Q3 2021 HollyFrontier Corp Earnings Call
Okay.
Okay.
Okay.
Welcome to <unk> Corporation's third quarter, 'twenty, 'twenty, one conference call and webcast.
Hosting the call today from Holly frontier.
Mike Jennings, President and Chief Executive Officer Keith.
Keith joined with Rich volleyball, Executive Vice President and Chief Financial Officer.
Pingo, <unk> executive Vice President and Chief operating Officer.
Tom <unk>, President refining and marketing.
And with Brexit.
Precedent wholly frontier lubes and specialties.
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It is now my pleasure to turn the floor over to Craig Biery, Vice President of Investor Relations, Greg you may begin.
Thank you Ryan good morning, everyone and welcome to Holly Frontier Corporation third quarter 2021 earnings call.
Morning, We issued a press release announcing results for the quarter ending September 32021, if you would like a copy of the press release, you may find one on our website at Holly Frontier Dot com.
Before we proceed with remarks. Please note the safe Harbor disclosure statement in today's press release.
In summary.
What's made regarding management expectations judgments or predictions are forward looking statements.
Statements are intended to be covered under the safe Harbor provisions of federal security laws.
There are many factors that could cause results to differ from expectations include.
As noted in our SEC filings.
The call also may include discussion of non-GAAP measures.
Please see the earnings press release for reconciliations to GAAP financial measures.
Also please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript and with that I'll turn the call over to Mike Jennings, Thanks, Greg and good morning, everyone.
Today, we reported third quarter net income attributable to Holly frontier shareholders of $281 million or $1 71 per diluted share.
These results reflect special items that collectively increased net income by $71 million. Excluding these items adjusted net income for the third quarter was $210 million or $1 28 per diluted share versus an adjusted net loss of $67 million or negative <unk> 41 per diluted share.
<unk> for the same period in 2020.
Adjusted EBITDA for the period was $408 million, an increase of $342 million compared to the third quarter of 2020.
The refining segment reported EBITDA of $295 million compared to $39 million loss for the third quarter of 2020 and consolidated refinery gross margin was $14 87 per produced barrel, a 140% increase compared to the same period last year.
This increase was primarily due to stronger product demand across the markets we serve.
Third quarter crude throughput was approximately 416000 barrels per day above our guidance of $3 80 to $400.
We recently completed planned turnaround work at our Tulsa refinery, which was on time and on budget.
At the beginning of October we began a significant turnaround at the Navajo refinery, which is scheduled to be completed in mid November.
Our lubricants and specialty products segment reported EBITDA of $168 million for the third quarter versus $61 million reported in the same period last year.
Excluding an $86 million gain on the sale of property at our Mississauga plant adjusted EBITDA was $82 million.
The rack back portion of this business continues to see outstanding margins and earnings driven by a combination of strong demand and limited global base oil supply due to a number of factors.
And the rack forward portion.
Strong sales volumes and price increases the continued rapid rise in base oil prices through the quarter compressed margins.
Overall, we're encouraged by the consolidated earnings performance of our lubricants and specialty business. This year and we're optimistic that we'll see a solid finish to the year as demand for both base oils and finished products remains strong.
Holly Energy partners reported adjusted EBITDA of $80 million to $83 million for the third quarter compared to $86 million in the third quarter of last year.
<unk> delivered solid results in the quarter supported by record volumes on the Salt Lake City and frontier pipelines in the Rockies region.
During the quarter, we completed the Cushing connect pipeline project, which will replace a third party providers as the primary source of crude supply for our Tulsa refinery.
Now I would like to update on strategic business initiatives.
Early this week earlier this week, we closed on our previously announced acquisition of the Puget Sound refinery for aggregate cash consideration of $613 $6 million, which.
<unk> of our base cash price of 350 million hydrocarbon inventory with an estimated closing value of $266 2 million.
And other closing adjustments and accrued liabilities of $2 6 million.
This purchase price represents an attractive acquisition multiple of one five to two times EBITDA net of inventory.
Just on the refineries historical financial performance.
The Puget Sound refinery has a strong record of financial and operational performance that will bleed that we believe will complement our existing refining business.
The refinery supplies transportation fuels into the premium Pacific Northwest region, and sources advantaged Canadian crude further enhancing and diversifying diversifying our refining asset base.
We're committed to the continued safe and environmentally responsible operations of the facility and I'd really like to welcome Puget sound highly skilled workforce to the Holly frontier family.
In our renewable segment I am pleased to announce that we are progressing ahead of schedule on the Cheyenne renewable diesel conversion project.
The 6000 barrel per day of renewable diesel unit is expected to be mechanically mechanically complete later this week and we expect to run our first batch of feed by the end of the year.
Given current economics between refined soybean oil and other feedstocks, we prioritize completion of the pretreatment unit located in the <unk> at the Artesia, New Mexico facility and we now expect to complete the <unk> in the first quarter of 2022, a full quarter ahead of schedule, allowing us to run a more favorable.
Mix of feedstocks.
The Artesia renewable diesel unit is now expected to be completed in the second quarter of 2022.
Still on budget and expect to spend a total of eight to 900 million for all three projects.
In regard to our previously announced acquisition of assets from Sinclair.
We still expect to close in mid 2022 subject to regulatory clearance and the satisfaction or waiver of all other closing conditions. We look forward to further diversifying our asset base with Sinclair branded marketing renewable diesel refining and refining and logistics businesses.
Looking forward, we remain focused on executing these strategic initiatives, which we believe will allow us to reward our shareholders.
Through the capital return plan, we previously announced in August.
With that let me turn the call over to rich. Thank you Mike as previously mentioned the third quarter included a few unusual items.
Pretax earnings were positively impacted by an $86 million gain on the sale of property at our Mississauga facility.
Slowly offset by $4 million of pre close acquisition integration costs.
$7 million of charges related to the Cheyenne refinery conversion to renewable diesel production and severance charges totaling approximately 200000.
<unk>.
A table of these items can be found in our earnings press release.
Cash flow from operations was $249 million in the third quarter, which reflected which included excuse me $65 million of turnaround spending.
And a $94 million increase in working capital driven by the start of planned turnarounds at our Tulsa and Navajo refineries.
Holly Frontier stand alone capital expenditures totaled $196 million for the quarter.
As of September 32021, our total liquidity stood at approximately $2 $8 billion.
Comprised of a standalone cash balance of one 5 billion along with our Undrawn $1 35 billion unsecured credit facility.
As of September 30, we have 175 billion of stand alone debt with it.
Debt to cap ratio of 23% and a net debt to cap ratio of 4%.
We anticipate recovering between 60, excuse me $50 million $60 million in cash tax benefit in 2021 from the loss carry back under the cares Act during the fourth quarter of this year.
ETP distributions received by Holly frontier during the third quarter totaled $21 million.
Holly Frontier owns $59 6 million ETP limited partner units, representing 57% of Hep's LP units at a market value of approximately $1 1 billion as of last night's close.
With respect.
The capital spending in 2021, we are decreasing our guidance specifically in the renewable segment based on updated project timelines.
And in the turnarounds and catalyst bucket due to strong overall execution and some scope production at the Navajo turnaround.
We now expect to spend between $550 million to $600 million in renewables for the <unk>.
Full year of 2021 versus our previous guidance of $625 million to $675 million.
In total the renewables projects remain on budget.
And we anticipate the remaining $175 million to $225 million to be incurred in 2022.
Yes.
We still expect to spend between $190 million to $200 million for capital of Holly Frontier refining.
And $40 million to $50 million, and Holly frontier lubricants and specialty products.
We now expect to spend between $290 million to $320 million.
Turnarounds catalysts.
Versus our previous guidance of $320 million to $350 million.
At ETP, we now expect to spend between 15 and $20 million for maintenance capital.
40% to $45 million for expansion capital, which includes our investments in the recently completed Cushing connect joint venture.
And $2 million to $4 million and refining the processing unit turnarounds.
Given our record base oil prices and more importantly, the speed of their increase in 2021.
We have updated our rack forward guidance to reflect short term margin compression and the finished product side of our lubricants and specialties segment.
We now expect to earn between $65 million to $85 million and income from operations.
$115 million to $135 million of EBITDA.
We expect rack back earnings to remain at these elevated levels in the fourth quarter based on the favorable supply demand dynamics.
Okay.
Within our refining segment for the fourth quarter of 2021, we expect to run between $450 million and 470000 barrels per day of crude oil.
Which includes expected volumes from the Puget Sound refinery in November and December.
And with that rain, we're ready to take questions.
<unk>.
Thank you.
The floor is now open for your questions.
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Thank you alright.
Alright first question comes from Manav Gupta from Credit Suisse. Your line.
Rich and Mike My first question can easily use.
About six months ago, you gave us the Puget sound acquisition and at that time, the guidance was 150 million to $200 million and I'm just trying to understand if anything has moved flip that guidance has changed and the reason I'm asking. This question is in the past you have hug assets being acquired from majors and our high guidance number.
And then the results actually start coming in they're pretty disappointing and Thats why there is this.
Sentiment on buying of Aeschylus assets on one meter. So just trying to understand has anything changed for your guidance on the Puget Sound acquisition.
But now we're sticking with our guidance.
Biggest variable is probably RIN pricing.
The market demand out there is recovering as you can probably see in the regional numbers.
Still probably 8% to 10% below 2019 levels, but the trajectory is upward as we've gotten to know the asset better we like it more and we're sticking to our guidance.
And the second question since you mentioned <unk> was.
The release out there from <unk>, which kind of.
Without some RVO numbers, which would actually very supportive of Stifel.
Not so supportive of <unk> now as I understand <unk> are these facilities stock you would be long before you would still be short DC, but maybe a little niche sure D. Six but you have to.
The spread difference between diesel to be six so depo premium goes up you could still meet all your obligations can you just walk us through that math, one more time.
Yes, rich so yes, youre right, we will be long deep four rooms prospective of the renewable diesel facilities coming online.
As Michael alluded to Puget Sound brings a little more obligation to us.
And then.
Basically balanced on an absolutely.
The number of basis to your point from our perspective, the price is beneficial.
Thank you so much for taking my questions.
Thanks Manav.
Your next question comes from Ryan Todd from Simmons.
Your line.
Okay. Thanks.
Performance of the business both in refining and just continue to exceed expectations. Since you announced the acquisition earlier this year.
Including.
Cash flow $250 million this quarter, if the relatively constructive on refining environment holds how are you thinking about the dividend going forward.
What do you need to see to feel comfortable in restarting the dividend.
And then any thoughts on that timing.
Yes, Brian Thanks for the question.
You are right.
Refining and lubricants environments are both constructive for us in building.
As well our performance operationally in both is doing quite well.
So looking forward, we're sticking to the capital plan that we laid out the return of capital guidance.
We laid out in August which is.
And repurchase as suggested in that guide.
So.
How it develops from there how aggressively we lean into it as we as we go forward we'll see.
Okay.
But were very much sticking with the plan that we've laid out and if anything we're more constructive.
Great. Thanks.
And then.
I guess as we you gave some.
Some guidance on Capex, which is helpful. I mean, as we think about.
I guess, maybe a couple of comments on the 'twenty to 'twenty one capex.
Renewable diesel number coming down.
Is that just that she is clearly a matter of timing and as we think about 2022 capex.
Any high level thoughts in terms of what the updated kind of maintenance capital you've got a lot of moving pieces in your portfolio.
Good idea for a good rule of thumb for kind of maintenance capital in 2022.
And what that growth capex projects are still within it.
100 $900 million range. So we would expect that balance to flow into 2022.
Yeah.
At a high level capital spending and turnaround spending will decline from 22 versus <unk> 21, we expect to issue formal guidance in December So we'll have some.
For you in a few weeks.
Okay. Thanks.
Thanks Richard.
Okay.
Your next question comes from Peter <unk> from Jpmorgan. Your line is open.
Yes, Hey, good morning first question I appreciate the update on the renewable diesel side of things. What is your what are your latest thoughts on kind of the feedstock mix Youre looking at at this point in time.
Yes, Phil this is Tom.
We're still sticking to our guns on that one for.
For Cheyenne, we're looking at a combination of soy and tallow and just make it clear we have secured feedstocks at this prime where startup.
And we're in good shape, we haven't had any trouble buying feedstocks and as the PTU comes up we will look at buying additional feedstocks.
Both <unk> and low Ci material and we're doing analysis on an ongoing basis to find the feedstocks.
Have the best value for us just not price because it's more of both value than anything else at this point in time.
Okay got it.
And then just one question.
Can we read through your proxy filing.
The guidance for the pro forma EBITDA of the company was a bit lower than the slide presentation. You had given so is that just conservatism or anything we should be thinking about there like I guess, how would you suggest we think about.
Your pro forma.
Kind of a mid cycle versus what was stated.
Yes, Phil it's rich.
It is important to emphasize that was a point in time snapshot from July.
Okay.
And it was best market views and frankly, the best forward curves, we can come up with at the time.
Clearly the market has performed better than that and it does not affect our view of mid cycle.
Alright.
We had in June.
July largely based on where we're at point.
Okay.
Can you suggest we stick with kind of a mid cycle provided.
Slide <unk>.
Absolutely and to prove that point further obviously, our third quarter earnings in several segments were above mid cycle already.
Right right. Okay. Thank you.
Our next question comes from Paul Cheng from Scotia, Howard Weil. Your line is open.
Sure.
Hey, guys good morning.
Hi, Paul.
Two question piece.
Miami, which.
That's a number of transactions happen in the midstream consolidating in some people yes.
Bangalore.
Morning.
Will you be looking at HCP at the Gwen and the MLP.
And at this point does it really makes sense for you to stay for the independence or that from the calculation then upon what you'd be more advantageous and to simplify your property structure and just rolling out <unk>.
And yet it's only we may need to be.
The control.
You may be at that time to just sell you then to consolidate that.
The first question.
Second question, yes.
Later this.
Corn is a really strong result.
And is there anything unique in this quarter other than say the wind projects.
That led to such a strong.
Margin capture.
As well as the overall full protein is so strong and forward.
Okay, Paul we're going to take that on we're going to have a negative among us.
Rich and I will address the question around ATP deconsolidation I will start with just how integral those assets are to our business strategy in terms of their ownership and their use as we connect our refining assets to supply sources and market. So very.
For us to own and operate those assets the only ask rich to speak with around deconsolidation, our retention of the MLP. Thanks, Mike So.
But Paul I think we've demonstrated the value of ETP the final financial vehicle in the Sinclair transaction.
But look we're going to do the right thing for the shareholder here, whether AGP is.
As a financial vehicle has rolled up consolidated whatever this is essentially a corporate finance discussion to make any transaction like that accretive would require an incredible amount of cash, which we think is probably spoken for better by our shareholders.
But look we'll continue to monitor the situation and respond to the market and do the best thing for our shareholders.
The second question Paul was are there any sort of unique good guys lingering.
Sorry to ask questions to us.
When you say that you had picked up a lot of cash.
You want to roll yet.
Why is that yes, I mean, six stages stage, one by issuing to the share of <unk> 60 in exchange for the H J P. So that's leaning in north little cash.
Anything then they have a higher dividend yield than you guys. All fans in exchange that you didn't have any dividend you've announced that you use.
Stay they probably they will have a higher dividend.
And so from that standpoint on a going forward basis.
Voting it up actually improve your cash flow.
So Paul we've done the math, we keep the math lie for us it would not improve our cash flow dilutive on a per share basis. Obviously look we've got a very wide valuation difference between Holly frontier and HCP that could easily change over time and change this discussion.
To your point HEB trades at a much lower dividend yield than <unk> does for example.
This discussion.
Heading down the right path here the math from our perspective does not work currently for that kind of transaction, but we will continue to monitor it because the other comment is that it would be a levering transaction to do so just in respect of capital structure Hep's supports three five times debt to EBITDA, while our target on the HFC side is considerably lower in order to maintain.
Our investment grade.
Credit rating so.
I think we have to look at both cash flow and the immediate cash impact of the transaction and for US It would be a levering transactions rich that that capital is better return to our shareholders.
Then in a buyout of HCP.
Thank you.
So second question was around refining results in this quarter on and ask Tim to speak to that and whether there are any particular good guys rolling around in <unk> or is this a good model for going forward.
Yes, Paul This is Tim go yes, we're very pleased with the mid Con performance this quarter.
<unk> three biggest factors stronger gasoline margins associated with stronger demand.
Stronger base oil margins, which which I know you have been watching and then of course lower rating.
Pumps today.
To the region.
But youre asking should we expect this type of performance going forward.
Really if you look back to the second quarter. We also demonstrated strong mid con results there both on volumes and demand and margins. So I think youre seeing.
Improved performance just overall over over the last six months.
Seasonally we will see some weaker demand in the winter that you would expect but overall, we've been trying to take full advantage of not just the markets in the group, but we've also been able to see some of the strong margins in the Rockies and move some of our barrels that direction as well.
We hope to be able to continue to do that in years to come.
Thank you.
Our next question comes from Theresa Chen from Barclays. Your line is open.
Good morning, I wanted to ask about the books business and given the updated guidance.
And Nebraska fourth portion that just curious is this.
Clearly as a result of trying to pass through the higher base oil costs or is it likely to persist for some time.
Stable period, what is your outlook there.
Your assumption is correct. So base oil prices are ramping at a faster rate and we can apply pricing pass through price increases for that.
Specific component in this business, we have a fair proportion of finished lubricants clients that are contracted and so there are some limiters on the timing, it's not that we can't push the price driven but on the timing and so you see a lag between the ability to raise the pricing finished side versus the infants.
<unk> impact the base oil.
Hello markers increasing.
Got it.
And on the renewable diesel side, Tom I was hoping you could kind of go back to your comments about feedstocks and understand that.
<unk> had no triple bind feedstocks for startup at this point can you just give us a sense of the execution around that on a go forward basis are you going to be in the spot market.
Perpetually is any of it bought Florida bought on a contracted basis, what are your expectation as startup.
Okay I'm curious.
Give it a shot here.
We are buying spot right now and then.
By spot I would say, it's not very long maybe term of three to six months on some contracts.
But mostly.
I would call spot. However, we are investigating other opportunities for.
For example, we are looking at participating in crush plant economics.
To get a little further back in the value chain.
<unk> been talking to various partners.
In that field trying to learn.
What's going on and whether there is room for us and we will kind of roll that we could play on a going forward.
Early phases at this point in time, we're still evaluating the markets, but it is definitely one of those things that we are looking at.
Okay.
As we move forward and become a regular off taker.
Thank you.
Thanks, Jason.
Our next question comes from Connor Lynagh from Morgan Stanley. Your line is open.
Yes. Thanks.
Just trying to piece together.
Your next page the renewable diesel that you guys have laid out there is that a number that we should expect sort of hit a run rate of in 2022 do you think it takes some more time.
That's great.
As we start with <unk>.
I know with Cheyenne and Deb <unk> our future.
It's going to take us some time and we're going to have to get into it. So definitely over the second half of 2022 that would that would be our expectations.
Okay. That's helpful. Maybe just pivoting to the Puget sound.
Just trying to piece together some of the comments you made just in terms of obviously the market has improved wins are still a challenge.
Net net do you feel that that asset is operating at or near the mid cycle level that you've put out for that how should we think about sort of the near term earnings contribution of that.
Yes, the short answer to that question is yes.
You probably.
Help me understand that.
There is seasonality, particularly in that geography.
Put in the winter is lower.
Relative to the amount of products you sell in other words are you, 100% sourced 80% sourced 120% just trying to understand the balance in this business as things transition from.
Base oil into I don't know.
I guess, we'll call it more normalized market hopefully in 'twenty two.
So our base oil production.
Fully capable of covering all of our.
Finished lubricants business as well as our formulated such as railroad engine oil business as well.
And we are of course in the specialty area.
Italy backward integrated into our own feedstock supplies out of Tulsa, but we do purchase some feed.
Feedstocks like waxes and other base oils externally for some of the former sonneborn products that are in our specialty business.
That's why we have a portion of the business that is in excess of finished that we sell as a state based on us.
Okay.
So reasonable to presume is the base oil market normalizes.
On the pricing.
Catches up on the rack forward side.
The level of performance Youre seeing now and we think Thats the case and of course, it's a little bit of.
And is pricing.
Tween, the two a little bit of a left pocket right pocket in that sense. So.
Rack forward recognizes the full extent of the price increases as they catch up with the clientele.
Even if the base oil decline a bit we make it up on the other side.
Okay. Thanks, that's helpful and then.
I don't know if this question is for you Richard or not but the guidance of remaining I shouldnt say necessarily remaining but the total capex guidance and then thinking about what's remaining on the renewable diesel project. The range of eight to 900 its surprised it's still <unk>.
Quite so wide.
Thus far through the projects what are the remaining sort of risk factors that affect the higher and lower end of that range.
So let me take a first pass at this time.
I don't know if I Miss anything Roger I think it really to two issues right now we are seeing.
The universally applicable supply chain issues, right now and they pop up unexpectedly to be honest.
So that's still out there and obviously when COVID-19 and our ability to keep the workforce on site and work and can really affect schedule and by extension cost.
Yes.
The only other thing that I would add Roger is that we're getting into winter here in the northern hemisphere, and that's going to have an impact.
We've already seen it in our Cheyenne operations that snow a couple of times.
And the rain.
Which impedes our ability to get workers out in the field and we expect to see that as we go forward at Arcadia as well.
So that's a that's a big unknown at this point in time.
Okay I appreciate it thank you.
Okay.
Your next question comes from Neil Mehta from Goldman Sachs. Your line is open.
Good morning team nice quarter here.
First question I had was around refining specifically around crude differentials and we've seen it.
Ti trade pretty tight and we've seen some backwardation show back up in this market just your thoughts on the outlook for Cushing and.
Navigating the crude differential environment.
Yeah, Neil this is Tim ill take that.
We're definitely seeing the tightness short term at least in the Brent Ti.
All the things you've talked about the low Cushing inventories the backwardation.
Cap line reversal of all of those contributing we believe in the short term, but if you look at the long term structural long term fundamentals.
It's it's.
It helps to look at each one to understand what the impact of this Brent Ti spread really.
Moving to each of them so on El Dorado space, because they have 30% of your crude slate associated with WCS WCS spread as you as you see has widened.
It's providing some offset in some.
Some cushion I guess over at El Dorado, If you look at the Permian and are.
Navajo refinery the WTS spread has weakened significantly here as you've seen.
The market discounting the WTS and high sour crudes, that's helping our or changed your refinery and of course, we talked about Tulsa, a little bit of it already.
Base oil margins are.
Strong still and we will continue to justify the tighter spread on a Brent Ti spread. So if you look at our assets that are mostly affected by the <unk> Brent spread.
We still are very positive going forward.
Okay.
Tim $3 is the right number over the medium term to anchor to based on transportation economics.
Now.
Okay.
Helpful. Enrich the follow ups for you just around capital returns.
To execute.
The recent M&A there was obviously the decision to cut the dividend.
What is your perspective in terms of the resumption of capital returns in what form whether it be buybacks or or or.
Good.
Pat.
Sumit.
Reiterate the guidance, we gave concurrent with the Sinclair acquisition, which is we would expect to return the dividend as Mike said.
In the first half of 2022.
Through the first quarter of 2023, we'd expect to return a $1 billion of total cash to our shareholders in both dividends and share repurchase.
And then through 2023 and beyond.
In time to go to a 50% payout ratio of net income based on both dividends and share repurchase.
Thanks, Rich I appreciate it.
Your next question comes from <unk> Akamine from Bank of America. Your line is open.
Hey, good morning, guys standing in for Doug Thanks for taking the question.
Maybe first off I'm interested in the marketing opportunities that Puget down Joe My.
Standing back Vancouver is advantaged over Seattle, So I'm wondering about your ability to sell there is a way to step up margin and additionally, what the crude differentials look like for the Canadian medium that you run up there, noting that WCS widened out but they are not exactly the same.
Yes. This is Tim ill take that question on Puget Sound.
We do have the ability to move.
Alex into Canada, and we do so.
Even today, we'll continue to look for those opportunities typically they go on this model with smaller margins as we move as we move up into the.
On to the West coast, there, but we have ability to move just both both of them to Canada as well as in the California.
We've seen the carb gasoline market improve we will have the opportunities to play into that market too.
As far as crude this year, we still believe that the Canadian crude represents price advantaged.
<unk> that.
That Canadian crude mix to match kind of an E&S type quality as we bring it into the in the Puget Sound refinery.
Yeah.
We do see opportunities to continue to bring that advantage crude into PJM.
Thank you and my follow up is just on capital expenditure again.
I think the outflows for this quarter and next considering that it will be the peak period for spend and Puget sound is closed.
So cool.
As we said we would expect to spend between.
<unk> hundred and $600 million for 2021 and renewables.
That leaves about $150 million to $175 million to go in 2021, and then as guided for 2022, we would expect this is going to between 175 and $225 million of renewables.
And is that going to be in the first or first quarter or the first half first.
First half will be done in the first half I don't have enough insight.
Orderly split at this point.
Okay, that's perfect. Thanks rich.
Okay.
Your next question comes from Jason <unk> from Cowen Your line is open.
Hey, good morning, Thanks for taking my questions.
First wanted to ask on the Rockies or I should say the west region.
The Gators have held up pretty well and as.
Demand kind of northern normalize this year.
Finding environment that looks different with some assets gone can you just discuss.
If theres a step change in the supply demand balances in those west regions relative to where they were pre COVID-19 or if there were some transitory items.
Benefiting <unk>.
<unk> and seemingly as we move into <unk>.
Second I wanted to ask about the.
Sinclair acquisition understanding there are some sensitivities as youre going through the closing process, but.
The Bod and administration.
Glenn vocal on looking more closely at oil and gas mergers and I'm wondering if.
That has resulted in a more in depth process I guess I could put it.
Relative to what you would've expected or Mike even relative when Holly and frontier combined.
Combined in 2011.
Looking for general thoughts if you could compare this process first album Thanks.
Sure.
I'll give you a little insight on questions here I'll ask Tim to speak to your first question.
It won't surprise you that at this point, we are deep into the regulatory process and frankly have had very little to say about it.
Other than we think this transaction is clearly designed to close and we look forward to serving these customers, but as to how the FTC is seeing it and what questions. They are asking.
That's a load to internet right now so we'll pass on that piece.
And we're working hard at it Tim.
Tim.
Yes, Jason on the on your question on.
West refining region again, we're very pleased with the execution that we've had not just in the third quarter, but the second quarter as well, we're seeing we saw stronger gasoline margins stronger diesel margins and then again lower revenues costs that were basically boosting our capture on the west structurally as you.
Pointed out.
We've taken out a lot of fixed costs.
By converting our Cheyenne refinery into the renewable diesel project and Thats basically helping our overall economics in the west as we continue to serve those markets just with one less facility.
Once again, if you have a question you May branch Star one on your Touchtone phone at this time.
Your next question comes from Paul Cheng from Scotia, Howard Weil. Your line is open.
Hey, Mike just a curiosity.
A number of your peers.
Dependent they find them.
Including some small some of them take a one handset.
Due to the energy transition.
They really have no plan.
To further expand our refining footprint.
Neither in the organic.
Investment or that organic.
You guys property that is the exception here so from your standpoint, not that youre, finishing and care.
Do you think that you have sufficient capacity all of that.
Say after you digest it.
We are still big interest that yet that's why your opportunity to further expand your refining footprint and how you see that the F&B comparing to your peers on that.
Yes, well Paul obviously every company has its own strategy and ours is not intentionally contrarian.
But we actually do believe in petroleum fuels in those those are the fuels are today and most of consumers still use gasoline and diesel and so our intention is to serve those customers reliably safely and at a very reasonable cost at the same time, we're not ignorant to energy transition.
And we're doing things inside our company around renewable fuels the supply chain around feedstocks and in potential opportunities around carbon capture. So I think we have a portfolio outlook that also includes specialties like lubricants and our own integrate graded transportation network.
We're trying to be very competitive company that generates high returns internally and ultimately with cash to return to our shareholders.
It doesn't favor renewables relative to petroleum fuels, we believe in both and what we want to do is.
To produce both really well in markets that reward us for that so I hope that describes the strategy from a very high level.
Obviously as time rolls forward, we'll look at individual opportunities.
We don't believe in generic capacity acquisition for its own sake, but at the same time, when we're able to add some.
All it assets like that of Puget sound refinery.
That can really help our portfolio with operational capability and serve a premium market you bet, we're going to do that.
So yes, that's what we're doing going forward right now we've got a very full plate execution is our mantra and <unk>.
And we really need to focus on bringing these things that we've committed to across renewables Puget sound and Sinclair are home to the benefit of our company and our shareholders and Thats what were working on doing.
And my.
Second question is that from a high level some of your peers when they're looking at the energy transition.
They also expand into maybe beyond or outside the traditional refining space.
Including one off getting into.
Moving into the battery business and then maybe also doing the Ccs.
Only frontier looking at those I mean those.
<unk>. The next five years that the company may begin to start to branch out beyond your carbon basis mix or that over the next five years, you're going to stick with your current business mix.
Yes, so Paul our principal skills are in liquid fuels production and distribution. So that's what we're going to favor.
Going to try to reduce carbon intensity through time in our renewables efforts and also look inside the fence line in terms of scope, one and two emissions and.
And potentially invest in carbon capture and storage.
Batteries that feels like a stretch for us I would like to never say never.
But really we're going to focus on those things that we can provide scale and advantage too and I think I've called those out here.
Thank you.
Beth.
There is no further question at this time I would now like to turn the call over to Craig for closing remarks.
Thanks to everyone. We appreciate you taking the time to join US on today's call. If you have any follow up questions as always reach out to Investor relations otherwise, we look forward to sharing our fourth quarter results with you in February.
Thank you. This concludes today's conference call. Please disconnect your line at this time.
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