Q3 2022 Parkland Corp Earnings Call
Any background noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two thank you I would now like to turn the conference over to Valerie Robert.
<unk> director Investor Relations for Parkland. Please go ahead.
Thank you operator with me today on the call are Bob Espey, President and Chief Executive Officer, Mark <unk>, Chief Financial Officer in a moment I'll invite Bob to share some prepared remarks, and then open it up for questions from the investment community. We would ask analysts to follow up directly with the Investor Relations team afterwards for any detailed modeling questions.
During this call we may make forward looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties, which are difficult to predict.
Uncertainties include but are not limited to expected operating results and industry conditions among other factors risks.
The risk factors applicable to our business are set out in our annual information form and management's discussion and analysis.
We will also be discussing non-GAAP measures, which do not have any standardized meaning prescribed by GAAP.
These measures are identified and defined in parkland continuous disclosure documents, which are available on our website or on SEDAR.
Please refer to these documents as they identify factors, which may cause actual results to differ materially from any forward looking statements.
Dollar amounts discussed in today's call are expressed in Canadian dollars, unless otherwise noted I will now turn the call over to Bob.
Thank you Bill and thanks to everyone on the call for joining us this morning.
We're having this call today, because we know our third quarter results do not meet our expectations, we issued a new news release, a short while ago that provided several updates for the business or sell and I will take a few minutes to provide some color on each before inviting your questions.
We will also speak about our confidence in the fourth quarter and our ability to meet our full year adjusted EBITDA guidance range looking back at the third quarter, we saw significant ongoing uncertainty in the macroeconomic and geopolitical environment.
If we look at the commodity price environment, <unk> fell 27% U S gasoline fell 33% in diesel fell 17% in some markets prices decline even further then benchmarks.
In the U S segment, we held inventory in excess of our retail and commercial needs as markets fell sharply we incurred significant non recurring wholesale inventory and risk management losses, we have disclosed these positions. We've closed these positions and limited losses to the third quarter.
Our refinery continued to deliver safe and consistent operational performance, our composite utilization average averaged approximately 95% during the quarter, however, higher trailing inventory costs in a falling market temporarily reduced our capture of the record refining.
Margins to approximately 55% we expect this capture will return to higher historical norms in the fourth quarter.
In our Canadian operations, we saw steady fuel volume demand, however, volatile product prices dampened unit margins and consistent with recent quarters. We continue to experience cost pressures as a result, we see the third quarter results falling short of our expectations I'll now pass it.
Over to Marcel to provide additional detail.
Thank you Bob and good morning, everyone.
Overall financial results are still being finalized we have enough information to provide you with some visibility of these results I'll begin with our USA segment, where we focus on serving customers and structurally short or under supplied markets to provide additional scale and to capture pricing advantage, Gary wholesale inventory or.
Over and above supplying our own operations and we typically sell this inventory into the spot market, while maintaining our margin risk neutral commodity position.
During the third quarter, we sold product prices declined significantly.
Some markets with declines are greater than the underlying benchmarks and we held back associated petroleum references declining isolated markets and is highly unusual circumstances led through a nonrecurring wholesale inventory and risk management losses of approximately $65 million.
Excluding these nonrecurring losses, our U S business performed broadly in line with our expectations.
At our refinery recaptured approximately 55% of the record refining correct margins during the quarter. This is lower than our historical norms due to higher compliance and transportation cost and higher crude prices and as we work through this higher priced crude inventory, we expect that our capture rate will return to the historical norms.
Approximately 70% in the fourth quarter.
And our Canadian operations compared to the prior quarter, we saw steady fuel demand strong load fuel performance. However, this was tempered by folding pump prices on intraday volatility, which compressed unit margins. This is counter to some publicly available data.
I'll now turn it back to Bob for some closing comments before we open it up for Q&A.
Thanks, Marcel on a consolidated basis, we expect to deliver adjusted EBITDA attributable to parkland of approximately $325 million in the third quarter.
In our U S operations, we have liquidated excess inventory positions.
We are taking steps to improve inventory management in that business.
We are refocusing our wholesale business.
Those markets, where we have retail and commercial operations, we have reduced wholesale inventory volumes in these markets to minimize the financial impact of volatility.
As a result, we are confident we have limited the U S wholesale inventory and risk management losses to the third quarter, we expect the U S business to bounce back to a normal run rate in the fourth quarter looking.
Looking across our entire business, we remain confident in the outlook for the fourth quarter, we anticipate robust crack margins and expect to capture a higher portion relative to the third quarter, we see a strong start to the tour. This season in our Florida and international markets. We also benefited.
We will also benefit from owning a 100% of our international operations and we are entering the traditionally high heating season for our Canadian commercial business, we expect to deliver within the range of our full year 2022, adjusted EBIT guidance of one six to $1 7 billion.
<unk>.
As I wrap up I'll remind you that we will be reporting our detailed third quarter results in a couple of weeks and that we have completed our previously announced Jamaica and husky acquisitions as well as our sole consolidation we have completed our previously announced acquisitions and remain focused on.
Integration, capturing synergies and reducing our leverage ratio with that I will now invite the moderator to open the line to questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
There are three Tom.
<unk> acknowledging your request and your questions will be pulled in the order they are received.
Should you wish to decline from the polling process. Please press the star followed by the two if you are using a speaker phone. Please lift the handset before pressing any key one moment. Please for your first question.
Your first question comes from Steve.
Steve Hansen with Raymond James Please go ahead.
Yes, good morning, guys.
First question is just around the size of those inventories just sort of curiosity given the magnitude of the loss in the U S is it typical or have you typically held volumes.
Over and above the retail needs and just curious as to why the loss was so large in this period relative to volatile periods, we've seen in the past.
Yeah. Thanks, Steven look let me kick it off here and then I'll turn it over to Marcel.
As you recall, we have been growing that business in the U S and we've been growing our wholesale business at a larger rate than our base business and as a result, we were holding.
Increased inventory relative to the size of the business and Thats created the exposure. Since then we have pulled back on that.
And have now refocused the business on our existing in the markets, where we have our.
Existing business.
Marcel did you want to add to that.
Yes, maybe just a bit more color on that sort of speaks to pulp already set. So we have grown the acquisition. So we didn't always carry those positions for the overall business growth can be your restaurants added two desks over overtime.
We have typically help us in markets, where we see a short answer.
<unk> eventually there is going to be demand.
<unk>.
Tried to risk.
Risk manage that position as much as we can as a number of factors and pricing that becomes risk manage particularly the basis risk in some of the market. So that's not always been hedged.
And as we were going into the summer season, or the third quarter, we saw a record low stocks and inventories across many of the markets in the U S.
We entered into the driving season, and so that's kind of why we held some of these position anticipating the demand, but then in that period as well we saw of course global markets coming down despite the inventories being low as well as some of the regional markets going down that's rolling so desktop kind of contributor to big losses on some of those.
Physicians for Treehouse.
That's good color. Thank you for that I appreciate it.
On the refinery if I may you talked about the recapture returning to sort of that normal 70% threshold is that something we should expect in the road in the Q4 period, specifically or is it going to take a couple of quarters just given the rolling inventories on crude you might have and just as a related question. The crack has been extremely volatile here on the west.
Coast in particular over the past month or two just maybe some broader comments around that and any dynamics you might want to call it out.
Yes look.
We do two things, we do continue to see volatility in the market and I expect to continue to see that going forward.
To your point regarding the capture rate, we do expect that to come back in the fourth quarter.
Marcel I'll turn it over to you to talk specifically some of the items that we will see coming back here.
Yes.
So good question. So firstly, maybe just a timing element to this when you look at the crux. So if you look at where our response just even on general crude prices at the start of the quarter and where we ended the quarter crude prices came down about $30 a barrel. So it takes a little bit of time for that expensive crude to come up so assuming that this crude prices stay at where we are.
We will just it's a timing effect, so you'll see a bit of that and the returns.
I think the other factors.
It does contribute to that.
The compliance costs are the compliance cost.
Meet the BC low carbon fuel standards as they go up.
Even if you have higher <unk>.
Crack spreads on the screen if the compliance costs go up the recapture less obviously on a percentage basis transportation costs, which are proud of that and then the other part of it there has actually been the metro gas cost have gone up as well so India unfold the crack spreads on the screen go up there's a couple of factors with real.
Come off Thats kind of trying to get to our effective capture rate for.
Quarter, four though what we see because that is a contributing factor is this timing effect for the expensive crude running through the system than wall Street hit that's cheaper layer of crude we'll see increasingly capture rate and the capture rates.
Your next question comes from Kevin Chiang with CIBC. Please go ahead.
Thanks for taking my question.
The first one on on on your comment.
Lower fuel margins in Canada.
When I look at some of the industry data I know, it's been volatile in the quarter in the third quarter, but it does look like quarter over quarter. The industry data would have suggested.
Was up year on year. So just wondering what youre seeing differently is it a volume mix issue just given the volatility.
Of that margin through the quarter.
Any granularity there would be helpful.
Yeah. Good question, Kevin and I'm glad to see that you do reference that Kent data because that is where we do point people towards again I would say when the market's volatile the accuracy of that data falls.
It is done on a periodic basis and it isn't the complete sample size.
Of the.
Of our network. So that's one factor and the other is in a rapidly declining market. We do have some inventory costs that run through the system, but to put some pressure on our margin short term.
Again.
Wouldn't read into this that this is a structural change in yen.
Retail margins.
What we're seeing is more of the impact of the underlying commodity price falling quickly in the volatility.
That's helpful and maybe just.
My last question here.
You discussed in your prepared remarks.
Steve's question, just some of the steps you've taken to.
Alleviate some of the pressure that you saw in the U S.
You bet.
This.
Risk management loss.
More broadly speaking, though do you think need to reassess your risk management practices or or was this just such a unique situation in the third quarter of that.
That was kind of a.
As a black Swan event perspective.
Yes look.
And I would say.
Risk is there to protect.
And at times, when we do have volatility like we've seen.
Would stress that we do have strong controls and we do test them on regular basis.
In retrospect this has.
Forced us to refocus our wholesale business in the U S.
We didn't fully assess the impact of this volatility relative to the size of that business I would highlight that on AG.
Aggregate basis for parkland on an annual basis.
This is still.
While big to the U S.
Is is not such a big impact on parkland.
But that being said, we are reducing the exposure in that market and will align it with the business as we continue to grow which here going forward.
Marcel do you want to add to that particularly around our risk and controls, which I D.
R.
Our in place and function through this.
Yes, no R&D, Kevin So we have.
Risk management systems, where we have set tolerances around how we run a trade relative to the size and we monitor that so old traits are in our system. So it has not been traits oxide system that cost is sort of where you're at.
All trades rogue offerings going through this so that we.
We have of course as you would expect us to look again at all our risk management practices and our systems that we use in our total branches, we have right sized it particularly in the U S business as I spoke already highlighted.
And then to your question.
Is this a fairly unusual event, yes. It is very unusual we look back at the data for the last five to 10 years on market structure and I think what we saw happen, particularly in parts of our business in terms of local pricing.
Arsenal.
Hasnt occurred.
For quite a while.
Or for a long time as far as we can see see back into data or at least not through the nature of what we sold is in the third quarter. So.
As a black Swan event, but of course, our job is to make sure that we anticipate.
We understand that.
Precise off positions relative to that in the right way and we have now done that but it was also a very unusual kind of volatile situation not only what we saw in the general markets like the global markets, whether its the diesel price to crude prices, but particularly diesel prices, but also the relative local prices students.
To that market.
Mark with diesel price and we've seen some significant movements in some of the markets that we're in.
Yes, we are quite unusual.
I'll leave it there thank you very much.
The next question comes from Vishal <unk> with National Bank.
Go ahead.
Hello, Thanks for taking my questions.
And in Canada with respect to the lower fuel margins did your dealers are independent operators see expanded fuel margins coincident with the declining.
Fuel price.
Im not sure I fully understand the question we do so let me just talk about our different operating models. I mean, we do have three operating models in the business. One is our company owned sites, where we price the street, we do have what we call bye.
Cell, which is a wholesale arrangement with the dealers and it's up to the dealer to price depending on their customer value proposition.
And then the third is we do have some consigned inventory within our dealer network, where we do.
Where we do price to the consumer so those would be the three operating models I think you're referring to our wholesale customers in that channel.
And.
Again with respect to pricing, it's something that we don't control.
Independent.
Dealer prices the street according to.
Their local market position.
Okay. So I understand you don't control do you have visibility into what their margins are.
No we don't.
Understand okay. The reason why im asking is because.
I appreciate that they can't state isn't perfect and your Canadian peers that maybe present fuel margins. There is reasons why they are not comparable but I'm wondering if if.
If.
These lower fuel margins is causing management to revisit its structure and maybe till towards corporate stores, where you have more.
More control over the entire chain.
Yes look we're very confident in the operating models we have.
As I said.
Previously, we don't think that there is a structural change in the <unk>.
Hum.
Retail margins.
Hence, we do like all of our different operating models.
Consistent with what we've telegraphed, we do grow our corporate network based on finding good sites, where we are assured that we can generate good returns on those investments.
And in markets, where we which aren't as strategic or where we don't believe we can get the returns we do lean on dealers as partners to invest in sites. So the business model works and it's been quite attractive for us.
Okay. Thank you.
Your next question comes from Luke Davis with RBC. Please go ahead.
Hey, Thanks, Good morning, guys. Just a couple of questions related to the refining segment. Just wondering if there were any risk management losses similar to what you highlighted in the first couple of quarters of the year.
And then how you would expect that to impact Q4, just in where our pricing and cracks are right now.
Yes, I will turn that over to Marcel to.
Through.
Yes, so we.
Thanks for the question.
We talked early in the year about part of our part of our refinery margin that we have hedged that will continue until the end of the year, we won't continue that into the next year. So.
That means that you have locked in a certain margin, which is a healthy margin, but I think the correct steps at the moment are still a bit higher than that so we regain a little bit on the margin, but would you expect back on the project.
So that's that piece.
Do hedge part of our crude NR product positions us well around the refinery and.
And it goes up and down as well, but the losses are less material and part of the overall.
The overall crack spreads going into so going into the fourth quarter, which was your question first of all we expect somewhat more expensive.
Infantry, but that's now run through it. So we expect that thats kind of opens a bit of compression that we saw in the margins into the third quarter in the refinery.
And then we don't expect that the risk management.
As a material item introduced but again.
About 10% just under 10% of our crack spread is still hedged as opposed to early end of the year.
That's helpful. Thanks, and Im wondering on.
Compliance costs, if you can kind of frame up the magnitude of those historically versus what you would've seen in Q3, whether that's on a dollar basis or percentage of cracker or something like that.
Thank you when we talked about that Bob.
Yes. Please.
Yeah, no. So what does so just as a bit of a general background, but hopefully everybody is aware soldier compliance cost MPC basically every year they tightened.
Overall carbon intensity of what we sell and what our peer sell into markets that Tysons, which means there is a higher <unk>.
Kris requirement to blend in renewable diesel overall as the primary way or so final way to kind of get to the compliance product.
Renewable diesel cost have gone up and the amount and the amount of what needs to go into its gone up. So those are the two drivers and so when you sold it cracks going up during the quarter of course diesel prices went up during the quarter, which means renewable diesel prices went up and thus increase in renewable diesel prices have been easing back into <unk>.
Correct, if you're if you wish so that's the kind of the effect that we have been I think.
You don't get the get the team.
Provide you more specifics on the on for the modeling.
How that's kind of how we see that going forward, but it's basically when do the prices go up renewable diesel prices go up and so although we see a good diesel crack you do need to get part of that back because of the blending of renewable diesel that you need to do at that point in time.
That's helpful. So in general.
Would you say that you expect just a lower capture rates going forward on your refinery.
Yes, we can cut through the 70% for you has been higher we have been higher at times than that but I think part of that returning to the 55% to 70% in Q4, that's one and I think.
Where are we.
The way to think about it is is that depending on where the absolute crack spread is and what the drivers are for that crack spreads you do need to take into account. Indeed, these things like the compliance cost of transportation costs and also natural gas to really get to the right capture rate and it appeared please see volatility or elevated prices of any of these what.
It is kind of typically been true in terms of capture rate will change a bit.
So thats the best way to think about it sorry, Bob.
Once again I would look at and you framed it well I would say.
Not seeing a structural change in the capture rate again in light of the volatility and also some of these additional costs.
I do think.
As well as the lagging effect.
The inventory.
We'll see this come back to <unk>.
Close to historical rates I would suggest that you connect with our IR team, who can take you through some of the modeling to help.
We're off the model.
Two where we do see the refinery.
Landing next quarter.
Sure that's helpful. Thank you.
Your next question comes from Matthew Weekes with.
Capital markets. Please go ahead.
Hi, good morning, Thanks for taking my question.
Just wondering in terms of sort of repositioning the wholesale inventories and maybe changing the strategy a little bit in terms of that part of the business in the U S.
Just wondering sort of how long that is expected to pay and do you see any impact in terms of.
Limiting your ability to kind of capture pricing advantage.
Going forward.
You cut out there but.
Think I caught the bulk of the question in terms of.
Will the.
Cutting back in the U S have an impact on.
The long term run rate of the business.
Look.
That business was very new so haven't really reached its full potential at this point so.
The impact.
It is not material to the business on the other side is.
We continue to grow the business organically and.
That will also assist.
In us continuing to develop our supply position and make sure that we continue to have.
Our supply advantage in these markets.
So.
I would say.
Not going to have a material impact by by curtailing the benefit as we reduce the risk, particularly in the volatile market that we've seen.
Okay. Thank you and sorry, I cut out there for a second so would you say that part of it.
And kind of the right sizing that's needed going forward as do the kind of just the rapid pace of growth that's been happening in the U S and maybe some learnings coming out of those markets.
Yes look you know I'll kick I'll kick it off and then turn it over to Marcel So look we have grown rapidly.
And.
I think what we underestimated was.
The impact of extreme volatility on that growth, particularly in the wholesale market, where we were selling into a spot market and in a rapid declining markets.
The difficulty in.
In.
Hedging, particularly to basis risk, where we got caught off so so by by bringing that back into our core markets. We still will be active in the wholesale market, but we will have our own outlet as well.
<unk>.
That will.
Reduce any impact if we were to see such a rapid fall again.
One other point I mean, the fundamentals were pointed to.
Quite a constructive market and when we looked at inventories being at record lows and also some of the impact of the geopolitical situation. It did point to continued strength.
What we did see was an aberration in that.
We didn't predict accurately in again.
Consistent with our principles are not exposing the enterprise, we've pulled back and we will continue to.
In the wholesale market and continue to grow it as as our business grows but.
And Ah.
Our size, that's a proportionate to the base business Marcel did you want to add to that.
So I think you covered the globe.
Great. Thanks.
Okay. Thank you that's it for me I'll turn it back thanks.
Great. Thank you.
Your next question comes from Neil Mehta.
With Goldman Sachs. Please go ahead.
Hi, Good morning. This is carly on for Neil Thanks for taking the questions.
Thanks for the details earlier on some of the moving pieces around the inventory side.
Wanted to just start and see if there was any detail or color you can provide on how cash flow from ops with trucking during the quarter.
Yeah.
Yeah look again, let me kick it off here, we will provide detail on cash flow with our Q3 results.
That being said.
We have always talked about the fact that in a declining product and crude environment, we do get an impact on working capital and we've certainly seen that flow into the balance sheet here.
Throughout the quarter Marcel did you want to add to that.
I just referred to the full results that we do with with your earnings balance sheet leverage ratios et cetera. In the next two weeks as we come out in today's call, we'd really want to just focus on the EBITDA and given that we were below expectations.
As a matter of disclosure early.
Understood. Thanks, and then just on the refining side, you talked about higher natural gas costs weighing on margins. During the quarter can you just remind us of the sensitivity of refining earnings for say every dollar change in gas price.
Marcel I'll turn that over to you.
Yes, I don't.
Don't have that cardiology I'm sure that the.
The IR team will be able to talk you through that and the impact.
Great. Thank you.
Next question comes from Peter Sklar with BMO capital markets. Please go ahead.
Good morning first.
One of the.
Items, you attributed the shortfall to as Canadian margin did.
Could you explain what margin are you talking about are you talking more about your wholesale.
Margin.
Selling propane too.
Industrial sites and volumes et cetera are you talking about.
Like your distribution business of gasoline, which I thought it would and more of a tolling business, where exactly are you seeing the margin pressure.
Yes look.
And thanks for the question Peter.
The Canadian margin as you point out. It does include our commercial business, which is a seasonal low.
During this period, so we do tend to see.
Margins come off seasonally.
I would say we're.
We did see margins lower than we have typically seen was in our retail business and again, particularly driven by some of the inventory adjustments that flowed through the business as the price went down.
And the commodity.
<unk> price.
I came off so that was a contributor.
There were some puts and takes on the other side, but.
That would've been the largest contributor.
Okay, Bob when I look at a very high level like all like all of the shortfall.
It was.
Just due to you.
This abrupt decline youre seeing in commodities and.
Like the biggest factors seem to be from your discussion is the kind of the inventory you're holding in the U S business.
Well kind of the.
Time delays.
In terms of.
The capture rate in the refinery. So you were caught with some very highly priced inventory relative to where the market is and.
I don't want to beat this you don't want to beat this question on your risk management practices to depth, but they seem to me to be obvious risks and I. Just don't understand why was the company not addressing these risks through hedging programs.
Yes, I mean look.
So so.
Let me just take a step back again, we do see them as.
An isolated incident here and hence R. R.
Reiteration of the guidance for the business and certainly longer term.
We were well on track here to hitting our growth targets. So so.
In terms of the risk management, specifically I mean, there are parts of our business.
We risk manage and others. So we don't so I will let Marcel.
Just provide that next level of detail there on that.
Yeah. So maybe a couple of things there. So I think if you looked at our business Chris.
Christine.
Wherever we have ratable business, let's say on a retail stations for instance, where we sell barrels to resupply in them every day, there's a lot of inventory.
We don't typically hedge but what that causes from time to time is a timing difference right and thats. The one that we've described here as well, but you still have some expensive inventory investor run out, but similarly, when we have cheaper inventory the price goes the other way it runs out so there's a timing difference.
We typically don't hedge it even though it will impact quarter over quarter, but that will kind of even out over time. So that's maybe the first comment there.
Then the second piece on where we have these.
Talked about this wholesale versus the spot wholesale business in the U S.
We hedge by and large we hedge our flat price exposure, we do that's too difficult like the New York market and so we do hedge types, but then in each location. There was a basis risks or local differential which is not which would typically come hedge and the way. We manage that is we're managing our overall position in size.
What we think is.
It's reasonable to support the business and also kind of looking back at appropriate typically seeing happening at the market and resize that risk which is normally.
Kind of modest within the overall piece and Thats I think its maybe the context, then to when things didn't go pretty much out of norm and far out of norm.
Of course, we find these positions to be.
More exposed than we would've anticipated and we would have done that and theres not like a better way to risk management all of them to bring those positions down.
Which is what we have done so.
Going back to the refinery timing risk.
That kind of surface. This quarter. So you are not you have no intention to hedge that.
Correct right.
All of it I think it's also too expensive and inefficient to do that right.
Right, Okay understood. Thanks very much.
Your next question comes from Evan Francesco's with TD Securities. Please go ahead.
Good morning.
Some of my questions have already been answered, but I have a couple of more here.
First you May have mentioned this but in in Canada with.
With a lower.
Fuel unit margins, primarily in retail or was it.
In commercial as well.
Yes, we did see margin pressure across all segments in the declining market. It was more pronounced in retail.
Thanks.
And.
Turning to the refinery.
So in Q4.
The higher expected.
Capture rate.
Inflated somewhat by the drop in.
In crude flowing through in other words is it 2023 capture rate expected to fall below.
I'd like to longer term average.
Given the costs that you've highlighted.
Yes, no look and I would encourage you to follow up directly with the team right. After this because they can.
Provide some more.
Insights into that.
There is a lagging effect because of the price of crude we have seen that in other quarters.
And I.
I would say that will assist provided crude stays stable or if it goes up it will even help.
Those are some of the.
That's part of just the natural volatility of.
Of the business.
As Marcel indicated there are some other areas where costs have crept in terms of compliance.
But again the IR team can help you understand that as the compliance requirements grows.
It is affecting that capture rates, but again.
I would say our R. R.
Our results through that have been positive because we have been able to co process and not have to purchase more expensive renewable diesel.
And then we have had.
Again, Athene has indicated some additional costs, particularly energy on the Opex side I.
I would say the flip side is that facility.
Is running very well.
Our expectations in terms of utilization and we continue to perform well relative to.
Two.
Where that the crack spread is.
Alright. Thanks.
Just sticking with the refinery for a minute.
Just so I understand.
The the impact of of crude.
Crude hedges, if we leave aside hedge.
Hedging the crack but.
Hedging the crude price I believe in Q1 and Q2.
When you closed out those those contracts you had realized losses because of the price is moving up.
And in Q3, the price came down so there would there have been some realized gains because of that.
I will ask Marcel to provide commentary on that.
Yes, no I think of course, all of that depends a little bit on the timing of the year.
The specifics that go in and out.
Redo them typically we do get a little bit of tailwind when when the prices go up and reprocess.
Cheaper infantry.
And of course, the same happens all the way down so we do see that effect running through and we talked a bit about the timing of that we have seen.
In quarter, one we saw a record increase of price in quarter, two we saw a little bit of decline already happening.
And then here in the third quarter, we sold more rapid decline, but it's not a straight line and so within the periods. It's also important to look at the specific.
The specific points in time, which we either entering or get out.
Okay. Thanks.
I guess just a final question.
Would you say that there were any mistakes made in the execution of your risk management program I guess.
Over the course of the quarter that seem to have led to higher hedging losses.
Good morning.
Yes, let me kick that off I would say.
In terms of the actual execution of the trades and the parameters team had everything was in compliance.
Again, I think where we are.
Overestimated was in the.
Growing the wholesale business as large as we did.
So we didn't fully and understand particularly the basis exposure through that Marcel do you want to comment further on that.
No I think you actually said that we're also of course a bit hard to say that no mistakes were made if you're looking at at the muscle the book life protection Formula to grow it smoke that there was a rogue trader, we log side of the balance which we have.
I think the spend is clearly a test in the volatile market, we've seen interest rollout of out of our normal expectations and range and Thats, where we are where we will apply to index.
We will probably come back.
Great. Thank you very much guys.
Your next question comes from Steve Hansen with Raymond James Please.
Please go ahead.
Yes, Thanks, guys just a quick follow up for me.
We did take a big step back for a moment. The fact that you are able to maintain the annual guide despite pretty sizeable shortfall here for Q3. It does seem to suggest a fairly robust fourth quarter printing and I know you cited a couple of factors in the release around your confidence in that.
But they don't really stand out to me as being.
That exceptional like a return to a normal capture.
Normalized and that's an improvement, but it we're sort of going back to the normal not outsized.
I suppose the strong start to the tourist season does maybe call out some.
Better conditions than you would have previously expected, but what is really driving that confidence in the fourth quarter outlook is it a combination of the crack in the tourist season is that the way to think about it.
Yeah.
If you go through our businesses.
There are a number of items right so in our Canada.
It does resume it does assume a resumption back to sort of normal run rate nothing.
Further than that.
And look we are entering into a period, where our commercial business tends to run seasonally stronger. So there is a driver and then we're just predicting a normalization of.
Our EBITDA plus we do have some M&A that has flowed through rights. It is small but it is helping.
The other.
If we look at the U S basically is.
A reversion to its.
Normal run rate for that business. So that's a big pickup relative to the third quarter as you say on the refinery. It really is capture rates and assuming we are.
Still in a positive refining environment so.
We certainly have come out in the first month you are quite strong.
But do we expect the fundamentals to prevail here throughout the quarter.
In our international business that business continues to demonstrate good organic growth.
Again, we are rolling in through some M&A, there and adding that all up that gives us the confidence to guide back too.
Within the range or to confirm guidance within the range.
And certainly when you add the.
Hum.
The fall contribution the 25%.
We're very comfortably within that range.
Okay I appreciate the comments thank you.
There are no further questions at this time. Please proceed.
Great well look.
Really looking forward to providing more color on our Q3 results here.
Early in November thank you for dialing in.
We look forward to connecting.
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