Phillips 66 Business Policy and Strategy Report

Phillips
66:
Business
Policy
and
Strategy
Authors:
Deven
Alves,
Mitch
McAvoy,
Morgan
Metro,
Brandon
Thomson
ABSTRACT
A
Strategic
Plan
for
Phillips
66,
a
leading
energy
manufacturing
and
logistics
company.

2
Table of Contents
Table
of
Contents.................................................................................................................................. 2
Table
of
Figures..................................................................................................................................... 4
1.
Section
1
–
Historical
Analysis .................................................................................................... 7
History
of
Phillips
66...................................................................................................................... 7
History
of
the
Industry ................................................................................................................14
History
of
Competitors
and
Environmental
Factors ......................................................19
2.
Section
2
–
Current
Analysis ................................................................................................. 2-‐28
Subsection
1:
Company
Profile................................................................................................ 2-‐28
Discussion
of
Company’s
Current
Overall
Strategy ................................................... 2-‐28
Discussion
of
Company’s
Current
Competitive
Advantage
in
the
Industry .... 2-‐30
Discussion
of
Company’s
Current
Strategy
Relevant
to
the
3
Tests
of
a
Winning
Strategy ......................................................................................................................................... 2-‐33
Discussion
of
Company’s
Current
Strategic
Vision
/
Mission ............................... 2-‐34
Identification
of
Company
Core
/
Distinctive
Competencies................................. 2-‐38
Current
SWOT
Analysis
(2013
/
2014)........................................................................... 2-‐40
General
Discussion
of
Current
State
of
the
Following
Components................... 2-‐48
Subsection
2:
Industry
Profile.................................................................................................. 2-‐79
Identification
and
Discussion
of
Relevant
Competitors........................................... 2-‐79
Economic
Factors
Affecting
the
Industry.....................................................................2-‐105
Energy
Industry’s
Dominant
Economic
Features.....................................................2-‐107
Key
Competitive
Forces
in
the
Industry .......................................................................2-‐112

PHILLIPS
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3
Current
Driving
Forces
in
the
Industry.........................................................................2-‐115
Strategic
Group
Map..............................................................................................................2-‐120
Industry
Key
Success
Factors............................................................................................2-‐124
3.
Section
3
–
Strategic
Plan .....................................................................................................3-‐130
Discussion
of
Likely
Strategic
Maneuvers
from
Relevant
Competitors...............3-‐130
Valero...........................................................................................................................................3-‐130
Chevron.......................................................................................................................................3-‐132
Exxon............................................................................................................................................3-‐134
Competitive
Three-‐Year
Strategy
for
Phillips
66...........................................................3-‐136
Generic
Competitive
Strategy............................................................................................3-‐136
Offensive
Strategies ...............................................................................................................3-‐139
Defensive
Strategies ..............................................................................................................3-‐141
Timeline
to
Implement
Offensive
/
Defensive
Strategies .....................................3-‐143
Potential
Supplemental
Strategies ..................................................................................3-‐144
Identification
of
Relevant
Issues
Concerning
International
Markets
/
Suppliers...3-‐
146
Discussion
of
Functional
Policy
to
Accommodate
Strategic
Plan...........................3-‐152
Strategic
Policy
Relative
to
Finance
/
Accounting....................................................3-‐152
Strategic
Policy
Relative
to
Marketing
Strategy........................................................3-‐154
Strategic
Policy
Relative
to
Management
Strategy ..................................................3-‐156

4
Table of Figures
Figure
1-‐1....................................................................................................................................................18
Figure
1-‐2....................................................................................................................................................19
Figure
1-‐3....................................................................................................................................................21
Figure
1-‐4....................................................................................................................................................23
Figure
2-‐1............................................................................................................................................... 2-‐28
Figure
2-‐2............................................................................................................................................... 2-‐29
Figure
2-‐3............................................................................................................................................... 2-‐31
Figure
2-‐4............................................................................................................................................... 2-‐40
Figure
2-‐5............................................................................................................................................... 2-‐46
Figure
2-‐6............................................................................................................................................... 2-‐54
Figure
2-‐7............................................................................................................................................... 2-‐55
Figure
2-‐8............................................................................................................................................... 2-‐56
Figure
2-‐9............................................................................................................................................... 2-‐56
Figure
2-‐10............................................................................................................................................ 2-‐57
Figure
2-‐11............................................................................................................................................ 2-‐58
Figure
2-‐12............................................................................................................................................ 2-‐59
Figure
2-‐13............................................................................................................................................ 2-‐59
Figure
2-‐14............................................................................................................................................ 2-‐60
Figure
2-‐15............................................................................................................................................ 2-‐61
Figure
2-‐16............................................................................................................................................ 2-‐61
Figure
2-‐17............................................................................................................................................ 2-‐62
Figure
2-‐19............................................................................................................................................ 2-‐63
Figure
2-‐18............................................................................................................................................ 2-‐63
Figure
2-‐20............................................................................................................................................ 2-‐64
Figure
2-‐21............................................................................................................................................ 2-‐66
Figure
2-‐22............................................................................................................................................ 2-‐67
Figure
2-‐23............................................................................................................................................ 2-‐67
Figure
2-‐24............................................................................................................................................ 2-‐72
Figure
2-‐25............................................................................................................................................ 2-‐73

PHILLIPS
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5
Figure
2-‐26............................................................................................................................................ 2-‐73
Figure
2-‐27............................................................................................................................................ 2-‐74
Figure
2-‐28............................................................................................................................................ 2-‐74
Figure
2-‐29............................................................................................................................................ 2-‐75
Figure
2-‐30............................................................................................................................................ 2-‐76
Figure
2-‐31............................................................................................................................................ 2-‐76
Figure
2-‐32............................................................................................................................................ 2-‐77
Figure
2-‐33............................................................................................................................................ 2-‐78
Figure
2-‐34............................................................................................................................................ 2-‐94
Figure
2-‐35............................................................................................................................................ 2-‐94
Figure
2-‐36............................................................................................................................................ 2-‐96
Figure
2-‐37............................................................................................................................................ 2-‐96
Figure
2-‐38............................................................................................................................................ 2-‐97
Figure
2-‐39............................................................................................................................................ 2-‐98
Figure
2-‐40..........................................................................................................................................2-‐100
Figure
2-‐41..........................................................................................................................................2-‐110
Figure
2-‐42..........................................................................................................................................2-‐112
Figure
2-‐43..........................................................................................................................................2-‐117
Figure
2-‐44..........................................................................................................................................2-‐120
Figure
3-‐1.............................................................................................................................................3-‐131
Figure
3-‐2.............................................................................................................................................3-‐135
Figure
3-‐3.............................................................................................................................................3-‐147
Figure
3-‐4.............................................................................................................................................3-‐148
Figure
3-‐5.............................................................................................................................................3-‐150
Figure
3-‐6.............................................................................................................................................3-‐150

6
DISCLAIMER
This strategic plan is in no way affiliated with the Phillips 66 Company. This report was
researched and prepared by students of Mercyhurst University for educational purposes
only.

PHILLIPS
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BUSINESS
POLICY
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7
1. Section 1 – Historical Analysis
History of Phillips 66
While Phillips 66 is still a relatively new company, they come from very strong roots in
the oil business. Prior to becoming their own entity, Phillips 66 was part of the merger
ConocoPhillips which included Phillips Petroleum Company and Conoco Inc. Phillips 66
may be new but the company that they stemmed from has a vast and ever changing
history.
On June 3, 1917, brothers L.E. and Frank Phillips founded the Phillips Petroleum
Company. The brothers started their small but modest business in Bartlesville, Oklahoma.
Before entering the oil business both brothers were a part of the banking business but
with the start of World War I, both decided to liquidate their banking funds and enter the
oil production business. By the end of 1917, the company was able to expand to Kansas
with 27 employees and assets of about three million. However, it was not until 1918 that
the brothers and the company made significant strides.1
In 1918, the Phillips Petroleum Company took part in setting up a refinery in the Texas
Panhandle gas field. The field is defined as “a giant gas and oil producing area that draws
production from several horizons of Pennsylvanian and Permian age granite wash and
dolomite, covering 200,000 surface acres in Hartley, Potter, Moore, Hutchinson, Carson,
Gray, Wheeler, and Collingsworth counties of the Panhandle”.2 It was during this time
that Phillips Petroleum solidified their interest in the oil business and decided to
specialize in extracting liquids from natural gas.3

8
By 1925, Phillips Petroleum was the nation’s largest producer of natural gas liquids.4
Feeling confident with their standings in the oil business, the brothers decided to once
again expand their company. Phillips Petroleum decided to enter the retail side of the
gasoline business where they saw immediate profits. By 1927, the company had made
enough money to expand yet again by opening their first refinery in Borger, Texas. The
year 1927 would prove to be a monumental time for Phillips Petroleum as the company
made strides in their retail endeavors by opening their first gasoline service station in
Wichita, Kansas. To stand out, the company decided to incorporate “66” into their logo
because it was near the famous U.S. Highway 66. The company wanted the logo to be
used as the company’s primary means of brand recognition so they even took to the logo
a step further when deciding to make it look like a route sign.5
Like most companies during the Great Depression, in 1932, Phillips Petroleum suffered
from their first loss in profit for the fiscal year. During that year alone, the company
reported a loss on profits totaling 5.7 million dollars.6 However, the company would
soon see a gain on earnings once again with the start of World War II. The war was able
to hold oil companies as a whole from falling apart during war time for the simple reason
of there being a significant need for oil. Phillips Petroleum was able to stand strong
during the war times even more so because of their war contributions in the form of
innovations in the process of “cold” synthetic rubber as well as the development of the
HF alkylation process for high-octane aviation gas.7

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Once the war was coming to an end, Phillips Petroleum moved their company into a new
direction while still remaining extremely active in their prior fields. By 1948, Phillips
Petroleum had made the jump into the chemical business, forming the Phillips Chemical
company. This would become the company’s first wholly owned subsidiary.8
By 1942, the company would again make strides in its original roots of extracting liquids
from natural gas by purchasing interest in 25% of the Panhandle Eastern Pipe Line
Company. This purchase included more than 250,000 acres of the Panhandle field for the
company. However, by 1954, the Supreme Court would take action against Phillips
Petroleum hold on the Panhandle and order them to divest their share in the Phillips
Petroleum vs. Wisconsin case. The court rules that the Federal Power Commission not
the gas company, would have the authority to regulate the price and manufacturing of the
gas.9
The court ruling and loss of power gains was something the company worked hard to
overcome. Phillips Petroleum decided the best thing to do to make more money was then
to expand their company once again. By the late 1950s, the gas company had begun to
expanded both national and internationally. Phillips Petroleum was exploring for natural
gas in Venezuela, Canada, Columbia, and some Middle East countries.10
However, the company’s expansion on a national scale would prove to be more profitable
by 1962, when Phillips Petroleum took part in an exploration project in Prudhoe Bay,
Alaska. While it took some time, by 1969, the company had found what is now known as

10
the Ekofisk and Natural Gas Field.11 The company used the fields to work on pipeline
projects that would serve as the “hub” when transporting the liquefied gas from Alaska to
Japan.12
By the early 1980s, Phillips Petroleum was once again suffering from profit losses.
During this time, the company was offered to make a merge with the T. Boone Pickens
and Carl Icahn but the company declined. Instead, the company coped with their losses
by restructuring their company and its forthcoming goals. Phillips Petroleum decided to
sell off their synthetic rubber plants which had been of much help to the company in the
1950s. The company also sold off their fertilizer and carbon black plants and focused
once again on expanding internationally. At the time the company was in a debt totaling 4
billion but once selling off their assets they narrowed the debt margin to under 2 billion
and were able to stay away from deal makings with Pickens and Icahn.13
In 1989, the Phillips’s company suffered major profit loss and media backlash when a
plant explosion occurred taking the lives of 23 Phillips employees. The explosion took
place at Phillips’s plastics plant in Pasadena, Texas. The outcome of the tragedy included
500 million dollars in repairs and fees. Even more upsetting to the company financially
was the loss of,”Phillips's U.S. capacity to manufacture polyethylene, which is used to
make blow-molded containers and other products”.14
In 2000, Phillips Petroleum announced that they would be taking a step back into
chemical productions by creating a joint venture with Chevron Corporations. Phillips

PHILLIPS
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11
Petroleum would work closely with Chevron’s Chemicals and Plastics Division in their
Ekofisk fields in Alaska. The joint business enterprise would set the company to soon
share 37 manufacturing and research centers where the production over 70,000 consumer
and industrial products would take place.15
Phillips Petroleum made another large change to their company when announcing that
they would be responsible for acquiring the Tosco Corporation. This new purchase took
place in 2001 and proved to be a major gain for the company as the acquisition involved
Phillips Petroleum now being involved in maintaining the brand and image for the 76
Brand Gasoline and Circle K.16
One of the biggest changes for the Phillips Petroleum Company would emerge in 2002
when the company announced their merge with Conoco Corporation. By late August of
that year, the company forwent their former enterprise name and became ConocoPhillips.
The merge was quite significant to not only both merging companies but to the oil
industry as a whole. The 15.17 billion dollar stock merge marked the new company as the
sixth largest oil and natural gas company in the world. With the company now owning
over 20,000 gas stations and various refineries and subsidiaries, it also pushed
ConocoPhillips into becoming one of the top 5 U.S. retailers.17
While in the past Phillips Petroleum had declined various mergers and acquisitions, the
company sought after the merge to promote future growth. While Conoco was currently
facing massive debts, Phillips Petroleum saw the major advantages to the merge. During

12
2002, Phillips was described as the current profit provider but would soon grow in the
future with the help of the Conoco side and their explorations overseas. Phillips allowed
the merge and transfer of monies to allow the new ConocoPhillips to combine their
research efforts and become one large competitive force in the oil industry. The merge
marked the newly established company as the third largest publicly traded oil company in
the U.S.18 Just one year into the major merge, ConocoPhillips was making significant
strides in their future growth. The company approved two major projects which included
the Surmont Oil Sands project in Canada as well as their plans for their first offshore oil
project in Vietnam.
ConocoPhillips wanted to continue their expansion and growth and by 2004, they did just
that. On September 29, 2004, the company would form a strategic alliance with Lukoil.
The alliance would, “creat(e) a joint venture to develop resources in the northern part of
Russia’s Timan-Pechora oil and gas province and their intention (was) to jointly seek the
right to develop the giant West Qurna oil field in Iraq”.19
ConocoPhillips furthered their growth just 2 years later by acquiring yet another
company. This time the company that was being bought out was oil and gas producer
Burlington Resources. The acquisition which took place on December 21, 2005, involved
a payout of 35.6 billion dollars by ConocoPhillips. ConocoPhillips sought for the oil and
gas producer as a means to build, “operations in gas fields in North America, which have
gained in value as strong demand pushed prices higher”.20 It was simply easier for

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ConocoPhillips to buy up another company and receive their assets and land than to
search and set up a new refinery on their own.
ConocoPhillips made another purchase in 2006. This time it was the Wilhelmshaven
Refinery in Wilhelmshaven, Germany. The purchase allowed ConocoPhillips access to
one of the largest independent oil refineries in Europe that average the production of
about 260,000 barrels per day.21 Along with the purchase of the Wilhelmshaven
Refinery, ConocoPhillips also purchased the Dreyfus Refinery and Marketing Limited in
the UK in the same year.
2007 marked the year of another strategic alliance for the growing ConocoPhillips
Company. The company announced its alliance with Tyson Foods stating that the two
businesses would work together to find new ways of creating renewable diesel fuels from
various animal byproduct fat. Both companies saw the endeavor as a way to find the
“next generation” of renewable diesel fuels. ConocoPhillips explained that, “to make the
fuel, the animal fats will be processed with hydrocarbon feedstocks to improve its storage
stability and handling characteristics (and) the fuel will meet all federal standards for
ultra-low-sulfur diesel”.22
Major changes occurred for the ConocoPhillips Company in 2011. During the fiscal year,
board directors of the company met and sought plans to break down or separate the ever-growing
company. The board members decided upon breaking the business down into
two separate categories. The first would be composed of the company’s Refining and

14
Marketing business aspects and the second would include the Exploration and Production
business. By the end of the year the board had concluded that two categories would serve
as two separate standalone corporations. The first would remain as ConocoPhillips
serving the production aspect and the new corporation would be Phillips66 as the sole
entity for the marketing and refinery side.23
On May 1, 2012 Phillips66 began trading as a separate company from ConocoPhillips.24
Since the company has been separated from the Conoco name, Phillips 66 has emerged as
a company with great amounts of potential. At the end of 2013, Phillips 66 took the #4
spot on the desired Fortune 500 top performing companies list.25 With a new
management team and new aim for future ventures and investments, Phillips 66 appears
to be a company on the rise.
History of the Industry
The petroleum industry is one of the largest industries in the world. In short the
petroleum industry is based off of extracting raw crude oil from the ground and refining it
into usable resources such as oil and gasoline. Crude oil is believed to be created from
organic waster residue, mainly microscopic plankton and land plants. This organic
matter has accumulated over millions of years creating deposits of decaying matter far
beneath the surface. Being so far underneath the earth the pressure building on top of the
matter caused it to be heated which turned it into hydrocarbons such as oil and natural
gas. This liquid form of oil slowly permeated through rocks and was trapped by shale
rocks on top and heavier salt water on the bottom.26

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There are many different ways to extract the raw crude oil from the ground. Drilling for
oil is the most common used method today. Also there is offshore drilling which is when
there are underwater wells in the ocean of large lakes that cannot be accessed on land.
There are the oil sands in northwestern Canada, which is almost like a mining operation
to extract the crude oil from an almost sand like substance. As well there is a recently
new technology that is controversial but very beneficial and that is called hydraulic
fracking. The technology uses a horizontally drilled shaft and puts high pressure sand
and chemical mixture into the shaft creating cracks in the ground releasing the petroleum.
The first way and the first time we see oil put to use for humans was 1854 in Oil Creek,
Pennsylvania. George Bissell founded the Pennsylvania Rock Oil Company and used it
to capture oil that had made its way to the surface. At first the oil was used primarily for
medical treatments but a chemist from Yale University saw prosperity in the refining of
the oil. Bissell teamed up with former railroad conductor Edwin L. Drake who had
studied salt-water artesian well to become the first to drill for oil. August 27, 1859 was
the first oil well to be drilled in North America and strike a pool of oil; its depth was 69
feet. 27
Soon after the first oil well was drilled John D. Rockefeller founded Standard Oil of
Ohio, which at the time is the largest corporation in America. It focuses on refining the
crude oil and natural gas into usable resources. By 1878 Standard Oil hold a 90 percent
market share in the refining of oil and natural gas. Once companies realized that oil was
not only on land but beneath water as well they began the process of figuring out how to

16
plan and drill for off shore wells. In 1896 the first off shore well was drilled at the end of
a 300-foot wharf in Summerland California.28
Soon after the discovery of oil and all the possibilities it brings to striking it rich and
creating jobs, oil boomtowns started popping up. These towns are solely based on
working around the oil industry. Beaumont, Texas was the first to become known as oil
fueled boomtown in 1901 after a “gusher” flowing 100,000 barrels of oil a day was
found. A lot of these towns do unfortunately dry up after oil wells dry up but they are
very profitable in the short run and whoever strikes the oil or owns the land became very
wealthy.
One of the biggest inventions to happen in the oil industry was when Henry Ford
incorporated The Ford Motor Company and created the first gasoline powered
automobile, the Model T. Before automobiles were invented gasoline was a little used
byproduct of the refining process and now with these new machines they can use it
increasing the demand of oil and gasoline.
By 1911 the United States Supreme Court rules that Standard Oil is to be broken up into
34 smaller companies. They rule that the company is an unreasonable monopoly under
the Sherman Antitrust Act. 29
When World War I started the fight for oil and the supplies it created fueled the war.
Planes, ships and tanks were fueled by oil and gasoline. This is the first time in history

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where a war has been aided by the oil supply and who had control of it. Whoever
controls the oil supply and blocks it off to their enemies ultimately has a better chance at
winning the war. Ultimately though this would lead into the Great Depression where
many people suffered through ten long years of financial crisis and hopelessness.
The Great Depression caused Americans and the oil industry to look other places to drill
for oil. In 1933 Standard Oil was allowed by Saudi Arabia to prospect for oil. Going
abroad in search of oil is one of the biggest moments in the oil industry. Today Saudi
Arabia is one of the world leaders in the oil industry and produces mass amounts of
petroleum. In 1939 the control of the oil industry hit an all time high with the start of the
Second World War. With even more automobiles, tanks and planes relying on oil and
gas to function the control of who has what was very evident. The fight for the Middle
East and their huge oil reserves were very important to the Allied forces. The United
States realized that the oil supply is very limited and recognized that creating an oil
policy should be a concern for the future of the nation. Ultimately when the Allied forces
put a blockade on Japan and no oil could be brought in considerably weakened the
Japanese forces and was their downfall.
“September 14, 1960 the Organization of the Petroleum Exporting Countries (OPEC) is
formed for the purpose of negotiating with oil companies on matters of petroleum
production, prices, and concession rights. The first member nations of the cartel are Iran,
Iraq, Kuwait, Saudi Arabia and Venezuela”.30 This organization is still running today
and has 12 members countries. The goal of OPEC is to unify the petroleum policies of its

18
member countries and ensure stabilization of oil markets in order to secure an efficient,
economic and regular supply of petroleum to consumers. 31
The Great Canadian Oil Sands
Ltd was founded in 1967,
which is a production process
in which oil is extracted from a
rocky material, almost like a
mining operation. This was
found to be one of the largest
Figure
1-1
oil resources in the world and
has made Alberta Canada one of the most desirable places to find work.
The oil and gas industry can be unstable at times and the price of a barrel of oil is always
changing. At points in time the price of a barrel of oil has been as low as $10, as of right
now the price of oil is $100. The amount of wealth that can be garnered from the oil and
gas industry is immense. In 2008 crude oil hits a record high of $147.27 per barrel.
Months later the price of oil drops below $50 as the global recession hits.

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History of Competitors and Environmental Factors
Valero
Energy
Corporation
1980
Figure
1-2
• Valero
Begins
• Born
as
the
corporate
successfor
of
LoVaca
Gathering
Co.,
a
natural-‐gas
gathering
subsidary
of
the
Coast
States
Gas
Corp.
1990
• Valero
Grows
As
a
Diversiaied
Company
• Began
operating
in
reaining
and
marketing
and
natural-‐gas-‐related
services.
1997
• Acquires
Basis
Petroleum
Inc
• Becomes
the
Largest
Independent
Reainery
on
the
Gulf
Coast
2000
• Valero
Acquires
Benicia
Reainery,
one
of
the
most
complex
reaineries
in
the
nation.
• Valero
Enters
West
Coast
Market
and
Establishes
Retail
Presence
2001
• Valero
Acquires
Ultramar
Diamond
Shamrock
• Became
one
of
the
nation's
top
three
reaining
and
marketing
companies.
2004
• Valero's
International
Reach
Expands
• Purchases
El
Paso
Corp's
315,000
barrel-‐per-‐day
reainery
in
Aruba.
2005
• Valero
Becomes
Largest
Independent
North
American
Reainery
• Acquired
Premcor
Inc,
an
$8
billion
transaction,
one
of
the
largest
and
most
strategic
in
the
compnay's
history.
2006
• Valero's
Branded
Wholesale
Division
Grows
and
Earns
Honors
• Became
the
No.
1
rack
fuel
marketer
in
Texas,
signed
an
11-‐year
agreement
with
Susser
Petroleum.
2009
• Valero
Enters
Renewable
Fuels
Business
• Purchased
seven
ethanol
plants
from
VeraSun
Energy
Corp.
Formeda
new
subsidiary,
Valero
Renewable
Fuels
Company
LLC.
2011
• Valero
Enters
Western
Europe,
Continues
Strategic
Acquisitions
• Purchased
the
Pembroke
Reainery
in
Wales,
also
purchased
ownership
interests
in
four
major
pipelines
and
11
fuel
terminals.
Fall
2011,
acquired
Meraux
Reainery
in
Meraux,
LA.
2013
• Valero
Spins
off
Retail
to
CST
Brands
Inc.
• Became
one
of
North
America's
largest
independent
retailers
of
transportation
fuels
and
convenience
merchandise.

20
Valero Energy Corporation, founded by Bill Greehey, was created on January 1, 1980, as
the corporate successor to LoVaca Gathering Company, a subsidiary of the Coastal States
Gas Corporation. After six years of litigation between Coastal and it’s municipal gas
customers due to claims of being overcharged, a $1.6 billion settlement was reached and
as a result Valero was created. Headquartered in San Antonio, Texas, Valero originally
operated as a natural-gas transportation business. As early as the mid 1980s Valero
began to diversify and expand its operations into other fields in the energy industry with a
50 percent interest in a Corpus Christi, Texas, refinery owned by Saber Energy. The
years following Valero invested more than $1 billion in this refinery, converting it into a
cutting-edge technological refinery that was able to produce eco-friendly fuel; and by
1997 started adding more refineries through their subsidiaries.32 33 In 1997 Valero
purchased Basis Petroleum Inc. and as a result became the largest independent refinery in
the Gulf Coast. In 2000, Valero purchased Benicia Refinery and begins to establish their
presence in the west coast markets, as well as establishes their retail presence. By 2005
Valero had purchased several other refineries and became the largest independent North
American refinery. In 2009 Valero purchased seven ethanol plants from VeraSun Energy
Corporation, establishing their presence in the renewable fuels business. In 2011 Valero
purchased the Pembroke refinery in Wales, as well as ownership interests in four major
pipelines and 11 fuel terminals.
Valero’s strategic history shows that they placed a high emphasis on refinery technology
as well as refinery acquisitions within North America. One of Valero’s initial
investments was a $1 billion investment into their original refinery plant that allowed

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them to create eco-friendly fuel from mere cut-rate feedstocks. This shows an early
emphasis on being environmentally friendly, as well as working to reduce costs within
their value chain. Following their initial investment, Valero has continued to acquire
high-tech oil refineries all over North America. This shows their ongoing commitment to
expand their company as well as operate cutting-edge technological refineries. Valero
has proven through their past financial success as well as their aggressive acquisition
strategy that they will like be a major competitor in the petroleum refining industry.
Their commitment to operating high-tech oil refineries allows them to remain flexible in
the oil industry as well as reduce their overall costs and improve their profits.
Chevron
Figure
1-3
In 1876, Petroleum pioneers Demetrius Scofield and Feederick Star of the California Star
Oil Works began drilling in the Pico Canyon, a remote portion of the Santa Susana
Mountains. Lacking the capital it needed to seize marketing opportunities, California
Star was acquired by the Pacific Coast Oil Co. on Sept. 10, 1879. In 1895, the company
initiated its enduring marine history with the launch of California’s first steel tanker,

22
which could ship 6,500 barrels of crude between Ventura and San Francisco. In 1885 the
Iowa Standard purchased the company; Iowa Standard proceeded to gain a presence in
the production, transportation, and refining businesses. In 1906 the Iowa Standard
created a new entity, the Standard Oil Corporation of California. Throughout the early
1900s the Standard Oil Corporation of California began purchasing other refineries and
expanding their operations. Following World War I, U.S. crude oil supplies were
depleted, and Standard Oil decided it was time to seek oil beyond the U.S. shores. At this
point, Standard Oil expanded their operations internationally to the Philippines as well as
Saudi Arabia. During World War II, the Standard Oil Corporation of California (Socal)
was the main supplier of crude oil to the Allied forces. In 1945, Socal expanded their
portfolio into petrochemicals with the development of synthetic detergents and plastics.
In 1977 the company decided to make a major organizational change, and as a result
formed Chevron U.S.A. Inc., merging six domestic oil and gas operations into one. This
nationwide organization and consolidated organization positioned Chevron to flourish in
the coming years. In the 1990s Chevron began their involvement in mega-projects,
including developing allies with other corporations. These alliances positioned Chevron
to be involved in the industry’s best opportunities. In 2000 Chevron merged with
Texaco, creating the ChevronTexaco company. In 2005 they decided to drop the Texaco
and proceed with the Chevron name. By 2006 Chevron had displayed their expertise in
deepwater drilling, allowing them to access oil reserves that other companies weren’t
capable of accessing. Chevrons long history in the oil industry has allowed them to
become one of the supermajor oil companies today.34

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ExxonMobil
Figure
1-4
ExxonMobil was started in 1859 when Colonel Edwin Drake and Billy Smith drilled the
first successful oil well in Titusville, Pennsylvania. In 1870, Rockefeller and his
associates formed the Standard Oil Company (Ohio), constituting the largest refining
capacities in the world. Standard continued with their kerosene production and saw great
success, until 1911 when gasoline surpassed kerosene for the first time. After the
acquisition of many different companies, Standard oil had stake in the oil and chemicals
industry by 1920; including the first production of the petrochemical isopropyl alcohol.
By 1963 Standard Oil had adopted 3-D seismic technology which would soon allow them
to search for oil and gas in a whole new way. In 1966 the Vacuum Oil Company
changed its name to the Mobil Oil Corporation. In 1972 Jersey Standard changed their
name to the Exxon Corporation. Throughout the 70’s, Mobil began releasing their Mobil
1 oil, which would soon become the leading synthetic motor oil. In November of 1999
Exxon and Mobil officially combined creating the ExxonMobil Corporation, a move said
to enhance their ability to be an effective global competitor. In 2011 ExxonMobil
became the first oil company to utilize deepwater drilling, this is one of the largest
discoveries in the Gulf of Mexico in the last decade.35

24
Environmental
Factors
The oil Industry is responsible for the majority of the world’s energy generation. Most
people don’t fully realize the incredible stress the industry is under and the risk factors
affecting it. Over the years there have been very many environmental factors that have
affected the decision making of the industry, how the companies do business, and the
direction the industry has moved over the years.
The first major problem that the oil industry has been battling over the years is the
unstable oil and gas prices. The constant spikes in oil prices resulting from supply issues
and ongoing regulatory battles are the issues weighing heavily on the minds of oil and
gas executives throughout the industry. These issues have long been prevalent in the
industry, but are handled with more urgency as significant tax and environmental
regulations come closer to fruition and turmoil in the Middle East continues to drive up
prices as well.36
The next major problem that the oil industry must deal with is regulatory and legislative
and increased cost of compliance. Over the years government interference has enforced
tighter safety and environmental guidelines requiring oil companies to massively invest
in preventive measures. After the BP oil spill in the Gulf of Mexico, the standstill placed
on offshore drilling in the region crippled the oil and gas industry. Causing the regulatory
and legislative changes that are affecting the industry today.37

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Continuing on with regulatory and legislative involvement in the oil industry. Since the
BP oil spill there has been a big focus on preventing operational hazards including
blowouts as well as personal injuries. The Deepwater Horizon incident was a game
changer for the industry as a whole. The explosion that led to the oil spill left 11 men
dead and more injured. This forced the industry to invest heavily in safety precautions
and more skilled training so something that would not happen again. 38
Environmental restrictions and regulations have also had a huge impact on the oil
industry. The problems surrounding climate change and greenhouse gas emissions have
become common knowledge in society. Also the more recent concerns over the future of
hydraulic fracturing, poses major problems to the oil and gas industry.
When it comes to economic concerns, over the past years we have faced a global
recession. This has forced more households and businesses to tighten up their belts to
make every penny count. The oil and gas companies are no different; they must address
many of the same concerns. Whenever there is an economic slowdown it leads to lower
oil demand, as consumers scale back their gasoline consumption and businesses cut
travel.39
In an industry that is driven by constant innovation and advancements, technology could
possibly be the most important part of the key environmental factors of the oil industry.
Technology is what started the oil industry; it has been and well continues to be the main
driving force in the industry until oil no longer exists. over the last century it has been the

26
key factor in decision making, shaped the companies do business, and determined the
direction in which the oil industry went and will continue to go.
1 http://www.referenceforbusiness.com/history2/65/ConocoPhillips.html
2 http://www.tshaonline.org/handbook/online/articles/dop01
3 http://digital.library.okstate.edu/encyclopedia/entries/p/ph004.html
5 http://www.cspnet.com/fuels-news-prices-analysis/fuels-news/articles/phillips-66-rises-again
6 http://www.encyclopedia.com/topic/Phillips_Petroleum_Company.aspx
8 http://www.phillips66.com/EN/about/history/Pages/index.aspx
9 http://en.wikipedia.org/wiki/Phillips_Petroleum_Co._v._Wisconsin
12 http://www.conocophillips.no/EN/our-norway-operations/greater-ekofisk-area/ekofisk/Pages/default.aspx
13 http://money.cnn.com/magazines/fortune/fortune_archive/1985/03/04/65693/index.htm
14 http://www.referenceforbusiness.com/history2/74/Phillips-Petroleum-Company.html
15 http://www.cpchem.com/en-us/company/Pages/default.aspx
16 http://en.wikipedia.org/wiki/Circle_K
17 http://money.cnn.com/2002/03/12/news/deals/phillips/
18 http://www.reuters.com/article/2011/07/14/conocophillips-mergers-idUSN1E76D0MC20110714
19 http://www.lukoil.com/press.asp?div_id=1&id=2265
20 http://www.nbcnews.com/id/10448863/ns/business-oil_and_energy/t/conocophillips-buy-burlington-resources/
21 http://www.hydrocarbons-technology.com/projects/wilhelmshaven-refine/
22 http://www.nbcnews.com/id/18136194/ns/business-oil_and_energy/t/conocophillips-tyson-make-diesel-fats/
23 http://www.chron.com/business/article/ConocoPhillips-split-becomes-official-as-company-3522914.php
24 http://www.phillips66.com/EN/about/history/Pages/index.aspx
25 http://money.cnn.com/magazines/fortune/fortune500/2013/snapshots/11773.html?iid=F500_lp_arrow2
26 http://www.usoilandgas.net/learnaboutoil.htm
27 http://www.britannica.com/blogs/2009/08/the-first-oil-well/
28 http://www.pbs.org/wnet/extremeoil/history/

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31 http://www.opec.org/opec_web/en/about_us/25.htm
32 http://www.thehistoryofcorporate.com/companies-by-industry/energy/valero-energy-corporation-companies-history-corporations-history/
33 http://www.valero.com/ourbusiness/pages/companyhistory.aspx
34 http://www.chevron.com/about/history/2002/
35 http://corporate.exxonmobil.com/en/company/about-us/history/overview
36 http://www.bdo.com/news/pr/1706
37 http://democrats.naturalresources.house.gov/issue/bp-oil-spill
38 http://www.bdo.com/news/pr/1706
39 http://www.nytimes.com/2008/01/24/business/worldbusiness/24iht-oil.1.9467777.html?_r=0

2-‐28
2. Section 2 – Current Analysis
Subsection 1: Company Profile
Discussion of Company’s Current Overall Strategy
On April 9, 2012, Greg Garland, the designated CEO of Phillips 66, presented an
overview for the new company and his plans for Phillips 66. Garland mentioned that
there would be three leading operating segments for Phillips 66: Chemicals, Midstream,
and Refining and Marketing.40 The most basic of strategies for Phillips 66 is to focus on
the business segments that have the highest return on capital invested.
Figure
2-1
The two segments that have produced the highest return on capital invested are the
Chemicals business segment and the Midstream business segment. The Chemicals

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business segment for Phillips 66 boasts a 28 percent return on capital employed (ROCE),
and the Midstream business segment boasts a 30 percent ROCE.41 This means that the
Refining and Marketing business segment will likely be de-emphasized due to the low
profitability. Capital allocation in the Chemicals business segment as well as the
Midstream business segment will likely increase.
Garland also states that Phillips 66 will benefit from being an independent company.
Compared to their predecessor ConocoPhillips, Phillips 66 is smaller in size and more
likely to see accelerated growth.42 Furthermore, the three pieces of the Phillips 66
business are more valuable together. According to Garland, this value is created through
lower risk, lower cost of capital, and the ability to see through the entire value chain.43
Phillips 66 differentiated
portfolio would prove to be a
competitive advantage for
them. With 40 percent of their
adjusted earnings coming from
Refining and Marketing, and
the other 60 percent from
Chemicals and Midstream,
Phillips 66 has successfully
spread their earnings across
their business segments.44
Figure
2-2
This lowers the risk for Phillips 66 if one of their specific segments drops off

2-‐30
significantly. They will be able to rebound with the help of their other business
segments.
According to Garland, the long-term vision for Phillips 66 is that Refining and Marketing
will see 50 percent of capital employed, where as Midstream and Chemicals will make up
the other 50 percent via a 25/25 split (see figure 2-3). Garland also indicated that they
will likely invest in their higher return business and “will be very selective in how we
invest in the lower return businesses.”45 Molly Ryan reported in the Houston Business
Journal on February 11, 2014 that Phillips' decision to move forward with more than $3
billion worth of projects reflects the company’s strategic decision to chase higher-margin
markets. "Midstream spending is expected to pick up in 2014 since energy companies are
increasingly realizing the profits that can be found in moving the massive amount of oil
and gas coming from U.S. shale plays," writes Ryan. "Phillips 66 specifically hopes to
cash in on this through its new liquefied petroleum gas terminal, which will store and
transport fluids, and its new fractionator facility, which will supply and transport natural
gas liquid products to petrochemical companies."46
Discussion of Company’s Current Competitive Advantage in the Industry
Diverse Portfolio
Phillips 66’ greatest competitive advantage is their diverse portfolio. Phillips 66 is the
only independent company that provides leading Midstream, Chemicals, Refining and
Marketing, and Specialties businesses. By operating with such a diverse portfolio,
Phillips 66 is positioned to capture opportunities of the changing energy landscape. With

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40 percent of their adjusted earnings coming from their Refining and Marketing segment,
and the other 60 percent from their Midstream and Chemicals segments, Phillips 66 is
effectively creating balance among their business portfolio.47 By earning profits from
many different business segments in a balanced way, Phillips 66 is effectively able to
lower their risk and earn profits in an ever-changing energy landscape.
Natural Gas in the US
Figure
2-3
In the United States today, Phillips 66 is enjoying a competitive advantage due to
increased production of crude oil, natural gas liquids, and natural gas. These are
feedstocks that Phillips 66 uses for their refineries in their midstream and chemicals

2-‐32
businesses.48 Though Refining and Marketing brings in the most profit for Phillips 66,
they also have a majority of their capital allocated into this segment. When it comes to
ROCE, Phillips 66 has a competitive advantage in the Midstream and Chemicals
segments. NGL productions are expected to increase from 200,000 to 400,000 barrels a
day every year through 2015. Crude production is expected to increase from 500,000 to
600,000 barrels a day every year through 2015. And finally, natural gas is expected to
increase from 150 billion cubic feet to 200 billion cubic feet every year through 2015.
An estimated $100 billion is expected to be invested to get these products to the market,
and it is fundamental for Phillips 66 to exploit the increase in demand for these
resources.49
Joint Ventures
Phillips 66’ joint ventures with DCP Midstream as well as Spectra Energy Corporation,
which is the largest NGL producer in the United States, is proving to be a competitive
advantage in the Midstream business segment.50 In the Chemicals business segment,
Phillips 66’ 50/50 joint venture with Chevron, named the ChevronPhillips Chemical
Company (CPChem), is one of the largest producers of olefins and poly olefins.
Furthermore, CPChem has significant assets that are advantaged from the NGLs from the
North American shale.51
Financial Strength and Flexibility (see Current Financial Analysis)
Phillips 66 also has a competitive advantage in their financial strength and flexibility.
Phillips 66 holds an investment grade credit rating on their long-term debt, and they

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maintain sufficient cash and liquidity to enable them to invest in high-return projects (see
Current Financial Analysis). Phillips 66 current strategy to allocate capital into their
higher ROCE business segments (Midstream, Chemicals) is designed to fund
sustainability investments and growth projects, while increasing shareholder distributions
and strengthening their balance sheet. This approach will enable Phillips 66 to remain
financially flexible throughout the business cycle.
Discussion of Company’s Current Strategy Relevant to the 3 Tests of a Winning
Strategy
Does Phillips 66’ Strategy Fit Their Current Situation?
Phillips 66 spun off from ConocoPhillips in order to integrate their downstream business
into one company. Since their separation, Phillips 66 has placed a significant emphasis
on their Chemicals and Midstream business segments. Furthermore, because of their
decrease in size, as compared to ConocoPhillips, Phillips 66 is more capable of reducing
their risk, lowering their cost of capital, and creating greater transparency through their
value chain. The combination of these three factors allows Phillips 66 the better allocate
their resources to their Chemicals and Midstream segments.
Is Phillips 66’ Strategy Helping the Company Achieve a Sustainable Competitive
Advantage?
Phillips 66’ strategy of allocating more of their resources into Chemicals and Midstream
is allowing them to achieve a sustainable competitive advantage. In the midstream
segment, NGL production is expected to increase from 200,000 barrels-a-day to 400,000

2-‐34
barrels-a-day per year through 2015. Natural gas production is expected to increase from
150 billion cubic square feet to 200 billion cubic square feet per year through 2015 (see
Discussion of Phillips 66 Competitive Advantage). If these estimates are accurate,
Phillips 66 is placing themselves into a highly competitive position in the next two years.
Beyond the next two years, the ever-changing energy landscape in the United States is
constantly evolving. By focusing their efforts on Chemicals and Midstream, Phillips 66
believes that they are placing themselves into a situation that works with the changing
landscape. Their diverse portfolio allows them to adapt and exploit whichever energy
markets may emerge (see Phillips 66 Overall Strategy).
Is Phillips 66’ Strategy Producing Good Company Performance?
Discussion of Company’s Current Strategic Vision / Mission
Phillips 66’ mission statement is as follows:
“We are Phillips 66, and our employees, suppliers, and partners share a vision to provide
energy and improve lives. We manufacture energy and are shaping the U.S. energy
revolution with products such as gasoline, diesel, jet fuel and lubricants for
transportation, natural gas and natural gas liquids for powering businesses and heating
homes, and petrochemicals, polymers and plastics found in cars, electronics and everyday
goods. We provide high quality jobs and deliver value to our shareholders.”52
In their mission statement, Phillips 66 says that their goal is to do a service to the
community in order to improve the quality of living. They mention that they are shaping
the U.S. energy revolution, a claim that is very powerful considering the demand for

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energy today. Also, their mission statement lists their broad product offerings in a sense
that allows the reader to understand that Phillips 66 products are a part of our day-to-day
life. Their last statement refers to the quality of their work as well as the value of their
shareholders. This mission statement is sufficient because it describes what Phillips 66
does as a company, what products they offer in a general sense, as well as their
commitments as a company.
Phillips 66’ strategic priorities as a business are as follows:
• Enhance Returns on Capital
• Deliver Profitable Growth
• Grow Shareholder Distributions
• Build a high-performing organization
• Maintain Strong Operating Excellence
In order to enhance their returns on capital, Phillips 66 plans to increase ROCE and
capital efficiency through greater use of advantaged feedstocks, a disciplined capital
allocation process and portfolio optimization. Processing lower-cost crude oil and NGL
feedstocks allow Phillips 66 to increase their gross margins as well as their return on
capital in Refining and Chemicals. In order to achieve higher returns, Phillips 66 is
selling finished products to higher-margin export markets. Furthermore, Phillip 66’
disciplined allocation process ensures that investments into projects with generate
competitive ROCE throughout the business cycle. Capital directed towards Chemicals,
Midstream, and Marketing and Specialties is expected to see higher growth and returns.

2-‐36
In regions that generate below-average returns, Phillips 66 plans to reduce Refining
exposure.
There is a high potential for profitable growth in the Chemicals and Midstream segments.
Phillips 66’ Chemicals joint venture company, CPChem, plans to reinvest the majority of
its net income to build additional processing capacity that benefit from lower-cost NGL
feedstocks. The increase in demand for unconventional crude oil, NGL and natural gas
production, is creating capital investment opportunities in Phillips 66’ Midstream
business.
Phillips 66 believes that consistent and ongoing growth of regular dividends,
supplemented by share repurchases, creates shareholder value within their company.
Phillips 66’ plans to increase dividends annually and fund a share repurchase program
while continuing to invest in the growth of their business.
In order to create a high-performing organization, Phillips 66 has worked towards
providing a great place to work where employees can reach their fullest potential, thrive
on delivering results, and create shareholder value through individual and team success.
Phillips 66 fosters an achievement-based culture that promotes accountability and
meritocracy, while investing in learning as well as development.
Phillips 66 is committed to maintaining strong operating excellence by continually
improving safety, environmental stewardship, as well as improving cost efficiency.

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Rigorous training and audit programs drive ongoing improvement in both personal and
process safety. A large part of Phillips 66 strategic vision is the commitment to
protecting the environment and continually seeking to reduce their environmental
footprint throughout their operations.53
Along side their business strategies, Phillips 66 also has several core values that it
bases their company on:
• Safety
• Honor
• Commitment
Phillips 66’ highest value is that of safety. They are dedicated to providing safety to their
employees, the environment, as well as to the community. In a business that operates
large facilities with dangerous chemicals and heavy equipment, it is extremely important
for Phillips 66 to take a great amount of pride in their safety. Furthermore, the petroleum
refining industry is known to cause a damaging environmental footprint. Phillips 66’
commitment to providing safety for the environment shows that they are aware of the
damages, and a continually working to improve them. Lastly, by valuing the safety of the
community Phillips 66 is trying to gain a good image with their consumers.
Their next highest value is honor. Phillips 66 wants their customers as well as the
community to honor their word, and to believe that they will always do the right thing.
This is extremely important to building confidence with the community as well as their

2-‐38
customers. If they are able to abide by their values and honor their word, then they are
able to gain a good position with the community.
Lastly, Phillips 66 places value in their commitment to achieve the highest levels of
performance in everything that they do. This ode of commitment is especially important
in the energy industry. By committing to achieving high levels of performance, they are
able to produce the highest quality energy as well as generate the most profit possible.54
Identification of Company Core / Distinctive Competencies
Core Competencies
Joint Venture with DCP Midstream
Phillips 66’ joint venture with DCP Midstream gives them a great advantage in their
midstream sector. DCP Midstream leads the midstream industry as one of the nation's
largest natural gas gatherers and processors, and one of the largest producers and
marketers of NGL in the United States. Because Phillips 66 is the only company with
stake in DCP Midstream, combined with DCP midstream’s massive success in the
midstream sector, this is a core competency for Phillips 66 that other companies aren’t
capable of replicating.
Joint venture with Chevron, Chevron Phillips Chemical Company LLC, CPChem
Phillips 66’ joint venture with Chevron Phillips lead to the creation of CPChem, or the
ChevronPhillips Chemical Company. CPChem is the largest producer of high-density
polyethylene (HDPE) in the world. CPChem is also the fourth largest ethylene producer
in North America. Furthemore, CPChem is the second-largest cyclohexane producer and
the largest cyclohexane marketer in the world. Their chemicals company CPChem is a

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competency because they are not only extremely successful in North America, but they
have the joint venture with Chevron Phillips which gives them greater access to resources
as well as the ability to spread their risk.
Distinctive Competencies
Diverse Portfolio and Management Team
Phillips 66 is the only independent company that combines leading Midstream,
Chemicals, Refining, and Marketing and Specialties businesses. Their differentiated
portfolio allows them to add value to their investments as well as spread risk across their
value chain. Also, being a spinoff from ConocoPhillips, Phillips 66 has a management
team that has been in the energy industry for decades. In an time where supply for
quality management is decreasing, the ability to have a management team as well as a
highly-skilled workforce is a distinctive competency for Phillips 66.

2-‐40
Current SWOT Analysis (2013 / 2014)
SWOT
Strengths
• Brand recognition
• Joint business ventures
• Ability to balance cash
flow
Weaknesses
• Profit slump
• Competitive
Marketplace
Opportunities
• Expanding US shale gas
market
• Sustainable energy
initiatives
• Alternative energy
sources
Phillips 66 should take
advantage of their joint
ventures with DCP
Midstream as well as
CPChem to further expand
on their natural gas
producing capabilities; this
is also considered an
alternative fuel source that
is seeing a rise in demand
today.
In a highly competitive
marketplace, it is crucial for
Phillips 66 to be able to
differentiate their products,
specifically in their
midstream. Differentiating
among NGLs and natural
gas will allow them to gain
market standing and turn a
profit.
Threats
• Split from
ConocoPhillips into a
less profitable market
• Unstable market
• Health, safety, and
environmental risks
Though the downstream
industry isn’t as profitable
as the upstream industry,
Phillips 66 is able to rely on
their brand recognition as
well as their resources in
the upstream industry in
order to increase profit
margins in the downstream
industry.
It is clear that the spinoff
from ConocoPhillips has
resulted in a decrease in
profits for Phillips 66,
specifically in their refining
segment. Phillips 66 should
work to invest their
resources into high-profit
markets with fewer
environmental risks.
Figure
2-4
Strengths
Phillips 66 is a relevantly new company but, that does not mean the company lacks in
having various strengths. While Phillips 66 has only become their own separate
corporation since May of 2012, the company has made several strides and tactical moves
to stay relevant in the oil industry. The company may be new but still also benefits from
past roots and uses those to their advantage as well. Phillips 66 is a company that excels
and it shows through their strengths denoted in any SWOT analysis.

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Brand Recognition
As previously stated, Phillips 66 is a newer company in the oil industry but still, they
have dated origins that they use now to help strengthen their business. The Phillips 66
logo is a major strength that the company remains to hold on to. The red, white and black
state highway route shaped sign has remained the same with only a few minor changes
since first being introduced as Phillips Petroleum‘s logo in 1930.55 It has instant brand
recognition to consumers therefore giving Phillips 66 a more family friendly and safe
feeling. When asking Phillips 66 CEO Greg Garland about the logo and reasons for
keeping it he stated, “Phillips 66 has strong brand recognition and value, and it provides a
link between our rich history and our exciting future. Our name reflects an independent
spirit and drive - two attributes of our future company “.56
Joint Business Ventures
Another strength that Phillips 66 has relates to their holdings in the oil industry’s
midstream and chemical business. Phillips 66 takes part in a 50/50 venture with Spectra
Energy for DCP Midstream. This venture includes over 50,000 miles of natural gas
pipeline as well as 62 gas processing plants and 12 fractionation facilities.57 Another huge
midstream asset that Phillips 66 holds is having a 25 percent stake in the Rockies Express
natural gas pipeline.58

2-‐42
Ability to Balance Cash Flow
One last significant strength for Phillips 66 is their ability to balance their cash flow.
When ConocoPhillips split in 2012, there was debate as to whether or not Phillips 66
would be able to survive as they were becoming a much smaller entity. However, being
smaller worked to the advantage of the company. When the company split, it allowed for
Phillips to invest their money more strategically. This had proven to be beneficial
because investors felt a sense of better or more accurate predications because Phillips was
smaller so their ventures and spending habits were more narrow. Having more tapered
investments with their cash had proven to be successful as the company saw stocks rise
by 86 percent by the end of 2013.59
While Phillips 66 may still be a newer company to the oil industry, they have strong roots
and ties to keep them successful and pertinent. Between their joint ventures and strategic
investing, the company has shown great strides since splitting from ConocoPhillips. As
the company matures, they should go on to show even more strengths as a competitor to
others within the oil industry.

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Weaknesses
Even though Phillips 66 is a profitable company with a decent number of strengths. The
company still does have some weakness. Though their weaknesses are outweighed by
the strengths, they still have things that they can improve on and other companies could
take advantage of.
Declining Profits
For instance, a profit slump from year to year is something you don’t want to see as a
company. Since their split from ConocoPhillips, Phillips 66 Profit Margin ratios as well
as earnings per share have been on the decline for the past couple of years. In October of
2013, a report came out that Phillips 66's third-quarter earnings declined 67% as the
company posted a loss in its refining segment as a result of weaker refining margins.
Though this is due to market conditions, it is still something that needs to be improved.60
Competitive Market Place
Another weakness for Phillips 66 is that they are in a very competitive market with little
differentiation between the products that they offer and the product that their competitors
offer. Marketing is something that they could improve on in order to make the name
Phillips 66 better known. Phillips 66 has deep roots in the industry through
ConocoPhillips, but that being said, “Phillips 66” is still a new and young company
competing against companies that have been the leaders of the industry for decades.

2-‐44
Opportunities
Expanding US Shale Gas Market
The expanding US Shale Gas market will directly lead to an increase in natural gas
production, as well as the production of NGLs, in the United States. Before natural gas
can be transported efficiently, its impurities must be extracted. The byproduct of this
extraction process creates NGLs. Therefore, an increase in natural gas production leads
to a direct increase in NGL production. It is expected that NGL production will increase
by 40 percent heading into 2016.61 The NGLs from shale gas production can also be
used by Phillips 66’ Chemicals segment to produce a variety of derivatives and products
that ultimately become raw materials. If Phillips 66 is able to increase their production
capacities of NGLs they will likely see a direct increase in their product of certain
chemicals such as ethane, methane, propane, and butane. In turn, these chemicals can be
purchased by manufacturers to produce goods to sell to the general public.62 Ethane,
which produces ethylene, is the most significant single chemical in terms of volume and
value. Also, ethylene prices in the US are the lowest out of any other ethylene producing
country.63 Phillips 66 already has the capabilities to produce large amounts of NGLs and
in turn is capable of producing large amounts of ethylene. In order to exploit opportunity
in the US Shale Gas Market, Phillips 66 should focus a significant amount of their
attention to the US Shale Gas Market and specifically the production of NGLs and the
byproduct ethylene.

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Sustainable Energy Initiatives
By improving the efficiency of core operations, chemical companies are able to reduce
costs significantly. Since 1974, US chemicals companies have reduced its fuel and
power energy usage by nearly 50 percent.64 Furthermore, chemical companies play an
important role in the global sustainable energy initiative. Products created by chemical
companies have the capabilities of reducing energy usage and minimizing the production
of greenhouse gases. Chemical companies themselves are researching the production of
renewable feedstocks. This would allow the replacement of existing petrochemical raw
materials as well as new building blocks for chemical production.65 In the oil and gas
industry, consumer demand for energy is expected to increase by 35 percent by 2035; an
increase likely to be met predominantly by fossil fuels.66 Between 2005 and 2010 flaring
of gas associate with oil production decreased by 22 percent.67 If Phillips 66 can further
reduce these flares they can expect to save billions of cubic meters (bcm) of gas each
year, further reducing their operating costs. In order to take advantage of sustainable
energy initiatives, Phillips 66 must be willing to allocate resources to reducing their own
energy costs, as well as producing products that will help lower the energy costs of
companies and consumers worldwide. This in turn will help to lower their production
costs, reducing the costs of their value chain, increasing their margins, and helping their
CSR initiatives in regards to reducing their environmental footprint.
Alternative Fuel Sources
This rising demand for energy in combination with a high emphasis on renewable clean
energy is causing energy companies to begin examining alternative fuel sources.

2-‐46
According to the U.S. Energy Information Administration (EIA), renewable energy,
along with nuclear energy, are the fastest growing sources of energy consumption (see
figure 2-4).68 Currently, Phillips 66 is experimenting with several different ways to
produce crude oil, most notably the production of crude oil from algae.69 This renewable
crude oil named “Green Crude” is in progress of becoming commercialized and is
expected to yield promising results. If Phillips 66 can continue to pioneer in the
alternative fuel source market, especially alternatives for crude oil, than they can expect
to see a dramatic rise in demand in the next 5-10 years. In order to exploit this
opportunity, Phillips 66 will likely have to allocate more resources into their research and
development of alternative fuel sources.
Figure
2-5

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Threats
Split from ConocoPhillips, downstream isn’t as profitable
On April 4, 2012 the ConocoPhillips Board of Directors approved the separation of its
downstream business into an independent, publicly traded company named Phillips 66.
The downstream business consisted of ConocoPhillips refining, marketing and
transportation operations; its natural gas gathering, processing, transmission and market
operations, primarily conducted through its equity investment in DCP Midstream, LLC
(DCP Midstream); its petrochemical operations, conducted through its equity investment
in Chevron Phillips Chemical Company LLC (CPChem); its power generation
operations; and an allocable portion of its corporate costs. The downstream portion that
is now Phillips 66 is not nearly as profitable as what ConocoPhillips had before. The
refining, transportation and retail end of Phillips 66 will focus on high growth sectors
such as chemicals and pipelines. Phillips 66 will also look to reduce its exposure to the
refining business. Refining margins have been hit by high crude prices and weak retail
demand.70
Unstable market
The industry and the market can be very unstable because of a number of conditions.
First off, new technologies are being invented to counter act the use of oil and gas
technologies. These new technologies such as electric hybrid cars have an impact on the
market and a demand for oil and gas. The more these cars are made and are demanded
the higher the chance the oil and gas market can take a turn for the worse. Secondly
natural disasters such as hurricanes and tsunamis can have an impact on the industry.

2-‐48
Hurricane Katrina shut down multiple operations in Texas, Oklahoma and Louisiana that
moves large volumes of cargo with high production. This in turn affected the price at
which crude oil, gasoline and diesel traded at because companies were unsure how long
this affect would take place. As a result, rationing began and fuel distributors would not
buy until the supply returned, causing and increase in price.71
Health, Safety and Environmental risks
Health, safety and environmental issues have risen on the oil and gas industry’s agenda
ever since major oil spills such as the BP spill in the Gulf of Mexico. These spill cause
major environmental problems and environmental organizations, such as World Wildlife
Foundation, are trying to shut down the operations that have caused these. The damage
that the remote drilling process can have on the industry are immense. Many if not all oil
spills that occur directly affect animal habitats and the development of the oil and gas
exploration causes disruption of migratory pathways for animals. Although companies
are taking precautions to prevent such spills, they are inevitable. As long as these spill
keep happening, environmental organizations are going to try shutting down these
operation posing a threat to the industry.72
General Discussion of Current State of the Following Components
Finance
/
Accounting
Analysis
As of December 31, 2013 Phillips 66 holds a total of 510 active patents in 44 countries
worldwide, including 216 active patents in the United States. Their products and
processes generated licensing revenues of $17 million in 2013. Phillips 66 has a goal to

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achieve zero incidents and thus have implemented a comprehensive Health, Safety and
Environmental (HSE) management system to supports their business units in achieving
consistent management of HSE risks across their enterprise. The management system
requires periodic audits to ensure compliance with government regulations, as well as
internal requirements.
Phillips 66 has many risk factors that should be carefully considered when looking over
their 10-K. These include their operating results and future rate of growth that’s are
exposed to the effects of changing commodity price and refining, petrochemical and
plastics margins. Changes in the global economy and the level of foreign and domestic
production of crude oil, natural gas and NGLs and refined, petrochemical and plastics
products. Local factors including market conditions, the level of operations of other
facilities in the markets and the volume of products imported and exported. As well as
weather conditions such as hurricanes or other natural disasters along with government
regulations. Uncertainty and illiquidity in credit and capital markets can impair the
ability to obtain credit and financing on acceptable terms and can adversely affect the
financial strength of business partners. The ability to obtains credit and capital depends
largely on the measure of the credit and capital markets, which is completely out of
Phillips 66’s hands. In addition, the cost and availability of debt and equity financing
may be adversely impacted by unstable or illiquid market conditions.
Phillips 66 expects to continue to incur substantial capital expenditures and operating
costs as a result of their compliance with existing and future environmental laws and

2-‐50
regulations. Likewise, future environmental laws and regulations may impact or limit
their current business plans and reduce demand for their products. These laws and
regulations continue to increase in both number and complexity, which as a result directly
impact their operations.
Phillips 66’s stock is traded on the New York Stock Exchange (NYSE) under the symbol
“PSX”. Phillips 66’s common stock has been on a stead rise since September 2013,
going from about $57 per share all the way up to $81 dollars per share. As of April 8th,
2014 PSX common stock is trading at $77.56.
In 2013 Phillips 66 reported earnings of $3.7 billion, while generating $6 billion in cash
from operating activities and received $1.2 billion from asset dispositions. Cash
available was used to fund capital expenditures and investments of $1.8 billion, pay
dividends of $800 million, repurchase $2.2 billion of their common stock and repay $1
billion of debt. They ended 2013 with $5.4 billion of cash and cash equivalents and
approximately $5.4 billion of total capacity under their available liquidity facilities.
Phillips 66 wants to continue to focus on the following financial strategic priorities:
• Maintain Strong-operating excellence
o Safety and reliability are their first priority, and they are committed to
protecting the health and safety of everyone who has a role in their
operations and the communities in which they operate. They are
committed to protecting the environment and strive to reduce our

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environmental footprint throughout their operations. Optimizing rates at
their refineries through reliable and safe operation enables them to capture
the value available in the market in terms of prices and margins. In 2012
and 2013 their worldwide refining crude oil capacity utilization rate was
93%.
• Deliver profitable growth and enhance returns.
o Phillips 66 has budgeted $2.7 billion in capital expenditures and
investments for 2014, approximately 40% higher than the 2013 budget.
The program is designed primarily to grow their Midstream and
Chemicals segments, which have planned expansions for manufacturing
and logistics capacity. The need for additional new gathering and
processing, pipeline, storage, and distribution infrastructure- driven by
growing domestic unconventional crude oil, natural gas liquids and natural
gas production- is creating capital investment opportunities in their
Midstream business.
• Grow shareholders distributions
o Phillips 66 believes shareholder value is enhanced through, among other
things, consistent and ongoing growth of regular dividends, supplemented
by share repurchases. They increased their dividend rate by 56% during
2013 and it has almost doubled since the separation. Regular dividends
demonstrate the confidence their management has in their capital structure
and its capability to generate free cash flow throughout the business cycle.
As of December 31, 2013, they have repurchased $2.6 billion, or

2-‐52
approximately 44.1 million shares, of their common stock. At the
discretion of their Board of Directors, they plan to increase dividends
annually and fun their share repurchase program while continuing to
invest in the growth of their business.
• Build a high-performing organization
o Phillips 66 strives to attract, train, develop and retain individuals with the
knowledge and skills to implement their business strategy and who
supports their values and ethics. Throughout the company, they focus on
getting results in the right way and believe success is both what they do
and how they do it. They encourage collaboration throughout the
company, while valuing differences, respecting diversity of thought and
creating a great place to work. They foster an environment of learning and
development through structured programs focused on building functional
and technical skills where employees are engaged in their business and
committed to their own success, as well as to the company’s success.

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Phillips
66
Financial
Ratios
Desired
2011
Change
2012
Change
2013
Asset
Turnover
Ratio
Higher
4.53
0.80
3.73
0.29
3.44
Accounts
Receivable
Turnover
Higher
19.55
1.66
17.89
0.76
17.13
Working
Capital
Turnover
Higher
125.27
92.55
32.72
5.51
27.21
Debt
to
Equity
Lower
-‐0.85
(2.16)
1.31
0.04
1.27
Debt
to
Assets
Lower
0.009
0.13
0.14
0.02
0.12
Current
Ratio
Higher
1.13
0.31
1.44
0.05
1.49
Acid-‐test
Ratio
Higher
-‐0.81
1.92
1.11
0.05
1.16
Return
on
Assets
Higher
0.11
0.02
0.09
0.02
0.07
Return
on
Equity
Higher
0.21
0.01
0.2
0.03
0.17
Net
Profit
Margin
Ratio
Higher
0.024
0.001
0.023
0.001
0.022
EPS
Higher
7.61
1.06
6.55
0.48
6.07
P/E
Ratio
Higher
Pre-‐
separation
-‐
8.11
4.60
12.71
Table
2-1
Executive Summary:
Phillips 66 is currently very stable with regards to the financials. Although the ratios
indicate they have slightly dropped in a few categories they make up for it in the amount
of capital they have as well as the substantial amount of cash on hand they have. Their
current ratio is very stable as well as their acid test ratio is on the up rise, which is very
essential. Although their net profit ratio is going down slightly they are still making a
profit, which is the ultimate goal of any company.

2-‐54
Activity and Efficiency
Asset
Turnover
Ratio
–
This
ratio
shows
how
much
money
the
business
has
tied
up
in
assets
For
each
dollar
of
sales
revenue.
A
higher
ratio
is
better,
as
it
indicates
that
the
business
is
effectively
using
its
assets
to
generate
sales.
Phillips
66’s
asset
turnover
ratio
has
decreased
slightly
each
year
from
2011
to
2013.
The
company’s
asset
turnover
ration
was
4.53
in
2011,
which
was
decreased
in
the
next
year
to
3.73
in
2012
and
slightly
more
in
2013
at
3.44.
Even
with
the
slight
decrease
from
year
to
year
Phillips
66
still
has
a
very
respectable
asset
turnover
ratio.
Accounts
Receivable
Turnover-
The accounts receivable turnover
ratio is used to show how effective a
company is at extending credit and
collecting debt. A higher ratio is
better because it indicates that the
business is efficient at extending
20
18
16
14
Accounts
Receivable
Turnover
Ratio
19.55
2011
17.89
2012
17.13
2013
Accounts
Receivable
Turnover
Ratio
credit.
Figure
2-6
Phillips 66’s accounts receivable
turnover ratio has decreased each year since 2011. That year the ratio was 19.55, which
dropped sharply to 17.89 in 2012 and slightly to 17.13 in 2013. Again, although it is

PHILLIPS
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2-‐55
dropping slightly Phillips 66 is still in a very stable financial situation and this slight
decrease should not be a major worry at this point.
Working
Capital
Turnover
Ratio-‐
This ratio shows the relationship between
the money used to fund operations and the
Money generated from those operations. A
Higher ratio is better, as a higher ratio
Means that the business is generating a
Higher amount of sales from the money
used to fund those sales. Phillips 66’s
150
100
50
0
Working
Capital
Turnover
Ratio
125.27
2011
32.73
2012
27.21
2013
Working
Capital
Turnover
Ratio
working capital turnover ratio has
Figure
2-7
remained positive over the last three years
although it took a huge hit from 2011 to 2012 going from 125.27 to 32.73 in one year.
This was because in the year 2011 the working capital (current assets-current liabilities)
was very small as compared to other years. In 2012 the ratio was down slightly from
2012 to 27.21, a more suitable decrease than from 2011 to 2012.
Implications: Although some of Phillips 66’s activity and efficiency ratios have
decreased in the past three years, the overall financial stability of the company is not in
question. The company is still making huge profits along with maintaining a stable and
substantial amount of cash on hand to provide for new technologies and new business
ventures. The only time of concern that was evident in these ratios was the working
capital ratio from 2011 to 2012 and this sharp decrease was caused because we had

2-‐56
obtained more current assets than current liabilities in 2012 then we had in 2011 thus
creating a larger denominator which makes for a smaller ratio, having more current assets
than current liabilities is obviously a good thing and this decrease means nothing to them.
Leverage and Solvency
Debt to Equity- The debt to equity ratio
Compares how many funds creditors
provide and how many funds are
provided by owners. A low debt to equity
ratio is good, as a high ratio indicates
2
1
0
Debt
to
Equity
Ratio
increases in debt. Phillips 66’s debt to
equity ratio was negative in 2011 at -
0.85. Although they want a low ratio a negative ratio is not desirable. It rose up to 1.31
in 2012 and then back down slightly in 2013 to 1.27, which is a good decrease.
Debt to Assets- The debt to
assets ratio shows how many
assets are funded by creditors
and how many are funded by
owners. A low ratio is better, as
this indicates that the company
-‐1
2011
2012
-‐0.85
2013
1.31
1.27
Debt
to
Equity
Ratio
0.15
0.1
0.05
0
Debt
to
Assets
Ratio
2011
2012
2013
0.009
0.14
0.12
Debt
to
Assets
Ratio
Figure
2-8
Figure
2-9

PHILLIPS
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did not have to take on much debt to purchase their assets.
Phillips 66’s debt to assets ratio increased from 0.009 in 2011 to 0.14 in 2012. This
indicates the increase in debt from 2011 to 2012. From 2012 to 2013 the ratio went down
from 0.14 to 0.12 which means they were able to pay back some of their debts acquired
in 2012.
Implications: Both of the leverage and solvency ratios illustrate Phillips 66’s stable
financial position. Although they took a large hit from 2011 to 2012 they both recovered
nicely from 2012 to 2013 and brought both ratios back down from the previous year.
Liquidity
Current Ratio- The current
ratio compares a company’s
current assets and their current
liabilities. A higher ratio is
better, as a company with more
liabilities than assets is a higher
financial risk. Ratios greater or
equal to 2 indicate that a
company is able to meet its short-term
obligations.
1.5
1
0.5
0
1.13
2011
Current
Ratio
1.44
2012
1.49
2013
Current
Ratio
Figure
2-10
Phillips 66’s current ratio is steadily increasing from 1.13 in 2011 to 1.44 in 2012 and to
1.49 in 2013. This trend is good for the company because it shows they are able to pay
off their short terms debts without any problems.

2-‐58
Acid-Test Ratio- This ratio is
similar to the current ratio,
however, instead of using all
current assets, it only uses cash,
short-term investments, and
current receivables, a company’s
2
1
0
-‐1
Acid-Test
Ratio
2011
-‐0.81
1.11
2012
1.16
2013
Acid-‐Test
Ratio
most liquid assets. A higher ratio is
Figure
2-11
better and any ratio higher than 1
is considered good.
Like the current ratio, the acid-test ratio has consistently been on the rise since 2011
when it was -0.85. In 2012 it rose to 1.11 and in 2013 it again rose to 1.16
Implications: Both of Phillips 66’s liquidity ratios are on par with the industry standard.
They are both on the up rise which is always a plus when it comes to these ratios. If
Phillips 66 can continue this trend along with their current business plan they will have a
very prosperous future.

PHILLIPS
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Profitability
Return on Assets- This ratio
indicates how well a business is
using its assets to produce income.
A higher ratio indicates that the
company is using its assets well.
Phillips 66 has had a positive
return on assets ratio for the years
on 2011, 2012 and 2013. Although
it has slightly decreased each year
it is still stable and the return they have on assets is still creating profit for the company.
With the amount of assets they hold even a little profit on a singular asset can mean a
large profit company wide. In 2011 the ratio was 0.11, in 2012 the ratio was 0.09 and in
2013 the ratio was 0.07.
Return on Equity- The return on
equity ratio compares a company’s
net income to the company’s
stockholder’s equity to determine
what return that company is
providing. A higher ratio is better,
as it indicates that the company is
0.15
0.1
0.05
0
Return
on
Assets
2011
2012
2013
0.11
0.09
0.07
Return
on
Assets
0.3
0.2
0.1
0
Return
on
Equity
2011
2012
2013
0.21
0.2
0.17
Return
on
Equity
Figure
2-12
Figure
2-13

2-‐60
producing more income with less stockholder’s equity.
Phillips 66’s return on equity ratio for 2011 was 0.21, which went slightly down in 2012
to 0.20 and even more down in 2013 to 0.17. Although theses ratios are declining, they
are not threatening. As long as the ratio is positive they are proving that their net income
is higher than the company’s stockholder equity.
Profit Margin Ratio- The profit
margin ratio determines how
much income a company makes
for every dollar of sales. A
higher ratio is better, as this
means that a company is making
more income off of its sales.
0.024
0.023
0.022
0.021
ProIit
Margin
Ratio
0.024
2011
0.023
2012
0.022
2013
Proait
Margin
Ratio
Again, although Phillips 66’s
Figure
2-14
profit margin ratio is decreasing
it is still in good shape because it is still positive and they are still making a profit. In
2011 their profit margin ratio was 0.024, which then declined slightly to 0.023 in 2012
and again to 0.022 in 2013.
Implications: Phillips 66’s profitability ratios are all positive which is a good indicator at
how well the company is running and how efficiently they are making a profit. Although
all three have slightly declined since 2011 that is expected because of the separation that
occurred and not quite as much profit is being made.

PHILLIPS
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2-‐61
Valuation
Earnings per Share- Earnings
per share is a measure of how
much income a company makes
for each share of stock it has
issued. A high earnings per share
ratio is better than a low one.
Phillips 66’s earning per share
8
6
4
2
Earnings
per
Share
has once again been in a decline
since 2011which was at 7.61. In
2012 it dropped to 6.55 and then again to 6.07. These drops could because of the market
that has been in a decline in those years.
P/E Ratio- The P/E ratio is a measure
of the projected earnings of a
company. It is calculated by dividing
the current market value per share by
the earnings per share. The ratio
indicates the market price of $1 of
earnings, with a high ratio indicating
high projected earnings.
0
2011
2012
2013
7.61
6.55
6.07
Earnings
per
Share
15
10
5
0
2011
P/E
Ratio
2012
2013
0
8.11
12.71
P/E
Ratio
Figure
2-15
Figure
2-16

2-‐62
Phillips 66’s projected earning ratio has gone up since 2012 from 8.11 to 12.71. There
were no stock prices available in 2011 because of the separation that occurred. Having a
projected earning ratio that is on the rise is beneficial to the company because it shows
that they are expected to have better results in the up coming years.
Marketing
Analysis
Phillips 66 markets through branded wholesale stations in the US. There are about 8,000
branded stations that are marketed under the Phillips 66, the Conoco, or the 76 Brand.
About half of their marketing margin is actually moved through unbranded wholesale. In
Europe, Phillips 66 does sell direct. They have about 900 stations in Germany and
Austria, another 250 stations in Switzerland in a joint venture with Coop and JET brand.
73
Sponsorships
This year Phillips 66 sponsored both the Men’s and
Women’s Big 12 basketball championships. The
Phillips 66 sponsorship of the Big 12 Basketball
Championships is one of the longest standing title
sponsorships in college sports. Phillips 66 tipped off
Figure
2-17
its 26th year of conference tournament sponsorship
this year. When watching the tournament you are guaranteed to see the Phillips 66 shield,
whether it’s on the court, in a television graphic or on an announcer’s microphone. It’s an
excellent, high-visibility opportunity to showcase the Phillips 66 iconic Brand.74

PHILLIPS
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2-‐63
Taking full advantage of sponsoring the tournament Phillips 66 came up with a
promotional idea called, “Phillips 66 Basket Pong and KickBack Points Program .”
Allowing people to enter for a chance to win a home
entertainment package which includes a 65" LED
HDTV with tilting wall mount, Blu-ray Player, 5.1-
Channel Home Theater Speaker System with
Subwoofer, and installation, and the Basket Pong
Home Game or instantly win 1 of 350 $50 Phillips
66 Gift Cards.75
Phillips 66 also sponsors sports events and teams that
Figure
2-18
are not on as big of a stage as the Big 12 tournament. They give back to the community
by sponsoring the Phillips 66ers, an Amateur Athletic Union (AAU) in Bartlesville,
Oklahoma. On top of that they also sponsor the Phillips 66 Gymnastics club, which may
be the oldest club in the country and is noted for hosting the longest on-going age-group
gymnastics invitational in the United States. 76 77
Figure
2-19

2-‐64
On June 5, 2012, Gregg Garland,
Chairman and CEO claimed that
Phillips has an average performer
in terms of returns on Refining
and Marketing with a 12% ROCE
in this business, but the
expectation is that this can be
improved to a 15% ROCE
Figure
2-20
business over the cycle. "The R&M business for us is a well run, optimized business.
You won’t see us adding capacity. You will see us investing around the infrastructure to
put more advantaged crude to the front end of the refineries and to be able to export."
Phillips 66 does not break out the marketing earnings separately for the Refining and
Marketing Business Segment in their reports. However, for the years 2009 to 2011
marketing contributed 24% to Phillips 66 total earnings while Refining contributed 40%
to Phillips 66 total cumulative earnings for those years. The total adjusted earnings for
the Refining and Marketing Business Segment for 2009, 2010, and 2011 was $ 4,057
million. 78
Marketing’s contribution to the R&M bottom line would be 37.5% that translates to
$1,521 million. Assuming that marketing profitability was relatively stable across that

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