Q4 2019 Earnings Call
[music].
Greetings and welcome to the par Pacific Holdings fourth quarter earnings Conference call. As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Neil Mondavi, Senior Vice President Finance for Par Pacific Holdings.
Thank you missed them on that you may begin.
Thank you operator, well kind of par Pacific fourth quarter 2019 earnings conference call.
Joining me today are willing to pay President Chief Executive Officer, well, not Telia, Chief Financial Officer, and Joseph Israel, President Chief Executive Officer apartments <unk>.
Before we begin not that our comments today may include forward looking statements.
Any forward looking statements are subject to change in are not guarantees of future performance or that.
They are subject to risks and uncertainties and actual results may differ materially from these forward looking statements.
Accordingly, investors should not place undue reliance on forward looking statements and we disclaim any obligation to update or revise crop.
Her afraid to our investor presentation on our website to our filings with the FCC for non-GAAP reconciliations and additional information.
I'll now turn the call over to our President and Chief Executive Officer, Okay.
Thank you Neil.
We concluded the year on a high no reporting record financial results closing in integrating two important acquisitions and capturing significant revenue synergies inherent in a larger system.
Today, we're positioned better than ever having created a balanced integrated downstream network that is competitively positioned across their mark.
I'm pleased to report record results for 2019.
Adjusted EBITDA was 260.4 million.
Adjusted EPS was $1.79.
Excluding working capital impacts operating cash flow was $189 million.
Over a five year period, we've grown this measure by a 19% compound annual growth rate.
Fourth quarter results were particularly strong with a record adjusted EBITDA of $94 million, an adjusted Dps <unk> dollar and two cents.
These financial results have also helped us achieve significant de leveraging and dramatically improve our liquidity.
Our mainland refining business has performed particularly well during the year due to strong product cracks and favorable inland crude pricing.
Well, we had a record year with unmatched operational reliability, an excellent cost control against the backdrop of a supportive market environment.
The Washington acquisition has exceeded expectations contributing over $120 million of adjusted EBITDA in 2019.
Our purchase price of $327 million implies an acquisition multiple of 2.7 times 2019 adjusted EBITDA.
Well I had a challenging year due to heightened crude oil differentials, although the teams done a great job positioning this business for the upturn our export product sales declined 37% last year to less than 5% of sales.
With a well balanced sales profile in Hawaii.
We're confident that we can generate favorable profitability as conditions returned to normal.
Our retail business continues to perform exceptionally well contributing a growing income stream.
Year over year retail adjusted EBITDA grew more than 28%.
In addition, our logistics adjusted EBITDA has grown 89% due to our acquisitions and increased utilization of our logistics network.
I'm, particularly pleased with the tight cost control of the last three acquisitions.
We've completed the Washington, and Hawaii acquisitions without any meaningful increase in our corporate expenses in Houston, highlighting the ability to leverage our existing systems processes and infrastructure.
The first quarter is proven to be fast changing and dynamic.
The last two months, we've experienced changes in bunker fuel standards mild heating season weather, a U.S., China trade reproach met and heightened middle East strife.
Now we have a global pandemic that as overwhelmed the other factors to suppress refined product demand.
Fortunately Chinese refining run cuts are significant and helping to address declining demand in Asia.
In all of our markets, we've not seen any impact on demand associated with the Corona bars.
We are watching these factors closely as we near significant planned downtime in Hawaii. This summer.
We have a very busy project schedule over the next 12 months with three major turnarounds.
Despite our maintenance schedule, we plan on generating free cash flow in 2020, and continuing to reduce our debt.
After completing that schedule, we should have a multiyear period with no major downtime.
At this time I'd like to turn the call over to Joseph to provide additional information on our operations. Thank you Bill.
The consistent focus on safety environmental compliance operations reliability and commercial mobility led to a strong 2019 performance.
Congratulations go teams.
Starting with though I only refinery.
Combination of favorable market conditions, and reliable operation give us another strong quarter.
Oh I only three to one index in the fourth quarter was 22026 cents per barrel and all the refinery throughput averaged approximately 17000 barrels per day.
Oh, the United adjusted gross margin in the quarter was $17 in 90 cents per barrel no production cost.
No one else owns 77 cents per barrel, reflecting reliable and efficient operations.
The exception on 99.6% operational availability for the entire year and know that will appear in Wyoming.
It says it all production records, including could charge gasoline and distillate production.
So far into first quarter, Oh, Wyoming three to one index has averaged two housekeeping don't know blue bar and all the time gets throughput is approximately 16000 barrels today.
Assuming on fourth quarter story in Washington.
Seasonally strong markets conditions combined with clean harbors operation.
Give us another strong quarter.
Oh Pacific Northwest five to two wanting to.
Well Sixtym do Logan 50 cents per barrel on N.S. basis.
Oh refinery throughput averaged approximately 41000 barrels per day.
Getting stronger operational availability.
For the year average 90.9%.
Just to gross margin in the fourth quarter was folk in dollars and 81 cents tomorrow and production costs were full new loans and 46 cents per barrel.
So far in general in February five two wanting that has averaged over the $12 per barrel.
WCS and Bakken crude oil differentials.
Continues to widen and our plan is to maintain over 40000 barrels a day throughput in the quarter.
You know why.
30 operation helped to mitigate another quarter crude differentials headwind.
Oh, Singapore for one to one index, one full going up and 34 cents per barrel on blended basis.
No I realized crude differentials in the quarter average photos and 79 cents per barrel overall, Brian.
Oh throughput averaged approximately 110 11000 barrels per day with 98.7% operational availability.
Oh fourth quarter realized adjusted gross margin in Hawaii was O'donovan 68 cents per barrel and production costs were three new loans and 34 since December.
Oh 2019, focusing on wireless extension.
With the following highlight.
Through a good up 46% fuel Uhhuh U 200 to 9000 barrels per day.
Dr costs down 40 cents per barrel fuel for the year on island sales volume up 53% triggering 37% reduction in exports you hopefully.
As mentioned in previous earnings call, we are working to improve our gross margin capture by your dollar per barrel by the end of 2020.
The elevated crude differentials and free experienced in the fourth quarter resulted in a brand plus $6.50 per barrel price estimate so first quarter could join runs on deliver basis.
However, I will also note that though at least on cargo purchases for second quarter run.
Finally, reflecting lower differential and freight cost.
Driven by refining slowdowns, mainly in Asia and over the older lower demand for oil.
Oh throughput target for the first go to the in Hawaii is 100 200.
2000 barrels per day.
Starting this quarter, we will publish the Singapore three one to index as I have a new benchmark for adjusted gross margin in Hawaii, We believe that two thirds distillate, one third gasoline crack spread will benefit the cool it with our margin going forward you too I am on pricing impact.
And I will be funded a yield.
In summary, 2019 growth has built a good trends fumo operation into an accretion and diversified system.
2019 production costs for the entire system has averaged only three new lows and 86 cents per barrel and we are well positioned to compete in Oklahoma.
And now I'll turn the corner, who will review consolidate individual.
Thank you Joseph.
As Bill stated full year, adjusted EBITDA and adjusted earnings totaled 260 million and 92 million or a $1.79 cents per fully diluted share.
These results reflect strong increases versus 2018, when we recorded adjusted EBITDA and adjusted earnings of 132 million and 49 million or dollar and six cents per fully diluted share.
The adjusted EPS increased approximately 69% per share was driven by a combination of accretive acquisition activity completed in the fourth quarter of 2018, and early first quarter 2019, and impressive results at our Wyoming refinery and retail business.
In addition to the strong annual growth our segment operating income diversification was displayed with logistics and retail making up 54% segment contribution.
2019 retail segment adjusted EBITDA contribution increased approximately $13 million versus 2018, driven by strong fuel and merchandise margin as well as the full year contribution from our northwest retail acquisition.
Retail same store sales fuel volumes were roughly flat.
While merchandise sales were up approximately 2.8% compared to 2018.
The logistics segment adjusted EBITDA contribution increased approximately 36 million versus prior year due to the Washington acquisitions, growing throughputs and certain Hawaii logistics assets and steady through pretty across our wireline operations.
2019 refining segment contribution was 169 million, an increase of 77 million compared to 2018.
Underlying these results were record contributions from Wyoming, and a strong start to the Washington facilities.
Partially offset by below mid cycle contributions from the Hawaii assets, which are impacted by unplanned downtime.
Laramie generated adjusted EBITDAX of 74 million and a net loss of 381 million for 2019.
Net to our interest Laramies results reduced our adjusted earnings by $9 million.
This compares to 2018, when Laramie contributed $11 million to our adjusted earnings.
All join and completion activity has ceased and the Laramie management team intends to dedicate cash flow towards deleveraging.
Current levered sits at 2.7 times debt to EBITDA.
Moving to the capital structure front.
Excluding laramie impairment charges, we finished the year with a net debt to cap of 41% a reduction of approximately 11% from the 52% where we peaked at 331 2019 post closing the U.S. oil acquisition.
Post closing the U.S. all acquisition consolidated debt reduction totaled $76 million, primarily through a combination of convert exchanges and term loan B paydowns.
Our targets remain 30% to 35% net debt to total capitalization and we're pleased with the progress this year towards achieving those ranges.
We generated cash from operations of $189 million, excluding working capital.
$94 million of cash was dedicated to capital spending and turnaround outlays.
29 million was dedicated to the permanent reduction of debt and our cash position increased by $51 million versus 2018.
The $94 million of capital spending in turn around outweighs came in below our guidance of 100 to 110 million driven by spending discipline and certain projects coming in below budget.
Of the $94 million $55 million was allocated to growth capital 29 million to maintenance and regulatory capital and $10 million to turnaround outlays.
Fourth quarter accounting items worth noting include a few special items the largest what's impact impacting both adjusted EBITDA and adjusted net income was realized derivative gains and par Hawaii refining of approximately $6 million most of which will reverse during the first quarter of 2020.
Impacting our adjusted net income was approximately.
$2 million tax charges.
So impacting our GAAP net income was an approximate $2 million in debt extinguishment costs related to our convertible note exchange.
Total liquidity improved to 241 million at quarter end from 175 million at the third quarter 2019.
A portion of which relates to working capital timing.
Fourth quarter GAAP interest expense totaled 18 million of which 60 million was cash interest.
And depreciation and amortization totaled 21 million.
Cash from operations for the quarter totaled approximately $73 million, excluding working capital and capital expenditures and turnaround outlays totaled approximately 21 million.
Moving to a few items for the 2020 annual outlook.
We expect capital expenditures and turnaround outweighs totaling between 120 and $135 million of which roughly 61 million is earmarked for turnarounds 26 million for growth and 48 million for maintenance and regulatory capital.
Breaking down these items into a bit more detail.
In the turnaround category, we anticipate par east will underground a planned turnaround in the late second quarter with an expected outlay of roughly $34 million.
Wyoming will be an early fall with anticipated outlay of 17 million.
In Washington activities are not scheduled until early 2021, however, we're budgeting approximately $11 million during 2020.
Our growth capital is made up of approximately $7 million to complete our next Gen fuels logistics project in Washington, and roughly $12 million in de bottlenecking, primarily at our Washington in Wyoming refineries.
The balance is made up of other small projects, including rebranding at our north west retail locations.
Our maintenance spend is roughly $10 million higher than we would typically expect related to rebuilding some critical process equipment in Wyoming as well as bringing our tank farm up to our standards.
We expect GAAP interest expense of approximately $65 million to $75 million and depreciation and amortization between $90 million to $95 million.
This concludes our prepared remarks, operator, I'll turn it back to you for QNX.
At this time it will be conducting a question and answer session.
Ask your question. Please press star one on your telephone keypad confirmation towing will indicate your line is in the question Q.
First start to if you would like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up you had said before pressing the star Keith.
One moment, please while we pull for questions.
And our first question is from Neil Mehta from Goldman Sachs.
Please proceed with west with your question.
Good morning. This is carlyon for Neal Thanks for taking the questions and congrats on a great quarter.
The first one is just around free cash flow wondering if you can talk about your confidence level around getting to this $3 per share free cash flow and what are the key milestones that we should look for on the path to achieving that.
Currently this is bill I think if you look at the 2019 results you'll see that we had the earnings power that generated nearly $190 million in cash from operations before working capital changes.
Those working capital changes are largely related to 2019 growth in there does tend to be some variability quarter to quarter, but it's not.
A recurring items. So the 190 million of cash from operations should be achievable with time and us in a stable business profile.
Once we get through the next two or three turnarounds.
Our capex at that point is going to be relatively low.
And if you think about EBITDA for the year of to 60 and 190 of cash from operations was about a $70 million of interest and other items some of that and I associated with acquisitions.
That's obviously not going to be recurring in a in a stable business environment. So I think walking through and starting with 260 and a maintenance capital schedule in the 35 to 40 range.
We're at $3 a share.
So when you ask when we're going to get there I think were there but for the capital that we've allocated to growth projects acquisitions, and then working off our higher cost debt that we incurred to complete the Washington deal.
With that in hand, we do have to get through the turnarounds in the next.
Next year, we've got some some pretty significant turnarounds that will both require capital and also impact our operation somewhat but I certainly have a lot of confidence that that we can generate $3 a free cash flow with the assets and the business we have today.
That's great. Thank you and then the follow up is just around integration and M&A. So what the Tacoma integration process nearly complete can you talk about the impacts that you've seen so far as it relates to the benefits of this integrated business model that you guys have built out do you think that was the driver of the strong results in Fourq you, particularly.
The non are finding businesses.
Yes, there were a few other drivers I mean, certainly with respect to retail Theres no acquisition associate with that that just solid operations and good margins with respect to logistics, there's no doubt that the acquisitions and some of the revenue synergies associated with the acquisitions helped that number but as I mentioned too.
With respect to our logistics business, there is some quarter to quarter variability and if we have a couple of extra crude loads coming into Hawaii can impact the profitability of our logistics business in a quarter and we certainly saw that in the fourth quarter I'll turn it over to just congested maybe if you could provide a little more color on some of the intermediate moves back.
And fourth between Hawaiian Washington, just to provide some detail yeah operationally will fully integrated already moving crude oil and products between our refineries.
The benefits from.
Opportunities.
Great. Thank you.
And our next question is from Matthew Blair from Tudor Pickering Holt.
Please proceed with your question.
Hey, good morning, everyone had a question on the the jet market par I think has a pretty unique perspective here I noticed in your slides that.
For Hawaii total demand about 32% comes from Air Transportation could you talk about what kind of demand trends you're seeing in jets, how much of an impact this crime virus might be having and any sort of comparison to last years levels would be helpful.
At this point, we've seen no impact on demand in any of our markets.
Obviously, the one that would most likely be impacted would be Hawaii I.
I think it's less likely to be seen in terms of demand generally speaking.
Unless the virus starts to spread to the mainland to Hawaii.
And certainly that's a possibility given whats transpired in Europe in the last 48 hours.
But to date, we really havent seen any declines.
Keep in mind in the Hawaii market.
Chinese tourists are less than 1% of the market demand.
So that that when it when the epidemic was largely contained to China. It really didnt have a significant impact.
And military jet.
A large part of the demand.
Sounds good and.
And then also the margin capture at the Hawaii refinery appeared to be extremely strong could you walk us through the Tailwinds in Q4, and and offer any thoughts on margin capture in Q1.
Sure Matthew it's well.
I think you know was a strong fourth quarter for the Hawaii refining business.
Thank you know one item to keep in mind as we're able to minimize exports. So I think that was a major positive.
And then I think the other is high and it relates to the fact that we're moving towards the three one to index, we really moved away from HFO production and so again the for one to one was largely impacted by the decline in high sulfur fuel oil we have largely moved away from producing high steel for fuel and so again I think we believe the three one.
To benchmark is a better reflection of our overall contract profile.
So I think thats the biggest driver and then they got to keep in mind I called this out but there is roughly a 6 million dollar derivative gain that we.
That we benefited from in the Hawaii refining business and we expect that to reverse during the first Curt first quarter.
Got it thank you very much.
Our next question is from Brad Heffern from RBC.
Please proceed with your question.
Hi, good morning, everyone.
I guess not to be labor at the current virus stuff that I was curious if you've seen any sort of supply push into the Hawaii market that you you wouldn't typically see and then additionally, the 102 100 and for guidance for Hawaiian just slipped below relative to how you guys had been running that facility in a non turnaround quarter. So is there anything.
You know you need going on in terms of the demand that you're expecting in the first quarter away from the current of Iris.
I'll, let Joseph address the the run the throughput rate, but with respect to any kind of supply push we haven't seen anything like that.
Keep in mind that in the Hawaii market Theres, not a real spot market. So it's it's not it'd be very unusual for fuel to show up at the docs frankly to have to go through one of the one of the systems. There. So most sales in Hawaii or contracted for on an annual basis on requirement.
Yes.
So to the extent you were going to see a supply push it have to be sustained in over a one year period.
So we don't really see that probably the bigger impact that we're seeing right now simply is if you look at the run cuts in China.
Which latest numbers I saw were close to 2.3 million barrels in the US you compare that to the reduced demand of.
Lets say 2.6 2.7 million barrels, you've obviously got a little bit of refined product build there, but a much bigger build.
Is it on the crude side, where you've got.
You know 2.3 million barrels a day or close more than 60 million barrels a month.
That had been contracted for to be consume that now have crude oil barrels that had to be move to another market. So what we're seeing probably most significantly right now just at a pretty significant impact in crude oil differentials as decline as they declined rapidly in some grades as much as three to $5 a barrel.
Now those those differentials.
Won't impact our business until after our turnaround because keep in mind were at this point, we're fully bought out for the most part through our turnaround and we're really talking about third quarter crude consumption. When we when we assess the pricing today.
Just if you want to address the run rate.
Yes, so we can discuss any improvement crude differentials are.
Oh thing really the second half of the second quarter, but the.
As entities in the first quarter two.
I am.
Giving us some amortization to increase import instead of maximizing the refinery throughput.
We are down to optimize announcement. Please also note throughput and this is definitely the optimized motive operation into first quarter.
Okay got it thanks for that.
And then as first the dollar per barrel improvement goal for Hawaii.
Did we see any of that in the fourth quarter like with any of their performance driven by contracts rolling over or is that still.
As for can you still a good base to add that dollar per barrel too.
I think the fourth quarter is a good base to add it to again more think about it on a year over year basis, instead of Annualizing. The fourth quarter and then again I think it's largely back end loaded.
When we think about the benefits that we expect to capture to that dollar per barrel.
In 2020, so again I think it's dangerous to annualize quarters, but I'd look at the full year.
For 2019, and then start to think about the benefits we're talking about on dollar per barrel being back end loaded on a run rate basis in 2020.
Okay. Thank you.
And again, if you would like to ask a question. Please press star one on your telephone keypad.
And our next question is with.
Andrew Shapiro from Lawndale capital management.
Please proceed with your question.
Hi, Thank you several questions on the M&A side, we're asked and answered, but I'll have I have a few here around the edges. So.
With your consolidation and integration kind of being done and it is clearly a value added skillset asset of this company and management team.
Does the board and management feel like the company needs to be at or near your desire debt ratios before you would make a larger acquisition and is the focus on.
Another leg of the stool or is it primarily on a bolt ons on on your areas of involvement already.
Andrew This is bill.
Clearly we have.
I think grown our business largely through acquisition and if I think back just of Washington in Wyoming Weve.
Weve invested about $600 million in those two refining logistics system and they generated more than $175 million of free cash flow in 2019, So I think our track record speaks for itself.
At the same time, you can never time acquisitions.
It's very important that you'd let processes play out.
And you address opportunities when they present themselves and sales processes for attractive assets or.
Always fairly competitive so we're certainly going to look first two assets that and opportunities that are principally.
Fit strategically with our existing assets.
I would also tell you that given the uncertainty of the current political and economic climate.
We believe we need to be more cautious than ever about any potential opportunity.
And so we'll take that into account.
As we review opportunities.
Okay, and if that's the case in one while sitting around doing that in preparing for the next one it would seem then you'd have a more aggressive paydown of.
Your debt what are your in the stack what are your kind of near term opportunities of either de leveraging or lowering your financing costs.
Well you when addressing sure.
Without getting into specific securities Andrew I mean, I think we do have.
Pre payable.
Loans that exist and then again, we have addressed the convert.
Over time, so again I think we do have that those arrows in our quiver I think.
To the point of the turnaround timing again, I think you you've seen our liquidity build to close to 240 million again, we're taking a bit of a conservative approach as we get through those and then I think you'll see us become more aggressive.
Depending on the market environment with respect to our debt pay downs.
Okay and associated with that do you feel there will be.
In order to maintain interest et cetera cash flow demands for our Laramie investment or it's fine on its own run and they've they.
They have either cost cuts to do or have done.
On the on that and in light of the weak market environments are facing.
Andrew Laramie has.
Dropped the rig they have no major capital expenditures and like any MP company with a lot of production. They are generating a fair amount of free cash flow that allows them to pay down their debt. So we don't anticipate for foresee any reason why we would have to invest capital in that business.
Awesome and last one I am a typical asking so you can give us at least some advance inside and and scheduling and all as the your upcoming non deal Roadshows and investor presentations.
Hey, Good morning, Yeah, Weve Register for the B of a refining conference on March 11th in New York, and the Scotia, Howard Weil Energy Conference on March 25.6 in Orlando will get a lease out shortly.
Anything further in advance to that you have in mind.
Not at this time, Andrew Thank you.
Thank you.
Thank you we have reached the end of the question and answer session and I will now turn the call over 2 billion Baker for closing remarks.
Thank you operator in closing I want to highlight our strong growth in operating cash flow.
As we look to the future. We're confident that we can continue to build our business and sustained strong financial growth through accretive acquisitions and continued operational improvement have a good day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Thank you operator.
No problem.
Thank you.
Turning to team still on are you guys alum you still.
He disconnected.
Right. Okay. Shortly thank you so much else I really appreciate as always have a great we should get weekend.
Thanks.