Phillips 66 — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash flow.
Business context
Phillips 66 is an energy manufacturing and logistics company with four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). Chemicals is a 50% equity investment in Chevron Phillips Chemical; Midstream includes Phillips 66 Partners and a 50% investment in DCP Midstream.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Sales and other operating revenues | $111.5 billion | $64.1 billion |
| Net income (loss) attributable to Phillips 66 | $1.317 billion | $(3.975) billion |
| Diluted earnings (loss) per share | $2.97 | $(9.06) |
| Cash from operating activities | $6.017 billion | $2.111 billion |
| Capital expenditures and investments | $1.860 billion | $2.920 billion |
| Cash and cash equivalents at year-end | $3.147 billion | $2.514 billion |
| Total debt | $14.448 billion | $15.893 billion |
| Total debt to capital | 40% | 42% |
Operating cash flow rose by $3.9 billion, supported by better refining margins, a $1.1 billion federal tax refund, and increased affiliate distributions. Cash funded $1.9 billion of capital spending and investments, $1.6 billion of common dividends, and $1.5 billion of debt paydown. Approximately $5.7 billion of committed credit capacity was available at year-end; the company reported no borrowings under its revolving credit facility or commercial paper program.
Segment income (loss) before income taxes: Midstream $1.610 billion (2020: loss of $9 million); Chemicals $1.844 billion ($635 million); Refining loss of $2.549 billion (loss of $6.155 billion); and M&S $1.809 billion ($1.446 billion). Corporate and Other recorded a $974 million loss.
Changes versus the prior year
- Revenue increased 74%, primarily from higher prices for crude oil, refined products and NGL, alongside higher refined-product and crude volumes.
- Results improved from the pandemic-affected 2020 loss as demand recovered. Worldwide refining utilization rose to 84% from 76%, and realized refining margin increased to $7.15 per barrel from $3.51.
- Chemicals earnings increased substantially on strong demand and tight supply. Midstream results rebounded largely because 2020 included a $1.161 billion impairment of the DCP Midstream investment.
- Reported results included $1.498 billion of impairments, including a $1.288 billion Refining charge related to the Alliance Refinery and a $198 million charge on the Liberty Pipeline investment. A $365 million unrealized gain on NOVONIX was included in other income.
Outlook, management commentary and risks
Management described refined-product demand as recovering but noted continuing uncertainty from COVID-19 and committed to disciplined capital allocation. The 2022 capital budget is $1.9 billion, including $916 million of growth capital; approximately 45% of growth capital supports lower-carbon opportunities. Management expects to reduce debt toward pre-pandemic levels over the next couple of years and said shareholder returns and debt repayment will be priorities as operating cash flow improves. The quarterly dividend was raised 2% to $0.92 per share; repurchases remained suspended.
Projects and strategic actions include completion of Sweeny Frac 4, expected in fourth-quarter 2022; the Rodeo renewable-fuels conversion, expected to finish in early 2024 subject to permits and approvals; and the planned March 2022 all-stock acquisition of remaining Phillips 66 Partners interests. The merger was expected to issue approximately 44 million Phillips 66 shares based on December 31 prices.
Key risks include volatile commodity prices and refining, chemicals and marketing margins; continued pandemic effects; operational outages and severe weather; environmental, climate and renewable-fuel compliance costs; regulatory and litigation uncertainty; and dependence on joint ventures and affiliate distributions. Dakota Access litigation could affect pipeline operations; Phillips 66 Partners’ share of maximum potential contingent equity contributions was approximately $631 million. The company reported $441 million of RIN expense for wholly owned refineries in 2021, plus its $351 million share of jointly owned refinery RIN expense.
The filing reports audited financial statements with an unqualified opinion and effective internal control over financial reporting. Management set 2030 GHG intensity reduction targets, relative to 2019, of 30% for Scope 1 and 2 emissions and 15% for Scope 3 emissions.
Investor facts to verify
- Whether the Phillips 66 Partners merger closed on the expected terms and its actual share issuance and dilution.
- 2022 refining margins, utilization and cash generation, including the pace and durability of demand recovery.
- Execution, cost and permitting progress for Sweeny Frac 4 and the Rodeo Renewed project.
- Developments in the Dakota Access environmental review and litigation, and any resulting financial obligations or operational disruption.
- Whether impairment assumptions, RIN costs, affiliate distributions and debt-reduction plans remain consistent with reported expectations.