Q3 2024 HF Sinclair Corp Earnings Call
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Speaker Change: Welcome to HF's InClarer Coal Operations 3rd Quarter, 2024 conference call in Webcast. Coaching the call today is Tim Go, Chief Executive Officer of HF's InClarer. He is joined by Atanas Atanasov, Chief Financial Officer.
[inaudible]
At this time, all participants had been placed in a listen-only mode, and the floor will be open for your questions following the presentation.
Speaker Change: If you would like to ask the question at that time, please press star one on your touch tone phone. If at any point your question has been answered, do you may remove yourself from the cue by pressing the pound key?
If you should require operator assistance, please press star zero. We ask that you please limit yourself to one question and one follow-up.
Speaker Change: Additionally, we ask that you pick up your handset to allow optimal sound quality. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery by President Industrial Aegean. Craig, you may begin.
Craig Biery: Thank you, Nobi. Good morning everyone and welcome to HF's and Claire Corporation's third quarter, 2024 earnings call. This morning we issued a press release announcing results for the quarter ending September 30th, 2014.
Speaker Change: If you would like a copy of the earnings press release you may find them on our website at hfsinclair.com.
Before we proceed with remarks, please note that safe harbor disclosure statement in today's press release. In summary, it's a statement made regarding management expectations, judgments, or predictions or forward-looking statements.
The 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.
Speaker Change: The call also may include discussion of non-gap measures.
Please see the earnings press release for reconciliation to get financial measures. Also, please note any time sensitive information provided on today's call. I know 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 him.
Good morning everyone and happy Halloween.
We are pleased with our third quarter financial and operational performance in all of our businesses.
Speaker Change: and especially by the strong and consistent earnings in our marketing, mainstream and lubricants and specialty segments.
Speaker Change: These contributions from our differentiated business segments, Highlight of Value of our diversified portfolio, especially as global refining margins we can.
We continue to execute our strategy to integrate and optimize our portfolio in order to strengthen the earnings power and competitive advantage of our businesses while focusing on improving safe and reliable operations.
During the third quarter, we returned $222 million in cash to shareholders. And today announced a 50 cent quarterly dividend demonstrating our continued commitment to share all the returns.
Speaker Change: Now let me cover our segment highlights before turning over to Aga.
Speaker Change: In refining for the third quarter of 2024, we continue our streak of improved reliability by completing the turnaround that our park will refine our time and on budget.
Here today we've made progress on lowering our operating expenses and will continue to focus on cost management and improving utilization. As we drive towards achieving our new term target of $7.25 per throughput barrel.
Our optimization efforts resulted in a quarterly record for jet production across our fleet, and our Witz Crosser finally set a quarterly record for premium production.
In renewables for the third quarter of 2024, we set a record for the highest quarterly sales by renewable diesel and achieved our lowest operating expenses per gallon.
Our teams optimization and reliability efforts resulted in another quarter of positive adjusted EBITDA despite continued headwinds from week, Wednesday and LCFS credit prices.
Our strategy for the renewable diesel business remains centered on things we can control.
Speaker Change: One, reduce the level of high cost inventory.
2, increase our low CIP stop mix and 3, lower our operating expenses.
In marketing in the third quarter of 2024, we continue to grow our store count with the addition of 22 net new branded sites. And on a year to date basis, we have added a net of 46 fully branded sites to our portfolio.
Speaker Change: Our Strong Third Quarter results reflects the growth strategies we are executing since the sin-color acquisition.
We continue to expand our group pipeline and now have new sign contracts to convert 168 stores to branded wholesale over the next 6 to 12 months. And we continue to target 10% annual growth for branded sites.
In Lumerkin's and Specialties, we reported another strong horde of results, despite the fight of headwinds from falling all prices.
Our Strategic Initiatives of One Optimizing Our Sales Mixed.
2 operational efficiency and 3 furthering our basal integration efforts continue to strengthen our lubricants business.
In addition to our efforts to organically grow the business by high-grading our finished products portfolio.
We have also introduced digital tools providing better visibility to our supply chain and manufacturing constructures and a developed new product offerings to serve growing and use markets.
In our mystery business for the third quarter of 2024, we delivered another strong quarter of performance as we continue our integration work to drive our growth in this segment.
We have set record of Phillyett and third party transportation volumes supported by strength and our crude pipeline systems in the Rockies and Southwest.
Speaker Change: In the third quarter, we return $222 million to shareholders to share purchases and dividends.
Since the Cinco-Racquisition is March 2022, we have returned over $3.9 billion in cash to shareholders.
and then we're reduced our share count by over 57 million shares, which represents 71% of the shares we issued for both the sinclair and HEP transactions.
The Church of Christ, As of September 30, 2024, we have approximately
is a $800 million outstanding on our Sherry purchase authorization and we remain committed to our long-term cash return strategy and long-term payout ratio while maintaining the strong balance sheet and investment-grade credit rating.
Speaker Change: As I've mentioned earlier, we also announced that our Board of Directors declared a regular quarterly dividend of 50 cents per share, paying up on December 4th 2024, to holders of record on November 21st 2024.
Looking forward, we're being committed to improving our safe and reliable operations. And we believe our diversified business portfolio positions us to generate attractive through cycle cash flows and continue strong returns to our shoulders.
With that, let me turn the call over to Andes.
Thank you Tim and good morning everyone. Let's begin by reviewing HF's and Claire's financial highlights.
Today we reported 3rd quarter net loss attributable to HFC and Claire Shareholders of 76 million or negative 40 cents for diluted share.
Speaker Change: [inaudible]
Excluding these items, adjusted net income for the third quarter was 97 million. Well 51 cents per diluted share compared to adjusted net income of $760 million. Well $4.6 per diluted share for the same period in 2023.
Speaker Change: The Justice Ebeddaf of the third quarter was 316 million compared to 1.2 billion in the third quarter of 2023.
In our refining segment, 3rd quarter adjusted Ebeda was 110 million compared to 1 billion in the 3rd quarter of 23.
The New York Times, the New York Times, was primarily driven by lower adjusted refinery growth margins in both the West and Mid-Con regions as a result of high global supply across the industry, which would partially offset by high refined product sales volumes.
Croolloy O'Charge, average 607,000 barrels per day for the third quarter compared to 602,000 barrels per day for the third quarter 2023.
Speaker Change: This increase was primarily a result of improved reliability and decreased turneran activities of our refineries compared to the third quarter of 2023.
Speaker Change: In our renewable segments, we reported a just to debug 2 million for the third quarter, compared to 5 million in the third quarter of 2023. The steep grease was primarily due to lower indicator margins, despite increased sales volumes and feed stock optimization in the third quarter of 2024.
Speaker Change: The Total Sales Volumes were 69 million gallons for the third quarter compared to 55 million gallons for the third quarter of 2023.
Our Marketing segments reported EBITDAV 22 million for the third quarter compared to 21 million for the third quarter of 2023.
The Syncrease was primarily driven by high margins in the third quarter of 2024.
Lumbercons and specialty segments reported EBDA of 76 million for the third quarter compared to EBDA of 118 million for the third quarter of 23.
The Secrease was primarily driven by 27 million phypo charge from consumption of high price, feed stock inventory, in the third quarter, 24.
Speaker Change: is a 32 million Bible benefit in the third quarter of 23. Partially offset by improvements in the underlying business, including increased sales volumes, sales mixed optimization and basal integration in the third quarter of 2024.
A midstream segment reported adjusted EBITDA of 112 million in the third quarter compared to 101 million in the same period of last year. The scene crease was primarily driven by high revenues from increased volumes and high tariffs in the third quarter of 2024.
Netcast provided by Operation Stotal 78 million, which includes 90 million of turnaround spent in the quarter. HHS and Claire Capito expenditure total 124 million for the third quarter.
Speaker Change: yeah
Speaker Change: is a September 30th, 2024, HFS and Claire Stoldell's liquidity stood at approximately 3.7 billion.
is a cash balance of 1.23 billion, our under on 1.65 billion insecure credit facility, and 850 million availability on the H.E.B. credit facility.
is a September 30th. We have 2.7 billion of dead outstanding with it. Dead to cap ratio of 22% and 12%
Let's go to some guidance items.
With respect to capital spending for full year 2024, we still expect to spend approximately 800 million in sustaining capital including turn rounds and catalysts.
In addition, we expect to spend 75 million in growth capital investments across our business segments.
For the fourth quarter of 2024, we expect to run between 565 and 600,000 barrels per day of crude oil in our refining segment, which reflects the plan turnaround that our El Dorado refinery. We're now ready to take some questions from the audience.
The End.
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Thank you. Our first question is coming from Ryan Todd with Piper Sandler.
Please go ahead.
Speaker Change: Thanks.
Speaker Change: Congrats in the quarter.
Ryan Todd: Maybe a question first of all in terms of kind of cash allocation. You got a great balance sheet. You may tend to attract a level of shareholder returns on the quarter. As we think about going forward, if margin stay weak, how should we expect you to manage the balance sheet in the trade-off between?
You know how you approach shareholder returns versus the possibility of increasing that debt or managing the debt.
Good morning Ryan, this is Tim. Let me ask you, Atanas to jump right in.
Right, thank you for your question. I would point to history and who what we're doing this year. You know, we can crack environment.
Speaker Change: was able to maintain a very strong balance sheet with net leverage of under one times. And if you look at our year to date, all in cash return, where to 11% on a 12-month training basis, we're 14% in a continued weakness.
We believe we're still able.
To maintain a competitive O-ink guest return to our shareholders. We're certainly committed to our dividend. 100% as well as our buybacks and total return to our shareholders. Staff coupled with our investment grade rating, which is a key differentiator for us at two priorities. We believe we can maintain a...
Pardonly conservative balance sheet and continue to return cash to our shareholders.
Yeah, and Ryan, this is Tam, I'll just jump in and say, remember one of this.
Tam: We've bought in our HEP Business last year, was for the free cash flow.
And was for times like this where we knew that having that cash flow within our portfolio was going to be better and so we're very happy we did that and we're positioned better for it.
Thanks for the good.
is a question on refining operations. I mean, throughput with very strong in the quarter, continuous trend of...
A strong reliability in your end. Can you talk about what's working well in terms of the opportunity to improve operational reliability, what you're still focused on, what are areas that are still maybe further improvements that we should expect as we look forward to.
Speaker Change: Thanks for the question, as you know.
Focusing on improving our reliability has been our...
Speaker Change: For the last several years and it is good to see the fruits of that labor starting to show. So let me ask Malorie to come in.
Good morning. Yeah, so remember we've talked about our strategy before. We're focused on heavy, we've had heavy turnaround last few years and each of those turnaround making improvements and so it's working. It's our turnaround performance. Every turnaround, we're addressing reliability, opportunities, we're putting in the right capital, the right scope and we're getting very predictable on those as demonstrated this year with our goal and the turnaround we've completed.
We also work in our technology, driven efficiency and performance, we are doing a lot of technology and performance to drive efficiency in our operations and maintenance. At the ground floor, that is starting to produce dividends in terms of lowering our operating costs by equipment count. All of the strategies we have been talking about and continue to talk better just now starting to produce dividends.
Speaker Change: In Ryan, I would just say, you know, not only did that showing up in turnaround performance, it's showing up in throughput, but it's also showing up in our best for Merrill. And even though our offense was a little bit higher this quarter, it was mostly due to the maintenance of items that we had, you know, year to day, were 66 cents of Merrill lower than we were last year. And that's a tribute to the improved reliability that Ballon or team are delivering to the bottom line.
Speaker Change: Thanks, Tim.
Right? Your next question comes from Manav Gupta with UBS.
Speaker Change: Good morning, go ahead.
Manav Gupta: Good morning Team, looks like you guys are very focused on growing your marketing business.
I'm going to say, you know, help us understand why there is a strategic focus here, you know, if it does it give you ability to place a broad like some
You know, pipelines are being built into your regions. Then, said that allow you to offset that, you know, those pipelines, those product pipelines help us understand the real reason you are so focused on growing your marketing business.
Yeah, thanks for the question, Mano, as you know, with week.
Merge was in clear and brought them into the family.
Growing the marketing business was.
We're starting to see that find its legs and see why don't you talk a little bit more about the value of the benefit of doing that. Sure, thanks. I hope this is Steve. Following on with Tim's comments, we really believe that there's a significant opportunity here to increase our branded put.
We think there are logistical advantages to producing in markets that we serve and being connected through our mystery methods and we're looking to exploit that in the final pieces. We think that the brand is undervalued in terms of how we get value out of it so that brand to put gives us some resiliency through the cycle and to be honest there's quite a bit of interest and demand for Dino and so what we've seen so far in our growth is Tim Mitchell earlier.
Now we have an additional signed size of 168 that will be on the ground between 6 and 12 months. And that coupled with what we're doing in terms of getting more value out of the brand we believe should be an increased value to the overall energy of the brand.
Speaker Change: So Manalf, as you notice.
Speaker Change: We're on a one-rate of call it 75-80 million dollars of EBITDA in our marketing business, which is much higher than the 50 million of mid-cycle that we started with at the acquisition. But what you're seeing in that marketing segment.
is really only the tip of the iceberg. Because what's happening is for every branded mirror we're able to place.
We really come out of the marginal bulk barrel that we have to sell and that at a much lower price and those bulk barrels and they uplift associated with that is actually in the refining business.
Speaker Change: [inaudible]
Speaker Change: My second question here is on the use when we are just for the free fall game back. It's again a pretty strong quarter and you know it.
You have improved, continue to improve this business and it's time to start trying to get to a rendezvous bout, you know, 350 million of E-beta. So despite what the underlying of volatile commodity is doing, so help us understand some of the projects you have undertaken or measures you have undertaken to which is allowing you to get to that rendezvous about 350 million of E-beta in this business.
Yes, thanks Manav. The Loose Business just continues to perform quarter of the quarter. It's really our poster child of what we can do when we focus on integration and optimization. And I think Madden is team that really done a great job, Mad. You want to talk about what's going on. Sure. Madden here.
is a course we had a lot of flightboat headwinds which of course means that we're going to use those feet stocking in toories and consume older, more expensive feed versus our replacement cost. But in any case, these tend to bounce out throughout the year.
The Underlying Business Remains Very Healthy Actually Absence of that Fife of the Score, It was one of our strongest quarters since we've held the businesses over the past many years.
And it's really driven through a focused on operational efficiencies that we've talked about. The team has done a tremendous job in getting after some digital tools that are allowing us to get a better visibility of transportation, of planning, and of pricing management. And that's a big part of the secret sauce that we're using. I refer to it in past quarters as our housekeeping, but we've done a really nice job of that.
Speaker Change: and on top of it we've gone out with some regional core growth.
Speaker Change: [inaudible]
And one that we're really proud of is in our specialties portfolio. We introduced a new ingredient rubber processing technology for the tiring construction industry. This fast quarter called surface saw 51 hundred.
That will provide a much needed source of TDAE, treated dysolent aromatic extracts in North American market and provides significant improvement in the tire industry. And that's under test rate now. We're going to see some modest...
Sales, starting early.
Speaker Change: 225.
And then the other one that we've just introduced is really exciting called Innovate, which is a new dielectric emerging cooling fluid technology intended for use in the data centers and digital mining space.
So again, looking for new different areas to grow and see where our molecules and our technologies can be used to better improve our business and those businesses and markets we serve.
So Madalav, as you can hear, we've talked a lot about integration.
of our basal business in with our finished loose business. And that's driving a lot of our resiliency.
Speaker Change: in terms of, you know, through the basalt crack cycle. But what Matt's talking about is growth.
And you're really seeing a lot of really good growth in the finished loose business in particular in North America, double digits in North America for the last couple years, and that's really what's driving the good numbers you're seeing. Thank you so much for taking my questions.
On our next question comes from Paul Chang with Scotra Bank. Please go ahead.
Speaker Change: Good morning, tonight.
Can I have two questions? The first one.
wants to go back into lubricant. I think you guys have mentioned that.
Paul Chang: In the long-awaited Nazi Corp, this is all that may not be part of your Corp or for new. But I just curious that...
Paul Chang: With your improvement in the business and you gain the expertise in there. It's certainly reason why it cannot be part of your core portfolio in a long run.
The family particular reason
What You Don't Know About It's Business.
and that's such that you think in the long haul maybe better off that to be in someone else portfolio. Other than, yeah, the evaluation could be maybe a little bit high and multiple, but I mean, I'll pay you pay tax and everything. It's a really damaging very well added. So that's the first question.
Speaker Change: I'm happy with our Loves Business and...
The only real complaint that we made was that we weren't getting credit.
For the value of our lives business. And so when we had conversations in the past about, you know, it is to maximize shareholder value is...
Speaker Change: is the loose business that is better in someone else's portfolio. That was under the premise that the loose business wasn't getting the proper valuation in our portfolio. I think you can see over the last several quarters.
The Appreciation and the valuation of the loose has been getting more attention in our portfolio lately and especially now with refining margins, we can think you're seeing a lot more appreciation for that business in our portfolio. So the answer to your question is...
Yes, we can see it as a core business.
Long-term, we continue to grow it. That's what our main focus is going to be.
and Azar as the stock.
And as the shareholders appreciate the value of that business, then yeah we can continue to just enjoy the development and keep it for a while.
Thank you. The second question is that a number of your peers that have specifically and not sometimes caused reduction programs.
Speaker Change: One of your PhDs morning just announced that he took on the $20 million of course seeking efforts.
Speaker Change: I know that you guys obviously that continue.
Go on in this basis, I say an inland we can share, open a next several years that you're...
Speaker Change: is an initiative that is any area, major areas that you focus in that is going to join down course and then if there is, could you quantify for us? Thank you.
Yeah Paul, good question. Obviously as we go into a downturn everyone's going to be worried about cost. I've already mentioned that our OPEX Povertyl Interfining is down to the first of the year ago.
Valories, not finished yet, and is continuing to work down those calls. I don't know how to talk a little bit more about what she's doing there.
Yes, again we are continuing to push our topics through and focus on maintenance. You know, good portion of our operating expenses go towards maintenance and the activities of supporting maintenance staff and those activities. And as we get more reliable, we expect to continue to see those costs come off our books. We're starting to see where we have more matured those programs faster. Those sites in the West are producing very good office. And we see that that is going to go across the rest of the sea. So in terms of an exact dollar amount, we will not, you know, we're not going to provide that. You know, we have, you know, we have, you know,
Speaker Change: Turnle Goals, but our goal first is 725 on a consistent basis. And that's refining Paul. I'll just point out a couple other things. I mean, we're working.
Hard to reduce costs that's part of our integration and optimization priority.
But I can just point out a couple things.
I can lose this list that Matt just talked about.
Speaker Change: I'll give you a look at their optics.
I think they're under running $15 million this year versus last year. I think that's not my accident. It's by the efforts that have been going on and hitting the bottom line. I think if you look at our G&A, we're running about $20 million.
This year, below what we ran last year and again that's not by accident. That's all associated with the integration and optimization efforts that we've got going on. The mainstream's got the same thing with the integration efforts that we have going on and of course we're in a little bit.
has the lowest topics per barrel, this quarter that we've been able to demonstrate. So we're not going out there with a flashy program, but instead we're trying to show in the bottom line numbers what we're doing to reduce costs.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Doug Lugett with Wolf Research. Please go ahead.
Good morning, thank you for taking my questions Tim or I'm not sure who wants to take this one but
Speaker Change: Obviously you'll market, you'll a funny market is...
Public seeing some of the biggest changes that seem in place on the time work.
Speaker Change: is bringing back capacity with slightly out of your view hours for waking running at food tilt.
And obviously there's a lot of change he's going on with TMax and terms of critical availability. So I guess looking at the reset you gave us in your mid-cycle margin assumption.
Speaker Change: and Slideate of the Related Stack. This wonder how we should think about risking that in light of these changes. I used to talk to them that this is a reasonable bit at this point. Or how we think about the rest of that, the rest of that, 50$ more than a算.
Speaker Change: Yeah Doug, good to hear from you. Yeah we're confident in our mid-cycle numbers. Remember that's a cycle. And we know.
Speaker Change: We know that there's going to be ups and downs in the cycle.
And right now we're below the cycle to the shepherding out, but that doesn't change.
is our view of the strengthening of the business that we've done in our refining business in particular. There is a lot going on. All that Steve, I want to talk a little bit about that, but the bottom line is we're still confident on the cycle numbers. Steve, you want to cover. Doug, Steve, thanks for the question. You mentioned two things specifically. One, I think relates to supply.
Talk about that a little bit. First of all, Q4, we're heading into the obvious winter demands Swamp and seasonal driving.
Speaker Change: Coming off and refined your finishing maintenance, but when we look in 2025 we believe it will be closer to mid-cycle for a couple of reasons and on a larger basis we think.
There's a lot of puts and takes in terms of shutdown and then demand coming our capacity coming on to the tune over around 300,000 barrels of net new capacity.
But we think the man should outpace that obviously timing matters, but we feel like we'll be in a normal balanced margin environment.
For 25, which is around mid-cycle. You also mentioned TMX and we've seen some impacts clearly there with regards to crude values just as an example, you know, the deaths of narrowed.
And when you look out through next year we think that that like to heavy disc kind of stands at around a $12.50 to $15 range, obviously depending on several things.
By example, Q1 of 25 on the strip looks like it's roughly $6 less than it was in terms of Q1, 24. But we also see that our position in the Pacific Northwest.
Our ability to have, hopefully close to the dot, have 20 of the past of the easy building, taking multiple crews, is more barrel get out over the water.
We will be in a good position to go compete for those barrels.
And then through the balance of next year while the divs are slightly compressed.
Speaker Change: and until...
The production outruns pipeline capacity at DMX, we will have some compression in those discs and it will impact our mid-con and parco refinery but again we're...
Speaker Change: We're well connected to many hubs and we're working hard to optimize the crude slate and flexibility there. But as a lot on balance, we believe that our 2025 is a bit more supportive towards mid-cycle. That's how we're calling it right now.
I guess we're going to watch the dynamics but I appreciate it, it's going to help you all get right for sure.
Speaker Change: I'm my follow-up is on the nerve of the ego and I guess it's really specific to your polio mix as the BTC goes away at the end of this year and we have more of a CDI based credit system.
Speaker Change: How do you see your system set up in terms of making a bunch of jobs or not education?
Yeah, so I'll take that one as well. You know, we're watching the BTC very closely as it goes away and the PTC comes on and the C.I. base, as you mentioned, we've continued to push very hard to get more C.I. a low C.I. feedstock in our kit through better sourcing our capability on the P.T.U. and actually we'll use small tweaks in the plant.
And so we think we could compete with our current setup. We also have the ability to go take barrels to different markets that are not as dependent on low CI for that value and we've been able to move barrels into Canada and local markets as well where there has been some up-left. So, you know, there's some uncertainty heading into the first part of the year.
And we think that it's going to end up having to settle out with some more support from Rins. And so that's a bit of a how was that happening? When does that happen?
And then, you know, I'm a positive side so say it with this. There'll be fewer imported Finnish burrow so we think to supply.
Structure and Demand structure, Tyne up a bit that shows some supportive margin for 2025. But there's still a bit of uncertainty in the first part of the year, but we're watching it very closely and what man is that risk carefully. And Doug, that's, of course.
Speaker Change: Comitarian around the BTC and the PTC. But if you look at the overall renewable vessel.
Factors and Market, of course, we believe the LCFS credit prices are headed higher in 2025. I think that'll be a tail wing for our business. You know that New Mexico LCFS program is being finalized here of the next few months. And we think when that comes on line here at the end of 2025, maybe the early 26th, that will be a tail wing for us to give an hour. We'll be the only renewable diesel producer in New Mexico. And we think overall, Rins prices are going to be growing up as well. So, you know, we've shown that even in these current...
Bottom World Cycle Conditions, we can produce a positive EBITDA and we're positioned well for those tailwinds to show themselves next year and maybe in the year after too. Thank you guys for taking on this.
Next question comes from Neil Meta with Goldman Sachs.
Please go ahead. Yeah, good morning, Tim and Tim. But first question is just round capital as we think about next year. This year I think you got to 875 of which 75 is growth 800 sustaining.
Hi, I think about some of those moving pieces as we go into 2025 and is this a reasonable run rate as we think about next year.
Athens: Here. Good morning. This is Athens. Thank you for your question. I think this is a reasonable assumption over the next couple of years. You know, and that's about 800 to 800 and 75 including some growth cat accidents. So I think you'll write.
We're in the process of putting our budget together, Neil, as you know, so no official guidance at this time, we'll put that out in December like we normally do, but we're not seeing any major peak coming here next year as just, I think that's what Annes is trying to signal it will give you a better number here at the end of the year.
Speaker Change: Perfect, yeah, that helps us frame it out and then it's we think about the midstreams of your business. Talk about priorities from here and how do you see that as part of the business going forward?
A free cash low engine or can it be a vehicle for growth? So big priorities around the midstream side of your business over the next year.
Again, the ill-fitted Steve, thanks. I look after our midstream, to this as well. That's part of the...
Proposition of buying it in, we feel like.
There was a man-tap opportunity there and I think we're starting to see that.
We believe that there is utilization to go get and we think there are some pieces of the kit that we can optimize or go add to.
Speaker Change: To really allow us to unlock the integrated value chain and operate our hits as such. So, you know, we're focused on how do we go make sure that we're touching the molecules?
Speaker Change: Early in often and getting them on our system. Perfect example is things that we can unlock now because we are under one.
Speaker Change: One of them, Rela, our Permian Southwest Gathering Asset, we're working in investing to go move more barrels from third party or alternative modes of transport onto our system and helping that all the way through to our plants and in between the plants.
is one example that we see as an opportunity. So we think it is a growth engine and we think that this is something we'll continue to focus on as well as improving our overall cost profile.
and we believe that there are some things that we can do between the operating platforms and refining, as well as midstream where we can share the best practices and learn and do things, you know, common solutions for common problems. But we're pretty excited about the opportunities that I had of us.
Speaker Change: [inaudible]
You know, we talked about.
Line NVHEP Business a year ago and one of the reasons was for the free cash flow creation associated with that that's going to pay a dividend now. The other one was for the group and that's what you're pointing out. You know this quarter, I think we had record pipeline volumes last quarter, I think we had record total volumes going through. If you look at our run rate.
Speaker Change: Um...
is a year ago. That's associated with not just higher tariffs, which we knew were coming, but also these higher volumes. Lower out costs as we've talked about. And higher third party volumes ago with that as well. So we do think midstream can be a growth engine. We've talked a lot about
Lube, and how Lube has been a real great spot for us over the last several years. I really believe that.
You're going to see the same thing in midstream and you're going to see the same thing in marketing as we continue to grow those, those what we call higher, higher multiple businesses in our portfolio.
In the one quick follow-up on that is that.
When you talk about it as a growth engine, do you mean primarily organically or do you see the potential for both on as well at midstream?
Well, our focus right now is organic. I mean, we've talked about that this past year as one of our priorities is, you know, internally focused reliability, internally focused integration and optimization.
But I think over time as we develop that foundation and really solidify it, I think there's going to be opportunities for modest in organic opportunities for growth as well. So I would just say it's not.
It's not our highest priority right now, our highest priority is internal or genic growth, but that is on the table for sure. Okay, very clear. Thanks, Team.
The next question comes from Theresa Chen with Barclays.
Please go ahead.
Morning. Steve, let's get some additional details on your comments about demand.
is a cross-refotment by products and related to what you said earlier on expectations for demand outpacing supply over time.
is a project that is currently working on the project. How does that translate to your specific markets in the more niche areas, plus the specific more to us?
Speaker Change: Yeah, thanks Teresa.
You know, to man again, everyone has been concerned about a structural issue with demand. What we've seen is there is not a structural issue with demand. It has been relatively flat and even up in some of the markets. The issue in terms of the cracks have been associated with the additional supply on the market, which has come from.
is a very thing that we've already talked about. We think in our markets that there are areas that have advantages, regional advantages, where there's growth that's still happening and people are moving there. And we see that that is an advantage that we can exploit.
And we'll go continue to grow that through optimizing our midstream footprint and our branded put through our retail.
Speaker Change: Um...
Retail stations. We're pretty excited about the overall regions that we operate in. One of our largest growth areas that we've seen so far today, as you mentioned, is in the Pacific Northwest. That's fertile hunting ground where we can look to optimize between the plants and that look that locale. And then also in the southwest, we see good demand and good growth there. And we'll continue to fill out the other regions where we already have a high concentration of our brand's plant.
Speaker Change: At An On That branded put, based on your execution and well thus far, how much of an incremental margin benefit does that bring? Is that sustainable over the medium term? How should we think about that incremental financial uplift?
Yeah, so you know on a revenue replacement basis when we go put a new side up versus a site that doesn't really fit in our portfolio We see between 60 and 120% increase in overall volume over over time and they're in better locations, and so the margin structure continues to improve with better sites
We're not giving explicit guidance, but we're starting to see it in the run rate. He mentioned earlier the EBITDA run rate of between 75 and 80 million. We believe is realistic based on what we've seen in 2024 and we think there's further opportunity. So, higher margin, resilient, and better volume locations.
Hi Grating from a book to an unbranded to a branded outlet. It's really the strategy and the key to continue to unlock value.
Thank you.
The next question comes from Jason Gableman with Kiti Cowan.
Please go home. I'm a morning.
Jason Gableman: Good morning. Thanks for taking my questions. One quick accounting one. It looks like cash flow was very strong, well above, what's implied by your EBITDA numbers. So just wondering if there was a working capital benefit or something else going on with cash from ops.
Jason Gableman: Now Jason, this is Atanas, that's an accurate observation. We just have a working capital tailwind in the winter, over the summer months as we were working down in the wintery. So that helped us.
Okay, and then the other one just...
Speaker Change: Thinking about Outer's.
I'm in position and this has been touched on quite a bit on the call, but it sounds like part of the growth in retail.
is to secure demand out what's for that supply. But as we think about what's going on in California and refinery shutting down, I was hoping you could one talk about your...
Ability to supply that state from...
Planned in the Washington Plant. And then if there's an interest in kind of pushing the logistics further west to move product from your rockyies footprint. Thanks.
Jason Gableman: Here at Jason, this is Kermal, I'll jump in, I do think that
Jason Gableman: The recent announcement in California is consistent with our long-term outlook for those supplied demand balances in California, and that is supporting our overall role.
Jason Gableman: The Long-term Strategy to the Eliton Move Conference West. We've talked about this before, but of course the Puget Sound Refinery has the ability to make car gasoline.
and a little benefit as the...
Jason Gableman: Gasling, become short and California.
Jason Gableman: We've already been able to take...
Jason Gableman: We'll be able to take more of it as the balance is continued to go short on gasoline. But as you point out, our wood's cross-refinery supplies Las Vegas.
is a call of California, and our New Mexico refinery supply in the Phoenix, which gets about half of its supply from California. So as the California gasoline,
Productions continues to reduce, we do stand a benefit by being able to place our barrels and take more of that market share in those regions, even though they're not specifically in California, they are tied to the California market and we believe that we're in the benefit of beneficiaries of that.
Speaker Change: Okay. Yep, got it. That's that's great color. Thanks.
Next question comes from Matthew Blair with TPH.
Jason Gableman: Ahead.
Matthew Blair: Thank you and good morning. Looks like in the third quarter the marketing volumes were down about 8% your beer, even though your site count was up, 3% could you talk about some of the dynamics that caused that?
Jason Gableman: [inaudible]
Speaker Change: and we see that will come on so this is really a timing issue in the volume. I guess that earlier we're seeing growth and even down the margin and that's a direct result of us high grading the portfolio already.
Downskid, right? The margins did improve. Okay, then could you plug in any expectations for refining capture rates into the fourth quarter here? I think you support the 8% capture.
In Q3, it seems like higher winds could be small headwinds here indicator, but then there might be tailwinds from areas like beauty and blending, crew dips and market structure. So how do you see refining capture shaking out in the fourth quarter?
Yeah, we're not guiding us seriously in a capture but there are a few trends that we're watching. One is that, as I mentioned earlier, the light to heavy index is more narrow than we've traditionally seen.
And one thing that we are watching, we do have our El Dorado plant in turnaround and as you know that's a big heavy.
Speaker Change: Crewed Producers.
Now, if you think blending, there may be some offsets there and we think that as we continue to go push our jet production, that is an area that has been favorable to us and maximizing that and extending the jet value chain and they continue down the path of producing as much premium as we can and extending it through our retail value chain and also our heavy oil value chain that upgrading our bottoms from wholesale retail. Those are things we'll continue to focus on calling it right now and I think we're ready to call it but those are the things that we can take advantage of and continue to drive.
Speaker Change: Time's weird, thank you.
Our next question comes from Joe Lach with Morgan Stanley.
Speaker Change: Please go ahead, Ruth.
Speaker Change: Hey, good morning. Thanks for the time. Just one question from me this morning. So on the lubricant side, I know you talked about organic growth, but on the inorganic side, I think lubricant is a pretty fragmented market. Are there opportunities to grow inorganically here? It was really just more of a focus on the organic side. Thank you.
Thanks, Joe. It's Matt here. I appreciate the question. One of the things if you look back across the past couple of years we really focused internally to ensure that we're in the best place to organically.
is Bill of Fort Foundation, a solid foundation, and you're seeing that track record of success. But as we've established looking forward, I think that this is an excellent opportunity to look out at our portfolios, see where we have segment strengths, where we have some gaps where there may be some really nice bolt on acquisitions.
And we'll look at those and consider them for growth in the future. So I think that it's absolutely plausible to see something like that. And we'll keep you informed as when we make progress or choose to go down that path in the future.
Speaker Change: As you know, Joe, as you pointed out, the industry's fairly fragmented. We have been an industry consolidator in the past, right, when we put PCI and Sautoborn and Red Giant together. We've needed the last few years to...
Billed our foundation and did integrate and optimize that portfolio, but as Matt mentions, if we find and we are looking for some opportunities to continue to enhance that portfolio, we would start like to consider.
Thanks for the time I appreciate it.
You better.
I am now turning the floor back over to Tim for any clues in remarks.
Thank you, Novey. In summary, our third quarter results demonstrate the earnings power of our diversified portfolio.
Speaker Change: We are focused on executing our strategic priorities, and these business improvements are growing the bottom lines of our mainstream marketing and lubricants and special days businesses.
In our refining and renewable segments, we're focused on what we can control during these challenging market conditions.
Both segments are delivering better turnaround, reliability, and lower operating costs to drive solid performance in below mid-cycle conditions.
All of these are indicative of the hard work and commitment of our employees executing our plan.
In short, our focus over the past few years is working, and our business and our balance sheet are much stronger than before.
Speaker Change: Looking ahead, our priorities remain the same, to one improve our reliability.
2 to integrate and optimize our new portfolio vassets and 3 return excess cash to our shareholders.
Speaker Change: Thank you for joining our call and have a great day.
Thank you. This does conclude today's teleconference. Please just connect your lines at this time and have a wonderful day.
The End.
Speaker Change: [inaudible]