Greetings and welcome to the Par Pacific Holdings Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. It is now my pleasure to introduce your host Ashimi Patel, Manager, Investor Relations for Par Pacific Holdings. Thank you, Ms. Patel. You may begin.

Thank you, Sarah. Welcome to Par Pacific's fourth quarter earnings conference Call. Joining me today are William Pate, President and Chief Executive Officer, Will Monteleone, Chief Financial Officer and Joseph Israel President and Chief Executive Officer of Par Petroleum. Before we begin, note that our comments today may include forward-looking statements. Any forward-looking statements are subject to change and are not guarantees of future performance or events. They are subject to risks and uncertainties and actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements and we disclaim any obligation to update or revise them. I refer you to our investor presentation on our website and to our filings with the SEC for non-GAAP reconciliations and additional information. I'll now turn the call over to our President and Chief Executive Officer, Bill Pate.

Thank you, Ashimi. Good morning to our conference call participants. It goes without saying that 2020 was an extremely challenging year for all of us. Last February on our earnings call, it was inconceivable that global consumption of crude oil would drop from 100 million barrels per day to 80 million barrels per day over the span of a few weeks. Our 2020 financial performance reflects the resulting collapse in prices and margins, despite our actions to reduce costs and preserve liquidity. Full year adjusted EBITDA was a loss of $86.7 million and our adjusted net loss was $4.69 per share. I'm pleased with the way our team responded to the pandemic. We implemented additional layers of safe workplace practices and identified multiple areas to reduce costs. We also finished the year with our best safety and environmental performance. We accomplished our cost control objectives while successfully completing two major turnarounds, and we expect 2021 CapEx to be less than $45 million. Based on this estimate, the current market outlook, and good operational performance we will generate free cash flow for 2021. We had a busy fourth quarter, completing a turnaround in Wyoming, preparing for another in Washington and bringing our renewables logistics project online. We received the first unit train of ethanol into our Tacoma facility in November. And we completed the Washington turnaround this month. With no major planned downtime other than the second phase of the Washington turnaround early next year, our refineries have a clear pathway to strong free cash flow generation for several years. During the fourth quarter, several positive developments began to lift business profits despite weak cracks. Unfortunately, these positive developments were offset by a non-cash mark-to-market charge, associated with the steep climb in RINs pricing. Most of the notable improvements related to…

Thank you, Bill. Not many could envision the unprecedented challenges that the refining industry faced last year. And yet, with minimum preparation time, our team has done a tremendous job through 2020 to adjust operations, execute our planned turnarounds, cut our cost structure while achieving our best safety and environmental performance on record. Now with regards to the fourth quarter, in Wyoming, our team successfully completed the planned major turnaround. The refinery which we started early in November is well positioned for an estimated five-year cycle before the next major turnaround. Our Wyoming 3-2-1 index, in the fourth quarter was $18.45 per barrel and our refinery throughput including the turnaround impact averaged approximately 7,000 barrels per day. Our realized adjusted gross margin in the quarter was $1.58 per barrel, mostly driven by an estimated $9 per barrel of turnaround related missed opportunities. Our production costs were $17.26 per barrel, including approximately $1.70 per barrel of unfavorable turnaround impact. Our cost structure in Wyoming remains favorable. And we are expecting to average under $6.50 per barrel on annual basis as we increase throughput to meet demand. Weather-related outages mainly in the Gulf Coast and Midwest have created product shortages in the market, which is supporting Rocky Mountain's refining margins these days. Our Wyoming 3-2-1 index has averaged approximately $17 per barrel so far in the first quarter and our target throughput is approximately 14,000 barrels per day as we start preparing for the gasoline season. In Washington, our fourth quarter Pacific Northwest 5-2-2-1 index was $11.26 per barrel on ANS basis. Our refinery throughput averaged approximately 39,000 barrels per day and our realized adjusted gross margin was a negative $0.51 per barrel. Production costs were $3.47 per barrel in the quarter. Earlier in the month, the refinery team successfully executed our…

Thank you, Joseph. Fourth quarter adjusted EBITDA and adjusted earnings were a loss of $34 million and $75 million or $1.41 per fully diluted share. Focusing on accounting items first, impacting adjusted earnings and EBITDA the Washington refining results have been reduced by the $6 million reversal of the prior quarter LIFO layer liquidation. Impacting our GAAP results was an $18 million non-cash asset impairment recorded on the Par West assets. Shifting to segment results. Retail segment adjusted EBITDA contribution was $16.5 million driven by strong margins and seasonally improving volumes. Same-store sales volumes were down roughly 16%, while merchandise sales were approximately flat compared to the fourth quarter of 2019. Gasoline demand in Hawaii increased approximately 5% to the 85% range of pre-COVID levels versus the prior quarter. Merchandise performance, particularly, in the Northwest has remained strong. The Logistics segment adjusted EBITDA contribution was $9 million down $3 million from the third quarter of 2020. Hawaii activity began to increase with the reopening of the state. However, it was more than offset by reduced contributions from Wyoming and Washington locations. Wyoming volumes were reduced due to the turnaround activities. Washington results were impacted by lower sales activity during the quarter. Looking forward, our Hawaii logistics volumes are stabilizing. And other than the first quarter Washington turnaround activities, we expect steady improvements across this segment during 2021. The Refining segment recorded a segment adjusted EBITDA loss of $50 million. The largest factor impacting the segment was a mark-to-market of environmental credits of $23 million principally related to increasing RIN prices. Our net RINs expense associated with this quarter's refining operations was $9 million. In addition, the Wyoming turnaround and seasonally reduced sales volumes impacted results negatively. Hawaii and Washington results were negatively impacted by compressed margins on heavy products in…

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Good morning, team. And thanks for taking the time.

Good morning, Neil.

Good morning, Bill, Will and team. The first question I had was around Hawaii. It's such a critical part of your story. So can you talk about what you're seeing in terms of real-time recovery in Hawaii demand? And then, any quantification that you can provide around the margin uplift from either improving cracks and then also progress on more favorable contract terms?

Yes. Neil, this is Bill. As I mentioned in my prepared comments, we've seen a reasonable recovery and -- really in all products in Hawaii. And at this point, with respect to Par East, we're really running all out. As Joseph mentioned in his prepared comments, I mean we're targeting 80,000 plus, which is as high as that refinery has run and we really expect that refinery to be pushing the limits frankly going forward. Any increases in demand at this point are likely to be addressed not through additional refining throughput but through imports. So we're -- as I mentioned, we're kind of in a sweet spot from a volume perspective. The demand from power gen really consumes all our fuel oil. The demand for jet is really fully loaded and obviously this depends a little bit on crude selection. And from a gasoline perspective, we're at this point, among us and our competitors we're actually in an import mode. So I don't see a major change. I also -- the nice thing is we're well balanced and we're not in a position where we have to export any products. So the key for us in Hawaii at this point, does not revolve around volumes but it revolves around cracks. And as I mentioned, the market cracks that we focus on the most in Hawaii or Singapore, they're up about $2.50 a barrel on a calendar strip basis. And for 2021, when compared to the late fall of last year, that's a fairly significant improvement. And as Joseph noted, Diffs, which are obviously another key factor for the economics there, we've realized some pretty attractive Diffs both in Q4 and also in Q1. I do expect that that could get a little tighter. But overall -- and again, as Joseph noted, our breakeven is at $4.50. And I think last week we reported a 3-1-2 at $4.56. And that's with a differential estimate of plus $2. And as Joseph noted, for the quarter, we're coming in at about $1.20. So we're actually in a positive EBITDA position right now in Hawaii for Q1 subject to any kind of changes in mark-to-market on rents and also subject to any price lag. But I feel pretty good about where we are overall.

Thanks guys. And then the follow-up is just on retail, how are you thinking about the strategic fit of the business post sale leaseback? Obviously, you were able to pull some cash out of the business. But do you see this business as a core part of your strategy going forward? And then if I can tack one on as it relates to retail, how do you think about the higher impact -- the impact of higher crude on your retail margins?

Yeah. Let me take the last one first. I mean there's certainly maybe some near-term pressure on the margins given crude oil price increases, but for the year, we expect that any margin compression is likely to be offset by increases in fuel volumes as mobility trends improve. With respect to the strategic nature, as I noted, I mean this business has grown attractively over the last three years. So it's a big financial contributor. Retail also really affects how we think about our capital structure. The stable retail free cash flow actually supports our entire debt service even after the recent sale leaseback. And then, from a strategic perspective, it's attractive in smaller markets to have a controlled short for your refinery production. Now, that's changed a little bit in Hawaii, given the fact that we no longer have any refining competition there. But it's still I think pretty valuable. And where it's most valuable is in markets where you've got product link. And so, I think it's been valuable for us even through the pandemic and it's proving valuable right now in the Northwest with respect to our units. And again, it's not always related to directly supplying the refinery. But through exchanges you can ensure that you can place your product and realize attractive margins. So it is an attractive strategic asset. I'll just caveat that by saying, look we're not wedded to any of our assets. And obviously, you can engage in transactions with contractual relationships that preserve some of that strategic benefit. And at the right price some of our business units are always going to be for sale.

Thanks, Bill.

Our next question comes from Phil Gresh with JPMorgan. Please go ahead.

Yes. Hi, good morning. Thanks for taking the question. The first one would just be on the environmental costs in the fourth quarter the $22 million I believe was the number. Did you have a rough allocation of that across the three refineries?

Sure Phil. It's Will. Approximately $10 million in Hawaii, $7 million in Wyoming and about $6 million in Tacoma.

Okay. Great. Thank you. And just what are your thoughts on the ongoing RINs impact for 2021, or at least for the first quarter, I guess, we don't know where RINs are exactly going here?

Yes. I think, Phil for the ongoing recurring expense at current prices for 2021, we'd expect in our annual rent expense to be in the $50 million to $55 million per year range. So I think that's our overall outlook on the recurring expense.

Okay. Great. Thank you. And then just from a balance sheet perspective, you had mentioned the idea of -- at the right price any asset would be for sale. But just how do you think about where you want the balance sheet to be? Are there other actions you might take to accelerate progress there and as you look out kind of on a more normalized basis I guess beyond 2021?

Yes. I think our historical perspective on this has been that we like our net debt-to-cap to be in the 30% to 35% range. I still think that's our objective. We've obviously had to delay that objective given the impact of the pandemic. But I still think that remains our objective. And again, with our mix of businesses, I think if we achieve that as our long-term target that gets us in a position where we can begin to contemplate, reallocating capital either efficiently towards M&A transactions or back towards shareholder returns.

Phil, this is Bill. Let me just add on to that. I mean, we obviously -- I believe we have high cost debt. And obviously coming out of the pandemic and coming out of the turnarounds, we have more debt than we'd like. Having said that, we have as I mentioned no major planned turnarounds going forward and we expect to generate significant free cash flow and we'll dedicate that cash flow towards paying down the debt and getting back to a level that is a little more reasonable. And keep in mind, we have a lot of diversification. We've got significant cash flow coming from our retail, which actually helps to support the level of that we have today, but we would certainly like it to be lower. And I'd also note that, with respect to our free cash flow, we're not a federal taxpayer. So we don't have to -- as we realize profitability we won't have any significant cash taxes to pay as well. So we can dedicate all of that to repayment of debt.

Okay. Thanks for taking my question.

Our next question comes from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Hey. Good morning, everyone. Will, could you provide a quick update on Laramie? Where does the drilling program stand? Were they in a position to capture the high natural gas prices that occurred earlier this quarter? And where do you stand on potentially looking to divest that interest?

Sure, Matt. With respect to their development program, Laramie it's not operating any rigs at the moment. So again, continuing to produce its base proved developed producing assets. With respect to the recent spike in gas prices, Laramie was able to operate through the cold snap and did have some significant exposure to the daily market. As a result, the company did realize significant profitability over the last couple of weeks related to the spike in gas prices. So I think it's a helpful benefit to the company. But I think it remains challenging to finance and grow a natural gas company in the current environment. But the Laramie management team continues to explore their options regarding its assets and capital structure today.

Sounds good. And then thinking about refinery OpEx for the first quarter here, will there be any headwinds from higher natural gas prices hitting either I guess Wyoming or Washington? And then what about the higher crude price impact in Hawaii?

Hey, Matt. This is Joseph. Because of our contractual structure of the gas price, we are not anticipating any significant spike in gas price for all our refineries. It's going to be very, very minimal. And with regards to the crude, crude is up, but the products are going up as well. And overall crack spreads are improving. The crude is in a good place.

Matt, I'll add to that. In Hawaii, again, we're internally consuming the barrel to generate heat, given we don't have access to natural gas there. So the rising flat price does impact the overall yield cost. That said, I think we've got a number of other offsetting factors that we believe position us well to keep our aggregate cash outlays flat to down for the full year.

Sounds good. And then final question. So the mark-to-market on the RIN liability costs you about $2 a barrel or I think $23 million or so on your gross margin in Q4. Where does that liability stand currently, or I guess at the beginning of the quarter either in just like a dollar liability or I guess like an open RIN position as you start Q1?

Matt, I don't think we're going to get into our specific RIN position, but I think it's fair to assume that with the continuing increase in price that we've observed in January, February timeframe that there's additional mark-to-market expense that we'd expect.

Makes sense. Thank you.

[Operator Instructions] Our next question comes from Manav Gupta with Crédit Suisse. Please go ahead.

Hi, guys. How much of Bakken crude are you running in your system? And how much can you run, if you're actually operating close to 100%? I'm trying to understand if DAPL does go down and the Bakken spreads do widen, then how much could Par benefit from it?

Yes, this is Joseph. We consume approximately 15 million barrels of Bakken in our system between Tacoma and Wyoming refinery. And this includes PROB, Bakken lookalike. So from pricing upside standpoint, this will be the impact. From a physical standpoint we are not relying in any way on the DAPL operations. We have all the flexibility in the world to keep our crude supply optimized, even without DAPL.

I mean, the question was, if DAPL goes down how could you benefit? So, I completely understand. The second quick question is, you kind of indicated that, looking at current margins and stuff, you expect to be positive on the cash side in refining. I'm just trying to understand, your refining is pretty closely tied to your logistics. And if you can raise the refining rates, I'm assuming then there's a tailwind for the logistics business also. So could you give us an outlook for the logistics business in 2021, based on the fact that you actually are seeing an improvement in demand and you could actually raise your refining utilization?

Sure, Manav. This is Will. I think your comment with respect to the throughput and sales driving logistics activity is particularly relevant for our mainland operations, so for Wyoming and Washington. And so, I think, we would expect as throughput and sales recover, that we would see normal -- or return to prior year levels of EBITDA contribution from those assets. So, again, I think, other than the first quarter turnaround in Washington, which will -- as you heard Joseph mention, we're expecting reduced throughput there. Given that activity, I think, we'd expect a return to normal contribution from those business units. And then, I think, with respect to Hawaii, the key driver there is really refined product demand, particularly on the neighbor islands, which again, I think we are seeing improvements there. We saw improvements in the fourth quarter. We're seeing ongoing improvements in the first quarter. So the Hawaii logistics story, I think, is not necessarily tied directly to getting total throughput on the island back to 115,000 or 120,000 barrels a day, where we’re running combined Par East, Par West and achieve a level of logistics profitability there, consistent with prior years without getting the 120,000 barrels a day. So, I think, hopefully that helps to give you some sense of I think how we can get back to a prior year level of logistics EBITDA contribution. When I say prior year, really think of 2019 levels, even with throughput in Hawaii being lower.

Makes a lot of sense. Thank you so much for taking my questions.

Our next question comes from Patrick Sheffield with Beach Point Capital. Please go ahead.

Hey, guys. Thanks for taking my questions. Most have been answered, I have a couple housekeeping ones. On the sale-leaseback transaction, you guys referenced paying down some associated debt. I assume that's the retail property term loan. Was there anything else that you paid down with some of the proceeds?

That's correct, Patrick. It's the retail loans. And again, I think we'd expect to pay down the balance. There's a series of smaller property loans. And I think pro forma for closing each of the transactions we’d expect to pay down those retail loans. And then, that will be the net cash proceeds of roughly $62 million.

And Pat, we closed down 90% of those sales in the last 48 hours and we are doing more.

And what's the incremental lease expense that -- or how do we -- when we look at retail EBITDA, what's the incremental rent expense that's going to hit it?

Sure. So we filed our 8-K with the details of the lease in it, but roughly the $7 million annual lease expense. So I think when you look at the segment retail results going forward, the annual result will be about $7 million lower. However, if you looked at it on a corporate level, in aggregate, our interest and amortization related to the retail loans was about $3.5 million. So net, it's really an increase of about a $3.5 million outflow for us on a consolidated basis.

Pretty good deal.

We thought it was an attractive transaction. And so, that's why we elected to go ahead with it.

Great. Thanks, guys. That’s all I had.

This concludes our question-and-answer session. I would like to turn the conference back over to William Pate for any closing remarks.

Thank you, Sarah. We look forward to the next few months as vaccinations climb, case rates decline and mobility trends improve. I believe there's a lot of pent-up demand for personal travel and our company is well positioned to benefit from increased travel and an economic recovery. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.