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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
Commission file number:
001-36011

Phillips 66 Partners LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
38-3899432
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

2331 CityWest Blvd., Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
(855) 283-9237
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 

Common Units, Representing Limited Partnership Interests

PSXP
 
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  
The registrant had 228,340,146 common units outstanding as of March 31, 2020.


Table of Contents

PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS
 

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1. FINANCIAL STATEMENTS
 

Consolidated Statement of Income
Phillips 66 Partners LP
 
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

Revenues and Other Income
 
 
 
Operating revenues—related parties
$
258

 
296

Operating revenues—third parties
9

 
6

Equity in earnings of affiliates
136

 
119

Other income
1

 
2

Total revenues and other income
404

 
423


 
 
 
Costs and Expenses
 
 
 
Operating and maintenance expenses
88

 
139

Depreciation
30

 
29

General and administrative expenses
17

 
18

Taxes other than income taxes
11

 
11

Interest and debt expense
29

 
27

Other expenses
2

 

Total costs and expenses
177

 
224

Income before income taxes
227

 
199

Income tax expense
1

 
1

Net income
226

 
198

Less: Preferred unitholders’ interest in net income
10

 
10

Less: General partner’s interest in net income

 
69

Limited partners’ interest in net income
$
216

 
119

 
 
 
 
Net Income Per Limited Partner Unit (dollars)
 
 
 
Common units—basic
$
0.95

 
0.96

Common units—diluted
0.93

 
0.92

 
 
 
 
Weighted-Average Limited Partner Units Outstanding (thousands)
 
 
 
Common units—basic
228,312

 
124,258

Common units—diluted
242,132

 
138,078

See Notes to Consolidated Financial Statements.



1

Table of Contents

Consolidated Statement of Comprehensive Income
Phillips 66 Partners LP

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Net Income
$
226

 
198

Defined benefit plans
 
 
 
Plan sponsored by equity affiliates, net of income taxes

 

Other comprehensive income

 

Comprehensive Income
$
226

 
198

See Notes to Consolidated Financial Statements.



2

Table of Contents

Consolidated Balance Sheet
Phillips 66 Partners LP
 
 
Millions of Dollars
 
March 31
2020

 
December 31
2019

Assets
 
 
 
Cash and cash equivalents
$
92

 
286

Accounts receivable—related parties
91

 
101

Accounts receivable—third parties
4

 
4

Materials and supplies
13

 
13

Prepaid expenses and other current assets
14

 
10

Total current assets
214

 
414

Equity investments
3,136

 
2,961

Net properties, plants and equipment
3,410

 
3,349

Goodwill
185

 
185

Other assets
52

 
52

Total Assets
$
6,997

 
6,961

 
 
 
 
Liabilities
 
 
 
Accounts payable—related parties
$
24

 
19

Accounts payable—third parties
75

 
84

Accrued interest
46

 
42

Deferred revenues
19

 
16

Short-term debt
25

 
25

Accrued property and other taxes
12

 
10

Other current liabilities
3

 
3

Total current liabilities
204

 
199

Long-term debt
3,491

 
3,491

Obligation from equity interest transfer
356

 
343

Other liabilities
93

 
94

Total Liabilities
4,144

 
4,127

 
 
 
 
Equity
 
 
 
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding)
747

 
746

Common unitholders—public (2020—58,580,009 units issued and outstanding;
2019—58,539,439 units issued and outstanding)
2,723

 
2,717

Common unitholder—Phillips 66 (2020 and 2019—169,760,137 units issued and outstanding)
(616
)
 
(628
)
Accumulated other comprehensive loss
(1
)
 
(1
)
Total Equity
2,853

 
2,834

Total Liabilities and Equity
$
6,997

 
6,961

See Notes to Consolidated Financial Statements.



3

Table of Contents

Consolidated Statement of Cash Flows
Phillips 66 Partners LP


Millions of Dollars

Three Months Ended
March 31

2020

 
2019

Cash Flows From Operating Activities

 


Net income
$
226

 
198

Adjustments to reconcile net income to net cash provided by operating activities

 

Depreciation
30

 
29

Undistributed equity earnings
4

 
2

Other
2

 
10

Working capital adjustments

 

Accounts receivable
10

 
4

Prepaid expenses and other current assets
(4
)
 
9

Accounts payable
(3
)
 
(4
)
Accrued interest
4

 
(5
)
Deferred revenues
3

 
(40
)
Other accruals
2

 
2

Net Cash Provided by Operating Activities
274

 
205

 

 

Cash Flows From Investing Activities

 

Cash capital expenditures and investments
(236
)
 
(634
)
Liberty acquisition
(75
)
 

Return of investment from equity affiliates
38

 
20

Proceeds from sale of equity interest

 
81

Net Cash Used in Investing Activities
(273
)
 
(533
)
 

 

Cash Flows From Financing Activities

 

Net proceeds from equity interest transfer
12

 
341

Issuance of debt

 
725

Repayment of debt

 
(585
)
Issuance of common units
2

 
32

Quarterly distributions to preferred unitholders
(9
)
 
(9
)
Quarterly distributions to common unitholders—public
(51
)
 
(46
)
Quarterly distributions to common unitholder—Phillips 66
(149
)
 
(58
)
Quarterly distributions to General Partner—Phillips 66

 
(67
)
Other distributions to Phillips 66

 
(4
)
Net Cash Provided by (Used in) Financing Activities
(195
)
 
329

 


 


Net Change in Cash and Cash Equivalents
(194
)
 
1

Cash and cash equivalents at beginning of period
286

 
1

Cash and Cash Equivalents at End of Period
$
92

 
2

See Notes to Consolidated Financial Statements.



4

Table of Contents

Consolidated Statement of Changes in Equity
Phillips 66 Partners LP
 
Millions of Dollars
 
Three Months Ended
March 31
 
Preferred Unitholders Public

Common Unitholders
Public

Common Unitholder
Phillips 66

General Partner
Phillips 66

Accum. Other
Comprehensive Loss

Total

 
 
 
 
 
 
 
December 31, 2019
$
746

2,717

(628
)

(1
)
2,834

Issuance of common units

2




2

Net income
10

55

161



226

Quarterly cash distributions to unitholders ($0.875 per common unit)
(9
)
(51
)
(149
)


(209
)
March 31, 2020
$
747

2,723

(616
)

(1
)
2,853

 
 
 
 
 
 
 
December 31, 2018
$
746

2,485

592

(1,313
)
(1
)
2,509

Cumulative effect of accounting change

(1
)



(1
)
Issuance of common units

32




32

Net income
10

53

66

69


198

Quarterly cash distributions to unitholders and General Partner ($0.835 per common unit)
(9
)
(46
)
(58
)
(67
)

(180
)
Other contributions to Phillips 66



(4
)

(4
)
March 31, 2019
$
747

2,523

600

(1,315
)
(1
)
2,554



 
Units
 
Three Months Ended
March 31
 
Preferred Units Public

Common Units Public

Common Units Phillips 66

General Partner Units
Phillips 66

Total Units

 
 
 
 
 
 
December 31, 2019
13,819,791

58,539,439

169,760,137


242,119,367

Units issued in public equity offerings

40,570



40,570

March 31, 2020
13,819,791

58,580,009

169,760,137


242,159,937

 
 
 
 
 
 
December 31, 2018
13,819,791

55,343,918

68,760,137

2,480,051

140,403,897

Units issued in public equity offerings

622,032



622,032

March 31, 2019
13,819,791

55,965,950

68,760,137

2,480,051

141,025,929

See Notes to Consolidated Financial Statements.




5

Table of Contents

Notes to Consolidated Financial Statements
Phillips 66 Partners LP
 
Note 1—Description of the Business
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries. Our operations consist of one reportable segment.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of crude oil, refined petroleum products and NGL, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.


Note 2—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our financial position, results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the full year.




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Note 3—Operating Revenues

Operating revenues are primarily generated from long-term pipeline transportation, terminaling, storage, processing and fractionation lease and service agreements, mainly with Phillips 66. These agreements typically include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. In addition, most of these agreements contain renewal options, which typically require the mutual consent of both our customers and us.
Total operating revenues disaggregated by asset type were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Pipelines
$
111

 
109

Terminals
43

 
40

Storage, processing and other revenues
113

 
153

Total operating revenues
$
267

 
302




The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The lease’s classification as either an operating or financing lease requires judgment in assessing the contract’s lease and service components and in determining the asset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continue to separate the lease and service elements based on relative standalone prices and applied the new lease standard to the lease element and the revenue standard to the service element.
Total operating revenues disaggregated by lease and service revenues were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Lease revenues
$
218

 
257

Service revenues
49

 
45

Total operating revenues
$
267

 
302





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Accounts Receivable
We bill our customers, mainly Phillips 66, under our lease and service contracts generally on a monthly basis.

Total accounts receivable by revenue type was as follows:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Lease receivables
$
74

 
87

Service receivables
20

 
18

Other receivables
1

 

Total accounts receivable
$
95


105




Deferred Revenues
Our deferred revenues represent payments received from our customers, mainly Phillips 66, in advance of the period in which lease and service contract performance obligations have been fulfilled. The majority of our deferred revenues relate to a tolling agreement and a storage agreement that are classified as leases. The remainder of our deferred revenues relate to lease and service agreements that contain minimum volume commitments with recovery provisions. Our deferred revenues are recorded in the “Deferred revenues” and “Other liabilities” line items on our consolidated balance sheet.
Total deferred revenues under our lease and service agreements were as follows:
 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Deferred lease revenues
$
41

 
41

Deferred service revenues
2

 
1

Total deferred revenues
$
43


42




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Future Minimum Lease Payments from Customers
At March 31, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:
 
Millions
of Dollars

 
 
Remainder of 2020
$
527

2021
698

2022
685

2023
642

2024
521

Remaining years
1,386

Total future minimum lease payments from customers
$
4,459



Remaining Performance Obligations
We typically have long-term service contracts with our customers, of which the original durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 11 years. These contracts include both fixed and variable transaction price components. At March 31, 2020, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:

 
Millions
of Dollars

 
 
Remainder of 2020
$
109

2021
137

2022
136

2023
136

2024
116

Remaining years
671

Total future service revenues
$
1,305




For the remaining service performance obligations, we applied the exemption for variable prices allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer distinct services as part of a performance obligation.



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Note 4—Equity Investments and Loans

Equity Investments
The following table summarizes the carrying value of our equity investments:

 
 
 
Millions of Dollars
 
Percentage Ownership

 
March 31
2020

 
December 31
2019

 
 
 
 
 
 
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)
25.00
%
 
$
595

 
592

Bayou Bridge Pipeline, LLC (Bayou Bridge)
40.00

 
296

 
294

DCP Sand Hills Pipeline, LLC (Sand Hills)
33.34

 
598

 
595

DCP Southern Hills Pipeline, LLC (Southern Hills)
33.34

 
218

 
215

Explorer Pipeline Company (Explorer)
21.94

 
102

 
105

Gray Oak Pipeline, LLC
65.00

 
799

 
759

Liberty Pipeline LLC (Liberty)
50.00

 
103

 

Paradigm Pipeline LLC (Paradigm)
50.00

 
143

 
143

Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)
70.00

 
67

 
70

South Texas Gateway Terminal LLC (South Texas Gateway Terminal)
25.00

 
102

 
74

STACK Pipeline LLC (STACK)
50.00

 
113

 
114

Total equity investments
 
 
$
3,136

 
2,961




Earnings from our equity investments were as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Bakken Pipeline
$
57

 
51

Bayou Bridge
10

 
4

Sand Hills
41

 
36

Southern Hills
11

 
13

Explorer
7

 
3

Gray Oak Pipeline, LLC
5

 

Liberty

 

Paradigm
4

 
3

Phillips 66 Partners Terminal

 
6

South Texas Gateway Terminal

 

STACK
1

 
3

Total equity in earnings of affiliates
$
136

 
119





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Liberty
In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility and closed on March 2, 2020. Liberty was formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.
 
Liberty is considered a variable interest entity (VIE) because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. At March 31, 2020, our maximum exposure to loss was $103 million, which represented the aggregate book value of our equity investment in Liberty. At March 31, 2020, Phillips 66 had an outstanding guarantee of $113 million to vendors for our proportionate share of the payment of certain purchase obligations of Liberty.

Gray Oak Pipeline, LLC
We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. After deducting a co-venturer’s pending acquisition of a 35% interest in the consolidated holding company, we have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At March 31, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.

Gray Oak Pipeline, LLC is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturers jointly direct the activities of Gray Oak Pipeline, LLC that most significantly impact economic performance. At March 31, 2020, our maximum exposure to loss was $1,382 million, which represented our guarantee of the third-party term loan facility of $583 million and the aggregate book value of our equity method investment in Gray Oak Pipeline, LLC of $799 million.

Bakken Pipeline
In March 2019, a wholly owned subsidiary of Dakota Access, LLC (Dakota Access) closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. Dakota Access and Energy Transfer Crude Oil Company, LLC (ETCO) have guaranteed repayment of the notes.  In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering.  Under the CECU, if Dakota Access receives an unfavorable court ruling in the litigation related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Our share of the maximum potential equity contributions under the CECU is approximately $631 million at March 31, 2020. In March 2020, the court in such litigation requested an Environmental Impact Statement from the U.S. Army Corps of Engineers, and requested additional information to make a further decision regarding whether the

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Dakota Access Pipeline should be shut down while the Environmental Impact Statement is being prepared. Currently, this ruling does not have any immediate impact on the operations of Dakota Access and ETCO.

Summarized financial information for 100% of Dakota Access is as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Revenues
$
258

 
236

Income before income taxes
186

 
157

Net income
186

 
157




Note 5—Net Income Per Limited Partner Unit

Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three months ended March 31, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

Net income earned by the Partnership is allocated between the classes of participating securities in accordance with our partnership agreement, after giving effect to priority income allocations to the holders of the preferred units. First, earnings are allocated based on actual cash distributions declared to our unitholders. To the extent net income exceeds or is less than cash distributions declared, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings. For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions which would not have been paid after conversion. 

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Net income
$
226

 
198

Less:
 
 
 
General partner’s distributions declared (including IDRs)*

 
69

Limited partners’ distributions declared on preferred units*
10

 
10

Limited partners’ distributions declared on common units*
199

 
105

Distributions less than net income
$
17

 
14

*Distributions declared are attributable to the indicated periods.

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Limited Partners’
Common Units

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2020
 
 
 
Net income (millions):
 
 
 
Distributions declared
$
199

10

209

Distributions less than (more than) net income
17


17

Net income (basic)
216

10

226

Dilutive effect of preferred units
10

 
 
Net income (diluted)
$
226

 
 
 
 
 
 
Weighted-average units outstanding—basic
228,312,261

 
 
Dilutive effect of preferred units
13,819,791

 
 
Weighted-average units outstanding—diluted
242,132,052

 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.95

 
 
Net income per limited partner unit—diluted (dollars)
0.93

 
 


 
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2019
 
 
 
 
Net income (millions):
 
 
 
 
Distributions declared
$
105

69

10

184

Distributions less than net income
14



14

Net income (basic)
119

69

10

198

Dilutive effect of preferred units*
8

 
 
 
Net income (diluted)
$
127

 
 
 
 
 
 
 
 
Weighted-average units outstanding—basic
124,257,933

 
 
 
Dilutive effect of preferred units*
13,819,791

 
 
 
Weighted-average units outstanding—diluted
138,077,724

 
 
 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.96

 
 
 
Net income per limited partner unit—diluted (dollars)
0.92

 
 
 
*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.



On April 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit which, excluding distributions to holders of our preferred units, will result in a total distribution of $199 million attributable to the first quarter of 2020. This distribution is payable on May 14, 2020, to unitholders of record as of May 1, 2020.



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Note 6—Properties, Plants and Equipment

Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Land
$
19

 
19

Buildings and improvements
94

 
94

Pipelines and related assets*
1,447

 
1,424

Terminals and related assets*
761

 
741

Rail racks and related assets*
137

 
137

Processing and related assets*
1,047

 
1,041

Caverns and related assets*
585

 
585

Construction-in-progress
409

 
367

Gross PP&E
4,499

 
4,408

Accumulated depreciation
(1,089
)
 
(1,059
)
Net PP&E
$
3,410

 
3,349

*Assets for which we are the lessor.


Note 7—Debt

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
2.450% Senior Notes due December 2024
$
300

 
300

3.605% Senior Notes due February 2025
500

 
500

3.550% Senior Notes due October 2026
500

 
500

3.750% Senior Notes due March 2028
500

 
500

3.150% Senior Notes due December 2029
600

 
600

4.680% Senior Notes due February 2045
450

 
450

4.900% Senior Notes due October 2046
625

 
625

Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at
March 31, 2020, and December 31, 2019, respectively
75

 
75

Debt at face value
3,550

 
3,550

Net unamortized discounts and debt issuance costs
(34
)
 
(34
)
Total debt
3,516

 
3,516

Short-term debt
(25
)
 
(25
)
Long-term debt
$
3,491

 
3,491




The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified in level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was $3,083 million and $3,650 million at March 31, 2020, and December 31, 2019, respectively. The fair value of our floating-rate debt approximated carrying value of $75 million at March 31, 2020, and December 31, 2019.


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At March 31, 2020, and December 31, 2019, no amount had been directly drawn under our $750 million revolving credit facility; however, $3 million and $1 million in letters of credit had been issued under this facility at March 31, 2020, and December 31, 2019, respectively.

On April 1, 2020, we repaid at maturity a $25 million tranche of tax-exempt bonds that was included in short-term debt at March 31, 2020.


Note 8—Contingencies

From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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 less than certain.

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 any 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.

Environmental
We are subject to federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of March 31, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters.


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Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize noncash expenses and associated noncash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.


Note 9—Equity

ATM Programs
We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. For the three months ended March 31, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units under our ATM programs, generating net proceeds of $2 million. For the three months ended March 31, 2019, we issued an aggregate of 622,032 common units under our ATM programs, generating net proceeds of $32 million. Since inception in June 2016 through March 31, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.


Note 10—Related Party Transactions

Commercial Agreements
We have entered into long-term, fee-based commercial agreements with Phillips 66 to provide transportation, terminaling, storage, stevedoring, fractionation, processing, and rail terminal services. Under these agreements, Phillips 66 commits to provide us with minimum transportation, throughput or storage volumes, or minimum monthly service fees. If Phillips 66 does not meet its minimum volume commitments under an agreement, Phillips 66 pays us a deficiency payment based on the calculation described in the agreement.

Amended and Restated Operational Services Agreement
Under our amended and restated operational services agreement, we reimburse Phillips 66 for certain operational services provided in support of our pipelines, terminaling, processing, and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.

Amended Omnibus Agreement
The amended omnibus agreement addresses our payment of an operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.

The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We pay Phillips 66 an operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million per month.


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We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.

Tax Sharing Agreement
Under our tax sharing agreement, we reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66. Any reimbursement is limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe no tax; however, we would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had no cash expense for that period.

Related Party Transactions
Significant related party transactions included in our total costs and expenses were:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Operating and maintenance expenses
$
48

 
105

General and administrative expenses
17

 
17

Total
$
65

 
122




Other related party balances were included in the following line items on our consolidated balance sheet, all of which were related to commercial agreements with Phillips 66:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Prepaid expenses and other current assets
$
12

 
7

Other assets
48

 
44

Deferred revenues
18

 
16

Other current liabilities
1

 
1

Other liabilities
68

 
70




Equity Affiliate Arrangements
In March 2019, we and our co-venturers in Dakota Access provided a CECU in conjunction with an unsecured senior notes offering. See Note 4—Equity Investments and Loans, for additional information.

In June 2019, we issued a guarantee through an equity contribution agreement for 42.25% of the third-party term loan facility for Gray Oak Pipeline, LLC. See Note 4—Equity Investments and Loans, for additional information.



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Note 11—Cash Flow Information

Capital Expenditures and Investments
Our capital expenditures and investments consisted of:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Cash capital expenditures and investments
$
236

 
634

Change in capital expenditure accruals
(2
)
 
(2
)
Total capital expenditures and investments
$
234

 
632





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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance, financial condition, and of 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 report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Partnership does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Partnership’s disclosures under the heading: “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”


BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

Partnership Overview
We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL.

Our common units trade on the New York Stock Exchange under the symbol PSXP.

How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance, including: (1) volumes handled; (2) operating and maintenance expenses; (3) net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5) distributable cash flow.

Volumes Handled
The amount of revenue we generate primarily depends on the volumes of crude oil, refined petroleum products and NGL that we handle in our pipeline, terminal, rail rack, processing, storage and fractionator systems. In addition, our equity affiliates generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. These volumes are primarily affected by the supply of, and demand for, crude oil, refined petroleum products and NGL in the markets served directly or indirectly by our assets, as well as the operational status of the refineries served by our assets. Phillips 66 has committed to minimum throughput volumes under many of our commercial agreements.

Operating and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. Operating and maintenance expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities,

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particularly maintenance activities, performed during the period. Although we seek to manage our maintenance expenditures on our facilities to avoid significant variability in our quarterly cash flows, we balance this approach with our high standards of safety and environmental stewardship, such that critical maintenance is regularly performed.

Our operating and maintenance expenses are also affected by volumetric gains/losses resulting from variances in meter readings and other measurement methods, as well as volume fluctuations due to pressure and temperature changes. Under certain commercial agreements with Phillips 66, the value of any crude oil, refined petroleum product and NGL volumetric gains and losses are determined by reference to the monthly average reference price for the applicable commodity. Any gains/losses under these provisions decrease or increase, respectively, our operating and maintenance expenses in the period in which they are realized. These contractual volumetric gain/loss provisions could increase variability in our operating and maintenance expenses.

EBITDA, Adjusted EBITDA and Distributable Cash Flow
We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization.

Adjusted EBITDA is EBITDA, further adjusted for:

The proportional share of equity affiliates’ net interest expense, income taxes and depreciation and amortization.

Transaction costs associated with acquisitions.

Certain other noncash items, including expenses indemnified by Phillips 66.

Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, (iv) income taxes paid and (v) preferred unit distributions, plus adjustments for deferred revenue impacts.

EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made in accordance with generally accepted accounting principles in the United States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management believes external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:

Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.

The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.

Our ability to incur and service debt and fund capital expenditures.

The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.



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Business Environment
Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of crude oil, refined petroleum products and NGL, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Our throughput volumes primarily depend on the volume of crude oil processed and refined petroleum products produced at Phillips 66’s owned or operated refineries with which our assets are integrated. These volumes are primarily dependent on Phillips 66’s refining margins and maintenance schedules. Refining margins depend on the price of crude oil or other feedstocks and the price of refined petroleum products. These prices are affected by numerous factors beyond our or Phillips 66’s control, including the domestic and global supply of and demand for crude oil and refined petroleum products. Throughput volumes of our equity affiliates primarily depend on upstream drilling activities, refinery performance and product supply and demand.

The global markets for crude oil and petroleum products were materially disrupted during the first quarter of 2020 by two significant events:

The outbreak of the Coronavirus Disease 2019 (COVID-19) and its development into a pandemic resulted in significant economic disruption globally. Actions taken by governments to prevent the spread of the disease included severe travel and business restrictions, which resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. This drop in demand led refiners to reduce crude oil processing rates and eventually to lower crude oil demand and prices.

The dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries (OPEC), including Saudi Arabia, resulted in an oversupply of crude oil, which exacerbated the decline in crude oil prices and eventually led to lower petroleum product prices as well.

We expect these events may result in reduced transportation and terminaling volumes in the near term.  In March 2020, we announced that we were reducing our planned capital spending in 2020, including deferring the Liberty Pipeline project and postponing a final investment decision on the ACE Pipeline.

OPEC has agreed to crude oil production cuts into 2022, but the near-term outlook for petroleum product demand remains highly uncertain, prices remain volatile, and margins and volumes remain challenged. The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. However, the adverse economic effects on our customers, including Phillips 66, will likely be significant in the near term.

While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations through the minimum volume commitments in our commercial agreements with Phillips 66 and a majority of our joint ventures during the respective terms of those agreements, our ability to execute our growth strategy will depend, in part, on the availability of attractively priced crude oil in the areas served by our crude oil pipelines and rail racks, demand for refined petroleum products in the markets served by our refined petroleum product pipelines and terminals, and the general demand for midstream services, including NGL transportation and fractionation.



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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three months ended March 31, 2020, is based on a comparison with the corresponding period of 2019.

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

Revenues and Other Income
 
 
 
Operating revenues—related parties
$
258

 
296

Operating revenues—third parties
9

 
6

Equity in earnings of affiliates
136

 
119

Other income
1

 
2

Total revenues and other income
404

 
423

 
 
 
 
Costs and Expenses
 
 
 
Operating and maintenance expenses
88

 
139

Depreciation
30

 
29

General and administrative expenses
17

 
18

Taxes other than income taxes
11

 
11

Interest and debt expense
29

 
27

Other expenses
2

 

Total costs and expenses
177

 
224

Income before income taxes
227

 
199

Income tax expense
1

 
1

Net income
226

 
198

Less: Preferred unitholders’ interest in net income
10

 
10

Less: General partner’s interest in net income

 
69

Limited partners’ interest in net income
$
216

 
119

 
 
 
 
Net cash provided by operating activities
$
274

 
205

 
 
 
 
Adjusted EBITDA
$
321

 
281

 
 
 
 
Distributable cash flow
$
269

 
226


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Three Months Ended
March 31
 
2020

 
2019

Wholly Owned Operating Data
 
 
 
Pipelines
 
 
 
Pipeline revenues (millions of dollars)
$
111

 
109

Pipeline volumes(1) (thousands of barrels daily)
 
 
 
Crude oil
941

 
959

Refined petroleum products and NGL
866

 
768

Total
1,807

 
1,727

 
 
 
 
Average pipeline revenue per barrel (dollars)
$
0.67

 
0.70

 
 
 
 
Terminals
 
 
 
Terminal revenues (millions of dollars)
$
43

 
40

Terminal throughput (thousands of barrels daily)
 
 
 
Crude oil(2)
460

 
471

Refined petroleum products
748

 
736

Total
1,208

 
1,207

 
 
 
 
Average terminaling revenue per barrel (dollars)
$
0.39

 
0.36

 
 
 
 
Storage, processing and other revenues (millions of dollars)
$
113

 
153

Total operating revenues (millions of dollars)
$
267

 
302

 
 
 
 
Joint Venture Operating Data(3)
 
 
 
Crude oil, refined petroleum products and NGL (thousands of barrels daily)
838

 
687

(1) Represents the sum of volumes transported through each separately tariffed pipeline segment.
(2) Bayway and Ferndale rail rack volumes included in crude oil terminals.
(3) Proportional share of total pipeline and terminal volumes of joint ventures consistent with recognized equity in earnings of affiliates.



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The following tables present reconciliations of EBITDA and adjusted EBITDA to net income, and EBITDA and distributable cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
 
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

Reconciliation to Net Income
 
 
 
Net income
$
226

 
198

Plus:
 
 
 
Depreciation
30

 
29

Net interest expense
28

 
27

Income tax expense
1

 
1

EBITDA
285

 
255

Plus:
 
 
 
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization
35

 
26

Expenses indemnified or prefunded by Phillips 66

 

Transaction costs associated with acquisitions
1

 

Adjusted EBITDA
321

 
281

Plus:
 
 
 
Deferred revenue impacts*
2

 

Less:
 
 
 
Equity affiliate distributions less than proportional EBITDA
1

 
9

Maintenance capital expenditures
15

 
9

Net interest expense
28

 
27

Preferred unit distributions
10

 
10

Distributable cash flow
$
269

 
226

*Difference between cash receipts and revenue recognition.
Excludes Merey Sweeny capital reimbursements and turnaround impacts.

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Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

Reconciliation to Net Cash Provided by Operating Activities
 
 
 
Net cash provided by operating activities
$
274

 
205

Plus:
 
 
 
Net interest expense
28

 
27

Income tax expense
1

 
1

Changes in working capital
(12
)
 
34

Undistributed equity earnings
(4
)
 
(2
)
Deferred revenues and other liabilities

 
(9
)
Other
(2
)
 
(1
)
EBITDA
285

 
255

Plus:
 
 
 
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization
35

 
26

Expenses indemnified or prefunded by Phillips 66

 

Transaction costs associated with acquisitions
1

 

Adjusted EBITDA
321

 
281

Plus:
 
 
 
Deferred revenue impacts*
2

 

Less:
 
 
 
Equity affiliate distributions less than proportional EBITDA
1

 
9

Maintenance capital expenditures
15

 
9

Net interest expense
28

 
27

Preferred unit distributions
10

 
10

Distributable cash flow
$
269

 
226

*Difference between cash receipts and revenue recognition.
Excludes Merey Sweeny capital reimbursements and turnaround impacts.


Statement of Income Analysis

Operating revenues decreased $35 million, or 12%, in the first quarter of 2020. The decrease was attributable to the recognition of deferred revenues in the first quarter of 2019 related to turnaround activity at Merey Sweeny LLC (Merey Sweeny), partially offset by higher volumes on wholly owned assets during the three-month period of 2020.

Equity in earnings of affiliates increased $17 million, or 14%, in the first quarter of 2020. The increase was attributable to higher earnings from Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO), Bayou Bridge Pipeline, LLC, Gray Oak Pipeline, LLC and DCP Sand Hills Pipeline, LLC, primarily due to improved volumes. These higher earnings were partially offset by a decrease in earnings from Phillips 66 Partners Terminal due to lower contractual rates.

Operating and maintenance expenses decreased by $51 million, or 37%, in the first quarter of 2020. The decrease was primarily due to turnaround activity at Merey Sweeny in 2019.


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CAPITAL RESOURCES AND LIQUIDITY
Significant Sources of Capital
Our sources of liquidity include cash generated from operations, distributions from our equity affiliates, borrowings from related parties and under our revolving credit facility, issuances of additional debt and equity securities, and funding from joint venture partners. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and our quarterly cash distributions.

Operating Activities
We generated $274 million in cash from operations during the first three months of 2020, an improvement over cash from operations of $205 million for the corresponding period of 2019. The improvement was primarily driven by lower deferred revenue impacts, lower operating and maintenance expenses and higher distributions from equity affiliates.

Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first three months of 2020, cash from operations included distributions of $141 million from our equity affiliates, compared with $121 million during the same period of 2019. We cannot control the amount or timing of future dividends from equity affiliates; therefore, future dividend payments by these and other equity affiliates are not assured.

ATM Programs
We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. For the three months ended March 31, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units under our ATM programs, generating net proceeds of $2 million. For the three months ended March 31, 2019, we issued an aggregate of 622,032 common units under our ATM programs, generating net proceeds of $32 million. Since inception in June 2016 through March 31, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.

Revolving Credit Facility
At March 31, 2020, and December 31, 2019, no amount had been directly drawn under our $750 million revolving credit facility; however, $3 million and $1 million in letters of credit had been issued under this facility at March 31, 2020, and December 31, 2019, respectively.

Transfer of Equity Interests
We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. After deducting a co-venturer’s pending acquisition of a 35% interest in the consolidated holding company, we have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

See Note 4—Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information regarding these transactions.


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Shelf Registration
We have a universal shelf registration statement on file with the U.S. Securities and Exchange Commission (SEC) under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units representing limited partner interests, preferred units representing limited partner interests, and debt securities.


Off-Balance Sheet Arrangements
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. Dakota Access and ETCO have guaranteed repayment of the notes.  In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering.  Under the CECU, if Dakota Access receives an unfavorable court ruling in the litigation related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Our share of the maximum potential equity contributions under the CECU is approximately $631 million at March 31, 2020. In March 2020, the court in such litigation requested an Environmental Impact Statement from the U.S. Army Corps of Engineers, and requested additional information to make a further decision regarding whether the Dakota Access Pipeline should be shut down while the Environmental Impact Statement is being prepared. Currently, this ruling does not have any immediate impact on the operations of Dakota Access and ETCO.

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At March 31, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.


Capital Requirements

Liberty Acquisition
In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility and closed on March 2, 2020. Liberty Pipeline LLC was formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.

Capital Expenditures and Investments
Our operations are capital intensive and require investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational requirements of our wholly owned and joint venture entities. Our capital requirements consist of maintenance and expansion capital expenditures, as well as contributions to our joint ventures. Maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or to maintain existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business, including contributions to joint ventures that are using the contributed funds for such purposes.


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Our capital expenditures and investments represent the total spending for our capital requirements. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of consolidated capital spending funded by certain joint venture partners. Additionally, the disaggregation of adjusted capital spending between expansion and maintenance is not a distinction recognized under GAAP. We disaggregate adjusted capital spending because our partnership agreement requires that we treat expansion and maintenance capital differently for certain surplus determinations. Further, we generally fund expansion capital spending with both operating and financing cash flows and fund maintenance capital spending with operating cash flows.

Our capital expenditures and investments were:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

Capital expenditures and investments
 
 
 
Capital expenditures and investments
$
234

 
632

Capital expenditures and investments funded by certain joint venture partners*
(23
)
 
(422
)
Adjusted capital spending
$
211

 
210

 
 
 
 
Expansion
$
196

 
195

Maintenance
15

 
15

*See Note 4—Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information.


Our capital expenditures and investments for the first three months of 2020 were primarily associated with the following activities:

Contributions to Gray Oak Pipeline, LLC to progress construction of the pipeline system.

Contributions to Liberty Pipeline LLC to progress construction of the Liberty Pipeline, which will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. As discussed below, this project has been deferred.

Contributions to South Texas Gateway Terminal for construction activities related to the marine export terminal that will connect to the Gray Oak Pipeline in Corpus Christi, Texas.

Construction activities related to increasing capacity on the Sweeny to Pasadena refined petroleum products pipeline.    

Construction activities related to a new ethane pipeline from the Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi.

Construction activities related to increasing storage capacity at Clemens Caverns.

Spending associated with other return, reliability and maintenance projects.

2020 Budget Update
In late March 2020, we announced an update to the 2020 capital budget that was included in our 2019 Annual Report on Form 10-K. In response to the current challenging business environment, we reduced our 2020 capital spending plans from $962 million to $932 million. Capital spending net of cash capital contributions from certain joint venture partners (adjusted capital spending) is expected to be $863 million. The development and construction of the Liberty Pipeline system has been deferred and we are postponing our final investment decision regarding the ACE Pipeline. We will continue to fund Liberty Pipeline’s cash calls in 2020, primarily for its committed purchases from vendors.


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Cash Distributions
On April 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit which, excluding distributions to holders of our preferred units, will result in a total distribution of $199 million attributable to the first quarter of 2020. This distribution is payable on May 14, 2020, to unitholders of record as of May 1, 2020.

The holders of our preferred units are entitled to receive cumulative quarterly distributions equal to $0.678375 per preferred unit. Preferred unitholders will receive $10 million of distributions attributable to the first quarter of 2020. This distribution is payable on May 14, 2020, to preferred unitholders of record as of May 1, 2020.

Debt Repayment
On April 1, 2020, we repaid at maturity a $25 million tranche of tax-exempt bonds that was included in short-term debt at March 31, 2020.


Contingencies
From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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 less than certain.

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 any 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.

Regulatory Matters
Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and certain of our pipeline systems providing intrastate service are subject to rate regulation by applicable state authorities under their respective laws and regulations. Our pipeline, rail rack and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations.

Legal and Tax Matters
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal and tax support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal and tax organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. Phillips 66’s legal organization employs a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and recommends if adjustment of existing accruals, or establishment of new accruals, is required. As of March 31, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters.

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Environmental
We are subject to extensive federal, state and local environmental laws and regulations. These requirements, which frequently change, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment at or on our facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of governmental orders that may subject us to additional operational constraints. Future expenditures may be required to comply with the Federal Clean Air Act and other federal, state and local requirements in respect of our various sites, including our pipelines and storage assets. The impact of legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity.

As with all costs, if these expenditures are not ultimately recovered in the tariffs and other fees we receive for our services, our operating results will be adversely affected. We believe that substantially all similarly situated parties and holders of comparable assets must comply with similar environmental laws and regulations. However, the specific impact on each may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities.

We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded environmental requirements, which could increase our environmental costs, may arise in the future. We believe we are in substantial compliance with all legal obligations regarding the environment and have established the environmental accruals that are currently required; however, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed, because not all of the costs are fixed or presently determinable (even under existing legislation) and the costs may be affected by future legislation or regulations.

Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize non-cash expenses and associated non-cash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based the forward-looking statements on our current expectations, estimates and projections about us and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.
Reductions in the volume of crude oil, refined petroleum products and NGL we transport, fractionate, process, terminal and store.
Changes to the tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.
Changes in revenue we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.
Fluctuations in the prices and demand for crude oil, refined petroleum products and NGL.
Changes in global economic conditions and the effects of a global economic downturn on the business of Phillips 66 and the business of its suppliers, customers, business partners and credit lenders.
Potential liabilities associated with the risks and operational hazards inherent in transporting, fractionating, processing, terminaling and storing crude oil, refined petroleum products and NGL.
Curtailment of operations due to severe weather disruption or natural disasters; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.
Accidents or other unscheduled shutdowns affecting our pipelines, processing, fractionating, terminaling, and storage facilities or equipment, or those of our suppliers or customers.
Our inability to obtain or maintain permits in a timely manner, if at all, including those necessary for capital projects, or the revocation or modification of existing permits.
Our inability to comply with government regulations or make capital expenditures required to maintain compliance.
The failure to complete construction of announced and future capital projects in a timely manner and any cost overruns associated with such projects.
Our ability to successfully execute growth strategies, whether through organic growth or acquisitions.
The operation, financing and distribution decisions of our joint ventures.
Costs or liabilities associated with federal, state, and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.
Costs associated with compliance with evolving environmental laws and regulations on climate change.
Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.
Changes in the cost or availability of third-party vessels, pipelines, railcars and other means of delivering and transporting crude oil, refined petroleum products and NGL.
General domestic and international economic and political developments including: armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, refined petroleum products or NGL pricing, regulation or taxation; actions taken by the members of OPEC affecting the production and pricing of crude oil; and other political, economic or diplomatic developments, including those caused by public health issues and outbreaks of diseases.
Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.
Our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay.

31

Table of Contents

Our ability to incur additional indebtedness or our ability to obtain financing on terms that we deem acceptable, including the refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.
Changes in tax, environmental and other laws and regulations.
The factors generally described in “Item 1A. Risk Factors” in our 2019 Annual Report on Form 10-K filed with the SEC on February 21, 2020 and in Item 1A. of Part II of this Quarterly Report on Form 10-Q.

32

Table of Contents

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at March 31, 2020, did not differ materially from that disclosed under Item 7A of our 2019 Annual Report on Form 10-K.


Item 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our General Partner’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of March 31, 2020, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, with the participation of the General Partner’s management, carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of March 31, 2020.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

Table of Contents

PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Under our amended omnibus agreement, and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 indemnifies us or assumes responsibility for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of our assets prior to their contribution to us from Phillips 66. See Note 10—Related Party Transactions, in the Notes to Consolidated Financial Statements, for additional information.

This section identifies reportable legal proceedings attributable to the ownership or operation of our assets, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, for this reporting period. There are no new matters to report.


Item 1A.  RISK FACTORS

The following risk factor should be read in conjunction with the risk factors included in Item 1A of our 2019 Annual Report on Form 10-K.

The outbreak of Coronavirus Disease 2019 (COVID-19) has materially adversely affected, and may continue to materially adversely affect, general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and cash flows and those of our customers, suppliers and other counterparties.

The outbreak of COVID-19 is negatively impacting worldwide economic and commercial activity and financial markets. Responses of governmental authorities, companies and individuals to prevent the spread of COVID-19, including travel restrictions, business and school closures, and stay at home orders have significantly reduced global economic activity. The reduction in economic activity has resulted in substantial decreases in the demand for many refined petroleum products, which has led refiners to reduce crude oil processing rates and also to lower crude oil demand and prices. These events have negatively impacted the volumes of products we transport and terminal.

The extent to which COVID-19 will continue to negatively impact our business and operations, as well as the business and operations of our customers, including Phillips 66, will depend on the severity, location and duration of the effects and spread of COVID-19, related impacts on overall economic activity, including the actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.

To the extent COVID-19 adversely affects our business, financial condition, results of operations and liquidity, or the business, financial condition, results of operation and liquidity of our customers, including Phillips 66, counterparties or suppliers, it may also have the effect of heightening many of the other risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.



34

Table of Contents

Item 6. EXHIBITS
 
 
 
Incorporated by Reference
Exhibit
Number
 
Exhibit Description
Form
Exhibit Number
Filing Date
SEC File No.
 
 
 
 
 
 
 
 
8-K
1.1
2/25/2020
001-36011
 
 
 
 
 
 
 
 
 
As permitted by Item 601(b)(4)(iii)(A) of
Regulation S-K, the partnership has not filed with this Quarterly Report on Form 10- Q certain instruments defining the rights of holders of long-term debt of the partnership and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the partnership and its subsidiaries on a consolidated basis. The partnership agrees to furnish a copy of such agreements to the Commission upon request.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS*
 
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
 
 
 
 
 
 
 
101.SCH*
 
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
 
 
 
 
 
101.CAL*
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
 
 
 
 
 
 
101.DEF*
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
 
 
 
 
 
 
101.LAB*
 
Inline XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
 
 
 
 
 
 
 
 
101.PRE*
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
 
 
 
 
 
104*
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
 
 
 
 
 
 
 
 
 
 
* Filed herewith.

35

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

 
PHILLIPS 66 PARTNERS LP
 
 
 
By: Phillips 66 Partners GP LLC, its general partner
 
 
 
/s/ Chukwuemeka A. Oyolu
 
Chukwuemeka A. Oyolu
Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
 
 
Date: May 1, 2020

36
Exhibit
            

Exhibit 10.1

EIGHTH AMENDMENT TO THE
OMNIBUS AGREEMENT

This Eighth Amendment (this “Eighth Amendment”) to the Omnibus Agreement (as amended, the “Omnibus Agreement”) by and among Phillips 66 Company (“Company”), on behalf of itself and the other Phillips 66 Entities (as defined in the Omnibus Agreement), Phillips 66 Pipeline LLC (“Pipeline”), Phillips 66 Partners LP (the “Partnership”), Phillips 66 Partners Holdings LLC (“Holdings”), Phillips 66 Carrier LLC (“Carrier”) and Philips 66 Partners GP LLC (the “General Partner”) is dated as of the 1st day of March, 2020.

WHEREAS, the Parties entered into the First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment, and Seventh Amendment to the Omnibus Agreement effective as of March 1, 2014, December 1, 2014, March 2, 2015, March 1, 2016, October 14, 2016, November 17, 2016, and October 1, 2017 respectively; and

WHEREAS, the Parties seek to amend the Omnibus Agreement to include certain additional assets owned by the Partnership.

NOW THEREFORE, for and in consideration of the forgoing, the mutual covenants, terms and conditions of the Agreement, as amended by this Eighth Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.
Unless otherwise noted, the capitalized terms used herein shall have the definitions set forth in the Omnibus Agreement.

2.
Section 4.01(a) of the Omnibus Agreement is hereby amended and restated in its entirety as follows:

“(a)    Company agrees to provide, and agrees to cause its Affiliates to provide, on behalf of the General Partner and for the Partnership Group’s benefit, the Services (such Services to be provided, to the extent applicable, in connection with the Assets and any other assets acquired or developed by the Partnership Group from time to time). As consideration for the Services, the Partnership will pay Company an operational and administrative support fee of $7,718,668.00 per Month (as adjusted pursuant to Section 4.01(b) and (c), the “Operational and Administrative Support Fee”), payable without discount no later than the 21st Day of the Month in which Services are rendered, provided that if such Day is not a Business Day, then the Partnership shall pay such amount without interest on the next Business Day. If the Effective Date is any day other than the first day of a Month, or if this Agreement is terminated on any day other than the last day of a Month, then the Operational and Administrative Support Fee for the relevant Month shall be prorated based on the ratio of the number of days in the relevant partial Month to the number of days in the relevant full Month.”

3.
This Eighth Amendment shall be effective as of the date hereof.    

4.
Except as expressly set forth herein, all other terms and conditions of the Omnibus Agreement shall remain in full force and effect.
[Signature Pages Follow]





 


IN WITNESS WHEREOF, the duly authorized representatives of the Parties have executed this Eighth Amendment as of the date first above written.



PHILLIPS 66 COMPANY
By:
/s/ Tim Roberts
Name:
Tim Roberts
Title:
EVP, Midstream





2








PHILLIPS 66 PIPELINE LLC
By:
/s/ Todd Denton
Name:
Todd Denton
Title:
President
 
 
 
 
PHILLIPS 66 CARRIER LLC
By:
/s/ Todd Denton
Name:
Todd Denton
Title:
President


3








PHILLIPS 66 PARTNERS LP
By:
Phillips 66 Partners GP, LLC,
General Partner of Phillips 66 Partners LP
By:
/s/ Rosy Zuklic
Name:
Rosy Zuklic
Title:
Vice President and Chief Operating Officer
 
 
 
 
PHILLIPS 66 PARTNERS GP, LLC
By:
/s/ Rosy Zuklic
Name:
Rosy Zuklic
Title:
Vice President and Chief Operating Officer
 
 
 
 
PHILLIPS 66 PARTNERS HOLDINGS LLC
By:
/s/ Rosy Zuklic
Name:
Rosy Zuklic
Title:
Vice President


4

Exhibit
Exhibit 31.1

CERTIFICATION

I, Greg C. Garland, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Phillips 66 Partners LP;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2020
 
/s/ Greg C. Garland
 
Greg C. Garland
 
Chairman of the Board of Directors and
Chief Executive Officer
 
Phillips 66 Partners GP LLC
(the general partner of Phillips 66 Partners LP)

Exhibit
Exhibit 31.2

CERTIFICATION

I, Kevin J. Mitchell, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Phillips 66 Partners LP;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 1, 2020
 
/s/ Kevin J. Mitchell
 
Kevin J. Mitchell
 
Director, Vice President and
Chief Financial Officer
 
Phillips 66 Partners GP LLC
(the general partner of Phillips 66 Partners LP)

Exhibit
Exhibit 32




CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350


In connection with the Quarterly Report of Phillips 66 Partners LP (the Partnership) on Form 10-Q for the period ended March 31, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof (the Report), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:

(1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.


Date: May 1, 2020



 
/s/ Greg C. Garland
 
Greg C. Garland
 
 
 
Chairman of the Board of Directors and
 Chief Executive Officer
 
Phillips 66 Partners GP LLC
(the general partner of Phillips 66 Partners LP)




 
/s/ Kevin J. Mitchell
 
Kevin J. Mitchell
 
 
 
Director, Vice President and
Chief Financial Officer
 
Phillips 66 Partners GP LLC
(the general partner of Phillips 66 Partners LP)




v3.20.1
Equity
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Equity
Note 9—Equity

ATM Programs
We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. For the three months ended March 31, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units under our ATM programs, generating net proceeds of $2 million. For the three months ended March 31, 2019, we issued an aggregate of 622,032 common units under our ATM programs, generating net proceeds of $32 million. Since inception in June 2016 through March 31, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.
v3.20.1
Net Income Per Limited Partner Unit
3 Months Ended
Mar. 31, 2020
Partners' Capital Notes [Abstract]  
Net Income Per Limited Partner Unit
Note 5—Net Income Per Limited Partner Unit

Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three months ended March 31, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

Net income earned by the Partnership is allocated between the classes of participating securities in accordance with our partnership agreement, after giving effect to priority income allocations to the holders of the preferred units. First, earnings are allocated based on actual cash distributions declared to our unitholders. To the extent net income exceeds or is less than cash distributions declared, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings. For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions which would not have been paid after conversion. 

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Net income
$
226

 
198

Less:
 
 
 
General partner’s distributions declared (including IDRs)*

 
69

Limited partners’ distributions declared on preferred units*
10

 
10

Limited partners’ distributions declared on common units*
199

 
105

Distributions less than net income
$
17

 
14

*Distributions declared are attributable to the indicated periods.
 
Limited Partners’
Common Units

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2020
 
 
 
Net income (millions):
 
 
 
Distributions declared
$
199

10

209

Distributions less than (more than) net income
17


17

Net income (basic)
216

10

226

Dilutive effect of preferred units
10

 
 
Net income (diluted)
$
226

 
 
 
 
 
 
Weighted-average units outstanding—basic
228,312,261

 
 
Dilutive effect of preferred units
13,819,791

 
 
Weighted-average units outstanding—diluted
242,132,052

 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.95

 
 
Net income per limited partner unit—diluted (dollars)
0.93

 
 


 
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2019
 
 
 
 
Net income (millions):
 
 
 
 
Distributions declared
$
105

69

10

184

Distributions less than net income
14



14

Net income (basic)
119

69

10

198

Dilutive effect of preferred units*
8

 
 
 
Net income (diluted)
$
127

 
 
 
 
 
 
 
 
Weighted-average units outstanding—basic
124,257,933

 
 
 
Dilutive effect of preferred units*
13,819,791

 
 
 
Weighted-average units outstanding—diluted
138,077,724

 
 
 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.96

 
 
 
Net income per limited partner unit—diluted (dollars)
0.92

 
 
 
*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.



On April 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit which, excluding distributions to holders of our preferred units, will result in a total distribution of $199 million attributable to the first quarter of 2020. This distribution is payable on May 14, 2020, to unitholders of record as of May 1, 2020.
v3.20.1
Equity Investments and Loans (Narrative) (Details) - USD ($)
1 Months Ended 3 Months Ended
Feb. 29, 2020
Mar. 31, 2020
Jan. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Feb. 28, 2019
Dec. 31, 2018
Schedule of Equity Method Investments [Line Items]              
Equity investments   $ 3,136,000,000   $ 2,961,000,000      
Gray Oak Pipeline, LLC              
Schedule of Equity Method Investments [Line Items]              
Maximum equity contribution, co-venture     $ 1,379,000,000        
Dakota Access, LLC | Senior Notes              
Schedule of Equity Method Investments [Line Items]              
Debt instrument, face amount         $ 2,500,000,000    
Third Party | Gray Oak Holdings LLC              
Schedule of Equity Method Investments [Line Items]              
Aggregate contribution   $ 23,000,000          
Liberty Pipeline LLC (Liberty)              
Schedule of Equity Method Investments [Line Items]              
Ownership interest acquired, percentage   50.00%          
Maximum loss exposure, amount   $ 103,000,000          
Guarantor obligations, current carrying value   113,000,000          
Equity investments   $ 103,000,000   0      
Liberty Pipeline LLC (Liberty) | Common Control Transaction | Phillips 66 | Phillips 66 PDI              
Schedule of Equity Method Investments [Line Items]              
Controlling interest acquired, percentage 50.00%            
Business combination, consideration transferred $ 75,000,000            
Gray Oak Pipeline, LLC              
Schedule of Equity Method Investments [Line Items]              
Ownership interest acquired, percentage   65.00%       65.00%  
Effective ownership interest   42.25%          
Maximum exposure   $ 583,000,000          
Maximum loss exposure, amount   1,382,000,000          
Guarantor obligations, current carrying value   583,000,000          
Equity investments   799,000,000   $ 759,000,000      
Gray Oak Holdings LLC | Third Party              
Schedule of Equity Method Investments [Line Items]              
Percentage of ownership             35.00%
Dakota Access and ETCO              
Schedule of Equity Method Investments [Line Items]              
Maximum exposure, undiscounted, co-venturers         $ 2,525,000,000    
Maximum exposure, undiscounted   $ 631,000,000          
v3.20.1
Operating Revenues (Operating Revenues) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues $ 267 $ 302
Lease revenues    
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues 218 257
Service revenues    
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues $ 49 $ 45
v3.20.1
Operating Revenues (Narrative) (Details)
3 Months Ended
Mar. 31, 2020
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]  
Customer contracts, average remaining duration 11 years
Minimum  
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]  
Customer contracts, term 5 years
Maximum  
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]  
Customer contracts, term 15 years
v3.20.1
Related Party Transactions (Summary of Related Party Transactions) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Related Party Transactions [Abstract]    
Operating and maintenance expenses $ 48 $ 105
General and administrative expenses 17 17
Total $ 65 $ 122
v3.20.1
Net Income Per Limited Partner Unit (Schedule of Earnings Per unit of our Limited Partners) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Limited Partners' Capital Account [Line Items]    
Net income $ 226 $ 198
Less:    
Distributions declared 209 184
Distributions less than net income 17 14
General Partner    
Limited Partners' Capital Account [Line Items]    
Net income   69
Less:    
Distributions declared 0 69
Preferred Units | Limited Partner    
Limited Partners' Capital Account [Line Items]    
Net income 10 10
Less:    
Distributions declared 10 10
Common Units | Limited Partner    
Limited Partners' Capital Account [Line Items]    
Net income 216 119
Less:    
Distributions declared $ 199 $ 105
v3.20.1
Debt (Summary of Long-Term Debt) (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Debt at face value $ 3,550 $ 3,550
Net unamortized discounts and debt issuance costs (34) (34)
Total debt 3,516 3,516
Short-term debt (25) (25)
Long-term debt 3,491 3,491
Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at March 31, 2020, and December 31, 2019, respectively    
Debt Instrument [Line Items]    
Long-term debt, gross $ 75 $ 75
Interest rate, stated percentage 1.465% 1.85%
Senior Notes | 2.450% Senior Notes due December 2024    
Debt Instrument [Line Items]    
Long-term debt, gross $ 300 $ 300
Interest rate, stated percentage 2.45%  
Senior Notes | 3.605% Senior Notes due February 2025    
Debt Instrument [Line Items]    
Long-term debt, gross $ 500 500
Interest rate, stated percentage 3.605%  
Senior Notes | 3.550% Senior Notes due October 2026    
Debt Instrument [Line Items]    
Long-term debt, gross $ 500 500
Interest rate, stated percentage 3.55%  
Senior Notes | 3.750% Senior Notes due March 2028    
Debt Instrument [Line Items]    
Long-term debt, gross $ 500 500
Interest rate, stated percentage 3.75%  
Senior Notes | 3.150% Senior Notes due December 2029    
Debt Instrument [Line Items]    
Long-term debt, gross $ 600 600
Interest rate, stated percentage 3.15%  
Senior Notes | 4.680% Senior Notes due February 2045    
Debt Instrument [Line Items]    
Long-term debt, gross $ 450 450
Interest rate, stated percentage 4.68%  
Senior Notes | 4.900% Senior Notes due October 2046    
Debt Instrument [Line Items]    
Long-term debt, gross $ 625 $ 625
Interest rate, stated percentage 4.90%  
v3.20.1
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash Flows From Operating Activities    
Net income $ 226 $ 198
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation 30 29
Undistributed equity earnings 4 2
Other 2 10
Working capital adjustments    
Accounts receivable 10 4
Prepaid expenses and other current assets (4) 9
Accounts payable (3) (4)
Accrued interest 4 (5)
Deferred revenues 3 (40)
Other accruals 2 2
Net Cash Provided by Operating Activities 274 205
Cash Flows From Investing Activities    
Cash capital expenditures and investments (236) (634)
Liberty acquisition (75)  
Return of investment from equity affiliates 38 20
Proceeds from sale of equity interest 0 81
Net Cash Used in Investing Activities (273) (533)
Cash Flows From Financing Activities    
Net proceeds from equity interest transfer 12 341
Issuance of debt 0 725
Repayment of debt 0 (585)
Issuance of common units 2 32
Other distributions to Phillips 66 0 (4)
Net Cash Provided by (Used in) Financing Activities (195) 329
Net Change in Cash and Cash Equivalents (194) 1
Cash and cash equivalents at beginning of period 286 1
Cash and Cash Equivalents at End of Period 92 2
Preferred Units    
Cash Flows From Financing Activities    
Quarterly distributions to unitholders (9) (9)
Public | Common Units    
Cash Flows From Financing Activities    
Quarterly distributions to unitholders (51) (46)
General Partner    
Cash Flows From Financing Activities    
Quarterly distributions to unitholders 0 (67)
Phillips 66 | Non-public | Common Units    
Cash Flows From Financing Activities    
Quarterly distributions to unitholders $ (149) $ (58)
v3.20.1
Consolidated Statement of Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues and Other Income    
Operating revenues $ 267 $ 302
Equity in earnings of affiliates 136 119
Other income 1 2
Total revenues and other income 404 423
Costs and Expenses    
Operating and maintenance expenses 88 139
Depreciation 30 29
General and administrative expenses 17 18
Taxes other than income taxes 11 11
Interest and debt expense 29 27
Other expenses 2 0
Total costs and expenses 177 224
Income before income taxes 227 199
Income tax expense 1 1
Net Income 226 198
Less: Preferred unitholders’ interest in net income 10 10
Less: General partner’s interest in net income 0 69
Limited partners’ interest in net income $ 216 $ 119
Common Units    
Net Income Per Limited Partner Unit (dollars)    
Common units - basic (in dollars per share) $ 0.95 $ 0.96
Common units - diluted (in dollars per share) $ 0.93 $ 0.92
Weighted-Average Limited Partner Units Outstanding (thousands)    
Common units—basic (in shares) 228,312,261 124,257,933
Common units—diluted (in shares) 242,132,000 138,078,000
Affiliated Entity    
Revenues and Other Income    
Operating revenues $ 258 $ 296
Third Party    
Revenues and Other Income    
Operating revenues $ 9 $ 6
v3.20.1
Debt (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Schedule of Debt
 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
2.450% Senior Notes due December 2024
$
300

 
300

3.605% Senior Notes due February 2025
500

 
500

3.550% Senior Notes due October 2026
500

 
500

3.750% Senior Notes due March 2028
500

 
500

3.150% Senior Notes due December 2029
600

 
600

4.680% Senior Notes due February 2045
450

 
450

4.900% Senior Notes due October 2046
625

 
625

Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at
March 31, 2020, and December 31, 2019, respectively
75

 
75

Debt at face value
3,550

 
3,550

Net unamortized discounts and debt issuance costs
(34
)
 
(34
)
Total debt
3,516

 
3,516

Short-term debt
(25
)
 
(25
)
Long-term debt
$
3,491

 
3,491


v3.20.1
Operating Revenues (Tables)
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Disaggregation of Revenue
Total operating revenues disaggregated by asset type were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Pipelines
$
111

 
109

Terminals
43

 
40

Storage, processing and other revenues
113

 
153

Total operating revenues
$
267

 
302


Total operating revenues disaggregated by lease and service revenues were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Lease revenues
$
218

 
257

Service revenues
49

 
45

Total operating revenues
$
267

 
302




Accounts Receivable
Total accounts receivable by revenue type was as follows:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Lease receivables
$
74

 
87

Service receivables
20

 
18

Other receivables
1

 

Total accounts receivable
$
95


105


Deferred Revenues
Total deferred revenues under our lease and service agreements were as follows:
 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Deferred lease revenues
$
41

 
41

Deferred service revenues
2

 
1

Total deferred revenues
$
43


42



Schedule of Future Minimum Payments Receivable
At March 31, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:
 
Millions
of Dollars

 
 
Remainder of 2020
$
527

2021
698

2022
685

2023
642

2024
521

Remaining years
1,386

Total future minimum lease payments from customers
$
4,459


Expected Timing of Satisfaction At March 31, 2020, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:

 
Millions
of Dollars

 
 
Remainder of 2020
$
109

2021
137

2022
136

2023
136

2024
116

Remaining years
671

Total future service revenues
$
1,305




v3.20.1
Operating Revenues (Revenues Disaggregated) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues $ 267 $ 302
Pipelines    
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues 111 109
Terminals    
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues 43 40
Storage, processing and other revenues    
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]    
Operating revenues $ 113 $ 153
v3.20.1
Net Income Per Limited Partner Unit (Schedule of Net Income By Class of Participating Securities) (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Limited Partners' Capital Account [Line Items]    
Distributions declared $ 209 $ 184
Distributions less than (more than) net income 17 14
Net income (basic) $ 226 $ 198
Common Units    
Limited Partners' Capital Account [Line Items]    
Weighted-average units outstanding—basic (in shares) 228,312,261 124,257,933
Dilutive effect of preferred units (in shares) 13,819,791 13,819,791
Weighted-average units outstanding—diluted (in shares) 242,132,052 138,077,724
Net income per limited partner unit—basic (in dollars per share) $ 0.95 $ 0.96
Net income per limited partner unit—diluted (in dollars per share) $ 0.93 $ 0.92
Limited Partner | Common Units    
Limited Partners' Capital Account [Line Items]    
Distributions declared $ 199 $ 105
Distributions less than (more than) net income 17 14
Net income (basic) 216 119
Dilutive effect of preferred units 10 8
Net income (diluted) 226 127
Limited Partner | Preferred Units    
Limited Partners' Capital Account [Line Items]    
Distributions declared 10 10
Distributions less than (more than) net income 0 0
Net income (basic) 10 10
General Partner    
Limited Partners' Capital Account [Line Items]    
Distributions declared $ 0 69
Distributions less than (more than) net income   0
Net income (basic)   $ 69
v3.20.1
Debt (Narrative) (Details) - USD ($)
3 Months Ended
Apr. 01, 2020
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Jul. 30, 2019
Debt Instrument [Line Items]          
Short-term debt   $ 25,000,000   $ 25,000,000  
Letters of credit outstanding, amount   3,000,000   1,000,000  
Repayments of Debt   0 $ 585,000,000    
Revolving Credit Facility          
Debt Instrument [Line Items]          
Line of credit facility, outstanding   0   0  
Tax-Exempt Bonds          
Debt Instrument [Line Items]          
Repayments of Debt $ 25,000,000        
Credit Agreement | Revolving Credit Facility          
Debt Instrument [Line Items]          
Maximum borrowing capacity         $ 750,000,000
Fair Value, Inputs, Level 2 | Tax-Exempt Bonds          
Debt Instrument [Line Items]          
Debt instrument, fair value disclosure   75,000,000      
Fair Value, Inputs, Level 2 | Senior Notes          
Debt Instrument [Line Items]          
Debt instrument, fair value disclosure   $ 3,083,000,000   $ 3,650,000,000  
v3.20.1
Related Party Transactions (Other Related Party Balances) (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Related Party Transaction [Line Items]    
Prepaid expenses and other current assets $ 14 $ 10
Other assets 52 52
Deferred revenues 19 16
Other current liabilities 3 3
Other liabilities 93 94
Phillips 66    
Related Party Transaction [Line Items]    
Prepaid expenses and other current assets 12 7
Other assets 48 44
Deferred revenues 18 16
Other current liabilities 1 1
Other liabilities $ 68 $ 70
v3.20.1
Consolidated Statement of Changes in Equity - USD ($)
$ in Millions
Total
Accum. Other Comprehensive Loss
General Partner
Preferred Units
Public
Common Units
Public
Common Units
Non-public
Phillips 66
Beginning Balance at Dec. 31, 2018 $ 2,509 $ (1) $ (1,313) $ 746 $ 2,485 $ 592
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Issuance of common units 32       32  
Net income 198   69 10 53 66
Quarterly cash distributions to unitholders and General Partner (180)   (67) (9) (46) (58)
Other contributions to Phillips 66 (4)   (4)      
Ending Balance at Mar. 31, 2019 $ 2,554 (1) $ (1,315) $ 747 $ 2,523 $ 600
Beginning balance, Units (in shares) at Dec. 31, 2018 140,403,897   2,480,051 13,819,791 55,343,918 68,760,137
Units Outstanding [Roll Forward]            
Units issued in public equity offerings (in shares) 622,032       622,032  
Ending balance, Units (in shares) at Mar. 31, 2019 141,025,929   2,480,051 13,819,791 55,965,950 68,760,137
Beginning Balance at Dec. 31, 2019 $ 2,834 (1) $ 0 $ 746 $ 2,717 $ (628)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Issuance of common units 2       2  
Net income 226     10 55 161
Quarterly cash distributions to unitholders and General Partner (209)   $ 0 (9) (51) (149)
Ending Balance at Mar. 31, 2020 $ 2,853 $ (1)   $ 747 $ 2,723 $ (616)
Beginning balance, Units (in shares) at Dec. 31, 2019 242,119,367   0 13,819,791 58,539,439 169,760,137
Units Outstanding [Roll Forward]            
Units issued in public equity offerings (in shares) 40,570       40,570  
Ending balance, Units (in shares) at Mar. 31, 2020 242,159,937   0 13,819,791 58,580,009 169,760,137
v3.20.1
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 226 $ 198
Defined benefit plans    
Plan sponsored by equity affiliates, net of income taxes 0 0
Other comprehensive income 0 0
Comprehensive Income $ 226 $ 198
v3.20.1
Description of the Business (Details)
3 Months Ended
Mar. 31, 2020
refinery
segment
Property, Plant and Equipment [Line Items]  
Number of reportable segments | segment 1
Phillips 66  
Property, Plant and Equipment [Line Items]  
Number of refineries | refinery 9
v3.20.1
Properties, Plants and Equipment (Tables)
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Summary of Property, Plant and Equipment
Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Land
$
19

 
19

Buildings and improvements
94

 
94

Pipelines and related assets*
1,447

 
1,424

Terminals and related assets*
761

 
741

Rail racks and related assets*
137

 
137

Processing and related assets*
1,047

 
1,041

Caverns and related assets*
585

 
585

Construction-in-progress
409

 
367

Gross PP&E
4,499

 
4,408

Accumulated depreciation
(1,089
)
 
(1,059
)
Net PP&E
$
3,410

 
3,349

*Assets for which we are the lessor.

v3.20.1
Net Income Per Limited Partner Unit (Policies)
3 Months Ended
Mar. 31, 2020
Partners' Capital Notes [Abstract]  
Net Income Per Limited Partner Unit
Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three months ended March 31, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.
v3.20.1
Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Contingencies
Note 8—Contingencies

From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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 less than certain.

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 any 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.

Environmental
We are subject to federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of March 31, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters.

Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize noncash expenses and associated noncash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.
v3.20.1
Equity Investments and Loans
3 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Equity Investments and Loans
Note 4—Equity Investments and Loans

Equity Investments
The following table summarizes the carrying value of our equity investments:

 
 
 
Millions of Dollars
 
Percentage Ownership

 
March 31
2020

 
December 31
2019

 
 
 
 
 
 
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)
25.00
%
 
$
595

 
592

Bayou Bridge Pipeline, LLC (Bayou Bridge)
40.00

 
296

 
294

DCP Sand Hills Pipeline, LLC (Sand Hills)
33.34

 
598

 
595

DCP Southern Hills Pipeline, LLC (Southern Hills)
33.34

 
218

 
215

Explorer Pipeline Company (Explorer)
21.94

 
102

 
105

Gray Oak Pipeline, LLC
65.00

 
799

 
759

Liberty Pipeline LLC (Liberty)
50.00

 
103

 

Paradigm Pipeline LLC (Paradigm)
50.00

 
143

 
143

Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)
70.00

 
67

 
70

South Texas Gateway Terminal LLC (South Texas Gateway Terminal)
25.00

 
102

 
74

STACK Pipeline LLC (STACK)
50.00

 
113

 
114

Total equity investments
 
 
$
3,136

 
2,961




Earnings from our equity investments were as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Bakken Pipeline
$
57

 
51

Bayou Bridge
10

 
4

Sand Hills
41

 
36

Southern Hills
11

 
13

Explorer
7

 
3

Gray Oak Pipeline, LLC
5

 

Liberty

 

Paradigm
4

 
3

Phillips 66 Partners Terminal

 
6

South Texas Gateway Terminal

 

STACK
1

 
3

Total equity in earnings of affiliates
$
136

 
119




Liberty
In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility and closed on March 2, 2020. Liberty was formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.
 
Liberty is considered a variable interest entity (VIE) because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. At March 31, 2020, our maximum exposure to loss was $103 million, which represented the aggregate book value of our equity investment in Liberty. At March 31, 2020, Phillips 66 had an outstanding guarantee of $113 million to vendors for our proportionate share of the payment of certain purchase obligations of Liberty.

Gray Oak Pipeline, LLC
We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. After deducting a co-venturer’s pending acquisition of a 35% interest in the consolidated holding company, we have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At March 31, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.

Gray Oak Pipeline, LLC is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturers jointly direct the activities of Gray Oak Pipeline, LLC that most significantly impact economic performance. At March 31, 2020, our maximum exposure to loss was $1,382 million, which represented our guarantee of the third-party term loan facility of $583 million and the aggregate book value of our equity method investment in Gray Oak Pipeline, LLC of $799 million.

Bakken Pipeline
In March 2019, a wholly owned subsidiary of Dakota Access, LLC (Dakota Access) closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. Dakota Access and Energy Transfer Crude Oil Company, LLC (ETCO) have guaranteed repayment of the notes.  In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering.  Under the CECU, if Dakota Access receives an unfavorable court ruling in the litigation related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Our share of the maximum potential equity contributions under the CECU is approximately $631 million at March 31, 2020. In March 2020, the court in such litigation requested an Environmental Impact Statement from the U.S. Army Corps of Engineers, and requested additional information to make a further decision regarding whether the
Dakota Access Pipeline should be shut down while the Environmental Impact Statement is being prepared. Currently, this ruling does not have any immediate impact on the operations of Dakota Access and ETCO.

Summarized financial information for 100% of Dakota Access is as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Revenues
$
258

 
236

Income before income taxes
186

 
157

Net income
186

 
157


v3.20.1
Operating Revenues (Accounts Receivable) (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Revenue from External Customer [Line Items]    
Total accounts receivable $ 95 $ 105
Lease receivables    
Revenue from External Customer [Line Items]    
Total accounts receivable 74 87
Service revenues    
Revenue from External Customer [Line Items]    
Total accounts receivable 20 18
Other receivables    
Revenue from External Customer [Line Items]    
Total accounts receivable $ 1 $ 0
v3.20.1
Operating Revenues (Performance Obligations) (Details)
$ in Millions
Mar. 31, 2020
USD ($)
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 1,305
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 109
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 137
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 136
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 136
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 116
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01  
Revenue from Contract with Customer [Abstract]  
Remaining performance obligation, amount $ 671
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period
v3.20.1
Equity Investments and Loans (Schedule of Dakota Access) (Details) - Dakota Access, LLC - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Schedule of Equity Method Investments [Line Items]    
Revenues $ 258 $ 236
Income before income taxes 186 157
Net income $ 186 $ 157
v3.20.1
Cash Flow Information (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Supplemental Cash Flow Information [Abstract]    
Cash capital expenditures and investments $ 236 $ 634
Change in capital expenditure accruals (2) (2)
Total capital expenditures and investments $ 234 $ 632
v3.20.1
Properties, Plants and Equipment (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Gross PP&E $ 4,499 $ 4,408
Accumulated depreciation (1,089) (1,059)
Net PP&E 3,410 3,349
Land    
Property, Plant and Equipment [Line Items]    
Gross PP&E 19 19
Buildings and improvements    
Property, Plant and Equipment [Line Items]    
Gross PP&E 94 94
Pipelines and related assets    
Property, Plant and Equipment [Line Items]    
Gross PP&E 1,447 1,424
Terminals and related assets    
Property, Plant and Equipment [Line Items]    
Gross PP&E 761 741
Rail racks and related assets    
Property, Plant and Equipment [Line Items]    
Gross PP&E 137 137
Processing and related assets    
Property, Plant and Equipment [Line Items]    
Gross PP&E 1,047 1,041
Caverns and related assets    
Property, Plant and Equipment [Line Items]    
Gross PP&E 585 585
Construction-in-progress    
Property, Plant and Equipment [Line Items]    
Gross PP&E $ 409 $ 367
v3.20.1
Related Party Transactions (Narrative) (Details)
$ in Millions
3 Months Ended
Mar. 31, 2020
USD ($)
Gray Oak Pipeline, LLC  
Related Party Transaction [Line Items]  
Effective ownership interest (as a percent) 42.25%
Phillips 66 | Phillips 66 | Amended Omnibus Agreement  
Related Party Transaction [Line Items]  
Monthly operational and administrative support fee $ 8
v3.20.1
Related Party Transactions (Tables)
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Summary of Related Party Transactions
Significant related party transactions included in our total costs and expenses were:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Operating and maintenance expenses
$
48

 
105

General and administrative expenses
17

 
17

Total
$
65

 
122




Other related party balances were included in the following line items on our consolidated balance sheet, all of which were related to commercial agreements with Phillips 66:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Prepaid expenses and other current assets
$
12

 
7

Other assets
48

 
44

Deferred revenues
18

 
16

Other current liabilities
1

 
1

Other liabilities
68

 
70


v3.20.1
Equity Investments and Loans (Tables)
3 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Equity Investments
Summarized financial information for 100% of Dakota Access is as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Revenues
$
258

 
236

Income before income taxes
186

 
157

Net income
186

 
157


The following table summarizes the carrying value of our equity investments:

 
 
 
Millions of Dollars
 
Percentage Ownership

 
March 31
2020

 
December 31
2019

 
 
 
 
 
 
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)
25.00
%
 
$
595

 
592

Bayou Bridge Pipeline, LLC (Bayou Bridge)
40.00

 
296

 
294

DCP Sand Hills Pipeline, LLC (Sand Hills)
33.34

 
598

 
595

DCP Southern Hills Pipeline, LLC (Southern Hills)
33.34

 
218

 
215

Explorer Pipeline Company (Explorer)
21.94

 
102

 
105

Gray Oak Pipeline, LLC
65.00

 
799

 
759

Liberty Pipeline LLC (Liberty)
50.00

 
103

 

Paradigm Pipeline LLC (Paradigm)
50.00

 
143

 
143

Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)
70.00

 
67

 
70

South Texas Gateway Terminal LLC (South Texas Gateway Terminal)
25.00

 
102

 
74

STACK Pipeline LLC (STACK)
50.00

 
113

 
114

Total equity investments
 
 
$
3,136

 
2,961




Earnings from our equity investments were as follows:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Bakken Pipeline
$
57

 
51

Bayou Bridge
10

 
4

Sand Hills
41

 
36

Southern Hills
11

 
13

Explorer
7

 
3

Gray Oak Pipeline, LLC
5

 

Liberty

 

Paradigm
4

 
3

Phillips 66 Partners Terminal

 
6

South Texas Gateway Terminal

 

STACK
1

 
3

Total equity in earnings of affiliates
$
136

 
119




v3.20.1
Description of the Business
3 Months Ended
Mar. 31, 2020
Description of Business [Abstract]  
Description of the Business
Note 1—Description of the Business
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries. Our operations consist of one reportable segment.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of crude oil, refined petroleum products and NGL, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.
v3.20.1
Consolidated Balance Sheet (Parenthetical) - shares
Mar. 31, 2020
Dec. 31, 2019
General partner—Phillips 66 units issued (in shares) 0 0
General partner—Phillips 66 units outstanding (in shares) 0 0
Public    
Preferred units, issued (in shares) 13,819,791 13,819,791
Preferred units, outstanding (in shares) 13,819,791 13,819,791
Common Units | Public    
Units issued (in shares) 58,580,009 58,539,439
Units outstanding (in shares) 58,580,009  
Common Units | Non-public | Phillips 66    
Units issued (in shares) 169,760,137 169,760,137
Units outstanding (in shares) 169,760,137 169,760,137
v3.20.1
Cover Page
3 Months Ended
Mar. 31, 2020
shares
Cover [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Mar. 31, 2020
Document Transition Report false
Entity File Number 001-36011
Entity Registrant Name Phillips 66 Partners LP
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 38-3899432
Entity Address, Address Line One 2331 CityWest Blvd
Entity Address, City or Town Houston
Entity Address, State or Province TX
Entity Address, Postal Zip Code 77042
City Area Code 855
Local Phone Number 283-9237
Title of 12(b) Security Common Units, Representing Limited Partnership Interests
Trading Symbol PSXP
Security Exchange Name NYSE
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 228,340,146
Amendment Flag false
Entity Central Index Key 0001572910
Document Fiscal Period Focus Q1
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2020
v3.20.1
Operating Revenues (Schedule of Future Minimum Operating Lease Income) (Details)
$ in Millions
Mar. 31, 2020
USD ($)
Revenue from Contract with Customer [Abstract]  
Remainder of 2020 $ 527
2021 698
2022 685
2023 642
2024 521
Remaining years 1,386
Total future minimum lease payments from customers $ 4,459
v3.20.1
Equity Investments and Loans (Schedule of Equity Investment Earnings (Losses) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates $ 136 $ 119
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 57 51
Bayou Bridge Pipeline, LLC (Bayou Bridge)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 10 4
DCP Sand Hills Pipeline, LLC (Sand Hills)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 41 36
DCP Southern Hills Pipeline, LLC (Southern Hills)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 11 13
Explorer Pipeline Company (Explorer)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 7 3
Gray Oak Pipeline, LLC    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 5 0
Liberty Pipeline LLC (Liberty)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 0 0
Paradigm Pipeline LLC (Paradigm)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 4 3
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 0 6
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates 0 0
STACK Pipeline LLC (STACK)    
Schedule of Equity Method Investments [Line Items]    
Total equity in earnings of affiliates $ 1 $ 3
v3.20.1
Properties, Plants and Equipment
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Properties, Plants and Equipment
Note 6—Properties, Plants and Equipment

Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Land
$
19

 
19

Buildings and improvements
94

 
94

Pipelines and related assets*
1,447

 
1,424

Terminals and related assets*
761

 
741

Rail racks and related assets*
137

 
137

Processing and related assets*
1,047

 
1,041

Caverns and related assets*
585

 
585

Construction-in-progress
409

 
367

Gross PP&E
4,499

 
4,408

Accumulated depreciation
(1,089
)
 
(1,059
)
Net PP&E
$
3,410

 
3,349

*Assets for which we are the lessor.

v3.20.1
Interim Financial Information
3 Months Ended
Mar. 31, 2020
Interim Financial Information [Abstract]  
Interim Financial Information
Note 2—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our financial position, results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the full year.
v3.20.1
Related Party Transactions
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions
Note 10—Related Party Transactions

Commercial Agreements
We have entered into long-term, fee-based commercial agreements with Phillips 66 to provide transportation, terminaling, storage, stevedoring, fractionation, processing, and rail terminal services. Under these agreements, Phillips 66 commits to provide us with minimum transportation, throughput or storage volumes, or minimum monthly service fees. If Phillips 66 does not meet its minimum volume commitments under an agreement, Phillips 66 pays us a deficiency payment based on the calculation described in the agreement.

Amended and Restated Operational Services Agreement
Under our amended and restated operational services agreement, we reimburse Phillips 66 for certain operational services provided in support of our pipelines, terminaling, processing, and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.

Amended Omnibus Agreement
The amended omnibus agreement addresses our payment of an operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.

The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We pay Phillips 66 an operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million per month.

We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.

Tax Sharing Agreement
Under our tax sharing agreement, we reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66. Any reimbursement is limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe no tax; however, we would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had no cash expense for that period.

Related Party Transactions
Significant related party transactions included in our total costs and expenses were:

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Operating and maintenance expenses
$
48

 
105

General and administrative expenses
17

 
17

Total
$
65

 
122




Other related party balances were included in the following line items on our consolidated balance sheet, all of which were related to commercial agreements with Phillips 66:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Prepaid expenses and other current assets
$
12

 
7

Other assets
48

 
44

Deferred revenues
18

 
16

Other current liabilities
1

 
1

Other liabilities
68

 
70




Equity Affiliate Arrangements
In March 2019, we and our co-venturers in Dakota Access provided a CECU in conjunction with an unsecured senior notes offering. See Note 4—Equity Investments and Loans, for additional information.

In June 2019, we issued a guarantee through an equity contribution agreement for 42.25% of the third-party term loan facility for Gray Oak Pipeline, LLC. See Note 4—Equity Investments and Loans, for additional information.
v3.20.1
Operating Revenues (Deferred Revenue) (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Revenue from External Customer [Line Items]    
Total deferred revenues $ 43 $ 42
Lease revenues    
Revenue from External Customer [Line Items]    
Total deferred revenues 41 41
Service revenues    
Revenue from External Customer [Line Items]    
Total deferred revenues $ 2 $ 1
v3.20.1
Equity Investments and Loans (Schedule of Carrying Value Equity Investments) (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Feb. 28, 2019
Schedule of Equity Method Investments [Line Items]      
Carrying Value $ 3,136 $ 2,961  
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 25.00%    
Carrying Value $ 595 592  
Bayou Bridge Pipeline, LLC (Bayou Bridge)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 40.00%    
Carrying Value $ 296 294  
DCP Sand Hills Pipeline, LLC (Sand Hills)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 33.34%    
Carrying Value $ 598 595  
DCP Southern Hills Pipeline, LLC (Southern Hills)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 33.34%    
Carrying Value $ 218 215  
Explorer Pipeline Company (Explorer)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 21.94%    
Carrying Value $ 102 105  
Gray Oak Pipeline, LLC      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 65.00%   65.00%
Carrying Value $ 799 759  
Liberty Pipeline LLC (Liberty)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 50.00%    
Carrying Value $ 103 0  
Paradigm Pipeline LLC (Paradigm)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 50.00%    
Carrying Value $ 143 143  
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 70.00%    
Carrying Value $ 67 70  
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 25.00%    
Carrying Value $ 102 74  
STACK Pipeline LLC (STACK)      
Schedule of Equity Method Investments [Line Items]      
Percentage Ownership 50.00%    
Carrying Value $ 113 $ 114  
v3.20.1
Cash Flow Information
3 Months Ended
Mar. 31, 2020
Supplemental Cash Flow Information [Abstract]  
Cash Flow Information
Note 11—Cash Flow Information

Capital Expenditures and Investments
Our capital expenditures and investments consisted of:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Cash capital expenditures and investments
$
236

 
634

Change in capital expenditure accruals
(2
)
 
(2
)
Total capital expenditures and investments
$
234

 
632


v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt
Note 7—Debt

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
2.450% Senior Notes due December 2024
$
300

 
300

3.605% Senior Notes due February 2025
500

 
500

3.550% Senior Notes due October 2026
500

 
500

3.750% Senior Notes due March 2028
500

 
500

3.150% Senior Notes due December 2029
600

 
600

4.680% Senior Notes due February 2045
450

 
450

4.900% Senior Notes due October 2046
625

 
625

Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at
March 31, 2020, and December 31, 2019, respectively
75

 
75

Debt at face value
3,550

 
3,550

Net unamortized discounts and debt issuance costs
(34
)
 
(34
)
Total debt
3,516

 
3,516

Short-term debt
(25
)
 
(25
)
Long-term debt
$
3,491

 
3,491




The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified in level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was $3,083 million and $3,650 million at March 31, 2020, and December 31, 2019, respectively. The fair value of our floating-rate debt approximated carrying value of $75 million at March 31, 2020, and December 31, 2019.

At March 31, 2020, and December 31, 2019, no amount had been directly drawn under our $750 million revolving credit facility; however, $3 million and $1 million in letters of credit had been issued under this facility at March 31, 2020, and December 31, 2019, respectively.

On April 1, 2020, we repaid at maturity a $25 million tranche of tax-exempt bonds that was included in short-term debt at March 31, 2020.
v3.20.1
Operating Revenues
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Operating Revenues
Note 3—Operating Revenues

Operating revenues are primarily generated from long-term pipeline transportation, terminaling, storage, processing and fractionation lease and service agreements, mainly with Phillips 66. These agreements typically include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. In addition, most of these agreements contain renewal options, which typically require the mutual consent of both our customers and us.
Total operating revenues disaggregated by asset type were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Pipelines
$
111

 
109

Terminals
43

 
40

Storage, processing and other revenues
113

 
153

Total operating revenues
$
267

 
302




The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The lease’s classification as either an operating or financing lease requires judgment in assessing the contract’s lease and service components and in determining the asset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continue to separate the lease and service elements based on relative standalone prices and applied the new lease standard to the lease element and the revenue standard to the service element.
Total operating revenues disaggregated by lease and service revenues were as follows:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Lease revenues
$
218

 
257

Service revenues
49

 
45

Total operating revenues
$
267

 
302




Accounts Receivable
We bill our customers, mainly Phillips 66, under our lease and service contracts generally on a monthly basis.

Total accounts receivable by revenue type was as follows:

 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Lease receivables
$
74

 
87

Service receivables
20

 
18

Other receivables
1

 

Total accounts receivable
$
95


105




Deferred Revenues
Our deferred revenues represent payments received from our customers, mainly Phillips 66, in advance of the period in which lease and service contract performance obligations have been fulfilled. The majority of our deferred revenues relate to a tolling agreement and a storage agreement that are classified as leases. The remainder of our deferred revenues relate to lease and service agreements that contain minimum volume commitments with recovery provisions. Our deferred revenues are recorded in the “Deferred revenues” and “Other liabilities” line items on our consolidated balance sheet.
Total deferred revenues under our lease and service agreements were as follows:
 
Millions of Dollars
 
March 31
2020

 
December 31
2019

 
 
 
 
Deferred lease revenues
$
41

 
41

Deferred service revenues
2

 
1

Total deferred revenues
$
43


42



Future Minimum Lease Payments from Customers
At March 31, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:
 
Millions
of Dollars

 
 
Remainder of 2020
$
527

2021
698

2022
685

2023
642

2024
521

Remaining years
1,386

Total future minimum lease payments from customers
$
4,459



Remaining Performance Obligations
We typically have long-term service contracts with our customers, of which the original durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 11 years. These contracts include both fixed and variable transaction price components. At March 31, 2020, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:

 
Millions
of Dollars

 
 
Remainder of 2020
$
109

2021
137

2022
136

2023
136

2024
116

Remaining years
671

Total future service revenues
$
1,305




For the remaining service performance obligations, we applied the exemption for variable prices allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer distinct services as part of a performance obligation.
v3.20.1
Net Income Per Limited Partner Unit (Narrative) (Details) - USD ($)
$ / shares in Units, $ in Millions
Apr. 21, 2020
Aug. 01, 2019
Common Units | Cash Distribution | Subsequent Event    
Subsequent Event [Line Items]    
Quarterly cash distribution declared per limited partner unit (in dollars per share) $ 0.875  
Distribution made to limited partner, cash distributions declared $ 199  
Phillips 66 Company    
Subsequent Event [Line Items]    
General partner interest, percent   2.00%
v3.20.1
Label Element Value
Cumulative Effect of New Accounting Principle in Period of Adoption us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption $ (1,000,000)
Common Units [Member] | Public Designator [Member]  
Cumulative Effect of New Accounting Principle in Period of Adoption us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption $ (1,000,000)
v3.20.1
Equity (Details)
3 Months Ended 46 Months Ended
Mar. 31, 2020
USD ($)
offering
shares
Mar. 31, 2019
USD ($)
shares
Mar. 31, 2020
USD ($)
offering
shares
Limited Partners' Capital Account [Line Items]      
Number of common units issued in public offering (in shares) | shares 40,570 622,032  
At The Market Offering Program      
Limited Partners' Capital Account [Line Items]      
Aggregate authorized amount $ 750,000,000    
Common Units | At The Market Offering Program      
Limited Partners' Capital Account [Line Items]      
Number of continuous offerings | offering 3   3
Authorized amount per program $ 250,000,000    
Number of common units issued in public offering (in shares) | shares 40,570 622,032 9,487,055
Issuance of common units $ 2,000,000 $ 32,000,000 $ 494,000,000
Brokers commissions     5,000,000
Other costs     $ 3,000,000
v3.20.1
Cash Flow Information (Tables)
3 Months Ended
Mar. 31, 2020
Supplemental Cash Flow Information [Abstract]  
Summary of Capital Expenditures and Noncash Investing and Financing Activities
Our capital expenditures and investments consisted of:
 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Cash capital expenditures and investments
$
236

 
634

Change in capital expenditure accruals
(2
)
 
(2
)
Total capital expenditures and investments
$
234

 
632


v3.20.1
Net Income Per Limited Partner Unit (Tables)
3 Months Ended
Mar. 31, 2020
Partners' Capital Notes [Abstract]  
Schedule of Distributions Declared, Partners Interest in Partnership Net Income and Net Income per Unit by Class
Net income earned by the Partnership is allocated between the classes of participating securities in accordance with our partnership agreement, after giving effect to priority income allocations to the holders of the preferred units. First, earnings are allocated based on actual cash distributions declared to our unitholders. To the extent net income exceeds or is less than cash distributions declared, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings. For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions which would not have been paid after conversion. 

 
Millions of Dollars
 
Three Months Ended
March 31
 
2020

 
2019

 
 
 
 
Net income
$
226

 
198

Less:
 
 
 
General partner’s distributions declared (including IDRs)*

 
69

Limited partners’ distributions declared on preferred units*
10

 
10

Limited partners’ distributions declared on common units*
199

 
105

Distributions less than net income
$
17

 
14

*Distributions declared are attributable to the indicated periods.
 
Limited Partners’
Common Units

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2020
 
 
 
Net income (millions):
 
 
 
Distributions declared
$
199

10

209

Distributions less than (more than) net income
17


17

Net income (basic)
216

10

226

Dilutive effect of preferred units
10

 
 
Net income (diluted)
$
226

 
 
 
 
 
 
Weighted-average units outstanding—basic
228,312,261

 
 
Dilutive effect of preferred units
13,819,791

 
 
Weighted-average units outstanding—diluted
242,132,052

 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.95

 
 
Net income per limited partner unit—diluted (dollars)
0.93

 
 


 
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total

Three Months Ended March 31, 2019
 
 
 
 
Net income (millions):
 
 
 
 
Distributions declared
$
105

69

10

184

Distributions less than net income
14



14

Net income (basic)
119

69

10

198

Dilutive effect of preferred units*
8

 
 
 
Net income (diluted)
$
127

 
 
 
 
 
 
 
 
Weighted-average units outstanding—basic
124,257,933

 
 
 
Dilutive effect of preferred units*
13,819,791

 
 
 
Weighted-average units outstanding—diluted
138,077,724

 
 
 
 
 
 
 
 
Net income per limited partner unit—basic (dollars)
$
0.96

 
 
 
Net income per limited partner unit—diluted (dollars)
0.92

 
 
 
*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.



v3.20.1
Consolidated Balance Sheet - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 92 $ 286
Accounts receivable—related parties 91 101
Accounts receivable—third parties 4 4
Materials and supplies 13 13
Prepaid expenses and other current assets 14 10
Total current assets 214 414
Equity investments 3,136 2,961
Net properties, plants and equipment 3,410 3,349
Goodwill 185 185
Other assets 52 52
Total Assets 6,997 6,961
Liabilities    
Accounts payable—related parties 24 19
Accounts payable—third parties 75 84
Accrued interest 46 42
Deferred revenues 19 16
Short-term debt 25 25
Accrued property and other taxes 12 10
Other current liabilities 3 3
Total current liabilities 204 199
Long-term debt 3,491 3,491
Obligation from equity interest transfer 356 343
Other liabilities 93 94
Total Liabilities 4,144 4,127
Equity    
Accumulated other comprehensive loss (1) (1)
Total Equity 2,853 2,834
Total Liabilities and Equity 6,997 6,961
Public | Preferred Units    
Equity    
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding) 747 746
Total Equity 747 746
Public | Common Units    
Equity    
Common unitholders 2,723 2,717
Total Equity 2,723 2,717
Non-public | Common Units | Phillips 66    
Equity    
Common unitholders (616) (628)
Total Equity $ (616) $ (628)
v3.20.1
Consolidated Statement of Changes in Equity (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Cash distributions per common unit (in dollars per share) $ 0.875 $ 0.835