HF Sinclair Corp
NYSE:DINO
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HF Sinclair Corp
Earnings Call Analysis
Q4-2023 Analysis
HF Sinclair Corp
In the past year, the company has notably reduced its debt by $520 million, thanks to repaying senior notes and lowering credit revolver balances, resulting in a more solid debt-to-cap ratio of 21%. Looking into 2024, investors can expect the company to spend significantly on capital investments, totaling $415 million in refinery turnarounds and catalysts alone, with an additional $75 million earmarked for growth ventures across various business segments.
With an operational target of refining 585,000 to 615,000 barrels per day, the company is anticipating a planned turnaround at its Puget Sound refinery. Within a bullish market for liquid transportation fuels, the executives predict a supply-constrained environment, reinforced by refining margins that seem similarly optimistic for the company's portfolio, especially through the rest of 2024.
Their renewable diesel division has reached 71% utilization despite facing headwinds like feedstock price lags. Management remains confident about the sector's recovery, citing price improvements in Low Carbon Fuel Standard (LCFS) credits and Renewable Identification Numbers (RINs), and strategic benefits from new LCFS programs like the one in New Mexico.
The recent acquisition of HEP has brought about operational synergies, simplification of business processes, and economic benefits. Particularly, the transaction has resulted in better than expected cash flow and earnings per share accretion.
The company is intent on improving reliability as a means to optimize operational costs per barrel, suggesting that efforts in turnaround strategies and work execution are the primary levers to enhance profitability.
Their adeptness in processing heavy crude yields a considerable advantage, with the flexibility to optimize value chains despite expecting differentials to shift through the first half of 2024.
Despite a slowdown in demand in the latter part of the quarter, the company succeeded in efficiently placing product lines and driving them towards more profitable positions. They achieved this by leveraging digital tools for better cost transparency and reducing process complexity.
Management remains bullish for 2024, even as base oil margins have declined. They have strategies in place to navigate and counteract this trend, driving towards the goal of being the highest gross margin refiner in the U.S. This spans across the optimization of value chains and a focused approach towards distillate and jet fuel production.
While a portion of their Canadian crude is used in planned turnarounds, they anticipate maintaining the ability to capture wider differentials, enabling them to take full advantage during advantageous market peaks.
The company projects a tax rate between 21% to 22% for 2024, with deferred tax benefits anticipated from bonus depreciation, particularly stemming from the HEP transaction, which will impact the financials positively.
Continued emphasis on optimizing and integrating its portfolio is expected to unlock additional synergies, such as automation of processes and resource optimization, especially in lubricants and through the Sinclair acquisition. While specific numbers are not disclosed, the detection of incremental value on a quarter-over-quarter basis seems promising.
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Welcome to HF Sinclair Corporation's Fourth Quarter 2023 Conference Call and Webcast. Hosting the call today is Tim Go, Chief Executive Officer of HF Sinclair. He is joined by Atanas Atanosov, Chief Financial Officer; Steve Ledbetter, EVP of Commercial; Valerie Pomper, EVP of Operations; and Matt Joyce, SVP of Lubricants and Specialties.
[Operator Instructions] Please note, 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.
Thank you, Gavin. Good morning, everyone, and welcome to HF Sinclair Corporation's Fourth Quarter 2023 Earnings Call. This morning, we issued a press release announcing results for the quarter ending December 31, 2023. If you would like a copy of the earnings press release, you may find it on our website at hfsinclair.com.
Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release. In summary, such 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 security laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. 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. And with that, I'll turn the call over to Tim.
Good morning, everyone. When I stepped into the CEO role last year, I laid out 3 priorities: one, to drive operational excellence, including improved reliability; two, to optimize and integrate our portfolio of new businesses; and three, to generate strong cash flows to advance our cash return strategy. I'm very pleased to report the significant progress our team has executed against these goals during the year.
First, in 2023, we delivered record best process safety performance across our refining portfolio. and successfully completed heavy maintenance turnarounds at all of our refineries during the year on schedule and on budget as we took another step towards improving reliability across our portfolio. Second, we closed the transaction to buy in our HEP business in the fourth quarter and furthered our efforts to integrate and optimize our asset base. In addition, we delivered growth in our marketing segment volumes and site count and delivered strong Lubricants and Specialties segment earnings despite the weakening of base oil cracks in 2023. Third, during the year, we also returned over $1.3 billion in cash to shareholders through share repurchases and dividends, delivering on our cash return commitment to shareholders.
With good momentum across our businesses, we believe we are well positioned to continue creating compelling value for our shareholders in 2024. Now let's turn to our segment highlights. In refining, for the full year 2023, we set annual records at our Parco refinery in both heavy crude runs and total throughput. We also executed planned turnaround work at all of our refineries on schedule and on budget. Improved turnaround execution allowed us to do all the work on our equipment we intended and is essential to our strategy of driving reliability improvements in 2024 and throughout the turnaround side. In renewables, in the fourth quarter, we achieved our normalized run rate utilization for our renewables facilities and delivered record volumes at our pretreatment unit in Artesia. We also received our new CI pathways, which we believe will benefit our margin capture opportunity going forward. For 2024, we plan to continue to optimize the operation of our renewables assets through improved reliability and improved commercial efforts.
The Marketing segment in 2023, delivered growth in gasoline and diesel branded sales volumes as well as branded site count compared to 2022, which includes our Sinclair branded wholesale business for the period after March 14, 2022. We are pleased with the value that the [ Tino ] brand brings to our portfolio, and we remain focused on increasing the number of branded sites and sales volumes in 2024. In Lubricants and Specialties despite lower base oil margins in 2023, and we performed well above our mid-cycle guidance and reported annual EBITDA of $346 million. Our results in 2023 reflect our continued efforts to optimize the feedstock integration and sales mix across our finished products portfolio, and we look to build upon this strategy in 2024 to further enhance the value of specialties business. In midstream, we closed on the acquisition of Holly Energy Partners on December 1, 2023, along with the associated exchange of the outstanding HEP bonds for new HF Sinclair bonds. This acquisition strengthens our business as we simplified our corporate structure and reduced costs as a combined company, further supporting the integration and optimization efforts across our assets.
Going forward, our midstream operation will continue to be reported as a separate stand-alone segment in our financials. In the fourth quarter, we returned $248 million to shareholders through share repurchases and dividends. For the full year 2023, we returned over $1.3 billion in cash to shareholders, representing an annual cash return of 12% and payout ratio of 74%. This does not include the additional $268 million in cash paid to HEP unitholders in the HEP transaction. Since the closing of the Sinclair acquisition on March 14, 2022, we have returned approximately $3 billion in cash to shareholders. which represents 27% of our market cap as of December 31, 2023. As of February 9, 2024, we have $591 million remaining on our current share repurchase authorization, and we remain fully committed to our long-term cash return strategy and long-term payout ratio while maintaining a strong balance sheet and investment-grade credit rating. We also announced on February 14, 2024, and that our Board of Directors declared a regular quarterly dividend of $0.50 per share, an increase of $0.05 over the previous dividend payable on March 5, 2024, to holders of record on February 26, 2024.
The 11% dividend increase reflects our board's commitment to returning excess cash to shareholders. Looking ahead, we remain focused on further executing our corporate strategy to maximize shareholder value. We believe the strength and diversification of our new asset base, coupled with our disciplined approach to capital allocation, will position us well for success. With that, let me turn the call over to Adi.
Thank you, Tim, and good morning, everyone. Let's begin by reviewing HF Sinclair's financial highlights. Today, we reported fourth quarter net loss attributable to HS Sinclair shareholders of $62 million or negative $0.34 per diluted share. These results reflect special items that collectively decreased net income by $227 million. Excluding these items, adjusted net income for the fourth quarter was $165 million or negative $0.87 per diluted share compared to adjusted net income of $598 million or $2.97 per diluted share for the same period in 2022.
Adjusted EBITDA for the fourth quarter was $428 million compared to $1 billion in the fourth quarter of '22. In our refining segment, fourth quarter adjusted EBITDA was $278 million, which excludes the $221 million lower cost or market inventory valuation charge. This compares to $864 million of refining segment EBITDA for the fourth quarter of '22. This decrease was primarily driven by lower refinery gross margins in both the West and Mid-Con regions, which resulted in lower refining segment earnings in the quarter. Crude oil charge averaged 614,000 barrels per day for the fourth quarter compared to 628,000 barrels per day for the fourth quarter of '22. In our Renewables segment, we reported adjusted EBITDA of negative $3 million for the fourth quarter compared to negative $7 million for the fourth quarter '22. Improved operations in the period were offset by weakening RINs and LCFS credit prices. Total sales volumes were 63 million gallons for the fourth quarter as compared to 54 million gallons for the fourth quarter of '22. Our Marketing segment reported EBITDA of $9 million for the fourth quarter compared to $23 million for the fourth quarter of '22. Total branded volume sales were 350 million gallons, representing $0.06 per gallon margin.
Our Lubricants and Specialty segment reported EBITDA of $58 million for the fourth quarter compared to EBITDA of $67 million for the fourth quarter of '22. This decrease was largely driven by a $30 million FIFO charge from consumption of high-priced feedstock inventory in the fourth quarter of 2023 compared to a $7 million FIFO charge in the fourth quarter of 2022. Our Midstream segment reported EBITDA of $105 million in the fourth quarter compared to $90 million in the same period of last year. This increase was driven by higher revenues from our pipelines, terminals and loading racks. Net cash provided by operations totaled $231 million, which includes $85 million of turnaround spend in the quarter. HF Sinclair's capital expenditures totaled $124 million for the fourth quarter. For the full year 2023, our total capital expenditures were $941 million, which includes $556 million in turnarounds. Our full year capital spend came in under budget due to the improved execution of our planned maintenance activities.
As of December 31, 2023, HF Sinclair's total liquidity stood at approximately $3.7 billion, which includes a cash balance of $1.4 billion our undrawn $1.65 billion unsecured credit facility and $744 million availability on the HP credit facility. During the year, we reduced our debt by $520 million to the repayment of our 2.65% senior notes at maturity in October and by paying down a portion of our outstanding HEP revolver. As of December 31, we had $2.8 billion of debt outstanding with a debt-to-cap ratio of 21% and net debt-to-cap ratio of 11%. Let's go through some guidance items. With respect to capital spending for full year 2024, we expect to spend $235 million in refining, $5 million in renewables, $40 million in lubricants and specialties, $10 million in marketing, $30 million in midstream, $65 million in corporate and $415 million for turnarounds and catalysts. In addition, we expect to spend $75 million in growth capital investments across our business segments.
For the first quarter of 2024, we expect to run between 585,000 to 615,000 barrels per day of crude oil in our refining segment, and we have a planned turnaround scheduled at our Puget Sound refinery during the period. We're now ready to take some questions from the audience.
[Operator Instructions] Our first question comes from the line of Neil Mehta of Goldman Sachs & Co.
One macro question and one micro question. I guess the macro question would be just your perspective on the Mid-Con setup as we go from here into the summer, obviously, very weak January, stronger February with some disruptions from your competitors. But I think we're getting a lot of investor questions about how you guys see the world as we go into the summer for both diesel and gasoline in the mid-cut.
Neil, let me ask Steve to comment a little bit on the Mid-Con outlook, and then I'll come back and provide a little bit more macro on top of that.
Hey Neil, this is Steve. Thanks for the question. Mid-Con, as you articulated, we did see demand patterns fall off a little earlier in the quarter. We did see inventories rise to kind of the 5-year range and that stayed into Q1 is starting to come back. We're seeing some support in the structure view there. But we think this is cyclical and we see a supportive margin structure in the Mid-Con, particularly heading into the driving season. We're starting to see that coming off as we progressed through the quarter here in February.
And I'll just jump on top of that, Neil. We do believe that Mid-Con seasonality is what we were seeing in the December, January time frame. We see it every year. In fact, I think we typically talk about it at this call because mid-kind inventories typically grow during this time frame. And of course, since the BP widening downtime inventories have drawn significantly and Mid-Con cracks have improved significantly.
If you look at the more of a step-back macro perspective, Neil, we still believe we are in a supply-constrained market. We believe that will continue here through at least 2024. I mean if you look at again, demand. We think demand overall is 5% to 6% above 2019 levels where supply versus 2019 is significantly constrained, at least 1 million barrels a day, as you know. And the utilization requirement in order to make up for that additional demand is just higher than what this industry has been able to demonstrate in the past. And so we still think the BP Whiting issue is a good example of that. We still think that the expectations on industry utilization are higher than what the industry is able to produce. And so as a result, we're going to remain in the supply-constrained environment through the rest of 2024. There's not a lot of incentive to put more capital into refining capacity, just given the current policies of this country. And so we still believe that liquid transportation fuels in general, is bullish and refining margins, in particular, we're still very bullish, especially with our portfolio.
Yes and then the follow-up is on renewable diesel, Tim, you and I have talked a lot about this business and getting it back to a path to profitability, how do you see the trajectory from here? And how many of the issues continue to be around hydrogen versus something which is more market driven and just in general, the path towards normalized profitability at RD.
Yes, Neil, let me ask Steve again to jump in and then I can comment on top of that.
Yes. I think we're learning and doing better at this business overall. If you look at [ Q4] financial performance was challenged, but we did demonstrate good progress in facility utilization. We eclipsed north of 70% across the quarter and in December utilization of close to 85%. That includes a turnaround or a cap change at Artesia. We had some records at Artesia Cheyenne as well as the PTU where we think that's an advantage for us in terms of taking the low CI feedstock and putting them into our value chain.
We did have a negative earnings impact associated with working through some high-priced inventory but freed up a considerable amount of cash on the balance sheet. So that's kind of the Q4 picture. If I think about looking forward, we do see margin softness in '24. The RD supply is outpacing the mandates and the RFS and the LCFS programs. There's some additional close to 90,000 barrels a day of nameplate capacity coming on. So all those things create a bit of a structural margin impact. We have seen feedstock prices decline, but at a slower pace than the incentive values that are supporting them. And we don't see anything structurally that the RVO and the car proposed changes were not impacted to 2025. So we're laser-focused on facility utilization and an economic flip, OpEx, catalyst utilization and optimization and then putting our feedstock strategy to work driving low CI feeds, executing and getting our pathways approved and then finding the most advantaged markets for our fuel. So we do see some structure softness in the forward run, but we feel like we're in a good place to take advantage of the market when it's there for us.
Yes. And Neil, I'll just say, I mean, we feel very good about the operating performance of our renewable diesel business in the fourth quarter achieved 71% utilization. The feedstock price lag that Steve mentioned went against us and obviously impacted our overall profitability, but we believe we've got a good platform to spring into 2024 with. You look at obviously, the LCFS and the RINs prices being significantly lower than what our rate basis was when we first launched our business.
We do believe that over time, for example, the LCFS is going to recover, and it's going to show some improved project margins again. But things like you saw in New Mexico that just passed their own LCFS. We know that as other programs continue to jump into the last world that it's going to continue to tighten those LCFS credits and the RIS credits as well. And so we believe that, for example, in the New Mexico case that our facilities are advantaged we have our largest renewable diesel facility in New Mexico. The transportation savings alone are going to be significant boots improvements. And so we're feeling positive about our future as we get our operating performance. under our balance.
Our next question comes from Paul Cheng of Scotiabank.
Maybe that -- this is for Tim. You have rolled up HEP. Can you give us some example with that -- does it -- how does it impact your operation? I mean, is there any synergy or it's just simply that you are reducing some G&A because you don't have to file the regulatory data to the government as a separate entity? That's the first question. And maybe after that, then I ask my second question.
Okay, Paul. Yes, thanks for the question. I'll let Atanas provide a few comments on HCP, and then I'll mention a few things as well.
Yes, Paul, thanks for your question. HEP has provided us with a number of benefits. When we look at -- on the operational and commercial side, we've seen a meaningful opportunity for simplifying our business. Things like not having to negotiate intercompany contracts, for example, is something that's meaningfully helpful to us.
Another point to bring up is not having to worry about qualified versus nonqualified income because we don't have the [indiscernible] anymore. Integrating some of our back-office functions actually does bring a benefit and efficiency when it comes to how we deal on the commercial side as well. So that's one thing. And the second thing is just on a pure -- from a pure economic point of view, we've been extremely pleased with how things have gone. As you can see from the operating performance in the business in the fourth quarter, that just goes on to indicate our view that this transaction has provided meaningful cash flow accretion and frankly, better EPS accretion than what we had hoped in the beginning.
Yes. Paul, I would just say on top of what Atanas just mentioned, we are very pleased with the HFB transaction. We do think it's turning out even better than what we saw in our planning economics. And that's really a basis for the dividend increase that we just announced last week. We believe that not only is it EPS accretive, but it's much -- it's very much cash flow accretive. We've seen maybe a little better than what we thought originally, and we're passing that on to our shareholders through the dividend increase.
Tim, is there a number you can share in terms of the operational synergy benefit to quantify it and how long you think you will be able to achieve here?
Paul, no, we haven't put a number on there. When we first talked, we limited our discussions to some of the very obvious and very hard synergies associated with back office consolidation with 2 public companies into one. We are seeing synergies for sure out there, but we're not ready to talk about it out there.
Okay. The second question is on the longer term. I know you're still in the journey, trying to get yourself up to the operating standard you want and your utilization rate over time is going to be higher. And I think at that point, you're saying that your crew unit run could be at 640 on a sustainable basis, and you could be an operating cost at [ 6.00, 6.50 ] per barrel. Can you help with that to maybe bridge the gap between where you are on your unit cost today?
Your -- on your Mid-Con, you're around in the $6.00, $6.50 in your West at about $9.50 to $10. So average for the company is like $8.50 to $9. Even if we assume a higher throughput than that's more associated costs with the higher throughput. We can't get close to the $6.00 to $6.50. So what are the steps or an initiative that we should expect that will lead to that unit cost come down that much?
Yes. Paul, we've taken a big step forward, as you've mentioned, in reliability. I think Val and her team have done a great job in progressing that effort. We've talked earlier about the turnaround and how that's setting us up for success. We believe reliability is the biggest knob we have to turn on off cost and op cost per barrel because it affects both the numerator and the denominator. I'll let Val talk about some more examples of things that we're working on to improve our OpEx per barrel.
Sure. So as we've talked before, our focus is on -- so the gap that you mentioned is really about focusing on 2 things: reliability and efficient delivery of our work. And so we're working both of those and turnaround is a big step in reliability. As we get our turnaround work processes, the right scope and every turnaround, our reliability improves and not just the barrels where we're running more throughput, we're spending fewer dollars.
And so that's the main focus in the connection with reliability. And then secondarily to that is improvement of how we deliver the products, how we work, how we do work execution, whether it be maintenance, what suppliers we use. So there are a lot of initiatives around our work execution strategies, leveraging technology and then better workflow processes, integrated across all of our businesses.
Yes, Paul, what I would tell you is when we put that [ $6.00, $6.50 ] number out there, it was before we expanded our portfolio with both [ Cusson ] and with the Sinclair assets and before HEP for that. So now that we've got about a year under our belt, we are certainly looking -- putting our long-term plans together and trying to put kind of a better outlook on what we think we're going to be able to accomplish here in the near term.
Remember, these are long-term cycles. Reliability, as I mentioned, is measured in turnaround cycles, not in years. But we're not prepared to say anything different today. But probably will be in a position to do something later this year.
Your next question comes from the line of Doug of Bank of America.
Tim, there's a lot of -- I'm going to follow your methods example here on one macro and one company specific. But -- my company specific is heavy oil runs at advantage crude runs, I guess, is a way to put it. there's a lot of things changing, obviously, in Canada, TMX, supposedly line fill. We'll see what happens to spreads a consequence. But how are you thinking about the appropriate crude slate going forward for your business in light of what is potentially a very significant change in Canadian spreads in the first time in 20 years.
Doug, this is Steve. I'll take that one. Yes, we're watching the TMX situation very closely. As you know, we expect the announcement for full line fill and coming online sometime late Q1, more likely Q2. As we think about that, we clearly will run the most advantaged crude. Our heavy crude value chain has provided a significant advantage for us. We think that the dips will continue to remain wide through Q1 and then compressed somewhat in Q2. And when you think about our Puget Sound refinery. We think that proximity to the dock is going to allow us to take advantage of the optimal crude slate, more barrels over the water.
I'll remind you that we have the ability to take and run heavy and sour and we have ample dock capacity. So we will look to optimize that as well. And then the flexibility of our kits, we're connected to many hubs and we have the flexibility of the kit to take multiple grades to optimize our value chain -- but by default, we believe that the heavy oil value chain is a key element of our portfolio moving forward, and we'll continue to drive that to optimize the value chain.
Yes. Doug, I would just say crude flexibility and optionality continues to be an advantage for us, not just with the Puget Sound refinery, but also at our El Dorado refinery with access to direct access to Cushing. We've got the ability to arb whatever the best crude site is for that refinery.
From a bigger picture perspective. I just want to remind folks that the Alberta crude production continues to increase. And I think even in November, December, they set annual crude production records or monthly crude production records during that time frame. Every month, every quarter that TMX delays is a month or quarter closer to when the Canadian crude production will once again outpace the TMX takeaway capacity. So we believe that period is going to be fairly short, maybe 2 years something in that time frame to win takeaway capacity will again be constrained, and we'll be back into this advantaged good situation on [ Abby ] crude. So we think this is just a short-term position until crude -- Canadian crude production increases again.
Great stuff. We're all watching to try and figure out what happens. So I appreciate you guys helping us navigate. My housekeeping question, if your mind is probably to Thomas. The change in cash in the quarter, obviously, the buy-in of HEP, but I'm just wondering if you can walk us through any other issues because it was like tax was light interest was like and you still have a big draw in cash. Any help you can give us there? And I'll leave it at that.
Yes. When we look at kind of the draw on cash to kind of the big ticket items is the HEP buy in, obviously, almost $270 million of that. we paid incrementally on the revolver as well. Obviously, the stock buyback that we did for the quarter and the dividends on the -- on the tax side, we -- from a cash perspective, we benefited from the depreciation -- the bonus depreciation that we got from closing on the HEP transaction that was that was substantial. And in terms of the rest of it, when you look at working capital, it was essentially flat once you took into account the payment of the HEP bonds, which is about $38 million.
And Doug, don't forget, we had some bonds maturing quarter with $308 million that we paid down in bonds.
And those are our bonds, Dino bonds, not HEP bonds, I want to correct.
Yes. I think the bonus the depreciation help on the tax, I think, closes the gap for us. So that's really helpful.
Your next question comes from the line of Manav Gutter from UBS.
I wanted to ask about the outlook for the lubes business as we go into 2024. And a quick clarification also there. Sometimes you report adjusted EBITDA sometimes for some segments, you don't. -- it looks like the reported EBITDA was 57% for the loss, but there was a $30 million FIFO inventory charge. So the actual number was closer to 87%, if you could clarify that?
Yes. Let me ask Matt. Matt, as you know, is our leader for our tops business, let me have him comment first.
Thanks, Manav. It's Matt here. Just Speaking to the FIFO impact on the quarter, base oils and feed costs shifted lower throughout the quarter. And as a result, we had consumed older and more expensive inventory, which drove our FIFO number up to that $30 million range. We finished -- excluding FIFO, you're absolutely right. It's actually a really robust quarter. But including FIFO, saw that 58% range. It's 57.7%, I think, was the final number.
But when we look at what's driving it, the back half of the quarter, really, we saw a slowdown in offtake of demand across the portfolio. And that was really driven by many of the customers destocking in anticipation of falling prices and not replenishing their inventories. We've seen that hangover kind of come through to the first month of the first quarter of 24%, but we're starting to see volumes come back now. So that was the primary driver there. Of course, some of our end-use markets are still a bit sluggish. The European market is still in a bit of trying to find its feet with regards to the market environment that we provide over there. But despite all of that, the team did a tremendous job of really working to execute the strategy.
We finished the year by placing more basal and captive product lines than we ever have. We also -- I mentioned it in prior quarterly earnings about digital tools that we've instituted that give us better transparency to our costs, and we're driving our product lines to a more profitable position as a result. And of course, we're continuing to do that operational housekeeping and aside from reliability and quality and EHS, we're focused on gaining efficiencies by simplifying processes and getting after complexity reduction. Put those together, and you've got a really healthy business that performed well throughout the quarter.
So Manav, that $30 million of FIFO impact it is our accounting system. So we don't actually adjust out for that. Our adjusted EBITDA is still in that $58 million range that we talked about. But we like to help people understand what the FIFO impact is because that is a more representative of how the underlying business is performing. So we just want to help people understand that.
FIFO in the end evens out over time. And so we believe we'll get that back here as prices continue to increase in 2024, that will even out over time as well. We're very bullish on the business. We think -- we think 2024 will continue to be good years for us despite base oil margins decreasing, and we saw that phenomenon all last year. And yet, Matt and his team have been able to deliver outsized results, and we don't expect anything different this year.
A quick follow-up here, Tim, is you and the team have indicated that over a period of time, you would like to be the highest gross margin refiner. So in a way, reporting the highest capture. You have made good progress over it. Help us understand what more steps are you looking to take, whether it's commercial or reliability to help you get to your goal of being the #1 gross margin refiner in the U.S.
Thanks, Manav. That absolutely is one of our goals, and we're well on the way to doing that. pleased with some of the things that we've put in place. We take advantage of not only our kit, but the markets that we're in, we believe our markets are advantaged but things that we're doing to drive capture include pushing the distillate production, taking a stronger approach on Jet. We're taking a path that increased premium production, we're going to take advantage of our latent crude advantages and taking that heavy oil value chain.
And I'll you that our approach is not only in the acquisition cost of the light and heavy differential, but also what we do with some of the finishing products and our asphalt business is performing well. We look to do those things across all of our value chains right through the business. So we'll continue to look to optimize and focus on where we can high grade the molecule and take it to the markets that we see best fit in our advantaged geographies.
Your next question comes from the line of Matthew Blair from TPH.
I had a few questions about the impact of this plan turnaround that [ PG ] bound might have on your Q1 results First, are you still running about 40% Syncrude PG sound? And if so, second, do you think that you'll still be able to capture the benefits of these wider [ syncrude ] dips in Q1, given that the turnaround is on your downstream units like the FCC and [ Ake.]
Yes, Matt, this is Tim. We run a lot of Canadian crude. It's not all Syncrude, some of it is heavy crude as well. And we are -- and those are in pantaged crew barrels that we take in, we'll still be able to do quite a bit of that even during the PG turnaround. So we blend that to basically mimic an ANS barrel and that we believe is still going to be available. And you brought up a good point.
We talk a lot about heavy Canadian dips and how we were able to take advantage of that. The Syncrude differential has really been very strong, as you've pointed out, and we're able to take full advantage of that at peaks.
Sounds good. And then could you talk about your outlook for your tax rate in 2024? I think your long-term guidance is roughly 19% to 21%. Does that still hold? And then is there anything changing on your deferred taxes, I guess, maybe in regards to the bonus depreciation given that HEP is now in the fold.
Yes. This is Atanas. With respect to our tax rate now in 21% to 22% as a planned tax rate. And with respect to deferred taxes, yes, the bonus depreciation does benefit deferred tax -- the largest impact was in the fourth quarter of '23, but we'll have some impact on 2024 as well.
Your next question comes from line of John Royall from JPMorgan.
Can you speak to -- you've spoken in the past on some incremental synergies that you think are out there after hitting your original target for Sinclair. Is there any update on those? And should we expect to see some progress there in 2024? Or is that a longer-term initiative?
John, thanks for your question. This is Atmos. With respect to our synergies, we continue to optimize and integrate our portfolio, and we're capturing additional synergies. For example, in our lubricants in Sinclair itself through continual integration, both in terms of systems, back offices that we've already realized, continuing to capture incremental value across the value chain, but we're also looking at synergies in our existing segments, such as lubricants, for example, where, to Matt's point, we're continuing to integrate our base oils portfolio in finished and specialties through some of the systems upgrades on the IT side, we're able to automate processes and optimize resources.
For example, procurement is a good example. In HEP, as we said earlier, beyond the synergies related to having 2 public companies, streamlining processes and systems. And these are -- so these are the types of value-enhancing synergies that we're continuing to go after this year. With respect to a specific number, we're not prepared to give one yet. But that -- I'd say, we'll probably be able to provide more clarity as we go further into 2024.
Yes. And I would just add on top of that, John, that we had good capture in the West in the fourth quarter, and I think that continues to reflect some of the additional synergies and some of the additional improvements that we're able to find just quarter-over-quarter. And as you continue to watch that capture I think you guys will continue to see that reflecting the opportunities that we're finding and capturing.
Great. And then the next one is, I think, for Atmos. Can you talk about returns to shareholders into this year? Should we think about just a 50% payout target or any reason it could be more or less? And then in terms of the form of the buyback, maybe you can also speak to sales from the Sinclairs versus open market purchases and your expectations there?
Sure. Thank you for your question. With respect to shareholder return expectations for 2024. First of all, again, as we -- we want to reiterate that we're 100% committed to our capital return strategy to our shareholders. We have the 50% payout ratio -- long-term payout ratio as our target. But our view is that 2024 is another above mid-cycle year. And to the extent that this dynamic prevails, we're not shy to exceed that.
As you could see, last year, we're payout ratio, and we will remain consistent in our diligence to keep returning excess cash to our shareholders. With respect to the form of the buyback, again, returning cash to shareholders through buyback and dividends is top priority, and we're open to both markets. and REH coal purchases, and we have done both. And as we've demonstrated and that dynamic will continue this year.
Yes. John, and I'll just add again. The dividend increase that we announced last week, just continued commitment to our goal of shareholder returns and increasing shareholder returns. So that's contributing to that. Look, we said last year that we can't speak for the [ Rego ] family that owns Sinclair. But they put out in their 13D that their preference would be to continue to sell shares directly to the company when they have a desire to do so. Our preference is to buy those shares directly from them.
And so as long as that continues to be an opportunity for us in 2024, we're going to take full advantage on both sides to continue to do that. We do think, as I mentioned before, we're bullish on 2024. We think it's going to be above mid-cycle. We think that the seasonality is starting to turn, as we talked about, not just on the Mid-Con, but we've seen inventories and cracks recovering in the Rockies as well. And that's consistent with what our overall view is and what the market is going to be. We think '24 is going to be another good year for us and going to allow us to return excess cash to our shareholders when we have in the last few years.
Your next question comes from the line of Joe Laetsch of Morgan Stanley.
So I'd like to just go back to the macro first. I was hoping you could just highlight what demand trends you're seeing within your system across both gasoline and diesel. And then any differences you're seeing in the West versus the Mid-Con would be great.
Yes, Joe, this is Steve. I'll take that one. So in general, as we talked about earlier, I think demand was softer both gas and diesel for Q4 versus same quarter 2022, but also higher than pre-COVID levels 2019. Specifically on the Mid-Con, it's a little bit more impacted negatively for the same quarter versus both in gas and diesel versus the West. Overall, I think we're seeing that the demand picture is becoming more supportive. We think this is mainly seasonality, and we're seeing improvements both in inventories, demand and an associated margin structure looking forward into Q1. And as Tim already articulated, structurally, we see it balance and above mid-cycle for 2024.
We saw, Joe, that in the Mid-Con, I know a lot of people are watching that. The very, very cold weather that came through basically in the early January time frame, really took a bite out of demand even further than what seasonality would typically project. And again, I think over time, especially with the BP widening outage right now, those inventories and those balances are being restored right now.
Great. And then I wanted to just hit on the throughput guidance. I know you gave the first quarter guide, but I just want to get your thoughts on the path towards the 640,000 barrels per day target throughput is where we are in that right now?
Maybe I'll start and then Val can chime in on our forward look. Our guidance that we gave was $585 million to $615 million, and that includes the turnaround at Puget. And then it reflects slightly lower or actually quite a bit lower mid-con cracks earlier in the quarter, and that impacted our economic runs. We're laser-focused on positioning the fleet for a strong Q2 and into the driving season for the rest of the year.
Yes. And I'll just go back to our reliability focus. So we've focused over the last couple of years really on -- we talked earlier about PARCO. Our Parco facility achieved record crew runs this past quarter, and we're continuing to see improvements in their reliability and improvements at those facilities, Nava, same story. And so we're really -- the path to $640 million is a reliable operation and a steady focus on stable runs over time and optimizing our turnaround intervals. That's going to yield the $640 million cycle time.
Your next question comes from the line of Jason Gabelman from TD Cowen.
The first one is on asset sales. And in the past, you've discussed an interest in exploring selling the lubricants business as performance has kind of straightened out there. Can you just discuss where you are on that journey and kind of maybe have the overall market for lubricants is for M&A at the current moment?
Yes, Jason, let me take a shot at that. We're still very bullish on our lubes business. In fact, we've just put in the books a third year of really strong earnings from that business. And again, we think 2024 is shaping up to be another good year for us. We still believe that the business is undervalued. We believe that it has a higher multiple than what the investors are giving us credit for.
But as we put in these additional years of actuals in the books we're hoping that the market will give us credit for that going forward. So nothing has changed there. The chemicals market in general, as you're kind of alluding to is at the lower part of their cycle. And so the market itself is not the best market right now from a chemical standpoint. And so what we've always said is we're going to look at this, but it's not a short-term thing. It's really more of a midterm thing for the next 2 or 3 years. There's no -- nothing changed there as well. So it's still something that we're very interested in and looking at. But we want to give the market a chance to show that full value in our own stock price before we go out do anything different.
We also want to, as Matt talked about earlier, we've got a lot of opportunities to improve the base business. We still think there's a lot more meat on that bone and we're continuing to drive forward structural improvement our lubes business as well. So Jason, nothing new to update basically, but to say everything is still on course.
Got it. And my follow-up is just on the Rockies. And I think there's another product pipeline expected to start up before summer driving season. Is that correct? And how do you view kind of that market in the summer and moving forward, there are obviously a couple of very strong years on product pricing with less refinery capacity in that region, but you have some coming back. So just general thoughts on maybe where you expect that market to price relative to where it was prior to COVID?
Yes, I'll take that, this is Steve. So we're watching that product pipeline start-up I think you're referring to the one that goes up into green Junction. And I think the premise there associated with that is that market gets tight. -- and it gets long very quickly based on refinery supply issues or runs. And so looking to take -- I think they would be looking to take advantage of that. Our view in terms of the market, it's still an important market for us. and our capability to go source logistically advantaged barrels into those markets is something that we're going to continue to look forward and drive. I don't think we're going to give guidance on the pricing structure forward-looking because there's a lot of elements at play there, but we do see this as a strong opportunity for us, not only in our current footprint, but also to continue to grow the Sinclair brand from a branded perspective in the Southwest.
And Jason, I'll just remind you that there was a Gallup refinery up there. pre-COVID that has shut down since -- and this pipeline is really going to be just replacing some of the barrels that were already there, precoated. We think the tariff structure is pretty high for that area. And so we still think regardless, we're going to have a competitive advantage to source barrels into that region.
There are no further questions at this time. So I'd like to hand back to Tim for closing comments.
Well, thank you, Gavin. I mentioned a lot of highlights in my opening remarks, and I want to give a shout out to all of our employees for delivering these outstanding results in 2023. These achievements are a testament to the competitive advantages of our new business portfolio and also the hard work and dedication of our employees to execute our strategies and deliver on these results.
Our priorities remain the same for 2024 to improve our reliability, to integrate and optimize our new portfolio of assets and to return excess cash to our shareholders. Thank you for joining our call. Have a great day.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.