PHILLIPS 66: MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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Unless otherwise indicated, “the company”, “we”, “our”, “our” and “Phillips 66” are used in this report to refer to the activities 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 "results,"
"before-tax income" or "before-tax loss" as used in Management's Discussion and
Analysis refer to income (loss) before income taxes.


OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream,
chemicals, refining, and marketing and specialties businesses. At March 31,
2021, we had total assets of $55.5 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 disrupt economic
activities 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. Demand for refined petroleum products
started to recover following the distribution of COVID-19 vaccines at the
beginning of 2021, and consequently, refining margins have improved. Ongoing
market discipline of OPEC producers has reduced excess supplies of crude oil and
the current balance has supported higher crude oil and natural gas liquids (NGL)
prices. During the first quarter of 2021, winter storms significantly impacted
refining, midstream and chemical operations in the Central and Gulf Coast
regions, which resulted in lower asset utilization, as well as higher costs.

In the first quarter of 2021, we reported a loss of $654 million and generated
cash from operating activities of $271 million. We used available cash for
capital expenditures and investments of $331 million, repayment of $500 million
of maturing debt, dividend payments on our common stock of $394 million, and an
additional member loan to an equity affiliate of $155 million. We ended the
first quarter of 2021 with $1.4 billion of cash and cash equivalents and
approximately $5.3 billion of total committed capacity available under our
revolving credit facilities.

Our results in the first quarter of 2021 reflect the adverse effects of the
COVID-19 pandemic and severe winter storms that occurred in the Central and Gulf
Coast regions in February 2021. The adverse effects of the COVID-19 pandemic may
continue to be significant in the near term, and the depth and duration of the
resulting economic consequences remain unknown. We continuously monitor our
asset and investment portfolio for impairments, as well as optimization
opportunities, in this challenging business environment. As such, additional
asset and investment impairments may be required in the future.



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Business Environment
The Midstream segment includes our Transportation and NGL businesses. Our
Transportation business contains fee-based operations that are not directly
exposed to commodity price risk. Our NGL business contains both fee-based
operations and operations that are directly impacted by NGL prices. The
Midstream segment also includes our 50% equity investment in DCP Midstream, LLC
(DCP Midstream). During the first quarter of 2021, NGL prices increased,
compared with the first quarter of 2020, due to higher demand and supply
disruptions caused by the winter storms that occurred in the Central and Gulf
Coast regions in February 2021.

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 first quarter of 2021, the
benchmark high-density polyethylene chain margin increased significantly,
compared with the first quarter of 2020. This increase was driven by strong
demand, low inventories, and tight supply due to operational impacts from the
winter storms that occurred in the Central and Gulf Coast regions in February
2021.

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, increased to an average of $57.84
per barrel during the first quarter of 2021, compared with an average of $45.97
per barrel in the first quarter of 2020. 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 first quarter of 2021,
worldwide market crack spreads were significantly higher than the first quarter
of 2020. The increases in crude oil prices and market crack spreads were mainly
driven by an increase in demand for refined petroleum products and crude oil in
the first quarter of 2021 following the distribution of COVID-19 vaccines.
Additionally, product prices increased due to operational impacts from the
winter storms that occurred in the Central and Gulf Coast regions in February
2021. However, during the first quarter of 2021, the improved market crack
spreads were partially offset by a significant increase in cost of RINs,
compared with the first quarter of 2020.

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 has resulted in reduced demand
for refined petroleum and specialty products since March 2020. With the
distribution of COVID-19 vaccines in 2021, the global economy has begun to
recover, and demand for refined petroleum and specialty products is improving.
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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three months
March 31, 2021, is based on a comparison with the corresponding period of 2020.


Consolidated Results

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

                                                                                 Millions of Dollars
                                                                                 Three Months Ended
                                                                                      March 31
                                                                                2021                   2020

Midstream                                                              $          76                   (702)
Chemicals                                                                        154                    169
Refining                                                                      (1,040)                (2,261)
Marketing and Specialties                                                        290                    513
Corporate and Other                                                             (251)                  (197)
Loss before income taxes                                                   
    (771)                (2,478)
Income tax benefit                                                              (132)                   (51)
Net loss                                                                        (639)                (2,427)
Less: net income attributable to noncontrolling interests                         15                     69
Net loss attributable to Phillips 66                                   $        (654)                (2,496)




Our net loss attributable to Phillips 66 in the first quarter of 2021 was $654
million, compared with $2,496 million in the first quarter of 2020. The lower
net loss attributable to Phillips 66 reflects a before-tax impairment in the
first quarter of 2021 of $198 million, compared with before-tax impairments of
$3,006 million in the first quarter of 2020. Excluding these impairments, our
results for the first quarter of 2021 decreased, primarily driven by lower
realized refining margins, decreased realized marketing fuel margins and lower
sales volumes in the first quarter of 2021.

See the “Segment results” section for more information on our segment results.






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Statement of Operations Analysis

Sales and other operating revenues and purchased crude oil and products
increased 4% and 9%, respectively, in the first quarter of 2021. These increases
were mainly due to higher prices for refined petroleum products, crude oil and
NGL, partially offset by lower volumes.

Equity in earnings of affiliates decreased 22% in the first quarter of 2021. The
decrease was primarily due to lower realized refining margins and decreased
refinery production at WRB Refining LP (WRB), as well as lower earnings from
CPChem caused by the adverse impacts from the winter storms that occurred in the
Central and Gulf Coast regions in February 2021. See Chemicals segment analysis
in the "Segment Results" section for additional information on CPChem.

Selling, general and administrative expenses increased 28% in the first quarter
of 2021. The increase was primarily due to higher employee-related expenses and
increased selling expenses reflecting a benefit received from a legal settlement
in the first quarter of 2020.

Impairments decreased $2,808 million in the first quarter of 2021. During the
first quarter of 2021, a before-tax impairment of $198 million was recorded
relating to Phillips 66 Partners LP's investment in the Liberty Pipeline
project. In the first quarter of 2020, before-tax impairments of $3,006 million
were recorded for our investment in DCP Midstream and goodwill in our Refining
segment. See Note 7-Impairments, and Note 13-Fair Value Measurements, in the
Notes to Consolidated Financial Statements, for additional information regarding
these impairments.

Interest expense and debt charges increased 32% in the first quarter of 2021. The increase was primarily due to higher average principal debt balances, reflecting new debt issuance in 2020, and to lower capitalized interest due to the completion of capital projects and the placement of a service.

Our income tax benefit was $132 million in the first quarter of 2021, compared
with $51 million in the corresponding period of 2020. See Note 18-Income Taxes,
in the Notes to Consolidated Financial Statements, for information regarding our
effective income tax rates.

Net income attributable to noncontrolling interests decreased 78% in the first
quarter of 2021. The decrease was primarily driven by a net loss from Phillips
66 Partners LP (Phillips 66 Partners) due to the before-tax impairment
associated with Phillips 66 Partners' investment in the Liberty Pipeline project
described above.

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Segment Results

Midstream

                                            Three Months Ended
                                                 March 31
                                                   2021         2020

                                           Millions of Dollars
Income (Loss) Before Income Taxes
Transportation                      $                 7          200
NGL and Other                                        35          179
DCP Midstream                                        34       (1,081)
Total Midstream                     $                76         (702)



                             Thousands of Barrels Daily
Transportation Volumes
Pipelines*                2,801                   3,178
Terminals                 2,675                   3,148
Operating Statistics
NGL fractionated**          363                     198
NGL production***           356                     396


* 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                                                       $          0.69                  0.39

* Based on the index prices of the Mont Belvieu market hub, which are weighted by the mixture of LGN components.




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, as well as our 50% equity investment in
DCP Midstream, which includes the operations of DCP Midstream, LP (DCP
Partners), its MLP.

Our Midstream segment results increased $ 778 million in the first quarter of 2021.

Results from our Transportation business decreased $193 million in the first
quarter of 2021. The decrease was primarily attributable to a before-tax
impairment of $198 million associated with Phillips 66 Partners' decision to
exit the Liberty Pipeline project.

Results from our NGL and Other business decreased $144 million in the first
quarter of 2021. The decrease was primarily due to higher operating expenses
driven by the winter storms that occurred in the Gulf Coast region in February
2021, lower results from our trading activities, reduced cargo margins at the
Sweeny Hub, and decreased equity earnings. These decreases were partially offset
by increased fractionation volumes from the startup of Fracs 2 and 3 at the
Sweeny Hub in late 2020, leading to higher exported cargoes.


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Results from our investment in DCP Midstream increased $1,115 million in the
first quarter of 2021. The increased results reflect a $1,161 million before-tax
impairment of our investment in DCP Midstream recorded in the first quarter of
2020. Excluding this impairment, results from our investment in DCP Midstream
decreased in the first quarter of 2021, mainly due to unfavorable impacts from
DCP Midstream's commodity price risk management activities.

See Note 7 – Impairments and Note 13 – Fair value measurement, in the notes to the consolidated financial statements, for more information regarding the Liberty pipeline project and the impairment of DCP Midstream investments.

See the “Management Overview and Business Environment” section for information on market factors affecting this quarter’s results.

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Chemicals

                                    Three Months Ended
                                         March 31
                                            2021        2020

                                    Millions of Dollars

Income Before Income Taxes   $               154         169



                                                                                 Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins                                                     4,570                     5,113
Specialties, Aromatics and Styrenics                                          981                     1,188
                                                                            5,551                     6,301

* Represents 100% of CPChem’s external sales of manufactured petrochemicals, as well as affiliate commission sales.

Capacity utilization of olefins and polyolefins (percentage) 79% 98




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, Aromatics and Styrenics (SA&S).

Results from the Chemicals segment decreased $15 million in the first quarter of
2021. The decrease was primarily due to higher utility, maintenance and repair
costs, as well as lower sales volumes, resulting from the winter storms that
occurred in the Central and Gulf Coast regions in February 2021. These negative
effects were partially offset by higher margins and increased earnings from
CPChem's equity affiliates.

See the “Management Overview and Business Environment” section for information on market factors affecting this quarter’s results.

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Refining
                                   Three Months Ended
                                        March 31
                                          2021         2020

                                  Millions of Dollars
Loss Before Income Taxes
Atlantic Basin/Europe      $              (153)        (637)
Gulf Coast                                (253)        (843)
Central Corridor                          (248)        (227)
West Coast                                (386)        (554)
Worldwide                  $            (1,040)      (2,261)



                                     Dollars Per Barrel
Loss Before Income Taxes
Atlantic Basin/Europe        $             (3.57)       (15.41)
Gulf Coast                                 (4.64)       (13.16)
Central Corridor                          (12.55)        (9.72)
West Coast                                (14.89)       (19.87)
Worldwide                                  (7.27)       (14.44)

Realized Refining Margins*
Atlantic Basin/Europe        $              4.86          2.38
Gulf Coast                                  3.39          6.76
Central Corridor                            5.97         13.50
West Coast                                  3.33          4.80
Worldwide                                   4.36          7.11

* 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 United States (GAAP), profit (loss) before income taxes per barrel.

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                                                    Thousands of Barrels Daily
                                                        Three Months Ended
                                                             March 31
Operating Statistics                                                 2021      2020
Refining operations*
Atlantic Basin/Europe
Crude oil capacity                                                 537          537
Crude oil processed                                                438          437
Capacity utilization (percent)                                      82  %        81
Refinery production                                                482          456
Gulf Coast
Crude oil capacity                                                 784          769
Crude oil processed                                                553          645
Capacity utilization (percent)                                      71  %        84
Refinery production                                                603          703
Central Corridor
Crude oil capacity                                                 531          530
Crude oil processed                                                384          471
Capacity utilization (percent)                                      72  %        89
Refinery production                                                398          488
West Coast
Crude oil capacity                                                 364          364
Crude oil processed                                                268          279
Capacity utilization (percent)                                      74  %        77
Refinery production                                                288          306
Worldwide
Crude oil capacity                                               2,216        2,200
Crude oil processed                                              1,643        1,832
Capacity utilization (percent)                                      74  %   

83

Refinery production                                              1,771      

1 953

* Includes our share of equity affiliates.




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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 improved by $1,221 million in the first
quarter of 2021. The improved results reflect a $1,845 million before-tax
goodwill impairment recorded in the first quarter of 2020. Excluding this
impairment, results from our Refining segment decreased in the first quarter of
2021, mainly due to lower realized refining margins and decreased refinery
production. Decreased refinery production was primarily driven by the reduced
demand resulting from the COVID-19 pandemic and unplanned downtime caused by the
winter storms that occurred in the Central and Gulf Coast regions in February
2021.

Our worldwide refining crude oil capacity utilization rate was 74% in the first
quarter of 2021, compared with 83% in the first quarter of 2020. The decrease in
the current quarter was primarily due to refinery run cuts resulting from the
COVID-19 pandemic and unplanned downtime due to the winter storms.

See the “Management Overview and Business Environment” section for information on market factors affecting this quarter’s results.

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Marketing and Specialties

                                         Three Months Ended
                                              March 31
                                                 2021        2020

                                         Millions of Dollars
Income Before Income Taxes
Marketing and Other               $               211         471
Specialties                                        79          42
Total Marketing and Specialties   $               290         513



                                                      Dollars Per Barrel
            Income Before Income Taxes
            U.S.                               $             1.36        1.79
            International                                    2.24        6.58

            Realized Marketing Fuel Margins*
            U.S.                               $             1.94        2.08
            International                                    4.01        8.53

* See “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, pre-tax earnings per barrel.

                                                                        Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline                                                       $       2.01                  1.77
Distillates                                                            1.98                  1.76
* On third-party branded petroleum product sales, excluding
excise taxes.



                                                 Thousands of Barrels Daily

Marketing Petroleum Products Sales Volumes
Gasoline                                      1,023                   1,066
Distillates                                     818                   1,037
Other                                            18                      20
Total                                         1,859                   2,123




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 $223 million in the first
quarter of 2021. The decrease was primarily due to lower realized marketing fuel
margins driven by an increase in spot prices in the first quarter of 2021,
compared with a significant decline in spot prices in the first quarter of 2020,
as well as reduced demand caused by the COVID-19 pandemic.

See the “Management Overview and Business Environment” section for information on fuels marketing margins and other market factors affecting this quarter’s results.

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Corporate and Other

                                      Millions of Dollars
                                       Three Months Ended
                                            March 31
                                               2021        2020
Loss Before Income Taxes
Net interest expense           $               (143)       (103)
Corporate overhead and other                   (108)        (94)

Total Corporate and Other      $               (251)       (197)




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 $40 million in the first quarter of 2021,
primarily driven by higher average debt principal balances, reflecting new debt
issuances during 2020, and lower capitalized interest due to the completion of
capital projects and the placement of assets into service.

Increase in overheads and others $ 14 million in the first quarter of 2021, reflecting the increase in employee-related expenses.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

                                                                                Millions of Dollars,
                                                                                Except as Indicated
                                                                                 March 31               December 31
                                                                                     2021                      2020

Cash and cash equivalents                                        $                  1,351               2,514
Short-term debt                                                                       516                 987
Total debt                                                                         15,422              15,893
Total equity                                                                       20,457              21,523
Percent of total debt to capital*                                                     43%                  42
Percent of floating-rate debt to total debt                                           10%                  12

* 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 three months of 2021, we generated $271
million of cash from operations. We used available cash primarily for capital
expenditures and investments of $331 million, repayment of $500 million of
maturing debt, dividend payments on our common stock of $394 million, and an
additional member loan to an equity affiliate of $155 million. During the first
three months of 2021, cash and cash equivalents decreased $1,163 million to
$1,351 million.

Significant sources of capital

Operating Activities
During the first three months of 2021, cash generated by operating activities
was $271 million, compared with $217 million for the first three months of 2020.
The increase was primarily due to higher distributions from equity affiliates
and favorable working capital impacts, partially offset by lower realized
refining margins and sales volumes.

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 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 any variability in their
operations typically has not been as significant to cash flows as that caused by
margins and prices.

Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our
equity affiliates. During the first three months of 2021, cash from operations
included distributions of $502 million from our equity affiliates, compared with
$361 million during the same period of 2020. We cannot control the amount of
future dividends from equity affiliates; therefore, future dividend payments by
these equity affiliates are not assured.

Tax Refunds
An income tax receivable of $1.5 billion, which reflects tax refunds we expect
to receive within the next 12 months, is included in the "Accounts and notes
receivable" line item on our consolidated balance sheet as of March 31, 2021.

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Phillips 66 Partners' Unit Issuances
Phillips 66 Partners suspended issuances under its current continuous offering
of common units, or at-the-market (ATM) program in the first quarter of 2020 due
to low common unit prices. During the first three months of 2021, Phillips 66
Partners did not issue any common units under the ATM program.

Revolving Credit Facilities and Commercial Paper
At March 31, 2021, borrowings of $450 million were outstanding and $1 million in
letters of credit had been drawn under Phillips 66 Partners' $750 million
revolving credit facility. At March 31, 2021, no amount had been drawn under
Phillips 66's $5 billion revolving credit facility or uncommitted $5 billion
commercial paper program.

Term Loan Agreement
On April 6, 2021, Phillips 66 Partners entered into a $450 million term loan
agreement and borrowed the full amount. The term loan agreement has a maturity
date of April 5, 2022, and the outstanding borrowings can be repaid at any time
and from time to time, in whole or in part, without premium or penalty.
Borrowings bear interest at a floating rate based on either a Eurodollar rate or
a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay
amounts borrowed under Phillips 66 Partners' $750 million revolving credit
facility.




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Off-Balance Sheet Arrangements

Lease Residual Value Guarantees
Under the operating lease agreement for our headquarters facility in Houston,
Texas, we have the option, at the end of the lease term in September 2025, to
request to renew the lease, purchase the facility or assist the lessor in
marketing it for resale. We have a residual value guarantee associated with the
operating lease agreement with a maximum potential future exposure of
$514 million at March 31, 2021. We also have residual value guarantees
associated with railcar and airplane leases with maximum potential future
payments totaling $371 million. These operating leases have remaining terms of
up to nine years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC
(ETCO)
In March 2019, a wholly owned subsidiary of Dakota Access issued $2.5 billion
aggregate principal amount of senior unsecured notes. 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 March 31, 2021, Phillips 66 Partners' share of the maximum potential
equity contributions under the CECU was approximately $631 million.

In July 2020, the trial court presiding over the litigation vacated Dakota
Access' easement under Lake Oahe and ordered the Dakota Access Pipeline to be
shut down and emptied of crude oil pending the preparation of an Environmental
Impact Statement (EIS) by the USACE, which had been ordered by the court in
March 2020 and is now expected to be completed by March 2022. In August 2020,
pending an appeal of the trial court's decisions, an appellate court denied
Dakota Access' motion to stay the order vacating the easement, but granted its
motion to stay the order that the pipeline be shut down while the EIS is
prepared. In January 2021, the appellate court affirmed the trial court's order
vacating the easement and directing the USACE to prepare an EIS and reversed the
order directing the pipeline to be shut down. Notwithstanding that the easement
has been vacated, in April 2021, the USACE indicated that it currently intends
to allow the pipeline to continue to operate while it proceeds with the EIS.
Currently, there is a motion for a permanent injunction to shut down the
pipeline before the trial court that could be decided at any time. Additionally,
Dakota Access has requested the appellate court to stay its January 2021
decision pending a filing and disposition of a petition for writ of certiorari
to the U.S. Supreme Court.

If the pipeline is required to cease operations, either permanently or pending
the preparation of the EIS, and should Dakota Access and ETCO not have
sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be
required 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.

See Note 10 – Guarantees, in the notes to the consolidated financial statements, for more information on our guarantees.

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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 March 31, 2021, and December 31, 2020, was $15.4
billion and $15.9 billion, respectively. Our total debt-to-capital ratio was 43%
and 42% at March 31, 2021, and December 31, 2020, respectively.

Joint Venture Loans
We and our co-venturer provided member loans to WRB. At March 31, 2021, our 50%
share of the outstanding member loan balance, including accrued interest, was
$434 million. The need for additional loans to WRB in the remainder of 2021, as
well as WRB's repayment schedule, will depend on market conditions.

The dividends

On February 10, 2021, our Board of Directors declared a quarterly cash dividend
of $0.90 per common share. The dividend was paid on March 1, 2021, to holders of
record at the close of business on February 22, 2021.

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
program 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 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 a joint venture
partner.

                                                                                  Millions of Dollars
                                                                                  Three Months Ended
                                                                                       March 31
                                                                                     2021                  2020
Capital Expenditures and Investments
Midstream                                                            $                100                   603
Chemicals                                                                               -                     -
Refining                                                                              184                   245
Marketing and Specialties                                                              22                    25
Corporate and Other                                                                    25                    50
Total Capital Expenditures and Investments                                            331                   923
Less: capital spending funded by a joint venture partner*                               -                    23
Adjusted Capital Spending                                            $                331                   900

Selected Equity Affiliates**
DCP Midstream                                                        $                  7                    46
CPChem                                                                                 79                   126
WRB                                                                                    59                    37
                                                                     $                145                   209


* Included in the Midstream segment.
** Our share of joint venture's capital spending.


Midstream

In the first three months of 2021, our mid-segment capital expenditures included:

• Construction activities on Phillips 66 Partners’ new ethane pipeline from Clemens Caverns to the petrochemical facilities of Gregory, Texas (C2G pipeline).

• Construction activities for a new 35 mile and 12 inch hydrogen gas pipeline connecting Alliance refinery sources of hydrogen gas.

• Contributions from Phillips 66 Partners to complete the South Texas Gateway Terminal development activities.

• Further development of other Gulf Coast fractionation capacity at Sweeny Hub.

• Expenses associated with other return, reliability and maintenance projects in our transmission and NGL operations.

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Chemicals
During the first three months of 2021, on a 100% basis, CPChem's capital
expenditures and investments were $157 million. The capital spending was
primarily for sustaining, optimization and debottlenecking projects on existing
assets. CPChem's capital program was self-funded, and we expect CPChem to
continue self-funding its capital program for the remainder of 2021.

Refining

Capital spending for the Refining segment during the first three months of 2021
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.

The main construction activities included:

•Installation of facilities to improve product value at the Ponca City refinery.
•Installation of facilities to provide flexibility to produce renewable diesel
at the San Francisco refinery.

Marketing and Specialties
Capital spending for the M&S segment during the first three months of 2021 was
primarily for an investment in a retail marketing joint venture in the Central
region and the development and enhancement of retail sites in Europe.

Corporate and Other
Capital spending for Corporate and Other during the first three months of 2021
was primarily for information technology and facilities.



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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 uncertain.

Based on currently available information, we believe it is remote that future
costs related to known contingent liability exposures will exceed current
accruals by an amount that would have a material adverse impact on our
consolidated financial statements. As we learn new facts concerning
contingencies, we reassess our position both with respect to accrued liabilities
and other potential exposures. Estimates particularly sensitive to future
changes include contingent liabilities recorded for environmental remediation,
tax and legal matters. Estimated future environmental remediation costs are
subject to change due to such factors as the uncertain magnitude of cleanup
costs, the unknown time and extent of such remedial actions that may be
required, and the determination of our liability in proportion to that of other
potentially responsible parties. Estimated future costs related to tax and legal
matters are subject to change as events evolve and as additional information
becomes available during the administrative and litigation processes.

Legal and Tax Matters
Our legal and tax matters are handled by our legal and tax organizations. These
organizations apply their knowledge, experience and professional judgment to the
specific characteristics of our cases and uncertain tax positions. We employ a
litigation management process to manage and monitor the legal proceedings. Our
process facilitates the early evaluation and quantification of potential
exposures in individual cases and enables the tracking of those cases that have
been scheduled for trial and/or mediation. Based on professional judgment and
experience in using these litigation management tools and available information
about current developments in all our cases, our legal organization regularly
assesses the adequacy of current accruals and determines if adjustment of
existing accruals, or establishment of new accruals, is required. In the case of
income tax-related contingencies, we monitor tax legislation and court
decisions, the status of tax audits and the statute of limitations within which
a taxing authority can assert a liability.

Environment

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 2020 Annual
Report on Form 10-K.

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 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 March 31, 2021, and December 31, 2020, we had been notified of
potential liability under CERCLA and comparable state laws at 25 sites within
the United States.

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 regulations or precursors of possible regulations that affect or could affect our business, see the “Climate Change” section in the MD&A of our annual report. 2020 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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GUARANTOR FINANCIAL INFORMATION
At March 31, 2021, Phillips 66 had $10.8 billion of senior unsecured notes
outstanding guaranteed by Phillips 66 Company, a direct, wholly owned operating
subsidiary of Phillips 66. Phillips 66 conducts substantially all of its
operations through subsidiaries, including Phillips 66 Company, and those
subsidiaries generate substantially all of its operating income and cash flow.
The guarantees are (1) unsecured obligations of Phillips 66 Company, (2) rank
equally with all of Phillips 66 Company's other unsecured and unsubordinated
indebtedness, and (3) are full and unconditional.

Summarized financial information of Phillips 66 and Phillips 66 Company (the
Obligor Group) is presented on a combined basis. Intercompany transactions among
the members of the Obligor Group have been eliminated. The financial information
of non-guarantor subsidiaries has been excluded from the summarized financial
information. Significant intercompany transactions and receivable/payable
balances between the Obligor Group and non-guarantor subsidiaries are presented
separately in the summarized financial information.

The summarized results of operations for the three months ended March 31, 2021,
and the summarized financial position at March 31, 2021, and December 31, 2020,
for the Obligor Group on a combined basis were:


Summarized Combined Statement of Operations                                         Millions of Dollars
Sales and other operating revenues                                                $             16,191
Revenues and other income-non-guarantor subsidiaries                                             1,125
Purchased crude oil and products-third parties                                                  10,768
Purchased crude oil and products-related parties                                                 2,316
Purchased crude oil and products-non-guarantor subsidiaries                                      3,323

Loss before income taxes                                                                          (895)
Net loss                                                                                          (741)




                                                                                Millions of Dollars
Summarized Combined Balance Sheet                                    March 31 2021              December 31 2020
Accounts and notes receivable-third parties                        $      4,664                    4,060
Accounts and notes receivable-related parties                               970                      804
Due from non-guarantor subsidiaries, current                                494                      288
Total current assets                                                     10,061                    8,965
Investments and long-term receivables                                     9,269                    9,229
Net properties, plants and equipment                                     12,852                   12,815
Goodwill                                                                  1,047                    1,047
Due from non-guarantor subsidiaries, noncurrent                           6,070                    6,173
Other assets associated with non-guarantor subsidiaries                   2,815                    2,870
Total noncurrent assets                                                  33,928                   34,034
Total assets                                                             43,989                   42,999

Due to non-guarantor subsidiaries, current                         $      2,724                    2,203
Total current liabilities                                                 9,467                    7,938
Long-term debt                                                           11,330                   11,330
Due to non-guarantor subsidiaries, noncurrent                             9,937                    9,316
Total noncurrent liabilities                                             26,600                   26,044
Total liabilities                                                        36,067                   33,982
Total equity                                                              7,922                    9,017
Total liabilities and equity                                             43,989                   42,999


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

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

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

Three Months Ended March 31, 2021
Loss before income taxes                                 $    (153)          (253)          (248)            (386)          (1,040)

More:

Taxes other than income taxes                                   20             27             15               23               85
Depreciation, amortization and impairments                      52             77             34               54              217
Selling, general and administrative expenses                    14             10              7               11               42
Operating expenses                                             230            321            205              382            1,138
Equity in losses of affiliates                                   2              3            117                -              122
Other segment (income) expense, net                              -              -             (2)               2                -
Proportional share of refining gross margins contributed
by equity affiliates                                            43              -             86                -              129

Realized refining margins                                $     208            185            214               86              693

Total processed inputs (thousands of barrels)               42,826         54,560         19,754           25,917          143,057

Adjusted total of processed inputs (thousands of barrels) * 42,826 54,560 35,711

           25,917          159,014

Loss before income taxes per barrel (dollars per
barrel)**                                                $   (3.57)         (4.64)        (12.55)          (14.89)           (7.27)
Realized refining margins (dollars per barrel)***             4.86           3.39           5.97             3.33             4.36

Three Months Ended March 31, 2020
Loss before income taxes                                 $    (637)          (843)          (227)            (554)          (2,261)

More:

Taxes other than income taxes                                   19             37             17               31              104
Depreciation, amortization and impairments                     492            741            469              364            2,066
Selling, general and administrative expenses                    13              7              6               10               36
Operating expenses                                             194            492            136              283            1,105
Equity in (earnings) losses of affiliates                        2             (1)            51                -               52
Other segment (income) expense, net                             (2)             1             (3)               1               (3)

Proportional share of gross refining margins contributed by associates

                                            16              -            113                -              129

Special Items:

Lower-of-cost-or-market inventory adjustments                    -              -             35                -               35

Realized refining margins                                $      97            434            597              135            1,263

Total processed inputs (thousands of barrels)               41,335         64,066         23,345           27,877          156,623

Adjusted total of processed inputs (thousands of barrels) * 41,335 64,066 44,291

           27,877          177,569

Loss before income taxes per barrel (dollars per
barrel)**                                                $  (15.41)        

(13.16) (9.72) (19.87) (14.44) Realized refining margins (dollars per barrel) ***

             2.38           6.76          13.50             4.80             7.11

* The Adjusted Total Inputs Processed includes our pro rata share of an affiliate’s equity affiliate processed inputs.

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







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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) 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:


                                                                      

Millions of dollars, unless otherwise indicated

                                                          Three Months Ended                          Three Months Ended
                                                            March 31, 2021                              March 31, 2020
                                                           U.S.        International                      U.S.        International
Realized Marketing Fuel Margins
Income before income taxes                        $      199               48                         299                171

More:

Taxes other than income taxes                              4                2                           2                  1
Depreciation and amortization                              3               19                           3                 17
Selling, general and administrative expenses             165               60                         127                 63
Equity in earnings of affiliates                          (2)             (24)                          -                (22)
Other operating revenues*                                (86)              (5)                        (84)                 2
Other segment income, net                                  -               (1)                          -                  -

Marketing margins                                        283               99                         347                232
Less: margin for nonfuel related sales                     -               13                           -                 10
Realized marketing fuel margins                   $      283               86                         347                222

Total volume of fuel sales (in thousands of barrels) 145,794 21,474

                     167,178             25,979

Income before income taxes per barrel (dollars
per barrel)                                       $     1.36             2.24                             1.79          6.58
Realized marketing fuel margins (dollars per
barrel)**                                               1.94             4.01                             2.08          8.53

* Includes other income excluding fuel.

** Fuel Marketing Margin Per Barrel, as presented, are calculated using the underlying amounts of Fuel Marketing Margins, in dollars, divided by sales volumes, in barrels. Thus, the amounts recalculated per barrel using rounded margins and barrels presented may differ from the amounts presented per barrel.

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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 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,
insurrections, 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 2020 Annual
Report on Form 10-K.
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