Q2 2022 HF Sinclair Corp and Holly Energy Partners LP Earnings Call

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 in annual run rate synergies within two years of the acquisition close date through a combination of commercial improvements, including expense reductions and SG&A optimization.

We also announced today that our Board of Directors declared a regular dividend of $0.40 per share payable on September 1st, 2022 to hold us a record August 18th. The holders of record August 18th.

During the quarter, we returned over $200 million to shareholders through dividends and sharey purchases.

We repurchased 2.7 million shares of Comments doc totaling $130 million in connection with our share reports program.

As of June 30th, 2022, we have remaining authorization to repurchase up to 868 million under this Stockburg Purchase 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. Coming into the second half of the year, we have reached the end of the year,

With all of our previously announced renewables program projects complete, we will continue to ramp up production of these assets as we expect to reach global production levels by the end of the third quarter and 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.

So let me turn the call over to Rich.

Thank you, Mike. Let's begin by reviewing H.S. Sinclair's financial highlights.

As previously mentioned, the second quarter included a few unusual items.

Pre-tax earnings were negatively impacted by a lower of cost-to-market inventory valuation adjustment of $35 million.

Acquisition and Integration costs of $13 million and decommissioning charges of about half a million dollars related to the Cheyenne Refinery Conversion to renewable diesel production.

A table of these items can be found in our press release.

Net cash provided by operations totaled $1.5 billion, which included $25 million of turnaround spending and $33 million of cash sourced from working capital.

HFson Claire's standalone capital expenditures totaled $150 million for the second quarter. $1,000,000 for the second quarter.

As of June 30th, 2022, H.F. Sinclair's 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 dollar unsecured credit facility.

On June 30th, we have $1.74 billion of stand-alone debt.

with a death to cap ratio of 16% and a net death to cap ratio of 1%.

HEP distributions received by HS Sinclair during the first quarter totaled $21 million.

HF Sinclair owns 59.6 million AGP limited partner units.

with which following the acquisition of Sinclair Transportation represents 47% of HEP's outstanding LP units.

The market value of a billion dollars as of last Friday's close.

Let's go through some guidance items.

We have reduced our expected capital guidance for 2022 for the range of $785 to $950 million.

We now expect to spend between 225 and 250 million dollars in refining.

between 250 and 300 million dollars in renewables.

$45 to $60 million at Loobs and Specialties.

$15 to $25 million in marketing.

90 to 110 million dollars in corporate.

and $110 to $130 million for turnarounds and catalysts.

At HEP, we expect to spend $50 to $75 million in total capital.

With respect to tax, we received $83 million in cash during the second quarter of 2022 to the lost carryback provision in the CARES Act.

Going forward, the HF Sinclair Corporate Tax Rate is expected to be in a range of 19 to 21%.

For the second quarter of 2022, we expect to run between 630.

and 650,000 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 Holley Energy Partners, second quarter net income attributable to HEP 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 product pipeline sale.

excluding the scheme that income was $50.5 million dollars for the second quarter of 2021.

The year-to-year increase was primarily attributable to earnings related to the recently acquired Sinclair Transportation Assets.

partially offset by higher interest expense and operating costs.

GTP's second quarter, 2022, adjusted evita was 104.2 million dollars compared to 88.3 million dollars in the same period last year.

A reconciliation table reflecting these adjustments can be found in EGP's press release.

The GP generated distributable cashflow was $78.5 million, and we announced a second quarter distribution of $0.35.

for LP unit, resulting in the distribution coverage ratio of 1.8 times.

This distribution is to be paid on August 12th to the union holders of record as of August 1st.

During the second quarter, HEP total capital expenditures were approximately $15 million.

including seven million dollars in turnaround expenses related to our Woods Cross refinery processing units, five million dollars of maintenance capex.

$2 million of reimbursable capex and $1 million in expansion capital.

For 2022, our Capital Expimenture forecast was revised slightly to $50 to $75 million.

Looking forward, EGP 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 3.5 times by year end, and we expect to increase unit holder returns in 2023. With that, Rex, we are ready to take questions.

The floor is now open for questions.

At this time, if you have questions or comments, please press Star 1 on your touchtone phone.

We ask that you please minute to one question and one follow up.

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 cube by once again pressing star 1.

Thank you.

Our first question comes from...

Manav Dupta with Credit Suisse. Your line is open.

Hey guys, and congrats on this counter-surgical strategy of buying assets. I know you've got to push back earlier on it, but clearly it's delivering results. My question here is, you know, now you have operated sincare assets for a quarter. Clearly you like what you see, you're kind of indicating to higher synergies. So talk to some of you, what were the positive surprises of this sincare acquisition? And maybe one area where you thought it would be stronger and more work is needed at this stage. So.

Manav, this is Tim. I'll start with maybe some specifics and then let the group talk about a little higher level. We're very pleased with the Sinclair assets and especially the Sinclair employees over this last quarter of working together. I think one pleasant surprise was the synergies or 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 and Casper than either site could have run separately. So I think that's been exciting. We've sent 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. It disguise folks again when with the HUS86 That you just use to run further and benefit from the logistics assets and to get everybody involved that they have. to get everybody involved. to look at the Lucy'sslow dx ai at the Bingham community. The Ray's ended up working for the Larry's issues. Appreciate the Ray's consistency and evaluation understand that the surface has been maxim distorted for the While at MIT Certainly, the framing of 21 accomplished that.

I'm going to be on that. We're super excited about this brand and the opportunity to be more vertically integrated in terms of our product distribution. I'm going to be on that. I'm going to be on that. I'm going to be on that. I'm going to be on that.

You asked specifically for something where we haven't fulfilled our hopes and dreams yet. And I'll 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 opportunity within our existing refining footprint. And that's really where a lot of work is going to be as we look forward is, you know, converting this downstream distribution from wholesale rack to more of a branded approach. And there's 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 a little the dynamics which are driving this trend. And also, what's your vision for the entire Lubes 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.

Yeah, Minal, this is Tam. Again, I'll start specifically talking about the Rack Fort business, and then I'll let Mike finish up with your broader question. We had another strong quarter, record quarter, for lobes if you pointed out. Youode De mari!!

Despite the RAC back or the increase in prices in base oils, our RAC forward business has been able to keep up, which has been encouraging. A couple things that we've talked about over the last year that are really starting to play out is SKU rationalization and upgrade in our product mix that I think is really driving the improved results that we're seeing. SKU rationalization, we're up to 20-25%.

of SKUs that we're able to simplify the business, take cost out, lower working capital, reduce carrying costs. All of that is driving us to better synergies or better efficiencies. Better yields and upgrade in our product mix is also helping us as we continue to focus on process oils and specialty businesses versus the passenger car motor oils for example.

You're also seeing better integration between our feedstocks coming from our Tulsa refinery tying to our Finish Loops business with petroleum with Mississauga. So all three of those really are contributing to these stronger results.

I'm not from a little higher level. I was 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 valve-lein 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 we think we can grow this business.

Thank you for digging my questions and congrats on a great quarter.

Thank you for digging my questions and congrats on a great quarter. Thank you.

Your next question comes from Paul Chang of Scotiabank. Your line is open.

Hey guys, good morning. Hi Paul.

Mayan, which at the time when you set the capital return of a billion dollar compared to today, certainly second quarter and third quarter looked like it was much stronger than you were expected. So when you're looking at that number, what will be the the quite trivial consideration for you to raise that number? That's the first question.

Maybe I will wait until you answer that, I will go for the second one.

Yeah, Paul, this is Rich. Good morning. Look, I think we're very comfortable that we will achieve that number. At this point, we'd 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 in the second quarter. We did another 3 million shares for about $130 million in July . We got dividends to pay. So like we expect that we're running comfortably toward that number. So you're point about increasing it. Let's see how the market goes here, but we're...

We're optimistic at this point.

But can you share with us what will be the criteria that you need to hit in order for you guys to say that we can raise that distribution and any kind of matrix that you can share or anything?

So Paul, I don't know if I can give you a matrix you

I have been doing this a long time. We know how volatile these markets can be. We'd rather speak less and deliver more.

Okay, and maybe this is for Tim. The rest region margin realization was very good and much stronger than we thought. Just curious, is there any one-off benefit in the quarter or that we can say mainly it's just because the overall margin is good and you capture that and if we have a similar margin again you will capture it again?

Yeah, Paul, this is Tim.

Not a whole lot of one-offs. Really we saw exceptional margins, cracks and...

the Northwest, the Northwest, as well as in the Rockies that obviously helped.

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 the Sinclair Synergies that were able to identify in the capture that helped in our capture there as well. And then 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-offs to point out.

Okay, great. Thank you.

Your next question comes from the line up to research end and part-lies. Your line is open.

Good morning. I wanted to ask first on the midstream strategy from here. So as we've long spoke about…

You're bucking the trend versus what many of your competitors are doing with their sponsored MLTs, choosing to roll them in over time. There's been acceleration of this kind of activity over the past year or so. In contrast, today you're talking about increasing unit holders for HEP in 2023. So first part of the question is just an update on your general midstream strategy and what underlies your decision to keep HEP outstanding versus when would it be compelling to roll within.

And then related to the higher unit holder returns, how do you envision this happening? Would it be through distribution increases, buybacks, a special distribution? I'd love to hear more detail here. I'd love to hear more detail here. I'd love to hear more detail here.

Hey, Teresa. That's Rich. Good morning.

So...

I'd say, look, first, HEP is critically important to HF Sinclair. The ownership of those assets is critical to our refining business, and we've got an outstanding team operating those assets, so we do see opportunities to grow that business both with HF Sinclair and outside of HF Sinclair.

To your question about the financial structure really to us, that's a corporate finance question.

And so far a roll-up has not made sense from that perspective. It's probably worth pointing out here that HEP is relatively large, relative to HFs and clear in that effect. Then he's sort of per-share mass he might do. So look, we'll continue to monitor that situation, do the best thing, the great value for all of our shareholders. to do the best thing, the great value for all of our shareholders.

Looking to 23 to your question about distribution growth. At this point, I think we would urge to increasing the distribution itself. We'll evaluate buybacks. As you know, HEP is not the most liquid stock, so it's not necessarily that we want to reduce the float. It may not be in the best interest of HEP, but if that's a better option, we'll go ahead and do it. But right now, I'd say it's going to take a form of distribution increases.

I'll add to that Theresa and simply that we've put a lot of capital toward external growth via acquisitions.

And at this point, incremental capitalists be returned to HFs and Claire shareholders in the near term as compared to buying in a related MLP. All the rich said in terms of its ownership and the criticality of it is quite true. But in terms of capital allocation, really it goes to HFs and Claireholders first.

Thank you.

Your next question comes from the line of Doug Legate. Your line is open. Your line is open.

Thank you, morning everyone. I wonder if you can often opinion on.

the recent restructuring of some of the MLP ownerships we've seen from Phillips 66, from Shell, from PBS, and you're obviously one of the last men standing so to speak along with Marathon. What are you thinking in terms of now you've got your balance sheet back to pristine shape and the relative yields obviously being what they are. How do you think about the logic of continuing that 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 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 patience and those investments.

So that basically says that in the near term, we're most interested in returning capital to HF 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 mothership, take Shell, BP as examples. In our case, it's relatively larger, and we'll do the math, of course, but a buy-in would need to be accretive to cash flow and earnings, and...

for the time being we're allocating our capital otherwise. I know it's probably a two-way question, Mike, so I appreciate your perspective. I guess I don't think anyone's really asked them the macro yet, so I wonder if I could really just get your current years given that gasoline seemed to have rolled over pretty hard and obviously diesel-holding in there spreads a bit wider. What are you seeing halfway through almost the third quarter? Where are you seeing in terms of...

the trends there, maybe any insights you can offer as to how your quarter is going so far. And then of course the inevitable question on gasoline demand destruction, what are you seeing in your system? I'll leave it there. Thanks.

Yeah, Doug, this is Tim again. Let me start with some of the direct responses to your demand questions, and then I'll let Mike weigh in on more of the back row. We're still seeing strong demand in our regions.

Couple 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 years we operate. Diesel in particular is at or above 2019 demand levels. We feel good about that. Gasoline strong, 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, we're continuing 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 the Sinclair brand into some of these new markets. So from a marketing standpoint, we're continuing to see strong.

that kind of behavior. More than that, I think that this product's now trading at the rack at $2.50, $2.75 range, and adding excise taxes, retail distribution costs, you're 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 label the point but do you have an explanation as to why the EIA data is showing what it's showing?

Any thoughts on that?

No, no, we're happy to see it every Wednesday.

Thanks, fellas. Appreciate the answer. Thank you.

Your next question comes from a line of Neomedem human sacs. The line is open.

guys a good quarter here thanks that thanks for taking the time the first question is on just a renewable diesel you know instead of strong results uh... renewable diesel was the outlier came in a bit softer this quarter so just talk about how you see margins are tracking and the outlook for the rest of your and then also uh... talk about the blender tax credit extension there of because that could uh... could support the longer profitability of the business thank you

Certainly. You know, the renewals of these so margins and earnings really reflect. The renewals of these so margins and earnings really reflect.

Low throughput as much as anything Recognize that there are our TGRD product project is just coming on stream now and and just in this quarter beginning to gain revenue From its sales so low throughputs poor utilization and relatively high-feet stock costs with respect to RBD And I think this is on the heels of the Ukraine sort of disruption In that your oil economy is if you will

But, as you know, we've invested in a pretreatment unit, and while we initially bought a lot of RBD to feed our startups, we're progressing toward a diverse feedstock slate, much of which is going through our own PTU, and that will significantly improve our economics. As of today, for example, the degum versus RBD spread per gallon is something like 75 cents.

As you can see, that's a significant uplift in margins. Looking forward, in terms of what we have, we've 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...

a 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 it's utilization and startup more than anything else that's affected margins. As to BTC, Inflation Reduction Act, yes, that solidifies the margin outlook certainly through 2024 and thereafter as you know it can be a little bit of a headwind.

converts to a clean fuels or sort of an LCFS CI driven contribution in terms of that credit, but that that pride provides some certainty in terms of the producers margins and Makes us all the 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 then a CI based benefit after that

Okay, that makes sense, sir. The follow-up is just around the crude side of the equation with fewer turnarounds in the back half of the year. It's a good time and with some widening of both Brent WTI 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 in the transport economics that would support the wider spreads?

Yeah, hi Neil, it's Tim. Yes, certainly the SPR is...

impacting the Brent TI spread. I think strong Permian production is also providing a very stable volumes coming out from a WTI perspective. But if you look on the Brent side, you've got some uncertainty there, higher natural gas in Europe , certainly driving more demand and making Brent a little bit more scarce. You got the Russian crude embargo that's creating a drive for those Brent barrels.

So I think while we normally think of the transportation basis between Brent and TI and that 3 to 350 range, right now transportation's not setting the spread. We think that spread is being set by the scarcity in the Brent side. And we think really if you look at kind of the dynamics that are driving that, it's probably not going to change any time near term. So you look at the Ford Strip, you see the Brent TI spread.

kind of in that five to six dollar range. And we think that's what's going to happen here over the next couple years.

It's a good time to obviously be long on refining and have additional inland crude refineries in our portfolio.

in Tim on WTI WCS.

Yeah, on the WCS spread widening out again, you may have noticed that we ran more WCS in the second quarter than we have in previous quarters. That's taking advantage of that spread. We think there's 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, we're gonna start seeing pipelines being allocated again, and we think that's gonna put some pressure again on that WCSWTI spread. So we think that's sustainable. Really as we look at our forecasts, we think that allocation is gonna come back here for a while, and we're gonna be able to enjoy those spreads.

Thank you guys.

The next question comes from the line of Matthew Blair with Tutoring, Tutor Pickering, Halton Company. Your line is open.

Good morning, congrats on the result. The marketing profitability was better than we were expecting. Could you talk about the drivers here and how things are progressing in the segment so far in Q3? How things are progressing in the 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 that's all very encouraging. We're seeing a lot of...

Attraction on our Sinclair brand. As I mentioned before, we've added 20 retail sites here just in the second quarter alone. We've got another 50 that are in progress here that we think we'll be able to bring in here before the end of the year. Growth targets, we're hoping in that five to 7% growth range is what we're looking at. We think can be very reachable. We think can be very reachable.

Our strategy is, you know, we have several licensed retail sites as you guys have seen on in our previous disclosures. Clearly, if we can convert some of those licensed sites into supply sites, that would be a good place to start. And we are doing that right now. Some of our new markets where our legacy holiday frontier assets have been at Southwest Region and the P&W region. We're seeing a lot of interest in growing the Sinclair brand there.

And then lastly, in 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 a very exciting time for us, Matthew, and we think that branded businesses can be important for our portfolio in the larger.

Could you talk about the geographical end markets for your RDE production today? Do you rail all that to California or have you found other markets that are equally as appealing? Could you talk about the geographical end markets for your RDE production today?

Yeah, 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.

Thank you.

The next question comes from the line of Jason Gableman with Cohen. Your line is open.

Hey, morning. Thanks for taking my questions. First, just maybe as we think about the buyback moving forward, 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 remade it related questions. What's your SGA on a go-forward basis? What's your SGA on a go-forward basis?

And then, um,

Is this quarter's West refining region op-ex Indicative of what you expected to be on a go forward basis. Thanks.

Hey Jason, it's Rich. So with respect to the balance sheet and the repurchase.

Start from a balance sheet debt perspective. We're very committed to our investment grade rating. We've been guided to sort of three times.

Death to EBITDA, a trough or two times mid-cycle. This is the metric we got to look at, and that's a 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 or repay debt at this point. We continue to look at $500 million as our sort of minimum or target cash balance. We've got plenty of dry powder, if you will, for share repurchase at this point.

SG&I, I think if you make some adjustments, the appropriate adjustments.

to 2Q for M&A costs that we called out here. It's a good run rate.

And then with respect to the West operating expenses, I think this quarter is a good run rate.

Great. Oh, thank you. I'm sorry. I'm sorry.

Yeah, I think a couple of things to call out on the West to add to Rich's comments. Natural gas is just continues to be elevated. We've got some bonus accrual impacts as well. But we did have some plant maintenance at P2 Sound and at Rawlands that may be a little bit higher than normal. So we're looking to bring that down looking forward.

Okay, understood. Anyway, to quantify that further quarter.

No.

No, it's not. Those are puts and takes, to be honest, so I don't think it's going to be a big driver at the end of the day. Catcher gas, again, being the one thing that we can't forecast that could really move that number around.

Got it. On.

And then my other question just on the renewable diesel business as we think about the ramp up, you know, you mentioned you're running RBD now just in the early portion of the production of the platform But as you get the pre-tweeting unit up what how much RBD do you expect to run? Once this platform is fully up and running and in 4q. Thanks

That will be obviously dependent on economics, but I'd say less than half or around half, depending on RBD versus DGUMD and other economics. So, Jason, I need to add some math there. Our pretreatment capacity, kind of pro forma of the transaction and everything, we call it 50 plus percent of our renewable diesel production.

and then we do have the ability to run some other feeds straight into the unit as well. So we've got the flexibility to run 60 plus percent non-RBD. As Mike mentioned, right, this is all gonna be economic driven at the end of the day though.

Thank you.

Okay, great. Thanks for the answers.

Your next question comes from the line of Paul Chang, Scotiabank. Your line is open. Your line is open.

Hey guys, thank you. Just two quick follow-ups. Maybe Tim, can you help us understand the dynamic in the marketing gross margin, 7 cents per gallon in this quarter? I mean, how much is the fluctuation or seasonality in that business or that is pretty steady? So trying to have a better understanding on that.

Yeah, Paul, the gross margins of $0.7 higher than what we had guided to and we originally put out this unclear, a performance. We're pleased with that. We're seeing, again, strength and 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 continue to look for that strength here in the third quarter. Maybe then let me ask you in another way. In the contract that you signed with the job post, those are sort of more or less or if fixed margin or what that is or what that is a rack price plus. This is a risk plus. This is a risk plus.

whatever is the additional margin. Trying to understand that how the pricing on those contracts are.

Yeah, no, we don't sign up for any fixed prices there, Paul. It's all really based on a posted price, and that's how we work with the jobbers on that.

I think, and I just curious that maybe that this is for my, I think in the past you have said that you have no interest getting into the retail business that you own the store directly and operate it. Simply 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 that's our contribution.

Thank you.

The next question comes from John Royle with JP Morton. Your line is open.

Hey, good morning guys, thanks for taking my question. Most of my name is NASA, I just had one. You just looking at your mid-cycle, adjusted EBITDA guidance, you have a billion three five for refining and just wondering, you know, I know the synergies are pointed a bit upwards from what you would guide it there, but just generally anything about this environment that you think is sticky, where maybe that, you know, 1.35 number is...

Hey John , it's Rich. I'd say the one thing that we point to is, you'll notice in the buildup to that number, we get there by taking golf course cracks right and include differentials, adding product differentials. I'd say we probably feel better about the product differentials in our markets structurally than it's reflected there. So we do think there's probably some upside from that perspective, the Rockies in particular, right? There's a market where you got very good.

demographic economic growth and you've got very constrained supply just to the geography itself and there's really not much opportunity to substitute petroleum fuels there. So that's a place that we do see upside to that motorcycle goldough.

Thanks very much.

further questions at this time. Craig, I turn the call back over to you.

the call back over to you.

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 Invest Relations. Otherwise, we look forward to sharing our very corridor with you in November .

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.