HF Sinclair reports $160 million in first-quarter profits following acquisition

May 9, 2022
Executives at the Dallas-based company see a strong refiner market enduring.

HF Sinclair Corp., Dallas, reported net income $160 million in first-quarter 2022—the quarter during which the former HollyFrontier completed its purchase of most of the assets of The Sinclair Cos. for more than $2 billion (OGJ Online, Aug. 4, 2021). Executives say the new, larger company will be able to grow its crude charge to 615,000-645,000 b/d from about 525,000 early this year.

Like most of its peers, HF Sinclair in the quarter produced strong operating margins – $5.14 per produced bbl versus a loss in early 2021 – on high utilization rates (88.6% versus 86.0% in first-quarter 2021). The company’s Mid-Continent region had refinery utilization of more than 111%. Utilization in its West region was 70.6%. The region includes the recently acquired Puget Sound refinery which underwent unplanned maintenance following flooding that affected much of the Pacific Northwest and British Columbia (OGJ Online, Feb. 24, 2022).

Speaking to analysts and investors on a conference call, Chief Executive Officer Mike Jennings and his team said they expect the refining market to stay strong for the foreseeable future due to the combination of capacity taken off the market prior to the pandemic and sidelined supply from Russia.

“We see in the overall market pre-pandemic demand and post-pandemic supply,” President and Chief Operating Officer Tim Go said in laying out the dynamics that have the company feeling “constructive” about the second quarter.

Having closed the Sinclair deal, Chief Financial Officer Rich Voliva outlined updated capital spending targets for 2022 that are about $200 million higher than before, reflective of the addition of Sinclair's businesses. Spending breaks down as follows:

  • $240-260 million for refining.
  • $250-320 million for renewables.
  • $45-60 million for lubricants and specialties group.
  • $15-25 million for marketing operations.
  • $90-110 million in corporate spending.
  • $110-150 million for turnaround and catalyst work.
  • $55-75 million for Holly Energy Partners, the transportation and logistics master partnership owned 47% by HF Sinclair.

Voliva and Tom Creery, head of HF Sinclair’s renewables group, said they’ve suspended construction on a former Sinclair Oil pretreatment unit to serve the California market until at least 2023. The executives said they are reviewing the project economics and exploring alternative ways to add renewables capacity, including by adding to their operation at a New Mexico refinery. Voliva said the company has about $40 million earmarked in its 2022 budget to advance the project to a workable pause.

HF Sinclair’s operating profits in the first quarter climbed to $233 million from $138 million in the first 3 months of 2021, when the company also booked a gain of more than $51 million on a tariff settlement. Adjusted EBITDA, which excluded about $24 million in costs related to the Sinclair acquisition and integration as well as several other items, came in at $377 million versus $47 million in the prior-year quarter.

In early June, HF Sinclair will pay shareholders of record on May 23 40₵/share. Before suspending its quarterly payment early last year, the company had been paying 35₵/share. Jennings and his team reiterated plans to return to investors a total of $1 billion in capital (which will include the dividends) in the coming year.

HF Sinclair’s report and executive commentary helped its shares (Ticker: DINO) hold ground on another down day for the overall markets. The company ended the day down nearly 1% at $42.29. Year to date, they are still up about 30%.