)
—
(122)
—
—
—
—
—
(653)
31
17
—
—
—
—
404
(10)
442
35
—
—
—
—
—
(30)
447
53
—
—
—
—
384
(46)
838
Total
20,806
3,743
351
(807)
(2,246)
154
404
(13)
22,392
4,797
(568)
(1,062)
(2,282)
(1,350)
140
(30)
22,037
4,280
(122)
(1,172)
(1,512)
89
384
(46)
23,938
Par Value
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
Net income
Other comprehensive loss
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, 2015
$
$
6
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
6
Capital
in Excess
of Par
18,726
—
—
(356)
—
—
—
—
— (2,246)
—
164
2,713
3,726
—
(807)
—
(10)
—
—
—
(3)
18,887
—
—
—
(2,602)
—
—
—
5,622
4,762
—
—
— (2,282)
— (1,350)
—
— (1,062)
—
—
(13)
153
—
19,040
—
—
—
(6,234)
—
—
—
9,309
4,227
—
—
— (1,512)
—
105
— (1,172)
—
(16)
—
—
—
—
19,145
—
(7,746)
—
12,348
75
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
Repurchase of common stock
Shares issued—share-based compensation
December 31, 2015
See Notes to Consolidated Financial Statements.
Shares in Thousands
Common Stock Issued
631,150
—
3,136
634,286
—
—
2,746
637,032
—
2,304
639,336
Treasury Stock
7,604
36,502
—
44,106
29,121
17,423
—
90,650
19,276
—
109,926
76
Notes to Consolidated Financial Statements
Phillips 66
Note 1—Summary of Significant 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.
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 or nonrecurring costs or research and development costs. Materials and
supplies inventories are valued using the weighted-average-cost method.
77
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 asset.
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, the 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 represents the excess of the purchase price over the estimated fair value of the net assets
acquired in a business combination. It is not amortized but is tested annually for impairment and when events or
changes in circumstance indicate that the fair value of a reporting unit with goodwill has been reduced below
carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting
units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit.
If the fair value of the reporting unit is less than the book value, including goodwill, the implied fair value of
goodwill is calculated. The excess, if any, of the book value over the implied fair value of the goodwill is
charged to net income. 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
78
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—The 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 PP&E.
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—The 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
79
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 not to 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—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. 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 2—Changes in Accounting Principles
Effective December 1, 2015, we early adopted the Financial Accounting Standards Board (FASB) Accounting Standards
Update (ASU) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt
Issuance Costs” and ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit Arrangements.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. ASU 2015-15 states that the SEC staff would not object to an entity deferring and presenting debt issuance
costs as an asset and subsequently amortizing these costs when they relate to a line-of-credit arrangement. Upon
adoption, we reclassified $54 million and $49 million as a reduction of debt on our 2015 and 2014 consolidated balance
sheets, respectively.
Note 3—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 27—Phillips 66 Partners LP, for additional information.
We hold variable interests in VIEs that have not been consolidated because we are not considered the primary
beneficiary. Information on our significant non-consolidated 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 7—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.
80
(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 and in September 2015, the petition was denied. In January 2016, PDVSA filed an
appeal with the appellate court seeking to reverse this ruling. Until all legal challenges are 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 our separation from ConocoPhillips in 2012 (the Separation), we provided a 100 percent debt guarantee
to the lender of MSLP’s 8.85% senior notes (MSLP Senior Notes). 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 being vacated, because under the partnership
agreement, the co-venturers jointly direct the activities of MSLP that most significantly impact economic performance.
At December 31, 2015, our maximum exposure to loss was the outstanding principal balance of the MSLP Senior Notes
of $157 million and our investment in MSLP of $158 million.
We have a 50 percent ownership interest with a 50 percent governance interest in Excel Paralubes (Excel). In securing
lender consents in connection with the Separation, ConocoPhillips provided a 50 percent debt guarantee to the lender of
Excel’s 7.43% senior secured bonds (Excel Senior Bonds). We provided a full indemnity to ConocoPhillips for this debt
guarantee. Our co-venturer did not participate in the debt guarantee. In November 2015, Excel repaid this debt and our
guarantee was relieved. Also, liquidity support up to $60 million is provided jointly by us and our co-venturer
independently of equity ownership. In our assessment, Excel is a VIE as this liquidity support 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, 2015, our maximum exposure to loss was half of the $60 million
liquidity support, or $30 million, and our investment in Excel of $148 million.
Note 4—Inventories
Inventories at December 31 consisted of the following:
Crude oil and petroleum products
Materials and supplies
Millions of Dollars
2015
3,214
263
3,477
$
$
2014
3,141
256
3,397
Inventories valued on the LIFO basis totaled $3,085 million and $3,004 million at December 31, 2015 and 2014,
respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately
$1,300 million and $3,000 million at December 31, 2015 and 2014, respectively.
During each of the three years ended December 31, 2015, certain reductions in inventory caused liquidations of LIFO
inventory values. These liquidations decreased net income by approximately $37 million and $8 million in 2015 and
2014, respectively, and increased net income by approximately $109 million in 2013.
81
Note 5—Business Combinations
We completed the following acquisitions in 2014:
•
•
•
In August 2014, we acquired a 7.1 million-barrel-storage-capacity crude oil and petroleum products terminal
located near Beaumont, 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-return businesses in our
M&S segment.
In March 2014, we acquired our co-venturer’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 supplying utilities and other services to one of our refineries.
We funded each of these acquisitions with cash on hand. Total cash consideration paid in 2014 was $741 million, net of
cash acquired. Cash consideration paid for acquisitions is included in the “Capital expenditures and investments” line of
our consolidated statement of cash flows. In the aggregate, as of December 31, 2014, we provisionally recorded $471
million of PP&E, $232 million of goodwill, $196 million of intangible assets, $70 million of net working capital and
$109 million of long-term liabilities. Our acquisition accounting for these transactions is final and there were no material
adjustments to the provisional amounts recorded in the twelve-month period ended December 31, 2015.
Note 6—Assets Held for Sale or Sold
In December 2014, we completed the sale of our ownership interests in the Malaysia Refining Company Sdn. Bdh.
(MRC), which was included in our Refining segment. At the time of the disposition, the total carrying value of our
investment in MRC was $334 million, including $76 million of allocated goodwill and currency translation adjustments.
A before-tax gain of $145 million was recognized from this disposition.
In July 2014, we entered into an agreement to sell the Bantry Bay terminal in Ireland, which was included in our Refining
segment. Accordingly, the net assets of the terminal were classified as held for sale, which resulted in a before-tax
impairment of $12 million from the reduction of the carrying value of the long-lived assets to estimated fair value less
costs to sell. As of December 31, 2014, long-lived assets of $77 million were recorded in the “Prepaid expenses and
other current assets” line of our consolidated balance sheet. In addition, an immaterial amount of long-term liabilities
was recorded in the “Other accruals” line of our consolidated balance sheet. In February 2015, we completed the sale of
the terminal. At the time of the disposition, the terminal had a net carrying value of $68 million, which primarily related
to net PP&E. An immaterial gain was recognized on this disposition.
In February 2014, we exchanged 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 another party. The PSPI share
exchange resulted 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-tax gain of $696 million. At the time of the disposition, PSPI had a net
carrying value of $685 million, which primarily included $481 million of cash and cash equivalents, $60 million of net
PP&E and $117 million of allocated goodwill. Cash and cash equivalents of $450 million included in PSPI’s net carrying
value is reflected as a financing cash outflow in the “Share exchange—PSPI transaction” line of our consolidated
statement of cash flows. Revenues, income before tax and net income from discontinued operations, excluding the
recognized before-tax gain of $696 million at closing, were not material for the years ended December 31, 2014 and
2013.
In July 2013, we completed the sale of the Immingham Combined Heat and Power Plant (ICHP), which was included in
our M&S segment. A gain on this disposal was deferred at the time of the sale due to an indemnity provided to the buyer.
We recognized the deferred gain into earnings as our exposure under the indemnity declined, beginning in the third
quarter of 2014 and ending in the second quarter of 2015 when the indemnity expired. We recognized $242 million and
$126 million of the deferred gain during the years ended December 31, 2015 and 2014, respectively.
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In May 2013, we sold our E-Gas™ Technology business which was included in our M&S segment. A $48 million
before-tax gain was recognized during 2013 from this disposition.
Note 7—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
2015
11,977
84
82
12,143
$
$
2014
10,035
76
78
10,189
Equity Investments
Affiliated companies in which we had a significant equity investment at December 31, 2015, included:
• WRB Refining LP—50 percent owned business venture with Cenovus Energy Inc. (Cenovus)—owns the Wood
River and Borger refineries.
• DCP Midstream, LLC (DCP Midstream)—50 percent owned joint venture with Spectra Energy Corp—owns and
operates gas plants, gathering systems, storage facilities and fractionation plants.
• Chevron Phillips Chemical Company LLC (CPChem)—50 percent owned joint venture with Chevron U.S.A. Inc.,
an indirect wholly-owned subsidiary of Chevron Corporation—manufactures and markets petrochemicals and
plastics.
• Rockies Express Pipeline LLC (REX)—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 Hills Pipeline, LLC (Sand Hills)—33 percent owned joint venture with DCP Midstream—owns and
operates NGL pipeline systems from the Permian and Eagle Ford basins to Mont Belvieu, Texas.
• DCP Southern Hills Pipeline, LLC (Southern Hills)—33 percent owned joint venture with DCP Midstream—
owns and operates NGL pipeline systems from the Midcontinent region to Mont Belvieu, Texas.
• Dakota Access LLC (DAPL)/Energy Transfer Crude Oil Company, LLC (ETCOP)—two 25 percent owned joint
ventures with Energy Transfer Equity L.P. and Energy Transfer Partners L.P. (collectively “Energy Transfer”).
DAPL is constructing a crude oil pipeline system from the Bakken/Three Forks production area in North Dakota
to Patoka, Illinois, and ETCOP is constructing a crude oil pipeline system from Patoka to Nederland, Texas.
83
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
2015
2014
2013
$
33,126
3,180
3,158
6,024
46,047
4,130
11,493
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
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, 2015, retained earnings included $1,444 million related to the undistributed earnings of affiliated
companies. Dividends received from affiliates were $1,769 million, $3,305 million, and $2,752 million in 2015, 2014
and 2013, respectively.
WRB
WRB’s operating assets consist of the Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas,
respectively, for which 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. At December 31, 2015, the
book value of our investment in WRB was $1,967 million, and the basis difference was $3,155 million. Equity earnings
in 2015, 2014 and 2013 were increased by $218 million, $184 million, and $185 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 supply agreements, the primary production
commitment of which began a ratable wind-down period in December 2014 and expires in January 2019. 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.
The deferred gain of $156 million related to the sale of our interest in the Seaway Products Pipeline Company, now
Southern Hills, to DCP Midstream began amortizing in 2013.
In 2015, we contributed $1,500 million in cash to DCP Midstream as a capital contribution. Our co-venturer contributed
its interests in Sand Hills and Southern Hills as a capital contribution. Our ownership percentage in DCP Midstream
remained unchanged.
At December 31, 2015, the book value of our investment in DCP Midstream was $2,293 million, and the basis difference
was $56 million.
84
CPChem
CPChem manufactures and markets petrochemicals and plastics. At December 31, 2015, the book value of our equity
method investment in CPChem was $5,177 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. In April 2015, REX repaid $450 million of its debt, reducing its long-term debt to approximately $2.6
billion. REX funded the repayment through member cash contributions. Our 25 percent share was approximately $112
million, which we contributed to REX in April 2015. At December 31, 2015, the book value of our equity method
investment in REX was $407 million.
Sand Hills
The Sand Hills pipeline is a fee-based pipeline that transports NGL from the Permian Basin and Eagle Ford Shale to
facilities along the Texas Gulf Coast and the Mont Belvieu market hub. This investment was contributed to Phillips 66
Partners LP in March 2015 as discussed further in Note 27—Phillips 66 Partners LP. At December 31, 2015, the book
value of our equity investment in Sand Hills was $431 million.
Southern Hills
The Southern Hills pipeline is a fee-based pipeline that transports NGL from the Midcontinent to facilities along the
Texas Gulf Coast and the Mont Belvieu market hub. This investment was contributed to Phillips 66 Partners LP in
March 2015 as discussed further in Note 27—Phillips 66 Partners LP. At December 31, 2015, the book value of our
investment in Southern Hills was $213 million, and the basis difference was $98 million.
DAPL/ETCOP
In 2014, we formed two joint ventures to develop the DAPL and ETCOP pipelines. The DAPL pipeline will connect the
Bakken/Three Forks production area in North Dakota to Patoka, Illinois, with the ETCOP pipeline. The ETCOP pipeline
will provide crude oil transportation service from Patoka to storage terminals located in Nederland, Texas. The DAPL
and ETCOP pipelines are expected to have capacities of 470,000 and 395,000 barrels per day, respectively, and will be
interstate Federal Energy Regulatory Commission regulated pipelines. At December 31, 2015, the book values of our
investments in DAPL and ETCOP were $317 million and $104 million, respectively.
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, and in September
2015, the petition was denied. In January 2016, PDVSA filed an appeal in the appellate court to vacate this 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 all legal challenges are
resolved, 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
85
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 8—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, pipeline assets over a 45-year life and terminal assets over a 33-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
6,978
—
20,850
1,422
1,060
30,310
$
$
2015
Accum.
D&A
1,293
—
8,046
746
504
10,589
Net
PP&E
5,685
—
12,804
676
556
19,721
Gross
PP&E
4,726
—
19,951
1,490
978
27,145
2014
Accum.
D&A
1,185
—
7,424
738
452
9,799
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Note 9—Goodwill and Intangibles
Goodwill
The carrying amount of goodwill was as follows:
Millions of Dollars
Midstream
Refining
Marketing and
Specialties
Balance at January 1, 2014
Tax and other adjustments
Goodwill assigned to asset acquisitions
Goodwill allocated to assets held-for-sale or sold
Balance at December 31, 2014
Goodwill assigned to asset acquisitions
Balance at December 31, 2015
$
$
518
—
105
—
623
—
623
1,919
(49)
—
(57)
1,813
—
1,813
659
52
127
—
838
1
839
Net
PP&E
3,541
—
12,527
752
526
17,346
Total
3,096
3
232
(57)
3,274
1
3,275
86
Intangible Assets
Information relating to the carrying value of intangible assets at December 31 follows:
Indefinite-Lived Intangible Assets
Trade names and trademarks
Refinery air and operating permits
Other
Millions of Dollars
Gross Carrying
Amount
2015
2014
$
$
503
266
1
770
503
239
14
756
At year-end 2015, the net book value of our amortized intangible assets was $136 million, which included accumulated
amortization of $135 million, compared with $144 million and $132 million, respectively, at year-end 2014. See Note 5
—Business Combinations for more information on intangible assets acquired in business acquisitions. Amortization
expense was not material for 2015 and 2014, and is not expected to be material in future years.
Note 10—Impairments
During 2015, 2014 and 2013, we recognized the following before-tax impairment charges:
Midstream
Refining
Marketing and Specialties
Corporate and Other
Millions of Dollars
2014
2015
$
$
1
3
3
—
7
—
147
3
—
150
2013
1
3
16
9
29
2015
During the year ended December 31, 2015, there were no significant impairments.
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 6—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.
87
Note 11—Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
Millions of Dollars
2015
2014
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 consolidated balance sheet, under the caption “Other accruals.”
$
$
251
485
736
(71)
665
279
496
775
(92)
683
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 2015 and 2014, 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
2015
2014
$
$
279
9
—
(7)
(20)
(2)
(8)
251
309
11
2
(16)
(17)
(1)
(9)
279
Accrued Environmental Costs
Total accrued environmental costs at December 31, 2015 and 2014, were $485 million and $496 million, respectively.
The 2015 decrease in total accrued environmental costs is due to payments and settlements exceeding new accruals,
accrual adjustments and accretion during the year.
We had accrued environmental costs at December 31, 2015 and 2014, of $270 million and $268 million, respectively,
primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $168 million
and $178 million, respectively, associated with nonoperator sites; and $47 million and $50 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 $246 million at December 31, 2015. The expected future undiscounted payments
related to the portion of the accrued environmental costs that have been discounted are: $25 million in 2016, $24 million
in 2017, $21 million in 2018, $20 million in 2019, $24 million in 2020, and $200 million for all future years after 2020.
88
Note 12—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.
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
2015
2014
2013
Basic Diluted
Basic Diluted
Basic Diluted
$ 4,227
(6)
4,221
—
$ 4,221
4,227
—
4,227
—
4,227
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
Weighted-average common shares outstanding
(thousands):
Effect of stock-based compensation
Weighted-average common shares outstanding—EPS
537,602 542,355
4,622
542,355 546,977
4,753
561,859 565,902
5,602
565,902 571,504
4,043
608,983 612,918
6,071
612,918 618,989
3,935
Earnings Per Share of Common Stock (dollars):
Income from continuing operations attributable to
Phillips 66
Discontinued operations
Earnings Per Share
$
$
7.78
—
7.78
7.73
—
7.73
7.15
1.25
8.40
7.10
1.23
8.33
5.97
0.10
6.07
5.92
0.10
6.02
89
Note 13—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
Phillips 66 Partners 2.646% Senior Notes due 2020
Phillips 66 Partners 3.605% Senior Notes due 2025
Phillips 66 Partners 4.680% Senior Notes due 2045
Industrial Development Bonds due 2018 through 2021 at 0.01% at year-end
2015 and 0.02%-0.05% at year-end 2014
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 discounts and debt issuance costs
Total debt
Short-term debt
Long-term debt
$
$
Millions of Dollars
2015
—
1,500
2,000
1,000
1,500
1,500
300
500
300
50
41
83
—
1
8,775
208
(96)
8,887
(44)
8,843
2014
800
1,500
2,000
1,000
1,500
1,500
—
—
—
50
53
97
18
1
8,519
210
(94)
8,635
(842)
7,793
Maturities of long-term borrowings, inclusive of net unamortized discounts and debt issuance costs, for each of the years
from 2016 through 2020 are $44 million, $1,545 million, $51 million, $37 million and $337 million, respectively.
Debt Issuance
In February 2015, Phillips 66 Partners closed on a public offering of $1.1 billion aggregate principal amount of unsecured
senior notes, consisting of:
•
•
•
$300 million of 2.646% Senior Notes due 2020.
$500 million of 3.605% Senior Notes due 2025.
$300 million of 4.680% Senior Notes due 2045.
Phillips 66 Partners utilized a portion of the net proceeds to fund part of the purchase price for its acquisition of our
equity interests in Sand Hills, Southern Hills and Explorer Pipeline Company (Explorer). The remaining proceeds were
used to repay existing borrowings from a subsidiary of Phillips 66, fund capital expenditures and for general partnership
purposes. See Note 27—Phillips 66 Partners LP, for additional information.
Credit Facilities and Commercial Paper
Phillips 66 has a $5 billion revolving credit facility that extends until December 2019. This 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-
90
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 and Moody’s Investors
Service. The facility also provides for customary fees, including administrative agent fees and commitment fees. As of
December 31, 2015, no amount had been directly drawn under this revolving credit agreement, while $51 million in
letters of credit had been issued that were supported by it. As a result, we ended 2015 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, 2015, we had no borrowings under our commercial paper program.
Phillips 66 Partners has a $500 million revolving credit facility that extends until November 2019. The Phillips 66
Partners facility is with a broad syndicate of financial institutions. As of December 31, 2015, no amounts were
outstanding under this facility.
Note 14—Guarantees
At December 31, 2015, 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 MSLP Senior Notes issued in
July 1999. At December 31, 2015, the maximum potential amount of future payments to third parties under the
guarantee was estimated to be $157 million, which could become payable if MSLP fails to meet its obligations under the
senior notes agreement. The MSLP Senior Notes mature in 2019.
Other Guarantees
We have residual value guarantees associated with leases with maximum future potential payments totaling $389 million.
We have other guarantees with maximum future potential payment amounts totaling $117 million, which consist
primarily of guarantees to fund the short-term cash liquidity deficits of certain joint ventures and guarantees of the lease
payment obligations of a joint venture. These guarantees generally extend up to 9 years or 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, 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 with generally indefinite terms, and the maximum amount of future payments is generally
unlimited. The carrying amount recorded for indemnifications at December 31, 2015, was $198 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 $98 million of environmental
accruals for known contamination that were primarily included in “Asset retirement obligations and accrued
environmental costs” at December 31, 2015. For additional information about environmental liabilities, see Note 15—
Contingencies and Commitments.
91
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 15—Contingencies and Commitments
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us
or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the
environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at
various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these
contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability
when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and
no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do
not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for
probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative
probability-weighted loss accrual in cases where sustaining a tax position is less than certain. See Note 21—Income
Taxes, for additional information about income-tax-related contingencies.
Based on currently available information, we believe it is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated
financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to
accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent
liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation
costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent
of such remedial actions that may be required, and the determination of our liability in proportion to that of other
potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events
evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare our
consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates,
using all information 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 alleged to have liability at a
particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at
which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup
costs with other financially sound companies. Many of the sites 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.
92
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable
state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an
undiscounted basis (except those pertaining to sites acquired in a 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 11—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 and enables the tracking of
those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using
these litigation management tools and available information about current developments in all our cases, our legal
organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or
establishment of new accruals, is required.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not
associated with financing arrangements. Under these agreements, we may be required to provide any such company with
additional funds through advances and penalties for fees related to throughput capacity not utilized.
At December 31, 2015, we had performance obligations secured by letters of credit and bank guarantees of $308
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 third-party 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 $312 million annually for each of the years
from 2016 through 2020 and $3,147 million in the aggregate for years 2021 and thereafter. Total payments under the
agreements were $328 million in 2015, $331 million in 2014 and $345 million in 2013.
Note 16—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. Because we have not used 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
93
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 17—Fair Value Measurements.
Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined products,
natural gas, NGL, and electric power markets, exposing our revenues, purchases, cost of operating activities, and cash
flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices
of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems,
meet customer needs, manage price exposures on specific transactions, and do a limited, immaterial amount of trading
not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We
also use the market knowledge gained from these activities to capture market opportunities such as moving physical
commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending
commodities to capture quality upgrades.
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 17—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
$
2015
—
2,607
5
2,425
5
2014
(1)
3,839
29
3,472
1
The gains (losses) incurred from commodity derivatives, 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
2015
2014
2013
$
162
—
58
121
658
66
20
136
17
(19)
3
95
94
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,
2015 and 2014.
Commodity
Crude oil, refined products and NGL (millions of barrels)
Open Position
Long / (Short)
2015
2014
(17)
(11)
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 to 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, 2015 or 2014.
95
Note 17—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: The carrying amount reported on the consolidated balance sheet approximates fair
value.
• Accounts and notes receivable: The carrying amount reported on the consolidated balance sheet approximates
fair value.
• Debt: The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate
debt is estimated based on quoted market prices.
• Commodity swaps: 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: Fair values are based on quoted market prices obtained from the New York Mercantile Exchange, the
Intercontinental Exchange, or other traded exchanges.
Forward-exchange contracts: 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:
• Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or
liabilities.
• Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or
liabilities; or (2) other valuation inputs that are directly or indirectly observable.
• Level 3: Fair value measured with unobservable inputs that are significant to the measurement.
We classify the fair value of an asset or liability based on the 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. For the year ended December 31, 2015, derivative assets with an aggregate value of
$502 million and derivative liabilities with an aggregate value of $512 million were transferred into Level 1, as measured
from the beginning of the reporting period. The measurements were reclassified within the fair value hierarchy due to the
availability of unadjusted quoted prices from an active market.
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
categorized as Level 1 in the fair value hierarchy. We value our exchange-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-cleared contracts lack sufficient liquidity or are valued using either adjusted exchange-
provided prices or non-exchange quotes, we classify those contracts as Level 2. OTC financial swaps and physical
commodity forward purchase and sales contracts are generally valued using quotes provided by brokers and price index
developers such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify
the resulting fair values as Level 2. In certain less liquid markets or for longer-term contracts, forward prices are not as
readily available. In these circumstances, OTC 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’s best estimate of fair value. We classify these contracts as Level 3. Financial OTC and physical
commodity options are valued using industry-standard models that consider various assumptions, including quoted
96
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-market pricing convention (the mid-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 agreements 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 value 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 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, 2015
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
$
1,851
OTC instruments
Physical forward contracts*
Rabbi trust assets
—
3
83
$
1,937
Commodity Derivative Liabilities
Exchange-cleared instruments
$
1,745
OTC instruments
Physical forward contracts*
Floating-rate debt
Fixed-rate debt, excluding capital
leases**
—
—
50
—
$
1,795
703
13
40
—
756
646
17
22
—
8,434
9,119
—
—
2
—
2
—
—
—
—
—
—
2,554
(2,389)
(100)
13
45
83
(12)
—
N/A
2,695
(2,401)
2,391
(2,389)
17
22
50
8,434
10,914
(12)
—
N/A
N/A
(2,401)
—
—
N/A
(100)
—
—
—
N/A
N/A
—
—
—
—
—
—
—
—
—
—
65
1
45
83
194
2
5
22
50
195
195
8,629
8,708
—
—
—
N/A
—
—
—
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.
97
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
—
—
76
24
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**
—
—
68
—
$
1,901
29
189
—
8,806
10,446
—
—
7
—
7
—
—
—
—
—
—
3,583
(3,255)
(225)
24
260
76
(14)
(38)
N/A
3,943
(3,307)
3,255
(3,255)
29
189
68
8,806
12,347
(14)
(38)
N/A
N/A
(3,307)
—
—
N/A
(225)
—
—
—
N/A
N/A
—
—
—
—
—
—
—
—
—
—
103
10
222
76
411
—
15
151
68
(400)
(400)
8,406
8,640
—
—
—
N/A
—
—
—
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 rabbi trust assets appear on our consolidated balance sheet in the “Investments and long-term receivables” line, while
the floating-rate and fixed-rate debt appear in the “Short-term debt” and “Long-term debt” lines. For information
regarding where our commodity derivative assets and liabilities appear on the balance sheet, see the first table in Note 16
—Derivatives and Financial Instruments.
Nonrecurring Fair Value Remeasurements
During the year ended December 31, 2015, there were no significant nonrecurring fair value remeasurements of assets
subsequent to their initial recognition.
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 year ended December 31, 2014:
Year Ended December 31, 2014
Net properties, plants and equipment (held for use)
Net properties, plants and equipment (held for sale)
*Represents the classification and fair value at the time of the impairment.
Millions of Dollars
Fair Value
Measurements Using
Fair Value*
$
20
72
Level 1
Inputs
Level 3
Inputs
Before-
Tax Loss
—
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,
98
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 6—Assets Held for Sale or Sold, for additional
information.
Note 18—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, 2015 or 2014.
Treasury Stock
On October 9, 2015, our Board of Directors increased our current share repurchase authorization by $2 billion resulting
in a total authorization of $4 billion. Since July 2012, our Board of Directors has authorized repurchases of our
outstanding common stock totaling up to $9 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. 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,
2015, we have repurchased a total of 92,503,292 shares at a cost of $6.4 billion. Shares of stock repurchased are held as
treasury shares.
Common Stock Dividends
On February 3, 2016, our Board of Directors declared a quarterly cash dividend of $0.56 per common share, payable
March 1, 2016, to holders of record at the close of business on February 16, 2016.
99
Note 19—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 $231 million and $203 million at December 31, 2015 and 2014, respectively.
Future minimum lease payments as of December 31, 2015, for operating and capital lease obligations were:
Millions of Dollars
Capital Lease
Obligations
Operating
Lease
Obligations
2016
2017
2018
2019
2020
Remaining years
Total
Less: income from subleases
Net minimum lease payments
Less: amount representing interest
Capital lease obligations
$
$
$
24
25
19
18
14
169
269
—
269
61
208
Operating lease rental expense for the years ended December 31 was:
Minimum rentals
Contingent rentals
Less: sublease rental income
Millions of Dollars
2015
641
6
136
511
$
$
2014
570
8
135
443
510
418
308
234
171
368
2,009
99
1,910
2013
572
7
133
446
100
Note 20—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
2015
2014
U.S.
Int’l.
U.S.
Int’l.
Other Benefits
2015
2014
2,895
124
109
—
(25)
(312)
—
2,791
2,485
2,124
(10)
221
—
(312)
—
2,023
941
38
28
3
(10)
(20)
(68)
912
712
724
18
63
3
(20)
(46)
742
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
203
7
7
1
13
(12)
—
219
—
—
11
1
(12)
—
—
189
7
8
1
4
(6)
—
203
—
—
5
1
(6)
—
—
(768)
(170)
(771)
(217)
(219)
(203)
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at
December 31, 2015 and 2014, include:
Millions of Dollars
Pension Benefits
2015
2014
Other Benefits
2015
2014
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
$
$
—
(10)
(758)
(768)
—
(8)
(763)
(771)
13
—
(230)
(217)
—
(10)
(209)
(219)
—
(6)
(197)
(203)
20
—
(190)
(170)
101
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
2015
2014
Other Benefits
2015
2014
U.S.
Int’l.
U.S.
Int’l.
Unrecognized net actuarial loss
(gain)
Unrecognized prior service cost
(credit)
$
710
6
143
(7)
741
9
165
(9)
2
(10)
(13)
(12)
Millions of Dollars
Pension Benefits
2015
2014
Other Benefits
2015
2014
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 and
settlements 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
$
$
$
$
(124)
155
31
—
3
3
7
15
22
—
(1)
(1)
(382)
(57)
40
(342)
—
3
3
12
(45)
—
(2)
(2)
(14)
(1)
(15)
—
(2)
(2)
(3)
(2)
(5)
—
(1)
(1)
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 $3,005 million, $2,676 million, and
$2,183 million, respectively, at December 31, 2015, and $3,189 million, $2,815 million, and $2,295 million, respectively,
at December 31, 2014. For our unfunded nonqualified key employee supplemental pension plans, the projected benefit
obligation and the accumulated benefit obligation were $137 million and $112 million, respectively, at December 31,
2015, and $107 million and $83 million, respectively, at December 31, 2014.
102
The allocated benefit cost from Shared Plans, as well as the components of net periodic benefit cost associated with plans
sponsored by us, for 2015, 2014 and 2013 is shown in the table below:
Millions of Dollars
2015
Pension Benefits
2014
2013
2015
2014
2013
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)
Settlements
Total net periodic
benefit cost
$
124
109
38
28
121
108
38
35
125
91
36
31
(138)
(37)
(142)
(37)
(120)
(29)
3
75
80
$
253
(1)
15
—
43
3
40
—
130
(2)
12
—
46
3
84
—
183
(1)
16
—
53
7
7
—
(2)
(1)
—
11
7
8
—
(1)
(2)
—
12
8
7
—
(2)
—
—
13
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, 2015, that are expected
to be amortized into net periodic benefit cost during 2016 are provided below:
Unrecognized net actuarial loss
Unrecognized prior service cost (credit)
Millions of Dollars
Pension Benefits
U.S.
Int’l.
Other
Benefits
$
72
3
14
(1)
—
(1)
103
The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs
for years ended December 31:
Pension Benefits
2015
2014
Other Benefits
2015
2014
U.S.
Int’l.
U.S.
Int’l.
Assumptions Used to
Determine Benefit
Obligations:
Discount rate
Rate of compensation increase
4.35%
4.00
3.35
3.65
Assumptions Used to
Determine Net Periodic
Benefit Cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
3.90%
7.00
4.00
3.10
5.15
3.20
3.90
4.00
4.55
7.00
4.00
3.10
3.20
4.30
5.50
3.90
4.00
—
3.70
—
—
3.70
—
4.40
—
—
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. Since January 1, 2013, eligible employees have been 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 6.75 percent in
2016 that declines to 5.00 percent by 2023. A 1 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 categorized in Level 1 are based on quoted
market prices.
Fair values of corporate debt securities categorized 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.
104
•
Fair values of mutual funds are valued based on quoted market prices, which represent the net asset value of
shares held.
• Cash and cash equivalents are valued at cost, which approximates fair value.
•
Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the
insurance company to the plans’ participants.
Fair values of real estate investments are valued using real estate valuation techniques and other methods that
include reference to third-party sources and sales comparables where available.
Fair values of investments in common/collective trusts are valued at net asset value (NAV) as determined by the
issuer of each fund. Certain investments that are measured at fair value using the NAV value per share (or its
equivalent) practical expedient have not been classified in the fair value hierarchy.
•
•
The fair values of our pension plan assets at December 31, by asset class, were as follows:
Millions of Dollars
U.S.
International
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
2015
Equity Securities
U.S.
International
Mutual funds
Debt Securities
Government
Corporate
Mutual funds
Cash and cash
equivalents
Insurance contracts
Real estate
Subtotal
Common/collective trusts
measured at NAV:
Equity securities
Debt securities
Other receivables
Total
$
322
125
—
—
—
41
22
—
—
510
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
510
—
—
322
125
—
—
—
41
22
—
—
510
855
658
—
2,023
136
99
—
144
—
—
3
—
—
382
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13
6
19
382
—
19
136
99
—
144
—
—
3
13
6
401
168
171
2
742
105
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
Mutual funds
Debt Securities
Government
Corporate
Mutual funds
Cash and cash
equivalents
Insurance contracts
Real estate
Subtotal
Common/collective trusts
measured at NAV:
Equity securities
Debt securities
Other receivables
Total
$
288
163
—
—
—
—
20
—
—
471
—
—
—
32
51
—
—
—
—
83
—
—
—
—
—
—
—
—
—
—
$
471
83
—
288
163
—
32
51
—
20
—
—
554
920
648
2
2,124
161
113
5
141
—
2
10
—
—
432
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14
7
21
432
—
21
161
113
5
141
—
2
10
14
7
453
110
161
—
724
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 2016, we expect to contribute
approximately $50 million to our U.S. pension plans and other postretirement benefit plans and $50 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:
2016
2017
2018
2019
2020
2021-2024
Millions of Dollars
Pension Benefits
U.S.
Int’l.
Other
Benefits
$
270
261
259
267
292
1,333
20
22
21
24
24
144
25
27
26
25
25
104
106
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. The total expense related to participants in the Savings Plan was $134 million, $112 million
and $111 million in 2015, 2014 and 2013, respectively.
Share-Based Compensation Plans
In accordance with the Employee Matters Agreement related to the Separation, compensation awards based on
ConocoPhillips stock and granted before April 30, 2012 (the Separation Date) were converted to compensation awards
based on both ConocoPhillips and Phillips 66 stock if, on the Separation Date, the awards were: (1) options outstanding
and exercisable; or (2) restricted stock or restricted stock units (RSUs) awarded for completed performance periods under
the ConocoPhillips Performance Share Program. Phillips 66 restricted stock, RSUs, and options issued in this conversion
became subject to the “Omnibus Stock and Performance Incentive Plan of Phillips 66” (the 2012 Plan) on the Separation
Date, whether held by grantees working for the company or grantees that remained employees of ConocoPhillips. Some
of these awards based on Phillips 66 stock and held by employees of ConocoPhillips are still outstanding and appear in
the activity tables for the Stock Option and the Performance Share Programs presented later in this footnote.
In May 2013, shareholders approved the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the P66
Omnibus Plan). Subsequent to this approval, all new share-based awards are granted under the P66 Omnibus Plan, which
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 that
may be issued under the P66 Omnibus Plan to settle share-based awards may not exceed 45 million.
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. We
recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of 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 as this is the minimum period of time required for an
award not to 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 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 benefits for the years ended
December 31 were as follows:
Share-based compensation expense
Tax benefit
Millions of Dollars
2015
2014
2013
$
144
(54)
134
(50)
132
(50)
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
107
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.
The following summarizes our stock option activity from January 1, 2015, to December 31, 2015:
Weighted-
Average
Exercise Price
Weighted-
Average
Grant-Date
Fair Value
Millions of Dollars
Aggregate
Intrinsic Value
Outstanding at January 1, 2015
Granted
Forfeited
Exercised
Expired or canceled
Outstanding at December 31, 2015
Options
5,843,555
675,300
(15,692)
(1,071,424)
—
5,431,739
Vested at December 31, 2015
5,137,728
$
18.84
$
$
$
35.26
74.14
73.96
28.73
—
41.27
39.47
Exercisable at December 31, 2015
All option awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.
4,222,873
32.53
$
$
$
$
60
218
208
The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2015, were
5.60 years and 4.96 years, respectively. During 2015, we received $31 million in cash and realized a tax benefit of $8
million from the exercise of options. At December 31, 2015, 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 21 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 2014, we granted options with a weighted-average grant-date fair value of $18.95 and employees exercised
options with an aggregate intrinsic value of $89 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)
2015
2014
2013
1.60%
3.00%
34.17%
6.66
1.96
3.00
34.97
6.23
1.18
2.50
35.47
6.23
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.
108
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 RSU activity from January 1, 2015, to December 31, 2015:
Outstanding at January 1, 2015
Granted
Forfeited
Issued
Outstanding at December 31, 2015
Not Vested at December 31, 2015
Stock Units
Weighted-Average
Grant-Date
Fair Value
Total Fair Value
Millions of Dollars
3,646,916
970,268
(80,729)
(1,401,840)
3,134,615
1,874,062
$
$
$
46.83
74.09
61.17
34.99
60.19
60.99
$
107
At December 31, 2015, the remaining unrecognized compensation cost from the unvested RSU awards held by
employees of Phillips 66 was $46 million, which will be recognized over a weighted-average period of 20 months, the
longest period being 35 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 2014, we granted RSUs with a weighted-average grant-date fair value of $73.28 and issued shares with an
aggregate fair value of $116 million to settle RSUs.
Performance Share Program
Under the P66 Omnibus Plan, we also annually grant to senior management restricted performance share units (PSUs)
that vest: (1) 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 (2) 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 (3) 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.
109
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, 2015, to December 31, 2015:
Outstanding at January 1, 2015
Granted
Forfeited
Issued
Outstanding at December 31, 2015
Millions of Dollars
Performance
Share Units
Weighted-Average
Grant-Date
Fair Value
Total Fair Value
3,171,860
838,710
—
(453,744)
3,556,826
$
$
43.96
74.14
—
51.48
50.11
$
37
51.80
Not Vested at December 31, 2015
All PSU awards presented in this table are for Phillips 66 stock only, including those awards held by ConocoPhillips employees.
602,428
$
At December 31, 2015, the remaining unrecognized compensation cost from unvested PSU awards held by employees of
Phillips 66 was $15 million, which will be recognized over a weighted-average period of 36 months, the longest period
being 11 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 2014, we granted PSUs with a weighted-average grant-date fair value of $72.26 and issued shares with an
aggregate fair value of $13 million to settle PSUs.
110
Note 21—Income Taxes
Income taxes charged to income were:
Income Taxes
Federal
Current
Deferred
Foreign
Current
Deferred
State and local
Current
Deferred
Millions of Dollars
2014
2015
$
$
1,128
444
(74)
42
227
(3)
1,764
1,661
(378)
22
80
274
(5)
1,654
2013
1,054
526
98
(48)
146
68
1,844
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
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
2015
4,361
2,292
236
176
24
7,089
751
215
175
227
1
1,369
160
1,209
5,880
$
$
2014
3,799
2,331
115
152
29
6,426
647
207
131
149
2
1,136
107
1,029
5,397
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 2015, valuation allowances increased by a total of $53 million. This increase was primarily related to
valuation allowances re-established for deferred tax assets that were reinstated in conjunction with German tax legislation
enacted in 2015. The German tax legislation reinstated net operating loss and interest deduction carryforwards
111
attributable to pre-Separation tax periods. The deferred tax asset associated with the interest deduction carryforward will
not, more likely than not, be realized. Based on our historical taxable income, expectations for the future, and available
tax-planning strategies, management expects the 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, 2015, we had undistributed earnings related to foreign subsidiaries and foreign corporate joint
ventures of approximately $2.8 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.
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
2014
2015
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
$
$
142
—
6
(17)
(49)
—
82
202
13
14
(68)
(19)
—
142
2013
158
30
25
(8)
(3)
—
202
Included in the balance of unrecognized tax benefits for 2015, 2014 and 2013 were $34 million, $98 million and $161
million, respectively, which, if recognized, would affect our effective tax rate. With respect to various unrecognized tax
benefits and the related accrued liability, approximately $20 million may be recognized or paid within the next twelve
months due to completion of audits.
At December 31, 2015, 2014 and 2013, accrued liabilities for interest and penalties totaled $19 million, $16 million and
$18 million, respectively, net of accrued income taxes. Interest and penalties increased earnings by $3 million in 2015,
had no impact on earnings during 2014 and decreased earnings by $3 million in 2013.
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.
112
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:
Millions of Dollars
2015
2014
2013
Percent of Pre-tax Income
2015
2014
2013
Income from continuing
operations before income taxes
United States
Foreign
Federal statutory income tax
Goodwill allocated to assets sold
Sale of foreign subsidiaries
Foreign rate differential
German tax legislation
Federal manufacturing deduction
State income tax, net of federal
benefit
Other
$
$
$
$
4,983
1,061
6,044
2,115
41
(125)
(239)
(103)
(77)
150
2
1,764
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
82.4%
17.6
100.0%
35.0%
0.7
(2.1)
(3.9)
(1.7)
(1.3)
2.5
29.2%
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
Included in the line item “Sale of foreign subsidiaries” is a $224 million tax benefit attributable to the realization of
excess tax basis during the fourth quarter of 2014 resulting from the sale of MRC and a $72 million benefit realized in
2015 attributable to the nontaxable gain from the sale of ICHP.
Income tax benefits of $34 million, $37 million and $34 million for the years 2015, 2014 and 2013, respectively, are
reflected in the “Capital in Excess of Par” column of the consolidated statement of equity.
113
Note 22—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)
December 31, 2012
Other comprehensive income (loss)
$
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
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)*
Amortization of defined benefit plan items**
Actuarial losses and settlements
Net current period other comprehensive income (loss)
December 31, 2015
$
(778)
312
—
62
374
(404)
(330)
38
(292)
(696)
(78)
112
34
(662)
466
(44)
21
—
(23)
443
(276)
—
(276)
167
(156)
—
(156)
11
*See Consolidated Statement of Changes in Equity.
**Included in the computation of net periodic benefit cost. See Note 20—Employee Benefit Plans, for additional information.
(2)
—
—
—
—
(2)
—
—
—
(2)
—
—
—
(2)
Note 23—Cash Flow Information
(314)
268
21
62
351
37
(606)
38
(568)
(531)
(234)
112
(122)
(653)
Noncash Investing and Financing Activities
Increase in net PP&E and debt related to capital lease obligation
Cash Payments
Interest
Income taxes
Millions of Dollars
2015
2014
2013
31
33
177
275
1,560
238
2,185
259
1,021
$
$
114
PSPI Noncash Stock Exchange
As discussed more fully in Note 6—Assets Held for Sale or Sold, in February 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.
Note 24—Other Financial Information
Interest and Debt Expense
Incurred
Debt
Other
Capitalized
Expensed
Other Income
Interest income
Other, net*
*Includes derivatives-related activities.
Research and Development Expenditures—expensed
Advertising Expenses
Foreign Currency Transaction (Gains) Losses—after-tax
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Millions of Dollars
2014
2015
$
$
$
$
$
$
$
$
389
27
416
(106)
310
27
91
118
65
73
—
—
34
4
—
38
265
22
287
(20)
267
21
99
120
62
70
—
—
6
8
—
14
2013
251
24
275
—
275
20
65
85
69
68
—
—
(41)
(5)
2
(44)
115
Note 25—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
2014
2015
$
2,452
8,142
129
6
6,514
15,647
133
7
2013
7,907
18,320
109
8
In December 2014, we completed the sale of our interest in MRC. Accordingly, sales of crude oil to MRC and purchases
of refined products from MRC are only included in the 2014 and 2013 periods in the table above.
(a) NGL and other petrochemical feedstocks, along with solvents, were sold to CPChem; and gas oil and hydrogen
feedstocks were sold to Excel. Certain feedstocks and intermediate products were sold to WRB. We also acted as
agent for WRB in supplying crude oil and other feedstocks for a fee. 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 crude oil and refined products from WRB. We also acted as agent for WRB in distributing asphalt and
solvents for a fee. We purchased natural gas and NGL from DCP Midstream and CPChem for use in our refinery
processes and other feedstocks from various affiliates. We paid NGL fractionation fees to CPChem. 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.
(c) We paid utility and processing fees to various affiliates.
(d) We incurred interest expense on a note payable to MSLP. See Note 7—Investments, Loans and Long-Term
Receivables and Note 13—Debt, for additional information on loans with affiliated companies.
116
Note 26—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 terminaling and storage
services for crude and petroleum products. The Midstream segment includes our master limited partnership,
Phillips 66 Partners LP, as well as our 50 percent equity investment in DCP Midstream.
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.
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 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.
117
Millions of Dollars
2014
2015
3,676
(1,034)
2,642
5
63,470
(40,317)
23,153
74,591
(1,446)
73,145
30
98,975
128
—
741
100
116
1,085
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
2013
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
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
$
$
$
$
118
Millions of Dollars
2014
2015
(268)
1,316
325
207
(7)
1,573
73
353
1,104
466
(232)
1,764
13
962
2,555
1,187
(490)
—
4,227
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
2013
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
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
$
$
$
$
$
$
119
2013
2,328
4,241
4,192
318
1
11,080
5,485
4,377
26,046
7,331
6,319
211
49,769
597
—
820
226
136
1,779
—
20
20
Investments In and Advances To Affiliates
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated investments in and advances to affiliates
Total Assets
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other*
Discontinued Operations**
Consolidated total assets
Millions of Dollars
2014
2015
$
$
$
$
4,198
5,177
2,262
342
1
11,980
11,043
5,237
21,993
5,631
4,676
—
48,580
2,461
5,183
2,103
290
1
10,038
7,295
5,209
22,808
7,051
6,329
—
48,692
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
**In December 2013, $117 million of goodwill was allocated to assets held for sale in association with the planned disposition of PSPI.
Capital Expenditures and Investments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated capital expenditures and investments
Interest Income and Expense
Interest income
Marketing and Specialties
Corporate and Other
Consolidated interest income
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
$
$
$
$
$
$
$
120
4,457
—
1,069
122
116
5,764
2
25
27
2,173
—
1,038
439
123
3,773
—
21
21
310
267
275
86,249
8,993
2,998
735
98,975
133,625
19,832
6,447
1,308
140,488
22,777
7,431
900
161,212
171,596
Geographic Information
Sales and Other Operating Revenues*
Long-Lived Assets**
2015
2014
2013
2015
2014
2013
Millions of Dollars
United States
United Kingdom
Germany
Other foreign countries
Worldwide consolidated
$
$
69,578
12,120
6,584
10,693
98,975
110,713
20,131
9,424
20,944
161,212
115,378
21,868
9,799
24,551
171,596
29,624
1,459
502
116
31,701
25,255
1,469
534
126
27,384
23,641
1,485
587
765
26,478
*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 27—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. 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.
Current Year Activities
In February 2015, Phillips 66 Partners completed a public offering of 5,250,000 common units representing limited
partner interests, at a public offering price of $75.50 per unit. The net proceeds received at closing were $384 million.
Additionally, Phillips 66 Partners closed a public offering of $1.1 billion aggregate principal amount of senior notes. For
additional information about the senior notes, see Note 13— Debt.
Effective March 2, 2015, we contributed our equity interests in Explorer (19.5 percent), Sand Hills (33.3 percent) and
Southern Hills (33.3 percent) to Phillips 66 Partners. Total consideration paid was $1,010 million, which Phillips 66
Partners financed with $880 million in cash, funded by a portion of their proceeds from the public offering of common
units and senior notes discussed above, and the issuance to us of 1,587,376 common units and 139,538 general partner
units.
Effective December 1, 2015, we contributed to Phillips 66 Partners our 40 percent interest in Bayou Bridge Pipeline,
LLC (Bayou Bridge), a joint venture in which Energy Transfer Partners L.P. and Sunoco Logistics Partners L.P. each hold
a 30 percent interest, with Sunoco Logistics serving as the operator. Phillips 66 Partners financed the acquisition with a
$35 million note payable to us that was immediately paid in full, and the issuance to us of 606,056 common units and
12,369 general partner units valued at $35 million, for an aggregate consideration of $70 million.
Ownership
At December 31, 2015, we owned a 69 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while the public owned a 29 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 equity investments of $945 million and net PP&E of $492 million at
December 31, 2015. See Note 3—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 of $809 million and $415 million in our financial statements as of December 31, 2015, and
2014, respectively. Generally, contributions of assets by us to Phillips 66 Partners will eliminate in consolidation, except
121
for third-party debt or equity offerings made by Phillips 66 Partners to finance such transactions. For the first
contribution in 2015 together with the public offerings of common units and senior notes discussed above, our
consolidated cash increased by $1.5 billion, consolidated debt increased by $1.1 billion and consolidated equity increased
by $384 million as a result of the transactions. The Bayou Bridge contribution in 2015 discussed above did not impact
our consolidated financial statements.
Recent Transactions
On February 17, 2016, we entered into a contribution agreement with Phillips 66 Partners under which Phillips 66
Partners will acquire a 25 percent interest in our wholly owned subsidiary, Phillips 66 Sweeny Frac LLC, which owns the
Sweeny Fractionator One, an NGL fractionator located within our Sweeny Refinery complex in Old Ocean, Texas, and
the Clemens Caverns, an NGL salt dome storage facility located near Brazoria, Texas. Total consideration for the
transaction is expected to be $236 million, which will consist of Phillips 66 Partners’ issuance of common and general
partner units to us, with an aggregate fair value of $24 million, and Phillips 66 Partners’ assumption of $212 million of
notes payable to us. The transaction is expected to close in early March 2016.
Note 28—New Accounting Standards
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10),” to meet its
objective of providing more decision-useful information about financial instruments. The majority of this ASU’s
provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect
net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in
accordance with current generally accepted accounting principles, will have to be carried at fair value upon adoption of
ASU 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily
determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or
down for price changes in similar financial instruments issued by the investee, when and if observed. Public business
entities should apply the guidance in ASU 2016-01 for annual periods beginning after December 15, 2017, and interim
periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU
2016-01 and assessing the impact, if any, it may have on our financial position and results of operations.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes-Balance Sheet Classification of Deferred Taxes.”
The new update will simplify the presentation of deferred income taxes and will require deferred tax liabilities and assets
be classified as noncurrent in a classified statement of financial position. The classification shall be made at the tax-
paying component level of an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and any
related valuation allowances. Public business entities should apply the guidance in ASU 2015-17 for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early application for public entities
is permitted. The amendments can be applied either prospectively to all deferred tax liabilities and assets or
retrospectively to all periods presented. We are currently evaluating the provisions of ASU 2015-17.
In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915).” The new standard removes the
definition of a development stage entity from the Master Glossary of Accounting Standard Codification and the related
financial reporting requirements specific to development stage entities. This ASU is intended to reduce cost and
complexity of financial reporting for entities that have not commenced planned principal operations. For financial
reporting requirements other than the VIE guidance in ASC Topic 810, “Consolidation,” ASU 2014-10 was effective for
annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting
requirements related to VIEs in ASC Topic 810, “Consolidation,” ASU 2014-10 is effective for annual and quarterly
reporting periods of public entities beginning after December 15, 2015. Early application for public entities is permitted.
We are currently evaluating the provisions of ASU 2014-10. Our preliminary assessment indicates that additional
disclosures related to VIEs may be required for our joint ventures if the planned principal operations have not
commenced.
In May 2014, the FASB issued 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. In August
2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
122
Date.” The amendment in this ASU defers the effective date of ASU 2014-09 for all entities for one year. Public
business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period.
Retrospective or modified retrospective application of the accounting standard is required. 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. As part of our assessment work to-date, we have formed an implementation work team, completed training of
the new ASU’s revenue recognition model and begun contract review and documentation.
Note 29—Condensed Consolidating Financial Information
Our $7.5 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 utilizing the equity
method of accounting).
• All other nonguarantor subsidiaries.
• The consolidating adjustments necessary to present Phillips 66’s results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying consolidated
financial statements and notes.
123
Statement of Income
Revenues and Other Income
Sales and other operating revenues
Equity in earnings (losses) of affiliates
Net gain (loss) on dispositions
Other income
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
$
$
$
Millions of Dollars
Year Ended December 31, 2015
All Other
Subsidiaries
Phillips 66
Company
Consolidating
Adjustments
68,478
2,812
(115)
81
1,071
72,327
54,925
3,412
1,265
818
4
5,505
16
25
1
65,971
6,356
1,886
4,470
—
4,470
—
4,470
30,497
(134)
398
37
9,845
40,643
29,221
917
416
260
3
8,572
5
34
48
39,476
1,167
9
1,158
—
1,158
53
1,105
—
(5,575)
—
—
(10,916)
(16,491)
(10,747)
(39)
(16)
—
—
—
—
(114)
—
(10,916)
(5,575)
—
(5,575)
—
(5,575)
—
(5,575)
Total
Consolidated
98,975
1,573
283
118
—
100,949
73,399
4,294
1,670
1,078
7
14,077
21
310
49
94,905
6,044
1,764
4,280
—
4,280
53
4,227
Phillips 66
—
4,470
—
—
—
4,470
—
4
5
—
—
—
—
365
—
374
4,096
(131)
4,227
—
4,227
—
4,227
4,105
4,348
1,032
(5,327)
4,158
124
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
—
(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
5
Statement of Income
Revenues and Other Income
Sales and other operating revenues
Equity in earnings of affiliates
Net gain (loss) on dispositions
Other income
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
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
—
$
$
$
$
125
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
34
—
(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
34
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
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
—
3,905
—
(3)
—
3,902
—
—
6
—
—
—
—
266
—
272
3,630
(96)
3,726
—
3,726
—
3,726
4,077
—
$
$
$
$
126
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, 2015
Phillips 66
Phillips 66
Company
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
575
3,643
2,171
382
6,771
24,068
12,651
3,040
726
154
47,410
4,015
25
320
528
240
5,128
158
496
4,500
1,094
2,765
14,141
25,404
8,518
(653)
—
47,410
2,499
2,217
1,306
148
6,170
7,395
7,070
235
180
113
21,163
2,341
19
558
48
79
3,045
1,272
169
1,545
191
3,734
9,956
10,688
(200)
(119)
838
21,163
—
(701)
—
—
(701)
(52,635)
—
—
—
(4)
(53,340)
(701)
—
—
—
—
(701)
—
—
(4)
—
(8,968)
(9,673)
(36,092)
(8,347)
772
—
(53,340)
3,074
5,173
3,477
532
12,256
12,143
19,721
3,275
906
279
48,580
5,655
44
878
576
378
7,531
8,843
665
6,041
1,285
277
24,642
11,405
12,348
(653)
838
48,580
—
14
—
2
16
33,315
—
—
—
16
33,347
—
—
—
—
59
59
7,413
—
—
—
2,746
10,218
11,405
12,377
(653)
—
33,347
127
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
$
$
$
$
—
14
—
5
19
30,141
—
—
—
16
30,176
—
798
—
—
65
863
7,409
—
—
—
285
8,557
12,812
9,338
(531)
—
30,176
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
120
18,476
3,548
18
522
53
541
4,682
225
189
1,255
231
2,126
8,708
8,240
1,074
7
447
18,476
—
(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
833
16,692
10,189
17,346
3,274
900
291
48,692
8,064
842
878
462
848
11,094
7,793
683
5,491
1,305
289
26,655
12,812
9,309
(531)
447
48,692
*Prior period amounts have been retrospectively adjusted for Accounting Standards Update No. 2015-03.
128
Statement of Cash Flows
Cash Flows From Operating Activities
Phillips 66
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 provided by (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
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.
$
1,060
—
1,060
—
—
2,461
—
—
—
2,461
—
2,461
—
(800)
(19)
(1,512)
(1,172)
—
—
—
(18)
(3,521)
—
(3,521)
—
—
—
—
Millions of Dollars
Year Ended December 31, 2015
All Other
Subsidiaries
Consolidating
Adjustments
Phillips 66
Company
4,879
—
4,879
(2,815)
774
(3,153)
(50)
50
6
(5,188)
—
(5,188)
—
(23)
—
—
(1,172)
—
—
—
34
(1,161)
—
(1,161)
2,564
—
2,564
(5,283)
178
692
—
—
(50)
(4,463)
—
(4,463)
1,169
(103)
—
—
(1,576)
(186)
(46)
384
1,585
1,227
—
1,227
—
9
(1,470)
2,045
575
(663)
3,162
2,499
(2,790)
—
(2,790)
2,334
(882)
—
—
—
—
1,452
—
1,452
—
—
—
—
2,748
186
—
—
(1,596)
1,338
—
1,338
—
—
—
—
Total
Consolidated
5,713
—
5,713
(5,764)
70
—
(50)
50
(44)
(5,738)
—
(5,738)
1,169
(926)
(19)
(1,512)
(1,172)
—
(46)
384
5
(2,117)
—
(2,117)
9
(2,133)
5,207
3,074
** Includes return of investments in equity affiliates and working capital true-ups on dispositions.
129
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
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
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.
$
—
—
1,397
—
—
1,397
—
1,397
2,459
—
1
(2,282)
(450)
(1,062)
—
—
(16)
(1,350)
—
(1,350)
—
—
—
—
Millions of Dollars
Year Ended December 31, 2014
All Other
Subsidiaries
Phillips 66
Company
Consolidating
Adjustments
2,551
—
2,551
(2,230)
960
(1,402)
—
(13)
(2,685)
—
(2,685)
—
(20)
—
—
—
—
—
—
37
17
—
17
—
(117)
2,162
2,045
1,527
2
1,529
(2,532)
687
5
(3)
251
(1,592)
(2)
(1,594)
28
(29)
—
—
—
(443)
(323)
(30)
850
53
—
53
(64)
(76)
3,238
3,162
(504)
—
(504)
989
(403)
—
—
—
586
—
586
—
—
—
—
—
443
323
—
(848)
(82)
—
(82)
—
—
—
—
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)
(64)
(193)
5,400
5,207
** 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.
130
Statement of Cash Flows
Cash Flows From Operating Activities
Phillips 66
Millions of Dollars
Year Ended December 31, 2013
All Other
Subsidiaries
Phillips 66
Company
Consolidating
Adjustments
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.
$
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
22
(248)
2,410
2,162
2,174
1,064
3,238
(80)
—
(80)
19
—
—
—
—
—
19
—
19
—
—
—
72
8
—
—
(19)
61
—
61
—
—
—
—
5
—
5
—
—
4,055
—
—
—
4,055
—
4,055
(1,000)
6
(2,246)
(807)
—
—
—
(13)
(4,060)
—
(4,060)
—
—
—
—
131
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)
22
1,926
3,474
5,400
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
2015
First
Second
Third
Fourth
$
22,778
28,512
25,792
21,893
$
2014
First
Second
Third
Fourth
*Includes excise taxes on petroleum products sales.
40,283
45,549
40,417
34,963
1,388
1,465
2,359
832
1,298
1,359
1,727
1,361
997
1,025
1,592
666
1,578
872
1,189
1,158
987
1,012
1,578
650
1,572
863
1,180
1,147
1.80
1.85
2.92
1.21
2.69
1.52
2.11
2.07
1.79
1.84
2.90
1.20
2.67
1.51
2.09
2.05
132
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, 2015, with the participation of management, our
Chairman and Chief Executive Officer and our Executive Vice President and Chief Financial Officer carried out an
evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our
Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were
operating effectively as of December 31, 2015.
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, 2015, 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 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 and is incorporated herein by reference.
Item 9B. OTHER INFORMATION
None.
133
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers appears in Part I of this report.
PART III
Information required by Item 10 of Part III is incorporated herein by reference from our 2016 Definitive Proxy
Statement.*
Item 11. EXECUTIVE COMPENSATION
Information required by Item 11 of Part III is incorporated herein by reference from our 2016 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 2016 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 2016 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 2016 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 2016
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.
134
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 67, are filed as part of this Annual Report on Form 10-K.
2.
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 137 to 140, 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 December 31, 2015 and 2014, and for the three years ended December
31, 2015, are included as exhibits to this Annual Report on Form 10-K.
135
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Description
2015
Deducted from asset accounts:
Allowance for doubtful accounts
and notes receivable
Deferred tax asset valuation
allowance
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
$
$
$
Millions of Dollars
Balance at
January 1
Charged to
Expense
Other (a)
Deductions
Balance at
December 31
71
107
47
127
50
329
3
(17)
29
(13)
10
20
—
70
—
(7)
(19)
(b)
—
(5)
(b)
—
—
(222)
(13)
(b)
—
55
160
71
107
47
127
(a)Represents acquisitions/dispositions/revisions; net transfers associated with the Separation; deferred tax asset reinstatement in conjunction with German tax
legislation, the realization of which is not more likely than not; and the effect of translating foreign financial statements.
(b)Amounts charged off less recoveries of amounts previously charged off.
136
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
8-K
8-K
10
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.
137
10
4.1 03/01/12
001-35349
10-Q
10.1 05/01/14
001-35349
10-K
10.3 02/20/15
001-35349
10-Q
10.14 08/03/12
001-35349
10
10.12 03/01/12
001-35349
10
10.13 03/01/12
001-35349
10
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
10.15 03/01/12
001-35349
10
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
138
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-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.
139
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.
140
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 19, 2016
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 19, 2016, 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/ Kevin J. Mitchell
Kevin J. Mitchell
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)
141
/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
Director
Director
Director
Director
Director
Director
142
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[THIS PAGE INTENTIONALLY LEFT BLANK]
Shareholder Information
ANNUAL MEETING
Phillips 66’s annual meeting of
stockholders will be held:
Wednesday, May 4, 2016 at the
Houston Marriott 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.
INFORMATION REQUESTS
For information about dividends and
certificates or to request a change 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 following 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
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.
The ethics office also may be contacted
via email at ethics@p66.com, the Internet
at www.phillips66.ethicspoint.com or
by writing:
Attn: Global Ethics Office
Phillips 66
3010 Briarpark Drive
Houston, TX 77042
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
STOCK TRANSFER AGENT AND
REGISTRAR
Computershare
250 Royall Street
Canton, MA 02021
www.computershare.com/investor
COPIES OF FORM 10-K AND
PROXY STATEMENT
Copies of the Annual Report on Form
10-K and the Proxy Statement, 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
2015 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
2015 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
Phillips 66, Conoco, 76, Kendall, JET and their respective logos are registered trademarks of Phillips 66 Company. Other products and logos mentioned
herein may be trademarks of their respective owners.
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.
Phillips 66
P.O. Box 4428
Houston, TX 77210
www.phillips66.com
© 2016 Phillips 66 Company. All rights reserved.