Phillips 66 Reports Third-Quarter Earnings of $712 Million or $1.58 Per Share

Adjusted earnings of $1.4 billion or $3.11 per share

Highlights

• Generated $1.7 billion of operating cash flow
• Returned $841 million to shareholders through dividends and share repurchases
• Initiated line fill on Gray Oak Pipeline; progressing Red Oak and Liberty pipelines
• Started up Lake Charles isomerization unit
• Operated at 97% utilization in Refining
• Delivered 97% O&P utilization in Chemicals
• Announced new $3 billion share repurchase program

Phillips 66 PSX, a diversified energy manufacturing and logistics company, announces third-quarter 2019 earnings of $712 million, compared with $1.4 billion in the second quarter of 2019. Excluding special items of $690 million in the third quarter, primarily impairments related to the company's investment in DCP Midstream, LLC, adjusted earnings were $1.4 billion, compared with second-quarter adjusted earnings of $1.4 billion.

"We continued to successfully execute our strategy and delivered another quarter of solid financial results," said Greg Garland, chairman and CEO of Phillips 66. "We operated safely and reliably and captured favorable margins in our Refining and Marketing businesses. Midstream's transportation and NGL businesses reported record pre-tax income, while we continued to progress Midstream's portfolio of growth projects. The Lake Charles isomerization unit reached full production, and line fill started on the Gray Oak Pipeline. CPChem operated well and contributed to our strong operating cash flow."

"During the quarter, we returned $841 million to shareholders through dividends and share repurchases. As part of our ongoing commitment to return capital to our shareholders, we announced a new $3 billion share repurchase program. Since 2012, we have returned approximately $25 billion to shareholders through dividends and share repurchases and exchanges and have reduced our initial shares outstanding by one-third."

"We look forward to providing an update on our strategy and how we are positioned to deliver superior returns to shareholders at our upcoming investor day in New York on Nov. 6."

Midstream had a third-quarter pre-tax loss of $460 million, compared with pre-tax income of $423 million in the second quarter of 2019. Midstream results in the third quarter included $900 million of impairments related to Phillips 66's equity investment in DCP Midstream, LLC (DCP Midstream).

Transportation third-quarter adjusted pre-tax income of $248 million was $3 million higher than the second quarter, primarily due to higher pipeline volumes.

NGL and Other adjusted pre-tax income for the third quarter was $169 million, a $26 million increase from the second quarter. The improvement was mainly due to butane and propane trading activity.

The company's equity investment in DCP Midstream generated adjusted pre-tax income of $23 million in the third quarter, compared with $35 million in the second quarter. The decrease primarily reflects lower hedging results.

The Chemicals segment reflects Phillips 66's equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals' third-quarter pre-tax income was $227 million, compared with $275 million in the second quarter. Chemicals results in the third quarter included a $42 million reduction to equity earnings from a lower-of-cost-or-market inventory adjustment.

CPChem's Olefins and Polyolefins (O&P) business contributed $251 million of adjusted pre-tax income in the third quarter of 2019, compared with $260 million in the second quarter. The $9 million decrease mainly reflects lower margins, partially offset by higher sales volumes. Global O&P utilization was 97% in the third quarter.

CPChem's Specialties, Aromatics and Styrenics (SA&S) business contributed third-quarter 2019 adjusted pre-tax income of $36 million, in line with the prior quarter.

Refining third-quarter pre-tax income was $856 million, compared with $983 million in the second quarter of 2019. Refining results in the third quarter included a $17 million favorable adjustment related to a prior year asset disposition.

Refining adjusted pre-tax income was $839 million in the third quarter of 2019, compared with $983 million in the second quarter of 2019. The decrease is mainly due to higher turnaround costs, as well as lower realized margins, primarily reflecting weaker gasoline crack spreads in the Central Corridor.

Phillips 66's worldwide crude utilization rate was 97%. Pre-tax turnaround costs for the third quarter were $120 million, compared with second-quarter costs of $67 million. Clean product yield was 84% in the third quarter.

Marketing and Specialties (M&S) third-quarter pre-tax income was $498 million, compared with $353 million in the second quarter of 2019.

Adjusted pre-tax income for Marketing and Other was $440 million in the third quarter of 2019, an increase of $146 million from the second quarter of 2019. The increase was primarily due to higher margins, driven by favorable market conditions. Refined product exports in the third quarter were 220,000 barrels per day (BPD).

Specialties generated third-quarter adjusted pre-tax income of $58 million, in line with the prior quarter.

Corporate and Other third-quarter pre-tax costs were $178 million, compared with pre-tax costs of $205 million in the second quarter of 2019.

The $27 million decrease in Corporate and Other adjusted pre-tax costs in the third quarter was due to lower environmental expenses and higher capitalized interest.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $1.7 billion in cash from operations during the third quarter, including $518 million of cash distributions from equity affiliates. Excluding working capital impacts, operating cash flow was $1.8 billion. Phillips 66 Partners (PSXP) issued $900 million of unsecured notes and repaid its $400 million term loan in the quarter. On Oct. 15, 2019, PSXP repaid an additional $300 million of outstanding debt.

Capital expenditures and investments in the third quarter were $867 million. Phillips 66 funded $439 million of share repurchases and $402 million of dividends in the quarter. The company ended the quarter with 444 million shares outstanding.

As of Sept. 30, 2019, cash and cash equivalents were $2.3 billion, and consolidated debt was $11.9 billion, including $3.8 billion at PSXP. The company's consolidated debt-to-capital ratio was 31% and its net debt-to-capital ratio was 26%. Excluding PSXP, the debt-to-capital ratio was 25% and the net debt-to-capital ratio was 21%.

Strategic Update

In Midstream, Phillips 66 Partners is constructing the 900,000 BPD Gray Oak Pipeline, which is anticipated to begin initial service in the fourth quarter of 2019. The pipeline will provide crude oil transportation from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including the company's Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a 42.25% ownership in the pipeline.

The Gray Oak Pipeline will connect to multiple terminals in Corpus Christi, including the South Texas Gateway Terminal currently being constructed by Buckeye Partners, L.P. The marine export terminal will have two deepwater docks, with storage capacity of over 7 million barrels and up to 800,000 BPD of throughput capacity. Phillips 66 Partners owns a 25% interest in the terminal, which is expected to start up by mid-2020.

Phillips 66 is expanding the Sweeny Hub with the addition of three fractionators, each with capacity of 150,000 BPD. Fracs 2 and 3 are anticipated to start up in the fourth quarter of 2020. Frac 4 is expected to be completed in the second quarter of 2021. The new fractionators are supported by long-term customer commitments. Upon completion of Frac 4, the Sweeny Hub will have 550,000 BPD of fractionation capacity.

Also at the Sweeny Hub, Phillips 66 Partners is adding 6 million barrels of storage capacity at Clemens Caverns. Upon completion in the fourth quarter of 2020, Clemens Caverns will have 15 million barrels of storage capacity. Phillips 66 Partners is also constructing the C2G Pipeline, a 16 inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi. The project is backed by long-term commitments and is expected to be completed in mid-2021.

The company continues to expand capacity at its Beaumont Terminal, adding 2.2 million barrels of crude oil storage. Upon completion in the first quarter of 2020, the terminal will have 16.8 million barrels of total crude and product storage capacity.

Phillips 66 is progressing the Liberty Pipeline, which will provide crude oil transportation from the Rockies and Bakken production areas to Cushing, Oklahoma. Liberty is supported by long-term shipper commitments, and initial service is expected in the first half of 2021. Phillips 66 owns a 50% interest in Liberty and will construct and operate the pipeline.

The company is also advancing the Red Oak Pipeline system, which will provide crude oil transportation from Cushing and the Permian Basin to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston and Beaumont. Red Oak is supported by long-term shipper commitments, and initial service is expected in the first half of 2021. Our joint venture partner will construct and Phillips 66 will operate the pipeline. Phillips 66 owns a 50% interest in the venture.

DCP Midstream's O'Connor 2 plant was placed in service in the quarter, adding 200 million cubic feet per day of gas processing capacity in the DJ Basin. In the Permian, DCP Midstream has a 25% interest in the Gulf Coast Express Pipeline, which transports approximately 2 billion cubic feet per day of natural gas to Gulf Coast markets. The pipeline began commercial operations during the quarter.

In Chemicals, CPChem and Qatar Petroleum are jointly pursuing development of a petrochemical facility on the U.S. Gulf Coast that would add world-scale ethylene and derivative capacity to meet growing global demand. The U.S. Gulf Coast II Petrochemical Project is expected to include a 2 million metric tons per year ethylene cracker and two high-density polyethylene units, each with capacity of 1 million metric tons per year. CPChem would own 51% and have responsibility for the construction, operation and management of the facility. Final investment decision is expected no later than 2021, with targeted startup in 2024.

CPChem and Qatar Petroleum are pursuing the development, construction and operation of a petrochemicals complex in Qatar. The facility is expected to have a 1.9 million metric tons per year ethylene cracker and two high-density polyethylene derivative units with a combined capacity of 1.7 million metric tons per year. Pending final investment decision, the project is expected to start up in late 2025. CPChem will own a 30% share of the joint venture.

In Refining, Phillips 66 is upgrading the fluid catalytic cracking unit (FCC) at the Sweeny Refinery to increase production of higher-value petrochemical products and higher-octane gasoline. The project is anticipated to be completed in the second quarter of 2020.

In Marketing, the company continues its program to roll out updated signature image designs for Phillips 66, 76 and Conoco branded sites in the United States. During the quarter, 373 sites were reimaged. Since the program's inception in 2015, approximately 3,700 sites have been reimaged.

The company will host an analyst and investor day in New York on Nov. 6, 2019, at 8:30 a.m. EST. A live webcast of the meeting will be available on the Phillips 66 Investors site. To access the webcast, go to www.phillips66.com/investors and click on "Events & Presentations." A replay of the webcast and a transcript will be archived on the Investors site.

Investor Webcast

Later today, members of Phillips 66 executive management will host a webcast at noon EDT to discuss the company's third-quarter performance and provide an update on strategic initiatives. To access the webcast and view related presentation materials, go to www.phillips66.com/investors and click on "Events & Presentations." For detailed supplemental information, go to www.phillips66.com/supplemental.

About Phillips 66

Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company's master limited partnership, is integral to the portfolio. Headquartered in Houston, the company has 14,500 employees committed to safety and operating excellence. Phillips 66 had $59 billion of assets as of Sept. 30, 2019. For more information, visit www.phillips66.com or follow us on Twitter @Phillips66Co.

^{CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995}

^{This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Words and phrases such as "is anticipated," "is estimated," "is expected," "is planned," "is scheduled," "is targeted," "believes," "continues," "intends," "will," "would," "objectives," "goals," "projects," "efforts," "strategies" and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to Phillips 66's operations (including joint venture operations) are based on management's expectations, estimates and projections about the company, its interests and the energy industry in general on the date this news release was prepared. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Factors that could cause actual results or events to differ materially from those described in the forward-looking statements include fluctuations in NGL, crude oil, and natural gas prices, and petrochemical and refining margins; unexpected changes in costs for constructing, modifying or operating our facilities; unexpected difficulties in manufacturing, refining or transporting our products; lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas, and refined products; potential liability from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; the impact of adverse market conditions or other similar risks to those identified herein affecting PSXP, as well as the ability of PSXP to successfully execute its growth plans; and other economic, business, competitive and/or regulatory factors affecting Phillips 66's businesses generally as set forth in our filings with the Securities and Exchange Commission. Phillips 66 is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.}

^{Use of Non-GAAP Financial Information—This news release includes the terms "adjusted earnings," "adjusted earnings per share," and "adjusted pre-tax income." These are non-GAAP financial measures that are included to help facilitate comparisons of operating performance across periods and to help facilitate comparisons with other companies in our industry, by excluding items that do not reflect the core operating results of our businesses in the current period. This release also includes a "debt-to-capital ratio excluding PSXP." This non-GAAP measure is provided to differentiate the capital structure of Phillips 66 compared with that of Phillips 66 Partners.}

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