Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second quarter adjusted EBITDA was $82 million, reflecting strong reliability and planned maintenance execution.
- Retail and logistics segments continued to deliver steady earnings, with same-store fuel and merchandise sales growth of 1.3% and 1.8%, respectively.
- Completion of the Billings maintenance positions the company to push utilization rates in the third quarter to meet market demand.
- Growth initiatives are progressing well, including the renewable hydrotreater conversion in Hawaii and the renewable fuel cogeneration project.
- The company further reduced its cost of debt capital and repurchased more than $65 million of its stock, maintaining a strong balance sheet.
Negative Points
- Refining segment's adjusted EBITDA decreased to $60 million from $81 million in the first quarter.
- The Southern Rockies market has been less attractive due to excess mid-continent inventories pressuring markets like Denver and Rapid City.
- Third quarter operating costs in Billings will reflect an incremental $7 million to $8 million related to maintenance activities on the coker unit.
- Net cash used in operations during the second quarter totaled $5 million, including a $61 million working capital outflow.
- The West Coast margin environment is challenging due to material increases in renewable diesel into the market and consistent exports of conventional petroleum diesel.
Q & A Highlights
Q: What are your thoughts on Singapore margins given recent Asia demand trends?
A: William Monteleone, President and CEO: Singapore margins are hovering between $11 and $13 a barrel, which we consider mid-cycle. Supply side support is present due to negative gross margins for simpler refineries in Asia. Limited exports from China and global arbitrage are also influencing margins.
Q: Can you provide an update on capital returns and share repurchases?
A: William Monteleone, President and CEO: We will remain opportunistic with share repurchases, influenced by cash generation, outlook, share price relative to intrinsic value, and liquidity position. Our goal is to maximize shareholder returns.
Q: What are the plans for Billings refinery maintenance in 2025?
A: William Monteleone, President and CEO: We plan to turn around every major unit in Billings over 2024 and 2025, with an expected amortized turnaround cost of about $120 million over four to five years. The major focus for 2025 will be the cat cracker.
Q: Can you elaborate on the crack basis between Rockies and Gulf Coast and expectations for the second half?
A: William Monteleone, President and CEO: The Southern Rockies market is influenced by the Mid-Continent, with recent normalization in spreads. The Northern Rockies, served by rail, shows more pronounced demand seasonality. Overall, demand exceeds supply in the summer.
Q: What is the impact of the coker maintenance in Billings on Q3 2024 results?
A: William Monteleone, President and CEO: The coker maintenance is consistent with our plan and impacts OpEx, not CapEx. This maintenance is part of a typical 9 to 18-month cycle, and costs should be spread over that timeframe.
Q: How does West Coast crack exposure affect Hawaii's results?
A: William Monteleone, President and CEO: Hawaii has a smaller percentage influenced by the Pacific Northwest and Los Angeles markets, with Singapore being the main factor. Unusual weakness in West Coast margins is noted, but we are well-positioned to capture opportunities.
Q: What are your thoughts on M&A and retail business growth?
A: William Monteleone, President and CEO: We will continue to evaluate M&A opportunities, share repurchases, and organic projects. The M&A market is influenced by recent trends, but we expect a more rational framework as mid-cycle returns become evident.
Q: What is the availability of WCS on the West Coast with TMX starting up?
A: William Monteleone, President and CEO: We are seeing increased availability of Canadian grades along the West Coast. Our Washington refinery can receive both rail and waterborne cargoes, presenting new opportunities for our Hawaii business.
Q: Can you provide an update on Hawaii's renewable project?
A: William Monteleone, President and CEO: The $90 million project is on track for the second half of 2025. Major equipment has been ordered, and critical permits are awaited. The renewable cogen project is progressing towards a power purchase agreement with Hawaiian Electric.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
