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.

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.

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…

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. 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…

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.

[Operator Instructions] The first question today comes from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Thank you and good morning. And Bill and Will, congrats on your respective moves. I had a question about the M&A market, which you indicated that Par would still be interested in. Is deal flow picking up with the prospects of just a lower interest rate environment later this year and could you also talk about what kind of opportunities would be attractive, both by business line as well as by geography?

Sure, Matthew. It’s Will. Thanks for the question and I appreciate your comments. So I think in general, M&A has been a key part of our strategy as we’ve grown. That said, I think on the Refining side of the market, given the strength that we’ve seen on market conditions over the last 24 months, I think, it’s definitely a challenging environment to try and get a deal done. Again, I think, seller expectations are high and I think that’s going to be a major factor. So I think that’s really the backdrop. I think when you think about geography, it’s really the focus that we’ve had previously. I think we’re focused on the Western United States, largely because it fits our strategy of serving communities with liquid conventional and renewable fuels that are really in niche locations. And so I think that’s going to be our focus and that’s going to be true across both Refining and Logistics and Retail.

Sounds good. And then you mentioned that this rising freight rate environment is helpful for Par. Could you just walk through the moving parts there? Is that because the marginal source of supply coming into Hawaii is an imported barrel from Asia?

Matt, this is Bill. That’s one of the factors. I mean, generally in Asia, despite weak economic news, inventories have been pretty supportive, and I think, one of the reasons of stronger cracks. I think one of the reasons is a lot of the export refineries, their spot streams, have to factor in higher freight costs. So when you -- there’s less movement and the refineries tend to focus more on local production environment where it’s harder to move things around and when you’re also with some of the restrictions in the Red Sea and restrictions even in the Panama Canal, product movement just slowed down and we’re fortunate to have refineries that are sitting right on top of our markets.

And Matt, the only thing I’d add to that is just in general, when you think about both the West Coast and Hawaii, particularly for the distillate pool, the marginal barrel is moving in typically on MR freight from Northeast Asia. So I think particularly when you think about diesel and jet, that’s a major factor for the marginal barrel.

Great. Thanks for your comments.

The next question comes from John Royall with JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking my question and congratulations to Bill and Will. So my first question is on Billings. Can you speak to the reliability work that you’ll be doing with the turnaround this year? I know the goal is to get up consistently around that 60 kbd plus level. How does this work enable that and is there a numerator impact on OpEx per barrel of the work you’ll be doing or is it really just about raising throughputs?

Sure, John. This is Will. So we’re really focused on summer reliability and Billings. I think that’s first and foremost, and as you saw from the third quarter contribution last year in a strong market environment, that’s really when you’ve got the opportunity to generate significant cash flows. So I think the focus on our turnaround this year is really on the crude unit, and ultimately, getting to a better reliability position there, probably, adding some additional alloy to ensure that we’re well positioned to reduce corrosion risks. And then ultimately, when you think about the OpEx impacts, again, I think, our objectives remain targeting that $10 per barrel number. Again, I think that’s, as we push towards the 60 kbd number, that’s going to be more achievable. So, again, that’s really the focus of this year’s turnaround activities and it’s all about summer reliability.

Great. Thank you. And then my second question is on the buyback. Really strong case in the second half of 2023 after you completed Billings. But this year will be a little bit different from a CapEx and a maintenance perspective, but you also don’t have to delever. So some moving pieces in both directions. How should we think about the run rate going forward relative to that 2H run rate where you had strong cracks and no turnarounds?

Yeah. John, hey. This is Shawn. I think we’ve demonstrated sort of our buyback cadence in the recent quarters of 27 in Q3 and 32 in Q4. Look, I think our liquidity is strong. We’ve got excess capital today. I suspect we’ll be able to fund our capital requirements within cash flow. So we’ve got ample capacity on the balance sheet to continue the buyback program. Obviously, we want to be opportunistic. And as you see, if and when you see our share price fall back in a weaker market, we’re going to get more aggressive on our cadence of buybacks. So our approach there has not changed.

The next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Hi. Good morning. Thank you for taking the time. This is Nicolette Slusser on for Neil Mehta. Bill, thank you for your leadership and all the contributions over the years. And Will, congratulations on the new role. Our first question is, when we think about the business mix, I think Par is a bit more discipline oriented versus peers at roughly 50%. Longer term and mindful of potential for opportunistic M&A, do you see the 50% distillate yield as the optimal product level for the business?

Sure. I think you -- we’re going to continue to try and focus on the distillate side of the barrel. I think long-term that is ultimately what the communities we serve need, and ultimately, I think, that’s going to be a portion of the barrel that’s going to, frankly, pull the weighted average crack over time. And so I think you’ll continue to see our focus be on distillate production and even trying to increase flexibility on distillate production in places like Billings.

Okay. That’s great. Thank you. And the follow-up is just on some of the longer term opportunities the company is pursuing. Can you just remind us where we stand in regards to the FID expected this year on the longer term Washington hydrogen and SAF facilities and higher balancing, those with the near-term renewable-oriented projects as well?

Sure. So I think we’re continuing to pursue the engineering on that front, and simultaneously, I think, trying to evaluate capital partners that would be available to pursue that project. Again, there’s still certain aspects of it that are attractive, given its location on the West Coast and a favorable jurisdiction. That said, I think we’re mindful of the current renewable backdrop and what that means for returns, and I think we’ll continue to be disciplined on our capital allocation framework and how we think about growing the renewables business segment.

Thank you very much.

[Operator Instructions] The next question comes from Jason Gabelman with Cowen. Please go ahead.

Yeah. Hey. Thanks for taking my questions. You noted some pay down in environmental liabilities with 4Q results, which I’m assuming are related to RINs. Do you have any outstanding RIN obligation that you’ll need to pay down moving forward kind of beyond what’s kind of the typical annual amount that you would hold?

Hey, Jason. It’s Shawn. No. We’ve closed out all of the legacy RIN obligations and we’re just obviously accruing our current obligation and procuring RINs rateably from here.

Got it. And then, can you remind us of your upcoming turnaround schedule? You mentioned the Montana turnaround. Do you have anything else this year and then as you look to 2025?

So, Jason, I think, nothing else major planned this year. Again, I think, you heard my reference to the small 15-day audit we’re planning in Washington. Again, that’s, I think, something we’re largely looking to try and manage from inventory. There is some profit impact and you’ll see the reduced throughput expectations for the first quarter. And then, again, I think, we’ve discussed on Billings that we expect in 2024 and 2025 to complete really the full turnaround cycle. And so, again, if you look at our guidance, we’ve signaled really the $18 million to $22 million per year and the typical cycle is five years to six years. And so, again, I think, we’re looking at completing that full cycle between 2024 and 2025.

Okay. Great. Thank you.

Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Will Monteleone, President, for any closing remarks.

Great. Thank you again for joining us today. In closing, I’d like to recognize Bill for his many contributions to our company’s success. We’re grateful for his inspired leadership, wisdom and humility. We have a strong business outlook and our talented management team is hungry to drive the next chapter of our growth. I’m excited by the opportunity to lead this growing enterprise into the future. Thank you to our shareholders for your support and have a nice day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.