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MarketScreener Homepage  >  Equities  >  Nyse  >  Phillips 66    PSX

PHILLIPS 66

(PSX)
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PHILLIPS 66 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/30/2020 | 01:52pm EST

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.


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 included elsewhere in this report. 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 often identify forward-looking statements, but the absence of these
words does not mean a statement is not forward-looking. 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. The terms "before-tax
income" or "before-tax loss" as used in Management's Discussion and Analysis
refer to income (loss) before income taxes.


EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT


Phillips 66 is an energy manufacturing and logistics company with midstream,
chemicals, refining, and marketing and specialties businesses. At September 30,
2020, we had total assets of $54.3 billion. Our common stock trades on the New
York Stock Exchange under the symbol PSX.

Executive Overview
The Coronavirus Disease 2019 (COVID-19) pandemic continues to result in economic
disruption globally. Actions taken by governments to prevent the spread of the
disease, including travel and business restrictions, have resulted in
substantial decreases in the demand for many refined petroleum products,
particularly gasoline and jet fuel. The lack of demand for petroleum products
has resulted in low crude oil prices and refining margins. Accordingly, crude
oil producers have shut in high cost production, and refiners have reduced crude
oil processing rates.

During the first nine months of 2020, we took the following significant steps to enhance our liquidity in this challenged margin environment:


•Borrowed $1 billion under our 364-day term loan facility.
•Issued $2 billion of senior unsecured notes in three tranches of three-, five-,
and ten-year maturities.
•Temporarily suspended our share repurchase programs.
•Reduced our consolidated capital spending plans in 2020 by $700 million.
•Executed a plan to reduce our budgeted operating and administrative costs by
$500 million in 2020.

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In the third quarter of 2020, we reported a loss of $799 million and generated
cash from operating activities of $491 million. We used available cash to fund
capital expenditures and investments of $552 million and pay dividends of $393
million. We ended the third quarter of 2020 with $1.5 billion of cash and cash
equivalents and approximately $5.5 billion of total committed capacity available
under our revolving credit facilities.

Our earnings in the third quarter of 2020 reflect the continued adverse effects
of the pandemic. These adverse effects may continue to be significant in the
near term. We continue to assess our long-lived assets and equity investments
for impairment in this challenging business environment. The depth and duration
of the economic consequences of the COVID-19 pandemic remain unknown. Additional
impairments may be required in the future if there is a further deterioration in
our projected cash flows.

Business Environment
The Midstream segment includes our Transportation and Natural Gas Liquids (NGL)
businesses. Our Transportation business contains fee-based operations that are
not directly exposed to commodity price risk. Our NGL business results are
primarily driven by fractionation and terminaling margins, throughput volumes,
and impacts from NGL prices. The Midstream segment also includes our 50% equity
investment in DCP Midstream, LLC (DCP Midstream). During the third quarter of
2020, NGL prices remained relatively flat, compared with the third quarter of
2019.

The Chemicals segment consists of our 50% equity investment in Chevron Phillips
Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a
commodity-based industry where the margins for key products are based on supply
and demand, as well as cost factors. During the third quarter of 2020, the
benchmark high-density polyethylene chain margin decreased, compared with the
third quarter of 2019, mainly driven by lower polyethylene sales prices and
higher feedstock costs.

Our Refining segment results are driven by several factors, including refining
margins, refinery throughput, feedstock costs, product yields, turnaround
activity, and other operating costs. The price of U.S. benchmark crude oil, West
Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $40.91
per barrel during the third quarter of 2020, compared with an average of $56.44
per barrel in the third quarter of 2019, due to a significant decline in global
demand driven by the negative global economic impacts of the COVID-19 pandemic.
Market crack spreads are used as indicators of refining margins and measure the
difference between market prices for refined petroleum products and crude oil.
During the third quarter of 2020, the worldwide market crack spreads were
significantly lower compared with the third quarter of 2019, mainly driven by a
sharp decline in demand for refined petroleum products resulting from the global
economic disruption caused by the COVID-19 pandemic.

Results for our Marketing and Specialties (M&S) segment depend largely on
marketing fuel and lubricant margins, and sales volumes of our refined petroleum
and other specialty products. While M&S margins are primarily driven by market
factors, largely determined by the relationship between supply and demand,
marketing fuel margins, in particular, are influenced by the trend in spot
prices for refined petroleum 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. The
global disruption caused by the COVID-19 pandemic significantly reduced demand
for our refined petroleum and specialty products in 2020 compared with 2019.
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RESULTS OF OPERATIONS

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



Consolidated Results

A summary of income (loss) before income taxes by business segment with a reconciliation to net income (loss) attributable to Phillips 66 follows:


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

Midstream                                                 $       146             (460)                       (232)            279
Chemicals                                                         231              227                         442             729
Refining                                                       (1,903)             856                      (5,042)          1,641
Marketing and Specialties                                         415              498                       1,214           1,056
Corporate and Other                                              (239)            (178)                       (655)           (593)
Income (loss) before income taxes                              (1,350)             943                      (4,273)          3,112
Income tax expense (benefit)                                     (624)             150                      (1,053)            545
Net income (loss)                                                (726)             793                      (3,220)          2,567

Less: net income attributable to noncontrolling interests 73

         81                         216             227
Net income (loss) attributable to Phillips 66             $      (799)             712                      (3,436)          2,340



Our earnings decreased $1,511 million in the third quarter of 2020, mainly reflecting:

•Lower realized refining margins and decreased refinery production. •Higher impairment charges, primarily related to a long-lived asset impairment associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels plant, which impacted our Refining and Midstream segments.

These decreases were partially offset by an income tax benefit recognized in the current quarter, compared with income tax expense recognized in the third quarter of 2019.

Our earnings decreased $5,776 million in the nine-month period of 2020, mainly reflecting:


•Lower realized refining margins and decreased refinery production.
•A goodwill impairment in our Refining segment.
•A long-lived asset impairment, which impacted our Refining and Midstream
segments.
•Higher impairments of equity investments in our Midstream segment.
•Lower chemicals margins.

These decreases were partially offset by an income tax benefit recognized in the
current nine-month period, compared with income tax expense recognized in the
nine-month period of 2019.

See the "Segment Results" section for additional information on our segment results.

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Statement of Operations Analysis

Sales and other operating revenues for the third quarter and nine-month period of 2020 decreased 41% and 39%, respectively, and purchased crude oil and products decreased 39% for both periods. These decreases were mainly due to lower petroleum product and crude oil sales prices and volumes.


Equity in earnings of affiliates decreased 30% and 48% in the third quarter and
nine-month period of 2020, respectively. The decrease in both periods was
primarily due to lower realized refining margins and decreased refinery
production at WRB Refining LP (WRB), partially offset by increased equity
earnings from the Gray Oak Pipeline, which commenced full operations in the
second quarter of 2020. The decrease in the nine-month period of 2020 was also
driven by lower equity earnings from CPChem as a result of lower margins. See
Chemicals segment analysis in the "Segment Results" section for additional
information on CPChem.

Impairments increased $287 million and $3,290 million in the third quarter and
nine-month period of 2020, respectively. See Note 5-Investments, Loans and
Long-Term Receivables, Note 6-Properties, Plants and Equipment, Note 7-Goodwill,
and Note 8-Impairments, in the Notes to Consolidated Financial Statements, for
information regarding these impairments.

We had an income tax benefit of $624 million and $1,053 million in the third
quarter and nine-month period of 2020, respectively, compared with income tax
expense of $150 million and $545 million, respectively, in the corresponding
periods of 2019. See Note 19-Income Taxes, in the Notes to Consolidated
Financial Statements, for information regarding our effective income tax rates.


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Segment Results

Midstream

                                                          Three Months Ended                    Nine Months Ended
                                                             September 30                         September 30
                                                                  2020             2019                      2020            2019

                                                                              Millions of Dollars
Income (Loss) Before Income Taxes
Transportation                                            $         (3)             248                       411             696
NGL and Other                                                       99              169                       356             402
DCP Midstream                                                       50             (877)                     (999)           (819)
Total Midstream                                           $        146             (460)                     (232)            279



                                    Thousands of Barrels Daily
Transportation Volumes
Pipelines*                3,076               3,443               3,032    3,346
Terminals                 2,966               3,381               2,999    3,236
Operating Statistics
NGL fractionated**          217                 203                 195      223
NGL production***           414                 409                 395      420


* Pipelines represent the sum of volumes transported through each separately
tariffed consolidated pipeline segment.
** Excludes DCP Midstream.
*** Includes 100% of DCP Midstream's volumes.

                                                                        Dollars Per Gallon
Weighted-Average NGL Price*

DCP Midstream                                          $        0.44             0.44                0.38          0.52

* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.





The Midstream segment provides crude oil and refined petroleum product
transportation, terminaling and processing services, as well as natural gas and
NGL transportation, storage, fractionation, processing and marketing services,
mainly in the United States. This segment includes our master limited
partnership (MLP), Phillips 66 Partners LP (Phillips 66 Partners), as well as
our 50% equity investment in DCP Midstream, which includes the operations of DCP
Midstream, LP (DCP Partners), its MLP.

Results from our Midstream segment increased $606 million in the third quarter of 2020 and decreased $511 million in the nine-month period of 2020.

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Results from our Transportation business decreased $251 million and $285 million
in the third quarter and nine-month period of 2020, respectively. The decreased
results in both periods were primarily attributable to before-tax impairment
charges totaling $204 million for the pipeline and terminal assets associated
with the planned reconfiguration of our San Francisco Refinery into a renewal
fuels plant, and the cancellation of the Red Oak Pipeline project, along with
lower throughput volumes and decreased equity earnings. The decreased results
for the nine-month period also included higher operating costs and an $84
million before-tax gain recognized in the second quarter of 2020 associated with
the Gray Oak Pipeline joint venture. See Note 5-Investments, Loans and Long-Term
Receivables, and Note 6-Properties, Plants and Equipment, in the Notes to
Consolidated Financial Statements, for additional information regarding the
impairments, and Note 20-Phillips 66 Partners LP, in the Notes to Consolidated
Financial Statements, for additional information on the $84 million before-tax
gain.

Before-tax income from our NGL and Other business decreased $70 million and $46
million in the third quarter and nine-month period of 2020, respectively. The
decrease in both periods was primarily due to lower results from our trading
activities around NGL inventory management and start-up costs for additional
fractionation capacity at the Sweeny Hub, partially offset by the startup of a
new isomerization unit at our Lake Charles Refinery in the second half of 2019.
Lower cargo margins at the Sweeny Hub also contributed to the decrease in the
third quarter of 2020.

Results from our investment in DCP Midstream increased $927 million in the third
quarter of 2020 and decreased $180 million in the nine-month period of 2020. The
increased results in the third quarter of 2020 were mainly due to the absence of
an $853 million before-tax impairment of our investment in DCP Midstream
recorded in the third quarter of 2019. The decreased results in the nine-month
period of 2020 were primarily attributable to higher impairment charges.
Excluding the impairments, equity earnings from DCP Midstream increased in the
nine-month period of 2020, primarily due to the recognition of a benefit to
equity earnings from the amortization of the basis difference created by the
impairments, lower operating costs, and favorable impacts from its commodity
price risk management activities. See Note 5-Investments, Loans and Long-Term
Receivables, in the Notes to Consolidated Financial Statements, for additional
information regarding impairments of our investment in DCP Midstream.

See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.

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Chemicals

                                Three Months Ended                Nine Months Ended
                                   September 30                     September 30
                                            2020        2019                 2020        2019

                                                Millions of Dollars

Income Before Income Taxes   $               231         227                  442         729



                                                                           Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins                                     5,069                   5,402                15,559         15,314
Specialties, Aromatics and Styrenics                        1,120                   1,322                 3,322          3,360
                                                            6,189                   6,724                18,881         18,674

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

Olefins and Polyolefins Capacity Utilization (percent) 94 % 97

    98     97




The Chemicals segment consists of our 50% interest in CPChem, which we account
for under the equity method. CPChem uses NGL and other feedstocks to produce
petrochemicals. These products are then marketed and sold or used as feedstocks
to produce plastics and other chemicals. We structure our reporting of CPChem's
operations around two primary business lines: Olefins and Polyolefins (O&P) and
Specialties, and Aromatics and Styrenics (SA&S).

Before-tax income from the Chemicals segment increased $4 million in the third
quarter of 2020 and decreased $287 million in the nine-month period of 2020. The
decrease in the current nine-month period was primarily driven by lower margins
and decreased earnings from CPChem's equity affiliates, partially offset by
higher volumes, lower operating costs and a favorable impact from
lower-of-cost-or-market adjustments of inventories attributable to petrochemical
product price recovery in the current quarter.

See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.

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Refining
                                                          Three Months
                                                             Ended                           Nine Months Ended
                                                          September 30                         September 30
                                                              2020             2019                        2020            2019

                                                                            Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe                                   $     (199)             296                      (1,063)            547
Gulf Coast                                                    (405)             184                      (1,613)            288
Central Corridor                                              (132)             408                        (463)          1,005
West Coast                                                  (1,167)             (32)                     (1,903)           (199)
Worldwide                                               $   (1,903)             856                      (5,042)          1,641



                                                  Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe               $             (4.61)       5.93        (8.60)    3.83
Gulf Coast                                        (7.86)       2.46        (9.13)    1.32
Central Corridor                                  (5.35)      15.26        (6.73)   13.07
West Coast                                       (38.12)      (0.93)      (22.59)   (2.03)
Worldwide                                        (12.69)       4.60       (11.12)    3.07

Realized Refining Margins*
Atlantic Basin/Europe               $              1.65       11.48         1.86    10.17
Gulf Coast                                        (0.61)       8.34         2.40     7.42
Central Corridor                                   4.46       15.99         8.09    14.91
West Coast                                         2.23       10.11         3.94     8.84
Worldwide                                          1.78       11.18         3.91    10.06

* See the "Non-GAAP Reconciliations" section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel.

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Thousands of Barrels Daily

                                                         Three Months Ended                      Nine Months Ended
                                                            September 30                            September 30
Operating Statistics                                                  2020          2019                       2020            2019
Refining operations*
Atlantic Basin/Europe
Crude oil capacity                                                  537              537                        537             537
Crude oil processed                                                 432              509                        424             485
Capacity utilization (percent)                                       81  %            95                         79              90
Refinery production                                                 473              545                        454             527
Gulf Coast
Crude oil capacity                                                  769              764                        769             764
Crude oil processed                                                 506              729                        586             714
Capacity utilization (percent)                                       66  %            95                         76              93
Refinery production                                                 563              817                        647             797
Central Corridor
Crude oil capacity                                                  530              515                        530             515
Crude oil processed                                                 455              517                        437             495
Capacity utilization (percent)                                       86  %           100                         82              96
Refinery production                                                 469              535                        451             515
West Coast
Crude oil capacity                                                  364              364                        364             364
Crude oil processed                                                 311              351                        285             325
Capacity utilization (percent)                                       85  %            97                         78              89
Refinery production                                                 334              371                        307             357
Worldwide
Crude oil capacity                                                2,200            2,180                      2,200           2,180
Crude oil processed                                               1,704            2,106                      1,732           2,019
Capacity utilization (percent)                                       77  %            97                         79              93
Refinery production                                               1,839            2,268                      1,859           2,196

* Includes our share of equity affiliates.

The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.


Results from our Refining segment decreased $2,759 million and $6,683 million in
the third quarter and nine-month period of 2020, respectively. The decreased
results in both periods were primarily due to:

•Lower realized refining margins and decreased refinery production. A sharp
decline in demand for refined petroleum products resulting from global economic
disruption caused by the COVID-19 pandemic led to lower market crack spreads and
reduced refinery production in the current periods. In addition, hurricane
impacts contributed to the lower refinery production in the Gulf Coast region.

•A before-tax long-lived asset impairment of $910 million associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels plant.


In addition, the decreased results in the current nine-month period were also
attributable to a before-tax goodwill impairment of $1,845 million recognized in
the first quarter of 2020.
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See Note 6-Properties, Plants and Equipment, and Note 7-Goodwill, in the Notes
to Consolidated Financial Statements, for additional information regarding these
impairments.

See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.


Our worldwide refining crude oil capacity utilization rate was 77% and 79% in
the third quarter and nine-month period of 2020, respectively, compared with 97%
and 93% in the corresponding periods of 2019, respectively. The decreases were
primarily due to reduced refining runs in the current year periods driven by
lower demand for refined petroleum products, as well as hurricane impacts in the
Gulf Coast region.

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Marketing and Specialties

                                                       Three Months Ended                    Nine Months Ended
                                                          September 30                          September 30
                                                               2020             2019                       2020            2019

                                                                            Millions of Dollars
Income Before Income Taxes
Marketing and Other                                    $        365              440                      1,091             872
Specialties                                                      50               58                        123             184
Total Marketing and Specialties                        $        415              498                      1,214           1,056



                                                      Dollars Per Barrel
      Income Before Income Taxes
      U.S.                               $             1.74        1.66        1.60     1.14
      International                                    5.01        5.19        5.16     4.10

Realized Marketing Fuel Margins*

      U.S.                               $             2.23        2.11        2.03     1.59
      International                                    6.28        6.37        6.78     5.42

* See the "Non-GAAP Reconciliations" section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.


                                                                  Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline                                          $     1.62             2.14                1.57          2.11
Distillates                                             1.41             2.07                1.45          2.10
* On third-party branded petroleum product sales,
excluding excise taxes.



                                                                 Thousands of Barrels Daily

Marketing Petroleum Products Sales Volumes
Gasoline                                            1,080                  1,222                     1,029        1,205
Distillates                                           863                  1,099                       915        1,041
Other                                                  15                     16                        17           18
Total                                               1,958                  2,337                     1,961        2,264




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.

Before-tax income from the M&S segment decreased $83 million in the third
quarter of 2020 and increased $158 million in the nine-month period of 2020. The
decrease in the third quarter of 2020 was primarily due to lower sales volumes
driven by decreased demand for refined petroleum and specialty products. The
increase in the nine-month period of 2020 was primarily attributable to higher
realized marketing fuel margins, partially offset by lower sales volumes for
refined petroleum and specialty products driven by decreased demand.

See the "Executive Overview and Business Environment" section for information on marketing fuel margins and other market factors impacting this quarter's results.

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Corporate and Other

                                                  Millions of Dollars
                                  Three Months Ended                 Nine Months Ended
                                     September 30                      September 30
                                               2020        2019                 2020        2019
Loss Before Income Taxes
Net interest expense           $               (131)        (98)                (348)       (311)
Corporate overhead and other                   (108)        (80)                (307)       (282)

Total Corporate and Other      $               (239)       (178)                (655)       (593)




Net interest expense consists of interest and financing expense, net of interest
income and capitalized interest. Corporate overhead and other includes general
and administrative expenses, technology costs, environmental costs associated
with sites no longer in operation, foreign currency transaction gains and
losses, and other costs not directly associated with an operating segment.

Net interest expense increased $33 million and $37 million in the third quarter
and nine-month period of 2020, respectively, primarily due to higher average
debt principal balances, reflecting new debt issuances in the nine-month period
of 2020, along with decreased interest income driven by lower interest rates in
2020. The increase in net interest expense in the nine-month period of 2020 was
partially offset by higher capitalized interest associated with Midstream
capital projects. See Note 10-Debt, in the Notes to Consolidated Financial
Statements, for additional information on the debt issuances in 2020.

Corporate overhead and other increased by $28 million and $25 million in the
third quarter and nine-month period of 2020, respectively, reflecting a property
impairment charge of $25 million in the third quarter of 2020.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

                                                                                Millions of Dollars,
                                                                                Except as Indicated
                                                                             September 30               December 31
                                                                                     2020                      2019

Cash and cash equivalents                                        $                  1,462               1,614
Short-term debt                                                                     1,860                 547
Total debt                                                                         14,526              11,763
Total equity                                                                       22,305              27,169
Percent of total debt to capital*                                                     39%                  30
Percent of floating-rate debt to total debt                                           13%                   9

* Capital includes total debt and total equity.





To meet our short- and long-term liquidity requirements, we use a variety of
funding sources but rely primarily on cash generated from operating activities
and debt financing. During the first nine months of 2020, we generated $1.5
billion of cash from operations, received approximately $2.0 billion in proceeds
from two public offerings of senior unsecured notes, and borrowed $1.0 billion
under a term loan facility. We used available cash primarily for capital
expenditures and investments of $2.4 billion, repayment of $525 million of
maturing debt, and dividend payments on our common stock of $1.2 billion. During
the first quarter of 2020, we spent $443 million on common stock repurchases,
before suspending our share repurchase programs in March 2020. During the first
nine months of 2020, cash and cash equivalents decreased $152 million to $1.5
billion.

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, and debt repayments.

Significant Sources of Capital


Operating Activities
During the first nine months of 2020, cash generated by operating activities was
$1,472 million, compared with $3,114 million for the first nine months of 2019.
The decrease in the first nine months of 2020, compared with the same period in
2019, was primarily due to lower refining margins driven by global economic
disruption caused by the COVID-19 pandemic, and reduced cash distributions from
our equity affiliates, partially offset by higher realized marketing margins and
working capital impacts.

Our short- and long-term operating cash flows are highly dependent upon
refining, marketing and chemical margins, as well as NGL prices. 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 recent decline in demand for refined
petroleum products has led to a decrease in refining margins. If the global
economic disruption associated with the COVID-19 pandemic sustains, we expect
refining margins, along with marketing, transportation and terminaling volumes,
to remain challenged in the near term, all of which could have an unfavorable
impact on our future operating cash flows.


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The level and quality of output from our refineries also impact 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 variability in their
operations typically has not been as significant to cash flows as that caused by
margins and prices. However, the recent decline in demand for refined petroleum
products has led to a reduction of our refinery production; and if the global
economic disruption associated with the COVID-19 pandemic sustains, we expect
the reduced refinery production to continue in the near term, which could have
an unfavorable impact on our future operating cash flows.

Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our
equity affiliates. During the first nine months of 2020, cash from operations
included distributions of $1,125 million from our equity affiliates, compared
with $1,638 million during the same period of 2019. We cannot control the amount
of future dividends from equity affiliates; therefore, future dividend payments
by these equity affiliates are not assured.

Phillips 66 Partners LP


Unit Issuances
During the first nine months of 2020, on a settlement-date basis, Phillips 66
Partners generated net proceeds of $2 million from common units issued under its
active continuous offering of common units, or at-the-market (ATM) program.

Transfer of Equity Interest
Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak
Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas
Gulf Coast destinations that include Corpus Christi and the Sweeny area,
including the Phillips 66 Sweeny Refinery, as well as access to the Houston
market. Phillips 66 Partners has a consolidated holding company that owns 65% of
Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to
acquire a 35% interest in the holding company. Because the holding company's
sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was
considered a financial asset, and because certain restrictions were placed on
the third party's ability to transfer or sell its interest in the holding
company during the construction of the Gray Oak Pipeline, the legal sale of the
35% interest did not qualify as a sale under GAAP at that time. The Gray Oak
Pipeline commenced full operations in the second quarter of 2020, and the
restrictions placed on the co-venturer were lifted on June 30, 2020, resulting
in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the
co-venturer's 35% interest in the holding company was recharacterized from a
long-term obligation to a noncontrolling interest on our consolidated balance
sheet, and the premium of $84 million previously paid by the co-venturer in 2019
was recharacterized from a long-term obligation to a gain in our consolidated
statement of operations. For the nine months ended September 30, 2020, the
co-venturer contributed an aggregate of $64 million to the holding company to
fund its portion of Gray Oak Pipeline, LLC's cash calls. Phillips 66 Partners
has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC, after
considering a co-venturer's 35% interest in the consolidated holding company.
See Note 5-Investments, Loans and Long-Term Receivables, in the Notes to
Consolidated Financial Statements, for further discussion regarding Phillips 66
Partners' investment in Gray Oak Pipeline, LLC.

Credit Facilities and Commercial Paper
At September 30, 2020, borrowings of $290 million were outstanding and
$3 million in letters of credit had been drawn under Phillips 66 Partners'$750
million revolving credit facility. At September 30, 2020, no amount had been
drawn under Phillips 66's$5 billion revolving credit facility or uncommitted $5
billion commercial paper program.
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Other Debt Issuances and Financings
On June 10, 2020, Phillips 66 closed its public offering of $1 billion aggregate
principal amount of senior unsecured notes consisting of:

•$150 million aggregate principal amount of 3.850% Senior Notes due 2025. •$850 million aggregate principal amount of 2.150% Senior Notes due 2030.

On April 9, 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:

•$500 million aggregate principal amount of 3.700% Senior Notes due 2023. •$500 million aggregate principal amount of 3.850% Senior Notes due 2025.


Interest on the Senior Notes due 2023 is payable semiannually on April 6 and
October 6 of each year, commencing on October 6, 2020. The Senior Notes due 2025
issued on June 10, 2020, constitute a further issuance of the Senior Notes due
2025 originally issued on April 9, 2020. The $650 million in aggregate principal
amount of Senior Notes due 2025 is treated as a single class of debt securities.
Interest on the Senior Notes due 2025 is payable semiannually on April 9 and
October 9 of each year, commencing on October 9, 2020. Interest on the Senior
Notes due 2030 is payable semiannually on June 15 and December 15 of each year,
commencing on December 15, 2020.

Proceeds received from the public offerings of senior unsecured notes on June
10, 2020, and April 9, 2020, were $1,008 million and $993 million, respectively,
net of underwriters' discounts or premiums and commissions, as well as debt
issuance costs. These proceeds are being used for general corporate purposes.

On March 19, 2020, Phillips 66 entered into a $1 billion 364-day delayed draw
term loan agreement (the Facility) and borrowed $1 billion under the Facility
shortly thereafter. On April 6, 2020, Phillips 66 increased the size of the
Facility to $2 billion, and in June 2020, the Facility was amended to extend the
commitment period to September 19, 2020. We did not draw additional amounts
under the Facility before the end of the commitment period or further extend the
commitment period. Accordingly, the additional borrowing capacity under the
Facility expired prior to September 30, 2020. Borrowings under the Facility bear
interest at a floating rate based on either the Eurodollar rate or the reference
rate, plus a margin determined by the credit rating of Phillips 66's senior
unsecured long-term debt. Phillips 66 is using the proceeds from the debt
issuance for general corporate purposes.



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Off-Balance Sheet Arrangements

Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston,
Texas, we had 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. In
September 2020, we amended and extended the lease term to September 2025. We
have a residual value guarantee associated with the operating lease agreement
with a maximum potential future exposure of $514 million as of September 30,
2020. We also have residual value guarantees associated with railcar and
airplane leases with maximum potential future payments totaling $396 million.
These leases have remaining terms of up to ten years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC
(ETCO)
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of
$2.5 billion aggregate principal amount of senior unsecured notes, consisting
of:

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022. •$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024. •$850 million aggregate principal amount of 4.625% Senior Notes due 2029.


Dakota Access and ETCO have guaranteed repayment of the notes. In addition,
Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent
Equity Contribution Undertaking (CECU) in conjunction with the notes offering.
Under the CECU, the co-venturers may be severally required to make proportionate
equity contributions to Dakota Access if there is an unfavorable final judgment
in the ongoing litigation related to an easement granted by the U.S. Army Corps
of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in
North Dakota. Contributions may be required if Dakota Access determines that the
issues included in any such final judgment cannot be remediated and Dakota
Access has or is projected to have insufficient funds to satisfy repayment of
the notes. If Dakota Access undertakes remediation to cure issues raised in a
final judgment, contributions may be required if any series of the notes become
due, whether by acceleration or at maturity, during such time, to the extent
Dakota Access has or is projected to have insufficient funds to pay such
amounts. At September 30, 2020, Phillips 66 Partners' share of the maximum
potential equity contributions under the CECU was approximately $631 million.

In March 2020, the trial court presiding over this litigation ordered the USACE
to prepare an Environmental Impact Statement (EIS), and requested additional
information to enable a decision on whether the Dakota Access Pipeline should be
shut down while the EIS is being prepared. On July 6, 2020, the trial court
ordered the Dakota Access Pipeline to be shut down and emptied of crude oil
within 30 days, and that the pipeline should remain shut down pending the
preparation of the EIS by the USACE, which the USACE has indicated is expected
to take approximately 13 months. Dakota Access filed an appeal and a request for
a stay of the order, which was granted. The case is now on an expedited
appellate track and oral arguments regarding whether the pipeline easement is
valid and whether the USACE must prepare an EIS are set for early November 2020,
with a decision expected in late 2020 or early 2021. In addition to the
proceedings in the appellate court, the trial court has been asked to issue an
injunction to shut down the pipeline until the USACE completes the EIS, which
could be ruled on as early as late December 2020. If the pipeline is required to
cease operations pending the preparation of the EIS, and should Dakota Access
and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners
could be asked to support its share of the ongoing expenses, including scheduled
interest payments on the notes of approximately $25 million annually, in
addition to the potential obligations under the CECU.

Gray Oak Pipeline, LLCGray Oak Pipeline, LLC had a third-party term loan facility with a borrowing
capacity of $1,379 million, inclusive of accrued interest. Borrowings under the
facility were due on June 3, 2022.  Phillips 66 Partners and its co-venturers
provided a guarantee through an equity contribution agreement requiring
proportionate equity contributions to Gray Oak Pipeline, LLC up to the total
outstanding loan amount, plus any additional accrued interest and associated
fees, if Gray Oak Pipeline, LLC defaults on certain of its obligations
thereunder. In September 2020, Gray Oak Pipeline, LLC fully repaid the
outstanding balance of the term loan facility, and the associated equity
contribution agreement was terminated.


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Other Guarantees
At September 30, 2020, we had other guarantees outstanding for our portion of
certain joint venture debt obligations and purchase obligations, which have
remaining terms of up to eight years. The maximum potential amount of future
payments to third parties under these guarantees was approximately $216 million.
Payment would be required if a joint venture defaults on its obligations.

See Note 11-Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

Capital Requirements


Capital Expenditures and Investments
For information about our capital expenditures and investments, see the "Capital
Spending" section below.

Debt Financing
Our total debt balance at September 30, 2020, and December 31, 2019, was $14.5
billion and $11.8 billion, respectively. Our total debt-to-capital ratio was 39%
and 30% at September 30, 2020, and December 31, 2019, respectively.

In April 2020, Phillips 66 repaid $300 million of floating-rate notes due April
2020 and $200 million outstanding under the term loan facility due April 2020.
Also, in April 2020, Phillips 66 Partners repaid $25 million of tax-exempt bonds
due April 2020.

Dividends

On July 8, 2020, our Board of Directors declared a quarterly cash dividend of
$0.90 per common share. The dividend was paid on September 1, 2020, to
shareholders of record at the close of business on August 18, 2020. On October
9, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per
common share. This dividend is payable on December 1, 2020, to shareholders of
record at the close of business on November 17, 2020.

Share Repurchases
Since July 2012, our Board of Directors has authorized an aggregate of $15
billion of repurchases of our outstanding common stock. The authorizations do
not have expiration dates. The share repurchases are expected to be funded
primarily through available cash. We are not obligated to repurchase any shares
of common stock pursuant to these authorizations and may commence, suspend or
terminate repurchases at any time. Since the inception of our share repurchase
programs in 2012, we have repurchased 159 million shares at an aggregate cost of
$12.5 billion. Shares of stock repurchased are held as treasury shares. We
suspended share repurchases in mid-March 2020 to preserve liquidity primarily in
response to the global economic disruption caused by the COVID-19 pandemic.
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Capital Spending

Our capital expenditures and investments represent consolidated capital
spending. Our adjusted capital spending is a non-GAAP financial measure that
demonstrates our net share of capital spending, and reflects an adjustment for
the portion of our consolidated capital spending funded by certain joint venture
partners.

                                                                                  Millions of Dollars
                                                                                   Nine Months Ended
                                                                                     September 30
                                                                                     2020                  2019
Capital Expenditures and Investments
Midstream                                                            $              1,556                 1,724
Chemicals                                                                               -                     -
Refining                                                                              577                   645
Marketing and Specialties                                                             139                    76
Corporate and Other                                                                   142                   150
Total Capital Expenditures and Investments                                          2,414                 2,595
Less: capital spending funded by certain joint venture partners*                       64                   422
Adjusted Capital Spending                                            $              2,350                 2,173

Selected Equity Affiliates**
DCP Midstream                                                        $                102                   355
CPChem                                                                                204                   252
WRB                                                                                   110                   135
                                                                     $                416                   742


* Included in the Midstream segment.
** Our share of joint ventures' self-funded capital spending.


Midstream

During the first nine months of 2020, capital spending in our Midstream segment included:


•Continued development of additional Gulf Coast fractionation capacity.
•Cash contributions to joint ventures to develop and construct crude oil
pipeline systems, including the Liberty Pipeline system.
•Cash contributions by Phillips 66 Partners to fund Gray Oak Pipeline projects
and South Texas Gateway Terminal development activities.
•Construction activities on Phillips 66 Partners' new ethane pipeline from
Clemens Caverns to petrochemical facilities in Gregory, Texas (C2G Pipeline).
•Completion of Phillips 66 Partners'Sweeny to Pasadena refined petroleum
product pipeline.
•Construction activities to increase storage and export capacity at our crude
oil and refined petroleum product terminal located near Beaumont, Texas.
•Other reliability, return and maintenance projects.

In March 2020, the development and construction of our Red Oak Pipeline system
and Sweeny Frac 4, as well as Phillips 66 Partners' Liberty Pipeline system
projects were deferred as a result of the current challenging business
environment. In the third quarter of 2020, the Red Oak Pipeline project was
canceled. See Note 5-Investments, Loans and Long-Term Receivables, in the Notes
to Consolidated Financial Statements, for additional information regarding our
investment in Red Oak.


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During the first nine months of 2020, DCP Midstream's self-funded capital
expenditures and investments were $203 million on a 100% basis. Capital spending
during this period was primarily for expansion projects and maintenance capital
expenditures for existing assets. Expansion projects included the construction
of the Latham II offload facilities and the Cheyenne Connector, and investments
in the Sand Hills and Southern Hills joint ventures. In April 2020, DCP
Midstream announced capital and cost reduction plans, including a 75% growth
capital reduction. We expect that DCP Midstream's capital program will continue
to be self-funded for the remainder of 2020.

Chemicals

During the first nine months of 2020, CPChem had a self-funded capital program.
During this period, on a 100% basis, CPChem's capital expenditures and
investments were $407 million. The capital spending was primarily for the
continued development of its second U.S. Gulf Coast petrochemical project and
debottlenecking projects on existing assets. We expect CPChem to continue
self-funding its capital program for the remainder of 2020.

Refining

Capital spending for the Refining segment during the first nine months of 2020
was primarily for refinery upgrade projects to enhance the yield of high-value
products, renewable diesel projects, improvements to the operating integrity of
key processing units, and safety-related projects.

Major construction activities included:


•Installation and startup of facilities to improve product value at the Sweeny
Refinery.
•Installation of facilities to improve product value at the Ponca City and
Bayway refineries.
•Installation of facilities to produce biofuels at the Humber Refinery.

In the third quarter of 2020, we announced Rodeo Renewed, a project to
reconfigure our San Francisco Refinery in Rodeo, California, to produce
renewable fuels. The plant would no longer produce fuels from crude oil, but
instead would make fuels from used cooking oil, fats, greases, soybean oils and
other feedstocks. Upon completion expected in early 2024, the facility would
have over 50,000 barrels per day, or 800 million gallons per year, of renewable
fuel production capacity.

Marketing and Specialties
Capital spending for the M&S segment during the first nine months of 2020 was
primarily for an additional investment in the U.S. West Coast retail marketing
joint venture, and the acquisition, development and enhancement of retail sites
in Europe.

Corporate and Other
Capital spending for Corporate and Other during the first nine months of 2020
was primarily for information technology.

2021 Outlook
Subject to approval by our Board of Directors, we currently expect our 2021
capital spending to be $2 billion or less. Our 2021 capital program details are
scheduled to be released in December 2020.


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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. 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.

Environmental

Like other companies in our industry, we are subject to numerous international,
federal, state and local environmental laws and regulations. For a discussion of
the most significant of these international and federal environmental laws and
regulations, see the "Environmental" section in Management's Discussion and
Analysis of Financial Condition and Results of Operations in our 2019 Annual
Report on Form 10-K.

We occasionally receive requests for information or notices of potential
liability from the U.S. Environmental Protection Agency (EPA) and state
environmental agencies alleging that we are a potentially responsible party
under the Federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have
been made a party to cost recovery litigation by those agencies or by private
parties. These requests, notices and lawsuits assert potential liability for
remediation costs at various sites that typically are not owned by us, but
allegedly contain wastes attributable to our past operations. At December 31,
2019, we reported that we had been notified of potential liability under CERCLA
and comparable state laws at 27 sites within the United States. In the first
nine months of 2020, we were notified of two Superfund sites that were deemed
resolved and closed, and one Superfund site that was reopened, accordingly,
leaving 26 unresolved sites with potential liability at September 30, 2020.

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


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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 reviews, or reducing
demand for certain hydrocarbon products. We continue to monitor legislative and
regulatory actions and legal proceedings globally relating to GHG emissions for
potential impacts on our operations.

For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the "Climate Change" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K.


We consider and take into account anticipated future GHG emissions in designing
and developing major facilities and projects, and implement energy efficiency
initiatives to reduce GHG emissions. Data on our GHG emissions, legal
requirements regulating such emissions, and the possible physical effects of
climate change on our coastal assets are incorporated into our planning,
investment, and risk management decision-making. We are working to continuously
improve operational and energy efficiency through resource and energy
conservation throughout our operations.

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NON-GAAP RECONCILIATIONS

Refining

Our realized refining margins measure the difference between (a) sales and other
operating revenues derived from the sale of petroleum products manufactured at
our refineries and (b) purchase costs of feedstocks, primarily crude oil, used
to produce the petroleum products. The realized refining margins are adjusted to
include our proportional share of our joint venture refineries' realized
margins, as well as to exclude those items that are not representative of the
underlying operating performance of a period, which we call "special items." The
realized refining margins are converted to a per-barrel basis by dividing them
by total refinery processed inputs (primarily crude oil) measured on a barrel
basis, including our share of inputs processed by our joint venture refineries.
Our realized refining margin per barrel is intended to be comparable with
industry refining margins, which are known as "crack spreads." As discussed in
"Business Environment," industry crack spreads measure the difference between
market prices for refined petroleum products and crude oil. We believe realized
refining margin per barrel calculated on a similar basis as industry crack
spreads provides a useful measure of how well we performed relative to benchmark
industry margins.

The GAAP performance measure most directly comparable to realized refining
margin per barrel is the Refining segment's "income (loss) before income taxes
per barrel." Realized refining margin per barrel excludes items that are
typically included in a manufacturer's gross margin, such as depreciation and
operating expenses, and other items used to determine income (loss) before
income taxes, such as general and administrative expenses. It also includes our
proportional share of joint venture refineries' realized refining margins and
excludes special items. Because realized refining margin per barrel is
calculated in this manner, and because realized refining margin per barrel may
be defined differently by other companies in our industry, it has limitations as
an analytical tool. Following are reconciliations of income (loss) before income
taxes to realized refining margins:
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Millions of Dollars, Except as Indicated

                                                        Atlantic
                                                          Basin/            Gulf         Central           West
Realized Refining Margins                                 Europe           Coast        Corridor          Coast         Worldwide

Three Months Ended September 30, 2020
Loss before income taxes                           $     (199)

(405) (132) (1,167) (1,903) Plus:


Taxes other than income taxes                              14             30             11              16               71
Depreciation, amortization and impairments                 50             75             33             974            1,132
Selling, general and administrative expenses                6             11              7               9               33
Operating expenses                                        180            258            111             235              784
Equity in losses of affiliates                              2              1            118               -              121
Other segment (income) expense, net                         -             (1)            (1)              1               (1)
Proportional share of refining gross margins
contributed by equity affiliates                           18              -             45               -               63

Realized refining margins                          $       71            (31)           192              68              300

Total processed inputs (thousands of barrels) 43,176 51,543 24,682 30,615 150,016 Adjusted total processed inputs (thousands of barrels)*

                                              43,176         

51,543 42,979 30,615 168,313


Loss before income taxes per barrel (dollars per
barrel)**                                          $    (4.61)

(7.86) (5.35) (38.12) (12.69) Realized refining margins (dollars per barrel)*** 1.65 (0.61) 4.46

            2.23             1.78

Three Months Ended September 30, 2019
Income (loss) before income taxes                  $      296            184            408             (32)             856

Plus:


Taxes other than income taxes                              12             23             10              23               68
Depreciation, amortization and impairments                 49             66             34              66              215
Selling, general and administrative expenses               10              7              6               8               31
Operating expenses                                        208            345            125             282              960
Equity in (earnings) losses of affiliates                   3             (1)           (69)              -              (67)
Other segment (income) expense, net                       (24)             1             (3)              1              (25)
Proportional share of refining gross margins
contributed by equity affiliates                           19              -            269               -              288

Realized refining margins                          $      573            625            780             348            2,326

Total processed inputs (thousands of barrels) 49,895 74,936 26,740 34,498 186,069 Adjusted total processed inputs (thousands of barrels)*

                                              49,895         

74,936 48,853 34,498 208,182


Income (loss) before income taxes per barrel
(dollars per barrel)**                             $     5.93           2.46          15.26           (0.93)            4.60

Realized refining margins (dollars per barrel)*** 11.48 8.34 15.99

           10.11            11.18

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income (loss) before income taxes divided by total processed inputs. *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.








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Millions of Dollars, Except as Indicated

                                                       Atlantic
                                                         Basin/
Realized Refining Margins                                Europe       Gulf Coast     Central Corridor       West Coast         Worldwide

Nine Months Ended September 30, 2020
Loss before income taxes                           $  (1,063)       (1,613)              (463)            (1,903)            (5,042)

Plus:


Taxes other than income taxes                             48            92                 42                 69                251
Depreciation, amortization and impairments               591           891                535              1,401              3,418
Selling, general and administrative expenses              31            28                 20                 28                107
Operating expenses                                       564         1,027                367                734              2,692
Equity in (earnings) losses of affiliates                  7            (1)               248                  -                254
Other segment (income) expense, net                        1             -                 (1)                 3                  3
Proportional share of refining gross margins
contributed by equity affiliates                          50             -                250                  -                300

Realized refining margins                          $     229           424                998                332              1,983

Total processed inputs (thousands of barrels) 123,632 176,641

            68,805             84,229            453,307
Adjusted total processed inputs (thousands of
barrels)*                                            123,632       176,641            123,337             84,229            507,839

Loss before income taxes per barrel (dollars per
barrel)**                                          $   (8.60)        (9.13)             (6.73)            (22.59)            (11.12)

Realized refining margins (dollars per barrel)*** 1.86 2.40

              8.09               3.94               3.91

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Loss before income taxes divided by total processed inputs. *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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Millions of Dollars, Except as Indicated

                                                    Atlantic
                                                      Basin/            Gulf                                   West
Realized Refining Margins                             Europe           Coast      Central Corridor            Coast        Worldwide

Nine Months Ended September 30, 2019
Income (loss) before income taxes              $      547            288             1,005                 (199)          1,641

Plus:


Taxes other than income taxes                          38             62                33                   68             201
Depreciation, amortization and impairments            148            201               101                  191             641
Selling, general and administrative expenses           27             13                14                   21              75
Operating expenses                                    642          1,051               404                  780           2,877
Equity in (earnings) losses of affiliates               9              1              (286)                   -            (276)
Other segment (income) expense, net                   (14)            (3)               (1)                   4             (14)
Proportional share of refining gross margins
contributed by equity affiliates                       55              -               834                    -             889

Special items:


Pending claims and settlements                          -              -               (21)                   -             (21)

Realized refining margins                      $    1,452          1,613             2,083                  865           6,013

Total processed inputs (thousands of barrels) 142,749 217,556

         76,877               97,898         535,080
Adjusted total processed inputs (thousands of
barrels)*                                         142,749        217,556           139,681               97,898         597,884

Income (loss) before income taxes per barrel
(dollars per barrel)**                         $     3.83           1.32             13.07                (2.03)           3.07
Realized refining margins (dollars per
barrel)***                                          10.17           7.42             14.91                 8.84           10.06

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income (loss) before income taxes divided by total processed inputs. *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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Marketing

Our realized marketing fuel margins measure the difference between (a) sales and
other operating revenues derived from the sale of fuels in our M&S segment and
(b) purchase costs of those fuels. The realized marketing fuel margins are
adjusted to exclude those items that are not representative of the underlying
operating performance of a period, which we call "special items." The realized
marketing fuel margins are converted to a per-barrel basis by dividing them by
sales volumes measured on a barrel basis. We believe realized marketing fuel
margin per barrel demonstrates the value uplift our marketing operations provide
by optimizing the placement and ultimate sale of our refineries' fuel
production.

Within the M&S segment, the GAAP performance measure most directly comparable to
realized marketing fuel margin per barrel is the marketing business' "income
before income taxes per barrel." Realized marketing fuel margin per barrel
excludes items that are typically included in gross margin, such as depreciation
and operating expenses, and other items used to determine income before income
taxes, such as general and administrative expenses. Because realized marketing
fuel margin per barrel excludes these items, and because realized marketing fuel
margin per barrel may be defined differently by other companies in our industry,
it has limitations as an analytical tool. Following are reconciliations of
income before income taxes to realized marketing fuel margins:

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Millions of Dollars, Except as Indicated

                                                          Three Months Ended                         Three Months Ended
                                                          September 30, 2020                         September 30, 2019
                                                           U.S.        International                     U.S.        International
Realized Marketing Fuel Margins
Income before income taxes                        $      271              121                        312                  139

Plus:


Taxes other than income taxes                              -                1                          3                    2
Depreciation and amortization                              3               18                          2                   16
Selling, general and administrative expenses             174               62                        184                   61
Equity in earnings of affiliates                         (10)             (31)                        (3)                 (27)
Other operating revenues*                                (90)              (7)                      (101)                 (10)
Other segment (income) expense, net                        -               (1)                         -                    1

Marketing margins                                        348              163                        397                  182
Less: margin for nonfuel related sales                     -               11                          -                   11
Realized marketing fuel margins                   $      348              152                        397                  171

Total fuel sales volumes (thousands of barrels) 155,948 24,164

                    188,172               26,796

Income before income taxes per barrel (dollars
per barrel)                                       $     1.74             5.01                            1.66            5.19
Realized marketing fuel margins (dollars per
barrel)**                                               2.23             6.28                            2.11            6.37

* Includes other nonfuel revenues.

** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

Millions of Dollars, Except as Indicated

                                                          Nine Months Ended                           Nine Months Ended
                                                          September 30, 2020                         September 30, 2019
                                                           U.S.        International                     U.S.        International
Realized Marketing Fuel Margins
Income before income taxes                        $      749              360                        613                  326

Plus:


Taxes other than income taxes                              4                4                          8                    5
Depreciation and amortization                              9               51                          7                   48
Selling, general and administrative expenses             452              182                        522                  184
Equity in earnings of affiliates                         (21)             (81)                        (7)                 (74)
Other operating revenues*                               (245)              (9)                      (286)                 (25)

Marketing margins                                        948              507                        857                  464
Less: margin for nonfuel related sales                     -               34                          -                   33
Realized marketing fuel margins                   $      948              473                        857                  431

Total fuel sales volumes (thousands of barrels) 467,643 69,726

                    538,718               79,429

Income before income taxes per barrel (dollars
per barrel)                                       $     1.60             5.16                       1.14                 4.10
Realized marketing fuel margins (dollars per
barrel)**                                               2.03             6.78                       1.59                 5.42

* Includes other nonfuel revenues.

** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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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 normally identify our forward-looking statements
by the words "anticipate," "estimate," "believe," "budget," "continue," "could,"
"intend," "may," "plan," "potential," "predict," "seek," "should," "will,"
"would," "expect," "objective," "projection," "forecast," "goal," "guidance,"
"outlook," "effort," "target" and similar expressions, but the absence of such
words does not mean a statement is not forward-looking.
We based the forward-looking statements on our current expectations, estimates
and projections about us, our operations, our joint ventures and entities in
which we have equity interests, as well as the industries in which we and they
operate in general. We caution you these statements are not guarantees of future
performance as they involve assumptions that, while made in good faith, may
prove to be incorrect, and involve risks and uncertainties we cannot predict. In
addition, we based many of these forward-looking statements on assumptions about
future events that may prove to be inaccurate. Accordingly, our actual outcomes
and results may differ materially from what we have expressed or forecast in the
forward-looking statements. Any differences could result from a variety of
factors, including the following:
•The continuing effects of the COVID-19 pandemic and its negative impact on
commercial activity and demand for refined petroleum products, as well as the
extent and duration of recovery of economies and demand for our products after
the pandemic subsides.
•Fluctuations in NGL, crude oil, refined petroleum product and natural gas
prices and refining, marketing and petrochemical margins.
•Changes in governmental policies relating to NGL, crude oil, natural gas or
refined petroleum products pricing, regulation or taxation, including exports.
•Actions taken by the Organization of the Petroleum Exporting Countries (OPEC)
and other countries impacting supply and demand and correspondingly, commodity
prices.
•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 chemical products.
•Lack of, or disruptions in, adequate and reliable transportation for our NGL,
crude oil, natural gas and refined petroleum products.
•The level and success of drilling and quality of production volumes around our
Midstream assets.
•The inability to timely obtain or maintain permits, including those necessary
for capital projects.
•The inability to comply with government regulations or make capital
expenditures required to maintain compliance.
•Changes to worldwide government policies relating to renewable fuels and
greenhouse gas emissions that adversely affect programs like the renewable fuel
standards program, low carbon fuel standards and tax credits for biofuels.
•Failure to complete definitive agreements and feasibility studies for, and to
complete construction of, announced and future capital projects on time and
within budget.
•Potential disruption or interruption of our operations due to accidents,
weather events (including as a result of climate change), civil unrest,
political events, terrorism or cyberattacks.
•General domestic and international economic and political developments
including armed hostilities, expropriation of assets, and other political,
economic or diplomatic developments, including those caused by public health
issues, outbreaks of diseases and pandemics.
•Failure of new products and services to achieve market acceptance.
•International monetary conditions and exchange controls.
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•Substantial investments required, or reduced demand for products, as a result
of existing or future environmental rules and regulations, including reduced
consumer demand for refined petroleum products.
•Liability resulting from litigation or for remedial actions, including removal
and reclamation obligations under environmental regulations.
•Changes in tax, environmental and other laws and regulations (including
alternative energy mandates) applicable to our business.
•Changes in estimates or projections used to assess fair value of intangible
assets, goodwill and property and equipment and/or strategic decisions with
respect to our asset portfolio that cause impairment charges.
•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 that
we do not control.
•The factors generally described in Item 1A.-Risk Factors in our 2019 Annual
Report on Form 10-K and in Item 1A.-Risk Factors of Part II in this Quarterly
Report on Form 10-Q.







































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