Phillips 66(PSX) - 2024 Q4 - Annual Report

Part I Business and Properties Phillips 66 operates as an integrated downstream energy company across five segments, strategically managing its portfolio through acquisitions, divestitures, and refinery transformations - Effective April 1, 2024, Phillips 66 reorganized its operating segments, establishing a new Renewable Fuels segment and recasting prior period information for comparability[16][17] - The company's five operating segments include Midstream, Chemicals, Refining, Marketing and Specialties (M&S), and Renewable Fuels, with Corporate and Other covering overhead and investments[19][18] Midstream The Midstream segment expanded its Permian Basin operations through acquisitions while divesting non-core assets, operating extensive pipeline and processing infrastructure - Acquired Pinnacle Midstream on July 1, 2024, for $565 million in cash to expand Permian Basin natural gas gathering and processing[21] - Entered an agreement on January 6, 2025, to acquire EPIC Y-Grade for $2.2 billion in cash, enhancing NGL pipeline and fractionation systems[22] - During 2024, the company sold its 25% interest in Rockies Express Pipeline LLC and other assets, followed by the sale of its 25% interest in Gulf Coast Express Pipeline LLC in January 2025[25][24] - The Sweeny Hub is a key U.S. Gulf Coast NGL market hub with four fractionators (550,000 B/D capacity) and an LPG export terminal (260,000 B/D capacity)[39][40] Chemicals The Chemicals segment, a 50% equity investment in CPChem, is expanding global manufacturing capacity with two major petrochemical facilities expected to start up in 2026 - The Chemicals segment comprises a 50% equity investment in CPChem, operating 30 manufacturing facilities globally[50] - CPChem is constructing two world-scale petrochemical facilities, the Golden Triangle Polymers (GTP) in the U.S. (51% owned) and Ras Laffan Petrochemical (RLP) in Qatar (30% owned), both expected to start up in 2026[55] CPChem Worldwide Product Capacities (as of Dec 31, 2024) | Product | Millions of Pounds per Year (Worldwide) | | :--- | :--- | | Ethylene | 14,430 | | Propylene | 4,180 | | High-density polyethylene | 7,470 | | Normal alpha olefins | 3,435 | | Benzene | 2,530 | | Total | 40,365 | Refining The Refining segment operates 11 refineries with 1,841 MB/D capacity, having ceased crude operations at San Francisco for conversion and planning to cease Los Angeles operations in Q4 2025 - Crude operations ceased at the San Francisco Refinery in early 2024 as part of its conversion into the Rodeo Renewable Energy Complex[57] - In October 2024, the company announced its intention to cease operations at the Los Angeles Refinery in the fourth quarter of 2025[59][73] Refinery Net Crude Throughput Capacity (as of Dec 31, 2024) | Region | Net Crude Throughput Capacity (MB/D) | | :--- | :--- | | Atlantic Basin/Europe | 537 | | Gulf Coast | 529 | | Central Corridor | 531 | | West Coast | 244 | | Total | 1,841 | Marketing and Specialties (M&S) The M&S segment markets refined products through over 8,700 branded outlets, acquired a West Coast marketing business for $65 million, and sold its 49% stake in a Swiss joint venture - As of December 31, 2024, the company operated approximately 7,450 branded outlets in the U.S. and 1,290 in Europe[76][84] - Acquired a U.S. West Coast marketing business for $65 million on October 1, 2024, to support renewable diesel placement from the Rodeo Complex[81] - Sold its 49% ownership interest in the Swiss joint venture Coop Mineraloel AG on January 31, 2025[85] Renewable Fuels The new Renewable Fuels segment completed the Rodeo Complex conversion in 2024, capable of processing 50,000 B/D of renewable feedstocks into fuels like SAF, with supply agreements secured - The Rodeo Complex conversion was completed in 2024, capable of processing approximately 50,000 B/D of renewable feedstocks into renewable fuels[90] - The company is collaborating on a 30.2 megawatt solar facility for the Rodeo Complex, expected to reduce grid power demand by 50% starting Q1 2025[91] - In 2024, the company delivered 600,000 gallons of SAF and entered an agreement to supply 3 million gallons of SAF through the first half of 2025[91] Human Capital As of December 31, 2024, Phillips 66 had approximately 13,200 employees, emphasizing safety and an inclusive culture, achieving a 2024 TRR of 0.12 - The company had approximately 13,200 employees at year-end 2024[94] - The company's 2024 combined workforce Total Recordable Rate (TRR) was 0.12, 23 times better than the U.S. manufacturing average[98] Risk Factors The company faces significant risks from volatile commodity prices, operational hazards, strategic project uncertainties, legal and regulatory changes, climate-related issues, cybersecurity threats, and financial market sentiment - Financial results are highly dependent on volatile and cyclical margins between product sales prices and feedstock costs, influenced by global supply/demand and geopolitics[115][117] - Large capital-intensive projects, such as the Rodeo Complex conversion, face risks from changing market conditions and regulatory environments during their multi-year completion period[139] - The company faces legal and regulatory risks from climate change legislation, including California's SBx 1-2, which could impose refining margin limits and financial penalties[145][157] - Negative sentiment towards fossil fuels and increased ESG focus could adversely affect the company's stock price, capital access, and cost of capital[182][183] - The company is vulnerable to cybersecurity incidents that could compromise information, disrupt operations, and result in significant liabilities and reputational damage[173] Cybersecurity Phillips 66 maintains a comprehensive cybersecurity program overseen by its Audit and Finance Committee, incorporating ERM, continuous monitoring, third-party risk management, and incident response - The Audit and Finance Committee oversees cybersecurity risk management, receiving regular reports from the Chief Information Security Officer (CISO)[197][198] - The company's cybersecurity risk management strategy includes annual ERM evaluations, continuous monitoring with a SIEM system, and a third-party risk management program[202][203][204] - While the company has experienced cybersecurity events, none are believed to have materially affected its business, operations, or financial condition to date[206] Legal Proceedings The company faces significant legal matters, including a $604.9 million Propel Fuels litigation verdict, ongoing settlement negotiations with BAAQMD, and a federal indictment for Clean Water Act violations - A jury returned a $604.9 million verdict against Phillips 66 in the Propel Fuels lawsuit for alleged trade secret misappropriation; the company has accrued the amount and intends to appeal[211][399][676] - In December 2024, BAAQMD offered to settle 172 alleged air regulation violations by the Rodeo Complex, with negotiations currently underway[209] - In November 2024, the company received a federal indictment alleging Clean Water Act violations at its Los Angeles Refinery, with a potential maximum fine exceeding $1 million[210] Executive Officers The executive leadership team is led by Mark E. Lashier as Chairman and CEO, with Kevin J. Mitchell as CFO, overseeing key business segments and corporate functions Key Executive Officers (as of Feb 21, 2025) | Name | Position Held | | :--- | :--- | | Mark E. Lashier | Chairman and Chief Executive Officer | | Kevin J. Mitchell | Executive Vice President and Chief Financial Officer | | Donald A. Baldridge | Executive Vice President, Midstream and Chemicals | | Richard G. Harbison | Executive Vice President, Refining | | Brian M. Mandell | Executive Vice President, Marketing and Commercial | | Vanessa L. Allen Sutherland | Executive Vice President, Government Affairs, General Counsel and Corporate Secretary | Part II Stock Market and Shareholder Matters Phillips 66 common stock trades on the NYSE under 'PSX', with $4.7 billion in Q4 2024 share repurchases and $3.5 billion remaining under authorization - Since 2012, the Board authorized $25 billion for share repurchases, with approximately $3.5 billion remaining available as of December 31, 2024[232] Share Repurchases (Q4 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2024 | 2,660,930 | $133.44 | | Nov 2024 | 945,973 | $130.28 | | Dec 2024 | 1,089,842 | $120.96 | | Total | 4,696,745 | $129.90 | Management's Discussion and Analysis (MD&A) In 2024, net income decreased to $2.1 billion due to lower refining margins, while the company generated $4.2 billion in cash from operations and returned $5.4 billion to shareholders, pursuing strategic growth and efficiency targets 2024 Financial Highlights | Metric | Amount (Billion $) | | :--- | :--- | | Earnings | 2.1 | | Cash from Operations | 4.2 | | Capital Expenditures & Investments | 1.9 | | Share Repurchases | 3.5 | | Dividends Paid | 1.9 | - The company achieved its target of returning $13.6 billion to shareholders by year-end 2024, with a new 2025-2027 target to return over 50% of net cash from operating activities[240] - Achieved $1.5 billion in run-rate cost savings from business transformation, exceeding targets, with a worldwide refining crude oil capacity utilization rate of 95% for 2024[241] Results of Operations Consolidated net income decreased to $2.1 billion in 2024, primarily due to a $365 million loss in Refining and a $605 million litigation accrual in M&S, partially offset by improved Chemicals results Income Before Income Taxes by Segment (Millions of Dollars) | Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Midstream | $2,638 | $2,819 | $5,176 | | Chemicals | $876 | $600 | $856 | | Refining | $(365) | $5,340 | $7,976 | | Marketing and Specialties | $1,011 | $1,897 | $2,072 | | Renewable Fuels | $(198) | $153 | $171 | | Corporate and Other | $(1,287) | $(1,340) | $(1,612) | | Total | $2,675 | $9,469 | $14,639 | - The decrease in 2024 earnings was primarily due to a decline in realized refining margins driven by lower market crack spreads[254] - Selling, general and administrative expenses increased 11% in 2024, mainly due to a $605 million accrual related to the Propel Fuels litigation[261] - Depreciation and amortization increased 20% in 2024, primarily due to $253 million of accelerated depreciation from the planned Los Angeles Refinery closure[262] Capital Resources and Liquidity The company ended 2024 with $1.7 billion cash and $4.6 billion credit capacity, with total debt at $20.1 billion (41% debt-to-capital), and a $2.1 billion 2025 capital budget focused on Midstream growth Financial Indicators (as of Dec 31) | Indicator | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,738 M | $3,323 M | | Net cash from operating activities | $4,191 M | $7,029 M | | Total debt | $20,062 M | $19,359 M | | Total debt to capital | 41% | 38% | - The 2025 capital budget is $2.1 billion, excluding acquisitions and JV spending, including $1.1 billion for growth capital primarily in Midstream[393][394] - In January 2025, the company sold its interest in Gulf Coast Express Pipeline for $853 million and its 49% interest in Coop for 1.06 billion Swiss francs[351][352] - The company faces a significant contingency from the Propel Fuels litigation, with a $604.9 million jury verdict accrued, but the company is appealing and the ultimate outcome remains uncertain[399][676] Critical Accounting Estimates Critical accounting estimates include business combinations and impairment of long-lived assets and equity investments, requiring significant judgment in fair value determination and future cash flow projections - Accounting for business combinations requires significant judgment in estimating the fair value of acquired assets and assumed liabilities, often using income, cost, and market approaches[428][429] - Assessing long-lived assets and equity investments for impairment involves judgmental assessments of future cash flows, commodity prices, and operating costs to determine carrying value recoverability[431][433] Financial Statements and Supplementary Data The consolidated financial statements and notes detail the company's financial position and 2024 results, including refinery restructuring, acquisitions, litigation, asset dispositions, and debt/equity transactions Consolidated Statement of Income (Year Ended Dec 31, in Millions) | | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenues and Other Income | $145,496 | $149,890 | | Total Costs and Expenses | $142,821 | $140,421 | | Income before income taxes | $2,675 | $9,469 | | Net Income Attributable to Phillips 66 | $2,117 | $7,015 | Consolidated Balance Sheet (As of Dec 31, in Millions) | | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $17,910 | $19,941 | | Total Assets | $72,582 | $75,501 | | Total Current Liabilities | $15,087 | $15,856 | | Total Liabilities | $44,119 | $43,851 | | Total Equity | $28,463 | $31,650 | Note 4: Restructuring The planned Q4 2025 cessation of Los Angeles Refinery operations resulted in $253 million accelerated depreciation and a $231 million increase in asset retirement obligations for 2024 - The decision to cease operations at the Los Angeles Refinery resulted in $253 million of accelerated depreciation in 2024[570] - Asset retirement obligations (AROs) increased to $231 million as of December 31, 2024, reflecting changes in decommissioning timing for the Los Angeles Refinery[570] Note 9: Investments, Loans and Long-Term Receivables Significant equity investments include CPChem ($7.8 billion) and WRB Refining ($2.3 billion), with ongoing Dakota Access pipeline risks and recent divestitures of Rockies Express Pipeline ($685 million) and other interests - The USACE is preparing a final Environmental Impact Statement (EIS) for the Dakota Access pipeline, expected in early 2026, with potential outcomes ranging from easement reissuance to pipeline shutdown[601][604] - On June 14, 2024, the company sold its 25% interest in Rockies Express Pipeline LLC for $685 million, recognizing a pre-tax gain of $238 million[611] - Subsequent to year-end, the company sold its 25% interest in Gulf Coast Express Pipeline LLC for $853 million and its 49% interest in Coop for 1.06 billion Swiss francs in January 2025[612][613] Note 15: Debt Total debt reached $20.1 billion at year-end 2024, with $3.3 billion in new senior unsecured notes issued and $1.9 billion in notes repaid or extinguished Total Debt (as of Dec 31) | | 2024 | 2023 | | :--- | :--- | :--- | | Short-term debt | $1,831 M | $1,482 M | | Long-term debt | $18,231 M | $17,877 M | | Total Debt | $20,062 M | $19,359 M | - In 2024, Phillips 66 Company issued $3.3 billion in senior unsecured notes with maturities ranging from 2031 to 2055[638][639] - On September 20, 2024, the company extinguished $1.1 billion of senior notes due in 2025 by irrevocably transferring government obligations to a trustee[644] Note 24: Income Taxes Income tax expense was $500 million in 2024, resulting in an 18.7% effective tax rate, primarily due to lower pre-tax income and the utilization of IRA transferable tax credits Income Tax Reconciliation | | 2024 | 2023 | | :--- | :--- | :--- | | Income before income taxes | $2,675 M | $9,469 M | | Income tax expense | $500 M | $2,230 M | | Effective Tax Rate | 18.7% | 23.6% | - Under the Inflation Reduction Act (IRA), the company purchased $485 million in eligible tax credits in 2024 and $262 million in 2023 to offset estimated tax payments[759] Part III & IV Directors, Executive Compensation, and Related Matters Information on directors, executive compensation, security ownership, and accountant fees is incorporated by reference from the upcoming 2025 Definitive Proxy Statement - Information for Items 10-14 is incorporated by reference from the company's upcoming 2025 Definitive Proxy Statement[806][807] Exhibits and Financial Statement Schedules This section provides an index to financial statements and a comprehensive list of exhibits filed with the 10-K, including governance documents and material contracts - This section contains the index to financial statements and a comprehensive list of exhibits filed with the 10-K, including credit agreements, indentures, and compensatory plans[811][814]