Par Pacific Holdings, Inc. (NYSE:PARR) Q4 2023 Earnings Call Transcript February 28, 2024
Par Pacific Holdings, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day. And welcome to the Par Pacific Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ashimi Patel, Director of Investor Relations. Please go ahead.
Ashimi Patel: Thank you, Betsy. Welcome to Par Pacific’s fourth quarter earnings conference call. Joining me today are William Pate, Chief Executive Officer; Will Monteleone, President; Shawn Flores, SVP and Chief Financial Officer; and Jeff 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. They 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. 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, Ashimi, 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 2022’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. Shawn 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 in Tacoma lay the groundwork for larger projects. We will continue to focus on lower capital, higher return opportunities, like our $90 million Hawaii SAF 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’re also actively working on advantage solutions in sourcing and pre-treating 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 2024 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 U.S. 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 increase 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 were to ensure that we establish 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 retained my shareholder and director status, confident that Will and his team can expertly manage and grow our business, while always preserving local market leadership.
Will, the floor is 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 discipline, alertness and care to deliver these improvements. 2023 was a strong operational year for the Refining and Logistics business units. Post-Billings acquisition, we averaged 194,000 miles per day of throughput, resulting in 95.5% operational availability. In addition to the Wyoming and Washington EPA ENERGY STAR Awards recognizing excellence in overall energy efficiency, our Washington operation also achieved one of the lowest carbon emissions intensities in the world based upon industry benchmarking studies.
A tanker ship surrounded by oil rigs in the open ocean, illustrating the company's vast energy businesses.
Improving energy efficiency is an example of how thoughtful investment and managerial consistency delivers a competitive cost structure while 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 Hawaii crude differential to average between $6.50 per barrel and $7.00 per barrel.
Fourth quarter capture to the combined index was approximately 134%, reflecting favorable price lag benefits. In Washington, fourth quarter throughput was 38,000 barrels per day and production costs were $4.53 per barrel. The P&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 and VGO 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 during 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 $8.03 per barrel. The quarterly U.S. Gulf Coast Index was $13.71 per barrel and Wyoming capture was approximately 101%, despite an unfavorable FIFO impact of $8 million. Montana throughput was 50,000 barrels per day and production costs totaled $12.03 per barrel, which 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, prompt Canadian crude differentials widened. However, a combination of slower inventory turns and FIFO accounting delay the realization of these benefits. For the first quarter, we expect Hawaii to run between 80,000 barrels per day and 84,000 barrels per day, Montana between 50,000 barrels per day and 55,000 barrels per day, Washington between 30,000 barrels per day and 32,000 barrels per day, and Wyoming between 16,000 barrels per day 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 sale fuel and merchandise sales growth of 8.8% and 7.8% respectively. Fourth quarter same-store sales continued the annual trend, with fuel and merchandise growth of 7.3% and 4.2%, respectively. In addition, we opened two new to industry locations in Spokane and Hawaii that are delivering encouraging results in their first months of operation. On the renewables front, our Hawaii SAF project is progressing well. We have broken ground on two renewable feedstock banks, filed 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 the Hawaii SAF capital project.
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 Shawn to review our financial results.
Shawn Flores: Thank you, Will. Fourth quarter adjusted EBITDA and adjusted earnings were $122 million and $65 million or $1.08 per share. Full year adjusted EBITDA and adjusted earnings were $696 million and $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 Hawaii of $21 million, offset by a negative FIFO impact in Wyoming of $8 million and a product crack hedge loss in Hawaii of $4 million. We have continued our crack hedging framework in Hawaii with approximately 28% of our first quarter sales hedged at $20 over Brent. The 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 a 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 optimized the working capital financing for the termination 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 will turn it to you for Q&A.
