HF Sinclair Corporation

Well, today is Tim Goh, Chief Executive Officer of HF Sinclair. He is joined by Atanas Adonisov, Chief Financial Officer, Steve Ledbetter, EVP of Commercial, Valerie Pompa, EVP of Operations, and Matt Joyce, SVP of Lubricants and Specialities. 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 one on your touch tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star zero. We ask that you please limit yourself to one question and one follow up. 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 Beery, Vice President, Investor Relations. Craig, you may begin.

Thank you, Gavin. Good morning, everyone, and welcome to HF Sinclair Corporation's fourth quarter 2023 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31st, 2023. 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, 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 filing. 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.

Good morning, everyone. When I stepped into the CEO role last year, I laid out three priorities. One, to drive operational excellence, including improved reliability. Two, to optimize and integrate our portfolio of new businesses and three, to generate strong cash flows to advance our cash return strategy. I'm very pleased to report the significant progress our team has executed against these goals during the year. First, in 2023, we delivered record-best process safety performance across our refining portfolio and successfully completed heavy maintenance turnarounds at all of our refineries during the year on schedule and on budget. as we took another step towards improving reliability across our portfolio. Second, we closed the transaction to buy in our HEP business in the fourth quarter and furthered our efforts to integrate and optimize our asset base. In addition, we delivered growth in our marketing segment volumes and site count and delivered strong lubricants and specialties segment earnings despite the weakening of base oil cracks in 2023. Third, during the year, we also returned over $1.3 billion in cash to shareholders through share with purchases and dividends, delivering on our cash return commitment to shareholders. With good momentum across our businesses, we believe we are well positioned to continue creating compelling value for our shareholders in 2024. Now let's turn to our segment highlights. In refining for the full year 2023, We set annual records at our PARCO refinery in both heavy crude runs and total throughput. We also executed planned turnaround work at all of our refineries on schedule and on budget. Improved turnaround execution allowed us to do all the work on our equipment we intended and is essential to our strategy of driving reliability improvements in 2024 and throughout the turnaround cycle. In renewables in the fourth quarter, we achieved our normalized run rate utilization for our renewables facilities and delivered record volumes at our pretreatment unit in Artesia. We also received our new CI pathways, which we believe will benefit our margin capture opportunity going forward. For 2024, we plan to continue to optimize the operation of our renewables assets through improved reliability and improved commercial efforts. The marketing segment in 2023 delivered growth in gasoline and diesel branded sales volumes, as well as branded site count compared to 2022, which includes our Sinclair branded wholesale business for the period after March 14th, 2022. We are pleased with the value that the Tyno brand brings to our portfolio, and we remain focused on increasing the number of branded sites and sales volumes in 2024. In lubricants and specialties, Despite lower base oil margins in 2023, we performed well above our mid-cycle guidance and reported annual EBITDA of $346 million. Our results in 2023 reflect our continued efforts to optimize the feedstock integration and sales mix across our finished products portfolio, and we look to build upon this strategy in 2024 to further enhance the value of our lubricants and specialties business. In midstream, We closed on the acquisition of Holley Energy Partners on December 1st, 2023, along with the associated exchange of the outstanding HCP bonds for new HF Sinclair bonds. This acquisition strengthens our business as we simplified our corporate structure and reduced costs as a combined company, further supporting the integration and optimization efforts across our assets. Going forward, our midstream operation will continue to be reported as a separate standalone segment in our financials. In the fourth quarter, we returned $248 million to shareholders through share repurchases and dividends. For the full year 2023, we returned over $1.3 billion in cash to shareholders representing an annual cash return of 12% and payout ratio of 74%. This does not include the additional $268 million in cash paid to HEP unit holders in the HEP transaction. Since the closing of the Sinclair acquisition on March 14, 2022, we have returned approximately $3 billion in cash to shareholders, which represents 27% of our market cap as of December 31, 2023. As of February 9th, 2024, we have $591 million remaining on our current share repurchase authorization, and we remain fully committed to our long-term cash return strategy and long-term payout ratio while maintaining a strong balance sheet and investment-grade credit rating. We also announced on February 14th, 2024, that our Board of Directors declared a regular quarterly dividend of 50 cents per share, an increase of 5 cents over the previous dividend, payable on March 5, 2024, to holders of record on February 26, 2024. The 11% dividend increase reflects our Board's commitment to returning excess cash to shareholders. Looking ahead, we remain focused on further executing our corporate strategy to maximize shareholder value. We believe the strength and diversification of our new asset base coupled with our disciplined approach to capital allocation, will position us well for success.