HF Sinclair Corporation

Welcome to HF Sinclair Corporation and Holley Energy Partners' second quarter 2023 conference call and webcast. Hosting the call today is Tim Goh, Chief Executive Officer of HF Sinclair. He is joined by Atanas Antetov, Chief Financial Officer, Steve Ledbetter, EVP of Commercial, Valerie Pompa, EVP of Operations, and Matt Joyce, SVP of Lubricants and Specialists. along with John Harrison, Chief Financial Officer of Holley Energy Partners. 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 touchtone telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1 again. If you should require operator assistance, please press star 0. We ask that you limit yourself to one question and one follow-up. Additionally, we ask that you pick up your handset to allow optimal sound quality. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Craig Berry, Vice President, Investor Relations. Craig, you may begin.

Thank you, Audra. Good morning, everyone, and welcome to HF Sinclair Corporation and Holley Energy Partners' second quarter 2023 earnings call. This morning, we issued a press release announcing results for the quarter ending June 30th, 2023. If you would like a copy of the press releases, you may find them on our websites at hfsinclair.com and hollyenergy.com. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press releases. In summary, it says 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 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. Please see the earnings press releases 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 Goh.

Good morning. Today we reported second quarter 2023 net income attributable to H.F. Sinclair shareholders of $508 million, or $2.62 per diluted share. These results reflect special items that collectively increase net income by $4 million. Excluding these items, adjusted net income for the second quarter was $504 million, or $2.60 per diluted share, compared to adjusted net income of $1.3 billion, or $5.59 per diluted share for the same period in 2022. Adjusted EBITDA for the second quarter was $868 million, a 53% decrease compared to the second quarter of 2022. In our refining segment, second quarter 2023 EBITDA was strong at $703 million compared to $1.7 billion in the same period last year. This decrease was primarily driven by lower refining margins in both the West and mid-continent regions and lower refined product sales volumes due to higher maintenance activity. Operating expenses of $427 million in the second quarter of 2023 improved versus the $469 million recorded in the same period last year, as we benefited from lower natural gas costs. We continue to focus on controllable operating expenses as well as streamlining and optimizing our operations. Crude oil charge averaged 554,000 barrels per day in the second quarter of 2023, compared to 627,000 barrels per day in the second quarter of 2022, due to higher maintenance activity during the period. I'm pleased to report that the two turnarounds at our Navajo and Parker refineries in the period were completed on time and on budget, and we continue to make progress on our long-term reliability improvement initiatives. In our renewable segment, we reported EBITDA of $23 million for the second quarter of 2023 compared to negative $63 million for the second quarter of 2022. Excluding the lower of cost or market inventory valuation adjustment, the segment reported adjusted EBITDA of negative $11 million for the second quarter of 2023 compared to negative $28 million for the second quarter of 2022. Total sales volumes were 50 million gallons for the second quarter of 2023, as compared to 26 million gallons for the second quarter of 2022. Utilization rates were impacted this quarter by two hydrogen plant turnarounds at Navajo and Parco, which are co-located with two of our renewable diesel plants. We continue to improve the performance of this business, with the target of achieving normalized run rates by the end of 2023 which will allow us to optimize advantage feedstock from our pretreatment unit and improve the profitability of this business. Our marketing segment reported EBITDA of $25 million for the second quarter of 2023, compared to $24 million in the second quarter of 2022. Total branded fuel sales volumes were a quarterly record of 364 million gallons compared to 335 million gallons in the same period last year. Gross margin per gallon was also a quarterly record at nine cents in the second quarter, as we saw strong demand for branded fuels across our regions. We added nine new branded sites in the second quarter, and we continue to expect to grow our branded sites by 5% or more per year. Our lubricants and specialty product segment reported EBITDA of $72 million for the second quarter of 2023, compared to EBITDA of $156 million for the second quarter of 2022. This decrease was largely driven by a lower FIFO benefit from consumption of lower-priced feedstock inventory for the second quarter of 2023 of $0.5 million as compared to the $71 million benefit in the second quarter of 2022. We continue to look for ways to optimize the lubricants business, and we remain focused on sales mix optimization of our base oils and finished products. HEP reported EBITDA of $82 million in the second quarter of 2023, compared to $80 million in the same period of last year. This increase was mainly driven by strong transportation and storage volumes in the Rockies region. At this time, we do not have an update regarding the proposed buy-in of HEP as we are still in discussions. We do not intend to disclose developments with respect to the proposed transaction unless and until H.F. Sinclair and HEP have entered into a definitive agreement to affect the proposed transaction. For this reason, we will not be able to discuss any specifics during Q&A. During the second quarter, we announced and paid a regular quarterly dividend of 45 cents per share to stockholders totaling $87.3 million. Subsequent to quarter end, we announced earlier this week that we repurchased 8.2 million shares for an aggregate price of $411 million from REH Company. This puts our year-to-date total cash return, including dividends and share repurchases, at over $834 million. On a trailing 12-month basis, we've returned over $2 billion in cash. to shareholders as of August 2, 2023. Overall, we are very pleased with our strong second quarter results. With the majority of the planned turnaround behind us, we believe our diversified portfolio is well positioned to capture margins available to us the remainder of the year. Our long-term commitment to returning excess cash to shareholders has not changed, and we continue to target a payout ratio of 50% of net income to shareholders. while maintaining an investment grade rating. We remain focused on the reliability and integration of our asset base to further strengthen the earnings portfolio and free cash flow generation of HF Sinclair. With that, let me turn the call over to Adam.