Q3 2022 Holly Energy Partners LP and HF Sinclair Corp Earnings Call
At a officer of H F Sinclair and Holly Energy partners. He is joined by Tim Go President and Chief operating officer of Hff's Sinclair.
And as a tennis off Chief financial Officer of Hff's, Sinclair, and John Harrison, Chief Financial Officer of Holly Energy partners.
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Please note that this conference is being recorded it is now my pleasure to turn the floor over to Craig Biery, Vice President Investor Relations Craig you may begin.
Thank you Rob Good morning, everyone and welcome to HFF Sinclair Corporation in Holly Energy Partners third quarter 2022 earnings call. This morning, we issued press releases announcing results for the quarter ending September 32022.
You would like a copy of the press releases you may find them on our website that Hff's Sinclair Dot com and Holly energy Dot com.
Before we proceed with remarks. Please note the safe Harbor disclosure statement in today's press releases.
In summary, it says statements made regarding management expectations judgments or predictions are forward looking statements.
These statements are intended to be covered under the safe Harbor provisions of federal security laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call. Also may include discussion of non-GAAP measures. Please see the earnings press releases for reconciliations to GAAP financial measures.
Also please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript and with that I'll turn the call over to Mike Jennings.
Thanks, Greg Good morning, everyone.
Today, we reported third quarter net income attributable to HFC Sinclair shareholders of 954 million or $4 45 per diluted share.
These results reflect special items that collectively decreased net income by $29 million and excluding these items adjusted net income for the third quarter was $983 million or $4 58 per diluted share compared to adjusted net income of $210 million or $1 28 per diluted.
Chair for the same period in 2021.
Adjusted EBITDA for the current quarter was $1 5 billion, an increase of more than $1 billion compared to the third quarter of 2021.
Our third quarter results reflect strong contributions from our refining segment, driven by safe and reliable operations that resulted in record throughput and a 65% increase in gasoline and distillate.
<unk> volumes year over year.
Solid demand in the regions, we serve coupled with low inventories and improved crude differentials resulted in refining EBITDA of over one 4 billion in the third quarter compared to $295 million in the same period last year.
In our renewable segment, we continue to methodically ramp up operations across our facilities with higher utilization rates quarter over quarter.
Total sales were 2 million 1 million gallons in the third quarter and we are encouraged by strong demand for renewable diesel and solid margins driven by deep for RIN price strength.
We also expect to realize additional contribution from our pretreatment unit in Q4.
Yes.
Lubricants and specialty products reported EBITDA of $15 million for the third quarter compared to adjusted EBITDA of $82 million for the third quarter of 2021.
This decrease was largely driven by a FIFO impact from the consumption of higher priced feedstock inventory, resulting in lower margins are.
Our lubricants business is still performing well above our mid cycle guidance on an annual basis as a result of strong demand for base oils and finished products.
Marketing segment reported EBITDA was $10 million for the third quarter and total branded fuel sales volumes were 362 million gallons, representing a <unk> <unk> per gallon margin.
We continue to make progress expanding the Dino brand as our number of branded sites grew by 29 during the third quarter.
<unk> reported adjusted EBITDA of $110 million in the third quarter compared to $83 million in the same period last year. This.
This increase was primarily driven by contributions from the Sinclair transportation assets, which were acquired in March of 2022.
We returned $952 million in cash to our shareholders through repurchases and dividends during the quarter and another 152 in the month of October .
Since the closing of the Sinclair acquisition on March 14th 2022, we have returned over $1 1 billion, which is well ahead of our initial target of returning $1 billion to our shareholders by the end of the first quarter of 'twenty three.
With the announcement of our new $1 billion share repurchase authorization in September we remain fully committed to our cash return strategy and payout ratio, while maintaining a strong balance sheet and investment grade credit rating.
To date, we have achieved our target of annualized run rate synergies of over 100 million relating to the Sinclair acquisition and additional $100 million of working capital synergies.
We achieved these annual run rate synergies through a combination of commercial improvements operating expense reductions and SG&A optimization.
We also announced today that our board of directors declared a regular quarterly dividend of <unk> 40 per share payable on December five 2022.
To holders of record November 21, 2022.
Looking ahead, we're constructive on refined product margins supported by low product inventories and wider crude differentials.
We remain focused on maintaining safe and reliable operations across our fleet and our diverse portfolio of assets provides us the opportunity to generate strong free cash flow through the cycle.
And with that let me turn the call over to Atlas.
Thank you, Mike and good morning, everyone, let's begin by reviewing <unk> financial highlights as previously mentioned our strong third quarter results included a few unusual items pretax earnings included a $17 million charge for lower of cost or market inventory valuation adjustments HFC <unk> pro forma.
<unk> share of Hep's share of Osage pipeline, environmental remediation costs of $10 million and.
<unk> integration costs of $11 million a table of these items can be found in our press release.
Net cash provided by operations totaled 873 million, which included $28 million of turnaround spending in the quarter.
Hff's Sinclair stand alone capital expenditures totaled $92 million for the third quarter.
As of September 32020 to HFF Sinclair has total liquidity stood at approximately $3 1 billion comprised.
Comprised of a standalone cash balance of $1 45 billion, along with our Undrawn $1 65 billion unsecured credit facility as.
As of September 30, we had $1 74 billion of stand alone debt outstanding with a debt to cap ratio of 60% and net debt to cap ratio of 30%.
<unk> distributions received by HFC cleared during the third quarter totaled $21 million paycheck.
HFC owns 59 6 million <unk> limited partner units, which following the acquisition of Sinclair Transportation represents 47% of Hep's Outstanding LP units at a market value of approximately $1 1 billion as of last Friday's close.
Let's go through some guidance items.
We have slightly reduced our expected capital spending guidance for 2022 to the range of $740 million to $885 million from the previously shared the range of $785 million to $950 million.
We now expect to spend between $225 million to $245 million in refining between $230 million to $260 million in renewables $35 million to $50 million at lubricants and specialty products $10 million to $15 million in marketing.
$75 million to $90 million in corporate.
Third $10 million to $150 million for turnarounds and catalysts.
At <unk>, we expect to spend $55 million to $75 million of total capital.
For the fourth quarter of 2022, we expect to run between 620 to 650 barrel thousands barrels per day of crude oil in our refining segment.
Have no major turnaround turnarounds at our fuel refineries scheduled for the remainder of 2022 and with this I will turn the call over to John for an update on HCP.
Thanks, Ed.
<unk> third quarter 2022, net income attributable to Holly energy partners was $42 million compared.
Compared to $49 2 million in the third quarter of 2021.
Year over year decrease was primarily attributable to our share of incurred an estimated remediation expenses associated with the Osage pipeline crude oil release higher interest expense and operating costs, partially offset by strong earnings related to the recently acquired Sinclair transportation assets.
Hep's third quarter 2022, adjusted EBITDA was $110 1 million compared.
Compared to $83 3 million in the same period last year.
A reconciliation table, reflecting these adjustments can be found in Hep's press release.
AGP generated distributable cash flow of $78 7 million, and we announced a third quarter distribution of <unk> 35.
Per LP unit, resulting in a distribution coverage ratio of one eight times.
The distribution will be paid on November 11th to unitholders of record as of October 31.
Capital expenditures and joint venture investments during the quarter for approximately $13 million.
Included $5 million in maintenance Capex.
As we look to the remainder of the year and into 2023, we anticipate strong performance across our asset base driven by a strong refinery utilization rates.
Safe and reliable operations continues to be our highest priority.
We remain committed to our capital allocation strategy and expect to reach our short term leverage target of three five times in the first half of 2023.
We're now ready to turn the call over to the operator for any questions.
Sure.
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Ask that you. Please limit 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 queue by again pressing star one.
Thank you and your first question comes from the line of Paul Cheng from Scotiabank. Your line is open.
Hey, guys good morning.
Two questions.
Question piece first.
First.
In terms of the cash distribution, how should we look at.
You've been buying.
Buying back stock much bought the painting.
<unk> been building out.
In the past.
Should we assume that when you're.
Cash in excess of 500 being <unk> or.
Or are there any incremental cash flow.
On top of.
Capex is going to go for the distribution or I mean.
How should we look at it yet and also with at that.
Any hint from existing kept them and they wanted to stay ultimate intention of their holdings.
The second question is on the Albi.
Any surprises so far again learning curve.
And also could you Scott.
Maybe quantify to help us understand.
In the fourth quarter versus the sequential third quarter.
How is that margin.
Also youll cost structure may change thank you.
The margin capture.
Okay.
Paul we're sitting here, writing furiously trying to capture those questions down let me ask <unk> to start out with the distribution of cash strategy as we generated here. Thank.
Thank you Mike and thanks for your question Paul first of all we remain.
Very much committed to returning capital to our shareholders.
<unk>.
As we have demonstrated in the past in periods of strong cash flow generation and our priority is to return capital and just to quantify this a little more specifically, we've called out a 50% payout ratio for the long term now with respect to how much is dividend versus how much is share buyback.
That's just a matter of debate with more flavor it counts, but our commitment is to.
We remain focused on this robust shareholder return.
Thanks, sadness and looking forward into 2023.
We hope to continue the same pace of play we've got a little higher maintenance in terms of planned turnarounds in 'twenty three Paul.
Then we had in 2022, but.
Again, the priority is incremental cash flow goes to shareholders and share repurchases.
Most expeditious way for us to do that as to the holding family.
We've said this and it bears repeating we got a very close relationship with that family. We have two of their representatives on our board.
And we have transacted with them in size in terms of our own share repurchase program, which provides us a greater amount of liquidity to our shares in terms of executing repurchase. So it's mutually beneficial we expect it to continue in size.
Finally on renewable diesel.
The plants ran at just 50% utilization or so during <unk> due to basically unplanned downtime relating to startup operations, obviously created issues from a profitability perspective. The first is fairly obvious we're generating fewer gross margin dollars relative to our fixed opex.
But second we ended up running a higher mix of high cost feedstocks. As this arvida was purchased for startup runs and we really didn't get the benefit of the <unk> and the same quantity that we would expect.
So what we've got looking forward into the fourth quarter. Some planned downtime at Arco renewable diesel for catalyst change out.
But apart from that we expect higher throughput and utilization significantly than we experienced in the third quarter and that should lead to substantially different operating profit results.
Thank you.
Okay.
Your next question comes from the line of Theresa Chen from Barclays. Your line is open.
Good morning, Thank you for taking my questions Mike.
Mike.
I wanted to ask you about what Youre seeing.
<unk> landscape for refining economics going forward following the strength this quarter clearly in crack spreads still remain elevated and youre seeing significant tailwind from WCS diff curious to hear about.
How do you think this evolves.
The rest of the fourth quarter and into 2023 and on the product margin side.
Give us flavor of the breakdown between diesel and gasoline that would be helpful lifestyle.
Yeah, I'm going to ask Tim to take this question. Thanks, Teresa Yeah, Hi, <unk>. This is Tim.
We definitely see a.
Better for longer scenario here, where.
We think refining margins will continue to deliver above mid cycle.
Returns here for the foreseeable future we're in a structurally short market.
We continue to see that.
With refinery rationalizations that have occurred over the last couple of years.
Russia, Ukraine conflict that is.
Causing trade flow disruptions.
As you look forward it is hard to see that changing significantly in the near term.
We know that there's going to be some additional startup of some refining capacity next year.
Beaumont refinery the superior refinery youre going to be starting up but we also know that the lyondell refinery has announced that it's going to close the rodeo refineries announced that theyre going to close. So we think that there is the structural short it's going to continue for quite some time.
Really until you get into 2024, when you start seeing the Mexico, Nigeria refinery start up.
We don't really see.
Change in the overall supply demand dynamic.
The whole energy transition.
Theme that is I know it has gotten a lot of attention over the last several years is really proving out to be more of a longer term evolution right with high inflation that we're seeing right now only going to slow down.
Continued investments in kind of a green technology and so we see that the demand for our products are going to continue to be strong.
Our refineries are producing as much as they can right now and still having trouble keeping inventories fall so.
Long story short Theresa, we think that refining market is going to be strong here for the foreseeable future.
I think to add to that.
The high run rates that we and others have attempted to produce in order to meet U S. Fuel demand is going to create additional maintenance outages right and that these plants have been running full and hard for quite a long time trying to prevent supply shortfalls and we think.
That during 2023 will show up in both planned and unplanned maintenance.
Okay.
Okay.
Your next question comes from the line of Ryan Todd from Piper Sandler Your line is open.
Yes.
Uh huh.
Great. Thanks, maybe.
If I could ask on the refining side.
<unk> was strong in the quarter.
But particularly in the mid con the sequential decline in capture rate was a little surprising I know theres a lot of moving pieces there.
But especially given where crude differentials were in the quarter can you and how strong operational performance was can you talk about some of the things positive or negative that may have impacted.
Your ability to kind of the <unk>.
Should the environment in the quarter there in particular in the mid Con and how some of those may be trending in the fourth quarter.
Yes, Brian this is Kevin again.
Yes.
Pleased with the capture rates that we've had.
Both in the mid Con and of course in the West.
I will just point out we did have an osage event.
That impacted our mid con refineries and the third quarter, that's probably the biggest factor.
The capture rate in the third quarter.
Of course, RVO obligations were up as well during the third quarter, which will impact our capture rate.
On the other hand, we're pleased with the Sinclair synergies that we continue to capture we have some rockies arb that we.
To capture as part of our mid Con El Dorado refinery.
And of course.
Higher WCS crude differentials are allowing us to capture more of in the mid <unk>.
So we're pretty optimistic about fourth quarter capture rates as well.
Great. Thanks, and then maybe a follow up on an earlier question.
I appreciate the color you gave around the renewable diesel business maybe just.
Point of clarity do you still have.
You worked your way through the expensive IBD feedstock because that will that remain an overhang at all during the fourth quarter.
And as you look into the environment over the next over the next few quarters going forward. How do you think about the backdrop that you see in renewable diesel.
Yes.
We're really working through what I would call it historical and startup issues the underlying environment for this business right now.
As constructive and is consistent with the margins that we forecast in the past.
We have a little bit of that worked through in the fourth quarter, but as I said previously we expect that the.
The operating result will be substantially better than we've experienced in the third quarter largely due to throughput and due to the fact that we've got very little of this remaining higher cost feedstock the process.
Great. Thank you.
Your next question comes from the line of Doug Leggate from Bank of America. Your line is open.
Hey, Good morning, guys. This is clay on for Doug. Thanks for taking the question. So my first question is on the macro setup for 2023 today, what your diesel is driving the margin uplift and Youre, obviously biased to maximize those yields but can you offer a view on how this transition isn't this summer because theoretically you would need a price signal would swing back.
You have to weigh back to gasoline. So if diesel remains robust do we see gasoline catch up.
Yes. This is Ken.
Certainly we're all our refineries are in Max diesel mode.
Today I'll tell you they've been in Max diesel mode.
Pretty much most of this year, even during the summer we saw a stronger diesel cracks.
Incentivize us to continue to maximize diesel so we anticipate that even as we transition from the winter back into the spring and summer. This next year.
That will continue to be in Max diesel mode.
That gasoline incentives will then have to.
<unk> increased to incentivize people to start switching back to gasoline mode, and we may see again some strength there.
Next summer in both gasoline and diesel at the same time.
Got it I appreciate that.
My second question is on Wahoo gas. So recently the benchmark there zero because the takeaway situation is very tight and I think it takes until the second half of 'twenty three so I'm wondering what that means for the operating costs for Navajo and also with hydro treating costs.
Okay.
Yes.
We've watched that differential in the southwest for natural gas come down it's surprising.
Globally pleased with it definitely helps us on operating costs as well.
As we've as we've seen.
Natural gas prices go high pretty much across the country.
Earlier in the year.
So where we are.
We're happy to see that.
Overall I think we've made these comments before but for every dollar.
Plus or minus in natural gas.
Normally we see about a $44 million.
Change in our overall EBITDA on an annual basis across all of our fleets. So we watch energy prices pretty carefully.
Yes.
I appreciate that thank you.
Your next question comes from the line of Connor Lynagh from Morgan Stanley . Your line is open.
Yes, Thanks, Jim.
Wanted to think about 2023 and a little bit here you were talking about higher turnarounds, but then I'm also thinking through obviously all reduced cost of renewables. So can you help us walk through the big puts and takes on on Capex and just how we should think about those.
Those big cost items for next year.
Yes, I'd say at a high level, we're going to be providing specific.
Guidance for Capex, as we roll into the coming year, but.
Higher maintenance expense planned maintenance around turnarounds, obviously lower on renewables, those probably largely offset.
And again, we will update the guidance come February timeframe.
Okay.
That youre kind of about the same place 2030 versus 22 is the takeaway there.
Maybe a little higher but roughly.
Okay got it maybe.
Maybe one just just higher level a structural one.
Where do you see pricing in your core markets you guys, obviously have a lot of sort of niche market exposure.
Or do you see pricing being set off if that makes sense. So so when you're in your mid cycle forecast previously you basically pointing to a Gulf coast crack plus transportation costs do you feel like that's the right way to think about it do you think youre being.
More priced off of coastal markets. How do you think about that on a go forward basis.
Yes.
A shot of that Cotter so.
We believe that date east.
East Coast.
Marginal East Coast refining economics are set off of historically, the European imports that would come in.
<unk>.
Clearly that has changed given the.
Russia, Ukraine conflict, the natural gas price increases that they're seeing over there.
Part of that trade shift flows that have occurred.
Through the conflict and really some of the marginal.
Barrels that are coming into the east coast now are really coming from Asia, which actually creates more of a structure more of a higher cost.
Any mechanism for us we believe the Gulf Coast is basically set off the east Coast and then our mid Con refineries are set off the Gulf coast. So we think we see a structural.
Advantage that we have versus the Gulf coast today that we think we have versus the east coast today, and then we think we have versus.
The marginal price setting mechanism, which today is really the Asia import barrels coming in so as we look at the structure. Those are all the things we're looking at.
Both from a cost standpoint.
We have a natural gas advantage from a crude differential standpoint, and we know with the strength of WCS in the Brent Ti that Youre seeing right now that we believe we have a structural advantage there and then when you look at the product.
Placement advantage, where we see a strong niche market for our products.
Both for diesel and for gasoline, we think we havent vantages again over a marginal producer.
Yes.
That's helpful I'll turn it back thank you.
Your next question comes from the line of Matthew Blair from GPA. Your line is open.
Hey, good morning, I think youre in 13% heavy barrels in the quarter could you talk about what's driving WCS wider currently and what your outlook is going forward.
Yes, Matthew this is Tim.
We're definitely seeing it.
Pleased with the wider WCS spreads.
We're seeing that as a result of.
Some of the return to normal production in Canada, I think we always thought that the WCS <unk> spreads would widen here on the fourth quarter associated with that but I think what surprised us is some of the unplanned events that have occurred.
In the mid Con that has impacted demand for WCS as well as some of the quality choices that are occurring for crudes.
Nap of course, it's very.
It's very weak right now as well as some of that.
Fuel oil barrels that are weak right now that are competing for the WCS demand, which is lowering that overall.
Demand and causing spreads to widen.
We see that going forward into 2023.
Still see the production as well as some of the quality differentials driving.
The higher than what we call maybe transportation differential.
Kind of dynamics and think that we will be able to benefit from that.
In the third quarter, we ran a little bit less heavy that was mostly associated with the Osage event that occurred.
We have all of the economic incentives to increase our WCS production.
And as you may have heard as a rule of thumb for every dollar a barrel of WCS change, we typically see about a $40 million annual EBITDA impact in our business.
Sounds good and then your Q3 capture rate basically held flat at 69% So nice work there.
Do you think the outlook for the Q4 capture rate actually might be a little bit higher quarter over quarter, just given tailwind from wider WCS dips.
As well as things like butane blending and octane spreads.
Yes, we are encouraged by by all of that Matthew I would say typically as we get into the winter months, our capture rates tend to go down, but that's generally because of utilization that goes down because some of the RVO percentage of gross margin is higher.
But as you pointed out.
Certainly going into the year.
We are in November we're certainly looking stronger this.
Fourth quarter utilization is high.
And with the wider crude desk as you pointed out with the strength in diesel cracks. This as you've pointed out we do think.
Capture rate should stay higher here in the fourth quarter.
Great. Thank you.
And your next question comes from the line of Jason <unk> from Cowen Your line is open.
Hey, Thanks for taking my questions.
First wanted to ask on the renewable diesel business you mentioned some unplanned downtime.
I may have missed it if it was planned but due to a catalyst change out and that renewable diesel business and I know the industry has had some issues during startups.
That have come through in terms of going.
Going through the catalyst quite quickly.
What's the catalyst change out a result of of that or any other types of operational issues and if so do you ever hands wrapped around that are or is everything okay. In that segment and then my other question was just on the lubricants business.
A big quarter over quarter decline I know some of that was due to.
<unk> for higher.
Feedstocks can you just kind of discuss the puts and takes maybe the order of magnitude of that inventory impact in <unk>.
And where margins are trending in that business. Thanks.
Yes, Jason I'll start with the renewables question in that.
We referenced a catalyst change at the Parco plant.
In the month of October and that was very much a planned and scheduled catalyst outage.
We do think we have our hands around the operation of these units and they are a little different than normal distillate hydro treating units but.
But our experience to date has been pretty good relative to catalyst life and catalyst activity. So.
As I referenced did have some startup related issues in <unk>.
But not a lot of catalyst problem.
As to the Lubes, Tim you can speak to that.
Sure Jason.
Yes.
The whole loops.
Impact associated in the third quarter was due to FIFO higher priced feedstocks that we ran it was unfavorable $47 million in the third quarter.
So really nothing to see here.
Even without the FIFO impact, we still would've delivered record first quarter and second quarter earnings and so we're very pleased with the business. There we know FIFO will even out over and over time as it underlines and so we're still on pace for above mid cycle.
Performance here in 2022, we're still expecting.
Lubes ebay.
EBITDA of something in the $300 million range for 2022, even when you take into consideration all the <unk>.
Okay.
Great. Thanks.
Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is open.
Yes, good morning team.
Just on the mid cycle adjusted EBITDA.
You've come out with this $2 $6 billion number and $1 billion of free cash flow.
Business is obviously trending.
Very well relative to that so just curious, though as you think about the different moving different parts of that adjusted EBITDA equation.
What where do you see biases to the upside or downside.
Okay.
Yes, good morning.
Look the environment that we're currently operating in is obviously.
A little foreign to us and the earnings and cash generation is extraordinary whether to immediately impute a change in mid cycle economics.
Really hard to say, we believe there's a supply shortfall and domestic refining capacity.
So what does that suggest I mean.
That suggests more opportunity in the refining EBITDA number.
We were just on the heels of having completed our first $100 million.
Of Sinclair relate.
The related synergies that being seven months after closing the deal there is probably a little more to go on that front as well yet on quantified but.
But I would say that those are the two real levers in terms of.
Taking mid cycle EBITDA higher and we've chosen not to do that yet just to try to absorb what the current industry structure is.
It obviously doesn't affect what's important and that's our cash distributions back to shareholders, but.
Whether we adjust this higher here in terms of our slide deck and our expectations, we're going to watch it a bit with a focus on principally refining.
That makes a lot of sense.
The follow up is just around the M&A strategy, both Puget and.
And Sinclair, where we are.
Well timed in retrospect.
You've been able to capture a lot of that upside.
Do you see additional assets potentially coming into the market and this Holly proof.
<unk> proven to be a logical consolidator of bolt on bolt on assets.
Yes so.
First thanks for the compliment on timing I wouldn't say, we necessarily plan it that way, but it has worked out very well for us and our shareholders.
As to taking on the burden and the blessing of being the consolidator, we don't hold ourselves to that standard we're opportunistic we have defined geography.
And quality of assets that we're looking for at present, our plate is really full in respect of the Sinclair acquisition and our goal is to really make an excellent combined unit out of that company and the historical Holly. We've got some months ahead of us in terms of realizing all the opportunity that we bought into.
And frankly years ahead of us and to integrating more downstream into that branded wholesale network that we aspire to have so there's plenty to do to realize what we've purchased already as to the future. Yes, we believe that because of energy transition there will be net sellers of assets.
Focusing principally on the larger oil companies that are redeploying redeploying towards a more renewable portfolio, but at present, we don't take on the.
Our strategy of necessarily being the consolidated we will be more opportunistic.
Thanks, Mike.
Yes.
Okay.
And your next follow up question comes from the line of Paul Cheng from Scotiabank. Your line is open.
Hey, guys. Thank you.
Just a quick follow up.
In terms of the Saint <unk> seem the Chi.
Mike You mentioned that you achieve $10 million one way away. So from this point on wait do you see any.
<unk>.
Incremental opportunity.
That seem to keep in that.
With that if that's the.
Opportunity that with that because it's going to come from.
That's the first question. The second question I wanted to go back into the Neupogen team.
Tim you mentioned that 47 million people gain pad.
So thats about $16.
<unk> per barrel based on your throughput on the third quarter. So when you when you bought it back.
Gross margin in say the 27.
It's still very low.
Also that I mean, when we talk to other people with Exxon.
Alright indicate based only margin actually it has been up and when we look at.
You're indicating it's also up so we're trying to reconcile that why.
Is that your.
One thing that is unique to you guys from that standpoint.
April we should be aware.
Yeah.
Yes, Paul This is Tim let me try to.
Hit both of those questions on the Sinclair synergy side.
We still as Mike mentioned I believe there is a lot more opportunity for us to continue to integrate and capture.
Just all of the benefits of the.
The synergies.
Certainly with Sinclair, but also as you add Puget sound into the mix.
There's a lot of opportunity that we think organically that we can focus on a couple of examples supply chain and logistics.
Given our presence in the in the Rockies area. There continues to be just a lot of opportunities for us too.
To optimize our R. R.
Trucking and our pipeline deliveries, how we're putting product into the various markets between the woods Cross refinery the Casper refinery and the Rollins refinery, we think Theres a lot of transportation savings pipeline tariff savings truck savings, just by managing and optimizing our supply chain logistics.
From a procurement standpoint, we've captured some procurement savings already but we think as we continue to.
Leverage our scale and leverage.
Seven refineries, we now have in our portfolio that theres going to be more procurement opportunities there from a reliability standpoint, we believe as we continue to knowledge share across our refineries, we're going to continue to lift the bar across our whole portfolio in terms of reliability performance and utilization.
And then finally in some of the intermediate.
Products that we make at these refineries, we think theres some optimization opportunities to again integrate amongst especially the rocky mountain refineries.
Absent fuel oil asphalt and things like that that are going to generate more opportunities for us in the future.
As far as we are moving.
Alright, do you have an SMA, Paul Forte Incrementals seem we'll keep and if thats over the next 12 months.
You may be able to catch up.
Paul There is.
We do have.
Initiatives in estimates internally that we're going after but we have nothing to share with you at this time.
Yes, Paul wanted to quantify that on next quarter's call.
We felt like we had just gotten through the first chunk.
And we're building up the next list as to where the next opportunities are and how big they are.
On your <unk> question, Paul what I would just say is I mean.
You take the $47 million that we talked about associated with FIFO yield.
You apply that to the $15 million of reported EBITDA.
Get a number that is consistent with our mid cycle.
<unk>.
Estimate that we've talked about in terms of run rate. We've always said that our first half of the year is a stronger year second half of the year is seasonally weaker and so being able to run at mid cycle kind of run rates here for the third quarter and we think the fourth quarter will be similar will continue to have FIFO headwinds, but we'll see.
We think we're going to be able to run at kind of a mid cycle run rate.
That's pretty good for our business.
And if I could just Paul so as Atlas if I can only also had is it's important to not just look at the.
This quarter in a vacuum because even with a FIFO headwind for this quarter. If you look on a year to date basis overall, the overall impact is not negative it's positive.
So as Tim indicated earlier.
<unk> kind of evens out. So this is more of a timing thing.
Year to date basis, and full year at or above mid cycle.
Alright.
Alright, thank you.
And there are no further questions at this time I will now turn the call back over to Craig Biery for some final closing remarks.
Thanks, Rob This is Mike Jennings.
In closing I'd, just tell you, we've really made great progress, bringing the Sinclair businesses into our company.
And the strategic and the financial value of that combination is really becoming apparent to our shareholders.
Synergy capture as per plan, and we anticipate adding more to that estimate as we go forward here and as I've said that we will articulate that on our next call.
Across our base businesses and five segments, we're really operating well and renewables is obviously the area of focus as we're bringing these plants up to full rate through startup, we expect higher margins in.
In today's refining market will persist due to challenging macro supply factors that are really going to be difficult for the industry to resolve in the short run despite our best efforts.
And finally.
Our own company's performance returning capital to our owners has been well ahead of expected pace and reflect the strong cultural bias to return cash to shareholders as we generated.
We have a larger maintenance program ahead of us in 'twenty three we continue to see great opportunities for capital return, while maintaining our solid balance sheet and investment grade credit ratings. So with that we'll look forward to speaking with you all again on our next call.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
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