HF Sinclair Corporation (DINO) Q1 2012 Earnings Report, Transcript and Summary

Welcome to the HollyFrontier Corporation Q1 earnings call. My name is Kim and I’ll be your operator for today’s call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Neale Hickerson. Mr. Hickerson, you may begin.

Good morning everyone. Today we are proud to present our first quarter 2012 results. I’m Neale Hickerson, Vice President of Investor Relations at HollyFrontier. On our call this morning are Mike Jennings, our CEO and President; Dave Lamp, our Chief Operating Officer; and Doug Aron, our Executive Vice President and Chief Financial Officer. And we also have a number of other key members of our management team with us to assist in the Q&A portion of our webcast. We issued a press release this morning which announced our results for the first quarter 2012. This press release can be found on our website at www.hollyfrontier.com. For our call this morning Mike, Dave and Doug will have prepared remarks and details around our operating and financial performance for the first quarter. After these remarks, we will be ready to take your questions. Before we move to these prepared remarks, please note the Safe Harbor disclosure statement that’s in our press release today. Statements today and in our press release are made under the Private Securities Litigation Reform Act of 1995. In summary, the Safe Harbor statement says that statements made regarding management expectation, judgments or predictions are forward-looking statements. These statements are intended to be covered by the Safe Harbor provisions of federal securities laws. There are many factors that could affect our actual results and outcomes. We’ve noted many of these in our 10-K, 10-Qs and other financial filings with the SEC. Today’s statements are not guarantees of future outcomes. This morning’s webcast may also include a presentation and discussion of non-GAAP financial measures that we use in analyzing our financial results. Please refer to today’s press release and our financial filings for required reconciliations to GAAP financial measures and other related disclosures. And lastly, please note that information presented on our call today speaks only as of today May 7, 2012 and any time-sensitive information provided may no longer be accurate at the time of any webcast replay, or rereading of the transcript of our call. And now I would like to turn things over to Mike Jennings.

Thank you, Neale. Good morning, thanks for joining us on HollyFrontier’s first quarter earnings call. Today we reported first quarter net income attributable to HFC shareholders of $241.7 million or $1.16 per diluted share, which compares favorably to the $84.7 million or $0.79 a share posted in the first quarter of 2011 by Holly Corp standalone. Our first quarter EPS represents a 46.7% increase over the first quarter of 2011 EPS. The prior-year comparable results exclude Frontier oil earnings, but are considered indicative given the stock for stock consideration in our merger. First quarter EBITDA generated was $471 million or over 2.5 times the first quarter 2011 EBITDA of $181 million. Our cash allocation strategy continues to be, to grow our regular dividend over time, pay specials, repurchase our shares opportunistically and take advantage of opportunities to reinvest in our core refining business were we see a significant advantage versus our competition. In considering HollyFrontier and our current market position I think the following key points should be kept front and center. Industry leading unit profitability right at about $6 net income for capacity barrel in first quarter traditionally a quarter of seasonal weakness, excellent free cash generation from earnings, cash distribution yield to shareholders in the mid-teens based on current share price and visible growth built on sustainable competitive advantage. An example of growth based on advantage is our Woods Cross refinery expansion announced earlier in the first quarter. We plan to raise our Woods Cross capacity from 31,000 barrels a day to 45,000 by late 2014, 24000 barrels at the Woods Cross daily crude slate will be locally sourced black wax crude. We entered a ten-year crude supply agreement with Newfield Exploration Company for 20,000 barrels a day which commences upon completion of the refinery expansion. We declared a $0.50 special dividend at the end of February along with our regular $0.10 dividend. This was the third special dividend declared since August of 2011. On an annualized basis, our cash dividend yield is 8.1% as of Friday’s closing price. We also executed $97.5 million of our $350 million share repurchase program year to date leaving us with just over $255 million available under that buyback authorization. Inland versus coastal sweet crude differentials widened again in the first quarter. The average Brent TI differential was $15.38 compared to $14.89 in the fourth quarter of 2011. Announced pipeline reversals and extension projects will compress the Brent TI spread overtime, so we do not expect pipeline takeaway capacity to outpace Canadian and North American unconventional crude production especially north of Cushing. Given our geographic exposure to the Mid-Continent, Southwest and Rocky Mountain regions, Holly Frontier has advantaged access to crude from several high-growth producing basins and we will have enduring advantages over coastal refiners due to both crude and product transportation cost. Holly Frontier's cash balance stood at over $1.9 billion at March 31st and our debt was $688 million excluding, non-recourse HEP debt. With that let me turn it over to Dave Lamp, our Chief Operating Officer for a review of operations during the first quarter.

Thanks Mike, throughput for the first quarter was 408,000 barrels per day of crude and 442,000 barrels of total charge. The crude slate was 20% disadvantage crudes. These are mainly black wax and WCS type of barrels and 24% sour. During the quarter light-heavy and sweet-sour spreads widened versus WTI. So in general our crude slate moved more towards heavy crudes up to pipeline constraints. Average laid in crude costs for our system was $3.95 under WTI. Brent versus WTI differential was $5.28 for the quarter and total refinery operating cost for the quarter were $225 million. Throughputs of the first quarter for the Rockies regions were 70000 barrels per day of crude and 79000 barrels of total charge. Disadvantaged crudes were approximately 47% of the crude slate and 2% sour. The average laid in crude costs in the Rockies region was $10.55 under WTI. Refinery operating costs were approximately $5.51 per barrel. Cheyenne rates were affected by an unscheduled naphtha hydrotreater and distillate hydrotreater downtime. Throughputs for the first quarter in the mid-continent region were 256,000 barrels per day of crude and 273,000 barrels of total charge. This advantaged crudes were approximately 16% of the slate and 10% sour. The average laid in crude costs in the Midcontinent region was $2.22 under WTI. Refinery operating costs were approximately $4.81 per barrel. Midcontinent rates we affected by high gasoline inventories in the Magellan system in general. The El Dorado refinery had a scheduled turnaround during the quarter of its alky unit. Also unscheduled outages at the Tulsa alky and El Dorado distillate hydrotreater units during the quarter hurt profitability. However Tulsa lub sales were very strong during the quarter at 12,700 barrels per day and where wax free oil sales were a record 9300 barrels per day plus. Throughputs in the first quarter for the southwest region were 81,000 barrels per day of crude and 90,000 barrels per day of total charge. Disadvantaged crudes were approximately 10% of the crude slate and 90% sour. The average laid in and crude costs in southwest region was $2.93 under WTI. Refinery operating costs were approximately $6.67 per barrel. Retail asphalt sales were 34,000 tons for the quarter and were seasonally slow. Navajo crude rates were reflected by a scheduled CCR turnaround and a mild hydrocracker outage for catalyst change and the timing of new charge heater. For the second quarter of 2012 we expect to run approximately 420,000 barrels a day of crude with 21% of the slate being disadvantaged heavy crudes and 23% sour. Our El Dorado refinery completed its alky turnaround in April which was about 2 weeks later than expected. Also the El Dorado refinery has a scheduled outage of one of its distillate hydrotreater units and its large hydrogen plant. No other down time is planned in the first quarter that will affect crude rates. The first phase of Navajo's project to reduced benzene and gasoline was completed during the first quarter CCR turnaround which has reduced benzene credit purchases. The Woods Cross benzene reduction projects should complete towards the end of the second quarter will further reduce our benzene credit purchases. The Salt Lake to Las Vegas pipeline UNEV moved approximately 11000 barrels per day during the quarter. We continue to ramp up its volume in the second quarter. The UNEV pipeline will allow us to supply Vegas from the Rockies refinery which typically enjoyed a crude advantage cost versus other products suppliers. With that I’ll turn it over to Doug from some closing remarks.

Thank you, Dave. For the first quarter of 2012 cash flow provided by operations totalled $253.9 million. There were no merger-related expenses in our results this quarter. However, we did incur some one-time environmental spending cost that totaled approximately $14 million pre-tax. These expenses relate primarily to some environmental costs necessary for the expansion of the Woods Cross refining that Mike mentioned and to our no longer discounting future cash flows related to future environmental expenditures. We believe this is not only the most conservative approach, but also a best practice. We noted this morning some questions about our increased interest expense compared to last quarter. This increase relates to HEP having refinanced both its note to HollyFrontier as well as a new senior note issuance to repay a maturity that was upcoming. As a result we believe interest expense was roughly $6 million higher quarter over quarter and the HEP refinancing should explain all of that. Turning to our capital spending, our first quarter capital expenditures totaled $55.1 million which excludes HEP's $6.3 million spent in the quarter. Turnaround spending in the quarter totaled $21.8 million. We maintained our full-year 2012 CapEx guidance of $350 million and turnaround spending of $120 million. As of March 31, 2012 our total cash balance including marketable securities stood at $1.9 billion versus $1.8 billion at year end and debt totaled $687.8 million for HollyFrontier which excludes the non-recourse HEP debt of $624.2 million. We returned over $190 million in capital to shareholders in the first quarter and over $220 million year to date through regular dividends, specials dividends and share repurchases. Dividend spending totaled a $126 million and we repurchased 2.1 million shares for a total of $64.2 million in the first quarter. We have spent an additional $35 million on share repurchases since March 31. Overall since our July 2011 merger HollyFrontier has returned roughly $478 million in capital to shareholders through dividends and share repurchases. Turning to our crack spread hedging program when we reported our year end 2011 results we had sold forward 20,000 barrels a day of gasoline and 20,000 barrels a day of diesel for calendar 2012 at an average price of $27.50 on a 2:1:1 basis. Since then we've added an additional 9,000 barrels a day of gasoline hedges and 9000 barrels a day of diesel hedges for the fourth quarter of 2012 at an average price of $20.60 per barrel again on a 2:1:1 basis. We've also added 6000 barrels a day of both gasoline and diesel hedges. So a total of 12,000 barrels per day for the first quarter of 2013 at an average 2:1:1 crack spread of $18.50. Lastly I would like to update you on our quarter to date crack spreads. These are all based on West Texas intermediate barrels and not on the advantage crude oils that we run. For the Rockies region, the April gasoline crack spread averaged about $31 for April and the diesel crack spread averaged $33 for April. So far in May, albeit only a few days in, the crack spreads are very similar in the Rockies region. For the Midcontinent, the gasoline crack spread averaged about $26 a barrel for April and about $32 a barrel on diesel. So far in May we are seeing about $20 to $21 gasoline crack spread and diesel still around $30 a barrel. And lastly the lub's crack at the Midcontinent at our Tulsa refinery was about $82 for a crack spread for the month of April and turning to our Southwest region, the gasoline crack spread averaged about $30 for April, about $34 on diesel and currently about $30 for both gas and diesel in the first few days of May. And with that operator I believe we’re ready to take questions.

(Operator Instructions). We have a question from Jeff Dietert from Simmons. Please go ahead.

Doug, you mentioned the hydrotreater downtime at Cheyenne and it looked as if Cheyenne gross margins were or at least Rockies gross margins were weaker than we expected and what the indicators look like. Could you talk about margin capture in the Rockies and what the opportunity costs was in 1Q and if there is any impact on 2Q?

It was all in 1Q Jeff, you know we just basically cleaned some exchangers get throughput back upto to full rates. It's about a seven day outage. The lost opportunity was about 5 million bucks somewhere in that neighborhood.

Alright. And was that deal only negative influence in the Rockies?

Yes. We did have some minor stuff at Woods Cross, we had a hydrogen plant outage which affected capture rates slightly, but that was about it.

Secondly, you talked about savings on benzene at Navajo and Woods Cross, how significant are those savings, what are you paying for benzene credits and what’s the savings going to likely to be?

The most recent benzene credits we bought are about $1.75 a gallon and these two projects knock our requirement down. You are taking gasoline from about 0.12 or somewhere in that neighborhood to about 0.8. So I don’t have it in exact gallons, but the impact as you can see is pretty dramatic when you multiply it in terms of number of barrels?

And on UNEV, could you talk about current throughput, you talk about 11,000 barrels a day in the first quarter. What are you running currently?

We are over 20,000 barrels a day as of today and it’s still going up. So we anticipate we will get closer to 25, I imagine that's what the average is going to be for the quarter, second quarter? That’s total line rate, Jeff. So some of that is Sinclair as well.

Thank you. Our next question comes from Doug Leggate from Bank of America, Merrill Lynch. Please go ahead.

Just staying with UNEV for a second and I guess HEP generally, fellows, can you just give us an update as to where things stands with you know and what the dropdown visibility is on a go-forward basis, not just for you know for that line but also if you are seeing additional dropdown opportunities, so you know as you have identified since the merger from the legacy Frontier assets?

Doug, the one that we are focused on right now is UNEV obviously. We've got about just in excess of $300 million invested in that line. We think it's strategic to both HollyFrontier in terms of our being able to access that Las Vegas market and obviously to HEP for their growth. We would expect that within the first half of this current year we will have something to announce on that. It's just important to get it right, it's a line that will grow through time from current utilization levels and so we are working closely with HEP to get that dropdown negotiated and done. In terms of additional opportunities for HFC dropdowns to HEP, I think they are going to follow the refining company’s external growth as much as anything. I don’t think that we have immediate dropdown opportunities that we have identified it since the merger apart from the obvious, those being the Cheyenne and El Dorado logistic assets and then you know right here in front of us. Obviously as we execute our project in Woods Cross to expand that refinery. There will be logistics associated with that whether there is an opportunity there we are evaluating.

So you are confident your NAV is still going to move down basically in the first half, is that a takeaway?

Yeah that's the objective of both HFC and AGP, whether there is a closing in the first half. You know I am not going to guarantee, but I think we are moving on a pace to get there or close.

I just had two quick follow ups. You gave some indication as obviously how price are going so far in the second quarter. Quite honestly, they look a little stronger than perhaps we’ve seen this. Is there anything that you could observe specific your regions or may be just give a prognosis as just how you see, others ones you have prepared to give us a year-over-year comparison, but how do you see the dynamics in your markets right now relative to what you see second quarter last year?

Second quarter, last year, the demand figures that we have been hearing on other calls and then what we are noting in the Magellan System in particular are encouraging. I am not sure that we are in the demand decline mode that sort of everybody has assumed. Magellan got off with full on product in the mid-con there in the month of February but has come down pretty aggressively in the month of April, down now to in the low 6 million barrel range, which is a very comfortable range for that system. And mid-contracts have responded well. Obviously there is a lot of noise in terms of NYMEX crack but we consider our markets to be healthy right now, the Southwest probably leading the pack.

Just to be clear, the [wide discounts] we saw in the middle of the first quarter, you’ll get those mostly in the second quarter, is that fair?

The [wide discounts]?

The wide discounts.

Wide discounts are proven.

Right, thank you.

Yes, that’s how it works. There is some transient time.

Okay. Last one from me. Just an update on your philosophy as to why special dividends as oppose to [motographs] or buybacks and I’ll leave it at that. Thanks.

Just thank me for that question. Look, buybacks to us are investment at a price. When we see a price that we like, we tend to pile in aggressively, but at the same time we don’t consider an automatic ratable equation and our goal with this specials is to pay out that and continuous extreme to shareholders when we are earning at high levels and we see that as continuing for quite sometime. We obviously got a balance sheet that supports it. At present prices, we’re doing both. So, I don’t think it’s an either or we see our share prices very attractive for our purchase. But we also think the cash returns to shareholders help to differentiate the stock and nobody has yet turned back to chat.

Is it fair to say that lets say, seasonally, your share price dictum show some normal cool buy, would you secure the buys more towards the buybacks at that time or how is that doing initially?

No, we’re pretty dynamic and pretty opportunistic in both of our programs and we think we can execute both in parallel.

Thank you. Our next question comes from Chi Chow from Macquarie Capital. Please go ahead.

Doug, can you give us any certain sort of guidance on share count heading into 2Q? I noticed the share count really didn’t move much from 4Q. You’ve got a pretty healthy buyback announced earlier year-to-date.

Chi, I had tried to come up with that number. Maybe if you have another question as to where we work 1-2-3-1 versus where we are today. I show the diluted share count and as probably said, if 209,142 was March 31, 12, let me see where that was related to December 31. I would tell you that despite buybacks, you know, this would be the quarter we would expect some share vesting’s to take place around the year-end time frame and so that probably added to some number but as you point out, as we go roll-forward and that tends to be investing. It happens once a year, we ought to be only going down.

Okay.

We add to the denominator, Chi, the follow up at a pace of around 700,000, 800,000 shares a year in terms of those which are granted for compensation program. So first quarter, repurchases were bigger than that but there is an offset.

Okay, thanks. Mike, any thoughts on increasing the regular dividend? I think there was number one point we’re talking about cash?

Yeah. We have done it since the merger and we anticipate doing it again. I can’t give you the timing because I don’t have that yet from our board but it’s a high priority that we continue to grow the regular dividend stream.

Okay. And then may be, Doug, back to you, what were your realized hedging gains or losses in the quarter and is there an unrealized piece found in the margins as well?

Chi, on the crack spread side, it was positive. We were, lets see, we had about, bear with me one second. So we had about $16.5 million worth of gain on the Mid-Con hedges. That was offset in the first quarter results by almost $20 million of Western Canadian Select losses on barrels that we had bought forward. Obviously, we have done that on a small number. So benefit on a lot more barrels that we bought but all in all, in total there was a small loss that flow through gross margin that totaled about $300,000.

Okay. And that was all realized the $300,000?

Correct.

Okay. Is there an unrealized piece on any of the hedges?

Well, you won’t see it in the income statement. There is, I mean, today on the 2-1-1 crash spread hedges. I would say you that those are about $150 million in the money, Chi, but again because those qualified for hedge accounting, they’ll flow through ratably through the remainder of the year and they won’t show up in another line but rather in the gross margins.

Our next question comes from Paul Sankey from Deutsche Bank. Please go ahead.

Going back to the cash return, just specifically on any special announces I am assuming that those are made around board meetings. Could you just clarify exactly what we could expect the timing on those?

Yes, sure. Our board meetings are scheduled mid-May, May 15 and 16 and our announcements tend to follow the board meetings very religiously.

So, that’s actually the timing there. You talked about buying back stock right now. I know like in the past year you kind of expressed bewilderment when the stock has got below 25. It seems like you feel that below 30 is the number you will defend with buyback?

Well, it’ a number where we see attractive evaluation. I would choose different words. We don’t view it as a defensive maneuver but rather an opportunistic one as we think it is a good investment with the margin for error at that price.

Can you talk a little bit more about what makes, I guess the buyback always is a good idea when the stock is cheap. I think we all agree just because how we decide when the stock is cheap or not, can you talk a little bit about how you find that?

Sure. We have a pretty simple formula where we are looking at current margin generation through the forward markets which extend out a couple of years and then we tend to revert more toward a Gulf Coast plus a transportation based margin if you will in terms of products and crude. We do some of the part’s assessment around our net cash position as well as our MLP investment. And then that to us is the way in which we value the company. So call it the additional earnings created by HollyFrontier differentials. We value at 1x, the longer term is sort of a normal multiple, call it 4x, and again, some of the parts’ assessment.

Yeah, okay. That’s clear. You spoke there about forward curves, and I was just wondering what the additional hedging you’ve done. Can you talk a little bit more about the technicalities and challenges that are actually hedging your positions because one of the struggles obviously has been the amount of, I guess, noise or even the differentials that really were at your advantage but what amount quite a liquid both products in crude markets?

Yeah. There aren’t very many buyers of size who naturally want to be long Mid-Con gasoline, right. So that forward market extends out about a year with liquidity, two years if you push it. And that’s really the challenge in hedging for a company like ours is just one of basis differential. We are able to execute hedges that we think are not to build a friction typically in size of may be a thousand barrels a day on any given day. But the prices are volatile and so the likelihood that we get half or 75% of our production hedged is really kind remote just because the market’s not there and we would end up taking Gulf Coast or NYMEX type basis, which could get very ugly.

Does that mean about as hedged as you can get?

At current time, I mean we could be stretching into ‘13 and probably get to the levels we have for ’12, you know, may be forty a day or so but that’s sort of comfort zone and area where we don’t feel like we’re pushing the counter parties to write us insurance policies.

Before we go to the next question real quickly, Chi, I want to give you an update on the share count numbers that I had given. So March 31 number that I had given you 209,142, that was actually an average for the quarter. As of March 31, it was down to 207,822 and then we would further update that as of April 30, we were down to 206,799.

(Operator Instructions) Our next question comes from. Paul Cheng from Barclays. Please go ahead.

Hi, guys. A number of quick questions hopefully. Doug, do you have an inventory of the market net of in excess of the bulk?

Yeah, that number is as of March 31st is probably about $620 million market values of inventory in access of book value.

And mind you, when you are looking at hedging; can you describe to us or share with us then how is the corsets; what were – or what you determine though, okay now that we should hedge or not to hedge?

Paul that’s the secret source I am not sure we can share that publically; but we’re also looking at the markets and trying to do the right thing in term of the economics of our business. But the fact is that the forward cracks are pretty volatile and we’ll see swings of between $10 and $13 for a year in a quarter’s time. So obviously, we have to take a look at what we will think the principle drivers can do that to the Brent WTI differential as well as product demand versus supply in our regions. But we’re kind of two to three standard deviation type shop and comparing the hedge price versus historical actual or recent historical actual and so we are trying to plummet nice.

Let me ask you in another way, you had said a mechanical corsets ones that have say pretty standard deviation then you retract automatically a hedge let’s say, 10,000 barrel per day or 15,000 barrel per day or that this is still a hot base on what management as the variation of the market that is determined; whether you want to hedge or not?

It’s the latter Paul. There is nothing automatic about it. We have specific processes built in as you would expect and a committee to oversee it. We have got a board looking at it as well, but at the end of day it is based management judgment.

And what is the maximum that you guys want to hedge?

Our goal is to not do more than about 50% of any given geography. So in the Mid-Con the preponderance of our production is, may be could get up to 80,000 or 100,000 barrels a day. But the thinking behind that is, is to be able to meet the hedge obligations where we have unscheduled downtime at one of the two facilities.

I think when you were underfund here that you guys used to disclose what is the Canadian heavy oil defense or you realize for Cheyenne and El Dorado; those number that you may be able to share here?

I think Dave do you have any forward guidance on what we’ve been buying…..

And also that you have the first quarter number also?

We’ve been buying some, locking in some differentials about 20,000 barrels a day at about $20 roughly.

$20 under WTI.

$12 and $13.

And you have the first quarter realized heavy differentials by region.

Yes. They were $22.10.

In the Rockies.

In the Rockies; same things in the Mid-Con, that’s hard to call.

Mid-Con should be lower, right?

So those are (inaudible) number. So we subtract six to get to the Mid-Con subtract three to get to Rockies which is Cheyenne is the principle consumer of heavy there.

And earlier you guys were talking about the second quarter Q1 expectations of 420, do you have a breakdown by the three different regions and also there was the total throughput that you expect?

I don’t have it by region, but the total throughput would be roughly 25,000 to 30,000 barrels higher than that.

Okay. It’s about 445 to 450; do you have a cash cost estimate that you guys going to use?

OpEx?

Yes.

First quarter was 225, we’re estimating; I would imagine it would be some where slightly lower because we did have some special environmental accruals in that 225; so probably 210 range.

And definitely you gave the gasoline diesel and new margin for April and May; do you have the corresponding number for the first quarter?

So the lubes?

No, the gasoline and diesel as well I mean whatever you gave us that so do you have the first quarter average so that we can make some comparison?

Well, lubes as Doug mentioned was about $82 on a comp basis and gasoline diesel in that about $29 to $30 range.

Yeah for first quarter Dave.

Yeah, for the first quarter (inaudible)

So $29 to $30 on the Mid-Con gasoline and diesel?

Gasoline is about $25 and diesel is north of $30, somewhere in that range.

And talking about first quarter actual?

First quarter actual, okay, $15 on gas and about $30 on diesel and jet.

Okay, how about Southwest and Rocky?

Southwest, let's see Southwest was about $26 on gas and sorry, yeah that's right $26 and $35 roughly on diesel.

Okay, Rocky?

Rockies were about let's see call it $18 on gas and about $38 on diesel.

So I just want to make sure we keep get the number and I get it right, Southwest gasoline is $26 first quarter, diesel $35, Rocky, first quarter gasoline $18 and diesel $38 and Mid-Con first quarter gasoline are $15 and diesel are $30 and lube is $80.

Sounds right.

Okay. And then into the pipeline for the Salt Lake City to Las Vegas has the final CapEx then up to be 410 that what you guys disclosed last time or that had changed also?

That's about right; it might be a couple of million dollars higher Paul, keep in mind that's a 100% of the pipeline; we represent 75% of that.

But that is more or less greater number.

Yes, that number Paul, let me interrupt I am sorry but there's also some capitalized interest about $15 million to $17 million of capitalized interest also on our books and that is obviously a 100% HFC number because our partner doesn't share in that.

Two final questions, one, with cost when you guys was going through the upgrading project you also mentioned that you could potentially have a Phase 2 and you would be doing some engineering there to see if there's any update on the status on that? And then a final one on the CapEx, it looks like first quarter is really much lower than your $1 million; you still think you are going to spend the entire month in the turnaround and the CapEx and also do you have a rough estimate that how is the CapEx average may look like for 2013 to ’16 timeline?

Well, in the Woods Cross Phase 2 we are still studying and studying the market side of it. We don't have anything new to update at this point. We are also looking at the black wax supply side of the equation on our Phase 2. Let's see on CapEx, we spent about $55 million. We are expecting more like $85 million. We think we will catch up by the end of the year. We have some significant spend coming in the second, third and fourth quarter.

How about the turnaround then that I thought you are guys saying that you have don't have much of the turnaround for the rest of the year, but in the meantime then in the first quarter you will only be 421 million on the turnaround and are you expecting the full year to be $120? So that’s a little bit surprising that you are saying that you don't have much of the heavy turnaround for the rest of the year, but you are not wanting 25%?

The only thing I said was second quarter. The third quarter and fourth quarter we have heavy turnaround schedules.

Okay, it’s my mistake.

So Woods Cross, cracker and Tulsa West whole plants and then a few selected other pieces.

How about the CapEx I will look forward, and expect a year’s average roughly?

I think we are at about the 350 range considering the Woods Cross project, and other things we have on the books.

So certainly next year which would be 2013 it would be about that 350; ’14 is probably coming down a little bit off that and I would say 300 dependent upon Phase 2. And thereafter we move more toward maintenance level which would be about 100 to 125 of capital expenditure and another 100 or so of turnaround expense, turnaround tanks.

Thank you. Our next question comes from Rakesh Advani from Credit Suisse. Please go ahead.

Just a point of clarification; you guys mentioned that in El Dorado the work over there took two weeks longer than expected, is there anything that stood out?

No, just late start and back-up and trying to drydock in a couple of exchange release and some lines plug and some others, but nothing other than that.

The turnaround lets say was at hydrofluoric alkylation unit and these are things that you’re just very careful with bring then back up and then if you think you might have a leak or there is questions about integrity or flow you stop and do it again. And that’s the mode that we were in; it’s up and running strong now, but obviously ran over our expected time line by a couple of weeks.

And then just to follow-on; I guess you’ve seen kind of the Bakken differentials start to trend negative and I just want to do kind of your thoughts on that; what do you think is kind of driving it and where do you think this can play out?

There is a multitude of silence here. The Bakken differentials are going to be effected by -- the inland coastal differential is the principle driver and then pipe and rail, obviously the rail activity has picked up in a fairly big way. The variable cost of rail is high as you know, it’s probably $8, $9, $10 bucks a barrel, but there is starting to be considerable infrastructure in the Bakken. And at the same time you know we’ve got production growth and so it was a light winter up there, production looked like its growing 150,000 to 200,000 barrels per day, per year. So frankly if rail sets the price we’re going to be very, very happy at this company because it implies wide differentials for a long-time.

Thank you. Our next question comes from Blake Fernandez from Howard Weil. Please go ahead.

The only question I guess I have left for you here is on the corporate G&A. It looks like we hit $27 million this quarter compared to above $40 million in prior quarters; and I am just trying to understand is that a function of synergy capture and is this kind of a good sustainable run rate going forward? Thanks.

Yeah, Blake, obviously the prior quarters reflected both the larger organization and the cost of realizing synergies. I think that we are nearly there to the point of run rate; we think it has some prospect of coming down, but this is the right zip code anyway.

Thank you. Our next question comes from Sam Margolin from Dahlman Rose. Please go ahead.

I just want to go back to those February pricing blowouts for just a minute. You mentioned that there is a lag on those particularly from Western Canada, but the Midland prices presumably have a much shorter lag time especially the Navajo, because you are so nearby. Is it fair to think about it that perhaps in 2Q we sort of have all these differentials coming into the system simultaneously even though on the calendar they were spread apart and that 2Q is setting up for some interesting laid in metrics?

Well, I think the answer to that in brief is yes. The second answer is that the spread, the Canadian heavy has traded down to about $15 to $17 here in the month of May. So and the last of April trading it was not the wider either. So that has come off a bit, but we are going to see better differential as a result of all that. The Midland base differentials, Midland to Cushing there seems to be in the $5 to $6 range and we are seeing that. Today, it’s been pretty consistent. So that will obviously help out the Artesia economics.

And just one more, it seems like just to go to the slope of production growth in those north of Cushing basins and a normal seasonality of maintenance in the area that the differentials there could develop sort of a seasonal pattern. Is there anything you could do at the HEP level to open that pricing up throughout the refining system kind of counter seasonally, so that the capture in the next whatever pattern emerges there as maintenance around the area comes into play?

If its maintenance on the producer side then I think the answer is no, because HEP is not in that business obviously; logistics base then possibly so, but currently HEP is not active in the Bakken more so in West Texas and so that's going to be the near term focus for our logistics projects in terms of access and increases in production through HEP.

Thank you. Our next question comes from Cory Garcia from Raymond James. Please go ahead.

Just one quick question regarding the deliverability of WCS in both Cheyenne and sort of your Mid-Con system, how do you guys see the capacity of moving more of those Western Canadian barrels in your system over the next year, so just sort of gauging the physical constrain today versus how you guys see that maybe a year or two from now?

Well, when the discs blew out as they did in the first quarter the pipelines quickly became full and we basically also were full. We went up to the constraints we could have, we would have run more if we could have gotten it particularly in the Navajo system. So I mean pipeline space is getting tight, but we fully expect it will be solved in the near future with some of the announced pipelines. We are working to get space on some of those as we see fit. Of course it’s kind of a tough decision, which way you go because you have to commit to 10 years on these things and are not insignificant in terms of money and commitment.

Sure. Where exactly do you guys stand today in terms of capacity, is it 80,000 to 90,000 of sort of your ability to deliver that crude in the ballpark on that one?

Yeah, you are in the ballpark, it maybe a little bit lower than that but you are close.

Thank you. We have a question from Wayne Cooperman from Cobalt Capital. Please go ahead.

Congratulations for taking a call from a shareholder instead of wasting 15 minutes from a guy who doesn’t own a share. At this point, all my questions are asked. Thanks.

At this time we have no further questions. I will turn the conference back to Mr. Hickerson for final remarks.

We certainly appreciate everyone listening and participating today. We look forward to sharing our second quarter results with you probably in the August timeframe, this coming summer. Thanks a lot everyone.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.