HF Sinclair Corporation (DINO) Q3 2026 Earnings Call Transcript

Operator: Welcome to HF Sinclair Corporation's third quarter 26 conference Call and Webcast. Hosting the call today is Franklin Myers, who is serving as Chief Executive Officer of HF Sinclair. He is joined by Steven C. Ledbetter, president and COO, Vivek Garg, acting chief financial officer Valerie Pompa, president, growth technology and transformation and Matthew Joyce, SVP of lubricants and specialties. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press 1 on your touch tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing 1 again. If you should require operator assistance, please press 0. We ask that you please limit yourself to 1 question and 1 follow-up. Additionally, we ask that you pick up your handset to allow optimal sound quality. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery, vice president, investor relations. Craig, you may begin.

Craig Biery: Thank you, Kelsey. Good morning, everyone, and welcome to HF Sinclair Corporation's third quarter 26 earnings call. This morning, we issued a press release announcing results for the quarter ending September 30, 2026. If you would like a copy of the earnings press release, you may find 1 on our website at hfsinclair.com. Before we proceed with remarks, please note the safe harbor disclosure statement today's press release. In summary, it says statements made regarding management expectations, judgments, or predictions are forward looking statements. These statements are intended to be covered under the Safe Harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. Call also may include discussion of non GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. For any forward looking non GAAP measures, the company is unable to provide a reconciliation without unreasonable effort due to the unpredictability and uncertainty of certain items. Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. With that, I will turn the call over to Franklin.

Franklin Myers: Thank you, Craig, and thank you for joining us on the HF Sinclair earnings call for the third quarter. As you have already seen from this morning's news release, the company has had a very good quarter. All segments of the business performed well with all areas adding to our earnings and working hard to capture market gains in these unique circumstances. I want to say thank you to the over 5 thousand employees of the company for their efforts in contributing to the success of the quarter. I would like to give a special shout out to the team at El Dorado at our El Dorado refinery who are wrapping up their turnaround in a safe and compliant manner, which sets the plan up for several years of operations to come. On a geopolitical front, nothing has really changed during the last 3 months. Modest improvement has been made in the transit of crude to the Strait of Hormuz. Limitations on refining complex in the Middle East still exist. And kinetic activity by the many parties still occur on most days. Likewise, the Ukraine Russian conflict remains at a stalemate, with very little, if any, improvement to the Russian refining complex. Finally, the Chinese continue to curtail the export of product to their historical customers. This is due to a combination of the need to replenish their strategic reserves and not being able to access discounted crude from Venezuela and Iran, which kept them competitive with the U.S. sources. We continue to believe, as we have mentioned in our last call, that full recovery is unlikely to occur within the broader refining assets and therefore their products until sometime in 2028. Our view continues to be that we must stay the course on how we operate our assets as we should expect an extended time of experiencing shortage in the products and lubes markets. The activity surrounding the previously announced spin off of the company's lubes business continues apace. Likewise, progress is occurring with the safe shutdown of the Mississauga refining assets. We are targeting a completion of the spin and the finalization of the shutdown in the middle of next year. We will keep the market updated as appropriate as we get closer in time. As I am sure you have also noted in a separate press release this morning that we have determined exactly how long temporary actually is. Beginning 01/01/2027, Steven C. Ledbetter will assume the role of CEO of the company. Both the board and I are very excited for Steven and the company as we look forward to his tenure in leading the company. I will continue to play a role for the first couple of quarters of next year as I step back into an executive chair role to assure a smooth transition and lend oversight to the activities surrounding the spin of the lubes business. With that, let me turn it over to Steven to take us through some of the results.

Steven C. Ledbetter: Thank you, Franklin, and thank you all for joining our call. I am excited to take on the role of CEO and president of HF Sinclair. Having worked across our businesses and closely with our employees over the past several years, I have tremendous confidence in our people, our assets, and our ability to execute. We have a strong foundation in a portfolio of high quality, strategically positioned businesses. As we move forward, our objectives are clear. Operate safely, compliantly, and reliably. Drive commercial excellence. Continue our competitiveness improvement, both at the site level and through leveraging our value chain. Invest selectively to further our competitive advantages, and maintain a disciplined approach to capital allocation. I would like to thank Franklin for his leadership and successful tenure as CEO in 2026. And I am honored and humbled to lead HF Sinclair into its next chapter. I will now cover our strategic highlights. Third quarter results reflected the strength of our diversified portfolio. As each business segment contributed meaningfully through solid operational performance and commercial execution. From a strategic perspective, we continue to progress the previously announced multiphase Western expansion project. Which we have now named Westline Connect. And expect to reach a final investment decision on the first phase in the first quarter of 2027. This phase would increase the capacity to move product supply from our Rockies production into Utah and Nevada by approximately 35 thousand barrels per day and is targeted to be online in 2029. We expect to fund the project with cash on hand and operating cash flows. At our El Dorado refinery, we are wrapping up the turnaround in our previously discussed vacuum furnace project. We expect the project to enhance reliability improve product yields, enable us to process up to an additional 10 thousand barrels per day of advantaged heavy crude. More broadly, we continue to advance growth technology, and transformation initiatives designed to strengthen our competitiveness, improve safety, and reliability. We continue to see compelling organic investment opportunities across the portfolio. And we are comfortable carrying a higher cash balance while we complete our valuations and make final investment decisions. At the same time, we will continue to return cash to shareholders through share repurchases and our quarterly dividends while targeting a 50% payout ratio and preserving our disciplined capital allocation framework. During the quarter, we returned $572 million in cash to shareholders consisting of $93 million in regular dividends and $479 million in share repurchases. Since the Sinclair acquisition in March 2022, we have returned approximately $5.7 billion in cash to shareholders and have reduced our share count by over 73 million shares. Today, we also announced that our board of directors declared a regular quarterly dividend of $0.525 per share. As we look ahead, we believe the current environment presents attractive opportunities to further strengthen the competitive advantages of our portfolio and grow more ratable and stable cash flows through the cycle. By optimizing our integrated value chain. We see accretive opportunities through growth investments in our marketing and midstream businesses while also investing in our refining assets to reduce risk and improve operational reliability safety, and yields. We have the unique opportunity to advance our competitive position and take advantage of the current market environment and we are confident that our diversified asset base will continue to deliver strong results. With that, let me turn the call over to Vivek.

Vivek Garg: Thank you, Steven, and good morning, everyone. Let's begin by reviewing HF Sinclair's financial highlights. Today, we reported third quarter net income attributable to HF Sinclair shareholders of $2 billion or $11.38 per diluted share. These results reflect special items that collectively decreased net income by $64 million. Excluding these items, adjusted net income for the third quarter was $2.1 billion or $11.75 per diluted share. Compared to adjusted net income of $459 million or $2.44 per diluted share for the same period in 2025. Adjusted EBITDA for the third quarter was $3 billion compared to $870 million in the third quarter of 25. Our Refining segment, third quarter adjusted EBITDA was $2.6 billion compared to $661 million in the third quarter of 25. This increase was principally driven by the tight supply of transportation fuels across the markets elevated crack spreads, and benefits from the small refinery RINs waivers granted by the EPA. Additionally, strong transportation fuel sales in the West Region were offset by lower sales volumes in the Mid-Con region due to the planned turnaround at our El Dorado refinery. Crude charge averaged 614 thousand barrels per day for the third quarter compared to 639 thousand barrels per day for the third quarter of 25. Our marketing segment reported EBITDA of $39 million for the third quarter, compared to $29 million for the third quarter of 25. Branded fuel sales volumes were 420 million gallons for the third quarter of 26 compared to 360 million gallons in the third quarter of 25. Our midstream segment reported EBITDA of $101 million in the third quarter compared to $114 million in the same period of last year. In our renewables segment, excluding the lower of cost or market inventory valuation adjustment benefit of $30 million, we reported adjusted EBITDA of $109 million for the third quarter compared to negative $13 million for the third quarter of 25. Adjusted renewables gross margins increased as a result of improved RINs prices, higher producers tax credit benefits, and increased sales volumes compared to third quarter of 25. Total sales volumes were 63 million gallons for the third quarter of 20 as compared to 57 million gallons for the third quarter of 25. The third quarter Lubricants and Specialties results reflect special items related to the decision to retire our Mississauga refinery, the transition expected to be substantially completed in the second half of 27. During the period, we incurred 1-time costs related to the Mississauga retirement, including the impairment charge for the abandonment of certain assets under construction of $27 million and severance charges totaling $28 million. In addition to certain acquisition integration and regulatory costs of $1 million. Excluding these items, the segment reported adjusted EBITDA of $174 million for the third quarter compared to $78 million for the third quarter of 25. The increase was primarily driven by sales mix optimization and strong product and base oil prices in the third quarter of 20 compared to the third quarter of 25. During the third quarter of 26, we recognized a FIFO benefit of $22 million, compared to a FIFO benefit of $2 million during the third quarter of 25. We also recorded incremental accelerated depreciation and amortization of $54 million related to the Mississauga asset retirement during the quarter. Net cash provided by operations was $1.8 billion in the third quarter, which included $114 million of turnaround spend. HF Sinclair's capital expenditures were $137 million for the third quarter. As of September 30, 2026, HF Sinclair's total liquidity stood at $5.3 billion, which includes a cash balance of $3.3 billion and our undrawn $2 billion unsecured credit facility. As of September 30, we had $2.8 billion of debt outstanding with a debt to cap ratio of 19% and net debt to cap ratio of negative 4%. Let's go through some guidance items. With respect to capital spending for full-year 2026, we have revised our capital guidance and now expect to spend approximately $725 million on sustaining capital and turnarounds, and $150 million in growth capital. Included in growth capital is our expected spend for 2026 for investments in Western Gateway, Westline Connect, and Marketing Joint Ventures. The fourth quarter of 26, we expect to run 560 thousand to 600 thousand barrels per day of crude oil. In our refining segment, which reflects the planned turnaround at our El Dorado refinery in the period. We are now ready to take questions from the audience. Kelsey, The floor is now open for questions.

Operator: At this time, if you have questions or comments, please press 1 on your touch tone phone. We ask that you please limit to 1 question and 1 follow-up. If you have additional questions, we welcome you to rejoin the queue. If at any point your question has been answered, you may remove yourself from the queue by pressing 1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Neil Mehta with Goldman Sachs and Company. Your line is open, Neil. Please go ahead.

Neil Mehta: Thanks so much, Franklin. it is been great working with you and Steven, congratulations. Maybe that is the first question. it is appropriate to go to you, Steven, is just you know, talk about your vision as you step into this role. In your comments, you spent a lot of time talking about developing more ratable cash flows through growth investments in marketing and midstream. What do is that an important part of what you think about this business needs to do in order to drive value on the go forward?

Steven C. Ledbetter: Thanks, Neil. Appreciate it. I am looking forward to it. I think you are right. We believe that what makes us different is that we can continue to grow our, you know, our ratable and stable cash flow businesses that improve consistency over the cycle. You know, this margin environment we are enjoying currently will come back to normal, and we are going to take this opportunity to make sure that we are more stable and some of our investments will be focused both in midstream and marketing, which really unlocks the value of our integrated value chain. You know, from a priorities perspective, nothing changes. Our priorities are going to be we must remain safe, compliant, reliable, We have got to continue to improve the baseline, be disciplined in our capital allocation focus, then take advantage of our market concentration and integrated position. And, you know, it is an exciting time. We have a lot to work from. The people in this company and the culture are second to none. I believe in our asset base and our market position, And then I think that we have continued to demonstrate our improvement in the underlying base. And so we will not take our eye off that ball while we continue to grow and take different positions from an integrated value chain perspective. So very excited about the future and looking forward to getting after it.

Neil Mehta: Awesome. And then, I just want to get your perspective on some of these crude grades. Specifically, on WCS, which has widened out quite a bit. So what are you seeing that is driving this differential widening How do you think about the medium term? So let's think about deferred differentials and how those could ultimately play out. And remind us again what percentage of your crude charge is WCS right now?

Steven C. Ledbetter: Yeah. So, I mean, WCS, we have the ability to run just north of heavy. Total heavy about 100 thousand barrels. A good portion of that is WCS. So we are exposed to a lot of Canadian exposure. I think what you are seeing is something about what we have talked about playing out over the past couple of years, and that is you know, production is outpacing egress, and it is getting to that point, and so you are starting to see some of that pressure. I think the most significant driver currently is what we are seeing in the freight. And what is happening in the rest of the world. You know, the, the ship to ship transfers in the Gulf of Oman, different trade flows is becoming very expensive. And we believe there is something to do with quite a bit of crude on the water in tankers that are holding up the additional fleet from being able to make those flows. Additional impact into the Gulf Coast is the VIN crude that is coming on And so all of that ends up putting pressure on WCS, and we have seen the differentials that you guys have seen anywhere north of $25 up to the $30. Now that will be how long that lasts, we do not know, but that is beneficial for us. And we think in the near term, we will take advantage of it. We think that moderates, but we do see that the differential stay wider than they have throughout the near term, at least through 2027. Thanks, Steven.

Operator: Your next question comes from the line of Manav Gupta. Your line is open, Manav. Please go ahead.

Manav Gupta: Congrats, Steven. we are 100% confident you will lead better, and I would like to congratulate you on that. My first question to you is a little bit on the refining macro. Very strong earnings from refining segment. Even if you strip out, like, 1-time benefits of $500 to $600 million on SREs, the overall capture is improving. So if you could talk about the performance of the refining assets in the current environment, And when do you actually expect some of these margins to start normalizing?

Steven C. Ledbetter: Yes. Thanks, Manav. Again, very excited Appreciate the tagline to lead better. That was quite whimsical and gave us all a chuckle here this morning. So I appreciate that. You know, from a from a refining macro, we do not know how long this is going to last. This is traditionally what we have seen since the geopolitical issues, particularly in The Middle has been mainly a distillate story. But the factors that continue to play out in terms of shortage of refining capacity that is not coming back anytime soon, and depending on who you talk to. And I think that the picture is getting even more murky. I understand there was another impact last night. But there is roughly 4 million barrels a day of refining production offline. Split kinda 2.5 in The Middle East, another 1.5 in Russia. All that creates a major constraint in terms of clean fuels on the market, and the inventories are at all time lows. So as far as the market environment, you know, I see us enjoying the benefits and the most competitive refining complex in the world in the United States. And so that tightness will continue. As far as our performance, you know, I feel like we have done a lot in the past to ensure the underlying reliability performance as well as our commercial execution and optimization. Our crude guidance, you know, we just came in slightly above the midpoint closer to the high end, and I think that is 100% associated with us operating better and looking at the opportunities in between the refineries and ensuring that we can take the shorts to other parts and use the integrated value chain a little better. We are placing barrels in better markets We are high grading the molecules and we have better light product yield across the fleet. And the combination of those things, I think, continue to demonstrate our improvement through year over year capture. You know, if you strip out SRE, our capture was right at 105%. So year over year, that is a structural improvement, and we have continued to see that quarter over quarter. So staying focused on commercial excellence and improving our reliability We are seeing that start to play out in the outcomes we will continue to drive that journey forward. As far as our base principle.

Manav Gupta: Thank you. Very clear. My quick follow-up is on shareholder returns. You have a clear formula. I think you were lagging a little in the first half, but the second. Like, the third quarter shows now you are in a big catch up mode. So should we expect you will stick to the formula and allow the shareholders to participate in the upside and refining margin environment. Thanks, Manav.

Steven C. Ledbetter: Yes. Our capital allocation strategy remains unchanged. You know, we expect to end the year at our target payout ratio of 50%, and so that is what we. You should be expecting. Thank you so much.

Operator: Your next question comes from the line of Theresa Chen with Barclays. Your line is open, Theresa. Please go ahead.

Theresa Chen: Morning, and congratulations to Steven as well. Wish you all the best, and looking forward to working with you in the new role.

Steven C. Ledbetter: Thanks.

Theresa Chen: On the Westline Connect project, as we await FID in early 27. What are the key gating factors between now and then and, based on commercial work you have done over the past few months, are you thinking about the scope and timing of potential follow on phases?

Steven C. Ledbetter: Yes. So thanks, Theresa. You know, we have talked about our FID approach. 1 of the things that we are we are very careful about is making sure we not only do the right thing. And we had previously discussed maybe taking FID in Q4, We have some options in terms of route, in terms of scope that may make a better outcome, and so we are pushing that FID target to Q1 2021. But the underlying premise from the commercial perspective we are still very bullish on this project. We think it is complementary to the other project that we took a position in Western Gateway. And we are in the middle of scope definition right now So, you know, nothing more to guide on other than we are still very bullish on this. And we will come back to the market in Q1. We believe it does set us apart and will help the overall, not only our midstream business, but the entire commodity complex for our integrated assets.

Theresa Chen: Understood. And as we sit here at the end of October in 2026 and looking at 2027, When we think about 27 spending, what are your early thoughts on potential size and magnitude of CapEx next year? With, with Line Connect approaching FID and other growth opportunities across your portfolio, how much could CapEx step up next year?

Steven C. Ledbetter: Yes. So a bit early to guide on 2027. We just raised our guidance as Vivek spoke about in 2026, and that was predominantly associated with modest turnaround and sustaining as well as the current portion of spend for our Go West initiatives and our growth and marketing So we are not we are not indicating. We still believe our turnaround and sustaining CapEx is range bound to the cycle. We will look to take opportunities to improve our risk profile and our small value creation elements within that, but we are still staying in that in that range. As we take FID, we will come back to the market with that incremental amount on other projects. Thank you.

Operator: Your next question comes from the line of Doug Leggate with Wolfe Research. Your line is open, Doug. Please go ahead.

Analyst: Thank you. Good morning, Steven. Congrats from us as well at great to see after all the improvements that have been made over the years. Which is actually my first question if you do not mind. Where do you think you are in terms of refinery reliability optimization upgrading at this point? Have you have you done what you wanted to do, or is there more to do, and what is the capital implications? that is my first question.

Steven C. Ledbetter: Yeah. I mean, so, you know, we have we have made heavy investments over the past several years and taken some very good steps forward in terms of PSM risk reduction, personal risk reduction, and reliability. Are you ever done investing in these things? I do not know that you ever are, and there is there is really a baseline set that you will continue to have to invest that is what I mentioned earlier, this range bound of turnaround and sustaining capital. Having said that, we will look and take the current and market environment and the opportunity in these this cash build scenario to see where we could take a step forward. Not only investments in the kit, but also investments in technology, where we see opportunities to go improve, seeing things sooner, fix things sooner, and learning through AI technology that will give us a better footprint terms of improvement and finding small and fixing small. So that guiding really any more on explicit projects, but we are going to be very diligent terms of how we evaluate any additional capital spend. Where we find projects like the El Dorado back tower furnace project is implemented, or being implemented and wrapping up now Mhmm. To the extent that they meet our capital allocation framework and investment hurdles, we will take those decisions at that time.

Analyst: I appreciate that. My follow-up is I expect this for Vivek, but how. Whoever you wanna allocate this to. You had about a $600 million SRE tailwind it seems, this quarter. But I. I would I would like to understand the mechanism as to how you realize that. Is this is it. You know, what. what is the cash mechanism if you like? Are you selling RINs into the market? How is that? Is that a swing in working capital? If you could walk us through how actually shows up cash flow, that would be great. And any expectations for the future would be appreciated. Thank you.

Vivek Garg: Thanks, Doug. I will take those questions. So we recognize the expense as we generate the obligation as you would expect through the year. With the SRE granted towards the end of the quarter, we essentially ended up reducing our expense or reversing our expense that we had already taken over the period. Now we are left with the incremental rents in our inventory and we have not monetized on any of those because we do have the flexibility to utilize a lot of those against our next year's compliance. And so we. While you see the benefit come through in earnings, you will actually not see any of that benefit come through cash flow statement.

Franklin Myers: Yeah. I would I look at it as a deferred cash obligation in the future years as we think about it from monetizing and trading. Activity.

Analyst: that is very helpful, guys. Thanks very much indeed. Thanks, Doug.

Operator: Your next question comes from the line of Phillip Jungwirth with BMO. Your line is open, Phillip. Please go ahead.

Phillip Jungwirth: Yeah. Thanks. And also wanted to extend my congratulations to Steven. Was hoping you could talk through the rationale for participating in Western Gateway as an equity partner and just the benefits to Dyno. Plus, you already have Westline, although I understand you do not view them as competing. Projects. And is the plan also to fund Western Gateway capital commitments through additional. Through operating cash flow?

Steven C. Ledbetter: So thanks for the congrats. And on Western Gateway, think we have talked about this a little bit in terms of our go west initiatives The reality that we believe in our market view in the Midwest is that, you know, depending on what happens, we believe that there is something coming as far as E15. You see the demand and people moving out demand patterns are people moving west. And as part of that, you know, with our asset locations, it made a lot of sense to go participate in Western Gateway. Not only because we believe the Southwest is a key important market, and we have we have gonna be connected to our El Dorado, Tulsa, and Artesia refinery. And then, you know, ultimately, when we take a equity investment, we feel like growing again some of our ratable stable cash flow businesses. that is a great way to do it, and it is somewhat back stops our placement. So that falls right in with our thesis from a strategy perspective. It. it is a it is a project that we think makes a lot of sense to the overall complex. And then, again, it does not, in our view, compete with Westline Connect when you think about what is happening in California. With the recent refinery closures and the cost to operate in that in that geography, we think that is only going to continue. And so the combination of both of these projects should be competitive to supply efficiently those markets, and we think we have a strategic advantage there. As far as cash goes, we will fund that out of normal operating cash flows. And cash on the balance sheet. We do not anticipate any liquidity impacts or draw on our credit facilities to go make that happen.

Phillip Jungwirth: Great. And then, Steven, as you step into the CEO role, just hoping to get your views on refining M&A in this environment versus the opportunity for higher growth CapEx across the business. Plus M&A across other business lines such as midstream and marketing.

Steven C. Ledbetter: Yeah. I mean, so just to be clear, this may be a question because we are building a sizable amount of cash. When we are talking about growth and we structure the organization to go execute that growth well with Valerie Pompa taking president of growth transformation technology, putting some strength and capability associated with doing projects right. The majority of our growth is going to be targeted at organic opportunities. While we are not active in material inorganic, you know, of course, we would look at things where it made sense more accretive and fit our strategic approach and investment hurdles. But that is not the primary growth objective for us. And when we talk about M&A or growth in midstream and marketing, you know, we have been happy with performance of our joint venture that we entered into. Late last year. That continues to grow. We continue to find packages and put it in there, but growing and scaling JVs having exposure direct to retail, and the full suite of that integrated value delivery is something that we like. I would also like to point out that as we grow our marketing business, it is not just what we see in marketing. It high-grades our entire commodity stack as we move our lowest valued barrels out of bulk and unbranded into that channel. It improves refining capture, and I failed to mention that was another element that we continue to see improving our year over year capture. In the midstream space, we would hesitate to look at anything that did not have massive integrated values. So to the extent that we find something that can accelerate connectivity of our production facilities and our markets that we are targeting to go grow, we will evaluate those projects. But make no mistake, our focus is on growth in mainly organic opportunities at this point.

Phillip Jungwirth: that is great. Thank you.

Operator: Your next question comes from the line of Matthew Blair with TPH. Your line is open, Matthew. Please go ahead.

Matthew Blair: Thanks, and good morning, and congrats, Steven, on the promotion. Your renewable diesel results continue to impress in 2026. You are more profitable per gallon than some of your larger peers. Even though you are still at less than 70% utilization. Could you talk about this transformation And, you know, did the Q3 results include any sort of 1 off items And then finally, for Q4, any early thoughts on renewable diesel capture in the fourth quarter? Do you think you had experienced some feedstock lag benefits?

Steven C. Ledbetter: Thanks, Matthew. You know, this is an area we have been pretty proud of. It was pretty hard sledding for a couple of years in this business, but the team has done an outstanding job. In terms of 3 key things. 1, is in our feedstock strategy, and we believe that getting really focused on direct versus brokers and low-cost location proximity has really helped us out. that is a significant amount. And then market placement, we are greater than 50% outside of California now. That has been a objective to make sure that we find markets that are not reliant on an area that is I mean, to be honest, chock full with distillate product and renewable diesel. And so you know, we are finding areas in the Pacific Northwest, leveraging our integrated products value chain as well as Canada and the new market in New Mexico. We are seeing benefits already from it. And in OpEx, we remain disciplined there in keeping it flat. And our performance in running these kits is improving. You mentioned we were below 70% utilization, but just to call out, when you take out 72% utilization. And last quarter, when you take out the PARCO, outage, we were 67%. We think our sweet spot because of the co located facilities is north of 70%. We deliver that x the Cheyenne turnaround, and we see that moving forward as the target utilization given the macro and the backdrop I could not be more proud of this team, and I do believe that this is a bright spot that has been a significant business turnaround for our company. And we see the future of it bright for Q4. We do not normally guide on capture, but we have plans to take advantage of the favorable market environment for next quarter or this quarter.

Matthew Blair: Sounds good. And then on the refining side, your OpEx moved up quarter over quarter in Q3. Could you talk about what drove that up? And I think at 1 point, there was a target to hit $7.25 a barrel on refining OpEx. Is that a good target for 2027?

Steven C. Ledbetter: Or has that changed? Yeah. I mean, so we had some onetime OpEx events in the quarter and year to date, really driven by environmental accrual true ups when they become probable and nestable and it was time to do that. and employee performance, or its employee benefit charges, we have seen some inflationary pressures, particularly in the cat chem space. We are running harder and producing more accolade as an example in Sulfuric acid has gone quite a bit higher. And then going after some maintenance items to improve risk and reliability performance where we have a window to do so, And that accounted for the majority of it. You know, the trajectory of our underlying programs to drive our competitiveness continue to mature. And we are seeing that as evidenced by our holistic delivery of crew charge, and our associated reliability trends across the fleet. So we feel like we are being good stewards of cost. Now let me talk about the 25 target. You know, we are committed to improving our competitiveness across the entire fleet. And. But we are focused on technology and capability to drive reliability. And, ultimately, we wanna improve not only cost, but total earnings. And we wanna be mindful that we do not prioritize the cost only picture without contemplating the underlying operational safety and reliability performance. You know, as you know, that is foundational to the profitability of our business. So not committing to the 25. If you look at the underlying trajectory, minus the onetime elements. We still are demonstrating cost efficiency and competitiveness, and we will continue to keep that as 1 of the focus areas.

Matthew Blair: Sounds good. Thanks for your comments.

Operator: Your next question comes from the line of John Royal with Piper Sandler. Your line is open, John. Please go ahead.

Analyst: Hi. Good morning. Thanks for taking my question, and congrats to Steven. I was hoping first, maybe you could talk through the process of separating lubes and what are the near term steps we can expect from here And any big pieces of progress we should expect from now to the next time we speak to you in January? Excuse me. So the next time we speak to you in January. Hey, John.

Matthew Joyce: This is Matthew Joyce, and thanks for the question. Yeah. The separation is still on track the second quarter of 27 or second half of 27. And we continue to make solid progress across all the separation work streams moving from our planning processes now into an execution stage. And that includes the PLR, the form 10, and getting some key leadership roles starting to get filled in. We are also undertaking a lot of work and understanding the lift and shift required for our IT infrastructure and all the operating agreements that go along with debt. So our focus is on being fully operational and rate as a stand alone company by early Q3 and not simply completing the legal separation by that time. Great. And then maybe if we could stick with lubes and just more of a question on the underlying business versus the spin off. But I was hoping you could just speak to the strength that we saw in Q3. $ 174 million of EBITDA. The second really strong quarter in a row. Just anything on the strength there and what that market looks like today? Yeah. The underlying business remains pretty healthy. Obviously, we have had some tailwinds from FIFO in third quarter, but demand and the mix has been very good. We have you know, we have been working really hard with the team to recover cost as a lot of our raw material increases. Hit the business, and, the team did a really terrific job getting out with, pricing and portfolio management. And that was primarily driven as well, by, there was a big piece of that we enjoyed from the base oils market that did get a little bit tighter on both group twos and group threes. But both in the finished and specialties side of the business, we saw, some pretty impressive performance and finished in particular has been tremendously successful in pricing discipline and some new business gains that we were able to take advantage of, and we have secured those for longer term contracted periods of time. Thank you. You bet.

Operator: The next question comes from the line of Jason Gabelman with TD Cowen. Your line is open, Jason. Please go ahead.

Jason Gabelman: Hey. Morning and extending my congratulations to Steven. I wanted to stick on lubes and the reorganization process. I know last quarter, there was some confusion because it, because it sounds like you were gonna be able to backfill the lost EBITDA from shutting down the Mississauga plant So I was hoping you could provide more color on how you would be able to do that And then, also, if you could kind of provide what the kind of Rack Forward business, what type of debt they are going to be able to take on post the spin. Thanks.

Matthew Joyce: Yeah. Thanks, Jason. it is Matthew Joyce again. You know, with regards to the earnings potential and what the business will look like on a go forward basis. We are we are really not guiding all that much on that particular point at this point at this time. But we are changing the supply model Okay? Where we are not going to be manufacturing base oils any longer. But we are not walking away from the market. We expect that we are going to have a more flexible supply model, lower fixed cost, continued growth in both our finished and specialties business segments, and improved operating efficiencies to help offset some of the historical contribution that came from Mississauga. So that is that is really what we are looking to do, and I think we have given some indications as to what we expect with regards to historical 12-month trailing EBITDA that we would strive to secure and provide as our coming out into the marketplace as an independent company. With regards to the capital structure and how we view that as part of our standalone entity, and the debt and so on and so forth. Our objective is really to launch NewCo with a strong, flexible balance sheet that supports both the resilience of the business as well as our growth objectives. And we are looking to continue to entertain and consider businesses that are tuck ins that make sense for us to put on and complement our business but we are also looking to get that organic growth out of the business that we have in hand. The final capitalization levels are still being determined, financial flexibility remains the priority. And we do not plan to load this up with debt.

Franklin Myers: And just to jump in here. Yeah, Jason, you see the balance sheet of Sinclair just in general. As to the--we believe that having a very flexible underlevered company gives us optionality for opportunities in the future. That attitude is not going to change with lubes as it comes out the door. that they are going to have sufficient financial opportunities without too much debt on it. We have not described or determined with finality as to how much debt that is at this point. But, it is not going to be as you have seen with some spends that are loaded out and kicked out the door because this is a thriving business that has opportunity, and they need to have the options to take advantage of that once they are independent.

Jason Gabelman: that is that is great. Appreciate that color. And my follow-up is on the refining business and growth opportunities there. We have discussed the widening WCS diffs. I know you mentioned some of that is transitory, but some of it may be more structural in nature. Do you see an ability to invest in some of your plants to, increase the amount of WCS you are able to run?

Steven C. Ledbetter: Yeah, Jason. Thanks. that is exactly 1 of the benefits that the back tower furnace at El Dorado that is coming online as we wrap up this turnaround is directed at not only reliability, but yield improvement. But it gives us the ability to run up to another 10 thousand barrels a day of heavy crude, and then we can take further advantage of that through our heavy oil value chain and our retail asphalt business. But we will continue to look at those elements because I do think structurally near term, there is going to be some widening. What happens as trade flows normalize? You have seen a lot of pipelines being announced. That will bring more egress online. And depending on production, timing, and egress capability, that could have some narrowing when that when that shapes up. But structurally, it is going to be an opportunity, and we will look to forward to continue to go drive as much discounted heavy advantage crude to our complex as we can.

Jason Gabelman: Great. Thanks for the answers. Thanks.

Operator: Have reached the end of the Q&A session. I will now turn the call back to Franklin Myers for closing remarks.

Franklin Myers: Thank you so much, and thank you all for joining our call this morning. Just want to express my personal appreciation to the executive team and to the many employees of Sinclair who worked hard in making my temporary assignment here as CEO an exciting and meaningful part of my time here. Also, I want to thank you on the call for supporting our company. We have a great team here, and we have a great company that is been developed over many years with a lot of opportunity going forward. The board has taken a deliberate approach at looking inward at the team for the leadership to go forward because we believe within this company, we have the talent to do that. Steven's elevation to CEO setting up the company for a great leadership, but not only with Steven, but the entire team going forward. I look forward to many, many days of very good operations and results ahead of us. Thank you for supporting the company. Thank you for being with us on the call. Thank you.

Operator: This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.