PSX Phillips 66 - 10-K

Item 1A. RISK FACTORS

You should carefully consider the following risk factors in addition to the other information included in this Annual Report. Each of these risk factors could adversely affect our business, operating results, financial condition, and reputation, as well as the value of an investment in our securities. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we do not currently consider to present significant risks to our operations. Some of the factors, events and contingencies discussed below may have occurred in the past, but the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past and instead reflect our beliefs and opinions as to the factors, events or contingencies that could materially and adversely affect us in the future.

Risks Related to Our Manufacturing and Operations

Margins for the products we produce are cyclical and volatile due to changes in market conditions, which are largely dependent on factors beyond our control, and directly affect our earnings, financial condition and cash flows.

Similar to other companies in the industries in which we operate, our financial results are largely affected by the relationship, or margin, between the prices at which we sell refined petroleum, petrochemical, plastics and renewable fuels products and the prices for crude oil, natural gas, NGL, renewable feedstocks and other feedstocks used in manufacturing these products. Historically, margins have been volatile and the industry in which we operate is cyclical in nature, and we expect such volatility and cyclicality to continue.

The price at which we purchase crude oil, natural gas, NGLs and renewable feedstocks and the prices at which we can ultimately sell our refined products depend upon factors beyond our control, including, but not limited to:

• global and local demand;

• production levels of feedstocks;

• production levels of refined products by competitors;

• import and export capabilities;

• seasonality and weather conditions;

• transportation availability and cost;

• changes in energy prices;

• economic, political and regulatory conditions domestically and internationally, including imposition of tariffs or other tax incentives or disincentives;

• the impacts of the members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member producing nations that may agree to set production levels;

• geopolitical risks, such as the ongoing global impact of conflicts in the Middle East, Eastern Europe and South America;

• technological advances affecting energy consumption and supply; and

• consumer preferences and the use and availability of substitute products.

Also, supply contracts generally have market-based pricing provisions. We normally purchase our feedstocks weeks before manufacturing and selling the refined products. We also purchase refined products produced by others for sale to our customers. Changes in prices that occur between the time we purchase feedstocks or products and when we sell the refined products could have a significant impact on our financial results.

Lower margins have in the past, and may in the future, lead us to reduce the amount of refined products we produce, which may reduce our results of operations and cash flows. Significant reductions in margins could require us to impair the carrying value of our assets (such as properties, plants and equipment, inventories, equity investments or goodwill) and may adversely affect our ability to fund our capital priorities, including share repurchases and dividends.

The prices at which we buy our feedstocks are dependent on market conditions that are beyond our control, and changes in supply and demand for the feedstocks we process directly impact the results of our business.

We do not produce crude oil and other feedstocks and must purchase all of the feedstocks we process. The prices for crude oil, other feedstocks and refined products can fluctuate based on global, regional and local market conditions, as well as by type and class of products, which can reduce margins and have a significant impact on our refining, wholesale marketing and retail operations, revenues, operating income and cash flows. The ability of the members of OPEC to agree on and to set crude oil price and production controls and changes in trade flows from events such as the conflicts in Eastern Europe and South America have also had, and are likely to continue to have, a significant impact on the market prices of crude oil and certain of our products.

In addition, sustained periods of low commodity prices can result in upstream producers significantly curtailing their oil and gas drilling operations, which could substantially delay the production and delivery of volumes of crude oil, natural gas and NGL and negatively impact the results of our Midstream, Refining, and M&S segments. For example, the volume of crude oil and refined petroleum products transported or stored in our pipelines and terminal facilities depends on the demand for and availability of crude oil and refined petroleum products in the areas serviced by our assets. Likewise, our earnings and cash flows would be negatively impacted by a period of sustained lower demand for refined petroleum products, which could lead to lower refinery utilization and result in a decrease in the volumes of refined petroleum product transported through our pipelines and terminal facilities.

If a decrease in commodity prices results in declining oil and gas production, then demand for services provided by our Midstream segment may be negatively impacted. The natural gas and NGL gathered, processed, transported, sold and stored by us is delivered into pipelines for further delivery to end-users, including fractionation facilities. Our revenues and cash flows can also increase or decrease as the price of natural gas and NGL fluctuates because of certain contractual arrangements whereby natural gas is purchased for an agreed percentage of proceeds from the sale of the residue gas and/or NGL resulting from processing activities.

Lower commodity prices also affect our Chemicals segment, which uses feedstocks that are derivatively produced in the processing of natural gas and refining of crude oil. Those feedstock prices can fluctuate widely for a variety of reasons, including changes in worldwide energy prices and the supply and availability of feedstocks. Due to the highly competitive nature of most of the products sold by our Chemicals segment, market position cannot necessarily be protected by product differentiation or by passing on cost increases to customers. As a result, price increases in raw materials may not correlate with changes in the prices at which petrochemical and plastics products are sold, thereby negatively affecting margins and the results of operations of our Chemicals segment.

Additionally, our Renewable Fuels segment is affected by prices and demand for renewable feedstocks. Sustained periods of low prices for renewable fuels or renewable feedstocks due to decreases in demand or production of renewable fuels products could have a material adverse effect on the results of operations of our Renewable Fuels segment.

Sustained or prolonged declines in commodity prices and other feedstocks may adversely affect our results of operations, liquidity, access to the capital markets, and our ability to fund our capital priorities, including share repurchases and dividends.

Changes to government policies relating to renewable feedstocks and renewable fuels that adversely affect programs like the renewable fuels standards program, low-carbon fuels standards and tax credits for processing certain renewable feedstocks impact our financial condition and results of operations.

The regulatory framework regarding renewable feedstocks and fuels is constantly evolving. Changes to laws, regulations, policies or standards regarding renewable fuels or the feedstocks used to produce our renewable fuels, elimination or

reduction of incentives, as well as the cost of conforming with such updated laws, regulations, policies or standards could negatively impact the results of operations of our Renewable Fuels segment. For example, our Renewable Fuels segment processes renewable feedstocks such as used cooking oil, vegetable oils, and other low-carbon intensity waste oils and byproducts to produce renewable fuels. If certain types of renewable feedstocks are excluded from generating credits, our financial condition and results of operations may be impacted.

Our operations are subject to planned and unplanned downtime, business interruptions, and operational hazards, any of which could adversely impact our ability to operate and could adversely impact our financial condition, results of operations and cash flows.

Our operating results are largely dependent on the continued operation of facilities and assets owned and operated by us and our equity affiliates. Interruptions may materially reduce productivity and thus, the profitability, of operations during and after downtime, including for planned turnarounds and scheduled maintenance activities. In the past, we and certain of our equity affiliates also have temporarily shut down facilities due to the threat of severe weather, such as hurricanes. Additionally, the availability of natural gas and electricity necessary to operate our assets can be affected by weather, pipeline interruptions, grid outages, and logistics disruptions, which may also cause us to temporarily curtail or shut down operations.

Although we take precautions to ensure and enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to the hazards inherent in chemicals, refining and midstream businesses, such as explosions, fires, refinery, processing facility or pipeline releases or other incidents, power outages, labor disputes, global health crises, restrictive governmental regulation or other natural or man-made disasters, such as geopolitical conflicts and acts of terrorism, including cyber intrusion. The inability to operate facilities or assets due to any of these events could significantly impair our ability to manufacture, process, store or transport products.

Any casualty occurrence involving our assets or operations could result in serious personal injury or loss of human life, significant damage to property and equipment, environmental pollution, impairment of operations and substantial losses to us. For assets located near populated areas, including residential areas, commercial business centers, industrial sites and other public gathering areas, the level of damage resulting from these risks could be greater. Damages resulting from an incident involving any of our assets or operations may result in our being named as a defendant in one or more lawsuits asserting potentially substantial claims or in our being assessed potentially substantial remediation fines or penalties by governmental authorities. Should any of these risks materialize at any of our equity affiliates, it could have a material adverse effect on the business and financial condition of the equity affiliate and negatively impact their ability to make future distributions to us.

We are subject to interruptions of supply and offtake, as well as increased costs, as a result of our reliance on third-party transportation of crude oil or other feedstocks, NGL, refined petroleum and renewable fuels products.

We often utilize the services of third parties to transport crude oil or other feedstocks, NGL, refined petroleum and renewable fuels products to and from our facilities. In addition to our own operational risks, we could experience interruptions of supply or increases in costs to deliver our products to market if the ability to transport is disrupted because of weather events, natural disasters, accidents, governmental regulations, public health crises, armed hostilities, or third-party actions, including protests. A prolonged disruption in our ability to transport crude oil or other feedstocks, NGL, refined petroleum or renewable fuels products to or from one or more of our refineries or other facilities could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In order to maintain or increase throughput levels on our natural gas gathering and transportation pipeline systems and NGL pipelines and the asset utilization rates at our natural gas processing plants, we must continually obtain new supplies. The level of successful drilling activity and prices of, and demand for, natural gas and crude oil, as well as producers’ desire and ability to obtain necessary permits are some of the factors that may affect new supplies of natural gas and NGLs. If we are not able to obtain new supplies of natural gas and NGLs to replace the natural decline in volumes from existing wells or because of competition, throughput on our pipelines and the utilization rates of our treating and processing facilities would decline. This could have a material adverse effect on our business, results of operations, financial position and cash flows, and our ability to make cash distributions.

Our investments in joint ventures decrease our ability to manage risk.

We conduct some of our operations, including parts of our Midstream, Refining and M&S segments, and our entire Chemicals segment, through joint ventures in which we share control with our joint venture partners. Our joint venture partners may have economic, business or legal interests or goals that are inconsistent with ours or those of the joint venture, or our joint venture participants may be unable to meet their economic or other obligations, and we may be required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint venture interest, to adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on the financial condition or results of operations of our joint ventures and, in turn, our business and operations.

Public health crises, epidemics and pandemics have had and could in the future have a material adverse effect on our business. Any future widespread health crises could materially and adversely impact our business.

Our global operations expose us to risks associated with public health crises and outbreaks of epidemics, pandemics, or contagious diseases.

Even if a virus or other illness does not spread significantly, the perceived risk of infection or health risk may result in reduced demand for our products and materially affect our business. As we cannot predict the duration or scope of any future public health crisis, epidemic or pandemic, the negative financial impact to our results cannot be reasonably estimated and could be material. Factors that will influence the impact on our business and operations include the duration and extent of such events, including the virulence of the infection, the timing of vaccine development and distribution across the world and its impact on economic recovery, the extent of imposed or recommended containment and mitigation measures, including travel restrictions, and their impact on our operations, and the general economic consequences of public health crises, epidemics and pandemics.

To the extent any public health crisis, epidemic or pandemic adversely affected or affects our business and financial results, it may also have the effect of heightening many of the other risks that could adversely affect our business described in this Annual Report, such as risks associated with industry capacity utilization, volatility in the price and availability of raw materials, supply chain interruptions, material adverse changes in customer relationships including any failure of a customer to perform its obligations under agreements with us, and risks associated with worldwide or regional economic conditions.

Competition Risks

Refining, midstream and marketing competitors that produce their own feedstocks, have more extensive retail outlets, or have greater financial resources may have a competitive advantage.

Our industry is highly competitive with respect to both feedstock supply and refined petroleum product markets. We compete with many companies for available supplies of crude oil and other feedstocks and for outlets for our refined products. We do not produce any of our crude oil feedstocks. Some of our competitors, however, obtain a portion of their feedstocks from their own production and some have more extensive retail outlets than we have. Competitors that have their own production or extensive retail outlets, including those with greater brand-name recognition, are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.

Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to bear the economic risks inherent in all aspects of our business. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual customers.

Our Midstream segment competes for natural gas supplies with other companies that provide midstream gathering and processing, transportation, fractionation and terminaling services, and a failure to grow or maintain throughput levels may negatively impact the results of operations of our business.

In order to maintain or increase throughput levels on our natural gas gathering and transportation pipeline systems and NGL pipelines and the asset utilization rates at our natural gas processing plants, we must continually obtain new supplies. The level of successful drilling activity and prices of, and demand for, natural gas and crude oil, as well as producers’ desire and ability to obtain necessary permits are some of the factors that may affect new supplies of natural gas and NGLs. If we are not able to obtain new supplies of natural gas and NGLs to replace the natural decline in volumes from existing wells or because of competition, throughput on our pipelines and the utilization rates of our treating and processing facilities would decline. This could have a material adverse effect on our business, results of operations, financial position and cash flows.

Volatility in market demand for our petrochemical and plastics products and midstream transportation services and the risk of overbuild in these industries may negatively impact the results of operations of our businesses.

We and our affiliates have made and continue to make significant investments to meet market demand for our products and services, such as investments in midstream infrastructure and construction of new petrochemicals facilities. Similar investments have been made, and additional investments may be made in the future, by us, our competitors or by new entrants to the markets and industries we serve. The success of these investments largely depends on the realization of anticipated market demand, and these projects typically require significant development periods, during which time demand for our products or services may change, or additional investments by competitors may be made that could result in an overbuild of supply. Any of these or other competitive forces could materially adversely affect our results of operations, financial position or cash flows, as well as our return on capital employed.

Strategic Performance and Future Growth Risks

Large capital-intensive projects can take many years to complete, and the political and regulatory environments or market conditions could change significantly between the project approval date and the project startup date, negatively impacting expected project returns.

Our basis for approving large-scale capital-intensive projects, such as the recent conversion of our San Francisco Refinery into the Rodeo Complex, is the expectation that it will deliver an acceptable rate of return on capital employed. We base these forecasted project economics on our best estimate of future market conditions including the regulatory and operating environment. Most large-scale projects take several years to complete. During this multi-year period, the political and regulatory environments or other market conditions can change from those we anticipated, and these changes could be significant. Supply chain disruptions may also delay projects or increase costs. Accordingly, we may not be able to realize our expected returns from a large investment in a capital project, and this could negatively impact our results of operations, cash flows and our return on capital employed.

Plans we or our joint ventures may have to expand or construct assets or develop new technologies, and plans for our future performance are subject to risks associated with societal and political pressures and other forms of opposition to the future development, transportation and use of petroleum-based and renewables-based fuels. Such risks could adversely impact our business and results of operations.

Certain of our plans are based upon the assumption that societal sentiment will continue to enable, and existing regulations will remain in place to allow for, the future development, transportation and use of petroleum-based and renewables-based fuels. A portion of our growth strategy is dependent on our and our joint ventures’ ability to capture growth opportunities in the Midstream, Renewable Fuels and Chemicals segments. Regulatory policy decisions relating to the production, refining, transportation, marketing and use of petroleum-based and renewables-based fuels are subject to political pressures and the influence and protests of environmental and other special interest groups. For example, the construction or expansion of pipelines can involve numerous regulatory, permitting, environmental, political, and legal uncertainties, many of which are beyond our control. We may not be able to identify or execute growth projects, and those that are identified may not be completed on schedule or at the budgeted cost, if at all. In addition, our revenues may not increase immediately upon the expenditure of funds on a particular project. Delays or cost increases related to capital spending programs or the inability to complete growth projects could negatively impact our reputation, results of operations, cash flows and our return on capital employed.

Our Energy Research & Innovation organization works to develop new technologies and solutions focused on advancing our business units, including renewable fuels research. Our efforts to research and develop new technologies are subject to a multitude of factors and conditions, many of which are out of our control. Examples of such factors include evolving government regulation, the pace of changes in technology (including with respect to generative artificial intelligence), the successful development and deployment of existing or new technologies and business solutions on a commercial scale, competition from third parties in developing new technologies and the availability, timing and cost of equipment. The occurrence of these factors may delay or increase the cost of our efforts, which could negatively impact our reputation, results of operations, cash flows and our return on capital employed.

Political and economic developments could affect our operations and materially reduce our profitability and cash flows.

Actions of federal, state, local and international governments through legislation or regulation, executive order, permit or other review of infrastructure or facility development, and commercial restrictions could delay projects, increase costs, limit development, or otherwise reduce our profitability both in the United States and abroad. Any such actions may affect many aspects of our operations, including:

• Establishing maximum margins that can be earned on sales of motor fuels or imposing financial penalties on profits earned above established maximum margins.

• Limiting or prohibiting our ability to undertake turnaround or maintenance activities, or to cease operations at our refineries.

• Requiring permits or other approvals that may impose unforeseen or unduly burdensome conditions or potentially cause delays in our operations.

• Further limiting or prohibiting construction or other activities in environmentally sensitive or other areas.

• Requiring increased capital costs to construct, maintain or upgrade equipment, facilities or infrastructure.

• Restricting the locations where we may construct facilities or requiring the relocation of facilities.

For example, in March 2023, the California legislature adopted Senate Bill No. 2 (such statute, together with any regulations contemplated or issued thereunder, SBx 1-2), which, among other things, (i) authorizes the establishment of a maximum gross gasoline refining margin (maximum margin) and the imposition of a financial penalty for profits above the maximum margin, (ii) significantly expands reporting obligations relating to the maintenance and business of our California facilities, which includes reporting requirements to the California Energy Commission (CEC) for all participants in the transportation fuels industry supply chain in California, (iii) creates the Division of Petroleum Market Oversight within the CEC to analyze the data provided under SBx 1-2, and (iv) authorizes the CEC to regulate the timing and other aspects of facility turnaround and other maintenance activities in certain instances. The CEC is currently in rulemaking with respect to various aspects of SBx 1-2, and the potential implementation of a financial penalty or any restrictions or delays on our ability to undertake turnaround or other maintenance activities creates uncertainty due to the potential adverse effects on our refining, marketing, renewable and midstream operations in California, which may be material to our results of operations, financial condition, profitability and cash flows.

We anticipate that other jurisdictions may contemplate similarly focused legislation or actions. The timing and impacts of SBx 1-2 and any other similarly focused legislation or actions are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and potential changes in law, regulation, or policy, and it is not currently possible to predict the ultimate effects of these matters and developments, but they may be significant. For example, adverse effects on the financial performance of our operations in the state of California or the useful lives of the assets related to such operations may result in the recognition of material asset impairment charges, accelerated depreciation and asset retirement obligations.

Furthermore, the U.S. government can prevent or restrict us from doing business in foreign countries and from doing business with entities affiliated with foreign governments, which can include state oil companies and U.S. subsidiaries of those companies. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security matters. The effect of any such OFAC sanctions could disrupt transactions with or operations involving entities affiliated with sanctioned countries, and could limit our ability to obtain optimum crude slates and other feedstocks and effectively distribute refined products. We may face other regulatory changes in the United States including, but not limited to, the enactment of tax law changes that adversely affect our industry, tariffs on imported material, components and feedstocks and retaliatory tariffs imposed by other countries on U.S. made goods, new emissions standards, restrictive flaring regulations, and more stringent requirements for environmental impact studies and reviews.

Hostilities in the Middle East, Eastern Europe and South America or elsewhere or the occurrence or threat of future terrorist attacks could adversely affect the economies of the United States and other countries. Other political and economic risks include global health crises; financial market turmoil; economic volatility and global economic slowdown; currency exchange rate fluctuations; short-term and long-term inflationary pressures; rising or prolonged periods of high interest rates; import or export restrictions and changes in trade regulations; supply chain disruptions; civil unrest and other political risks; limitations in the availability of labor to develop, staff and manage operations; and potentially adverse tax developments. If any of these events occur, our businesses and results of operations may be adversely affected.

We may not be able to effectively identify, whether through acquisition, investment or development, lower-carbon opportunities on favorable terms, or at all, and failure to do so could limit our growth, our ability to participate in the energy transition, and our ability to meet our environmental goals and targets.

Part of our strategy includes capturing growth opportunities in our businesses to further advance our participation in the energy transition and meet our greenhouse gas (GHG) emissions intensity reduction targets. This strategy depends, in part, on our ability to successfully identify and evaluate acquisition and investment opportunities and develop and commercialize new technologies. The number of lower-carbon opportunities may be limited, and we will compete with other energy companies for these limited opportunities, which could make them more expensive and the returns for our business less attractive and possibly cause us to refrain from making certain investments at all. Further, certain lower-carbon opportunities will depend on technological and other advancements that may not be within our control and may not come to fruition or be economically feasible in the near term. Any new opportunities also may depend on the viability of new assets or businesses that are contingent on public policy mechanisms including investment tax credits, subsidies, renewable portfolio standards and carbon trading plans.

These mechanisms have been implemented at the state and federal levels to support the development of renewable energy and other clean infrastructure technologies, but consistent regulatory policy is uncertain. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of lower-carbon and clean energy investments generally, as well as our participation in them. If we are unable to identify and consummate acquisitions and investments that meet our minimum returns hurdle, our ability to execute a portion of our growth strategy and meet our environmental goals may be impeded.

Our business could be negatively impacted as a result of shareholder activism.

Publicly traded companies are increasingly subject to campaigns by activist shareholders advocating corporate actions such as operational, governance or management changes, or sales of assets or entire segments. The Company has been and may again be subject to shareholder activism and the corporate actions advocated by the shareholder activist that may not align with the Company’s current business strategies and the best interests of all of the Company’s stakeholders. The actions of activist shareholders may cause fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals or prospects of our business. In addition, responding to the actions of activist shareholders can be costly and time-consuming, disrupting our business and diverting the attention of our Board of Directors and management from pursuing our business strategies.

Legal, Regulatory, and Environmental, Climate and Weather Risks

We are subject to a variety of legal proceedings and other claims arising out of our operations which may adversely impact our business and financial condition.

From time to time, we are party to or otherwise involved in actual or threatened litigation, claims, governmental inspections or investigations and other legal matters arising out of our operations in the normal course of business or otherwise. We are currently involved in various legal proceedings that are not yet fully resolved, and additional claims may arise in the future. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. Additionally, the recent trend of outside investment in legal claims has enabled plaintiffs to reduce their exposure to risk and pursue final verdicts for claims that may in the past have settled. Determining legal reserves or possible losses for ongoing legal proceedings involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such amounts could be material and may exceed any applicable insurance coverage. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our financial condition and cash flows. See Note 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements.

Climate change and severe weather may adversely affect our and our joint ventures’ facilities and ongoing operations.

The potential physical effects of climate change and severe weather, as well as other chronic physical effects such as water shortages and rising sea levels, on our operations are highly uncertain and depend upon the unique geographic and environmental factors present. We have systems in place to manage potential acute physical risks, including those that may be caused by climate change, but such events could have an adverse effect on our assets and operations. Examples of potential physical risks include floods, hurricane-force winds, severe storms, droughts, heat waves, earthquakes, wildfires, freezing temperatures and snowstorms, as well as rising sea levels at our coastal facilities. We have incurred, and will continue to incur, costs to protect our assets from physical risks and to employ processes, to the extent available, to mitigate such risks.

We operate facilities located in coastal regions of the United States, which have been impacted by hurricanes that have required us to temporarily, or even permanently, shut down operations at those sites. CPChem also operates facilities on the Gulf Coast and has had to temporarily shut down sites in the past as a result of hurricanes. Any extreme weather events or rising sea levels may disrupt the ability to operate our facilities located near coastal areas or to transport crude oil, refined petroleum or petrochemical and plastics products in these areas. Extended periods of such disruption could have an adverse effect on our results of operations. We could also incur substantial costs to prevent or repair damage to these facilities. Finally, depending on the severity and duration of any extreme weather events or climate conditions, our operations may need to be modified and material costs incurred, which could materially and adversely affect our business, financial condition and results of operations.

There are certain environmental hazards and risks inherent in our operations that could adversely affect those operations and our financial results.

The operation of facilities, such as refineries, power plants, fractionators, pipelines, terminals and vessels is inherently subject to the risks of spills, discharges or other inadvertent releases of petroleum, refined product or hazardous substances. If any of these events had previously occurred or occurs in the future in connection with the operation or maintenance of any of our assets, or in connection with any facilities that receive our wastes or byproducts for treatment or disposal, other than events for which we are indemnified, we could be liable for all costs and penalties associated with their remediation under federal, state, local and international environmental laws or at common law, and could be liable for property damage to third parties caused by contamination from releases and spills.

We expect to continue to incur substantial capital expenditures and operating costs to comply with existing and future environmental laws and regulations.

Our business is subject to numerous laws and regulations relating to the protection of the environment. These laws and regulations continue to increase in both number and complexity and affect our operations with respect to, among other things:

• The discharge of pollutants into the environment.

• Emissions into the atmosphere, such as nitrogen oxides, sulfur dioxide and mercury emissions, and GHG emissions, as they are, or may become, regulated.

• The quantity of renewable fuels that must be blended into motor fuels.

• The handling, use, storage, transportation, disposal and cleanup of hazardous materials and hazardous and nonhazardous wastes.

• The dismantlement and abandonment of our facilities and restoration of our properties at the end of their useful lives.

To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our business, financial condition, results of operations and cash flows in future periods could be materially adversely affected.

Factors associated with climate change legislation or regulation could result in increased operating costs, reduced demand for the refined petroleum products we produce and could otherwise have a material impact on our business.

Currently, multiple legislative and regulatory measures to address GHG and other emissions are in various phases of consideration, promulgation, implementation or reversal. These include actions to develop international, federal, regional or statewide programs, which could require reductions in our GHG or other emissions, establish a carbon tax and decrease the demand for our refined products. Requiring reductions in these emissions could result in increased costs to (i) operate and maintain our facilities, (ii) install new emission controls at our facilities and (iii) administer and manage any emissions programs, including acquiring emission credits or allotments.

International climate change-related efforts, such as the 2015 United Nations Conference on Climate Change, which led to the creation of the Paris Agreement, and the 2023 United Nations Climate Change Conference, may impact the regulatory framework of states whose policies directly influence our present and future operations. In January 2026, President Trump issued a memorandum directing the United States to withdraw from various international organizations and treaties related to climate change, and the administration has generally been pursuing a de-regulatory posture on environmental matters. However, future emission reduction targets and other provisions of legislative or regulatory initiatives and policies enacted in the future by the United States could be brought by future administrations or, in the absence of federal action, states may become more active and focused on taking legislative or regulatory actions aimed at climate change and minimizing GHG emissions.

States have been and are expected to continue to adopt new and amended legislative and regulatory measures regarding climate change and GHG emissions controls. For example, in 2017, the California state legislature adopted Assembly Bill 398, which provides direction and parameters on utilizing cap and trade after 2020 to meet the 40% reduction target for GHG emissions from 1990 levels by 2030 specified in Senate Bill 32. Compliance with the cap and trade program is demonstrated through a market-based credit system. Additionally, in 2022, the CARB adopted regulations that effectively ban the in-state sales of new cars containing internal combustion engines beginning in 2035. Also, in 2022, CARB adopted its “2022 Scoping Plan for Achieving Carbon Neutrality,” which purports to provide a road map for California to achieve carbon neutrality (which it defines as removing as many carbon emissions from the atmosphere as it emits) by year 2045. Other states are proposing, or have already promulgated, low carbon fuel standards or similar initiatives to reduce emissions from the transportation sector. If we are unable to pass the costs of compliance on to our customers, sufficient credits are unavailable for purchase, we have to pay a significantly higher price for credits, or if we are otherwise unable to meet our compliance obligation, our financial condition and results of operations could be adversely affected. Additionally, certain states have recently passed, or are considering, legislation seeking to recover financial damages allegedly associated with climate change from fossil fuel companies like the Vermont Climate Superfund Act passed in 2024.

The future of the U.S. climate change strategy and the impact to our industry and operations due to further GHG regulation is unknown at this time. Federal, regional and state climate change and air emissions goals and regulatory programs are complex, subject to change and impose considerable uncertainty due to a number of factors including technological feasibility, legal challenges and changes in federal policy. Increasing concerns about climate change and carbon intensity have resulted in heightened societal awareness and a number of international and national measures to limit GHG emissions. We cannot determine what final regulations will be enacted, modified or reversed, or whether stricter investor pressure can be expected in the future. Any of these changes may have a material adverse impact on our business or financial condition.

Increased regulation of the fossil fuel industry, particularly with respect to hydraulic fracturing, could result in reductions or delays in the production of crude oil and natural gas, which could adversely impact our results of operations.

Most of the crude oil and natural gas production of our Midstream segment’s customers is being produced from unconventional oil shale reservoirs. These reservoirs require hydraulic fracturing completion processes to release the hydrocarbons from the rock so they can flow through casing to the surface. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into a formation to stimulate hydrocarbon production. The EPA, as well as several state agencies, commenced studies and/or convened hearings regarding the potential environmental impacts of hydraulic fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed to provide for such regulation. In addition, some communities have adopted measures to ban hydraulic fracturing in their communities.

Also, certain interest groups have proposed ballot initiatives and constitutional amendments designed to restrict crude oil and natural gas development. If ballot initiatives, local, state, or national restrictions or prohibitions are adopted and result in more stringent limitations on the production and development of crude oil and natural gas, we may incur significant costs to comply with the requirements, and producers may experience delays or curtailment in the permitting or pursuit of exploration, development or production activities. Such compliance costs and delays, curtailments, limitations or prohibitions could have a material adverse effect on our business, prospects, results of operations, financial condition and liquidity. In addition to these proposed ballot initiatives and constitutional amendments, municipalities, such as the City of Los Angeles, have already enacted or contemplate enacting complete or partial bans on oil and gas exploration and production activities.

If legislative and regulatory initiatives cause a material decrease in the drilling of new wells and related servicing activities, it may reduce crude oil, natural gas and NGL supplies, negatively affecting the volume of products available to our Midstream segment and increasing feedstock prices for our Chemicals and Refining segments, resulting in a material adverse effect on our financial position, results of operations and cash flows.

Compliance with the EPA’s Renewable Fuel Standard (RFS) could adversely affect our financial results.

The EPA has implemented the RFS pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual renewable volume obligation (RVO) requirements for the quantity of renewable fuels, such as ethanol, that must be blended into motor fuels consumed in the United States. To provide certain flexibility in compliance options available to the industry, a Renewable Identification Number (RIN) is assigned to each gallon of renewable fuel produced in, or imported into, the United States. As a producer of petroleum-based motor fuels, we are obligated to blend renewable fuels into the products we produce at a rate that is at least commensurate to the EPA’s RVO requirements and, to the extent we do not, we must purchase RINs in the open market to satisfy our obligation under the RFS program.

We are exposed to the volatility in the market price of RINs. We cannot predict the future prices of RINs. RINs prices are dependent upon a variety of factors, including EPA regulations, the availability of RINs for purchase, and levels of transportation fuels produced, which can vary significantly from quarter to quarter. If sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for RINs, if we purchase RINs that are ultimately determined to be invalid, or if we are otherwise unable to meet the EPA’s RVO requirements, including because the EPA mandates a blending quantity of renewable fuel that exceeds the amount that is commercially feasible to blend into motor fuel (a situation commonly referred to as “the blend wall”), our operations could be materially adversely impacted, up to and including a reduction in produced motor fuel for sale in the United States. These factors could result in a material adverse effect on our financial position, results of operations or cash flows.

Societal, technological, political and scientific developments around emissions and fuel efficiency may decrease demand for petroleum-based fuels.

Developments aimed at reducing GHG emissions may decrease the demand or increase the cost for our petroleum-based fuels. Societal attitudes toward these products and their relationship to the environment may significantly affect our effectiveness in marketing our products. Efforts by governments or other private interests to steer the public toward non-petroleum-based fuel dependent modes of transportation may foster a negative perception toward petroleum products or increase costs of our products, thus affecting the public’s attitude toward our major products. Advanced technology and increased use of vehicles that do not use petroleum-based transportation fuels or that are powered by hybrid engines would reduce demand for the motor fuel we produce. We may also incur increased production costs, which we may not be able to pass along to our customers.

Additionally, renewable fuels, alternative energy mandates and energy conservation efforts could reduce demand for refined petroleum products. Tax incentives and other subsidies can make renewable fuels and alternative energy more competitive with refined petroleum products than they otherwise might be, which may reduce refined petroleum product margins and hinder the ability of refined petroleum products to compete with renewable fuels. The competition for renewable fuels feedstocks may also increase, negatively impacting the availability of such feedstocks or increasing their cost. These developments could potentially have a material adverse effect on our business, financial condition, results of operations and cash flows.

Continuing political and social concerns about climate change and other environmental and social (E&S) matters may result in changes to our business and significant expenditures, including litigation-related expenses.

Increasing attention to global climate change has resulted in increased investor attention and an increased risk of public and private litigation, which could increase our costs or otherwise adversely affect our business. Additionally, cities, counties, and other governmental entities in several states in the United States began filing lawsuits against energy companies in 2017, including Phillips 66, seeking damages allegedly associated with climate change, and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions. While we believe these lawsuits are an inappropriate vehicle to address the challenges associated with climate change and will vigorously defend against them, the ultimate outcome and impact to us of any such litigation cannot be predicted with certainty, and we could incur substantial legal costs associated with defending these and similar lawsuits in the future.

Additionally, governments and private parties are also increasingly filing lawsuits or initiating regulatory action based on allegations that certain public statements regarding climate change and other E&S-related matters and practices by

companies are false or misleading “greenwashing” that violate deceptive trade practices and consumer protection statutes. Such claims are included in lawsuits filed against energy companies, including Phillips 66. Such lawsuits present a high degree of uncertainty regarding the extent to which energy companies face an increased risk of liability stemming from climate change or E&S disclosures and practices.

Efforts have also been made by governments and private parties to shut down energy assets by challenging operating permits, the validity of easements or the compliance with easement conditions. Lawsuits and/or regulatory proceedings or actions of this nature could result in interruptions to construction or operations of current or future projects, delays in completing those projects and/or increased project costs, all of which may have a material adverse effect on our business, financial condition, results of operation and cash flows.

These risks may result in unexpected costs, negative sentiments about our company, disruptions in our operations, increases to our operating expenses and reduced demand for our products, which in turn could have an adverse effect on our business, financial condition and results of operations.

Increased concerns regarding plastic waste in the environment, consumers selectively reducing their consumption of plastic products due to recycling concerns, or new or more restrictive regulations and rules related to plastic waste could reduce demand for CPChem’s plastic products and could negatively impact our equity interest.

There is a growing concern with the accumulation of plastic, including microplastics, and other packaging waste in the environment. Additionally, plastics have faced increased public backlash and scrutiny. Policy measures to address this concern are being discussed or implemented by governments at all levels. In addition, a host of single-use plastic bans and taxes have been passed by countries around the world and counties and municipalities throughout the United States. Increased regulation of, or prohibition on, the use of certain plastic products could reduce demand for certain products CPChem produces, which could negatively impact its financial condition, results of operations and cash flows, thereby negatively impacting our equity earnings by reducing the cash distributions that we receive from CPChem.

Cybersecurity and Data Privacy Risks

Cybersecurity incidents and other disruptions could compromise our information and systems resulting in disruption of operations, financial loss and reputational harm.

Our information technology and infrastructure, including systems operated by third-party service providers (e.g., cloud-based service providers), may be vulnerable to attacks by malicious actors or breached due to human error, malfeasance or other disruptions, including ransomware and other malware, phishing and social engineering schemes, deepfakes, malicious software, data privacy incidents, insiders or others with authorized access, attempts to gain unauthorized access to our data and systems, and other cybersecurity incidents. Any such incidents could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure or other loss of information could result in one or more of the following outcomes: (i) unauthorized access to or a loss or misuse of intellectual property, proprietary information, or employee, customer or vendor data; (ii) public disclosure of sensitive information; (iii) increased costs to prevent, respond to, or mitigate cybersecurity events, such as deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; (iv) systems interruption; (v) disruption of our business operations; (vi) remediation costs for repairs of system damage, or regulatory fines or penalties; (vii) reputational damage that adversely affects customer or investor confidence; (viii) exposure to legal liability; and (ix) damage to our competitiveness, stock price, and long-term shareholder value. Generative artificial intelligence has also contributed to an increase in the prevalence of such attacks and threats, expanding potential exposure to disruptions. Any of the foregoing could be exacerbated by a delay or failure to detect a cybersecurity incident or the full extent of such incident.

We also have exposure to cybersecurity incidents and the negative impacts of such incidents related to our critical data and proprietary information housed on third-party IT systems, including cloud-based systems. Additionally, authorized third-party IT systems or software can be compromised and used to gain access or introduce malware to our IT systems that can materially impact our business. Although we devote significant resources to prevent cybersecurity incidents and protect our system and data, we have experienced actual and attempted cybersecurity incidents. While we do not believe that any of these incidents has had a material effect on our business, operations or financial condition, it is possible that a future incident may have such an effect.

A cybersecurity incident may also result in legal claims or proceedings against us by our shareholders, employees, customers, vendors, and governmental authorities (U.S. and non-U.S.). Our infrastructure protection technologies and disaster recovery plans may not be able to prevent a technology systems breach or systems failure, which could have a material adverse effect on our financial position or results of operations. Furthermore, the continuing and evolving threat of cyberattacks has resulted in increased regulatory focus on prevention, and, to the extent we face increased regulatory requirements, we may be required to expend significant additional resources to meet such requirements.

Increasing regulatory focus on privacy and cybersecurity issues and expanding laws and regulations could expose us to increased liability, subject us to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

Along with our own data and information collected in the normal course of our business, we and our suppliers and service providers collect and retain certain data that is subject to specific laws and regulations. The transfer and use of this data, both domestically and across international borders, is becoming increasingly complex. This data is subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our business, including data privacy and cybersecurity laws.

The regulatory landscape governing cybersecurity continues to evolve, and federal, state and international authorities are increasing their oversight of cybersecurity practices, incident reporting and the protection of critical energy infrastructure. Requirements related to operational technology, supply chain security, data governance and timely disclosure of cyber incidents are becoming more prescriptive, and additional rulemaking may further expand our compliance obligations. As cyber threats targeting the energy sector grow in frequency and sophistication, we are required to devote additional resources to maintain and enhance our cybersecurity programs and controls. Failure to comply with applicable cybersecurity laws and regulations, or to effectively identify, prevent or respond to a cyber event, could result in operational disruptions, increased costs, regulatory enforcement actions or adverse effects on our business.

Indebtedness, Capital Markets and Financial Risks

Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms and can adversely affect the financial strength of our business partners.

Our ability to obtain credit and capital depends in large measure on the state of the credit and capital markets, which is subject to factors beyond our control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, access to those markets, which could constrain our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on our lenders, commodity transaction counterparties, or our customers, preventing them from meeting their obligations to us.

From time to time, our cash needs may exceed our available cash and our business could be materially and adversely affected if we are unable to supplement the cash generated from our operations with proceeds from financing activities. Uncertainty and illiquidity in financial markets may materially impact the ability of the participating financial institutions to fund their commitments to us under our liquidity facilities that are supported by a broad syndicate of financial institutions. Accordingly, we may not be able to obtain the full amount of the funds available under our liquidity facilities to satisfy our cash requirements, and our failure to do so could have a material adverse effect on our operations and financial position.

Negative sentiment towards fossil fuels, increased attention to E&S matters, including climate change, and our efforts to report on these matters could adversely affect our business, the market price for our securities and our access to and cost of capital.

There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities, and other groups, to promote the divestment of fossil fuel companies, as well as to pressure lenders, insurers, and other financial services companies to limit or curtail activities with fossil fuel companies. If these or similar efforts are continued, the market price of our securities, our ability to access capital markets or insure our operations, and our cost of capital may be negatively impacted.

Members of the investment community are also increasing their focus on E&S matters, including practices related to GHG emissions, climate change, business resilience, diversity and inclusion, environmental justice and other E&S matters. As a result, we may face increasing pressure regarding our E&S disclosures and practices. Additionally, members of the investment community may screen companies such as ours for E&S performance before investing in our stock or participating in our financing activities. If we are unable to meet the evolving E&S standards set by these investors, including in light of their varied and sometimes conflicting views regarding E&S matters, we may lose investors, our stock price may be negatively impacted, our access to capital markets and lenders may be curtailed, and our reputation may be negatively affected. Further, an increasing number of regulators and lawmakers have pursued contrary views, enforcement actions, or investigations, including those that aim to limit the consideration of E&S factors in investment decisions, which may expose us to additional legal, financial, or reputational risks.

Our efforts to accurately report on E&S-related issues expose us to operational, reputational, financial, legal, and other risks. Standards for tracking and reporting on E&S-related matters, including climate-related matters, have not been harmonized and continue to evolve. Processes and controls for reporting on E&S matters are subject to evolving and disparate regulations and standards of identification, measurement, and reporting on such metrics, including any climate change and E&S-related public company disclosure requirements adopted by the SEC or government agencies of other jurisdictions, and such standards remain uncertain and may change over time, which exposes us to unpredictable reporting obligations or business requirements and could result in significant revisions to our current E&S practices and disclosures.

Our published GHG emissions intensity reduction goals and other E&S targets we may set in the future could negatively impact our business.

We have announced targets to reduce our Scope 1 and Scope 2 GHG emissions intensity from our operations by 30% and Scope 3 GHG emissions intensity of our energy products by 15% by 2030, and a target to reduce our Scope 1 and Scope 2 GHG emissions intensity by 50% by 2050, in each case as compared to baseline 2019 levels. Our ability to achieve or maintain these goals depends on many factors, many of which are beyond our control, such as advancements that enable broad commercial deployment and use of lower-carbon technologies; global policies that fund and incentivize the development of a lower-carbon energy system; changes in consumer behavior and energy choices; the availability of materials throughout the supply chain; evolving regulatory requirements; competitor actions; the availability of renewable feedstocks; and acquisition and divestiture activities. Further, the standards for tracking and reporting on GHG emissions have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various reporting standards may change from time to time and may result in a lack of comparable data from period to period. In addition, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and reporting GHG emissions, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.

The pursuit of these targets, and any other climate-related or E&S goals we may announce, or any failure or perceived failure to achieve such goals and targets, could cause increased costs, cause reputational harm, negatively impact our stock price and access to and cost of capital funding, and expose us to enforcement or litigation, among other negative impacts, resulting from evolving standards for measuring, reporting, and disclosing climate-related and other E&S information.

We do not fully insure against all potential losses, including those from extreme weather events or natural disasters, and, therefore, our business, financial condition, results of operations and cash flows could be adversely affected by unexpected or underinsured liabilities and increased costs.

We maintain insurance coverage in amounts we believe to be prudent, including against many, but not all, potential liabilities arising from operating hazards. We rely on existing liquidity, financial resources and borrowing capacity to meet short-term obligations that would result from uninsured or underinsured liabilities arising from operating hazards, including but not limited to, explosions, fires, refinery or pipeline releases or other incidents involving our assets or operations, including weather events or natural disasters, which could reduce the funds available to us for capital and investment spending and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Deterioration in our credit profile could increase our costs of borrowing money, limit our access to the capital markets and commercial credit, and could trigger co-venturer rights under joint venture arrangements.

Our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. If a rating agency were to downgrade our rating below investment grade, our borrowing costs would increase, and our funding sources could decrease. This could require us to provide collateral, or other forms of security, which would increase our costs and restrict operational and financial flexibility.

In addition, failure by Phillips 66 to maintain an investment grade rating could affect its business relationships with suppliers and operating partners. For example, Phillips 66’s agreement with Chevron Corporation (Chevron) regarding CPChem permits Chevron to buy Phillips 66’s 50% interest in CPChem for fair market value if Phillips 66 experiences a change in control or if both Standard & Poor’s Financial Services LLC and Moody’s Investors Service, Inc. lower their credit ratings below investment grade and the credit rating from either rating agency remains below investment grade for 365 days thereafter, with fair market value determined by agreement or by nationally recognized investment banks. As a result of these factors, a downgrade of credit ratings could have a material adverse impact on Phillips 66’s future operations and financial position.

The level of returns on pension and postretirement plan assets and the actuarial assumptions used for valuation purposes could affect our earnings and cash flows in future periods.

Assumptions used in determining projected benefit obligations and the expected return on plan assets for our pension plans and other postretirement benefit plans are evaluated by us based on a variety of independent sources of market information and in consultation with outside actuaries. If we determine that changes are warranted in the assumptions used, such as the discount rate, expected long-term rate of return, or health care cost trend rate, our future pension and postretirement benefit expenses and funding requirements could increase. In addition, several factors could cause actual results to differ significantly from the actuarial assumptions that we use. Funding obligations are determined based on the value of assets and liabilities on a specific date as required under relevant regulations. Future pension funding requirements, and the timing of funding payments, could be affected by legislation enacted by governmental authorities.

We may incur losses as a result of our forward contracts and derivative transactions.

We currently use commodity derivative instruments, and we expect to use them in the future. If the instruments we utilize to hedge our exposure to various types of risk are not effective, we may incur losses. Derivative transactions involve the risk that counterparties may be unable to satisfy their obligations to us. The risk of counterparty default is heightened in a poor economic environment. In addition, we may be required to incur additional costs in connection with future regulation of derivative instruments to the extent it is applicable to us.

We are subject to continuing contingent liabilities of ConocoPhillips following the separation. Further, ConocoPhillips has indemnified us for certain matters, but may not be able to satisfy its obligations to us in the future.

In connection with our separation from ConocoPhillips in 2012, we entered into an Indemnification and Release Agreement and certain other agreements pursuant to which ConocoPhillips agreed to indemnify us for certain liabilities, and we agreed to indemnify ConocoPhillips for certain liabilities. Indemnities that we may be required to provide are not subject to any cap and may be significant. Third parties could also seek to hold us responsible for any of the liabilities that ConocoPhillips has agreed to retain. Further, the indemnity from ConocoPhillips may not be sufficient to protect us against the full amount of such liabilities, and ConocoPhillips may not be able to fully satisfy its indemnification obligations. Each of these risks could negatively affect our business, results of operations and financial condition.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 thereto included elsewhere in this Annual Report.

The term “earnings” as used in Management’s Discussion and Analysis refers to net income 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.

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is uniquely positioned as a leading integrated downstream energy provider operating with Midstream, Chemicals, Refining, Marketing and Specialties (M&S), and Renewable Fuels segments. At December 31, 2025, we had total assets of $73.7 billion.

Executive Overview

During 2025, we reported earnings of $4.4 billion and generated $5 billion in cash from operating activities. We funded capital expenditures and investments of $2.2 billion, completed acquisitions of $3.5 billion, net of cash acquired and received proceeds from asset dispositions of $3.5 billion. We paid $1.2 billion to repurchase common stock and $1.9 billion to fund dividends on our common stock. Additionally, we paid $0.4 billion of debt repayments, net of proceeds from debt issuances. We ended 2025 with $1.1 billion of cash and cash equivalents and $5.7 billion of total committed capacity available under our credit facilities.

Strategic Priorities

In January 2025, we announced the next phase of the company’s strategic priorities along with financial and operational performance targets through year-end 2027. These targets demonstrate the company’s continued focus on world-class operations; disciplined growth and returns; financial strength and flexibility and shareholder returns.

• World-Class Operations – We are focused on operational and cost reduction targets driving world-class operations across our portfolio. Optimizing utilization rates and product yield at our refineries through reliable and safe operations will enable us to capture the value available in the market in terms of prices and margins. We remain focused on a competitive cost structure and plan to enhance Refining segment returns and increase our utilization rates by focusing on low-capital, higher-return projects that increase asset reliability and improve market capture.

▪ We continue to focus on Refining performance, targeting an annual clean product yield of greater than 86%, crude oil capacity utilization rates higher than industry average and continuing to improve our competitive cost structure. During 2025, our worldwide refining crude oil capacity average utilization rate was 94% for 2025, and our worldwide refining clean product yield was 87%.

▪ During the fourth quarter of 2025, we ceased fuel production and began idling the facilities at our Los Angeles Refinery.

• Disciplined Growth and Returns – A disciplined capital allocation process ensures we make investments that are expected to generate competitive returns. Our strategy remains focused on growing our Midstream and Chemicals businesses. Within our Midstream segment, we are primarily focused on maximizing the value of our fully integrated natural gas liquids (NGL) wellhead-to-market value chain.

▪ In 2025, we funded capital expenditures and investments of $2.2 billion and completed a Midstream acquisition of $2.2 billion. We also acquired the remaining 50% interest in WRB Refining LP (WRB) for $1.3 billion, which will enable full integration with our broader value chain and expand our position in the Central Corridor region. This growth was achieved in part through $3.5 billion in proceeds from asset dispositions, including $1.7 billion from the sale of 65% of our interest in Germany and Austria retail marketing business (Germany and Austria Marketing), $1.2 billion from the sale of our 49% interest in Coop Mineraloel AG (Coop), and $853 million from the sale of DCP Midstream, LP’s (DCP LP) 25% ownership in Gulf Coast Express Pipeline LLC (GCX) . See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information. See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for additional information on the investment dispositions.

▪ We budgeted $2.4 billion for 2026 capital expenditures and investments, exclusive of acquisitions and our share of capital spending by equity affiliates. This includes $1.3 billion of growth capital, primarily in our Midstream segment.

▪ During 2025, we continued the expansion of our Midstream NGL wellhead-to-market platform through acquiring all issued and outstanding equity interests in each of EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP (collectively referred to herein as Coastal Bend), together with their respective subsidiaries, which own various long haul NGL pipelines, fractionation facilities and distribution systems. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

▪ Our financial targets through 2027 reflect our plans to organically grow our Midstream and Chemicals businesses, as well as maintain total annual capital expenditures and investments of approximately $2.5 billion, including capital related to WRB following the consolidation on October 1, 2025.

• Financial Strength and Flexibility – We use a variety of funding sources to support our liquidity requirements, including cash from operations, debt and proceeds from dispositions. Our focus remains on protecting the stable cash generation from the Midstream and M&S businesses while evaluating future opportunities to optimize our portfolio.

▪ During 2025, we used available cash and proceeds from asset dispositions and debt offerings to fund capital expenditures and investments, repurchase shares of our common stock and pay dividends on our common stock.

▪ We are targeting reductions of total debt to $17 billion and reductions of our debt-to-capital ratio by the end of 2027.

• Shareholder Returns – We believe shareholder value is enhanced through, among other things, a secure, competitive and growing dividend, complemented by share repurchases. Our financial target aims to return greater than 50% of net cash provided by operating activities, excluding working capital, to shareholders through share repurchases and dividends. This amount and timing of future dividend payments and the level and timing of future share repurchases is subject to the discretion of, and approval by, our Board of Directors and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans.

▪ In February 2026, our Board of Directors declared a quarterly cash dividend of $1.27 per common share, representing a $0.07 increase, reflecting our commitment to a secure, competitive and growing dividend.

Business Environment

The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations not directly exposed to commodity price risk. Our NGL business contains both fee-based operations and operations directly impacted by NGL and natural gas prices. The weighted-average NGL price was $0.64 per gallon during 2025, compared with $0.68 per gallon during 2024. The Henry Hub natural gas price was $3.54 per million British thermal units (MMBtu) during 2025, compared with $2.24 per MMBtu during 2024. The decrease in NGL prices was primarily due to increased supply, while the increase in natural gas prices was due to increased liquified natural gas exports as U.S. export infrastructure increases.

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. The benchmark high-density polyethylene chain margin was 7.1 cents per pound in 2025, compared with 17.7 cents per pound in 2024. The decrease was mainly due to higher ethane prices, partially driven by rising natural gas prices, and continued industry oversupply from capacity additions.

Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. The composite 3:2:1 market crack spread for our business increased to an average of $20.42 per barrel during 2025, from an average of $16.95 per barrel in 2024. The increase in the composite market crack spread was primarily driven by stronger petroleum diesel demand, supported by low seasonal inventories, and lower crude prices. The price of U.S. benchmark crude oil, West Texas Intermediate at Cushing, Oklahoma, decreased to an average of $64.89 per barrel during 2025, from an average of $75.83 per barrel in 2024. The decrease in crude oil prices was primarily driven by increased global production, including production in the United States.

Results for our M&S segment depend largely on marketing fuel and lubricant margins and sales volumes of our refined products. While marketing fuel and lubricant margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by trends in spot prices, and where applicable, retail prices for refined products in the regions and countries where we operate.

Our Renewable Fuels segment processes renewable feedstocks into renewable products at the Rodeo Renewable Energy Complex (Rodeo Complex) and at our Humber Refinery. In addition, this segment includes global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels. Results for our Renewable Fuels segment are impacted by several factors, including the market price of renewable fuels, feedstock costs, throughput, operating costs, and the value of certain regulatory credits, as well as other market factors, largely determined by the relationship between supply and demand.

RESULTS OF OPERATIONS

Consolidated Results

A summary of income (loss) before income taxes by operating segment with a reconciliation to net income attributable to Phillips 66 follows:

Millions of Dollars

Year Ended December 31

Midstream

Chemicals

Refining

Marketing and Specialties

Renewable Fuels

Corporate and Other

Income before income taxes

Income tax expense

Net income

Less: net income attributable to noncontrolling interests

Net income attributable to Phillips 66

Net income attributable to Phillips 66 for the year ended December 31, 2025, was $4,403 million, compared with $2,117 million for the year ended December 31, 2024. The increase in 2025 was primarily due to a before-tax aggregate gain of $1.9 billion associated with the partial sale of Germany and Austria Marketing in December 2025, improved realized refining margins, primarily driven by higher market crack spreads, as well as a before-tax gain of $1 billion associated with the sale of our investment in Coop recognized in January 2025 in the M&S segment. These increases were partially offset by a before-tax impairment of $948 million recognized in the third quarter of 2025, related to our equity method investment in WRB, as well as lower equity earnings from CPChem.

Net income attributable to Phillips 66 for the year ended December 31, 2024, was $2,117 million, compared with $7,015 million for the year ended December 31, 2023. The decrease in 2024 was primarily due to a decline in realized refining margins mainly driven by lower market crack spreads, partially offset by lower income tax expense.

See the “Segment Results” section for additional information on our segment results, Note 9—Investments, Loans and Long-Term Receivables, Note 25—Income Taxes, in the Notes to Consolidated Financial Statements for additional information.

Statement of Income Analysis

Sales and other operating revenues decreased 8%, primarily due to lower prices for crude oil, refined petroleum products, and NGL, partially offset by higher crude oil, NGL, renewable diesel, and renewable jet fuel sales volumes. Purchased crude oil and products decreased 11% in 2025, primarily due to lower prices for crude oil, refined petroleum products, and NGL, partially offset by higher crude oil and NGL product purchase volumes.

Equity in earnings of affiliates decreased 57% in 2025, primarily due to lower equity earnings from CPChem and Excel Paralubes LLC (Excel Paralubes) as a result of decreased margins. The decrease in 2025 was additionally impacted by lower equity earnings from the sales of ownership interests in Coop and GCX in January 2025, as well as lower equity earnings from WRB prior to our acquisition on October 1, 2025, due to lower refining margins. See the Chemicals segment analysis in the “Segment Results” section for additional information regarding CPChem. See Note 9—Investments, Loans and Long-Term Receivables, and Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information regarding the sales of ownership interests and WRB acquisition, respectively.

Net gain on dispositions increased $2,663 million in 2025, primarily due to a before-tax gain of $1.9 billion associated with the partial sale of Germany and Austria Marketing in December 2025, as well as a before-tax gain of $1 billion associated with the sale of our investment in Coop in January 2025, both recognized in the M&S segment. These increases were partially offset by the absence of a before-tax gain of $238 million recognized in the Midstream segment in the second quarter of 2024, associated with the sale of our ownership interest in Rockies Express Pipeline LLC (REX). See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for additional information regarding the dispositions.

Other income increased $195 million in 2025, primarily due to the recognition of Clean Fuel Production credits beginning in 2025.

Operating expenses increased $484 million in 2025, primarily due to our acquisitions of WRB in October 2025 and Coastal Bend in April 2025. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

Selling, general and administrative expenses decreased 13% in 2025, mainly driven by an accrual of $605 million recorded in 2024 related to litigation with Propel Fuels, Inc. (Propel Fuels), compared with $262 million recorded in 2025 related to the same matter. See Note 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information.

Depreciation and amortization increased 38% in 2025, primarily due to accelerated depreciation for the Los Angeles Refinery, as well as additional depreciation on the assets from the Coastal Bend acquisition in April 2025. See Note 4—Restructuring, in the Notes to Consolidated Financial Statements for information regarding the cessation of fuel production and idling of the Los Angeles Refinery and Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for information regarding the Coastal Bend acquisition.

Impairments increased $604 million in 2025, primarily due to the before-tax impairment of $948 million related to our equity method investment in WRB recognized in the third quarter of 2025. This was partially offset by a before-tax impairment of $224 million recognized in the second quarter of 2024 related to certain Midstream gathering and processing assets in Texas and a before-tax impairment of $163 million recognized in the first quarter of 2024 related to certain crude oil processing and logistics assets in California. See Note 12—Impairments, in the Notes to Consolidated Financial Statements for additional information regarding impairments.

Taxes other than income taxes increased $462 million in 2025, primarily due to the expiration of the Biodiesel Blender Tax Credit as of December 31, 2024.

Interest and debt expense increased 15% in 2025, primarily driven by higher average debt balances. See Note 15—Debt, in the Notes to Consolidated Financial Statements for additional information regarding our debt issuances and repayments.

Income tax expense increased 78% in 2025, primarily due to higher income before income taxes. See Note 25—Income Taxes, in the Notes to Consolidated Financial Statements for additional information regarding our income taxes.

Net income attributable to noncontrolling interests increased $67 million in 2025, due to improved results from DCP LP, including a gain on sale of DCP LP’s equity investment in GCX in January 2025. See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for additional information.

Sales and other operating revenues decreased 3%, primarily due to lower prices for refined petroleum products and crude oil, partially offset by an increase in prices for NGL. Purchased crude oil and products increased 1% in 2024, primarily due to higher refined product purchase volumes, partially offset by lower prices for refined petroleum products.

Equity in earnings of affiliates decreased 12% in 2024, primarily due to lower equity earnings from WRB as a result of decreased margins, REX due to the sale of our ownership interest in 2024, South Texas Gateway Terminal due to the sale of our ownership interest in 2023, and Excel Paralubes due to declining margins, partially offset by higher sales volumes and lower maintenance costs. These decreases were partially offset by higher equity earnings from CPChem. See the Chemicals segment analysis in the “Segment Results” section for additional information.

Net gain on dispositions increased $206 million in 2024, primarily due to a before-tax gain of $238 million associated with the sale of our ownership interest in REX, as well as a before-tax gain of $67 million associated with the foreign currency forward contracts entered into in connection with the sale of our ownership interest in Coop. These increases were partially offset by before-tax gains totaling $137 million associated with the sales of our ownership interests in the South Texas Gateway Terminal and the Belle Chasse Terminal in 2023. See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for additional information regarding our sales of REX and Coop.

Other income decreased 32% in 2024, primarily due to lower interest income as a result of lower cash balances and decreased results from trading activities. These decreases were partially offset by an increase in the fair value of our investment in NOVONIX.

Selling, general and administrative expenses increased 11% in 2024, mainly driven by an accrual of $605 million recorded during the third quarter of 2024 related to litigation with Propel Fuels. The increase was partially offset by lower employee-related expenses and selling expenses. See Note 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information regarding our litigation with Propel Fuels.

Depreciation and amortization increased 20% in 2024, primarily due to $253 million of accelerated depreciation recorded in 2024 associated with our plan to cease operations at our Los Angeles Refinery during the fourth quarter of 2025, as well as depreciation and amortization associated with the startup of additional production capacity at the Rodeo Complex. See Note 4—Restructuring, in the Notes to Consolidated Financial Statements for information regarding the idling of our Los Angeles Refinery.

Impairments increased $432 million in 2024, primarily due to before-tax impairments recorded in our Midstream segment of certain gathering and processing assets in Texas, an equity investment in a crude pipeline in Oklahoma and certain crude gathering assets in Texas. In 2024, we also recorded before-tax impairments in our Midstream and Refining segments related to certain crude oil processing and logistics assets in California. See Note 12—Impairments, in the Notes to Consolidated Financial Statements for additional information regarding impairments.

Taxes other than income taxes decreased 53% in 2024, primarily due to an increase in tax credits generated from higher renewable diesel production and blending activity.

Income tax expense decreased 78% in 2024, primarily due to lower income before income taxes. See Note 25—Income Taxes, in the Notes to Consolidated Financial Statements for additional information regarding our income taxes.

Net income attributable to noncontrolling interests decreased 74% in 2024. The decrease primarily reflects the impacts of the acquisition of all publicly held common units of DCP LP in June 2023 (DCP LP Merger), as well as the impacts of before-tax impairments reported in our Midstream segment related to certain DCP LP gathering and processing assets in Texas. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, and Note 12—Impairments, in the Notes to Consolidated Financial Statements for additional information.

Segment Results

Midstream

Year Ended December 31

Millions of Dollars

Income Before Income Taxes

Transportation

NGL

Total Midstream

Thousands of Barrels Daily

Transportation Volumes

Pipelines*

Terminals

Operating Statistics

Wellhead Volume (billion cubic feet per day)**

NGL Production**

NGL Pipeline Throughput–Y-Grade to Market***†

NGL Fractionated†

* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment, excluding NGL’s pipelines.

** Includes 100% of DCP Midstream Class A Segment.

*** Represents volumes delivered to fractionation market hubs, including Mont Belvieu, Sweeny and Conway. Includes 100% of DCP Midstream Class A Segment and Phillips 66’s direct interest in DCP Sand Hills and DCP Southern Hills.

† Includes volumes from the Coastal Bend acquisition, effective April 1, 2025. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services; natural gas and NGL gathering, processing, transportation, fractionation, storage export and marketing services.

Results from our Midstream segment increased $179 million in 2025, compared with 2024.

Results from our Transportation business decreased $374 million in 2025, compared with 2024. The decrease in 2025 was primarily due to the impacts from the sale of our ownership interest in REX in the second quarter of 2024, lower equity earnings from Dakota Access, LLC and the retirement of a rail rack at the Los Angeles Refinery.

Results from our NGL business increased $553 million in 2025, compared with 2024. The increase was due to a before-tax impairment charge recognized in 2024 associated with certain gathering and processing assets in Texas and results from the Coastal Bend operations acquired in April 2025. Additionally, the increase in 2025 was impacted by a before-tax gain from the sale of DCP LP’s ownership interest in GCX in January 2025, increased gathering and processing activity in the Permian region associated with our acquisition of Pinnacle Midland Parent LLC (herein referred to as Dos Picos), and improved export activity. These increases were partially offset by a before-tax impairment charge of $79 million related to our equity investment in an NGL pipeline in Texas in the fourth quarter of 2025.

See the “Executive Overview and Business Environment” section for information on market factors impacting 2025 results. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for further information regarding Coastal Bend and Dos Picos acquisitions. See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for further information regarding the sale of ownership interests. See Note 12—Impairments, in the Notes to Consolidated Financial Statements for further information regarding impairments.

Results from our Midstream segment decreased $181 million in 2024, compared with 2023.

Results from our Transportation business decreased $18 million in 2024, compared with 2023. The decrease in 2024 was primarily due to before-tax impairments totaling $122 million, partially offset by an increase in before-tax gains on sales of assets. We sold our ownership interest in REX in 2024 and recorded a before-tax gain of $238 million, compared to before-tax gains recorded in 2023 associated with the sales of our ownership interests in the South Texas Gateway Terminal and the Belle Chasse Terminal which totaled $137 million.

Results from our NGL business decreased $163 million in 2024, compared with 2023. The decrease was primarily due to before-tax impairment charges recognized in 2024 associated with certain gathering and processing assets in Texas, as well as unfavorable pricing driven by falling natural gas prices and winter weather impacts. These decreases were partially offset by improved pipeline volumes and higher liquefied petroleum gas cargo volumes and margins.

See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for further information regarding the sale of our ownership interest in REX. See Note 12—Impairments, in the Notes to Consolidated Financial Statements for further information regarding impairments.

Chemicals

Year Ended December 31

Millions of Dollars

Income Before Income Taxes

Millions of Pounds

CPChem Externally Marketed Sales Volumes*

* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

Olefins and Polyolefins Capacity Utilization (percent)

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. CPChem produces and markets ethylene and other olefin products. Ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and polyethylene pipe. CPChem manufactures and/or markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene, as well as manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted, amounts referenced below reflect our net 50% interest in CPChem.

Results from the Chemicals segment decreased $579 million in 2025, compared with 2024. The decrease was primarily due to reduced polyethylene margins driven by lower sales prices and higher feedstock costs, as well as increased utility costs.

See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2025 results.

Results from the Chemicals segment increased $276 million in 2024, compared with 2023. The increase was primarily due to improved margins driven by higher sales prices and lower feedstock costs, as well as increased volumes and decreased utility costs.

Refining

Year Ended December 31

Millions of Dollars

Income (Loss) Before Income Taxes

Atlantic Basin/Europe

Gulf Coast

Central Corridor*

West Coast

Worldwide

Dollars Per Barrel

Income (Loss) Before Income Taxes

Atlantic Basin/Europe

Gulf Coast

Central Corridor*

West Coast

Worldwide

Realized Refining Margins**

Atlantic Basin/Europe

Gulf Coast

Central Corridor*

West Coast

Worldwide

* Includes our proportional share of our equity method investment in WRB through September 30, 2025. Beginning on October 1, 2025, 100% of Borger Refinery and Wood River Refinery are included in consolidated results. Refer to Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

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

On October 1, 2025, we acquired the remaining 50% ownership interest in WRB from subsidiaries of Cenovus Energy Inc. (Cenovus) for total cash consideration of $1.3 billion, subject to post-closing adjustments. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

In the fourth quarter of 2025, we ceased fuel production at our Los Angeles Refinery. See Note 4—Restructuring, in the Notes to Consolidated Financial Statements for additional information. In early 2024, we ceased crude operations at the San Francisco Refinery as part of the conversion of the refinery into the Rodeo Complex.

Thousands of Barrels Daily

Year Ended December 31

Operating Statistics

Refining operations*

Atlantic Basin/Europe

Crude Oil Capacity

Crude Oil Processed

Capacity Utilization (percent)

Refinery Production

Gulf Coast

Crude Oil Capacity

Crude Oil Processed

Capacity Utilization (percent)

Refinery Production

Central Corridor**

Crude Oil Capacity

Crude Oil Processed

Capacity Utilization (percent)

Refinery Production

West Coast***

Crude Oil Capacity

Crude Oil Processed

Capacity Utilization (percent)

Refinery Production

Worldwide

Crude Oil Capacity

Crude Oil Processed

Capacity Utilization (percent)

Refinery Production

* Includes our share of equity affiliates.

** Includes our proportional share of our equity method investment in WRB through September 30, 2025. Beginning on October 1, 2025, 100% of Borger Refinery and Wood River Refinery are included in consolidated results. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

*** In the fourth quarter 2025, we ceased fuel production and began idling the facilities at our Los Angeles Refinery, and the associated crude oil capacity is excluded from the statistics above beginning on October 1, 2025. Additionally, as part of our plans to convert the San Francisco Refinery into a renewable fuels facility, in the first quarter of 2023, we ceased operations at the Santa Maria facility in Arroyo Grande, California, which reduced net crude throughput capacity from 120 MB/D to 75 MB/D. In October 2023, we further reduced net crude throughput capacity from 75 MB/D to 52 MB/D as we shut down one of the two crude units at the Rodeo facility. The Rodeo facility’s net crude throughput capacity of 52 MB/D prior to shutdown was excluded from the 2024 operating statistics above.

The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline and distillates, including aviation fuels, as of December 31, 2025, at 10 refineries in the United States and Europe.

Results from the Refining segment increased $91 million in 2025, compared with 2024. The increase was driven by higher realized margins, higher volumes, and benefits associated with claims and settlements. The increase in realized margin was primarily due to improved market crack spreads, partially offset by weaker product differentials, and higher Renewable Identification Number (RIN) costs. Additionally, the increase in 2025 was partially offset by a before-tax impairment of $948 million related to our equity method investment in WRB recorded in the third quarter of 2025, and accelerated depreciation for the Los Angeles Refinery.

Our worldwide refining crude oil capacity utilization rate was 94% and 95% in 2025 and 2024, respectively. See the “Executive Overview and Business Environment” section for information on industry crack spreads and other market factors impacting this year’s results. See Note 4—Restructuring, in the Notes to Consolidated Financial Statements for additional information related to accelerated depreciation. See Note 12—Impairments, in the Notes to Consolidated Financial Statements for additional information regarding the impairment of our equity method investment in WRB.

Results from the Refining segment decreased $5,705 million in 2024, compared with 2023. The decrease was primarily due to lower realized margins as a result of declining market crack spreads.

Our worldwide refining crude oil capacity utilization rate was 95% and 92% in 2024 and 2023, respectively.

Marketing and Specialties

Year Ended December 31

Millions of Dollars

Income Before Income Taxes

Dollars Per Barrel

Income Before Income Taxes

International

Realized Marketing Fuel Margins*

International

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

Dollars Per Gallon

U.S. Average Wholesale Prices*

Gasoline

Distillates

* On third-party branded refined product sales.

Thousands of Barrels Daily

Marketing Refined Product Sales

Gasoline

Distillates

Other

The M&S segment purchases for resale and markets refined products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of base oils and lubricants.

Before-tax income from the M&S segment increased $3.5 billion in 2025, compared with 2024. The increase in 2025 was primarily driven by a before-tax aggregate gain of $1.9 billion associated with the partial sale of Germany and Austria Marketing in December 2025, a before-tax gain of $1 billion associated with the sale of our investment in Coop, as well as higher U.S. and international marketing fuel margins. Additionally, the increase in 2025 was impacted by an accrual of $605 million recorded in 2024 related to litigation with Propel Fuels, compared with $262 million recorded in 2025 related to the same matter.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2025 results. See Note 9—Investments, Loans and Long-Term Receivables and Note 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information regarding the dispositions in 2025 and litigation with Propel Fuels, respectively.

Before-tax income from the M&S segment decreased $886 million in 2024, compared with 2023. The decrease in 2024 was primarily driven by an accrual of $605 million recorded during the third quarter of 2024 related to litigation with Propel Fuels, as well as lower U.S. marketing fuel margins.

See Note 18—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information regarding our litigation with Propel Fuels.

Renewable Fuels

Year Ended December 31

Millions of Dollars

Income (Loss) Before Income Taxes

Thousands of Barrels Daily

Operating Statistics

Total Renewable Fuels Produced

Total Renewable Fuel Sales

Market Indicators

Chicago Board of Trade (CBOT) soybean oil (dollars per pound)

California Low-Carbon Fuel Standard (LCFS) carbon credit (dollars per metric ton)

California Air Resource Board (CARB) ultra-low-sulfur diesel (ULSD) - San Francisco (dollars per gallon)

Biodiesel Renewable Identification Number (RIN) (dollars per RIN)

The Renewable Fuels segment processes renewable feedstocks into renewable products at the Rodeo Complex and at our Humber Refinery. In addition, this segment includes the global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels.

Results from the Renewable Fuels segment decreased $182 million in 2025, compared with 2024. The decline was primarily driven by increased feedstock costs from full-year facility operations, along with unfavorable inventory impacts. These decreases were partially offset by increased renewable product sales, as well as, higher credit generation.

Results from the Renewable Fuels segment decreased $351 million in 2024, compared with 2023. The decrease was primarily driven by higher costs related to the ramp-up of the Rodeo Complex.

See the “Executive Overview and Business Environment” section for information on market factors impacting this year’s results.

Corporate and Other

Millions of Dollars

Year Ended December 31

Loss Before Income Taxes

Net interest expense

Corporate overhead and other

NOVONIX

Total Corporate and Other

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, restructuring costs related to our business transformation, foreign currency transaction gains and losses and other costs not directly associated with an operating segment. Corporate and Other also includes the change in the fair value of our investment in NOVONIX. See Note 20—Fair Value Measurements, in the Notes to Consolidated Financial Statements for additional information regarding our investment in NOVONIX.

Net interest expense increased $153 million in 2025, compared with 2024, primarily driven by higher average debt balances.

Corporate overhead and other increased $90 million in 2025, compared with 2024, primarily due to higher depreciation expense associated with information technology assets, as well as higher advisory fees recorded during the second quarter of 2025 related to proxy solicitation services.

The fair value of our investment in NOVONIX declined by $13 million during 2025, compared with a decline of $3 million during 2024.

Net interest expense increased $116 million in 2024, compared with 2023, primarily driven by decreased interest income as a result of lower cash balances.

Corporate overhead and other decreased $133 million in 2024, compared with 2023, primarily due to a decrease in consulting fees associated with our business transformation, as well as lower employee-related expenses.

The fair value of our investment in NOVONIX declined by $3 million during 2024, compared with a decline of $39 million during 2023.

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

Millions of Dollars, Except as Indicated

Cash and cash equivalents

Net cash provided by operating activities

Short-term debt

Total debt

Total equity

Percent of total debt to capital*

Percent of floating-rate debt to total debt

* 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 2025, we generated $5.0 billion in cash from operations and we received proceeds from asset dispositions of $3.5 billion. We funded capital expenditures and investments of $2.2 billion and completed acquisitions of $3.5 billion, net of cash acquired. Additionally, we paid $1.2 billion to repurchase shares of our common stock, paid $1.9 billion of dividends to our common stockholders, and repaid $0.4 billion of debt, net of proceeds from debt issuances. During 2025, cash and cash equivalents decreased $0.6 billion to $1.1 billion. At this time, we believe that our cash on hand, as well as the sources of liquidity described herein, will be sufficient to fund our obligations over the short- and long-term.

Significant Sources of Capital

Operating Activities

During 2025, cash generated by operating activities was $5.0 billion, a $0.8 billion increase compared with 2024. The increase was primarily due to higher earnings, driven by improved realized refining margins, partially offset by unfavorable working capital impacts.

During 2024, cash generated by operating activities was $4.2 billion, a $2.8 billion decrease compared with 2023. The decrease was primarily due to lower earnings, driven by a decline in realized refining margins, partially offset by more favorable working capital impacts.

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 impacts 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 fluctuations in margins and prices. Our worldwide refining crude oil capacity utilization was 94%, 95% and 92% in 2025, 2024 and 2023, respectively. Our worldwide refining clean product yield was 87%, 87% and 85% in 2025, 2024 and 2023, respectively.

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. Over the three years ended December 31, 2025, operating cash flows included aggregate distributions from our equity affiliates of $3.4 billion. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured.

Debt Issuances

On September 18, 2025, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $2 billion aggregate principal amount of junior subordinated notes that are fully and unconditionally guaranteed by Phillips 66. The junior subordinated notes issuance consisted of:

• $1 billion aggregate principal amount of 5.875% Series A Junior Subordinated Notes due 2056 (Series A 2056 Notes).

• $1 billion aggregate principal amount of 6.200% Series B Junior Subordinated Notes due 2056 (Series B 2056 Notes).

Interest on the Series A 2056 Notes and Series B 2056 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2026. The Series A 2056 Notes will bear interest at 5.875% per year until March 15, 2031. The interest rate will reset every five years beginning on March 15, 2031, to equal the then-current five-year U.S. Treasury rate plus a spread of 2.283%, provided that the interest rate will not reset below 5.875%. The Series B 2056 Notes will bear interest at 6.200% per year until March 15, 2036. The interest rate will reset every five years beginning on March 15, 2036, to equal the then-current five-year U.S. Treasury rate plus a spread of 2.166%, provided that the interest rate will not reset below 6.200%. We may defer interest payments on the Series A 2056 Notes and Series B 2056 Notes on one or more occasions for up to 10 consecutive years per deferral period. If interest payments on the Series A 2056 Notes or Series B 2056 Notes are deferred, we may not, subject to certain limited exceptions, declare or pay any dividends or distributions, or redeem, purchase, acquire, or make a liquidation payment on any of our capital stock during the deferral period. Also, during the deferral period, we may not (i) pay any principal of, or interest or premium, if any, on or repay, repurchase or redeem any debt securities of Phillips 66 or Phillips 66 Company that rank equally with, or junior to, the Series A 2056 Notes and Series B 2056 Notes, respectively, in right of payment or (ii) make any payments with respect to any guarantee by Phillips 66 or Phillips 66 Company of indebtedness if the guarantee ranks equally with or junior to the Series A 2056 Notes or Series B 2056 Notes, respectively, in right of payment.

On September 11, 2024, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.8 billion aggregate principal amount of senior unsecured notes that are fully and unconditionally guaranteed by Phillips 66. The senior unsecured notes issuance consisted of:

• $600 million aggregate principal amount of 5.250% Senior Notes due 2031 (Additional 2031 Notes).

• $600 million aggregate principal amount of 4.950% Senior Notes due 2035 (2035 Notes).

• $600 million aggregate principal amount of 5.500% Senior Notes due 2055 (2055 Notes).

Interest on the Additional 2031 Notes is payable semi-annually on June 15 and December 15 of each year and commenced on December 15, 2024. Interest on the 2035 Notes and 2055 Notes is payable semi-annually on March 15 and September 15 of each year and commenced on March 15, 2025.

On February 28, 2024, Phillips 66 Company issued $1.5 billion aggregate principal amount of senior unsecured notes that are fully and unconditionally guaranteed by Phillips 66. The senior unsecured notes issuance consisted of:

• $600 million aggregate principal amount of 5.250% Senior Notes due 2031 (2031 Notes).

• $400 million aggregate principal amount of 5.300% Senior Notes due 2033 (Additional 2033 Notes).

• $500 million aggregate principal amount of 5.650% Senior Notes due 2054 (2054 Notes).

Interest on the 2031 Notes and 2054 Notes is payable semi-annually on June 15 and December 15 of each year and commenced on June 15, 2024. Interest on the Additional 2033 Notes is payable semi-annually on June 30 and December 30 of each year and commenced on June 30, 2024.

On March 29, 2023, Phillips 66 Company issued $1.25 billion aggregate principal amount of senior unsecured notes that are fully and unconditionally guaranteed by Phillips 66. The senior unsecured notes issuance consisted of:

• $750 million aggregate principal amount of 4.950% Senior Notes due December 2027.

• $500 million aggregate principal amount of 5.300% Senior Notes due June 2033.

Term Loan Agreement

On March 27, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement). The Term Loan Agreement provides for a single borrowing during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger. The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Term Loan Agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty. Outstanding borrowings under the Term Loan Agreement bear interest at either: (a) the adjusted term Secured Overnight Financing Rate (SOFR) in effect from time to time plus the applicable margin; or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement. At December 31, 2025, no borrowings were outstanding under the Term Loan Agreement, as the remaining balance was prepaid in full on December 4, 2025. At December 31, 2024, $550 million was outstanding under the Term Loan Agreement, which had a maturity date of June 2026. This agreement was terminated as of December 31, 2025.

Related Party Advance Term Loan Agreements

On December 31, 2024, WRB distributed its Advance Term Loan with a principal balance of $290 million, including the right to receive any accrued but unpaid interest, to Phillips 66 Company, resulting in the reduction of our related party debt balance and our investment in WRB by $290 million. The distribution was recognized as a non-cash investing and financing transaction.

Accounts Receivable Securitization

On September 30, 2024, Phillips 66 Company entered into a 364-day, $500 million accounts receivable securitization facility (the Receivables Securitization Facility). Under the Receivables Securitization Facility, Phillips 66 Company sells or contributes on an ongoing basis, certain of its accounts receivable, together with related security and interests in the proceeds thereof, to its wholly owned subsidiary, Phillips 66 Receivables LLC (P66 Receivables), a consolidated and bankruptcy-remote special purpose entity created for the sole purpose of transacting under the Receivables Securitization Facility. On April 1, 2025, Phillips 66 Company amended the Receivables Securitization Facility to, among other things, increase the maximum size of the Receivables Securitization Facility from $500 million to $1 billion. On September 29, 2025, Phillips 66 Company amended the Receivables Securitization Facility to, among other things, increase the maximum size of the Receivables Securitization Facility from $1 billion to $1.25 billion and extend the term of the facility through September 28, 2026. Under the amended Receivables Securitization Facility, P66 Receivables may borrow and incur indebtedness from, and/or sell certain accounts receivable in an amount not to exceed $1.25 billion in the aggregate, and will secure its obligations with a pledge of undivided interests in such receivables, together with related security and interests in the proceeds thereof, to PNC Bank, National Association, as Administrative Agent, for the benefit of the secured parties thereunder. Accounts receivable outstanding under the Receivables Securitization Facility accrue interest at an adjusted SOFR plus the applicable margin. In all instances, Phillips 66 Company retains the servicing of the accounts receivables transferred.

P66 Receivables’ sole activity consists of purchasing accounts receivable from Phillips 66 Company, providing those accounts receivable as collateral for P66 Receivables’ borrowings or on-selling certain of its accounts receivable under the Receivables Securitization Facility. P66 Receivables is a separate legal entity with its own separate creditors, who will be entitled, upon its liquidation, to be satisfied out of P66 Receivables’ assets prior to assets or value in P66 Receivables becoming available to P66 Receivables’ equity holders. The assets of P66 Receivables, including any funds of P66 Receivables that may be commingled with funds of any of its affiliates for purposes of cash management and related efficiencies, are not available to pay creditors of Phillips 66 Company, Phillips 66 or any affiliate thereof. Collections on accounts receivable in excess of amounts owed by P66 Receivables under the Receivables Securitization Facility are available to P66 Receivables for payment to Phillips 66 Company, for sales of its accounts receivable to P66 Receivables under the Receivables Securitization Facility, and otherwise for distribution to Phillips 66 Company, in each

case, subject to the terms set forth in the Receivables Securitization Facility. The amount available for borrowing or sale of accounts receivable may be limited by the availability of eligible accounts receivable and other customary factors and conditions, as well as the covenants set forth in the Receivables Securitization Facility.

Sales of accounts receivable under the Receivables Securitization Facility meet the sale criteria under ASC 860, Transfers and Servicing, and are derecognized from the consolidated balance sheet. P66 Receivables guarantees payment, in full, for accounts receivable sold to the purchasers. Cash receipts from the sale of accounts receivable under the Receivables Securitization Facility, received at the time of sale, are classified as cash flows from operating activities. For the year-ended December 31, 2025, we sold $759 million in accounts receivable in exchange for cash proceeds of $290 million, and a $469 million reduction in our borrowings under the Receivables Securitization Facility which was recognized as a non-cash financing transaction. For the year ended December 31, 2024, we sold $125 million in accounts receivable in exchange for a $125 million reduction in our borrowings under the Receivables Securitization Facility, which was recognized as a non-cash financing transaction. We recognized immaterial charges associated with the transfer of financial assets, which are included as a component within the line item “Selling, general and administrative expense” on our consolidated statement of income for the years ended December 31, 2025 and 2024. At December 31, 2025 and 2024, $125 million and $121 million of the sold accounts receivable remained uncollected, respectively, which represents our maximum potential future exposure under the guarantee associated with the Receivables Securitization Facility.

Borrowings under the Receivables Securitization Facility are recognized as short-term debt on the consolidated balance sheet. Borrowings are secured by the accounts receivable, held by P66 Receivables, which remain reported as accounts receivable on the consolidated balance sheet. At December 31, 2025 and 2024, we had outstanding borrowings of $200 million and $375 million, respectively. These borrowings were secured by accounts receivable held by P66 Receivables of $4.4 billion and $4.6 billion for 2025 and 2024, respectively, which are included within the “Accounts and notes receivable” line item on our consolidated balance sheet.

At December 31, 2025, we had utilized $367 million of the $1.25 billion capacity of the Receivables Securitization Facility from $167 million of sold accounts receivable not yet remitted to the Administrative Agent and $200 million of outstanding borrowings. At December 31, 2024, we had utilized the full $500 million capacity of our Receivables Securitization Facility from $125 million of sold accounts receivable not yet remitted to the Administrative Agent and $375 million of outstanding borrowings.

Accounts Receivable Factoring

In addition to the Receivables Securitization Facility, discussed above, the Company entered into other facilities with various financial institutions during the fourth quarter of 2025 that enable the Company to sell certain eligible accounts receivable to these financial institutions on a non-recourse basis. Sales of accounts receivable under these facilities meet the sale criteria under ASC 860, Transfers and Servicing, and are derecognized from the consolidated balance sheet. Cash receipts from the sale of accounts receivable, received at the time of sale, are classified as cash flows from operating activities. The Company retains the servicing on all accounts receivable sold under these facilities. For the year ended December 31, 2025, we sold $195 million of accounts receivable under these facilities for cash proceeds. We recognized immaterial charges associated with these transfers, which are included as a component within the line item “Selling, general and administrative expense” on our consolidated statement of income for the year ended December 31, 2025.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On January 13, 2025, we entered into a $200 million uncommitted credit facility (the 2025 Uncommitted Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. The 2025 Uncommitted Facility contains covenants and events of default customary for unsecured uncommitted facilities. The 2025 Uncommitted Facility has no commitment fees or compensating balance requirements. Outstanding borrowings under the 2025 Uncommitted Facility bear interest at a rate of either (a) the adjusted term SOFR plus the applicable margin, (b) the adjusted daily simple SOFR plus the applicable margin or (c) the base rate, in each case plus the applicable margin. Each borrowing matures six months from the date of such borrowing. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. At December 31, 2025, no borrowings were outstanding under the 2025 Uncommitted Facility.

On June 25, 2024, we entered into a $400 million uncommitted credit facility (the 2024 Uncommitted Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. The 2024 Uncommitted Facility contains covenants and events of default customary for unsecured uncommitted facilities. The 2024 Uncommitted Facility has no commitment fees or compensating balance requirements. Outstanding borrowings under the 2024 Uncommitted Facility bear interest at a rate of either (a) the adjusted term SOFR, (b) the adjusted daily simple SOFR or (c) the reference rate, in each case plus the applicable margin. Each borrowing matures six months from the date of such borrowing. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. At December 31, 2025, no borrowings were outstanding, while at December 31, 2024, the entire $400 million had been drawn under the 2024 Uncommitted Facility.

On February 28, 2024, we entered into a new $5 billion revolving credit agreement (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of February 28, 2029. The Facility replaced our previous $5 billion revolving credit facility dated as of June 23, 2022, with Phillips 66 Company as the borrower and Phillips 66 as the guarantor, and the previous revolving credit facility was terminated. The Facility contains customary covenants similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Facility, in whole or in part, without premium or penalty. We have the option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. Outstanding borrowings under the Facility bear interest at either: (a) the adjusted term SOFR (as described in the Facility) in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the Facility) plus the applicable margin. The pricing levels for the commitment fee and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time. At December 31, 2025 and 2024, no amounts were drawn under the Facility or the previous revolving credit facility.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by the Facility. Commercial paper maturities are contractually limited to less than one year. At December 31, 2025, and 2024, $200 million and $435 million, respectively, of commercial paper had been issued under this program.

DCP Midstream Class A Segment

On March 15, 2024, DCP LP terminated its $1.4 billion credit facility and its accounts receivable securitization facility that previously provided for up to $350 million of borrowing capacity. In conjunction with the termination of these facilities, DCP LP repaid $25 million in borrowings outstanding under its $1.4 billion credit facility and $350 million of borrowings outstanding under its accounts receivable securitization facility during the three months ended March 31, 2024.

Total Committed Capacity Available

At December 31, 2025, and 2024, we had $5.7 billion and $4.6 billion, respectively, of total committed capacity available under the credit facilities described above.

Asset & Investment Dispositions

On December 1, 2025, we divested 65% of our interest in Germany and Austria Marketing for cash proceeds of $1.7 billion.

On January 31, 2025, we sold our 49% ownership interest in Coop and received cash proceeds of $1.2 billion, consisting of a sales price of $1.15 billion and a final dividend relating to financial year 2024 of $92 million from Coop that was paid on January 30, 2025.

On January 30, 2025, DCP LP sold its 25% ownership interest in GCX for cash proceeds of $853 million.

On December 10, 2024, we sold our equity interests in certain pipeline and terminaling assets in North Dakota for cash proceeds of approximately $143 million.

On August 30, 2024, we sold certain Midstream gathering and processing assets in Texas for cash proceeds of $41 million.

On August 1, 2024, we sold our ownership interests in certain gathering and processing assets in Louisiana and Alabama for cash proceeds of $173 million.

On June 14, 2024, we sold our 25% ownership interest in REX for cash proceeds of $685 million.

On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million.

On February 28, 2023, we sold the Belle Chasse Terminal for approximately $76 million.

See Note 9—Investments, Loans and Long-Term Receivables and Note 10—Properties, Plants and Equipment, in the Notes to Consolidated Financial Statements for additional information regarding asset and investment dispositions.

Phillips 66 Availability of Debt Financing

In September 2025, Moody’s Ratings announced a long-term credit rating change for the company to Baa1 from A3 and affirmed the P-2 rating assigned to the company’s commercial paper program. Moody’s Ratings’ current outlook is stable. Standard & Poor’s currently rates the company’s long-term debt at BBB+ with a stable outlook and commercial paper at A-2. Both agencies’ ratings are considered investment grade. Failure to maintain investment grade ratings could prohibit us from accessing the commercial paper market. However, a rating downgrade by one or both rating agencies would not trigger an automatic default under any of our corporate debt and we would expect to maintain access to funds under our existing liquidity facilities.

DCP LP Availability of Debt Financing

DCP LP has a Baa2 credit rating, with a positive outlook, from Moody’s Investors Service and a BBB+ credit rating, with a stable outlook, from Standard and Poor’s. These ratings facilitate DCP LP’s access to a variety of lenders. DCP LP does not have any ratings triggers on any of its corporate debt that would cause an automatic default, and thereby impact access to liquidity, in the event of a rating downgrade by one or more rating agencies.

Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we had the option at the end of the existing lease term to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. In September 2025, we amended and extended the lease term to September 2030. Under the new operating lease agreement, we have a residual value guarantee with a maximum potential future exposure of $404 million at December 31, 2025.

We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $175 million. These leases have remaining terms of one to ten years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)

In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the Tribe) ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing environmental impacts from an easement allowing the passage of the Dakota Access Pipeline (DAPL) under Lake Oahe in North Dakota. Later in 2020, the trial court vacated the easement, but operations have been allowed to continue while the USACE proceeds with the EIS as ordered. The Tribe’s requests for a shutdown have been denied. Most recently, in March 2025, the trial court dismissed a second lawsuit filed by the Tribe, again challenging USACE’s allowance of pipeline operations while the EIS process proceeds. The Tribe’s lawsuit was premature, and the trial court held that it cannot be refiled until after a final EIS is issued.

In December 2025, the USACE published its final EIS, completing its analysis of alternatives. The final EIS evaluates five alternatives: two no-action alternatives (denial with restoration or abandonment) and three action alternatives, with one marked as USACE’s preferred alternative, that would grant the easement under varying conditions. The preferred alternative would grant the easement subject to the same conditions as the 2017 easement but would authorize an increased throughput volume of 1.1 million barrels per day (bpd), up from the previous 570,000 bpd under the original authorization. The remaining action alternatives would impose either additional operational conditions or require an alternate pipeline route, both of which may entail substantial implementation costs and could have a material impact on our financial statements.

We await a Record of Decision (ROD), which will provide a definitive statement of the selected alternative and any related conditions. The Standing Rock Sioux Tribe and affiliated parties may file a new lawsuit in Washington, D.C., challenging the ROD shortly after it is issued.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access. On April 1, 2024, Dakota Access’ wholly owned subsidiary repaid $1 billion aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share of the repayment, or $250 million, with a capital contribution of $171 million in March 2024 and $79 million of distributions we elected not to receive from Dakota Access in the first quarter of 2024. At December 31, 2025, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $850 million.

In addition, Phillips 66 Partners and its co-venturers in Dakota Access also 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 above-mentioned ongoing litigation. At December 31, 2025, our 25% share of the maximum potential equity contributions under the CECU was approximately $215 million. If the pipeline is required to cease operations, it may have a material adverse effect on our results of operations and cash flows. Should operations cease and Dakota Access and ETCO not have sufficient funds to pay its expenses, we also could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $10 million annually, in addition to the potential obligations under the CECU at December 31, 2025.

See Note 9—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial statements for additional information regarding our investments in Dakota Access and ETCO. See Note 17—Guarantees, in the Notes to Consolidated Financial Statements for additional information regarding guarantees.

Capital Requirements

Capital Expenditures and Investments

For information about our capital expenditures and investments, see the “Capital Spending” section below.

Debt Financing

Our debt balance at December 31, 2025, was $19.7 billion and our total debt-to-capital ratio was 39%. See Note 15—Debt, in the Notes to Consolidated Financial Statements for our annual debt maturities over the next five years and more information on debt repayments.

Repayments

On December 31, 2025, Phillips 66 early redeemed $400 million of its 1.300% Senior Notes due February 2026. After the redemption, an aggregate principal amount of $100 million remained outstanding.

On December 4, 2025, Phillips 66 Company repaid the remaining $550 million outstanding under the Term Loan Agreement, which had a maturity date of June 2026, and terminated this agreement.

On June 27, 2025, DCP LP early redeemed the outstanding $525 million of its 5.375% Senior Notes due July 2025, with an aggregate principal amount of $825 million.

On February 18, 2025, upon maturity, Phillips 66 Partners repaid its 3.605% Senior Notes due February 2025, with an aggregate principal amount of $59 million.

On December 16, 2024, upon maturity, Phillips 66 Company and Phillips 66 Partners repaid the 2.450% Senior Notes due December 2024 with an aggregate principal amount of $300 million.

On March 29, 2024, DCP LP early redeemed $300 million of its 5.375% Senior Notes due July 2025, at par with an aggregate principal amount of $825 million.

On March 4, 2024, Phillips 66 Company repaid $700 million of the $1.25 billion borrowed under its delayed draw term loan that matures in June 2026.

On February 15, 2024, upon maturity, Phillips 66 repaid its 0.900% senior notes due February 2024 with an aggregate principal amount of $800 million.

DCP LP Cash Distributions to Unitholders

DCP LP’s partnership agreement requires it to distribute all available cash within 45 days after the end of each quarter. For the year ended December 31, 2025, DCP LP made cash distributions of $130 million to common unitholders other than Phillips 66 and its subsidiaries. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements for additional information regarding the DCP LP public common unit acquisition.

Discharge of Senior Notes

On September 20, 2024, we extinguished (i) the remaining $441 million outstanding principal amount of Phillips 66 Company’s 3.605% senior notes due February 2025 (2025 P66 Co Notes), and (ii) the remaining $650 million outstanding principal amount of Phillips 66’s 3.850% senior notes due April 2025 (the 2025 PSX Notes, and together with the 2025 P66 Co Notes, the Discharged Notes), whereby we irrevocably transferred a total of $1.1 billion in government obligations to the trustee of the 2025 P66 Co Notes and the 2025 PSX Notes. The cash paid to purchase the government obligations is included within investing cash flows on our consolidated statement of cash flows. These government obligations yielded sufficient principal and interest over their remaining term to permit the trustee to satisfy the remaining principal and interest due on the Discharged Notes on the applicable maturity dates. On September 20, 2024, Phillips 66 and Phillips 66 Company ceased to be the primary obligors under the Discharged Notes. The transfer of the government obligations to the trustee was accounted for as a transfer of financial assets. The Discharged Notes and the government obligations were derecognized from our balance sheet at December 31, 2024. For the year ended December 31, 2024, we recognized an immaterial gain on the extinguishment of this debt.

Acquisitions

On October 1, 2025, we acquired the remaining 50% ownership interest in WRB from Cenovus for total cash consideration of $1.3 billion, subject to post-closing adjustments. This acquisition, which will enable full integration with our broader value chain and expand our position in the Central Corridor region, was funded with cash and borrowings under our short-term liquidity facilities. Associated with the acquisition, we assumed $450 million of short-term debt at acquisition and was also fully repaid on October 1, 2025. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

During the second quarter of 2025, we completed the Coastal Bend acquisition, which own various long haul NGL pipelines, fractionation facilities and distribution systems, for total consideration of $2.2 billion, net of cash acquired. This acquisition further enhances our wellhead-to-market strategy and was funded with cash and borrowings under our short-term liquidity facilities. See Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

On October 1, 2024, we acquired a marketing business on the U.S. West Coast in our M&S segment for total consideration of $68 million. These operations were acquired to support the placement of renewable diesel produced by the Rodeo Complex.

On July 1, 2024, we acquired Dos Picos in our Midstream segment to expand our natural gas gathering and processing operations in the Permian Basin for cash consideration of $565 million.

Pending Acquisition

On January 5, 2026, we entered into a definitive agreement to acquire the assets and associated infrastructure of the Lindsey Oil Refinery. The closing date of this transaction is dependent on regulatory approval and completion of other customary closing conditions.

Dividends

On February 11, 2026, our Board of Directors declared a quarterly cash dividend of $1.27 per common share. The dividend is payable March 4, 2026, to shareholders of record at the close of business on February 25, 2026.

Share Repurchases

Since July 2012, our Board of Directors has authorized an aggregate of $25 billion of repurchases of our outstanding common stock, and we have repurchased 248 million shares at an aggregate cost of $22.7 billion. In 2025, we repurchased 9.7 million shares at an aggregate cost of $1.2 billion. Our share repurchase authorizations do not expire. Any future share repurchases will be made at the discretion of management and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans. Shares of stock repurchased are held as treasury shares.

Contractual Obligations

Our contractual obligations primarily consist of purchase obligations, outstanding debt principal and interest obligations, operating and finance lease obligations, and asset retirement and environmental obligations.

Purchase Obligations

Our purchase obligations represent agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms. We expect these purchase obligations will be fulfilled with operating cash flows in the period when due. At December 31, 2025, our purchase obligations totaled $76.9 billion, with $39.7 billion due within one year.

The majority of our purchase obligations are market-based contracts, including exchanges and futures, for the purchase of commodities such as crude oil and NGL. The commodities are used to supply our refineries and fractionators and optimize our supply chain. At December 31, 2025, commodity purchase commitments with third parties and related parties were $43.0 billion and $19.8 billion, respectively. The remaining purchase obligations mainly represent agreements to access and utilize the capacity of third-party equipment and facilities, including pipelines and product terminals, to transport, process, treat, and store products.

Debt Principal and Interest Obligations

As of December 31, 2025, our aggregate principal amount of outstanding debt was $19.9 billion, with $1.0 billion due within one year. Our obligations for interest on the debt totaled $14.4 billion, with $947 million due within one year. See Note 15—Debt, in the Notes to Consolidated Financial Statements for additional information regarding our outstanding debt principal and interest obligations.

Finance and Operating Lease Obligations

See Note 22—Leases, in the Notes to Consolidated Financial Statements for information regarding our lease obligations and timing of our expected lease payments.

Asset Retirement and Environmental Obligations

See Note 13—Asset Retirement Obligations and Accrued Environmental Costs, in the Notes to Consolidated Financial Statements for information regarding asset retirement and environmental obligations.

Capital Spending

Our capital expenditures and investments, excluding acquisitions, represent consolidated capital spending.

Millions of Dollars

Budget

Capital Expenditures and Investments

Midstream

Chemicals

Refining*

Marketing and Specialties

Renewable Fuels

Corporate and Other

Total Capital Expenditures and Investments

Selected Equity Affiliates**

CPChem

WRB*

Total Selected Equity Affiliates

* On October 1, 2025, we acquired the remaining 50% equity interest in WRB from Cenovus. As such, 100% of WRB’s capital expenditures and investments for the fourth quarter of 2025 and for the 2026 budget are included in Refining capital expenditures and investments.

** Our share of joint ventures’ capital spending.

Midstream

Capital spending in our Midstream segment was $2.6 billion for the three-year period ended December 31, 2025, primarily for:

• Completion of a second Dos Picos gas plant and increased capacity on the Coastal Bend pipeline, further expanding our NGL operations.

• Gathering and processing projects to further align our wellhead-to-market strategy.

• Spending associated with other reliability and maintenance projects in our Transportation and NGL businesses.

Chemicals

During the three-year period ended December 31, 2025, CPChem had a self-funded capital program that totaled $5.2 billion on a 100% basis. Capital spending was primarily for the development of petrochemical projects on the U.S. Gulf Coast and in the Middle East, as well as sustaining, debottlenecking and optimization projects on existing assets.

Refining

Capital spending for the Refining segment during the three-year period ended December 31, 2025, was $1.9 billion, primarily for projects to improve reliability at our refineries and installation of facilities to improve market capture, product value and utilization, such as our recently completed Sweeny Crude Flex project.

Marketing and Specialties

Capital spending for the M&S segment during the three-year period ended December 31, 2025, was $304 million, primarily for the continued development and enhancement of retail sites in Europe, marketing-related information technology enhancements, investment in electric vehicle charging infrastructure in the United States, spend associated with marketing and commercial fleet fueling businesses on the U.S. West Coast and reliability and maintenance projects for our Specialties business.

Renewable Fuels

Capital spending for the Renewable Fuels segment during the three-year period ended December 31, 2025, was $1.2 billion, primarily related to the construction of facilities to produce renewable fuels at the Rodeo Complex.

Corporate and Other

Capital spending for Corporate and Other during the three-year period ended December 31, 2025, was $208 million, primarily related to information technology, energy research & innovation, and facilities.

2026 Budget

Our 2026 capital budget is $2.4 billion, including $1.1 billion for sustaining capital and $1.3 billion for growth capital. Our projected $2.4 billion capital budget excludes our portion of planned capital spending by CPChem totaling $680 million.

Midstream capital budget of $1.1 billion comprises $400 million for sustaining projects and $700 million for growth projects. The Midstream capital budget advances the integrated NGL wellhead-to-market value chain by strengthening our position in key basins, including by increasing gas processing, pipeline and fractionation capacity. In Refining, we plan to invest $1.1 billion, including $590 million for sustaining capital. Refining growth capital of $490 million supports high-return, low-capital projects that will increase asset reliability and improve market capture. The M&S capital budget of $80 million reflects the continued enhancement of our branded network. The Renewable Fuels capital budget of $40 million reflects investments at the Rodeo Complex related to feedstock optimization and logistics for renewable diesel and sustainable aviation fuel production. The Corporate and Other capital budget of $70 million will fund spend associated with information technology projects and the redevelopment of our idled Los Angeles Refinery.

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.

Other than with respect to the legal matters described herein, 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, respectively. 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 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.

Propel Fuels Litigation

In late 2017, as part of Phillips 66 Company’s evaluation of various opportunities in the renewable fuels business, Phillips 66 Company engaged with Propel Fuels, Inc. (Propel Fuels), a California company that distributes E85 and other alternative fuels through fueling kiosks. Ultimately, the parties were not able to reach an agreement, and negotiations were terminated in August 2018. On February 17, 2022, Propel Fuels filed a lawsuit in the Superior Court of California, County of Alameda (the Propel Court), alleging that Phillips 66 Company misappropriated trade secrets related to Propel Fuels’ renewable fuels business during and after due diligence. On October 16, 2024, a jury returned a verdict against Phillips 66 Company for $604.9 million in compensatory damages and issued a willfulness finding. Based on the willfulness finding, Propel Fuels asked the Propel Court to award $1.2 billion in exemplary damages, and Phillips 66 Company filed a brief in opposition to that request. A hearing on exemplary damages was held on March 4, 2025, and the Propel Court awarded Propel Fuels $195 million in exemplary damages on July 30, 2025. On August 5, 2025, the Propel Court entered a final judgment against Phillips 66 Company in the amount of $833 million. The judgment includes the $604.9 million jury verdict, $195 million of exemplary damages, and $33.3 million of pre-judgment interest at 7%. Post-judgment interest of 10% is accruing from the date of the final judgment. On August 25, 2025, Phillips 66 Company filed three post-trial motions requesting that the Propel Court render judgment in favor of Phillips 66 Company, grant a new trial, and/or reduce the damages award. On October 20, 2025, the Propel Court denied Phillips 66 Company’s motions. On November 14, 2025, Phillips 66 Company filed its Notice of Appeal, which has been assigned to Division Two of the First District Court of Appeal. Separately, on October 24, 2025, Propel Fuels filed additional motions with the Propel Court seeking attorney’s fees and costs. Phillips 66 Company filed its opposition to that request on January 13, 2026, and once the record on this issue is complete, the Propel Court will rule on these motions. Phillips 66 Company denies any wrongdoing and intends to vigorously defend its position. As a result of the August 2025 final judgment and the October 2024 jury verdict, we recorded $262 million and $604.9 million of expense for the years ended December 31, 2025 and 2024, respectively, which are included within the “Selling, general and administrative expenses” line on our consolidated statement of income and reported in the M&S segment. Therefore, our recorded accruals totaling $867 million and $604.9 million as of December 31, 2025 and 2024, respectively, are reflected as “Other liabilities and deferred credits” on our consolidated balance sheet. However, it is reasonably possible that the estimate of the loss could change based on the progression of the case, including the appeals process. If information were to become available that would allow us to reasonably estimate a range of potential exposure in an amount higher or lower than the amount already accrued, we would adjust our accrued liabilities accordingly. While Phillips 66 Company believes the jury verdict is not legally or factually supported, there can be no assurances that such defense efforts will be successful. Until the final resolution of this matter, we may be exposed to losses in excess of the amount recorded, and such amounts may have a material adverse effect on our financial position.

Environmental

We are subject to numerous international, federal, state and local environmental laws and regulations. Among the most significant of these international and federal environmental laws and regulations are the:

• U.S. Federal Clean Air Act, which governs air emissions.

• U.S. Federal Clean Water Act, which governs discharges into bodies of water.

• European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (EU REACH), which governs production, marketing and use of chemicals and the United Kingdom’s legislation for the Registration, Evaluation, Authorization and Restriction of Chemicals, which replaced EU REACH in the United Kingdom in 2021 following the United Kingdom’s exit from the European Union (BREXIT).

• U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which imposes liability on generators, transporters and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur.

• U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs the treatment, storage and disposal of solid waste.

• U.S. Federal Emergency Planning and Community Right-to-Know Act, which requires facilities to report toxic chemical inventories to local emergency planning committees and response departments.

• U.S. Federal Oil Pollution Act of 1990, under which owners and operators of onshore facilities and pipelines, as well as owners and operators of vessels are liable for removal costs and damages that result from a discharge of crude oil into navigable waters of the United States.

• European Union Trading Directive resulting in the European Union Emissions Trading Scheme (EU ETS), which uses a market-based mechanism to incentivize the reduction of greenhouse gas (GHG) emissions, as well as the United Kingdom Emissions Trading Scheme (UK ETS).

These laws and their implementing regulations set limits on emissions and, in the case of discharges to water, establish water quality limits. They also, in most cases, require permits in association with new or modified operations. These permits can require an applicant to collect substantial information in connection with the application process, which can be expensive and time consuming. In addition, there can be delays associated with notice and comment periods and the agency’s processing of the application. Many of the delays associated with the permitting process are beyond the control of the applicant.

Other countries and many states where we operate also have, or are developing, similar environmental laws and regulations governing these same types of activities. While similar, in some cases these regulations may impose additional, or more stringent, requirements that can add to the cost and difficulty of developing infrastructure and marketing and transporting products across state and international borders. For example, in California the South Coast Air Quality Management District (SCAQMD) approved amendments to the Regional Clean Air Incentives Market (RECLAIM) that became effective in 2016, which required a phased reduction of nitrogen oxide emissions through 2022, affecting refineries in the Los Angeles metropolitan area. In 2017, SCAQMD required additional nitrogen oxide emissions reductions through 2025 and, on November 5, 2021, promulgated new regulations to replace the RECLAIM program with a traditional command and control regulatory regime.

The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor easily determinable as new standards, such as air emissions standards, water quality standards and stricter fuel regulations, continue to evolve. However, environmental laws and regulations, including those that may arise to address concerns about global climate change, are expected to continue to have an increasing impact on our operations in the United States and in other countries in which we operate. Notable areas of potential impacts include air emissions compliance and remediation obligations in the United States.

An example of this in the fuels area is the Energy Independence and Security Act of 2007 (EISA). The law requires fuel producers and importers to provide additional renewable fuels for transportation motor fuels and stipulates a mix of various types. RINs form the mechanism used by the U.S. Environmental Protection Agency (EPA) to record compliance with the Renewable Fuel Standard (RFS). If an obligated party has more RINs than it needs to meet its obligation, it may sell or trade the extra RINs, or instead choose to “bank” them for use the following year. We have met the EPA’s renewable volume obligations (RVO) to date. These obligations have been met using a variety of operating and capital strategies. We are also implementing advanced and different technologies to address projected future RVOs. On June 21, 2023, the EPA finalized RVO for the 2023, 2024 and 2025 compliance years. These standards increase cellulosic volumes, which reflect the EPA’s forecast for increasing compressed natural gas and NGL volumes derived from biogas. In addition, the EPA increased total advanced biofuel volumes from the 5.63 billion gallons established for the 2022 compliance year to 7.33 billion gallons in 2025. We may experience a decrease in demand for refined petroleum products and increased program costs if not fully recovered in the market. This program continues to be the subject of possible Congressional review and re-promulgation in revised form, and the EPA’s final regulations establishing RVO requirements have been and continue to be subject to legal challenge, further creating uncertainty regarding RVO requirements.

We can fulfill our obligation under RFS through blending renewable fuels into the motor fuels we produce, producing renewable fuels at the Rodeo Complex, or through purchasing RINs on the open market. For the years ended December 31, 2025 and 2024, we primarily fulfilled our obligation under RFS through blending renewable fuels into the motor fuels we produced or by renewable fuels produced at the Rodeo Complex and incurred no expenses to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. For the year ended December 31, 2023, we incurred expenses of $323 million associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. These expenses are included in the “Purchased crude oil and products” line item on our consolidated statement of income. Prior to the acquisition of WRB on October 1, 2025, our jointly owned refineries

also incurred expenses associated with the purchase of RINs in the open market, of which our share was $280 million, $255 million and $389 million for the years ended December 31, 2025, 2024 and 2023, respectively. These expenses were included in the “Equity in earnings of affiliates” line item on our consolidated statement of income through September 30, 2025. The amount of these expenses and fluctuations between periods is primarily driven by the market price of RINs, refinery and renewable fuels production, blending activities and RVO requirements.

We also are subject to certain laws and regulations relating to environmental remediation obligations associated with current and past operations, including CERCLA and RCRA and their state equivalents. Remediation obligations include cleanup responsibility arising from petroleum releases from underground storage tanks located at numerous previously and currently owned and/or operated petroleum-marketing outlets throughout the United States. Federal and state laws require contamination caused by such underground storage tank releases be assessed and remediated to meet applicable standards. In addition to other cleanup standards, many states have adopted cleanup criteria for methyl tertiary-butyl ether for soil and groundwater and both the EPA and many states may adopt cleanup standards for per- and poly-fluoroalkyl substances, which may have been a constituent in certain firefighting foams used or stored at or near some of our facilities.

At RCRA-permitted facilities, we are required to assess environmental conditions. If conditions warrant, we may be required to remediate contamination caused by prior operations. In contrast to CERCLA, which is often referred to as “Superfund,” the cost of corrective action activities under RCRA corrective action programs is typically borne solely by us. We anticipate increased expenditures for RCRA remediation activities may be required, but such annual expenditures for the near term are not expected to vary significantly from the range of such expenditures we have experienced over the past few years. Longer-term expenditures are subject to considerable uncertainty and may fluctuate significantly.

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 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 December 31, 2024, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 19 sites within the United States and Puerto Rico. During 2025, our legal organization approved the removal of two sites, leaving 17 unresolved sites with potential liability at December 31, 2025.

For the majority of Superfund sites, our potential liability will be less than the total site remediation costs because the percentage of waste attributable to us, versus that attributable to all other potentially responsible parties, is relatively low. Although liability of those potentially responsible is generally joint and several for federal sites and frequently so for state sites, other potentially responsible parties at sites where we are a party typically have had the financial strength to meet their obligations, and where they have not, or where potentially responsible parties could not be located, our share of liability has not increased materially. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or attain a settlement of liability. Actual cleanup costs generally occur after the parties obtain the EPA or equivalent state agency approval of a remediation plan. There are relatively few sites where we are a major participant, and given the timing and amounts of anticipated expenditures, neither the cost of remediation at those sites nor such costs at all CERCLA sites, in the aggregate, is expected to have a material adverse effect on our competitive or financial condition.

We incur costs related to the prevention, control, abatement or elimination of environmental pollution. Expensed environmental costs were $937 million in 2025 and are expected to be approximately $901 million and $916 million in 2026 and 2027, respectively. Capitalized environmental costs were $243 million in 2025 and are expected to be approximately $306 million and $190 million, in 2026 and 2027, respectively. These amounts do not include capital expenditures made for other purposes that have an indirect benefit on environmental compliance.

Accrued liabilities for remediation activities are not reduced for potential recoveries from insurers or other third parties and are not discounted (except those assumed in a business combination, which we record on a discounted basis).

Many of these liabilities result from CERCLA, RCRA and similar state laws that require us to undertake certain investigative and remedial activities at sites where we conduct or once conducted operations, or at sites where our generated waste was disposed. We also have accrued for a number of sites we identified that may require environmental remediation, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the future, we may incur significant costs under both CERCLA and RCRA. Remediation activities vary substantially in duration and cost from site to site, depending on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, and the presence or absence of potentially liable third parties. Therefore, it is difficult to develop reasonable estimates of future site remediation costs.

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.

Climate Change

There has been a broad range of proposed or promulgated state, national and international laws focusing on 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. Examples of legislation or precursors for possible regulation that do or could affect our operations include:

• Entities in the United Kingdom are subject to the UK ETS, which is similar to the EU ETS, to combat climate change and is a key tool for reducing industrial GHG emissions. Both UK and EU ETS impact factories, power stations and other installations across all UK/EU member states.

• EU Renewable Energy Directive II, which increases the EU’s energy consumption from renewable sources in the electricity, heat, and transportation sectors to 32% by 2030.

• United Kingdom’s Renewable Transport Fuel Obligation, which is intended to reduce the GHG emissions from fuel used in the United Kingdom transportation sector by encouraging the supply of renewable fuels.

• California’s Senate Bill No. 32, which requires reduction of California's GHG emissions to 40% below the 1990 emission level by 2030, and Assembly Bill 398, which extends the California GHG emission cap and trade program through 2030. Other GHG emissions programs in states in the western U.S. have been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel Standard, California’s Advanced Clean Cars and Trucks Programs, California’s Carbon Neutrality by 2045 Scoping Plan, Oregon's Low Carbon Fuel Standard and Climate Protection Plan, and Washington's carbon reduction programs.

• United States’ Inflation Reduction Act, which contains tax inducements and other provisions that incentivize investment, development, and deployment of alternative energy sources and technologies, which is intended to accelerate the energy transition.

• The Supreme Court decision in Massachusetts v. EPA , 549 U.S. 497, 127 S. Ct. 1438 (2007), confirming that the EPA has the authority to regulate carbon dioxide as an “air pollutant” under the Federal Clean Air Act.

• The EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers regulation of GHGs under the Clean Air Act. These collectively may lead to more climate-based claims for damages, and may result in longer agency review time for development projects to determine the extent of potential climate change.

• The EPA's 2015 Final Rule regulating GHG emissions from existing fossil fuel-fired electrical generating units under the Federal Clean Air Act, commonly referred to as the Clean Power Plan. The EPA commenced rulemaking in 2017 to rescind the Clean Power Plan and, in August 2018, the EPA proposed the Affordable Clean Energy (ACE) rule as its replacement. On January 19, 2021, the U.S. Court of Appeals for the District of Columbia invalidated the ACE rule and remanded the matter to the EPA, essentially restarting this rulemaking process.

• Carbon taxes in certain jurisdictions.

• GHG emission cap and trade programs in certain jurisdictions.

In the EU, the first phase of the EU ETS completed at the end of 2007. Phase II was undertaken from 2008 through 2012, and Phase III ran from 2013 through to 2020. Phase IV runs from January 1, 2021 through 2030 and sectors covered under the ETS must reduce their GHG emissions by 43% compared to 2005 levels and there is agreement between the EU Member States, the European Parliament, and the EU Commission (which is pending ratification by the EU Council and European Parliament) to increase the Phase IV GHG emissions reduction to 63% by 2030 compared to 2005 levels. The United Kingdom has its own GHG emission reduction targets under the UK ETS. Phillips 66 has assets that are subject to the EU ETS and assets that are subject to the UK ETS.

From November 30 to December 12, 2015, more than 190 countries, including the United States, participated in the United Nations Climate Change Conference in Paris, France. The conference culminated in what is known as the “Paris Agreement,” which, upon certain conditions being met, entered into force on November 4, 2016. The Paris Agreement establishes a commitment by signatory parties to pursue domestic GHG emission reductions. In January 2025, President Trump signed an executive order directing the United States to withdraw from the Paris Agreement, and the withdraw became effective in January 2026, following the applicable notification period. Additionally, in January 2026, the United States withdrew from several international climate organizations, representing a further departure from the previous administration’s positions and GHG commitments. However, future emission reduction targets and other provisions of legislative or regulatory initiatives and policies enacted in the future by the United States could be brought by future administrations or, in the absence of federal action, states may become more active and focused on taking legislative or regulatory actions aimed at climate change and minimizing GHG emissions.

In the United States, some additional form of regulation is likely to be forthcoming, particularly at the state level in the absence of federal action, with respect to GHG emissions. Such regulation could take any of several forms that may result in additional financial burden in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances.

Compliance with changes in laws and regulations that create a GHG emission trading program, GHG reduction requirements or carbon taxes could significantly increase our costs, reduce demand for fossil energy derived products, impact the cost and availability of capital and increase our exposure to litigation. Such laws and regulations could also increase demand for less carbon intensive energy sources.

An example of one such program is California’s cap and trade program, which was promulgated pursuant to the State’s Global Warming Solutions Act. The program had been limited to certain stationary sources, which include our refineries in California, but beginning in January 2015 was expanded to include emissions from transportation fuels distributed in California. Inclusion of transportation fuels in California’s cap and trade program as currently promulgated has increased our cap and trade program compliance costs. Additionally, certain states have recently passed legislation seeking to recover financial damages allegedly associated with climate change from fossil fuel companies like the Vermont Climate Superfund Act passed by the Vermont Legislature in May 2024. While such novel laws and implementing regulations may be subject to legal challenges, additional states may follow suit. The ultimate impact on our financial performance, either positive or negative, from this and similar programs, will depend on a number of factors, including, but not limited to:

• Whether and to what extent legislation or regulation is enacted.

• The nature of the legislation or regulation, such as a cap and trade system, a tax on emissions or financial damages.

• The GHG reductions required.

• The price and availability of offsets.

• The demand for, amount and allocation of allowances.

• Technological and scientific developments leading to new products or services.

• Any potential significant physical effects of climate change, such as increased severe weather events, changes in sea levels and changes in temperature.

• Whether, and the extent to which, increased compliance costs are ultimately reflected in the prices of our products and services.

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 efforts throughout our operations.

In February 2022, we announced a target to reduce our Scope 1 and Scope 2 GHG emissions intensity related to our operations by 50% of 2019 levels by the year 2050. The 2050 target builds upon our 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels.

In addition to the disclosures above, we have issued our 2025 Sustainability and People Report that is accessible on our website and provides more detailed information regarding our environmental, social and governance and human capital initiatives, including information on environmental metrics and other topics of interest to our stakeholders, which may not be considered material for U.S. Securities and Exchange Commission (SEC) reporting purposes. The information contained in the Sustainability and People Report is not incorporated by reference into, and does not constitute a part of, this Annual Report.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note 1—Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements for descriptions of our major accounting policies. Some of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported under different conditions, or if different assumptions had been used. The following discussion of critical accounting estimates addresses accounting areas where the nature of accounting estimates or assumptions could be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.

Business Combinations

In accounting for a business combination, assets acquired, liabilities assumed and noncontrolling interests are recorded based on estimated fair values as of the date of acquisition. The excess or shortfall of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired, if any, is recorded as goodwill or a bargain purchase gain, respectively. Judgment is made in estimating the individual fair value of property, plant and equipment, intangible assets, noncontrolling interests and other assets and liabilities. We use available information to make these fair value determinations and engage third-party specialists in the valuation process as necessary.

The fair values of assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity specific differences. The estimates used in determining fair values are based on assumptions believed to be reasonable, but which are inherently uncertain. Accordingly, actual results may differ materially from the estimated results used to determine fair value.

See Note 5—Business Combinations, and Note 20—Fair Value Measurements, in the Notes to Consolidated Financial Statements for additional information on our acquisitions.

Impairment of Long-Lived Assets and Equity Method Investments

Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future before-tax cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple for similar assets; historical market transactions including similar assets, adjusted using principal market participant assumptions when necessary; or replacement cost adjusted for physical deterioration and economic obsolescence. The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments, including future volumes, commodity prices, operating costs, margins, discount rates and capital project decisions, considering all available information at the date of review.

Investments in unconsolidated affiliates accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined that an indicated impairment is other than temporary, a charge is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that allows for recovery. When quoted market prices are not available, the fair value is usually based on the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies, if appropriate. Different assumptions could affect the timing and the amount of an impairment of an investment in any period.

See Note 12—Impairments, in the Notes to Consolidated Financial Statements for additional information.

GUARANTOR FINANCIAL INFORMATION

We have various cross guarantees between Phillips 66 and its wholly owned subsidiary Phillips 66 Company (together, the Obligor Group) with respect to publicly held debt securities. 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. Phillips 66 has fully and unconditionally guaranteed the payment obligations of Phillips 66 Company with respect to its publicly held debt securities. In addition, Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to its publicly held debt securities. All guarantees are full and unconditional. At December 31, 2025, $16.0 billion of publicly held debt securities has been guaranteed by the Obligor Group.

Summarized financial information of 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 year ended December 31, 2025, and the summarized financial position at December 31, 2025, of the Obligor Group on a combined basis were:

Summarized Combined Statement of Income

Millions of Dollars

Sales and other operating revenues

Revenues and other income—non-guarantor subsidiaries

Purchased crude oil and products—third parties

Purchased crude oil and products—related parties

Purchased crude oil and products—non-guarantor subsidiaries

Loss before income taxes

Net loss

Summarized Combined Balance Sheet

Millions of Dollars

Accounts and notes receivable—third parties

Accounts and notes receivable—related parties

Due from non-guarantor subsidiaries, current

Total current assets

Investments and long-term receivables

Net properties, plants and equipment

Goodwill

Due from non-guarantor subsidiaries, noncurrent

Other assets associated with non-guarantor subsidiaries

Total noncurrent assets

Total assets

Due to non-guarantor subsidiaries, current

Total current liabilities

Long-term debt

Due to non-guarantor subsidiaries, noncurrent

Total noncurrent liabilities

Total liabilities

Total equity

Total liabilities and equity

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 income (loss) before income taxes to realized refining margins:

Millions of Dollars, Except as Indicated

Realized Refining Margins

Atlantic Basin/Europe

Gulf Coast

Central Corridor

West Coast

Worldwide

Year Ended December 31, 2025

Income (loss) before income taxes

Plus:

Taxes other than income taxes

Depreciation, amortization and impairments

Selling, general and administrative expenses

Operating expenses

Equity in losses of affiliates

Other segment (income) expense, net

Proportional share of refining gross margins contributed by equity affiliates †

Special items:

Certain tax impacts

Legal settlement

Pending Claims and Settlements

Realized refining margins

Total processed inputs ( thousands of barrels )

Adjusted total processed inputs ( thousands of barrels )*†

Income (loss) before income taxes per barrel ( dollars per barrel )**

Realized refining margins ( dollars per barrel )***

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income before income taxes divided by total processed inputs.

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

† Includes our proportional share of our equity method investment in WRB through September 30, 2025. Beginning on October 1, 2025, 100% of Borger Refinery and Wood River Refinery are included in consolidated results. Refer to Note 5—Business Combinations, in the Notes to Consolidated Financial Statements for additional information.

Millions of Dollars, Except as Indicated

Realized Refining Margins

Atlantic Basin/Europe

Gulf Coast

Central Corridor

West Coast

Worldwide

Year Ended December 31, 2024

Income (loss) before income taxes

Plus:

Taxes other than income taxes

Depreciation, amortization and impairments

Selling, general and administrative expenses

Operating expenses

Equity in (earnings) losses of affiliates

Other segment (income) expense, net

Proportional share of refining gross margins contributed by equity affiliates

Special items:

Certain tax impacts

Legal settlement

Realized refining margins

Total processed inputs ( thousands of barrels )

Adjusted total processed inputs ( thousands of barrels )*

Income (loss) before income taxes per barrel ( dollars per barrel )**

Realized refining margins ( dollars per barrel )***

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income before income taxes divided by total processed inputs.

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

Millions of Dollars, Except as Indicated

Realized Refining Margins

Atlantic Basin/Europe

Gulf Coast

Central Corridor

West Coast

Worldwide

Year Ended December 31, 2023

Income before income taxes

Plus:

Taxes other than income taxes

Depreciation, amortization and impairments

Selling, general and administrative expenses

Operating expenses

Equity in (earnings) losses of affiliates

Other segment (income) expense, net

Proportional share of refining gross margins contributed by equity affiliates

Special items:

Certain tax impacts

Realized refining margins

Total processed inputs ( thousands of barrels )

Adjusted total processed inputs ( thousands of barrels )*

Income before income taxes per barrel ( dollars per barrel )**

Realized refining margins ( dollars per barrel )***

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income before income taxes divided by total processed inputs.

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

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 facilities’ 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, Except as Indicated

International

Realized Marketing Fuel Margins

Income before income taxes

Plus:

Depreciation and amortization

Selling, general and administrative expenses

Equity in earnings of affiliates

Other operating revenues*

Other expense, net

Special items:

Legal settlement

Net gain on asset disposition

Marketing margins

Less: margin for nonfuel related sales

Realized marketing fuel margins

Total fuel sales volumes ( thousands of barrels )

Income before income taxes per barrel ( dollars per barrel )

Realized marketing fuel margins ( dollars per barrel )**

* Includes other nonfuel revenues and expenses.

** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.