Q3 2021 Par Pacific Holdings Inc Earnings Call
Good day, and welcome to the par Pacific. Third quarter 2021 earnings conference. Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation. There will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad to withdraw your question, please press star then 2, please.
Good day and welcome to the par Pacific third quarter 2021 earnings conference call. All participants will be in Wilson only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity.
Each west questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Ashish Patel Senior manager Investor Relations. Please go ahead.
This event is being recorded. I would now like to turn the conference over to ashimi Patel senior manager investor relations, please go ahead.
Thank you drew, welcome to par Pacific's, third quarter earnings conference call joining. Me today are William Pate president, and chief executive officer. Will Monteleone Chief Financial Officer and Joseph Israel, president and chief executive officer of par petroleum. Before we begin note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties. And actual results May differ materially from these forward-looking statements.
Thank you Jamie welcome to par Pacific's third quarter earnings Conference call. Joining me today are William Pate, President and Chief Executive Officer, well monthly own Chief Financial Officer, and Joseph Israel, President and Chief Executive Officer, Apart Petroleum before we begin note that our comments today may include forward looking.
Any forward looking statements are subject to change and are not guarantees of future performance or events 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 them.
And accordingly investors not placed under your Lions on for looking statements. And we disclaim any obligations.
Update or advise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-gaap, reconciliations, and additional information. I'll now turn the call over to our president and chief executive officer. Bill pay. Thank you ashimi. Good morning to our conference call. Participants. We're very pleased with our third quarter, Financial results. All are refining. Units were profitable and our retail and Logistics business segments continue to generate significant profits.
We refer you to our investor presentation on our website and our filings with the SEC for non-GAAP reconciliations and additional information.
I'll now turn the call over to our President and Chief Executive Officer Bill Pate.
Thank you assuming.
Good morning to our conference call participants were very pleased with our third quarter financial results all of our refining units were profitable.
In our retail and logistics business segments continued to generate significant profits adjusted EBITDA was $85 million and adjusted net income was <unk> 76 per share.
Custody fatah was 85 million dollars and adjusted. Net income was 76 cents per share. These results include a 29 million dollar non-cash mark-to-market benefit for our prior Year's RFS compliance.
These results include a $29 million noncash mark to market benefit for our prior years RFS compliance.
Wyoming refining and Logistics profits were particularly notable as the business unit recorded. One of its most profitable quarters ever strong, summer demand, bolstered Regional product cracks and excellent operational and Commercial execution, drove record crude charge and sales volumes. Why refining Logistics profitability continued to improve despite the decline in tourism due to the Delta variant outbreak?
Wyoming refining and logistics profits were particularly notable is the business unit recorded one of its most profitable quarters ever strong summer demand bolstered regional product cracks and excellent operational and commercial execution drove record crude charge in sales volumes.
Hawaii refining logistics profitability continued to improve despite the decline in tourism due to the Delta variant outbreak.
Unlike prior quarters, crude oil prices were steady. So we experienced very little product price sales, lag during the quarter.
Unlike prior quarters crude oil prices were steady so we experienced very little product price sales lagged during the quarter.
In the fourth quarter, Asian market improvements are accelerating Global refined product. Demand is increasing with significant increases in international air travel the impact of Chinese tax reforms and concerns about winter Supply, have diminished Singapore, inventory levels. As a result current Singapore cracks as well as the forward Outlook are close to and at times above mid-cycle.
In the fourth quarter Asian market improvements are accelerating global refined product demand is increasing with significant increases in international air travel.
The impact of Chinese tax reforms and concerns about winter supply have diminished Singapore inventory levels. As a result current Singapore cracks as well as the forward outlook are close to and at times above mid cycle.
Higher product cracks have also contributed to a tighter crude oil Market with increased differentials and very high backwardation. These crude oil factors offset. The significant Improvement in product. Cracks rims, prices were highly volatile during the quarter as the market, reacted to conflicting rumors and administrative comments on the Renewable Fuel standard.
Higher product cracks have also contributed to a tighter crude oil market with increased differentials in very high backwardation. These crude oil factors offset the significant improvement in product cracks.
RIN prices were highly volatile during the quarter as the market reacted to conflicting rumors and administrative comments on the renewable fuel standard.
We believe the EPA needs to act quickly, to affirm our outstanding smaller, finer, exemption, applications, and to address 2021 rvo obligation levels.
We believe the EPA needs to act quickly to affirm our outstanding small refinery exemption applications and to address 2021 RVO obligation levels.
With the return to profitability and growing liquidity. We are reviewing our Capital allocation options, reducing our costs of capital remains our highest priority. And that reduction is presently the most important element of this effort. We were able to repurchase a small amount of our senior secure notes. This quarter, in addition to managing our capital structure. We're also evaluating growth opportunities in our local markets.
With a return to profitability and growing liquidity, we are reviewing our capital allocation options, reducing our cost of capital remains our highest priority and debt reduction is presently the most important element of this effort.
We were able to repurchase a small amount of our senior secured notes this quarter.
In addition to managing our capital structure, we're also evaluating growth opportunities in our local markets.
In this regard, I'd like to make a few comments about the energy transition as we consider longer term strategies. In our Market position. We're exploring various opportunities in the Hawaii and Washington markets in particular. To this end will continue to focus on local needs and leveraging Regional strengths and each market Demands a different solution. Why is a fairly difficult market for energy? Transition initiatives? Given the lack of any carbon mitigation incentive? Hi.
In this regard I'd like to make a few comments about the energy transition.
As we consider longer term strategies and our market position, we're exploring various opportunities in the Hawaii and Washington markets in particular.
To this end, we will continue to focus on local needs and leveraging regional strengths in each market demands a different solution.
Why is it fairly difficult market for energy transition initiatives, given the lack of any carbon mitigation incentive high electricity costs and the high cost and complexity of renewable feedstocks.
Electricity costs and the high cost and complexity of renewable feedstocks. Nonetheless. We are actively exploring Concepts that leverage, our local resources and address. The state's needs. On the other hand, Washington has provided significant incentives with the passage of a low carbon fuel standard, and a carbon emission cap-and-trade system. The region also benefits from inexpensive low-carbon, electricity, due to Abundant hydroelectric power.
Nonetheless, we are actively exploring concepts that leverage our local resources and address the state's needs.
On the other hand, Washington has provided significant incentives with the passage of a low carbon fuel standard and our carbon emission cap and trade system.
The region also benefits from inexpensive low carbon electricity due to abundant hydroelectric power.
furthermore, our operation is an
The more our operation isn't attractive delivery point for renewable fuels and ore feedstocks.
Delivery point for renewable fuels and or feedstocks given these features, we're working with local agencies and developers to try and position Tacoma as a leader in the development of hydrogen infrastructure, but this effort will take a considerable amount of time and public support will continue to focus on smaller projects with more limited Capital. Requirements are most significant energy. Transition efforts will be small capital high-return projects within our refineries as we focus on reducing our carbon and energy.
Given these features were working with local agencies and developers to try and position Tacoma as a leader in the development of hydrogen infrastructure.
But this effort will take a considerable amount of time and public support.
We will continue to focus on smaller projects with more limited capital requirements are most significant energy transition efforts will be small capital high return projects within our refineries as we focus on reducing our carbon and energy profile, while enhancing yields and reducing operating expense.
Profile while enhancing yields and reducing operating expense. I'm also pleased to announce that we published our inaugural sustainability report, with our focus on community needs. It's important that we demonstrate our adherence, to strong, ESG, standards this report illustrates our commitment, as well as a corporate culture built on integrity and respect for the environment, our communities, our employees and others at this time. I'll turn the call over to Joseph to discuss our operational performance.
I'm also pleased to announce that we published our inaugural sustainability report with.
With our focus on community needs, it's important that we demonstrate our adherence to strong ESG standards.
This report illustrates our commitment as well as a corporate culture built on integrity and respect for the environment, our communities our employees and others.
At this time I will turn the call over to Joseph to discuss our operational performance.
Thank you, Bill, in the third quarter, the whole system continued to perform safely and reliably as market conditions improved across the bone starting in Wyoming. Our three, two, one index in the third quarter was forty, one dollars and seventy eight cents per barrel, driven by strong gasoline, demand in crack, spread in our Market. We finally throughput was approximately 18,000 barrels per day and our realized adjusted gross margin in the quarter.
Thank you Bill.
In the third quarter <unk> system continues to perform safely and reliably as market conditions improved across the board.
Counting in Wyoming, our 321 index in the third quarter was $41.
78 cents per barrel, driven by strong gasoline demand and cracks crudes.
Yeah.
Refinery throughput was approximately 18000 barrels per day.
Adjusted gross margin in the quarter, excluding prior period mark to market benefit.
Excluding prior period mark-to-market benefit $22 and 49 cents. Per barrel. Production costs were 5oo the 92 cents per barrel reflecting strong execution by our team.
<unk> 49 per barrel.
Production costs were five new loans of 92 cents per barrel.
<unk> strong execution by our team.
So far in the fourth quarter roaming, 321 index is averaged over $23 per barrel with a relatively strong, seasonal, demand plant. Throughput is in the sixteen to seventeen thousand barrels per day range.
So far in the fourth quarter.
Omega 321 index has averaged over $23 per barrel.
The relatively strong seasonal demand.
Planned throughput using the 16 to 17000 barrels per day range.
In Washington, our third quarter Pacific, Northwest 5 to 2, 1 index Was Eighteen dollars and 59 cents per barrel on ANS basis and hourly, finally throughput average slightly over 38,000 barrels per day. Our realized adjusted gross margin in the quarter excluding prior, period mark-to-market benefit was $3.75 per barrel including an estimated negative 20 cents per barrel.
In Washington.
Our third quarter Pacific Northwest 221 index was $18 59 per barrel bananas basis.
Our refinery throughput averaged slightly over 38000 barrels per day.
Our realized adjusted gross margin in the quarter, excluding prior period Mark to market benefit was <unk> 74 per barrel include.
Including an estimated negative 20 cents per barrel impact from the diesel hydro treater catalyst change.
Impact from the diesel. Hydrotreater Catalyst change.
Our production cost in the quarter, will three dollars and sixty cents per barrel?
Our production costs in the quarter.
$3 60 per barrel.
We recently completed Logistics of grades which allow us to load the kernel trucks in the refinery rack. The team is exploring additional opportunities to further, increase our Logistics utilization in renewable service. This activity is not only support our Logistics business and diversification, but also supports our positioning through the energy transition process.
We recently completed logistics upgrades, which allow us to load ducommun trucks and the refinery Iraq.
The team is exploring deletion on opportunities to further increase our own logistics utilization and renewable service.
This activity is not only support our logistics business.
Diversification.
Also supports or positioning through the end of the transition process.
Mm. The fourth quarter or 522.
So far in the fourth quarter. Our 5221 index has averaged just under $17 a barrel.
X is ever just under $17 per barrel and I will plan throughput for the quarter is approximately 38,000 barrels today.
Our planned throughput for the quarter is approximately 38000 barrels per day.
You know why? Singapore 312 index in the third quarter was six dollars and twenty cents per barrel. While Brent basis and I will realize good differential average two dollars and 27 cents per barrel. Premium to bread. Our throughput. Averaged approximately eighty one thousand barrels per day, the demand recovery best inflicted in our yields, approximately 46% of distillate. You
NOI.
Singapore 312 index in the third quarter was $6 <unk> per barrel on Brent basis.
Good differential averaged $2 27 per barrel premium to Brent.
Throughput averaged approximately 81000 barrels per day.
The demand recovery conflicted.
Yields approximately 46% of distillate yield in the third quarter compared to only 31% in the third quarter of last year.
In the third quarter compared to only 31 percent in the third quarter of last year.
Our realized adjusted gross margin in the quarter, excluding prior period mark-to-market benefit as five dollars and 42 cents per barrel.
Our realized adjusted gross margin and.
The quarter, excluding prior period, Mark to market benefit was $5 42 per barrel.
I'll production costs were photos and 28 cents per barrel including approximately 40 cents per barrel of planned maintenance execution in the reformer and cogent units.
Our production costs were.
New loans and 28 cents per barrel <unk>.
Approximately 40 per barrel.
Planned maintenance execution, and the reformer and cogent units.
So far in the fourth quarter, I will Singapore. 312 index has significantly improved to approximately, eleven dollar per barrel. Mostly driven by high natural gas price and this delayed the man recovery in Asia.
So far in the fourth quarter.
Singapore 312 index has significantly improved to approximately $11 per barrel, mostly driven by the high natural gas price and distillate demand recovery in Asia.
Well, estimated poo, differential for the fourth quarter is approximately, two dollars and eighty-eight cents per barrel. Premium brand and our throughput Target is in the eighty-two to eighty-five thousand barrels per day. Range. In summary. We continue to focus on safe, reliable and efficient operations. We have encouraged by the improved market conditions mostly in a y. And the system is, well, positioned to capture.
Well estimated crude differential for the fourth quarter is approximately <unk> 88 cents per barrel premium to Brent and our throughput target is in the 80 to 85000 barrels per day range.
In summary.
We continue to focus on safe reliable and efficient operations.
We are encouraged by the improved market conditions, mostly in Hawaii, and the system is well positioned to capture.
It is.
Communities.
I will leave it there and turn the call over to wheel to review our Consolidated to the zone.
I will leave it there and turn the corner, who will who will review our consolidated results.
Thank you, Joseph third, quarter adjusted ebitdax, durning's or 85 million dollars, and 45 million dollars or 76 cents for fully diluted share.
Thank you Joseph.
Third quarter, adjusted EBITDA, and adjusted earnings were <unk> $85 million and $45 million or <unk> 76.
Our fully diluted share.
Focusing on accounting items first for finding results include a 29 million dollar non-cash Mark Market game related to the 2019 and 2020 RFS compliant cheers, excluding the mark-to-market rins benefit, our adjusted even da and adjusted earnings per share was 56 million and 27 cents per share respectively.
Focusing on accounting items first.
Refining results included $29 million noncash mark to market gain related to the 2019 and 2020 RFS compliance tiers.
Excluding the mark to market rents benefit our adjusted EBITDA and adjusted earnings per share was <unk> 56 million and <unk> 27 per share respectively.
Shifting four segments results, retail, segment adjusted. He the dock on tribution was 14 million dollars, roughly flat. Compared to the second quarter of 2021. Same store sales fuel volumes were up roughly 12%. While merchandise sales were up approximately three and a half percent compared to the third quarter 2020.
Shifting to our segment results.
Retail segment adjusted EBITDA contribution was $14 million roughly flat compared to the second quarter of 2021.
Same store sales fuel volumes were up roughly 12% while merchandise sales were up approximately three 5% compared to the third quarter of 2020.
Wipe your volumes were approximately 88% of COVID-19 levels, reflecting lower levels of international tourist arrivals particularly on Oahu.
While fuel volumes were approximately 88% of pre COVID-19 levels, reflecting lower levels of international tourist arrivals, particularly on Oahu.
Logistics.
The logistics segment adjusted EBITDA contribution was $19 million compared to approximately $20 million during the second quarter of 2021.
Just a diva talk on tribution, was 19 million compared to approximately 20 million during the second quarter of 2021. Steady volumes kept our Logistics assets will utilize during the quarter.
Steady volumes kept our logistics assets well utilized during the quarter.
The refining, segment recorded third quarter, adjusted even da of 64 million dollars compared to the second quarter adjusted Eva doll loss of 29 million, excluding, the renmark the market impacts for finding segment adjusted Eva David. Threw a five million dollars compared to a second quarter loss of 2 million.
The refining segment recorded third quarter, adjusted EBITDA of $64 million compared to the second quarter adjusted EBITDA loss of $49 million <unk>.
Excluding the rent mark to market impacts refining segment, adjusted EBITDA was $35 million compared to a second quarter loss of $2 million.
All units return to profitable levels.
All units returned to profitable levels.
Casino pain, Hawaii? First adjusted gross margin. Excluding run mark-to-market slightly exceeded the Improvement in market conditions. The third quarter, free one to increased approximately $2 per barrel, compared to the second quarter. While Hawaii adjusted gross margin. Excluding red, mark to Market increased, approximately three dollars and 25 cents per barrel.
Focusing upon Hawaii <unk> adjust.
Adjusted gross margin, excluding run mark to market.
Slightly exceeded the improvement in market conditions.
The third quarter free one to increased approximately $2 per barrel compared to the second quarter, while Hawaii adjusted gross margin, excluding rent mark to market increased approximately $3 45 per barrel.
One of the key issues that is impacted adjusted gross, margin capture rates over. The last several quarters has been rapid changes in the flat price of oil, third, quarter flat. Price change was minimal especially compared to the last nine months. Looking forward market conditions continue to improve with the 312. Averaging 11 dollars per barrel in October compared to the $6.20 for the third quarter. However, October icma, Brent was up, nearly $9 per pair.
One of the key issues that has impacted adjusted gross margin capture rates over the last several quarters has been rapid changes in the flat price of oil.
Third quarter flat price change was minimal, especially compared to the last nine months.
Looking forward market conditions continued to improve with the 312, averaging $11 per barrel in October compared to the $6 20 for the third quarter.
However October ice CMA, Brent was up nearly $9 per barrel compared to the September calendar month average.
Compared to the September calendar month. Average in addition backward, Nation continues to steepen, increasing the cost of protecting our balance sheet from declines in flat price.
In addition, backwardation continues to steepen, increasing the cost of protecting our balance sheet from declines in flat price.
Washington, adjusted gross margin, excluding run mark-to-market improved slightly from the second quarter levels due to improve net tax on asphalt, partially offset by Rising. Backwardation asphalt margins tend to widen and falling price environments and compressed during Rising price environments. As previously, mentioned while volatile across the monks flat price change was modest across the quarter in aggregate Wyoming or finding results reflect the strong summer driving season with attractive.
Washington, adjusted gross margin, excluding rent mark to market improved slightly from the second quarter levels due to improve net backs on asphalt partially offset by rising backwardation.
Asphalt margins tend to widen and falling price environments and compressed during rising price environments.
As previously mentioned, while volatile across the months of flat price change was modest across the quarter in aggregate.
Wyoming refining results reflect a strong summer driving season with attractive capture of a local market environment. There was minimal FIFO impact during the quarter.
Triple local market environment. There was minimal fifo impact during the quarter.
Laramie generated adjusted ebitdax, 26 million dollars and a net loss of 42 million. For the third quarter of 2021. Year-to-date Laramie generated adjusted, ebitdax of 96 million, and a net loss of 1 million.
Laramie generated adjusted EBITDAX of $26 million and a net loss of $42 million for the third quarter of 2021.
Year to date Laramie generated adjusted EBITDAX of $96 million and a net loss of $1 million.
Laramie is third quarter and year to date. Net income was negatively impacted by unrealized derivative losses, totaling 55 million dollars. Year-to-date Capital expenditures have been less than 1 million dollars.
<unk> third quarter and year to date net income was negatively impacted by unrealized derivative losses totaling $55 million.
Year to date capital expenditures have been less than $1 million.
Laramie. Net debt improved from a hundred and thirty-three million dollars to a hundred and sixteen million dollars between the July. Refinancing they completed in September 30th.
Laramie net debt improved from $133 million to $116 million between the July refinancing that completed and September 30th.
Laramie. Exit production, as of September 30th was a hundred and sixteen million cubic feet a day. Equivalent. Laramie is receiving spot market pricing on between 20 to 30% of their production over the next 12 months. Stronger, prompt pricing has accelerated. Accelerated. Laramie is ability to reduce debt.
Laramie exit production as of September 30th was 116 million cubic feet a day equivalent.
Laramie is receiving spot market pricing on between 20% to 30% of their production over the next 12 months.
<unk> pricing has accelerated accelerated laramie ability to reduce debt.
Shifting back to the park Pacific cash flow statement. Park. Pacific's third quarter cash flow from operations, was 53 million dollars, excluding the red mark, the market working capital was an approximate $12,000,000 source of funds. During the quarter Capital expenditures and turnaround outlays were eight million dollars, the crude cash, interest expense equal to 14 million dollars.
Shifting back to the par Pacific cash flow statement.
Par Pacific's third quarter cash flow from operations was $53 million.
Excluding the rent Mark to market working capital was an approximate $12 million source of funds during the quarter.
Capital expenditures and turnaround outlays were $8 million.
Accrued cash interest expense equaled $14 million.
Arnett liabilities for the 2019.
Our net liability for the 2019 and 2020 RFS compliance years totaled $120 million based upon a $1 35 per RIN unit.
In 2020 RFS, compliance years total, 220 million dollars based upon the dollar 35 / in unit. We expect there to be approximately 30 million dollars to working capital outflows related to the 2021 rims, picks price commitments in the fourth quarter.
We expect there to be approximately $30 million of working capital outflows related to the 2021 rent fixed price commitments in the fourth quarter.
Looking forward, we expect our annual cash interest expense to be 50 to 55 million dollars and GAP. Interest expense to be in the 15 million dollar Porter Ranch in addition consistent with our prior commentary. We expect 2021 annual capex in turnaround outlays to be between 35 and 45 million dollars.
Looking forward, we expect our annual cash interest expense to be 50% to $55 million and GAAP interest expense to be in the $15 million per quarter range. In addition, consistent with our prior commentary, we expect 2021 annual capex and turnaround outlays to be between 35% and $45 million.
A quarter in liquidity, total 277 million made up of 201 million in cash and 76 million in availability. Our liquidity on hand remains strong and provides flexibility to consider alternatives to reduce our funding costs as Bill referenced. Our top Capital, allocation priority remains debt reduction. This concludes our prepared remarks operator. I'll turn it back to you for Q&A.
Our quarter end liquidity totaled 277 million made up of $201 million in cash and $76 million in availability.
Our liquidity on hand remains strong and provides flexibility to consider alternatives to reduce our funding costs.
Bill referenced our top capital allocation priority remains debt reduction.
This concludes our prepared remarks, operator, I'll turn it back to you for Q&A.
We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time, your question has been addressed and you would like to withdraw your question, please press star. Then 2 at this time. We will pause momentarily to assemble our roster.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad if.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Carly Davenport, with Goldman Sachs, please. Go ahead.
The first question comes from Carly Davenport with Goldman Sachs. Please go ahead.
Good morning. Congrats on the strong quarter. My first question was just around high-level Capital allocation with the macro having improved the setup from our perspective looks constructive as we go into 2022 here. So as you continue to generate cash into next year, how do you think about the use of that cash know that you know, leverage has been the key Focus, but curious if when you think about where the stock has been trading relative to a sum of the parts, if there's also a path to incremental Capital returns here.
Hi, good morning, congrats on the strong quarter.
My first question was just around high level capital allocation.
With the macro having improved the setup from our perspective looks constructive as we go into 2022 here. So as you continue to generate cash into next year. How do you think about the uses of that cash now that leverage has been the key focus but curious if when you think about where the stock has been trading relative to what some of the parts. If theres also a path to incremental capital returns here.
Carly's feel like, is I, as I mentioned, in my prepared remarks and we'll alleged to our Focus will continue to be debt reduction. We don't have any limitations on either repurchasing Equity, or distributed a significant limitation say on on reversing Equity or Distributing Equity, declaring a dividend. But at this point, I think we're going to be focused on reducing our debt and then obviously exploring some of these small capital projects that we think will help Physicians for the growth in the future.
Currently it still is.
As I mentioned in my prepared remarks, and will alluded to our focus will continue to be debt reduction, we don't have any limitations on either repurchasing equity or distributed a significant limitations.
Repurchasing equity or distributing equity.
Declaring a dividend, but at this point I think we're going to be focused on reducing our debt and then obviously exploring some of these small capital projects that we think will help position us for growth in the future.
Great. Thank you. And then the follow-up was just around Opex and, and Joseph talked about some of the moving pieces at Hawaii being a bit higher during the quarter. But can you just talk about some of the moving pieces looking forward and into for Q and 22 and and just frame perhaps the impact that higher natural gas prices could have on OPEC or or cost of goods sold and they are near term.
Great. Thank you and then the follow up was just around Opex and Joseph talked about some of the moving pieces that Hawaii being a bit higher during the quarter.
But can you just talk about some of the moving pieces looking forward into <unk> and 'twenty, two and just frame, perhaps the impact that higher natural gas prices could have.
On opex or cost of goods sold in the near term.
Erm.
Yes, I will be posted a full 28. No, Lo primero Opex, old production cost in a why is about 80 cents a barrel higher than the average, or our guidance? In our prepared remarks. We explained half of it, 40 cents per barrel, is a related to the cogent and regeneration and maintenance the other 40 cents per mile.
Yes, when we put the full $20 a barrel OPEC production cost in Hawaii is about 80.
<unk>.
The apparel.
And the average or our guidance.
Remote.
We explained half of it.
<unk> 40 <unk> per barrel.
The co Gen and lead generation.
Maintenance.
<unk> 40 cents per barrel gap.
The Gap is really associated with the utility cost. Some of it was the way we price our steam. Some of that is related to the cogent maintenance. You know, when we don't operate koujun, we burn a less fuels by, we have to buy power from the grid and the other aspect in Optics in the third quarter, in a while. I just stopped
He is really associated with them.
Utility costs.
Cause.
Way, we priced <unk> team and some of it is related to the cogent maintenance when we don't.
Operate cogent.
We burn.
Less skus, but we have to buy power from degree.
The other aspect in Opex in the third quarter NOI.
Timing for routine maintenance, especially in our thing form. So we do believe the 350, going forward is a is a good guidance. Are you second question was about natural gas, sensitivity and I will answer it for the entire system. How sensitivity is very low compared to the typical refiner start with Wyoming every dollar per million. Btu.
<unk> four <unk>.
In maintenance, especially in our tank farm. So we do believe the 350 going forward.
Is a good guidance.
Second question was about natural gas sensitivity and I will.
Uncertainty for the entire system.
Allison sensitivity is very low.
No.
Become a refiner.
With the Wyoming.
<unk>.
Btu change in natural gas.
Changing natural gas as seven cents per barrel, say production cost sensitivity for Wyoming has only 2 cents, palmeiro, sensitivity in Washington and has pretty much zero, you know, why? Because we don't burn natural gas. So on by natural gas, you know why? So the weighted average sensitivity for our entire system is only
Yes.
Seven a barrel.
Production cost sensitivity for Wyoming is only two cents per barrel.
Pvp in Washington.
Pretty much zero, because we don't burn natural gas, so I'm buying 200 gas NOI.
So the weighted average sensitivity flowering tunneled system is only two <unk> per barrel compared to.
Two cents per barrel. Compared to 20 cents per barrel. Sensitivity for the typical Refinery out there.
<unk> per barrel sensitivity for the typical refinery out there.
Great. That's very helpful. Thanks for taking the questions.
Great. That's very helpful. Thanks for taking the questions.
The next question comes from bill gresh, with JP Morgan, please. Go ahead.
The next question comes from Phil Gresh with J P. Morgan.
Please go ahead.
Hey, good morning. First question. Just a bit of a follow up on Hawaii recognizing that the crew differential will be 288 this quarter. So that's a bit of a head wind. But with where the crack spreads are that you've discussed and and other moving pieces. I mean, do you feel like there are any headwinds to fully capturing this uplift and the crack spread given how strong it is?
Hey, good morning.
First question, just a bit of a follow up on Hawaii.
Recognizing that the crude differential will be $2 88, this quarter, so thats a bit of a headwind.
<unk>.
But with where the crack spreads are that you've discussed and to the other moving pieces I mean do you feel like.
There are any headwinds to fully capturing this uplift in the crack spreads given how strong it is.
Okay.
It. So it's well, I think the the best kind of factors that I've called out that, you know, we see is as impacting capture rates again, the third quarter, I think was strong. And again, a lot of that was we were in a flat price environment where there was relatively minimal change. Obviously in the in October we've seen I Sprint up nearly $9 and so again, there is some price lag impact.
So it will.
The the best kind of factors that I've called out that we see is impacting.
Capture rates again in the third quarter I think it was strong and again a lot of that was we were in a flat price environment, where there was relatively minimal change obviously in October we've seen.
Ice Brent up nearly $9 and so again there is some price lag impact for us, but I think it's transitory with respect to rapid changes in crude price.
for us, but I think it's transitory with respect to
But changes in crude price and so I think that's one factor. And then again, I think backwardation the other item I call out again, you know, we hedge, the majority of our inventory and Hawaii. And again, it protects our balance sheet against declines in flat price. And so, you know, again as we've seen backwardation Steep and the cost of protecting that inventories going up. So those are the factors but I think as you called out, you know, the
And so I think Thats one factor.
And then again I think backwardation the other item I'd call out again, we hedge the majority of our inventory in Hawaii and again, it protects our balance sheet against declines in flat price and so.
Again as we've seen.
Backwardation steepen.
The cost of protecting that inventory is going up so those are the factors, but I think as you called out.
The three one twos up nearly $5 a barrel.
312 zup, nearly $5 a barrel and our crude costs in the fourth quarter, you know roughly 60 cents. There are some impacts from the rising price. But again, I think we're positively inclined to see where the market is heading right now.
And our <unk>.
Crude costs in the fourth quarter are up roughly 60.
So.
There are some impacts from the rising price, but again I think were positively inclined to let's see where the market's heading right now.
Got it. That makes sense. Well, any initial thinking around the 22 capex with some of these small capital high-return projects. Do you have a way of thinking about the magnitude?
Got it that makes sense.
Well any initial thinking around the 22 capex with some of these small capital high return projects do you have.
The way of thinking about the magnitude.
I think what provide the full-year guidance and the next quarter's call Phil, but I think the only items I'd call out is, you know, we've historically commented, our maintenance capex, is in that kind of 35 million range, 35 to 40, and then we do have the Washington turn around, we called out as planned activity during the first quarter of 22, again will come out with formal expectations around that, but historically that's been about a 35 million dollar Outlet.
I think we will provide full year guidance in the next quarters call, Phil, but I think the only items I'd call out is we've historically commented that our maintenance capex is in that kind of $35 million range 35 to 40, and then we drove the Washington turnaround at we've called out as planned activity during the first quarter of <unk>.
Two.
Again, we'll come out with formal.
Expectations around that but historically, that's been about a $35 million outlay.
Okay.
My last question is just around Kappa allocation in terms of any interests and looking at M and A opportunities. There are some assets on the market including one just announced by appear and in Alaska as well. So I was just curious if if you broadly had em, a interests and particular like Niche markets. Yeah, I mean we've been consistent.
Last question is just around.
Capital allocation in terms of any interest in looking at M&A opportunities. There are some assets on the market.
Including one just announced by appear in Alaska as well.
I was just curious if if you broadly M&A interest in.
Particular like niche markets.
Okay.
Yes, Phil I mean, we've been consistent I think in sharing what our strategic area of interest is in its path for in kind of the upper reaches of pad five and there certainly are assets that have been.
I think in Sharing what our strategic area of interest is and it's pad for and kind of the upper reaches of pad 5. And there, certainly are assets that have been bandied about we're also obviously always evaluating opportunities in that area, but you know, within certainly with the liquidity we have and kind of coming out of the pandemic. I think we have a little more flexibility, but I think this Market environment really requires that, we be very disciplined and
And he'd about.
We're also obviously always evaluating opportunities in that area.
But.
Certainly.
With the liquidity, we have and kind of coming out of the pandemic I think we have a little more flexibility, but I think this market environment really requires that we be very disciplined and discriminating as we evaluate our opportunities.
Ruminating as we evaluate our opportunities.
Thanks, though.
Great. Thanks Bill.
The next question comes from Matthew Blair of Tudor. Pickering cult, please. Go ahead.
The next question comes from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Hey, good morning, everyone. So Laramie. Had a big increase in profitability that really doesn't flow through into your EPS. Could you provide just an overall update here? You know, what's the plan on drilling going forward with time on debt reduction? And is there any update in terms of potentially monetizing your 46 percent investment?
Hey, good morning, everyone.
Laramie had a big increase in profitability.
Really doesn't flow through into your EPS could you provide just an overall update here what's the plan.
Drilling going forward whats the plan on debt reduction and is there any update in terms of potentially monetizing your 46% investment.
Sir, Matthew its will.
Sure Matthew it's will.
So, I think as you as you referenced, you know, nice Step Up in Laramie, contribution, obviously, it's not flowing through our reported results, this juncture, ultimately the net debts, down, 216 million dollars. There's a preferred piece of equity, that is senior to our common position, which is about 55 to 60 million dollars. And so, ultimately, I think, refinancing,
Thank you.
You referenced.
Nice step up in Laramie contribution obviously, it's not flowing through our reported results at this juncture.
Ultimately the net debt is down to $116 million.
Preferred piece of equity that is senior to our.
Common position.
It was about 50.
<unk> $55 million to $60 million and so.
Ultimately I think refinancing and getting Laramie to a more sustainable capital structure remains their objectives.
And getting Laramie to a more sustainable, capital structure remains their objectives. And so the fundamentals are improving, the credit metrics are improving. And I think ultimately, you need to see kind of the winter season play out and see the cash flow continue to come in their current objectives are to pay down debt. They're not running a rig right now. There's minimal capex. And ultimately I think delevering is their principal Focus.
And so.
The fundamentals are improving the credit metrics are improving and I think ultimately you need to see kind of the winter season play out and see the cash flow continue to come in their current objectives are to pay down debt, they're not running a rig right now theres minimal capex.
And ultimately I think delevering is their principal focus.
Sounds good, and then circling back to Capital allocation for car. You know, you mentioned you'd pay down hundred fifty million so far this year. Can you share any any Targets or goals going forward? How much do you need to pay down, you know, to get to a more normalized balance sheet in your view.
It sounds good and then circling back to capital allocation for par you mentioned you'd pay down $150 million. So far this year can you share any any.
Any targets or goals going forward, how much do you need to pay down.
To get to a more normalized balance sheet in your view.
Sure Matthew I think at the end of the day are.
Preferred capital structure is really to a point, where we think about our refining business with very much finance and funded by equity in our retail and logistics business being.
We think about a refining business with, you know, very much and funded by equity and our retail and Logistics, business being, you know, appropriately levered for the type of stability of those cash flows offer. So, again, I think, I think we're continuing to monitor those businesses, but they've been stable performers even through the pandemic
Appropriately levered for the type of stability of those cash flows offer.
So again I think.
We're continuing to.
Monitor those businesses, but they've been stable performance, even through the pandemic and ultimately I think.
And ultimately, I think if we can get to probably a Consolidated level where we're in the one-and-a-half times range, it probably will give us, you know, the cushion that we'd like to be, you know, where the retail and Logistics business or conservatively levered and we can again attract a lower cost of debt Capital, that remains one of our key focuses.
If we can get to probably a consolidated level, where we're in the one five times range that probably will give us the cushion that we'd like to be.
<unk>.
The retail and logistics business are conservatively levered and we can again attract a lower cost of debt capital that remains one of our key focuses.
Great. Thank you.
Great. Thank you.
Again, if you have any questions, please press star. Then 1 the next question comes from Jason gabelman with Colin, please. Go ahead.
Again, if you have a question. Please press Star then one.
The next question comes from Jason <unk> with Cowen. Please go ahead.
Morning, thanks for taking my question. I want to first ask about the Wren liability still have outstanding mentioned. I think another 30 million dollars of fixed commitments related to rennes and for q21. Where does that leave you on your 2019 and 2020 run obligations and we're and then also I guess on where your crude 2021 liability is.
Good morning, Thanks for taking my question.
I'll answer the first ask about the RIN liabilities still have outstanding you mentioned I think another $30 million.
<unk> commitments related to <unk> and <unk> 'twenty, one where does that leave you on your 2019, and 2020 and rent obligations and where and then also I guess on where your crude.
'twenty one.
Liability is net of.
Of your rent <expletive>.
You are an asset.
My second question is on these low carbon energy opportunities. Can you? You mentioned hydrogen in Washington? I don't know if there's something specific in Hawaii, but can you maybe elaborate on those opportunities a little bit more when you expect to generate earnings that are material for the business from those opportunities. Thanks.
My second question.
On these low carbon energy opportunities can you you mentioned hydrogen in Washington, I don't know if theres something specific in Hawaii, but can you maybe elaborate on those opportunities a little bit more on when you expect.
To generate.
Earnings.
That are material for the business from those opportunities. Thanks.
It's Jason spill, let me take the low carbon energy opportunities and I'll turn the Rins question over to well. He is got the you get the harder to answer.
Let me take the low carbon energy opportunities, and alternative, rins, question over to will. He's got the got the harder answer here on the low carbon energy opportunities. As I mentioned the hydrogen, we're really in the very early stages of working. With the local authorities leveraging. The fact that they've got low-cost hydroelectric power and looking at, at converting that into hydrogen for supplies to, you know, such things as
They are here.
On the low carbon energy opportunities as I mentioned in the hydrogen we're really in the very early stages of working with the local authorities.
Leveraging the fact that they've got low cost hydroelectric power and looking at the at converting that into hydrogen for supplies to such things as municipal.
Transportation infrastructure, Marine infrastructure, generally controlled Distribution Systems, but we have the space. We've got a balance of utilities that we can help support the development of something there. Even if it's very early stages, I mentioned and still a lot of dialogue needs to take place within the community pursue that, but given the federal support for hydrogen. We do think that the Tacoma is particularly well suited for.
Transportation infrastructure Marine infrastructure generally controlled distribution systems, but we have the space. We've got a balance of utilities that we can help support the development of something there, but its very early stages I mentioned and still.
A lot of dialog needs to take place within the community pursue that but given the.
Federal support for hydrogen we do think that.
The Tacoma is particularly well suited for this type of an application turning to Hawaii really the high electricity costs preclude any parts of something like a hydrogen infrastructure and we're more focused on.
this type of an application turning to Hawaii, really the high electricity costs preclude, any lots of something like a hydrogen infrastructure and we're more focused on our Refinery and the fact that we have a steam reforming unit where we're converting NAFTA into hydrogen and that obviously puts us in a position where we think there's some innovative ways potentially to capture carbon and using sequester it
Our refinery and the fact that we have.
Our steam reforming unit.
Sure.
Converting naphtha into hydrogen and that obviously puts us in a position, where we think theres, some innovative ways potentially to capture carbon and use and sequester it.
Right, and Jason on Ren's again, the the 2019 and 2020 liabilities at a hundred twenty million. I think, once the 30 million dollar outflows completed and the fourth quarter, we'd expect really to be lets say, full, we purchased on our 2021 obligation. And so, again, I think where that leaves us is effectively, where as we head into March of next year. We will have, let's say two years of rent. A
Great.
And Jason on Rins.
Again, the 2019 and 2020 liabilities at a $120 million I think once the $30 million outflows completed in the fourth quarter, we would expect really to be let's say fully purchased.
On our 2021 obligation and so again, I think where that leaves us is effectively where.
As we head into March of next year, we will have let's say two years of rent assets in three years of rent liability accrued on our balance sheet.
It's in three years of Ren, liability accrued on our balance sheet. And then ultimately, you know, we'll be waiting for Action from the EPA with respect to both the rvo, percentages for the 2020 and 2021 years, as well as smaller finer exemptions, you know, which will impact sort of the aggregate position you have. There's minimal incremental cash outflows planned with respect to kind of the Q1 2022 time.
And then ultimately will be.
Waiting for action from the EPA.
With respect to both the <unk>.
RVO percentages for the 2020 in 2021 years as well as small refinery exemptions, which will impact sort of the aggregate position you have I think there is minimal incremental cash outflows.
<unk>.
With respect to Q1, 2022 timeframe and again ultimately.
M frame. And again, ultimately the RFS allows you to defer settlement for up to two consecutive years and ultimately that will push kind of cash flows out in the downside case to the 2023 time print.
<unk>.
The RFS allows you to defer settlement for up to two consecutive years and ultimately that will push kind of cash flows out in the downside case too.
The 2003 timeframe.
Got it. Just
Got it just to be clear so you'd be.
You clear. So you'd be fully kind of a crude on your 2021 Rin liabilities after these 4q outflows.
Fully kind of a crude on your 2021 RIN liabilities. After these four Q outflows.
Those that's correct. And then ultimately, the cash settlements will reflect the cruel again at this point. We have accrued expense. And again, they're not then cash outflows at this point in time to the tune of about 230 million dollars. If you recall that was about 40 million dollars last quarter. So again, we do didn't about ten million dollars of that. They're in the third quarter. Super. Thanks. That's really helpful.
That's correct.
Ultimately the cash settlements will reflect the accrual again at this point, we have accrued expense and again they are not.
Cash outflows at this point in time to the tune of about $30 million, if you've called out was about $40 million last quarter. So again we.
Jude and about $10 million of that during the third quarter.
Super Thanks, that's really helpful.
This concludes our question and answer session. I would like to turn the conference back over to William Pate for any closing remarks.
This.
<unk> our question and answer session I would like to turn the conference back over to William Pate for any closing remarks.
Thank you. I want to thank our team for their hard work, which drove the record earnings from our business. This quarter. Have a good day.
Thank you drew I want to thank our team for their hard work, which drove the record earnings from our business. This quarter have a good day.
The conference has now concluded, thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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Yes.
Thanks.
Yes.
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