Phillips 66
P.O. Box 4428
Houston, TX 77210
www.phillips66.com
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© 2017 Phillips 66 Company. All rights reserved.
CM 16-0867
2016 ANNUAL REPORT
EXECUTING OUR
STRATEGY
DELIVERING ON OUR
COMMITMENTS
www.phillips66.com
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
CUMUL ATIVE TOTAL
SHAREHOLDER RETURN
($100 invested on May 1, 2012)
Phillips 66
Peer Group*
S&P 500
S&P 100
$300
$250
$200
$150
$100
2016
2015
2014
$ 84,279
1,644
1,555
$ 98,975
4,280
4,227
$ 161,212
4,091
4,056
2.94
2.92
1,644
1,555
2.94
2.92
2,711
51,653
9,588
23,725
2,963
2.45
7.78
7.73
4,280
4,227
7.78
7.73
3,074
48,580
8,843
23,938
5,713
2.18
7.15
7.10
4,797
4,762
8.40
8.33
5,207
48,692
7,793
22,037
3,529
1.89
ADJUSTED
E ARNINGS
($ in millions)
4,193
3,782
ADJUSTED RETURN
ON CAPITAL
EMPLOYED (ROCE)
14
14
1,498
5
5/1/12
12/31/12 12/31/13
12/31/14
12/31/15 12/31/16
14
15
16
14
15
16
* Celanese Corporation, Delek U.S. Holdings, Inc., The Dow Chemical Company,
Eastman Chemical Company, Energy Transfer Equity, L.P., Enterprise Products
Partners L.P., HollyFrontier Corporation, Huntsman Corporation, Marathon
Petroleum Corporation, Oneok, Inc., Targa Resources Corp., PBF Energy Inc.,
Tesoro Corporation, Valero Energy Corporation, Western Refining Inc., Westlake
Chemical Corporation
ON THE FRONT COVER:
Phillips 66’s new 150,000 barrel-per-day Freeport Liquefied
Petroleum Gas Export Terminal enables customers to place
multigrade LPG products directly into global markets.
1
Greg C. Garland
Chairman and Chief Executive Officer
M A RCH 2017
To Our Shareholders
Thanks to the 14,800 dedicated employees
of Phillips 66, we maintained a high level of
operating excellence during 2016, a period of
challenging market conditions in the energy
sector. For 2016, Phillips 66 posted adjusted
earnings of $1.5 billion and generated $5 billion
in cash from operations and public debt and
equity offerings by Phillips 66 Partners. We
reinvested $2.8 billion in our businesses and
returned $2.3 billion of capital to shareholders
through dividends and share repurchases.
We set new company records with our
industry-leading safety performance. We
ran our refining assets well, achieving record
global capacity utilization rates. Our company
held controllable costs flat while bringing
new assets online as we continued to grow
our more highly valued Midstream and
Chemicals businesses. This could only be
accomplished through the high-performing
efforts of our employees.
Our strategic priorities, unchanged since the
company’s formation, are to deliver profitable
growth, enhance returns on capital and reward
our owners through shareholder distributions.
We execute this strategy by drawing on our
foundation of operating excellence and a
high-performing organization.
To deliver shareholder value, we continue
to reshape Phillips 66 and its business
portfolio into a more highly valued, diversified
downstream energy company. Our portfolio of
Midstream, Chemicals, Refining, and Marketing
and Specialties businesses operates in every
segment of the crude oil, natural gas and natural
gas liquids (NGL) value chains downstream of
the wellhead. No other independent downstream
energy company has as broad a portfolio. Our
unique combination of assets and access to
global customers enable us to execute well
through commodity price cycles and capture
opportunities across these value chains.
www.phillips66.com
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Phillips 66 Strategy
Growth
Returns
Distributions
Reshaping our portfolio by
capturing growth opportunities in
Midstream and Chemicals
Enhancing Refining returns by
maximizing earnings from existing
assets and investing capital efficiently
Committed to dividend
growth, share repurchases
and financial strength
Operating Excellence
High-Performing Organization
Driving safety, reliability and environmental
stewardship while protecting shareholder value
Building capability, pursuing excellence and
doing the right thing
Focusing on Operating
Excellence
Operating excellence remains our first priority.
We are committed to safety, reliability,
environmental stewardship and cost efficiency.
This commitment is essential for our
businesses, operations and communities,
and protects shareholder value.
In 2016, our company achieved industry-
leading performance on both combined total
recordable rate (TRR) and lost workday case
rate (LWCR). We ended 2016 with a combined
TRR of 0.15, a 21 percent improvement over
2015, and a Tier 1 process safety event rate
of 0.02, 75 percent better than the prior year.
It was our third consecutive year of improved
safety results.
During the year, our refineries ran at a record
96 percent capacity utilization, and we held our
controllable costs flat with 2015.
We operate our business sustainably to protect
the environment by respecting air, water and
land resources. We use resources efficiently
and support conservation programs. Phillips 66
has significantly reduced emissions of sulfur
oxides, nitrous oxides and particulate matter
over the past decade.
TOTAL RECORDABLE R ATES
(Incidents per 200,000 hours worked)
Phillips 66
CPChem
DCP
REFINING
ENVIRONMENTAL
METRICS
317
300
279
266
Industry
Average
Growing Our
Midstream Business
Midstream remains a platform for growth.
The segment consists of our NGL and
transportation businesses, including our
master limited partnership, Phillips 66
Partners (PSXP), and our 50 percent interest
in DCP Midstream, LLC.
With new organic growth projects online and
others scheduled to begin operations later
in 2017, we expect Midstream’s earnings to
increase significantly over time. Most of this
increase will come from the fees we charge
for transporting, storing and processing
crude oil, natural gas and NGL.
We expanded Midstream’s infrastructure
during 2016 by completing construction
on most of our major projects. On the U.S.
Gulf Coast, we advanced the build-out of
our energy manufacturing center in Sweeny,
Texas, which integrates complex refining
capability, petrochemical production, and NGL
fractionation, storage and export facilities.
This hub has pipeline connectivity to
production areas and market centers that
provide Phillips 66 with options for feedstock
supply and product placement.
Value Chains
GLOBAL MARKETS
CRUDE OIL
Phillips 66
Crude Pipelines,
Marine, Shipping
and Rail
Refineries
Product Pipelines,
Terminals and
Marine
Marketing
DCP Midstream
CPChem
WELLHEAD
Phillips 66 Partners
LIQUIDS AND
NATURAL GAS
Petrochemicals
NGL and
Natural Gas
Gathering and
Processing
Pipelines
Fractionation
and Storage
LPG Export
and Marketing
OPER ATING
COSTS AND SG&A
($ in billions)
6.1
6.0 5.9
5.7
REFINING CAPACIT Y
UTILIZ ATION
(Percent)
3
4
5
2
93
94
91
96
Planned
Maintenance &
Turnarounds
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15
16
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15
16
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15
16
13
14
15
16
13
14
15
16
13
14
15
16
1.5
1.0
0.5
0
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 4
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The Sweeny energy manufacturing center is a platform for long-term earnings growth.
Clemens Storage Caverns
Sweeny NGL Fractionator
Freeport LPG Export Terminal
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 6
Palermo
Rail Terminal
Dakota Access Pipeline Project (DAPL)
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Wood River Refinery
WOOD RIVER REFINERY
Palermo Rail Terminal
PONCA CITY REFINERY
Beaumont Terminal
SWEENY REFINERY
Pasadena
Beaumont
Terminal
Freeport LPG
Export Terminal
Clemens Caverns
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LAKE CHARLES REFINERY
ALLIANCE REFINERY
RIV
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LPG Export Terminal (PSX)
Terminal (PSX)
Terminal (PSXP)
Coke Handling Terminal (PSX)
CPChem Petrochemical Project
(Under Construction)
Rail Rack (PSXP)
Fractionator (PSXP)
JV Fractionator (PSX)
Pipeline (PSX)
Pipeline (PSXP)
Pipeline (CPChem)
Under Construction Pipeline (PSX)
Under Construction Pipeline (PSXP)
Underground Storage Facility (PSXP)
Phillips 66 Refinery
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We view the Sweeny energy complex as a key
platform for long-term earnings growth.
Our 150,000 barrel-per-day (BPD) Freeport LPG
Export Terminal began commercial operation
in December with the loading of propane and
butane cargoes onto very large gas carriers.
The export terminal can load eight cargoes a
month, under a combination of term contract
and spot cargo deliveries. Located away from
the Houston Ship Channel’s congestion, the
terminal uses our transportation and storage
infrastructure to supply petrochemical, heating
and transportation markets globally.
Extending Our Logistics
Infrastructure
Development progressed in 2016 on the Dakota
Access Pipeline (DAPL) and Energy Transfer
Crude Oil Pipeline (ETCOP). Phillips 66 owns
a 25 percent interest in each of the joint
ventures. DAPL, which is more than 95
percent complete, is expected to deliver
470,000 BPD of crude oil from the Bakken/
Three Forks production area in North Dakota
to market centers in the Midwest. ETCOP,
an adjoining pipeline that is complete and
ready for commissioning, will provide crude
oil transportation from the Midwest to the
Gulf Coast. Commercial operations on the
combined pipeline system are expected to
begin in the second quarter of 2017.
Phillips 66 continues to expand its Beaumont
Terminal in Nederland, Texas, which
provides deep-water access and several
interconnections with major crude oil and
refined product pipelines. The terminal also
serves as the southern terminus for DAPL
and ETCOP.
Diversified Downstream Company
Midstream
Chemicals
Refining
Marketing & Specialties
Gathering and processing,
pipelines, fractionation, storage,
and export facilities
General partner of Phillips 66
Partners LP
50% interest in DCP Midstream,
LLC, which maintains significant
interest in DCP Midstream, LP, a
leading NGL and natural
gas processor
50% interest in Chevron Phillips
Chemical Company LLC
Operating in all five U.S. PADD
regions and Western Europe
Manufactures olefins,
polyolefins, aromatics, alpha
olefins, styrenics and specialty
chemicals globally
Advantaged ethane feedstock
2.1 million barrels per day in
global refining capacity
Large, highly complex
refineries with integrated
supply and distribution
networks
~7,000 branded sites in the U.S.
~1,500 retail sites in Europe
Finished lubricants and Excel
Paralubes base oil joint venture
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 8
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Phillips 66 Partners’ Sweeny
Fractionator supplies purity ethane and
LPG to the petrochemical industry and
heating markets.
PROPANE
ETHANE
NATURAL GASOLINE
BUTANES
Sweeny Fractionator
Medford Products Spheres
Beaumont Terminal
In the fourth quarter, we commissioned an
additional 1.2 million barrels of contracted
crude storage at the Beaumont Terminal
and expect another 2 million barrels
of crude and products storage to be in
service by mid-2017. Over time, we plan to
increase the terminal’s storage capacity
to 16 million barrels and expand dock
capacity to accommodate a wider variety
of vessels and increase loading and
unloading rates.
In service since April 2016, the Bayou Bridge
Pipeline supports crude transport directly
from the Beaumont Terminal to the Lake
Charles Refinery in Louisiana. Phillips 66
Partners has a 40 percent interest in this
joint venture project. The second leg of
Bayou Bridge will provide onward transport
to the marketplace in St. James, Louisiana.
Its completion is expected in the fourth
quarter of 2017.
Phillips 66 Partners remains an important
part of our strategy to profitably grow
Midstream. The Partnership owns, operates,
develops and acquires primarily fee-based
crude oil, refined product and NGL pipelines
as well as terminals and other midstream
assets. In 2016, PSXP posted a 67 percent
increase in adjusted EBITDA year over
year and remains on course to meet its
commitment of a five-year distribution
compound annual growth rate (CAGR) of
30 percent through 2018.
The Partnership will continue to grow
by developing organic capital projects,
acquiring assets from Phillips 66 and
selectively acquiring third-party assets.
During 2016, PSXP raised approximately
$2 billion in the capital markets through debt
and equity offerings and grew its asset base
by 170 percent to $4.1 billion.
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SKELLY-BELVIEU
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LAKE CHARLES REFINERY
LINE EZ
Mont Belvieu
E X P L O R E R
Beaumont
Terminal
Pasadena
Clifton Ridge
Pecan Grove
St. James
B AYO U B R I D G E
ALLIANCE REFINERY
SWEENY REFINERY
L S
L
S A N D H I
Freeport LPG
Export Terminal
Clemens Caverns
LPG Export Terminal (PSX)
Terminal (PSX)
Terminal (PSXP)
Coke Handling Terminal (PSX)
CPChem Petrochemical Project
(Under Construction)
Underground Storage Facility (PSXP)
Excel Paralubes Base Oil
(Partially Owned)
Fractionator (PSXP)
JV Fractionator (PSX)
Pipeline (PSX)
Pipeline (PSXP)
Pipeline (CPChem)
Under Construction Pipeline
Phillips 66 Refinery
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT
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DCP Midstream, LP’s Goliad Plant
DCP Midstream and its master limited
partnership completed projects during 2016 that
increased their natural gas processing capacity
to approximately 8 billion standard cubic feet per
day. During the year, DCP Midstream reduced
its operating costs and capital expenditures and
decreased its commodity exposure, significantly
lowering its NGL cash breakeven price.
On Jan. 1, 2017, DCP Midstream contributed its
assets and existing debt to its master limited
partnership, now renamed DCP Midstream, LP,
simplifying the organizational structure and
increasing DCP Midstream’s ownership of the
publicly traded partnership. This transaction
should result in better capital allocation, position
DCP for growth and enable increased cash
distributions to the owners.
New DCP Structure
50/50
DCP Midstream, LLC
2% GP
36% LP
and
Incentive Distribution Rights
Capturing Growth
Opportunities in Chemicals
We participate in the chemicals business through
our 50 percent ownership in Chevron Phillips
Chemical Company LLC (CPChem). CPChem is
one of the world’s largest producers of high-density
polyethylene, with assets concentrated in the cost-
advantaged regions of North America and
the Middle East.
CPChem’s Olefins and Polyolefins (O&P) global
capacity utilization rate for 2016 was 91 percent.
CPChem is investing in projects designed to
capture the benefit of lower-cost petrochemical
feedstocks on the U.S. Gulf Coast to meet the
growing global demand for high-quality plastics
and chemical intermediates. Its Gulf Coast
Petrochemicals Project, which consists of a world-
scale ethane cracker and two polyethylene units,
is nearing completion. We expect the polyethylene
units to be finished by mid-2017 and the ethane
cracker to start up in the fourth quarter. This
project will increase CPChem’s global ethylene and
polyethylene capacity by approximately one-third.
50/50
DCP Midstream, LLC
2% GP,
36% LP
and
Incentive Distribution Rights
Public
Unitholders
62%
(NYSE: DCP)
Public
Unitholders
62%
(NYSE: DCP)
CPChem’s U.S. Gulf Coast Petrochemical Project
CPChem’s Cedar Bayou Facility
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 12
13
Enhancing Returns in
Refining
Phillips 66’s Refining business processes crude oil
and other feedstocks into petroleum products such
as gasoline, diesel and aviation fuel. Eleven of the
company’s 13 refineries are in the United States,
making Phillips 66 a major supplier to the domestic
fuels market. Globally, our diversified portfolio has
a refining capacity of 2.1 million barrels per day.
In 2016, Refining achieved company records
with a TRR of 0.16 and worldwide crude capacity
utilization of 96 percent, exceeding the industry
average, and a clean product yield of 84 percent.
In our Refining business, we focus on capturing
margins through high utilization and reliability,
enhancing efficiency, and improving returns
through selective investment. Across our system,
we have low-cost, high-return projects underway
that are designed to reduce feedstock costs and
improve clean product yields.
The Wood River Refinery, located in Roxana,
Illinois, completed debottlenecking and yield
improvement projects during 2016, increasing
heavy crude processing capability by about 18,000
BPD. In Montana, the Billings Refinery is advancing
its vacuum unit improvement project, which
will enable processing of additional advantaged
Canadian crudes while increasing margins. The
unit is expected to start up in the first half of 2017.
At the Bayway and Wood River refineries, the
company is modernizing fluid catalytic cracking
units to increase clean product yields, with
completion expected in the first half of 2018.
Phillips 66 is also implementing yield improvement
efforts at several other refineries.
The Sweeny Refinery in Old
Ocean, Texas.
In Refining we focus on achieving high levels
of operating excellence, maintaining cost and
capital discipline, and increasing margins
through selective investment.
Billings Refinery
Our Marketing business markets
gasoline, distillates and aviation fuels
mainly in the U.S and in Europe.
Selectively Growing
Marketing and Specialties
Our Marketing business sells our refined
products to customers in the United States and
Europe. In the United States, we sell gasoline and
diesel through branded marketers and dealers
under the Phillips 66, Conoco and 76 fuel brands.
The gasoline marketed by the company is
recognized as TOP TIER™ by leading automakers.
Our branded gasoline and diesel marketers and
dealers operate approximately 7,000 sites in
the United States, which enables us to run our
refineries at high utilization rates.
We saw higher same-site sales at our branded
sites in 2016, resulting from better gasoline
demand and our efforts to increase the value of
our brands. We also sell fuels through unbranded
and commercial channels, supplying fuel to
truck stops, convenience stores and large
mass merchandisers.
In Europe, there are more than 1,500 company-
owned and dealer-operated fueling sites, with
plans to add 25 to 30 sites a year. We market
under the JET brand in the U.K., Germany
and Austria, and under the Coop brand in
Switzerland.
Our Specialties business includes the U.S.’s third-
largest finished lubricants supplier, which serves
more than 1,200 customers in 80 countries under
the Phillips 66 and Kendall brands. This business
also includes the manufacturing and marketing
of lubricant base oils as well as specialty
products like petroleum coke, waxes, solvents
and polypropylene, which are sold to commercial,
industrial and wholesale buyers worldwide.
Phillips 66 markets fuels and lubricants under these brands.
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 14
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Disciplined Capital Allocation
SHARE COUNT AND CAPITAL RETURNED
$13.4 billion
626 million
Number of shares
outstanding
Capital returned*
519 million
0
3Q 2012
4Q 2013
4Q 2014
4Q 2015
4Q 2016
* Through share purchases, share exchange and dividends
DIVIDEND GROWTH
(Quarterly ¢/share)
31% CAGR
63
¢
20
¢
0
3Q 2012
4Q 2013
4Q 2014
4Q 2015
4Q 2016
CONSOLIDATED CAPITAL BUDGET
$1.7 BILLION GROWTH CAPITAL
PSXP
2017
PSX
$2.7 BILLION
Sustaining
Refining Returns
Marketing and
Specialties Growth
• NGL and transportation businesses
• Beaumont Terminal
• Bayou Bridge Pipeline
• Refining cost and yield improvement projects
$1 BILLION SUSTAINING CAPITAL
Midstream Growth
• Maintaining safe, reliable assets
Maintaining Our Financial
Strength
The company’s 2016 earnings were $1.6
billion, or $2.92 per share, compared with $4.2
billion, or $7.73 per share, in 2015. Adjusted
earnings for 2016 were $1.5 billion, or $2.82
per share, compared with $4.2 billion, or $7.67
per share, in 2015. The decline largely reflects
lower margins in our Refining and Chemicals
businesses.
During the year, Phillips 66 increased its
quarterly dividend 13 percent to $0.63 per
share, the sixth increase since the company’s
inception in 2012. We ended 2016 with cash of
$2.7 billion and a net-debt-to-capital ratio of
24 percent.
Capital expenditures in 2016 were $2.8 billion,
reduced from the budgeted $3.9 billion. The
reduction was due to Midstream project
cancellations and deferrals, resulting from
the overall market environment, as well as the
impact of project financing at certain
joint ventures.
For 2017, Phillips 66 is funding a $2.7 billion
consolidated capital budget. Approximately
$1.3 billion of these funds is for Midstream
growth and about $900 million is for enhancing
Refining returns and supporting operating
excellence. The remainder of the 2017 budget
is for sustaining capital in Midstream, driving
growth in our fuels marketing business, and
investing in information technology and
facilities projects.
Delivering Shareholder
Value
Since 2012, the company has more than tripled
its quarterly dividend, reduced the number of
outstanding shares by 17 percent, and returned
$13.4 billion to shareholders through
dividends and the repurchase or exchange
of 122.8 million shares.
We are committed to maintaining a strong
balance sheet and financial flexibility. Cash flow
from operations has remained strong over the
nearly five years since Phillips 66’s formation,
enabling us to significantly invest in and grow
the scale of our Midstream business,
including PSXP.
With many investments completed or nearing
completion, our capital expenditures in the
near-term are likely to be lower than in past
years. We expect to have more than sufficient
cash to fund sustaining and growth capital, as
well as a growing dividend and ongoing share
repurchases. We continue to aim for a 60/40
split between reinvestment and distributions.
Enhancing Our High-
Performing Organization
Phillips 66’s values of safety, honor and
commitment guide how our employees
make decisions, conduct business, engage
with stakeholders and strive for continuous
improvement. Operating with the highest levels
of integrity and ethics is all-important.
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.
For the communities in which we operate, we
have championed safety and preparedness,
supported relief efforts and mobilized
employee volunteers.
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 16
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Phillips 66 employees
During 2016, employees donated 61,000 hours to
community organizations, a 22 percent increase
over the prior year. To help improve the lives
of current and future generations, Phillips 66
supports educational programs that promote
energy, civic and business literacy, reading skills,
and science, technology, engineering and math
education. During the year, the company made
financial contributions of more than $25 million
to charitable organizations.
In mid-2016, we conducted an employee
engagement survey, which yielded an 85 percent
response rate and more than 6,500 comments.
From the results, we have gained new insights
on what makes our culture unique and drives our
employees’ high level of engagement. We are
using what we learned to further develop
our organization.
Investing for the Future
Energy is the foundation on which economic
growth and modern life are built. In the decades
ahead, the world will need vastly more energy,
from all sources. According to projections from
the U.S. Energy Information Administration, oil
and natural gas are expected to supply more
than 60 percent of U.S. energy needs in 2040,
even under optimistic scenarios for renewable
energy growth.
To manufacture and deliver energy globally
requires skilled and dedicated people, a
commitment to research and development,
engineering innovation and great assets.
Phillips 66 is the only U.S.-based downstream
energy company to have a full Research and
Development (R&D) program. Our company
invests about $60 million a year in R&D
activities and holds about 350 active patents
in 24 countries.
Our researchers are known for inventing
products and developing technologies with
global impact, and for commercializing
sustainable processes that make cleaner
products. At our Bartlesville, Oklahoma,
Research Center, we employ more than 370
scientists, engineers and technicians. Their
efforts are focused on finding new ways
to process and transport feedstocks and
products safely and efficiently. They invent new
formulations for fuels, lubricants and specialty
products, and develop technologies to enable
superior water- and air-quality management.
Late last year, Phillips 66 set a world record
in power conversion efficiency for polymer-
based, single-junction organic photovoltaic
cells, an efficiency breakthrough that brings
this promising form of solar technology closer
to commercialization.
Phillips 66 Research Center scientists
Taking the Long View
Through its predecessor companies, Phillips 66
has been in business for more than 140 years.
We operate with the long term in mind, which
is why we have invested nearly $16 billion in
our businesses from 2012 through 2016. When
the company’s share of investment in its joint
ventures is added, the total over this period was
approximately $24 billion. Through continuing
investment, we will keep improving the safety,
reliability and efficiency of supplying affordable,
clean energy products to the world’s growing
population in a safe and environmentally
sound manner.
Volunteers at Sea Center Texas
Volunteers planting trees in Houston
Freeport LPG Export Terminal
Headquarters town hall meeting
On the Commercial trading floor
Encouraging a love for reading
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 18
19
Phillips 66 has an engaged and diligent board of directors that
provides the company with valuable insights. In October 2016, we
added Denise Ramos, CEO and president of ITT, and Gary Adams,
chief advisor for chemicals at IHS, to serve as independent
directors, expanding the board to 10 members. These leaders
bring extensive industry experience to our board.
We will remain focused in managing the aspects of our business
that are under our control. This means working safely, running our
assets well, completing projects on time and on budget, managing
costs, maintaining a disciplined approach to capital allocation and
sharing our success with you, the shareholders of Phillips 66.
On May 1, we will mark the fifth anniversary of our company’s
inception. We continue to believe that Phillips 66 is a compelling
investment opportunity.
In safety, honor and commitment,
G REG G A RL A ND
Chairman and Chief Executive Officer
Non-GAAP Reconciliations
RECONCILIATION OF ADJUSTED EARNINGS TO EARNINGS
Consolidated
Consolidated
Consolidated
(Millions of Dollars)
Net income attributable to Phillips 66 (earnings)
Pretax Adjustments:
Impairments
Impairments by equity affiliates
Pending claims and settlements
Certain tax impacts*
Lower-of-cost-or-market inventory adjustments
Asset dispositions
Pension settlement expenses
Recognition of deferred logistics commitments
Equity affiliate ownership restructuring
Railcar lease residual value deficiencies and related costs
Discontinued operations
Tax impacts of adjustments**
Other tax impacts
Adjusted earnings
Earnings per share of common stock (dollars)
Adjusted earnings per share of common stock (dollars)†
*Pre-tax impact only. Tax-only adjusting items included in “other tax impacts.”
2016
1,555
$
–
95
(117)
(32)
–
–
–
30
33
40
–
4
(110)
1,498
2.92
2.82
$
$
$
2014
4,762
131
88
(21)
–
45
(270)
–
–
–
–
(711)
(242)
–
3,782
2015
4,227
–
390
30
(9)
53
(280)
80
–
–
–
–
(181)
(117)
4,193
7.73
7.67
**We generally tax effect taxable U.S.-based special items using a combined federal and state statutory income tax rate of approximately 38 percent. Taxable special items attributable to foreign locations
likewise use a local statutory income tax rate. Nontaxable events reflect zero income tax. These events include, but are not limited to, most goodwill impairments, transactions legislatively exempt from income
tax, transactions related to entities for which we have made an assertion that the undistributed earnings are permanently reinvested, or transactions occurring in jurisdictions with a valuation allowance.
†Weighted-average diluted shares outstanding and income allocated to participating securities, if applicable, in the adjusted earnings per share calculation are the same as those used in the GAAP diluted
earnings per share calculation.
RECONCILIATION OF PSXP ADJUSTED EBITDA TO NET INCOME
(Millions of Dollars)
Net income
Plus:
2016
408
$
Depreciation
Net interest expense
Provision for income taxes
EBITDA
Distributions in excess of equity earnings
Expenses indemnified or prefunded by Phillips 66
Transaction costs associated with acquisitions
EBITDA attributable to Predecessors
96
52
2
558
17
6
4
(142)
Adjusted EBITDA
$
443
* Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
RECONCILIATION OF ADJUSTED ROCE TO ROCE
(Millions of Dollars) Numerator
Net income
After-tax interest expense
GAAP ROCE earnings
Special Items
Adjusted EBITDA
Denominator
GAAP average capital employed*
Discontinued Operations
Adjusted average capital employed*
*Total equity plus debt.
GAAP ROCE (percent)
Adjusted ROCE (percent)
2016
1,644
220
1,864
(57)
1,807
$
$
$ 33,344
–
$ 33,344
6%
5%
2015*
306
61
34
–
401
12
2
2
(151)
266
2015
4,280
201
4,481
(34)
4,447
31,749
–
31,749
14%
14%
2014
4,797
173
4,970
(980)
3,990
29,595
(96)
29,499
17%
14%
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT
20
Board of Directors
21
Greg C. Garland, 59
Gary K. Adams, 66
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. Adams is currently the chief advisor of chemicals for IHS Inc.
He started his chemical industry career with Union Carbide. After
15 years serving in a number of positions at Union Carbide,
Mr. Adams joined Chemical Market Associates Inc. (CMAI). He served
as president, CEO and chairman of the board of CMAI from 1997 until its
acquisition by IHS in 2011. Mr. Adams is a director of Trecora Resources
and previously served on the boards of Westlake Chemical Partners
LP from July 2014 to October 2016, and Phillips 66 Partners GP from
September 2013 to August 2016. (3, 5)
J. Brian Ferguson, 62
William R. Loomis, Jr., 68
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. (1, 2, 4, 5)
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. (1, 2, 4, 5)
John E. Lowe, 58
Harold W. McGraw III, 68
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 (as non-executive chairman). (1, 2, 5)
Mr. McGraw is chairman emeritus of S&P Global Inc. (formerly 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 is the Honorary Chairman of the
International Chamber of Commerce. He currently serves on the board
of United Technologies Corporation. (3, 5)
Denise L. Ramos, 60
Glenn F. Tilton, 68
Ms. Ramos has served as the chief executive officer, president
and a director of ITT Inc. (formerly ITT Corporation) since October
2011. She previously served as senior vice president and chief
financial official of ITT. She serves on the board of trustees for the
Manufacturers Alliance for Productivity and Innovation, and is also
a member of the Business Roundtable and the Business Council.
(1, 4, 5)
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). (2, 3, 5)
Victoria J. Tschinkel, 69
Marna C. Whittington, 69
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, 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. (2, 3, 4, 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 1, 2017.
From left to right: John E. Lowe, Marna C. Whittington, J. Brian Ferguson, Harold W. McGraw III, Greg C. Garland,
Glenn F. Tilton, Victoria J. Tschinkel, Denise L. Ramos, William R. Loomis, Jr., Gary K. Adams
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 22
23
Executive Leadership Team
Greg C. Garland
Tim G. Taylor
Greg Garland is chairman and CEO of Phillips 66. A chemical
engineer, Garland has more than 35 years of experience in
technical and executive leadership positions within the oil and
natural gas and chemicals industries.
Tim Taylor is president, Phillips 66. A chemical engineer, Taylor
has more than 35 years’ experience in the chemical and oil and
gas industries.
Jay D. Churchill
Robert A. Herman
Jay Churchill is senior vice president, Health, Safety and
Environment, and Projects for Phillips 66. Churchill has more
than 36 years of experience in the oil and gas industry, with a
focus on the downstream business.
Robert (Bob) Herman is executive vice president, Midstream
for Phillips 66. He has 32 years of experience in various
technical and leadership roles within the oil and gas industry.
Paula A. Johnson
Merl R. Lindstrom
Paula Johnson is executive vice president, Legal and
Government Affairs, general counsel and corporate secretary
for Phillips 66. She has nearly 30 years of legal experience.
Merl Lindstrom is vice president, Technology for Phillips 66.
He has more than 35 years of experience in research and
development roles, focusing primarily on the downstream
business.
Kevin J. Mitchell
Sonya M. Reed
Kevin Mitchell is executive vice president, Finance, and chief
financial officer for Phillips 66. Mitchell leads the company’s
treasury, accounting, auditing, tax and information technology
operations.
Sonya Reed is senior vice president, Human Resources,
Communications and Public Affairs for Phillips 66.
She has nearly 20 years of international experience in
human resources.
Timothy D. Roberts
Lawrence M. Ziemba
Timothy (Tim) Roberts is executive vice president, Marketing
and Commercial for Phillips 66. He has more than 30 years
of experience in strategy, operations, commercial, and joint
ventures in the oil and gas and chemical industries.
Lawrence (Larry) M. Ziemba is executive vice president,
Refining for Phillips 66. He has 35 years of experience in the oil
and gas industry.
From left to right: Merl R. Lindstrom, Sonya M. Reed, Tim G. Taylor, Lawrence M. Ziemba, Greg C. Garland,
Robert A. Herman, Paula A. Johnson, Jay D. Churchill, Kevin J. Mitchell, Timothy D. Roberts
www.phillips66.comPHILLIPS 66 2016 ANNUAL REPORT 24
PH I LL IPS 66 2016 ANNUAL REPORT
PHILLIPS 66
Form 10-K
2016
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, 2016
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.)
2331 CityWest Blvd., 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.
[ ]
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, 2016, the last business day of the registrant’s
most recently completed second fiscal quarter, based on the closing price on that date of $79.34, was $41.5 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 517,816,429 shares of common stock outstanding at January 31, 2017.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 3, 2017 (Part III).
[This Page Intentionally Left Blank]
Item
TABLE OF CONTENTS
PART I
1 and 2. Business and Properties
Corporate Structure
Segment and Geographic Information
Midstream
Chemicals
Refining
Marketing and Specialties
Technology Development
Competition
General
1A. Risk Factors
1B. Unresolved Staff Comments
3. Legal Proceedings
4. Mine Safety Disclosures
Executive Officers of the Registrant
PART II
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities
Litigation Reform Act of 1995
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
PART III
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accounting Fees and Services
15. Exhibits, Financial Statement Schedules
Signatures
PART IV
Page
1
1
2
2
9
11
15
16
16
17
18
25
25
26
27
28
29
30
63
65
66
132
132
132
133
133
133
133
133
134
139
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. Unless the context requires otherwise, references to “DCP Midstream” include
the consolidated operations of DCP Midstream, LLC, including DCP Midstream, LP (formerly named DCP Midstream
Partners, LP), the master limited partnership formed by DCP Midstream, LLC.
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 that separated 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.
[This Page Intentionally Left Blank]
Our business is organized into four operating segments:
1) Midstream—Gathers, processes, transports and markets natural gas; and transports, stores, 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 segment also stores, refrigerates and
exports liquefied petroleum gas (LPG) primarily to Asia and Europe. 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—Consists of our 50 percent equity investment in Chevron Phillips Chemical Company LLC
(CPChem), which manufactures and markets petrochemicals and plastics on a worldwide basis.
3) Refining—Buys, sells and refines crude oil and other feedstocks at 13 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 items. Corporate assets include all cash and cash equivalents.
At December 31, 2016, Phillips 66 had approximately 14,800 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, as well as exports LPG at our Freeport terminal.
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 midstream
assets. At December 31, 2016, we owned a 59 percent limited partner interest and a 2 percent general partner interest in
Phillips 66 Partners, while the public owned a 39 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, as well as an NGL fractionator, that are
geographically dispersed throughout the United States. The majority of Phillips 66 Partners’ assets are integral to Phillips
66-operated refineries.
During 2016, Phillips 66 Partners expanded its business by acquiring from us:
• A 25 percent interest in our then wholly owned subsidiary, Phillips 66 Sweeny Frac LLC, which owns both the
Sweeny Fractionator, 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. This acquisition
closed in March 2016.
• The remaining 75 percent interest in Phillips 66 Sweeny Frac LLC and a 100 percent interest in our then wholly
owned subsidiary, Phillips 66 Plymouth LLC, which owned Standish Pipeline, a refined petroleum product
pipeline system extending from Phillips 66’s Ponca City Refinery in Ponca City, Oklahoma, and terminating at
Phillips 66 Partners’ North Wichita Terminal in Wichita, Kansas. This acquisition closed in May 2016.
• A large number of crude oil, refined product and NGL pipeline and terminal assets supporting the Billings, Ponca
City, Bayway and Borger refineries. This acquisition, Phillips 66 Partners’ largest to date, closed in October
2016.
During 2016, Phillips 66 Partners expanded its business through the following transactions with third parties:
• During the third quarter of 2016, Phillips 66 Partners acquired an additional 2.5 percent equity interest in the
Explorer Pipeline Company (Explorer), resulting in total ownership of approximately 22 percent. Explorer is a
1,830-mile pipeline that transports gasoline, diesel, fuel oil, and jet fuel to more than 70 major cities in 16 states.
• During the third quarter of 2016, Phillips 66 Partners and Plains All American Pipeline, L.P. (Plains) formed
STACK Pipeline LLC (STACK JV), a 50/50 limited liability company that owns and operates a common carrier
pipeline that transports crude oil from the Sooner Trend, Anadarko Basin, Canadian and Kingfisher counties play
in northwestern Oklahoma to Cushing, Oklahoma. The crude oil pipeline is approximately 54 miles long with a
current capacity of approximately 100,000 barrels per day, with plans to expand the pipeline through a variety of
growth opportunities.
• During the fourth quarter of 2016, Phillips 66 Partners acquired an NGL logistics system (River Parish) in
southeast Louisiana. The acquisition included 1.5 million barrels of storage and an approximate 300-mile,
bidirectional NGL pipeline system connected to third-party fractionators, refineries and a petrochemical plant, as
well as our Alliance Refinery. The acquisition also included approximately 200 miles of regulated pipelines that
transport raw NGL from third-party natural gas processing plants to pipeline and fractionation infrastructure.
The operations and financial results of Phillips 66 Partners are included in Midstream’s Transportation and NGL business
lines, based on the nature of the activity within the partnership.
Transportation
We own or lease various assets to provide terminaling and storage of crude oil, refined products, natural gas and NGL.
These assets include pipeline systems; petroleum product, crude oil and LPG terminals; a petroleum coke handling
facility; marine vessels; railcars and trucks.
Pipelines and Terminals
At December 31, 2016, 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 40 finished product terminals, 38 storage locations, 5 LPG terminals, 17 crude oil terminals and 1
petroleum coke exporting facility.
During 2016, we continued to invest in our Beaumont Terminal in Nederland, Texas, the largest terminal in the Phillips
66 portfolio, which currently has 5.9 million barrels of crude oil storage capacity and 2.4 million barrels of refined
product storage capacity. During 2016, we added 1.2 million barrels of crude storage capacity. Additionally, as of
December 31, 2016, we had 800,000 barrels of incremental crude storage capacity under construction to be
commissioned in the first quarter of 2017 and 1.2 million barrels of additional products storage expected to be available
by mid-2017. 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 8.3 million barrels of storage
capacity to 16 million barrels.
Construction progressed in 2016 on 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 Energy Transfer Partners, L.P. (ETP), one of our co-venturers, acting as the 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 with the ETCOP pipeline in Patoka, Illinois. While
DAPL awaited the issuance of an easement from the U.S. Army Corps of Engineers to complete work beneath the
Missouri River, construction was completed on the remaining segments of the pipeline. The easement was granted on
February 8, 2017, and construction of the pipeline under the river resumed. ETCOP, which is complete and ready for
commissioning, will transport crude oil 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 the first half of
2017.
In the second quarter of 2016, the Bayou Bridge Pipeline joint venture began delivering crude oil from Nederland, Texas,
to Lake Charles, Louisiana. Phillips 66 Partners has a 40 percent equity interest in the joint venture, while ETP and
Sunoco Logistics each hold a 30 percent interest, with Sunoco Logistics serving as the operator. The remaining section
of the pipeline, which is being constructed by ETP, will deliver crude oil from Lake Charles to St. James, Louisiana, and
is scheduled for completion in the second half of 2017.
In the fourth quarter of 2016, the 91-mile Sacagawea Pipeline was placed in service. The pipeline receives crude oil from
areas in Dunn County and McKenzie County, North Dakota, and delivers crude oil to terminals and pipelines located in
Stanley, North Dakota, including the 100,000 barrel per day Palermo Rail Terminal. The Palermo Rail Terminal is a
2
3
Name
Origination/Terminus
Interest
Size
Length
(Miles)
Gross Capacity
(MBD)
NGL
Chisholm
Powder River
River Parish NGL †
Sand Hills**†
Skelly-Belvieu
Southern Hills**†
Sweeny NGL
TX Panhandle Y1/Y2
LPG
Blue Line
Brown Line †
Conway to Wichita
Medford †
Sweeny LPG Lines
Kingfisher, OK/Conway, KS
Sage Creek, WY/Borger, TX
Southeast Louisiana
Permian Basin/Mont Belvieu, TX
Skellytown, TX/Mont Belvieu, TX
U.S. Midcontinent/Mont Belvieu, TX
Brazoria, TX/Sweeny, TX
Sher-Han, TX/Borger, TX
Borger, TX/East St. Louis, IL
Ponca City, OK/Wichita, KS
Conway, KS/Wichita, KS
Ponca City, OK/Medford, OK
Sweeny, TX/Mont Belvieu & Freeport,
TX
50%
100
100
33
50
33
100
100
100
100
100
100
100
4”-10”
6”-8”
4”-20”
20”
8”
20”
20”
3”-10”
8”-12”
8”, 10”
12”
4”-6”
10”-20”
202
705
510
1,150
571
941
18
299
688
76
55
42
246
Natural Gas
Rockies Express
†Owned by Phillips 66 Partners LP; Phillips 66 held a 61 percent ownership interest in Phillips 66 Partners LP at December 31, 2016.
*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.
Meeker, CO/Clarington, OH
36”-42”
1,712
25
42
14
117
280
45
140
204
61
29
26
38
10
842
1.8 BCFD
Phillips 66 Partners joint venture crude terminal that started operations in the fourth quarter of 2015. The Sacagawea
Pipeline is owned by the joint venture Sacagawea Pipeline Company, LLC, of which Paradigm Pipeline LLC holds a 99
percent interest. Phillips 66 Partners and Paradigm Energy Partners, LLC each own a 50 percent interest in Paradigm
Pipeline LLC.
The following table depicts our ownership interest in major pipeline systems as of December 31, 2016:
Name
Origination/Terminus
Interest
Size
Length
(Miles)
Gross Capacity
(MBD)
Crude and Feedstocks
Bayou Bridge
Clifton Ridge †
Cushing †
Eagle Ford Gathering †
Eagle Ford Gathering †
Glacier †
Line O †
Line 80 †
Line 100
Line 200
Line 300
Line 400
Louisiana Crude Gathering
North Texas Crude †
Oklahoma Mainline †
Sacagawea †
STACK PL †
Sweeny Crude
WA Line †
West Texas Gathering †
Petroleum Products
ATA Line †
Borger to Amarillo †
Borger-Denver
Cherokee East †
Cherokee North †
Cherokee South †
Cross Channel Connector †
Explorer †
Gold Line †
Harbor
Heartland*
LAX Jet Line
Los Angeles Products
Paola Products †
Pioneer
Richmond
SAAL †
SAAL †
Seminoe †
Standish †
Sweeny to Pasadena †
Torrance Products
Watson Products Line
Yellowstone
Nederland, TX/Lake Charles, LA
Clifton Ridge, LA/Westlake, LA
Cushing, OK/Ponca City, OK
Helena, TX
Tilden, TX/Whitsett, TX
Cut Bank, MT/Billings, MT
Cushing, OK/Borger, TX
Gaines, TX/Borger, TX
Taft, CA/Lost Hills, CA
Lost Hills, CA/Rodeo, CA
Nipomo, CA/Arroyo Grande, CA
Arroyo Grande, CA/Lost Hills, CA
Rayne, LA/Westlake, LA
Wichita Falls, TX
Wichita Falls, TX/Ponca City, OK
Keene, ND/Stanley, ND
Cashion, OK/Cushing, OK
Sweeny, TX/Freeport, TX
Odessa, TX/Borger, TX
Permian Basin
Amarillo, TX/Albuquerque, NM
Borger, TX/Amarillo, TX
McKee, TX/Denver, CO
Medford, OK/Mount Vernon, MO
Ponca City, OK/Arkansas City, KS
Ponca City, OK/Oklahoma City, OK
Pasadena, TX/Galena Park, TX
Texas Gulf Coast/Chicago, IL
Borger, TX/East St. Louis, IL
Woodbury, NJ/Linden, NJ
McPherson, KS/Des Moines, IA
Wilmington, CA/Los Angeles, CA
Torrance, CA/Los Angeles, CA
Paola, KS/Kansas City, KS
Sinclair, WY/Salt Lake City, UT
Rodeo, CA/Richmond, CA
Amarillo, TX/Abernathy, TX
Abernathy, TX/Lubbock, TX
Billings, MT/Sinclair, WY
Marland Junction, OK/Wichita, KS
Sweeny, TX/Pasadena, TX
Wilmington, CA/Torrance, CA
Wilmington, CA/Long Beach, CA
Billings, MT/Moses Lake, WA
40%
100
100
100
100
79
100
100
100
100
100
100
100
100
100
50
50
100
100
100
50
100
70
100
100
100
100
22
100
33
50
50
100
100
50
100
33
54
100
100
100
100
100
46
30”
20”
18”
6”
6”, 10”
8”-12”
10”
8”, 12”
8”, 10”, 12”
12”, 16”
8”, 10”, 12”
8”, 10”, 12”
4”-8”
2”-16”
12”
16”
10”, 12”
12”, 24”, 30”
12”, 14”
4”-14”
6”, 10”
8”, 10”
6”-12”
10”, 12”
10”
8”
20”
24”, 28”
8”-16”
16”
8”, 6”
8”
6”, 12”
8”, 10”
8”, 12”
6”
6”
6”
6”-10”
18”
12”, 18”
10”, 12”
20”
6”-10”
49
10
62
6
22
865
276
237
79
228
69
147
80
224
217
91
54
56
289
757
293
93
405
287
29
90
5
1,830
681
80
49
19
22
106
562
14
102
19
342
92
120
8
9
710
480
260
130
20
34
126
37
28
54
93
48
40
25
28
100
115
100
265
104
115
34
76
38
55
57
46
180
660
120
171
30
50
112
96
63
26
33
30
33
72
294
161
238
66
4
5
The following table depicts our ownership interest in finished product terminals as of December 31, 2016:
The following table depicts our ownership interest in crude and other terminals as of December 31, 2016:
Facility Name
Location
Albuquerque †
Amarillo †
Beaumont
Billings
Bozeman
Casper †
Colton
Denver
Des Moines
East St. Louis †
Glenpool †
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 61 percent ownership interest in Phillips 66 Partners LP at December 31, 2016.
New Mexico
Texas
Texas
Montana
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
365
211
310
206
2,085
627
198
1,075
178
110
1,294
101
219
429
116
179
368
186
363
738
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
100
50
100
100
100
100
100
100
100
100
100
100
100
100
50
50
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Gross Rack Capacity
(MBD)
18
29
8
16
13
7
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
Facility Name
Location
Interest
Gross Storage
Capacity (MBbl)
Gross Loading
Capacity*
5,904
270
721
3,410
700
2,200
523
237
523
206
142
1,200
335
112
152
309
240
100%
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
Texas
Montana
Texas
Louisiana
Oklahoma
Texas
California
California
Texas
North Dakota
Louisiana
Oklahoma
California
California
Louisiana
California
Texas
Crude
Beaumont
Billings †
Borger
Clifton Ridge †
Cushing †
Freeport
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 †
NGL Facilities
Freeport
River Parish †
Clemens †
†Owned by Phillips 66 Partners LP; Phillips 66 held a 61 percent ownership interest in Phillips 66 Partners LP at December 31, 2016.
*Rail in thousands of barrels daily (MBD); Marine and NGL Facilities in thousands of barrels per hour.
Texas
Louisiana
Illinois
Louisiana
Oregon
California
Washington
New Jersey
New Jersey
Texas
Washington
Montana
North Dakota
Montana
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100
100
100
100
100
100
100
100
Texas
Louisiana
Texas
N/A
N/A
N/A
N/A
N/A
N/A
100
100
100
50
70
50
1,000
1,500
7,500
100
100
100
Louisiana
N/A
50
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
75
20
30
41
100
42
17
48
3
6
10
3
12
7
36
N/A
N/A
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. In
the fourth quarter of 2016, as a result of capacity enhancement projects, the east-to-west capacity was increased to 2.6
BCFD in order to deliver additional natural gas into Midwestern gas markets.
6
7
Marine Vessels
At December 31, 2016, we had 13 double-hulled, international-flagged crude oil and product tankers under term charter,
with capacities ranging in size from 300,000 to 1,100,000 barrels. Additionally, we had under term charter two Jones
Act-compliant tankers and 50 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 10,800 owned and leased railcars. Truck movements are provided through approximately 150 third-party
trucking companies, as well as through Sentinel Transportation LLC, which became a wholly owned subsidiary on
December 31, 2016.
DCP Midstream
Our Midstream segment includes our 50 percent equity investment in DCP Midstream, which is headquartered in Denver,
Colorado. As of December 31, 2016, DCP Midstream owned or operated 61 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 64,000
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 2016, DCP Midstream completed or advanced the following growth projects:
• The Sand Hills pipeline mainline capacity expansion was placed into service during the second quarter of 2016.
NGL
Our NGL business includes the following:
• A U.S. Gulf Coast NGL market hub comprising the Freeport LPG Export Terminal and Phillips 66 Partners’
100,000 barrels-per-day (BPD) Sweeny Fractionator. These assets are supported by Phillips 66 Partners’ 7.5-
million-barrel Clemens storage facility.
• 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 BPD.
• A 12.5 percent equity interest in a fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is
30,250 BPD.
• A 40 percent interest in a fractionation plant in Conway, Kansas. Our net share of its capacity is 43,200 BPD.
•
•
Phillips 66 Partners owns an NGL logistics system in southeast Louisiana comprising approximately 500 miles of
pipelines and a storage cavern connecting multiple fractionation facilities, refineries and a petrochemical facility.
Phillips 66 Partners owns a direct one-third interest in both Sand Hills and Southern Hills pipelines, which connect
Eagle Ford, Permian and Midcontinent production to the Mont Belvieu, Texas market.
The Sweeny Fractionator is located adjacent to our Sweeny Refinery in Old Ocean, Texas and supplies purity ethane to
the petrochemical industry and LPG to domestic and global markets. Raw NGL supply to the fractionator is delivered
from nearby major pipelines, including the Sand Hills pipeline. The fractionator is supported by significant infrastructure
including connectivity to two NGL supply pipelines, a 180,000 BPD pipeline connecting to the Mont Belvieu market
center and a multi-million barrel salt dome storage facility with access to our LPG export terminal in Freeport, Texas.
In December 2016, the Freeport LPG Export Terminal became fully operational and loaded its first cargos. The terminal
leverages our fractionation, transportation and storage infrastructure to supply petrochemical, heating and transportation
markets globally. The terminal can simultaneously load two ships with refrigerated propane and butane at a combined
rate of 36,000 barrels per hour. In support of the terminal, a 100,000 BPD unit to upgrade domestic propane for export
was installed near the Sweeny Fractionator. In addition, the terminal exports 10,000 to 15,000 BPD of natural gasoline
(C5+) produced at the Sweeny Fractionator.
•
In the first quarter of 2016, DCP Partners (defined below) began to participate in earnings for its 15 percent
interest in the Panola intrastate NGL pipeline which completed an expansion in the third quarter of 2016.
CHEMICALS
• Also in the first quarter of 2016, construction was completed on the Grand Parkway gathering system in the
Denver-Julesburg (DJ) Basin.
Effective January 1, 2017, DCP Midstream, LLC and its master limited partnership (then named DCP Midstream
Partners, LP, subsequently renamed DCP Midstream, LP on January 11, 2017, and referred to herein as DCP Partners)
closed a transaction in which DCP Midstream, LLC contributed subsidiaries owning all of its operating assets and its
existing debt to DCP Partners, in exchange for approximately 31.1 million DCP Partners units. Following the
transaction, we and our co-venturer retained our 50/50 investment in DCP Midstream, LLC and DCP Midstream, LLC
retained its incentive distribution rights in DCP Partners, through its ownership of the general partner of DCP Partners,
and held a 38 percent interest in DCP Partners. See the “Equity Affiliates” section of “Significant Sources of Capital” in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on
this transaction.
The Chemicals segment consists of our 50 percent equity investment in CPChem, which is headquartered in The
Woodlands, Texas. At the end of 2016, CPChem owned or had joint-venture interests in 32 global manufacturing
facilities and two U.S. research and development centers.
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.
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
8
9
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.
In October 2016, CPChem entered into an agreement to sell its K-Resin® styrene-butadiene copolymers business, with
the sale expected to close in the first half of 2017.
CPChem and its equity affiliates have manufacturing facilities located in Belgium, China, Colombia, Qatar, Saudi Arabia,
Singapore, South Korea and the United States.
REFINING
The following table reflects CPChem’s petrochemicals and plastics product capacities at December 31, 2016:
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
—
439
—
—
—
5,984
25,034
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
559
55
20
130
8,764
34,044
In 2016, 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, is 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 is located
near CPChem’s Sweeny facility in Old Ocean, Texas. The project is expected to be completed in 2017.
In March 2016, CPChem approved expansion of the polyalphaolefins (PAO) capacity at its Cedar Bayou plant by 22
million pounds per year, or 20 percent. The expansion will allow CPChem to meet the increasing demand for high-
performance lubricants. Feedstocks for this project will be provided through expansion completed in 2015 of normal
alpha olefins capacity at its Cedar Bayou facility. The PAO expansion is expected to start up by mid-2017.
In the third quarter of 2016, CPChem completed construction of a polyethylene pilot plant at its research and technology
facility in Bartlesville, Oklahoma. The pilot plant enables polyethylene research, such as new catalyst and polymer
development, to take place on a pilot scale prior to implementation in full-scale operations.
Our Refining segment buys, sells, and refines crude oil and other feedstocks into petroleum products (such as gasolines,
distillates and aviation fuels) at 13 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, 2016:
Thousands of Barrels Daily
Region/
Refinery
Atlantic Basin/
Europe
Bayway
Humber
MiRO*
Location
Interest
Linden, NJ
N. Lincolnshire,
United Kingdom
Karlsruhe,
Germany
100.00%
100.00
18.75
Gulf Coast
Alliance
Lake Charles
Sweeny
Central
Corridor
Wood River
Borger
Ponca City
Billings
West Coast
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
2016
Effective
January 1
Net Clean Product
Capacity**
2017 Gasolines Distillates
238
221
58
517
247
249
247
743
157
73
203
60
493
101
139
241
221
58
520
247
249
247
743
157
73
203
60
493
101
139
120
360
2,113
120
360
2,116
150
90
25
125
90
135
80
50
120
35
60
85
60
120
115
25
120
115
120
55
25
95
25
30
65
60
Clean
Product
Yield
Capability
92%
81
87
88
70
87
81
91
93
90
81
90
85
*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.
10
11
Primary crude oil characteristics and sources of crude oil for our refineries are as follows:
Gulf Coast Region
Characteristics
Heavy
Sour
Medium
Sour
Sweet
High
TAN*
United
States
Canada
Sources
South
America
Europe
Middle East
& Africa
Bayway
Humber
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.
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.
Whitegate Refinery
In September 2016, we sold our interest in the Whitegate Refinery, in Cork, Ireland.
Alliance Refinery
The Alliance Refinery is located on the Mississippi River in Belle Chasse, Louisiana. The single-train facility includes a
fluid catalytic cracking unit, 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 by pipeline and 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, southeastern and eastern 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 Note 5—Business Combinations, in the Notes to Consolidated
Financial Statements, for information on the ownership of MSLP.
Central Corridor Region
WRB Refining LP (WRB)
We are the operator and managing partner of WRB, a 50/50 joint venture with Cenovus Energy Inc., which consists of
the Wood River and Borger refineries.
WRB’s gross processing capability of heavy Canadian or similar crudes ranges between 235,000 and 255,000 barrels per
day.
• Wood River Refinery
The Wood River Refinery is located in Roxana, Illinois, about 15 miles northeast of St. Louis, Missouri, at the
confluence of the Mississippi and Missouri rivers. Operations include three distilling units, two fluid catalytic
cracking units, alkylation, hydrocracking, two delayed coking units, naphtha reforming, hydrotreating and sulfur
recovery. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel and jet fuels.
Other products include petrochemical feedstocks, asphalt and coke. Finished product leaves Wood River by
pipeline, rail, barge and truck.
• Borger Refinery
The Borger Refinery is located in Borger, Texas, in the Texas Panhandle, approximately 50 miles north of
Amarillo. The refinery facilities encompass coking, fluid catalytic cracking, alkylation, hydrodesulfurization and
naphtha reforming, and a 45,000-barrel-per-day NGL fractionation facility. It produces a high percentage of
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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.
MARKETING AND SPECIALTIES
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.
West Coast 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 the 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.
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, 2016, we marketed gasoline, diesel and aviation fuel through approximately
7,850 marketer-owned or -supplied outlets in 48 states. These sites utilize the Phillips 66, Conoco or 76 brands.
At December 31, 2016, our wholesale operations utilized a network of marketers operating approximately 6,100 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 covering approximately 850 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 fuel 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. During 2016, we signed a long-term brand licensing
agreement with Motiva Enterprises LLC (Motiva) for its use of the 76 brand in its 26-state territory. The agreement is
expected to increase branded sales in the East Coast and Gulf Coast regions as Motiva introduces the 76 brand during
2017.
In addition to automotive gasoline and diesel, we produce and market jet fuel and aviation gasoline. At December 31,
2016, aviation gasoline and jet fuel were sold through dealers and independent marketers at approximately 900
Phillips 66-branded locations in the United States.
Marketing—International
We have marketing operations in four 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.
As of December 31, 2016, we had 1,306 marketing outlets in our European operations, of which 969 were company
owned and 337 were dealer owned. In addition, through our joint venture operations in Switzerland, we have interests in
298 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 & Solvents
We market high-quality graphite and anode-grade petroleum cokes in the United States and Europe for use in a variety of
industries that include steel, aluminum, titanium dioxide and battery manufacturing. We also market polypropylene in
North America under the COPYLENE brand name for use in consumer products, and market specialty solvents that
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include pentane, iso-pentane, hexane, heptane and odorless mineral spirits for use in the petrochemical, agriculture and
consumer markets.
GENERAL
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 has a nameplate capacity of
22,200 barrels per day of high-quality, clear hydrocracked base oils.
Lubricants
We manufacture and sell automotive, commercial, industrial and specialty lubricants which are marketed worldwide
under the Phillips 66, Kendall and Red Line 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
At December 31, 2016, we held a total of 347 active patents in 24 countries worldwide, including 244 active U.S.
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 $60 million, $65 million and $62
million in 2016, 2015 and 2014, respectively.
In support of our goal to attain zero incidents, we have implemented a comprehensive Health, Safety and Environmental
(HSE) management system to support 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.
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.
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 2016 and those expected
for 2017 and 2018.
TECHNOLOGY DEVELOPMENT
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.
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; and modeling to reduce energy consumption, increase product yield and increase
reliability. Our sustainability group is focusing efforts on organic photovoltaic polymers, solid oxide fuel cells,
atmospheric modeling and air chemistry, water use and reuse and renewable fuels. Additionally, we monitor disruptive
technologies such as electric vehicles and impacts of the digital space on energy consumption, and perform research and
monitoring of developments in battery technology.
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 according
to published industry sources, based on average 2016 production capacity. 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 5, 2016, 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.
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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, NGL, and other refining 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 NGL
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.
Changes in prices that occur between when we purchase feedstocks and when we sell the refined products produced from
these feedstocks could have a significant effect on our financial results. We also purchase refined products produced by
others for sale to our customers. Price changes that occur between when we purchase and sell these refined products also
could have a material adverse effect on our business, financial condition and results of operations.
The price of feedstocks also influences prices for petrochemical and plastics products. Although our Chemicals segment
gathers, transports, and fractionates feedstocks to meet a portion of their demand and has certain long-term feedstock
supply contracts with others, it is still subject to volatile feedstock prices. In addition, the petrochemicals industry is both
cyclical and volatile. Cyclicality occurs when periods of tight supply, resulting in increased prices and profit margins, are
followed by periods of capacity expansion, resulting in oversupply and declining prices and profit margins. Volatility
occurs as a result of changes in supply and demand for products, changes in energy prices, and changes in various other
economic conditions around the world.
Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on
acceptable terms and can adversely affect the financial strength of our business partners.
Our ability to obtain credit and capital depends in large measure on the state of the credit and capital markets, which is
beyond our control. Our ability to access credit and capital markets may be restricted at a time when we would like, or
need, access to those markets, which could constrain our flexibility to react to changing economic and business
conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or
illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on
our lenders, commodity hedging counterparties, or our customers, preventing them from meeting their obligations to us.
From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially
and adversely affected if we are unable to obtain necessary funds from financing activities. From time to time, we may
need to supplement 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.
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The adoption of climate change legislation or regulation could result in increased operating costs and reduced
demand for the refined products we produce.
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.
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, as
illustrated by the Paris Agreement negotiated at the 2015 United Nations Conference on Climate Change, referred to as
COP 21, which entered into force on November 4, 2016. We cannot predict the extent to which any such legislation or
regulation 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 affect 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 or regulation, executive
order, permit or other review of infrastructure or facility development, and commercial restrictions could delay projects,
increase costs, limit development, or otherwise reduce our operating profitability both in the United States and abroad.
Any such actions may affect many aspects of our operations, including requiring permits or other approvals that may
impose unforeseen or unduly burdensome conditions or potentially cause delays in our operations; further limiting or
prohibiting construction or other activities in environmentally sensitive or other areas; requiring increased capital costs to
construct, maintain or upgrade equipment or facilities; or restricting the locations where we may construct facilities or
requiring the relocation of facilities. In addition, 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.
We will not approve a large-scale capital project unless we expect it will deliver 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 investments in joint ventures decrease our ability to manage risk.
We conduct some of our operations, including parts of our Midstream, Refining and M&S segments, and our entire
Chemicals segment, through joint ventures in which we share control with our joint venture participants. Our joint
venture participants may have economic, business or legal interests or goals that are inconsistent with those of the joint
venture or us, or our joint venture participants may be unable to meet their economic or other obligations, and we may be
required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint-venture interest, to
adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on the
financial condition or results of operations of our joint ventures and, in turn, our business and operations.
Activities in our Chemicals and Midstream segments involve numerous risks that may result in accidents or otherwise
affect the ability of our equity affiliates to make distributions to us.
There are a variety of hazards and operating risks inherent in the manufacturing of petrochemicals and the gathering,
processing, transmission, storage, and distribution of natural gas and NGL, such as spills, leaks, explosions and
mechanical problems that could cause substantial financial losses. In addition, these risks could result in significant
injury, loss of human life, damage to property, environmental pollution and impairment of operations, any of which could
result in substantial losses. For assets located near populated areas, including residential areas, commercial business
centers, industrial sites and other public gathering areas, the level of damage resulting from these risks could be greater.
Should any of these risks materialize, it could have a material adverse effect on the business and financial condition of
our equity affiliates in these segments 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 products 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.
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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.
We may incur losses as a result of our forward-contract activities and derivative transactions.
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
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.
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. The risk of counterparty default is
heightened in a poor economic environment.
One of our subsidiaries acts as the general partner of a publicly traded master limited partnership, Phillips 66
Partners LP, which may involve a greater exposure to legal liability than our historic business operations.
One of our subsidiaries acts as the general partner of Phillips 66 Partners LP, a publicly traded master limited partnership.
Our control of the general partner of Phillips 66 Partners may increase the possibility that we could be subject to claims
of breach of fiduciary duties, including claims of conflicts of interest, related to Phillips 66 Partners. Any liability
resulting from such claims could have a material adverse effect on our future business, financial condition, results of
operations and cash flows.
A significant interruption in one or more of our facilities could adversely affect our business.
Our operations could be subject to significant interruption if one or more of our facilities were to experience a major
accident, mechanical failure, or power outage, encounter work stoppages relating to organized labor issues, be damaged
by severe weather or other natural or man-made disaster, such as an act of terrorism, or otherwise be forced to shut down.
If any facility were to experience an interruption in operations, earnings from the facility could be materially adversely
affected (to the extent not recoverable through insurance, if insured) because of lost production and repair costs. A
significant interruption in one or more of our facilities could also lead to increased volatility in prices for feedstocks and
refined products, and could increase instability in the financial and insurance markets, making it more difficult for us to
access capital and to obtain insurance coverage that we consider adequate.
Our performance depends on the uninterrupted operation of our facilities, which are becoming increasingly
dependent on our information technology systems.
Our performance depends on the efficient and uninterrupted operation of the manufacturing equipment in our production
facilities. The inability to operate one or more of our facilities due to a natural disaster; power outage; labor dispute; or
failure of one or more of our information technology, telecommunications, or other systems could significantly impair
our ability to manufacture our products. Our manufacturing equipment is becoming increasingly dependent on our
information technology systems. A disruption in our information technology systems due to a catastrophic event or
security breach could interrupt or damage our operations.
Competitors that produce their own supply of feedstocks, have more extensive retail outlets, or have greater financial
resources may have a competitive advantage.
Security breaches and other disruptions could compromise our information and expose us to liability, which would
cause our business and reputation to suffer.
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.
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.
22
23
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.
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
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
The California Air Resources Board (CARB) issued four separate Notices of Violation (NOV) to the company alleging
violations of fuel specification requirements at our Los Angeles Refinery and Torrance Tank Farm. During a meeting
with the CARB in January 2017, it proposed to have these four NOVs resolved with a total penalty payment of $190,000.
We are working with the CARB to resolve these NOVs.
In October 2016, after receiving a Notice of Intent to Sue from the Sierra Club, we entered into a voluntary settlement
with the Illinois Environmental Protection Agency for alleged violations of wastewater requirements at the Wood River
Refinery. The settlement involves certain capital projects and payment of $125,000. The settlement has been filed with
the Court for final approval and the Sierra Club has sought to intervene in the case to oppose the settlement. A court
hearing is scheduled for March 2017.
Matters Previously Reported (unresolved or resolved since the quarterly report on Form 10-Q for the quarterly period
ended September 30, 2016)
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 resolved this matter with the EPA in December
2016 with a settlement payment of $35,500.
24
25
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 July 2014, Phillips 66 received an 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 this NOV.
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.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Greg C. Garland
Tim G. Taylor
Robert A. Herman
Paula A. Johnson
Kevin J. Mitchell
Lawrence M. Ziemba
Chukwuemeka A. Oyolu
*On February 10, 2017.
Position Held
Age*
Chairman and Chief Executive Officer
President
Executive Vice President, Midstream
Executive Vice President, Legal and Government Affairs, General Counsel
and Corporate Secretary
Executive Vice President, Finance and Chief Financial Officer
Executive Vice President, Refining
Vice President and Controller
59
63
57
53
50
61
47
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.
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 and Government Affairs, General Counsel and Corporate Secretary
of Phillips 66, a position she has held since October 2016. Previously, Ms. Johnson served as Executive Vice President,
Legal, General Counsel and Corporate Secretary of Phillips 66 from May 2013 to October 2016, and Senior Vice
President, Legal, General Counsel and Corporate Secretary of Phillips 66 from April 2012 to May 2013. 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 to 2012.
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27
PART II
Item 6. SELECTED FINANCIAL DATA
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:
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Closing Stock Price at December 30, 2016
Closing Stock Price at January 31, 2017
Number of Stockholders of Record at January 31, 2017
Issuer Purchases of Equity Securities
Stock Price
High
Low
Dividends
$
$
90.87
89.31
81.31
88.87
80.59
82.19
84.85
94.12
71.74
76.40
73.67
77.66
57.33
76.43
69.79
76.45
.56
.63
.63
.63
.50
.56
.56
.56
$
$
86.41
81.62
40,969
Period
Total Number of
Shares
Purchased*
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs**
Millions of Dollars
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
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 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 of ConocoPhillips for the four
months ended April 30, 2012.
Sales and other operating revenues
Income from continuing operations
Income from continuing operations
attributable to Phillips 66
Per common share
Basic
Diluted
Net income
Net income attributable to Phillips 66
Per common share
Basic
Diluted
Total assets
Long-term debt
Cash dividends declared per common share
Millions of Dollars Except Per Share Amounts
2016
2015
2014
2013
2012
$
84,279
1,644
98,975
4,280
161,212
4,091
171,596
3,682
179,290
4,083
1,555
2.94
2.92
1,644
1,555
2.94
2.92
51,653
9,588
2.4500
4,227
4,056
3,665
4,076
7.78
7.73
4,280
4,227
7.78
7.73
48,580
8,843
2.1800
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
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.
October 1-31, 2016
November 1-30, 2016
December 1-31, 2016
Total
*Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when
602,444
1,071,920
1,086,373
2,760,737
602,444
1,071,920
1,086,373
2,760,737
80.19
82.11
86.31
83.34
1,744
1,656
1,562
$
$
$
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.
28
29
cracker is expected to be complete in the fourth quarter of 2017. Growth capital in Refining will be directed
toward small, high-return, quick-payout projects, while Marketing and Specialties will continue to expand and
enhance its fuels marketing business.
• 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 2016, we sold
the Whitegate Refinery in Ireland as part of our ongoing portfolio optimization process. We improved clean
product yield in 2016, and continued efforts to enhance the value of our marketing brands.
• Distributions. We believe shareholder value is enhanced through, among other things, consistent growth of
regular dividends, supplemented by share repurchases. We increased our quarterly dividend rate by 13 percent
during 2016, and have increased it 215 percent since our separation from ConocoPhillips in 2012 (the
Separation). Regular dividends demonstrate the confidence our Board of Directors and management have in our
capital structure and operations’ capability to generate free cash flow throughout the business cycle. In 2016, we
repurchased $1.0 billion, or approximately 12.9 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.
• High-Performing Organization. We strive to attract, 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, 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.
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, 2016, we had total assets of $51.7 billion.
Executive Overview
We reported earnings of $1.6 billion in 2016 and generated $3.0 billion in cash from operating activities. Phillips 66
Partners LP issued debt and common units to the public for net proceeds totaling $2.1 billion. We used this available
cash primarily to fund capital expenditures and investments of $2.8 billion, pay dividends of $1.3 billion and repurchase
$1.0 billion of our common stock. We ended 2016 with $2.7 billion of cash and cash equivalents and approximately $5.5
billion of total capacity under both our and Phillips 66 Partners’ available liquidity facilities.
Our financial performance in 2016 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. 2016 was our
safest year since the company’s inception. 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 and report these costs to senior management. Our operating and selling,
general and administrative expenses were $5.9 billion in 2016, $6.0 billion in 2015 and $6.1 billion in 2014. 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 2016, our worldwide refining
crude oil capacity utilization rate was 96 percent, 5 percent higher than during 2015.
• Growth. We have budgeted $2.7 billion in capital expenditures and investments in 2017, including $0.4 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 2017 capital program is expected to be $3.8 billion. After completing our U.S. Gulf Coast NGL market
hub in 2016, we will focus Midstream development in 2017 around our existing infrastructure’s footprint. In
Chemicals, CPChem progressed towards completion of its U.S. Gulf Coast ethane cracker and polyethylene
facilities project during 2016. The polyethylene units are expected to be complete by mid-2017 and the ethane
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31
Business Environment
Commodity prices remained compressed during 2016. The discount for U.S. benchmark West Texas Intermediate (WTI)
versus the international benchmark Brent narrowed over much of 2016 as the reemergence of floating storage pressured
prompt waterborne markets. Over the course of 2016, commodity prices had a variety of impacts, both favorable and
unfavorable, on our 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. Average natural gas prices in 2016 were slightly lower than
2015 due to warmer-than-normal temperatures and high storage. In the fourth quarter of 2016, natural gas prices gained
momentum with colder temperatures and increased residential and commercial heating demand. Total U.S. dry natural
gas production also increased through the fourth quarter of 2016, largely from the Marcellus play, where new pipeline
takeaway capacity came online in December 2016. NGL prices improved slightly throughout 2016 due to an increase in
export capacity in the United States.
During 2016, 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. The ethylene-to-polyethylene chain margins remained positive, but they compressed in 2016 because
of the significant decline in crude oil prices that began in 2014.
Our Refining segment results are 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 2016, the U.S. 3:2:1 crack spread (three barrels of crude oil
producing two barrels of gasoline and one barrel of diesel) weakened across all quarters compared with 2015, largely
attributable to higher product inventories resulting from historically high refining throughput (especially in the Gulf
Coast and Midcontinent regions). Northwest European crack spreads on average decreased in 2016 compared to 2015,
also because of high product inventories resulting from high refinery utilization.
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 influenced 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.
RESULTS OF OPERATIONS
Consolidated Results
A summary of net income (loss) attributable to Phillips 66 by business segment 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
$
$
Millions of Dollars
Year Ended December 31
2016
178
583
374
891
(471)
1,555
—
1,555
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
2016 vs. 2015
Our earnings from continuing operations decreased $2,672 million, or 63 percent, in 2016, mainly reflecting:
• Lower realized refining margins.
• Lower olefins and polyolefins margins.
• Recognition in 2015 of $242 million of the deferred gain related to the sale in 2013 of the Immingham
Combined Heat and Power Plant (ICHP).
These decreases were partially offset by:
• Lower equity losses from DCP Midstream, primarily as a result of goodwill and other asset impairments
recorded in 2015.
2015 vs. 2014
Our earnings from continuing operations increased $171 million, or 4 percent, in 2015, primarily resulting from:
•
Improved realized refining margins.
• Recognition of $242 million in 2015, compared with $126 million in 2014, of the deferred gain related to the
sale in 2013 of ICHP.
These increases were partially offset by:
• Goodwill and other asset impairments recorded by DCP Midstream in 2015.
• Lower ethylene margins.
Discontinued operations in 2014 included the recognition of a noncash $696 million gain related to the Phillips Specialty
Products Inc. (PSPI) disposition through a share exchange.
See the “Segment Results” section for additional information on our segment results.
32
33
Income Statement Analysis
2016 vs. 2015
Segment Results
Midstream
Sales and other operating revenues and purchased crude oil and products both decreased 15 percent in 2016. The
decreases were primarily due to lower average prices for petroleum products and crude oil, while average NGL prices
were slightly improved during 2016.
Equity in earnings of affiliates decreased 10 percent in 2016, primarily resulting from decreased earnings from CPChem
and WRB, partially offset by improved results from DCP Midstream.
• Equity in earnings of CPChem decreased 37 percent, primarily due to lower realized olefins and polyolefins
margins.
• Equity in earnings of WRB decreased $186 million, mainly resulting from lower market crack spreads, partially
offset by higher feedstock advantage.
• Equity in earnings of DCP Midstream improved $426 million in 2016, primarily driven by goodwill and other
asset impairments recorded by DCP Midstream in 2015.
Net gain on dispositions decreased $273 million in 2016. In 2015, we recognized a $242 million deferred gain related to
the sale of ICHP. See Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements, for
additional information.
See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our provision
for income taxes and effective tax rates.
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.
• 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 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 was 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.
Year Ended December 31
2016
2015
2014
Millions of Dollars
Net Income (Loss) Attributable to Phillips 66
Transportation
DCP Midstream
NGL
Total Midstream
$
$
246
(33)
(35)
178
288
(324)
49
13
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.
0.46
$
0.45
Transportation Volumes
Pipelines*
Terminals
Operating Statistics
NGL extracted**
NGL fractionated***
Thousands of Barrels Daily
3,511
2,422
393
170
3,264
1,981
410
112
233
135
139
507
0.89
3,206
1,683
454
109
*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, stores, 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 segment also stores, refrigerates, and exports liquefied petroleum gas (LPG)
primarily to Asia and Europe. The Midstream segment includes our master limited partnership (MLP), Phillips 66
Partners LP, as well as our 50 percent equity investment in DCP Midstream, LLC, which includes the operations of its
MLP, DCP Midstream, LP (formerly named DCP Midstream Partners, LP and referred to herein as DCP Partners).
2016 vs. 2015
Earnings from the Midstream segment increased $165 million in 2016, compared with 2015. The increase was primarily
due to improved results from DCP Midstream, partially offset by lower earnings from our Transportation and NGL
businesses.
Transportation earnings decreased $42 million in 2016, compared with 2015. Lower earnings primarily resulted from
higher operating costs, and increased depreciation expense due to growth projects, as well as increased income
attributable to noncontrolling interests, reflecting the contribution of assets to Phillips 66 Partners. These items were
partially offset by higher revenues from increased throughput volumes and higher tariffs.
34
35
Results from our investment in DCP Midstream improved $291 million in 2016, compared with 2015. In 2015, DCP
Midstream recorded goodwill and other asset impairments, which reduced our earnings from DCP Midstream by $232
million, after-tax. In addition, favorable contract restructuring efforts, improved asset performance, higher earnings from
DCP Midstream’s equity affiliates, lower operating costs and higher NGL prices contributed to better results in 2016.
These improvements were partially offset by lower natural gas and crude oil prices.
Results from our NGL business decreased $84 million in 2016, compared with 2015. The decrease was primarily driven
by lower realized margins, as well as increased depreciation and operating expenses associated with the Sweeny
Fractionator and, late in the year, the Freeport LPG Export Terminal. These items were partially offset by higher
fractionated volumes, reflecting the operation of the Sweeny Fractionator for a full year in 2016, and the benefit of the
first liquefied petroleum gas cargos exported from the Freeport LPG Export Terminal in late 2016.
See the “Business Environment and Executive Overview” section for information on market factors impacting 2016
results.
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.
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 Partners 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 the Sweeny Fractionator. These decreases were partially offset by higher earnings from equity affiliates.
Chemicals
Year Ended December 31
2016
2015
2014
Millions of Dollars
Net Income Attributable to Phillips 66
$
583
962
1,137
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins
Specialties, Aromatics and Styrenics
Millions of Pounds
16,011
4,911
20,922
16,916
5,301
22,217
16,815
6,294
23,109
*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%
92
88
*Revised to exclude polyethylene pipe operations. Prior periods recast for comparability.
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.
2016 vs. 2015
Earnings from the Chemicals segment decreased $379 million, or 39 percent, in 2016, compared with 2015. The
decrease in earnings was primarily due to lower realized margins from the O&P business, driven by a decline in sales
prices for polyethylene and normal alpha olefins (NAO) and higher feedstock costs, as well as impacts from increased
turnaround activity. Lower equity earnings from CPChem’s equity affiliates and lower SA&S volumes further reduced
earnings in 2016.
In addition, CPChem recognized a $177 million impairment in 2016 due to lower demand and margin factors affecting an
equity affiliate, which resulted in an $89 million after-tax reduction in our equity earnings from CPChem. Our equity
earnings from CPChem were reduced by $24 million in 2015 as a result of an impairment CPChem recognized on an
equity affiliate. These items were partially offset by higher NAO and polyethylene sales volumes and improved SA&S
margins.
See the “Business Environment and Executive Overview” section for information on market factors impacting CPChem’s
results.
36
37
2015 vs. 2014
Refining
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 a 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.
Net Income (Loss) Attributable to Phillips 66
Atlantic Basin/Europe
Gulf Coast
Central Corridor
West Coast
Worldwide
Refining Margins
Atlantic Basin/Europe
Gulf Coast
Central Corridor
West Coast
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
West Coast
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
2016
2015
2014
Millions of Dollars
$
$
$
204
52
234
(116)
374
6.26
5.49
8.70
9.15
6.99
569
551
857
578
2,555
Dollars Per Barrel
9.39
9.29
14.88
16.86
11.84
Thousands of Barrels Daily
566
568
100%
607
743
704
95%
783
493
485
98%
506
360
318
88%
345
588
539
92
587
738
654
89
733
492
465
95
486
360
330
92
359
2,162
2,075
96%
2,241
2,178
1,988
91
2,165
198
252
967
354
1,771
8.94
7.64
15.63
8.89
9.93
588
554
94
605
733
676
92
771
485
475
98
494
440
403
92
435
2,246
2,108
94
2,305
38
39
The Refining segment buys, sells and refines crude oil and other feedstocks into petroleum products (such as gasoline,
distillates and aviation fuels) at 13 refineries, mainly in the United States and Europe.
Marketing and Specialties
2016 vs. 2015
Earnings for the Refining segment decreased $2,181 million, compared with 2015. Lower earnings in 2016 reflected
lower realized refining margins resulting from decreased market crack spreads, higher costs associated with renewable
fuels blending activities, lower clean product differentials and lower feedstock advantage. These items were partially
offset by higher volumes due to lower turnaround activities and less unplanned downtime.
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 96 percent in 2016, compared to 91 percent in 2015. The
increase was primarily attributable to lower turnaround activities and less unplanned downtime.
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. As more fully discussed in Note 5—Business Combinations, in the
Notes to Consolidated Financial Statements, in February 2017, the time expired for all legal challenges related to the
exercise in 2009 of a call right to acquire Petróleos de Venezuela S.A.’s (PDVSA) 50 percent share of MSLP, and we
began accounting for MSLP as a wholly owned consolidated subsidiary. Based on a preliminary appraisal, the
acquisition of PDVSA’s 50 percent interest is expected to result in our recording a noncash, pre-tax gain of approximately
$420 million in the first quarter of 2017.
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.
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.
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
2016
2015
2014
Millions of Dollars
747
144
891
1.64
4.05
1.62
1.48
1,004
183
1,187
Dollars Per Barrel
1.65
4.40
Dollars Per Gallon
1.92
1.77
Thousands of Barrels Daily
1,238
947
16
2,201
1,205
953
16
2,174
836
198
1,034
1.51
5.22
2.72
2.95
1,195
979
17
2,191
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.
2016 vs. 2015
Earnings from the M&S segment decreased $296 million, or 25 percent, in 2016, compared with 2015. The decrease was
mainly attributable to the $242 million deferred gain recognized in 2015 related to the 2013 ICHP sale. See Note 6—
Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements, for additional information.
Also contributing to the lower earnings in 2016 were lower realized marketing margins driven by an upward trend of spot
prices during most of 2016, and lower margins and volumes in lubricants. These decreases were partially offset by
favorable tax adjustments and higher marketing volumes.
See the “Business Environment and Executive Overview” section for information on marketing fuel margins and other
market factors impacting 2016 results.
40
41
2015 vs. 2014
Discontinued Operations
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.
Net Income Attributable to Phillips 66
Discontinued operations
Millions of Dollars
Year Ended December 31
2016
—
$
2015
—
2014
706
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.
Corporate and Other
Net Loss Attributable to Phillips 66
Net interest expense
Corporate general and administrative expenses
Technology
Other
Total Corporate and Other
2016 vs. 2015
Millions of Dollars
Year Ended December 31
2016
(210)
(161)
(58)
(42)
(471)
$
$
2015
2014
(186)
(157)
(60)
(87)
(490)
(160)
(156)
(58)
(19)
(393)
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net
interest expense increased $24 million in 2016, compared with 2015, mainly due to lower capitalized interest.
The category “Other” includes certain income tax expenses, environmental costs associated with sites no longer in
operation, foreign currency transaction gains and losses and other costs not directly associated with an operating
segment. The decrease in other costs in 2016 was primarily attributable to favorable tax impacts, the write-off of certain
fixed assets during 2015 and the impact of an increase in noncontrolling interests on interest expense incurred by Phillips
66 Partners, partially offset by higher environmental accruals.
2015 vs. 2014
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 increase in other costs in 2015 was primarily due to foreign tax credit carryforwards that were utilized in 2014 and
other tax adjustments made in 2015.
42
43
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
2016
2015
2014
$
2,711
2,963
550
10,138
23,725
30%
3%
3,074
5,713
44
8,887
23,938
27
1
5,207
3,529
842
8,635
22,037
28
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 2016, we generated $3.0
billion in cash from operations. Phillips 66 Partners issued debt and common units to the public for net proceeds
totaling $2.1 billion. We used this available cash primarily for capital expenditures and investments ($2.8 billion);
repurchases of our common stock ($1.0 billion); and dividend payments on our common stock ($1.3 billion). During
2016, cash and cash equivalents decreased by $0.4 billion, to $2.7 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 2016, cash of $2,963 million was provided by operating activities, a 48 percent decrease compared with 2015.
The decrease was primarily attributable to lower realized refining margins, as well as a reduction in distributions from
our equity affiliates. This decrease was partially offset by positive working capital of $501 million in 2016 compared to a
negative working capital impact of $221 million in 2015. The positive working capital impact in 2016 was primarily
driven by increased refining payables, due to an increase in feedstock costs at the end of 2016 as compared with 2015,
and the timing of tax payments and refunds, partially offset by an increase in receivables, resulting from higher
commodity prices. See the following paragraph for a discussion of 2015 working capital effects.
During 2015, cash of $5,713 million was provided by operating activities, a 62 percent increase from cash from
operations of $3,529 million in 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.
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
96 percent in 2016, compared with 91 percent in 2015.
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, 2016, we received distributions of $237
million from DCP Midstream, $2,241 million from CPChem and $1,568 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.
Effective January 1, 2017, DCP Midstream, LLC and DCP Partners closed a transaction in which DCP Midstream, LLC
contributed subsidiaries owning all of its operating assets, $424 million of cash and $3.15 billion of debt to DCP
Partners, in exchange for DCP Partners units which had an estimated fair value of $1.125 billion at the time of the
transaction. We and our co-venturer retained our 50/50 investment in DCP Midstream, LLC, and DCP Midstream, LLC
retained its incentive distribution rights in DCP Partners through its ownership of the general partner of DCP Partners.
After the transaction, DCP Midstream, LLC held a 38 percent interest in DCP Partners. DCP Midstream, LLC, through its
ownership of the general partner, has agreed, if required, to forgo receipt of incentive distribution rights up to $100 million
annually (100 percent basis) through 2019, to support a minimum distribution coverage ratio for DCP Partners. In
connection with the transaction, DCP Midstream, LLC terminated its revolving credit agreement, which had previously
served to limit distributions to its owners while amounts had been borrowed under the facility. As a result, we expect
distributions to the owners of DCP Midstream, LLC to resume in 2017 as it receives distributions from DCP Partners.
In 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. CPChem’s U.S.
Gulf Coast project is expected to be completed and begin commercial operations during 2017. As a result, we expect
distributions from CPChem to increase starting in 2017, as capital spending by CPChem on this project ends.
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 2016 were $156 million compared with $70 million in 2015 and $1,244 million in 2014.
The 2016 net proceeds were primarily attributed to the sale of the Whitegate Refinery in Ireland. 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 the Malaysia Refining
Company Sdn. Bdh. (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.
44
45
Foreign Cash Holdings
At December 31, 2016, approximately 53 percent of our consolidated cash and cash equivalents balance was available to
fund domestic opportunities without incurring material 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:
• 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 universal 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.
Phillips 66 Partners LP
In 2013 we formed Phillips 66 Partners LP, a publicly traded 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 Midstream assets.
Ownership
At December 31, 2016, we owned a 59 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while its public unitholders owned a 39 percent limited partner interest. We consolidate Phillips 66 Partners
as a variable interest entity for financial reporting purposes. See Note 3—Variable Interest Entities, in the Notes to
Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of this
consolidation, the public unitholders’ ownership interest in Phillips 66 Partners is reflected as a $1,306 million
noncontrolling interest in our consolidated balance sheet at December 31, 2016. Generally, drop down transactions 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. Through the public offerings of common units and senior notes discussed below,
our consolidated cash increased by $2.1 billion, consolidated debt increased by $1.1 billion and consolidated equity
increased by $791 million.
Debt and Equity Financings
During the three years ended December 31, 2016, Phillips 66 Partners closed on the following public securities offerings
in which it raised net proceeds of approximately $3.6 billion:
•
•
•
•
•
In October 2016, Phillips 66 Partners received net proceeds of $1,111 million from the issuance of $500 million
of 3.55% Senior Notes due 2026 and $625 million of 4.90% Senior Notes due 2046.
In August 2016, Phillips 66 Partners received net proceeds of $299 million from a public offering of 6 million
common units, at a price of $50.22 per unit.
In June 2016, Phillips 66 Partners began issuing common units under a continuous offering program, which
allows for the offering of up to $250 million of common units. Through December 31, 2016, net proceeds of
$19 million had been received under this program.
In May 2016, Phillips 66 Partners received net proceeds of $656 million from a public offering of 12.65 million
common units, at a price of $52.40 per unit.
In February 2015, Phillips 66 Partners received net proceeds of $1,092 million from the issuance of $300 million
of 2.646% Senior Notes due 2020, $500 million of 3.605% Senior Notes due 2025, and $300 million of 4.680%
Senior Notes due 2045.
•
In February 2015, Phillips 66 Partners received net proceeds of $384 million from a public offering of 5.25
million common units, at a price of $75.50 per unit.
Phillips 66 Partners primarily used these net proceeds to fund the cash portion of acquisitions of assets from Phillips 66.
See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on
Phillips 66 Partners and additional details on assets contributed to the partnership by us during 2016.
Credit Facilities and Commercial Paper
In October 2016, we amended our Phillips 66 revolving credit facility, primarily to extend the term from December 2019
to October 2021. Borrowing capacity under the Phillips 66 facility remained at $5 billion. 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, 2016, 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.
We have a $5 billion commercial paper program for short-term working capital needs that is supported by our revolving
credit facility. Commercial paper maturities are generally limited to 90 days. As of December 31, 2016, we had no
borrowings under our commercial paper program.
Phillips 66 Partners also amended its revolving credit facility in October 2016, primarily to increase its borrowing
capacity to $750 million and to extend the term from November 2019 to October 2021. The Phillips 66 Partners facility
is with a broad syndicate of financial institutions. As of December 31, 2016, $210 million was outstanding under the
partnership’s facility.
Debt Financing
Our $7.5 billion of outstanding Senior Notes issued by Phillips 66 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 seventeen years. The present value of our minimum capital lease
payments for these obligations as of December 31, 2016, was $188 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 MSLP. At December 31, 2016, the aggregate principal amount of MSLP debt guaranteed by us was $123
million.
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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 decline in crude oil railcar prices. At year-end 2016, based on an outside appraisal of the railcars’
fair value at the end of their lease terms, we estimated a total residual value deficiency of $94 million that would be
payable at the end of the lease terms, with approximately one-half due in late 2017 and the other half due in 2019. Due
to current market uncertainties, changes in the estimated fair values of railcars could occur, which could increase or
decrease our currently estimated residual value deficiency. As of December 31, 2016, our maximum future exposure
under the residual value guarantees was approximately $320 million. See Note 14—Guarantees, in the Notes to
Consolidated Financial Statements, for information on charges recorded in 2016 associated with the residual value
deficiencies and related cease-use costs for railcars permanently taken out of service.
In June 2016, the operating lease commenced on our new headquarters facility in Houston, Texas, after construction was
deemed substantially complete. Under the lease agreement, we have a residual value guarantee with a maximum future
exposure of $554 million. 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 lessor in marketing it for resale.
We have residual value guarantees associated with railcar and airplane leases with maximum future potential payments of
$363 million. For information on our need to perform under the railcar lease guarantee, see the Capital Requirements
section to follow, as well as Note 14—Guarantees, in the Notes to Consolidated Financial Statements. Also see Note 14
for additional information on our guarantees.
Capital Requirements
For information about our capital expenditures and investments, see “Capital Spending” below.
Our debt balance at December 31, 2016, was $10.1 billion and our debt-to-capital ratio was 30 percent. Our target debt-
to-capital ratio is between 20 and 30 percent.
On February 8, 2017, our Board of Directors declared a quarterly cash dividend of $0.63 per common share, payable
March 1, 2017, to holders of record at the close of business on February 21, 2017.
Our Board of Directors at various times has authorized repurchases of our outstanding common stock which aggregate to
a total authorization of 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, 2016, we have
repurchased a total of 105,404,649 shares at a cost of $7.4 billion. Shares of stock repurchased are held as treasury
shares.
We own a 25 percent interest in the Dakota Access, LLC (DAPL) and Energy Transfer Crude Oil Company, LLC
(ETCOP) joint ventures, which have been constructing pipelines to deliver crude oil produced in the Bakken area of
North Dakota to market centers in the Midwest and the Gulf Coast. In May 2016, we and our co-venturer executed
agreements under which we and our co-venturer would loan DAPL and ETCOP up to a maximum of $2,256 million and
$227 million, respectively, with the amounts loaned by us and our co-venturer being proportionate to our ownership
interests (Sponsor Loans). In August 2016, DAPL and ETCOP secured a $2.5 billion facility (Facility) with a syndicate
of financial institutions on a limited recourse basis with certain guaranties, and the outstanding Sponsor Loans were
repaid. Allowable draws under the Facility were initially reduced and finally suspended in September 2016 pending
resolution of permitting delays. As a result, DAPL and ETCOP resumed making draws under the Sponsor Loans. The
maximum amounts that could be loaned under the Sponsor Loans were reduced on September 22, 2016, to $1,411
million for DAPL and $76 million for ETCOP. As of December 31, 2016, DAPL and ETCOP had $976 million and $22
million, respectively, outstanding under the Sponsor Loans. Our 25 percent share of those loans was $244 million and $6
million, respectively. DAPL was granted the lone outstanding easement to complete work beneath the Missouri River on
February 8, 2017. As a result, construction of its pipeline resumed and draws under the Facility were reinitiated to repay
the outstanding Sponsor Loans and to continue funding of construction. The DAPL pipeline is expected to be completed
and operational by mid-2017. The book values of our investments in DAPL and ETCOP at December 31, 2016, were
$403 million and $129 million, respectively.
In the first quarter of 2016, we and our co-venturer in WRB each made a $75 million partner loan to provide for WRB’s
operating needs.
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
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Contractual Obligations
Capital Spending
The following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2016:
Millions of Dollars
Payments Due by Period
Total
10,054
188
10,242
7,360
1,556
162,423
244
496
7
182,328
$
$
Up to
1 Year
531
19
550
413
404
115,657
8
77
7
117,116
Years
2-3
548
26
574
780
638
11,718
13
131
(d)
13,854
Years
4-5
1,049
18
1,067
762
285
9,253
13
62
(d)
11,442
After
5 Years
7,926
125
8,051
5,405
229
25,795
210
226
(d)
39,916
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 $123,715 million. In addition, $18,438 million are
product purchases from CPChem, mostly for natural gas and NGL over the remaining contractual term of 83
years, and $4,732 million from Excel Paralubes, for base oil over the remaining contractual term of 8 years.
Purchase obligations of $5,435 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 2017 through 2021 time period, we expect to contribute an average of $110 million
per year to our qualified and nonqualified pension and other postretirement benefit plans in the United States and
an average of $33 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 $130 million for 2017 and then approximately
$105 million per year for the remaining four years. Our minimum funding in 2017 is expected to be $55 million
in the United States and $35 million outside the United States.
(d) Excludes unrecognized tax benefits of $35 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 $12 million. Although unrecognized tax benefits are not a contractual
obligation, they are presented in this table because they represent potential demands on our liquidity.
Capital Expenditures and Investments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Total consolidated from continuing operations
Selected Equity Affiliates*
DCP Midstream
CPChem
WRB
*Our share of capital spending.
2017
Budget
1,549
—
905
132
112
2,698
243
675
135
1,053
$
$
$
$
Millions of Dollars
2016
1,453
—
1,149
98
144
2,844
99
987
164
1,250
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
Midstream
Capital spending in our Midstream segment during the three-year period ended December 31, 2016, included:
• Construction activities related to the Sweeny Fractionator and Freeport LPG Export Terminal projects.
•
Pipeline projects being developed by two of our joint ventures, DAPL and ETCOP. We own a 25 percent
interest in each of these joint ventures.
• Acquisition of and projects to increase storage capacity at our crude oil and petroleum products terminal located
near Beaumont, Texas.
• Acquisition by Phillips 66 Partners of certain southeast Louisiana NGL logistics assets comprising
approximately 500 miles of pipelines and a storage cavern connecting multiple fractionation facilities, refineries
and a petrochemical facility.
• Construction of rail racks to accept advantaged crude deliveries at our Bayway and Ferndale refineries.
•
•
Formation of the STACK JV.
Spending associated with return, reliability and maintenance projects in our Transportation and NGL businesses.
During the three-year period ended December 31, 2016, DCP Midstream’s capital expenditures and investments were
$2.6 billion on a 100 percent basis. In 2015, we contributed $1.5 billion of cash to DCP Midstream, LLC 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, LLC remained at 50 percent.
In 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 2015.
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Chemicals
During the three-year period ended December 31, 2016, 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 $6.4 billion. In addition, CPChem’s advances to equity affiliates, primarily used for
project construction and start-up activities, were $206 million and its repayments received from equity affiliates were $81
million.
The Midstream capital budget of $1.5 billion is focused on development around its existing infrastructure’s footprint,
including continued expansion of the Beaumont Terminal and investment in pipelines and other terminals. Refining’s
capital budget of $0.9 billion is directed toward reliability, safety and environmental projects, as well as projects designed
to improve clean product yields and lower feedstock costs. In M&S, we plan to invest approximately $0.1 billion to
expand and enhance our fuel marketing business. In Corporate and Other, we plan to fund approximately $0.1 billion in
projects primarily related to information technology and facilities.
Refining
Capital spending for the Refining segment during the three-year period ended December 31, 2016, was $3.3 billion,
primarily for air emission reduction and clean fuels projects to meet new environmental standards, refinery upgrade
projects to increase accessibility of advantaged crudes and improve product yields, improvements to the operating
integrity of key processing units, and safety-related projects.
Key projects completed during the three-year period included:
•
•
•
•
•
Installation of facilities to reduce nitrous oxide emissions from the 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 the Sweeny and Lake Charles refineries.
Installation of facilities to improve processing of advantaged crudes at the Alliance and Ponca City refineries.
Installation of facilities to comply with U.S. Environmental Protection Agency (EPA) Tier 3 gasoline regulations
at the Alliance and Lake Charles refineries.
•
Installation of a crude tank to increase accessibility of waterborne crude at the Los Angeles Refinery.
Major construction activities in progress include:
•
•
•
Installation of facilities to comply with EPA Tier 3 gasoline regulations at the Sweeny and Bayway refineries.
Installation of facilities to improve processing of advantaged crudes at the Billings Refinery.
Installation of facilities to improve clean product yield at the 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 $958 million. We expect
WRB’s 2017 capital program to be self-funding.
Marketing and Specialties
Capital spending for the M&S segment during the three-year period ended December 31, 2016, 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 developing our new international sites.
Corporate and Other
Capital spending for Corporate and Other during the three-year period ended December 31, 2016, was primarily for
projects related to information technology and facilities.
2017 Budget
Our 2017 capital budget is $2.7 billion including Phillips 66 Partners’ capital budget of $0.4 billion. This excludes our
portion of planned capital spending by joint ventures DCP Midstream, CPChem and WRB totaling $1.1 billion, all of
which is expected to be self-funded.
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
Like other companies in our industry, we are subject to numerous international, federal, state and local environmental
laws and regulations. Among the most significant of these international and federal environmental laws and regulations
are the:
• U.S. Federal Clean Air Act, which governs air emissions.
• U.S. Federal Clean Water Act, which governs discharges into water bodies.
• 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.
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• U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs the treatment, storage and disposal
of solid waste.
• U.S. Federal Emergency Planning and Community Right-to-Know Act (EPCRA), which requires facilities to report
toxic chemical inventories to local emergency planning committees and response departments.
• U.S. Federal Oil Pollution Act of 1990 (OPA90), under which owners and operators of onshore facilities and
pipelines as well as owners and operators of vessels are liable for removal costs and damages that result from a
discharge of 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. For example, in California the South Coast Air Quality
Management District approved amendments to the Regional Clean Air Incentives Market (RECLAIM) that became
effective in 2016, which require a phased reduction of nitrogen oxide emissions through 2022 and potentially affect
refineries in the Los Angeles metropolitan area. While similar, in some cases these regulations may impose additional, or
more stringent, requirements that can add to the cost and difficulty of developing infrastructure and marketing 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 2017 compliance year, the U.S.
Environmental Protection Agency (EPA) has set volumes of advanced and total renewable fuel at higher levels 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 2017, 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
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
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 third-party activity, and it is reasonably possible that some RINs that we have purchased
may be determined to be invalid. Should that occur, we could incur costs to replace those fraudulent RINs. Although the
54
cost for replacing any fraudulently marketed RINs is not reasonably estimable at this time, we would not expect to incur
the full financial impact of fraudulent RINs replacement costs in any single interim or annual period, and would not
expect such costs to have a material impact on our results of operations or financial condition.
We also are subject to certain laws and regulations relating to environmental remediation obligations associated with
current and past operations. Such laws and regulations include CERCLA and RCRA and their state equivalents.
Remediation obligations include cleanup responsibility arising from petroleum releases from underground storage tanks
located at numerous previously and currently owned and/or operated petroleum-marketing outlets throughout the United
States. Federal and state laws require contamination caused by such underground storage tank releases be assessed and
remediated to meet applicable standards. In addition to other cleanup standards, many states have adopted cleanup
criteria for methyl tertiary-butyl ether (MTBE) for 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, 2015, we reported that we had been
notified of potential liability under CERCLA and comparable state laws at 36 sites within the United States. During
2016, there was one new site for which we received notification of potential liability, three sites were resolved but not
closed, and three sites were deemed resolved and closed, leaving 31 unresolved sites with potential liability at
December 31, 2016.
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 $648 million in 2016 and are expected to be a similar amount in 2017 and in 2018.
Capitalized environmental costs were $224 million in 2016 and are expected to be approximately $170 million and $220
million, in 2017 and 2018, respectively. This amount does not include capital expenditures made for another purpose that
have an indirect benefit on environmental compliance.
Accrued liabilities for remediation activities are not reduced for potential recoveries from insurers or other third parties
and are not discounted (except those assumed in a purchase business combination, which we record on a discounted
basis).
Many of these liabilities result from CERCLA, RCRA and similar state laws that require us to undertake certain
investigative and remedial activities at sites where we conduct, or once conducted, operations or at sites where our
generated waste was disposed. We also have accrued for a number of sites we identified that may require environmental
remediation, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. If applicable,
we accrue receivables for probable insurance or other third-party recoveries. In the future, we may incur significant costs
under both CERCLA and RCRA. Remediation activities vary substantially in duration and cost from site to site,
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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, GHG reduction
requirements or carbon taxes could significantly increase our costs, reduce demand for fossil energy derived products,
impact the cost and availability of capital and increase our exposure to litigation. Such laws and regulations could also
increase demand for less carbon intensive energy sources.
An example of one such program is California’s cap and trade program, which was promulgated pursuant to the State’s
Global Warming Solutions Act. The program had been limited to certain stationary sources, which include our refineries
in California, but beginning in January 2015 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.
We consider and take into account anticipated future GHG emissions in designing and developing major facilities and
projects, and implement energy efficiency initiatives to reduce such emissions. GHG emissions, legal requirements
regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into
our planning, investment, and risk management decision-making.
depending on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and
enforcement policies, and the presence or absence of potentially liable third parties. Therefore, it is difficult to develop
reasonable estimates of future site remediation costs.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs
and liabilities are inherent concerns in 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. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a
timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have
a material impact on our results of operations and financial condition as a result of increasing costs of compliance,
lengthening project implementation and agency 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 (as well as the recently enacted SB32, which requires further reduction of California's GHG emissions to 40
percent below the 1990 emission level by 2030). Other GHG emissions programs in the western U.S. states have
been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel
Standard, Oregon's Low Carbon Fuel Standard, and Washington's carbon reduction programs.
• 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
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, upon certain conditions being met, entered into force on November 4, 2016. The Paris Agreement
establishes a commitment by signatory parties to pursue domestic GHG emission reductions.
In 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
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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. If the sum of the undiscounted pre-tax cash flows of
an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to
estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the
lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other 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
value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used
by principal market participants; a market multiple 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 assessed for impairment when there
are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the
investment’s carrying amount. When it is determined that an indicated impairment is other than temporary, a charge is
recognized for the difference between the investment’s carrying value and its estimated fair value.
When determining whether a decline in value is other than temporary, management considers factors such as the 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, 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, timing 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, 2016, we had $764 million of intangible assets that we have determined to have indefinite useful lives,
and 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, 2016, 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.
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. 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, 2016, and concluded that the fair value of each of our
reporting units exceeded their respective recorded net book values (including goodwill), by over 25 percent for our
Refining reporting unit and by over 100 percent for our Transportation and M&S reporting units. 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 have 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 interest rates, future health care cost-trend rates, and rates of utilization of health care services by
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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 one percentage-point decrease in the discount rate assumption would increase
annual benefit expense by an estimated $60 million, while a one 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.
In 2016 and 2015, we used expected long-term rates of return of 6.75 percent and 7 percent, respectively, for the U.S.
pension plan assets, which account for 74 percent of our overall pension plan assets. The actual U.S. pension plan asset
returns were a gain of 7 percent in 2016 and a loss of less than 1 percent in 2015. For the past ten years, actual returns
averaged 6 percent for the U.S. pension plan assets.
NEW ACCOUNTING STANDARDS
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-04, “Intangibles—Goodwill and Other—Simplifying the Test for Goodwill Impairment,” which eliminates Step 2
from the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. Public business entities
should apply the guidance in ASU No. 2017-04 for its annual or any interim goodwill impairment tests in fiscal years
beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU
No. 2017-04.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business,”
which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether
transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for
determining when a transaction involves the acquisition of a business. If substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction
does not involve the acquisition of a business. If the screen is not met, then the amendment requires that to be considered
a business, the operation must include at a minimum an input and a substantive process that together significantly
contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as
business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods
beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The
amendments should be applied prospectively, and no disclosures are required at the effective date. We are currently
evaluating the provisions of ASU No. 2017-01.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which
clarifies the classification and presentation of changes in restricted cash. The amendment requires that a statement of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as
restricted cash and restricted cash equivalents. Public business entities should apply the guidance in ASU No. 2016-18
on a retrospective basis for annual periods beginning after December 15, 2017, including interim periods within those
annual periods, with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on
our financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments,” which clarifies the treatment of several cash flow categories. In addition, ASU No.
2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and
cannot be separated, classification will depend on the predominant source or use. Public business entities should apply
the guidance in ASU No. 2016-15 on a retrospective basis for annual periods beginning after December 15, 2017,
including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the
provisions of ASU No. 2016-15 and assessing the impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” The new standard amends the impairment model to utilize an expected loss
methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of
losses. Public business entities should apply the guidance in ASU No. 2016-13 for annual periods beginning after
December 15, 2019, including interim periods within those annual periods. Early adoption will be permitted for annual
periods beginning after December 15, 2018. We are currently evaluating the provisions of ASU No. 2016-13 and
assessing the impact on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based
payment award transactions including accounting for income taxes and classification of excess tax benefits on the
statement of cash flows, forfeitures and minimum statutory tax withholding requirements. Public business entities should
apply the guidance in ASU No. 2016-09 for annual periods beginning after December 15, 2016, including interim periods
within those annual periods. Early adoption is permitted. We are currently evaluating the provisions of ASU No.
2016-09 and assessing the impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its
determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under the previous
accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of
control occurs over an identified property, plant and equipment for a period of time in exchange for consideration.
Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the
use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases — financing
and operating — which are substantially similar to capital and operating leases in the previous lease guidance. Under the
new standard, recognition of assets and liabilities arising from operating leases will require recognition on the balance
sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely
unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and
operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for
annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early
adoption is permitted. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our
financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities,” 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 GAAP, will have to
be carried at fair value upon adoption of ASU No. 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 No. 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 No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a
limited impact on our financial statements.
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 GAAP and International
Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across
entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB
issued ASU No. 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 No. 2014-09 for all entities for one year. Public business
entities should apply the guidance in ASU No. 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
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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. ASU No. 2014-09 was further
amended in March 2016 by the provisions of ASU No. 2016-08, “Principal versus Agent Considerations (Reporting
Revenue Gross versus Net),” in April 2016 by the provisions of ASU No. 2016-10, “Identifying Performance Obligations
and Licensing,” in May 2016 by the provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical
Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections to Topic 606,
Revenue from Contracts with Customers.” As part of our assessment work-to-date, we have formed an implementation
work team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and
documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application.
In addition, we expect to present revenue net of sales-based taxes collected from our customers resulting in no impact to
earnings. Sales-based taxes include excise taxes on petroleum product sales as noted on our consolidated statement of
income. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption on earnings
from equity method investments. Based upon our analysis to-date, we have not identified any other material impact on
our financial statements other than disclosures.
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 Value at Risk (VaR) limits, 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, 2016, 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, 2016 and 2015, was immaterial to our
cash flows and net income. The VaR for instruments held for purposes other than trading at December 31, 2016 and 2015,
was also immaterial to our cash flows and net income.
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Interest Rate Risk
Our use of fixed- or variable-rate debt directly exposes us to interest rate risk. Fixed-rate debt, such as our senior notes,
exposes us to changes in the fair value of our debt due to changes in market interest rates. Fixed-rate debt also exposes
us to the risk that we may need to refinance maturing debt with new debt at higher rates, or that we may be obligated to
pay rates higher than the current market. Variable-rate debt, such as borrowings under our revolving credit facility,
exposes us to short-term changes in market rates that impact our interest expense. 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 2016
2017
2018
2019
2020
2021
Remaining years
Total
Fair value
Expected Maturity Date
Year-End 2015
2016
2017
2018
2019
2020
Remaining years
Total
Fair value
Millions of Dollars Except as Indicated
Fixed Rate
Maturity
Average
Interest
Rate
Floating Rate
Maturity
Average
Interest
Rate
516
518
18
816
—
7,926
9,794
10,260
3.08% $
2.39
7.00
2.76
—
4.72
$
$
1.80%
0.80
—
0.80
1.86
—
15
12
—
12
221
—
260
260
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
$
$
$
$
$
$
For additional information about our use of derivative instruments, see Note 16—Derivatives and Financial Instruments,
in the Notes to Consolidated Financial Statements.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words
“anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,”
“seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,”
“effort,” “target” and similar expressions.
We based the forward-looking statements on our current expectations, estimates and projections about us and the
industries in which we operate in general. We caution you these statements are not guarantees of future performance as
they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties
we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events
that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have
expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including
the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Fluctuations in NGL, crude oil, 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.
64
65
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, 2016, 2015 and 2014
Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Balance Sheet at December 31, 2016 and 2015
Consolidated Statement of Cash Flows for the years ended December 31, 2016, 2015 and 2014
Consolidated Statement of Changes in Equity for the years ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Supplementary Information
Selected Quarterly Financial Data (Unaudited)
Page
67
68
70
71
72
73
74
76
131
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,
2016. 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, 2016.
Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of
December 31, 2016, and their report is included herein.
/s/ Greg C. Garland
/s/ Kevin J. Mitchell
Greg C. Garland
Chairman and
Chief Executive Officer
February 17, 2017
Kevin J. Mitchell
Executive Vice President, Finance and
Chief Financial Officer
66
67
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Phillips 66
The Board of Directors and Stockholders
Phillips 66
We have audited the accompanying consolidated balance sheet of Phillips 66 as of December 31, 2016 and 2015, 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, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements 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, 2016 and 2015, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted
accounting principles.
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, 2016, 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 17, 2017, expressed an unqualified opinion thereon.
Houston, Texas
February 17, 2017
/s/ Ernst & Young LLP
We have audited Phillips 66’s internal control over financial reporting as of December 31, 2016, 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, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the 2016 consolidated financial statements of Phillips 66 and our report dated February 17, 2017, expressed an
unqualified opinion thereon.
Houston, Texas
February 17, 2017
/s/ Ernst & Young LLP
68
69
Consolidated Statement of Income
Phillips 66
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:
2016
$
1,644
Actuarial loss arising during the period
Amortization to net income of net actuarial loss and
settlements
Curtailment gain
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
Cash flow hedges
Income taxes on hedging activities
Hedging activities, net of tax
Other Comprehensive 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.
(178)
94
31
(11)
13
(51)
(301)
5
(296)
8
(3)
5
(342)
1,302
89
1,213
2015
4,280
(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
Years Ended December 31
Revenues and Other Income
Sales and other operating revenues*
Equity in earnings of affiliates
Net gain on dispositions
Other income
Total Revenues and Other Income
Costs and Expenses
Purchased crude oil and products
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Impairments
Taxes other than income taxes*
Accretion on discounted liabilities
Interest and debt expense
Foreign currency transaction (gains) losses
Total Costs and Expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from Continuing Operations
Income from discontinued operations**
Net income
Less: net income attributable to noncontrolling interests
Net Income Attributable to Phillips 66
Amounts Attributable to Phillips 66 Common Stockholders:
Income from continuing operations
Income from discontinued operations
Net Income Attributable to Phillips 66
Net Income Attributable to Phillips 66 Per Share of
Common Stock (dollars)
Basic
Continuing operations
Discontinued operations
Net Income Attributable to Phillips 66 Per Share of Common Stock
Diluted
Continuing operations
Discontinued operations
Net Income Attributable to Phillips 66 Per Share of Common Stock
Dividends Paid Per Share of Common Stock (dollars)
Average Common Shares Outstanding (in thousands)
Basic
Diluted
*Includes excise taxes on petroleum product sales:
**Net of provision for income taxes on discontinued operations:
See Notes to Consolidated Financial Statements.
Millions of Dollars
2016
2015
2014
84,279
1,414
10
74
85,777
62,468
4,275
1,638
1,168
5
13,688
21
338
(15)
83,586
2,191
547
1,644
—
1,644
89
1,555
1,555
—
1,555
2.94
—
2.94
2.92
—
2.92
2.45
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
2.18
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
1.89
527,531
530,066
13,381
—
542,355
546,977
13,780
—
565,902
571,504
14,698
5
$
$
$
$
$
$
$
$
$
$
$
70
71
Consolidated Balance Sheet
Phillips 66
Consolidated Statement of Cash Flows
Phillips 66
At December 31
Assets
Cash and cash equivalents
Accounts and notes receivable (net of allowances of $34 million in 2016
and $55 million in 2015)
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 (2016—641,593,854 shares; 2015—639,336,287 shares)
Par value
Capital in excess of par
Treasury stock (at cost: 2016—122,827,264 shares; 2015—109,925,907 shares)
Retained earnings
Accumulated other comprehensive loss
Total Stockholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements.
Millions of Dollars
2016
2015
$
2,711
5,485
912
3,150
422
12,680
13,534
20,855
3,270
888
426
51,653
6,395
666
550
805
527
520
9,463
9,588
655
6,743
1,216
263
27,928
6
19,559
(8,788)
12,608
(995)
22,390
1,335
23,725
51,653
$
$
$
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
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
2016
$
1,644
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.
$
1,168
5
21
612
(815)
(10)
—
(163)
(1,258)
216
(147)
1,579
111
2,963
—
2,963
(2,844)
156
(432)
108
(146)
(3,158)
—
(3,158)
2,090
(833)
(12)
(1,042)
—
(1,282)
(75)
972
4
(178)
—
(178)
10
(363)
3,074
2,711
2015
4,280
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
72
73
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
Repurchase of common stock
Shares issued—share-based compensation
December 31, 2016
See Notes to Consolidated Financial Statements.
Shares in Thousands
Common Stock Issued
634,286
—
—
2,746
637,032
—
2,304
639,336
—
2,258
641,594
Treasury Stock
44,106
29,121
17,423
—
90,650
19,276
—
109,926
12,901
—
122,827
Consolidated Statement of Changes in Equity
Phillips 66
Millions of Dollars
Attributable to Phillips 66
Common Stock
Capital
in Excess
of Par
Par Value
Treasury
Stock
Retained
Earnings
Accum. Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
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
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, 2016
$
$
6
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
6
—
—
—
—
—
—
—
6
18,887
—
—
(2,602)
—
—
5,622
4,762
—
—
— (2,282)
— (1,350)
—
153
— (1,062)
—
—
(13)
—
19,040
—
—
—
(6,234)
—
—
—
9,309
4,227
—
—
— (1,512)
—
105
— (1,172)
—
(16)
—
—
—
—
19,145
—
—
—
(7,746)
—
—
—
12,348
1,555
—
—
— (1,042)
—
106
— (1,282)
—
(13)
308
—
—
—
19,559
—
(8,788)
—
12,608
37
—
(568)
—
—
—
—
—
(531)
—
(122)
—
—
—
—
—
(653)
—
(342)
—
—
—
—
—
(995)
442
35
—
—
—
—
—
(30)
447
53
—
—
—
—
384
(46)
838
89
—
—
—
—
483
(75)
1,335
Total
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
1,644
(342)
(1,282)
(1,042)
93
791
(75)
23,725
74
75
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 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.
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/loss 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 the “Purchased crude oil and
products” line of our consolidated statement of income. Freight costs billed to customers are recorded in “Sales
and other operating revenues.”
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.
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 inputs which are observable,
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/loss and appear on the balance sheet in accumulated other comprehensive income/loss
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
are recognized immediately in earnings.
Capitalized Interest—A portion of 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 is below its 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
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
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depreciation provisions and reported in the “Impairments” 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.
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, irrespective of 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.
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.
Note 2—Changes in Accounting Principles
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 of the liability 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 has essentially been relieved or amortize it over an appropriate
time period as the fair value of our guarantee exposure declines over time. We amortize the guarantee liability to
the related income statement line item based on the nature of the guarantee. When it becomes probable we will
have to perform on a guarantee, we accrue a separate liability if it is reasonably estimable, based on the facts and
Effective January 1, 2016, we early adopted the Financial Accounting Standards Board (FASB) Accounting Standards
Update (ASU) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” This ASU
simplified the presentation of deferred income taxes and required deferred tax liabilities and assets to be classified as
noncurrent in a classified statement of financial position. The classification is made at the taxpaying component level of
an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and any related valuation allowances.
We applied this ASU prospectively to all deferred tax liabilities and assets.
In June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation.” This ASU removed the definition of a development stage entity from the Master Glossary of the
Accounting Standard Codification (ASC) and the related financial reporting requirements specific to development stage
entities. ASU 2014-10 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 variable interest entity
(VIE) guidance in ASC Topic 810, ASU No. 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,
ASU No. 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December
15, 2015. We adopted the provisions of this ASU related to the financial reporting requirements other than the VIE
guidance effective January 1, 2015. We adopted the remaining provisions effective January 1, 2016, and updated our
disclosures about the risks and uncertainties related to our joint venture entities that have not commenced their principal
operations.
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Note 3—Variable Interest Entities
Note 4—Inventories
Consolidated 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 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.
The most significant assets of Phillips 66 Partners that are available to settle only its obligations at December 31 were:
Equity investments*
Net properties, plants and equipment
* Included in “Investments and long-term receivables” on the Phillips 66 consolidated balance sheet.
Millions of Dollars
$
2016
1,142
2,675
2015
945
2,437
The most significant liability of Phillips 66 Partners for which creditors do not have recourse to the general credit of its
primary beneficiary was long-term debt, which was $2,396 million and $1,091 million at December 31, 2016 and 2015,
respectively.
Non-consolidated VIEs
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. Under the agreements that governed the relationships between the co-venturers in MSLP, certain defaults by
Petróleos de Venezuela S.A. (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. The call right was exercised in August 2009. The exercise of
the call right was challenged, and the dispute was arbitrated in our favor and subsequently litigated. Through December
31, 2016, we continued to use the equity method of accounting for MSLP because the call right exercise remained subject
to legal challenge. MSLP was 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, resulted in MSLP not being exposed to all potential losses. We determined we were not the primary
beneficiary while the call exercise was subject to legal challenge, because under the partnership agreement, the co-
venturers jointly directed the activities of MSLP that most significantly impacted economic performance. At
December 31, 2016, our maximum exposure to loss was $326 million, which represented the outstanding principal
balance of the MSLP Senior Notes of $123 million and our investment in MSLP of $203 million. As discussed more
fully in Note 5—Business Combinations, the exercise of the call right ceased to be subject to legal challenge in February
2017. At that point, we began consolidating MSLP as a wholly owned subsidiary and MSLP was no longer considered a
VIE.
We have a 25 percent ownership interest in Dakota Access, LLC (DAPL) and Energy Transfer Crude Oil Company, LLC
(ETCOP), whose planned principal operations have not commenced. Until planned principal operations have
commenced, these entities do not have sufficient equity at risk to fully fund the construction of all assets required for
principal operations, and thus represent VIEs. We have determined we are not the primary beneficiary because we and
our co-venturer jointly direct the activities of DAPL and ETCOP that most significantly impact economic performance.
We use the equity method of accounting for these investments. At December 31, 2016, our maximum exposure to loss
was $1,057 million, which represents the aggregate book value of our equity investments of $532 million, our loans to
DAPL and ETCOP for an aggregated balance of $250 million and our share of borrowings under the project financing
facility of $275 million.
Inventories at December 31 consisted of the following:
Crude oil and petroleum products
Materials and supplies
Millions of Dollars
2016
2,883
267
3,150
$
$
2015
3,214
263
3,477
Inventories valued on the LIFO basis totaled $2,772 million and $3,085 million at December 31, 2016 and 2015,
respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately
$3.3 billion and $1.3 billion at December 31, 2016 and 2015, respectively.
Excluding the disposition of the Whitegate Refinery, which occurred in September 2016, certain planned reductions in
inventory caused liquidations of LIFO inventory values during each of the three years ended December 31, 2016. These
liquidations decreased net income by approximately $68 million, $37 million and $8 million in 2016, 2015 and 2014,
respectively.
In conjunction with the Whitegate Refinery disposition, the refinery’s LIFO inventory values were liquidated causing a
decrease in net income of $62 million during the year ended December 31, 2016. This LIFO liquidation impact was
included in the net gain recognized on the disposition.
Note 5—Business Combinations
In November 2016, Phillips 66 Partners acquired NGL logistics assets located in southeast Louisiana, consisting of
approximately 500 miles of pipelines and storage caverns connecting multiple fractionation facilities, refineries and a
petrochemical facility. The acquisition provided an opportunity for fee-based growth in the Louisiana market within our
Midstream segment. The acquisition was included in the “Capital expenditures and investments” line of our consolidated
statement of cash flows. As of December 31, 2016, we provisionally recorded $183 million of PP&E in connection with
the acquisition.
While we had no acquisitions in 2015, 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 supported 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 2014 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. Our acquisition accounting for these transactions was finalized in 2015.
MSLP owns a delayed coker and related facilities at the Sweeny Refinery, and its results are included in our Refining
segment. MSLP processes long residue, which is produced from heavy sour crude oil, for a 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
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by ConocoPhillips and PDVSA. Under the agreements that governed 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 in August 2009. The exercise was challenged, and the dispute
was arbitrated in our favor and subsequently litigated. While the dispute was being arbitrated and litigated, we continued
to use the equity method of accounting for our 50 percent interest in MSLP. When the exercise of the call right ceased to
be subject to legal challenge on February 7, 2017, we deemed that we had acquired PDVSA’s 50 percent share of MSLP
and began accounting for MSLP as a wholly owned consolidated subsidiary.
Based on a preliminary third-party appraisal of the fair value of MSLP’s net assets, utilizing discounted cash flows and
replacement costs, the acquisition of PDVSA’s 50 percent interest is expected to result in our recording a noncash, pre-
tax gain of approximately $420 million in the first quarter of 2017. The preliminary fair value of our original equity
interest in MSLP is approximately $190 million.
Note 6—Assets Held for Sale or Sold
In September 2016, we completed the sale of the Whitegate Refinery and related marketing assets, which were included
primarily in our Refining segment. The net carrying value of the assets at the time of their disposition was $135 million,
which consisted of $127 million of inventory, other working capital, and PP&E; and $8 million of allocated goodwill.
An immaterial gain was recognized in 2016 on the disposition.
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 in 2014 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 at that time, which resulted in a
before-tax impairment in 2014 of $12 million from the reduction of the carrying value of the long-lived assets to
estimated fair value less costs to sell. 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 in 2015 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 in 2014 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, were not material for the year ended December 31, 2014.
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 in 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.
Note 7—Investments, Loans and Long-Term Receivables
Components of investments, loans and long-term receivables at December 31 were:
Equity investments
Loans and long-term receivables
Other investments
Millions of Dollars
2016
13,102
334
98
13,534
$
$
2015
11,977
84
82
12,143
Equity Investments
Affiliated companies in which we had a significant equity investment at December 31, 2016, included:
• WRB Refining LP (WRB)—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, including through its investment
in DCP Midstream, LP (formerly named DCP Midstream Partners, LP).
• 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.—
owns and operates a natural gas pipeline system from Meeker, Colorado to Clarington, Ohio.
• DCP Sand Hills Pipeline, LLC (Sand Hills)—Phillips 66 Partners’ 33 percent owned joint venture with DCP
Partners—owns and operates NGL pipeline systems from the Permian and Eagle Ford basins to Mont Belvieu,
Texas.
• DCP Southern Hills Pipeline, LLC (Southern Hills)—Phillips 66 Partners’ 33 percent owned joint venture with
DCP Partners—owns and operates NGL pipeline systems from the Midcontinent region to Mont Belvieu, Texas.
• DAPL/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 completed a connecting
crude oil pipeline system from Patoka to Nederland, Texas.
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
Noncontrolling interests
Millions of Dollars
2016
2015
2014
$
30,605
3,206
2,960
7,097
50,163
5,173
13,709
2,260
33,126
3,180
3,158
6,024
46,047
4,130
11,493
2,404
57,979
4,791
4,700
7,402
41,271
6,854
9,736
2,584
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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, 2016, retained earnings included $1,945 million related to the undistributed earnings of affiliated
companies. Dividends received from affiliates were $616 million, $1,769 million, and $3,305 million in 2016, 2015 and
2014, 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, 2016, the
book value of our investment in WRB was $2,088 million, and the basis difference was $2,970 million. Equity earnings
in 2016, 2015 and 2014 were increased by $185 million, $218 million and $184 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, including
through its investment in DCP Partners. 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.
In 2015, we contributed $1.5 billion 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 equal in value to ours. Our ownership percentage in
DCP Midstream remained unchanged.
At December 31, 2016, the book value of our investment in DCP Midstream was $2,258 million, and the basis difference
was $55 million.
CPChem
CPChem manufactures and markets petrochemicals and plastics. At December 31, 2016, the book value of our equity
method investment in CPChem was $5,773 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. 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. In 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
2015. At December 31, 2016, the book value of our equity method investment in REX was $455 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, 2016, the book
value of our equity investment in Sand Hills was $445 million.
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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, 2016, the book value of our
investment in Southern Hills was $212 million, and the basis difference was $96 million.
DAPL/ETCOP
We own a 25 percent interest in the DAPL and ETCOP joint ventures, which were formed to construct pipelines to
deliver crude oil produced in the Bakken/Three Forks production area of North Dakota to market centers in the Midwest
and the Gulf Coast. In May 2016, we and our co-venturer executed agreements under which we and our co-venturer
would loan DAPL and ETCOP up to a maximum of $2,256 million and $227 million, respectively, with the amounts
loaned by us and our co-venturer being proportionate to our ownership interests (Sponsor Loans). In August 2016,
DAPL and ETCOP secured a $2.5 billion facility (Facility) with a syndicate of financial institutions on a limited recourse
basis with certain guarantees, and the outstanding Sponsor Loans were repaid. Allowable draws under the Facility were
initially reduced and finally suspended in September 2016 pending resolution of permitting delays. As a result, DAPL
and ETCOP resumed making draws under the Sponsor Loans. The maximum amounts that could be loaned under the
Sponsor Loans were reduced in September 2016, to $1,411 million for DAPL and $76 million for ETCOP. At
December 31, 2016, DAPL and ETCOP had $976 million and $22 million, respectively, outstanding under the Sponsor
Loans. Our 25 percent share of those loans was $244 million and $6 million, respectively. The Sponsor Loans were
repaid in their entirety in February 2017 when draws resumed under the Facility. At December 31, 2016, the book values
of our investments in DAPL and ETCOP were $403 million and $129 million, respectively.
Loans and Long-term Receivables
We enter into agreements with other parties to pursue business opportunities, which may require us to provide loans or
advances to certain affiliated and non-affiliated companies. Loans are recorded when cash is transferred or seller
financing is provided to the affiliated or non-affiliated company pursuant to a loan agreement. The loan balance will
increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are
received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are assessed for
impairment when events indicate the loan balance may not be fully recovered.
Note 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
Net
PP&E
6,600
—
12,955
675
625
20,855
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
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Gross
PP&E
8,179
—
21,152
1,451
1,207
31,989
$
$
2016
Accum.
D&A
1,579
—
8,197
776
582
11,134
85
Note 9—Goodwill and Intangibles
Goodwill
The carrying amount of goodwill was as follows:
Balance at January 1, 2015
Goodwill assigned to acquisitions
Balance at December 31, 2015
Goodwill assigned to acquisitions
Goodwill allocated to dispositions
Balance at December 31, 2016
Millions of Dollars
Midstream
Refining
Marketing and
Specialties
$
$
623
—
623
3
—
626
1,813
—
1,813
—
(8)
1,805
838
1
839
—
—
839
Total
3,274
1
3,275
3
(8)
3,270
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
2016
2015
$
$
503
260
1
764
503
266
1
770
In 2014, we recorded a $131 million held-for-use impairment in our Refining segment related to the Whitegate Refinery
in Ireland, due to the then current and forecasted negative market conditions in that 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.
Note 11—Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
Millions of Dollars
2016
2015
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.”
$
$
244
496
740
(85)
655
251
485
736
(71)
665
Asset Retirement Obligations
We have asset retirement 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 are
expected to be funded from general company resources at the time of removal. Our largest individual obligations involve
asbestos abatement at refineries.
During 2016 and 2015, our overall asset retirement obligation changed as follows:
At year-end 2016, the net book value of our amortized intangible assets was $124 million, which included accumulated
amortization of $152 million. At year-end 2015, the net book value of our amortized intangible assets was $136 million,
which included accumulated amortization of $135 million. Amortization expense was not material for 2016 and 2015,
and is not expected to be material in future years.
Note 10—Impairments
During 2016, 2015 and 2014, we recognized the following before-tax impairment charges:
Balance at January 1
Accretion of discount
Changes in estimates of existing obligations
Spending on existing obligations
Property dispositions
Foreign currency translation
Balance at December 31
Millions of Dollars
2016
2015
$
$
251
9
10
(15)
(5)
(6)
244
279
9
(7)
(20)
(2)
(8)
251
Midstream
Refining
Marketing and Specialties
Millions of Dollars
2015
2016
3
2
—
5
1
3
3
7
2014
—
147
3
150
$
$
86
Accrued Environmental Costs
Total accrued environmental costs at December 31, 2016 and 2015, were $496 million and $485 million, respectively.
The 2016 increase in total accrued environmental costs is due to new accruals, accrual adjustments and accretion
exceeding payments and settlements during the year.
87
We had accrued environmental costs at December 31, 2016 and 2015 of $268 million and $270 million, respectively,
primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $178 million
and $168 million, respectively, associated with nonoperator sites; and $50 million and $47 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 will 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 $248 million at December 31, 2016. The expected future undiscounted payments related to
the portion of the accrued environmental costs that have been discounted are: $25 million in 2017, $26 million in 2018,
$22 million in 2019, $16 million in 2020, $15 million in 2021, and $212 million for all future years after 2021.
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
2016
2015
2014
Basic Diluted
Basic Diluted
Basic Diluted
$ 1,555
(6)
1,555
(5)
4,227
(6)
1,549
—
$ 1,549
1,550
—
1,550
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
Weighted-average common shares outstanding
(thousands):
Effect of stock-based compensation
Weighted-average common shares outstanding—EPS
523,250 527,531
2,535
527,531 530,066
4,281
537,602 542,355
4,622
542,355 546,977
4,753
561,859 565,902
5,602
565,902 571,504
4,043
Earnings Per Share of Common Stock (dollars):
Income from continuing operations attributable to
Phillips 66
Discontinued operations
Earnings Per Share
$
$
2.94
—
2.94
2.92
—
2.92
7.78
—
7.78
7.73
—
7.73
7.15
1.25
8.40
7.10
1.23
8.33
Note 13—Debt
Long-term debt at December 31 was:
2.95% Senior Notes due 2017
4.30% Senior Notes due 2022
4.65% Senior Notes due 2034
5.875% Senior Notes due 2042
4.875% Senior Notes due 2044
Phillips 66 Partners 2.646% Senior Notes due 2020
Phillips 66 Partners 3.605% Senior Notes due 2025
Phillips 66 Partners 3.55% Senior Notes due 2026
Phillips 66 Partners 4.680% Senior Notes due 2045
Phillips 66 Partners 4.90% Senior Notes due 2046
Industrial Development Bonds due 2018 through 2021 at 0.57%-0.81% at year-
end 2016 and 0.02%-0.05% at year-end 2015
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 2021 at 1.98% at year-end
2016
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
2016
1,500
2,000
1,000
1,500
1,500
300
500
500
300
625
50
—
68
210
1
10,054
188
(104)
10,138
(550)
9,588
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
Maturities of borrowings outstanding at December 31, 2016, inclusive of net unamortized discounts and debt issuance
costs, for each of the years from 2017 through 2021 are $1,550 million, $43 million, $31 million, $335 million and $231
million, respectively. At December 31, 2016, we classified $1 billion of debt maturing in 2017 as long-term debt on our
consolidated balance sheet, based on our ability and intent to refinance the obligation on a long-term basis, with such
ability demonstrated by our revolving credit facility.
Debt Issuances
In October 2016, Phillips 66 Partners closed on a public offering of $1.125 billion aggregate principal amount of
unsecured senior notes, consisting of:
•
•
$500 million of 3.55% Senior Notes due 2026.
$625 million of 4.90% Senior Notes due 2046.
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.
88
89
Credit Facilities and Commercial Paper
In October 2016, Phillips 66 amended its $5 billion revolving credit facility, primarily to extend the term from December
2019 to October 2021. 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-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, 2016, 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.
We have a $5 billion commercial paper program for short-term working capital needs that is supported by our revolving
credit facility. Commercial paper maturities are generally limited to 90 days. As of December 31, 2016, we had no
borrowings under our commercial paper program.
Phillips 66 Partners also amended its $500 million revolving credit facility in October 2016, primarily to increase
borrowing capacity to $750 million and to extend the term from November 2019 to October 2021. The Phillips 66
Partners facility is with a broad syndicate of financial institutions. As of December 31, 2016, Phillips 66 Partners had
$210 million outstanding under this facility.
Note 14—Guarantees
At December 31, 2016, 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 MSLP Senior Notes issued in July
1999. At December 31, 2016, the maximum potential amount of future payments to third parties under the guarantee was
estimated to be $123 million, which could become payable if MSLP fails to meet its obligations under the senior notes
agreement. The MSLP Senior Notes mature in 2019.
In December 2016, as part of the restructuring within DCP Midstream which occurred effective January 1, 2017, we
issued a guarantee in support of DCP Midstream, LLC’s newly issued debt. At December 31, 2016, the maximum
potential amount of future payments to third parties under the guarantee is estimated to be $212 million. Payment would
be required if DCP Midstream, LLC defaults on this debt obligation. DCP Midstream, LLC’s debt matures in 2019.
Other Guarantees
In the second quarter of 2016, the operating lease commenced on our new headquarters facility in Houston, Texas, after
construction was deemed substantially complete. Under this lease agreement, we have a residual value guarantee with a
maximum future exposure of $554 million. 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 lessor in marketing it for resale.
We have residual value guarantees associated with railcar and airplane leases with maximum future potential payments of
$363 million. We estimated a $94 million residual value guarantee obligation for our railcars in the fourth quarter of
2016. This residual value guarantee reflects the negative impact of new safety regulations issued by the U.S. Department
of Transportation on the fair value of crude-oil railcars. The amount was based on an outside appraisal of the estimated
fair value of the railcars at their lease termination dates. Of the total $94 million residual value guarantee obligation, $28
million was recognized as expense in 2016, with $20 million of that amount related to railcars permanently taken out of
service. The remaining $66 million estimated obligation at year-end 2016 will be recognized on a straight-line basis
through the applicable lease termination dates in either late-2017 or 2019. For railcars taken out of service in 2016, we
also recognized remaining executory lease costs of $12 million.
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, 2016, was $193 million. We amortize
the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding
each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have
information the liability is essentially relieved or amortize the liability over an appropriate time period as the fair value of
our indemnification exposure declines. Although it is reasonably possible future payments may exceed amounts
recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum
potential amount of future payments. Included in the recorded carrying amount were $102 million of environmental
accruals for known contamination that were primarily included in “Asset retirement obligations and accrued
environmental costs” at December 31, 2016. For additional information about environmental liabilities, see Note 15—
Contingencies and Commitments.
Indemnification and Release Agreement
In 2012, we entered into the Indemnification and Release Agreement with ConocoPhillips. This agreement governs the
treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and
management, and litigation document sharing and cooperation arising in connection with the Separation. Generally, the
agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and
liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’
business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification
and related matters.
Note 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.
90
91
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.
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, 2016, we had performance obligations secured by letters of credit and bank guarantees of $541
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 $319 million annually for each of the years
from 2017 through 2021 and $2,902 million in the aggregate for years 2022 and thereafter. Total payments under the
agreements were $325 million in 2016, $328 million in 2015 and $331 million in 2014.
Note 16—Derivatives and Financial Instruments
Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in interest rates, foreign
currency exchange rates and commodity prices or to capture market opportunities. Because we have not used cash-flow
hedge accounting for commodity derivative contracts, all gains and losses, realized or unrealized, from commodity
derivative contracts have been recognized in the consolidated statement of income. Gains and losses from derivative
contracts held for trading not directly related to our physical business, whether realized or unrealized, have been reported
net in “Other income” on our consolidated statement of income. Cash flows from all our derivative activity for the
periods presented appear in the operating section of the consolidated statement of cash flows.
Purchase and sales contracts with fixed minimum notional volumes for commodities that are readily convertible to cash
(e.g., crude oil and gasoline) are recorded on the balance sheet as derivatives unless the contracts are eligible for, and we
elect, the normal purchases and normal sales exception (i.e., contracts to purchase or sell quantities we expect to use or
sell over a reasonable period in the normal course of business). We generally apply this normal purchases and normal
sales exception to eligible crude oil, refined product, NGL, natural gas and power commodity purchase and sales
contracts; however, we may elect not to apply this exception (e.g., when another derivative instrument will be used to
mitigate the risk of the purchase or sales contract but hedge accounting will not be applied, in which case both the
purchase or sales contract and the derivative contract mitigating the resulting risk will be recorded on the balance sheet at
fair value). Our derivative instruments are held at fair value on our consolidated balance sheet. For further information
on the fair value of derivatives, see Note 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. The balances in the following table are presented on a gross basis, before the effects of counterparty and
collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same
counterparty on a net basis on the balance sheet when the right of setoff exists. For information on the impact of
counterparty netting and collateral netting, and reconciliation of the balances presented below to the balance sheet, see
Note 17—Fair Value Measurements.
Assets
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
$
2016
741
5
766
2
2015
2,607
5
2,425
5
92
93
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
2016
2015
2014
$
(451)
—
29
(62)
162
—
58
121
658
66
20
136
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 at least 98 percent at December 31, 2016 and 2015.
Open Position
Long / (Short)
2016
2015
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, 2016 or 2015.
Commodity
Crude oil, refined products and NGL (millions of barrels)
(18)
(17)
Note 17—Fair Value Measurements
Interest-Rate Derivative Contracts—During the first quarter of 2016, we entered into interest-rate swaps to hedge the
variability of anticipated lease payments on our new headquarters. These monthly lease payments will vary based on
monthly changes in the one-month LIBOR and changes, if any, in the Company’s credit rating over the five-year term of
the lease. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and end
on April 25, 2021. They qualify for and are designated as cash-flow hedges.
At December 31, 2016, the aggregate net fair value of these swaps, which is included in the “Other accruals” and “Other
assets” lines of our consolidated balance sheet, amounted to $8 million.
We report the effective portion of the mark-to-market gain or loss on our interest rate swaps designated and qualifying as
a cash flow hedging instrument as a component of other comprehensive income/loss and reclassify such gains and losses
into earnings in the same period during which the hedged forecasted transaction affects earnings. Gains and losses due to
ineffectiveness are recognized in general and administrative expenses. During the year ended December 31, 2016, we
did not recognize any material hedge ineffectiveness gain or loss in the consolidated income statement. Net realized loss
from settlements of the swaps during the year ended December 31, 2016, was immaterial.
We estimate that pre-tax losses of $3 million will be reclassified from accumulated other comprehensive income/loss into
general and administrative expenses during the next twelve months as the hedged transaction settles; however, the actual
amounts that will be reclassified will vary based on changes in interest rates throughout the year 2017.
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
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.
•
•
•
Interest-rate swaps: We determine fair value based upon observed market valuations for interest-rate swaps that
have notionals, durations, and pay and reset frequencies similar to ours.
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.
94
95
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.
Millions of Dollars
December 31, 2016
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
• 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.
Commodity Derivative Assets
Exchange-cleared instruments
$
273
• 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, 2016, derivative assets with an aggregate value of
$201 million and derivative liabilities with an aggregate value of $156 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
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:
OTC instruments
Physical forward contracts*
Interest-rate derivatives
Rabbi trust assets
Commodity Derivative Liabilities
Exchange-cleared instruments
OTC instruments
Physical forward contracts*
Floating-rate debt
Fixed-rate debt, excluding capital
leases**
—
—
—
97
370
249
—
—
50
—
299
$
$
$
371
6
94
8
—
479
452
1
61
210
10,260
10,984
—
—
2
—
—
2
—
—
5
—
—
5
644
6
96
8
97
851
701
1
66
260
10,260
11,288
(628)
(1)
—
—
N/A
(629)
(628)
(1)
—
N/A
N/A
(629)
—
—
—
—
N/A
—
(73)
—
—
N/A
N/A
(73)
—
—
—
—
—
—
—
—
—
—
16
5
96
8
97
222
—
—
66
260
(570)
(570)
9,690
10,016
*Physical forward contracts may have a larger value on the balance sheet than disclosed in the fair value hierarchy when the remaining contract term at the
reporting date is greater than 12 months and the short-term portion is an asset while the long-term portion is a liability, or vice versa.
**We carry fixed-rate debt on the balance sheet at amortized cost.
Millions of Dollars
December 31, 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
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
—
—
—
—
—
—
—
—
—
—
195
195
65
1
45
83
194
2
5
22
50
8,629
8,708
*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.
At December 31, 2016 and 2015, there were no material cash collateral received or paid that were not offset on the
balance sheet.
96
97
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 years ended December 31, 2016 and 2015, there were no material nonrecurring fair value remeasurements of
assets subsequent to their initial recognition.
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 $208 million and $231 million at December 31, 2016 and 2015, respectively.
Note 18—Equity
Future minimum lease payments as of December 31, 2016, for operating and capital lease obligations were:
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, 2016 or 2015.
Treasury Stock
Since July 2012, our Board of Directors has, at various times, authorized repurchases of our outstanding common stock
which aggregate to a total authorization of 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, 2016, we have repurchased a total of 105,404,649 shares at a cost of $7.4 billion. Shares of stock
repurchased are held as treasury shares.
In 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. We received 17,422,615 shares of our common stock with a fair value at the time of the
exchange of $1.35 billion.
Common Stock Dividends
On February 8, 2017, our Board of Directors declared a quarterly cash dividend of $0.63 per common share, payable
March 1, 2017, to holders of record at the close of business on February 21, 2017.
Noncontrolling Interests
See Note 27—Phillips 66 Partners LP for information on Phillips 66 Partners issuances of common units to the public
during 2016.
Millions of Dollars
Capital Lease
Obligations
Operating
Lease
Obligations
2017
2018
2019
2020
2021
Remaining years
Total
Less: income from subleases
Net minimum lease payments
Less: amount representing interest
Capital lease obligations
$
$
$
26
19
18
14
14
150
241
—
241
53
188
Operating lease rental expense for the years ended December 31 was:
Minimum rentals
Contingent rentals
Less: sublease rental income
Millions of Dollars
2016
641
6
95
552
$
$
2015
641
6
136
511
404
362
276
200
85
229
1,556
60
1,496
2014
570
8
135
443
98
99
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
Curtailment gain
Acquisition of a business
Foreign currency exchange rate change
Benefit obligation 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
2016
2015
U.S.
Int’l.
U.S.
Int’l.
Other Benefits
2016
2015
2,791
127
116
—
62
(215)
—
—
—
2,881
2,023
136
330
—
(215)
—
912
32
28
3
237
(19)
(31)
—
(107)
1,055
742
148
40
3
(19)
(118)
2,895
124
109
—
(25)
(312)
—
—
—
2,791
2,124
(10)
221
—
(312)
—
2,274
796
2,023
941
38
28
3
(10)
(20)
—
—
(68)
912
724
18
63
3
(20)
(46)
742
219
7
8
2
(6)
(13)
—
8
—
225
—
—
11
2
(13)
—
—
203
7
7
1
13
(12)
—
—
—
219
—
—
11
1
(12)
—
—
(607)
(259)
(768)
(170)
(225)
(219)
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at
December 31, 2016 and 2015, include:
Millions of Dollars
Pension Benefits
2016
2015
Other Benefits
2016
2015
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)
(597)
(607)
—
(10)
(758)
(768)
20
—
(190)
(170)
—
(10)
(215)
(225)
—
(10)
(209)
(219)
—
—
(259)
(259)
100
Included in accumulated other comprehensive income/loss at December 31 were the following before-tax amounts that
had not been recognized in net periodic benefit cost:
Millions of Dollars
Pension Benefits
2016
2015
Other Benefits
2016
2015
U.S.
Int’l.
U.S.
Int’l.
Unrecognized net actuarial loss
(gain)
Unrecognized prior service cost
(credit)
$
684
3
227
(5)
710
6
143
(7)
(5)
(9)
2
(10)
Millions of Dollars
Pension Benefits
2016
2015
Other Benefits
2016
2015
U.S.
Int’l.
U.S.
Int’l.
(54)
—
80
26
—
3
3
(129)
31
14
(84)
—
(1)
(1)
(124)
—
155
31
—
3
3
7
—
15
22
—
(1)
(1)
7
—
—
7
—
(1)
(1)
(14)
—
(1)
(15)
—
(2)
(2)
Sources of Change in Other
Comprehensive Income/
Loss
Net gain (loss) arising during
the period
Curtailment gain
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
$
$
$
$
The accumulated benefit obligations for all U.S. and international pensions plans were $2,601 million and $880 million,
respectively at December 31, 2016, and $2,485 million and $712 million, respectively, at December 31, 2015.
101
Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at
December 31 were:
The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs
for years ended December 31:
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
Millions of Dollars
Pension Benefits
2016
2015
U.S.
Int’l.
U.S.
Int’l.
$ 2,881
2,601
2,274
1,055
880
796
2,791
2,485
2,023
351
303
160
Components of net periodic benefit cost for all defined benefit plans are presented in the table below:
Millions of Dollars
2016
Pension Benefits
2015
2014
2016
2015
2014
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
$
127
116
32
28
124
109
38
28
121
108
38
35
(128)
(38)
(138)
(37)
(142)
(37)
3
72
8
$
198
(1)
14
—
35
3
75
80
253
(1)
15
—
43
3
40
—
130
(2)
12
—
46
7
8
—
(1)
—
—
14
7
7
—
(2)
(1)
—
11
7
8
—
(1)
(2)
—
12
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, 2016, that are expected
to be amortized into net periodic benefit cost during 2017 are provided below:
Unrecognized net actuarial loss
Unrecognized prior service cost (credit)
Millions of Dollars
Pension Benefits
U.S.
Int’l.
Other
Benefits
$
70
3
23
(1)
—
(1)
Pension Benefits
2016
2015
Other Benefits
2016
2015
U.S.
Int’l.
U.S.
Int’l.
Assumptions Used to
Determine Benefit
Obligations:
Discount rate
Rate of compensation increase
3.95%
4.00
2.42
3.78
Assumptions Used to
Determine Net Periodic
Benefit Cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
4.35%
6.75
4.00
3.35
5.31
3.65
4.35
4.00
3.90
7.00
4.00
3.35
3.65
3.10
5.15
3.20
3.65
—
4.00
—
—
4.00
—
3.70
—
—
For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected
future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a
variety of independent market forecasts in developing the expected rate of return for each class of assets.
Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated
the subsidy for retiree medical plans. 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
6.50 percent in 2017 that declines to 5.00 percent by 2023. A one percentage-point change in the assumed health care
cost trend rate would be immaterial to Phillips 66.
Plan Assets
The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate
level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of
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 are based on quoted market prices.
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.
102
103
•
•
•
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
2016
Equity securities
Mutual funds
Cash and cash
equivalents
Insurance contracts
Real estate
Total assets in the fair
value hierarchy
Common/collective trusts
measured at NAV
$
533
47
21
—
—
601
Total
$
601
—
—
—
—
—
—
—
—
—
—
—
—
—
—
533
47
21
—
—
601
1,673
2,274
—
—
5
—
—
5
5
—
—
—
—
—
—
—
—
—
—
13
6
19
19
—
—
5
13
6
24
772
796
Millions of Dollars
U.S.
International
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
2015
Equity securities
Government debt
securities
Mutual funds
Cash and cash
equivalents
Insurance contracts
Real estate
Total assets in the fair
value hierarchy
Common/collective trusts
measured at NAV
Other receivables
Total
$
447
—
41
22
—
—
510
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
510
—
—
447
—
41
22
—
—
510
1,513
—
2,023
As reflected in the table above, Level 3 activity was not material.
235
144
—
3
—
—
382
—
—
—
—
—
—
—
—
—
—
—
13
6
19
382
—
19
235
144
—
3
13
6
401
339
2
742
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 2017, we expect to contribute
approximately $130 million to our U.S. pension plans and other postretirement benefit plans and $35 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:
2017
2018
2019
2020
2021
2022-2025
Millions of Dollars
Pension Benefits
Other Benefits
U.S.
Int’l.
$
301
294
278
272
279
1,278
18
20
20
21
23
140
25
26
26
24
23
98
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 $99 million, $134 million and
$112 million in 2016, 2015 and 2014, 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.
104
105
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
2016
2015
2014
$
156
(59)
144
(54)
134
(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
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 table summarizes our stock option activity from January 1, 2016, to December 31, 2016:
Outstanding at January 1, 2016
Granted
Forfeited
Exercised
Expired or canceled
Outstanding at December 31, 2016
Options
5,431,739
818,100
(24,465)
(1,122,244)
—
5,103,130
Vested at December 31, 2016
4,625,221
Exercisable at December 31, 2016
3,684,109
Weighted-
Average
Exercise Price
Weighted-
Average
Grant-Date
Fair Value
Millions of Dollars
Aggregate
Intrinsic Value
$
16.94
$
$
$
$
41.27
78.86
77.85
30.53
—
49.48
46.60
39.06
$
$
$
58
185
175
The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2016, were
5.36 years and 4.56 years, respectively. During 2016, we received $34 million in cash and realized a tax benefit of $16
million from the exercise of options. At December 31, 2016, the remaining unrecognized compensation expense from
unvested options was $5 million, which will be recognized over a weighted-average period of 21 months, the longest
period being 27 months. The calculations of realized tax benefit and weighted-average periods include awards based on
both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.
During 2015 and 2014, we granted options with a weighted-average grant-date fair value of $18.84 and $18.95,
respectively. During 2015 and 2014, employees exercised options with an aggregate intrinsic value of $60 million and
$89 million, respectively.
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)
2016
2015
2014
1.71%
3.00%
28.68%
7.08
1.60
3.00
34.17
6.66
1.96
3.00
34.97
6.23
After the Separation and through 2015, we calculated the volatility of options granted 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. In 2016, we started calculating the
volatility using historical Phillips 66 end-of-week closing stock prices from the Separation date.
We 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.
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.
106
107
The following table summarizes our RSU activity from January 1, 2016, to December 31, 2016:
The following table summarizes our PSU activity from January 1, 2016, to December 31, 2016:
Outstanding at January 1, 2016
Granted
Forfeited
Issued
Cash settled
Outstanding at December 31, 2016
Not Vested at December 31, 2016
Millions of Dollars
Performance
Share Units
Weighted-Average
Grant-Date
Fair Value
Total Fair Value
3,556,826
767,561
—
(317,329)
(767,561)
3,239,497
561,376
$
$
$
$
50.11
78.62
—
50.03
78.62
50.12
52.45
26
60
At December 31, 2016, the remaining unrecognized compensation cost from unvested PSU awards held by employees of
Phillips 66 was $9 million, which will be recognized over a weighted-average period of 29 months, the longest period
being 10 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 2015 and 2014, we granted PSUs with a weighted-average grant-date fair value of $74.14 and $72.26,
respectively. During 2015 and 2014, we issued shares with an aggregate fair value of $37 million and $13 million,
respectively, to settle PSUs. No PSUs were cash settled in 2015 or 2014.
Outstanding at January 1, 2016
Granted
Forfeited
Issued
Outstanding at December 31, 2016
Not Vested at December 31, 2016
Stock Units
Weighted-Average
Grant-Date
Fair Value
Total Fair Value
Millions of Dollars
3,134,615
955,923
(48,877)
(1,398,522)
2,643,139
1,656,407
$
$
$
60.19
78.56
75.33
51.27
71.28
72.06
$
109
At December 31, 2016, the remaining unrecognized compensation cost from the unvested RSU awards was $48 million,
which will be recognized over a weighted-average period of 21 months, the longest period being 49 months.
During 2015 and 2014, we granted RSUs with a weighted-average grant-date fair value of $74.09 and $73.28,
respectively. During 2015 and 2014, we issued shares with an aggregate fair value of $107 million and $116 million,
respectively, 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 authorized 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.
We settle PSUs with performance periods beginning 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.
108
109
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
2015
2016
$
$
(105)
645
66
(84)
(24)
49
547
1,128
444
(74)
42
227
(3)
1,764
2014
1,661
(378)
22
80
274
(5)
1,654
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
2016
4,525
2,442
803
154
19
7,943
669
211
188
261
1
1,330
38
1,292
6,651
$
$
2015
4,361
2,292
236
176
24
7,089
751
215
175
227
1
1,369
160
1,209
5,880
The loss and credit carryforwards deferred tax assets are primarily related to a German interest deduction carryforward of
$295 million, an alternative minimum tax credit of $59 million and a foreign tax credit of $89 million. The German
interest deduction carryforward and the alternative minimum tax credit may be carried forward indefinitely. The foreign
tax credit expires in 2026.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be
realized. During 2016, valuation allowances decreased by a total of $122 million. This decrease was primarily
attributable to the reversal of valuation allowances related to interest deduction carryforwards in Germany and the sale of
the Whitegate Refinery. During 2016, certain German intercompany loans were refinanced at lower interest rates. As a
result of reduced interest rates, as well as increased earnings (current and forecasted), the likelihood of realizing
approximately $68 million in tax benefits associated with interest deduction carryforwards is now considered more likely
than not. The sale of the Whitegate Refinery resulted in the elimination of a net deferred tax asset and corresponding
valuation allowance of approximately $45 million. 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, 2016, we had undistributed earnings related to foreign subsidiaries and foreign corporate joint
ventures of approximately $3 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 included in the
following table which shows a reconciliation of the beginning and ending unrecognized tax benefits.
Millions of Dollars
2015
2016
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
$
$
82
—
5
(17)
—
—
70
142
—
6
(17)
(49)
—
82
2014
202
13
14
(68)
(19)
—
142
Included in the balance of unrecognized tax benefits for 2016, 2015 and 2014 were $13 million, $34 million and $98
million, respectively, which, if recognized, would affect our effective tax rate. With respect to various unrecognized tax
benefits and the related accrued liability, approximately $32 million may be recognized or paid within the next twelve
months due to completion of audits.
At December 31, 2016, 2015 and 2014, accrued liabilities for interest and penalties totaled $12 million, $19 million and
$16 million, respectively, net of accrued income taxes. As a result of reversing certain of these accruals, earnings
increased by $7 million and $3 million in 2016 and 2015, respectively. Neither interest nor penalties had an impact on
earnings in 2014.
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
110
111
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.
Note 22—Accumulated Other Comprehensive Income (Loss)
Changes in the balances of each component of accumulated other comprehensive income (loss) were as follows:
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
2016
2015
2014
Percent of Pre-tax Income
2016
2015
2014
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
Change in valuation allowance
Federal manufacturing deduction
State income tax, net of federal
benefit
Other
$
$
$
$
1,713
478
2,191
767
—
—
(152)
—
(81)
—
12
1
547
4,983
1,061
6,044
2,115
41
(125)
(239)
(103)
(17)
(77)
150
19
1,764
5,121
624
5,745
2,011
18
(293)
(184)
—
(14)
(81)
180
17
1,654
78.2%
21.8
100.0%
82.4
17.6
100.0
35.0%
—
—
(6.9)
—
(3.7)
—
0.6
—
25.0%
35.0
0.7
(2.1)
(3.9)
(1.7)
(0.2)
(1.3)
2.5
0.2
29.2
89.1
10.9
100.0
35.0
0.3
(5.1)
(3.2)
—
(0.2)
(1.4)
3.1
0.3
28.8
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 expenses of $150 million in 2016, and income tax benefits of $34 million and $37 million, for the years 2015
and 2014, respectively, are reflected in the “Capital in Excess of Par” column of the consolidated statement of equity.
Millions of Dollars
Defined
Benefit
Plans
Foreign
Currency
Translation
Hedging
Accumulated
Other
Comprehensive
Income (Loss)
December 31, 2013
Other comprehensive income (loss) before reclassification
Amounts reclassified from accumulated other comprehensive
income (loss)
Amortization of defined benefit plan items*
$
(404)
(330)
Actuarial losses
Net current period other comprehensive 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
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, 2016
$
38
(292)
(696)
(78)
112
34
(662)
(112)
61
(51)
(713)
443
(276)
—
(276)
167
(156)
—
(156)
11
(296)
—
(296)
(285)
*Included in the computation of net periodic benefit cost. See Note 20—Employee Benefit Plans, for additional information.
(2)
—
—
—
(2)
—
—
—
(2)
5
—
5
3
37
(606)
38
(568)
(531)
(234)
112
(122)
(653)
(403)
61
(342)
(995)
Note 23—Cash Flow Information
Cash Payments (Receipts)
Interest
Income taxes*
*2016 reflects a net cash refund position; cash payments for income taxes were $385 million.
Millions of Dollars
2016
2015
2014
$
311
(375)
275
1,560
238
2,185
112
113
PSPI Noncash Stock Exchange
As discussed more fully in Note 6—Assets Held for Sale or Sold, in 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 25—Related Party Transactions
Significant transactions with related parties were:
Millions of Dollars
2015
2016
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
2015
2016
$
$
$
$
$
$
$
$
402
17
419
(81)
338
18
56
74
60
80
—
—
(10)
1
(2)
(11)
389
27
416
(106)
310
27
91
118
65
73
—
—
34
4
—
38
2014
265
22
287
(20)
267
21
99
120
62
70
—
—
6
8
—
14
2014
6,514
15,647
133
Operating revenues and other income (a)
Purchases (b)
Operating expenses and selling, general and
administrative expenses (c)
$
2,174
8,109
125
2,452
8,142
129
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 amounts in the table above.
(a) We sold NGL and other petrochemical feedstocks, along with solvents, to CPChem, and we sold gas oil and
hydrogen feedstocks to Excel Paralubes (Excel). We sold certain feedstocks and intermediate products to WRB
and also acted as agent for WRB in supplying crude oil and other feedstocks for a fee. We also sold refined
products to our OnCue Holdings, LLC joint venture. In addition, we charged several of our affiliates, including
CPChem, 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, as well as other
feedstocks from various affiliates, for use in our refinery and fractionation processes. We paid NGL
fractionation fees to CPChem. We also paid fees to various pipeline equity companies for transporting crude oil,
finished refined products and NGL. 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.
Note 26—Segment Disclosures and Related Information
Our operating segments are:
1) Midstream—Gathers, processes, transports and markets natural gas; and transports, stores, 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 segment also stores, refrigerates and exports liquefied
petroleum gas primarily to Asia and Europe. 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—Consists of our 50 percent equity investment in CPChem, which manufactures and markets
petrochemicals and plastics on a worldwide basis.
3) Refining—Buys, sells and refines crude oil and other feedstocks at 13 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 items. Corporate assets include all cash and cash equivalents.
114
115
We evaluate segment performance based on net income attributable to Phillips 66. Intersegment sales are at prices that
approximate market.
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
Millions of Dollars
2015
2016
$
$
$
$
4,226
(1,299)
2,927
5
52,068
(34,120)
17,948
64,476
(1,109)
63,367
32
84,279
218
—
770
107
78
1,173
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
2014
6,222
(1,104)
5,118
7
115,326
(68,263)
47,063
110,540
(1,548)
108,992
32
161,212
92
—
850
97
106
1,145
Millions of Dollars
2015
2016
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
$
$
$
$
$
$
184
834
164
232
—
1,414
123
256
61
370
(263)
547
178
583
374
891
(471)
—
1,555
(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
2014
360
1,634
311
162
(1)
2,466
310
495
696
440
(287)
1,654
507
1,137
1,771
1,034
(393)
706
4,762
116
117
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
Consolidated total assets
Capital Expenditures and Investments
Midstream
Chemicals
Refining
Marketing and Specialties
Corporate and Other
Consolidated capital expenditures and investments
Interest Income and Expense
Interest income
Midstream
Marketing and Specialties
Corporate and Other
Consolidated interest income
Interest and debt expense
Corporate and Other
Millions of Dollars
2015
2016
4,769
5,773
2,420
391
1
13,354
12,832
5,802
22,825
6,227
3,967
51,653
1,453
—
1,149
98
144
2,844
2
—
16
18
4,198
5,177
2,262
342
1
11,980
11,043
5,237
21,993
5,631
4,676
48,580
4,457
—
1,069
122
116
5,764
—
2
25
27
2014
2,461
5,183
2,103
290
1
10,038
7,295
5,209
22,808
7,051
6,329
48,692
2,173
—
1,038
439
123
3,773
—
—
21
21
338
310
267
$
$
$
$
$
$
$
$
$
Sales and Other Operating Revenues by Product Line
Refined products
Crude oil resales
NGL
Other
Consolidated sales and other operating revenues by product line $
$
73,385
7,594
3,107
193
84,279
86,249
8,993
2,998
735
98,975
133,625
19,832
6,447
1,308
161,212
Geographic Information
Sales and Other Operating Revenues*
Long-Lived Assets**
2016
2015
2014
2016
2015
2014
Millions of Dollars
United States
United Kingdom
Germany
Other foreign countries
Worldwide consolidated
$
$
59,742
9,895
6,128
8,514
84,279
69,578
12,120
6,584
10,693
98,975
110,713
20,131
9,424
20,944
161,212
32,442
1,177
503
87
34,209
29,624
1,459
502
116
31,701
25,255
1,469
534
126
27,384
*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
Phillips 66 Partners is a publicly traded master limited partnership formed to own, operate, develop and acquire primarily
fee-based crude oil, refined petroleum product and NGL pipelines and terminals, as well as other midstream assets.
Headquartered in Houston, Texas, Phillips 66 Partners’ assets currently consist of crude oil, refined petroleum products
and NGL transportation, terminaling and storage systems, as well as an NGL fractionator. Phillips 66 Partners conducts
its operations through both wholly owned and joint-venture operations. The majority of Phillips 66 Partners’ wholly
owned assets are associated with, and integral to the operation of, nine of Phillips 66’s owned or joint-venture refineries.
2016 Activities
In March 2016, we contributed to Phillips 66 Partners a 25 percent interest in our then wholly owned subsidiary, Phillips
66 Sweeny Frac LLC, which owns the Sweeny Fractionator, 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 was $236 million, which consisted of Phillips 66 Partners’ assumption of a $212
million note payable to us and the issuance of common units and general partner units to us with an aggregate fair value
of $24 million.
In May 2016, we contributed to Phillips 66 Partners the remaining 75 percent interest in Phillips 66 Sweeny Frac LLC
and a 100 percent interest in our wholly owned subsidiary, Phillips 66 Plymouth LLC, which owned the Standish
Pipeline, a refined petroleum product pipeline system extending from Phillips 66’s Ponca City Refinery in Ponca City,
Oklahoma, and terminating at Phillips 66 Partners’ North Wichita Terminal in Wichita, Kansas. Total consideration for
the transaction was $775 million, consisting of Phillips 66 Partners’ assumption of $675 million of notes payable to us
and the issuance of common units and general partner units to us with an aggregate fair value of $100 million.
In May 2016, Phillips 66 Partners completed a public offering of 12,650,000 common units representing limited partner
interests, at a price of $52.40 per unit. The net proceeds at closing were $656 million. Phillips 66 Partners used these net
proceeds to repay a large portion of the notes assumed in the May 2016 transaction.
In June 2016, Phillips 66 Partners began issuing common units under a continuous offering program, which allows for
the issuance of up to an aggregate of $250 million of Phillips 66 Partners’ common units, in amounts, at prices and on
terms to be determined by market conditions and other factors at the time of the offerings. We refer to this as an at-the-
market, or ATM, program. Through December 31, 2016, on a settlement-date basis, Phillips 66 Partners issued an
aggregate of 346,152 common units under the ATM program, generating net proceeds of approximately $19 million.
In August 2016, Phillips 66 Partners completed a public offering of 6,000,000 common units representing limited partner
interests, at a price of $50.22 per unit. The net proceeds at closing were $299 million. The net proceeds from the
offering were used to repay the note assumed in the March 2016 transaction discussed above, as well as short-term
borrowings incurred to fund Phillips 66 Partners’ acquisition of an additional interest in Explorer Pipeline Company and
its contribution to a recently formed pipeline joint venture.
118
119
In October 2016, we contributed to Phillips 66 Partners certain crude oil, refined product and NGL pipeline and terminal
assets supporting four of our operated refineries. Total consideration for the transaction was $1.3 billion, consisting of
$1,109 million in cash and the issuance of common and general partner units to us with a fair value of $196 million.
Phillips 66 Partners funded the cash portion of the transaction with proceeds from a public debt offering of unsecured
senior notes of $1,125 million in the aggregate. See Note 13—Debt for additional information on the notes offering.
In November 2016, Phillips 66 Partners acquired a third-party NGL logistics system in southeast Louisiana.
Consideration was financed with cash and borrowings under Phillips 66 Partners’ revolving credit facility. The system
includes approximately 500 miles of pipeline and a storage cavern connecting multiple fractionation facilities, refineries
and a petrochemical facility.
Ownership
At December 31, 2016, we owned a 59 percent limited partner interest and a 2 percent general partner interest in Phillips
66 Partners, while the public owned a 39 percent limited partner interest. We consolidate Phillips 66 Partners as a
variable interest entity for financial reporting purposes. See Note 3—Variable Interest Entities 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 $1,306 million and $809 million in our consolidated
balance sheet as of December 31, 2016, and 2015, respectively. Generally, drop down transactions 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 contributions in 2016 together with the public offerings of common units and senior notes
discussed above, our consolidated cash increased by $2.1 billion, consolidated debt increased by $1.1 billion and
consolidated equity increased by $791 million as a result of the transactions.
Note 28—New Accounting Standards
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other—Simplifying the Test for Goodwill
Impairment,” which eliminates Step 2 from the goodwill impairment test. Under the revised test, an entity should
perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit. Public business entities should apply the guidance in ASU No. 2017-04 for its annual or any interim
goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are
currently evaluating the provisions of ASU No. 2017-04.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business,”
which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether
transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for
determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction
does not involve the acquisition of a business. If the screen is not met, then the amendment requires that to be considered
a business, the operation must include at a minimum an input and a substantive process that together significantly
contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as
business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods
beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The
amendments should be applied prospectively, and no disclosures are required at the effective date. We are currently
evaluating the provisions of ASU No. 2017-01.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which
clarifies the classification and presentation of changes in restricted cash. The amendment requires that a statement of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as
restricted cash and restricted cash equivalents. Public business entities should apply the guidance in ASU No. 2016-18
on a retrospective basis for annual periods beginning after December 15, 2017, including interim periods within those
annual periods, with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on
our financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments,” which clarifies the treatment of several cash flow categories. In addition, ASU No.
2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and
cannot be separated, classification will depend on the predominant source or use. Public business entities should apply
the guidance in ASU No. 2016-15 on a retrospective basis for annual periods beginning after December 15, 2017,
including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the
provisions of ASU No. 2016-15 and assessing the impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” The new standard amends the impairment model to utilize an expected loss
methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of
losses. Public business entities should apply the guidance in ASU No. 2016-13 for annual periods beginning after
December 15, 2019, including interim periods within those annual periods. Early adoption will be permitted for annual
periods beginning after December 15, 2018. We are currently evaluating the provisions of ASU No. 2016-13 and
assessing the impact on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based
payment award transactions including accounting for income taxes and classification of excess tax benefits on the
statement of cash flows, forfeitures and minimum statutory tax withholding requirements. Public business entities should
apply the guidance in ASU No. 2016-09 for annual periods beginning after December 15, 2016, including interim periods
within those annual periods. Early adoption is permitted. We are currently evaluating the provisions of ASU No.
2016-09 and assessing the impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its
determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under the previous
accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of
control occurs over an identified property, plant and equipment for a period of time in exchange for consideration.
Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the
use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases — financing
and operating — which are substantially similar to capital and operating leases in the previous lease guidance. Under the
new standard, recognition of assets and liabilities arising from operating leases will require recognition on the balance
sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely
unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and
operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for
annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early
adoption is permitted. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our
financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities,” 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 GAAP, will have to
be carried at fair value upon adoption of ASU No. 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 No. 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 No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a
limited impact on our financial statements.
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 GAAP and International
Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across
entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB
120
121
issued ASU No. 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 No. 2014-09 for all entities for one year. Public business
entities should apply the guidance in ASU No. 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. ASU No. 2014-09 was further
amended in March 2016 by the provisions of ASU No. 2016-08, “Principal versus Agent Considerations (Reporting
Revenue Gross versus Net),” in April 2016 by the provisions of ASU No. 2016-10, “Identifying Performance Obligations
and Licensing,” in May 2016 by the provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical
Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections to Topic 606,
Revenue from Contracts with Customers.” As part of our assessment work-to-date, we have formed an implementation
work team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and
documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective
application. In addition, we expect to present revenue net of sales-based taxes collected from our customers resulting in
no impact to earnings. Sales-based taxes include excise taxes on petroleum product sales as noted on our consolidated
statement of income. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption
on earnings from equity method investments.
Note 29—Condensed Consolidating Financial Information
Our $7.5 billion of outstanding Senior Notes issued by Phillips 66 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.
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
$
$
$
Millions of Dollars
Year Ended December 31, 2016
All Other
Subsidiaries
Phillips 66
Company
Consolidating
Adjustments
58,822
1,839
(9)
42
864
61,558
48,171
3,465
1,236
821
1
5,477
16
21
—
59,208
2,350
553
1,797
—
1,797
—
1,797
25,457
296
19
32
9,160
34,964
24,102
846
406
347
4
8,211
5
124
(15)
34,030
934
124
810
—
810
89
721
—
(2,518)
—
—
(10,024)
(12,542)
(9,805)
(36)
(10)
—
—
—
—
(173)
—
(10,024)
(2,518)
—
(2,518)
—
(2,518)
—
(2,518)
Total
Consolidated
84,279
1,414
10
74
—
85,777
62,468
4,275
1,638
1,168
5
13,688
21
338
(15)
83,586
2,191
547
1,644
—
1,644
89
1,555
Phillips 66
—
1,797
—
—
—
1,797
—
—
6
—
—
—
—
366
—
372
1,425
(130)
1,555
—
1,555
—
1,555
1,213
1,455
451
(1,817)
1,302
122
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)
Phillips 66
—
4,470
—
—
—
4,470
—
4
5
—
—
—
—
365
—
374
4,096
(131)
4,227
—
4,227
—
4,227
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
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 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
4,105
4,348
1,032
(5,327)
4,158
Comprehensive Income
*Net of provision for income taxes on discontinued operations:
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
Phillips 66
—
4,257
—
—
—
4,257
—
2
6
—
—
—
—
286
—
294
3,963
(103)
4,066
696
4,762
—
4,762
4,194
—
$
$
$
$
124
125
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 loss
Noncontrolling interests
Total Liabilities and Equity
Millions of Dollars
At December 31, 2016
Phillips 66
Phillips 66
Company
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
$
$
$
$
—
13
—
2
15
31,165
—
—
—
15
31,195
—
500
—
—
59
559
6,920
—
—
—
1,297
8,776
10,777
12,637
(995)
—
31,195
854
4,336
2,198
317
7,705
22,733
13,044
2,853
719
245
47,299
5,626
30
348
475
371
6,850
150
501
4,391
948
3,337
16,177
25,403
6,714
(995)
—
47,299
1,857
3,276
952
103
6,188
8,588
7,811
417
169
168
23,341
2,663
20
457
52
90
3,282
2,518
154
2,354
268
4,060
12,636
10,117
(269)
(478)
1,335
23,341
—
(1,228)
—
—
(1,228)
(48,952)
—
—
—
(2)
(50,182)
(1,228)
—
—
—
—
(1,228)
—
—
(2)
—
(8,431)
(9,661)
(35,520)
(6,474)
1,473
—
(50,182)
2,711
6,397
3,150
422
12,680
13,534
20,855
3,270
888
426
51,653
7,061
550
805
527
520
9,463
9,588
655
6,743
1,216
263
27,928
10,777
12,608
(995)
1,335
51,653
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 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
$
$
$
$
—
14
—
2
16
33,315
—
—
—
16
33,347
—
—
—
—
59
59
7,413
—
—
—
2,746
10,218
11,405
12,377
(653)
—
33,347
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
126
127
Millions of Dollars
Year Ended December 31, 2016
All Other
Subsidiaries
Consolidating
Adjustments
Phillips 66
Company
Total
Consolidated
Statement of Cash Flows
Cash Flows From Operating Activities
Phillips 66
Millions of Dollars
Year Ended December 31, 2015
All Other
Subsidiaries
Phillips 66
Company
Consolidating
Adjustments
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
$
3,491
—
3,491
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
—
—
(1,139)
—
—
—
(1,139)
—
(1,139)
—
—
(12)
(1,042)
(1,282)
—
—
—
(16)
(2,352)
—
(2,352)
2,307
—
2,307
(1,425)
1,007
2,046
(75)
—
18
1,571
—
1,571
—
(26)
—
—
(3,604)
—
—
—
31
(3,599)
—
(3,599)
503
—
503
(1,457)
156
(907)
(357)
108
(164)
(2,621)
—
(2,621)
2,090
(807)
—
—
(783)
1,049
(75)
972
(980)
1,466
—
1,466
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
—
—
10
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.
** Includes return of investments in equity affiliates and working capital true-ups on dispositions.
—
—
$
279
575
854
(642)
2,499
1,857
(3,338)
—
(3,338)
38
(1,007)
—
—
—
—
(969)
—
(969)
—
—
—
—
4,387
(1,049)
—
—
969
4,307
—
4,307
—
—
—
—
2,963
—
2,963
(2,844)
156
—
(432)
108
(146)
(3,158)
—
(3,158)
2,090
(833)
(12)
(1,042)
(1,282)
—
(75)
972
4
(178)
—
(178)
10
(363)
3,074
2,711
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
1,060
—
1,060
—
—
2,461
—
—
—
2,461
—
2,461
—
(800)
(19)
(1,512)
(1,172)
—
—
—
(18)
(3,521)
—
(3,521)
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
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
—
—
9
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.
** Includes return of investments in equity affiliates and working capital true-ups on dispositions.
—
—
—
$
(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
128
129
Statement of Cash Flows
Cash Flows From Operating Activities
Net cash provided by (used in) continuing operating
activities
Net cash provided by discontinued operations
Net Cash Provided by (Used in) Operating Activities
Phillips 66
$
(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
Total
Consolidated
Selected Quarterly Financial Data (Unaudited)
Sales and
Other
Operating
Revenues*
$
17,409
21,849
21,624
23,397
2016
First
Second
Third
Fourth
$
2015
First
Second
Third
Fourth
*Includes excise taxes on petroleum products sales.
22,778
28,512
25,792
21,893
Millions of Dollars
Income Before
Income Taxes
Net
Income
Net Income
Attributable
to Phillips 66
Per Share of Common Stock
Net Income Attributable to
Phillips 66
Basic
Diluted
596
720
813
62
1,388
1,465
2,359
832
398
516
536
194
997
1,025
1,592
666
385
496
511
163
987
1,012
1,578
650
0.72
0.94
0.97
0.31
1.80
1.85
2.92
1.21
0.72
0.93
0.96
0.31
1.79
1.84
2.90
1.20
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)
—
—
—
—
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
131
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
PART III
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, 2016, with the participation of management, our
Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer carried out
an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our
Executive Vice President, Finance and Chief Financial Officer concluded that our disclosure controls and procedures
were operating effectively as of December 31, 2016.
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, 2016, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers appears in Part I of this report.
The remaining information required by Item 10 of Part III is incorporated herein by reference from our 2017 Definitive
Proxy Statement.*
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is incorporated herein by reference from our 2017 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 2017 Definitive Proxy
Statement.*
Management’s Annual Report on Internal Control Over Financial Reporting
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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.
The information required by Item 13 of Part III is incorporated herein by reference from our 2017 Definitive Proxy
Statement.*
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Part III is incorporated herein by reference from our 2017 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 2017
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.
132
133
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
PHILLIPS 66
INDEX TO EXHIBITS
(a) 1.
Financial Statements and Supplementary Data
The financial statements and supplementary information listed in the Index to Financial Statements, which
appears on page 66, are filed as part of this Annual Report on Form 10-K.
Exhibit
Number
Exhibit Description
2.
Financial Statement Schedules
All financial statement schedules are omitted because they are not required, not significant, not applicable, or
the information is shown in the financial statements or notes thereto.
3. Exhibits
The exhibits listed in the Index to Exhibits, which appears on pages 135 to 138, 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 Chevron Phillips Chemical Company
LLC as of December 31, 2016 and 2015, and for the three years ended December 31, 2016, are included as an
exhibit to this Annual Report on Form 10-K.
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
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
3.1 02/09/17
001-35349
4.3 04/05/12
001-35349
10-K
4.2 02/22/13
001-35349
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 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 2.950% Senior Notes
due 2017, the 4.300% Senior Notes due 2022 and the
5.875% Senior Notes due 2042.
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 Amendment to Credit Agreement among Phillips 66,
Phillips 66 Company, JPMorgan Chase Bank, N.A., and
lenders named therein, dated as of October 3, 2016.
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.
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
134
135
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
Exhibit Description
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.
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
10.14 03/01/12
001-35349
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.**
10-Q
10-K
10.15 08/03/12
001-35349
10.18 02/22/13
001-35349
Phillips 66 Amended and Restated Executive Severance
Plan.**
10-Q
10.1 07/29/16
001-35349
Phillips 66 Deferred Compensation Plan for Non-Employee
Directors.**
10-Q
10.17 08/03/12
001-35349
Exhibit
Number
Exhibit Description
Phillips 66 Key Employee Deferred Compensation Plan-
Title I.**
Phillips 66 Key Employee Deferred Compensation Plan-
Title II.**
Incorporated by Reference
Form
Exhibit
Number
Filing
Date
SEC
File No.
10-Q
10.18 08/03/12
001-35349
10-Q
10.19 08/03/12
001-35349
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
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 Chevron Phillips Chemical
Company, LLC, pursuant to Rule 3-09 of Regulation S-X.
10.23
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*
31.1*
31.2*
32*
99.1*
136
137
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.
Incorporated by Reference
Form
Exhibit
Number
Filing
Date
SEC
File No.
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 17, 2017
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 17,
2017, 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)
138
139
/s/ Gary K. Adams
Gary K. Adams
/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/ Denise L. Ramos
Denise L. Ramos
/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
Director
Director
Shareholder Information
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
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
www.ethics@p66.com, the internet
at www.phillips66.ethicspoint.com
or by writing:
Attn: Global Ethics Office
Phillips 66
P.O. Box 4428
Houston, TX 77210
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
2016 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
2016 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
ANNUAL MEETING
Phillips 66’s annual meeting of
stockholders will be held:
Wednesday, May 3, 2017, at 9 a.m.
Central Daylight Time, 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.
Please call Computershare to request
an enrollment package:
Toll-free number: 1-866-437-0009
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
140
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.