PSX Phillips 66 10-Q 2026-09-30 section summaries

Phillips 66 — Q3 and first nine months of 2026

Consolidated results

The sharp earnings improvement reflects a major turnaround in Refining, including WRB results being consolidated after Phillips 66 acquired Cenovus’s remaining 50% interest on October 1, 2025. Lower impairment charges also helped: 9M impairments were $49 million versus $981 million a year earlier. Q3 2025 included a $948 million pretax impairment that reduced the carrying value of Phillips 66’s existing WRB investment before the acquisition. In 9M, gains on dispositions were lower at $124 million versus $1.005 billion, so larger disposition gains did not drive the earnings increase. The 2026 period also included a $110 million Q2 gain from post-closing adjustments on the Germany and Austria retail-business sale.

Segment results — quarter

Chemicals consists of Phillips 66’s 50% equity investment in CPChem. Midstream pretax income was slightly lower over 9M, at $2.078 billion versus $2.179 billion; M&S also declined, to $667 million from $2.104 billion. Refining was the principal improvement, with 9M pretax income of $9.301 billion versus a $1.096 billion loss.

Revenue mix — quarter

Services and other includes economic hedging losses. Commodity derivatives are not hedge-accounted, so gains and losses flow through income. Derivative activity produced a net loss of $1.305 billion in Q3 2026 versus a $65 million gain in Q3 2025, and a $3.308 billion loss for 9M versus a $95 million gain. At September 30, gross commodity derivative assets of $11.115 billion and liabilities of $11.081 billion netted to a $111 million balance-sheet carrying value. Open positions were net short 43 million barrels, compared with 33 million barrels short at year-end 2025.

Balance sheet, cash flow and capital returns

Working-capital movements included a $3.746 billion receivables cash outflow and a $5.269 billion accounts-payable cash inflow. Phillips 66 repurchased $3.006 billion of stock and paid $1.521 billion in common dividends during 9M. The company’s $5 billion revolving credit facility, which may be increased to $6 billion, had no borrowings; it carries a 65% maximum net-debt-to-capitalization covenant. The receivables securitization facility was expanded to $2 billion and extended to August 2027.

Business, financing and risk developments

The WRB acquisition for $1.340 billion cash brought total consideration to $3.437 billion, including the fair value of Phillips 66’s previously held interest and settlement of relationships. The company also acquired Coastal Bend NGL assets for $2.2 billion net of cash in 2025. It acquired Lindsey Oil Refinery assets in April 2026 for $115 million. Los Angeles Refinery fuel production ceased in Q4 2025; facilities are being idled while redevelopment plans undergo agency review, with related decommissioning and redevelopment activity reported in Corporate and Other.

Phillips 66 borrowed $2.25 billion under a 364-day term loan in March 2026 and repaid it by July. It repurchased $796 million aggregate principal of debt in Q3. Its 2025 issuance of $2 billion of junior subordinated notes due 2056 allows interest deferral for up to 10 consecutive years per deferral period; deferral restricts dividends and certain debt payments.

Litigation remains a significant exposure. In the Propel Fuels case, a $604.9 million compensatory-damages verdict led to an $833 million final judgment; the company appealed. Accrued amounts, including interest accruing at 10%, reached $947 million at September 30, 2026, and losses could exceed the accrual. Environmental accruals were $472 million, with substantial spending expected over the next 30 years.

The Dakota Access easement authorizes expanded capacity of 1.1 million barrels per day, but the Standing Rock Sioux Tribe sued to challenge the authorization. Phillips 66’s share of the maximum contingent equity contribution is approximately $215 million; if operations cease and expenses cannot be met, it could also have to support ongoing costs, including approximately $10 million in annual note interest. Separately, its maximum exposure to loss from OnCue was $282 million, including a $231 million investment and $51 million of debt guarantees.

Phillips 66 — Q3 and nine months ended September 30, 2026

Consolidated results

The sharp earnings improvement was driven chiefly by higher realized Refining margins and the absence of the $948M pretax WRB equity-investment impairment recorded in Q3 2025. The nine-month comparison also benefited from higher Renewable Fuels regulatory-credit values, but was partly offset by the prior-year $1B Coop investment-sale gain and weaker Marketing fuel margins, including commodity-derivative effects. Higher tax expense largely reflected higher pretax income.

Sales and other operating revenues increased 46% in Q3 and 36% in 9M; purchased crude oil and products rose 35% and 31%, respectively, largely reflecting higher crude, refined-product and NGL prices. The Germany and Austria retail partial sale and commodity-derivative losses partly offset these increases. Equity earnings of affiliates rose $224M in Q3 and $805M in 9M, primarily from CPChem and Excel Paralubes. Other income increased $288M and $585M, respectively, mainly on trading and Clean Fuel Production credits. Operating expenses rose 25% in Q3 and 22% in 9M; SG&A declined 21% and 10%, and depreciation and amortization fell 28% and 29%, in part following the Los Angeles refinery shutdown.

Segment pretax income

Refining’s worldwide realized margin was $38.00/bbl versus $12.15/bbl, with higher market crack spreads partly offset by higher feedstock costs. Worldwide crude processed was 1.961M barrels/day versus 1.825M, at 98% utilization versus 99%. Regional comparisons are affected by the October 2025 acquisition of WRB’s remaining 50%: Phillips 66 now consolidates 100% of Borger and Wood River, while prior-year figures included its proportional WRB share. Los Angeles fuel production ceased in Q4 2025.

Chemicals improved on higher sales prices, particularly polyethylene. CPChem’s benchmark HDPE chain margin rose to 18.8¢/lb from 7.6¢/lb, although externally marketed sales volumes and global utilization were lower. Midstream NGL income declined on customer recontracting, partly offset by wider Permian gas-transportation differentials; the nine-month comparison also reflects a $68M 2025 GCX-sale gain and accelerated 2026 Permian gas-plant depreciation. Marketing fuel margins weakened: U.S. realized margin was $1.29/bbl versus $2.04/bbl, while international margin was a $4.41/bbl loss versus $5.37/bbl income. Renewable Fuels improved mainly on higher regulatory-credit values, partly offset by inventory effects and, in Q3, higher volumes and costs. The nine-month M&S comparison is substantially affected by the $1B Coop investment-sale gain in 2025.

Cash flow, capital and balance sheet

Q3 operating cash flow primarily reflected stronger earnings from Refining. In 9M, capital spending included Midstream $1.086B (vs. $947M), Refining $761M (vs. $469M), Marketing and Specialties $49M (vs. $75M), Renewable Fuels $24M (vs. $33M), and Corporate and Other $68M (vs. $27M). Selected equity-affiliate spending was $394M versus $708M. The 2026 capital and investment budget is $2.4B, excluding acquisitions and equity-affiliate spending, including $1.3B of growth capital, primarily in Midstream.

Total assets were $86.0B at September 30. Committed credit-facility capacity available was approximately $6.4B. Phillips 66 repaid the $2.25B 364-day term loan by September and repaid $1.1B of term loans in June and July ahead of maturity; the company also repaid $100M of 1.300% notes at February maturity. The $5B revolving facility had no borrowings and carries a 65% maximum net debt-to-capital covenant. The receivables securitization facility was expanded to $2B committed capacity; 9M receivables sales were $856M, including $592M cash proceeds and a $264M noncash reduction in facility borrowings.

Shareholder returns through repurchases and dividends totaled $4.4B in 9M: approximately $3B of repurchases and $1.5B of dividends. The Board added $10B to repurchase authorization in July, bringing cumulative authorization since 2012 to $35B. The October quarterly dividend was raised to $1.33 per share. Management targets $17B of total debt and a lower debt-to-capital ratio by end-2027, and aims to return more than 50% of operating cash flow excluding working capital to shareholders.

Strategy, exposures and risks

Management’s priorities through 2027 are reliable operations, disciplined growth, financial flexibility and shareholder returns. Following project approvals, including Western Gateway, 2027 spending is expected to exceed the earlier approximately $2.5B target, subject to the budget. Western Gateway is a proposed 1,300-mile refined-products pipeline; Phillips 66 owns 49.9% of the joint venture and made a final investment decision in Q3. The company also acquired Lindsey Oil Refinery assets and infrastructure for $115M in April 2026.

Commodity and margin volatility remain central risks. The Q3 3:2:1 crack spread rose to $60.17/bbl from $23.64/bbl, amid low product inventories—particularly diesel—and geopolitical supply disruptions. WTI at Cushing increased to $86.19/bbl from $65.03/bbl; NGL prices rose while Henry Hub gas declined. Management cautions that further geopolitical-driven price moves or supply disruptions could materially affect results. Other exposures include customer recontracting, feedstock and operating costs, regulatory-credit values, weather, project execution, environmental compliance and access to capital.

The May 2026 DAPL easement authorizes continued operation and capacity expansion to 1.1 million barrels/day. A Tribe lawsuit filed October 9 challenges the expansion and seeks to restrict operations; a shutdown could materially harm results and cash flows. Phillips 66’s 25% share of maximum potential CECU contributions was approximately $215M, and its share of annual note interest is approximately $10M.

The Propel Fuels judgment against Phillips 66 Company was $833M; the recorded liability was $947M at September 30, 2026, versus $867M at year-end, with post-judgment interest accruing at 10%. The company is appealing, but losses above the accrual remain possible. Phillips 66 also incurred $557M of open-market RIN costs for wholly owned refineries in 9M 2026; its share of WRB RIN costs was $280M in 9M 2025 before acquiring the remaining interest.

Phillips 66 and Phillips 66 Company fully and unconditionally cross-guarantee each other’s publicly held debt; the Obligor Group guaranteed $15.5B at September 30. Its summarized balance sheet, excluding non-guarantor subsidiaries, showed negative equity of $10.716B and goodwill of $906M. Environmental remediation, evolving greenhouse-gas rules, litigation and joint-venture obligations remain additional uncertainties.

Market risk

As of September 30, 2026, PSX’s interest-rate risk was not materially different from that disclosed in its 2025 Form 10-K. Commodity-price volatility remained a key market risk across crude oil, refined products, natural gas liquids, natural gas, renewable feedstocks and fuels, and electric power. Commodity-derivative VaR increased from December 31, 2025, amid elevated volatility attributed to the ongoing Middle East conflict. PSX calculates VaR using a Monte Carlo model at 95% confidence with a one-day holding period.

At September 30, a hypothetical 10% increase in prices for outstanding financial commodity derivatives would reduce pretax income by approximately $480 million; a 10% decrease would increase pretax income by approximately $480 million. These sensitivities exclude potential offsets from price changes in underlying physical commodities, so actual portfolio impacts may differ. Changes in the portfolio after September 30 could also affect future impacts.

PSX uses financial and commodity derivatives as economic hedges. Derivatives are marked to market through current-period earnings, while related physical positions use LIFO accounting. This can create timing differences between derivative and physical-position earnings effects, which PSX expects to reverse in future periods.

Risk management

Board-approved authority limits govern derivative use. They prohibit highly leveraged instruments and instruments without sufficient market liquidity to support comparable valuations, and establish VaR limits that the global risk group monitors daily. PSX regularly evaluates and adjusts its strategies as market conditions and risk profiles change.

As of September 30, 2026, the CEO and CFO concluded that disclosure controls and procedures were effective. No changes in internal control over financial reporting during the quarter materially affected, or were reasonably likely to materially affect, those controls.

Phillips 66 reported no material changes to the risk factors disclosed in Item 1A of its 2025 Annual Report on Form 10-K. The prior annual report remains the reference for the company’s disclosed risks.

For the quarter ended September 30, 2026, no director or Section 16 officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement. This section reports no financial results, business developments, or other material changes.