Good morning, and welcome to the HollyFrontier and Holly Energy Partners Investor Conference Call. The press release and slide presentation related to today's announcement can be found in the Investor Relations section of the HollyFrontier and Holly Energy Partners website. The archived replay will also be available on both websites after the call. I will now pass the call to your host, Craig Biery, Vice President of Investor Relations. Mr. Biery, you may begin.

Thank you, Lauren. Good morning, everyone, and thank you for joining us. On the call with me today are Mike Jennings, Chief Executive Officer and President of HollyFrontier and Chief Executive Officer of Holly Energy Partners; and Rich Voliva, Executive Vice President and Chief Financial Officer of HollyFrontier and President of Holly Energy Partners. We are also joined by Tim Go, Executive Vice President and Chief Operating Officer of HollyFrontier; and Tom Creery, President of HollyFrontier Renewables. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release. In summary, if such statements are 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 securities 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 Mike Jennings.

Thanks, Craig, and good morning, everyone. We are thrilled to share the news this morning that HollyFrontier Corporation and Holly Energy Partners have entered into definitive agreements with the Sinclair companies. In light of that, we'll be doing things a little differently on the call today. Rich and I will first walk through the transactions and the expected benefits they will create for HollyFrontier, Holly Energy Partners and our shareholders. After that, Rich will briefly review HFC and HEP's results for the quarter before we turn it over for questions. Starting on Slide three. To put it simply, the acquisition of Sinclair's assets will be transformative for both HollyFrontier and Holly Energy Partners. It diversifies and scales HollyFrontier's portfolio with the addition of Sinclair's iconic brand and integrated distribution network; its renewable diesel business, which was the first mover in the space; and its two complementary refineries in the Rocky Mountain region. And we expect it will strengthen our financial position, increasing our earnings, cash flow and free cash flow within the first year, positioning us to increase returns to shareholders while we deepen our commitment to ESG and sustainability. For HEP, too, this transformative transaction provides strategic and financial benefits. With the addition of Sinclair's integrated network of pipelines and storage facilities, HEP will have the scale and incremental earnings power to capture new growth opportunities and focus on increasing returns to unitholders. Turning to Slide four. This transaction follows a decade of growth since the merger of Holly and Frontier. We spent a greater part of that period, expanding our Refining business, building our Renewables business, establishing and growing our Lubricants business and benefiting from our interest in Holly Energy Partners. Since 2011, we've returned more than $3.6 billion in cash through special and regular dividends and an additional $2.3 billion through share repurchases. Similar to our 2011 merger, we believe these transactions with Sinclair represent an inflection point for our company. We know the holding family well and have deep respect for the brand and the business they and generations of Sinclair employees have built over the last century plus. We're pleased this family will retain a significant stake in our combined companies, and we're incredibly excited about beginning this next chapter as HF Sinclair. I'll turn now to a brief overview of the details of the transaction on Slide five. First, the HollyFrontier transaction. HollyFrontier is acquiring Sinclair's branded marketing business and all commercial activities related thereto, which build upon an iconic brand with exceptional customer loyalty; also Sinclair's renewable diesel business and Sinclair's two Rocky Mountain-based refineries. Sinclair's hospitality ranching and upstream oil and gas businesses are not part of this transaction. HollyFrontier will create a new publicly traded holding company named HF Sinclair Corporation. Sinclair shareholders will receive approximately 60.2 million shares in the newly formed HF Sinclair, equal to 26.75% of the company. HollyFrontier's existing shareholders will own 73.25% of the equity or approximately 164.9 million shares of the common stock of HF Sinclair. As a result, each outstanding share of HollyFrontier common stock will convert into one share of HF Sinclair common stock at the closing. The all-stock transaction has a value of $1.8 billion based on HollyFrontier's closing stock price on July 30, 2021, and Sinclair comes with no debt. Upon closing, HollyFrontier's existing senior management team will operate the combined company, and Sinclair has been granted the right to nominate two Directors to the HF Sinclair Board of Directors at the closing. The transaction is expected to close in mid-2022.

Thank you, Mike. Good morning, everybody. Turning to Slide six. HEP will acquire Sinclair's integrated crude and refined product pipeline and terminal assets comprised of 1,200 miles of pipeline, eight product terminals and two crude terminals with 4.5 million barrels of operated storage. We will also acquire Sinclair's interest in three midstream joint ventures for crude gathering, product offtake, including Powder Flats Pipeline, Pioneer Pipeline and the remaining interest in the UNEV pipeline, of which we already own a significant stake. Critically, this transaction provides additional scale and earnings power to HEP, is expected to add $70 million to $80 million of annual EBITDA. Over 75% of the revenue on these assets will be supported by long-term minimum volume commitments with HF Sinclair. Under the terms of the HEP transaction, Sinclair shareholders will receive 21 million HEP common units and $325 million of cash for a total consideration of $758 million based on HEP's closing price on July 30, 2021. On closing of the acquisition, HEP's existing senior management team will continue to operate the company, and Sinclair has been granted the right to nominate one Director for the HEP Board at closing. The HEP transaction is also expected to close in mid-2022.

Thanks, Rich. So turning to Slide seven. HF Sinclair will be well positioned for the next decade and beyond. We expect to generate shareholder value through strong free cash flow, increased earnings per share as well as realizing synergies, all of which underpin a commitment to deliver enhanced cash returns to shareholders and will fuel our continued growth. Moving to Slide eight. HollyFrontier and Sinclair share a common philosophy on commitments to environmental stewardship, sustainability and strong corporate governance that will endure and be strengthened within HF Sinclair. The transaction will increase the scale of our renewable diesel business. This is a critical step forward as we diversify our business for a low carbon future. Our cultures also share a deep commitment to safety, which is important to us as we strive every day to put our people first, do right by our communities and manage risk. We also take very seriously the responsibility for supplying the exceptional products that provide our customers with mobility and quality of life. And at the governance level, our Board is equipped with the right mix of skills and experience to oversee the company and ensure we are delivering for our shareholders and our other stakeholders. Turning to Slide nine. You can clearly see how we are creating scale in our geographies, diversifying our business and building an integrated business with a strong marketing presence. With that in mind, I want to take some time walking through why these individual businesses are a complementary fit within our existing business and discuss some of the compelling strategic benefits of this acquisition. On Slide 10, I'll begin with the marketing branded business. By adding a branded wholesale business, the combined company will have a significant base business and the opportunity to grow this iconic brand across a range of HF Sinclair products and geographies through a consistent sales channel. The Sinclair dinosaur, known as DINO, is one of the industry's most recognized symbols and will represent the brand for HF Sinclair. We're thrilled to bring on board Sinclair's marketing team who will help us to manage and grow a footprint of over 300 distributors and 1,500 branded locations across 30 states with over two billion gallons of annual branded fuel sales. The marketing business provides significant renewable identification or RIN generation through Sinclair's integrated product distribution network. The addition of the branded marketing business also provides a consistent sales channel for produced fuels with stable margins as well as additional earnings from brand licensing and credit card programs. Turning now to renewables on Slide 11. Sinclair was the first mover in this space. Its renewable diesel unit collocated at its Sinclair, Wyoming refinery has been operational since 2018 and was recently expanded to produce 10,000 barrels per day. Sinclair is also currently in the process of constructing a pretreatment unit, allowing for further feedstock advantage and flexibility. Feedstock flexibility generates higher low carbon fuel standard value through lower carbon intensity while also mitigating single feedstock risk. The pretreatment unit is expected to be completed in mid-2022. The combined renewable diesel business will have the scale and size to support logistical, procurement, feedstock and operational synergies and will enhance our ESG profile as we help to facilitate a clean energy transition. Together, we will be a leading producer of renewable diesel in the U.S. with three renewable diesel production facilities with an anticipated production of approximately 380 million gallons annually. Beyond the facilities, the Sinclair team brings significant renewables expertise that we intend to leverage to capture further synergy opportunities. In short, this is a key part of the transaction. With Sinclair, we are expanding our fast-growing segment, and we will have additional size and scale to support logistical, procurement, feedstock, and operational synergies. Turning to the Refining business on Slide 12. We are adding two refineries that are complementary to HollyFrontier's existing refinery network, expanding the company's combined footprint in the Rocky Mountain region. Together, the Sinclair gas refineries add almost 125,000 barrels per day of operating capacity and approximately 5.2 million barrels of storage. The Sinclair refinery distributes products by pipelines to Denver and Salt Lake City, and the Casper refinery delivers products across the Eastern Rocky Mountain region and South Dakota. Like HollyFrontier's existing refineries, the Sinclair refineries are feedstock-advantaged given their northern tier access to Canadian and Rocky Mountain crudes. Each refinery has the complexity to convert discounted crude oils into a high percentage of gasoline, diesel and other high-value refined products. Looking at our combined refining network, we will feature seven complex refineries in the Mid-Continent, Southwest, Rocky Mountain and Pacific Northwest regions with a combined crude oil processing capacity of 678,000 barrels per day. With these additions, the combined company has an opportunity to create significant value through increased reliability and an improved cost structure.

Okay. Turning to Slide 13. Holly Energy Partners acquisition of Sinclair's expansive network of crude and product assets provides an integrated system with connectivity to key crude hubs in the Rockies, including Casper and Guernsey. Together, the combined company will operate 4,600 miles of pipeline and 19 terminals with over 20 million barrels of storage capacity. HEP will also acquire stakes in three joint ventures, serving crude production in the Powder River Basin and product distribution from Wyoming through Utah and Nevada. Consistent with HEP's existing business, these assets will be supported by long-term minimum volume commitments, representing 75% of the revenue generated. We expect this will translate to $70 million to $80 million annually from this acquisition of EBITDA and grow HEP to $400 million to $450 million in annual EBITDA. So let's turn to the financial aspects of these acquisitions. We expect to generate $100 million of run rate synergies within the first two years post closing through a combination of commercial improvements, operating expense reductions, and SG&A savings. On the commercial side, we expect to increase gross margin by $40 million through multiple opportunities such as the sale of legacy HollyFrontier refined product through the branded wholesale business, improvements in renewable diesel sales values and feedstock costs. From an operating expense perspective, we anticipate another $40 million in cost savings primarily through the optimization of the combined company's renewable diesel logistics and improvements from our procurement activities. And finally, we also expect $20 million in traditional SG&A reductions associated with corporate savings. In addition to these run rate synergies, we expect to generate another $100 million to $200 million in one-time savings during the first two years from working capital benefits. Turning to Slide 15. The transaction is expected to be accretive to the company's earnings, cash flow and free cash flow within the first year. In a mid-cycle environment, total EBITDA for HF Sinclair is expected to be over $2.5 billion per year, and we anticipate after-tax free cash flow of approximately $1.5 billion per year. HollyFrontier's credit profile will be enhanced as part of the combined company through reduced leverage, increased scale and diversification of our businesses. Consistent with our history, we expect to maintain a strong balance sheet and investment-grade credit rating. Fueled by significant free cash flow generation, the combined company will be able to support a balanced approach to capital investment and cash return to shareholders. To that end, Slide 16 lays the HollyFrontier's renewed commitment to returning capital to our shareholders. In the near term, as previously announced, we intend to reinstate the regular quarterly dividend of $0.35 per share no later than the second quarter of 2022. In the medium term, we intend to return $1 billion of cash to our shareholders through regular dividends and share repurchases by the first quarter of 2023. For the next 18 months, this represents a cash return from 35% to 15%. And returns increase from there. For 2023 and beyond, we intend to implement target payout ratio comprised both of dividends and share repurchase of 50% of adjusted net income. Bottom line, we are committing to substantial capital returns as we realize the benefits of our growth initiatives in renewables and the acquisitions of the Puget Sound Refinery and Sinclair Oil. Turning to Slide 17 and HEP's. The sustainable free cash flow we generated by this transaction will support our deleveraging strategy while allowing for increasing unitholder returns. In the near term, we intend to reduce leverage and maintain our quarterly distribution of $0.35 per unit. Inclusive of the Sinclair acquisition in 2023, we expect to reach a leverage ratio of 3.5 times and increased distributions with a target coverage ratio of 1.5 times and maintain the option to repurchase units. Longer term in 2024 and beyond, our goal is to maintain leverage below three times and increase the distribution with a target coverage ratio of 1.3 times, again, with the option to repurchase units. We expect that these increases to the quarterly distribution and optional unit repurchases will be funded through excess free cash flow.

Yes. Thanks. Looking ahead on Slide 18, we've presented a road map to completion. The transaction has been approved unanimously by the Boards of Directors of both companies and is subject to certain closing conditions, including receipt of regulatory clearance. We expect to close in mid-2022. And so I will now ask Rich to walk through the second quarter financial results for both HollyFrontier and Holly Energy Partners.

Okay. Thank you, Mike. Details of our earnings are available in this morning's press releases. HollyFrontier reported net income attributable to stockholders of $169 million or $1.03 per diluted share and adjusted net income of $143 million or $0.87 per diluted share for the second quarter. Reported consolidated EBITDA was $444 million, and adjusted EBITDA was $335 million. Our strong second quarter results were driven by sequential improvements in Refining margins in both the West and Mid-Continent regions, as well as strengthening base on our margins, which are visible in the results from the Rack Back portion of HollyFrontier leads and specialties as well as in the Tulsa refinery. For the second quarter of 2021, net cash provided by operations totaled $428 million. And at June 30, our cash balance stood at approximately $1.4 billion, representing a build of approximately $205 million in the quarter. For the third quarter of 2021 in our Refining business, we anticipate running between 380,000 and 400,000 barrels per day of crude oil. At HEP, we reported second quarter net income attributable to unitholders of $56 million or $0.53 per unit and reported EBITDA of $88 million, all supported by continued improvement in crude and refined product demand within the markets we serve. Distributable cash flow was $67 million for the quarter, representing a 2% increase versus the same period last year. HEP announced a quarterly distribution of $0.35 per unit to be paid on August 13 to unitholders of record on August 2. And with that, I'll hand it back to Mike for some closing thoughts.

Okay. Thanks for those details, Rich. The second quarter was financially and operationally very solid. Ending on Slide 19, as we communicated today, we believe this transaction will drive value for all of our stakeholders. With more diversified and integrated revenues and with increased scale, the transaction is a win. Shareholders will benefit from the free cash flow synergies and accretion, which will enable a balanced approach to investment and cash return to shareholders. For customers and partners, we will extend the reach of our products and network of pipelines and storage facilities. And for employees, this transaction adds a strong and talented workforce across all of our business segments. I'm confident that together, we will capitalize on the many opportunities this combination with Sinclair will provide. And with that, Lauren, we're going to open the line for questions. Thank you.

Thank you. Our first question comes from Ryan Todd from Piper Sandler. Ryan, your line is now open.

Great. Thanks and good morning. Congratulations to everyone. Could you discuss some high-level strategic aspects of the deal? After the timing of the Anacortes deal earlier this year, can you elaborate on the timing of what are now multiple transformative transactions in a single year? How do you think the environment has influenced this—are there more willing sellers or a more opportunistic outlook on your part? Additionally, how could the Sinclair deal position you differently for an uncertain refining environment going forward compared to your previous perspective?

Absolutely, Ryan. Thanks for being on the call. Listen, our company has taken on a major strategic shift in the past 18 months as we've worked to add renewable fuels to our mix and protect our feedstock economics through pretreatment, redouble our efforts to improve our reliability and asset utilization at refineries, increase our asset quality and add a high-value products market through investment in Puget Sound and now combining with Sinclair to add a really exceptional downstream branded marketing channel, increase production of renewables both on a relative and absolute basis and increase our presence in the Rocky Mountain states, all very intentional while also adding a logistics network that knits this together. This is exceptionally transformative for us, and I think it differentiates us from many other downstream businesses in the business that we have built here in response to the environment that we're now in. So we think that HF Sinclair is going to be a great place to work and will support the forward-leaning capital return strategy that we've laid out alongside this deal. As it pertains to your comment on the market and on asset availability, what I'd say is this isn't really responsive to willing sellers, but rather our desire to build the business in a manner that we think is going to be durable for the future.

Could you provide an update on cash returns? You've established a near-term, midterm, and long-term strategy for capital allocation. Can you elaborate on which metrics will influence the decision to reinstate the dividend and the buyback? You previously mentioned the dividend could be reinstated by the second quarter of 2022. Is there a possibility for an earlier reinstatement? Is there a chance that it could be delayed depending on the circumstances? Additionally, what is the outlook for the $1 billion cash return and the buyback? Do we have sufficient underlying cash flow in 2022 to support the planned buyback, and how might that position change?

Ryan, it's Rich. So with respect to the dividend, again, it will be reinstated no later than the second quarter of 2022. And we're optimistic depending on the markets, to your point, that we can come back earlier than that. With respect to the buyback, absolutely, look, we, as you can tell, expect to add a lot of cash flow in the next six to 12 months between renewables, Puget Sound and then Sinclair. And at the same time, obviously, our capital expenditures will be falling dramatically in 2022 versus 2021. So free cash flow generation here is going to go up dramatically, and we intend to return that to the shareholder.

Great, Thank you so much.

Our next question comes from Theresa Chen from Barclays. Theresa your line is now open.

Good morning, Thank you for taking my question. Maybe if I can just follow up on the last question that Ryan asked about the macro environment that underlies your assumptions to get to not just the target EBITDA and free cash flow, but also the capital allocation target. What has to happen in terms of broad-based benchmark cracks, differentials and the capture? What are your assumptions that underlie your expectation that you'll be able to achieve these targets?

Theresa, it's Rich. I wouldn't describe our estimates as overly ambitious. Our internal projections are quite similar to consensus, though yours may be slightly lower. We just need the overall economic situation to remain stable. We anticipate generating a significant amount of free cash under those conditions. If the situation improves, that would be even better. However, we are not banking on a dramatic recovery or anything unusual to reach these numbers.

Theresa, I think if you take the second quarter as an example, our business isn't in a very healthy state right now. Really, all aspects of it are working well. We were looking forward to renewable diesel, as you know, but the base business is solid despite what has been a punch in the gut from COVID, where we've recovered pretty well, and it doesn't take a big step forward in order to be able to meet these returns targets that we're laying out.

Got it. And just in terms of the two refineries to be acquired. In terms of the breakdown between WCS, Rocky sweet and other crudes, can you provide a percentage range of each?

Yes. The Casper refinery runs principally on Rocky sweet, and that's 30,000, 32,000 barrels a day. Sinclair, otherwise, we're all in the refinery, is more in the neighborhood of 30,000 to 40,000 barrels a day of Canadian heavy with the remainder being sweet crudes.

Thank you. Good morning. Rich, could you share how the mid-cycle expectations you provided for refining, marketing, and renewable compare to the actual results from the first half of this year or 2019? Is there a way to make that comparison?

So Paul, I think we've laid this out in some of our historic IR materials similar assumptions. But really, we're looking at Gulf Coast cracks on a 3:1 basis of roughly $10 a barrel, historic cleaning...

But the Gulf Coast doesn't work in here, right?

Right. So you're going to trade at premiums to the Gulf Coast, but we do believe that the Gulf Coast sets the market at the end of the day, the marginal barrel. Obviously, we have crude advantages across our fleet that we assume historic mid-cycle numbers on. And those product differentials that I mentioned, Paul, we assume those to be similar to history. Does that help?

How about on the marketing and the renewable?

In terms of marketing, this business is quite similar to publicly traded companies in the wholesale sector, where you usually see a small margin per gallon. There are also opportunities to generate revenue from credit card transactions and brand licensing, which tend to remain stable over time. Regarding renewables, there have been significant changes, and Mike pointed out the importance of pretreatment. Currently, the focus is on the ability to process lower-cost feeds rather than just converting high-quality soybean oil into renewable diesel. We anticipate this will change over time, which is why we maintain flexibility with our feedstock options.

Okay. And second question that, can you share with us that how much is the RIN the marketing business generates?

So basically, Paul, Sinclair is long RINs. They are more or less balanced on the D6 basis and long D4 RINs via the renewable fuels business that they've got. So pro forma transaction...

Can you tell us how much is actually that in January?

Well, I think probably the better answer here, Paul, is pro forma, the transaction, HollyFrontier or HF Sinclair I should say, excuse me, will basically be balanced.

And that includes your two renewable diesel plants, correct, when you mention that you are balanced.

Yes.

And when you say balanced, let's say, you're balanced on a total RIN or your balanced, I mean individually, on D6 and individually in D4 and D5?

We'll be balanced on our total RINs, Paul.

And how about D6, specifically?

So directionally, we'll be short D6 and long D4 and imbalanced in aggregate.

Okay, all right. Thank you.

We now have a question from Paul Sankey from Sankey Research. Paul your line is open.

Good morning All. Just if I could continue on the EBITDA question. So given that you're saying that a mid-cycle would be about $1 billion of refining EBITDA for HFC, based on the report that you just made and what you said about the $10 crack on the Gulf Coast, it feels like we're only about 20% below where we would be on your mid-cycle assumption. Can you just sort of run through some of the elements of that EBITDA and how much distance there is to travel if you want before we get to this $2.6 billion that you've talked about for the combined company?

So Paul, I think, look, we flagged $1 billion of refining EBITDA for legacy HollyFrontier, right? In this quarter, we printed about $210 million. So to your point, we're just a little offset. I think directionally, if we just get a little more improvement in jet fuel market, that probably bridges us home.

Yes. I was really thinking more about the Sinclair breakdown.

Well, it's going to be similar, Paul. I think at the end of the day, where you add these together, these are all apples-to-apples assumptions across Puget Sound legacy, HollyFrontier and Sinclair.

Beyond that, Paul, I think what you're seeing is...

I guess go ahead.

I was going to say what you're seeing in the last couple of years in the Rockies is really ahead of mid-cycle earnings and margins. And so to the extent that continues, that puts wind in the sales.

Great. Okay. A challenging aspect for you is that you've faced some operational criticisms over the years and encountered issues with your renewable diesel project, being behind schedule and over budget. What assurance can you provide that it's wise for you to take on a much larger footprint and that you will be able to manage the assets effectively and efficiently? I realize this is a difficult question, but I have to ask it.

It's a challenging question. Let me start by saying that for the past year and a half, we have been focused on enhancing our operational capabilities. We've rolled out operational discipline programs and established an operational excellence management system. We've introduced a team management process and brought in additional resources to strengthen our existing capabilities in areas like turnaround efforts, process safety, mechanical integrity, and overall operations leadership. Over the last few years, we have concentrated on bolstering our internal capacity to improve our refining operations, and you can start to see some positive results from that in our recent quarterly earnings update. This foundation will also support our efforts with Puget Sound and Sinclair assets. We have experience operating in the Rockies and a strong understanding of both crude and product markets, as well as the overall operating environment. We believe we have ample time to plan and execute this integration, with the Puget Sound transaction expected to close in the fourth quarter, allowing us sufficient time to prepare for integrating the Sinclair acquisition, which we anticipate closing in mid-2022. Therefore, we are confident that we can effectively build and integrate this transaction.

Paul, this is Tom Creery... I was just going to say, this is Tom Creery in terms of renewables. Just a quick update on where we are since we last talked at the last earnings call. Nothing has really changed. We're still on track in terms of both cost and schedule. All the long lead items have been ordered as have been the critical path items. Their schedule still looks good at this point in time. We're heavily into the construction phase at all three locations, that being the two RDU plants as well as the PTU in Artesia. Things are going well. No manpower shortages or anything else. And like I say, we are on track as last reported.

Yes, Paul, I would add that, I mean our execution you highlight is absolutely critical, and we've got it. With respect to renewable diesel, we took on a big project, particularly during a time when it's sometimes hard to get a pizza delivered. But we're nearing the end of it. And we're really excited about these projects, and we think we can bring them on from here according to the schedule and budget that Tom's laid out. So we feel like we're in a good spot there.

Yes, it seems you can look at this morning's results and conclude that operations at HollyFrontier are running smoothly. Would you agree with that? Is everything functioning as you would expect at this moment?

Absolutely.

Yes.

We now have a question from Phil Gresh from JPMorgan. Phil your line is now open.

Good morning. You were talking on the Sinclair side that the refining EBITDA, you think, is operating. I think you said ahead of mid-cycle. I was wondering how you would characterize the performance in the renewable diesel business right now, given that it does not have a pretreatment unit currently? And then if you could kind of walk through some of your assumptions to get to the $150 million of EBITDA there that we could think about as we try to model this.

Phil, it's Rich. Good morning, So given they just completed an expansion of their plant, given that they do not have a pretreatment unit at the moment, it's been a little tough for the last six to 12 months. But again, they're doing the right thing here and investing in a pretreatment unit that we expect to be up and running before close. So I think that's essential to the assumptions we've made here. Going forward, we're expecting D4 RINs north of $1 is what we've assumed. Blender's tax credit, we now expect will probably be extended somewhat longer than 2022. But we do expect it to get phased out over time and then continue to expect LCFS credits to be higher in the long run.

And do you have a rough feedstock mix for post PTU?

There will be probably roughly 50-50, maybe a little higher on low CI feed versus high-grade bean oil.

Okay. And so the $400 million of renewables EBITDA, are you saying that does or does not include some amount of blender's tax credit?

It does include some amount of blender's tax credit, yes.

Okay, Rich, I'm running the free cash flow per share numbers for stand-alone Holly compared to the pro forma, and it appears a bit dilutive on free cash flow per share. I'm curious about your thoughts on the valuation. Clearly, Sinclair has a different mix than stand-alone Holly, but generally, how do you perceive the valuation being paid? Do you agree with my observation?

So now, Phil, actually, look, we expect, frankly, across all metrics, earnings per share, cash flow per share and free cash flow per share that will be accretive in the first year, call it, to the tune of mid-single digits, and that will increase dramatically over time as those synergies come in. So now we're expecting some substantial accretion across all the kind of conventional metrics you would look at.

We now have a question from Manav Gupta from Credit Suisse. Manav your line is now open.

Hey, Rich and Mike, so if we just look at the 2Q earnings, right, you are out-earning your bigger competitors and more diversified competitors. And so if you think about it only on a PE basis, there's a massive dislocation in your stock price, right? I mean your stock is 30. Your bigger peers are 60 and 70. And so things are actually working out very nicely for you. And from that perspective, you're about to take all this transformation, Puget Sound, renewable diesel and Sinclair. Again, if everything works out, your EBITDA could be $1.8 billion next year, but there is an execution risk here. There's a lot of things, which you'll have to make sure go right. And I'm just trying to understand, why push for so much change when you are actually doing so well on a stand-alone basis?

Yes. It's a good conservative point, Manav. What I would say is that the good quarter doesn't comprise a good strategy. And looking at the business environment that we see and foresee, we believe that the downstream integration into branded wholesale, controlling more of the value chain and serving those customers on a branded basis really is going to help us out, both with RFS compliance and with gross margin generation. So we think that it's a smart move. We also see the renewable diesel business as an important addition as we try to expand in that and have the opportunity to optimize and gain synergies across the two sets of plants. And finally, adding Rocky Mountains exposure to us given our experience in that geography is a smart and high earnings thing to do. So I guess we could leave well enough alone, but we're trying to build this for the five and 10 years forward, not for the next two quarters.

That's a valid point. My second question is about the CAPEX increase in renewable diesel last quarter. I want to understand if there was a design change during the process that enabled the use of more lower-quality soybean oil. Did this contribute to the increase in CAPEX? Your guidance suggests this should be a positive development since lower-quality soybean oil is priced at a discount. Could this have been a factor in the CAPEX increase for renewable diesel last quarter?

Manav, you bring up an excellent point. It's Tom Creery. Yes, we did make some scope changes as we went along to accommodate the low CI feedstocks, predominantly Tallo at the Cheyenne Refinery, repurposed refinery. That is going to do a lot for us in terms of feedstock flexibility, and it also works well with our PTU at Artesia as well. So it reduces our dependence upon RBD or refined soybean oil. And we think it's going to play out well and give us a great amount of flexibility as we move forward that we'll be able to run a variety of feedstocks to get the maximum value up.

Congrats on the great quarter and look forward to the deal. Thank you.

We now have the question from Spiro Dounis from Credit Suisse. Spiro your line is open.

Good morning guys, First question, just on the strategy for HEP. Can you talk a little bit more about some of the integration and synergy opportunities for these assets at the HEP level? And curious if that $70 million to $80 million EBITDA contemplates any synergies? And if you could, Rich, just maybe expand on why these assets provide more opportunities for growth versus some of your legacy assets there? Thanks.

Sure, Spiro. It's a very complementary set of assets, both in terms of culture and operational style, focused on steady refinery customers. We’re excited to welcome some new colleagues. Regarding growth, I believe we’ll achieve significant scale at a corporate level and in specific markets, which will allow us to identify organic opportunities that we haven't historically tapped into, especially on the crude gathering side. We're looking forward to growing in the future. To answer your question, it does rely on a bit of synergy, potentially a few million dollars a year, but it's not expected to be a substantial amount on the HEP side.

Got it. That's a couple, Rich. Second question just around the capital allocation outlook once again for HEP. The reduction in that coverage ratio seems to imply a pretty healthy kind of double-digit distribution growth. I just want to make sure I didn't miss anything in sort of reading that right. And if you could just maybe talk about the mechanics of reaching that goal. And then I guess, how much, if any, Puget Sound asset drop downs are contemplated in that outlook, if at all?

Yes. So you are correct in where your math is getting you on a growth rate basis. I think we will probably phase into that. I don't think it'll be a step change. There is not any Puget Sound embedded in that. It's probably worth highlighting here on the Sinclair transportation side, maintenance capital here is very low. It's consistent with what you see at HEP today in the $5 million-ish range. So that EBITDA is going to flow right through the cash flow per share and distributable cash flow.

We now have a question from Doug Legate from Bank of America. Doug your line is now open.

Hey, Good morning guys. This is Kalei on for Doug. Just a couple of questions from me. So firstly, I don't think anyone would argue the strategic logic of building scale in the Rockies. But wondering if you guys see any FTC issues on the concentration of assets.

No, we expect to have this transaction reviewed thoroughly by the FTC. We believe that it's a good transaction for our customers, marketers, employees and the communities we serve, and we don't see it as reducing competition. So that's kind of where we are at this point.

Got it. Second question, just can you remind us on the breakdown of the synergy? And I'm wondering how conservative you're being given the concentration of the purchasing power and the operation overlap. It's fairly robust.

Sure. Let me give you a little more detail there, Kalei. So again, it is about $40 million on the gross margin side. By way of example, we see plenty of opportunity in the renewable side, sourcing lower-cost feeds, using our scale in that space as well as the ability to consolidate transportation, really, which is obviously a big deal in the renewable space. In the operating expense side, again, we'll see some opportunities in renewables. There's also a tremendous opportunity here in procurement. Our procurement organization has delivered a lot of value to us in the last five years, and we'll be able to realize some real opportunities with Sinclair from that group. And again, as mentioned, G&A, we're comfortable that we can obtain $20 million there. So these feel like very comfortable run rate synergies to us.

Got it. And last one, if I can just sneak it in. Are there any tax considerations from net operating launches for asset in Sinclair?

No.

Thank you for taking my question. Just two follow-ups on HEP. One, is there any growth or maintenance CAPEX associated with the acquired assets from Sinclair? That's the first question.

So Michael, I think there's going to be roughly $5 million a year of maintenance capital in these assets. There is the opportunity for growth capital, particularly with the Power Flats joint venture, but that's going to be driven by rig count and well growth in that area.

Okay. Great. And then just to clarify on the sequence of distribution growth and leverage. Is the plan going to be to first get to three times leverage and then start pushing toward from 1.5 to 1.3 on the coverage? Or do you anticipate that those things will sort of happen simultaneously?

So I think these things will happen simultaneously, Michael. We want to work our way into this. Again, I don't expect a stair step change here.

Hi, Good morning.

Good morning Jeremy.

I wanted to follow up from the HEP perspective regarding accretion because the transaction terms at the EBITDA level appear quite similar to HEP's trading. Can you provide more details about what contributes to the accretion at the HEP level in this transaction and the timing for achieving that accretion?

Yes, Jeremy. So directionally, you're correct. So we'll be using marginally more leverage at the HEP side, which helps. And I think consistent with what I mentioned earlier, we're talking about very low maintenance capital in these assets. So this will really flow through on a cash flow per share basis.

Thanks for taking my question. I first wanted to ask on HFC, just understanding the debt and buyback outlook for the next couple of years. Can you just provide what the debt-to-EBITDA target is once the acquisition closes, where you want to get that number to? And is the intention on the buyback to offset the shares issued over some period of time, maybe the next couple of years or further out? Just any color on that. And then just going back to the strategic rationale on the deal. You mentioned you wanted to create a more durable business. Do you see the need to do anything else to get the business in a place that you wanted? Or following the Sinclair acquisition, do you now think HFC post Sinclair is in a position to be durable over the next five to 10 years?

Jason, I'll answer the third question first, and then Rich will hit the financial metrics and the leverage, OK? Do we need to do anything else to get there? The short answer is no. We've obviously got a lot on our plate. We've emphasized execution as being critical, and we're really excited about what we have. This business model is as it comes together going to, our mind, be a launchpad. But we're very satisfied to integrate it and run it and basically optimize it for the next period of time and focus on cash returns.

Jason, on your financial questions, with respect to leverage targets, I wouldn't say we have a target per se. We do expect the closing to be right around 1.5 times consolidated net debt to EBITDA. And we do expect and then foresee this whittling that down going forward, clearly well within the range of an investment-grade balance sheet. And with respect to your question on repurchases, yes, absolutely. We would expect to be in the market. We do expect that the Sinclair Oil shareholders will be sellers over time, and we look forward to being able to participate in the market when they're selling.