Phillips 66 Partners LP

12 Months Ended

Dec. 31, 2021

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

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

On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us and convert our 2% economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” in our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capital in excess of par,” a $91 million increase in “Deferred income taxes” and $7 million of transaction costs. No distributions were made for the general partner interest after August 1, 2019.

At December 31, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest, while the public owned a 26% limited partner interest and 13.5 million perpetual convertible preferred units. Prior to October 2020, holders of the preferred units received cumulative quarterly distributions equal to $0.678375 per unit. Beginning in October 2020, holders receive quarterly distributions equal to the greater of $0.678375 per unit or the per-unit distribution paid to common unitholders. In June 2021, Phillips 66 Partners repurchased 368,528 of its outstanding perpetual convertible preferred units for $24 million in cash. Upon the repurchase, these preferred units were canceled and are no longer outstanding.

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 of $2,169 million and $2,219 million on our consolidated balance sheet at December 31, 2021 and 2020, respectively.

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
	December 31 2021		December 31 2020


Equity investments*	$	2,929	3,244
Net properties, plants and equipment	3,727		3,639
Short-term debt	450		465
Long-term debt	3,447		3,444

* Included in “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.

Phillips 66 Partners has 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. Phillips 66 Partners did not issue any common units under the ATM program for the year ended December 31, 2021. For the years ended December 31, 2020 and 2019, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million and $173 million, respectively, from common units issued under the ATM programs.

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, Texas, and the Sweeny area, including our Sweeny Refinery. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party acquired a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of operations. For the year ended December 31, 2020, the co-venturer contributed an aggregate of $61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25%, after considering the co-venturer’s 35% interest in the consolidated holding company. See Note 6—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC, as well as certain other joint ventures.

Pending Merger

On October 26, 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the limited partner interests in Phillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units would be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock. This merger is expected to close in March 2022, subject to customary closing conditions.

If the merger is successfully completed, based on the closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on December 31, 2021, we would issue approximately 44 million shares of Phillips 66 common stock with a value of approximately $3.2 billion to Phillips 66 Partners’ public unitholders following completion of the merger. The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed.

Upon closing, Phillips 66 Partners will become a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership. This transaction will be accounted for as an equity transaction and after the closing we will no longer reflect the ownership interest previously held by Phillips 66 Partners’ publicly held common and perpetual convertible preferred unitholders as noncontrolling interests on our consolidated balance sheet nor will we attribute a portion of Phillips 66 Partners’ net income to these former unitholders on our consolidated statement of operations.