Q4 2023 Par Pacific Holdings Inc Earnings Call
Participants
Ashimi Patel; Director, Investor Relations; Par Pacific Holdings Inc
William Pate; Chief Executive Officer; Par Pacific Holdings Inc
Will Monteleone; President; Par Pacific Holdings Inc
Shawn Flores; Senior Vice President, Chief Financial Officer; Par Pacific Holdings Inc
Matthew Blair; Analyst; Tudor, Pickering, Holt & Co.
John Royall; Analyst; J.P. Morgan
Neil Mehta; Analyst; Goldman Sachs
Jason Gabelman; Analyst; TD Cowen
Presentation
Operator
Good day and welcome to the Par Pacific Fourth Quarter 2023 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question, you may press star then one on the touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Shai Patel, Director of Investor Relations. Please go ahead.
Ashimi Patel
Thank you, Betsy, and welcome to Par Pacific's fourth quarter earnings conference call. Joining me today are William Pate, Chief Executive Officer, will monthly own President, Sean, for us, SVP and Chief Financial Officer, and Chuck Hollis, SVP and General Counsel.
Before we begin, note that our comments today may include forward looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events are subject to risks and uncertainties, and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise them. And I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information.
I'll now turn the call over to our Chief Executive Officer, William Pate.
William Pate
Thank you, Jamie. And good morning, everyone. I'd like to take a moment to reflect on Par Pacific's 2023 achievements. Our Company thrived last year achieving record-breaking financial results. 2023 adjusted EBITDA reached $696 million and adjusted net income was $8.21 per share, a 3% increase over 2020 two's results. We achieved earnings growth despite a 23% decline in our market indices last year. This financial success is underscored by our strong year-end liquidity position of nearly $650 million which we reached even after completing the $310 million billings acquisition in June. We also lowered our cost of capital with the refinancing of one of our intermediation facilities. And finally, we repurchased over $62 million of common stock last year at an average cost well below our current share price. Over the last two years, we've generated $17 per share in cash from operations. Given our refineries configurations, we have relatively low maintenance and turnaround capital requirements, heightening the conversion of cash from operations to free cash flow. Our retail and logistics business segments have even better cash flow conversion characteristics. Consequently, more of our cash from operations is available for growth opportunities and capital structure improvements other than the billings acquisition. Much of the free cash flow has gone to bolster liquidity and reduce debt. Sean will cover these changes in more detail in our industry.
Financial excellence starts with safety, environmental compliance and reliability. Our refining and logistics team did an excellent job of focusing on these objectives with our key process and personal safety metrics improving by approximately 40% in 2023. We also remain committed to sustainability and renewable energy, particularly in our Hawaii and Tacoma initiatives. Our learnings on co-processing and Tacoma laid the groundwork for larger projects. We will continue to focus on lower capital, higher return opportunities. Like our $90 million for YSAF. conversion project. We plan to begin production in 2025 from this unit, which will be among the lowest capital cost SAF projects in the world.
In addition to renewables processing, we are also actively working on advantage solutions in sourcing and pretreated feedstocks Finally, two of our four refineries were ENERGY STAR certified by the EPA, illustrating our organizational commitment to energy efficiency and low greenhouse gas emissions in our operations. With the first couple of months of '24 behind us, we are optimistic about the market outlook. Singapore cracks remain robust as Asian inventories remain constructive and high freight costs generally favor local producers like us given the level of spring turnaround activity and reasonable US inventories, we expect the Mainland market to improve rapidly as we approach summer driving season. Last year, we demonstrated an ability to increase our financial results in the face of a declining market. This year, we will focus on improving reliability, ensuring that we capitalize on market strength and keeping our markets well supplied our company was built on a string of successful acquisitions. So we will also continue to seek opportunities to grow our footprint in contiguous markets and increased our presence in existing markets.
Before I pass the floor to will I want to speak about my decision to step down as Chief Executive Officer at this spring's Annual Meeting and congratulate will on his promotion to the role of President and CEO. Most of you know, that will and I have worked together for nearly 15 years and for many of those years, we've collaborated on the development of Par Pacific when I took this job, my primary objectives, where do you ensure that we established a successful and growing enterprise, a differentiated strategy? And most importantly, an organization that could rapidly pursue market opportunities and avoid emerging risks while leaving this company as CEO., I retain my shareholder and director status, confident that Will and his team and expertly manage and grow our business while always preserving local market leadership, will the floor's yours.
Will Monteleone
Thank you, Bill. Before diving into operational details, I want to take a moment to congratulate and thank the entire team for the significant personal and process safety improvements this year. It takes unwavering, disciplined, alertness And care to deliver these improvements 2023 with a strong operational year for the refining logistics business units. Post billings acquisition, the averaged 194,000 barrels per day of throughput, resulting in 95.5% operational availability. In addition to the Wyoming and Washington, EPA ENERGY STAR awards, recognizing excellence and overall energy efficiency. Our Washington operation also achieved the lowest carbon emissions intensities in the world based upon industry benchmarking studies, improving energy efficiency as an example of how thoughtful investment and managerial consistency delivers a competitive cost structure, also reducing emissions. Fourth quarter throughput was 186,000 barrels per day, reflecting winter seasonality. October through mid-November, market conditions were strong. However, the second half of the quarter saw a deeper than typical seasonal decline for the inland markets in Hawaii, fourth quarter throughput was 81,000 barrels per day and production costs were $4.80 per barrel. The quarterly Singapore index averaged $19.44 per barrel, and our landed crude differential was $6.96 per barrel, slightly elevated to our guidance. We expect our first quarter for wide crude differentials to average between $6.50 and $7 per barrel. Fourth quarter capture to the combined index was approximately 134%, reflecting favorable price like benefits in Washington. Fourth quarter throughput was 38,000 barrels per day and production costs were $4.53 per barrel. The B&W index averaged $17.95 per barrel. During the quarter, capture improved to 44%, reflecting an expanding feedstock advantage versus WTI, partially offset by declining asphalt in video realizations. Overall throughput was below our targets due to heater system constraints, we are planning to address these issues with an approximate 15-day outage from the first quarter. We expect the outage to impact profitability by $5 million to $8 million in 2023. The Wyoming team set an annual throughput record of 17,600 barrels per day. Great job to the team. Fourth quarter throughput was 17,000 barrels per day and production costs were $8.3 a barrel. The quarterly US Gulf Coast index was $13.71 per barrel in Wyoming capture was approximately 101% despite an unfavorable FIFO impact of $8 million. Container throughput was 50,000 barrels per day and production costs totaled $12.3 per barrel. It was elevated due to near term reliability projects and seasonally elevated energy costs. Capture to our Gulf Coast index was 84% in line with winter seasonal expectations during the quarter from Canadian crude differentials widened. However, a combination of slower inventory turns and pipe accounting delay the realization of these benefits for the first quarter, we expect July to run between 80,000 and 84,000 barrels per day on Cana between 50 and 55, Washington between 30 and 32, and Wyoming between 16,000 and 17,000 barrels per day. The retail segment delivered a record result for 2023. Adjusted EBITDA was $68 million, driven by impressive same-store sales, fuel and merchandise sales growth of 8.8% and 7.8%, respectively. Fourth quarter same store sales continued the annual trend, fuel and merchandise growth of 7.3% and 4.2% respectively. In addition, we opened two new to industry locations in Spokane and why that are delivering encouraging results in the first months of operations.
On the renewables front, ROISA. project is progressing well. We have broken ground on two renewable feedstock banks on permits and started ordering long lead time equipment for the project. As we look forward to 2024 we are focused on crisp execution of our turnarounds, delivering safe and reliable operations in Hawaii as our capital projects, our retail brands remain focused on delighting the customer and improving the in-store experience via an active remodel and rebuild program. I'll now turn it over to Sean to review our financial results.
Shawn Flores
Thank you, Will. The Q4 adjusted EBITDA and adjusted earnings were $122 million and $65 million or $1.8 per share. Full year adjusted EBITDA and adjusted earnings were 696,000,501 million or $8.21 per share. The refining segment reported $107 million of adjusted EBITDA in the fourth quarter compared to $234 million in the third quarter. Fourth quarter results included net price lag benefit in White of $41 million, offset by negative financial impact in Wyoming of $8 million in our product crack hedge loss in Hawaii of $4 million. We have continued our crack hedging framework in Hawaii for approximately 28% of our first quarter sales hedged at $20 over Brent Logistics segment reported $24 million of adjusted EBITDA in the fourth quarter compared to $29 million in the third quarter the softer fourth quarter results were driven by elevated tank and pipeline maintenance costs of $5 million in Montana and Washington. Our retail segment reported $17 million of adjusted EBITDA during the fourth quarter, consistent with third quarter results. Cash provided by operations during the fourth quarter totaled $130 million, excluding a net working capital outflow of $132 million. The primary component of the net working capital outflow was associated with the cash settlement of prior periods' environmental credits. Cash outflows from investing activities during the fourth quarter totaled $27 million, primarily driven by capital expenditures. Total liquidity at year end was $644 million, made up of $279 million in cash and $365 million in availability. As Bill mentioned, our company has demonstrated exceptional performance over the past two years, generating over $1 billion in cash flow from operations. During this period, we successfully completed the highly accretive billings acquisition for $310 million, improved liquidity by more than $465 million, strategically repurchased $68 million of common stock at an average price of less than $30 per share and fully retired our legacy rent obligations. We also completed a comprehensive refinancing last year, consolidating multiple tranches of high-cost debt into a single term loan. In October, we further optimize our working capital financing for determination of the Tacoma intermediation facility and simultaneous upsize of our ABL to $900 million. We expect our streamlined capital structure to reduce cash funding costs by more than $10 million this year with nearly $650 million in liquidity and a promising outlook into 2024. We stand well positioned to achieve our strategic growth objectives and remain committed to opportunistically repurchasing our stock at attractive prices.
This concludes our prepared remarks. Operator, we'll turn it to you for Q&A.
Question and Answer Session
Operator
We will now begin the question-and-answer session. To ask a question. You may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.
Matthew Blair
Thank you and good morning and bill, and we'll congrats on your respective moves at a question about the M&A market, which you indicated that the power would still be interested in is deal flow picking up with the prospects of a lower interest rate environment later this year? And could you also talk about what kind of opportunities to be attractive both by business line as well as by geography.
Will Monteleone
Sure, Matthew. It's well, thanks for the question and appreciate your comments. So I think in general, M&A has been a key part of our strategy as we've grown. And that said, I think on the refining side of the market, given the strength that we've seen on market conditions over the last 24 months, I think it's definitely a challenging environment trying to get a deal done. And I think seller expectations are high, and I think that's going to be a major factor. So I think that's really the backdrop. I think when you think about geography, it's really the focus that we've had previously. I think we're focused on Western United States largely because it fits our strategy. I'm serving communities with liquid conventional and renewable fuels that are really in niche locations. And so I think that's going to be our focus, and that's going to be true across both refining, logistics and retail.
Matthew Blair
Sounds good. And then you mentioned that this rising freight rate environment is helpful for PAR. Could you just walk through that the moving parts there is that because the marginal source of supply coming into Hawaii is an imported barrel from Asia?
William Pate
Matt, this is Bill. That's one of the factors. I mean, generally in Asia despite weak economic news, inventories have been pretty supportive. And I think one of the reasons of stronger cracks. And I think one of the reasons that a lot of the export refineries. They're spot streams. We have to factor in higher freight costs. So when you there's less movement in the refineries tend to focus more on local production environment where it's harder to move things around. And when you're also with some of the restrictions in the Red Sea and restrictions, even in the Panama Canal on product movement to slow down and we're fortunate to have refineries that are sitting right on top of our markets.
Will Monteleone
And Matt, the only thing I'd add to that is just in general, when you think about both the West Coast and Hawaii, particularly for the distillate for the marginal barrel, is moving in typically on MR freight from North east Asia. So I think particularly when you think about diesel and jet. That's a major factor for the marginal barrel.
Matthew Blair
Great. Thanks for your comments.
Operator
Next question comes from John Royall with JPMorgan. Please go ahead.
John Royall
Hi, good morning. Thanks for taking my question and congratulations to Bill and well. So my first question is on billings. Can you speak to the reliability work that you'll be doing with the turnaround this year? I know the goal is to get up that consistently around that 60 kbd plus level. How does this work enable that? And is there a numerator impact on OpEx per barrel of the work you'll be doing now? Or is it really just about raising throughputs?
Will Monteleone
Sure, John. This is well. So we're really focused on summer reliability and billings. I think that's first and foremost. And as you saw from the third quarter contribution last year in a strong market environment, that's really when you've got the opportunity to generate significant cash flows. So I think the focus on our turnaround this year is really on the crude unit and ultimately and getting to a better reliability position there and probably adding some additional alloy to ensure that we're well positioned to reduce corrosion risks.
And then ultimately, when you think about the OpEx impacts, again, I think our objectives remain targeting that $10 per barrel number. Again, I think that's as we push towards the 60 kbd number that's going to be more achievable. So again, that's really the focus of this year's turnaround activities. And it's all about summer reliability.
John Royall
Great. Thank you. And then my second question is on the buyback really strong case in the second half of '23 after you completed billings. But this year will be a little bit different from a CapEx and a maintenance perspective, but you don't also you also don't have to delever. So some moving pieces in both directions. How should we think about kind of the run rate going forward relative to that 2H run rate where you had strong cracks and no turnarounds?
Shawn Flores
Yes, John. This is Shawn. I think we've demonstrated sort of our buyback cadence in the recent quarters of 27 in Q3 and 32 in Q4? Look, I think our liquidity is strong. We've got excess capital today. I suspect we'll be able to fund our capital requirements within cash flow. So we've got ample capacity on the balance sheet to continue the buyback program. Obviously, we want to be opportunistic and as you see if and when you see our share price pullback in a weaker market, we're going to get more aggressive on our on our cadence of buybacks. So our approach here has not changed.
Operator
Next question comes from Neil Mehta with Goldman Sachs.
Neil Mehta
Hi, good morning. Thank you for taking the time. This is Nicolette Slusser on for Neil Mehta. Bill, thank you for your leadership and all the contributions over the years. And well, congratulations on the new role on our first question is when we think about the business mix, I think Par's a bit more discipline oriented versus peers at roughly 50% on longer-term and mindful of potential for opportunistic M&A. Do you see the 50% distillate yield as an optimal product level for the business?
Will Monteleone
Sure. I think you know we're going to continue to train folks on the distillate side of the barrel. I think long term that is ultimately what the communities we serve need. And ultimately, I think that's going to be portion of the barrel that's going to frankly pull the weighted average crack over time. And so I think you'll continue to see our focus be on distillate production and even trying to increase flexibility on distillate production in places like billings.
Neil Mehta
Okay. That's great. Thank you.
And then the follow-up is just on some of the longer-term opportunities the Company is pursuing. Can you just remind us where we stand in regards to the FID expected this year on the longer term, Washington hydrogen and SAS facilities and how you're balancing those with the near term, renewable oriented projects as well?
Will Monteleone
Sure. So I think we're continuing to pursue the engineering on that front. And simultaneously, I think trying to evaluate capital partners that would be available, and we pursue that project again, there's still certain aspects of it that are attractive given its location on the West Coast and a favorable jurisdiction. And that said, I think we're mindful of the current renewable backdrop and what that means for returns. And I think we'll continue to be disciplined on our capital allocation framework and how we think about growing the renewables business segment.
Neil Mehta
Thank you very much.
Operator
As a reminder, if you have a question, please press star, then one to be joined into the question queue.
Next question comes from Jason Gabelman with Cowen.
Jason Gabelman
Yes, hey, thanks for taking my questions on you noted some paydown in environmental liabilities with 4Q results, which I'm assuming are related to rents. Do you have any outstanding rent obligation on that day? You'll need a paydown moving forward, kind of beyond what's kind of the typical annual amount that you would hold?
Shawn Flores
As Jason has shown now, we've closed out all of the legacy rent obligations, and we're just obviously occurring our current obligation and procuring rents ratably from here.
Jason Gabelman
Got it on. And then, Jim, can you remind us of your upcoming turnaround schedule that you mentioned in Montana turnaround? Do you have anything else this year and then as you look to 2025?
Will Monteleone
So Jason, I think nothing else major planned this year. Again, I think you heard my reference to the small 15-day outage we're playing in in Washington. Again, that's I think something we're largely looking to trying to manage from inventory. There is some profit impact, and you'll see that you see that the reduced throughput expectations for the first quarter. And then again, I think we discussed on billings that we expect in '24 and '25 to complete really the full turnaround cycle. And so again, if you look at our guidance, we've signaled really that $18 million to $22 million per year in the typical cycles, five to six years. And so again, I think we're looking at completing that full cycle between '24 and '25.
Jason Gabelman
Okay, great. Thank you. Thanks.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Will mom. Please PRESIDENT for any closing remarks.
Will Monteleone
Great. Thank you again for joining us today. In closing, I'd like to recognize Bill for his many contributions to our company success. We're grateful for his inspiring leadership, wisdom and humility. We have a strong business outlook, and our talented management team is hungry to drive the next chapter of our growth. I'm excited by the opportunity to lead this growing enterprise into the future. Thank you to our shareholders for your support. Have a nice day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
