HF Sinclair(DINO) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2018, net income attributable to shareholders was $142 million or $0.81 per diluted share, with adjusted net income of $394 million or $2.25 per diluted share, compared to $125 million or $0.70 per diluted share in Q4 2017 [7] - Adjusted EBITDA for the period was $641 million, an increase of $307 million compared to Q4 2017, primarily due to favorable crude discounts [8] - Cash flow from operations was $425 million, including turnaround spending of $103 million, with total cash balance at $1.2 billion as of December 31, 2018 [26][27] Business Line Data and Key Metrics Changes - The lubricants and specialty product business reported an EBITDA loss of $4 million, impacted by weak base oil markets and a turnaround at the Mississauga plant [8] - Rack Forward EBITDA was $49 million with a 12% EBITDA margin, while full-year Rack Forward EBITDA was $213 million with a 13% EBITDA margin [9][10] - Holly Energy Partners reported EBITDA of $90 million for Q4, down from $125 million in the same period last year due to lower unit volumes and unplanned maintenance [11] Market Data and Key Metrics Changes - In the Rockies, crude throughput was 406,000 barrels per day, slightly below guidance, primarily due to unplanned maintenance [13] - Gasoline inventories in the Magellan system ended the quarter at 8.8 million barrels, approximately 3.2 million barrels higher than September 30 levels [19] - Fourth quarter consolidated gross margin was $22.17 per produced barrel sold, a 77% increase over the $12.54 recorded in Q4 2017 [24] Company Strategy and Development Direction - The company remains committed to returning excess cash to shareholders, having returned $597 million through dividends and share repurchases in 2018 [12][28] - The acquisition of Sonneborn is expected to strengthen the Rack Forward business and enhance operational efficiency [10][45] - The company plans to review its dividend policy in light of stable cash flow streams from new acquisitions [36][37] Management's Comments on Operating Environment and Future Outlook - Management indicated that 2018 was a cyclical low for base oil markets, with expectations for improvement in 2019 due to the absence of planned maintenance [33][34] - The company anticipates running between 400,000 and 410,000 barrels per day of crude oil for Q1 2019, with scheduled turnarounds impacting throughput [17] - Management expressed confidence in the synergies and EBITDA run rate from the Sonneborn acquisition, despite it being early post-acquisition [45] Other Important Information - The company expects capital expenditures for 2019 to be between $470 million and $510 million, with a tax rate of 23% to 25% [30] - The company has a modest debt-to-cap ratio of 14% and total liquidity exceeding $2 billion [27][29] Q&A Session Summary Question: Insights on Rack Back business and cyclical low - Management explained that 2018 was a cyclical low due to macro and micro factors, with expectations for recovery in 2019 [32][34] Question: Dividend growth potential - Management indicated a desire to review the dividend policy in the coming months, considering stable cash flow from new acquisitions [36][37] Question: Impact of turnaround on lubricants - Management noted that higher margin products were not produced for half the quarter due to the turnaround, significantly impacting performance [41] Question: Guidance on throughput - Management clarified that the throughput guidance was impacted primarily by the Tulsa turnaround, not economic run cuts [42] Question: Confidence in Sonneborn acquisition - Management expressed confidence in the initial guidance for Sonneborn's EBITDA run rate and synergies [45] Question: Heavy sour crude runs in Mid-Con - Management attributed the drop in heavy sour crude runs to the El Dorado turnaround, which limited refinery operations [46] Question: Capital spending guidance - Management indicated that 2019 is a high turnaround year, with expected capital spending for Sonneborn being modest [50] Question: OpEx trends and initiatives - Management acknowledged high OpEx in refining and emphasized the need for reliability improvements to reduce costs [75] Question: M&A strategy - Management confirmed ongoing interest in M&A opportunities, particularly in the Rack Forward business, while noting the rarity of refinery acquisitions [77]