Q4 2024 HF Sinclair Corp Earnings Call
Speaker Change: Welcome to H.F. Sinclair Corporation's fourth quarter 2024 conference call and webcast. Hosting the call today is Tim Go, Chief Executive Officer of H.F. Sinclair. He is joined by Atanas Atanasov, Chief Financial Officer, Steve Ledbetter, EVP of Commercial, Valerie Pompa, EVP of Operations, and Matt Joyce, SVP of Lubricants and Specialties.
Speaker Change: At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone phone.
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Speaker Change: 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 optimum sound quality. Please note that this conference is being recorded. And it is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin.
Speaker Change: Before we proceed with remarks, please note the Safe Harbor Disclosure Statement in today's press release. In summary, it says statements made regarding management expectations, judgments, or predictions are forward-looking statements.
Speaker Change: 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.
Speaker Change: Please see the earnings press release for reconciliations to gap 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 re-reading of the transcript. And with that, I'll turn the call over to Tim.
Tim Go: Good morning everyone. Our full year 2024 financial and operational results highlight the strength and resiliency of our diversified portfolio and 2024 was a good year to prove that out as we navigated challenging macroeconomic conditions and refining.
Tim Go: First on improving reliability, our heavy turnaround workload in 2024 was completed on schedule and on budget, leading to increased utilization and higher refinery throughput year over year.
Tim Go: I'm also pleased to report that we achieved our best ever results for personal safety 2024, beating our old record by over 40% and positioning all of our assets to continue operating safely and reliably.
Tim Go: Second optimization and integration helped us achieve record EBITDA in both our marketing and midstream businesses, and our lubricants and specialty business generated another strong year of earnings.
Tim Go: We also benefited from lower SG&A expenses year over year.
Tim Go: Third our commitment to shareholder returns, we managed our portfolio of assets to generate strong cash flows of the cycle and are pleased to have returned over $1 billion to shareholders in 2024 through both dividends and share repurchases, all while maintaining a strong balance sheet and liquidity position.
Tim Go: All of these examples are proof points that our strategy is working.
Tim Go: Now, let me cover our segment highlights.
In refining for 2020 for our annual adjusted operating expenses were lowered to $7 98 per throughput barrel through lean efforts and improved reliability, a reduction of 37 per barrel year over year.
Tim Go: Setting us on the path towards achieving our target of $7 25 per throughput barrel.
Tim Go: We set annual records for premium gasoline production at Woods Cross jet production at Puget Sound and hydrogen production at Artesia amongst other individual site records.
Tim Go: In renewables for 2024, we achieved significant milestones with reducing our annual operating expenses per gallon, 24% year over year, while increasing utilization and sales volumes by 19% year over year through improved reliability and optimization efforts.
Excluding the $20 million end of year charge related to drawdown of higher cost inventory, our renewables business would've achieved significant positive fourth quarter EBITDA.
Tim Go: While the margin environment was challenging in 2024, we focused on the things we can control such as increasing our low Ci feedstock mix through a pretreatment unit.
Tim Go: Improving our hydrogen availability through our reliability efforts and leveraging our commercial strategy to strengthen the earnings power of the business.
Tim Go: Our marketing segment for 2024 delivered record annual EBITDA of 75 billion or two.
Tim Go: 23% increase over 2023.
Tim Go: We also grew our supply branded footprint by a net of 87 sites during 2024, demonstrating our commitment to grow this business and increase the percentage of branded wholesale volumes across our refining system.
Tim Go: We continue to see strategic value and growing in integrating the Dino brand into our portfolio as it provides a long term outlet outlet with margin uplift for our refining barrels looking.
Tim Go: Looking forward, we expect to grow our number of branded sites by 10% annually.
Tim Go: In lubricants specialties, we delivered another strong year of earnings with $330 million of adjusted EBITDA, even with $45 million of FIFO headwinds are.
Tim Go: Our results were driven by strong sales volumes product mix optimization across our finished products portfolio and continued base oil integration.
Tim Go: In our midstream business, we delivered record annual adjusted EBITDA of $447 million up 14% year over year and record total volumes up 7% year over year highlight.
Tim Go: Highlighting the value of simplifying our corporate structure and capturing synergies from the buy in of HCP.
Tim Go: Looking forward, we remain committed to growing this business and believe there's more low hanging fruit for integrating and optimizing our midstream and refining businesses.
Tim Go: Yeah.
Tim Go: The strong performances of these three non refining segments demonstrate the strength and resiliency of our diversified portfolio.
Tim Go: During 2024, we returned over $1 billion to shareholders through share repurchases and dividends.
Tim Go: Since the Sinclair acquisition in March 2022, we have returned over $4 billion in cash to shareholders and have reduced our share count by over 57 million shares which represents 71% of the shares we issued for both the Sinclair and <unk> transactions.
Tim Go: As of December 31, 2024, we had approximately $800 million.
Tim Go: Outstanding.
Tim Go: On our share repurchase authorization and we remain committed to our long term cash return strategy and long term payout ratio, while maintaining a strong balance sheet and investment grade credit rating.
Tim Go: Today, We also announced that our board of directors declared a regular quarterly dividend of <unk> 50 per share payable on March 22025 to holders of record on March six 2025.
Tim Go: Looking forward, we remain focused on our strategies to improve reliability optimize and integrate our portfolio and return capital to shareholders, which we believe will drive continued profitable growth and value creation for our shareholders.
Tim Go: We are also encouraged by the recent uptick in our refining indicator margins and believe we are well positioned to capture the anticipated rebound in cracks during this driving season.
Ed: With that let me turn the call over to Ed.
Ed: Thank you Tim and good morning, everyone, let's begin by reviewing Hff's Sinclair as financial highlights.
Ed: Today, we reported fourth quarter net loss attributable to HFC shareholders of $214 million or negative <unk> 14 per share.
Ed: These results reflect special items that collectively decreased net income by $23 million.
Ed: Excluding these items adjusted net loss for the fourth quarter was $191 million or negative <unk> <unk> per diluted share compared to adjusted net income of $165 million or <unk> 87 per diluted share for the same period in 2023.
Ed: Adjusted EBITDA for the fourth quarter was $28 million compared to $428 million in the fourth quarter of 2023.
Ed: In our refining segment fourth quarter, adjusted EBITDA was negative $169 million compared to $276 million in the fourth quarter of 2023.
Ed: This decrease was principally driven by lower adjusted refinery gross margins in both the west and mid Con regions. As a result of high global supply of transportation fuels across the industry and lower refined product sales volumes.
Ed: Crude oil charge averaged 562000 barrels per day for the fourth quarter compared to 614000 barrels per day in the fourth quarter of 2023.
Ed: Crude charge declined in the fourth quarter of 2024, primarily as a result of the turnaround at our El Dorado refinery and weaker market conditions.
Ed: In our renewables segment, we reported adjusted EBITDA of negative $9 million for the fourth quarter compared to negative $3 million for the fourth quarter of 2023.
Ed: This decrease was principally due to the drawdown of high priced inventory, resulting in a $20 million increase to cost of sales in the fourth quarter of 2024.
Ed: Total sales volumes were 62 million gallons for the fourth quarter of 2024 as compared to 63 million gallons for the fourth quarter of 2023.
Ed: Our marketing segment reported EBITDA of $21 million for the fourth quarter compared to $9 million for the fourth quarter of 2023.
Ed: This increase was primarily driven by higher margins in the fourth quarter of 2024.
Ed: Our lubricants and specialty segment reported adjusted EBITDA of $70 million for the fourth quarter compared to adjusted EBITDA of $57 million for the fourth quarter of 2023. This.
Ed: This increase was primarily driven by a decrease in FIFO charge from $30 million in the fourth quarter of $2023 2 million in the fourth quarter of 2024.
Ed: The FIFO charge in both periods were driven by the consumption of high priced feedstock inventory.
Our midstream segment reported adjusted EBITDA of $114 million in the fourth quarter compared to 110 million in the fourth quarter of last year.
Ed: This increase was primarily driven by higher revenues from higher tariffs in the fourth quarter of 2024.
Ed: Net cash used by operations totaled $141 million in the fourth quarter, which included a $154 million of turnaround spend.
Ed: <unk> capital expenditures totaled $173 million for the fourth quarter.
Ed: As of December 31, 2020 for HFC declares total liquidity stood at approximately $3 3 billion.
Ed: Which includes a cash balance of 800 million.
Ed: Undrawn $1 65 billion unsecured credit facility and $850 million availability on the <unk> credit facility.
Ed: As of December 31, we had $2 7 billion of debt outstanding with a debt to cap ratio of 22% net debt to cap ratio of 15%.
Ed: On January 23 2025.
Ed: Hey, just Sinclair issued an aggregate principal amount of $1 4 billion of senior notes consisting of $650 million of 575% senior notes due 2031 and $750 million of six 5% senior notes due 2035.
Ed: We used net proceeds from the notes to repay all 353.
Ed: $350 million in outstanding borrowings under the <unk> credit facility and to fund approximately $850 million and tenders and redemptions of our 2026 senior notes and $150 million and tenders of our 2027 senior notes.
Ed: This extended our debt maturity profile.
Ed: During our weighted average interest expense.
Ed: Let's go through some guidance items.
Ed: With respect to capital spending for full year 2025.
Ed: We expect to spend approximately $775 million in sustaining capital, including turnarounds and catalysts.
Ed: This is down $25 million from 2024 and includes a non refining and specialties lubricants and specialty is turnaround in 2025.
Ed: In addition, we expect to spend $100 million in growth capital investments across our business segments.
Ed: For the first quarter of 2025, we expect to run between $580 and 620000 barrels per day of crude oil in our refining segment, which reflects the planned turnaround at our Tulsa refinery.
Ed: We're now ready to take some questions from the audience.
Ed: Okay.
Speaker Change: Thank you if you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. We ask that you limit yourself to one question and one follow up if you have any additional questions. We welcome you to rejoin the queue.
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Speaker Change: Our first question comes from Manav Gupta with UBS. Please go ahead.
Speaker Change: Good morning, guys.
Manav Gupta: I'm just trying to understand look the west coast market looks a lot data given all of the unplanned downtime be able we're seeing so help us understand your leverage to divest <unk> paid whether it's through you did sound univar.
Manav Gupta: Other refineries that you have that can supply to markets, which are linked to the west coast crack.
Manav Gupta: Hey, Manav. This is Steve Thanks for the question, Yes, we're watching the market on the West coast as recent unplanned events and heavy turnaround season has started and the fundamentals are improving.
Manav Gupta: We think that that helps the overall market balance for not only our Puget sound refinery in the Pacific Northwest.
Manav Gupta: We like to say that we can touch the south side of the pad five.
Manav Gupta: Multiple points, we can come from the Salt Lake Valley down our integrated unit pipeline into Vegas and out of our Navajo Artesia refinery up into Phoenix. So we're seeing the benefit there and we look to take advantage of that as this unfolds.
Tim Go: Yes, Manav I would just say this this is Tim Manav I would just say we've talked about how part of our overall strategy is to be able to move barrels west to take advantage of what.
Tim Go: What we perceive to be a gasoline shortage long term in that area and so that that strategy is paying out as we see this heavy turnaround season, and some unplanned events going on right now.
Tim Go: Perfect and quick follow up.
Tim Go: You when you dig.
Speaker Change: Again part of it was planning to grow the marketing business help us understand a little more what's going on over there is it going to be more organic or you are looking at some small bolt on opportunities and your plans to really a marketing business.
Steve Ledbetter: Yeah again this is Steve.
Speaker Change: We see that that is still one of the largest yet untapped value elements of the Sinclair acquisition, we're making good progress as Tim mentioned in the prepared remarks, we put on 87 net stores. We have another signed 152 that we look to come on in the next.
Steve Ledbetter: Half of the year or through the third quarter.
Steve Ledbetter: We believe that that branded put is an important sustainable aspect and we're seeing high demand for it so accelerating that as important through our organic growth program. When we think about inorganic there's nothing on the on the slate at this point, we will look at things, but we really believe we can fill out our market predominantly.
Steve Ledbetter: <unk> through our organic growth in the wholesale marketing again.
We're starting to see the benefits of that and looking to grow that from between 5% and 10% year over year.
Steve Ledbetter: Thank you.
Speaker Change: Your next question comes from the line of Ryan Todd with Piper Sandler. Please go ahead.
Steve Ledbetter: Good thanks.
Speaker Change: Maybe if I could ask on the lubes business.
Steve Ledbetter: First.
Steve Ledbetter: And the last couple of quarters, it's been a little bit weaker generally below where you would expect the mid cycle earnings power of the business can you maybe talk about how you view the market backdrops.
Steve Ledbetter: Macro backdrop for those business going forward.
Steve Ledbetter: And so when you get back to that $350 million run rate level in 2025.
Matt Joyce: Sure Ryan, It's Matt choice here.
Matt Joyce: If we look at the macro backdrop of the lubricants business. In 2024, you saw similar to what we've experienced over the refining side a lot of compression on the base oil markets, which still swing a fairly big part of the.
Matt Joyce: The business in our portfolio.
Matt Joyce: The team has done pretty nicely to manage through that what we would consider a down cycle in the base oil market over the past couple of quarters, we've seen subdued.
Matt Joyce: And actually we are now seeing that turn a bit.
Matt Joyce: And we're encouraged by what we see going forward from that perspective.
Matt Joyce: We are also seeing subdued demand just in general in our European businesses.
Matt Joyce: That market has been slower than the normal and and we've seen steady steady off takes in in North America, and we're actually growing our positions in our businesses in the U S in particular off.
Matt Joyce: A very nice base that we've established over the past several years. So we see our business continuing to perform and then and I think we will.
Matt Joyce: We'll see if you look at and excluding FIFO number it's a 375 result.
Matt Joyce: So again the underlying performance of this business is still very healthy and trending above mid cycle.
Tim Go: Yeah. Ryan This is Tim I'll, just chime into I mean, Matt said it.
Matt Joyce: It.
Matt Joyce: Despite even the challenges and headwinds that all businesses face that Matt just described.
Matt Joyce: If you factor in the $45 million of FIFO impacts, we actually were in kind of our underlying business rate of $375 million, which would have been a record for.
Matt Joyce: For 2024, so we still believe the business is strong.
Matt Joyce: Seasonally fourth quarter is generally the weakest quarter and we're seeing first quarter pick back up again like we would expect.
Speaker Change: Great. Thank you and then.
Matt Joyce: And also on your favorite thing to talk about.
Speaker Change: But there's obviously.
Speaker Change: The high profile examples an activist investor involved with one of your peers.
Speaker Change: The debate over the best way to recognize value within the diversified business model. How do you think about the balance between driving value recognition for businesses within your mix through organic growth or improved profitability.
Speaker Change: Particularly for something like Lubes.
Speaker Change: Versus.
Speaker Change: Potential for external monetization.
Yes, Thanks, Ryan nothing has changed in our strategy around the lubes and specialties business.
Speaker Change: Our goal is to maximize shareholder value that may not have come across as clear as I should have last quarter, but.
Speaker Change: We are open to whether thats in our portfolio or in someone else's portfolio, but we are going to have our goal is to maximize the shareholder value in the near term we're focused on continuing to optimize this business to integrate it and grow it mostly through organic means but if there are some inorganic opportunities.
Speaker Change: Decent come up small bolt ons and as Matt mentioned last quarter, we would certainly be willing to entertain that but our primary focus is to continue to maximize shareholder value and in the mid term.
Speaker Change: We will continue to evaluate the strategic options on how best to do that.
Speaker Change: Okay. Thanks, Dan.
Speaker Change: Your next question comes from the line of Paul Cheng with Scotiabank. Please go ahead.
Paul Cheng: Hey, guys good morning.
Speaker Change: Good morning, Paul.
Speaker Change: <unk>, maybe Steve I wanted to go back into the first question on marketing.
Speaker Change: The EBIT look really good and you guys continue to add store, but if you look at the sales volume and we just do a very simple math and divide it by the number of store you're pushing your per store sales.
Speaker Change: Quarter to quarter, I'd say youll for years that talk about 10%.
Speaker Change: Trying to understand that.
Speaker Change: Why that is the case and you say that concern that.
Speaker Change: On the incremental debt.
Speaker Change: Thank you getting gain yet just seems sorry, yes, NASA put uptake than your existing that's the first question.
Speaker Change: Yeah.
Speaker Change: Thanks, Paul.
Speaker Change: On the marketing element looking at volume year over year, we like to talk about this as high grading the portfolio as we go put a new.
Speaker Change: Site on the ground what we're seeing is the revenue replacement sites are performing better between 60 and 120% once they come online and at a higher margin, but these times. These things take a little time. So really this is a timing issue with some of pruning the tree and maybe we don't want to continue.
Speaker Change: With some of these sites, but the sites that we are seeing really are performing much better and youre seeing it in our EBITDA. So this is really just a timing issue and how things are are shaking out in the actual financials.
Speaker Change: Yes, Paul this is Tim what I would also add onto that as you see the net increase in stores, which is 87% for the year that really consists of something like 120, some odd new stores netted out with about 40 of the old stores that have been rolled off and thats the high grading.
Speaker Change: <unk>.
Steve Ledbetter: Steve is referencing and Thats why youre seeing maybe you lose some volumes and some of those stores that are rolling off but the high grading of the new business is by far driving the.
Steve Ledbetter: Driving the margin increase and you see that the gross margin per gallon.
Steve Ledbetter: Difference that were that were posted here in 2024.
Speaker Change: Uh Huh Stifel team do you have a.
Speaker Change: Same store.
Hi, all ticket for.
Speaker Change: For those that has been in your portfolio of more than a year that you can see that these that we can do some maybe apple to Apple comparison.
Speaker Change: Yes. So we do look at same store sales and those are trending about where we expect them to begin timing is an important element and so these things take between six months about to ramp up to full speed and as you mentioned, though that the stores that we've lapped year over year, we're seeing at parity or slightly up we continue to see growth in our region.
Speaker Change: So we think that gives us a positive indication that our strategy on moving more into our branded put.
Speaker Change: Is the right one to take with this business.
Speaker Change: Okay.
Speaker Change: My question is that the team I think.
Speaker Change: When you look at your finding medium term cost pocket say 725 per barrel.
Speaker Change: Partly is that do you think youll utilization will over time become better more reliable and so you will be able to get the denominator higher but thats not going to be sufficient and I think you had said in the past that you're pumping needs.
Speaker Change: $750 million in cost savings.
Speaker Change: Two we need to bridge, the gap and get to there.
Speaker Change: Do you have any update you can share in terms of what initiatives.
Speaker Change: You guys are taking and pays and to able to achieve that cost reduction.
Speaker Change: As of the time duration to achieve that thank you.
Speaker Change: Yeah. Good morning. This is Valerie and as you know we are aiming at the 775 target let me take a stab at this past year.
Speaker Change: Liability remain the number one thing we're working on.
Speaker Change: And you're seeing that and year over year and production. In addition to that we're feeling that as improvements in turnaround and capital which also go after.
Speaker Change: Operating costs through efficient and efficiency in the capital, we're putting on the ground and eliminating high cost.
Speaker Change: Maintenance assets. The other thing that is in our strategy in digital and our.
Speaker Change: <unk> are using several digital.
Speaker Change: Programs too.
Speaker Change: Drive predictive asset intelligence and optimize our plants. These models are changing the way we work and we anticipate that those and we're starting to see those strategies play out in our maintenance costs and our operating costs are all this year, we expect that that's going to continue to.
Speaker Change: Service well.
Speaker Change: Paul This is Tim I'll, just jump onto without talked about.
Speaker Change: Others are announcing cost reduction programs in terms of total dollars that theyre trying to take out of the out of their portfolio.
Speaker Change: We announced our goal in terms of the seven.
Speaker Change: $7 25 per barrel metric that bill just talked about because we think that addresses both the cost reduction program numerator as well as the improved reliability denominator that we're trying to achieve we think this is a better way to measure progress and so that you can kind of CR, how we're doing against our bottom line.
Speaker Change: We know how much it cost we have to take out in order to get to that 725, if the numerator level.
Speaker Change: So this is more than just reliability.
Speaker Change: And we're pleased with the progress to date miles talked about some of the things that we've done we achieved a record $7 98. This year as we as we talked about in our prepared remarks, and we believe that.
Speaker Change: We have line of sight to get to that 795.
Speaker Change: Alright, thank you.
Speaker Change: Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.
Yeah, good morning, Tim and team.
Speaker Change: The first question is just your thoughts on return of capital its been a big part of the strategy over the last couple of years, obviously, we're entering into a tougher.
Speaker Change: We've entered into a tougher margin environment.
Speaker Change: Active on.
Speaker Change: When do you see line of sight to being able to resume a meaningful buyback.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: For your question.
Speaker Change: We are first and foremost I'd like to reiterate our commitment to our.
Speaker Change: Long term capital return.
Speaker Change: Commitment of 50%.
To our shareholders. If you look at our if you look at our history, we've exceeded that.
Speaker Change: From where we stand today.
Speaker Change: With a line of sight of improving margins for the balance of this year and looking at our diversified portfolio, we feel very comfortable with meeting the target that minimum target of 50%.
Speaker Change: And as cracks improved to in fact exceed it.
Speaker Change: I'd like to point to your attention that if you look at our non refining businesses. When you look at midstream of approximately $4.
Speaker Change: <unk> hundred 50 <unk>.
Speaker Change: Lubricants of this past year 330.
Speaker Change: Marketing of 75.
Speaker Change: <unk> with significant dry powder, certainly to meet our dividend commitments and then S cracks improve to continue to return.
Speaker Change: Cash to our shareholders.
Tim Go: And Neil this is Tim as well.
Speaker Change: Pile on in terms of what <unk> is the same it's interesting I know some people are out there.
Speaker Change: Are talking about how their midstream businesses are strong and are able to.
Speaker Change: Basically cover their dividend needs. We're in the same boat if you look at our the $450 million of EBITDA that are.
Speaker Change: Extreme businesses is generating the cash that comes with that is enough to pay off our dividend and so really everything else that's coming out of marketing that.
Speaker Change: And as talked about that's coming out of loops, it's coming out of refining is really allowing us to then.
Speaker Change: Take advantage of additional ways to return value to shareholders through buybacks and other ways.
Speaker Change: Yeah that makes sense. So then it really comes back to the margin environment.
Nick: And Nick.
Nick: Mid con it seamlessly seasonal it tends to be a little bit weaker as you work through the winter, but just your perspective on are we seeing signs of improvement how do you think about the setup into this summer what's going on in the Midcon is it a crude problem as a product problem or just the seasonal problem.
Nick: Yes, Steve I'll take that one I think the midcon as you mentioned is very seasonal what we've had for us, particularly in the fourth quarter was it was our large turnaround and that was at El Dorado as far as what we're seeing in terms of structure in the mid Con I think what we'll see is.
Nick: The whole U S balance a little bit in terms of supply demand and then we will be able to take advantage of some of that improved crack as we drive into the our head into the driving season, and we're starting to see that already we look across 2025, and we think that just and on balance we see that it's a pretty constructive.
Nick: View for margins across our regions, we think the average will be.
Nick: At right at mid cycle demand is looking like it's going to be up growth continues in our regions. It's been a very cold winter winter.
Nick: And then theres, some supportive underlying economic fundamentals, suggesting a rebound in strong distillate demand. So overall, we look pretty we feel pretty good about our overall regions and the mid con is as part of that.
Nick: Okay.
Nick: So much.
Speaker Change: Your next question comes from the line of Theresa Chen with Barclays. Please go ahead.
Theresa Chen: Good morning.
Speaker Change: Back on the.
Theresa Chen: Midstream topic and.
Theresa Chen: Your potential low hanging fruit on optimizing and integrating your midstream and refining businesses can't really comment.
Theresa Chen: Can you talk about the <unk> pipeline and what are the current.
Theresa Chen: Amendments and utilization on that in light of the anticipated.
Theresa Chen: Closure as a competing.
Theresa Chen: A competitor of a final facility in la and the terminal point for that system.
Theresa Chen: <unk> is vegas to la is that system expandable.
Theresa Chen: Would you be able to see conditional commitments in source additional barrels to that market. How do you see the path of Pat for acute <unk> five gasoline evolving from here.
Theresa Chen: Thanks Theresa this is Steve I'll take that one I'm not going to get into specifics around capacity and utilization where it is although we do believe we have some maneuverability on <unk> and we think that the market structure is supporting potentially.
Theresa Chen: Potentially higher opportunity at the South end of that line, which as you know is Las Vegas, it could be supplied from the west coast given the tightness of what we're seeing in near term and potentially longer term, we think that bodes well for us and so.
Speaker Change: As Tim mentioned earlier, we believe we are moving barrels west out of the group up into the valley and heading north out of Salt Lake taking advantage of the Salt Lake Valley, and then moving down into Las Vegas is part of that integrated value chain that we're already seeing benefit for and we will look to go extract more value out of that as the market.
Theresa Chen: <unk> unfolds.
Tim Go: Theresa This is Tim.
Tim Go: <unk> is the only way we can.
Speaker Change: Take advantage of those West coast margins as you know, we also can get to Phoenix through our Artesia refinery and we still have more capacity to do that more if needed and then of course, the direct way our Puget sound refinery can make carb gasoline and can make gasoline components.
Speaker Change: For that matter and can ship into the California area as needed. So there's three different ways that we can.
Speaker Change: Take advantage and that we are influenced.
Speaker Change: Through the West coast issues that are going on right now.
Speaker Change: Got it and just to clarify in terms of maximizing our profitability across your system. As this team evolve would that primarily due to higher utilization of either units or artesia to Phoenix system without incremental capex and.
Speaker Change: On the Puget side can you just.
Speaker Change: Provide any color on how much or what percentage of the clean product yield or the gasoline components, specifically can be to liberate into California based on what T. J can make today.
Speaker Change: So I think it's two part question.
Speaker Change: We believe theres opportunity to unlock more value without significant capital and Thats about optimizing where make is we believe our regions are we're fortunate that we have the production and advantaged regions in close proximity to where some of this is happening and so we can attract from a midstream perspective, we can attract more barrels from different modes of <unk>.
Speaker Change: Operation to uplift the midstream, but for our integrated value chain, we can do more there as well when it gets to the question around.
Speaker Change: Puget, we have the ability to make significant high grade components and put those down into the California market, we look to see where we can make more card gas.
Speaker Change: In the future if that market plays out right now we think we're finding opportunities to go put high higher value components down into that market to help supply some of the short that exists there and we will look to continue to exploit that even further as we move along.
Speaker Change: Yes, Theresa this is Tim.
Speaker Change: We talk about our growth capital.
Speaker Change: Every year when we described.
Speaker Change: He says of capital that we reserve for growth, we have a small growth capital project in Puget sound that will allow us to make even more car gasoline and ship it.
Speaker Change: That comes online here in the next month or two and so that's perfect timing in terms of what we're gonna be able to do that.
Speaker Change: To try to take advantage of the market.
Speaker Change: If warranted.
Speaker Change: That's great to hear and if I could just squeeze one more in.
Speaker Change: On the midstream for 50, how much of that is paid by the refining segment versus third party cash flows.
Speaker Change: Yes, roughly an 80% integrated value.
Speaker Change: Type midstream business, we think there's opportunity in open space, where we can further improve the earnings without impacting at all our integrated performance and value chain.
Speaker Change: Thank you so much.
Speaker Change: Your next question comes from the line of Roger read with Wells Fargo. Please go ahead.
Roger Read: Yes, good morning, everybody.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Kind of address what I wanted to hit which was what is your optionality to make more of the carb gasoline and maybe specifically the projects youre, referring to and in accordance I mean, there is always the issue in California of what gets you import. It is unfinished versus finished is part of what you are looking at here and the ability to deliver the finished.
Speaker Change: And any indication of what your sort of capture potential is off of that versus an <unk>.
Speaker Change: And finished product into California.
Steve Ledbetter: Yeah, Roger this is Steve.
Steve Ledbetter: Question, what is the most valuable thing for us in the Pacific Northwest is flexibility and Optionality in today right now the high grade has on the components and bringing unfinished into California, but this project allows us to go decide whether or not theres, a larger carb make and a volume short that we put into California.
Steve Ledbetter: Versus the components, but it's going to depend on the supply demand balance of the market at the time and we will.
Steve Ledbetter: We will get our share of that capture in either one of those decisions, but what is best for Puget and the overall entity.
Steve Ledbetter: Okay I appreciate that and then on the lubes side of the business I know you mentioned sort of a.
Steve Ledbetter: Seasonal or cyclical downturn here on the lube oil side.
Steve Ledbetter: As you look out at the.
Steve Ledbetter: Sort of let's call it the macro side of that supply and demand what is the expectation for base oil markets.
Steve Ledbetter: And is there any particular.
Steve Ledbetter: The market that we need to pay attention to I'm thinking here of yes.
Steve Ledbetter: China has been slow in terms of how it impacts crude oil consumption is this a tied to China tied to chemicals being a little more loose what do you think is the key item to pay attention to here for tightening up lift market.
Matt Joyce: Yes, hi, its Matt choice here good question.
Speaker Change: From an overall macro demand perspective, youre spot on I mean, what we're seeing at this stage is that certain geographic areas that had taken.
Speaker Change: A lot of the base tools over the past many years, namely Asia and more specifically around China, and then of course, coupled with the European demands that are that are dampened a little bit softer than had been traditionally there.
Speaker Change: Folks are looking at the U S market in the North American Mark market more generally as a favorable place to place base oils.
Speaker Change: So that I think is a contributing factor to the overall dampened.
Speaker Change: Margin.
Speaker Change: Environment that we've gone through in 2024.
Speaker Change: And I think that it will really be a matter of where and how we see China continuing to recover and then do those pesos make their way back to that marketplace and tightened things up at this stage.
Speaker Change: Really plays to the strategy that we've talked about with regards to being operationally excellent in our lubricants business continuing to forward integrate our base shows into finished products in our specialty portfolio that allow for us to keep.
Speaker Change: Do you have a favorable mix and <unk>.
Speaker Change: Prove our margins so we're not as reliant on that business.
Speaker Change: And Roger we've talked about this before but our strategy is to integrate.
Speaker Change: And grow our finished lubes business to the point that it soaks up all of that excess base oil that we had produced in the past we're basically trying to disconnect.
Speaker Change: Our business from that base oil craft business.
Speaker Change: And while we're not.
Speaker Change: Although a complete yet youll see over the last three years, when we report percent base oil sales as a percentage of our product mix for loops that has been going down in the last three years and our strategy is working that continuing to play out and as you see the base oil markets.
Speaker Change: <unk> cycled through you'll see that our results have been able to stay strong through the cycle and thats that disconnecting that we've been doing from a strategic standpoint.
Speaker Change: Can I just follow up on that real quick is that part of when you've spoken in the past about potentially some.
Speaker Change: Some bolt on acquisitions is that the easier way to address that or is it internal organic expansions or.
Speaker Change: Just as good.
Speaker Change: So it's really it's both Roger so we have focused on organic growth and getting our our product lines in the right place and developing products that allow for us to go out and compete and deliver a distinctive value proposition and then uses that.
Speaker Change: Our growing or that we believe we have a reason to win and grow in and that will incorporate our base oils into those formulations and then coupled with that as we've mentioned in the past we've looked at and continue to look at tuck ins and other value added.
Speaker Change: Acquisition opportunities, where we may be able to forward integrate our base oils, but also not only look at that but the value and the the EBITDA being accretive to our EBITDA portfolio.
Speaker Change: And numbers in line of sight of that and this isn't just one or another we have to do it kind of balanced way between the organic and the inorganic approach.
Speaker Change: Thank you.
Speaker Change: You bet.
Speaker Change: Your next question comes from the line of Doug Leggate with Wolfe Research. Please go ahead.
Speaker Change: Okay.
Speaker Change: Thanks, and good morning, everyone. I appreciate you taking my questions.
Speaker Change: Tim or I'm not sure what just wondering wants to take this I wanted to ask about small refinery exemptions and the week of the Trump administration.
Speaker Change: Obviously, some clear had their ruling I guess its back in August.
Speaker Change: Frankly, I'm not sure where it stands right now we will have ESPN on a refinery conference on March six.
Speaker Change: We are grateful that you guys would be that also but I was just wondering if you could offer any insight as to where.
Speaker Change: Stunned on Fsrus and what it could potentially mean for Dino if in fact, you did sign a favorable ruling.
Doug Leggate: Yes, Doug Good question I mean, if we can answer that question on.
Doug Leggate: What Trump and his administration is thinking on Fsrus I think we'd be in a different business right now but.
Doug Leggate: But what we do believe as the small refinery exemptions are back on the table.
Doug Leggate: And prior to the Trump administration I would've told you that we had no.
Doug Leggate: Real real outlook at the small refinery exemptions had a path forward.
Doug Leggate: I think there could be a path forward.
Doug Leggate: I think it's far and away from a certain path at this point and we're just going to have to monitor.
Doug Leggate: What the administration chooses to do Theres a lot of.
Doug Leggate: Current stakeholders involved as you know that are on both sides of the small refinery exemption.
Doug Leggate: Debate and I think it's going to come down too.
Doug Leggate: How they're going to balance the needs.
Doug Leggate: <unk> wishes to all the parties in order to trade off and and get resolution on the small refinery exemptions clearly.
Doug Leggate: Appeals courts have thrown this back into the lap of.
Doug Leggate: The EPA and said that they are.
Doug Leggate: Denials, where unjustified and unlawful. So the question is what will the EPA do going forward and I think at this point, that's anyone's guess, but were hopeful that at least there could be a resolution to this issue.
Doug Leggate: Few years.
Speaker Change: I know, it's maybe premature Tim but is there any way you could provide kind of order of magnitude as to what it could mean that you didn't quite get the credit back.
Doug Leggate: Yes.
Doug Leggate: It's hard to know because who knows what the what the.
Doug Leggate: Resolution will be it's hard to know what how to value any type of rins or any type of rins exemptions.
Doug Leggate: We do have as we if you.
Doug Leggate: I'll go back into our history, you can see which plants have gotten.
Proved for refinery exemptions in the past.
Doug Leggate: We have three plants.
Doug Leggate: That have gotten exemptions in the past Theres no way to know if those three could get exemptions going forward, but I think if you look at that history. Doug you can kind of get a feel for what at least what the.
Doug Leggate: The high end of the value could be and then of course, you got to think about all the different iterations that might happen that could result in different numbers.
Doug Leggate: I know, it's a bit and precise up I appreciate that Tim.
Doug Leggate: This one is for you.
Speaker Change: I apologize for the question on advanced I want to go back to Ryan's point so.
Doug Leggate: He is going to how this event next week.
Speaker Change: There's a lot of speculation that perhaps cash flow could be on the table.
Speaker Change: On the numbers are getting bundled around sort of eight to 10 times EBITDA that would be a very big marker.
Speaker Change: For you guys.
Speaker Change: It is indeed $330 million of EBITDA last quarter was an adjusted basis, we will lose business.
Speaker Change: Yes. My question is you've quantified.
Speaker Change: This morning by saying I guess is uneven or someone else's portfolio. I think was your language. My question is when the Sui OSM with maturity.
Speaker Change: Lubes business are you if you wanted to do bolt ons as a scale, where you feel that you have options.
Speaker Change: Or is it still.
Speaker Change: We're getting it to a level, where we want to have options can you just maybe clarify what exactly youre thinking there's obviously loss last quarter was something that we can score this quarter. It sounds like its about maximizing volume so I'm sorry to repeat the question, but I was looking for some clarity.
Speaker Change: No.
Doug Leggate: It's a good question Doug.
Speaker Change: Look there is.
Speaker Change: When people ask about core and noncore.
Speaker Change: That.
Speaker Change: Creates different.
Speaker Change: It is our perception that different people's minds, I'd like to think of it more as independent or not independent so whether it's our core business or not can mean, so many different things our lubes business is independent of our other businesses.
Speaker Change: Or at least as more independent than the rest of our businesses. So it can be separated easier than say, our midstream or our marketing businesses can be separated from refining so what that does and the reason why it seems like there is a lot of optionality or a lot of flexibility there is because it is independent.
Speaker Change: Have more ways that we can maximize shareholder value then those those businesses that are really dependent on our core refining business.
Speaker Change: I don't like those used the word core and Thats, a little bit what I think is confusing folks because its independent it gives us the ability to do a lot of things have grow it build it organically inorganically or sell it and monetize the value independently and I think when you think about where we are in this process.
Speaker Change: We feel really good about how.
Speaker Change: Matt and his team have really built this business up over the last four years. The last four years, our average EBITDA for the business has been $348 million.
Speaker Change: And so.
Speaker Change: That's been very strong it's been something that we feel very good about but I can tell you. We think theres more to go there is theres a lot more low hanging fruit to go capture from the <unk> business, where we're valuing that and trying to say in the short term.
Speaker Change: Should we go after this low hanging fruit because we believe it's fair and we meet on the.
Speaker Change: <unk> that we've had in the last four years, we believe we can really build on that and continue to grow that business.
Speaker Change: Or should we continue to look at options to monetize and take advantage of that so that's that's what we're that's the balance and that's why it's a little bit.
Speaker Change: Kind of on the line there market conditions play a big part of this to the.
Doug Leggate: Interest rates have been coming down and the market as much as people have been anticipating the IPO and private equity markets haven't been as active as as people had anticipated and those all play a big part in the overall market as well Castro. We don't we don't comment on any specific opportunities that are out there Doug.
Speaker Change: It is interesting to watch.
Speaker Change: <unk>.
Tim Go: Alrighty thorough answer Tim and I very much appreciate it we will see you in a couple of weeks.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Matthew Blair with T. P. H. Please go ahead.
Speaker Change: Alright, Thank you and good morning could you discuss the R&D environment, so far in the first quarter and a lot of moving parts between moving the BTC, but then before rooms moving higher do you expect to capture the 45 Z and do you have any rd downtime planned in the first quarter.
Speaker Change: Hey, Matt This is Steve I think Thats. The $64000 question. What is certain is volatility is here in Q1 as you know the 45 Z is not law just yet.
Speaker Change: They are notices there is a great model out and we are preparing to run our business under that as though it goes into effect at some point.
Speaker Change: And as you well know there was a recent ish.
Speaker Change: Issue with DLC FFS Amendment.
Speaker Change: In California, and that also created a bit of uncertainty in terms of valuations on the El CFS prices.
Speaker Change: So I wish I had more specificity, but we believe these things will settle out in Q1 and for now what we're doing is focusing on the things that have made that business successful over the past three quarters and that really is optimizing our feedstock strategy buying prompt and high low Ci.
Speaker Change: Mt.
Speaker Change: Keeping a lid on cost and operational efficiencies, we had a very good utilization and operational quarter, and then and then moving our molecules to the right markets, where we can get the best netback dose elements are still going to be important.
Speaker Change: Regardless of what framework actually becomes law moving forward. So I wish I had more specificity, but theres a lot of uncertainty in Q1, and we're doing the best to stay on top of it and make sure that we're carefully running our business to optimize the shareholder value aspect.
Speaker Change: Sounds good and then looking at the.
Speaker Change: Adjusted EBITDA versus the EPS in the fourth quarter. It seems like depreciation took a step up all your tax rate might have been lower than than the recent run rate were there any one time issues with either of those factors.
Speaker Change: No.
Speaker Change: Thanks for your question with respect to depreciation this is simply a function of our capital spending.
Speaker Change: The depreciable life on turnarounds, so thats purely timing and additional capex.
Speaker Change: When you look at our tax rate our tax rate is actually advantaged on a full year basis with 15% versus a statutory of.
Speaker Change: 21% and Thats, primarily a function of the credits that we received on the renewables.
Speaker Change: Business.
Speaker Change: Okay.
Speaker Change: Okay sounds good thank you.
Speaker Change: Your next question comes from the line of Jason <unk> with TD Cowen. Please go ahead.
Jason: Good morning, Thanks for taking my questions I'm going to ask another one on lubricants apologies ahead of time.
Speaker Change: In terms of potentially growing you've mentioned kind of bolt ons and organic growth, but is there an interest in.
Speaker Change: A larger kind of step up in lubricants as a mix of the overall business or do you feel like this is around the right size in terms of earnings contribution mix to the overall business.
Speaker Change: Yes.
Jason: Jason Thanks for the question.
Speaker Change: When we talked about.
Speaker Change: What our focus is and this is just this is more than just lubes. This is this is the whole hff's Sinclair portfolio. Our primary focus is still to grow this business organically, we are focused on reliability improvements integration and optimization.
Speaker Change: Slash synergies as we continue to optimize this new portfolio that we've gotten together so when we when we talk about this.
Speaker Change: Openness to do some bolt ons. It really is as a secondary or opportunistic way to accelerate maybe the growth that we're looking at but organic growth is still our primary our primary focus if we look at any type of bolt ons or inorganic growth it would have to be.
Speaker Change: A very unique opportunity that would allow us to accelerate kind.
Speaker Change: Our our desires integrating base oils into finished lubes for example would be an accelerated a goal that.
Speaker Change: Bolt on could help us achieve our.
Speaker Change: Our initial appetite is not to do something thats transformational or or betting the company, but it's something that really is more on the bolt on size.
Speaker Change: Okay, Great. That's that's really clear and my follow up.
Speaker Change: Love to get your updated thoughts on tariffs and.
Speaker Change: 10 days I think we may have another flurry of headlines on Canadian tariffs.
Speaker Change: Tariffs on their crude oil given the amount of Canadian crude you run within your refineries I was wondering specifically in your inland markets, both pad two and Rockies, how you see potential tariffs impacting the ability for those.
Speaker Change: Thats to run at full rates and the flexibility to switch crudes.
Steve Ledbetter: Hey, Jason This is Steve I'll take that one.
Speaker Change: Yes. This is again Q1 is the quarter of uncertainty, which is good John your toes and tariffs are something that we've been looking at quite carefully we have a full than command team looking at all the potential scenarios.
Speaker Change: And what we believe in our refineries as we have the ability to lighten up and we're connected to many different hubs, we're connected to Guernsey Cushing, even our own crude acquisition in the Permian.
Speaker Change: And to be honest, we think we will deal with whatever the market gives us what we saw early on when when the market opened up shortly after the proposed tariffs is there was some indicators and we think that a good portion of those tariffs will be borne by the producer and to a lesser extent a customer, but we have the ability to.
Speaker Change: Be flexible and so we'll take those decisions as they come with whatever whatever's enacted from a tariffs perspective.
Speaker Change: Yeah got it and just if I could follow up, particularly like does that flexibility come with an impact to utilization or is there kind of a first order flexibility without impacting utilization that may be.
Speaker Change: The second order that has.
Speaker Change: More severe economic implications.
Speaker Change: Yes, so it's going to depend again on where the price mechanisms.
Speaker Change: There is a level of heavy that we need to run at both Parco in El Dorado, but we can minimize what that is and introduce a lighter slate so yield structure and depending on the pricing elements may impact ultimate throughput, but as a as an efficient market would have it if those things happen in <unk>.
Speaker Change: Reising moves up the market will rebalance and clear and get us back into an economic settled position of a full runs.
Speaker Change: Yes, great. Thanks for those answers.
Speaker Change: Okay.
Speaker Change: We have time for one more question and that question comes from John Royall with Jpmorgan. Please go ahead.
John Royall: Hi, good morning, Thanks for taking my question.
Speaker Change: So my first question is on the potential for refining M&A, how do you think about that in this market Tim I think.
Speaker Change: You've mentioned in the past that you'd like to be counter cyclical with M&A when you can.
Speaker Change: Is it a good time for you to get active on the refining acquisition side or is there may be some more caution around the balance sheet now.
Speaker Change: Yes, good question John.
Speaker Change: Again, we've said this when we were talking about Lou has been I'll say, when we're talking about refining as well.
Speaker Change: Our main focus is internal organic growth in our refining business and so thats with reliability integration and optimization. We believe as you've heard me say before that there is a hidden refinery still in our portfolio and we believe that's the most accretive way to spend our energy and spend our efforts.
Speaker Change: Is to unlock that hidden refinery inside our own refining business there is still.
Speaker Change: We've made a lot of headway by the way and we've made it.
Laid the foundation here over this past year Theres still a lot of room to grow still as we continue to.
Speaker Change: Apio layers of the onion away and continue to optimize youre seeing that in throughput either year over year, you're seeing that in opex lower year over year, you're seeing that as we as we continue to integrate with midstream and marketing youre seeing us unlock some of that potential and so that's really where our main focus is.
Speaker Change: However at Youre right, we are laying a foundation and as the market conditions change and as the bid ask spread changes we might be able to.
Speaker Change: Be opportunistic and look at available refining assets that are out there, but I would tell you again, it's it has to be the right assets the right timing the right price and it has to be counter cyclical it has to fit within our overall.
Speaker Change: Portfolio competitive advantages that we talked about all the time crude having.
Speaker Change: Late in crude advantage products, having a <unk>.
Speaker Change: Market placement advantage.
Speaker Change: And at this point.
We'll consider options as they become available, but we're mostly focused on organic optimization and growth.
Speaker Change: Great. Thank you and then my quick follow up is on the Rockies.
Speaker Change: There is there is a pipeline that is scheduled to start up next year, bringing refined product to the Denver area can you talk about how you think about that pipe in relation to your Rockies footprint.
Speaker Change: Yeah.
Speaker Change: Yes, John this is Steve.
That expansion of the pipeline predominantly is moving.
Speaker Change: Jet into the front range, but ultimately we will open up more product moving west out of the group.
Speaker Change: We believe we're in the best position to take advantage of our asset base and that is whether whether it makes sense to move barrels out of our refineries.
Speaker Change: In the Rockies down to Denver, or we have the ability to go potentially move things west and so we will look to make sure that as products come in to that market that we still have the flexibility to get them to the highest netback market b that the Salt Lake Valley up into Idaho are down as we mentioned earlier.
Speaker Change: <unk> into the Vegas market. So it will certainly bring more product and when that is when that is done, but we are positioning ourselves to.
Speaker Change: To take advantage of our marketplace and our competitive advantages there.
Tim Go: Yeah, and John This is Tim.
John Royall: There is always going to be competitive.
John Royall: Changes in the marketplace. These pipelines are are no different our strategy is still the same.
John Royall: To be the low cost supplier in the markets that we serve and we want to grow our branded put the Sinclair stations. The Dino stations that we talk about and if we can execute and continue to grow those too.
John Royall: Objectives that we believe will still be competitive and be able to.
John Royall: Protect our market share.
John Royall: Thank you.
Tim Go: And that does conclude our question and answer session I will now turn the conference back over to Tim for closing comments.
Tim Go: Thank you Christa before we end I would like to give a shout out to all of our employees for the hard work they committed to executing our plan in 2024.
Tim Go: We are focused on what we can control during these challenging market conditions and it was very satisfying to see the number of annual records, we delivered in safety reliability cost and profitability in.
Tim Go: In addition, our full year results demonstrate the earnings power of our diversified portfolio.
Tim Go: While we are encouraged by the recent improvement in refining cracks that we've seen in the markets. We are also excited about continuing to grow our midstream marketing and lubricants specialties businesses.
Looking ahead, our priorities remain the same to improve our reliability to integrate and optimize our new portfolio of assets and return excess cash to our shareholders.
Tim Go: Thank you all for joining our call.
Tim Go: A great day.
Tim Go: Thank you. This does conclude todays teleconference. Please didn't please disconnect your lines at this time and have a wonderful day.
Tim Go: Yeah.
Tim Go: Yeah.
Tim Go: Yeah.
Tim Go: Yeah.