HF Sinclair Corporation Price & Performance (DINO)

There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call also may include discussion of non GAAP measures, Please see the earnings press release for reconciliations to GAAP financial measures. Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the with that, I'll turn the call over to Tim. Morning, everyone. Our full year 2024 financial and operational results highlight the strength and resiliency of our diversified portfolio. And 2024 was a good year to prove that out. As we navigated challenging macroeconomic conditions in refining. Results also demonstrate the success we are delivering on executing our three key strategic priorities.

First, on improving reliability, our heavy turnaround workload in 2024 was completed on schedule and on budget, leading to increased utilization, and higher refinery throughputs year over year.

I'm also pleased to report that we achieved our best ever results for personal safety in 2024. Beating our old record over 40% and positioning all of our assets to continue operating safely and reliably. Second, optimization and integration in both our marketing In our Lubricants and Specialties business, generated another strong year of earnings. We also benefited from lower SG and A expenses. Year over year. Third, our commitment to shareholder returns. We managed our portfolio of assets to generate strong cash flows through the cycle. And are pleased to have returned over $1,000,000,000 to shareholders in 2024 through both dividends and share repurchases. All while maintaining a strong balance sheet and liquidity position. All of these examples are proof points that our strategy is working. Now let me cover our segment highlights. In Refining, for 2024, our annual adjusted operating expenses were lowered to $7.98 per throughput barrel through lean efforts improved reliability, a reduction of $0.37 per barrel year over year. And setting us on the path towards achieving our target of $7.25 per throughput barrel. We set annual records for premium gasoline production at Wood's Cross Jet production at Puget Sound hydrogen production at Artesia, amongst other individual site records.

In renewables, for 2024, we achieved significant milestones reducing our annual operating expenses per gallon 24% year over year, while increasing our utilization and sales volumes by 19% year over year through improved reliability and optimization efforts. Excluding the $20,000,000 end of year charge related to drawdown of higher cost inventory, our Renewables business would have achieved significant positive fourth quarter EBITDA. While the margin environment was challenging in 2024, we focused on the things we could control, such as increasing our low CI feedstock mix, improving our hydrogen availability our reliability efforts. And leveraging our commercial strategy to strengthen the earnings power of the business. Our marketing segment for 2024 delivered record annual EBITDA of $75,000,000 a 23% increase over 2023. We also grew our supply branded footprint by a net of 87 sites during 2024, demonstrating our commitment to grow this business and increase the percentage of branded wholesale We continue to see strategic value in growing and integrating the Dino brand into our portfolio as it provides a long term outlet outlet with margin uplift for our refining barrels. Looking forward, we expect to grow our number of branded sites by 10% annually. In Lubricants and Specialties, we delivered another strong year of earnings with $330,000,000 of adjusted EBITDA even with $45,000,000 of FIFO headwinds, Our results were driven by strong sales volumes, product mix optimization across our finished products portfolio and continued base oil integration. [indiscernible] In our midstream business, we delivered record annual adjusted EBITDA of $447,000,000 up 14% year over year and record total volumes up 7% year over year. [indiscernible] of simplifying our corporate structure and capturing synergies from the buy in of HEP.

We Looking forward, we remain committed to growing this business. And believe there is more low hanging fruit for integrating and optimizing our midstream and refining businesses. The strong performances of these three non refining segments demonstrate the strength and resiliency of our diversified portfolio We During 2024, we returned over $1,000,000,000 to shareholders, through share repurchases and dividends. Since the Sinclair acquisition in March 2022, we have returned over $4,000,000,000 in cash to shareholders and have reduced our share count by over 57,000,000 shares.

Which represents 71% of the shares we issued for both the Sinclair and HEP transactions. As of 12/31/2024, we had approximately $800,000,000 outstanding on our share repurchase authorization and we remain committed to our long term cash return strategy and long term payout ratio, while maintaining a strong balance sheet and investment grade credit rating. [indiscernible] Today, we also announced that our Board of Directors, declared a regular quarterly dividend of $0.5 per share payable on 03/20/2025 to holders of record on March 6, 2025. Looking forward, we remain focused on our strategies to improve reliability, optimize and integrate our portfolio, and return capital to shareholders which we believe will drive continued profitable growth and value creation for our shareholders. We are also encouraged by the recent uptick our refining indicator margins believe we are well positioned to capture the anticipated rebound in cracks during this driving season. With that, let me turn the call over to Addis.

Thank you, Tim, and good morning, everyone.

Let's begin by reviewing H. S. Sinclair's financial highlights. Today, we reported fourth quarter net loss of attributable to HF Sinclair shareholders of $214,000,000 or negative $1.14 per share These results reflect special items that collectively decreased net income by $23,000,000 Excluding these items, adjusted net loss for the fourth quarter was $191,000,000 or negative $1.02 per diluted share compared to adjusted net income of $165,000,000 or $0.87 per diluted share for the same period in 2023. [indiscernible] Adjusted EBITDA for the fourth quarter was $28,000,000 compared to $428,000,000 in the fourth quarter of twenty twenty three. In our Refining segment, fourth quarter adjusted EBITDA was negative hundred and $69,000,000 compared to $276,000,000 in the fourth quarter of twenty twenty three. This decrease was principally driven by lower adjusted refinery gross margins in both the West and Mid Con regions as a result of high global supply of transportation fuels across the industry and lower refined product sales volumes. Crude oil charge averaged 562,000 barrels per day for the fourth quarter compared to 614,000 barrels per day in the fourth quarter of twenty twenty three. Crude charge declined in the fourth quarter of twenty twenty four primarily as a result of the turnaround at our Eldorado refinery and weaker market conditions.

In our Renewables segment, we reported adjusted EBITDA of negative $9,000,000 for the fourth quarter compared to negative 3,000,000 for the fourth quarter of twenty twenty three.

This decrease was principally due to the drawdown of high priced inventory resulting in a $20,000,000 increase to cost of sales in the fourth quarter of twenty twenty four. Total sales volumes were 62,000,000 gallons for the fourth quarter of twenty twenty four as compared to 63,000,000 gallons for the fourth quarter of twenty twenty three.

Our marketing segment reported EBITDA of $21,000,000 for the fourth quarter compared to $9,000,000 for the fourth quarter of twenty twenty three.

This increase was primarily driven by higher margins in the fourth quarter of twenty twenty four, Our Lubricants and Specialties segment reported adjusted EBITDA of $70,000,000 for the fourth quarter compared to adjusted EBITDA of $57,000,000 for the fourth quarter of twenty twenty three. This increase was primarily driven by a decrease in FIFO charge from $30,000,000 in the fourth quarter of twenty twenty three to 2,000,000 the fourth quarter of twenty twenty four. The FIFO charge in both periods were driven by the consumption of high priced stock inventory. Our Midstream segment reported adjusted EBITDA of hundred and $14,000,000 in the fourth quarter compared to $110,000,000 in the fourth quarter of last year. This increase was primarily driven by higher revenues from higher tariffs, in the fourth quarter of twenty twenty four.

Net cash used by operations totaled $141,000,000 in the fourth quarter which included $154,000,000 of turnaround spend.

H. S. Sinclair's capital expenditures totaled 173,000,000 for the fourth quarter.

As of 12/31/2024, H. F. Sinclair total liquidity stood at approximately $3,300,000,000 which includes a cash balance of 800,000,000 our undrawn 1,650,000,000.00 unsecured credit facility and $850,000,000 availability on the HEP credit facility.

As of December 31, we had $2,700,000,000 of debt outstanding with a debt to cap ratio of 22% debt to cap ratio was 15% On 01/23/2025, Hips and Clari issued an aggregate principal amount of $1,400,000,000 of senior notes consisting of $650,000,000 of 5.75% senior notes due 02/1931, and $750,000,000 of 6.25% senior notes due 02/1935. We use net proceeds from the notes to repay all $350,000,000 in Elsevier outstanding borrowings under the HEP credit facility and to fund approximately $850,000,000 in tenders and redemptions of our twenty twenty six senior notes and $150,000,000 in tenders of our twenty twenty seven senior notes. This extended our debt maturity profile while lowering our weighted average interest expense. Let's go through some guidance items. With respect to capital spending for full year 2025, expect to spend approximately $775,000,000 in sustaining capital including turnaround on catalysts.

This is down $25,000,000 from 2024 and includes a nonrefining and specialties, lubricants and specialties turnaround in 2025.

In addition, we expect to spend $100,000,000 in growth capital investments across our business segments. For the first quarter of twenty twenty five, we expect to run between 1,200,000 barrels per day of crude oil in our Refining segment which reflects the planned turnaround at our Tulsa refinery. We're now ready to take some questions from the audience.

Thank you. Our first question comes from Manav Gupta with UBS. Please go ahead. Good morning, guys. I'm just trying to understand, look, the West Coast market looks a lot tighter given all the unplanned downtime we are overseeing. So help us understand your leverage to the West Coast market, whether it's through Puget Sound or Unave or which other refineries that you have that can supply to markets which are linked to the West Coast crack?

Manav, this is Steve. Thanks for the question. Yes, we're watching the market on the West Coast as recent unplanned events and heavy turnaround season have started in fundamentals are improving.

We think that that helps the overall market balance for not only our Puget Sound refinery in the Pacific Northwest, But we like to say that we can touch the South Side Of The Pad 5 for multiple points. We can come from the Salt Lake Valley down our integrated unit pipeline into Vegas and out of our Navajo Artesia refinery up into Phoenix. So we're seeing the benefit there. And we look to take advantage of that as this unfolds.

And Manav, I would just say this is Tim Manav. I would just say, we've talked about how part of our overall strategy is to be able to move barrels west to take advantage of what we perceive to be a gasoline shortage long term in that area. And so that strategy is paying out as we see this heavy turnaround season and some unplanned events going on right now.

Perfect. And quick follow-up.

When you did Sinclair deal again part of it was trying to grow the marketing business. Help us understand a little more what's going on over there? Is it going to be more organic or you're looking at some small bolt on opportunities and your plans to grow your marketing business?

Yes. Again, this is Steve. We see that that is yet untapped value elements of the Sinclair acquisition. We're making good progress. As Tim mentioned in the prepared remarks, we put on 87 net stores. We have another signed 152 that we look to come on in the next the first half of the year or through the third quarter.

We believe that that branded put is an important sustainable aspect and we're seeing high demand for it. So accelerating that is important. Through our organic growth program. When we think about inorganic there's nothing on the slate at this point. We'll look at things, but we really believe we can fill out our market predominantly through our organic growth in the wholesale marketing. And again, we're starting to see the benefits of that and looking to grow that from between 510% year over year.

Thank you.

Your next question comes from the line Ryan Todd with Piper Sandler. Please go ahead.

Thanks. Maybe if I could ask a couple on the lubes business. First, in the last couple of quarters, it's been a little bit weaker generally below what you would expect as the mid cycle earnings power of the business. Can you maybe talk about how you view the backdrop like the macro backdrop for the Lubes business going forward? And should we get back to that $350,000,000 run rate level here in '20 Sure, Ryan. It's Matt Joyce here. If we look at it, the the macro backdrop of the lubricants business in 2024, you saw similar to what we've experienced on the refining side, a lot of compression on the base oil oil markets, which still swing a fairly big part of the business in our portfolio. And the team has done pretty nicely to manage through that what we would consider a down cycle in the base oil market over the past couple of quarters. We've seen subdued And actually, we're now seeing that turn a bit and we're encouraged by what we see going forward from that perspective. We've also seen subdued demand just in general in our European businesses. That market has been slower than normal.

And we've seen steady offtakes in North America and we're actually growing our positions in our businesses in The U. S. In particular off of of a very nice base that we've established over the past several years. So we see our business continuing to perform. And I think we'll see if you look at and excluding FIFO number, it's a three seventy five result. So again, the underlying performance of this business is still very healthy and trending above mid cycle.

Yes, Ryan, this is Tim. I'll just chime in too. I mean, Matt said it. Despite even the challenges and headwinds that all businesses face that matches described. If you factor in the $45,000,000 of FIFO impacts, we actually were in an kind of an underlying business rate of $375,000,000 which would have been a record for 2024. So we still believe that the business is strong. Seasonally, fourth quarter is generally your weakest quarter. And we're seeing first quarter pick back up again like we would expect Great.

Thank you. And then I know it's not your favorite thing to talk about. But there's obviously a high profile example of an active investor involved with one of your peers.

With the debate over the best way to recognize value within the diverse the balance between driving value recognition for businesses within your mix through organic growth or improved profitability? Particularly for something like lubes versus potential for external monetization?

Yes. Thanks, Ryan. Nothing has changed in our strategy around the lubes as specialties business.

Our goal is to maximize shareholder value.

That may not have come across as clear as it should have last quarter, but we are open to whether that's in our portfolio or in someone else's portfolio. But we're going to our goal is to maximize the shareholder value. In the near term, we're focused on continuing to optimize this business to integrate it and grow it. Mostly through organic means. But if there are some inorganic opportunities that come up, small bolt ons, as Matt mentioned last quarter, we would certainly be willing to entertain that.

But our primary focus is to continue to maximize that shareholder value And in the midterm, we will continue to evaluate the strategic options on how best to do that.

Your next question comes from the line of Paul Cheng with Scotiabank. Please go ahead.

Hey, guys.

Good morning.

Tim or maybe Steve, I want to go back into the first question on marketing. The EBITDA look really good and you guys continue to add store But if you look at the sales volume and we just do a very simple math and divided by the number of store, your per share your per store sales quarter to quarter say year over year that dropped about 10%. Trying to understand that why that is the case and you said a concern that incremental the store that you're getting in, it's just Seems like it's a lesser productive than your existing That's the first question.

Thanks, Bob. Yeah, on the marketing element, looking at volume year over year, we like to talk about this as high grading the portfolio. As we go put a new site on the ground what we're seeing is a revenue replacement sites [indiscernible] performing better between 60120% once they come online and at a higher margin. But these these things take a little time. So really this is a timing issue with some of pruning the tree and maybe we don't want to continue some of these sites, but the sites that we are seeing really are performing much better and you're seeing it in our EBITDA. So this is really just a timing issue and how things are are shaking out in the actual financials. Yes. Paul, this is Tim.

What I would also add on to that is, you see the net increase in stores, which is 87 for the year, that really consists of something like 120 some odd new stores netted out with about 40 of the old stores that have been rolled off And that's the high grading that Steve is referencing. And that's why you're seeing maybe you lose some volumes in some of those stores that are rolling off. But the high grading of the new business is by far driving driving the margin increase. And you see that the gross margin per gallon difference that we're posted here in 2024.

Got it.

Steve or Tim, do you have a same store sales kind of ticket that for those that has been in your portfolio more than a year that you can share so that at least that we can do some maybe appetite [indiscernible] Yes. So we do look at same store sales and those are trending about where we expect them to begin. Timing is an important element. And so these things take between six months about to ramp up to full speed. And as you mentioned though, stores that we've lapped year over year we're seeing at parity or slightly up. We continue to see growth in our region. So we think that gives us a positive indication that our strategy on moving more into our branded put is the right one to take with this business.

Okay. The second question is that the team I think when you look at your refining medium term cost targets, say, [indiscernible] Partly is that you think your utilization rate over time become better, more reliable So you will be able to get the denominator higher, but that's not going to be sufficient. And I think you have said in the past that you probably need $100,000,000 to $150,000,000 in cost saving. To really bridge the gap and get to there. Do you have any update you can share in terms of what initiatives that you guys are taking in pace and to able to achieve that cost reduction? And what is the time duration to achieve that? Thank you.

Good morning. This is Valerie As you know, we are aiming at the seven twenty five target. We took a step this past year Reliability remains at the number one thing we're working on. So and you're seeing that in year over year production.

In addition to that, we're feeling those improvements turnaround and capital, which also go after operating costs through efficiency in the capital we're putting on the ground and eliminating high cost maintenance assets. The other thing that is in our strategy is digital performance. So we're using several digital programs to drive predictive asset intelligence and optimize our plants These models are changing the way we work and we anticipate that those we're starting to see those strategies play out in our maintenance costs and our operating costs overall this year and we expect that that's going to continue serve us well.

Paul, this is Tim. I'll just jump on to what Val talked about. Others are announcing cost reduction programs in terms of total dollars that they're trying to take out of the portfolio. We announced our goal in terms of $7.25 per barrel metric that Val just talked about because we think that addresses both the cost reduction program numerator as well as the improved reliability denominator that we're trying to achieve. Think this is a better way to measure progress and so that you can kind of see our how we're doing against our bottom line. We know how much it costs we have to take out order to get to that $7.25 at the numerator level. So this is more than just reliability. And we're pleased to with the progress to date. Mahesh talked about some of the things that we've done We achieved a record $7.98 this year as we talked about in our prepared remarks. And we believe that we have line of sight to get to that $7.25 Your next question comes from the line of Neil Mehta with Goldman Sachs.

Please go ahead.

Yes. Good morning, Sam and team.

Just the first question is just your thoughts on return of capital It's been a big part of the strategy over the last couple of years. Obviously, we're entering into a tougher we've entered into a tougher margin environment. And just your perspective on on when do you see line of sight to be able to resume a meaningful buyback?

Thanks for your question.

First and foremost, I'd like to reiterate our commitment to our Long term capital return commitment of 50% to our shareholders If you look at our history, we've far and exceeded that.

With a line of sight of improving margins, for the balance of this year and looking at that diversified portfolio, we feel very comfortable with meeting that target, that minimum target of 50% and as cracks improve to in fact exceed it. [indiscernible] would like to point to your attention that if you look at our non refining businesses, when you look at midstream of approximately four fifty lubricants have this past year three thirty marketing of 75, that provides us with significant dry powder certainly to meet our dividend commitments and then as cracks improve to continue to return cash to our shareholders.

And Neil, this is Tim as well. I'll just pile on in terms of what Anna was saying. It's interesting. I know some people are out there are talking about how their midstream businesses are strong and are able to basic cover their given end needs. We're in the same boat. If you look at our the $450,000,000 of EBITDA that our midstream businesses is generating the cash that comes with that. Is enough to pay off our dividend. And so really everything else coming out of marketing that Anna has talked about. It's coming out of lubes, it's coming out of refining. Is really allowing us to then take advantage of additional ways to return value to shareholders through not backs in other ways.

Yes, that makes sense. So then it really comes back to the margin environment and on Mid Con, it's famously seasonal. It tends to be a little bit weaker just your perspective on are we seeing signs of improvement How do you think about the setup into this summer? What's going on in the Mid Con? Is it a crude problem? Is it product problem or just seasonal problem.

Yes, this is Steve. I'll take that one. I think the Mid Con you mentioned, is very seasonal. What we've had for us particularly in the fourth quarter, was was our large turnaround. And that was at Alvarado. As far as what we're seeing in terms of structure in the Mid Con, I think what we'll see is the whole U. S. Balance a little bit in terms of supply demand and then we will be able to take advantage of of some of that improved crack as we drive into the or head into the driving season. We're starting to see that already. We look across 2025, and we think that just on balance, we see that it's a pretty constructive view for margins across our regions. We think the average will be at right at mid cycle. Demand is looking like it's going to be up. Growth continues in our regions. It's been a very cold winter. And then there's some supportive underlying economic fundamentals. Suggesting a rebound and strong distillate demand. So overall, we look pretty we feel pretty good about our overall regions and the Mid Con as as part of that.

So much.

Your next question comes from the line of Theresa Chen with Barclays. Please go ahead. Good morning.

Back on the midstream topic, and your potential low hanging fruit on optimizing and integrating your midstream and refining businesses to your earlier comments. Can you talk about the Unif pipeline and what are the current commitments and utilization on that? And light of the anticipated closure as a a competitor refining facility in LA. And the Terminus point for that system the proximity of Vegas to LA. Is that just some [indiscernible] be able to seek additional commitments and source additional barrels to that market? How do you see the path forward to pass by gasoline evolving from here? Thanks, Theresa. This is Steve. I'll take that one.

Not going to get into specifics around capacity and utilization where it is, although we do believe we have some maneuverability on UNEV and we think that the market structure is supporting potentially higher opportunity at the south end of that line, which as you know is Las Vegas, it could be supplied from the West Coast given the tightness of what we're seeing near term and potentially longer term, we think that bodes well for us. And so As Tim mentioned earlier, we believe we moving barrels west out of the group up into the valley and heading north out of Salt Lake taking advantage of the Salt Lake Valley and then moving down into Las Vegas is part of that integrated value chain that we're already seeing benefit for And we'll look to go extract more value out of that as the market unfolds. Teresa, this is Tim.

UNEV isn't the only way we can take advantage of those West Coast margins As you know, we also can get to Phoenix through our our Artesia refinery and we still have more capacity then of course, the direct way our Puget Sound refinery can make carb gasoline and can make gasoline components for that matter and can ship into the California area as needed. So there's three different ways that we can take advantage that we're influenced through the West Coast issues that are going on right now.

Got it. And just to clarify, in terms of maximizing profitability across your system as this theme evolves, Would that primarily be through higher utilization of either Eunice or Artesia to Phoenix systems without incremental CapEx, And on the Puget side, can you just provide any color on how much or what percentage of the clean product yield or the gasoline component specifically can be delivered into California based on what PJ can make today.

So I think it's a two part question. We believe there's opportunity to unlock more value without significant capital and that's about optimizing where our make is We believe our regions are we're fortunate that we have the production. And advantage regions in close proximity to where some of this is happening. And so we can attract from a midstream perspective, we can attract more barrels from different modes of operation to uplift the midstream. But for our integrated value chain, we can do more there as well. When it gets to [indiscernible] Puget, we have the ability to make significant high grade components and put those down into the California market. We look to see where we can make more carb gas at in the future if that market plays out right now, we think we're finding opportunities to go put high higher value components down into that market to help supply some of the short that exists there. And we'll look to continue to exploit that even further as we move along.

And Teresa, this is Tim. We talk about our growth capital Every year when we describe the the pieces of capital that we reserve for growth. We have a small growth capital project in Puget Sound that will allow us to make even more carbon gasoline and ship it That comes online here in the next month or two. And so that's perfect timing in terms of what we're going to be able to do to to try to take advantage of the market if warranted.

That's great to hear. And if I could just squeeze one more in.

On the midstream $450,000,000 how much of that is paid by the refining segment? Versus third party cash flow?

Yes, we're roughly an 80% integrated value type midstream business. We think there's opportunity and open space where we can further improve the earnings without impacting at all our integrated performance and value chain.

Thank you so much.

Your next question comes from the line of Roger Reed with Wells Fargo. Please go ahead.

Yes.

Good morning, everybody. Yes, I kind of address what I wanted to hit, which was what is your optionality to make more of the carb gasoline and maybe specifically the project you're referring to in I mean, there's always the issue in California of what gets imported is unfinished versus finished. Is part of what you're looking at here and the ability to deliver the finished and any indication of what your sort of capture potential is off of that versus an unfinished product in the California? Roger, this is Steve. I mean, it's a great question. What is the most valuable thing for us in the Pacific Northwest is flexibility and optionality. And today, right now the high grade is on the components and bringing unfinished into California. But this project allows us to go decide whether or not there's a larger carb make and a volume short that we put into California versus the components, but it's going to depend on the supply demand balance of the market at the time. And we'll we will get our share of that capture in either one of those decisions, but what is best for Puget and the overall entity.

Okay.

Appreciate that.

And then, on the lube side of the business, I know you mentioned sort of a seasonal or cyclical downturn here on the lube oil side. As you look out at the sort of let's call it the macro side of that supply and demand, What is the expectation for base oil markets Is there any particular market that we need to pay attention to? I'm thinking kind of here of China's been slow in terms of how it impacts crude oil consumption. Is this a tied to China, tied to chemicals being a little more loose? What do you think is the key item to pay attention to here for tightening up the loose market?

Hi, it's Matt Joyce here. Good question. From an overall macro demand perspective, you're spot on. I mean, what we're seeing at this stage is that certain geographic areas that had taken a lot of the base oils over the past many years. Namely Asia and more specifically around China. And then of course, coupled with the European demands that are dampened and a little bit softer than had been traditionally there. Folks are looking at The U. S. Market and the North American market more generally.

As a favorable place to place base oils. And so that I think is a contributing factor to the overall dampened margin environment that we've gone through in 2024. And I think that it will really be a matter of where and how we see China continuing to recover and then do those base oils make their way back to that marketplace and tighten things up. At this stage, that's really plays to the strategy that we've talked about with regards to being operationally excellent in our lubricants business. Continuing to forward integrate our base oils into finished products and our specialties portfolio that allow for us to continue to have a favorable mix and improve our margins. So we're not as reliant on that business.

And Roger, we've talked about this before, but our strategy is to integrate and grow our finished lubes business to the point that it soaks up all that excess base oil that we had produced in the past We're basically trying to disconnect our business from that base oil crack business. And while we're not all the way complete yet, you'll see over the last three years when we report percent base oil sales as a percentage of our product mix for lubes that has been going down the last three years. And our strategy is working. That's continuing to play out. And as you see the base oil markets cycle through, you'll see that our results have been able to stay strong through the cycle. And that's that disconnecting that we've been doing from a strategic standpoint.

Can I just follow-up on that real quick? Is that part of When you've spoken in the past about potentially some bolt on acquisitions. Is that the easier way to address that? Or is it internal organic expansions are just as good. Yes. So it's really it's both Roger.

So we have focused on organic growth and getting our our product lines in the right place and developing products that allow for us [indiscernible] go out and compete and deliver a distinctive value proposition and end uses that are growing or that we believe we have a reason to win and grow in and that will incorporate our base oils into those formulations. And then coupled with that, as we've mentioned in the past, we've looked at and continue to look at tuck ins and other value added acquisition opportunities where we may be able to forward integrate our base wells, but also not only look at that but the value and the EBITDA being accretive to our our EBITDA portfolio and numbers in line of sight of that. This isn't just one or another. We have to do it kind of balanced way between the organic and the inorganic approach.

Thank you.

You bet. Your next question comes from the line of Doug Liggett with Wolfe Research.

Please go ahead.

Thanks. Good morning, everyone. I appreciate you taking my questions. Tim or Janice, I'm not sure which one he wants to take this. I want to ask about small refinery exemptions in the wake of the Trump administration.

Obviously, Sinclair had their ruling, I guess it was back in August And frankly, I'm not sure where it stands right now. We will have AFPM at our refinery conference on March 6.

And obviously, we're grateful you guys will be there also. But I would just wonder if you could offer any insights to where things stand on SREs and what it could potentially mean for Dino if in fact you did find a favorable ruling?

Yes, Doug, good question. I mean, if we can answer that question on what Trump and his administration is thinking on SREs, I think we'd be in a different business right now. But what we do believe is the smaller fund exemptions are back on the table.

And prior to the Trump administration, I would have told you that [indiscernible] [indiscernible] [indiscernible] small refinery exemptions had a path forward. I think there could be a path forward. But I think it's far and away from path at this point. And we're just going to have to monitor what the administration chooses to do. There's a lot of different stakeholders involved, as you know, that are on both sides of [indiscernible] Debate. And I think it's going to come down to how they're going to balance the needs and the wishes of all the parties in order to trade off and get resolution on the small refinancing Clearly, the appeals courts have thrown this back into the lap of the EPA and said that they've their prior denials were unjustified and unlawful. So the question is what will the EPA do going forward? I think at this point that's anyone's guess, but we are hopeful that at least there could be a resolution to this issue here in the next few years.

I know it's maybe premature, Tim, but is there any way you could put kind of order of magnitude as to what it could mean if you did in fact get the credit back Yes, no, it's hard to know because who knows what the what the resolution will be. It's hard to know what how to value any type of RINs or any type of RINs exemptions.

We do have as we as you if you go back into our history, you can see which plants have gotten approved for refinery exemptions in the past. We have three plants that have gotten exemptions in the past. There's no way to know if those three could get exemptions going forward. I think if you look at that history, Doug, you can kind of get a feel for at least what the high end of the value could be. And then of course, you got to think about all the different iterations that might happen that could result in different numbers.

Yes. I know it's a bit imprecise. I appreciate that. Tim, this one is for you and I apologize question in advance. I want to go back to Ryan's point. So BP is going to have it event next week. And there's a lot of speculation that perhaps Castrol could be on the table. And the numbers are getting banded around. It's eight to 10 times EBITDA. That would be a very big marker for you guys. And if indeed $30,000,000 of EBITDA last quarter on a self adjusted basis for your Lubes business, I guess my question is, you've clarified your position this morning by saying, I guess it's an either or. Someone else's portfolio, I think was your language. My question is, we're in the seriatim of maturity for the Lubes business are you? If you want to do bolt ons, is that a scale where you feel that you have options Or is it still in the we're getting it to a level where we want to have options? Can you just maybe clarify what exactly you're thinking? Because obviously last quarter it was Sendin' Look at its core. This quarter it sounds like it's about maximizing value.

I'm sorry to repeat the question, but I was looking for some clarity.

No, it's a good question, Doug. No, look, there's when people ask about core, and non core, I think that creates different ideas or perceptions in different people's minds I like to think of it more as independent or not independent. So whether it's a core business or not can mean so many different things. Our lubes business is independent of our other businesses. So or at least as more independent than the rest of our businesses. So it can be separated easier than say our midstream or our marketing businesses. Can be separated from refining. So what that does and the reason why it seems like there's a lot of optionality or a lot of flexibility in there is because it's independent. We have more ways we can maximize shareholder value than those businesses that are really dependent on our core refining business. So I don't like to use the word core and that's a little bit what I think is confusing folks. Because it's independent, it gives us the ability to do a lot of things, grow it, [indiscernible] Organically and organically [indiscernible] sell it and monetize the value independently. I think when you think about where we are in this process, we feel really good about how Matt and his team have really built this business up over the last four years.

The last four years our average EBITDA for the business has been $348,000,000 And so that's that's been very strong. It's been something that we feel very good about.

But I can tell you think there's more to go. There's a lot more low hanging fruit to go capture from this Loews business. We're valuing that and trying to say, in the short term, should we go after this low hanging fruit because we believe it's fair and we on the success that we've had in the last four years, we believe we can really build on that and continue to grow that business. [indiscernible] should we continue to look at options to monetize and take advantage of that? So that's that's what we're that's the balance and that's why it's a little bit kind of on the line there. Market conditions play a big part of this too. The interest rates haven't been coming down. The market as much as people have been anticipating. The IPO and private equity markets haven't been as active as people have anticipated. And those all play a big part in the overall market as well. Castro, we don't comment on any specific opportunities that are out there Doug, but it is interesting to watch and see them.

Very thorough answer, Tim, and I very much appreciate it. We'll see you in a couple of weeks.

Your next question comes from the line of Matthew Blair with TPH. Please go ahead.

And a lot of moving parts between losing the BTC, but then D4 RINs moving higher Do you expect to capture the 45Z and do you have any RD downtime planned in the first quarter?

Hey, Matt, this is Steve. I think that's the $64,000 question. What is certain is volatility is here in Q1. As you know, the 45 Z is not logged just yet. They are notices. There's a great model out and we are preparing to run our business under that as though it goes into effect at some point. As you well know, there was a recent issue with the LCFS amendment in California and that also created a bit of uncertainty in terms of valuations. On the LCFS prices. So I wish I had more specificity, but we believe these things will settle out in Q1. And for now, what we're doing is focusing on the things that have made that business successful over the past three quarters. And that really is optimizing our feedstock strategy, buying prompt and high low CI [indiscernible] Keeping our lid on costs and operational efficiencies, we had a very good utilization and operational quarter. And then moving our molecules to the right markets where we can get the best net back. Those elements are still going to be important regardless of what framework actually becomes law moving forward. So wish I had more specificity, but there's a lot of uncertainty in Q1 and we're doing the best to stay on top of it and make sure that we're carefully running our business to optimize the shareholder value aspect.

Sounds good. And then looking at the adjusted EBITDA versus EPS in the fourth quarter, seems like depreciation took a step up while your tax rate might have been lower than than the recent run rate. Were there any one time issues with either of those factors?

No, thanks for your question. With respect to depreciation, this is simply a function of our capital spending and the depreciable life of turnarounds. So that's purely timing and additional CapEx. When you look at our tax rate, our tax rate is actually advantage on a full year basis with 15% versus statutory 21% and that's primarily a function of the credits that we receive on the renewables. Business.

Okay. Sounds good. Thank you.

Your next question comes from the line of Jason Gabelman with TD Cowen. Please go ahead.

Good morning. Thanks for taking my questions. I'm going to ask another one on lubricants. Apologies. Ahead of time, In terms of potentially growing, you've mentioned kind of bolt ons and organic growth, but is there an interest in a larger kind of step up in lubricants as a mix of the overall business Or do you feel like this is around the right size in terms of earnings contribution mix to the overall business? [indiscernible] Jason, thanks for the question. When we talked about what our focus is and this is just this is more than just lubes. This is this is the whole HF Sinclair portfolio.

Our primary focus is still to grow this business organically. We are focused on reliability improvements integration and optimization synergies as we continue to optimize this new portfolio that we've gotten together. So So when we talk about this openness to do some bolt ons, It really is as a secondary or opportunistic way to accelerate maybe the growth that we're looking at. But organic growth is still our primary our primary focus. If we look at any type of bolt ons or inorganic growth, it would have to be a very unique opportunity that would allow us to accelerate kind of our desires integrating base oils into finished lubes, for example. Would be an accelerated goal that a bolt on could help us achieve. [indiscernible] Our initial appetite is not to do something that's transformational or or betting of the company. It's something that really is more on the bolt on size. Okay, great. That's really clear. And My follow-up, I love to get your updated thoughts on tariffs and in ten days, I think we may have another flurry of headlines on Canadian tariffs tariffs on their crude oil given the amount of Canadian crude you run within your refineries.

I was wondering specifically in your inland markets, both Patu and Rockies, how you see potential tariffs impacting the ability for those assets to run at full rates and the flexibility to Hey, Jason, this is Steve. I'll take that one.

Yes, this is again Q1 is the quarter of uncertainty, which is good. You can go on your toes. And tariffs something that we've been looking at quite carefully. We have a full event command team looking at all the potential scenarios. And what we believe in our refineries is we have the ability to to lighten up and we're connected to many different hubs. We're connected to Guernsey, Cushing, even our own crude acquisition in the Permian, A And S, And to be honest, we think we will deal with whatever the market gives us. What we saw early on when the market opened up shortly after the proposed tariffs is there were some indicators and we think that a good portion of those tariffs will be borne by the producer and to a lesser extent the customer but we have the ability to be flexible. And so we'll take those decisions as they come with whatever is enacted from a tariffs perspective.

Yes, got it. And just if I could follow-up pretty a few lines, does that flexibility come with an impact to utilization or is there kind of a first order of flexibility without impacting utilization and maybe a second order that has more severe economic implications?

Yes. So it's going to depend again on where the price mechanisms set. There is a level of heavy that we need to run at both Parco and El Dorado, but we can minimize what that is and introduce a lighter slate. So yield structure and depending on the pricing elements may impact ultimate [indiscernible] As an efficient market would have it. If those things happen and pricing moves up, the market will rebalance and clear and get us back into an economic settled position of full runs Yes, great. Thanks for those answers. We have time for one more question and that question comes from John Roile with JPMorgan. Please go ahead.

Hi, good morning. Thanks for taking my question.

So my first question is on the potential for refining M and A How do you think about that in this market? Tim, I think you've mentioned in the past that you like to be countercyclical with M and A when you can. Is it a good time for you to get active on the refining acquisition side or is there maybe some more caution around the balance sheet now?

Yes, good question, John. Again, we've said this we were talking about lose, but I'll say it when we're talking about refining as well. Our main focus is internal organic growth in our refining business. And so that's with reliability integration and optimization. We believe, as you've heard me say before, there's a hidden refinery still in our portfolio. And we believe that's the most accretive way to spend our energy and spend our efforts is to unlock that hidden refinery inside our own refining business. There's still we've made a lot of headway by the way. We've made a lot we've laid the foundation here over this past year. There's still a lot of room to grow still as we continue to peel layers of the onion away and continue to optimize. You're seeing that in throughput, higher year over year. You're seeing that in OpEx lower year over year. You're seeing that as we continue to integrate with midstream and marketing. You're seeing us unlock some of that potential. And so that's really where our main focus is. However, you're right, we are laying a foundation and as the market conditions change, and as the bid ask spread changes, we might be able to be opportunistic and look at available refining assets that are out there.

I would tell you again, it has to be the right asset, the right timing, the right price. Has to be countercyclical. It has to fit within our overall competitive advantages that we talk about all the time crude having a late in crude advantage, products having a market placement advantage And at this point, we'll consider options as they become available. But we're mostly focused on organic optimization and growth. Great. Thank you. And then my quick follow-up is on the Rockies.

There's a pipeline that's scheduled to start up next year bringing refined product to the Denver area. Can you talk about how you think about that pipe in relation to your Rockies footprint? Yes, John, this is Steve.

That expansion of that that pipeline predominantly is moving jet into the front range, but ultimately we'll open up more products moving west out of the group. We believe we're in the best position to take advantage of our asset base and that is whether it makes sense to move barrels out of our refineries in the Rockies down to Denver or we have the ability to go potentially move things west. And so we'll look to make sure that as products come into that market, that we still have the flexibility to get them to the highest net back market, be that the Salt Lake Valley, up into Idaho or down as we mentioned earlier, UNEV into the Vegas market. So it will certainly bring more product when that is done, but we are positioning ourselves to to take advantage of our marketplace and our competitive advantages there. John, this is Tim.

There's always going to be competitive changes in the marketplace. These pipelines are no different. Our strategy is still the same. We want to be the low cost supplier in the markets that we serve. And we want to grow our branded puts.

The Sinclair stations, the Dyno stations that we talk about If we can execute and continue to grow those two objectives, then we believe we'll still be competitive and be able to protect our market share.

And that does conclude our question and answer session. I will now turn the conference back over to Tim for closing comments. Thank you, Krista.

Before we end, I would like to give a shout out to all of our employees the hard work they committed to executing our plan in 2024. We are focused on what we can control during these challenging market conditions it was very satisfying see the number of annual records we delivered in safety, reliability, cost and profitability In addition, our full year results demonstrate the earnings power of our diversified portfolio. While we are encouraged by the recent improvement in reopening cracks that we have seen in the market We are also excited about continuing to grow our midstream marketing and lubricants and specialties businesses. Looking ahead, our priorities remain the same to improve our reliability, to integrate and optimize our new portfolio of assets, and return excess cash to our shareholders. Thank you all for joining our call. Have a great day.

Thank you. This does conclude today's teleconference. Please Please disconnect your lines at this time and have a wonderful day.