Par Pacific(PARR) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter adjusted net income was $2.88 per share and adjusted EBITDA was$214 million, indicating strong financial performance [8][24] - The company generated record quarterly cash flow from operations of $341 million, driven by normalizing working capital and strong earnings [24][32] - Free cash flow has improved significantly over the past two quarters, with over$400 million of GAAP net income generated [11] Business Segment Data and Key Metrics Changes - The Retail segment reported record adjusted EBITDA of $20 million for the quarter, up from$14 million in Q3 2021, despite a 1.9% decrease in same-store sales volumes [20][21] - The Logistics segment adjusted EBITDA contribution was $22 million, up sequentially from the second quarter by approximately$1 million [25] - Refining segment adjusted EBITDA was $188 million, down from$228 million in the second quarter, impacted by declining refined product cracks [25][10] Market Data and Key Metrics Changes - Distillate cracks remained strong due to high natural gas prices and significant demand from gas to oil substitution, with prompt distillate prices approximately $40 a barrel above gasoline prices in Singapore [10] - Market conditions in Hawaii saw a decline in Singapore 3.1.2 by approximately$10 per barrel to $26.43, but adjusted gross margins remained flat at$19 per barrel [26][28] - Wyoming market conditions declined approximately $9 per barrel compared to the second quarter, but adjusted gross margin remained strong at$51 per barrel [30] Company Strategy and Development Direction - The company is focused on successfully closing the acquisition of ExxonMobil's Billings refinery, which will double mainland refining capacity and enhance logistics [8][11] - There is ongoing progress on renewable energy projects, including a co-processing investment in Tacoma and a joint venture with Hawaiian Airlines for sustainable aviation fuel [12][70] - The company plans to continue investing in organic growth projects and expanding its retail footprint while integrating the Billings operation [64][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong operational reliability and profitability across all business segments, despite some challenges in the refining segment [9][11] - The management noted that global demand remains strong, and they are cautiously optimistic about future market conditions, particularly regarding distillate and gasoline spreads [41][42] - The company is preparing for potential economic impacts from rising interest rates but has not seen significant changes in demand to date [41] Other Important Information - The company reduced gross debt by approximately $14 million during the quarter, with a cash position growing by approximately$220 million [33][32] - The company anticipates the Billings operation to be immediately accretive to earnings and cash flow upon acquisition [11] Q&A Session Summary Question: Can you discuss the strong margins in Hawaii and the benefits realized from fuel oil lag? - Management highlighted three main factors: product crack hedging benefit of approximately $5.50 per barrel, price lag benefit of about$7.50 per barrel due to falling prices, and a $2.50 per barrel higher backwardation cost [38] Question: What are the prospects for rising product exports out of China and the risk to Hawaii margins? - Management indicated that Chinese policy remains focused on internalizing refining capacity, and there have been no major changes affecting exports [39][40] Question: Can you elaborate on the drivers of strong retail results? - The primary driver was the reversal of demand destruction from rising crude oil prices in Q2, with some recovery in international visitors to Hawaii noted [48] Question: What is the outlook for working capital in Q4? - Management stated that working capital changes will depend on crude price fluctuations, with no specific items expected to reverse [58] Question: How will the company approach its balance sheet and cash deployment going forward? - The focus will be on building cash and liquidity in anticipation of the Billings transaction, with potential growth alternatives being considered [62] Question: Can you provide details on the renewable diesel projects? - The Tacoma project is expected to produce about 500 barrels per day, while the Hawaii project aims for approximately 4,000 barrels per day capacity focused on sustainable aviation fuel [70]