Phillips 66 Partners LP

6 Months Ended

Jun. 30, 2019

Limited Liability Company or Limited Partnership, Business Organization and Operations [Abstract]

Note 21—Phillips 66 Partners LP

Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets. Phillips 66 Partners’ operations consist of crude oil, refined petroleum product and NGL transportation, terminaling, processing and storage assets.

We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities that most significantly impact its economic performance. As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests in our financial statements. At June 30, 2019, we owned a 54% limited partner interest and a 2% general partner interest in Phillips 66 Partners, while the public owned a 44% limited partner interest and 13.8 million perpetual convertible preferred units.

The most significant assets of Phillips 66 Partners that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:



	Millions of Dollars
	June 30 2019		December 31 2018

Cash and cash equivalents	$	130	1
Equity investments*	2,912		2,448
Net properties, plants and equipment	3,158		3,052
Long-term debt	3,174		2,998
* Included in “Investments and long-term receivables” line on the Phillips 66 consolidated balance sheet.

2019 Activities

For the three and six months ended June 30, 2019, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $10 million and $42 million, respectively, from common units issued under its continuous offering of common units, or at-the-market (ATM) programs. For the three and six months ended June 30, 2018, Phillips 66 Partners generated net proceeds of $58 million and $67 million, respectively, under its ATM programs.

Phillips 66 Partners holds an investment in the Gray Oak Pipeline through Holdings LLC. In December 2018, a third party exercised its option to acquire a 35% interest in Holdings LLC. Because Holdings LLC’s sole asset was its ownership interest in Gray Oak, which is considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in Holdings LLC during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP. As such, the contributions the third party is making to Holdings LLC to cover its share of previously incurred and future construction costs plus a premium to Phillips 66 Partners are reflected as a long-term obligation in the “Other liabilities and deferred credits” line on our consolidated

balance sheet and financing cash inflows in the “Other” line on our consolidated statement of cash flows. After construction of the Gray Oak Pipeline is fully completed, these restrictions expire, and the sale will be recognized under GAAP. Phillips 66 Partners will continue to control and consolidate Holdings LLC after sale recognition, and therefore the third party’s 35% interest will be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet at that time. Also at that time, the premium paid will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the six months ended June 30, 2019, the third party contributed an aggregate of $341 million into Holdings LLC, which Holdings LLC used to fund its portion of Gray Oak’s cash calls. See Note 6—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak.

Incentive Distribution Rights Elimination

On July 24, 2019, we executed a definitive agreement to eliminate all of our incentive distribution rights (IDRs) and general partner economic interest in Phillips 66 Partners in exchange for 101 million newly issued Phillips 66 Partners’ common units. Pursuant to the definitive agreement, our IDRs will be eliminated, and our general partner economic interest in Phillips 66 Partners will be converted into a non-economic general partner interest in Phillips 66 Partners. After the transaction closes, we will own approximately 170 million Phillips 66 Partners’ common units, representing approximately 75% of Phillips 66 Partners’ outstanding common units. As a result of the transaction, we expect the balance of “Noncontrolling interests” on our consolidated balance sheet to decrease approximately $400 million, with an offset to “Capital in excess of par” and “Deferred income taxes.” The transaction is scheduled to close on August 1, 2019.