HollyFrontier Corporation

Welcome to Holy Frontier Corporation's 4th Quarter 2021 Conference Call and Webcast. Hosting the call today from Holy Frontier is Mike Jennings, Chief Executive Officer. He is joined by Rich Boliva, Executive Vice President and Chief Financial Officer, Tim Goh, President and Chief Operating Officer, and Tom Crary, President, Holy Frontier Renewables. 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'd like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1 again. If you 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 that 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, Julie. Good morning, everyone, and welcome to Holly Frontier Corporation's fourth quarter 2021 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31, 2021. If you would like a copy of the press release, you may find one on our website at hollyfrontier.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 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 Mike Jennings. Hey, thanks, Craig.

Good morning, everyone. 2021 was a momentous year for Highway Frontier. First and foremost, I want to recognize our employees for their commitment to safety. Despite the continuing challenges of the COVID-19 pandemic, the reportable injury rate, for our employee and contractor workforce was a record low for Holly Frontier. Second, we delivered solid financial results, led by record earnings in our lubricant segment, advanced our renewables projects, closed on the Puget Sound acquisition, and announced our plans to acquire Sinclair. We believe the combination of these strategic initiatives will enhance our value to shareholders over the long term. These investments are significant, both in terms of capital and for our people. Our team has taken these strategic initiatives head on and remains committed to execution. Turning to our fourth quarter results, we reported a net loss attributable to Highway Frontier shareholders of $40 million, or 24 cents per diluted share. These results reflect special items that collectively increased net loss by $22 million. Excluding these items, adjusted net loss for the fourth quarter was $18 million, or negative 11 cents per diluted share versus adjusted net loss of $119 million or 74 cents per diluted share for the same period in 2020. Adjusted EBITDA for the period was $126 million, an increase of $148 million compared to the fourth quarter of 2020. The refining segment reported EBITDA of $25 million compared to $8 million for the fourth quarter of 2020 And consolidated refinery gross margin was $8.70 per produced barrel, a 116% increase compared to the same period last year. This increase was due to higher margins driven by strong product demand for transportation fuels as we continue on the path to recovery to pre-pandemic levels. Fourth quarter crude throughput was approximately 421,000 barrels per day, below our initial guidance of 450,000 to 470,000 barrels per day due to heavy planned and unplanned refinery maintenance and weather-related downtime during the quarter. Our lubricants and specialty products business reported EBITDA of $75 million compared to $49 million, which is before the goodwill impairment charge of $82 million in the fourth quarter of 2020. For the full year 2021, our lubricants and specialties business achieved record financial results of $331 million in adjusted EBITDA, led by strong margins for base oils throughout most of the year. Holley Energy Partners reported adjusted EBITDA of $80 million for the fourth quarter, compared to $88 million in the fourth quarter of last year. Despite the planned turnaround and unplanned maintenance at Holly Frontier's Navajo refinery, HEP delivered another quarter of strong operational performance and financial results. HEP maintained its distribution in 2021 and ended the year with a coverage ratio of 1.8 times and continued its deleveraging strategy, repaying over $70 million in debt and bringing HEP's leverage to 3.9 times. Looking ahead, Within our refining segment, for the first quarter of 2022, we expect to run between 490 and 510,000 barrels per day of crude oil. This guidance reflects the impact of weather-related downtime at the Puget Sound Refinery, a scheduled turnaround at the Woods Cross Refinery, as well as maintenance activities at the Navajo Refinery throughout the first quarter. We believe that demand for transportation fuels will continue to strengthen as the global economy recovers from the pandemic. Within our lubricants and specialty products segment for the first quarter of 2022, we expect seasonal improvement in earnings and a continued shift in mix toward rack forward from rack back. We expect base oil prices and margins to continue to decline through the first quarter as base oil supply continues to recover. In 2022, HEP expects to hold the quarterly distribution constant at 35 cents per unit or $1.40 on an annualized basis. HEP remains committed to its distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and maintaining distributable cash flow coverage of 1.3 times or greater with the goal of reducing leverage to 3.0 to 3.5 times. In our renewable segment, we're pleased to announce that the 6,000-barrel-per-day Cheyenne RDU is now fully operational, and we are lining the unit out to produce on-spec product. The Artesia pretreatment unit is expected to be completed in the first quarter of 2022, and the Artesia RDU is expected to be operational in the second quarter of 22. Once completed, we will have the ability to produce approximately 15,000 barrels per day of renewable diesel, with advantaged feedstock sourcing and flexibility through our own pretreatment unit. We ended 2021 with a robust financial foundation and bright prospects for continued growth and value. As we look to 2022, we are focused on one thing, execution. Execution will be critical as we ramp up to serve a recovering economy, start up our renewable diesel operations, and work toward the closing of the Sinclair business acquisition and subsequent integration after the closing. With that, let me turn the call over to Rich.