UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended	~~June 30, 2016~~March 31, 2017



[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from		to



Commission file number:	001-36011

Phillips 66 Partners LP

(Exact name of registrant as specified in its charter)



Delaware		38-3899432
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

(855) 283-9237

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS



Consolidated Statement of Income	Phillips 66 Partners LP


	Millions of Dollars						Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30		Three Months Ended March 31
	2016		2015*		2016	2015*	2017		2016*
Revenues and Other Income
Operating revenues—related parties	$	108.1	66.3		207.3	132.9	$	184	171
Operating revenues—third parties	2.1		0.9		4.1	2.0	10		8
Equity in earnings of affiliates	29.9		20.6		54.7	26.7	33		25
Other income	0.3		—		0.5	0.1	7		—
Total revenues and other income	140.4		87.8		266.6	161.7	234		204

Costs and Expenses
Operating and maintenance expenses	27.9		19.6		50.9	36.0	62		50
Depreciation	14.5		5.4		28.4	10.7	26		23
General and administrative expenses	7.8		7.5		16.8	15.8	16		17
Taxes other than income taxes	5.6		3.8		11.1	5.8	9		10
Interest and debt expense	11.0		9.5		20.9	15.4	24		10
Other expenses	—		0.1		—	0.1
Total costs and expenses	66.8		45.9		128.1	83.8	137		110
Income before income taxes	73.6		41.9		138.5	77.9	97		94
Provision for (benefit from) income taxes	0.4		(0.1	)	0.6	0.1
Net Income	73.2		42.0		137.9	77.8
Provision for income taxes							—		—
Net income							97		94
Less: Net income attributable to Predecessors	5.7		—		18.1	0.4	—		42
Net income attributable to the Partnership	67.5		42.0		119.8	77.4	97		52
Less: General partner’s interest in net income attributable to the Partnership	21.1		9.0		36.9	15.4	32		16
Limited partners’ interest in net income attributable to the Partnership	$	46.4	33.0		82.9	62.0	$	65	36

Net Income Attributable to the Partnership Per Limited Partner Unit—Basic and Diluted (dollars)							$	0.60	0.44
Common units	$	0.51	0.50		0.96	0.91
Subordinated units—Phillips 66	—		—		—	0.49

Cash Distributions Paid Per Limited Partner Unit (dollars)	$	0.481	0.370		0.939	0.710	$	0.558	0.458

Average Limited Partner Units Outstanding—Basic and Diluted (thousands)
Common units—public	31,397		24,139		27,768	22,601	43,353		24,139
Common units—Phillips 66	59,562		41,489		59,026	31,534	64,047		58,490
Subordinated units—Phillips 66	—		16,254		—	25,683

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

See Notes to Consolidated Financial Statements.



Consolidated Statement of Comprehensive Income	Phillips 66 Partners LP


	Millions of Dollars					Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30		Three Months Ended March 31
	2016		2015*	2016	2015*	2017		2016*

Net Income	$	73.2	42.0	137.9	77.8	$	97	94
Defined benefit plans
Plan sponsored by equity affiliate, net of tax	—		—	0.7	—	—		1
Other Comprehensive Income	—		—	0.7	—
Other comprehensive income						—		1
Comprehensive Income	$	73.2	42.0	138.6	77.8	$	97	95

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

See Notes to Consolidated Financial Statements.



Consolidated Balance Sheet	Phillips 66 Partners LP

Millions of Dollars
June 30
2016
December 31
2015*
Assets
Cash and cash equivalents $ 35.7
50.3
Accounts receivable—related parties 37.3
21.4
Accounts receivable—third parties 1.7
3.3
Materials and supplies 5.5
4.5
Other current assets 3.4
4.2
Total Current Assets 83.6
83.7
Equity investments 1,007.8
944.9
Net properties, plants and equipment 1,672.8
1,644.1
Goodwill 2.5
2.5
Deferred rentals—related parties 5.4
5.6
Deferred tax assets —
0.1
Other assets 0.6
0.7
Total Assets $ 2,772.7
2,681.6

Liabilities
Accounts payable—related parties $ 5.7
3.9
Accounts payable—third parties 20.1
66.9
Payroll and benefits payable —
0.7
Accrued property and other taxes 11.7
7.7
Accrued interest 16.7
22.2
Current portion of accrued environmental costs 0.8
0.8
Deferred revenues—related parties 6.4
4.6
Other current liabilities 0.2
0.1
Total Current Liabilities 61.6
106.9
Notes payable—related party 212.0
964.0
Long-term debt 1,131.1
1,090.7
Asset retirement obligations 4.0
3.9
Accrued environmental costs 0.7
0.8
Deferred income taxes 0.8
0.3
Deferred revenues—related parties—long-term 19.7
11.0
Total Liabilities 1,429.9
2,177.6

Equity
Net investment—Predecessors —
113.9
Common unitholders—public (2016—37,051,608 units issued and outstanding; 2015—24,138,750 units issued and outstanding) 1,483.7
808.9
Common unitholder—Phillips 66 (2016—60,162,787 units issued and outstanding; 2015—58,349,042 units issued and outstanding) 465.0
233.0
General partner—Phillips 66 (2016—1,978,603 units issued and outstanding; 2015—1,683,425 units issued and outstanding) (605.1 ) (650.3 )
Accumulated other comprehensive loss (0.8 ) (1.5 )
Total Equity 1,342.8
504.0
Total Liabilities and Equity $ 2,772.7
2,681.6

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.



	Millions of Dollars
	March 31 2017			December 31 2016
Assets
Cash and cash equivalents	$	1		2
Accounts receivable—related parties	66			76
Accounts receivable—third parties	6			7
Materials and supplies	12			11
Prepaid expenses	3			4
Total Current Assets	88			100
Equity investments	1,176			1,142
Net properties, plants and equipment	2,669			2,675
Goodwill	185			185
Deferred rentals—related parties	5			5
Other assets	2			2
Total Assets	$	4,125		4,109

Liabilities
Accounts payable—related parties	$	11		12
Accounts payable—third parties	28			31
Accrued property and other taxes	16			10
Accrued interest	28			26
Short-term debt	2			15
Deferred revenues—related parties	18			14
Other current liabilities	1			3
Total Current Liabilities	104			111
Long-term debt	2,357			2,396
Asset retirement obligations	9			9
Accrued environmental costs	2			2
Deferred income taxes	2			2
Deferred revenues—related parties—long-term	23			23
Total Liabilities	2,497			2,543

Equity
Common unitholders—public (2017—43,879,870 units issued and outstanding; 2016—43,134,902 units issued and outstanding)	1,837			1,795
Common unitholder—Phillips 66 (2017 and 2016—64,047,024 units issued and outstanding)	479			476
General partner—Phillips 66 (2017 and 2016—2,187,386 units issued and outstanding)	(687		)	(704	)
Accumulated other comprehensive loss	(1		)	(1	)
Total Equity	1,628			1,566
Total Liabilities and Equity	$	4,125		4,109

See Notes to Consolidated Financial Statements.



Consolidated Statement of Cash Flows	Phillips 66 Partners LP


	Millions of Dollars					Millions of Dollars
	Six Months Ended June 30					Three Months Ended March 31
	2016			2015*		2017			2016*
Cash Flows From Operating Activities
Net income	$	137.9		77.8		$	97		94
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	28.4			10.7		26			23
Deferred taxes	0.3			—
Deferred rentals—related parties	0.2			0.2
Accrued environmental costs	(0.1		)	0.1
Undistributed equity earnings	(1.1		)	(3.6	)	(4		)	1
Deferred revenues—related parties—long-term	8.8			—
Deferred revenues—long-term						—			6
Other	4.2			0.5		3			—
Working capital adjustments
Decrease (increase) in accounts receivable	(14.3		)	(0.9	)	10			(11	)
Decrease (increase) in materials and supplies	(1.0		)	(0.6	)	(1		)	(1	)
Decrease (increase) in other current assets	(1.2		)	(1.8	)
Decrease (increase) in prepaid expenses and other current assets						1			—
Increase (decrease) in accounts payable	4.2			(4.2	)	(1		)	7
Increase (decrease) in accrued interest	(5.4		)	12.3		2			(11	)
Increase (decrease) in deferred revenues	1.8			3.3		4			1
Increase (decrease) in environmental accruals	0.1			—
Increase (decrease) in other accruals	3.2			3.7		2			2
Net Cash Provided by Operating Activities	166.0			97.5		139			111

Cash Flows From Investing Activities
Sand Hills/Southern Hills/Explorer equity investment acquisition	—			(734.3	)
Cash capital expenditures and investments	(127.7		)	(484.3	)	(57		)	(97	)
Return of investment from equity affiliates	7.4			4.5		8			3
Net Cash Used in Investing Activities	(120.3		)	(1,214.1	)	(49		)	(94	)

Cash Flows From Financing Activities
Net contributions from Phillips 66 to Predecessors	89.2			28.0		—			12
Acquisition of noncontrolling interest in Sweeny Frac LLC	(655.6		)	—
Issuance of debt	177.6			1,521.7		712			78
Repayment of debt	(234.0		)	(498.6	)	(765		)	(86	)
Issuance of common units	677.2			396.4		40			—
Offering costs	(7.8		)	(12.5	)
Debt issuance costs	—			(9.9	)
Distributions to General Partner associated with acquisitions	—			(145.7	)
Quarterly distributions to common unitholders—public	(22.7		)	(15.3	)	(24		)	(11	)
Quarterly distributions to common unitholder—Phillips 66	(55.0		)	(15.5	)	(36		)	(27	)
Quarterly distributions to subordinated unitholder—Phillips 66	—			(25.0	)
Quarterly distributions to General Partner—Phillips 66	(29.3		)	(10.0	)	(28		)	(13	)
Other	0.1			(0.2	)
Net Cash Provided by (Used in) Financing Activities	(60.3		)	1,213.4
Other cash contributions from Phillips 66						10			—
Net Cash Used in Financing Activities						(91		)	(47	)

Net Change in Cash and Cash Equivalents	(14.6		)	96.8		(1		)	(30	)
Cash and cash equivalents at beginning of period	50.3			17.4		2			50
Cash and Cash Equivalents at End of Period	$	35.7		114.2		$	1		20

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

See Notes to Consolidated Financial Statements.



Consolidated Statement of Changes in Equity	Phillips 66 Partners LP


	Millions of Dollars															Millions of Dollars
	Partnership															Partnership
	Common Unitholders Public			Common Unitholder Phillips 66		Subordinated Unitholder Phillips 66		General Partner Phillips 66		Accum. Other Comprehensive Loss		Net Investment— Predecessors*		Total		Common Unitholders Public			Common Unitholder Phillips 66		General Partner Phillips 66		Accum. Other Comprehensive Loss		Net Investment— Predecessors*		Total

December 31, 2014	$	415.3		57.1		116.8		(517.0	)	—		91.7		163.9
Net income attributable to Predecessor	—			—		—		—		—		0.4		0.4
Net contributions from Phillips 66—Predecessors	—			—		—		—		—		28.0		28.0
Issuance of common units	383.9			—		—		—		—		—		383.9
Conversion of subordinated units	—			104.5		(104.5	)	—		—		—		—
Deemed net distributions to General Partner associated with acquisitions	—			—		—		(144.9	)	—		—		(144.9	)
Net income attributable to the Partnership	18.3			31.0		12.7		15.4		—		—		77.4
Other comprehensive loss	—			—		—		—		(1.5	)	—		(1.5	)
Quarterly cash distributions to unitholders and General Partner	(15.3		)	(15.5	)	(25.0	)	(10.0	)	—		—		(65.8	)
Other contributions from Phillips 66	—			—		—		3.1		—		—		3.1
June 30, 2015	$	802.2		177.1		—		(653.4	)	(1.5	)	120.1		444.5

December 31, 2015	$	808.9		233.0		—		(650.3	)	(1.5	)	113.9		504.0		$	809		233		(650	)	(2	)	1,054		1,444
Net income attributable to Predecessors	—			—		—		—		—		18.1		18.1		—			—		—		—		42		42
Net contributions from Phillips 66—Predecessors	—			—		—		—		—		134.5		134.5		—			—		—		—		45		45
Issuance of common units	669.1			—		—		—		—		—		669.1
Allocation of net investment to unitholders	—			232.5		—		34.0		—		(266.5	)	—		—			69		1		—		(70	)	—
Net income attributable to the Partnership	28.4			54.5		—		36.9		—		—		119.8		10			26		16		—		—		52
Other comprehensive income	—			—		—		—		0.7		—		0.7		—			—		—		1		—		1
Quarterly cash distributions to unitholders and General Partner	(22.7		)	(55.0	)	—		(29.3	)	—		—		(107.0	)	(11		)	(27	)	(13	)	—		—		(51	)
March 31, 2016*																$	808		301		(646	)	(1	)	1,071		1,533

December 31, 2016																$	1,795		476		(704	)	(1	)	—		1,566
Issuance of common units																40			—		—		—		—		40
Net income attributable to the Partnership																26			39		32		—		—		97
Quarterly cash distributions to unitholders and General Partner																(24		)	(36	)	(28	)	—		—		(88	)
Other contributions from Phillips 66	—			—		—		3.6		—		—		3.6		—			—		13		—		—		13
June 30, 2016	$	1,483.7		465.0		—		(605.1	)	(0.8	)	—		1,342.8
March 31, 2017																$	1,837		479		(687	)	(1	)	—		1,628



	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

December 31, 2015	24,138,750	58,349,042	1,683,425	84,171,217
Units issued associated with acquisitions	—	412,823	8,425	421,248
March 31, 2016	24,138,750	58,761,865	1,691,850	84,592,465

December 31, 2016	43,134,902	64,047,024	2,187,386	109,369,312
Units issued in public equity offerings	744,968	—	—	744,968
March 31, 2017	43,879,870	64,047,024	2,187,386	110,114,280

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

See Notes to Consolidated Financial Statements.



~~Consolidated Statement of Changes in Equity~~	~~Phillips 66 Partners LP~~

Common Units
Public

Common Units
Phillips 66

Subordinated Units
Phillips 66

General Partner
Units
Phillips 66

Total Units

December 31, 2014 18,888,750
20,938,498
35,217,112
1,531,518
76,575,878
Units issued in public equity offerings 5,250,000
—
—
—
5,250,000
Units issued associated with Sand Hills/Southern Hills/Explorer equity investment acquisition —
1,587,376
—
139,538
1,726,914
Subordinated unit conversion —
35,217,112
(35,217,112 ) —
—
June 30, 2015 24,138,750
57,742,986
—
1,671,056
83,552,792

December 31, 2015 24,138,750
58,349,042
—
1,683,425
84,171,217
Units issued in public equity offerings 12,912,858
—
—
—
12,912,858
Units issued in Initial Fractionator Acquisition* —
412,823
—
8,425
421,248
Units issued in Subsequent Fractionator Acquisition* —
1,400,922
—
286,753
1,687,675
June 30, 2016 37,051,608
60,162,787
—
1,978,603
99,192,998

*See Note 4—Acquisitions, in the Notes to Consolidated Financial Statements.

~~See Notes to Consolidated Financial Statements.~~



Notes to Consolidated Financial Statements	Phillips 66 Partners LP

Note 1—Business and Basis of Presentation

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to Phillips 66 PDI refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us.

Description of the Business ~~Description~~

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products and natural gas liquids (NGL) pipelines, terminals and other transportation and midstream assets. Our common units trade on the New York Stock Exchange under the symbol PSXP.

Our assets consist of crude oil, refined petroleum products and NGL transportation, terminaling and storage systems, as well as an NGL ~~fractionation facility.~~fractionator. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are ~~connected to,~~associated with, and integral to the operation of, ~~seven~~nine of Phillips 66’s owned or ~~joint-venture~~joint venture refineries.

We generate revenue primarily by providing fee-based transportation, terminaling, storage and NGL fractionation services to Phillips 66 and other customers. Our equity affiliates generate revenue primarily from transporting and terminaling NGL, refined petroleum products and crude oil. Since we do not own any of the NGL, crude oil and refined petroleum products we handle and do not engage in the trading of NGL, crude oil and refined petroleum products, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

In March and May of 2016, in two separate transactions, we acquired an NGL fractionator and associated storage caverns from Phillips 66, along with a refined petroleum products pipeline system. See Note 4—~~Acquisitions~~ ~~for additional information.~~

On May 10, 2016, we completed the public offering of 12,650,000 common units for total proceeds (net of underwriting discounts and commissions) of approximately $655.6 million (the 2016 Unit Offering). The net proceeds from the 2016 Unit Offering were used to repay a portion of the notes assumed as part of the consideration paid for the May acquisition described above. See Note 4—~~Acquisitions, Note 7—Debt, and Note 8—Equity~~ ~~for additional information.~~

Basis of Presentation

We have acquired assets from Phillips 66 that were considered transfers of businesses between entities under common control. This required the transactions to be accounted for as if the transfers had occurred at the beginning of the transfer period, with prior periods retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of these acquired businesses prior to the effective date of each acquisition. We refer to these pre-acquisition operations as those of our “Predecessors.”

The combined financial statements of our Predecessors were derived from the accounting records of Phillips 66 and reflect the combined historical results of operations, financial position and cash flows of our Predecessors as if such businesses had been combined for all periods presented.

All intercompany transactions and accounts within our Predecessors have been eliminated. The assets and liabilities of our Predecessors in these financial statements have been reflected on a historical cost basis because the transfer of the Predecessors to us took place within the Phillips 66 consolidated group. The consolidated statement of income also includes expense allocations for certain functions performed by Phillips 66, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and procurement; and operational support services such as engineering and logistics. These allocations were based primarily on relative carrying values of properties, plants and equipment (PP&E) and ~~equity~~equity-method investments, or number of terminals and pipeline miles, and secondarily on activity-based cost allocations. Our management believes the assumptions underlying the allocation of expenses from Phillips 66 are reasonable. Nevertheless, the financial results of our Predecessors may not include all of

the actual expenses that would have been incurred had our Predecessors been a stand-alone publicly traded partnership during the periods presented.

Note 2—Interim Financial Information

The interim financial information presented in the financial statements included in this report is unaudited and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our financial position, results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our ~~Current~~2016 Annual Report on Form ~~8-K filed with the U.S. Securities and Exchange Commission (SEC) on May 3, 2016.~~10-K. The results of operations for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017, are not necessarily indicative of the results to be expected for the full year.

Note 3—Changes in Accounting Principles

Effective January 1, ~~2016,~~2017, we early adopted ~~the~~ Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. ~~2015-17, “Income Taxes~~2017-04, “Intangibles—Goodwill and Other (Topic ~~740)~~350): ~~Balance Sheet Classification~~Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of ~~Deferred Taxes.~~a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Beginning this year, we will apply this ASU prospectively to our goodwill impairment test.

Effective January 1, 2017, we early adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The new update ~~simplified~~changes the classification and presentation of ~~deferred income taxes and required deferred tax liabilities and assets be classified as noncurrent~~restricted cash in ~~a classified~~the statement of cash flow. The amendment requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Adoption of this ASU on a retrospective basis did not impact our financial position. The classification was made at the taxpaying component level of an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and any related valuation allowances. We applied the amendments prospectively to all deferred tax liabilities and assets.statements.

~~In June 2014, the FASB issued~~Effective January 1, 2017, we early adopted ASU ~~2014-10, “Development Stage Entities~~No. 2016-15, “Statement of Cash Flows (Topic ~~915)~~230): ~~Elimination~~Classification of Certain ~~Financial Reporting Requirements, Including an Amendment to Variable Interest Entities (VIE) Guidance in Topic 810, Consolidation.~~Cash Receipts and Cash Payments.” The new ~~standard removes~~update clarifies the ~~definition~~treatment of ~~a development stage entity from~~several cash flow categories. In addition, ASU No. 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the Master Glossary of the Accounting Standard Codification (ASC) and the related financial reporting requirements specific to development stage entities. This ASU is intended to reduce cost and complexity of financial reporting for entities that have not commenced planned principal operations. For financial reporting requirements other than the VIE guidance in ASC Topic 810, “Consolidation,” ASU 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting requirements related to VIEs in ASC Topic 810, “Consolidation,” ASU 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2015. We adopted the provisionspredominant source or use. Adoption of this ASU ~~related to the~~on a retrospective basis did not have a material impact on our financial reporting requirements other than the VIE guidance effective January 1, 2015. We adopted the remaining provisions effective January 1, 2016, and updated our disclosures about the risks and uncertainties related to our joint venture entities that have not commenced their principal operations. statements.

Note 4—Acquisitions

~~During~~River Parish Acquisition

In November 2016, we acquired the River Parish NGL System, a third party’s NGL logistics assets located in southeast Louisiana, consisting of pipelines and storage caverns connecting multiple fractionation facilities, refineries and a petrochemical facility. We recorded $183 million of PP&E and $3 million of goodwill in connection with the acquisition in 2016. Our acquisition accounting was finalized during the first ~~six months~~quarter of 2017, with no change to the provisional amounts recorded in 2016.

During 2016, we completed three acquisitions that were considered transfers of businesses between entities under common control, and therefore the related acquired assets were transferred at historical carrying value. Because these acquisitions were common control transactions in ~~two separate transactions,~~which we acquired ~~an NGL fractionator and associated storage caverns from Phillips 66, along with a refined petroleum products pipeline system. Details on each of these transactions follow.~~businesses, our historical financial statements have been retrospectively adjusted as if we owned the acquired assets for all periods presented.

Fractionator Acquisitions

Initial Fractionator ~~Acquisition~~

OnAcquisition. In February ~~17,~~ 2016, we entered into a Contribution, Conveyance and Assumption Agreement (CCAA) with subsidiaries of Phillips 66 to acquire a 25 percent controlling interest in Phillips 66 Sweeny Frac LLC (Sweeny Frac LLC) for a total consideration of $236 million (the Initial Fractionator Acquisition). Total consideration consisted of the assumption of a $212 million note payable to a subsidiary of Phillips 66 and the issuance of 412,823 ~~newly issued~~ common units to Phillips 66 ~~Project Development Inc. (P66 PDI)~~PDI and 8,425 general partner units to ~~Phillips 66 Partners GP LLC (our~~our General ~~Partner)~~Partner to maintain its 2 percent general partner interest. The Initial Fractionator Acquisition closed onin March 1, 2016. ~~Total transaction costs of $0.9 million were expensed as incurred.~~

Because this acquisition was a transfer of businesses between entities under common control, we filed a Form 8-K on May 3, 2016, containing recasted financial statements and related notes, along with management’s discussion and analysis of financial condition and results of operations, with retrospective adjustments to include the results of operations and financial position of the assets acquired for all periods presented in our 2015 Form 10-K.

Subsequent Fractionator ~~Acquisition~~

OnAcquisition.In May 4, 2016, we entered into a CCAA with subsidiaries of Phillips 66 to acquire the remaining 75 percent interest in Sweeny Frac LLC and 100 percent of the Standish Pipeline for total consideration of $775 million (the Subsequent Fractionator Acquisition). Total consideration consisted of the assumption of $675 million of notes payable to a subsidiary of Phillips 66 and the issuance of 1,400,922 ~~newly issued~~ common units to ~~P66~~Phillips 66 PDI and 286,753 general partner units to our General Partner to maintain its 2 percent general partner interest in us after also taking into account the ~~2016 Unit Offering.~~public offering we completed in May 2016. The Subsequent Fractionator Acquisition closed onin May ~~10,~~ 2016. ~~Total transaction costs of $0.7 million were expensed as incurred.~~

~~Acquired Assets~~

~~Through the Initial Fractionator~~Eagle Acquisition ~~and Subsequent Fractionator Acquisition (collectively, the Acquisitions), we acquired the following assets (the Acquired Assets):~~

~~Sweeny NGL Fractionator.~~ The newly constructed NGL fractionator is located within Phillips 66's Sweeny refinery complex in Old Ocean, Texas, and has a processing capacity of 100,000 barrels per day. The NGL fractionator uses distillation to process a raw (Y-grade) NGL stream into its individual purity components, such as propane and butane.

~~Clemens Caverns.~~ The newly constructed underground salt dome NGL storage facility is located near Brazoria, Texas. The Clemens Caverns facilitate handling of Y-grade NGL for input into the Sweeny NGL Fractionator, as well as storage of purity NGL products produced by the fractionator.

~~Standish Pipeline. This 92-mile refined petroleum product pipeline extends from Phillips 66’s refinery in Ponca City, Oklahoma, to our terminal in Wichita, Kansas.~~

Construction activities on the Sweeny NGL Fractionator and Clemens Caverns began in 2013. Commercial operations at the Sweeny NGL Fractionator commenced in December 2015, and commercial operations at the Clemens Caverns commenced in September 2015.

~~Commercial Agreements with Phillips 66~~

In ~~connection with the Acquisitions,~~October 2016, we entered into a CCAA with subsidiaries of Phillips 66 to acquire certain pipeline and terminal assets supporting four Phillips 66-operated refineries (the Eagle Acquisition). The Eagle Acquisition closed in October 2016. We paid Phillips 66 total consideration of $1,305 million, consisting of $1,109 million in cash and the ~~following arrangements:~~

~~A fractionation agreement under which Sweeny Frac LLC charges fees~~issuance of 3,884,237 common units to Phillips 66 ~~for the fractionation of Y-grade NGL into~~PDI and 208,783 general partner units to our General Partner to allow it to maintain its ~~purity components. Phillips 66 pays a monthly fee based on the volume of NGL fractionated, with minimum volume commitments.~~

~~An NGL storage agreement under which Sweeny Frac LLC charges fees to Phillips 66 for storing Y-grade and purity NGL~~2 percent general partner interest in the Clemens Caverns. Phillips 66 pays a monthly fee based on minimum storage commitments, a deficiency payment if the actual volume stored is less than the minimum storage volume, and excess fees if the stored volume exceeds specified limits.

A fourth amendment to the Omnibus Agreement with Phillips 66 to, among other things, provide for additional services to be provided to us by Phillips 66 in connection with the Acquired Assets and increase the monthly operational and administrative support fee to $3.0 million.

Third and fourth amendments to the Operational Services Agreement with Phillips 66 to, among other things, provide for additional services to be provided to us by Phillips 66 in support of the Acquired Assets.

~~See Note 12—Related Party Transactions for additional information on our commercial and support agreements with Phillips 66.~~

~~Common Control Transactions~~

The Acquisitions were considered transfers of businesses between entities under common control, and therefore the Acquired Assets were transferred at historical carrying value. The aggregated net book value of the Acquired Assets, at the time of acquisition, was $1,154 million. Because the Acquisitions were common control transactions in which we acquired businesses, our historical financial statements have been retrospectively adjusted to reflect the results of operations, financial position, and cash flows of the Acquired Assets as if we owned the Acquired Assets for all periods presented.us.

The following tables present our previously reported results of operations and ~~financial position~~cash flows giving effect to the ~~Acquisitions.~~Subsequent Fractionator Acquisition and the Eagle Acquisition for the three months ended March 31, 2016. The results of operations and cash flows of the Initial Fractionator Acquisition are included in our previously reported consolidated statement of income and consolidated statement of cash flows for the three months ended March 31, 2016, within the first ~~column presents~~column. The second and third columns in all tables present the retrospective adjustments made to our historical financial information for the related acquired assets prior to the ~~retrospective adjustments, the second~~effective date of acquisition. The fourth column ~~presents the retrospective adjustments, and the third column~~in all tables presents our consolidated financial information as retrospectively adjusted. ~~Results of the Acquired Assets after the effective date of each acquisition are presented in the first column.~~

Three Months Ended June 30, 2016
Millions of Dollars
Consolidated Statement of Income Phillips 66
Partners LP
Acquired Assets Predecessor
Consolidated
Results
Revenues
Operating revenues—related parties $ 106.5
1.6
108.1
Operating revenues—third parties 2.1
—
2.1
Equity in earnings of affiliates 29.9
—
29.9
Other income 0.3
—
0.3
Total revenues and other income 138.8
1.6
140.4

Costs and Expenses
Operating and maintenance expenses 27.9
—
27.9
Depreciation 14.4
0.1
14.5
General and administrative expenses 7.8
—
7.8
Taxes other than income taxes 5.5
0.1
5.6
Interest and debt expense 11.0
—
11.0
Other expenses —
—
—
Total costs and expenses 66.6
0.2
66.8
Income before income taxes 72.2
1.4
73.6
Provision for income taxes 0.4
—
0.4
Net Income 71.8
1.4
73.2
Less: Net income attributable to noncontrolling interests 4.3
(4.3 ) —
Less: Net income attributable to Predecessors —
5.7
5.7
Net Income Attributable to the Partnership
$ 67.5
—
67.5

Three Months Ended June 30, 2015
Millions of Dollars
Consolidated Statement of Income Phillips 66
Partners LP
(As Previously Reported)
Acquired Assets Predecessor
Phillips 66
Partners LP
(As Currently Reported)
Revenues
Operating revenues—related parties $ 62.3
4.0
66.3
Operating revenues—third parties 0.9
—
0.9
Equity in earnings of affiliates 20.6
—
20.6
Other income —
—
—
Total revenues and other income 83.8
4.0
87.8

Costs and Expenses
Operating and maintenance expenses 17.5
2.1
19.6
Depreciation 5.3
0.1
5.4
General and administrative expenses 6.4
1.1
7.5
Taxes other than income taxes 3.1
0.7
3.8
Interest and debt expense 9.5
—
9.5
Other expenses 0.1
—
0.1
Total costs and expenses 41.9
4.0
45.9
Income before income taxes 41.9
—
41.9
Benefit from income taxes (0.1 ) —
(0.1 )
Net Income 42.0
—
42.0
Less: Net income attributable to Predecessors —
—
—
Net Income Attributable to the Partnership $ 42.0
—
42.0

Six Months Ended June 30, 2016

Millions of Dollars
Consolidated Statement of Income
Phillips 66
Partners LP

Acquired Assets Predecessor

Consolidated
Results

Revenues
Operating revenues—related parties $ 183.0
24.3
207.3
Operating revenues—third parties 4.1
—
4.1
Equity in earnings of affiliates 54.7
—
54.7
Other income 0.3
0.2
0.5
Total revenues and other income 242.1
24.5
266.6

Costs and Expenses
Operating and maintenance expenses 45.5
5.4
50.9
Depreciation 22.8
5.6
28.4
General and administrative expenses 15.9
0.9
16.8
Taxes other than income taxes 9.3
1.8
11.1
Interest and debt expense 20.9
—
20.9
Other expenses —
—
—
Total costs and expenses 114.4
13.7
128.1
Income before income taxes 127.7
10.8
138.5
Provision for income taxes 0.6
—
0.6
Net Income 127.1
10.8
137.9
Less: Net income attributable to noncontrolling interests 7.3
(7.3 ) —
Less: Net income attributable to Predecessors —
18.1
18.1
Net Income Attributable to the Partnership $ 119.8
—
119.8


	Six Months Ended June 30, 2015				Three Months Ended March 31, 2016
	Millions of Dollars				Millions of Dollars
Consolidated Statement of Income	Phillips 66 Partners LP (As Previously Reported)		Acquired Assets Predecessor	Phillips 66 Partners LP (As Currently Reported)	Phillips 66 Partners LP (As previously reported)		Acquired Subsequent Fractionator Assets Predecessor		Acquired Eagle Assets Predecessor	Consolidated Results
Revenues
Revenues and Other Income
Operating revenues—related parties	$	125.1	7.8	132.9	$	94	5		72	171
Operating revenues—third parties	2.0		—	2.0	2		—		6	8
Equity in earnings of affiliates	26.7		—	26.7	25		—		—	25
Other income	0.1		—	0.1
Total revenues and other income	153.9		7.8	161.7	121		5		78	204

Costs and Expenses
Operating and maintenance expenses	32.3		3.7	36.0	23		—		27	50
Depreciation	10.4		0.3	10.7	14		—		9	23
General and administrative expenses	13.8		2.0	15.8	9		—		8	17
Taxes other than income taxes	4.4		1.4	5.8	5		—		5	10
Interest and debt expense	15.4		—	15.4	10		—		—	10
Other expenses	0.1		—	0.1
Total costs and expenses	76.4		7.4	83.8	61		—		49	110
Income before income taxes	77.5		0.4	77.9	60		5		29	94
Provision for income taxes	0.1		—	0.1	—		—		—	—
Net Income	77.4		0.4	77.8
Net income					60		5		29	94
Less: Net income attributable to noncontrolling interests					3		(3	)	—	—
Less: Net income attributable to Predecessors	—		0.4	0.4	5		8		29	42
Net Income Attributable to the Partnership	$	77.4	—	77.4
Net income attributable to the Partnership					52		—		—	52
Less: General partner’s interest in net income attributable to the Partnership					16		—		—	16
Limited partners’ interest in net income attributable to the Partnership					$	36	—		—	36

Millions of Dollars
December 31, 2015
Consolidated Balance Sheet
Phillips 66
Partners LP
(As Previously Reported)

Acquired Assets Predecessor

Phillips 66
Partners LP
(As Currently Reported)

Assets
Cash and cash equivalents $ 48.0
2.3
50.3
Accounts receivable—related parties 21.4
—
21.4
Accounts receivable—third parties 3.3
—
3.3
Materials and supplies 2.5
2.0
4.5
Other current assets 2.2
2.0
4.2
Total Current Assets 77.4
6.3
83.7
Equity investments 944.9
—
944.9
Net properties, plants and equipment 492.4
1,151.7
1,644.1
Goodwill 2.5
—
2.5
Deferred rentals—related parties 5.6
—
5.6
Deferred tax assets —
0.1
0.1
Other assets 0.7
—
0.7
Total Assets $ 1,523.5
1,158.1
2,681.6

Liabilities
Accounts payable—related parties $ 3.9
—
3.9
Accounts payable—third parties 8.3
58.6
66.9
Payroll and benefits payable —
0.7
0.7
Accrued property and other taxes 5.1
2.6
7.7
Accrued interest 15.1
7.1
22.2
Current portion of accrued environmental costs 0.8
—
0.8
Deferred revenues—related parties
4.4
0.2
4.6
Other current liabilities 0.1
—
0.1
Total Current Liabilities 37.7
69.2
106.9
Notes payable—related party —
964.0
964.0
Long-term debt 1,090.7
—
1,090.7
Asset retirement obligations 3.4
0.5
3.9
Accrued environmental costs 0.8
—
0.8
Deferred income taxes 0.3
—
0.3
Deferred revenues—related parties—long-term 0.5
10.5
11.0
Other liabilities —
—
—
Total Liabilities 1,133.4
1,044.2
2,177.6

Equity
Net investment—Predecessors —
113.9
113.9
Common unitholders—public 808.9
—
808.9
Common unitholder—Phillips 66 233.0
—
233.0
General partner—Phillips 66 (650.3 ) —
(650.3 )
Accumulated other comprehensive loss (1.5 ) —
(1.5 )
Total Equity 390.1
113.9
504.0
Total Liabilities and Equity $ 1,523.5
1,158.1
2,681.6



	Three Months Ended March 31, 2016
	Millions of Dollars
	Phillips 66 Partners LP (As previously reported)			Acquired Subsequent Fractionator Assets Predecessor		Acquired Eagle Assets Predecessor		Consolidated Results
Cash Flows From Operating Activities
Net income	$	60		5		29		94
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	14			—		9		23
Unfunded equity losses	1			—		—		1
Deferred revenues—long-term	6			—		—		6
Working capital adjustments
Decrease (increase) in accounts receivable	(12		)	—		1		(11	)
Decrease (increase) in materials and supplies	(1		)	—		—		(1	)
Decrease (increase) in other current assets	1			—		(1	)	—
Increase (decrease) in accounts payable	6			—		1		7
Increase (decrease) in accrued interest	(11		)	—		—		(11	)
Increase (decrease) in deferred revenues	1			—		—		1
Increase (decrease) in other accruals	2			—		—		2
Net Cash Provided by Operating Activities	67			5		39		111

Cash Flows From Investing Activities
Cash capital expenditures and investments	(77		)	—		(20	)	(97	)
Return of investment from equity affiliates	3			—		—		3
Net Cash Used in Investing Activities	(74		)	—		(20	)	(94	)

Cash Flows From Financing Activities
Net contributions from (to) Phillips 66 to (from) Predecessors	57			(26	)	(19	)	12
Issuance of debt	57			21		—		78
Repayment of debt	(86		)	—		—		(86	)
Quarterly distributions to common unitholders—public	(11		)	—		—		(11	)
Quarterly distributions to common unitholder—Phillips 66	(27		)	—		—		(27	)
Quarterly distributions to General Partner—Phillips 66	(13		)	—		—		(13	)
Net Cash Used in Financing Activities	(23		)	(5	)	(19	)	(47	)

Net Change in Cash and Cash Equivalents	(30		)	—		—		(30	)
Cash and cash equivalents at beginning of period	50			—		—		50
Cash and Cash Equivalents at End of Period	$	20		—		—		20

Note 5—Equity Investments

~~Bakken Joint Ventures~~

In January 2015, we closed on agreements with Paradigm Energy Partners, LLC (Paradigm) to form two joint ventures to develop midstream logistics infrastructure in North Dakota. At closing, we contributed our Palermo Rail Terminal project for a 70 percent ownership interest in Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal), and $4.9 million in cash for a 50 percent ownership interest in Paradigm Pipeline LLC (Paradigm Pipeline). We account for both joint ventures under the equity method of accounting due to governance provisions that require supermajority voting on all decisions that significantly impact the governance, management and economic performance of the joint ventures.

As of June 30, 2016, the planned principal operations of Paradigm Pipeline had not commenced. Until the planned principal operations have commenced, Paradigm Pipeline does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations, and thus represents a VIE in which we are not the primary beneficiary. Our maximum exposure to loss represented the carrying value of our investment of $82.8 million.

~~Sand Hills/Southern Hills/Explorer Pipeline Joint Ventures~~

In February 2015, we entered into a CCAA with subsidiaries of Phillips 66 to acquire 100 percent of Phillips 66’s one-third equity interests in DCP Sand Hills Pipeline, LLC (Sand Hills) and DCP Southern Hills Pipeline, LLC (Southern Hills) and its 19.46 percent equity interest in Explorer Pipeline Company (Explorer). The transaction closed in March 2015. Total consideration for the transaction was $1.01 billion consisting in part of $880 million in cash, funded by a portion of the proceeds from a public offering of unsecured senior notes and a public offering of common units. In addition, the Partnership issued 1,587,376 common units to P66 PDI and 139,538 general partner units to our General Partner to maintain its 2 percent interest. Total transaction costs of $0.9 million were expensed as incurred in general and administrative expenses.

~~Bayou Bridge~~

In October 2015, we entered into a CCAA with Phillips 66 to acquire its 40 percent interest in Bayou Bridge Pipeline, LLC (Bayou Bridge Pipeline), a joint venture in which Energy Transfer Partners, L.P. and Sunoco Logistics Partners L.P. (Sunoco Logistics) each hold a 30 percent interest, with Sunoco Logistics serving as the operator. Bayou Bridge Pipeline began operations on the segment of its pipeline from Nederland, Texas, to Lake Charles, Louisiana, in April. Development continues on the section from Lake Charles to St. James, Louisiana.

Total consideration for the transaction, which closed in December 2015, was approximately $69.6 million, consisting of the assumption of a $34.8 million note payable to Phillips 66 that was immediately paid in full; the issuance of 606,056 common units to P66 PDI; and the issuance of 12,369 general partner units of the Partnership to our General Partner to maintain its 2 percent general partner interest.

The acquisitions of interests in the Sand Hills, Southern Hills, Explorer and Bayou Bridge Pipeline joint ventures represented transfers of investments between entities under common control. Accordingly, these equity investments were transferred at historical carrying value, but are included in the financial statements prospectively from the effective date of each acquisition.

The following table summarizes our equity ~~investments:~~investments.

Millions of Dollars
Percentage Ownership
Carrying Value
June 30
2016
December 31
2015

Sand Hills 33.34 % $ 438.2
430.5
Southern Hills 33.34
213.5
212.9
Explorer 19.46
101.4
102.4
Phillips 66 Partners Terminal 70.00
74.5
77.0
Paradigm Pipeline 50.00
82.8
52.5
Bayou Bridge Pipeline 40.00
97.4
69.6
Total equity investments $ 1,007.8
944.9



			Millions of Dollars
	Percentage Ownership		Carrying Value
	Percentage Ownership		March 31 2017		December 31 2016

DCP Sand Hills Pipeline, LLC (Sand Hills)	33.34	%	$	459	445
DCP Southern Hills Pipeline, LLC (Southern Hills)	33.34		213		212
Explorer Pipeline Company (Explorer)	21.94		124		126
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	70.00		67		72
Paradigm Pipeline LLC (Paradigm)	50.00		115		117
Bayou Bridge Pipeline, LLC (Bayou Bridge)	40.00		139		115
STACK Pipeline LLC (STACK)	50.00		59		55
Total equity investments			$	1,176	1,142

Earnings ~~(losses)~~ from our equity investments were as follows:

Millions of Dollars
Three Months Ended
June 30 Six Months Ended
June 30
2016
2015
2016
2015

Sand Hills $ 16.4
14.5
31.3
18.8
Southern Hills 7.4
3.7
14.1
5.2
Explorer 5.6
2.4
9.1
2.7
Phillips 66 Partners Terminal 0.4
—
0.3
—
Paradigm Pipeline (0.1 ) —
(0.2 ) —
Bayou Bridge Pipeline 0.2
—
0.1
—
Total equity in earnings of affiliates $ 29.9
20.6
54.7
26.7

Summarized 100 percent financial information for Sand Hills follows. Although the acquisition of Sand Hills closed on March 2, 2015, the entire six-month period ended June 30, 2015, is presented in the table below, for enhanced comparability.

Millions of Dollars
Three Months Ended
June 30 Six Months Ended
June 30
2016
2015
2016
2015

Revenues $ 68.6
60.5
128.9
111.5
Income before income taxes 49.6
43.5
92.1
76.3
Net income 49.3
43.5
91.6
75.9



	Millions of Dollars
	Three Months Ended March 31
	2017			2016

Sand Hills	$	17		15
Southern Hills	7			7
Explorer	5			3
Phillips 66 Partners Terminal	2			—
Paradigm	(1		)	—
Bayou Bridge	2			—
STACK	1			—
Total equity in earnings of affiliates	$	33		25

Note 6—Properties, Plants and Equipment

Our investment in PP&E, with the associated accumulated depreciation, was:

Millions of Dollars
June 30
2016
December 31
2015

Land $ 14.1
13.8
Buildings and improvements 57.4
30.0
Pipelines and related assets*^†
263.4
259.1
Terminals and related assets^†
348.4
345.9
Rail racks and related assets^†
136.4
136.3
Fractionator and related assets^†
615.4
626.2
Caverns and related assets^†
428.5
277.5
Construction-in-progress 119.9
237.7
Gross PP&E 1,983.5
1,926.5
Less: Accumulated depreciation* (310.7 ) (282.4 )
Net PP&E $ 1,672.8
1,644.1



	Millions of Dollars
	March 31 2017		December 31 2016

Land	$	19	19
Buildings and improvements	88		88
Pipelines and related assets^*	1,338		1,335
Terminals and related assets^*	612		610
Rail racks and related assets^*	137		137
Fractionator and related assets^*	615		615
Caverns and related assets^*	569		569
Construction-in-progress	42		27
Gross PP&E	3,420		3,400
Less: Accumulated depreciation	751		725
Net PP&E	$	2,669	2,675

*~~Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.~~

†Assets for which we are the lessor. ~~See Note 14—Leases.~~

Note 7—Debt

Debt at ~~June 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, was:


	Millions of Dollars									Millions of Dollars
	June 30, 2016									March 31, 2017
	Fair Value Hierarchy				Total Fair Value	Difference in Fair Value and Carrying Value		Net Carrying Value Presented on the Balance Sheet		Fair Value Hierarchy				Total Fair Value	Balance Sheet Carrying Value
	Level 1		Level 2*	Level 3	Total Fair Value	Difference in Fair Value and Carrying Value		Net Carrying Value Presented on the Balance Sheet		Level 1		Level 2*	Level 3	Total Fair Value	Balance Sheet Carrying Value

Fixed-rate debt
2.646% Senior Notes due 2020	$	—	301.9	—	301.9	(1.9	)	300.0		$	—	300	—	300	300
3.605% Senior Notes due 2025	—		489.8	—	489.8	10.2		500.0		—		492	—	492	500
3.550% Senior Notes due 2026										—		479	—	479	500
4.680% Senior Notes due 2045	—		281.9	—	281.9	18.1		300.0		—		275	—	275	300
Note payable to Phillips 66 due 2020 at 3.0%	—		219.4	—	219.4	(7.4	)	212.0
Revolving credit facility	40.0		—	—	40.0	—		40.0
Debt at face value	40.0		1,293.0	—	1,333.0	19.0		1,352.0
4.900% Senior Notes due 2046										—		595	—	595	625
Revolving credit facility at 2.23% at March 31, 2017										��		157	—	157	157
Total										$	—	2,298	—	2,298	2,382
Net unamortized discounts and debt issuance costs	—		—	—	—	—		(8.9	)						(23		)
Total debt	$	40.0	1,293.0	—	1,333.0	19.0		1,343.1							$	2,359

*~~The fair~~Fair value was estimated using quoted market prices of comparable ~~instruments (Level 2 inputs).~~instruments.


	Millions of Dollars								Millions of Dollars
	December 31, 2015								December 31, 2016
	Fair Value Hierarchy				Total Fair Value	Difference in Fair Value and Carrying Value	Net Carrying Value Presented on the Balance Sheet		Fair Value Hierarchy				Total Fair Value	Balance Sheet Carrying Value
	Level 1		Level 2*	Level 3	Total Fair Value	Difference in Fair Value and Carrying Value	Net Carrying Value Presented on the Balance Sheet		Level 1		Level 2*	Level 3	Total Fair Value	Balance Sheet Carrying Value

Fixed-rate debt
2.646% Senior Notes due 2020	$	—	282.0	—	282.0	18.0	300.0		$	—	298	—	298	300
3.605% Senior Notes due 2025	—		431.9	—	431.9	68.1	500.0		—		490	—	490	500
3.550% Senior Notes due 2026									—		483	—	483	500
4.680% Senior Notes due 2045	—		225.2	—	225.2	74.8	300.0		—		277	—	277	300
Notes payable to Phillips 66 due 2020 at 3.0%**	—		961.1	—	961.1	2.9	964.0
Revolving credit facility	—		—	—	—	—	—
Debt at face value	—		1,900.2	—	1,900.2	163.8	2,064.0
4.900% Senior Notes due 2046									—		599	—	599	625
Revolving credit facility at 1.98% at year-end 2016									—		210	—	210	210
Total									$	—	2,357	—	2,357	2,435
Net unamortized discounts and debt issuance costs	—		—	—	—	—	(9.3	)						(24		)
Total debt	$	—	1,900.2	—	1,900.2	163.8	2,054.7							$	2,411
The fair value was estimated using quoted market prices of comparable instruments (Level 2 inputs). *Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
*Fair value was estimated using quoted market prices of comparable instruments.									*Fair value was estimated using quoted market prices of comparable instruments.

Revolving Credit Facility

At ~~June 30,~~March 31, 2017, and December 31, 2016, we had an aggregate of ~~$40~~$157 million and $210 million borrowed and outstanding under our ~~$500~~$750 million revolving credit ~~facility. No amounts were outstanding as of December 31, 2015.~~

~~Notes Payable~~

On March 1, 2016, in connection with the Initial Fractionator Acquisition, we entered into an Assignment and Assumption of Note agreement with subsidiaries of Phillips 66, pursuant to which we assumed the obligations under a term promissory note (the Initial Note) with a $212 million principal balance.

On May 10, 2016, in connection with the Subsequent Fractionator Acquisition, we entered into three separate Assignment and Assumption of Note agreements with subsidiaries of Phillips 66, pursuant to which we assumed the obligations under three term promissory notes (the Subsequent Notes), each with a $225 million principal balance. Also on May 10, 2016, using proceeds from the 2016 Unit Offering, we repaid two of the Subsequent Notes in their entirety, and reduced the outstanding balance on the remaining Subsequent Note to $19.4 million, which was repaid on June 30, 2016.

The Initial Note matures on October 1, 2020, and bears interest at the rate of 3.0 percent per annum. Interest on the note is payable quarterly, and all principal and any accrued and unpaid interest is due and payable at maturity. The note may be paid in whole or in part prior to that date, with no penalty, and it contains customary default provisions for failure to pay principal or interest.

Because the Initial Note and Subsequent Notes were held by entities we acquired in common control transactions, prior period debt balances have been recast as if we had held the notes since their inception in January 2014.facility, respectively.

Note 8—Equity

ATM Program

OnIn June 6, 2016, we filed a prospectus supplement to the shelf registration statement for our continuous offering program that became effective with the ~~SEC on~~Securities and Exchange Commission in May ~~13,~~ 2016, related to the continuous issuance of up to an aggregate of $250 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our ATM Program). ~~During~~For the three months ended ~~June 30, 2016,~~March 31, 2017, on a ~~settlement-date~~settlement date basis, we issued 744,968 common units under the ATM Program, which generated net proceeds of $40 million. Since inception through March 31, 2017, we have issued an aggregate of ~~262,858~~1,091,120 common units under our ATM Program, generating net proceeds of ~~approximately $14.2~~$58 million, after broker commissions of ~~$0.2~~$1 million. The net proceeds from sales under the ATM Program are used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.

~~Common Unit Offerings~~

On May 10, 2016, we completed the 2016 Unit Offering, consisting of an aggregate of 12,650,000 common units representing limited partner interests at a price of $52.40 per common unit. We received proceeds (net of underwriting discounts) of $655.6 million from the 2016 Unit Offering. We utilized the net proceeds to partially repay debt assumed as part of the Subsequent Fractionator Acquisition. See Note 7—~~Debt~~ ~~and Note 4—Acquisitions~~ ~~for additional information on the debt assumed and the acquisition transaction, respectively.~~

In February 2015, we completed the public offering of an aggregate of 5,250,000 common units representing limited partner interests at a price of $75.50 per common unit (the 2015 Unit Offering). We received proceeds (net of underwriting discounts) of $384.5 million from the 2015 Unit Offering. We utilized a portion of the net proceeds to partially fund the acquisition of the Sand Hills, Southern Hills and Explorer equity investments and to repay amounts outstanding under our revolving credit facility. We used the remaining proceeds to fund expansion capital expenditures and for general partnership purposes. See Note 5—~~Equity Investments~~ ~~for additional information on the Sand Hills, Southern Hills and Explorer acquisition.~~

Note 9—Net Income Per Limited Partner Unit

Net income per limited partner unit ~~applicable to common and subordinated units (for the period subordinated units were outstanding)~~ is computed by dividing ~~these~~the limited partners’ ~~respective interests~~interest in net income attributable to the Partnership by the weighted average number of common units ~~and subordinated units, respectively,~~ outstanding for the period. ~~Because we have more than one class of participating securities, we use the two-class method to calculate the net income per unit applicable to the limited partners.~~ The classes of participating securities as of ~~June 30, 2016,~~March 31, 2017, included common units, general partner units and incentive distribution rights (IDRs). Basic and diluted net income per unit are the same because we do not have potentially dilutive instruments outstanding.

Net income earned by the Partnership is allocated between the limited partners and the General Partner (including the General Partner’s IDRs) in accordance with our partnership agreement. First, earnings are allocated based on actual cash distributions made to our unitholders, including those attributable to the General Partner’s IDRs. To the extent net income attributable to the Partnership exceeds or is less than cash distributions, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings.

When our financial statements are retrospectively adjusted after a dropdown transaction, the earnings of the acquired business, ~~or asset,~~ prior to the closing of the transaction, are allocated entirely to our General Partner and presented as net income (loss) attributable to Predecessors. The earnings per unit of our limited partners prior to the close of the transaction do not change as a result of the dropdown. After the closing of a dropdown transaction, the earnings of the acquired business are allocated in accordance with our partnership agreement as previously described.


	Millions of Dollars								Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended March 31
	2016			2015	2016		2015		2017		2016

Net income attributable to the Partnership	$	67.5		42.0	119.8		77.4		$	97	52
Less: General partner’s distribution declared (including IDRs)*	20.7			8.8	36.4		15.2		32		16
Limited partners’ distribution declared on common units*	49.1			32.7	89.0		50.0		63		40
Limited partner’s distribution declared on subordinated units*	—			—	—		13.0
Distributions less than (in excess of) net income attributable to the Partnership	$	(2.3	)	0.5	(5.6	)	(0.8	)	$	2	(4	)

*Distribution declared attributable to the indicated periods.


	General Partner (including IDRs)		Limited Partners’ Common Units			Limited Partner’s Subordinated Units	Total		General Partner (including IDRs)		Limited Partners’ Common Units		Total
Three Months Ended June 30, 2016
Net income attributable to the Partnership (millions):
Distribution declared	$	20.7	49.1			—	69.8
Distribution less than (in excess of) net income attributable to the Partnership	0.4		(2.7		)	—	(2.3	)
Net income attributable to the Partnership	$	21.1	46.4			—	67.5

Weighted average units outstanding:
Basic	1,855,709		90,959,226			—	92,814,935
Diluted	1,855,709		90,959,226			—	92,814,935

Net income per limited partner unit (dollars):
Basic			$	0.51		—
Diluted			0.51			—

Three Months Ended June 30, 2015
Net income attributable to the Partnership (millions):
Three Months Ended March 31, 2017
Net income attributable to the Partnership (millions):
Distribution declared	$	8.8	32.7			—	41.5		$	32	63		95
Distribution less than net income attributable to the Partnership	0.2		0.3			—	0.5		—		2		2
Net income attributable to the Partnership	$	9.0	33.0			—	42.0		$	32	65		97

Weighted average units outstanding:
Basic	1,671,056		65,627,684			16,254,052	83,552,792		2,187,386		107,400,037		109,587,423
Diluted	1,671,056		65,627,684			16,254,052	83,552,792		2,187,386		107,400,037		109,587,423

Net income per limited partner unit (dollars):
Net income per limited partner unit (dollars):
Basic			$	0.50		—					$	0.60
Diluted			0.50			—					0.60


	General Partner (including IDRs)		Limited Partners’ Common Units			Limited Partner’s Subordinated Units		Total		General Partner (including IDRs)		Limited Partners’ Common Units			Total
Six Months Ended June 30, 2016
Net income attributable to the Partnership (millions):
Three Months Ended March 31, 2016
Net income attributable to the Partnership (millions):
Distribution declared	$	36.4	89.0			—		125.4		$	16	40			56
Distribution less than (in excess of) net income attributable to the Partnership	0.5		(6.1		)	—		(5.6	)
Distribution in excess of net income attributable to the Partnership										—		(4		)	(4	)
Net income attributable to the Partnership	$	36.9	82.9			—		119.8		$	16	36			52

Weighted average units outstanding:
Basic	1,771,002		86,793,825			—		88,564,827		1,686,295		82,628,424			84,314,719
Diluted	1,771,002		86,793,825			—		88,564,827		1,686,295		82,628,424			84,314,719

Net income per limited partner unit (dollars):
Net income per limited partner unit (dollars):
Basic			$	0.96		—						$	0.44
Diluted			0.96			—						0.44

Six Months Ended June 30, 2015
Net income attributable to the Partnership (millions):
Distribution declared	$	15.2	50.0			13.0		78.2
Distribution less than (in excess of) net income attributable to the Partnership	0.2		(0.7		)	(0.3	)	(0.8	)
Net income attributable to the Partnership	$	15.4	49.3			12.7		77.4

Weighted average units outstanding:
Basic	1,624,800		54,135,043			25,683,198		81,443,041
Diluted	1,624,800		54,135,043			25,683,198		81,443,041

Net income per limited partner unit (dollars):
Basic			$	0.91		0.49
Diluted			0.91			0.49

On ~~July 20, 2016,~~April 19, 2017, the Board of Directors of our General Partner declared a quarterly cash distribution of ~~$0.505~~$0.586 per ~~common~~limited partner unit which, ~~when~~ combined with distributions to our General Partner, will result in total distributions of ~~$69.8~~$95 million attributable to the ~~second~~first quarter of ~~2016.~~2017. This distribution is payable ~~August~~May 12, ~~2016,~~2017, to unitholders of record as of ~~August 3, 2016.~~May 1, 2017.

Note 10—Contingencies

From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include any contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

Environmental

We are subject to federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

At ~~June 30,~~both March 31, 2017, and December 31, 2016, ~~we had $1.5 million of~~our total environmental ~~accruals.~~accrual was $2 million. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of ~~June 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, we did not have any material accrued contingent liabilities associated with litigation matters.

Indemnification and Excluded Liabilities

Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize a non-cash expense and an associated non-cash capital contribution from our General Partner, as these are considered liabilities paid for by a principal unitholder.

We have assumed, and have agreed to pay, discharge and perform as and when due, all liabilities arising out of or attributable to the ownership or operation of the assets, or other activities occurring in connection with and attributable to the ownership or operation of the assets, from and after the effective date of each acquisition.

Note 11—Cash Flow Information

~~Subsequent Fractionator Acquisition~~

The Subsequent Fractionator Acquisition had both cash and noncash elements. The historical book value of the net assets acquired was $871 million. Of this amount, $656 million was a financing cash outflow, representing the acquisition of the noncontrolling interest in Sweeny Frac LLC, through the repayment of a portion of the debt assumed in the transaction. The remaining debt financing balance of $19 million represents a noncash investing and financing activity. The remaining $196 million of book value was attributed to the common and general partner units issued (a noncash investing and financing activity).

2016 Initial Fractionator Acquisition

The Initial Fractionator Acquisition was a noncash transaction. The historical book value of the net assets of our 25 percent interest acquired was $283 million. Of this amount, $212 million was attributed to the note payable assumed (a noncash investing and financing activity). The remaining $71 million was attributed to the common and general partner units issued (a noncash investing and financing activity).

~~Sand Hills, Southern Hills and Explorer Acquisition~~

Our acquisition of equity investments in Sand Hills, Southern Hills and Explorer had both cash and noncash elements. We attributed $734 million of the total $880 million cash consideration paid to the investment balance of the Sand Hills, Southern Hills and Explorer pipeline joint ventures acquired (an investing cash outflow). The remaining $146 million of excess cash consideration was deemed a distribution to our General Partner (a financing cash outflow). The common and general partner units issued to Phillips 66 in the transaction were assigned no value, because the cash consideration exceeded the historical net book value of the acquired assets in the transaction. Accordingly, the units issued for these acquisitions had no impact on partner capital balances, other than changing ownership percentages.

Capital Expenditures

Our capital expenditures and investments consisted of:

Millions of Dollars

Six Months Ended
June 30

2016
2015
Capital Expenditures and Investments

Capital expenditures attributable to Predecessors* $ 22.5
414.1
Capital expenditures and investments attributable to the Partnership 93.7
97.4
Total capital expenditures and investments* $ 116.2
511.5

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.


	Millions of Dollars				Millions of Dollars
	Six Months Ended June 30				Three Months Ended March 31
	2016			2015*	2017			2016*
Capital Expenditures and Investments
Cash capital expenditures and investments	$	127.7		484.3	$	57		97
Change in capital expenditure accruals	(11.5		)	27.2	(4		)	(33	)
Total capital expenditures and investments	$	116.2		511.5	$	53		64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

Millions of Dollars
Six Months Ended
June 30
2016
2015
Other Noncash Investing and Financing Activities
Contributions of net assets into joint ventures $ —
43.3
Transfer of net liabilities to Phillips 66—Acquisitions 45.3
—



	Millions of Dollars
	Three Months Ended March 31
	2017		2016
Capital Expenditures and Investments
Capital expenditures and investments attributable to the Partnership	$	53	33
Capital expenditures attributable to Predecessors*	—		31
Total capital expenditures and investments*	$	53	64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.



	Millions of Dollars
	Three Months Ended March 31
	2017		2016
Other Noncash Investing and Financing Activities
Certain liabilities of acquired assets retained by Phillips 66⁽¹⁾	$	—	34

⁽¹⁾Certain liabilities of assets acquired from Phillips 66 were retained by Phillips 66, pursuant to the terms of various agreements under which we acquired those assets. See Note 10—Contingencies for additional information on excluded liabilities associated with acquisitions from Phillips 66.

Note 12—Related Party Transactions

Commercial Agreements

~~In connection with our Initial Public Offering (the Offering) and subsequent acquisitions from Phillips 66, we~~We have entered into multiple commercial agreements with Phillips 66, including transportation services agreements, terminal services agreements, storage services agreements, stevedoring services agreements, a fractionation service agreement and rail terminal services agreements. Under these long-term, fee-based agreements, we provide transportation, terminaling, storage, stevedoring, fractionation and rail terminal services to Phillips 66, and Phillips 66 commits to provide us with minimum quarterly throughput volumes of crude oil, NGL and refined petroleum products or minimum monthly service fees. Under our transportation and terminaling services agreements, if Phillips 66 fails to transport, throughput or store its minimum throughput volume during any quarter, then Phillips 66 will pay us a deficiency payment based on the calculation described in the agreement.

Amended Operational Services Agreement

Under our amended operational services agreement, we reimburse Phillips 66 for providing certain operational services to us in support of our pipelines, terminaling and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.

Amended Omnibus Agreement

The amended omnibus agreement addresses our payment of an annual operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other ~~liabilities related to the assets we acquired in connection with the Offering, and the prefunding of certain projects by Phillips 66.~~liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.

Tax Sharing Agreement

~~In connection with the Offering, we~~We have entered into a tax sharing agreement with Phillips 66 pursuant to which we will reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips ~~66 with respect to taxable periods including or beginning on or after the closing date of the Offering.~~66. The amount of any such reimbursement will be limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group ~~of which we may be a member for this purpose,~~ to owe no tax. ~~However, we~~We would nevertheless reimburse Phillips 66 for the tax we would have owed, ~~had the attributes not been available or used for our benefit,~~ even though Phillips 66 had no cash expense for that period.

For additional information on our commercial and other agreements with Phillips 66 entered into in connection with the Subsequent Fractionator Transaction, see our Current Report on Form 8-K filed with the SEC on May 3, 2016.

Related Party Transactions

Significant related party transactions included in operating and maintenance expenses, general and administrative expenses and interest and debt expense were:


	Millions of Dollars					Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30		Three Months Ended March 31
	2016		2015*	2016	2015*	2017		2016*

Operating and maintenance expenses	$	11.0	9.4	23.0	18.4	$	28	25
General and administrative expenses	6.3		6.7	13.6	13.1	15		14
Interest and debt expense	1.7		—	2.2	1.9	—		1
Total	$	19.0	16.1	38.8	33.4	$	43	40

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

~~Currently, we~~We pay Phillips 66 a monthly operational and administrative support fee under the terms of our amended omnibus agreement in the amount of ~~$3.0~~$7 million. The operational and administrative support fee is for the provision of certain services, including: executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; corporate engineering services, including asset integrity and regulatory services; logistical services; asset oversight, such as operational management and supervision; business development services; investor relations; tax matters; and public company reporting services. We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services being performed for our operations. Under our amended operational services agreement, we reimburse Phillips 66 for the provision of certain operational services to us in support of our pipelines, rail racks, fractionator, and terminaling and storage facilities. Additionally, we pay Phillips 66 for insurance services provided to us. Operating and maintenance expenses also include volumetric gain/loss associated with volumes transported by Phillips 66.

~~Note 13—Income Taxes~~

Our effective tax rates were 0.5 percent and 0.4 percent for the three- and six-month periods ended June 30, 2016, respectively, compared with (0.2) percent and 0.1 percent for the corresponding periods of 2015.

We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our partners through the allocation of taxable income. Our income tax provision results from the laws of states, primarily Texas, that apply to entities organized as partnerships.

Note ~~14—Leases~~

We are the lessor under transportation service agreements, terminal services agreements, storage services agreements and a fractionation service agreement, in each case, with Phillips 66 as lessee, that are considered operating leases under accounting principles generally accepted in the United States (GAAP). Certain of these agreements include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. Revenues from all of these agreements are recorded within “Operating revenues—related parties” on our consolidated statement of income.

~~As of June 30, 2016, future minimum payments to be received related to these agreements were estimated to be:~~

Millions of Dollars
Remainder of 2016 $ 195.6
2017 363.5
2018 344.6
2019 314.0
2020 310.4
2021 302.1
2022 and thereafter 933.4
Total $ 2,763.6

~~Note 15—~~13—New Accounting Standards

In ~~June 2016,~~January 2017, the FASB issued ASU ~~2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement~~No. 2017-01, “Business Combinations: Clarifying the Definition of ~~Credit Losses on Financial Instruments.~~a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The ~~new standard amends the impairment model to utilize~~amendment provides a screen for determining when a transaction involves an ~~expected loss methodology in place~~acquisition of a business. If substantially all of the ~~currently used incurred loss methodology, which will result~~fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the ~~more timely recognition~~transaction does not involve the acquisition of ~~losses.~~a business. If the screen is not met, then the amendment requires that, to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU ~~2016-13 for~~No. 2017-01 to annual periods beginning after December 15, ~~2019,~~2017, including interim periods within those ~~annual periods. Early~~periods, with early adoption ~~will~~permitted. The amendments should be ~~permitted for annual periods beginning after December 15, 2018.~~applied prospectively, and no disclosures are required at the effective date. We are currently evaluating the provisions of ASU ~~2016-13 and assessing the impact on our financial statements.~~

~~In March 2016, the FASB issued ASU~~ No. 2016-07, “Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The new standard eliminates the requirement that an investor retroactively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. Public business entities should apply the guidance in ASU 2016-07 for annual periods beginning after December 15, 2016, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the provisions of ASU 2016-07, but do not expect any significant impact on our financial statements.2017-01.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under the previous ~~GAAP.~~accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of control occurs over an identified property, plant and equipment for a period of time in exchange for consideration. Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct its use. The FASB continued to maintain two classifications of ~~leases -~~ leases—financing and ~~operating -~~ operating—which are substantially similar to capital and operating leases in the previous lease guidance. Under the new standard, recognition of assets and liabilities arising from operating leases will require recognition on the balance sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim

periods within those annual periods. Early adoption is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply its provisions to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new standard converged guidance on recognizing revenues in contracts with customers under GAAP and International Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital ~~markets.~~markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. Retrospective or modified retrospective application of the accounting standard is required. ~~We are currently evaluating~~ASU No. 2014-09 was further amended in March 2016 by the provisions of ASU ~~2014-09~~No. 2016-08, “Principal versus Agent Considerations (Reporting

Revenue Gross versus Net),” in April 2016 by the provisions of ASU No. 2016-10, “Identifying Performance Obligations and ~~assessing~~Licensing,” in May 2016 by the ~~impact on our financial statements.~~provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections to Topic 606, Revenue from Contracts with Customers.” As part of our assessment ~~work to-date,~~work-to-date, we have formed an implementation work team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption on earnings from equity method investments and revenue generated by lease arrangements. Based on our analysis to-date, we have not identified any material impact on our financial statements, other than disclosure.

~~Note 16—~~ ~~Subsequent Events~~

On July 25, 2016, we announced that we have agreed to acquire an additional 2.5 percent equity interest in Explorer Pipeline Company. This acquisition will increase our ownership interest from 19.46 percent to approximately 22 percent. The acquisition is expected to close in August 2016, subject to normal regulatory review.


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to Phillips 66 PDI refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us.

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Partnership does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Partnership’s disclosures under the heading: “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”

BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

Partnership Overview

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products and natural gas liquids (NGL) pipelines and terminals, ~~and~~as well as other ~~transportation and~~ midstream assets. Our common units trade on the New York Stock Exchange under the symbol PSXP.

~~In March and May 2016, in two separate transactions,~~ Since we acquired an NGL fractionator and associated storage caverns from Phillips 66, along with a refined petroleum products pipeline system (the Initial Fractionator Acquisition and Subsequent Fractionator Acquisition, respectively). See Note 4—~~Acquisitions, in the Notes to Consolidated Financial Statements, for additional information.~~

On May 10, 2016, we completed the public offering of 12,650,000 common units for total proceeds (net of underwriting discounts) of approximately $655.6 million (2016 Unit Offering). The net proceeds from the 2016 Unit Offering were used to repay a portiondo not own any of the ~~notes assumed as part of the consideration paid for the Subsequent Fractionator Acquisition. See Note 4—Acquisitions, Note 7—Debt, and Note 8—Equity, in the Notes to Consolidated Financial Statements for additional information.~~

We have multiple commercial agreements with Phillips 66, including transportation services agreements, terminal services agreements, storage services agreements, stevedoring services agreements, a fractionation service agreement and rail terminal services agreements. Under these long-term, fee-based agreements, we provide transportation, terminaling, storage, stevedoring, fractionation and rail terminal services to Phillips 66, and Phillips 66 commits to provide us with minimum quarterly throughput volumes ofNGL, crude oil ~~NGL~~ and refined petroleum products ~~or minimum monthly service fees. We also have several other agreements with Phillips 66, including an amended omnibus agreement~~we handle and ~~an operational services agreement. See Note 12—Related Party Transactions~~,do not engage in the ~~Notes~~trading of NGL, crude oil and refined petroleum products, we have limited direct exposure to ~~Consolidated Financial Statements, for a summary~~risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of ~~these agreements.~~

operations over the long term.

Basis of Presentation

See the “Basis of Presentation” section of Note 1—Business and Basis of Presentation, in the Notes to Consolidated Financial Statements, for ~~important~~additional information on the content and comparability of our historical financial statements.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our performance, including: (1) volumes handled (including pipeline throughput, terminaling throughput and storage volumes); (2) operating and maintenance expenses; (3) net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5) distributable cash flow.

Volumes Handled

The amount of revenue we generate primarily depends on the volumes of crude oil, refined petroleum products and NGL that we handle in our pipeline, terminal, rail rack, storage and NGL fractionator systems. In addition, our equity affiliates generate revenue from transporting NGL, crude oil and refined petroleum products. These volumes are primarily affected by the supply of, and demand for, NGL, crude oil and refined petroleum products in the markets served directly or indirectly by our assets, as well as the operational status of the refineries served by our assets. Phillips 66 has committed to minimum throughput volumes under many of our commercial agreements.

Operating and Maintenance Expenses

Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities, particularly maintenance activities, performed during that period. Although we seek to manage our maintenance expenditures on our facilities to avoid significant variability in our quarterly cash flows, we balance this approach with our high standards of safety and environmental stewardship, such that critical maintenance is performed regularly.

Our operating and maintenance expenses are also affected by volumetric gains/losses resulting from variances in meter readings and other measurement methods, as well as volume fluctuations due to pressure and temperature changes. Under certain commercial agreements with Phillips 66, the value of any NGL, crude oil, or refined petroleum product volumetric gain/loss is determined by reference to the monthly average reference price for the applicable commodity. Any gains and losses under these provisions decrease or increase, respectively, our operating and maintenance expenses in the period in which they are realized. These contractual volumetric gain/loss provisions could increase variability in our operating and maintenance expenses.

EBITDA, Adjusted EBITDA and Distributable Cash Flow

We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization attributable to both the Partnership and our Predecessors.

Adjusted EBITDA is the EBITDA directly attributable to the Partnership after deducting the EBITDA attributable to our Predecessors, further adjusted for:

The difference between cash distributions received and equity earnings from our affiliates.

Transaction costs associated with acquisitions.

Certain other noncash items, including expenses indemnified by Phillips 66.

Distributable cash flow is defined as adjusted EBITDA less net interest, maintenance capital expenditures and income taxes paid, plus adjustments for deferred revenue impacts and prefunded maintenance capital expenditures.

EBITDA, adjusted EBITDA and distributable cash flow are not presentations made in accordance with accounting principles generally accepted in the United States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:

Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.

The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.

Our ability to incur and service debt and fund capital expenditures.

The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Business Environment

Since we do not own any of the NGL, crude oil and refined petroleum products we handle and do not engage in the trading of NGL, crude oil and refined petroleum products, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Our throughput volumes depend primarily on the volume of crude oil processed and refined petroleum products produced at Phillips 66’s owned or operated refineries with which our assets are integrated, which in turn isare primarily dependent on Phillips 66’s refining margins and maintenance schedules. Refining margins depend on the cost of crude oil or other feedstocks and the price of refined petroleum products. These prices are affected by numerous factors beyond our or Phillips 66’s control, including the domestic and global supply of and demand for crude oil and refined petroleum products. ~~Our~~Throughput volumes of our equity ~~investment throughput volumes~~affiliates depend primarily on upstream drilling activities, refinery performance and product supply and demand.

While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations through the minimum volume commitments in our commercial agreements with Phillips 66 during the respective terms of those agreements, our ability to execute our growth strategy in our areas of operation will depend, in part, on the availability of attractively priced crude oil in the areas served by our crude oil pipelines and rail racks, demand for refined petroleum products in the markets served by our refined petroleum product pipelines and terminals, and the general demand for midstream services, including NGL transportation and fractionation.

RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the ~~three- and six-month periods~~three-month period ended ~~June 30, 2016~~March 31, 2017, is based on a comparison with the corresponding ~~periods~~period of ~~2015.~~2016.


	Millions of Dollars						Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30		Three Months Ended March 31
	2016		2015*		2016	2015*	2017		2016*
Revenues
Revenues and Other Income
Operating revenues—related parties	$	108.1	66.3		207.3	132.9	$	184	171
Operating revenues—third parties	2.1		0.9		4.1	2.0	10		8
Equity in earnings of affiliates	29.9		20.6		54.7	26.7	33		25
Other income	0.3		—		0.5	0.1	7		—
Total revenues and other income	140.4		87.8		266.6	161.7	234		204

Costs and Expenses
Operating and maintenance expenses	27.9		19.6		50.9	36.0	62		50
Depreciation	14.5		5.4		28.4	10.7	26		23
General and administrative expenses	7.8		7.5		16.8	15.8	16		17
Taxes other than income taxes	5.6		3.8		11.1	5.8	9		10
Interest and debt expense	11.0		9.5		20.9	15.4	24		10
Other expenses	—		0.1		—	0.1
Total costs and expenses	66.8		45.9		128.1	83.8	137		110
Income before income taxes	73.6		41.9		138.5	77.9	97		94
Provision for (benefit from) income taxes	0.4		(0.1	)	0.6	0.1
Net Income	73.2		42.0		137.9	77.8
Provision for income taxes							—		—
Net income							97		94
Less: Net income attributable to Predecessors	5.7		—		18.1	0.4	—		42
Net income attributable to the Partnership	67.5		42.0		119.8	77.4	97		52
Less: General partner’s interest in net income attributable to the Partnership	21.1		9.0		36.9	15.4	32		16
Limited partners’ interest in net income attributable to the Partnership	$	46.4	33.0		82.9	62.0	$	65	36

Net cash provided by operating activities	$	94.6	64.6		166.0	97.5	$	139	111

Adjusted EBITDA	$	97.3	56.9		171.1	105.8	$	155	74

Distributable cash flow	$	84.4	47.8		148.5	89.7	$	124	64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.


	Three Months Ended June 30			Six Months Ended June 30		Three Months Ended March 31
	2016		2015	2016	2015	2017		2016
	Thousands of Barrels Daily					Thousands of Barrels Daily
Pipeline, Terminal and Storage Volumes
Pipelines⁽¹⁾
Pipeline throughput volumes
Wholly Owned Pipelines
Crude oil	287		282	284	282
Refined products*	622		487	596	495
Total*	909		769	880	777
Crude oil*						940		1,025
Refined products and NGL*						935		801
Total						1,875		1,826

Selected Joint Venture Pipelines⁽²⁾
Natural gas liquids	346		285	326	192
NGL						354		306

Terminals
Terminaling throughput and storage volumes⁽³⁾
Crude oil⁽⁴⁾	559		518	530	538
Refined products	450		424	439	427
Crude oil*⁽⁴⁾						485		502
Refined products and NGL*						898		784
Total	1,009		942	969	965	1,383		1,286

Revenue Per Barrel (dollars)
Average pipeline revenue*⁽⁵⁾	$	0.49	0.48	0.49	0.48
Average terminaling and storage revenue	0.38		0.39	0.39	0.39
Average pipeline revenue per barrel⁽⁵⁾						$	0.63	0.61
Average terminaling and storage revenue per barrel						0.41		0.42

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

⁽¹⁾Represents the sum of volumes transported through each separately tariffed pipeline segment.

⁽²⁾ Total ~~post-acquisition~~ pipeline system throughput volumes for the Sand Hills and Southern Hills pipelines (100 percent basis) per day for each period presented.

⁽³⁾ ~~Terminaling~~Terminal throughput and storage volumes include leased capacity converted to a MBD-equivalent based on capacity divided by days in the period.

⁽⁴⁾Crude oil terminals include Bayway and Ferndale rail rack volumes.

⁽⁵⁾Excludes ~~average pipeline revenue per barrel from~~ equity affiliates.

The following tables present reconciliations of EBITDA and adjusted EBITDA to net income and EBITDA and distributable cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.


	Millions of Dollars						Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30		Three Months Ended March 31
	2016		2015*		2016	2015*	2017		2016*
Reconciliation to Net Income
Net Income	$	73.2	42.0		137.9	77.8
Net income							$	97	94
Plus:
Depreciation	14.5		5.4		28.4	10.7	26		23
Net interest expense	10.9		9.5		20.6	15.3	24		10
Provision for (benefit from) income taxes	0.4		(0.1	)	0.6	0.1
EBITDA	99.0		56.8		187.5	103.9	147		127
Plus:
Distributions in excess of equity earnings	2.2		0.2		6.3	0.9	4		4
Expenses indemnified or prefunded by Phillips 66	3.9		—		4.0	0.3
Expenses indemnified by Phillips 66							3		—
Transaction costs associated with acquisitions	0.7		—		1.7	1.4	1		1
Less:
EBITDA attributable to Predecessors	8.5		0.1		28.4	0.7	—		58
Adjusted EBITDA	97.3		56.9		171.1	105.8	155		74
Plus:
Deferred revenue impacts**	1.3		2.3		2.7	3.5	4		1
Less:
Net interest	10.9		9.5		20.8	16.0
Income taxes paid	0.3		0.4		0.3	0.4
Net interest expense							24		10
Maintenance capital expenditures	3.0		1.5		4.2	3.2	11		1
Distributable Cash Flow^†	$	84.4	47.8		148.5	89.7
Distributable cash flow							$	124	64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

**Difference between cash receipts and revenue recognition.

^†~~Although distributable cash flow is a liquidity measure, it is presented in this reconciliation to net income as supplemental information.~~


	Millions of Dollars									Millions of Dollars
	Three Months Ended June 30					Six Months Ended June 30				Three Months Ended March 31
	2016			2015*		2016		2015*		2017			2016*
Reconciliation to Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities	$	94.6		64.6		166.0		97.5		$	139		111
Plus:
Net interest expense	10.9			9.5		20.6		15.3		24			10
Provision for (benefit from) income taxes	0.4			(0.1	)	0.6		0.1
Changes in working capital	(1.8		)	(15.0	)	12.6		(11.8	)	(17		)	13
Undistributed equity earnings	1.7			(2.2	)	1.1		3.6		4			(1	)
Accrued environmental costs	0.1			(0.1	)	0.1		(0.1	)
Other**	(6.9		)	0.1		(13.5	)	(0.7	)
Other										(3		)	(6	)
EBITDA	99.0			56.8		187.5		103.9		147			127
Plus:
Distributions in excess of equity earnings	2.2			0.2		6.3		0.9		4			4
Expenses indemnified or prefunded by Phillips 66	3.9			—		4.0		0.3
Expenses indemnified by Phillips 66										3			—
Transaction costs associated with acquisitions	0.7			—		1.7		1.4		1			1
Less:
EBITDA attributable to Predecessors	8.5			0.1		28.4		0.7		—			58
Adjusted EBITDA	97.3			56.9		171.1		105.8		155			74
Plus:
Deferred revenue impacts^†	1.3			2.3		2.7		3.5		4			1
Less:
Net interest	10.9			9.5		20.8		16.0
Income taxes paid	0.3			0.4		0.3		0.4
Net interest expense										24			10
Maintenance capital expenditures	3.0			1.5		4.2		3.2		11			1
Distributable Cash Flow	$	84.4		47.8		148.5		89.7
Distributable cash flow										$	124		64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

**Primarily deferred revenue.

^†Difference between cash receipts and revenue recognition.

Minimum Volume Commitments

Under certain of our transportation services agreements, if Phillips 66 fails to transport a minimum throughput volume during any quarter, then Phillips 66 will pay us a deficiency payment based on the calculation described in the agreement. ~~Billings to~~Payments made by Phillips 66 for these shortfall volumes are initially recorded as “Deferred revenues—related parties” on our consolidated balance sheet, as Phillips 66 generally has the right to make up the shortfall volumes in the following four quarters. The deferred revenue is recognized at the earlier of the quarter in which Phillips 66 makes up the shortfall volumes or the expiration of the period in which Phillips 66 is contractually allowed to make up the shortfall ~~volumes, which is generally the subsequent four quarters.~~volumes.

Detail on these transportation-based deferred revenues follows:


	Millions of Dollars									Millions of Dollars
	Three Months Ended June 30					Six Months Ended June 30				Three Months Ended March 31
	2016			2015		2016		2015		2017			2016

Deferred revenues—beginning of period	$	5.2		1.7		4.4		0.6		$	12		4
Quarterly deficiency payments⁽¹⁾	2.4			2.5		4.5		4.1		5			2
Quarterly deficiency make-up/expirations⁽²⁾	(2.4		)	(0.4	)	(3.7	)	(0.9	)	(1		)	(1	)
Deferred revenues—end of period	$	5.2		3.8		5.2		3.8		$	16		5

⁽¹⁾ Cash received with deferred revenue recognition.

⁽²⁾ Revenue recognized on cash previously received.

Statement of Income Analysis

Operating revenues increased ~~$43.0~~$15 million, or ~~64 percent, and $76.5 million, or 57~~8 percent, in the ~~second~~first quarter ~~and the six-month period~~ of ~~2016, respectively.~~2017. The ~~increases were~~increase was primarily attributable to additional revenues from the ~~Sweeny~~acquisition of the River Parish NGL ~~Fractionator~~System in November 2016 and from additional storage capacity coming online at Clemens Caverns, which fully commenced operations in the fourth quarter of 2015. In addition, the increases in both 2016 periods benefited from higher throughput volumes on our Gold Line Products System due to lower maintenance and turnaround activities at the Borger Refinery.Caverns.

Equity in earnings of affiliates increased ~~$9.3~~$8 million, ~~and $28.0 million~~or 32 percent, in the ~~second~~first quarter ~~and the six-month period~~ of ~~2016, respectively.~~2017. The ~~increases mainly resulted from~~increase was primarily attributable to higher earnings from our investments in Explorer Pipeline Company (Explorer), and DCP Sand Hills Pipeline, LLC (Sand Hills), primarily due to higher volumes. In addition, the increase in the three-month period of 2017 also reflected earnings from Bayou Bridge Pipeline, LLC (Bayou Bridge), which began operations in April 2016, and STACK Pipeline LLC (STACK), which was acquired in August 2016.

Other income increased $7 million in the first quarter of 2017. The increase was primarily due to receiving tax-related contractual make-whole payments associated with the transfer of a co-venturer’s interests in Sand Hills and DCP Southern Hills Pipeline, LLC (Southern Hills) ~~due~~ to ~~higher volumes. The increase in the six-month period also reflected two full quarters of earnings from our equity interests in these companies, which we acquired in March 2015.~~DCP Midstream, LP.

~~The increases in~~ ~~operating~~Operating and maintenance expenses, ~~depreciation~~ ~~and~~ ~~taxes other than income taxes~~ increased $12 million, or 24 percent, in the ~~second~~first quarter ~~and the six-month period~~ of ~~2016 were~~2017. The increase was primarily due to costs related to the ~~impact of the full commercial operation of the Sweeny NGL Fractionator~~Paradis Pipeline Station incident and ~~Clemens Caverns~~increased maintenance activity.

Depreciationincreased$3 million, or 13 percent, in the first ~~half~~quarter of ~~2016. These assets were under construction during~~2017. The increase was mainly attributable to the ~~first half~~acquisition of ~~2015.~~the River Parish NGL System in November 2016 and additional storage capacity coming online at the Clemens Caverns.

Interest and debt expense increased ~~$5.5~~$14 million ~~or 35.7 percent,~~ in the ~~six-month period~~first quarter of ~~2016. The increase in the six-month period mainly resulted from~~2017, due to a higher average debt principal balance as a result of the issuance of ~~$1.1 billion~~$1,125 million in aggregate principal amount of ~~Senior Notes~~senior notes in ~~February 2015. See Note 7—Debt, in the Notes to Consolidated Financial Statements, for additional information.~~October 2016.

CAPITAL RESOURCES AND LIQUIDITY

Significant Sources of Capital

Our sources of liquidity include cash generated from operations, borrowings from related parties and under our revolving credit facility, and issuances of additional debt and equity securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements, and make our quarterly cash distributions.

Operating Activities

~~Our operations~~We generated ~~$166.0~~$139 million in cash from operations during the first ~~six~~three months of ~~2016,~~2017, an improvement over cash from operations of ~~$97.5~~$111 million for the corresponding period of ~~2015.~~2016. The improvement was mainly driven by earnings from the Sweeny NGL Fractionator and Clemens Caverns, which became fully operational in the fourth quarter of 2015. This increase was partially offset by higher operating and maintenance expenses and working capital impacts.

~~Common Units~~

On May 10, 2016, we completed the 2016 Unit Offering at a price of $52.40 per common unit. We received proceeds (net of underwriting discounts) of $655.6 million from the 2016 Unit Offering. We utilized the net proceeds to partially repay debt assumed as part of the Subsequent Fractionator Acquisition. See Note 7—Debt and Note 4—Acquisitions, in the Notes to Consolidated Financial Statements, for additional information on the debt assumed and the acquisition transaction, respectively.

In February 2015, we completed the public offering of an aggregate of 5,250,000 common units representing limited partner interests at a price of $75.50 per common unit (the 2015 Unit Offering). We received proceeds (net of underwriting discounts) of $384.5 million from the 2015 Unit Offering. We utilized a portion of the net proceeds to partially fund the acquisition of the Sand Hills, Southern Hills and Explorer equity investments and to repay amounts outstanding under our revolving credit facility. We used the remaining proceeds to fund expansion capital expenditures and for general partnership purposes. See Note 5—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information on the Sand Hills, Southern Hills and Explorer acquisition.

~~Notes Payable~~

The Initial Note matures on October 1, 2020, and bears interest at the rate of 3.0 percent per annum. Interest on the note is payable quarterly, and all principal and any accrued and unpaid interest is due and payable at maturity. The note may be paid in whole or in part prior to that date with no penalty, and it contains customary default provisions for failure to pay principal or interest.

Revolving Credit Facility

facility, respectively.

ATM Program

OnIn June 6, 2016, we filed a prospectus supplement to ~~the~~our shelf registration statement for our continuous offering program that became effective with the ~~SEC on~~U.S. Securities and Exchange Commission (SEC) in May ~~13,~~ 2016, related to the continuous issuance of up to an aggregate of $250 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our ATM Program). ~~During~~For the three months ended ~~June 30, 2016,~~March 31, 2017, on a ~~settlement-date~~settlement date basis, we issued 744,968 common units under the ATM Program, which generated net proceeds of $40 million. Since inception through March 31, 2017, we have issued an aggregate of ~~262,858~~1,091,120 common units under our ATM Program, generating net proceeds of ~~approximately $14.2~~$58 million, after broker commissions of ~~$0.2~~$1 million. The net proceeds from sales under the ATM Program are used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.

Issuance of common units under the ATM Program can reduce our General Partner’s interest to under 2 percent. We expect the General Partner’s interest to be periodically restored to 2 percent ~~utilizing either~~in connection with dropdown transactions or through direct equity contributions. However, these future contributions from our General Partner cannot be assured. At ~~June 30, 2016,~~March 31, 2017, our General Partner’s interest was ~~1.99~~slightly less than 2 percent.

~~Senior Notes~~Shelf Registration

~~In February 2015,~~We have a universal shelf registration statement on file with the SEC under which we, ~~issued, through~~as a ~~public offering, $1.1 billion~~well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units representing limited partner interests and debt ~~(Notes Offering) consisting of:~~

~~$300 million of 2.646% Senior Notes due February 15, 2020.~~

~~$500 million of 3.605% Senior Notes due February 15, 2025.~~

~~$300 million of 4.680% Senior Notes due February 15, 2045.~~

Total proceeds (net of underwriting discounts) received from this offering were $1,092.0 million. We utilized a portion of the net proceeds to partially fund the acquisition of the Sand Hills, Southern Hills and Explorer equity investments. In addition, we used a portion of the proceeds to repay three notes payable to a subsidiary of Phillips 66. Interest on each series of senior notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2015. Our senior unsecured long-term debt has been rated investment grade by Standard & Poor’s Rating Services (BBB) and Moody’s Investor Services (Baa3).

securities.

Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Capital Requirements

Capital Expenditures and Investments

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational requirements of our wholly owned and joint venture entities. Our capital requirements consist of maintenance ~~capital expenditures~~ and expansion capital expenditures, ~~including~~as well as contributions to our joint ventures. Examples of maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business, including contributions to joint ventures that are using the contributed funds for such purposes.

Our capital expenditures and investments for the first ~~six~~three months of ~~2016~~2017 and ~~2015~~2016 were:


	Millions of Dollars			Millions of Dollars
	Six Months Ended June 30			Three Months Ended March 31
	2016		2015*	2017		2016

Capital expenditures attributable to our Predecessors	$	22.5	414.1
Capital expenditures and investments attributable to the Partnership
Expansion	89.5		94.2	$	42	32
Maintenance	4.2		3.2	11		1
Total				53		33
Capital expenditures attributable to Predecessors*				—		31
Total capital expenditures and investments	$	116.2	511.5	$	53	64

*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.

Our capital expenditures and investments for the first ~~six~~three months of ~~2016~~2017 were ~~$116.2~~$53 million, primarily associated with the following activities:

~~Contributions to our Sand Hills joint venture.~~

~~Increased storage capacity at Clemens Caverns.~~

~~Shared construction cost of the joint venture project with Paradigm, including the Sacagawea Pipeline, a crude oil storage terminal and central delivery facility in North Dakota.~~

~~Investment in construction of~~Continued progress on the Bayou Bridge pipeline ~~which will transport crude~~segment from ~~Nederland, Texas to St James, Louisiana. The initial segment of the pipeline to the Phillips 66 refinery in~~ Lake Charles, Louisiana, ~~was placed in service in April.~~ to St. James, Louisiana.

~~Acquisitions~~

~~During the first six months of 2016, we closed two acquisitions:~~Contributions to Sand Hills to increase capacity on its NGL pipeline system.

~~The March 2016 acquisition~~Contributions to STACK to extend the origination point of ~~a 25 percent controlling interest in Phillips 66 Sweeny Frac LLC (Sweeny Frac LLC).~~its pipeline system to access additional area producers and increase capacity.

~~The May 2016 acquisition of the remaining 75 percent interest in Sweeny Frac LLC~~Various upgrades and ~~100 percent of the Standish Pipeline.~~

~~See Note 4— Acquisitions, and Note 11—Cash Flow Information, in the Notes to Consolidated Financial Statements, for additional information~~replacements on our ~~acquisitions, including consideration paid and the cash and noncash elements of the transactions.~~assets.

Cash Distribution

On ~~July 20, 2016,~~April 19, 2017, the Board of Directors of our General Partner declared a quarterly cash distribution of ~~$0.505~~$0.586 per common unit which, combined with distributions to our General Partner, will result in a total distribution of ~~$69.8~~$95 million, payable on ~~August~~May 12, ~~2016,~~2017, to unitholders of record as of ~~August 3, 2016.~~May 1, 2017.

Cash distributions will be made to our General Partner in respect of its ~~2 percent~~ general partner interest and its ownership of all incentive distribution rights (IDRs), which entitle our General Partner to receive increasing percentages, up to 50 percent, of quarterly cash distributions in excess of $0.244375 per unit. Accordingly, based on the per-unit distribution declared on ~~July 20, 2016,~~April 19, 2017, our General Partner will receive ~~approximately 30~~33 percent of the ~~total~~first-quarter 2017 cash distributions ~~for the second quarter.~~in respect of its general partner interest and its ownership of all IDRs.

Contingencies

Regulatory Matters

Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and certain of our pipeline systems providing intrastate service are subject to rate regulation by applicable state authorities under their respective laws and regulations. Our pipeline, rail rack and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations.

Legal and Tax Matters

Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal and tax support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal and tax organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. Phillips 66’s legal organization employs a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of ~~June 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, we did not have any material accrued contingent liabilities associated with litigation matters. In the case of income-tax-related contingencies, Phillips 66’s tax organization monitors tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability.

Environmental

We are subject to extensive federal, state and local environmental laws and regulations. These requirements, which change frequently, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment at or on our facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of governmental orders that may subject us to additional operational constraints. Future expenditures may be required to comply with the Clean Air Act and other federal, state and local requirements in respect of our various sites, including our pipelines and storage assets. The impact of legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity.

As with all costs, if these expenditures are not ultimately reflected in the tariffs and other fees we receive for our services, our operating results will be adversely affected. We believe that substantially all similarly situated parties and holders of comparable assets must comply with similar environmental laws and regulations. However, the specific impact on each may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities.

We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded environmental requirements, which could increase our environmental costs, may arise in the future. We believe we are in substantial compliance with all legal obligations regarding the environment and have established the environmental accruals that are currently required; however, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed, because not all of the

costs are fixed or presently determinable (even under existing legislation) and the costs may be affected by future legislation or regulations.

~~At June 30, 2016,~~Paradis Pipeline Station Incident

On February 9, 2017, a fire occurred at the Paradis Pipeline Station on the River Parish NGL System. There was one Phillips 66 employee fatality in the fire. Based on our assessment, which is ongoing, we ~~had $1.5 million~~do not currently expect the incident to have a material impact on our results of ~~environmental accruals. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.~~operations.

Indemnification and Excluded Liabilities

NEW ACCOUNTING STANDARDS

In ~~March 2016,~~January 2017, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) No. ~~2016-07, “Equity Method~~2017-01, “Business Combinations: Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction does not involve the acquisition of a business. If the screen is not met, then the amendment requires that, to be considered a business, the operation must include at a minimum an input and ~~Joint Ventures (Topic 323): Simplifying the Transition~~a substantive process that together significantly contribute to the ~~Equity Method~~ability to create an output. The guidance may reduce the number of ~~Accounting.” The new standard eliminates the requirement that an investor retroactively apply equity method accounting when an investment that it had~~transactions accounted for ~~by another method initially qualifies for the equity method.~~as business acquisitions. Public business entities should apply the guidance in ASU ~~2016-07 for~~No. 2017-01 to annual periods beginning after December 15, ~~2016,~~2017, including interim periods within those ~~annual~~ periods, with early adoption permitted. The amendments should be applied prospectively, and no disclosures are required at the effective date. We are currently evaluating the provisions of ASU ~~2016-07, but do not expect it to have an the impact on our financial statements.~~No. 2017-01.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under the previous ~~GAAP.~~accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of control occurs over an identified property, plant and equipment for a period of time in exchange for consideration. Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases - financing and operating - which are substantially similar to capital and operating leases in the previous lease guidance. Under the new standard, recognition of assets and liabilities arising from operating leases will require recognition on the balance sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply its provisions to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 ~~and assessing the~~will have a limited impact on our financial statements.

Revenue Gross versus Net),” in April 2016 by the provisions of ASU No. 2016-10, “Identifying Performance Obligations and ~~assessing~~Licensing,” in May 2016 by the ~~impact on our financial statements.~~provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections to Topic 606, Revenue from Contracts with Customers.” As part of our assessment ~~work to-date,~~work-to-date, we have formed an implementation work team, completed training on the new ASU’s revenue recognition model and ~~begun~~are continuing our contract review and documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption on earnings from equity method investments and revenue generated by lease arrangements. Based on our analysis to-date, we have not identified any material impact on our financial statements, other than disclosure.

~~OUTLOOK~~

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,”�� “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based the forward-looking statements on our current expectations, estimates and projections about us and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.

The volume of crude oil, NGL and refined petroleum products we transport, fractionate, terminal and store.

The tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.

Changes in revenue we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.

Fluctuations in the prices for crude oil, NGL and refined petroleum products.

Changes in global economic conditions and the effects of a global economic downturn on the business of Phillips 66 and the business of its suppliers, customers, business partners and credit lenders.

Liabilities associated with the risks and operational hazards inherent in transporting, fractionating, terminaling and storing crude oil, NGL and refined petroleum products.

Curtailment of operations due to severe weather disruption; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.

Inability to timely obtain or maintain permits, including those necessary for capital projects; comply with government regulations; or make capital expenditures required to maintain compliance.

Failure to timely complete construction of announced and future capital projects.

The operation, financing and distribution decisions of our joint ventures.

Costs or liabilities associated with federal, state, and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.

Costs associated with compliance with evolving environmental laws and regulations on climate change.

Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.

Changes in the cost or availability of third-party vessels, pipelines, ~~rail cars~~railcars and other means of delivering and transporting crude oil, NGL and refined petroleum products.

Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.

The factors generally described in “Item 1A. Risk Factors” in our ~~2015~~2016 Annual Report on Form 10-K filed with the SEC on February ~~12, 2016.~~17, 2017.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Commodity Price Risk~~

Our commodity price risk and interest rate risk at ~~June 30, 2016,~~March 31, 2017, did not differ materially from that disclosed ~~in Exhibit 99.2~~under Item 7A of our ~~Current~~2016 Annual Report on Form ~~8-K filed with the SEC on May 3, 2016.~~

~~Interest Rate Risk~~

Our interest rate risk at June 30, 2016, did not differ materially from that disclosed in the recast MD&A set forth in Exhibit 99.2 of our Current Report on Form 8-K filed with the SEC on May 3, 2016, and Item 3 of the 2016 Quarterly Report on Form 10-Q for the period ended March 31, 2016.10-K.

Item 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission (the SEC) rules and forms, and that such information is accumulated and communicated to our General Partner’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of ~~June 30, 2016,~~March 31, 2017, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, with the participation of the General Partner’s management, carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of ~~June 30, 2016.~~March 31, 2017.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended ~~June 30, 2016,~~March 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Although we ~~are,~~may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not a party to any reportable litigation or governmental or other proceeding, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, that we believe will have a material adverse impact on our consolidated financial ~~condition or results of operations.~~position. In addition, as discussed in Note 10—Contingencies, in the Notes to Consolidated Financial Statements, under our amended omnibus agreement, Phillips 66 indemnifies us ~~subject to an aggregate deductible of no more than $0.2 million,~~or assumes responsibility for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of ~~the~~our assets ~~contributed~~prior to their contribution to us ~~in connection with our Initial Public Offering (the Offering) prior to the closing of the Offering. Pursuant to the terms of the various agreements under which we acquired assets~~ from Phillips 66 since the Offering (the Acquired Assets), Phillips 66 assumed the responsibility for liabilities relating to litigation and environmental matters attributable to the ownership and operation of the Acquired Assets prior to our acquisition of those assets.66.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in “Item 1A. Risk Factors” in our ~~2015~~2016 Annual Report on Form 10-K.

Item 6. EXHIBITS

Incorporated by Reference
Exhibit
Number
Exhibit Description Form Exhibit Number Filing Date SEC File No.

10.1
Contribution, Conveyance and Assumption Agreement, dated as of May 4, 2016, by and among Phillips 66 Partners LP, Phillips
66 Partners GP LLC, Phillips 66 Company and Phillips 66 Project Development Inc.

8-K 2.1 5/4/2016 001-36011

10.2 Fourth Amendment to the Operational Services Agreement, dated as of May 10, 2016, by and among Phillips 66 Partners Carrier LLC, Phillips 66 Partners Holdings LLC, and Phillips 66 Pipeline LLC. 8-K 10.1 5/10/2016 001-36011

10.3
Equity Distribution Agreement, dated as of June 6, 2016, by and among Phillips 66 Partners LP, Phillips 66 Partners GP LLC, and RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Mizuho Securities USA Inc. and Morgan Stanley & Co. LLC

8-K 1.1 6/6/2016 001-36011

12* Computation of Ratio of Earnings to Fixed Charges.

31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32* Certifications pursuant to 18 U.S.C. Section 1350.

101.INS* XBRL Instance Document.

101.SCH* XBRL Schema Document.

101.CAL* XBRL Calculation Linkbase Document.

101.LAB* XBRL Labels Linkbase Document.

101.PRE* XBRL Presentation Linkbase Document.

101.DEF* XBRL Definition Linkbase Document.

* Filed herewith.




Exhibit Number		Exhibit Description

12		Computation of Ratio of Earnings to Fixed Charges.

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32		Certifications pursuant to 18 U.S.C. Section 1350.

101.INS		XBRL Instance Document.

101.SCH		XBRL Schema Document.

101.CAL		XBRL Calculation Linkbase Document.

101.LAB		XBRL Labels Linkbase Document.

101.PRE		XBRL Presentation Linkbase Document.

101.DEF		XBRL Definition Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	PHILLIPS 66 PARTNERS LP

	By: Phillips 66 Partners GP LLC, its general partner

	/s/ Chukwuemeka A. Oyolu
	Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer)

~~July 29, 2016~~May 5, 2017

4639



	Page
Part I – Financial Information	1

Item 1. Financial Statements	1
Consolidated Statement of Income	1
Consolidated Statement of Comprehensive Income	2
Consolidated Balance Sheet	3
Consolidated Statement of Cash Flows	4
Consolidated Statement of Changes in Equity	5
Notes to Consolidated Financial Statements	76

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2821

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4336

Item 4. Controls and Procedures	4336

Part II – Other Information	4437

Item 1. Legal Proceedings	4437

Item 1A. Risk Factors	4437

Item 6. Exhibits	4538

Signatures	4639



	Millions of Dollars
	June 30 2016			December 31 2015*
Assets
Cash and cash equivalents	$	35.7		50.3
Accounts receivable—related parties	37.3			21.4
Accounts receivable—third parties	1.7			3.3
Materials and supplies	5.5			4.5
Other current assets	3.4			4.2
Total Current Assets	83.6			83.7
Equity investments	1,007.8			944.9
Net properties, plants and equipment	1,672.8			1,644.1
Goodwill	2.5			2.5
Deferred rentals—related parties	5.4			5.6
Deferred tax assets	—			0.1
Other assets	0.6			0.7
Total Assets	$	2,772.7		2,681.6

Liabilities
Accounts payable—related parties	$	5.7		3.9
Accounts payable—third parties	20.1			66.9
Payroll and benefits payable	—			0.7
Accrued property and other taxes	11.7			7.7
Accrued interest	16.7			22.2
Current portion of accrued environmental costs	0.8			0.8
Deferred revenues—related parties	6.4			4.6
Other current liabilities	0.2			0.1
Total Current Liabilities	61.6			106.9
Notes payable—related party	212.0			964.0
Long-term debt	1,131.1			1,090.7
Asset retirement obligations	4.0			3.9
Accrued environmental costs	0.7			0.8
Deferred income taxes	0.8			0.3
Deferred revenues—related parties—long-term	19.7			11.0
Total Liabilities	1,429.9			2,177.6

Equity
Net investment—Predecessors	—			113.9
Common unitholders—public (2016—37,051,608 units issued and outstanding; 2015—24,138,750 units issued and outstanding)	1,483.7			808.9
Common unitholder—Phillips 66 (2016—60,162,787 units issued and outstanding; 2015—58,349,042 units issued and outstanding)	465.0			233.0
General partner—Phillips 66 (2016—1,978,603 units issued and outstanding; 2015—1,683,425 units issued and outstanding)	(605.1		)	(650.3	)
Accumulated other comprehensive loss	(0.8		)	(1.5	)
Total Equity	1,342.8			504.0
Total Liabilities and Equity	$	2,772.7		2,681.6



	Common Units Public	Common Units Phillips 66	Subordinated Units Phillips 66		General Partner Units Phillips 66	Total Units

December 31, 2014	18,888,750	20,938,498	35,217,112		1,531,518	76,575,878
Units issued in public equity offerings	5,250,000	—	—		—	5,250,000
Units issued associated with Sand Hills/Southern Hills/Explorer equity investment acquisition	—	1,587,376	—		139,538	1,726,914
Subordinated unit conversion	—	35,217,112	(35,217,112	)	—	—
June 30, 2015	24,138,750	57,742,986	—		1,671,056	83,552,792

December 31, 2015	24,138,750	58,349,042	—		1,683,425	84,171,217
Units issued in public equity offerings	12,912,858	—	—		—	12,912,858
Units issued in Initial Fractionator Acquisition*	—	412,823	—		8,425	421,248
Units issued in Subsequent Fractionator Acquisition*	—	1,400,922	—		286,753	1,687,675
June 30, 2016	37,051,608	60,162,787	—		1,978,603	99,192,998



	Millions of Dollars
	June 30 2016			December 31 2015

Land	$	14.1		13.8
Buildings and improvements	57.4			30.0
Pipelines and related assets*^†	263.4			259.1
Terminals and related assets^†	348.4			345.9
Rail racks and related assets^†	136.4			136.3
Fractionator and related assets^†	615.4			626.2
Caverns and related assets^†	428.5			277.5
Construction-in-progress	119.9			237.7
Gross PP&E	1,983.5			1,926.5
Less: Accumulated depreciation*	(310.7		)	(282.4	)
Net PP&E	$	1,672.8		1,644.1



	Millions of Dollars
Remainder of 2016	$	195.6
2017	363.5
2018	344.6
2019	314.0
2020	310.4
2021	302.1
2022 and thereafter	933.4
Total	$	2,763.6



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Exhibit Number	Filing Date	SEC File No.

10.1	Contribution, Conveyance and Assumption Agreement, dated as of May 4, 2016, by and among Phillips 66 Partners LP, Phillips 66 Partners GP LLC, Phillips 66 Company and Phillips 66 Project Development Inc.	8-K	2.1	5/4/2016	001-36011

10.2	Fourth Amendment to the Operational Services Agreement, dated as of May 10, 2016, by and among Phillips 66 Partners Carrier LLC, Phillips 66 Partners Holdings LLC, and Phillips 66 Pipeline LLC.	8-K	10.1	5/10/2016	001-36011

10.3	Equity Distribution Agreement, dated as of June 6, 2016, by and among Phillips 66 Partners LP, Phillips 66 Partners GP LLC, and RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Mizuho Securities USA Inc. and Morgan Stanley & Co. LLC	8-K	1.1	6/6/2016	001-36011

12*	Computation of Ratio of Earnings to Fixed Charges.

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32*	Certifications pursuant to 18 U.S.C. Section 1350.

101.INS*	XBRL Instance Document.

101.SCH*	XBRL Schema Document.

101.CAL*	XBRL Calculation Linkbase Document.

101.LAB*	XBRL Labels Linkbase Document.

101.PRE*	XBRL Presentation Linkbase Document.

101.DEF*	XBRL Definition Linkbase Document.

* Filed herewith.