Earnings Transcript for DINO - Q4 Fiscal Year 2024

Operator: Welcome to HF Sinclair Corporation’s Fourth Quarter 2024 Conference Call and Webcast. Hosting the call today is Tim Go, Chief Executive Officer of HF 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. [Operator Instructions] 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.

Craig Biery: Thank you, Christa. Good morning, everyone and welcome to HF Sinclair Corporation’s fourth quarter 2024 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31, 2024. If you would like a copy of the earnings press release, you may find it on our website at hfsinclair.com. Before we proceed with remarks, please note the Safe Harbor disclosure statement in today’s press release. In summary, such statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the Safe Harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. Also, please note any time-sensitive information provided on today’s call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I’ll turn the call over to 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 in refining. Our results also demonstrate the success we are delivering on executing our three key strategic priorities. First, on improving reliability. Our heavy turnaround workload in 2024 was completed on schedule and on budget, leading to increased utilization and higher refinery throughputs year-over-year. I am also pleased to report that we achieved our best ever results for personal safety in 2024, beating our old record by over 40% and positioning all of our assets to continue operating safely and reliably. Second, optimization and integration helped us achieve record EBITDA in both our marketing and midstream businesses. And our Lubricants and Specialties business generated another strong year of earnings. We also benefited from lower SG&A expenses year-over-year. Third, our commitment to shareholder returns. We managed our portfolio of assets to generate strong cash flows through 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. All of these examples are proof points that our strategy is working. Now let me cover our segment highlights. In refining, for 2024, our annual adjusted operating expenses were lowered to $7.98 per throughput barrel through lean efforts and improved reliability, a reduction of $0.37 per barrel year-over-year and setting us on the path towards achieving our target of $7.25 per throughput barrel. 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. In renewables, for 2024, we achieved significant milestones of reducing our annual operating expenses per gallon, 24% year-over-year while increasing our 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 have achieved significant positive fourth quarter EBITDA. While the margin environment was challenging in 2024, we focused on the things we could control such as increasing our low CI feedstock mix through our pretreatment unit, improving our hydrogen availability through our reliability efforts and leveraging our commercial strategy to strengthen the earnings power of the business. Our Marketing segment for 2024 delivered record annual EBITDA of $75 million, a 23% increase over 2023. 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. We continue to see strategic value in growing and integrating the DINO brand into our portfolio as it provides a long-term outlet with margin uplift for our refining barrels. Looking forward, we expect to grow our number of branded sites by 10% annually. In Lubricants and Specialties, we delivered another strong year of earnings with $330 million of adjusted EBITDA, even with $45 million of FIFO headwinds. Our results were driven by strong sales volumes, product mix optimization across our finished products portfolio and continued base oil integration. 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, highlighting the value of simplifying our corporate structure and capturing synergies from the buy-in of HEP. Looking forward, we remain committed to growing this business and believe there is more low hanging fruit for integrating and optimizing our midstream and refining businesses. The strong performances of these three non-refining segments demonstrate the strength and resiliency of our diversified portfolio. During 2024, we returned over $1 billion to shareholders through share repurchases and dividends. 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 HEP transactions. As of December 31, 2024, we had approximately $800 million outstanding 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. Today, we also announced that our Board of Directors declared a regular quarterly dividend of $0.50 per share payable on March 20, 2025 to holders of record on March 6, 2025. 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. 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. With that, let me turn the call over to Atanas.

Atanas Atanasov: Thank you, Tim, and good morning, everyone. Let’s begin by reviewing HF Sinclair’s financial highlights. Today, we reported fourth quarter net loss attributable to HF Sinclair shareholders of $214 million or negative $1.14 per share. These results reflect special items that collectively decreased net income by $23 million. Excluding these items, adjusted net loss for the fourth quarter was $191 million or negative $1.02 per diluted share compared to adjusted net income of $165 million or $0.87 per diluted share for the same period in 2023. Adjusted EBITDA for the fourth quarter was $28 million compared to $428 million in the fourth quarter of 2023. In our Refining segment, fourth quarter adjusted EBITDA was negative $169 million compared to $276 million in the fourth quarter of 2023. 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. Crude oil charge averaged 562,000 barrels per day for the fourth quarter compared to 614,000 barrels per day in the fourth quarter of 2023. 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. 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. 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. 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. Our Marketing segment reported EBITDA of $21 million for the fourth quarter compared to $9 million for the fourth quarter of 2023. This increase was primarily driven by higher margins in the fourth quarter of 2024. Our Lubricants and Specialties 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 increase was primarily driven by a decrease in FIFO charge from $30 million in the fourth quarter of 2023 to $2 million in the fourth quarter of 2024. 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. This increase was primarily driven by higher revenues from higher tariffs in the fourth quarter of 2024. Net cash used by operations totaled $141 million in the fourth quarter which included $154 million of turnaround spend. HF Sinclair’s capital expenditures totaled $173 million for the fourth quarter. As of December 31, 2024, HF Sinclair’s total liquidity stood at approximately $3.3 billion which includes a cash balance of $800 million, our undrawn $1.65 billion unsecured credit facility and $850 million availability on the HEP credit facility. As of December 31, we have $2.7 billion of debt outstanding with a debt-to-cap ratio of 22% or net debt-to-cap ratio of 15%, On January 23, 2025, HF Sinclair issued an aggregate principal amount of $1.4 billion of senior notes, consisting of $650 million of 5.75% senior notes due 2031 and $750 million of 6.25% senior notes due 2035. We used net proceeds from the notes to repay all $350 million in outstanding borrowings under the HEP credit facility and to fund approximately $850 million in tenders and redemptions of our 2026 senior notes and $150 million in tenders of our 2027 senior notes. This extended our debt maturity profile while lowering our weighted average interest expense. Let’s go through some guidance items. With respect to capital spending for full year 2025, we expect to spend approximately $775 million in sustaining capital, including turnaround and catalysts. This is down $25 million from 2024 and includes a non-refining and specialties – lubricants and specialties turnaround in 2025. In addition, we expect to spend $100 million in growth capital investments across our business segments. For the first quarter of 2025, we expect to run between 580,000 and 620,000 barrels per day of crude oil in our refining segment, which reflects the planned turnaround at our Tulsa refinery. We are now ready to take some questions from the audience.

Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from Manav Gupta with UBS. Please go ahead.

Manav Gupta: Good morning, guys. I am just trying to understand, look, the West Coast market looks a lot tighter given all the unplanned downtime we are overseeing. So help us understand your leverage to the West Coast market, whether it’s through Puget Sound or UNEV or which other refineries that you have that can supply to markets which are linked to the West Coast crack?

Steve Ledbetter: Hey, Manav, this is Steve. Thanks for the question. Yes, we are watching the market on the West Coast as recent unplanned events and heavy turnaround season have started and the fundamentals are improving. We think that, that helps the overall market balance for not only our Puget Sound refinery in the Pacific Northwest, but we like to say that we can touch the south side of the PADD 5 from multiple points. We can come from the Salt Lake Valley down our integrated UNEV pipeline into Vegas and out of our Navajo, Artesia refinery up into Phoenix. So we are seeing the benefit there and we look to take advantage of that as this unfolds.

Tim Go: And Manav, I would just say, 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 we perceive to be a gasoline shortage long-term in that area. And so that strategy is paying out as we see this heavy turnaround season and some unplanned events going on right now.

Manav Gupta: Perfect. A quick follow-up, you – when you did Sinclair deal, again, part of it was trying 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 are you looking at some small bolt-on opportunities and your plans to grow your marketing business?

Steve Ledbetter: Yes. Again, this is Steve. We see that, that is still one of the largest yet untapped value elements of the Sinclair acquisition. We are 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 – first half of the year or through the third quarter. We believe that that branded put is an important, sustainable aspect and we are seeing high demand for it. So accelerating that is important through our organic growth program. When we think about inorganic, there is nothing on the slate at this point. We’ll look at things, but we really believe we can fill out our market predominantly through our organic growth in the wholesale marketing. And again, we are starting to see the benefits of that and looking to grow that from between 5% and 10% year-over-year.

Manav Gupta: Thank you.

Operator: Your next question comes from the line of Ryan Todd with Piper Sandler. Please go ahead.

Ryan Todd: Thanks. Maybe if I could ask a couple on the lubes business. First, in the last couple of quarters, it’s been a little bit weaker, generally below what you would expect as the mid-cycle earnings power of the business. Can you maybe talk about how you view the backdrop, like the macro backdrop for the lubes business going forward and should we get back to that $350 million run-rate level here in 2025?

Matt Joyce: Sure, Ryan. It’s Matt Joyce here. If we look at it, the macro backdrop of the lubricants business in 2024, you saw similar to what we’ve experienced on the refining side, a lot of compression on the base oil markets, which still swing a fairly big part of the business in our portfolio. And 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 – and actually, we are now seeing that turn a bit and we are encouraged by what we see going forward from that perspective. We’ve also seen subdued demand just in general, in our European businesses. That market has been slower than normal. And we have seen steady off-takes in North America and we are actually growing our positions in our businesses in the U.S., in particular, off of a very nice base that we have established over the past several years. So, we see our business continuing to perform. And I think we’ll see, if you look at excluding FIFO number, it’s a 3.75 result. So again, the underlying performance of this business is still very healthy and trending above mid-cycle.

Tim Go: Yes, Ryan, this is Tim. I’ll just chime in too. I mean Matt said it, despite even the challenges and headwinds that all businesses face that Matt just described, if you factor in the $45 million of FIFO impacts, we actually were in a kind of an underlying business rate of $375 million, which would have been a record for 2024. So we still believe the business is strong. Seasonally, fourth quarter is generally the weakest quarter and we’re seeing first quarter pick back up again like we would expect.

Ryan Todd: Great. Thank you. And then I know it’s not your favorite thing to talk about, but there is obviously a high profile example of an activist investor involved with one of your peers with 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, particularly for something like lubes versus potential for external monetization?

Tim Go: Yes. Thanks, Ryan. Nothing has changed in our strategy around the lubes and specialties business. Our goal is to maximize shareholder value that may not have come across as clear as I should have last quarter. But we are open to whether that’s in our portfolio or in someone else’s portfolio, but we are going to – our goal is to maximize the shareholder value. In the near term, we are focused on continuing to optimize this business to integrate it and grow it mostly through organic means. But if there are some inorganic opportunities that come up, small bolt-ons, as Matt mentioned last quarter, we would certainly be willing to entertain that. But our primary focus is to continue to maximize that shareholder value. And in the mid-term, we will continue to evaluate the strategic options on how best to do that.

Ryan Todd: Okay. Thanks, Tim.

Operator: Your next question comes from the line of Paul Cheng with Scotiabank. Please go ahead.

Paul Cheng: Hey, guys. Good morning.

Tim Go: Good morning, Paul.

Paul Cheng: Tim or maybe Steve, I want to go back into the first question on marketing. The EBITDA looked 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 divided by the number of stores, your per share – your per store sales quarter-to-quarter – say, year-over-year, that dropped about 10%. Trying to understand that why that is the case? And is it a concern that the incremental – the store that you are getting in, it just seems like it’s less productive than your existing? That’s the first question.

Steve Ledbetter: Thanks, Paul. Yes, 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 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 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 with some of these sites, but the sites that we are seeing really are performing much better, and you are seeing it in our EBITDA. So this is really just a timing issue on how things are shaking out in the actual financials.

Tim Go: Yes, Paul, this is Tim. What I would also add on to that is you see the net increase in stores, which is 87% for the year that really consists of something like 120 some odd stores, netted out with about 40 of the old stores that have been rolled off and that’s the high grading that Steve is referencing. And that’s why you’re seeing – maybe you lose some volumes in some of those stores that are rolling off, but the high grading of new business is by far driving the driving the margin increase and you see the gross margin per gallon difference that we are posting here in 2024.

Paul Cheng: Steve or Tim, do you have a same-store sales tie-off figure that – for those that has been in your portfolio more than a year that you can share so that at least that we can do some maybe apple-to-apple comparison?

Steve Ledbetter: Yes. So we do look at same-store sales and those are trending about where we expect them to be in. Timing is an important element. And so these things take between 6 months about to ramp up to full speed. And as you mentioned though, 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. So we think that gives us a positive indication that our strategy on moving more into our branded put is the right one to take with this business.

Paul Cheng: Okay. The second question is that, Tim, I think, when you look at your refining medium-term cost targets, say, $7.25 per barrel partly is that you think your utilization rate over time become better, more reliable and so you will be able to get the denominator higher, but that’s not going to be sufficient. And I think you have said in the past that you probably need $100 million, $150 million in cost savings to really bridge the gap and get there. Do you have any update you can share in terms of what initiatives that you guys are taking in pace and to able to achieve that cost reduction? And what is the time duration to achieve that? Thank you.

Valerie Pompa: Good morning. This is Valerie. As you know, we are aiming at the $7.25 target. We took a step this past year. Reliability remains the number one thing we are working on. So – and you are seeing that in year-over-year production. In addition to that, we are feeling those improvements with turnaround and capital, which also go after operating costs through efficiency in the capital we are putting on the ground and eliminating high-cost maintenance assets. The other thing that is in our strategy is digital performance. So we are using several digital programs to drive predictive asset intelligence and optimize our plants. These models are changing the way we work and we anticipate that those – we are starting to see those strategies play out in our maintenance costs and our operating costs overall this year. And we expect that, that’s going to continue to serve us well.

Tim Go: Yes. And Paul, this is Tim. I’ll just jump on to what Val talked about. Others are announcing cost reduction programs in terms of total dollars that they are trying to take out of the – out of their portfolio. We announced our goal in terms of $7.25 per barrel metric that Val just talked about because we think that addresses both the cost reduction program numerator as well as the improved reliability denominator that we are trying to achieve. We think this is a better way to measure progress and so that you can kind of see our – how we are doing against our bottom line. We know how much cost we have to take out in order to get to that $7.25 at the numerator level. So this is more than just reliability. And we are pleased with the progress to-date. Val has talked about some of the things that we’ve done. We achieved a record $7.98 this year as we talked about on our prepared remarks. And we believe that we have line of sight to get to that $7.25.

Paul Cheng: Thank you.

Operator: Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Neil Mehta: Good morning, Tim and team. Just – the first question is just your thoughts on return of capital. It’s been a big part of the strategy over the last couple of years. Obviously, we are entering into a tougher – we have entered into a tougher margin environment and just your perspective on when do you see line of sight to be able to resume a meaningful buyback?

Atanas Atanasov: Thanks for your question. First and foremost, I’d like to reiterate our commitment to our long-term capital return commitment of 50% to our shareholders. If you look at our history, we have far exceeded that. From where we stand today with the line of sight of improving margins for the balance of this year and looking at that diversified portfolio, we feel very comfortable with meeting not target – that minimum target of 50%. And as cracks improve to, in fact, exceed it, I will – I’d like to point to your attention that if you look at our non-refining businesses, when you look at midstream of approximately 450 lubricants of this past year 330, marketing of 75, that provides us with significant dry powder, certainly to meet our dividend commitments and then as cracks improved to continue to return cash to our shareholders.

Tim Go: And Neil, this is Tim as well. I’ll just pile on in terms of what Atanas was saying. It’s interesting. I know some people are out there are talking about how their midstream businesses are strong and are able to basically cover their dividend needs. We are in the same boat. If you look at our – the $450 million of EBITDA that our midstream business 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 Atanas talked about that’s coming out of lubes, that’s coming out of refining is really allowing us to then take advantage of additional ways to return value to shareholders through buybacks in other place.

Neil Mehta: Yes. That makes sense. So then it really comes back to the margin environment. And on Mid-Continent, it’s famously 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 Mid-Con? Is it a crude problem is it a product problem or just a seasonal problem?

Steve Ledbetter: Yes. This is Steve. I’ll take that one. I think the Mid-Con, as you mentioned, is very seasonal. What we have had for us, particularly in the fourth quarter, was our large turnaround and that was at El Dorado. As far as what we are seeing in terms of structure in the Mid-Con, I think what we’ll see is 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 – or head into the driving season. And we’re starting to see that already. We look across 2025 and we think that just on balance, we see that it’s a pretty constructive view for margins across our regions. We think the average will be 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. And then there is some supportive underlying economic fundamentals suggesting a rebound and strong distillate demand. So overall, we look pretty – we feel pretty good about our overall regions and the Mid-Con as part of that.

Neil Mehta: Thanks so much.

Operator: Your next question comes from the line of Theresa Chen with Barclays. Please go ahead.

Theresa Chen: Good morning. Back on the midstream topic and your potential low hanging fruit on optimizing and integrating your midstream and refining businesses to your earlier comments. Can you talk about the UNEV pipeline and what are the current commitments and utilization on that in light of the anticipated closure of a competing – a competitor refining facility in L.A. and the terminus point for that system, the proximity of Vegas to L.A.? Is that with some expandable, would you be able to seek additional commitments and source additional barrels to that market, how do you see the path of path forward to past 5 gasoline evolving from here?

Steve Ledbetter: 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 UNEV and we think that the market structure is supporting potentially higher opportunity at the south end of that line, which, as you know, was Las Vegas. It could be supplied from the West Coast. Given the tightness of what we are seeing near term and potentially longer term, we think that bodes well for us. And so 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 as part of that integrated value chain that we are already seeing benefit for. And we’ll look to go extract more value out of that as the market unfolds.

Tim Go: And Theresa, this is Tim. As UNEV isn’t the only way we can 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 for that matter and can ship into the California area as needed. So there is three different ways that we can take advantage and then we’re influenced through the West Coast issues that are going on right now.

Theresa Chen: Got it. And just to clarify, in terms of maximizing profitability across your system as the theme evolved, would that primarily be through higher utilization of either UNEV or Artesia to Phoenix systems without incremental CapEx. And on the Puget side, can you just provide any color on how much or what percentage of the clean product yield or the gasoline component specifically can be delivered into California based on what Puget can make today?

Steve Ledbetter: So, I think it’s a two-part question. We believe there is opportunity to unlock more value without significant capital. And that’s about optimizing where our make is. We believe our regions are – we are fortunate that we have the production in 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 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 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 CARB gas at – in the future if that market plays out. Right now, we think we are finding opportunities to go put 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.

Tim Go: And Theresa, this is Tim. We talk about our growth capital every year when we describe the pieces of capital that we reserve for growth. We have a small growth capital project at Puget Sound. That will allow us to make even more CARB gasoline and ship it. That comes online here in the next month or two months. And so that’s perfect timing in terms of what we are going to be able to do to try to take advantage of the market if warranted.

Theresa Chen: That’s great to hear. And if I could just squeeze one more in, on the midstream 450, how much of that is paid by the refining segment versus third-party cash flows?

Atanas Atanasov: Yes. We are roughly an 80% integrated value type midstream business. And we think there is opportunity and open space where we can further improve the earnings without impacting at all our integrated performance and value chain.

Theresa Chen: Thank you so much.

Operator: Your next question comes from the line of Roger Read with Wells Fargo. Please go ahead.

Roger Read: Yes. Good morning everybody. I guess 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 you are referring to in Anacortes, I mean there as always the issue in California of what gets imported is unfinished versus finished. Is part of what you are looking at here, the ability to deliver the finished and any indication of what your sort of capture potential is off of that versus an unfinished product into California?

Steve Ledbetter: Yes. Roger, this is Steve. I mean it’s a great question. What is the most valuable thing for us in the Pacific Northwest is flexibility and optionality. And today, right now, the high grade is on the components and bringing unfinished into California, but this project allows us to go decide whether or not there is a larger CARB make and a volume short that we put into California versus the components. But it’s going to depend on the supply-demand balance of market at the time. And we will get our share of that capture in either one of those decisions, but what is best for Puget and the overall entity.

Roger Read: Okay. Appreciate that. And then on the lube side of the business, I know you mentioned sort of a, I don’t know, seasonal or cyclical downturn here on the lube oil side. As you look out at the sort of, let’s call it, the macro side of that supply and demand. What is the expectation for base oil markets? Is there any particular market that we need to pay attention to? I am thinking kind of here of, 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 the lubes market?

Matt Joyce: Yes. Hi. It’s Matt Joyce here. Good question. From an overall macro demand perspective, you are spot on. I mean what we are seeing at this stage is that certain geographic areas that had taken a lot of the base oils in the past many years, namely Asia and more specifically around China. And then of course coupled with the European demands that are dampened and a little bit softer than had been traditionally there. Folks are looking at the U.S. market and the North American market more generally as a favorable place to place base oils. And so that, I think is a contributing factor to the overall dampened margin environment that we have gone through in 2024. And I think that it will really be a matter of where and how we see China continuing to recover. And then do those base oils make their way back to that marketplace and tighten things up. At this stage, that’s really plays to the strategy that we have talked about with regards to being operationally excellent in our lubricants business, continuing to forward integrate our base oils into finished products and our specialties portfolio that allow for us to continue to have a favorable mix and improve our margins. So, we are not as reliant on that business.

Tim Go: Yes. And Roger, we have talked about this before, but our strategy is to integrate and grow our finished lubes business to the point that it soaks up all that excess base oil that we had produced in the past. We are basically trying to disconnect our business from that base oil craft business. And while we are not all the way complete yet, you will see over the last 3 years when we report percent base oil sales as a percentage of our product mix for lubes that has been going down in the last 3 years. And our strategy is working, that’s continuing to play out. And as you see, the base oil markets cycle through, you will see that our results have been able to stay strong through the cycle. And that’s that disconnecting that we have been doing from a strategic standpoint.

Roger Read: Can I just follow-up on that real quick? Is that part of when you have spoken in the past about potentially some bolt-on acquisitions, is that the easier way to address that, or is it internal organic expansions are just as good?

Steve Ledbetter: Yes. So, it’s really – it’s both, Roger. So, we have focused on organic growth and getting 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 are 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 have mentioned in the past, we have looked at and continue to look at tuck-ins and other value-added 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 EBITDA being accretive to our EBITDA portfolio and numbers in line of sight of that. This isn’t just one or another. We have to do it kind of balanced way both between the organic and the inorganic approach.

Roger Read: Thank you.

Steve Ledbetter: You bet.

Operator: Your next question comes from the line of Doug Leggate with Wolfe Research. Please go ahead.

Doug Leggate: Thanks. Good morning everyone. Appreciate you taking my questions. Tim or Atanas, I am not sure which one of you wants to take this. I want to ask about small refinery exemptions in the wake of the Trump administration. Obviously, Sinclair had their ruling, I guess it was back in August. And frankly, I am not sure where it stands right now. We will have FPM at our refinery conference on March 6th. And obviously, we are grateful that you guys will be there also. But I was just wondering if you could offer any insights to where things stand on SREs and what it could potentially mean for DINO if in fact, you did find a favorable ruling.

Tim Go: Yes. Doug, good question. I mean if we can answer that question on what Trump and his administration are thinking on SREs, I think we would be in a different business right now. But what we do believe is the small refinery exemptions are back on the table. And prior to the Trump administration, I would have told you that we had no real outlook that the small refinery exemptions had a path forward. I think there could be a path forward, but I think it’s far and away from a certain path at this point. And we are just going to have to monitor what the administration chooses to do. There is a lot of different stakeholders involved, as you know, that are on both sides of the small refinery exemption debate. And I think it’s going to come down to how they are going to balance the needs and the wishes of all the parties in order to trade off and get resolution of the small refinery exemptions. Clearly, the appeals courts have thrown this back into the lap of the EPA. And so that they have – their prior denials were 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 we are hopeful that at least there could be a resolution to this issue here in the next few years.

Doug Leggate: I know it’s maybe premature, Tim, but is there any way you could put a kind of order of magnitude as to what it could mean if you did in fact, get the credit back?

Tim Go: Yes. No, it’s hard to know because who knows what the resolution will be. It’s hard to know what – how to value any type of RINs or any type of RINs exemptions. We do have – if you go back into our history, you can see which plants have gotten approved for refinery exemptions in the past. We have three plants that have gotten exemptions in the past. There is no – we are 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 at least what 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 imprecise. I appreciate that. Tim, for this one is for you, and I apologize for the question in advance. I want to go back to Ryan’s point, so BP is going to have its event next week, and there is a lot of speculation that perhaps Castrol could be on the table. And the numbers are getting banded around at sort of 8x to 10x EBITDA. That would be a very big marker for you guys? And if indeed, $330 million of EBITDA last quarter on an adjusted basis for your lubes business, I guess my question is, you have clarified your position this morning by saying, I guess it’s an either or someone else’s portfolio, I think was your language. My question is, where in the seriatim of maturity for the lubes business are you? If you want to do bolt-ons, is it at a scale where you feel that you have options, or is it still in the – we are getting it to a level where we want to have options? Can you just maybe clarify what exactly you are thinking, because obviously, last quarter was sender with its core? This quarter, it sounds like it’s about maximizing value. So, I am sorry to repeat the question, but I was looking for some clarity.

Tim Go: No, it’s a good question, Doug. No, we – look, there is – when people ask about core and non-core, I think that creates different ideas or perceptions in different people’s minds. I like to think of it more as independent or not independent. So, whether it’s a core business or not, can mean so many different things. Our lubes business is independent of our other businesses, so – 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 in there is because it’s independent. We have more ways that we can maximize shareholder value. Then those businesses that are really dependent on our core refining business. So, I don’t like to use the word core, and that’s a little bit what I think is confusing folks because it’s independent, it gives us the ability to do a lot of things, 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, we feel really good about how Matt and his team have really built this business up over the last 4 years. The last 4 years, our average EBITDA for the business has been $348 million, and so that’s been very strong. It’s been something that we feel very good about. But I can tell you, we think there is more to come. There is a lot more low-hanging fruit to go capture from the lubes business that we are valuing that and trying to say, in the short-term, should we go after this low-hanging fruit because we believe it’s there. And we – on the success that we have had in the last 4 years, we believe we can really build on that and continue to grow that business, or should we continue to look at options to monetize and take advantage of that? So, that’s what we are – that’s the balance, and that’s why it’s a little bit kind of on the line there. Market conditions play a big part of this, too. The interest rates have been coming down in the market as much as people have been anticipating. The IPO and private equity markets haven’t been as active as people had anticipated. And those all play a big part in the overall market as well. Castrol, we don’t comment on any specific opportunities that are out there, Doug, but it is interesting to watch and see.

Doug Leggate: Very thorough answer and I very appreciate it. We will see you in a couple of weeks.

Operator: Your next question comes from the line of Matthew Blair with TPH. Please go ahead.

Matthew Blair: Thank you and good morning. Could you discuss the R&D environment so far in the first quarter with a lot of moving parts between losing the BTC, but then D for RINs moving higher, do you expect to capture the 45z? And do you have any R&D downtime planned in the first quarter?

Steve Ledbetter: Hey Matt, this is Steve. I think that’s the $64,000 question. What it’s certain is volatility is here in Q1. As you know, the 45z is not law just yet. Either 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. And as you well know, there was a recent issue with the LCFS amendment in California, and that also created a bit of uncertainty in terms of valuations on the LCFS prices. So, I wish I had more specificity, but we believe these things will settle out in Q1. And for now, what we are 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 amounts, keeping our lid on costs and operational efficiencies. We had a very good utilization and operational quarter. And then moving our molecules to the right markets where we can get the best netback. Those elements are still going to be important regardless of what framework actually becomes law moving forward. So, I wish I had more specificity, but there is a lot of uncertainty in Q1, and we are doing the best to stay on top of it and make sure that we are carefully running our business to optimize the shareholder value aspect.

Matthew Blair: It sounds good. And then looking at the adjusted EBITDA versus EPS in the fourth quarter, it seems like depreciation took a step up while your tax rate might have been lower than the recent run rate. Were there any one-time issues with either of those factors?

Atanas Atanasov: Thanks for your question. With respect to depreciation, this is simply a function of our capital spending and the depreciable life of turnarounds, so that’s purely timing and additional CapEx. When you look at our tax rate, our tax rate is actually advantaged. Still on a full year basis, we are 15% versus statutory of 21%. And that’s primarily a function of the credits that we receive on the renewables business.

Matthew Blair: Okay. It sounds good. Thank you.

Operator: Your next question comes from the line of Jason Gabelman with TD Cowen. Please go ahead.

Jason Gabelman: Good morning. Thanks for taking my questions. I am going to ask another one on lubricants, apologies ahead of time. In terms of potentially growing, you have mentioned kind of bolt-ons and organic growth, but is there an interest in 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?

Tim Go: Yes. Jason, thanks for the question. Which – when we talked about what our focus is, and this is just – this is more than just moves. This is the whole HF Sinclair portfolio. Our primary focus is still to grow this business organically. We are focused on reliability improvements, integration and optimization/synergies as we continue to optimize this new portfolio that we have gotten together. So, when we talk about this openness to do some bolt-ons, it really is as a secondary or opportunistic way to accelerate maybe the growth that we are looking at. But organic growth is still our primary focus. If we look at any type of bolt-ons or inorganic growth, it would have to be a very unique opportunity that would allow us to accelerate kind of our desires integrating base oils into finished lubes, for example, would be an accelerated goal that a bolt-on could help us achieve. Our initial appetite is not to do something that’s transformational or betting of the company, but it’s something that really is more on the bolt-on size.

Jason Gabelman: Okay. Great. That’s really clear. And my follow-up, I would love to get your updated thoughts on tariffs. And in 10 days, I think we may have another fore of headlines on Canadian 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 2 and Rockies, how you see potential tariffs impacting the ability for those assets to run at full rates and the flexibility to switch crudes. Thanks.

Steve Ledbetter: Hey Jason, this is Steve. I will take that one. Yes, this is – again, Q1 is the quarter of uncertainty, which is good, you can go on your toes. And tariffs are something that we have been looking at quite carefully. We have a full event command team looking at all the potential scenarios. And what we believe in our refineries is we have the ability to lighten up, and we are connected to many different hubs. We are connected to Guernsey, Cushing, even our own crude acquisition in the Permian, A&S. And to be honest, we think we will deal with whatever the market gives us. What we saw early on when the market opened up shortly after the proposed tariffs is, there were 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 be flexible. And so we will take those decisions as they come with whatever is enacted from a tariffs perspective.

Jason Gabelman: Yes. Got it. And just if I could follow-up, does that flexibility come with an impact to utilization, or is there kind of a first order of flexibility without impacting utilization and maybe a second order that has more severe economic implications?

Steve Ledbetter: Yes. So, it’s going to depend again on where the price mechanism is set. There is a level of heavy that we need to run at both Parco and 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 an efficient market would have it. If those things happen and pricing moves up, the market will rebalance and clear and get us back into an economic settled position of full runs.

Jason Gabelman: Yes. Great. Thanks for those answers.

Operator: 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. So, my first question is on the potential for refining M&A. How do you think about that in this market? Tim, I think you have mentioned in the past that you like to be countercyclical with M&A when you can. Is it a good time for you to get active on the refining acquisition side, or is there maybe some more caution around the balance sheet now?

Tim Go: Yes. Good question, John. Again, we have said this when we were talking about lubes, but I will say it when we are talking about refining as well. Our main focus is internal organic growth in our refining business, and so that’s with reliability, integration and optimization. We believe, as you have 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 is to unlock that in the refinery inside our own refining business. There is still – we have made a lot of headway by the way, and we made – we have laid the foundation here over this past year. There is still a lot of room to grow still as we continue to peel layers of the end in a way and continue to optimize. You are seeing that in throughput either year-over-year. You are seeing that in OpEx lower year-over-year. You are seeing that as we continue to integrate with midstream and marketing. You are seeing us unlock some of that potential. And so that’s really where our main focus is. However, you are right, we are laying a foundation. And as the market conditions change and as the bid-ask spread changes, we might be able to be opportunistic and look at available refining assets that are out there. But I would tell you, again it has to be the right asset, the right timing, the right price. It has to be countercyclical. It has to fit within our overall portfolio competitive advantages that we talk about all the time, fruit having a laden crude advantage, products having a market placement advantage. And at this point, we will consider options as they become available, but we are mostly focused on organic optimization and growth.

John Royall: Great. Thank you. And then my quick follow-up is on the Rockies. There is a pipeline that’s 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?

Steve Ledbetter: Yes. John, this is Steve. That expansion of that pipeline predominantly is moving jet into the Front Range, but ultimately, will open up more products moving west out of the group. We believe we are in the best position to take advantage of our asset base. And that is whether it makes sense to move barrels out of our refineries 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 into that market, that we still have the flexibility to get them to the highest netback market, be that the Salt Lake Valley up into Idaho or down, as we mentioned earlier, UNEV into the Vegas market. So, it will certainly bring more product when that is done, but we are positioning ourselves to take advantage of our marketplace and our competitive advantages there.

Tim Go: Yes. And John, this is Tim. There is always going to be competitive changes in the marketplace. These pipelines are no different. Our strategy is still the same. We want to be the low-cost supplier in the markets that we serve. And we want to grow our branded foot, the Sinclair stations, the DINO stations that we talk about. And if we can execute and continue to grow those two objectives, then we believe we will still be competitive and be able to protect our market share.

John Royall: Thank you.

Operator: 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, Crysta. 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. 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 addition, our full year results demonstrate the earnings power of our diversified portfolio. While we are encouraged by the recent improvement in real refining cracks that we have seen in the markets, we are also excited about continuing to grow our midstream marketing and lubricants and 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. Thank you all for joining our call. Have a great day.

Operator: Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.