HF Sinclair Corporation
Q1 2008 Earnings Call Transcript

Published: 12 May 2008

[Operator:]

Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the Holly Corporation first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn today’s conference over to Neale Hickerson. Please go ahead, sir.

[M. Neale Hickerson:]

Good morning. I am Neale Hickerson, Vice President of Investor Relations at Holly. I would like to welcome you to our first quarter 2008 earnings conference call. With me this morning are Matt Clifton, Chairman and CEO of Holly Corporation; Bruce Shaw, Senior Vice President and Chief Financial Officer; and Scott Surplus, Vice President and Controller. We issued a press release this morning at 7

[Bruce R. Shaw:]

Thanks, Neale. My remarks this morning will cover five areas

[Matthew P. Clifton:]

Thanks, Bruce. I think Bruce did a pretty thorough job covering the quarter. I just have a couple of comments. One, obviously the quarter was challenging, with gasoline cracks, particularly challenging month of January. Diesel cracks were strong and production levels, our employees did a great job keeping production up and maximizing profitability as best we could. As far as the capital projects, we’re totally committed to those projects. As Bruce said, we are on target of getting -- completing the Woods Cross upgrade project in the August/September timeframe. The Navajo first phase will be completed in the January first quarter timeframe. We were successful, as we’ve talked before in prior calls, about connecting, trying to get connected a connection between Cushing, Oklahoma and the Navajo refinery. We’ve been working with Centurion Pipeline, who’s a subsidiary of Occidental and they are finishing an open season whereby they will be reversing a pipeline that currently runs from West Texas to Cushing and then Holly will be building in conjunction with HEP about a 50-mile pipeline between Lovington, New Mexico and the end of the Centurion pipeline. All that is expected to be completed in the third quarter of ’09, which will tie in nicely with our completion of our second phase, which will allow us to run up to 40,000 barrels a day of heavy Canadian. We obviously are pleased with our strong financial position, strong cash balance. Cash generation for the quarter was good. We bought back something like $95 million in Holly stock during the quarter. Our cash balance was very strong at the end of the quarter and as you can imagine, we spend a fair amount on capital. It looks like on the refinery projects in total, of the two phases in Artesia and the upgrade in Woods Cross, we are approximately about 45% spent on those projects and we are pleased with the work, how that’s been going so far. I think with that I will turn it back to Neale.

[M. Neale Hickerson:]

Thanks, Matt, and I’d like to have Cynthia repeat the procedure for asking questions. We are ready to move to that phase of our call and can build the Q&A queue.

[Operator:]

(Operator Instructions) Your first question is from Jacques Rousseau with Back Bay Research.

[Jacques Rousseau:]

Good morning, gentlemen. I just wanted to see if you could give some color on what expenses we should expect from the Woods Cross fire this past month.

[Matthew P. Clifton:]

Jacques, it really shouldn’t be significant at all. We just had to replace a section of flare line and some small instrumentation there, so that work has been completed. They are ramping back up on Friday afternoon as we left the office, so I think it’s going to be pretty insignificant and we did have in the scope of our turnaround project some upgrades to our flare system, so we were lucky in that we had the pipe available on site and were able to quickly repaid that situation.

[Jacques Rousseau:]

Great. One more -- could you let us know the current level of black wax crude being used at Woods Cross?

[Bruce R. Shaw:]

Sure, Jacques. In the quarter, we used about 4,400 barrels a day and that number would have been higher if it hadn’t been for the weather up there. We had a lot of snow that kept trucks from getting to some of the black wax in the quarter. I think as we look into April, we are running over 5,000 barrels a day, bringing in more than 5,000 barrels a day of black wax.

[Jacques Rousseau:]

Great. That’s all I have. Thanks.

[Operator:]

(Operator Instructions) Your next question comes from Eitan Bernstein with FBR.

[Eitan Bernstein:]

Good morning, gentlemen. Congratulations on putting together a really good quarter in a difficult market environment. Two questions, number one -- any volume guidance on second quarter?

[Matthew P. Clifton:]

I think we’ll be running pretty much all out. Currently we are taking this opportunity with the high diesel cracks. We have a catalyst change out in our diesel to self-riser that we are conducting right now but in order to maintain diesel at the normal rates, we’ve switched the diesel over to our cat feed to self-riser and then doing some work on the cat over the next couple days. The diesel production will be at the current -- at the regular level, and then we’ll come back on up with the cat. So I would expect that the quarter volume wise should average about what we did in the first quarter. We had a little bit of maintenance work that we did in January when margins were so depressed. We did some exchanger cleaning and some activities that we usually do in the February/March timeframe to get ready for the summer gasoline season. We got that out of the way in January so I think the second quarter should be fairly close to the first.

[Eitan Bernstein:]

Okay, excellent. And then if you could just clarify a little bit the Centurion’s open season, I think it’s probably got a little bit of time left before that’s over. Is there anything left that is contingent here or is it pretty much just sort of moving ahead? And any significant milestones we should be looking forward to?

[Matthew P. Clifton:]

I don’t think we see any contingencies. I think it ends on the 15th of this month. I think the only unknown was the -- how many other subscribers would sign up. We’ve nominated 40,000 barrels a day for a long-term commitment. The only impact would be if we had over-subscription that we might be allocated, pro-rated back some on that. But at least the indications as of last week were that we hadn’t seen any other shipper sign up, so I think we’ve got the tariff nailed down and they seem to be committed to go forward with it.

[Eitan Bernstein:]

Excellent. Thank you very much.

[Operator:]

(Operator Instructions) Your next question comes from Brady Dolsen with Tristone Capital.

[Brady Dolsen:]

I’m wondering if you can provide or if you can tell us if you’ve updated your EBITDA increase in estimates from your capital projects, in particular Navajo phase one and two and the Las Vegas pipeline.

[Bruce R. Shaw:]

I think the last presentation that had been on our website gave a good summary of those cash flow estimates, those projections and forecasts. I don’t think we’ve had any significant changes to that view.

[Brady Dolsen:]

Okay, so you are sticking with those?

[Matthew P. Clifton:]

I think the only thing, and I think maybe we had noted this by the time we did that webcast, the UNEV project that we were hoping to get on in early ’09 looks like it is going to be at the end of ’09, and that was purely just due to the amount of time that BLM took and is taking and doing the permit approval. We’re expecting permits in the early part of ’09 and then we’re all set to start construction right away at that point. We really don’t have any issues with the permit. It’s just the -- we have approval on routes and getting conditional use approvals with all the respective counties. So we don’t see anything that is -- anything to worry about in getting the permit. It’s just the duration that it normally takes.

[Bruce R. Shaw:]

And the only other minor shift that I covered in my prepared remarks is just that the Navajo turnaround to bring on that first phase looks like it’s going to shift to January versus December later this year.

[Matthew P. Clifton:]

And I guess the, and this might have been reflected there, I can’t remember, but obviously the cash outflow on the UNEV project will slip somewhat between what was initially project and where it is going to end up. I think we are estimating $80 million to $90 million move from originally estimated in ’08 to ’09.

[Brady Dolsen:]

Great, thanks.

[Operator:]

At this time, there are no further questions. I would like to turn the call back to management for closing remarks.

[M. Neale Hickerson:]

We certainly appreciate everyone listening today and looking forward to visiting with you again for our second quarter performance later on in the summer. Thanks a lot, everyone.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.