HF Sinclair(DINO) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported third quarter net income attributable to shareholders of $262 million or $1.58 per diluted share, down from adjusted net income of $351 million or $1.98 per diluted share for the same period last year [7] - Adjusted EBITDA for the period was $523 million, a decrease of $90 million compared to the third quarter of 2018, primarily due to lower product margins and weaker laid-in crude advantage [8] - Consolidated refinery gross margin was $17.23 per produced barrel, an 11% decrease from $19.41 for the same period last year [9] Business Line Data and Key Metrics Changes - The refining and marketing segment reported adjusted EBITDA of $425 million compared to $507 million for the third quarter of last year [8] - The lubricant and specialty products business reported EBITDA of $38 million compared to $42 million in the prior year, despite improvements in the base oil market [10] - Holly Energy Partners reported adjusted EBITDA of $90 million for the third quarter, an increase from $87 million in the same period last year, driven by strong third-party volumes [12] Market Data and Key Metrics Changes - Gasoline inventories in the Magellan system started the quarter at 7.1 million barrels and ended at 6.6 million barrels, with current inventories slightly lower at 6.2 million barrels [21] - Group three diesel inventories dropped by 800,000 barrels over the quarter to finish at 7.6 million barrels [21] - Crude differentials widened across the heavy barrel and narrowed on the sour slates during the third quarter, with WCS at Hardisty averaging $12.24 per barrel [23] Company Strategy and Development Direction - The company is focused on completing maintenance work in its Cheyenne, El Dorado, and Woods Cross facilities, expecting to return to normal operations later in the quarter [14] - The outlook for 2020 remains positive, with expectations that IMO implementation will provide uplift to diesel margins and further discounts to heavy crude barrels [15] - The company aims to continue growing in inland markets and is open to opportunities that can bring additional value beyond cash [38][39] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of product margins across the refining system and anticipates a strong finish to the year [14] - The company noted that macroeconomic issues, particularly from the trade war, are impacting sales in the lubricants segment [34] - Management is optimistic about the base oil market improving over the next two years, expecting cracks to move positively [46] Other Important Information - The company returned approximately $260 million of cash to shareholders through dividends and share repurchases [13] - As of September 30, the company had a cash balance of $982 million, above its target of $500 million, and total liquidity exceeding $2.3 billion [31] - The company increased its capital spending guidance for the full year of 2019, now expecting to spend between $550 and $590 million [33] Q&A Session Summary Question: Challenges in lubricants and 2019 guidance - Management noted macro issues from the trade war impacting sales, particularly on high-end finished products, and indicated that achieving 2019 guidance may be a stretch but is possible [34][36] Question: WCS differentials and capacity to run Canadian barrels - Management confirmed that differentials have widened and attributed some of it to IMO 2020, with capacity to run between 60,000 to 100,000 barrels a day depending on market conditions [42][44] Question: Working capital and cash balances - Management indicated that working capital was neutral in Q3 due to inventory build ahead of maintenance, expecting to release that inventory in Q4 [50][51] Question: Capital allocation and dividend considerations - Management emphasized a balanced approach to capital allocation, prioritizing balance sheet protection, dividends, growth capital, and share repurchases [53][55] Question: Strategic review of MLP and market conditions - Management expressed frustration with HEP's unit price performance but noted that HEP remains healthy operationally and commercially [62][65]