HF Sinclair Corp

This Item 2 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of Part I of this Quarterly Report on Form 10-Q. In addition, this Item 2 should be read in conjunction with the accompanying consolidated financial statements and notes, as well as our consolidated financial statements and notes within our Annual Report on Form 10-K for the year ended December 31, 2023 and Exhibit 99.1 to this Quarterly Report on Form 10-Q as discussed in Part II, Item 5 “Other Information”. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair Corporation ("HF Sinclair") and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to the closing of the HEP Merger Transaction (as defined below) on December 1, 2023, refer to HEP and its consolidated subsidiaries.

OVERVIEW

We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah. We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry. We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,500 branded stations and license the use of the Sinclair brand at more than 300 additional locations throughout the country. We produce renewable diesel at two of our facilities in Wyoming and our facility in New Mexico. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries.

For the three months ended March 31, 2024, net income attributable to HF Sinclair stockholders was $314.7 million compared to $353.3 million for the three months ended March 31, 2023.

Our results for the first quarter of 2024 were impacted by seasonal demand weakness for transportation fuels, partially offset by constrained refined product supply. We continue to adjust our operational plans to evolving market conditions. The extent to which our future results are affected by volatile regional and global economic conditions will depend on various factors and consequences beyond our control.

In the Refining segment, we saw lower refining margins in both the West and Mid-Continent regions in the first quarter of 2024 as a result of seasonal demand weakness in gasoline and diesel sales during the period. Additionally, we began planned maintenance activities for the year during the first quarter of 2024 at our Puget Sound refinery. For the second quarter of 2024, we expect to run between 620,000 – 650,000 barrels per day of crude oil. This guidance reflects the completion of ongoing planned maintenance activities at our Puget Sound refinery as well as planned maintenance at our Parco refinery during the second quarter. Refined product margins are expected to strengthen in the second quarter of 2024 as a result of increased demand heading into the summer driving season.

In the Renewables segment, weakened RINs and Low Carbon Fuel Standard (“LCFS”) prices impacted renewable diesel margins in the first quarter of 2024. For the second quarter of 2024, we expect planned maintenance at our renewable diesel unit (“RDU”) within our Parco co-located refinery and continued weakness in RINs and LCFS prices to impact renewable diesel margins.

In the Marketing segment, we saw strong value in the Sinclair branded sites during the first quarter of 2024 as the marketing business continued to provide a consistent sales channel with margin uplift for our produced fuels. We continue to target 5% or more annual growth in the number of branded sites.

In the Lubricants & Specialties segment, during the first quarter of 2024, despite weakening base oil prices during the period, we continued to see strong performance, driven by sales mix optimization across our portfolio.

In the Midstream segment, our results benefited from higher revenues from tariff increases during the first quarter of 2024.

In August 2023, our Board of Directors authorized a $1.0 billion share repurchase program, and we continued to repurchase shares in the first and second quarter of 2024 under this program. On May 7, 2024, our Board of Directors authorized a new $1.0 billion share repurchase program, and we expect to continue to repurchase shares in the second quarter of 2024. The timing and amount of share repurchases under the new repurchase program, including those from REH Company, will depend on market conditions and corporate, tax, regulatory and other relevant conditions. On May 8, 2024, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $0.50 per share. The dividend is payable on June 5, 2024 to holders of record of common stock on May 22, 2024.

HEP Merger Transaction

On December 1, 2023, pursuant to the Agreement and Plan of Merger, dated as of August 15, 2023 (the “Merger Agreement”), by and among HEP, HF Sinclair, Navajo Pipeline Co., L.P., a Delaware limited partnership and an indirect wholly owned subsidiary of HF Sinclair (“HoldCo”), Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of HoldCo (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH, Merger Sub merged with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (the “HEP Merger Transaction”).

Under the terms of the Merger Agreement, each outstanding common unit representing a limited partner interest in HEP (an “HEP common unit”), other than the HEP common units already owned by HF Sinclair and its subsidiaries, was converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. The Merger Agreement consideration totaled $267.6 million in cash and resulted in the issuance of 21,072,326 shares of HF Sinclair common stock from treasury stock.

For a description of our existing indebtedness, as well as the changes thereto associated with the HEP Merger Transaction, see Note 9 “Debt” in the Notes to Consolidated Financial Statements.

Renewable Fuel Standard Regulations

Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency (“EPA”) promulgated the Renewable Fuel Standard (“RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such blending. Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling $106.6 million for the three months ended March 31, 2024. At March 31, 2024, our open RINs credit obligations were $29.6 million.

A more detailed discussion of our financial and operating results for the three months ended March 31, 2024 and 2023 is presented in the following sections.