Par Pacific Holdings, Inc. (PARR) Earnings

Management highlights

President Will Monteleone noted first quarter adjusted EBITDA was 91 million and adjusted net income was 78 cents per share; facilities ran well setting a first quarter throughput record; refined product cracks surged with no crack spread hedges; retail same store fuel and in-store sales decreased due to flat price and Hawaii flooding; Hawaii Renewables Unit successfully started up. Richard Creamer mentioned refining teams' achievements like Hawaii record throughput, Montana winter record throughput, and Washington's February turnaround completion; Hawaii Renewable Fuels Facility was transitioning operations. Sean Flores discussed financials including adjusted EBITDA, net income, refining and logistics segment EBITDA, cash from operations, RINs position, capex, and repurchases, and outlook for Q2 with refining index changes, Hawaii turnaround impact, and renewables sales.

Guidance

First quarter adjusted EBITDA was 91 million and adjusted net income was 78 cents per share. April consolidated refining index averaged $42 per barrel in Q2, an increase of $23 per barrel compared to the first quarter. Hawaii refining margins continue to reflect a tight refined product supply environment, with expected crude differential between $4 to $5 per barrel in Q2. The impact of the upcoming Hawaii turnaround is expected to be limited in the second quarter, with most impact shifting into the third quarter. Mainland seasonal cracks are rallying to elevated levels, and renewables sales volumes and earnings contribution are expected to be modest in the second quarter with a more meaningful ramp in the back half of the year following the Hawaii refinery turnaround.

Segment performance

First quarter adjusted EBITDA was 91 million, and adjusted net income was 78 cents per share. Refining segment reported adjusted EBITDA of 69 million in the first quarter. In Hawaii, the Singapore 312 averaged $36 per barrel during the first quarter, and the landed crew differential was $4.90, resulting in a Hawaii index of $31.11 per barrel. Hawaii capture was 42%, including a net price lag headwind of approximately $125 million. Normalized for the lag impact, Hawaii capture was 92%. In Montana, the first quarter index averaged $4.84 per barrel with a margin capture of 143%. In Wyoming, the first quarter index averaged $19.30 per barrel, and margin capture was 139% including an 18 million FIFO benefit from rising crude oil prices. In Washington, the index averaged $8.20 per barrel, and margin capture was 100% supported by favorable jet to diesel spreads. The logistics segment had adjusted EBITDA of 32 million in the first quarter, and the retail segment had adjusted EBITDA of $15 million compared to $22 million in the fourth quarter.

Risks & headwinds

Net price lag in Hawaii driven by sharp refined product price increase in March, impact depends on future Singapore prices. Volatility in refined product cracks and market conditions, including potential changes in Asian refinery run rates, protectionist policies, and crude supply chain dynamics. Uncertainty around the impact of the Hawaii turnaround on throughput and financials. Risk related to RIN monetization depending on EPA clarity on 2025 small refinery exemptions.

Analyst Q&A

• Q: PAR has probably the highest jet yield in the group. We believe it's roughly 15% or so. Could you confirm if that's a correct estimate? And could you talk a little bit about dynamics in the jet market, both on the supply side as well as demand side?

  A: Good morning. This is Will. I think 15% is probably reasonable. And again, I think some of this depends on some of our JET versus ULSD objectives. But as you indicated, given the spreads between JET and ULSD, we see a high and attractive economic incentive to try and maximize JET yields, particularly in the Pacific. And again, I think I have a number of projects underway to maximize jet yields in the Rockies. And in terms of just the overall regrade spread or the spread between jet and gas oil, again, continue to see that to be strong as, again, I think it's one of the more difficult molecules to make. And with the amount of crude distillation offline globally, it's a challenge. And again, given the loss in the Persian Gulf origin exports, which was a material supplier to Europe, You know, we're seeing the Asian market and the Indian refiners need to try and attempt to backfill some of Europe's jet requirements.

• Q: This Hawaii product lag headwind in the first quarter, 126 million, it sounds like that would likely reverse in the second quarter. But would you also get an additional benefit from the drop in Singapore gas oil? prices so far, and I guess, do you have an estimate, you know, so far in April on what that might look like?

  A: Hey, Matt. Good morning. It's Sean. Yeah, I think it's too early to give an estimate on price lag. As you know, it really depends on where Singapore prices end up in June relative to March. I think you're right. It's down in the prompt market, and it would suggest a reversal a partial reversal of the $125 million impact. But I think that's how you should think about it and look at June pricing once available.

• Q: I want to just jump in a little more to the Hawaii captures, you know, recognize there was that price lag impact, but even if we adjust for it, I think captures look like they were in the low 90% compared to your target of over 105. So can you just talk about some of the drivers there and then how that's tracking for Q2?

  A: Hey, Alexa, it's Sean. Yeah, I, you know, I'd call out two other elements that I think drove a 10 to 15% capture hit. One was typically We see West Coast pricing to a premium to Singapore in most historical periods. That flipped to a significant discount, particularly LA Jet versus Singapore Jet and LA Diesel versus Singapore Gasol. We do have some contractual exposure to the West Coast. And so that was, let's call it 5% to 10% capture headwind. And then the other sort of factor I called out is we do produce and sell naphthen LPGs. you see a blowout like we did where Gasol and Jet is pricing at such a premium to the secondary products. It creates a capture headwind. I think both of those dynamics have normalized heading into Q2. If anything, I think West Coast is pricing at a premium to Singapore. So it's something that we're watching, not trying to make a call right now given the volatility, but those are the elements to keep an eye on.

• Q: sticking on Hawaii. It sounds like the plan turnaround is still tracking for an end of June startup. Can you just talk about the planning behind that? Is there any flex given the macro and just how investors should be thinking about the impact? Sounds like majority of it is going to be a Q3 impact.

  A: Yeah, Alexa. You know, we already shifted it, I'll say weeks. And I think that's probably the extent of the flexibility that we have. And again, I think we really tie our decision on turnaround timing towards hydrocracker catalyst life. That's one of the key drivers in Hawaii. It's been roughly six years since we changed that catalyst out. And, you know, again, I think have the objective of completing this over the summer periods. Just given the scheduling, the timing with contractors and the work that we've done. So I think we have limited flexibility beyond where we've set today and have kind of the supply chain contractors and all the moving pieces in place to execute that, you know, on time and on budget.

• Q: Maybe sticking with the Hawaii turnaround planning, throughput guidance is a bit light for Hawaii and 2Q, and I wonder to what extent that's Some conservatism baked into guidance versus the Hawaii turnaround really starting in earnest the last week or two of the quarter. And then could you also discuss kind of how the landed crude cost dynamics will trend once Hawaii comes back online? Will that reflect the impacts of the conflict and higher freight and backwardation we're seeing in the markets?

  A: Yeah, sure, Jason. I think that the throughput guidance reflects our estimate on the start time of the outage. And then again, I think working through, I'll just say optimizing our crude supply chain, both extending the turnaround as well as our plans exiting the turnaround. So again, I think we're focused on kind of margin optimization through both the inbound and outbound elements of the turnaround. You know, in terms of landed crude differentials, you know, I think it's too early to call. I'll say the third quarter differentials. I just keep in mind a couple of things. One is given the turnaround's ongoing, you know, and the length of our supply chain, we've been able to, I'd say, stay out of the market and the kind of teeth of the most extreme kind of hoarding events that we've seen over the last 30 to 60 days. That said, I think when you look at backwardation alone, our first half of the year crude differentials reflect probably a near flat market structure. And if you just look at the current market structure today, between the front month contract and the third month contract, you're moving between $6 and $8 a barrel. So again, that's consistent with our risk management framework and ensuring that we're not taking flat price risk between the origin loading point and the delivery to Hawaii. So, again, too early to call, but I think those are the factors to watch.

• Q: I was also hoping to get your color on Singapore cracks more broadly. They obviously were extremely strong in the start of the conflict and through April, and it seems like they've converged with rest of world cracks. And I guess it's to be expected given if there are arbitrage opportunities, those are going to be taken advantage of and the differentials are going to tighten between regions. So are we in more of a, call it, stable is probably not the right word, but from a relative basis, are we in an environment where relative cracks make more sense here or just given the refinery capacity shut-ins in Asia, there's potential for cracks to spike again moving forward?

  A: Yeah, that's a good question. I mean, I think our observations would be, you know, at the beginning of the conflict, obviously the most, I'll say, hoarding of product and I'll say disruption between physical and financial markets, I think, emerged. And again, I think if anybody was short Singapore cracks financially going into that, I think there was a fair amount of rush to cover that position. I think now you're seeing freight normalize, and again, kind of the ability to arbitrage products between the Atlantic and Pacific Basin. You're getting back into, I'll just say, transport parity economics between Atlantic and Pacific Basin. So again, I think that's probably the right way to think about it, assuming that no other major factors change, which I think is a big assumption. You know, again, I think for Asia to price materially above Europe, given that they're both in, I'm going to say, deficit positions needing to import product, you know, again, I think it's going to be a call on, you know, a competition between those two points to source and attract barrels.

• Q: just on the small refinery exemptions, I think you received 60 million RINs worth of exemptions last year. it sounds like you haven't monetized a large part of that. So if you get the exemptions this year reflecting 2025 exemptions, should we expect you to monetize most of that position?

  A: Hey, Jason, it's Sean. Yeah, I think that's probably a fair assumption. We've monetized less than half to date. I think we're Would prefer to have clarity from the EPA on 2025 exemptions before further monetizing both the historical excess and then any new relief that we would get related to 2025.

• Q: Can you just talk a little bit about how you're thinking about the buyback going forward? It seems like you slowed down as the stock price moved higher post-Iran. With cracks where they are today, you're set to generate a significant amount of free cash flow in 2Q. Do you plan to be active in the market buying back your stock, or are you comfortable with the cash just going to the balance sheet in the near term?

  A: Yeah, Zach, this is Will. I think our historical framework still holds today. And again, I think we've been in an excess capital position and I've taken an opportunistic framework towards our share repurchases. And so, you know, again, I think the cadence of our repurchase is going to be driven by our excess capital position, forward outlook, and really our view of intrinsic value. And I think when we see it trade materially below that, you know, we'll seize that opportunity. So, You know, I think our framework is the right way to allocate capital through the cycle. And again, I think you should expect us to be more aggressive in our share repurchasing when we see deeper discounts, intrinsic value, and then I'll say more moderate in our approach as we see it, you know, less attractive discounts, intrinsic value.