Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HF Sinclair Corp (DINO, Financial) achieved higher utilization rates and lower operating costs per barrel in their refining business.
- The company returned $467 million in cash to shareholders and announced a $0.5 quarterly dividend.
- Positive EBITDA was achieved in the renewables segment despite market challenges.
- The Lubricants and Specialties segment showed strong performance driven by sales mix optimization and operational efficiencies.
- Record volumes were achieved in the Midstream segment, indicating successful integration post-acquisition.
Negative Points
- Adjusted net income for the second quarter was significantly lower at $149 million compared to $504 million in the same period in 2023.
- Refining segment EBITDA decreased to $187 million from $732 million in the second quarter of 2023 due to lower gross margins.
- The renewables segment, despite achieving positive EBITDA, still faces challenges with low LCFS credit prices and high-cost inventories.
- Operating expenses per throughput barrel, while improved, are still above the long-term target of $6.50.
- The company faces ongoing market volatility and supply issues, particularly in the distillate and diesel markets.
Q & A Highlights
Q: My first question relates to the new stiffness exceeded our expectations. Clearly, a lot of integration work that you have been doing is helping you out. So help us understand the outlook for this business. And should we expect the strong performance to continue?
A: Yes, Manav, thanks. This is Tim. Our news business is performing very well as a good example of our improved capability to execute and deliver value to shareholders. We believe our current run rate right now is 350 million of EBITDA per year and has been for the last three-and-a-half years. We are transforming this segment from what I call a cyclical base of business that was back in 2019 to a specialty book business that's capturing 12% to 13% and EBITDA margins today.
Q: Can you talk about what impact you've seen it crushes system today from the startup of a few mountain of entertainment pipeline these wells in terms of Canadian crude availability and pricing? Any impact on I could availability at peak zone and WCS fish that started to widen out back out a bit there. Maybe any had any thoughts in your outlook for Canadian differentials going forward?
A: Ryan, as Steve. I'll take that one as well. We anticipated at TMX came on that would compress the differentials. And of course, we saw that considerably quarter over quarter, which impacts all of our differentials for heavy run throughout our kit, specifically on the West Coast. That impacts Puget. We have the capability we're connected to pipe and we have ample dock capacity to take crude. And we think longer term as the market settles out, that will be an advantage for us as it will be more barrels looking for a home and our proximity will be advantaged because there, again, we're already seeing a lot of production come on.
Q: Can you talk maybe all what is working across the system, the progress you've made and maybe the outlook, what at what and yet they still in terms of continuing to drive costs down?
A: Yes, Ryan, our teams are working very hard on operating cost and reliability in general. So salary. Let me ask her to come and provide some color share in and I'll just kind of go back to what we said before. So our priorities around OpEx, our reliability first, that starts to bring down gain control and bring down our costs second as workflow efficiency and then turnaround excellence. So only demonstrated our turnaround, scoping and predictability. We're starting to see that in renewables, and we see the impacts of our turnarounds and all of our reliability metrics.
Q: Let's go back to the electricity discussion and your comments about high grading finished products in your portfolio. Can you just help us understand what inning are you in completing that and how much more of an uplift conduct stuff going forward?
A: Yes, thanks for the question. This is Matt choice. We believe we're still in the early innings on this on this particular business. We're encouraged by the results, and we've now demonstrated those results for multiple years that are continuing to build on the momentum in the confidence that we have. But if we're talking baseball analogies, I'd say we're in the third inning and we have plenty of room to roam here. And the opportunities we continue to find is we look for a new new ways to grow and innovate. And when we were we've been over to look for nickels and dimes, we actually find millions of dollars of opportunity that we're executing very well to drop that to the bottom line.
Q: Can you just give us your latest thoughts on path for us, supply and demand for products going forward?
A: Yes, it is Steve. We watch those things very closely and there will be continued announcements and how they come to fruition when they come to fruition. We'll monitor that. But our belief is that we have strategic advantages of where the product and by the feedstock secured for the product is made and where display space. And we have a sizable footprint in terms of midstream as well as our refinery refining kit that can access the Rockies and that access the Salt Lake Valley and and all the way Connect down to Vegas. And we're very focused on making sure that we have the best offering to our customers and people who are really looking to get supplied with ratable basis.
Q: Can you talk about what you guys are seeing and kind of demand within your own system and then maybe highlight some pockets of strength or weakness?
A: Hey, Adam, Steve, I'll take that one. So as we look at it, I think people were really concerned in the second quarter about a demand issue. I'll talk specifically the split because I think that was your first question. I think there was a bit softness in terms of demand on diesel and was relatively flat on gas and increasing. And Jeff, I think part of that was contributed to some of the weather impacts that we had in the Mid-Con specifically and maybe missed a bit of the planting season. We are starting to see demand really come back strong impact for right now in the back part of this.
Q: Could you talk about asphalt dynamics in Q2 and what you're seeing so far in the third quarter?
A: Sure, Matt. I think our asphalt business is something that is a nice little extension of the value chain. To the extent that we can run heavier crudes, we have the facilities to go to upgrade the product and get it into the retail paving grade markets. And the locations of those assets are really beneficial for us. We'd like to say we can take the components and we can pay all year in the Southwest. We have a few elements where we've optimized GRAIL. So our cost structure has come down a bit. We also have had some some price improvement.
Q: Was that just due to market conditions or was there some maintenance gate you need to accelerate at the plant?
A: We just take the opportunity to pull it in a couple of weeks that really for optimization around workforce and scheduling and Denmark market was favorable and just spend a lot of sense from that from an efficiency perspective.
Q: Given that do you expect that on Azure operations improve? Or do you need to spend at a higher level over the next couple of years to continue to get your operations in line with targets?
A: Yes, a great question at as reliability and for you. And we are costs will come down our maintenance. I think short term, what we're seeing it and we're seeing some improvements that and I would say we're going to be flat in the near term as we continue to invest in our programs. And so that money is coming out of the reactive side of the business and going into proactive programs.
Q: Would you mind just talking to your outlook for that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
