What is the main impact of this IDR restructuring for Phillips 66 and PSXP unitholders?

For Phillips 66 unitholders, this simplifies its consolidated structure and removes complexity. For PSXP unitholders, the cancellation of IDRs eliminates the disproportionate distribution of cash flows to the general partner at higher levels, which should lead to more predictable and stable common unit distributions and a potentially simpler investment thesis.

Why is Phillips 66 cancelling the incentive distribution rights?

Phillips 66 is cancelling the IDRs to simplify the capital structure of Phillips 66 Partners, align economic incentives between the parent and the MLP, and enhance PSXP's financial flexibility. This move is often intended to make the MLP more attractive to investors by providing more straightforward distribution growth and potentially improving its cost of capital.

What does the issuance of 101,000,000 PSXP common units signify?

This large issuance of PSXP common units to Phillips 66 represents the consideration for the cancellation of the IDRs and the economic general partner interest. It increases Phillips 66's direct economic stake in PSXP's common units, further aligning its interests with other PSXP common unitholders rather than benefiting from a separate incentive distribution structure.

When will this restructuring take effect?

The IDR Restructuring is expected to close on August 1, 2019, subject to the satisfaction of customary closing conditions.

PSX 8-K: Material Agreements & Regulation FD

Summary

Phillips 66 (PSX) announced a significant restructuring of its relationship with its master limited partnership, Phillips 66 Partners LP (PSXP). On July 24, 2019, PSXP entered into an agreement to cancel its incentive distribution rights (IDRs) and convert its economic general partner interest into a non-economic one. In exchange, Phillips 66, through its subsidiary the General Partner, will receive 101,000,000 PSXP common units. This transaction fundamentally simplifies the capital structure and aligns economic incentives between Phillips 66 and PSXP. The cancellation of IDRs eliminates the tiered distribution structure that favored the general partner at higher distribution levels, thereby improving the predictability and attractiveness of PSXP common unit distributions for all unitholders. This move is expected to enhance PSXP's ability to access capital and potentially lead to a more simplified corporate structure.

Key Highlights

1Phillips 66 Partners LP (PSXP) will cancel its Incentive Distribution Rights (IDRs).
2The General Partner's economic general partner interest in PSXP will be converted to a non-economic interest.
3Phillips 66 (via its subsidiary) will receive 101,000,000 PSXP common units in exchange for the IDRs and economic GP interest.
4This restructuring simplifies the relationship and aligns economic incentives between Phillips 66 and PSXP.
5The transaction is expected to close on August 1, 2019, subject to customary conditions.
6The agreement was approved by PSXP's conflicts committee and the General Partner's board, with independent advisors retained.
7Phillips 66 indirectly owned approximately 55% of PSXP common units prior to this transaction.

Phillips 66 8-K Report, Material Agreement (Jul 26, 2019)

Summary

Key Highlights

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