Q1 2022 Par Pacific Holdings Inc Earnings Call
Good morning, and welcome to the par Pacific first quarter 2022 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation. There will be an opportunity to ask question to ask a question you May Press Star then one on your.
Telephone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would like to turn the conference over to assure me Patel director of Investor Relations. Please go ahead.
Thank you Kate.
To par Pacific's first quarter earnings conference call. Joining me today are William Pate, President and Chief Executive Officer, Richard Kramer EVP of refining and logistics knock on E V. P of retail and Walmart's Liang Chief Financial Officer.
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.
They are subject to risks and uncertainties and actual results may differ materially from these forward looking statements.
Accordingly, investors should not place undue reliance on forward looking statements and we disclaim any obligation to update or revise 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.
Now I'll turn the call over to our President and Chief Executive Officer, Okay. Thank.
Thank you Ashish.
Good morning, everyone our.
Our first quarter adjusted EBITDA was $8 million and adjusted net loss was 53 per share.
These results included a $5 million noncash mark to market expense for our 2019 and 2020 RFS compliance.
First quarter results reflected lost profit opportunities associated with our Washington turnaround.
The impact of rapidly rising crude oil prices in Hawaii and off season conditions in Wyoming.
Market conditions improved significantly in the second quarter with the Washington turnaround behind US, we're focused on maximizing production and a highly profitable market environment.
Over the past few months refined product crack surge to all time highs due to increasing physical crude costs, increasing demand and reduced supply from Russia.
In addition record natural gas prices have driven up production costs for refineries reliant on natural gas for utilities and hydrogen.
Consequently, the April Singapore, 312 index is well above historical norms, averaging almost $30 per barrel compared with a 2021 average of 622 per barrel.
Cracks are also at high levels in Wyoming and Washington.
War and related trade sanctions sparked rapid increases in crude oil prices during the first quarter and then stabilized above $100 per barrel during April .
Prices have increased steam and electricity expenses and consequently, our refinery production costs.
Market structure continues to be highly backward dated which offsets a portion of the record product cracks.
Notwithstanding these adverse impacts all our refinery units are currently highly profitable several of the factors affecting our first quarter capture rate in Hawaii, and Washington have improved as oil prices stabilized and our refinery throughput increased with sales volumes up our logistics systems are also generating strong profit.
Yes.
We made considerable progress this quarter on our organic growth capital initiatives in conjunction with the turnaround in Washington, several units were Debottleneck and the refinery is operating at record throughput levels. We also completed work in Wyoming that should allow us to run at record levels. This summer.
We're completing the engineering for co feeding in Washington to create renewable production optionality as the low carbon fuel standard and cap and trade regulations emerge in that state.
We also view this capability as a hedge against rising RIN prices.
We were pleased with the recent EPA decision recognizing that delayed decisions on small refinery exemptions have a significant adverse impact on petitioners, although we did not agree that the agency should reverse prior grants of relief.
The EPA should recognize the adverse impact of delayed decision, making as it considers our outstanding 2019, and 2020, sorry petitions.
In closing I want to introduce Richard Kramer, our new executive Vice President of refining and logistics Richard has a wealth of experience in refining and petrochemical operations and management. He joins us from HFF Sinclair and previously worked for Flint Hills resources, Lyondell and Investor.
He also served a four year stint with us as the head of our Hawaii refining operations.
We're delighted to have him rejoin us Richard welcome back.
Thank you Bill and it's great to be back.
Our teams performed well operationally to begin the year and in Washington, We successfully completed the turnaround in March during which we completed the Debottlenecking project to increase our throughput the nameplate capacity of 42000 barrels per day and around the larger percentage of Cold Lake crude now we don't have any planned major turnarounds across our refineries for the at least the next.
Two years.
First quarter, Washington production costs were 735, a barrel, reflecting reduced throughput of 20000 barrels per day as we completed the turnaround due to some additional discovery work, we extended the turnaround by eight days impacting throughput rates second quarter throughput is expected to be back up to 41% to 42000 barrels per day.
As Bill referenced we are progressing on our Tacoma renewables co processing project and expect to begin our co feeding operation by early next year.
Shifting over to Wyoming production costs were $8, a barrel and throughput was 15000 barrels per day during the first quarter, we completed a limited outage to replace catalyst in anticipation of the summer driving season second quarter throughput is expected to be 16 to 17000 barrels per day.
Hawaii protection production costs were $4 38, a barrel during the first quarter, reflecting higher utility cost, which are tied to the price of crude.
First quarter throughput was 83000 barrels per day in second quarter throughput is expected to be 81 to 85000 barrels per day.
This demand and cracks are strong across all our regions operational reliability and maximizing crude throughput our principal goals this quarter, given the very strong market environment.
Now turning the call over to Matt to discuss our retail results an update on strategic initiatives. Thank you Richard.
The retail segment faced a number of challenges in the first quarter, putting a sharp increase in refined product prices continuing shortages in our merchandise offerings. Notwithstanding these hurdles, we were able to grow margins inside our stores, while continuing to position the segment for growth.
The retail segment reported adjusted EBITDA of $6 7 million for the quarter compared to $8 $4 million in the first quarter of 2021. This reflects approximately $830000 of additional lease expense, resulting from the sale leaseback transaction that we closed in February of 2021.
Adjusted gross margin grew by three 2% compared to the first quarter last year, increasing from $25 3 million to $26 1 million.
Volumes rose from $24 8 million gallons in the first quarter of 21 to $24 9 million gallons with return of international tourists to Hawaii and an eye towards the summer driving season, we expect further increases in our fuel volumes in the second and third quarters of the year.
Merchandise gross margin grew by four 4% during the quarter compared to the same quarter last year food and beverage sales continued to perform well and we are working to expand our prepared food offerings across our operating regions to drive additional sales in these categories as we announced last quarter. We are expanding our operations in the retail segment with the new store outside of Spokane, Washington.
Scheduled to break ground during the fourth quarter, we are evaluating several other growth opportunities in the area, including additional Greenfield development.
Looking ahead, we continue to focus on maximizing convenience for our customers by providing more options to service their needs, including expanded self checkout options home delivery and pay at the pump were excited to launch a loyalty program in the northwest during the second quarter and develops expanded food offerings across our network, while fuel and merchandise volume.
We have not yet recovered to pre COVID-19 levels. We anticipate continued increases over the balance of the year as crude prices continue to stabilize.
Now I'll turn the call over to will to address the financials.
Thank you Matt.
First quarter, adjusted EBITDA, and adjusted earnings were $8 million and a loss of $31 million 53 per fully diluted share.
Focusing on accounting items first.
Refining results include a $5 million noncash mark to market loss related to the 2019 and 2020 RFS compliance years.
Excluding the mark to market Rens expense, our adjusted EBITDA and adjusted earnings per share was $13 million and a loss of 44 cents per share respectively.
Shifting to our segment results.
<unk> segment, adjusted EBITDA contribution was $15 million down sequentially from the fourth quarter by approximately $4 million.
Largest driver of the decline was reduced throughput activity in Washington related to planned maintenance.
Excluding the rent mark to market impacts refining segment, adjusted EBITDA was $5 million compared to $8 million in the fourth quarter.
Focusing on Hawaii.
The first quarter, Singapore, three wanted to increase to approximately $5 72 per barrel to $16.21.
Stock costs were approximately $3, 67% premium to Brent compared to the initially provided estimate of $3.50 premium.
But in the 312 index and feedstock indexes together the.
The overall margin environment improved about $4 70 per barrel versus the fourth quarter.
The net impact of rapidly rising prices largely offset the market improvement in.
And the impact of crack spread hedging increased backwardation and increased yield cost and other items caused another $4 per barrel capture had one in total an approximate $9 per barrel.
Looking forward market conditions continued to improve with a 312, averaging almost $30 per barrel in April .
We anticipate landed crude differentials will be between $4 50, and $4 $4 75 per barrel during the second quarter, reflecting increasing backwardation and a tighter physical crude market.
We have continued our crack hedging framework and currently have approximately 25% to 30% of our Q2 sales hedged at an average 312 or $14.25 per barrel.
With flat price stable to down versus March.
Currently don't project further price lag impacts.
Coronation remains elevated relative history, albeit Q2 levels are currently well below peak levels.
Current in month, one versus month to levels are in the $1 50 per barrel range insistent with the average backwardation expense, we realized in the first quarter.
And Washington market conditions improved slightly compared to the fourth quarter major moving pieces compared to the fourth quarter were lower throughput related to the turnaround increased backwardation in asphalt margin compression due to increases in spot price.
While we were able to maintain budgeted turnaround outweighs the turnaround was extended by eight days impacting throughput rates and causing us to purchase additional refined products.
Total lost profits related to the turnaround were approximately 15% to $20 million.
Looking forward the April P. M. W. 5221 index increased to nearly $40 per barrel led by improving distillate margins.
Wyoming market conditions improved slightly with the Wyoming 321, improving from 2653 from $23 67 during the fourth quarter.
Estimated FIFO benefit was $17 million or $12 44 per barrel.
Market conditions are improving with the April 321 improvement of 49 86 per barrel in April .
Shifting to Laramie.
Laramie generated hedged adjusted EBITDAX of 22 million unhedged, adjusted EBITDAX of $30 million and a net income of $33 million during the first quarter of 2022.
Capital expenditures totaled approximately $4 million.
During the quarter net debt improved by 22 million to $92 million to $70 million ending balance.
Exit production as of March 31 was 104 million cubic feet a day equivalent.
Laramie is commencing a small development program for approximately seven wells totaling $11 million and evaluating a larger development program.
Shifting back to the par Pacific Cashless statement.
Par Pacific's first quarter cash flow from operations, excluding turnaround funding was $21 million.
Working capital inflows, excluding turnaround totaled $115 million.
This reflects a reversal of the fourth quarter outflows, we messaged in prior communications.
Capital expenditures totaled $16 million.
In addition, we repurchased $5 million of stock during the quarter at an average price of $13.70.
Our net liability for the 2019 and 2020 RFS compliance years totaled $119 million based upon a weighted average RIN price of $1 43 as of March 31.
Our quarter end liquidity totaled $212 million made up of $141 million in cash and $71 million and availability with.
With the strong market environment and completion of turnaround activities, we expect liquidity build for the remainder of the year.
This concludes our prepared remarks, operator, I will turn it back to you for Q&A.
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The first question is from Carly Davenport of Goldman Sachs. Please go ahead.
Hey, good morning team. Thanks for taking the questions I wanted to just start on the refining environment in Hawaii, obviously, a lot of moving pieces there impacting margins in the first quarter. So could you just flush out a bit kind of how some of those pieces are tracking thus far into Q, how you'd characterize your ability to kind of capture the strong March.
So we're seeing on the screen and kind of ultimately at these type of margin levels, where you could see profitability tracking in the second quarter.
Sure Charlie It's will I think the best way to think about that is ultimately the price lag impact that we referenced in Hawaii was.
During the quarter was about $4.
$4.50 and so again with the current price environment, we don't expect that to repeat.
And so again I think that's the single biggest factor that will improve capture rates in Hawaii during the quarter.
And again I think the other factors that are at play a backwardation.
Increased yield cost.
And then the crack spread hedging I think are all factors that we expect to continue but nonetheless, I think we're expecting improving capture environment given the current spot price dynamic in Hawaii.
Great I appreciate that and then the follow up was just around kind of renewables on the co processing opportunity that you've talked about up at Washington, as we think about the rationale there.
How should we frame kind of the current economics of producing renewable fuels versus the benefit around kind of mitigation of rents in terms of driving the investment in that project and then just on the volume side. I think you mentioned start up and kind of early 2023 mm, but how should we think about timeline to kind of ramp.
Two the call. It just over 2000 barrel a day number that you referenced in the deck.
Carly This is bill I wouldn't I would say first of all that we look at this as an availability project not a project, where we intend to be producing renewable diesel. It's a relatively small project that really positions us to address L. CF credit units if that market starts to run.
The capital requirement, we're talking about is very low single mid single digit millions and we expect to be capable of producing renewable diesel early next year.
But again, we're completing this project solely to have the optionality to address Lcs FES and rens pricing.
Great I appreciate that color.
The next question is from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Hey, good morning, everyone I'm, just hoping you could talk about the air traffic trends in Hawaii, It looks like they're actually trending better than the U S averages.
Just wondering if that's coming through in your jet demand and then also would we expect to see that how about your.
Our logistics segment.
Hey, Matt This is bill it it actually helps us in a number of different areas and I'm going to let Matt Vaughn also address some of this on the retail front, but yes, we are seeing.
Increasing travel in Hawaii, we are starting to see more international travelers, most importantly, and the international travelers tend to stay longer they travel around more.
So theres more consumption and frankly, the resorts I think are hiring more so we're seeing a pickup in jet.
I don't know that thats going to have a significant impact on our logistics system. At this point, because we are really pretty heavily utilized.
And I think the marginal barrel at this point in the state in terms of jet Consumptions and import barrel, so probably the area, where we're going to start to see a benefit here I think is on the retail front, Matt do you want to address that yes. This is Matt I think that's that's correct. So far as of the end of April inbound flights from Japan to Oahu.
Seven times compared to where they were in April 2021 that will impact both.
Yep.
And to the island jet consumption as well as volume that we derived from the retail stores as well.
And Matt. This is we'll just to give you a sense I think you know the aggregate volumes in Hawaii still hadn't fully rebounded to pre pandemic levels.
On the fuel volume side in our market and again I think probably we were saying that 90% of pre pandemic levels.
Yeah, I think the last leg. There is this ultimately international travel and unemployment as bill referenced.
A wahoo principally.
Sounds good and then could you provide an update on any potential monetization of the Laramie strength just given the.
The strong earnings it's been putting up.
Yeah, Matt I think we're evaluating our strategic options for Laramie.
As we speak and I think with natural gas prices materially improving fundamentals.
Fundamentals.
They are really driving a growing set of alternatives for us to consider.
I think we're evaluating everything from our sale of Laramie to ultimately steps Laramie can take to simplify its capital structure. So profits can be distributed on an annual basis, but again that business fundamentals and its leverage or improving markedly.
Sounds good thank you.
The next question is from Alejandro Nagana of J P. Morgan. Please go ahead.
Hi, This is all funded Mcdonough I'm covering for telegraph.
I'm, assuming that cash flow materially stepped up in the second quarter with stronger cracks and no maintenance, how do you think about buybacks versus debt reduction.
Hi, Hunter. This is bill are our priorities really haven't changed and certainly our highest priorities just will be funding the growth of our business, whether it be expanding our refining logistics capability or increasing our retail store base.
Capital requirements.
Necessarily really requires to focus on reducing our cash cost of capital and I continue to believe that reducing our debt has the most significant impact as.
As will noted we have also opportunistically repurchased our equity when it's attractive and.
We will continue to assess the market and act accordingly.
Got it thanks for that and my second question is and the stronger environment. We're seeing today are there any projects that you would consider accelerating particularly me around some of the energy transition opportunities that you've talked about.
A number of the energy transition projects, we're working on require either government support our work with the government and the government doesn't really respond to a changing market environment. So I don't I don't think any of our energy transition projects.
We will be accelerated for example, the hydrogen project in Washington is really going to be a function of fed.
Federal funds in support for our regional.
Hydrogen hub that will be pursued and in conjunction with local partners.
The reality is coming out of turnarounds, we've got our refineries running we think we can generate a fair amount of cash flow will be using that to simplify our capital structure and build up our balance sheet.
Got it thanks.
Okay.
Again, if you have a question. Please press Star then one.
The next question is from Jason <unk> of Cowen. Please go ahead.
Yeah, Hey, how's it going.
Couple of questions. The first one just trying to understand then the net impact of rising prices.
The business you you you noted a price lag.
In Hawaii, but then there are these offsetting.
An inventory burn.
So how do you think about the net impact of rosin prices to the business. If there is one at all.
Yeah, I think it's probably about a $10 million Jason have impact in the quarter, approximately and again, that's gonna price lag impacts that we referenced in in Hawaii, and then and then in addition to asphalt impaction and Washington, again, offset with the inventory benefits and why.
I mean in Hawaii also so again I think that's probably the best way to think about it net for the quarter.
Got it and then my other one just going back.
Uses of cash.
I guess it sounds like Bill last quarter, you were kind of discussing how youre comfortable with the balance sheet now it sounds like maybe you want to pay down more debt can you just clarify.
Those statements and then kind of connected to that there's obviously a large seller in the market, that's probably putting some pressure on your share price.
Given the outlook that.
Youre going to be generating a lot of cash here over the next couple of quarters is there any engagement.
To try and remove that overhang.
Well I I don't think it would be appropriate to comment on the recent sales of of a major investor.
But just think about it in the market context in general we did repurchase some some equity last quarter with the even the liquidity we generated over the last couple of quarters. We do continue to believe that our debt is high cost debt and so we'd like to take that out we think that's going to be accretive as well.
And so we think that reducing our debt will ultimately allow us to access the credit markets on a let's just say a lower cost basis, and I think reducing your cost of debt should eventually impact our share price in a favorable way as well.
So it's a little I mean, I'd say, there's a little bit of all of the above depending on the market context.
When.
When available, but we do expect to generate.
Liquidity, we also have to keep in mind that we have these rens obligations and we're in this morass with EPA and we.
We want to take that into account when we think about the appropriate level of liquidity as well.
Got it thanks for the answers.
Yes.
The next question is from Andrew Shapiro Lawndale capital. Please go ahead.
Yeah, Hi, good morning, just a quick question I know I don't know if it's the year end number or the current number but what's the.
Tax N O L out and about how much a year is now expiring.
Great Hi, Andrew it's will.
The current balance is about $1 6 billion.
And ultimately I think the expertise don't began until the 2027 and beyond timeframe. So no current period expertise that we're concerned about and again I think where your confidence.
We're able to manage the NOL balance.
Sheila.
Cash flows and profits going forward.
Oh sure and in the event you were to.
Sell off Laramie, and it would have a sizable gain.
Because the way it work is that gain would then you know chew up the 2027 expertise the 'twenty 'twenty eight 'twenty 'twenty nine hundreds to the nearest term expertise would get used up and we would and it would be even less risk of the loss of the rest of the NOL.
Yes, I think Andrew versus getting into the specifics of sort of the NOL balances I think what we'd say is to the extent we have any gain on a on a potential laramie. So I think we could conduct it in a tax efficient manner and so again I think and again I don't think we're seeing any effects.
So the ability to utilize the NOL on a go forward basis I'd also just say Andrew based on our outlook for the business, we really don't see Nols expiring.
We.
Anticipate that will be.
Using those tax attributes to offset profits.
Okay, great. Thank you.
Okay.
Okay.
The next question is a follow up from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Hi, Thank you for taking my follow up here I think it's probably for will.
Did you mentioned that the Q2 hedging at 25% to 30%.
In Hawaii at this 14 25 strike is that correct and then is there.
Like a mark to market of negative mark to market that we should be thinking about so far in Q2.
On that.
Matt you you've got the numbers correct, 25% to 30% of the sales at 14 25 level and again I can follow up with you offline, but I think ultimately you can take our projected our typical sales volume and I think input what average price you want to use for the 312 to calculate the mark to market moving.
Quickly by the day. So I think we were trying to give a number that help people create.
Create their own sensitivities around that.
Got it thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to William Pate remarks.
Thank you operator, I want to thank all of you for joining us today we're.
We're pleased to have all of our units up.
With recently completed turnarounds and no major outages since we entered this favorable market for our refined products.
With growing liquidity and profitability, we think we have a bright near term outlook have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.