HF Sinclair(DINO) - 2023 Q1 - Quarterly Report

FORM 10-Q Information Registrant Information This section provides basic identification details for the registrant, HF Sinclair Corporation - Registrant is HF SINCLAIR CORPORATION, incorporated in Delaware, with Commission File Number 001-41325[2] - Principal executive offices are located at 2828 N. Harwood, Suite 1300, Dallas, Texas 75201[3] Securities Registered This section lists the securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock $0.01 par value | DINO | New York Stock Exchange | Filing Status This section confirms the registrant's compliance with SEC filing requirements and its large accelerated filer status - The registrant has filed all required reports during the preceding 12 months and has been subject to filing requirements for the past 90 days[4] - The registrant has electronically submitted every Interactive Data File required during the preceding 12 months[4] - HF Sinclair Corporation is classified as a Large accelerated filer and is not a shell company[5] - 192,307,059 shares of Common Stock, par value $.01 per share, were outstanding on April 28, 2023[5] Forward-Looking Statements Definitions Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2023 and 2022 - The financial statements are unaudited and include all normal recurring adjustments necessary for a fair presentation in accordance with SEC rules and GAAP[45] - Financial statements for periods from March 14, 2022, to March 31, 2023, include the combined operations of HollyFrontier and the Acquired Sinclair Businesses[10][41] Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----- | :------------------------------ | :------------------------------- | | Total Assets | $18,006,008 | $18,125,483 | | Total Equity | $10,050,527 | $10,017,572 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Sales and Other Revenues | $7,565,142 | $7,458,750 | +1% | | Income from Operations | $504,209 | $232,832 | +117% | | Net Income Attributable to HF Sinclair Stockholders | $353,266 | $159,974 | +121% | | Basic Earnings Per Share | $1.79 | $0.90 | +99% | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------------ | :------------------ | :------------------ | | Total Comprehensive Income | $386,795 | $186,217 | | Comprehensive Income Attributable to HF Sinclair Stockholders | $355,056 | $160,890 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Net Cash Provided by Operating Activities | $177,705 | $461,036 | -61.4% | | Net Cash Used for Investing Activities | $(100,237) | $(385,176) | +74% (less outflow) | | Net Cash Provided by (Used for) Financing Activities | $(379,110) | $281,386 | Significant shift from inflow to outflow | | Cash and Cash Equivalents at End of Period | $1,364,930 | $592,278 | Consolidated Statements of Equity Consolidated Statements of Equity Highlights (Three Months Ended March 31) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Total Equity | $10,050,527 | $10,017,572 | | Common Stock Held in Treasury | $(1,576,689) | $(1,335,431) | | Dividends (Q1 2023 vs Q1 2022) | $(87,987) | $0 | Notes to Consolidated Financial Statements Note 1: Description of Business and Presentation of Financial Statements This note details HF Sinclair's business operations and key accounting policies - HF Sinclair is an independent energy company producing and marketing high-value light products, operating refineries in multiple states, supplying over 1,500 branded stations, and producing renewable diesel[43] - On March 14, 2022, HF Sinclair was established as the new parent company, acquiring Sinclair Oil and Sinclair Transportation Company (STC), integrating their operations[40][41] - As of March 31, 2023, HF Sinclair owned a 47% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P. (HEP), which is consolidated as a variable interest entity (VIE)[43][82] Income Tax Expense and Effective Tax Rates (Three Months Ended March 31) | Metric | 2023 (in millions) | 2022 (in millions) | | :------------------ | :----------------- | :----------------- | | Income Tax Expense | $99.7 | $21.3 | | Effective Tax Rate | 20.6% | 10.3% | Note 2: Acquisitions This note details the Sinclair Transactions, including consideration and purchase price allocation - HF Sinclair completed the acquisition of the Target Company (Sinclair Oil) and HEP acquired STC on March 14, 2022[64][65] Sinclair Transactions Purchase Consideration | Consideration Type | Amount (in thousands) | | :----------------- | :-------------------- | | HF Sinclair common stock issued | $2,149,008 | | HEP common units issued | $349,020 | | Total equity consideration | $2,498,028 | | Total cash consideration | $251,448 | | Total purchase consideration | $2,749,476 | - The final purchase price allocation resulted in $685.9 million in goodwill, allocated across Refining, Renewables, Marketing, and HEP segments, driven by expected synergies and deferred tax liabilities[69] - Incremental direct acquisition and integration costs were $3.9 million for Q1 2023 and $25.0 million for Q1 2022, recorded as selling, general and administrative expenses[76] Note 3: Holly Energy Partners This note describes Holly Energy Partners (HEP), a consolidated master limited partnership - HEP owns and operates logistics assets (pipelines, terminals, tankage, etc) supporting HF Sinclair's refining and marketing operations, and other third-party refineries[81] - HF Sinclair accounted for 82% of HEP's total revenues for the three months ended March 31, 2023, through long-term transportation agreements[84] - On March 14, 2022, HEP acquired STC for approximately $678.0 million, consisting of 21,000,000 common limited partner units and $329.0 million in cash[87] HEP Lease Income (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------------------------------------------------------- | :------------------ | :------------------ | | Operating lease revenues | $4,634 | $3,127 | | Sales-type lease interest income | $632 | $632 | | Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable | $705 | $361 | Note 4: Revenues This note disaggregates revenues by type and market and details future performance obligations Total Sales and Other Revenues (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :---------------------- | :------------------ | :------------------ | | Total Sales and Other Revenues | $7,565,142 | $7,458,750 | Revenues by Type (Three Months Ended March 31) | Revenue Type | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Transportation fuels | $4,507,894 | $5,301,036 | -15% | | Renewable diesel | $202,413 | $28,313 | +615% | | Marketing revenues | $937,385 | $277,041 | +238% | Future Performance Obligations - Refined Product Sales Volumes | Period | Volumes (in thousand barrels) | | :--------- | :---------------------------- | | Remainder of 2023 | 27,091 | | 2024 | 30,423 | | 2025 | 21,087 | | Thereafter | 29,676 | | Total | 108,277 | HEP Contractual Minimum Revenues | Period | Revenues (in thousands) | | :--------- | :---------------------- | | Remainder of 2023 | $12,261 | | 2024 | $17,075 | | 2025 | $8,226 | | Thereafter | $33,636 | | Total | $71,198 | Note 5: Fair Value Measurements This note details the fair value measurements of financial instruments, categorized by input level Fair Value of Assets (March 31, 2023) | Asset Type | Carrying Amount (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :-------------------------- | :----------------------------- | :--------------------- | :--------------------- | :--------------------- | | Commodity price swaps | $2,624 | $0 | $2,624 | $0 | | RINs receivable | $75,724 | $0 | $75,724 | $0 | | Foreign currency forward contracts | $11,757 | $0 | $11,757 | $0 | Fair Value of Liabilities (March 31, 2023) | Liability Type | Carrying Amount (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :-------------------------- | :----------------------------- | :--------------------- | :--------------------- | :--------------------- | | NYMEX futures contracts | $3,438 | $3,438 | $0 | $0 | | Commodity collar contracts | $21,422 | $0 | $21,422 | $0 | | RINs credit obligations | $75,724 | $0 | $75,724 | $0 | - Nonrecurring fair value measurements for the Sinclair Transactions were based on Level 3 inputs, including discounted cash flows, guideline public company/transaction methods, and obsolescence adjusted replacement costs[108] Note 6: Earnings Per Share This note provides the reconciliation of basic and diluted earnings per share Earnings Per Share (Three Months Ended March 31) | Metric | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Net income attributable to HF Sinclair stockholders (in thousands) | $353,266 | $159,974 | | Basic earnings per share | $1.79 | $0.90 | | Diluted earnings per share | $1.79 | $0.90 | | Average number of common shares outstanding (in thousands) | 195,445 | 175,081 | Note 7: Stock-Based Compensation This note describes stock-based compensation plans and associated costs - Total compensation cost for HF Sinclair's plans was $3.3 million for Q1 2023, down from $8.9 million for Q1 2022[113] - HEP's equity-based compensation cost was $0.4 million for Q1 2023, down from $0.6 million for Q1 2022[113] Restricted Stock Unit and Performance Share Unit Activity (Three Months Ended March 31, 2023) | Metric | Restricted Stock Units | Performance Share Units | | :------------------------------------------ | :--------------------- | :---------------------- | | Outstanding at January 1, 2023 | 1,055,875 | 771,197 | | Granted | 29,590 | 1,509 | | Forfeited | (25,053) | (12,540) | | Outstanding at March 31, 2023 | 1,284,772 | 534,949 | Note 8: Inventories This note details the composition and valuation of inventories, including LCOM adjustments Total Inventory (March 31, 2023 vs December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------- | :------------------------------ | :------------------------------- | | Total Inventory | $3,448,821 | $3,214,528 | Inventory Components (March 31, 2023) | Component | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Crude oil | $858,985 | | Other raw materials and unfinished products | $966,222 | | Finished products | $1,396,254 | | Lower of cost or market reserve | $(108,748) | - A valuation reserve of $108.7 million was recorded at March 31, 2023, for renewables inventories, compared to $61.2 million at December 31, 2022, increasing cost of products sold by $47.6 million for Q1 2023[118] Note 9: Environmental This note outlines accounting for environmental costs and liabilities - Environmental remediation expense was $13.3 million for Q1 2023, up from $7.1 million for Q1 2022[122] Accrued Environmental Liability | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Accrued Environmental Liability | $202,000 | $192,300 | - Accrued environmental liabilities assumed in the Sinclair Transactions were $72.2 million at the acquisition date, with an associated receivable from third parties of $21.5 million[122] Note 10: Debt This note details HF Sinclair's and HEP's debt instruments and compliance - HF Sinclair has a $1.65 billion senior unsecured revolving credit facility maturing in April 2026, with no outstanding borrowings and $2.3 million in letters of credit at March 31, 2023[123] - HEP has a $1.2 billion senior secured revolving credit facility maturing in July 2025, with $651.5 million in outstanding borrowings and no outstanding letters of credit at March 31, 2023, with a weighted average interest rate of 6.88%[125][126] Total Long-Term Debt | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------- | :------------------------------ | :------------------------------- | | Total Long-Term Debt | $2,932,989 | $2,948,513 | Fair Values of Senior Notes (March 31, 2023) | Senior Notes Type | Fair Value (in thousands) | | :-------------------------------- | :------------------------ | | HollyFrontier and HF Sinclair Senior Notes | $1,677,864 | | HEP Senior Notes | $866,860 | Note 11: Derivative Instruments and Hedging Activities This note describes the use of derivative instruments to manage commodity and currency risk - HF Sinclair uses derivative contracts to mitigate commodity price risk related to inventory, natural gas purchases, refined product sales, and crude oil costs[140] - Foreign exchange forward contracts are used to mitigate foreign currency exchange rate volatility on intercompany notes with foreign subsidiaries[141] Pre-Tax Effect of Accounting Hedges on OCI and Earnings (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :---------------------------------------------------------------- | :------------------ | :------------------ | | Net Unrealized Gain Recognized in OCI (Commodity contracts) | $271 | $326 | | Loss Reclassified into Earnings (Commodity contracts) | $(1) | $(5,288) | Notional Contract Volumes for Derivative Instruments (March 31, 2023) | Instrument Type | Total Outstanding Notional | 2023 Maturity | 2024 Maturity | Unit of Measure | | :------------------------------------ | :------------------------- | :-------------- | :-------------- | :-------------- | | NYMEX futures (WTI) - short | 1,790,000 | 1,790,000 | — | Barrels | | Foreign currency forward contracts | 428,211,705 | 322,227,146 | 105,984,559 | U.S. dollar | | Natural gas collar contracts | 22,000,000 | 22,000,000 | — | MMBTU | Note 12: Equity This note details the share repurchase program and dividend declarations - In September 2022, a $1.0 billion share repurchase program was approved, replacing all existing programs[151] Common Stock Repurchases (Three Months Ended March 31, 2023) | Metric | Shares | Amount (in millions) | | :-------------------------------- | :------- | :------------------- | | Open market and privately negotiated purchases | 4,793,857 | $240.3 | | Repurchases from REH Company | 1,969,279 | $100.0 | - As of March 31, 2023, $419.8 million remained authorized under the share repurchase program[152] - On May 3, 2023, a regular quarterly dividend of $0.45 per share was declared, payable on June 1, 2023[153] Note 13: Other Comprehensive Income This note presents the components and tax effects of other comprehensive income (OCI) Other Comprehensive Income Attributable to HF Sinclair Stockholders (Three Months Ended March 31, After-Tax) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :---------------------------------------------------------------- | :------------------ | :------------------ | | Net change in foreign currency translation adjustment | $2,312 | $1,342 | | Net unrealized gain on hedging instruments | $205 | $259 | | Net change in pension and other post-retirement benefit obligations | $(727) | $(685) | | Total Other Comprehensive Income | $1,790 | $916 | Accumulated Other Comprehensive Loss (March 31, 2023 vs December 31, 2022) | Component | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------- | | Foreign currency translation adjustment | $(31,115) | $(33,427) | | Unrealized loss on pension obligations | $(2,706) | $(2,661) | | Unrealized gain on post-retirement benefit obligations | $13,393 | $14,075 | | Unrealized gain on hedging instruments | $205 | $0 | | Accumulated other comprehensive loss | $(20,223) | $(22,013) | Note 14: Contingencies This note discusses various legal and environmental contingencies, including RINs obligations - REH Company is financially responsible for pre-closing RINs obligations, secured by 2,570,000 shares of HF Sinclair common stock held in escrow[159] - The EPA reversed small refinery exemptions for Woods Cross and Cheyenne refineries for 2016 and 2018 compliance years and denied petitions for 2019 and 2020, with legal challenges ongoing[161] Note 15: Segment Information This note provides a detailed breakdown of financial performance by operating segment - HF Sinclair operates through Refining, Renewables, Marketing, Lubricants and Specialty Products, and HEP segments[163] - The Refining segment includes seven refineries marketing refined products in the Mid-Continent, Southwest, and Rocky Mountains regions[164] - The Renewables segment operates multiple renewable diesel units (RDU) including Cheyenne, Artesia, and Sinclair RDUs[165] Segment Income (Loss) from Operations (Three Months Ended March 31) | Segment | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Refining | $440,683 | $113,022 | +290% | | Renewables | $(64,579) | $(22,121) | -192% | | Marketing | $502 | $5,269 | -90% | | Lubricants and Specialty Products | $78,740 | $122,088 | -35% | | HEP | $62,052 | $51,676 | +20% | Segment Capital Expenditures (Three Months Ended March 31) | Segment | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Refining | $67,774 | $29,920 | +127% | | Renewables | $4,844 | $98,769 | -95% | | Marketing | $5,255 | $0 | N/A | | Lubricants and Specialty Products | $8,649 | $6,370 | +36% | | HEP | $7,614 | $14,147 | -46% | Note 16: Subsequent Event This note discloses a non-binding proposal to acquire all outstanding common units of HEP - HF Sinclair submitted a non-binding proposal on May 3, 2023, to acquire all outstanding HEP common units not beneficially owned by HF Sinclair or its affiliates[173] - HEP unitholders would receive 0.3714 shares of HF Sinclair Common Stock for each publicly held Common Unit[173] - The proposal is subject to negotiation and execution of a definitive agreement, with no assurance of approval or consummation[173] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results of operations for Q1 2023 versus Q1 2022 - Net income attributable to HF Sinclair stockholders increased by $193.3 million to $353.3 million for Q1 2023, driven by healthy demand, favorable crude spreads, and constrained refined product supply[177] - The Refining segment saw healthy margins in both West and Mid-continent regions due to steady demand, tight supply, and favorable crude spreads, with turnarounds completed at multiple refineries[178] - RINs costs totaled $157.5 million for Q1 2023, significantly increasing cost of products sold[183] - Outlook for Q2 2023 includes expected crude oil throughput of 550,000 – 580,000 BPD in Refining, increased throughputs in Renewables, and favorable product mix in Lubricants[185][186][187] Overview Net Income Attributable to HF Sinclair Stockholders (Three Months Ended March 31) | Metric | 2023 (in millions) | 2022 (in millions) | Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :----------- | | Net Income Attributable to HF Sinclair Stockholders | $353.3 | $160.0 | +121% | - Q1 2023 results were favorably impacted by healthy demand for transportation fuels, lubricants, and transportation/terminal services, favorable crude spreads, and constrained refined product supply[177] - HF Sinclair submitted a non-binding proposal on May 3, 2023, to acquire all outstanding HEP common units not beneficially owned by HF Sinclair or its affiliates, at an exchange ratio of 0.3714 shares of Common Stock per Common Unit[181] - For Q2 2023, the Refining segment expects to run between 550,000 – 580,000 barrels per day of crude oil, with healthy refined product margins[185] Results of Operations Financial Data Key Financial Performance (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | Percent Change | | :------------------------------------------------------------------------------------------------ | :------------------ | :------------------ | :------- | :------------- | | Sales and other revenues | $7,565,142 | $7,458,750 | $106,392 | 1% | | Income from operations | $504,209 | $232,832 | $271,377 | 117% | | Net income attributable to HF Sinclair stockholders | $353,266 | $159,974 | $193,292 | 121% | | Basic earnings per share | $1.79 | $0.90 | $0.89 | 99% | Balance Sheet Highlights (March 31, 2023 vs December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------- | :------------------------------ | :------------------------------- | | Cash and cash equivalents | $1,364,930 | $1,665,066 | | Total assets | $18,006,008 | $18,125,483 | | Total debt | $3,240,245 | $3,255,472 | | Total equity | $10,050,527 | $10,017,572 | Other Financial Data Cash Flow and Capital Expenditures (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :---------------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $177,705 | $461,036 | | Net cash used for investing activities | $(100,237) | $(385,176) | | Net cash provided by (used for) financing activities | $(379,110) | $281,386 | | Capital expenditures | $100,069 | $158,296 | | EBITDA | $652,836 | $359,766 | Segment Operating Data Refining Segment Operating Data Consolidated Refining Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Crude charge (BPD) | 498,500 | 525,080 | -5.1% | | Refinery utilization | 73.5% | 88.6% | -15.1 pp | | Refinery gross margin (per produced barrel) | $23.70 | $12.69 | +86.8% | | Net operating margin (per produced barrel) | $12.55 | $5.14 | +144.2% | Mid-Continent Region Refining Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Crude charge (BPD) | 211,390 | 290,200 | -27.2% | | Refinery utilization | 81.3% | 111.6% | -30.3 pp | | Refinery gross margin (per produced barrel) | $20.34 | $9.32 | +118.2% | West Region Refining Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Crude charge (BPD) | 287,110 | 234,880 | +22.2% | | Refinery utilization | 68.7% | 70.6% | -1.9 pp | | Refinery gross margin (per produced barrel) | $25.92 | $16.61 | +56.0% | Renewables Segment Operating Data Renewables Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Sales volumes (in thousand gallons) | 46,012 | 4,943 | +830.8% | | Renewables gross margin (per produced gallon) | $0.77 | $0.63 | +22.2% | | Net operating margin (per produced gallon) | $0.09 | $(4.85) | Significant improvement | Marketing Segment Operating Data Marketing Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Number of branded sites at period end | 1,511 | 1,323 | +14.2% | | Sales volumes (in thousand gallons) | 328,407 | 84,913 | +286.7% | | Margin per gallon of sales | $0.04 | $0.07 | -42.9% | Lubricants and Specialty Products Segment Operating Data Lubricants and Specialty Products Operations (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------ | :----- | :----- | :----------- | | Sales of produced refined products (BPD) | 31,790 | 35,010 | -9.2% | | Finished products (as % of sales) | 50% | 51% | -1 pp | | Base oils (as % of sales) | 29% | 30% | -1 pp | - Effective Q1 2023, management views this segment as an integrated business of processing feedstocks into base oils and finished lubricant products for sale to customers[209] Results of Operations – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Summary - Net income attributable to HF Sinclair stockholders increased by $193.3 million to $353.3 million ($1.79 per share) for Q1 2023, compared to $160.0 million ($0.90 per share) for Q1 2022[210] - Refinery gross margins increased to $23.70 per produced barrel sold for Q1 2023, from $12.69 for Q1 2022[210] - A lower of cost or market inventory reserve adjustment decreased pre-tax earnings by $47.6 million for Q1 2023 due to renewables inventories[210] Sales and Other Revenues - Sales and other revenues increased 1% to $7,565.1 million for Q1 2023 from $7,458.8 million for Q1 2022, primarily due to increased sales prices, partially offset by lower refined product sales volumes[211] - Unaffiliated revenues for Q1 2023 included $937.4 million from Marketing, $733.7 million from Lubricants and Specialty Products, and $202.4 million from Renewables segments[211] Cost of Products Sold - Total cost of products sold decreased 5% to $6,151.7 million for Q1 2023 from $6,493.5 million for Q1 2022, mainly due to lower crude oil costs and lower refined product sales volumes[212] - A $47.6 million charge for renewables inventories in Q1 2023, compared to an $8.6 million benefit in Q1 2022, due to lower of cost or market inventory valuation adjustment[212] - The FIFO impact within the Lubricants and Specialty Products segment was a $13.9 million charge for Q1 2023, compared to a $58.4 million benefit for Q1 2022[212] Gross Refinery Margins - Gross refinery margin per produced barrel sold increased 87% to $23.70 for Q1 2023 from $12.69 for Q1 2022, driven by higher average sales prices and lower crude oil/feedstock prices[213] Operating Expenses - Operating expenses (exclusive of depreciation and amortization) increased 34% to $639.4 million for Q1 2023 from $477.4 million for Q1 2022, primarily due to the acquisition of the Acquired Sinclair Businesses and higher purchased fuel costs[214] Selling, General and Administrative Expenses - Selling, general and administrative expenses decreased 13% to $95.9 million for Q1 2023 from $110.4 million for Q1 2022, mainly due to lower professional services and legal costs[215] - Acquisition integration and regulatory costs were $3.9 million in Q1 2023, down from $25.0 million in Q1 2022[215] Depreciation and Amortization Expenses - Depreciation and amortization increased 20% to $174.0 million for Q1 2023 from $144.6 million for Q1 2022, primarily due to the Acquired Sinclair Businesses and newly capitalized renewable diesel units[216] Interest Income - Interest income increased significantly to $19.9 million for Q1 2023 from $1.0 million for Q1 2022, due to higher average cash balance and interest rates on cash investments[217] Interest Expense - Interest expense increased to $45.8 million for Q1 2023 from $34.9 million for Q1 2022, mainly due to HEP's April 2022 senior notes issuance and higher market interest rates on HEP's revolving credit facility[218] - Interest expense attributable to the HEP segment was $26.0 million for Q1 2023, compared to $13.6 million for Q1 2022[219] Gain on Foreign Currency Transactions - A net gain of $0.9 million for Q1 2023, compared to $0.1 million for Q1 2022, from remeasurement adjustments on intercompany financing notes and mark-to-market valuations on foreign exchange forward contracts[220] Income Taxes - Income tax expense increased to $99.7 million for Q1 2023 from $21.3 million for Q1 2022, primarily due to higher pre-tax income[221] - Effective tax rates were 20.6% for Q1 2023 and 10.3% for Q1 2022[221] Liquidity and Capital Resources HF Sinclair Credit Agreement - HF Sinclair has a $1.65 billion senior unsecured revolving credit facility maturing in April 2026[222] - At March 31, 2023, HF Sinclair was in compliance with all covenants, had no outstanding borrowings, and $2.3 million in outstanding letters of credit[222] HF Sinclair Financing Arrangements - Certain wholly-owned subsidiaries entered into financing arrangements involving the sale and leaseback of precious metals catalyst, with current leases maturing in one year or less[223] HEP Credit Agreement - HEP has a $1.2 billion senior secured revolving credit facility maturing in July 2025[224] - At March 31, 2023, HEP was in compliance with all covenants, had $651.5 million in outstanding borrowings, and no outstanding letters of credit[224] - HEP had net repayments of $16.5 million under the credit agreement during Q1 2023[224] Liquidity - Standalone liquidity was approximately $3.01 billion at March 31, 2023, comprising $1.36 billion in cash and cash equivalents and an undrawn $1.65 billion credit facility[227] - Management believes current cash, internally generated cash flow, and credit facilities will provide sufficient resources for planned capital projects and liquidity needs[226] - During Q1 2023, 4,793,857 shares were repurchased for $240.3 million under the $1.0 billion share repurchase program, with $419.8 million remaining authorized as of March 31, 2023[229][230] Cash Flows – Operating Activities - Net cash flows provided by operating activities decreased by $283.3 million to $177.7 million for Q1 2023, compared to $461.0 million for Q1 2022, primarily due to higher turnaround spend[231] - Turnaround expenditures were $163.7 million for Q1 2023, compared to $45.2 million for Q1 2022[231] Cash Flows – Investing Activities and Planned Capital Expenditures - Net cash flows used for investing activities were $100.2 million for Q1 2023, a decrease from $385.2 million for Q1 2022[232][233] - Cash expenditures for properties, plants and equipment were $100.1 million for Q1 2023 (including $7.6 million for HEP), compared to $158.3 million for Q1 2022 (including $14.1 million for HEP)[232][233] - The Sinclair Transactions in Q1 2022 resulted in a cash outflow of $231.2 million[233] Expected Capital and Turnaround Cash Spending for 2023 | Category | Expected Range (in millions) | | :-------------------------------- | :--------------------------- | | Total HF Sinclair Capital Expenditures | $910.0 - $1,105.0 | | Total HEP Capital Expenditures | $30.0 - $45.0 | | Total Company Capital Expenditures | $940.0 - $1,150.0 | Cash Flows – Financing Activities - Net cash flows used for financing activities were $379.1 million for Q1 2023, a significant shift from $281.4 million provided by financing activities for Q1 2022[240][241] - Key financing activities in Q1 2023 included $245.6 million in common stock repurchases and $88.0 million in dividends paid, while HEP had net repayments of $16.5 million and paid $26.0 million in distributions[240] - In Q1 2022, HEP had net borrowings of $301.5 million under its credit agreement and paid $17.0 million in distributions to noncontrolling interests[241] Contractual Obligations and Commitments - There were no significant changes to HF Sinclair's or HEP's long-term contractual obligations during Q1 2023, other than HEP's net repayments of $16.5 million under its credit agreement[242][243][244] Critical Accounting Estimates Inventory Valuation - Refining and renewables inventories are valued at the lower of LIFO cost or market, with interim LIFO calculations based on management's estimates of expected year-end inventory levels[247] - A renewables inventory valuation reserve of $108.7 million at March 31, 2023 (up from $61.2 million at December 31, 2022) increased cost of products sold by $47.6 million in Q1 2023 due to market conditions[248] - Inventories for Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of FIFO cost or net realizable value[249] Valuation of Business Combinations - Assets acquired and liabilities assumed in business combinations are recognized and measured at estimated fair values at the acquisition date, with any excess consideration recorded as goodwill[251] - Fair value determinations are based on a combination of valuation methods, including income, cost, and market approaches, which involve inherently uncertain estimates[251] Contingencies - The company is subject to various legal, regulatory, and administrative proceedings, requiring assessment of the likelihood of adverse judgments and potential ranges of probable losses[252] - Required reserves for contingencies are subject to periodic adjustments based on new developments or changes in settlement strategy[252] Risk Management Commodity Price Risk Management - The primary market risk is commodity price volatility in crude oil, refined products, and natural gas[254] - Derivative contracts are used to mitigate price exposure for inventory, natural gas purchases, refined product sales, and crude oil costs[254] Foreign Currency Risk Management - The company is exposed to market risk related to volatility in foreign currency exchange rates[255] - Foreign exchange forward contracts are periodically entered into to mitigate exposure associated with fluctuations on intercompany notes with foreign subsidiaries[255] Foreign Currency Forward Contracts Notional Volumes (March 31, 2023) | Instrument Type | Total Outstanding Notional | 2023 Maturity | 2024 Maturity | Unit of Measure | | :------------------------------------ | :------------------------- | :-------------- | :-------------- | :-------------- | | Foreign currency forward contracts | 428,211,705 | 322,227,146 | 105,984,559 | U.S. dollar | Interest Rate Risk Management - For fixed-rate debt, changes in interest rates generally affect fair value but not earnings or cash flows[258] - For variable-rate debt (HEP Credit Agreement), changes in interest rates affect cash flows but not fair value[259] Estimated Change in Fair Value for Fixed-Rate Debt (March 31, 2023) | Debt Type | Outstanding Principal (in thousands) | Estimated Fair Value (in thousands) | Estimated Change in Fair Value (10% yield change, in thousands) | | :-------------------------------- | :--------------------------------- | :---------------------------------- | :------------------------------------------------------------- | | HollyFrontier and HF Sinclair Senior Notes | $1,707,827 | $1,677,864 | $29,993 | | HEP Senior Notes | $900,000 | $866,860 | $22,254 | - A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement's $651.5 million outstanding borrowings would not materially affect cash flows[259] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the "Risk Management" discussion for disclosures about market risk - This item directs readers to the "Risk Management" section under "Management's Discussion and Analysis of Financial Condition and Results of Operations" for detailed disclosures on market risk[263] Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles This section provides reconciliations of non-GAAP financial measures to their most comparable GAAP measures EBITDA Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Net income attributable to HF Sinclair stockholders | $353,266 | $159,974 | | Add interest expense | $45,822 | $34,859 | | Subtract interest income | $(19,935) | $(997) | | Add income tax expense | $99,700 | $21,329 | | Add depreciation and amortization | $173,983 | $144,601 | | EBITDA | $652,836 | $359,766 | Consolidated Refining Segment Gross Margin and Net Operating Margin Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands, except per barrel) | 2022 (in thousands, except per barrel) | | :------------------------------------------------------------------------------------------------ | :------------------------------------ | :------------------------------------ | | Refining segment sales and other revenues | $6,718,615 | $6,506,167 | | Refining segment gross margin | $1,100,704 | $596,557 | | Refinery gross margin per produced barrel sold | $23.70 | $12.69 | | Net operating margin per produced barrel sold | $12.55 | $5.14 | Renewables Segment Gross Margin and Net Operating Margin Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands, except per gallon) | 2022 (in thousands, except per gallon) | | :------------------------------------------------------------------------------------------------ | :------------------------------------ | :------------------------------------ | | Renewables segment sales and other revenues | $298,016 | $47,367 | | Renewables gross margin | $35,278 | $3,096 | | Renewables gross margin per produced gallon sold | $0.77 | $0.63 | | Net operating margin per produced gallon sold | $0.09 | $(4.85) | Marketing Segment Gross Margin Reconciliation (Three Months Ended March 31) | Metric | 2023 (in thousands, except per gallon) | 2022 (in thousands, except per gallon) | | :------------------------------------------------------------------------------------------------ | :------------------------------------ | :------------------------------------ | | Marketing segment sales and other revenues | $937,385 | $277,041 | | Marketing gross margin | $13,336 | $5,910 | | Marketing segment gross margin per gallon sold | $0.04 | $0.07 | Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023[275] - There have been no material changes in internal control over financial reporting during the last fiscal quarter[276] Part II. Other Information Item 1. Legal Proceedings This section details various legal, regulatory, and administrative proceedings and their potential impact - HollyFrontier Navajo Refining LLC is in discussions with the EPA, DOJ, and NMED regarding alleged noncompliance with the Clean Air Act at its Artesia and Lovington refineries[281] - Sinclair Oil received a Notice of Claim from the Port of Seattle alleging responsibility for bunker fuel clean-up from 1977-1980, with ongoing discussions[284] - The EPA reversed small refinery exemptions for Woods Cross and Cheyenne refineries for the 2016 and 2018 compliance years and denied petitions for 2019 and 2020, with legal challenges ongoing[285][286] - Management believes that the resolution of these proceedings will not individually or in the aggregate have a materially adverse effect on the company's financial condition, results of operations, or cash flows[279][289] Item 1A. Risk Factors This section updates risk factors, highlighting a new risk related to the proposed acquisition of HEP common units - There have been no material changes in risk factors as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except as described[290] - A new risk factor highlights that there can be no assurance of entering into a definitive agreement or completing the proposed HEP Transaction to acquire all outstanding HEP common units not beneficially owned by HF Sinclair or its affiliates[291] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases made by the company during the first quarter of 2023 Common Stock Repurchases (First Quarter 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------------------------ | | January 2023 | 511,716 | $51.60 | $635.37 | | February 2023 | 692,357 | $53.10 | $598.24 | | March 2023 | 3,589,784 | $49.35 | $419.77 | | Total for Q1 2023 | 4,793,857 | N/A | N/A | - The repurchases were made under a $1.0 billion share repurchase program approved in September 2022, which authorizes open market or privately negotiated transactions, including from REH Company[294] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements, certifications, and XBRL data - Key exhibits include Amended and Restated Certificate of Incorporation and By-Laws, various material agreements, CEO/CFO Certifications, and Inline XBRL financial information[298] Signatures