# Phillips 66 (NYSE: PSX) — Business, Risks and Management's Discussion

Sources: Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0001534701-26-000006, filed February 20, 2026); Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (accession 0001534701-26-000032, filed August 5, 2026); Current Reports on Form 8-K dated August 5, 2026 (accession 0001534701-26-000030), April 29, 2026 (accession 0001534701-26-000020), April 6, 2026 (accession 0001534701-26-000015), March 18, 2026 (accession 0001193125-26-114070) and August 20, 2026 (accession 0001193125-26-361266).

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## Business

*From the FY2025 Annual Report on Form 10-K, accession 0001534701-26-000006.*

Phillips 66 is an integrated downstream energy company. It buys crude oil, natural gas liquids (NGL), natural gas and renewable feedstocks — it produces none of its own crude — and converts, moves and sells them as gasoline, diesel, aviation fuels, petrochemicals and plastics, lubricants and renewable fuels. Revenue comes from refining and marketing margins (the spread between product prices and feedstock costs), from fee-based and commodity-linked midstream services, and from equity earnings in its 50%-owned chemicals joint venture. The company is headquartered in Houston, Texas, and had total assets of $73.7 billion at December 31, 2025.

The business is organized into five operating segments:

**Midstream.** Two businesses. *Transportation* moves crude oil and other feedstocks to the refineries, delivers refined products to market, and provides terminaling and storage. *NGL* gathers, processes, transports, fractionates, stores, markets and exports natural gas and NGL, including liquefied petroleum gas (LPG) exports to global markets. At December 31, 2025, the segment owned or held partial interests in roughly 70,000 miles of crude oil, refined product, NGL and natural gas pipeline; 39 refined product terminals; 35 natural gas gathering and processing plants; 15 crude oil terminals; 10 NGL fractionation facilities; six NGL terminals; and a petroleum coke exporting facility. A large part of the NGL business runs through DCP Midstream, LP (DCP LP), a consolidated subsidiary in which Phillips 66 holds an 86.8% aggregate direct and indirect economic interest.

The anchor asset is the Sweeny Hub on the U.S. Gulf Coast — four fractionators with an original nameplate capacity of 550,000 barrels per day (B/D), since debottlenecked to a demonstrated 675,000 B/D, adjacent to the Sweeny Refinery in Old Ocean, Texas, together with NGL storage caverns at Clemens and the Freeport LPG Export Terminal, which has demonstrated combined LPG export capacity of 300,000 B/D and can load a propane and a butane vessel simultaneously. The C2G ethane pipeline links Clemens Caverns to petrochemical plants near Corpus Christi. The Coastal Bend assets acquired on April 1, 2025 added long-haul NGL pipelines and two fractionators with 170,000 B/D of capacity near Corpus Christi. Management describes the strategy for this segment as maximizing a fully integrated "wellhead-to-market" NGL value chain.

**Chemicals.** A 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem), headquartered in The Woodlands, Texas, accounted for under the equity method. At December 31, 2025 CPChem owned or held joint venture interests in 29 manufacturing facilities in Belgium, Colombia, Qatar, Saudi Arabia and the United States, with total product capacity of 40,540 million pounds per year worldwide (32,340 million in the U.S.), including 14,915 million pounds of ethylene and 9,465 million pounds of polyethylene across its three grades. CPChem also produces normal alpha olefins, polyethylene pipe, benzene, cyclohexane, styrene, polystyrene and specialty chemicals. CPChem and a co-venturer are building two world-scale projects, both expected to be fully operational in 2027: the Golden Triangle Polymers facility on the U.S. Gulf Coast (a 4.6 billion pound-per-year ethane cracker plus two high-density polyethylene units totaling 4.4 billion pounds per year; CPChem holds 51%) and the Ras Laffan Petrochemical facility in Qatar (a 4.6 billion pound-per-year cracker plus 3.7 billion pounds per year of high-density polyethylene; CPChem holds 30%).

**Refining.** Ten refineries in the United States and Europe at December 31, 2025, with net crude throughput capacity of 1,948 thousand barrels daily (1,993 thousand at January 1, 2026). Organized into four regions: Atlantic Basin/Europe (Bayway in Linden, New Jersey; Humber in North Lincolnshire, U.K.; and an 18.75% interest in MiRO in Karlsruhe, Germany), Gulf Coast (Lake Charles, Louisiana; Sweeny, Texas), Central Corridor (Ponca City, Oklahoma; Billings, Montana; Wood River, Illinois; Borger, Texas) and West Coast (Ferndale, Washington). On October 1, 2025 the company acquired the remaining 50% equity interest in WRB Refining LP — the joint venture that owned Wood River and Borger — from subsidiaries of Cenovus Energy Inc., consolidating both refineries. In the fourth quarter of 2025 it ceased fuel production and began idling the Los Angeles Refinery (two linked facilities in Carson and Wilmington, California); effective in the first quarter of 2026 the decommissioning and redevelopment of that site is reported in Corporate and Other rather than Refining.

**Marketing and Specialties (M&S).** Purchases for resale and markets refined products, mainly in the United States and Europe, and manufactures and markets base oils and lubricants. In the U.S. the company had approximately 7,620 branded outlets across 48 states under the Phillips 66, Conoco and 76 brands at December 31, 2025, a wholesale network of roughly 5,360 marketer-operated outlets, brand-licensing agreements covering about 1,460 sites, aviation fuel sold at roughly 800 branded locations, and retail joint ventures with approximately 780 outlets in the West Coast, Midcontinent and Rockies. Internationally it uses the JET brand for about 320 U.K. outlets (11 company owned) and holds a 35% interest in roughly 960 predominantly JET-branded sites in Germany and Austria through JET Management Holding GmbH & Co. KG, the entity formed on December 1, 2025 when it sold 65% of that business. Specialties includes lubricants under the Phillips 66, Kendall and Red Line brands and a 50% interest in Excel Paralubes, a 22,200 B/D Group II base oil plant adjacent to the Lake Charles Refinery.

**Renewable Fuels.** Processes renewable feedstocks into renewable diesel, renewable jet fuel and other products at the Rodeo Renewable Energy Complex in California — capacity of roughly 50,000 B/D (800 million gallons per year) of used cooking oil, vegetable oils and other low-carbon-intensity waste oils — and at the Humber Refinery. The segment also procures feedstocks globally, manages regulatory credits and markets the fuels. Rodeo output is distributed primarily in California, Oregon and Washington. A 30.2 megawatt solar facility completed within the Rodeo Complex during 2025 cuts its grid power demand by half. In November 2025 the company agreed to supply approximately 83 million gallons of sustainable aviation fuel over three years to an international air cargo logistics company.

Corporate and Other carries general corporate overhead, net interest, the Energy Research & Innovation organization in Bartlesville, Oklahoma, business transformation restructuring costs, the investment in NOVONIX Limited, and — from the first quarter of 2026 — the idled Los Angeles Refinery site.

Competition differs by segment: product development, cost structure, feedstock sourcing and manufacturing efficiency in Chemicals, Refining and Renewable Fuels; product properties, supply reliability, service, price, credit terms and brand loyalty in M&S; customer service, reliability, rates and proximity to customers and market hubs in Midstream. At December 31, 2025 the company held 583 active patents in 18 countries, 445 of them U.S. patents, and states that no operating segment's profitability depends on any single patent, trademark, license or franchise.

Phillips 66 was incorporated in Delaware in 2011 and separated from ConocoPhillips on April 30, 2012, when ConocoPhillips distributed all of its shares to shareholders.

## Risk factors

*From the FY2025 Annual Report on Form 10-K, accession 0001534701-26-000006. The Form 10-Q for the quarter ended June 30, 2026 reports no material changes to these risk factors.*

**Margin cyclicality and volatility.** Results depend on the spread between the prices at which refined petroleum, petrochemical, plastics and renewable fuels products are sold and the cost of crude oil, natural gas, NGL and renewable feedstocks. Both sides are set by factors outside the company's control: global and local demand, feedstock and competitor production levels, import/export capability, seasonality and weather, transportation availability and cost, energy prices, tariffs and other economic and regulatory conditions, OPEC and non-OPEC production decisions, geopolitical conflict in the Middle East, Eastern Europe and South America, technology affecting energy consumption, and consumer preference for substitutes. Feedstocks are typically purchased weeks before the resulting products are sold, so price movements in that window swing results. Sustained margin compression has in the past led — and could again lead — to reduced production, impairment of properties, inventories, equity investments or goodwill, and constrained capacity to fund buybacks and dividends.

**Feedstock dependence.** The company produces no crude oil and must purchase all the feedstock it processes. Sustained low commodity prices can curtail upstream drilling, reducing the volumes available to Midstream and raising feedstock costs for Chemicals and Refining. Certain midstream contracts are percentage-of-proceeds arrangements, so revenues move directly with natural gas and NGL prices.

**Operational hazards and downtime.** Results depend on continuous operation of the company's and its affiliates' facilities. Planned turnarounds, scheduled maintenance, hurricane shutdowns, power and natural gas interruptions, grid outages and logistics disruptions all reduce productivity. Refining, chemicals and midstream operations carry inherent hazards — explosions, fires, releases, labor disputes, terrorism and cyber intrusion — that can cause injury or loss of life, property damage, pollution, litigation and substantial penalties, with heightened exposure where assets sit near populated areas. The company also relies on third-party transportation for feedstocks and products, and prolonged disruption to that transportation would be material.

**Joint ventures.** Parts of Midstream, Refining and M&S — and the entire Chemicals segment — run through joint ventures in which control is shared. Partners may hold inconsistent economic or legal interests or prove unable to meet their obligations, leaving Phillips 66 to fulfill them alone.

**Competition.** Competitors that produce their own feedstocks or hold more extensive retail networks can offset refining losses with production or retail profits and better withstand depressed margins or feedstock shortages; some have materially greater financial resources. In Midstream, failure to replace the natural decline in volumes from existing wells would reduce pipeline throughput and processing plant utilization. Investment across the petrochemical and midstream industries carries the risk of an overbuild of supply against realized demand.

**Large capital projects and growth execution.** Projects such as the conversion of the San Francisco Refinery into the Rodeo Complex take years, during which the political, regulatory and market environment can change materially, and supply chain disruption can delay them or raise costs. Growth in Midstream, Renewable Fuels and Chemicals assumes societal sentiment and regulation continue to permit development, transportation and use of petroleum- and renewables-based fuels; pipeline construction in particular carries permitting, environmental, political and legal uncertainty.

**Government action and California in particular.** Legislation, regulation, executive order and permitting review can cap margins, impose penalties on profits above a maximum margin, restrict turnaround or maintenance timing, limit construction, or force relocation. California Senate Bill No. 2 (SBx 1-2), adopted in March 2023, authorizes a maximum gross gasoline refining margin and a financial penalty above it, expands reporting to the California Energy Commission, creates a Division of Petroleum Market Oversight and permits the CEC to regulate turnaround timing; rulemaking is ongoing. Adverse effects on California operations or asset lives may force material impairments, accelerated depreciation and asset retirement obligations. The company also notes exposure to OFAC sanctions, tariffs and retaliatory tariffs, new emissions standards and flaring rules.

**Climate, weather and environmental regulation.** Physical risks include floods, hurricane-force winds, severe storms, drought, heat waves, earthquakes, wildfires, freezing temperatures and rising sea levels at coastal facilities; Gulf Coast facilities operated by the company and by CPChem have been shut down by hurricanes before. Operations are inherently subject to spills and releases carrying remediation cost and third-party liability. Environmental law is increasing in both number and complexity across pollutant discharge, atmospheric and greenhouse gas emissions, renewable blending quantities, hazardous materials handling, and end-of-life dismantlement and site restoration. Multiple climate measures are in various stages of promulgation or reversal: in January 2026 the President directed U.S. withdrawal from various international climate organizations and treaties and the administration has pursued a de-regulatory posture, but states continue to act — California's Assembly Bill 398 cap-and-trade, CARB's ban on in-state sales of new internal-combustion cars from 2035 and its 2045 carbon-neutrality scoping plan, low-carbon fuel standards elsewhere, and statutes such as the Vermont Climate Superfund Act seeking to recover climate damages from fossil fuel companies. Increased restriction of hydraulic fracturing could reduce the crude, natural gas and NGL supply available to Midstream and raise feedstock costs for Chemicals and Refining.

**Renewable Fuel Standard compliance.** As a producer of petroleum-based motor fuels the company must blend renewable fuels at least commensurate with the EPA's renewable volume obligation, or buy Renewable Identification Numbers (RINs) on the open market. RIN prices are volatile and unpredictable; unavailability, a sharply higher price, invalid RINs, or an EPA mandate exceeding what is commercially feasible to blend (the "blend wall") could materially impact operations, up to reducing motor fuel produced for U.S. sale. Changes to renewable feedstock and fuel policy — including exclusion of certain feedstock types from credit generation, or reduction of incentives — would hit the Renewable Fuels segment directly.

**Declining demand for petroleum fuels.** Emissions and fuel-efficiency developments, public sentiment, alternative-energy mandates, subsidies for renewables and increased use of non-petroleum or hybrid vehicles may reduce demand for, or raise the cost of, the motor fuel the company produces. Competition for renewable feedstock may also tighten availability and raise cost.

**Litigation and climate litigation.** The company is party to litigation, claims, governmental inspections and investigations whose outcomes are inherently unpredictable; outside investment in legal claims has enabled plaintiffs to pursue verdicts on claims that might previously have settled, and losses may exceed recorded reserves and insurance. Cities, counties and other governmental entities in several states began filing climate-damage suits against energy companies including Phillips 66 in 2017, and "greenwashing" claims under deceptive-trade-practice and consumer-protection statutes have been brought against the company as well. Efforts to shut down energy assets by challenging permits or easements can interrupt or delay projects. Rising concern over plastic and microplastic waste, single-use plastic bans and taxes could reduce demand for CPChem's products and therefore the distributions Phillips 66 receives from it.

**Cybersecurity and data privacy.** Information technology and infrastructure, including third-party and cloud-based systems, may be breached by malicious actors, human error, ransomware, phishing, social engineering, deepfakes or insiders. The company states it has experienced actual and attempted cybersecurity incidents, none of which it believes has had a material effect, but that a future incident may. Generative artificial intelligence has increased the prevalence of such attacks. Regulatory oversight of operational technology, supply chain security, data governance and incident disclosure is becoming more prescriptive, expanding compliance obligations.

**Capital markets and credit.** Access to credit and capital markets may be restricted precisely when needed, and cost and availability may be impaired by illiquid market conditions, including the capacity of syndicate banks to fund liquidity facilities. Divestment campaigns and investor screening for environmental and social performance may depress the share price, restrict access to capital and insurance and raise the cost of capital — while regulators and lawmakers pursuing contrary views create further legal and reputational exposure. A downgrade below investment grade would raise borrowing costs, shrink funding sources and could require collateral; it would also permit Chevron Corporation to buy the company's 50% CPChem interest at fair market value if both Standard & Poor's and Moody's rated the company below investment grade and either rating stayed there for 365 days.

**Other financial risks.** Pension and postretirement assumptions (discount rate, expected long-term return, health care cost trend) can raise future expense and funding requirements. Derivative transactions may produce losses if hedges are ineffective or counterparties default. The company does not fully insure against all potential losses, including extreme weather and natural disasters. Under the 2012 separation from ConocoPhillips, indemnities Phillips 66 may owe are not capped, and the reciprocal indemnity from ConocoPhillips may prove insufficient or unsatisfiable. The company has been, and may again be, subject to shareholder activism, which can move the share price on speculative perceptions and divert board and management attention.

## Management's discussion and analysis — fiscal year 2025

*From the FY2025 Annual Report on Form 10-K, accession 0001534701-26-000006. "Earnings" means net income attributable to Phillips 66; "results" and "before-tax income" mean income before income taxes.*

### Results

Net income attributable to Phillips 66 was $4,403 million in 2025 against $2,117 million in 2024 and $7,015 million in 2023. The 2025 increase came primarily from a before-tax aggregate gain of $1.9 billion on the December 2025 partial sale of the Germany and Austria retail marketing business, improved realized refining margins on higher market crack spreads, and a before-tax gain of $1 billion on the January 2025 sale of the Coop Mineraloel AG investment. Offsetting these were a before-tax impairment of $948 million on the equity method investment in WRB taken in the third quarter of 2025 and lower equity earnings from CPChem. (The 2024 decline from 2023 was driven by falling realized refining margins on lower crack spreads, partly offset by lower income tax expense.)

On the income statement, sales and other operating revenues fell 8% on lower crude, refined product and NGL prices, partly offset by higher crude, NGL, renewable diesel and renewable jet volumes; purchased crude oil and products fell 11% for the same reasons. Equity in earnings of affiliates fell 57%, on weaker CPChem and Excel Paralubes margins, the loss of Coop and Gulf Coast Express earnings after their January 2025 sales, and lower WRB earnings before the October 1, 2025 consolidation. Net gain on dispositions rose $2,663 million. Operating expenses rose $484 million on the WRB and Coastal Bend acquisitions. Depreciation and amortization rose 38%, chiefly from accelerated depreciation at the Los Angeles Refinery and the Coastal Bend assets. Selling, general and administrative expense fell 13% as the Propel Fuels accrual dropped from $605 million in 2024 to $262 million in 2025. Impairments rose $604 million. Taxes other than income taxes rose $462 million after the Biodiesel Blender Tax Credit expired at the end of 2024. Interest and debt expense rose 15% on higher average debt balances, and income tax expense rose 78% on higher pre-tax income.

### Market environment

The composite 3:2:1 market crack spread averaged $20.42 per barrel in 2025 against $16.95 in 2024, lifted by stronger petroleum diesel demand on low seasonal inventories and by cheaper crude — West Texas Intermediate at Cushing averaged $64.89 per barrel versus $75.83, as global production including U.S. production rose. The weighted-average NGL price was $0.64 per gallon versus $0.68 on increased supply, while Henry Hub natural gas rose to $3.54 per MMBtu from $2.24 on growing LNG exports. The benchmark high-density polyethylene chain margin fell to 7.1 cents per pound from 17.7, on higher ethane prices and continued industry oversupply from capacity additions.

### Segments

- **Midstream** results rose $179 million. Transportation fell $374 million on the 2024 sale of the Rockies Express Pipeline interest, lower Dakota Access equity earnings and retirement of a rail rack at the Los Angeles Refinery. NGL rose $553 million on the absence of a 2024 Texas gathering and processing impairment, the Coastal Bend operations, the gain on DCP LP's Gulf Coast Express sale, higher Permian gathering and processing from the Dos Picos acquisition and better export activity, partly offset by a $79 million fourth-quarter impairment of an equity investment in a Texas NGL pipeline.
- **Chemicals** fell $579 million on reduced polyethylene margins — lower sales prices, higher feedstock costs — and higher utility costs.
- **Refining** rose $91 million on higher realized margins, higher volumes and benefits from claims and settlements, partly offset by the $948 million WRB impairment and accelerated Los Angeles depreciation. Worldwide crude capacity utilization was 94% (95% in 2024, 92% in 2023) and clean product yield 87% (87% and 85%).
- **Marketing and Specialties** before-tax income rose $3.5 billion, driven by the $1.9 billion Germany and Austria gain, the $1 billion Coop gain, higher U.S. and international marketing fuel margins, and the smaller Propel Fuels accrual.
- **Renewable Fuels** fell $182 million on higher feedstock costs from full-year facility operations and unfavorable inventory impacts, partly offset by higher renewable product sales and credit generation.
- **Corporate and Other**: net interest expense rose $153 million on higher average debt; corporate overhead rose $90 million on information technology depreciation and second-quarter proxy solicitation advisory fees.

### Strategy and targets

In January 2025 the company announced financial and operational performance targets through year-end 2027 across four priorities. *World-class operations*: annual clean product yield above 86% and crude utilization above industry average. *Disciplined growth and returns*: organic growth in Midstream and Chemicals with total annual capital expenditures and investments held near $2.5 billion, including WRB capital following consolidation on October 1, 2025. *Financial strength and flexibility*: reduce total debt to $17 billion and reduce the debt-to-capital ratio by the end of 2027. *Shareholder returns*: return more than 50% of net cash provided by operating activities, excluding working capital, through repurchases and dividends.

### Capital allocation and liquidity

Operating activities generated $5.0 billion in 2025, a $0.8 billion increase over 2024 on higher earnings from improved realized refining margins, partly offset by unfavorable working capital. Proceeds from asset dispositions were $3.5 billion. The company funded $2.2 billion of capital expenditures and investments and $3.5 billion of acquisitions net of cash acquired, repurchased $1.2 billion of stock (9.7 million shares), paid $1.9 billion of dividends and repaid $0.4 billion of debt net of issuances. Cash fell $0.6 billion to $1.1 billion; total committed capacity available under credit facilities was $5.7 billion at year end versus $4.6 billion a year earlier. Debt was $19.7 billion at December 31, 2025, a 39% total debt-to-capital ratio; aggregate principal outstanding was $19.9 billion with $1.0 billion due within one year and $14.4 billion of interest obligations ($947 million within one year). Purchase obligations totaled $76.9 billion, $39.7 billion due within a year, mostly market-based commodity contracts.

*Acquisitions.* Coastal Bend (EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP) closed in the second quarter of 2025 for $2.2 billion net of cash acquired. The remaining 50% of WRB was acquired from Cenovus on October 1, 2025 for $1.3 billion cash consideration subject to post-closing adjustments, with $450 million of assumed short-term debt repaid the same day. Both were funded with cash and short-term liquidity facility borrowings. Earlier deals were Dos Picos (July 1, 2024, $565 million) and a U.S. West Coast marketing business (October 1, 2024, $68 million).

*Dispositions.* 65% of the Germany and Austria marketing interest sold December 1, 2025 for $1.7 billion, retaining 35%; the 49% Coop interest sold January 31, 2025 for $1.2 billion; DCP LP's 25% Gulf Coast Express interest sold January 30, 2025 for $853 million.

*Financing.* On September 18, 2025 Phillips 66 Company issued $2 billion of junior subordinated notes guaranteed by Phillips 66 — $1 billion of 5.875% Series A due 2056 and $1 billion of 6.200% Series B due 2056, each resetting every five years to the five-year Treasury rate plus a spread (2.283% and 2.166% respectively) with a floor at the initial rate, and each deferrable for up to 10 consecutive years, during which dividends and repurchases would be blocked. On December 4, 2025 Phillips 66 Company repaid the remaining $550 million outstanding under its $1.5 billion delayed draw term loan agreement, which had a maturity date of June 2026, and the agreement was terminated. On December 31, 2025 the company early redeemed $400 million of its 1.300% Senior Notes due February 2026. The accounts receivable securitization facility was enlarged twice during 2025, to $1 billion in April and to $1.25 billion in September with the term extended to September 28, 2026; $200 million was outstanding at year end.

*Ratings.* In September 2025 Moody's lowered the long-term rating to Baa1 from A3, affirmed the P-2 commercial paper rating and kept a stable outlook; S&P rates the long-term debt BBB+ with a stable outlook and commercial paper A-2. Both remain investment grade.

*Returns to shareholders.* In February 2026 the board declared a quarterly dividend of $1.27 per share, a $0.07 increase. Since July 2012 the board has authorized $25 billion of repurchases, against which 248 million shares had been bought for $22.7 billion.

### 2026 capital budget

$2.4 billion, split $1.1 billion sustaining and $1.3 billion growth, and excluding the company's $680 million share of planned CPChem spending. By segment: Midstream $1.1 billion ($400 million sustaining, $700 million growth, aimed at gas processing, pipeline and fractionation capacity in key basins); Refining $1.1 billion ($590 million sustaining, $490 million growth on high-return, low-capital reliability and market-capture projects); M&S $80 million; Renewable Fuels $40 million for feedstock optimization and logistics at Rodeo; Corporate and Other $70 million including redevelopment of the idled Los Angeles Refinery.

### Contingencies

*Propel Fuels.* On October 16, 2024 an Alameda County jury returned a $604.9 million compensatory verdict against Phillips 66 Company for misappropriation of trade secrets, with a willfulness finding. The court awarded $195 million of exemplary damages on July 30, 2025 and entered final judgment of $833 million on August 5, 2025, comprising the verdict, the exemplary damages and $33.3 million of pre-judgment interest at 7%; post-judgment interest accrues at 10%. Post-trial motions were denied on October 20, 2025 and a Notice of Appeal was filed November 14, 2025. The company recorded $604.9 million of expense in 2024 and $262 million in 2025, for accruals of $604.9 million and $867 million at the respective year ends. It denies wrongdoing and intends to defend vigorously.

*Dakota Access.* The U.S. Army Corps of Engineers published its final Environmental Impact Statement in December 2025 evaluating five alternatives; the preferred alternative would grant the Lake Oahe easement on the 2017 conditions but authorize throughput of 1.1 million barrels per day, up from 570,000. The remaining action alternatives would impose additional operating conditions or require a reroute, either of which could be material. At December 31, 2025 Dakota Access's guaranteed senior unsecured notes had $850 million outstanding and the company's 25% share of maximum potential contributions under the Contingent Equity Contribution Undertaking was approximately $215 million, with roughly $10 million of annual interest support at risk should operations cease.

*Clean Water Act — Los Angeles Refinery.* In November 2024 Phillips 66 Company received an indictment from a federal grand jury in the U.S. District Court for the Central District of California alleging two counts of negligently violating the Clean Water Act and four counts of knowingly violating the Clean Water Act at the Carson portion of its Los Angeles Refinery; the matter relates to alleged wastewater permit violations. On January 20, 2026 a Deferred Prosecution Agreement was entered, obligating Phillips 66 to pay an $8 million penalty to the U.S. Government and $28,572 of restitution to the Los Angeles County Sanitation Districts, to update certain policies and training related to Clean Water Act compliance, and to conduct Clean Water Act compliance auditing at two operating facilities.

*Environmental.* Expensed environmental costs were $937 million in 2025, expected at roughly $901 million in 2026 and $916 million in 2027; capitalized environmental costs were $243 million, expected at roughly $306 million and $190 million. Potential liability had been asserted at 19 CERCLA and comparable state sites at the end of 2024; two were removed during 2025, leaving 17 unresolved at December 31, 2025. Under the Renewable Fuel Standard the company incurred no open-market RIN purchase expense for its wholly owned refineries in 2025 or 2024 (versus $323 million in 2023), while its share of jointly owned refinery RIN expense — recorded in equity earnings through September 30, 2025 — was $280 million, $255 million and $389 million in 2025, 2024 and 2023.

*Pending at year end.* On January 5, 2026 the company entered a definitive agreement to acquire the assets and associated infrastructure of the Lindsey Oil Refinery, subject to regulatory approval and customary closing conditions.

## Current quarter — three and six months ended June 30, 2026

*From the Form 10-Q for the quarter ended June 30, 2026, accession 0001534701-26-000032, and the earnings release furnished as Exhibit 99.1 to the Form 8-K dated August 5, 2026, accession 0001534701-26-000030.*

### Results

Net income attributable to Phillips 66 was $3,847 million in the second quarter of 2026 against $877 million a year earlier — diluted earnings per share of $9.55 versus $2.15. For the six months it was $4,054 million versus $1,364 million, or $10.05 versus $3.32 per diluted share. The quarterly increase came primarily from improved realized Refining margins and higher values of regulatory credits in Renewable Fuels; the six-month increase had the same drivers, partly offset by the absence of the $1 billion Coop gain recognized in January 2025. The company reported adjusted earnings of $3,788 million, or $9.41 per diluted share, and adjusted EBITDA of $5,891 million for the quarter, against $200 million, $0.49 and $1,230 million in the first quarter of 2026.

Sales and other operating revenues rose 53% for the quarter and 31% for the six months, with purchased crude oil and products up 50% and 28%, both on higher refined product and crude prices and both damped by the December 2025 partial sale of Germany and Austria Marketing; the six-month figures also absorbed losses from commodity derivative activity. Equity in earnings of affiliates rose $482 million and $581 million, mostly CPChem. Net gain on dispositions was $117 million for the quarter against a $93 million net loss a year earlier, helped by a $110 million before-tax gain on post-closing adjustments from the Germany and Austria sale. Other income rose $149 million and $297 million on trading results, Clean Fuel Production credits and interest income on higher cash balances. Operating expenses rose $370 million and $629 million on the WRB acquisition, partly offset by lower costs after the Los Angeles Refinery ceased operations. Depreciation and amortization fell 28% and 29% against the 2025 Los Angeles Refinery depreciation. Interest and debt expense rose 19% and 24% on higher average debt balances, and income tax expense rose $880 million and $799 million on higher pre-tax income.

### Market environment

The composite 3:2:1 crack spread averaged $41.63 per barrel in the second quarter against $21.65 a year earlier, on low seasonal product inventories — diesel in particular — and geopolitical events reducing global product resupply. WTI at Cushing averaged $93.21 per barrel against $63.86, as Middle East events restricted global crude supply. The high-density polyethylene chain margin was 43.6 cents per pound against 7.4, on lower Asian plant utilization driven by Middle East supply concerns. The weighted-average NGL price was $0.73 per gallon against $0.64 on tight supply with fewer Middle East cargoes, while Henry Hub fell to $2.93 per MMBtu from $3.16 on higher supply and the end of the winter demand season.

### Segments

- **Refining** rose $2,703 million for the quarter and $3,848 million for the six months, on higher realized margins from improved crack spreads and inventory impacts including commodity derivative activity, partly offset by higher feedstock costs; the six-month gain also reflected higher volumes. Worldwide crude capacity utilization was 96% for the quarter and 95% for the six months, against 98% and 89% — the quarterly decline on higher turnaround activity, the six-month improvement on lower turnaround activity. The release reports clean product yield of 86% and completed turnarounds at the Wood River and Humber refineries.
- **Renewable Fuels** rose $677 million and $821 million, primarily on higher values of regulatory credits.
- **Chemicals** rose $384 million and $385 million on improved polyethylene margins from higher sales prices. CPChem's global olefins and polyolefins capacity utilization was 91% for the quarter.
- **Midstream** rose $54 million for the quarter but fell $106 million for the six months. The NGL business rose $46 million and fell $118 million: widening natural gas transportation differentials out of the Permian Basin and higher wellhead and fractionation volumes lifted the quarter against the effects of customer recontracting, while the six months also carried the absence of a $68 million first-quarter 2025 gain on DCP LP's Gulf Coast Express sale and winter weather. Transportation was in line with the prior year in both periods. The release reports record NGL fractionation volumes (1,020 MBD) and record LPG export volumes, full production at the 220 MMCFD Dos Picos II gas plant in the Permian Basin, and announcements of a 300 MMCFD Zeus Gas Plant in the Permian and a 100 MBD Coastal Bend NGL fractionator at Corpus Christi.
- **Marketing and Specialties** rose $12 million for the quarter and fell $1,431 million for the six months. The quarter benefited from the Germany and Austria transaction and higher Excel Paralubes equity earnings, against lower domestic marketing fuel margins and legal accruals; the six-month decline is mostly the absence of the $1 billion Coop gain, plus weaker U.S. and international marketing fuel margins driven by commodity derivative activity.
- **Corporate and Other**: net interest expense rose $3 million and $71 million; corporate overhead fell $28 million and $15 million as lower information technology depreciation and the absence of 2025 proxy solicitation advisory fees outweighed costs of decommissioning and redeveloping the idled Los Angeles Refinery site.

### Balance sheet and cash flow

Total assets were $81.8 billion at June 30, 2026. Second-quarter cash from operations was $7.3 billion; for the six months it was $5 billion against $1 billion a year earlier, on higher earnings from improved realized refining margins plus favorable working capital from the net timing of payments and collections, lower inventory and higher taxes and accruals, partly offset by higher prepaid expenses. The second quarter reverses a first quarter in which operations used $2,264 million of cash: the sharp first-quarter rise in commodity prices produced pre-tax mark-to-market losses on the company's net short crude, refined product, NGL and renewable feedstock derivative positions — put at approximately $900 million in preliminary guidance furnished April 6, 2026 (accession 0001534701-26-000015) and reported as $839 million in the first-quarter results released April 29, 2026 (accession 0001534701-26-000020) — and a net outflow of approximately $3 billion of cash collateral on those derivative positions. To fund that outflow the company drew on committed and uncommitted credit lines, fully drew the new $2.25 billion 364-day term loan and upsized the accounts receivable securitization facility from $1.25 billion to $1.75 billion, both detailed below, ending the first quarter with total debt of $27.1 billion and cash of $5.2 billion. In the quarter the company made $6.7 billion of net debt repayments, funded $726 million of capital expenditures and investments, paid $508 million of dividends and repurchased $379 million of stock. For the six months, capital expenditures and investments were $1.3 billion, dividends $1 billion and repurchases $0.6 billion (4 million shares), with net debt borrowings of $1 billion and cash up $3 billion.

Cash and equivalents were $4.1 billion at June 30, 2026 and total committed capacity available under credit facilities $6.4 billion (versus $5.7 billion at December 31, 2025). Total debt was $20.6 billion against $19.7 billion at year end, with the debt-to-capital ratio at 39% on both dates; the release puts net debt at $16.5 billion and the net debt-to-capital ratio at 33%, down from $22.0 billion and 43% at the end of the first quarter. Six-month capital spending by segment: Midstream $771 million (new Permian gas processing plants and supporting infrastructure), Refining $465 million, M&S $29 million, Renewable Fuels $16 million, Corporate and Other $27 million. CPChem spent $524 million on a 100% basis, self-funded, and is expected to continue self-funding through the year.

*Financing during the period.* On March 18, 2026 Phillips 66 Company entered a 364-day, $2.25 billion term loan guaranteed by Phillips 66, bearing term SOFR plus 1.100% or the reference rate plus 0.100%, and drew the full amount; $1 billion was repaid on June 30, 2026, leaving $1.25 billion outstanding at quarter end. On February 17, 2026 the company repaid at maturity the remaining $100 million of its 1.300% Senior Notes due February 2026. On March 13, 2026 the receivables securitization facility was enlarged from $1.25 billion to $1.75 billion with the right to request up to $2 billion; $346 million of that capacity was in use at June 30, 2026, entirely from sold receivables not yet remitted, with no borrowings outstanding. The 2025 uncommitted credit facility was increased by $100 million on March 26, 2026. Nothing was drawn on the $5 billion revolver or the $5 billion commercial paper program at quarter end. Under separate non-recourse factoring facilities the company sold $1.3 billion of receivables in the quarter and $1.7 billion in the six months, of which $636 million remained uncollected at June 30, 2026.

*Acquisition.* On April 28, 2026 the company acquired the assets and associated infrastructure of the Lindsey Oil Refinery for a purchase price of $115 million, accounted for as an asset acquisition, recording $202 million of properties, plants and equipment and $87 million of asset retirement obligations — $171 million including AROs in Refining and $31 million in Midstream. The assets are intended to provide storage and other infrastructure to enhance Humber Refinery operations and improve fuel supply to U.K. customers.

*Los Angeles Refinery.* Full idling continues while redevelopment plans move through state and local agency review. The associated net properties, plants and equipment and intangibles had been depreciated to an estimated salvage value of $241 million at December 31, 2025. In the first quarter of 2026 the company transferred $2,965 million of gross properties, plants and equipment and $2,699 million of accumulated depreciation from Refining to Corporate and Other.

*Dividends and repurchases.* Quarterly dividends of $1.27 per share were declared on April 17, 2026 (paid June 1) and July 9, 2026. On July 29, 2026 the board approved a $10 billion increase to the repurchase authorization, bringing the aggregate authorized since July 2012 to $35 billion; 252 million shares have been repurchased for $23.3 billion since inception.

*Contingencies.* The Propel Fuels accrual rose to $928 million at June 30, 2026 from $867 million at December 31, 2025, with post-judgment interest at 10% running through selling, general and administrative expense in the M&S segment; Phillips 66 Company filed its opening appellate brief on July 10, 2026. Total environmental accruals were $467 million against $506 million at year end, and 17 CERCLA and comparable state sites remained unresolved, unchanged during the quarter. For the six months ended June 30, 2026 the company incurred $269 million of expense purchasing RINs in the open market for its wholly owned refineries, against none in the prior-year period. Performance obligations secured by letters of credit and bank guarantees were $2,288 million. On Dakota Access, the Army Corps of Engineers issued a signed Record of Decision in May 2026 authorizing continued operation under a new easement with enhanced safety and environmental conditions — alternative water supply planning, groundwater monitoring, biannual Lake Oahe surveillance, fish tissue sampling after a release, eagle protection, periodic independent review of leak detection, emergency food distribution planning and continued Tribal engagement — the compliance costs of which the company describes as minimal; the Standing Rock Sioux Tribe and affiliated groups may now challenge the decision in federal court in Washington, D.C. The book value of the Dakota Access and ETCO investments was $836 million at June 30, 2026.

*Market risk.* Elevated commodity price volatility from Middle East conflict raised the company's one-day, 95% confidence Value at Risk on commodity derivatives above the December 31, 2025 level. A hypothetical 10% move in commodity market prices would change income before income taxes by approximately $350 million in either direction on the outstanding financial commodity derivative positions at June 30, 2026, before offsets from the underlying physical commodities.

## Subsequent events

Events after June 30, 2026 disclosed in the Form 10-Q for that quarter (accession 0001534701-26-000032) and in the Form 8-K dated August 20, 2026 (accession 0001193125-26-361266):

- **July 9, 2026** — The board declared a quarterly cash dividend of $1.27 per common share, payable September 1, 2026 to shareholders of record at the close of business on August 18, 2026.
- **July 10, 2026** — Phillips 66 Company filed its opening brief with the California First District Court of Appeal, Division Two, in the Propel Fuels appeal from the $833 million final judgment.
- **July 29, 2026** — The board approved a $10 billion increase to the share repurchase authorization, raising the aggregate authorized since July 2012 to $35 billion. The authorizations do not expire.
- **July 31, 2026** — The $1.25 billion remaining outstanding under the March 18, 2026 term loan agreement, which would otherwise have matured in March 2027, was repaid in full.
- **August 20, 2026** — Phillips 66 Company entered the Fifth Amendment to its Receivables Purchase and Financing Agreement dated September 30, 2024, among the company as servicer, Phillips 66 Receivables LLC as SPE, the purchaser/lenders, PNC Capital Markets LLC as structuring agent and PNC Bank, National Association as administrative agent. The amendment establishes an uncommitted facility of up to $250 million, raises the maximum committed facility size from $1.75 billion to $2 billion, and extends the maturity date from September 28, 2026 to August 19, 2027.

No acquisition, divestiture or securities issuance was disclosed as occurring after June 30, 2026 in these filings.