Phillips 66 — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results. Phillips 66 is an integrated downstream energy company with Midstream, Chemicals, Refining, and Marketing and Specialties segments.
Key financial results and condition
| Metric | 2023 | 2022 | Change or context |
|---|---|---|---|
| Sales and other operating revenues | $147.4 billion | $170.0 billion | Down 13%, mainly reflecting lower refined product, crude oil, and NGL prices |
| Net income attributable to Phillips 66 | $7.0 billion | $11.0 billion | Down 36%; 2022 included a $3.0 billion pretax DCP merger gain and refining margins declined in 2023 |
| Diluted EPS | $15.48 | $23.27 | Down from the prior year |
| Cash from operating activities | $7.0 billion | $10.8 billion | Down $3.8 billion, including lower refining margins and working-capital effects |
| Cash and cash equivalents | $3.3 billion | $6.1 billion | Declined $2.8 billion |
| Total debt | $19.4 billion | $17.2 billion | Debt-to-capital ratio was 38%, versus 34% |
| Committed credit capacity available | $6.4 billion | $6.7 billion | Company-reported availability at year-end |
Phillips 66 reported $9.5 billion of income before tax and $2.2 billion of income tax expense. Total assets were $75.5 billion and total equity was $31.7 billion at year-end. The filing reports no single consolidated gross margin percentage; refining and marketing margin measures are segment-specific and non-GAAP.
Segment performance
- Midstream: Pretax income of $2.8 billion, down from $4.7 billion. The comparison is materially affected by $2.8 billion of DCP-related remeasurement gains in 2022. Transportation results improved, while NGL and Other declined year over year.
- Chemicals: Pretax income of $600 million, down from $856 million, primarily due to lower sales prices and margins; lower natural gas-related utility costs partly offset the decline.
- Refining: Pretax income of $5.3 billion, down from $7.8 billion. Worldwide realized refining margin declined to $17.32 per barrel from $21.55. Utilization rose to 92% from 90%.
- Marketing and Specialties: Pretax income of $2.1 billion, down from $2.4 billion, mainly due to weaker international fuel margins and lower affiliate earnings, partly offset by stronger U.S. fuel margins.
Cash allocation, debt, and liquidity
Cash uses included $4.1 billion to acquire DCP LP public common units, $4.0 billion for common-stock repurchases, $2.4 billion for capital expenditures and investments, and $1.9 billion in common dividends. Debt issuance net of repayments provided approximately $2.0 billion. The company issued $1.25 billion of senior notes in 2023 and borrowed $1.25 billion under a term loan due in 2026. It reported investment-grade ratings of A3 from Moody’s and BBB+ from S&P, both with stable outlooks.
At year-end, Phillips 66 had a $5 billion revolving credit facility with no borrowings and approximately $6.4 billion of total committed capacity available, including facilities described for DCP LP. The company repaid $800 million of 0.900% notes at maturity in February 2024. Its board declared a quarterly dividend of $1.05 per share in February 2024.
Material changes, outlook, and management commentary
- On June 15, 2023, Phillips 66 completed the DCP LP merger for approximately $3.8 billion cash, increasing its direct and indirect economic interest in DCP LP from 43.3% to 86.8%. The company said integration and additional synergies would continue into 2024.
- Management increased its target for shareholder returns from July 2022 through year-end 2024 to $13–$15 billion, and said it plans to return at least 50% of net cash from operating activities through repurchases and dividends. Future distributions remain subject to board discretion and business needs.
- Management expects proceeds of more than $3 billion from planned dispositions of non-core assets, subject to market conditions and required approvals.
- The 2024 capital budget is $2.2 billion, including $1.3 billion of growth capital and $923 million of sustaining capital. The budget excludes approximately $1.0 billion of planned spending by major joint ventures CPChem and WRB.
- Management reported achieving a $900 million annual run-rate cost reduction and $300 million annual sustaining-capital reduction by the end of 2023. It targets $1.1 billion of annual run-rate cost reductions by the end of 2024 while maintaining the sustaining-capital reduction.
- Phillips 66 expected the Rodeo facility conversion to renewable fuels to begin operations in the first quarter of 2024, with capacity above 50,000 barrels per day. The company also described CPChem projects on the U.S. Gulf Coast and in Qatar as expected to start up in 2026.
Risks, contingencies, and unusual items
- Results and cash flows are sensitive to volatile crude oil, natural gas, NGL, refining, marketing, and petrochemical prices and margins; operating interruptions, weather, supply constraints, and affiliate distributions also affect performance.
- The Dakota Access pipeline remains subject to an Army Corps of Engineers environmental review. A draft environmental impact statement listed alternatives including denial of an easement and pipeline shutdown. Phillips 66’s 25% share of maximum potential contingent equity contributions was approximately $467 million; a shutdown could also require support for ongoing expenses.
- California’s SBx 1-2 may permit regulation of refinery margins and maintenance timing. The company said implementation could adversely affect California operations; impacts remain uncertain.
- Environmental compliance and remediation remain significant exposures. Environmental costs expensed were $824 million in 2023; the company estimated approximately $885 million in 2024 and $863 million in 2025. It reported 21 unresolved sites with potential CERCLA or comparable state-law liability.
- Legal matters include proposed Clean Air Act stipulated penalties exceeding $500,000 for alleged violations at several refineries, and a South Coast Air Quality Management District penalty demand exceeding the $300,000 reporting threshold concerning Los Angeles Refinery notices. The company was negotiating resolution of the latter.
- RFS compliance expenses for the company’s wholly owned refineries were $323 million in 2023; its share of jointly owned refinery expenses was $389 million. RIN prices and renewable volume requirements may change costs.
- Other risks include climate regulation and litigation, cybersecurity events, joint-venture exposure, and commodity or capital-market volatility. Management stated known contingency costs are not currently expected to exceed accruals by a material amount.
- Unusual comparability items include the $3.0 billion DCP merger gain recognized in 2022, a $101 million pretax gain on the 2023 South Texas Gateway Terminal sale, a $39 million decline in the fair value of NOVONIX in 2023, and a $53 million pretax loss on early redemption of DCP LP notes.
Most important facts for investors to verify
- How much of the earnings and cash-flow decline reflects normalized market conditions versus the nonrecurring DCP gain in 2022 and working-capital movements?
- Whether DCP integration delivers the expected synergies and how its acquired operations contribute to earnings, cash flow, and consolidated debt.
- Whether the Rodeo renewable fuels conversion starts on schedule and achieves expected capacity, costs, feedstock availability, and returns.
- Progress toward the 2024 shareholder-return, asset-disposition, and transformation targets, alongside capital spending and debt obligations.
- Developments in the Dakota Access environmental review and California refinery regulation, including potential financial or operating consequences.
- Phillips 66 reported unqualified financial-statement and internal-control audit opinions; the auditor highlighted judgment involved in assessing impairment indicators for the WRB equity investment.