HF Sinclair Corp
For the period ended Dec 31, 2024. Filed Feb 20, 2025.
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FY2024 · Filed Feb 20, 2025
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Item 7. Results of Operations
Financial Data
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| (In millions, except share and per share data) | |||
| Sales and other revenues | $28,580 | $31,964 | $38,205 |
| Operating costs and expenses: | |||
| Cost of sales: (1) | |||
| Cost of materials and other (2) | 24,582 | 25,784 | 30,680 |
| Lower of cost or market inventory valuation adjustments | (43) | 271 | 52 |
| Operating expenses | 2,484 | 2,438 | 2,335 |
| 27,023 | 28,493 | 33,067 | |
| Selling, general and administrative expenses (1) | 447 | 497 | 427 |
| Depreciation and amortization | 832 | 771 | 657 |
| Asset impairments | 17 | — | — |
| Total operating costs and expenses | 28,319 | 29,761 | 34,151 |
| Income from operations | 261 | 2,203 | 4,054 |
| Other income (expense): | |||
| Earnings of equity method investments | 32 | 17 | — |
| Interest income | 75 | 94 | 30 |
| Interest expense | (165) | (191) | (176) |
| Other income, net | 15 | 30 | 28 |
| (43) | (50) | (118) | |
| Income before income taxes | 218 | 2,153 | 3,936 |
| Income tax expense: | |||
| Current | 83 | 249 | 842 |
| Deferred | (49) | 193 | 53 |
| 34 | 442 | 895 | |
| Net income | 184 | 1,711 | 3,041 |
| Less: net income attributable to noncontrolling interest | 7 | 121 | 118 |
| Net income attributable to HF Sinclair stockholders | $177 | $1,590 | $2,923 |
| Earnings per share attributable to HF Sinclair stockholders: | |||
| Basic | $0.91 | $8.29 | $14.28 |
| Diluted | $0.91 | $8.29 | $14.28 |
| Average number of common shares outstanding (in thousands): | |||
| Basic | 192,073 | 190,035 | 202,566 |
| Diluted | 192,073 | 190,035 | 202,566 |
(1)Exclusive of Depreciation and amortization.
(2)Exclusive of Lower of cost or market inventory valuation adjustments.
Other Financial Data
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| (In millions) | |||
| Net cash provided by operating activities | $1,110 | $2,297 | $3,777 |
| Net cash used for investing activities | $(468) | $(371) | $(774) |
| Net cash used for financing activities | $(1,182) | $(2,244) | $(1,561) |
| Capital expenditures | $470 | $385 | $524 |
| EBITDA (1) | $1,133 | $2,900 | $4,621 |
(1)Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as Net income attributable to HF Sinclair stockholders plus (i)Income tax expense (benefit), (ii)Interest expense, net of Interest income and (iii)Depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included on our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a financial indicator widely used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” within Item 7 of Part II of this Annual Report on Form 10-K.
Supplemental Segment Operating Data
Our operations are organized into five reportable segments, Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. See Note 20 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.
Refining Segment Operating Data
The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region is comprised of the El Dorado and Tulsa Refineries. The West region is comprised of the Puget Sound, Navajo, Woods Cross, Parco and Casper Refineries. In addition, the refinery operations of the Parco and Casper Refineries are included for the period March 14, 2022 (date of acquisition) through December 31, 2024. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. Adjusted refinery gross margin per produced barrel sold is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments, Depreciation and amortizationand Operating expenses, divided by sales volumes of produced refined products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments, which relates to inventory held at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Mid-Continent Region | |||
| Crude charge (BPD) (1) | 251,650 | 237,510 | 283,160 |
| Refinery throughput (BPD) (2) | 267,200 | 256,810 | 299,380 |
| Sales of produced refined products (BPD) (3) | 267,130 | 248,330 | 280,800 |
| Refinery utilization (4) | 96.8% | 91.4% | 108.9% |
| Average per produced barrel sold (5) | |||
| Gross margin (6) | $(0.27) | $6.65 | $13.92 |
| Operating expenses (7) | 6.65 | 6.92 | 6.10 |
| Adjusted refinery gross margin (8) | $8.21 | $17.31 | $21.82 |
| Less: adjusted refinery operating expenses (9) | 6.65 | 6.92 | 6.10 |
| Adjusted refinery gross margin, less adjusted refinery operating expenses | $1.56 | $10.39 | $15.72 |
| Operating expenses per throughput barrel (10) | $6.65 | $6.69 | $5.72 |
| Adjusted refinery operating expenses per throughput barrel (9) (11) | $6.65 | $6.69 | $5.72 |
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Mid-Continent Region | |||
| Feedstocks: | |||
| Sweet crude oil | 54% | 56% | 58% |
| Sour crude oil | 23% | 20% | 20% |
| Heavy sour crude oil | 17% | 16% | 16% |
| Other feedstocks and blends | 6% | 8% | 6% |
| Total | 100% | 100% | 100% |
| Sales of refined products: | |||
| Gasolines | 52% | 51% | 51% |
| Diesel fuels | 31% | 30% | 33% |
| Jet fuels | 6% | 6% | 6% |
| Fuel oil | 1% | 1% | 1% |
| Asphalt | 4% | 4% | 3% |
| Base oils | 4% | 4% | 4% |
| LPG and other | 2% | 4% | 2% |
| Total | 100% | 100% | 100% |
| West Region | |||
|---|---|---|---|
| Crude charge (BPD) (1) | 350,430 | 330,030 | 323,820 |
| Refinery throughput (BPD) (2) | 376,050 | 360,200 | 347,590 |
| Sales of produced refined products (BPD) (3) | 370,040 | 353,950 | 347,540 |
| Refinery utilization (4) | 83.8% | 79.0% | 81.4% |
| Average per produced barrel sold (5) | |||
| Gross margin (6) | $0.61 | $11.34 | $19.52 |
| Operating expenses (7) | 9.32 | 9.69 | 8.96 |
| Adjusted refinery gross margin (8) | $12.04 | $23.69 | $30.16 |
| Less: adjusted refinery operating expenses (9) | 9.06 | 9.69 | 8.96 |
| Adjusted refinery gross margin, less adjusted refinery operating expenses | $2.98 | $14.00 | $21.20 |
| Operating expenses per throughput barrel (10) | $9.17 | $9.53 | $8.96 |
| Adjusted refinery operating expenses per throughput barrel (9) (11) | $8.92 | $9.53 | $8.96 |
| Feedstocks: | |||
| Sweet crude oil | 34% | 30% | 28% |
| Sour crude oil | 43% | 45% | 50% |
| Heavy sour crude oil | 10% | 11% | 10% |
| Wax crude oil | 6% | 6% | 5% |
| Other feedstocks and blends | 7% | 8% | 7% |
| Total | 100% | 100% | 100% |
| Sales of refined products: | |||
| Gasolines | 52% | 54% | 53% |
| Diesel fuels | 32% | 31% | 32% |
| Jet fuels | 6% | 6% | 5% |
| Fuel oil | 2% | 2% | 3% |
| Asphalt | 2% | 2% | 3% |
| LPG and other | 6% | 5% | 4% |
| Total | 100% | 100% | 100% |
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Consolidated | |||
| Crude charge (BPD) (1) | 602,080 | 567,540 | 606,980 |
| Refinery throughput (BPD) (2) | 643,250 | 617,010 | 646,970 |
| Sales of produced refined products (BPD) (3) | 637,170 | 602,280 | 628,340 |
| Refinery utilization (4) | 88.8% | 83.7% | 92.3% |
| Average per produced barrel sold (5) | |||
| Gross margin (6) | $0.24 | $9.41 | $17.02 |
| Operating expenses (7) | 8.20 | 8.55 | 7.68 |
| Adjusted refinery gross margin (8) | $10.43 | $21.06 | $26.43 |
| Less: adjusted refinery operating expenses (9) | 8.05 | 8.55 | 7.68 |
| Adjusted refinery gross margin, less adjusted refinery operating expenses | $2.38 | $12.51 | $18.75 |
| Operating expenses per throughput barrel (10) | $8.12 | $8.35 | $7.46 |
| Adjusted refinery operating expenses per throughput barrel (9) (11) | $7.98 | $8.35 | $7.46 |
| Feedstocks: | |||
| Sweet crude oil | 42% | 42% | 42% |
| Sour crude oil | 35% | 34% | 36% |
| Heavy sour crude oil | 13% | 13% | 13% |
| Wax crude oil | 4% | 3% | 3% |
| Other feedstocks and blends | 6% | 8% | 6% |
| Total | 100% | 100% | 100% |
| Sales of refined products: | |||
| Gasolines | 53% | 53% | 52% |
| Diesel fuels | 31% | 30% | 32% |
| Jet fuels | 6% | 6% | 6% |
| Fuel oil | 1% | 1% | 2% |
| Asphalt | 3% | 3% | 3% |
| Base oils | 2% | 2% | 2% |
| LPG and other | 4% | 5% | 3% |
| Total | 100% | 100% | 100% |
(1)Crude charge represents the barrels per day of crude oil processed at our refineries.
(2)Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.
(3)Represents barrels sold of refined products produced at our refineries (including Asphalt and intersegment sales) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4)Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 678,000 BPSD.
(5)Represents the average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
(6)Gross margin represents total Refining segment Sales and other revenues less Cost of materials and other, Lower of cost or market inventory valuation adjustments, Operating expenses and Depreciation and amortization, divided by sales volumes of produced refined products.
(7)Represents total Refining segment Operating expenses, exclusive of Depreciation and amortization, divided by sales volumes of produced refined products.
(8)Adjusted refinery gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K.
(9)Adjusted refinery operating expenses is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K.
(10)Represents total Refining segment operating expenses, exclusive of Depreciation and amortization, divided by Refinery throughput.
(11)Represents total Refining segment adjusted refinery operating expenses, exclusive of Depreciation and amortization, divided by Refinery throughput.
Renewables Segment Operating Data
The following table sets forth information, including non-GAAP performance measures, about our renewables operations. Adjusted renewables gross margin per produced gallon sold is total Renewables segment gross margin plus Lower of cost or market inventory valuation adjustments, Depreciation and amortization and Operating expenses, divided by sales volumes of produced renewables products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments, which relate to volumes in inventory at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Renewables | |||
| Sales of produced renewables products (in thousand gallons) | 255,639 | 215,510 | 136,204 |
| Average per produced gallon sold: (1) | |||
| Gross margin (2) | $(0.33) | $(0.59) | $(1.29) |
| Adjusted renewables gross margin (3) | $0.33 | $0.50 | $0.30 |
| Less: operating expenses (4) | 0.39 | 0.51 | 0.82 |
| Adjusted renewables gross margin, less operating expenses | $(0.06) | $(0.01) | $(0.52) |
(1)Represents the average amount per produced gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
(2)Gross margin represents total Renewables segment Sales and other revenues less Cost of materials and other, Lower of cost or market inventory valuation adjustments, Operating expenses and Depreciation and amortization, divided by sales volumes of produced renewables products.
(3)Adjusted renewables gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
(4)Represents total Renewables segment Operating expenses, exclusive of Depreciation and amortization, divided by sales volumes of produced renewables products.
Marketing Segment Operating Data
The following table sets forth information, including non-GAAP performance measures, about our marketing operations and includes our Sinclair branded fuel business. Adjusted marketing gross margin per gallon sold is total Marketing segment gross margin plus Depreciation and amortization, divided by sales volumes of marketing products. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Marketing | |||
| Number of branded sites at period end (1) | 1,627 | 1,540 | 1,513 |
| Sales of refined products (in thousand gallons) | 1,376,291 | 1,441,607 | 1,118,444 |
| Average per gallon sold: (2) | |||
| Gross margin (3) | $0.06 | $0.05 | $0.04 |
| Adjusted marketing gross margin (4) | $0.08 | $0.07 | $0.06 |
(1)Includes certain non-Sinclair branded sites.
(2)Represents the average amount per gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
(3)Gross margin represents total Marketing segment Sales and other revenues less Cost of materials and other and Depreciation and amortization, divided by sales volumes of marketing products.
(4)Adjusted marketing gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
Lubricants & Specialties Segment Operating Data
The following table sets forth information about our lubricants and specialties operations.
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Lubricants & Specialties | |||
| Sales of produced refined products (BPD) | 32,100 | 30,210 | 32,530 |
| Sales of produced refined products: | |||
| Finished products | 48% | 50% | 51% |
| Base oils | 26% | 27% | 28% |
| Other | 26% | 23% | 21% |
| Total | 100% | 100% | 100% |
Midstream Segment Operating Data
The following table sets forth information about our midstream operations.
| Years Ended December 31, | |||
|---|---|---|---|
| 2024 | 2023 | 2022 | |
| Midstream | |||
| Volumes (BPD) | |||
| Pipelines: | |||
| Affiliates—refined product pipelines | 166,722 | 152,462 | 143,303 |
| Affiliates—intermediate pipelines | 146,643 | 110,720 | 129,295 |
| Affiliates—crude pipelines | 453,606 | 437,586 | 456,797 |
| 766,971 | 700,768 | 729,395 | |
| Third parties—refined product pipelines | 39,721 | 38,834 | 38,000 |
| Third parties—crude pipelines | 204,202 | 197,659 | 144,478 |
| 1,010,894 | 937,261 | 911,873 | |
| Terminals and loading racks: (1) | |||
| Affiliates | 988,566 | 930,264 | 798,100 |
| Third parties | 37,728 | 42,567 | 46,997 |
| 1,026,294 | 972,831 | 845,097 | |
| Total for pipelines and terminals assets (BPD) | 2,037,188 | 1,910,092 | 1,756,970 |
(1) Certain volumetric non-financial information has been recast to conform to current year presentation.
Summary
Net income attributable to HF Sinclair stockholders for the year ended December 31, 2024 was $177 million ($0.91 per basic and diluted share), a $1,413 million decrease compared to net income of $1,590 million ($8.29 per basic and diluted share) for the year ended December 31, 2023. The decrease in Net income attributable to HF Sinclair stockholders was principally driven by lower adjusted refinery gross margins, partially offset by higher refined product sales volumes. Lower of cost or market inventory valuation adjustments increased pre-tax earnings by $43 million for the year ended December 31, 2024 and decreased pre-tax earnings by $271 million for the year ended December 31, 2023. Adjusted refinery gross margins for the year ended December 31, 2024 decreased to $10.43 per produced barrel sold from $21.06 for the year ended December 31, 2023.
Sales and Other Revenues
Sales and other revenues decreased 11% from $31,964 million for the year ended December 31, 2023 to $28,580 million for the year ended December 31, 2024, principally due to decreased refined product sales prices and lower excess crude oil sales volumes as a result of fewer planned maintenance activities in 2024, partially offset by higher refined product sales volumes. Sales and other revenues included $644 million, $3,428 million, $2,700 million, and $107 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2024. Sales and other revenues included $781 million, $4,146 million, $2,762 million, and $118 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2023.
Cost of Materials and Other
Cost of materials and other, exclusive of Lower of cost or market inventory valuation adjustments, decreased 5% from $25,784 million for the year ended December 31, 2023 to $24,582 million for the year ended December 31, 2024, principally due to lower purchased refined product and excess crude oil sales volumes as a result of fewer planned maintenance activities in 2024, partially offset by higher refined product sales volumes. Within our Lubricants & Specialties segment, FIFO impact was a charge of $45 million and $13 million for the years ended December 31, 2024 and 2023, respectively.
During the year ended December 31, 2024, we recognized a lower of cost or market inventory valuation adjustment benefitof $43 million compared to a charge of $271 million for the year ended December 31, 2023, respectively.
Adjusted Refinery Gross Margins
Adjusted refinery gross margin per barrel sold decreased 50% from $21.06 for the year ended December 31, 2023 compared to $10.43 for the year ended December 31, 2024. The decrease was due to lower average per barrel sold sales prices, partially offset by lower crude oil and feedstock prices. Adjusted refinery gross margin per barrel does not include the non-cash effects of Lower of cost or market inventory valuation adjustments or Depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
Operating Expenses
Operating expenses increased 2% from $2,438 million for the year ended December 31, 2023 to $2,484 million for the year ended December 31, 2024, primarily due to a regulatory charge related to the 2025 Consent Decree, higher people costs and other miscellaneous costs, partially offset by lower natural gas costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 10% from $497 million for the year ended December 31, 2023 to $447 million for the year ended December 31, 2024, primarily due to a decrease in acquisition integration and regulatory costs, lower incentive compensation and other professional costs. We incurred $2 million and $39 million in acquisition integration and regulatory costs during the years ended December 31, 2024 and December 31, 2023, respectively.
Depreciation and Amortization Expenses
Depreciation and amortization increased 8% from $771 million for the year ended December 31, 2023 to $832 million for the year ended December 31, 2024. This increase was principally due to additional capitalized refinery turnaround costs and capitalized improvement projects as compared to the prior period.
Asset Impairments
For the year ended December 31, 2024, we recorded impairments totaling $17 million, which related to assets in our Midstream, Refining, and Lubricants & Specialties segments.
Earnings of Equity Method Investments
For the year ended December 31, 2024, we recorded net earnings of $32 million compared to net earnings of$17 million for the year ended December 31, 2023. This increase is primarily due to improved performance in our Pioneer Pipeline and Osage Pipeline investments.
Interest Income
Interest income was$75 million for the year ended December 31, 2024 compared to $94 million for the year ended December 31, 2023. The decrease in interest income was primarily due to the decrease in average cash balance.
Interest Expense
Interest expense was $165 million for the year ended December 31, 2024 compared to$191 million for the year ended December 31, 2023. This decrease was primarily due to a reduction in total debt outstanding as compared to the prior period.
Other income, net
Other income, net was $15 million for the year ended December 31, 2024 compared to $30 million for the year ended December 31, 2023. This decrease was primarily due to a $15 million gain from the settlement of a preservation of property claim related to winter storm Uri that was recognized during the year ended December 31, 2023.
Income Taxes
For the year ended December 31, 2024, we recorded income tax expense of $34 million compared to $442 million for the year ended December 31, 2023. This decrease was principally due to lower pre-tax income during the year ended December 31, 2024 compared to the year ended December 31, 2023. Our effective tax rates were 15.6% and 20.5% for the years ended December 31, 2024 and 2023, respectively. The difference between the effective tax rate and the statutory rate for the year ended December 31, 2024 is principally due to the relationship between pre-tax earnings and benefits attributable to nontaxable permanent differences, offset by an increase in state income taxes and unrecognized tax benefits. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2023 is primarily due to the relationship between pre-tax results and benefits attributable to non-taxable permanent differences and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes.
Summary
Net income attributable to HF Sinclair stockholders for the year ended December 31, 2023 was $1,590 million ($8.29 per basic and diluted share), a $1,333 million decrease compared to net income of $2,923 million ($14.28 per basic and diluted share) for the year ended December 31, 2022. The decrease in Net income attributable to HF Sinclair stockholders was principally driven by lower adjusted refinery gross margins and lower refined product sales volumes. Lower of cost or market inventory valuation adjustments decreased pre-tax earnings by $271 million and $52 million for the years ended December 31, 2023 and 2022, respectively. Adjusted refinery gross margins for the year ended December 31, 2023 decreased to $21.06 per produced barrel sold from $26.43 for the year ended December 31, 2022.
Sales and Other Revenues
Sales and other revenues decreased 16% from $38,205 million for the year ended December 31, 2022 to $31,964 million for the year ended December 31, 2023, principally due to decreased refined product sales prices and lower refined product sales volumes. Sales and other revenues included $781 million, $4,146 million, $2,762 million and $118 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2023. Sales and other revenues included $654 million, $3,912 million, $3,150 million and $109 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties and Midstream segments, respectively, for the year ended December 31, 2022.
Cost of Materials and Other
Cost of materials and other, exclusive of Lower of cost or market inventory valuation adjustments, decreased 15% from $30,680 million for the year ended December 31, 2022 to $25,784 million for the year ended December 31, 2023, principally due to lower crude oil costs and lower refined product sales volumes. Within our Lubricants & Specialties segment, FIFO impact was a charge of $13 million for the year ended December 31, 2023 and a benefitof $78 million for the year ended December 31, 2022.
During the years ended December 31, 2023 and 2022, we recognized a Lower of cost or market inventory valuation adjustments chargeof $271 million and $52 million, respectively.
Adjusted Refinery Gross Margins
Adjusted refinery gross refinery margin per barrel sold decreased 20% from $26.43 for the year ended December 31, 2022 to $21.06 for the year ended December 31, 2023. Thedecrease was due to lower average per barrel sold sales prices, partially offset by lower crude oil and feedstock prices. Adjusted refinery gross margin per barrel does not include the non-cash effects of Lower of cost or market inventory valuation adjustments or Depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K.
Operating Expenses
Operating expenses increased 4% from $2,335 million for the year ended December 31, 2022 to $2,438 million for the year ended December 31, 2023, primarily due to increased maintenance activities and our acquisition of the Acquired Sinclair Businesses, partially offset by lower natural gas costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 16% from $427 million for the year ended December 31, 2022 to $497 million for the year ended December 31, 2023, primarily due to higher costs related to information technology, other professional services and employee costs as compared to the prior period and our acquisition of the Acquired Sinclair Businesses, partially offset by a decrease in acquisition integration and regulatory costs. We incurred $39 million and $53 million in acquisition integration and regulatory costs during the years ended December 31, 2023 and 2022, respectively.
Depreciation and Amortization Expenses
Depreciation and amortization increased 17% from $657 million for the year ended December 31, 2022 to $771 million for the year ended December 31, 2023. This increase was principally due to depreciation and amortization attributable to capitalized turnaround costs, capitalized improvement projects and the Acquired Sinclair Businesses.
Earnings (Loss) of Equity Method Investments
For the year ended December 31, 2023, we recorded net earnings of$17 million of equity method investments as compared to a net loss of$0.3 million for the year ended December 31, 2022. Net loss during the year ended December 31, 2022 was primarily due to HEP’s 50% share of incurred and estimated environmental remediation and recovery expenses, net of insurance proceeds received to date, for the Osage Pipeline. In July 2022, the Osage Pipeline, which carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil. The pipeline resumed operations during the third quarter of 2022.
Interest Income
Interest income was$94 million for the year ended December 31, 2023 compared to $30 million for the year ended December 31, 2022. The increase in interest income was primarily due to the increase in the average cash balance and higher interest rates on cash investments.
Interest Expense
Interest expense was $191 million for the year ended December 31, 2023 compared to $176 million for the year ended December 31, 2022. This increase was primarily due to the April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior notes maturing in April 2027 and higher market interest rates on HEP’s revolving credit facility during the year ended December 31, 2023.
Other income, net
Other income, net was $30 million for the year ended December 31, 2023 compared to $28 million for the year ended December 31, 2022. For the year ended December 31, 2023, we recorded a $15 million gain from the settlement of a preservation of property claim and during the year ended December 31, 2022, we recorded a gain of $15 million from a settlement of our business interruption claim, both related to winter storm Uri that occurred in the first quarter of 2021.
Income Taxes
For the year ended December 31, 2023, we recorded an income tax expense of $442 million compared to $895 million for the year ended December 31, 2022. This decreasewas principally due to lower pre-tax income during the year ended December 31, 2023 compared to the year ended December 31, 2022. Our effective tax rates were 20.5% and 22.7% for the years ended December 31, 2023 and 2022, respectively. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2023, is primarily due to the relationship between pre-tax results, benefits attributable to non-taxable permanent differences and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2022 is primarily due to the relationship between pre-tax results and benefits attributable to non-taxable permanent differences, earnings attributable to the noncontrolling interest that is not included in income for tax purposes, and the decrease in the state tax rate applied to our deferred tax assets and liabilities as a result of the Sinclair Transactions.
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