Abstract. Multiphase flow is a critical process in a wide range of applications, including carbon sequestration, contaminant remediation, and groundwater management. Typically, this process is modeled by a nonlinear system of partial differential equations derived by considering the mass conservation of each phase (e.g., oil, water), along with constitutive laws for the relationship of phase velocity to phase pressure. In this study, we develop and study efficient solution algorithms for solving the algebraic systems of equations derived from a fully coupled and time-implicit treatment of models of multiphase flow. We explore the performance of several preconditioners based on algebraic multigrid (AMG) for solving the linearized problem, including "black-box" AMG applied directly to the system, a new version of constrained pressure residual multigrid (CPR-AMG) preconditioning, and a new preconditioner derived using an approximate Schur complement arising from the block factorization of the Jacobian. We show that the new methods are the most robust with respect to problem character as determined by varying effects of capillary pressures, and we show that the block factorization preconditioner is both efficient and scales optimally with problem size.1. Introduction. Multiphase flow is a feature of many physical systems and models of it are used in applications such as reservoir simulation, carbon sequestration, ground water management and contaminant transport. Modeling multiphase flow in highly heterogeneous media with complex geometries is difficult, especially when realistic processes such as capillary pressure are included. The system describing multiphase flow consists of nonlinear partial differential equations, constitutive laws and constraints. In this paper, we focus on the iterative solution of linear systems arising in a fully implicit cell-centered finite volume discretization of single component isothermal two-phase flow model with capillary pressure. This fully implicit time-stepping scheme is among the most robust for simulation of subsurface flow. Moreover, it can serve as a basis for modeling more complex processes in which the physical quantities are tightly coupled. This additional complexity could include adding more components, miscibility between components, thermal effects, and phase transitions.The fully implicit discretization gives rise to a nonlinear system of equations at each time step. We employ a variant of Newton's method with an exact Jacobian of the discretized equations to solve this system. For the linear system, we use a preconditioned generalized minimal residual (GMRES) method. There is a vast literature on different approaches to precondition the Jacobian system. A very popular approach is to use incomplete LU factorization (ILU) for constructing the preconditioner. Though popular for its general applicability, ILU-based preconditioners are neither effective nor scalable in many cases. Another approach is to consider decoupled preconditioners for the coupled system [6]. This...