2018 Annual Report

To Our Shareholders

Greg Garland

Greg C. Garland
Chairman and Chief Executive Officer

Phillips 66 had a record-setting year in 2018. Our earnings of $5.6 billion and earnings per share of $11.80 were our highest ever. We generated $7.6 billion of operating cash flow and rewarded our shareholders with strong distributions.

We increased our quarterly dividend 14 percent and repurchased 10 percent of shares outstanding, returning $6.1 billion to shareholders. Since 2012, we have returned $22.5 billion to shareholders through dividends, share repurchases and share exchanges, reducing our initial shares outstanding by 30 percent.

What deserves equal attention is that we achieved these results while continuing our commitment to safe, reliable and environmentally sustainable operations. We also gave back to the communities where we live and work through direct financial support and volunteerism by our employees.

In an industry facing increasing scrutiny on environmental, safety, human capital and governance issues, we proactively work to turn risks into opportunities:

  • Our combined workforce total recordable rate was 0.14, matching last year’s record low rate.
  • Refining’s Tier 1 process safety event rate of 0.02 is industry-leading.
  • For the second year in a row, one of our refineries received the AFPM’s Distinguished Safety Award, the highest annual safety recognition in the industry.
  • We invested over $900 million to fund reliability, safety and environmental projects.
  • We provided $27 million in financial support to organizations promoting education, environmental sustainability, and community safety and preparedness.
  • Our employees volunteered 78,000 hours of their time to hundreds of charitable and service organizations during the year.

Below are highlights from our business segments, each of which performed well in 2018.

  • Midstream achieved record earnings in 2018, driven by growth projects completed and placed into service during the past two years. As part of our strategy, we are developing pipelines to link the key shale basins to the Gulf Coast, expanding export capability from strategic Gulf Coast terminals, and building out our integrated NGL value chain. During 2018, we expanded storage capacity at our Beaumont Terminal to 14.6 million barrels. The 900,000-BPD Gray Oak Pipeline will transport crude oil from the Permian and Eagle Ford to the U.S. Gulf Coast upon completion by the end of this year. At the Sweeny Hub, we are adding 300,000 BPD of fractionation capability expected to be completed in late 2020.
  • In our Chemicals business, CPChem’s new U.S. Gulf Coast petrochemical assets are running well and generating strong free cash flow. The ethane cracker has consistently operated above design rates, and its capacity was recently increased to 3.8 billion pounds per year, 15 percent above its original design capacity. CPChem is pursuing further petrochemical opportunities to meet the growing global demand for polymers, including a second Gulf Coast project that would include ethylene and derivative capacity.
  • In Refining, we ran well across our integrated system and captured strong margins from advantaged crude feedstocks. We completed fluid catalytic cracking (FCC) unit modernization projects at our Bayway and Wood River refineries to increase clean product yield. At our Sweeny Refinery, we started an FCC unit upgrade to increase production of higher-value petrochemical products and higher-octane gasoline.
  • Our Marketing business delivered solid margins through efficient off-take of our refining production. We continue to enhance our U.S. fuels brands through the re-imaging of sites, bringing the total number since the program’s inception to approximately 2,600. In Europe, we are growing and enhancing our retail sites, and added 20 new sites in 2018.

We thank our employees for successfully executing the company’s strategy to deliver strong 2018 results. Our high-performing organization is defined by culture, capability and performance. Phillips 66 employees embrace our core values of safety, honor and commitment, and we hold ourselves accountable to the highest ethical standards.

We are optimistic about the opportunities across our businesses. We have the right strategy, portfolio and talent in place to compete and deliver superior value to shareholders. Through our ongoing commitment to operating excellence, returns-focused growth and disciplined capital allocation, we are confident that the best is yet to come for Phillips 66.

Greg Garland Signature
Greg C. Garland
Chairman and Chief Executive Officer