Q2 2022 HF Sinclair Corp and Holly Energy Partners LP Earnings Call
Year to adjusted net income of $144 million or <unk> 87 per diluted share for the same period in 'twenty one.
Adjusted EBITDA for the current quarter was $1 9 billion, an increase of more than one 5 billion compared to the second quarter of 2021.
Our second quarter results reflect the combined benefits of an improved global economy and demand picture refined product and lubricate supplies that are constrained by the actions taken in response to both the COVID-19 pandemic and sanctions due to the Ukraine conflict and are successful in counter cyclical acquisitions of the Puget sound.
Refinery and the Sinclair assets.
To date, we have achieved annualized run rate synergies of over $90 million related to the Sinclair acquisition and over $100 million of working capital synergies, we're on pace to exceed our target of approximately $100 million and annual run rate synergies within two years of the acquisition close date through a combination of commercial improve.
<unk> operating expense reductions and SG&A optimization.
We also announced today that our board of directors declared a regular dividend of <unk> 40 per share payable on September one 2022 to holders of record August 18th.
During the quarter, we returned over $200 million to shareholders through dividends and share repurchases, we repurchased two 7 million shares of common stock totaling $132 million in connection with our share repurchase program as.
As of June 32022, we have remaining authorization to repurchase up to $868 million.
Under this stock repurchase program and we expect to remain active throughout the second half of 2022.
We remain fully committed to our capital allocation strategy of returning $1 billion to shareholders. No later than the first quarter of 2023, while maintaining our solid balance sheet and investment grade rating.
Heading into the second half of the year, we're constructive on the outlook for transportation fuels supported by low product inventories and healthy global demand.
Looking forward, we will continue executing our strategic initiatives, we remain focused on the integration of our recently acquired assets from Sinclair, while maintaining safe and reliable operations.
We see great value with the Dino brand as we look to grow the marketing segment within our existing geographies.
All of our previously announced renewables program projects complete we will continue to ramp up production of these assets as we expect to reach full production levels by the end of the third quarter.
<unk> quarter of 2022.
As one of the largest producers of renewable diesel we are excited about the opportunity of providing low carbon fuels to our customers, while realizing the incremental earnings uplift from our investments.
Let me turn the call over to rich.
Thank you, Mike, let's begin by reviewing HSN Claire's financial highlights.
As previously mentioned the second quarter included a few unusual items pre.
Pre tax earnings were negatively impacted by a lower of cost or market inventory valuation adjustment of $35 million.
Acquisition integration costs of $13 million and decommissioning charges of $5 million related to the Cheyenne refinery conversion to renewable diesel production.
Table of these items can be found in our press release.
Net cash provided by operations totaled $1 $5 billion, which.
<unk> $25 million of turnaround spending and $33 million of cash sourced from working capital.
Hff's Sinclair <unk> Standalone capital expenditures totaled $150 million for the second quarter.
As of June 32022, Hs Sinclair has total liquidity stood at approximately $3 $3 billion.
Comprised of a standalone cash balance of $1 7 billion, along with our Undrawn $1 65 billion unsecured credit facility.
On June 30, we had $174 billion of Standalone debt.
With a debt to cap ratio of 16% and a net debt to cap ratio of 1%.
ETP distributions received by HFC cleared during the first quarter totaled $21 million HFF.
HFF Sinclair owns $59 6 million ATP limited partner units.
Which following the acquisition of Sinclair transportation represents 47% of Hep's Outstanding LP units.
The market value of $1 billion as of last Friday's close.
Let's go through some guidance items.
We have reduced our expected capital guidance for 2022 to the range of $785 to $950 million.
We now expect to spend between 225 and $250 million in refining.
Between 250 and $300 million in renewables.
$45 million to $60 million at Lubes and specialties.
<unk> $25 million in marketing now.
<unk> $90 million to $110 million at corporate.
And $110 million to $130 million for turnarounds and catalysts.
At <unk>, we expect to spend $50 million to $75 million in total capital.
With respect to tax and we received $83 million in cash during the second quarter of 2022 under the loss Carryback provision in the cares Act.
Going forward the HFF Sinclair corporate tax rate is expected to be in the range of 19% to 21%.
Okay.
For the second quarter of 2022, we expect to run between 630 and 650000 barrels per day of crude oil in our refining segment.
We have no major turnarounds at our fuels refineries scheduled for the remainder of 2022.
Turning to Holly Energy partners second quarter net income attributable to <unk> was $56 $8 million compared to $55 7 million in the second quarter of 2021, which included a $5 $3 million gain related to our refined products pipeline sale.
Excluding this gain net income was $50 5 million for the second quarter of 2021.
The year over year increase was primarily attributable to earnings related to the recently acquired Sinclair transportation assets.
Partially offset by higher interest expense and operating costs.
<unk> second quarter 2022, adjusted EBITDA was $104 2 million compared to $88 3 million in the same period last year.
A reconciliation table, reflecting these adjustments can be found in <unk> press release.
HCP generated distributable cash flow of $78 5 million and we announced a second quarter distribution of <unk> 35.
For LP unit, resulting in a distribution coverage ratio of one eight times.
This distribution is to be paid on August 12 to unitholders of record as of August 1st.
Sure.
During the second quarter Hep's total capital expenditures were approximately $15 million, including $7 million of turnaround expenses related to our woods cross refinery processing units $5 million of maintenance Capex.
$2 million of Reimbursable, capex and $1 million in expansion capital.
For 2022, our capital expenditure forecast was revised slightly to $50 million to $75 million.
Looking forward <unk> remains committed to our capital.
Allocation framework as we continue to reduce leverage using retained cash flow.
We are on track to achieve our short term leverage target of three five times by year end and.
And we expect to increase unitholder returns in 2023.
And with that Rex, we're ready to take questions.
The floor is now open for questions. At this time, if you have questions or comments. Please press star one on your Touchtone phone.
We ask that you please limit to one question and one follow up if.
If you have additional questions. We welcome you to rejoin the queue.
If at any point. Your question has been answered you may remove yourself from the queue by once again pressing star one.
Thank you.
Our first question comes from.
Manav Gupta with credit Suisse. Your line is open.
Okay.
Hey, guys. Congrats on this counter cyclical chunky buying assets I know you got a little pushback earlier on it but clearly it's delivering results. My question. Here is now you have opening dates and current assets for the quarter clearly you like what do you see kind of indicating to highest synergies so talk us through what.
The positive surprises of this include acquisition and May be one area, where you thought it would be stronger and more work is needed at this stage.
Okay.
Manav this is cam I'll start with some.
Maybe some specifics and then let the group talked about a little higher level.
We're very pleased.
With the Sinclair assets, and especially in Sinclair employees.
Over this last quarter of working together.
I think one pleasant surprise.
The synergies are the logistics opportunities that we've been able to see both on the crude side and on the product side.
Has led to.
US running higher throughput rates at Woods Cross.
Kasper then either site could have run separately. So I think thats been exciting we set monthly records at both locations.
And it's only because of the.
Employees working together through the logistics assets to be able to accomplish that.
But beyond that we're super excited about this brand and the opportunity to be more vertically integrated in terms of our product distribution.
Specifically for something where we.
We haven't fulfilled our hopes and dreams, yet and I will say, it's there we have a lot to do and a lot of opportunity within branded distribution and we are adding stores we see.
See opportunity within our existing refining footprint and Thats really where a lot of work is going to be as we look forward is converting this downstream distribution from wholesale rack to more of a branded approach and theres plenty of opportunity in front of us.
Perfect. My quick follow up here is another very strong quarter for the rack forward business help us understand the dynamics, which are driving this trend and also like what's your vision for the entire business are you looking to grow. It are you happy with the footprint you have if you could talk a little bit about those things.
Yes, Manav. This is Tim again, I'll start specifically talking about the rack forward business and then I'll, let Mike.
Shopping.
A broader question.
We had another strong quarter record quarter for lubes as you pointed out.
Despite the rack back or the <unk>.
Increase in prices in base oils, our rack forward business has been able to keep up which has been which has been encouraging.
A couple of things that we've talked about over the last year that are really starting to play out as SKU rationalization and upgrading our product mix that I think is really driving the improved results that we're seeing SKU rationalization, we're up to 20% 25%.
<unk> Skus that were able to simplify the business take cost out lower working capital.
<unk> carrying costs all of that is driving us to.
To better synergies or better efficiencies.
Better yields and upgrading our product mix is also helping us.
As we continue to focus on process soils and specialties businesses versus.
Passenger car motor oils for example.
Youre also seeing better integration between our feedstocks coming from our Tulsa refinery.
Tying to our finished lubes business.
With petroleum with Mississauga, So all three of those really are contributing to the strong results.
Now from a little higher level as to whether we consider this to be core or not we absolutely do we think we can grow it.
And we like the business at the same time, we obviously take note of external markers, particularly the valvoline transaction and we're pragmatic about this business and any other that we own in terms of inside versus outside valuation, but for the time being we see a lot of meat on the bone here and when we think we can grow this business.
Thank you for taking my questions and congrats on a great quarter. Thank you.
The next question comes from Paul Cheng of Scotiabank. Your line is open.
Hey, guys good morning.
Paul.
Good morning, rich on that at the time when you set the.
Capital return of opinion.
Comparing to two day shut in the second quarter and third quarter. It looked like it was much stronger than you would have expected.
So when you're looking at that number.
What do we will be declining.
The <unk> consideration for you to raise that number.
That's the first question.
Maybe it that way until you answered that I would go for the second one.
Yes, Paul this is rich good morning.
Look I think we're very comfortable that we will achieve that number.
At this point, we would expect to get there no later than the first quarter just to put a little more color around that as Mike mentioned, we did $2 7 million shares.
The second quarter, we did another 3 million shares for about $130 million in July .
We've got dividends to pay so we would expect that we're we're running comfortably toward that number.
To your point about increasing it let's see how the market goes here, but where we.
We're optimistic at this point.
But which can you share with us that what will be the criteria.
You need to hit in order for you guys.
Let's say Oh, yes, I mean that we can raise that.
Distribution and any kind of matrix that youll.
Shale anything.
So Paul I don't know if I can give you a matrix you.
I have been doing this a long time, we don't have volatile these markets can be we'd rather speak less and deliver more.
Okay.
And then maybe this is for the team.
West region.
Margin realization was very good and much stronger than we thought.
Just curious that.
And the one off benefit in the quarter or debt.
We can say Mindy is just because the overall margin is good and you.
You captured that and yet we have it's Tim and I imagine that gain we capture yet again.
Yes, Paul this is Tim.
Not a whole lot of one offs really we saw exceptional.
Margins cracks and.
The northwest Pacific Northwest as well as in the Rockies that obviously helps.
But this was the first quarter that we had Puget sound running at full utilization and that helped significantly in the capture.
Mike talked about.
Sinclair synergies that we're able to.
To identify and capture that helped and our capture there as well and then as as margins go higher the rins contribution or the RVO contribution becomes less in terms of percentage wise that helped us in the capture on the west as well so I don't really see any major one off so pointed out Paul.
Okay, great. Thank you.
Okay.
Okay.
The next question comes from the line of Theresa Chen with Barclays. Your line is open.
Alright.
Good morning.
Wanted to ask first on the midstream strategy from here.
So as we've long spoken about.
You're bucking the trend versus what many of our competitors are doing with their sponsored mlps choosing to roll them in over time and there has been acceleration of this kind of activity for the past year or so.
In contrast today.
About increasing hold a risk for <unk> in 2023. So first part of the question is just an update on your general midstream strategy.
And what underlies your decision to keep <unk> outstanding first it's Glenn would it be compelling to boliden and then related to the higher unit holder returns how do you envision this happening would it be distribution increases buybacks or special distribution I'd love to hear more detail here.
Hey, Theresa its rich good morning.
So I.
I would say look first hep's critically important to hff's unclear.
Ownership of those assets is critical to our refining business.
Got an outstanding team operating those assets. So we do see opportunities to grow that business, both with HFF Sinclair and outside of Hff's unclear.
To your question about the financial structure really to us that's a corporate finance question.
And so far our rollout because not made sense from that perspective.
Probably worth pointing out here that hep's is relatively large relative to HFF Sinclair and that affects any sort of per share math you might do so look we'll continue to monitor that situation and do the best thing.
To create value for all of our shareholders.
Looking to 2003 to your question about.
Distribution growth at this point I think we would urge to increasing the distribution itself will evaluate buybacks as you know <unk> is not the most liquid stock so its not necessarily that we want to reduce the float it may not be in the best interest of <unk>, but if that's a better option will go ahead and do it but right now I'd say, it's going to take the form of distribution increases.
I'll add to that Teresa and simply that.
We've put a lot of capital toward external growth via acquisitions and at this point.
Incremental capital has to be returned to HFF Sinclair shareholders in the near term.
As compared to buying in a related MLP all the rich set in terms of its ownership and the criticality of it is quite true.
But in terms of capital allocation really it goes to HFF Sinclair holders first.
Thank you.
Okay.
Your next question comes from the line of Doug Leggate. Your line is open.
Okay.
Hey, good morning, everyone.
I Wonder if you can offer an opinion on.
The recent restructuring of some of the MLP ownership receiving from.
Phillips 66 from shell.
PBF.
And you'd obviously one of the last man standing so to speak along with modest one what are you thinking in terms of.
You've got your balance sheet, but to pristine shape.
And the relative yields obviously being what they are how do you think about the logic of continuing co ownership structure.
Doug I tried to head that off in my last comment but.
Let's just put it on the table, we took a pause of a dividend for one year. We bought two made two different acquisitions, which we consider to be really high value and at this point, we intend to pay our shareholders back.
For their patients in that in those investments so.
That basically says that in the near term. We're most interested in returning capital to HFF Sinclair shareholders, what our peers do as rich was insinuating a lot of that probably depends a lot on the relative size of those entities versus the size of the mother ship take shell BP as examples.
<unk>.
In our case, it's relatively larger and we'll do the math of course, but the.
<unk> would need to be accretive to cash flow and earnings and for the time being we are allocating our capital otherwise.
I know it's.
Obviously the question Mike I appreciate your perspective.
I guess I don't think anyone's really asking the macro yet so I wonder if I could really just get your kind of current use given that gasoline seem to blow Google pretty hard.
And obviously diesel holding in there spreads are a bit wider what are you seeing.
Halfway through almost the third quarter, what are you seeing in terms of.
The trends there.
And maybe any insights you can offer as to how your quarter was going so far and then of course the inevitable question on gasoline demand disruption what are you seeing in your system and I'll leave it there. Thanks.
Yes, Doug This is Tim again, let me, let me start with some of the direct responses to your demand questions and then I'll, let Mike weigh.
Add on more of the macro.
We're still seeing strong demand in our regions.
Coupled with high utilization, it's still resulting in product inventories being below five year averages. So that's all very constructive and very positive in the areas. We operate diesel in particular, it's at or above 2019 demand levels, we feel good about that gasoline straw.
<unk>, specifically in the southwest, but we would say probably within 5% of our 2019 levels. So we're continuing to see.
Good strength there.
I would also mention that on the marketing side.
Mike mentioned that at the beginning.
<unk> to see strong.
Demand for our brand.
We added 20 retail sites here in the second quarter.
We've added more than 50 in progress still.
As we look to expand this.
Sinclair brand in some of these new markets.
So from a marketing standpoint, we are continuing to see strong pull there as well.
Thanks, Doug a little bit more on that I think that in early July late June there was clearly some price elastic demand right and I think that the industry saw a little bit of falloff.
We don't see anything like that to sort of 10% that's implied in the.
Aggregate demand numbers and so.
Our markets just aren't seeing that kind of behavior.
More than that I think that.
This product is now traded the racket $2 $52 75 range and adding excise taxes retail distribution costs youre not much above 2021 levels. So expectation is given the strong economy. The labor numbers that we're seeing.
That that price elastic demand probably comes back pretty quickly.
Guys I hate to labor the point, but.
Do you have an explanation as to why the EIA data is showing what assurance.
Any thoughts on that.
No no we were happy to see it every Wednesday.
Thanks, Bill appreciate it yes.
Gary.
Your next question comes from the line of Neil Mehta.
Sachs. Your line is open.
Hey, guys good quarter here. Thanks, Ed Thanks for taking the time. The first question is on just on renewable diesel.
Set of strong results renewable diesel was the outlier came a little bit softer this quarter. So just talk about how you see margins are tracking.
And the outlook for the rest of the year and then also talk about the blenders tax credit and the extension thereof, because that could be.
To support the long term profitability of the business. Thank you.
Certainly.
The renewable diesel.
Margins and earnings really reflect low throughput as much as anything.
Recognize that our Artesia Rd product project is just coming on stream now and just in this quarter beginning to gain revenue from its sale, so low throughput poor utilization.
And relatively high feedstock cost with respect to RPT and I think this is on the heels of the Ukraine sort of disruption.
And veg oil economies, if you will but as you know we've invested in a pretreatment unit and while we initially bought a lot of RBC.
Feed are startups, we're progressing toward a diverse feedstock slate much of which is going through our own <unk> and that will significantly improve our economics.
As of today for example, the <unk> versus <unk> spread per gallon is something like 75. So.
As you can see that that's a significant uplift in margins looking forward.
What we have called out that the third quarter is still a ramp period for our production because artesia is really very much still in startup and expects to achieve full rate by the end of the quarter, but not through the quarter.
So that's going to be.
Little bit of a headwind in terms of earnings performance, but otherwise feedstock costs and margins are in our favor here. So we're still very constructive on the investments that we've made.
And what I'd say is its utilization and startup more than anything else that's affected margins as two BTC inflation reduction Act yes.
Solidifies the margin outlook certainly through 2024.
And thereafter as you know.
Inverts to a clean fuels or sort of enel CFS Ci driven.
Contribution in terms of that credit, but that that provides some certainty in terms of the producers' margins in <unk>.
Makes us all more optimistic our initial economics anticipated the BTC expiring through at the end of 2022 now we've got two years of very solid expectations and MSCI based benefit after that.
Okay that makes sense Sir in the follow up is just around the crude side of the equation with fewer turnarounds in the back half of the year.
Good time and with some whiting widening of both Brent and <unk> and then also Ti WCS. How do you think about the sustainability of those wider differentials and is that just a reflection of SPR or is there something underlying lying in the transport economics that would support the wider spreads.
Yes, Hi, Neil it's Tim Yeah, certainly the SPR is.
Impacting the Brent Ti spread I think strong Permian production is also.
Providing a very stable.
Volumes coming out from from a dummy Ti perspective, but if you look on the Brent side, we've got some uncertainty there higher natural gas in Europe , certainly driving more demand.
Making Brent a little bit more scarce and you had the Russian crude embargo.
Creating a drive for those Brent barrels so I think while we normally think of the.
Transportation.
Basis between Brent and Ti in that three to $3 50 range.
Right now transportation is not setting the spread we think that spread is being set by the scarcity in the branch side and we think really if you look at kind of the dynamics that are driving that it's probably not going to change anytime in here.
Near term. So you look at the forward strip you see the Brent Ti spread kind of in that five to $6 range, and we think thats whats going to happen here over the next couple of years.
It's a good time to obviously be long on refining and have additional inland crude refineries.
And our portfolio.
And it came on WTS WCS.
Yes.
On the WCS spread widening out again.
May have noticed that we ran more WCS in the second quarter than we have.
In previous.
<unk> taken advantage of that spread we think theres more.
To be able to take advantage of in the third quarter.
You see some of the maintenance that was occurring up in Canada complete some of the production coming back online and starting to fill out the pipeline takeaway capacity, we think by the end of the year where to start seeing pipelines being allocated again, and we think that's going to put some pressure.
On that WCS <unk> spreads so we think thats sustainable.
Really as we look at our forecast.
That allocation is going to come back here for for a while and we're going to be able to enjoy those spreads.
Thank you guys.
The next question.
<unk> comes from the line of Matthew Blair with tutoring Tudor Pickering, Holt and company. Your line is open.
Hey, good morning, Congrats on the result, the marketing profitability was better than we were expecting.
Can you talk about the drivers here.
How things are progressing in this segment so far in Q3.
Yeah, Matt This is Tim.
Our new branded marketing segment as Mike pointed to earlier is performing better than we expected and Thats all very encouraging we're seeing a lot of.
Traction on our Sinclair brand as I mentioned before.
Added 20 retail sites here just in the second quarter alone.
Got another 50 that are in progress here, then we think we'll be able to bring in here before the end of the year.
Growth targets, we're hoping in that 5% to 7% growth range is what we're what we're looking at and we think can be very reachable.
Our strategy is we have several licensed.
Retail sites as you guys have seen in our previous.
Previous disclosures.
Clearly if we can convert some of those licensed sites into supplied sites that would be a good place to start and we are doing that right now some of our new markets, where our legacy Holly frontier assets have been at southwest region in the PNW region. We're.
We're seeing a lot of <unk>.
Interest in growing the Sinclair brand there.
And then lastly.
Our mature markets in the Rockies, where we have the same clear brand already well established we're seeing a lot of incremental pull to continue to grow there as well so very exciting time for us Matthew and we think we think that branded business is going to be important for our portfolio in the long term.
Sounds good and then could you talk about the geographical end markets for your R&D production today.
New rail all of that to California or have you found other markets that are equally as appealing.
Okay.
Yes, we won't be specific as to quantities, but we're working through the western states as well as Canada.
And then trying to find best value, but pursuing markets throughout those areas not just California.
Great. Thank you.
Yes.
Our next question comes from the line of Jason <unk> with Cowen Your line is open.
Yes.
Hey, good morning, Thanks for taking my questions.
First just maybe as we think about the buyback moving forward it.
It would be helpful. Just if you could remind us.
Your targets for the balance sheet.
In terms of both debt and cash levels and maybe a couple of other modeling related related questions.
What's your SGA on a go forward basis and then.
Is this quarters.
<unk> refining region Opex indicative of where you expect it to be on a go forward basis. Thanks.
Hey, Jason it's rich.
So with respect to the balance sheet and the repurchase.
Let's start from a balance sheet perspective, we're very committed to our investment grade rating.
We've been guided to sort of three times.
Debt to EBITDA Troffer, two times mid cycle.
The metric, we got to look at and that the consolidated leverage.
You'll note. We're there we're inside of that right now so we've got capacity. So there's no need to preserve cash to repurchase repay debt at this point.
We continue to look at $500 million of our sort of minimum or target cash balance and we've got plenty of.
Dry powder, if you will for share repurchase at this point.
SG&A I think if you make some adjust the appropriate adjustments to.
<unk> for M&A costs that we called out here its a good run rate.
Then with respect to the west.
Operating expenses I think this quarter is a good run rate.
Great. Thanks, just a big flywheel there.
Got it understood.
Things to call out on the west.
Ed Richards comments natural gases just consider it continues to be elevated we've got some bonus accrual impacts as well.
But we did have some planned maintenance at Puget sound and at Rollins that.
Maybe a little bit higher than normal so we're looking to bring that down.
Looking forward.
Okay.
Understood.
Any way to quantify that further quarter.
No no. It's not those are puts and takes to be honest. So I don't think its going to be a big driver at the end of the day natural gas again being the one thing that I can forecast that it can really move that number around.
Got it.
And then my other question just on the renewable diesel business as we think about the ramp up you know you mentioned youre running RVP now just in the early portion of the.
Production of the platform, but as you get the pretreatment unit up what how much RV D. Do you expect to run.
Once the platform is fully up and running in <unk>.
Yes, that'll be obviously dependent on economics, but.
I'd say less than half or around half.
Depending on <unk> versus <unk> and other economics.
So Jason made add some math there.
Our pre treatment capacity.
Pro forma the transaction and then everything will be call. It 50% of our of renewable diesel production and then we do have the ability to run some other feeds straight into.
The units as well so we've got the flexibility to run 60 plus percent non our BD as Mike mentioned right. This is all going to be economics, driven at the end of the day, though.
Okay, great. Thanks for the answers.
Your next question comes from the line of Paul Cheng Scotiabank. Your line is open.
Hey, guys. Thank you.
Just two quick follow up.
Maybe Tim can you.
Help us understand that.
Dynamic into marketing gross margin seven cents per gallon this quarter I mean, how much is the fluctuation, let's see some <unk> in that business or that you to please.
So trying to have a better understanding on that.
Yes, Paul are the gross margins of seven cents higher than what we had guided to and we originally.
Put out the Sinclair.
Pro forma us we're pleased with that we're seeing again strength in branded businesses.
As you see higher gasoline prices and higher demand I think we are seeing.
A widening of that spread between branded and unbranded.
Don't know yet we don't have enough experience to know if that's going to be sustainable or not but we think.
It's real and we've seen it and we we continue to.
But for that strength here in the third quarter.
Maybe then let me ask in another way.
Contract that you signed with job posts.
Those.
It sort of more or less.
Yes.
Margin or what that yes, OLED is a recognized plus.
The additional margin Sean to understand that how the pricing on those contracts.
Yes, no we don't sign up for any fixed prices.
There Paul it's all really based on our posted price and that's how we work with.
The <unk> on that.
Okay.
And just.
Just curious that maybe this is for Mike I think in the past you said that you have no interest getting into the retail.
Business that you'll own the smaller direct near an opera and the change in that thought now that you have the brand marketing.
No. There is no change in that thought Paul that's a very different skill set staffing level.
We intend to be branded wholesalers, we want to manage the brand we want to add volume to that distribution channel and support those retailers with a strong branded presence, but thats our contribution.
Alright, thank you.
Yes.
Your next question comes from the line of John Royall with Jpmorgan. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
Most of mine have been answered just had one.
Just looking at your mid cycle.
Adjusted EBITDA guidance, you have 1 billion three five.
The refining and just wondering.
I know the synergies that are appointed.
A bit upwards from from what you had guided there, but just generally anything about this environment.
That you think is sticky where maybe the 135 number is biased upwards.
Hey, John it's rich.
Say, the one thing that we point to as Youll notice in the buildup to that number.
We get there by taking Gulf coast cracks right and crude differentials, adding product differentials I'd say, we probably feel better about the product differentials on our markets structurally.
And this reflected there so we do think theres, probably some upside.
From our perspective, the Rockies in particular right. There is a market where you've got very good demographics and economic growth and <unk> got very constrained supply just due to the geography itself.
There's really not much opportunity to substitute petroleum fuels. There. So that's a place that we do see upside to that mid cycle buildup.
Great. Thanks very much.
Okay.
There are no further questions at this time.
Greg I'll turn the call back over to you.
Sure.
Thanks, 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 third quarter results with you in November .
Okay.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful.
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