Q4 2024 Par Pacific Holdings Inc Earnings Call
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Good morning and welcome to the PAR Pacific 4th Quarter Earnings Conference Call.
For 2024, all participants will be in listen-only mode.
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After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Thank you, Drew. Welcome to Power Pacific's fourth quarter earnings conference call. Joining me today are Will Monteleone, President and Chief Executive Officer, Richard Creamer, EVP of Refining and Logistics, and Shawn Flores, SVP and Chief Financial Officer.
Speaker Change: Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements.
Speaker Change: Accordingly, investors should not place undue reliance on forward-looking statements, and we disclaim any obligations to update or revise them.
Speaker Change: I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, Will Monteleone.
Thank you, Ashimi, and good morning, everyone.
Will Monteleone: 2024 adjusted EBITDA was $239 million. Adjusted net income was $0.37 per share.
Will Monteleone: Operational performance was strong with record refining throughput, improvements in personal and process safety, and record logistics and retail adjusted EBITDA.
Will Monteleone: The durability of our results in a challenging refining market reflects the benefits of our diversified business model and the unique markets we serve. Importantly, I would like to recognize the strong performance of our Hawaii Refining Business Unit.
Will Monteleone: Earlier this month, our Wyoming facility experienced an operational incident resulting in damage to the crude heater furnace.
Will Monteleone: We are most thankful that no one was seriously injured during the event. I would like to commend the entire Wyoming team for their dedication and resilience in maintaining the facility in sub-zero temperatures for nearly a week.
Speaker Change: The team is currently working diligently to restore the plant to full operations before Memorial Day. Richard will provide more details on our plans.
Richard Creamer: Following nearly nine months of declining refining margins, several factors are now contributing to a more optimistic refining outlook. Current supply and demand balances remain tight, allowing for small events to drive outsized moves and margins.
Richard Creamer: Higher European natural gas prices are contributing to an increased global refinery cost curve and encouraging a shift from natural gas to oil.
Richard Creamer: Chinese policy continues to drive an inward focus resulting in the utilization rates of independent refiners drop into the low 40% range.
Richard Creamer: Additionally, operational challenges have re-emerged following an impressive industry performance in 2024. Altogether, this creates a more encouraging backdrop than the last nine months.
Speaker Change: I'd like to spend a few minutes on our retail segment.
This business continues to deliver exceptional results.
Speaker Change: 2024 adjusted EBITDA was up over 10% from 2023. Notably, our in-store progress is starting to shine. In-store gross margins grew 11% versus 2023, and fuel volumes continue to expand, driven by strong same-store sale results in our legacy portfolio.
Speaker Change: Full year contributions were also bolstered are successful new to industry sites in Hawaii and the Pacific Northwest.
Speaker Change: We are focused on executing several key projects that drive enhanced earnings power to the business. 2025 will be a busy year. Critical focus areas include executing the Montana, FCC, and ALKI turnaround safely, on time, and on budget.
Speaker Change: 2. Restarting the Wyoming units safely and on time. 3. Successful startup of our Hawaii SAF unit in the second half of 2025. 4. Achieving the cost reduction targets we laid out last quarter.
Speaker Change: We are in the final stages of the building's turnaround preparation and remain focused on crisp execution. This outage reflects Montana's last major planned turnaround for the next four to five years. It also signals the transition of our efforts towards enhancing flexibility and competitiveness.
Speaker Change: The foundation of this business will always be safe and reliable operations.
Speaker Change: In Hawaii, SAF project construction is progressing on plan and remains on schedule for startup in the second half of the year. Foundations have been poured and we anticipate deliveries of major equipment over the next two months.
Speaker Change: Commercially, we are observing strong interest in the project. Our established network enables us to supply fuels to the Western markets, benefiting from carbon incentive programs, while simultaneously offering SAF to the emerging Asia-Pacific market.
Speaker Change: Our balance sheet remains well positioned, allowing us to achieve our strategic objectives and invest through refined cycles.
Speaker Change: During the year, we repurchased nearly 5 million shares, or 9% of our outstanding shares at attractive prices.
Speaker Change: A strong balance sheet affords us this flexibility, and the accretive capital allocation will be demonstrated over the coming years. I'll now turn the call over to Richard to discuss our refining and logistics operations.
Richard Creamer: Thank you, Will. Refining and Logistics delivered 2024 annual system-wide throughput of 187,000 barrels per day. Each business unit contributed to excellent HSE and reliability performance.
Richard Creamer: For the fourth quarter, Hawaii throughput was a strong 83,000 barrels per day and production costs were $4.42 per barrel. We are developing a low-cost, high-return bottleneck project for execution during the 2026 turnaround.
Richard Creamer: Washington throughput was 39,000 barrels per day and production costs were $4.34 per barrel. Through 2024, the team delivered on cost management while maintaining safe operations. And we work to be the low-cost producer in the challenging West Coast.
Richard Creamer: Shifting to Wyoming, throughput was 14,000 barrels per day and production costs were $11.49 per barrel. Scheduled routine maintenance during the seasonally weak period contributed to low throughput.
Richard Creamer: Finally, in millings, fourth quarter throughput was 52,000 barrels per day and production costs were $10.48 per barrel. Billings operational availability continues to improve, demonstrating the value of our reliability investments.
Richard Creamer: Some of our early low capital investments have had material impact on the reliability of billings, generating targeted results in 2024.
Will Monteleone: As Will referenced, Billings will be executing the FCC and ALKE unit turnaround beginning in early April. We will continue to operate the crude unit along with the balance of the processing units at reduced rates for the first half of the second quarter.
Will Monteleone: Looking to the first quarter, let me begin by addressing the crude furnace incident that led to idling the Wyoming refinery on February 12th.
Will Monteleone: I'm most pleased that there were no injuries during and following the event and the refinery was secured in a safe condition.
Will Monteleone: The team did an exceptional job responding to this event in the midst of extreme weather conditions.
Will Monteleone: Based on our preliminary assessment, we believe that the refinery can restore partial operations targeting 50% utilization by mid-April and full rates before Memorial Day and ahead of the summer driving season.
Will Monteleone: On the broader operational front, we see incentives to increase throughput during the first quarter due to improving market conditions. We expect Hawaii throughput between 79 and 82,000 barrels per day while they conduct planned maintenance on the reformer.
Will Monteleone: Washington will operate between 37,000 and 39,000 barrels per day and Montana will operate between 48,000 and 52,000 barrels per day.
Will Monteleone: Wyoming ran at approximately 13,000 barrels per day during the first six weeks of the year and will be down for the remainder of the first quarter. I'll now turn the call over to Shawn to cover the financial results.
Thank you very much.
Shawn Flores: Thank you, Richard. Fourth quarter adjusted EBITDA and adjusted earnings were $11 million and a loss of $43 million or $0.79 per share.
Shawn Flores: Full-year adjusted EBITDA on adjusted earnings were $239,021,000.37 per share. The refining segment reported an adjusted EBITDA loss of $22,000,000 in the fourth quarter compared to adjusted EBITDA of $20,000,000 in the third quarter.
Shawn Flores: In Hawaii, the Singapore 312 averaged $11.69 per barrel, and the crude differential was $6.17, resulting in a Hawaii index of $5.52 per barrel.
Shawn Flores: Y margin capture was 133%, including a product crack hedge gain of $2 million and negative price lag impact of $5 million.
Shawn Flores: Excluding these two items, Hawaii capture was 142% reflecting favorable yield and lower product imports driven by strong refinery utilization.
Shawn Flores: Looking to the first quarter, the Hawaii crew differential is expected to land between 475 and 525 per barrel.
Shawn Flores: In January, we published new market indices and benchmark capture ranges for our mainland refineries. The new indices are designed to better reflect local product pricing, regional crude costs, and other components of cost of sales.
Shawn Flores: Our Wyoming index was $13.36 per barrel and capture was 83%, including a negative FIFO impact of $2 million.
Shawn Flores: Excluding the FIFO impact, CAPTCHA was 96% consistent with our guidance range.
Shawn Flores: In Montana, our index for the during the fourth quarter averaged $5.75 per barrel. Margin cash flow was 64% reflecting higher asphalt sales mix and seasonal discounting driven by record pad for refinery utilizations in the back half of the year.
Shawn Flores: Montana production costs reached a quarterly low of $50 million, or $10.48 per barrel. Looking ahead, we are encouraged by the improving clean product market in the northern Rockies. Our Montana index in February has improved by over $10 per barrel compared to January.
Shawn Flores: Lastly, our Washington Index averaged negative 62 cents per barrel compared to adjusted gross margin of $1.05.
Shawn Flores: Recent unplanned refinery outages combined with already tight clean product inventories have lifted West Coast margins in recent weeks.
Shawn Flores: Our Washington index in February has improved by approximately seven dollars per barrel compared to January.
Shawn Flores: With additional upcoming plane maintenance activities in the Pacific Northwest, our low-cost Tacoma system is well positioned to capitalize on potential margin volatility.
Shawn Flores: Moving to the logistics segment, fourth quarter adjusted EBITDA of $33 million was a quarterly record driven by higher system utilization in Hawaii and lower operating costs in Montana.
Shawn Flores: Our retail segment reported adjusted EBITDA of $22 million during the fourth quarter compared to $21 million in the third quarter. Strong retail performance was driven by expanding fuel margins and lower operating costs in Hawaii.
Shawn Flores: Corporate expenses and adjusted EBITDA were $22 million in the fourth quarter or a $1 million improvement compared to the third quarter. We launched our cost reduction initiatives in earnest during the fourth quarter and remain on track to achieve $30 to $40 million in annual savings.
Shawn Flores: Moving to cash flows, net cash used in operations during the fourth quarter totaled $16 million, including a $20 million working capital inflow and deferred turnaround expenditures of $16 million.
Shawn Flores: Excluding these items, cash used in operations was $20 million during the fourth quarter.
Shawn Flores: Cash using and investing activities totaled $48 million, primarily related to capital expenditures.
Shawn Flores: Full year deferred turnaround and CapEx totaled $209 million on a cash basis and $234 million on an accrued basis, in line with our original guidance of $220 to $250 million.
Shawn Flores: Shifting to capital allocation, we repurchased $15 million of common stock during the fourth quarter. Full-year repurchases totaled approximately 5 million shares, or 9% of total shares outstanding at year-end.
Shawn Flores: In February, the Board of Directors reauthorized management to purchase up to $250 million of common stock.
Shawn Flores: We will continue to use this authority opportunistically, adapting to changes to our cash flow and liquidity outload. Gross term debt as of December 31st was $644 million, which remained below the midpoint of our term debt leverage target of three to four times retail and logistics EBITDA.
Shawn Flores: With total liquidity of $614 million as of December 31st, our balance sheet remains strong and is well positioned to support our growth initiatives through margin cycles.
Speaker Change: This concludes our prepared remarks. Drew, we'll turn it back to you for Q&A.
Drew: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Drew: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Matthew Blair with TPH. Please go ahead.
Speaker Change: Thank you and good morning everyone. You just mentioned the 250 million share repurchase authorization. Could you talk about how you expect to balance and what the considerations are between additional share repurchases in 2025 compared to incremental debt reduction? Thank you.
Speaker Change: Sure, Matt, this is Will. Thanks for the question. So I think first, the reauthorization is really just, I think, opening up additional capacity for us. We had consumed the majority of the prior 250 million dollar authorization.
Speaker Change: So I wouldn't read too much into that. That said, I think we will be continuing a dynamic approach to this. I would say we're comfortable with our balance sheet today.
and I think are clearly watching the Ford Margin Outlook.
Speaker Change: and ultimately the liquidity cushion that we'd like to have as we think about balancing.
Speaker Change: Sounds good. And then regarding the SAF project in Hawaii, we have seen some other SAF projects that have been canceled recently.
Speaker Change: Could you talk about what's given you the confidence to continue moving forward here?
Speaker Change: And is there anything you can share on the expected mix between, you know, potential long-term contracts at a fixed margin compared to spot staff sales?
Sure, Matt.
Speaker Change: I think the key things about our project that make it competitive through the cycle and over the long term, I would say, despite a lot of uncertainty in the renewable space as it exists, really come down to
Speaker Change: This is really inside the fence line of the refinery, so our operating costs are very low relative to, I'd say, co-located or greenfield sites.
So, I think that's one important factor. The second is...
Speaker Change: When you really think about our logistics here, we've got a substantial advantage and that is in two fronts. So one is, you know, our ability to utilize our existing marine freight and distribution with really no incremental cost.
Speaker Change: is very attractive here and then I think our pipeline and distribution network in Hawaii allows us to distribute to the point-of-sale blended sap and other materials.
Speaker Change: I think we have a substantial advantage on both those fronts, and the other part just comes down to capital, right? At the end of the day, it's a $92 million project, and it's inside of a $1.50 per gallon. And so, again, I think as we look across...
Those are the things that drive us to continue ahead.
Speaker Change: I think commercially we're in a unique spot to have the flexibility to monetize the product into the West Coast through our own system while we are in more merchant negotiations.
Speaker Change: for SAP placement with airlines, both domestic and international. We've got two great alternatives to work from, so those are the key things that we think about in the project and really what will drive, I think, the forward value there in the earnings.
Great, thank you.
Speaker Change: The next question comes from John Royal with J.P. Morgan. Please go ahead.
John Royal: Hi, good morning, thanks for taking my question. So I think you had mentioned on the last call that you had some turnaround work at Wyoming that's scheduled for 26.
Speaker Change: Does this outage present an opportunity to get some of that work done now while you're down and then Part 2 is thinking about your month or two of running at 50%, what are the units that are going to take a little bit longer to restart or just a little more color on that ramp in April, May would be helpful?
Speaker Change: Sure, John. This is Richard Creamer. We are taking a look at the turnaround coming up in 26 in Wyoming to see if there's opportunities to pull work scope forward into this outage.
Speaker Change: A little early yet to say definitively the impact that that's going to have. We do have some catalyst life issues that probably drive us to continue planning an outage in 2026. I don't think it takes us away from the need for that.
The second question.
Speaker Change: on the unit ramp up. Yeah, the ramp in April-May from 50% to fall.
Yeah.
Speaker Change: And then the continued work to get us from April through May is rebuilding the heater, the main heater for the crew unit, which would allow us to get up to the full rate. So we would expect to be able to operate.
Speaker Change: The refinery in its full condition at the end of May and reduced rates beginning in the middle of April.
Speaker Change: Great, thank you. And then my follow-ups on Laramie. You've talked about potentially monetizing that asset before. We're now in a time where there's, you know, something of a bull case kind of forming around gas, and maybe the market finds gas a bit more interesting than it did, say, a year ago. Is now a good time to be thinking about, you know, potentially divesting and monetizing that asset?
Speaker Change: Hey John, this is Will. So I think first and foremost I mean we're pleased with how the business is performing.
Speaker Change: You can see their balance sheets in a very good place, we give you that information and you know they're in a net debt position that's about $90 million, producing about 100 million cubic feet a day.
And Laramie really has.
some attractive attributes to it.
Speaker Change: You know to think about right so it's got ongoing cash flow, and it's got a very deep inventory of of locations, so
Speaker Change: I agree with your comments that the macro conditions here are more favorable than they've been in some time. Laramie still remains non-core to our business. I think the key focus for us is aligning with our partners, really to maximize unit holder value there over time.
Speaker Change: So, I would say we are seeing increased interest in the region and in the space.
We're seeing capital opportunities come in on
Speaker Change: Less than 100% interest on some of the drilling locations that we've got, and I think are encouraged by the capital formation and interest in the gas business today. Certainly better than I've seen it in the last five years.
Speaker Change: It still remains non-core to us, but that doesn't mean it's not valuable, and ultimately I think we're working with our key partners there to drive a unified corporate decision to maximize value.
Thank you.
Speaker Change: Again, if you have a question, please press star, then 1. The next question comes from Jason Gabelman with TD Cowan. Please go ahead.
Jason Gabelman: Yeah, morning. Thanks for taking my questions. I wanted to go back to the Wyoming outage and I was wondering if you're what your insurance coverage is from
Speaker Change: you know, lost profit and then cost to fix the asset if you're fully covered on both those fronts. And then also, if you have to go out into the market and buy some product to cover ever whatever contractual shortfalls you may have.
Speaker Change: Hey Jason, it's Shawn. I'll cover the first question. You know, I think we won't get into the specifics around our insurance policy but what I can say is we have adequate property and PI coverage that will pay out above certain thresholds.
Speaker Change: I think importantly, we intend to manage the incremental costs within our CAPEX guidance that we previously provided.
of $210 to $240 million for the full year.
Speaker Change: I think ultimately lost profits will depend on how the market responds over the coming weeks. And I think the simplest way to think about the impact of foregone margins is just by taking our Q1 Drupal guidance. Richard mentioned that we ran at 13,000 barrels a day through the...
Speaker Change: 12th of February. That implies about 6,000 barrels a day for Q1.
Speaker Change: Now that's probably seven to nine thousand barrels below our typical run rates for a for a Q1 quarter
Speaker Change: And so, that will give you a sense of the loss production, and then we provide a capture guidance of 90 to 100% against the Wyoming index. And so, that's the simple math of the value of that loss production and how we're thinking about it. The same math will apply as we ramp up in Q2.
Speaker Change: Commercially, Jason, I would say we're comfortable meeting all of our contractual obligations and don't see any concerns on that front.
All right, great. That's helpful.
Speaker Change: My other question is just on CAPTURE, kind of diverging trends at Hawaii and Washington. Hawaii's been really strong this year above
Speaker Change: Guidance levels wondering if there's something structural driving that is it is it just kind of measuring capture over a lower base crack or are you able to do so or have you been able to do something in the asset?
Speaker Change: to generate more value. And then conversely, in Washington, which has been a weak earner the past few quarters, just some more color around what's driving that weakness and if you see any green shoots given the outages on the West Coast.
Speaker Change: Yeah, Jason, great, great question. I'll start with Hawaii. You know, I think our normalized capture guidance is.
Speaker Change: 100 to 110 percent since the refi in June. Maybe if you looked at our capture since then, we're averaging in the 120 percent range, so certainly above the stated guidance. You know, I think the key driver there is clean product freight.
Speaker Change: We look at the Singapore to West Coast, which is averaging 5 to 550 barrel.
Speaker Change: If you compare that to a longer-term average, it's in the sort of $3.50 to $4.00 range. And I think as long as we continue to see support by clean product freight, given our contractual structure in Hawaii, I think it's reasonable to assume that we can maintain capture above the $110 level.
Speaker Change: You know, I think in Washington, keep in mind we updated our regional index in January. We provided refresh guidance of 85 to 95 percent against that new index.
You know asphalt continues to be
Speaker Change: week. You know, a lot of this has to do with overall paving demand.
Speaker Change: and seasonality, and then just general weakness on the West Coast.
Speaker Change: Sure Jason, it's Will. You know, I think overall most of our focus this year is really internal, right? We are really focused on execution and I think that's the key to driving shareholder value and
Speaker Change: I think ultimately we we look at any opportunity that's presented to us but given our current cost of capital and where our shares priced it would need to be a truly spectacular opportunity to compete with our alternatives right now so
Speaker Change: Again, I think it continues to be something we look at, but I would just say it's a very high bar to clear at the moment.
Understood. Thanks for the answers.
Speaker Change: The next question comes from Manav Gupta with UBF. Please go ahead.
Manav Gupta: Morning, I just had a very quick clarification. I think you, I heard you say that
Speaker Change: The Washington index is about up $7 in February since obviously the start of the downtime at the competitor asset. If you could first confirm that. And then also, how do you see this tightness on the West Coast?
Speaker Change: play out just in the scenario, if the California refinery could be down six months or so, so how would that benefit overall that the PAD 5 dynamics and could be a tailwind for you guys if you could talk about it.
and Manav on the West Coast.
Supply and Demand.
Speaker Change: Again, I think there's heavy maintenance already scheduled at some of the larger refiners both in the Pacific Northwest and also down in Southern California.
Speaker Change: And again, I think depending on the duration of the downtime that's unplanned, again, I think it does have some potential impacts to keep the market tight through the summer.
Speaker Change: Again, I think you're going to test the limits of arbitrage volumes in for carb gas, and I think unplanned is always very difficult to sort of get the supply chain built quickly enough to solve the problems.
Speaker Change: Lots of uncertainty on what the timeline looks like there, but certainly something that is worth watching closely over the coming weeks.
Thank you so much. I'll turn it over.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Will Monteleone for any closing remarks.
Speaker Change: Thank you Drew. We're encouraged by the improving market backdrop and remain focused on execution as the key to driving shareholder value this year. Thank you for joining us today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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