Greetings, and welcome to the Par Pacific Holdings Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Matt Vaughn, General Counsel for Par Pacific Holdings. Thank you, sir. You may begin.

Thank you, Melissa. Good morning, everyone, and welcome to Par Pacific Holdings' fourth quarter 2017 earnings conference call. Joining me today are William Pate, President and Chief Executive Officer; Will Monteleone, Chief Financial Officer; and Joseph Israel, President and Chief Executive Officer, Par Petroleum. Before we begin, please note that some of our comments today may include forward-looking statements as that term is defined under federal securities laws. Such statements include, but are not limited to, those concerning plans, expectations, estimates and our outlook for the company. These 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 what is indicated in these forward-looking statements. Because of this, investors should not place undue reliance on forward-looking statements, and we disclaim any intention or obligation to update or revise any forward-looking statements. I refer you to the latest Forms 10-K and 10-Q Par Pacific Holdings filed with the SEC for a more detailed discussion of the major risk factors affecting our business. Further information regarding these as well as supplemental financial and operating information, including reconciliations of certain non-GAAP financial measures to the most comparable GAAP figures, may be found in our press release, our investor presentation and our website at www.parpacific.com or in our filings with the SEC. I'll now turn the call over to our President and Chief Executive Officer, William Pate.

Thanks, Matt. It was very efficient. 2017 was a record year for Par Pacific. Our adjusted earnings per share was $1.77, more than 4x the previous highest adjusted earnings per share which we recorded in 2015. Our book value increased by more than 20% due to these strong earnings. And we have healthy free cash flow, reducing our debt by $56 million during 2017 and further strengthening our capital structure. We successfully managed through weakening product cracks and increasing crude oil differentials in Hawaii last quarter, reporting adjusted EBITDA of more than $33 million as our team improved our capture margin with excellent commercial planning and operational execution. In December, we rolled up our remaining debt in a broad refinancing, eliminating all of our near-term maturities and providing significant liquidity for operations and growth. Our acquisition of Wyoming has proven to be an attractive transaction. We finished the year just ahead of the $50 million adjusted EBITDA target for Wyoming Refining and Logistics that we announced at the time of the acquisition. Product cracks in our Rocky Mountain region continue to be strong with good fundamentals in terms of inventory levels and product demand. We're very pleased with this addition to our refining asset base. As we enter 2018, we announced the acquisition of 33 retail stores in the Spokane, Washington area to buttress our Wyoming refining operations and expand our operational footprint in the Rocky Mountain region. We believe this region is full of attractive growing markets, and Spokane, in particular, offers the type of logistics complexity in which our organization thrives. As part of this transaction, we also entered into a supplier agreement to benefit our Wyoming refining output. In our Hawaii operations, we finished the year with strong financial and operational results. We announced a new distillate…

Thank you, Bill, and good morning, everyone. I would like to start by congratulating our teams in Hawaii, Wyoming and Houston on a solid execution in 2017. The consistent focus on safety, environmental compliance, operations reliability and commercial flexibility have led the way to strong 2017 results across the board. Now with regards to the fourth quarter. Strong capture rates in both refineries more than offset planned maintenance and relatively weak market environment in the Mid Pacific and allowed our refining system to generate $31 million of adjusted EBITDA in the quarter. In Hawaii, rising Singapore inventories have negatively impacted gasoline and fuel oil crack spreads. On the other hand, distillate and especially jet-fuel crack spreads have been strong, supported by strong demand and low inventory. On the feedstock side, our Mid Pacific Crude Oil Differential index for the fourth quarter of 2017 implied only $0.02 per barrel discount to Brent compared to $1.48 per barrel discount in the fourth quarter of 2016. As a result, our combined Mid Pacific Index was $7.83 per barrel during the quarter compared to $8.48 per barrel during the fourth quarter of 2016. Our Hawaii refinery throughput in the fourth quarter was 72,000 barrels per day with 99.9% operational availability and record high 52% distillate yield. We successfully executed our planned reformer catalyst regeneration in the fourth quarter on time and on budget. We sold a total of 75,000 barrels per day, including 67,000 barrels per day of on-island sales in the fourth quarter. This number is reflecting approximately 10% growth in on-island sales compared to where we were in 2016 and the first half of 2017, mainly driven by gasoline and jet fuel contracts that were added in the second half of 2017. Our adjusted gross margin was $6.54 per barrel, and production…

Thank you, Joseph. It was a solid financial performance across each of our business segments and a year of progress regarding our capital structure. In December, we completed the comprehensive refinancing of our capital structure, pushing out maturities until 2021. In addition, we have simplified our reporting requirements by consolidating a series of legacy subsidiary-level financings and reduced our floating rate interest risk. Including our current interest rate swaps, an estimated 80% of our interest rate risk is now fixed. With improved access to the capital markets, we are well positioned to continue funding growth. Some items that impacted our Q4 reported results are as follows: Our adjusted net income was positively impacted by $3 million as a result of accounting for the changes in the enacted tax law. The impact of FIFO accounting as a result of the rising price environment in our Wyoming refining operations generated a $3.5 million benefit to adjusted EBITDA and adjusted net income. We incurred a $7 million charge associated with the termination of existing credit facility. However, this charge did not have an impact on adjusted net income or adjusted EBITDA. Cash from operations totaled $1 million during the quarter. That was reduced by working capital outflows that we expect to reverse during 2018. As of year-end, net debt to capitalization remains roughly 40%, and total liquidity was $209 million. Interest expense totaled $6.1 million during the quarter. During the quarter, our capital expenditures totaled $12 million, bringing our total for the year to $31.7 million, net of third-party reimbursements. For 2018, we expect our capital expenditures to be between $50 million and $55 million. Of this amount, roughly $30 million is for maintenance and regulatory requirements and $22.5 million is for growth capital to arrive at the midpoint. Of the $22 million…

[Operator Instructions] Our first question comes from the line of Mike Harrison with Seaport Global Securities.

This is Jacob on for Mike. In the retail segment, I was just curious, have you added any operating costs in preparation for the Cenex acquisition that might have been a drag in this quarter, but as you complete the acquisition and it starts contributing, that will be leveraged over time?

We haven't added any material operating costs associated with the acquisition in the first quarter, and we don't anticipate any significant costs. We're able to leverage the team that we have in Hawaii. We're putting together a small group in Spokane that will be working and reporting directly to Jim Yates, who's responsible for the Hawaii marketing logistics operations.

All right. And then looking a little closer at the Logistics segment. So Q3 was pretty strong. This quarter's total pipeline throughput improved a bit, so the year-over-year decline was a bit of a surprise. Were there any onetime impacts in that segment?

We had slightly higher expenses, operating expenses within our Wyoming operations associated with some compliance requirements. And then if you recall, last year, in the fourth quarter, we had just finalized our turnaround activities. And I think we had slightly lower expenses during that quarter coming off of a higher expense profile in the third quarter of 2016.

Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt & Co.

First question, I guess, probably for Bill here, just on capital allocation. So in 2017, you improved the balance sheet. In early 2018, you made the retail acquisition. How do you think about your priorities for free cash flow for the rest of 2018?

We, first and foremost, think about capital and free cash flow in terms of reinvesting that capital in the growth of our business where it's strategically relevant and where the return on investment is attractive. After that, we dedicate the cash flow to the reduction of debt. And we target a debt to total cap of about 30% to 35%. If we were to reduce our debt to total cap below that level and we had sufficient liquidity, we would then start to consider returning capital to shareholders in the form of either share repurchase or dividend.

Very clear. And then the second question, I guess, probably for Joseph here. On the Hawaii refinery, the 52% distillate yield was pretty remarkable. I think last year at this time, you were at 40% -- 45%. So I guess, one, could you talk about just how you were able to do this? Was this a function of a crude slate or just optimizing the refinery? And then two, I think every year now, we've seen an increase in Hawaii distillate yield on an annual basis. Should we expect that in 2018 and then, I guess, in 2019 as well with the DHT coming online, too?

Yes, the increased distillate yield was mainly a function of feedstock quality. The crude we ran allowed us to make more distillate than typical. And you're right, the demand profile for the Hawaii market is all distillate-driven, especially the jet fuel part, and as the local refinery out there, we are primarily focused on what the market needs.

Our next question comes from the line of James Lizzul with Mizuho Securities.

So switching over to Laramie, have you been adding incremental basis hedges in Wyoming just given pricing dislocations seen in the Rockies?

Yes, at this point, I think -- and you can look at the hedge schedule we have in our prior disclosures, but I think we had basis hedges on for 2018 off of SIG, I think, for roughly 75 million cubic feet a day. So pretty well hedged on basis in '18, but we've not been adding additional basis hedges as we've been growing production. However, we have been adding Henry Hub hedges as we've been growing production.

Great. And then you talked about 156 million cubic feet a day exit rate for Laramie that suggests continued growth in '18. So as you guys build incremental cash flow, when could you conceivably add a third rig?

Yes, I think we're watching the price environment and really our outspend and our leverage profile as the primary guides with respect to additional activity. Again, I think we have -- Laramie has adequate inventory to bring on a third or even a fourth rig and drive production growth higher. I think we're trying to -- and Laramie striking a balance between production growth and outspend in leverage. And so I think the 2-rig program at this juncture in the current price backdrop makes quite a bit of sense, especially in light of 25% kind of production growth expected for the year.

Our next question comes from the line of Andrew Shapiro with Lawndale Capital Management.

I'm wondering if you could help me a little bit here. I'm just trying to understand, in each of Hawaii and Wyoming, what contributed to the higher production cost per barrel? Is the crude cost itself part of the production costs?

Joseph, do you want to take that?

In Hawaii, $3.41 per barrel is actually a very good low production cost. So we're very happy with that, and we'll take that every quarter. In Wyoming, the $7.46 included $0.50 per barrel associated with the maintenance work that we had there. So without the $0.50, it's approximately $7, again, very similar to what we have shown in the past. And when you compare fourth quarter '17 to '16, please remember, the fourth quarter of '16 per our earning release included approximately $2.35 per barrel of positive pension credit that made that number a little bit lower.

Okay. But when you look at year-over-year, though, is -- are crude costs part of production costs? Or they're below that line -- I'm sorry, are production costs below the line of crude costs?

Crude costs are not included in production costs. The production costs include only the operating costs associated with the facility.

Okay. And you stated on -- in the press release and on the conference call regarding the Cenex acquisition that you thought that transaction would close during Q1. You got about 3 more weeks left. Do you still see it closing before the end of the quarter? And is the closing process going smoothly?

Yes, Andrew, we still anticipate closing it before the end of the quarter. We're waiting on a few necessary permits to ensure that we can operate the stores upon closing.

Okay. And then we're happy to see a record amount of on-island sales. I think you kind of guided that you were expecting to increase it nicely. Is -- are these contracts, are they longer duration? 6 months? A year? Do you feel that this kind of level of on-island sales is something that can be maintained and improved upon?

With what we have right now on the table, the 67,000 barrels per day level is a good assumption for the next 12 months. Obviously, it's going to go up and down every quarter, but this reflects pretty well our contractual volume at least.

Okay. And then a question for you, Bill or Christine, is I think you guys announced you got a non-deal road show coming up, I think, this week, and then maybe another one. What else is on the calendar play? With a little foresight here coming into the next few months, so when will you be able to make plans?

Sure, Andrew. So yes, we're planning to attend the Bank of America Refining Conference on Thursday and also the nondeal road show in New York this week. And then we also are planning to attend the Scotiabank Howard Weil Conference, March 27. And then I think Joseph is also evaluating some industry conferences in May for -- with either Argus or Platts.

Our next question comes from the line of Nick Brown with Zazove Associates.

I guess -- I was dropped briefly from the call, so I apologize if this was asked. But I just want to understand, I know how the investment in Laramie came about as a sort of legacy from Delta Petroleum's bankruptcy, but how do you sort of view the strategic importance of that investment given that you've -- all your additional acquisitions and investments have really been on the retail and refining side since then?

We continue to be very happy with our investment in Laramie. And obviously, it obviously brings a lot of value to our operations as a legacy asset. And as you noted, we're the successor to Delta Petroleum, and with coming out of that reorganization, we had Laramie as well as a large amount of tax attributes. On those tax attributes, we built a very nice refining business with a great team that helps us continue to grow our downstream operations. We evaluate our investment in Laramie and treat it as an investment and are always looking for opportunities for maximizing returns and realizations on Laramie. This could include anything from a sale of our equity interest to an IPO as well as continued acquisition and divestiture activities within Laramie itself. They announced an acquisition -- or they completed an acquisition last month in-basin, and that was a nice little deal and an add-on to the business. So we're pleased with the company, and we'll continue to evaluate it in the context of its growth, both in production and contribution toward our earnings per share profile.

Our next question comes from the line of [Rich Thompson] [ph] with Värde Partners.

Yes. I was just hoping to get a bit of an update on how you're seeing spreads develop this -- so far this year relative to last year and just any other insight you have as to the outlook.

Well, Joseph mentioned that our Pacific market margins are $7 to $7 (sic) [$7 to $7.50] per barrel, which is probably $1 to $1.50 below last year's average. But we continue to expect strong results in Wyoming where margins are strong. Our capture rate in Hawaii has improved quite a bit due to our sales and our yields. And our retail business is doing quite well. Joseph, do you want to add any color to the cracks with the Mid Pacific Index?

I will just add that inventories across the board are low. Gasoline, fuel oil, closer to mid-cycle in the Mid-Pacific. But distillate is extremely low in the Mid Pacific, and this is very encouraging.

[Operator Instructions] Our next question is a follow-up from the line of Matthew Blair with Tudor, Pickering, Holt.

Bill, I think you mentioned that retail same-store fuel volumes were up 2.6% for 2017. If we look at the Department of Transportation data, it looks like Hawaii vehicle miles traveled only rose 0.7% for the year. So I guess the implication here is that you're taking share on the retail side. Is that correct? And could you just talk about that? Is that a function of your efforts with Hele and 76 brands?

It's always hard to evaluate share, but I do think our team has done a great job in the Hawaii retail market. Margins have been stable and strong and continue to look pretty good. And at the same time, our team has shown volume growth, as you noted. I think some of that's related to the fact that the rebranding to Hele has gone very well. It's also due to the fact that our team has put together some attractive marketing operations and strategies that allow us to grow our fuel volumes from our existing store network.

Great. And then on the Hawaii refinery, looks like you ran record barrels from Africa on the crude side. I appreciate there's probably some commercial sensitivities here, but just given the distance, could you talk about the -- I guess the logistics in getting that crude delivered? Are these tankers that you're chartering? Are these distressed cargoes that you're picking off? Any more color on your Africa crude volumes would be helpful.

To be honest, we do both. And like we said earlier, we continue to be very aggressive in our crude selection process and use pretty much every place in the world as a candidate for the crude sourcing, Africa happened to be our optimization here in the fourth quarter, and we used it. And I think you can only guess that on the western side of Africa, there's rich distillate crude. So it has something to do with that. So we continue to look every quarter, every month and make the best crude selection for the company. Especially in this type of crude diff environment, flexibility is critical.

Okay. And then my final question. Joseph, could you remind us, when are the next major turnarounds for Hawaii and Wyoming? I know Hawaii had a big turnaround in 2016, so that's probably a ways off. But if you could just give us the years on that, that would be great.

Yes, we'll continue to monitor equipment and catalyst to make our plans accordingly. We don't think major turnaround will be needed before late '19. Hopefully, we'll be able to push it to early 2020. We will see.

Thank you. Ladies and gentlemen, there are no questions at this time. I'll turn the floor back to management for final comments.

Thank you, Melissa. Thank you, everyone, for joining us this morning. We look forward to building our business in 2018 through our recently announced retail deal and the distillate hydrotreater project in Hawaii. With a strong financial capitalization, we'll continue to pursue opportunities that offer a strategic fit and bolster the profile of our existing businesses. I'd like to close by congratulating our organization on a job well done during 2017. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.