Holly Energy Partners, L.P. Price & Performance (HEP)

If you would like a copy of the earnings press releases, you may find them on our websites at hfsenclair.com and hollyenergy.com. Before we proceed with remarks, please note the Safe Harbor disclosure statement in today's releases. In summary, it says statements made regarding management expectations, judgments, or predictions are forward looking statements. These statements are intended to be covered under the Safe Harbor provisions of federal security laws. There are many factors that could cause results to differ from including those noted in our SEC filings. The call also may include discussion of non GAAP measures, see the earnings press releases 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 transcript. And with that, I'll turn the call over to Tim Go. Good morning. I am pleased to report strong Q3 results driven by solid execution of safe and reliable operations. Across our refining, lubricants, HEP and marketing segments. We continue to progress our strategic initiatives of integrating and optimizing our portfolio Along with delivering strong cash return, we to shareholders. Today, we reported Q3 2023 net income attributable to H.

F. Sinclair shareholders of $791,000,000 or $4.23 per diluted share, These results reflect special items that collectively increased net income by $31,000,000.

Excluding these items, adjusted net income for the Q3 $760,000,000, or $4.06 per diluted share. Compared to adjusted net income of $983,000,000 or $4.58 per diluted share for the same period in 2022. Adjusted EBITDA for the Q3 was $1,200,000,000, 20% decrease compared to the Q3 of 2022. In our Refining segment, Q3 2023 adjusted EBITDA contributed $1,000,000,000 compared to $1,400,000,000 in the same period last year. This decrease was primarily driven by lower refining margins in both the West and Mid Con regions and lower refined product sales volumes due to higher maintenance activity. Operating expenses were $496,000,000 in the Q3 of [indiscernible] versus the $475,000,000 recorded the same period last year. As lower natural gas costs were offset by higher maintenance costs. Crude oil charge averaged 602,000 barrels per day the Q3 of 2023 compared to 646,000 barrels per day in the Q3 of 2022. The decrease was primarily due to higher maintenance activity, during the period. I'm pleased to report that the turnaround in the Q3 at our Casper refinery was completed on time and on budget, and at Tulsa, we are in the process of ramping up normal operations after the successful turnaround at that refinery.

With all of our major turnarounds behind us for the year, we remain focused on executing our strategy to improve reliability and operating costs across our refining portfolio. In our Renewables segment, we reported adjusted EBITDA of positive $5,000,000, the Q3 of 2023, compared to negative $14,000,000 for the Q3 of 2022. Total sales volumes were 55,000,000 gallons for the Q3 of 2023, as compared to 52,000,000 gallons for the Q3 of 2022. We continue to make progress towards our target of achieving normalized run rates by the end of 2023 through improved reliability, feedstock optimization. Our marketing segment reported EBITDA of $21,000,000 for the Q3 of 2023, compared to $10,000,000 in the Q3 of 2022. And total branded fuel sales volumes set another quarterly record of 398,000,000 gallons. [indiscernible] supported by strong demand in our regions. During the quarter, we added 15 new branded sites, we expect to continue to grow our branded sites by 5% or more per year. Our Lubricants and Specialty Products segment reported EBITDA of $118,000,000, for the Q3 of 2023 compared to EBITDA of $15,000,000 for the Q3 of 2022. This increase was largely driven by a $30,000,000 FIFO benefit from consumption of lower priced feedstock inventory for the Q3 of 2023 compared to a $44,000,000 charge in the Q3 of 2022.

Despite weakening base oil prices during the period, continued efforts to improve sales mix optimization across our finished products portfolio, resulted in strong earnings contribution from our lubricants business. HEP reported EBITDA of $94,000,000 in the second of 2023 compared to $66,000,000 in the same period of last year. This increase was mainly driven by tariff increases that went into effect on July 1, 2023. August 15, 2023, we entered into a definitive merger agreement with HEP and we expect the proposed transaction to close in the Q4 of this year, subject to the satisfaction of closing conditions. [indiscernible] the Q3, we announced and paid a regular quarterly dividend of $0.45 per share to stockholders totaling $84,000,000 and spent $586,000,000 on share repurchases. Year to date, as of September 30th, our total cash return including dividends and share repurchases, is over $1,090,000,000 and we have reduced our share count by 8%. In closing, our Q3 results highlight the diversification of our portfolio quality of our assets. Our strong cash return during the period demonstrates our continued commitment to our long term cash return strategy long term payout ratio. While maintaining an investment grade rating. Looking forward, we remain focused on [indiscernible] as we continue to integrate and optimize our assets across our portfolio.

With that, let me turn the call over to Adam.

Thank you, Tim, and good morning, everyone. Let's begin by reviewing H. S. Sinclair's financial highlights. Net cash flows provided by operations for the Q3 of 2023 totaled $1,400,000,000, which included 120 $4,000,000 of turnaround spend in the quarter. H. F. Sinclair's standalone capital expenditures totaled $75,000,000 for the Q3 of 2023.

As of September 30, 2023, HFC Cleared's standalone liquidity stood at approximately $3,850,000,000, comprised of a cash balance of $2,200,000,000 along with our undrawn $1,650,000,000 unsecured credit facility. As of September 30, 20 of standalone debt outstanding with a debt to cap ratio of 15%. In October 2023, we repaid at maturity the three $308,000,000 aggregate principal amount of our 2.625 percent senior notes. HEP distributions received by H. F. Sinclair during Q3 of 'twenty three totaled $21,000,000.

H.

F. Sinclair owns 59,600,000 HEP Limited Partner Units, which represents 47% of HEP's outstanding Elk [indiscernible] at a market value of approximately $1,250,000,000 as of last night's close. Now let's go through some guidance items.

With respect to capital spending, last quarter, we lowered our full year 2023 guidance range to $900,000,000 to 1.60 On a consolidated basis, With the majority of our plant maintenance activity behind us, we expect to end up at the lower end of our capital spend range for 2023. For the Q4 of 2023, we expect to run between 590,000 to 620,000 barrels per day. Crude oil in our refining segment which reflects plant maintenance at our Tulsa refinery during the period. Let me now turn the call over to John for an update on the HEP. John?

Thanks, Adonis. HCP's Q3 2023 net income attributable to HOLLY Energy Partners was $63,000,000 compared to $42,000,000 in the Q3 of 2022.

Each period reflected non recurring expenses that decreased net income dollars and 20,000,000, respectively. Excluding these items, the year over year increase was primarily attributable to higher revenue associated with tariff increases that went into effect on July 1, 2023 which were partially offset by higher interest expense, and higher G and A expenses during the Q3 of 2023. [indiscernible] HEP's Q3 2023 adjusted EBITDA was a $119,000,000, compared to $110,000,000 in the same period last year. A reconciliation table reflecting these adjustments can be found in AGP's press release. For the Q3, HEP generated distributable cash flow of $78,000,000.

And we announced a distribution of $0.35 per LP unit which is payable on November 10th 2023 unitholders of record as of October 30, 2023. Capital expenditures during the Q3 were approximately $9,000,000. Comprised of $6,000,000 in maintenance, $2,000,000 of reimbursable and $1,000,000 of expansion CapEx. During the Q3, we repaid $27,000,000 of debt and ended the quarter with available liquidity of approximately $630,000,000.

We are now ready to turn the call over to the operator for any questions.

The floor is now open for questions. At this time, if you have questions or comments, please press star 1 on your touch tone phone. We ask that you please limit your yourself to 1 question and 1 follow-up. If you have additional questions, we welcome you to rejoin the queue. If at any point your questions have been answered, you may remove Thank you. Our first question is coming from Manav Gupta from UBS. Please go ahead.

Good good morning, Tim. My question is more broader. In the past, you have mentioned that you have 7 refineries. But there's a hidden refinery within your system, and you can run 50 to 60,000 barrels higher and we have seen one of your competitors do it where they shut 2 assets and the throughput is higher. And you please help us understand some of the progress that you are making in that direction. So you can uncover this hidden refinery within your refining system.

Good morning, Manav. This is Tim. As as you stated, reliability and integration and commercial optimization are our main priorities right now, and that is to try to unlock that hidden refinery as you mentioned. Let let me ask a Valerie to talk a little bit about, some of the reliability efforts that we have going on.

Thank you. Yes, what we're doing is assessing the reliability of all of our assets, looking at capacity and then stepping back and and looking at equipment, we're, we have completed a full assessment of all of our sites. And then within that, starting to work Those those will unlock, you know, availability within each of our individual assets.

Which is a a process that's been around in industry for a really long time. We're, coupling that with some innovation and some tools that will, Help us you know, improve our availability Manav, the other thing that I'll mention in addition to what Val just talked about was on previous calls, we've talked about the importance of executing our turnarounds well. And with this year's heavy turnaround load, I know there was a lot of concern about whether we could execute our turnarounds well. Val and her team have, have really done a fantastic job this year. Executing those turnarounds on schedule, on budget. And not only does that help in the actual execution of the turnaround, but it helps us get to all of the planned work we wanted to get done during the turnarounds to help us get that reliability improvement for the full cycle. That's coming, post the turnaround. And so that's kind of another benefit we're getting from good clean execution of the turnarounds is we hope that will allow us to, to again demonstrate better reliability through this cycle.

Perfect. My quick follow-up here is on the on the lubes. Even adjust for that inventory, it was a much stronger quarter. Your vision was to make this business more on the specialty side help us understand how those plans are progressing and also help us understand some of the reasons we you had such a strong quarter in 3Q in the loops business.

Yeah. Let me ask Matt to comment on the strength of our lubes business.

Thanks, Manav. Matt Joyce here. And I think where the team's done a really nice job is getting after operational excellence [indiscernible] And, a focus on regional growth. We've been we've been working on Mixing the mix of our of our business and really looking to see where and how we can focus on higher value products and better understand the markets we serve where we have stickier solutions that are enabling our customers to be successful And, therefore, allowing us to be a bit more successful. And you know, hats off to our Petro Canada team in, the US in particular, They've done a nice job of expanding their footprint and and getting into the U. S. Markets, which was part of our strategy. And that's got gained a lot of nice traction and we're seeing some real positive signs of growth there from a regional Yeah. Manav, I would just say, Matt and his team have done a a really nice job of continuing to integrate the base oil business with the finished lubes and specialties business. You can we've talked about this on past earnings calls. You just continue to see the intercompany sales of base oils to those finished lubes and specialties businesses continue to increase.

Which is giving us more resiliency, more, cushion for these falling base oil cracks that you're seeing in our reported HFSS index. As those base oil cracks come down, more integrated we are gives us more insulation and allows us to continue to generate the strong, margins that you're seeing. So that's a structural improvement that Matt and his team are doing.

Congrats on a great quarter and great to see renewable diesel generate positive EBITDA.

Thanks, Manav.

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

Good day. Maybe I'll I'll I'll follow-up on, Manav's shout out there for the, for the RD business Congrats on on the underlying margin improvement there.

Throughput and sales remain, you know, relatively low utilization. Right? Can you walk through where you are in the progress in the process of increasing utilization at the normalized levels, whether hydrogen sourcing is still limiting [indiscernible] you know, how you're making progress on the process of extending time between Catalyst turnarounds, improving product yield, etcetera. So maybe just a little more granularity on where you are in the process of of getting that where you want it to be.

Yeah, Ryan. We're we're we're pleased to show that renewable diesel business, profitable this quarter, which think we've turned a corner here. Let me ask Steve Ledbetter, our commercial lead, to talk about it.

Hey, Ryan. Thanks for the question. We're also encouraged as you are by a positive quarter. There's a few things that helped us deliver the positive quarter. The first was really looking at our feedstock and optimizing the low CI and putting that into our sites taking advantage of our treatment unit. We had improved yield performance throughout the quarter and then to be on a selling out into the markets during the highest part of the margin cycle of the quarter as well as taking some some OpEx levers and pulling those. Those are all part of the path forward. We were somewhat limited by hydrogen availability but we have just finished coming out of a cat change at Artesia, and we took the opportunity to go improve our hydrogen availability at our large SMR there at Artesia. Let me me hand it to to Val on hydrogen availability and operational improvements.

Yes. As we said before, we continue to invest in our high systems at all of our plants, particularly in Artesia, We just completed the SMR. We made upgrades in our turnaround in the CCR. We're starting to see the benefits from those. In our Renewables business as well as Refining.

Good.

Thanks. And maybe, just, you know, shifting gears on the refining side to, to the West Coast, you know, really strong margins and strong cap and profitability there in the quarter. Can you talk about what you're seeing out there in terms of market dynamics?

And as you look forward to the start up of TMX next year, you know, how will that, if at all, impact your ability to source advantage crews at the Puget Sound refinery?

You know, we enjoyed the cracks in the margin environment in Q3 on the West Coast. We see some softness coming in particularly in gas, but it's normal and seasonal. Through this next quarter and the Q1. But overall, we think that there is going to be a link in diesel, particularly with RD coming into the West Coast, but we think there will be a bit of short structure on both gas and jet, and we look to take advantage of that. As far as TMX coming on, You know, when that happens, we think it will compress some of the, the differentials particularly when they call for line fill temporarily.

But as that line gets up and running reliably, we believe that it'll put more barrels out on the water and actually give us a bit of an advantage for our for our, refinery in the Pacific Northwest.

Yeah. And and, Ryan, let me just follow-up and say, you know, we believe our refining portfolio continues to be a strategic advantage and competitive advantage for us just in terms of the markets we serve and the demographics that we're that we, that we serve in our markets. The West Coast in particular, I would say, is, a beneficiary of this, integration effort that we've been focused on here over the last 6 to 12 months. We have a with the Sinclair and the legacy, HollyFrontier assets in the west, we really believe that that is a underappreciated, portfolio. That we're continuing to unlock the potential of and you're gonna continue to see good results come Great. Thanks, Tim.

Your next question comes from the line of Doug Leggate from Bank of America. Please go ahead.

Hey, good morning guys. This is Clay on for Doug. So thanks very much for taking the question. My first question is on the Sinclair Synergies. $100,000,000 was expected at the time of the deal, but now that got a few quarters under your belt, I'm wondering how that opportunity set has evolved Yeah. Kalei, this is Tim. We we were very pleased to be able to just capture that 100,000,000 pretty quickly. In fact, it exceeded our our timing expectations in terms of the ability for us to capture that. We see, as we've talked about on previous calls, much, much more opportunity to continue to improve and and optimize that those assets, we we broadened it now. To really look across the entire portfolio.

To look at Puget Sound in the mix, to look at our legacy assets in the mix, That's really when I say our priorities are reliability across our portfolio, and then integration and optimization across our portfolio That's really code for we're looking for more synergies, we're looking for more optimization across the entire asset. We haven't gone out and said anything specific, you know, like we did with the 100,000,000 of synergies. But know that we're working that hard. Steve and his group have already talked a little bit about [indiscernible] And what we're hoping, you guys will be able to see is the results of that come out and not just our throughput, but also our capture. For all the for both the west and the midtown regions.

Thanks, Tim. I guess we'll keep watching with interest. My my next question is more housekeeping. So on the quarter itself CapEx looked a touch low.

Wondering if there's anything to highlight there. And working capital seems to be a touch high. While some of your other peers are porting some tailwinds So just wondering if you could address those 2 things.

Sure. This is Atmos. With respect to our, capital spending, we're very pleased with how our CapEx program has gone. And this is just a function of Completing our turnarounds on time and on budget, there's always some contingency built into our budget plans and this is we're just demonstrating our capital discipline that manifests in in our positive variance With respect to, working capital, we saw some working capital tailwinds this quarter as we're coming out of these turnarounds and rising prices also had a beneficial impact on our working capital. So with that in mind, you could see that tailwinds to our cash flow from operations. Yeah.

And as mentioned in his prepared remarks, Clay, that we anticipate coming in on the low end of the CapEx range now. And so that is a result of, again, better execution and and solid performance on our turnarounds.

Great. Thanks, guys.

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

Thank you. Good morning. [indiscernible] I'm trying to, see that if you can help me to bridge the gap I think, the companies expecting that on the longer term basis that you would be able to your reliability so that a reasonable co unit 1 on an annual basis may get to about 6.40. And at that time that you can see the unit cost go down to about 6 to 6.50.

And if we look at in the Q3, your unit cost in the midpoint is around six fifty, and the west is about 970.

And you're wondering at [indiscernible] Just by improving it to 6 four g, that better with our grade. It that by yourself doesn't seem that it will get you down to their target unit cost. So, what are the initiative on in the core side that, we should expand in order for us to maybe bridge the gap to go down to that level. That's the first question.

Paul, good Paul, good question. You know, we we believe reliability has, two benefits at least as we continue to prioritize that. Not only does it get the denominator down as you just kind of mentioned the math of higher throughput will get your OpEx per barrel down. But it also reduces your maintenance cost. Which will be in the numerator, which will also get your OpEx down. Again, there's a lot of good effort going on in that area of reducing OpEx and improving reliability and Val, do you have any color you wanna provide on that.

Yeah. As we said earlier, you know, we are very focused on each asset putting forward reliability improvement plans.

Focused both on competitive spend right dollars to buy down operating risk, to reliability, and making sure our money is going in the right places. And improving reliability, which will ultimately get our utilization up are more challenged in the west, and those, those facilities are primary focus for our [indiscernible] along with Wood Cross and PSR are all working, improved structure on cost but but again, our biggest opportunity is reliable assets produce more barrels. They're safer, and we get a a better outcome in performance and execution.

While we're with that, do you guys have a number that you can share with that the west unit cost on the longer term basis that you are targeting at? We're not we're not ready specific, numbers or guidance in that area. But we do believe there's, plenty of opportunities in the west. That we're going after. Okay. Second question is then, as you're about to close, HPP and we'll get back up.

Once that you have done that, is it just business as usual and then you simplify your CapEx or that that's going to see real actual operating benefit.

Just want to see that whether we should expect some improvement or that is just say, reducing the the the public structure capacity.

Thank you.

Yeah. Paul, this is Atmos. Thank you for your question. Your observation is is correct. We're seeing opportunities for simplification and optimizing our portfolio. To give you just an example, what used to be at times complicated negotiation on contracts, intercompany contracts, now is going to be a more simplified process which would really help us to focus on efficiencies and and commercial opportunities. So the simplification part of that benefit is going to be meaningful to us.

And with respect to the corporate structure, you will get your run of the mills savings essentially running 1 public company as opposed to having 2 public companies. And you, on top of that, we'll also see some synergies with respect to the debt as the gold gets rolled [indiscernible] So all good, good outcomes for us.

Hello, Ted. Is there a number you can share in terms of the operating synergies?

Excluding, I mean, the debt, we can understand. But outside the Continental, lower interest, I mean, the real operating benefit benefit, is there a number you can We will be in better position to, to shed more light on that after the close.

Of the transaction.

Alright.

We'll do. Thank you.

Thank you.

Your next question comes from the line of Matthew Blair from TPH. Please ahead. Hey. Good morning. Thanks for taking my questions.

Do you have any early thoughts on refining capture in the Q4?

I think q 3 was around 60%.

Seems like the Q4 would include some pretty considerable tailwinds from things like wider WCS discounts, became blending, lower rent, and then and then it looks like lower refinery maintenance.

Yeah, Matt. This is Steve. And I always appreciate the questions that always have the thesis included. In terms of the answer, and that was one of those. So we do see also a cleaner [indiscernible] ahead in q four. We do think that the diffs WCS in particular, TI diff will blow out and has already in the forward strip. And we have minimal planned maintenance We're finishing up the Tulsa turnaround.

So supportive structure and margin in terms of distillate, diesel and jet, we'll be moving gas around, and we're in max diesel and jet mode for q four. So we think we have some opportunities to have a a cleaner quarter ahead. We're not giving explicit guidance on what that number is, but we do see a good path ahead.

Yes. We've got some good tailwinds, as you mentioned, Matt. But seasonally, the Q4 always tends to be a little lower on capture too just because margins compress. So offset to some of the tailwinds that we're seeing.

Sounds good.

I'm not sure if this has been addressed yet, but any thoughts on the potential for for large scale refinery m and a from, from, HST Sinclair here.

No. That question hasn't been asked yet, Matt. What I would tell you is, you know, we're focused first on closing HEP. It's been a transaction that we've started earlier in the year and that we're laser focused on completing as Atmos mentioned earlier, we believe that, we will be able to close here before the end of the year. Our priorities are internally focused We've talked about that before. We're really looking to improve our internal reliability, as well as our integration and optimization across our assets. So that's really where our main focus is. We don't think that the time right now is, is right to be looking at large m and a, as you kinda market standpoint you know, we like to look counter cyclically right now, I think we're finding valuations are pretty high. But more importantly, from a internal perspective, We're really focused internally more than externally. Now I know there's some assets on the on the table that are, starting to be marketed. We'll we'll take a look just like everyone else is it's not a priority for us right now. Ma'am. [indiscernible] Great. Thank you.

Your next question comes from the line of Roger Read from Wells Fargo Securities. Securities. Please go ahead.

Thanks. Good morning.

Just a couple of things to to catch up on. 1, your comments about refining reliability getting that up. I'm just curious if you were to say you know, over the last 12 to 24 months, what your available uptime has been, and then maybe what the target is for available time know, x turnarounds and all that as we think about you know, a marker for where you've been and a marker for where you're trying to go.

Yeah.

Hi, Roger. We we don't provide a lot of the internal measures that we use. We have a lot of internal measures that we're tracking both at the refinery level as well as at the regional levels. We don't we don't disclose that. We are making progress. We're feeling good about the progress that we're making. Bell's talked about that we are seeing progress. I think one of the biggest ways that we're seeing progress is in just the improved safety. And environmental performance of our assets. We always believe is a leading indicator of how our, our reliability is doing as well in rest of our business is doing. And I can tell you we're on pace to set another record safety year, both on a process safety standpoint and a personnel safety standpoint. So we feel good about the internal indicators. We're just not prepared to share any of those, Roger. Okay. Well, not absolute numbers. I mean, maybe a a basis point improvement. I mean, we're looking at you know, 200, 300, 500, something along those lines if I can a little deeper.

Yeah. Roger, this is Atmos at would just encourage you to stay tuned, and, you will see graduated process progress along those lines. We're we're focused on improving reliability.

Okay.

Switching gears slightly back to the renewable diesel business. So you went through with one of the earlier questions, you know, all the things that helped. But was just curious if you thought year over year or quarter to quarter, maybe how that broke down, you know, market factors relative to know, things you were able to do about changing the mix, keeping control of cost, stuff like that. So just what might, might have have helped out on the lubes front.

On the renew the questions is on on renewables. Yes. Roger, this is Atmos. One of the, one of the first things that comes to mind is early on, as we were getting this business up and running was working off high priced feedstock.

In a backward dated market.

So the team has done a lot of good progress with respect to, managing inventory and ensuring that we're focusing on using low [indiscernible] Number 2, would be, improvements around catalyst, [indiscernible] Number 3, as a result of our turnarounds, and technical focus on the team is, improving hydrogen availability. And, so those are the kind of the 3 things that to mind and I could ask Steve or about to add additional color.

I I think you're right. I mean, we we're we're feeling this apart to make sure that we can make it the most profitable business it can be. In our current configuration. We like to remind people that 2 of our facilities are co located and so, hydrogen availability is a is a is a keen focus. But beyond that, we've started to pull levers as as Atanas mentioned, in terms of advantaged low CI feedstock As part of that, you know, driving pathways are very important to get that full value with that hyperfocus on that. [indiscernible] OpEx levers in terms of waste, and then really getting our molecules integrated across our value chain. Is another aspect that we see a lot of value coming forward. So So we've demonstrated that in Q3, we can be profitable with not hitting our normalized run rate. We still see the path to getting there the end of the year. And all of those focus areas, we believe and expect to have a profitable Renewables Business.

Next year.

Yeah.

And and, Roger, I would just, I I would just draw an analogy to the lubes business. We spent, a lot of resources and a lot of effort to turn that business around. I think over the last two and a half years. We've been at well above mid cycle you know, performance for for our lubes business. That same type of effort, that same type of effort, that same type of focus is what we've got pouring into our renewable diesel business right now. And we believe that we will be successful in getting that business turned around and performing the way we want just like we have our lubes business performing the way we want. [indiscernible] Great.

Thank you.

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

Hey, morning. Thanks for taking my questions. I wanted to first hit on the cap, the financial framework, as you get close to the closing. Of the HEP transaction. It looks like on a consolidated basis, you're holding about $1,000,000,000 of of net debt. Is that the right number?

For the company to hold on a consolidated basis? And then how do you think about buybacks as you're able to get back into the market following the HEP deal close? Yeah.

Thank you for your question. This is Atnas. The way we we think with respect to our capital structure and debt in particular is in terms of net leverage. And the net leverage target that we have Publicly stated has been a one time net leverage. As you can see, we're far below that right now, and we're very pleased given where capital structures today are, 1st and foremost, priority is shareholder return. Both in terms of buybacks and dividends.

And and we'll continue with that mindset with respect to anything around the debt, I think we're very much we're very pleased with where our debt is and shareholder return is our priority.

And then my other question is just looking at the indicators that you've posted for October. It seems like the premiums in the west relative to mid con have come in.

After a pretty good run of pricing premiums, how much of that is seasonally driven And is there any structural components as maybe, there were a couple of assets, I guess, in the Rockies, in particular offline, for the better part of the past couple of years, and now they're back. You could answer that, that'd be great. And just one more, a clarification. I don't actually think you provided the working capital number in terms of cash inflow. If you could provide that, that'd be great. Thanks.

Yeah. The let let's start with the last part, is the fresh air. This is Atmos. In terms of working capital, we saw a tailwind to the tune of 500,000,000 for the Q3.

Yes.

And then just to answer the the structure margin environment on the West Coast, we don't see anything necessarily structurally other than a good portion of diesel know, particularly RD coming to those markets, and therefore, we think there'll be length of of diesel and to be honest, an opportunity in gas as well as jet. We don't think there's anything materially structural. And we think that what you're seeing right now is seasonal normal patterns. Yes. I would just jump in, Jason. We we typically see seasonal weakness as, as the as the tourism and the driving season kinda comes to a close. We're not seeing anything unusual at this point. What we are seeing is pretty strong jet premiums right now.

And I would tell you for the Q3, we had record jet production and record jet sales. That helped boost capture in both the Mid Con and in the West regions. And we're seeing that continue here in the Q4. So we'll continue to look for those types of to continue to, just optimize our portfolio.

Great. Thanks.

Your next question comes from the line of Joe Lache from Morgan Stanley. Please go ahead.

Hey, Jim. Good morning. Thanks for taking my questions. So I just had had a follow-up on on RD.

I was just hoping hoping to get your your outlook for RD margins here.

Given the industry capacity coming a lot online next year, we've seen RINs fall, but we've also seen some of the feedstock costs decline as you know, as well as an offset. So just hoping to get your thoughts on the credit side as well as the feedstock side here, please.

Yeah. I think I think you hit it right. You know, with the RVO release and the the view of additional capacity coming on, There's been weakness in both written value and LCFS. We think that that will adjust sometime. There's been a been some announcements of some of the larger production coming on, some delays there. And so you've seen some of that change the overall margin and pricing structure, but we think that's temporary. That has created a bit of reduction in terms of the feedstock pricing near term, and we'll take advantage of that. But we think that will normalize. And ultimately, we think that the RBO will adjust we don't know when, but we do think that when it does adjust, it will create additional support in terms of the rent value.

And we continue to try to find other markets to take our products to, and we think that there are opportunities not only in terms of the marks that have LCFS, but we're also finding some opportunities where we can match proximity to, to our our our barrels and put them into those things into those channels profitable. So longer term outlook, we're pretty comfortable with what we're doing and unlocking and untapping the complete value chain in our RD business.

And and you solve Joe that RD margins, tightened here in the Q3. And yet our gross margin and the net margins actually increased.

And that's a a testament to what the team is doing to try to improve our just our base business.

Great. Thanks, Tim. I appreciate it. I'll I'll leave it there. Thanks.

We have no further questions in the queue at this time. I will the call back over to Tim for closing remarks.

Thank you, Christa. Let me recap by saying that in the Q3, We executed our turnarounds on time and on budget. We delivered above mid cycle profits in our Refining segment Lubricants and Specialties segment and marketing segment, and we've returned $669,000,000 to our shareholders, for a total of 1,200,000,000 of shareholder returns so far this year. These strong results are a testament to the competitive advantages our business portfolio and the hard work of our employees to execute our strategies and deliver on these results, Our priorities remain the same to improve our reliability, number 1, to integrate and optimize our new portfolio of assets, number 2 and to return excess cash to our shareholders, number 3.

Thank you for joining our call.

Have a great day.

And go, Thank you. This does conclude today's teleconference. Please [indiscernible]