Investments, Loans and Long-Term Receivables
Components of investments, loans and long-term receivables at December 31 were:
|
| | | | | | |
| Millions of Dollars |
| 2013 |
| | 2012 |
|
| | | |
Equity investments | $ | 11,080 |
| | 10,291 |
|
Long-term receivables | 74 |
| | 132 |
|
Other investments | 66 |
| | 48 |
|
| $ | 11,220 |
| | 10,471 |
|
Equity Investments
Affiliated companies in which we had a significant equity investment at December 31, 2013, included:
| |
• | WRB Refining LP—50 percent owned business venture with Cenovus Energy Inc. (Cenovus)—owns the Wood River and Borger refineries. |
| |
• | DCP Midstream—50 percent owned joint venture with Spectra Energy Corp—owns and operates gas plants, gathering systems, storage facilities and fractionation plants. |
| |
• | CPChem—50 percent owned joint venture with Chevron U.S.A. Inc., an indirect wholly-owned subsidiary of Chevron Corporation—manufactures and markets petrochemicals and plastics. |
| |
• | Malaysian Refining Company Sdn. Bdh. (MRC)—47 percent owned business venture with Petronas, the Malaysian state oil company—owns the Melaka, Malaysia refinery. |
| |
• | Rockies Express Pipeline LLC (REX)—25 percent owned joint venture with Tallgrass Energy Partners L.P. and Sempra Energy Corp.—owns and operates a natural gas pipeline system from Meeker, Colorado to Clarington, Ohio. |
| |
• | DCP Sand Hills Pipeline, LLC—33 percent owned joint venture with DCP Midstream and Spectra Energy—owns and operates NGL pipeline systems from the Permian and Eagle Ford basins to Mont Belvieu, Texas. |
| |
• | DCP Southern Hills Pipeline, LLC—33 percent owned joint venture with DCP Midstream and Spectra Energy—owns and operates NGL pipeline systems from the Midcontinent region to Mont Belvieu, Texas. |
Summarized 100 percent financial information for all equity method investments in affiliated companies, combined, was as follows:
|
| | | | | | | | | |
| Millions of Dollars |
| 2013 |
| | 2012 |
| | 2011 |
|
| | | | | |
Revenues | $ | 59,500 |
| | 55,401 |
| | 59,044 |
|
Income before income taxes | 5,975 |
| | 6,265 |
| | 6,083 |
|
Net income | 5,838 |
| | 6,122 |
| | 5,742 |
|
Current assets | 9,865 |
| | 9,646 |
| | 8,752 |
|
Noncurrent assets | 40,188 |
| | 37,269 |
| | 34,329 |
|
Current liabilities | 7,971 |
| | 8,319 |
| | 6,837 |
|
Noncurrent liabilities | 9,959 |
| | 9,251 |
| | 10,279 |
|
Our share of income taxes incurred directly by the equity companies is included in equity in earnings of affiliates, and as such is not included in the provision for income taxes in our consolidated financial statements.
At December 31, 2013, retained earnings included $878 million related to the undistributed earnings of affiliated companies. Dividends received from affiliates were $2,752 million, $2,304 million and $2,209 million in 2013, 2012 and 2011, respectively.
WRB
WRB’s operating assets consist of the Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas, respectively and we are the operator and managing partner. As a result of our contribution of these two assets to WRB, a basis difference was created because the fair value of the contributed assets recorded by WRB exceeded their historical book value. The difference is primarily amortized and recognized as a benefit evenly over a period of 26 years, which was the estimated remaining useful life of the refineries’ property, plant and equipment at the closing date. In the third quarter of 2013, we increased our ownership interest in WRB to 50 percent by purchasing ConocoPhillips' 0.4 percent interest. At December 31, 2013, the book value of our investment in WRB was $3,475 million, and the basis difference was $3,555 million. Equity earnings in 2013, 2012 and 2011 were increased by $185 million, $180 million and $185 million, respectively, due to amortization of the basis difference. Cenovus is obligated to contribute $7.5 billion, plus accrued interest, to WRB over a 10-year period that began in 2007, of which $2.9 billion remains at December 31, 2013.
DCP Midstream
DCP Midstream owns and operates gas plants, gathering systems, storage facilities and fractionation plants. At December 31, 2013, the book value of our equity method investment in DCP Midstream was $1,335 million. DCP Midstream markets a portion of its NGL to us and CPChem under a supply agreement that continues at the current volume commitment with a primary term ending December 31, 2014. This purchase commitment is on an “if-produced, will-purchase” basis and so has no fixed production schedule, but has had, and is expected over the remaining term of the contract to have, a relatively stable purchase pattern. NGL are purchased under this agreement at various published market index prices, less transportation and fractionation fees.
CPChem
CPChem manufactures and markets petrochemicals and plastics. At December 31, 2013, the book value of our equity method investment in CPChem was $4,241 million. We have multiple supply and purchase agreements in place with CPChem, ranging in initial terms from one to 99 years, with extension options. These agreements cover sales and purchases of refined products, solvents, and petrochemical and NGL feedstocks, as well as fuel oils and gases. Delivery quantities vary by product, and are generally on an “if-produced, will-purchase” basis. All products are purchased and sold under specified pricing formulas based on various published pricing indices.
MRC
MRC’s operating asset is a refinery in Melaka, Malaysia. The refinery operates in merchant mode in which each co-venturer sells crude oil to MRC and purchases the resulting refined product. At December 31, 2013, the book value of our equity method investment in MRC was $419 million. In the fourth quarter of 2012, we recorded a before-tax impairment of $564 million. See Note 9—Impairments, for additional information.
REX
REX owns a natural gas pipeline that runs from Meeker, Colorado to Clarington, Ohio, which became fully operational in November 2009. Long-term, binding firm commitments have been secured for virtually all of the pipeline’s capacity through 2019. At December 31, 2013, the book value of our equity method investment in REX was $250 million. During 2012, we recorded before-tax impairments totaling $480 million on this investment. See Note 9—Impairments, for additional information.
Sand Hills Pipeline
In the fourth quarter of 2012, we invested $234 million to acquire from DCP Midstream a one-third ownership in DCP Sand Hills Pipeline, LLC. In December 2012, the first phase of the Sand Hills pipeline, which extends from Eagle Ford into Mont Belvieu, Texas, was placed in service. The second phase of the project, with deliveries from the Permian Basin, was completed on schedule in the second quarter of 2013. At December 31, 2013, the book value of our equity investment in DCP Sand Hills Pipeline was $392 million.
Southern Hills Pipeline
In the fourth quarter of 2012, we invested $225 million to acquire from DCP Midstream a one-third ownership in DCP Southern Hills Pipeline, LLC. The Southern Hills pipeline, which is a reconfiguration of the former Seaway refined products line into an NGL pipeline, was completed on schedule in the second quarter of 2013 with service from the Midcontinent region to Mont Belvieu, Texas. In 2011, we sold our interest in Seaway Products Pipeline Company to DCP Midstream. The deferred gain on the sale of $156 million began amortizing in 2013 following the commencement of operations of the Southern Hills pipeline. At December 31, 2013, the book value of our investment in DCP Southern Hills was $157 million, and the basis difference was $161 million. Equity earnings in 2013 were increased by $2 million due to amortization of the basis difference.
Other
MSLP owns a delayed coker and related facilities at the Sweeny Refinery. MSLP processes long residue, which is produced from heavy sour crude oil, for a processing fee. Fuel-grade petroleum coke is produced as a by-product and becomes the property of MSLP. Prior to August 28, 2009, MSLP was owned 50/50 by ConocoPhillips and PDVSA. Under the agreements that govern the relationships between the partners, certain defaults by PDVSA with respect to supply of crude oil to the Sweeny Refinery triggered the right to acquire PDVSA’s 50 percent ownership interest in MSLP, which was exercised on August 28, 2009. PDVSA has initiated arbitration with the International Chamber of Commerce challenging the exercise of the call right and claiming it was invalid. The arbitral tribunal held hearings on the merits of the dispute in December 2012, and post-hearing briefs were exchanged in March 2013. A decision from the arbitral tribunal is expected in the first quarter of 2014. Following the Separation, Phillips 66 generally indemnifies ConocoPhillips for liabilities, if any, arising out of the exercise of the call right or otherwise with respect to the joint venture or the refinery. We continue to use the equity method of accounting for our investment in MSLP.
Loans and Long-term Receivables
We enter into agreements with other parties to pursue business opportunities. Included in such activity are loans and long-term receivables to certain affiliated and non-affiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or non-affiliated company pursuant to a loan agreement. The loan balance will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are assessed for impairment when events indicate the loan balance may not be fully recovered.
In 2012, we entered into a market-based shareholder financing agreement for up to $100 million with the MRC. In the third quarter of 2013, MRC drew $65 million in funds and repaid the advance in December 2013. At December 31, 2013 and 2012, the balance on the facility was $0 and $100 million, respectively. Advances are recorded as a short-term related party advance with interest income recorded in equity earnings to offset the corresponding interest expense by MRC.
