Par Pacific Holdings, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Operational Execution: Safely and reliably throughput near record 198,000 bbl/day, maximized logistics system utilization, and delivered above industry trend retail results.
• Financial Results: Third quarter adjusted EBITDA $372 million, adjusted net income $5.95 per share. Captured small refinery exemptions benefit of ~$200 million.
• Market Outlook: Optimistic about market outlook with product margins rallying due to tight supply and demand and geopolitical disruptions. Fourth quarter combined index averaged $15.55/bbl in Oct, up from Q3.
• Retail Business: Exceptional results with improving food top and bottom line, same-store fuel and in-store revenue up 1.8% and 0.9% QoQ.
• Development Pipeline: Groundbreaking on second new-to-industry store in Pacific Northwest; expanding redevelopment opportunities in Hawaii.
• Montana Refinery: Strong Q3 results with record throughput and OpEx per barrel under ownership. Low-capital, high-return projects to increase mid-cycle earnings power.
• Hawaii SAF Project: Progressing towards startup, achieved mechanical completion of pretreatment unit. Closed Hawaii Renewables joint venture with Mitsubishi and ENEOS, received $100M proceeds.
• Balance Sheet: Strong balance sheet with gross term debt $642M (3x LTM Retail and Logistics EBITDA), QE liquidity $735M, expected further bolstered by Hawaii JV proceeds and RIN monetization.

Segment Performance

• Refining Segment: Generated adjusted EBITDA of $338 million in Q3. Hawaii had an index averaging $10.27 per barrel with a margin capture of 111% (excluding items, 125%). Montana and Wyoming had margin captures of 93% and 91% respectively. Washington had an index averaging $16.66 per barrel with a margin capture of 69%.
• Logistics Segment: Third quarter adjusted EBITDA was a record $37 million, up $7 million from Q2, due to return to normal summer operations in Montana and Wyoming and higher system utilization in Hawaii.
• Retail Segment: Third quarter adjusted EBITDA was $22 million (vs $23 million in Q2). Continues to outperform mid-cycle target with strong in-store sales growth, improved cost control, and solid fuel margins. Marks third consecutive quarter of record LTM retail adjusted EBITDA at $86 million.

Guidance

• Fourth Quarter Refining: Combined index averaged $15.55/bbl in Oct, up from Q3. Hawaii crude differential expected $5.50-$6/bbl. Rockies and Pacific Northwest distillate margins strong, offset by seasonal gasoline/asphalt declines.
• Throughput Guidance: Q4 system-wide throughput 184,000-193,000 bbl/day. Hawaii 84,000-87,000, Washington 35,000-37,000, Wyoming 15,000-16,000, Montana 50,000-53,000.
• Retail: Continues to outperform mid-cycle target.
• Capital Expenditures: Year-to-date accrued CapEx and deferred turnaround expenditures $204M, full year outlook toward upper end of $240M guidance.

Risks

• Market and Geopolitical Risks: Product margins subject to tight supply/demand balances and geopolitical disruptions. Seasonal market conditions may impact margins.
• Operational Risks: Unplanned outages, turnaround and maintenance activities affecting throughput and costs.
• Regulatory Risks: Changes in small refinery exemptions, RIN liability management, and compliance with environmental regulations.

Q: Congrats on the strong results overall. I would say that Washington capture might have been a little bit lower than our expectations. Was that primarily due to the dynamics on jet versus diesel in the quarter? And if so, would you expect that to reverse out in the fourth quarter?

A: Shawn Flores: Matt, it's Shawn. That's correct. We sell a fair amount of jet fuel out of our Tacoma facility. Our index really reflects the diesel market dynamics. And we saw, at least in the Pacific Northwest, jet to diesel spreads north of $20 per barrel. And as I mentioned in my prepared remarks, this spread is now compressed down to more typical levels. I think this morning, it's trading $4 to $5 per barrel discount to diesel. So we estimated that was about a 15% capture impact to Q3. I think adjusting for that, we're right sort of within our range of 85% to 95%.

Q: Maybe one first on cash. You should see a significant influx in cash over the next few quarters in the form of JV -- the payment from the JV and the reversal of the 3Q working capital headwind as you monetize the RINS from the SREs. And that's on top of the organic free cash flow that you're generating. During the third quarter, you were more active strengthening the balance sheet compared to share buybacks. How should we think about your priorities for the use of all this cash going forward?

A: William Monteleone: Sure, Ryan. It's Will. You're correct. I mean I think our balance sheet is improving quickly and is in good a shape as I've seen it. And again, I think that really positions us to both pursue growth as well as consider and weigh that against our share repurchase opportunity. And so I'd say over the near term, we're focused on completing the construction on Hawaii Renewables project. And then as we kind of look into the future, we're looking at projects that can propel the Montana business mid-cycle EBITDA generation higher. I'd say we see a mix of low capital and high-return implant projects as well as some enhanced logistics capabilities and market access opportunities that we see as most attractive in that area. And I would say, as always, we'll weigh that against the opportunity to repurchase shares. And I think given our capital position, we can really do all of the above.

Q: I wanted to ask, can you provide some color on early thoughts on how Q4 is shaping out? How should we think about captures quarter-over-quarter? You talked a little about the jet diesel differential, but maybe if you could expand on some of the moving pieces.

A: Shawn Flores: Alexa, it's Shawn. Yes, I think the Refining index overall, as we mentioned, at $15.55 per barrel up relative to the Q3. I would expect some seasonal dynamics to take hold as we get into the latter half of the quarter, particularly in the Rockies, as it relates to gasoline and asphalt netbacks. But as far as capture, I'll maybe just take through the different regions. In Hawaii, our guidance is still around that 110% capture level. I think when you look over the last 2 to 3 years, we've averaged between 110% and 120%. And the elevated capture has really been linked to the elevated clean product freight rates, and we haven't really seen that change. So I think the one thing I'd call out in Hawaii is we do have a small crack hedge book position. We typically layer that in 2 to 3 months in advance. And so like in Q3, I think it's fair to assume it's a marginal headwind going into Q4. But again, we typically only hedge about 15% to 25% of our Singapore exposure. So pretty minor impact in Hawaii. In Tacoma, our mid-cycle guidance continues to be in the 85% to 95% range, should expect to see some favorable impacts on the jet to diesel dynamics. And partially offsetting those dynamics will be the asphalt netbacks worsening as you get into late November and December. I think Montana and Wyoming, the market conditions are strong. Diesel margins, in particular, north of $45 per barrel in the upper Rockies. But again, I think as you get into December, we would expect some seasonal dynamics to take hold.

Q: I wanted to ask about the RINS received from the small refinery exemptions. Are you going to pursue additional opportunities there for exemptions that you didn't receive in your refinery? Some of your peers have discussed trying to submit additional petitions for 2018 to 2024 on refineries they think should have received RINS. So wondering if you're going to do the same or if you're satisfied with the outcome.

A: William Monteleone: Yes, Jason, I mean, I think I'd tell you, we will avail ourselves of all opportunities that we think are consistent with the law and what the EPA is proposing and how the DOE is scoring the exemption petitions. And again, we've spent significant time on this over the last 7 to 8 years and I think have generally a good feel for how the EPA approaches and the DOE is approaching the scoring here. So I wouldn't point out anything that I think is material to us right now. I think there are probably some things where we've -- we'll see clarifications over time, but I don't think it's anything I'd point out as material.

Q: My follow-up is on Montana, which seem to run very well out of its turnaround. As you look forward, do you expect it to sustain these lower operating costs that are below, I think, your base case assumptions? Or do you view this more as a onetime benefit and OpEx should kind of move back above that $9 per barrel range?

A: William Monteleone: Yes. Thanks, Jason. And I think you're right, it was a great and strong performance of the Montana team. I think you should expect seasonal improvements on OpEx per barrel as we ramp rates in the summer. And then I think as you get into the softer quarters, you'll see that start to taper down. In general, what I'd tell you is we still think the $10 per barrel annual target is the right number for the Montana team. And again,我think we feel confident we're moving in the right direction to achieving that.