HF Sinclair Corp Q4 FY2024 earnings call

• 2024 financial and operational results highlighted the strength and resiliency of the diversified portfolio, navigating challenging macroeconomic conditions in refining.
• Executed three key strategic priorities: 1. Improving reliability with heavy turnarounds completed on schedule and budget, best ever personal safety results. 2. Optimization and integration achieving record EBITDA in marketing and midstream, and strong earnings in Lubricants and Specialties, with lower SG&A expenses. 3. Commitment to shareholder returns, returning over $1 billion to shareholders in 2024 while maintaining strong balance sheet and liquidity.
• Refining: Lowered operating expenses, set production records. Renewables: Achieved cost reduction and volume growth despite challenging margin environment. Marketing: Record EBITDA and growth in branded sites. Lubricants and Specialties: Strong earnings despite FIFO headwinds. Midstream: Record EBITDA and volume growth.

Refining: In 2024, annual adjusted operating expenses were lowered to $7.98 per throughput barrel, a reduction of $0.37 per barrel year-over-year, aiming for $7.25 per throughput barrel. Set annual records for premium gasoline production at Woods Cross, jet production at Puget Sound and hydrogen production at Artesia. Renewables: In 2024, reduced annual operating expenses per gallon by 24% year-over-year while increasing utilization and sales volumes by 19% year-over-year. Excluding a $20 million end-of-year charge related to inventory drawdown, renewables would have had positive fourth quarter EBITDA. Marketing: Delivered record annual EBITDA of $75 million in 2024, a 23% increase over 2023. Grew supply branded footprint by a net of 87 sites during 2024 and expects to grow branded sites by 10% annually. Lubricants and Specialties: Delivered adjusted EBITDA of $330 million in 2024, despite $45 million of FIFO headwinds. Midstream: Delivered record annual adjusted EBITDA of $447 million, up 14% year-over-year and record total volumes up 7% year-over-year.

• For full year 2025, expect to spend approximately $775 million in sustaining capital, down $25 million from 2024, including a non-refining and specialties turnaround. Also expect to spend $100 million in growth capital investments. - For the first quarter of 2025, expect to run between 580,000 and 620,000 barrels per day of crude oil in the refining segment, reflecting the planned turnaround at the Tulsa refinery.

• Macro-economic conditions in refining. - Market margin challenges. - Tariff uncertainties. - Uncertainty regarding small refinery exemptions. - Impact of activist investors on peers and potential implications.

Q: Manav Gupta asked about HF Sinclair's leverage to the West Coast market.

A: Steve Ledbetter and Tim Go responded that they can touch the south side of PADD 5 from multiple points, including through the Puget Sound refinery, UNEV pipeline, and Artesia refinery.

Q: Ryan Todd asked about the balance between driving value recognition for lubricants and potential for external monetization.

A: Tim Go stated that the goal is to maximize shareholder value, with a focus on optimizing the business organically in the near term and evaluating strategic options mid-term, including considering inorganic opportunities like small bolt-ons.

Q: Paul Cheng asked about refining medium-term cost targets and initiatives.

A: Valerie Pompa responded that reliability is key, along with turnaround and capital efforts, and digital performance to drive predictive asset intelligence and optimize plants, with expectations of continued progress in reducing costs.

Q: Neil Mehta asked about return of capital and Mid-Continent margin outlook.

A: Atanas Atanasov and Tim Go said they are comfortable with meeting dividend commitments and returning cash to shareholders as margins improve, with Steve Ledbetter noting the Mid-Con is seasonal but they see a constructive view for margins in 2025.

Q: Theresa Chen asked about midstream optimization and Puget Sound's ability to deliver to California.

A: Steve Ledbetter and Tim Go explained there is opportunity to unlock value without significant capital, and Puget Sound has the ability to make high-grade components and ship to California, with a growth capital project at Puget Sound coming online soon.

Q: Roger Read asked about base oil markets and bolt-on acquisitions for lubricants.

A: Matt Joyce and Tim Go discussed base oil market dynamics and the strategy of integrating base oils into finished products, with Steve Ledbetter stating a balanced approach of organic growth and considering inorganic bolt-on acquisitions.

Q: Doug Leggate asked about small refinery exemptions and lubricants business optionality.

A: Tim Go discussed the uncertainty around small refinery exemptions and the independence of the lubricants business allowing for various value maximization options.

Q: Matthew Blair asked about R&D environment and adjusted EBITDA vs EPS.

A: Steve Ledbetter said there is volatility in Q1 with uncertainties around regulations, and Atanas Atanasov explained depreciation is due to capital spending timing and the tax rate is advantaged due to renewables credits.

Q: Jason Gabelman asked about lubricants growth and tariffs.

A: Tim Go said organic growth is the primary focus for lubricants, and Steve Ledbetter discussed the flexibility of refineries to handle tariffs and their ability to be flexible with crude sourcing.

Q: John Royall asked about refining M&A and Rockies pipeline.

A: Tim Go said the main focus is internal organic growth in refining, but they would consider opportunistic M&A if the right asset, timing, and price align; Steve Ledbetter discussed the Rockies pipeline expansion and its potential to move products and allow for flexibility in market placement.