Q2 2022 Vertex Energy Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the vertex energy second quarter 2022 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Noel Ryan.
Thank you Ali and good morning, and welcome to vertex Energy's second quarter 2022 results conference call, leading the call today are our chairman and CEO , Ben Cowart, CFO , Chris Carlson, Chief strategy Officer, Albert of Reis, Chief Operating Officer James Raymond.
We issued a press release before the market opened this morning detailing our recent operational and financial results I'd.
I'd like to remind you that management's commentary and responses to questions on today's conference call May include forward looking statements, which by their nature are uncertain and outside of the company's control.
Although these forward looking statements are based on management's current expectations and beliefs actual results may differ materially for a discussion of some of the risk factors that could cause actual results to differ please refer to the risk factors section of vertex Energy's latest annual and quarterly filings with the SEC.
Additionally, please note that you can find reconciliations of historical non-GAAP financial measures discussed during our call in the press release issued today.
This call will begin with remarks from Ben Cowart, followed by a financial review from Chris Carlson and at the conclusion of these prepared remarks, we'll open the line for questions with that I'll turn the call over to Ben.
Good morning, welcome to today's call will begin the call with a high level overview of our second quarter results, which include a full quarter of contributions from the mobile refinery, which we assumed ownership as of April 1st.
In a volatile period for the broader energy complex, we generated record consolidated second quarter adjusted EBITDA of $71 3 million supported mainly by contributions from our recently acquired mobile refinery, which generated $63 6 million and Standalone adjusted EBITDA during the period.
Our legacy U M O collection and re refining assets also performed exceptionally well in the period with Marrero and Heartland, both operating near capacity during the second quarter product spreads and sales volumes for the legacy business have continued to outperform expectations.
Acquiring the mobile refinery, we've experienced strong demand for conventional fuels in the local market at the same time recent decisions by competitors to reduce refining capacity in our regional markets have contributed to tightness and product supply, resulting in elevated refined product margins, we believe a similar narrative.
Playing out across many areas of the country, given a structural shortage of domestic refining capacity so that in according to the EIA.
We are a domestic inventories of both distillate and gasoline remained well below the trailing five year average.
Oil demand remaining healthy implying further potential upside to product cracks.
During the second quarter mobile operated at 96% of operable capacity producing just under 72000.
<unk> date.
Which was ahead of our guidance for between 69 and 70000 barrels per day.
Total gross profit per barrel, excluding an unrealized hedging loss and inventory adjustments was more than $23 per barrel in the second quarter are approximately 51% of the benchmark to one one Gulf coast crack spread in the period.
Throughout the second quarter, we process a combination of W. T. A L L S and light local light sweet crudes.
It'll production of finished how about you'd like products, which includes gasoline distillate and jet fuel represented approximately 70% of the total production in the second quarter.
During July .
Market conditions remain favorable supported by seasonal strength for conventional fuels.
While the 211 was has declined sequentially versus second quarter levels. It remains more than 100% above the third quarter in 2021.
During the third quarter, we intend to operate mobile at between 72, and 74000 barrels per day positioning us to capitalize on continued strengths in the market.
Turning now to a discussion of.
The ongoing renewable diesel project at the mobile refinery during.
During the second quarter, we began construction of the foundations and fabrication of pipe related to the project.
While the supply chain remains challenging our team says.
To successfully navigate these issues having orders on all major long lead equipment earlier in the year.
As before we expect the total project cost to be in the range of $90 million to $100 million.
Funded entirely through existing cash on hand cash flow from operations to date, we have committed $43 million to the project and are trending.
Two within budget at this time and.
In October 2022, we expect to engineer a planned shutdown of our hydrocracker at the mobile refinery as we move forward with the conversion. We believe this planned unit shutdown will have no impact on crude oil throughput rates during the fourth quarter of 2022 and consistent with.
Our previous guidance and nature of renewable diesel production volumes are expected to come on stream by first quarter 2023, before I turn the call over to Chris allow me to share a few comments around our report results this quarter.
No question, the second quarter had some noise in it including both realized and unrealized hedge losses.
Concurrent with the acquisition of the refinery we made the decision to enter into a series of crack spread and inventory hedges designed to mitigate our downside risk while locking in 50%.
Of our planned production during Q2 and Q3.
At what remained.
Historically elevated levels.
It was the safe bet, albeit one that kept our upside during a period when spreads moved higher.
With a full quarter at mobile behind us together with expectations for a prolonged period of elevated refined product margins we have.
Currently chosen not to extend our hedging program past the third quarter of 'twenty to position us to take full advantage of the spot market beginning in the fourth quarter of this year.
During a period of transition our people executed on plan ensuing next successful integration of the mobile refinery, while continuing to drive value creation across our legacy business I'm exceptionally proud of the combined efforts of our entire team each of whom played an integral role.
And our record second quarter results looking ahead, we will continue to advance our strategic plan with an emphasis on one ensuing safe reliable operations to investing organically in high value renewable fuel opportunities three driving superior cash flow.
Conversion, particularly as we exit a capex heavy period, leading up to the completion of the Rd conversion and therefore, continuing to pursue a balanced capital deployment strategy.
Long term, we intend to use vertex as a platform upon which to create an energy transition of scale. One focused on delivering next generation de carbonization solutions. We believe the biofuel sector remains an attractive opportunity one where we can become a leading REIT.
<unk> producer of renewable diesel and overtime sustainable aviation fuels.
With the pending passage of the inflation reduction act, we see a positive trend towards the multi year extension of tax incentives such as the blenders tax credit that will support future visibility of project economics, We also see a trend towards accelerate the demand for renewable fuels from commercial and industrial customers.
Summers as companies seek to further align their business priorities with environmental responsibility and summary.
This is an exciting time for us here at vertex. We appreciate the continued support of our customers shareholders and partners and look forward to building on the momentum evident across our business with that ill hand, the call over to Chris.
Thanks, Ben and welcome to those joining us on the call today for.
For the three months ended June 32022, vertex reported a net loss of $63 8 million versus a net loss of $16 million in the second quarter 2021.
The second quarter net loss includes a $46 9 million unrealized commodity derivative loss, a $23 2 million loss on an intermediation agreement due to backwardation.
$46 $1 million realized commodity derivative loss together with $11 6 million in nonrecurring transaction and other nonoperating expenses.
We reported record adjusted EBITDA of $71 3 million in the second quarter 2022 versus $4 million in the prior year period.
On a standalone basis, the mobile refinery generated $63 6 million.
Second quarter results benefited from a combination of strong operational reliability.
<unk> refined product margins and robust demand for conventional fuels, including the first full quarter of financial contributions from the mobile refinery acquisition, which closed on April one 2022.
As of June 32022, the company had total cash including restricted cash of $97 9 million.
Versus $36 1 million at the end of second quarter 2021.
Vertex had total net debt outstanding of $299 million at the end of the second quarter 2022.
Including lease finance obligations.
The ratio of net debt to trailing 12 month adjusted EBITDA was two four times as of June 32022, which includes only one quarter of EBITDA contribution from the mobile refinery.
Back on November one 2021, we issued 155 million and six in the quarter percent convertible notes due in 2027 and.
Implying underlying shares of $26 3 million on full conversion. These.
These notes are callable by virtue by vertex on or after October six 2020 forward, if the stock price exceeds 130% of the conversion price or $7 66 per share.
During the second quarter note holders voluntarily converted approximately $60 million of their notes into approximately $10 2 million shares of <unk> common stock.
Thereby reducing the outstanding amount of the convertible note from 155 million to $95 million.
In addition, this conversion had a noncash impact to the income statement in the amount of $41 million due to an acceleration of the OID and interest expense.
Also during the quarter, we upsized our term loan from 125 million to $165 million using the incremental $40 million in proceeds to repurchase tensile capital was outstanding 65% ownership within certain legacy assets, including the Heartland refinery.
And Myrtle Grove site.
At this juncture vertex remains the sole owner and operator of all legacy assets further simplifying the capital structure.
Today, we introduced financial and operational guidance for the third quarter 2022.
Going forward, we expect to provide a similar level of guidance on subsequent quarterly calls.
All guidance is current as of the time provided and is subject to change all prior financial guidance should no longer be relied upon.
For the third quarter 2022, we currently anticipate the following.
Total throughput of between 72070 4000 barrels per day at the mobile refinery.
And direct operating expense per barrel of between $3 50, and $3 75 at the mobile refinery.
And consolidated total capital expenditures of between 30 million and $35 million.
For the full year 2022, we currently anticipate consolidated total capital expenditures of between $115 million and $120 million.
With that we will open the line for questions operator.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset if listening on speaker phone to provide optimum same quality. Please hold while we pull for questions.
Thank you.
First question is coming from Manav Gupta with credit Suisse. Please pose your question.
Hey, guys.
Obviously, a lot of moving items and a lot of noise into Q.
A lot of that I'll, just because the nature of various kinds of hedge hedges that <unk> put in place.
And I'm just trying to understand as you look at <unk> should we think about these kind of losses replicating themselves into the Q or should they be lower how should we think about the losses associated with hedging.
The third quarter at this point at this time.
Yes. Thank you Manav I'll, let Chris kind of follow up follow in behind me, if he's got something additional to add but.
Obviously.
As you as you indicated.
The hedging that we've put on the.
Production have to production is create a lot of.
Complexity in our second quarter earnings I think.
The number.
For the.
Second quarter is around $90 million impact to what you see in our financial results. So that includes both the hedge allow us that we accounted for in the second quarter and the accrual for the third quarter.
So we have seen an improvement in that hedge position for the third quarter.
Probably a $23 million.
And so we anticipate.
That continuing to follow the market so trying to forecast the outcome for the third quarter as it relates to those.
Those hedges is very difficult depending on what the quarter outcome is.
But I can say.
To date.
We definitely are in a better situation. So timing was not not good hindsight being 2020.
Do you see to look back and say well, we shouldn't have hedged those crack spreads like we did.
I take responsibility for that as we.
Went into a very complex acquisition transition that was monumental of a challenge that we knew we had to be prepared to do we had a long term strategy and still do for the site to lead us to a energy transfer.
Asian platform.
By converting the hydrocracker to renewable fuels.
And so we made the decision early.
At the end of March that upon closing we would we would.
Take a 25% premium over a five year historical crack spread.
Put it in the bank.
More more or less cover the purchase of the refinery.
And set us up safely for a long term strategy as a company and.
At that time, there was no no real precedent for the kind of crack spreads that we've seen develop over the second quarter and it was amazing so.
Love to have the money in the bank, but I'm very thankful for the platform that we have the the transition with the business.
And just how well everything is executed.
You know it.
It certainly shows long term to the cash flow potential of the business and so we.
We don't look back we're not gonna be prisoner of the moment and try to try to figure that out I know, it's a long answer but I know the hedging has been.
It's a material nor.
Noise in this in this quarter and I think it was a good explanation. So thank you for the question.
No.
Follow up obviously, you guys that as you know last quarter, you did have a 2022 guidance.
Who has the gold in the year in <unk>.
How should we think about the earnings power.
First obviously <unk> refining.
And then 2020 to you obviously will have you already Newbuild project up and running so how should we think of some kind of EBITDA.
Do you think you can achieve in 2022 and going Crazy and I'll leave it there. Thank you.
Thank you again.
If we if we didnt have the crack had jones for.
The second and third quarter are actually for the second quarter, we would've been looking at another $90 million of cash flow and EBITDA.
To be talking about so that's the true business, that's really when we look ahead.
Into 'twenty three.
If the.
The shortage of refining capacity continues to prevail.
Like we believe it will then then are our conventional side of this business will continue to perform extremely well.
The one time, one plan renewable diesel production coming into 'twenty, three will bring a lot of new cash flow.
To boot and so we are.
You know what.
We're very.
Positive about 2023, EBITDA as far as guidance goes what we what we're trying to do is just follow today.
Way the industry provides guidance.
Obviously, when you when you try to forecast EBITDA and you've got.
A lot of volatility in the market like we just see.
It creates confusion, we don't want to do that going.
Going forward, we did provide some straight guidance at the end of our call last quarter only to provide the market with just an idea of the power of the asset has to generate cash so with that in mind.
We will be providing more measurable per barrel guidance.
Using our operating cost and and.
We'll let the market figure out what the forward pricing and strips look like as we go forward.
Thank you Lee.
Thank you.
Yeah.
Our next question is coming from Noah Kaye with Oppenheimer. Please post your question.
Alright.
So to follow up on.
Sure.
Response around the derivatives position.
Ben I, just wanted to clarify and make sure we understand so you're saying that as of today number one you already accrued for derivatives loss in <unk> and with crack spreads starting to come down.
You'd be in a position if nothing changed from today.
To recognize something to the tune of a $20 million derivative gain in the third quarter and would that be an unrealized or realized gain.
Yes, that's correct and it would be a realized gain in the third quarter.
Alright, that's very helpful.
Outside of the derivatives.
Round, 50% capture of the spread.
The right level to be thinking about going forward was it was it higher or lower than you expected in <unk> anything to call out there and how do we think about the run rate going forward.
Yeah, I'd say I think the.
The capture was around 50.
<unk>, 51% of the 211 crack spread.
Again, it depends on how the market plays out and the premiums.
In the crack spread we do believe that diesel is in a material short position with no real answers.
In our opinion as far as how that plays out our asset is a diesel heavy.
You know asset so we're going to we're going to benefit long term by.
By that factor and so trying to.
Figure out where these markets are going to end up going is a.
Yes, right and so we do believe that all of the market conditions are in our favor for the asset.
Okay and on the renewable diesel project.
You mentioned the long lead times.
It seems like almost every major.
Construction project these days I see some push out.
For equipment and long lead times seem.
Seem to get a little bit longer I guess, what's your confidence level at this point in being able to stand up the project by <unk> 23 and.
Is there anything that you know we can point to in terms of.
Key equipment and.
In process of delivery or anything like that I mean, how much visibility do you have into the key equipment.
Yes, Noah this is James Raymond let me answer that or attempt to answer it at this stage, we do not see anything that is causing us concern. However, the engineered equipment, we have our eyes on every bit of it and that seems to be hitting right on schedule as we continue to watch it right now.
The areas of concern for us are more in the bulk equipment and much of this is specialty piping specialty valves.
As I stated, we don't see anything that is.
As material as of yet, but we will continue to watch. This unfortunately, you may not know till it doesn't show up and I've got to be very careful about making sure I don't take down the osh until all the equipments available and we're ready to go.
We are on schedule plug the two elements of risk that we have on this project is not just.
The supply chain that we've just discussed but also the impact of Covid.
And that area is starting to impact us a little bit with some of our engineering resources, but we're managing around that also.
More to come.
Okay, Thanks, and maybe just sneak one more in here.
The U M O business has continued.
Continued to outperform.
You know really expectations and.
It's certainly elevated spreads driving bad, but I see it.
Still classified as current asset held for sale.
Can you just update us a little bit on your thinking around the business.
Current levels of interest from potential buyers.
How you how you are thinking about that strategic element of.
The business today. Thank you.
Yes.
We hope to.
Finish up this quarter with the work that you know.
Has been.
In play just just coming out of the.
The last <unk>.
Several much of discussion so accounting wise, we felt like it's necessary to hold everything.
As it is.
And have more clarity in the next quarter is our is our goal.
And all of that is just too.
Manage our fiduciary responsibility to tender the interest that has come in in several parts of the business and.
That's a process so I don't think it's.
Until until that's resolved.
And put to bed then.
We've been advised to keep this in a whole whole pattern.
For now.
I mean, the business is performing really well so hopefully that gives you some flexibility alright.
I'll jump back in queue. Thanks.
Thank you. Our next question is from Eric Stine with Craig Hallum. Please pose your question.
Hi, everyone. Good morning.
Morning, Eric.
Good morning. So can you just help me out here a little bit I mean.
Yes lots of noise in the quarter.
Yes, you did hedge but you also guided with that hedge in place and for the the naked portion of your production.
Spreads went higher so I'm just trying to figure out why it's such a big Delta between your guidance at the midpoint of $1 20, and your reported number and I know you in your deck you give the bridge but.
Just if you could help me out that would be that would be great because something it just it seems like something is missing here.
Yes so.
Good question.
I believe.
On slide seven the bridge kind of break that down.
The key is the spread impact so at the time, you're looking forward on a forward strip with pricing that you're using that's the only way to provide a guidance when you reconcile that back.
Youre going to be $35 million short of market expectations at the point in which.
We were.
Having that discussion.
Second we had we had some minor yield adjustment inside the refinery as we took the refinery over that we had assumed.
Would play out that we're not actual so so that was.
Put that on us I guess.
And then you just have inventory impact so that would be the gain in inventory from the beginning of the quarter to the end of the quarter. We ended up with a lot of additional finished product.
That did not get to market.
Right at the quarter. This is a lumpy business. So when we we load out cargoes vessels et cetera, you're going to you're going to have inventory build for those events and.
Forecasting when that sale would take place.
Really reflects the $13 million nothing lost the margin the cost has already been paid to produce that product.
Look at our balance sheet you can see.
A significant gain.
And inventory so that's really.
I think we the.
The market played out really well.
And so.
I think that.
Just didn't play out like everybody thought it would when you when you are looking across the.
The future quarter so.
That's.
As good as you can do when you are trying to provide some kind of feel and direction. When we bought the refinery there was really no way to.
Give the market an idea of just how strong of a.
Asset and its ability to produce cash flow so.
Okay. So I mean, the yield impact that I mean, it sounds like that's something that's rectified the inventory impact you can have that any quarter I mean, given its timing youre going to make that $13 3 million back up in the third quarter and then we'll see what happens at the end of the third quarter, if I'm understanding it correctly, but then you're still you're still.
There is about a $30 million difference and Thats I guess.
Maybe it's something I, just need to take offline, but I mean that was already kind of you knew you were going to be 35 million short right. When you guided so I'm just trying to figure out the delta.
If it's something we need to take offline talk more in depth about.
We can certainly do that but that's not missing yes, let me let me let me just say it again at that point in which we were guiding we were using forward pricing.
When you reconcile the forward pricing that was in hand, when the guidance was provided.
Two the actual pricing that played out youre going to get more than a $35 million difference in outcome.
That makes sense.
Yeah, Yeah, maybe.
Yeah, we can talk about this offline in and dig into that a little more maybe.
I know previously and this is kind of fluid I mean, you. It's your first quarter of of operating it but.
Thinking about it is the three one to crack now it's to 211.
Just maybe thoughts on that is that something where you think it's the 211.
Permanently going forward or is it something that you can switch that mean not not on a dime, but can switch back and forth.
Based on the market.
Yes. This is James let me try to answer that.
We think the 211 is a better way to reflect its operation today.
But what will change in the future as the Osh comes down and it's converted renewable diesel crack.
Looking forward I really don't have a great picture, yet because I'm not sure how to roll in the renewable diesel and so thats more of a that's a different spread so we will have to communicate that consistent what you will see occurs in the fourth quarter of this year as the Osh comes down we do lose some of the diesel Lake.
That occurs and we will be selling the product what is feeds deal with eight will now go out in the product market.
And so that spread will change going forward.
And we will.
We will provide guidance on that when we get to the next quarter as we continue to look at those.
Your net diesel mate with the renewable and what you lose on the OE, Jeff are going to be hot right. That's the Arabia will be ahead on diesel and then Youre feed you indicate as the vacuum gas oil, which is typically a 70% gasoline 30% diesel yield if it goes to a cat cracker.
So if it goes into hydro cracker for feed for <unk>. Our distillate then those yields are more the nice thing.
Thing is that there is a strong premium on the vacuum gas oil today.
That is a result of a shortage of vacuum gas oil.
To the refiners in the Gulf that was dependent on barrels from Russia that aren't coming to.
To the U S. So I think timing is really good.
For what we're doing in the product that we will have for that market.
Okay I'll take the rest offline.
Thank you.
Thank you. Our next question is from Amit Dayal with H C. Wainwright, Sir please pose your question.
Thank you and good morning, everyone.
Then I guess my key question is.
What is preventing you from sort of establishing guidance for 2022.
It looks like you have some visibility on the crack spreads you know how you are hedged for.
For the current environment.
Is there anything that you don't have some confidence in that you are not.
It's sort of establishing.
Establishing guidance for the.
2022.
No good question a month.
We are very confident on our production rates were very confident on our operating costs. We provided that those are your key drivers there.
The difficulty in trying to piano EBITDA number down is the volatility.
In the energy markets, the product pricing and these crack spreads and so.
We want to make sure that we are.
Leaving that.
Two the market into the <unk>.
Sure that debt.
We're still.
Yes.
<unk> ourself and getting used to.
The volatility that might be out there. It's been it's been extremely volatile in the second quarter and so far in the third quarter the same.
So trying to figure that out.
<unk> is somewhat of a challenge and we are following.
To the best of our ability what the industry.
Yes.
The way they treat guidance on a go forward basis.
Just to kind of stay in the group and not not try to be smarter than than those that have already been down that road I guess is my best answer.
Okay.
So the fourth quarter. It looks like you are involved in any hedges yet is that something that you might do.
The macro environment changes.
Yeah, no very good question, so as I said in our remarks, we're currently not not hedging the fourth quarter, we would have.
Put on some hedges if we were following.
The same strategy that we.
We started with at the close of the refinery.
We have some precedence now we have some view one on.
<unk>.
The markets.
We do believe that we've got a.
And opportunity going forward, we're not not.
We're not.
That concerned about the exposure to the cracks we do have the inventory hedges on everything so we're not putting our inventory at risk at all but.
We believe that it's better for us to.
Provide the exposure.
And the decisions that we're making.
We've now built a hedging team.
That is.
Managing.
Our hedging positions and we they they will continue to make certain recommendations.
Two our risk committee that we can execute at any time, if we see opportunities.
That present themselves. So that's that's how we're going to move forward.
And then maybe just last one again along the same topic.
So we are almost a little more.
Wanted to ask lumped into the third quarter now.
So how is the hedging and the spread environment sort of playing out for you so far I mean.
Other results.
A little better than what you've seen in the second quarter, just any color on how the situation is as of now it would be also bromine Hudson's weightlessness clarity.
Clarity on.
Yeah, I think we're going to continuously and volatility in the third quarter. So it's it's hard to define how that is going to ultimately play out but.
As we talked about earlier, we did accrue for.
A.
The adjustment the hedge allow us in the third quarter that was part of our second quarter numbers so to date.
They were $23 million better.
So far in this quarter than what we had planned and made adjustments for so.
We believe that <unk>.
<unk>.
Specifically around heating oil is going to going to improve as our that's our assumption.
We think the quarter is going to be going to be.
Better than <unk>.
Should.
Shut outweigh what we seen in the second quarter.
Understood. Thank.
Thank you <unk> appreciate it.
Thank you. Our next question is coming from Michael Hoffman with Stifel. Please pose your question.
Hey gang.
So I don't want to belabor, but I do want to ask for some clarity helped us towards a farm Kid I understand.
On the spread conversation if I understand it correctly.
At the time, I'm, making numbers up the Ford World. It looked like a buck at the end of the day It was 65.
You had a 35% difference and there is your $35 million that's that's.
That's what we're playing with and.
And that's the challenge you have on trying to do guidance.
So spreads are moving around still given the world volatility around the energy model is that did I get.
Yes.
I would say.
Good way to to lay it out there that's exactly right okay.
Okay.
Alright.
What direction are those spreads moving relative to <unk> at the moment.
Okay.
They are up is that are they.
Down flat sideways, what are what do they look like.
No I think I think they're trending down.
As an aggregate.
What what we.
Anticipate is.
A farmer and more.
More robust diesel crack as we as we.
Go through the third quarter early into the fourth quarter.
But at the moment Theyre trending down.
So thats a head so if I start with a baseline of.
63, plus 13 million inventory write the inventory it was a timing issue. So that's some starting with a baseline of sort of 79.
And then I've got spread pressure, so that's a headwind.
That's the right way to think that's mentally where I ought to be starting.
Yeah. The only thing I would add is the increased production rates that we've provided and in this in this call. So we guided to.
70000 barrel a day and were 72 to 74 for the third quarter. So.
Refinery are certainly doing their part okay. So so those are the two major puts and takes are the spreads narrowing and the better output.
Okay, but I'm still starting round numbers around $79 million. That's the right way to think is that opening bid on the quarter 63 at the end plus a $13 million in inventory.
I'll now play with that.
Yeah, No I think thats, a good way to think about it okay alright.
Or is the black I can't I'm going to.
I wanted to ask about black oil from a different perspective, it looks like it's now on a pace to do more like $28 million to $32 million for the year versus the kind of came into the year thinking it was going to be 25 is that the right way to think about the run rate of activity or is there a major turnaround coming that I need to account for.
Okay.
No I think that's directionally youre in a good ZIP code I mean, the business in general has just done really whale tail.
Team has done really well spreads are good.
We continue to grow our collections. So so really nothing backing up related to the legacy asset.
Obviously, we have to provide the color on the bigger picture with.
Taken on the mobile refinery, but we're very pleased with.
Where we're at in the third quarter going into the fourth quarter on the legacy business. Okay.
So help me understand.
If I get the accounting issues, you're maintaining disc ops. My assumption is that you would still sell this business whether it was disc ops are continuing ops it would be a seller of the assets and concentrate your energies on mobile.
And Thats an ongoing process.
If that's true I'm not I'm, a little confused why by Heartland back in I guess buying Myrtle Grove that Optionality of what you might do there, but why are you buying heartland backend.
Yeah, we wanted to clean our capital structure, we believe in our legacy business as part of our long term de carbonization strategy. So.
It's.
It's the foundation.
What we're doing in mobile as we.
<unk>, the hydrocracker over to renewables and bring renewables into our focus our recycling and reclamation in the work we've done.
On our legacy business gives us.
Long tenure.
When it comes to energy transition and so we.
We want to keep that as part of.
Our overall brand strategy and what we aspire to be in the energy space more of energy transition company.
And then that of just the independent refiner.
Okay. So you're sending a message that you are pulling the sale off the market.
I'm, sending a message that.
We love our legacy business as part of our strategy and we've got work to complete before we can make.
Counting.
Asian on how that comes back back into the picture.
And we got to get that work done.
And then.
And go from there.
Okay.
In the cash flow statement as the 93 $745 million hedge commodity loss.
Sitting here today based on the comment you made if the quarter or to have ended for <unk>.
That number would be 23 million smaller that's the message we're sending right.
My understanding of the accounting right yes.
Yes, that's correct.
That's right, Okay, and then James on the long lead items, I mean, youre not shutting down in October unless all of that stuff shows up that's.
So part of your confidence as you believe you can do your shutdown and so far nobody is giving you any indication youre not going to be able to do the shutdown because everything is supposed to show up when it's supposed to.
That's it you're absolutely correct.
Okay.
What part of the world as the stuff coming from.
Most of it's domestic.
And at this stage, it's really the specialty pipes and valves most of the engineered equipment. We've got good line of sight on but it starts becoming the bulks.
Just to give you a rough number and I know im probably getting into the details. Yes, we have a little over 180 tie ins that have to occur for this project to be successful and it's all of those tie ins and many of the specialty pipes in.
Inside the unit.
<unk> also.
Okay and is there is true.
They are a potential issue could be supply chain or its just the demand is really strong and they were making things as fast as they can make them when they get to you they're going to get that made and sold and shipped.
Both as our understanding their ability to make and theyre running.
Most of the things you see we're doing where we are.
Going to extra hours trying to health and talking with them.
Can we do to help them, but it's also our ability to get material.
Okay.
Alright. Thanks.
Thank you.
Okay.
Gentlemen, there appear to be no further questions in the queue I will hand, it back to management for any closing comments you'd like to finish with.
Okay Ali Thank you and thank you everybody on the call.
It's certainly a monumental quarter.
One that.
That takes a lot of work to digest, we get it Barry.
Very thankful for that.
The future that we hold in our hand.
The cash and the cash generation of this asset in the business.
What we have going forward as far as our strategy to to unfold for the market.
The challenge.
That our team.
Faced and transitioning a very large pizza.
Piece of business into the company.
I can't underscore more.
Their hard work and just the fact, we delivered.
Everything operationally in this quarter.
Both.
With the new team and the new business as well as our legacy team did their job.
No.
I'd love to have the $90 million back into our bank account from the hedging but.
I personally stand stand tall on that decision with the the plan we have for the future and just.
Managing our balance sheet and in the full exposure to the upside to our shareholders and as you know.
That's been a journey for us to be able to get here and deliver on all the things that we.
We were able to accomplish in the very first quarter without dropping the ball.
And without having any any material setback.
And in doing so so so thank you everybody for the support.
Look forward to our third quarter call for sure.
Continued information that we hope to provide to the market between now and then.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Yes.