Welcome to HF Sinclair Corporation's Third Quarter 2024 Conference Call and Webcast. Hosting the call today is Tim Go, Chief Executive Officer of HF Sinclair. He's joined by Atanas Atanasov, Chief Financial Officer; Steve Ledbetter, EVP of Commercial; Valerie Pompa, EVP of Operations; and Matt Joyce, SVP of Lubricants and Specialties. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. Please note, that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin.

Thank you, Novi. Good morning, everyone, and welcome to HF Sinclair Corporation's third quarter 2024 earnings call. This morning, we issued a press release announcing results for the quarter ending September 30, 2024. If you would like a copy of the earnings press release, you may find them on our website at hfsinclair.com. Before we proceed with remarks, please note the Safe Harbor Disclosure Statement in today's press release. In summary, it says statements made regarding management expectations, judgments, or predictions are forward-looking statements. These statements are intended to be covered under the Safe Harbor provisions of Federal Security Laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliation to GAAP financial measures. Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I'll turn the call over to Tim.

Good morning, everyone, and happy Halloween. We are pleased with our third quarter financial and operational performance in all of our businesses, and especially by the strong and consistent earnings in our Marketing, Midstream and Lubricants and Specialties segments. These contributions from our differentiated business segments highlight the value of our diversified portfolio, especially as global refining margins weaken. We continue to execute our strategy to integrate and optimize our portfolio in order to strengthen the earnings power and competitive advantage of our businesses while focusing on improving safe and reliable operations. During the third quarter, we returned $222 million in cash to shareholders and today announced a $0.50 quarterly dividend, demonstrating our continued commitment to shareholder returns. Now, let me cover our segment highlights before turning over to Atlas. In Refining, for the third quarter of 2024, we continued our streak of improved reliability by completing the turnaround at our Parker refinery on time and on budget. Year-to-date, we've made progress on lowering our operating expenses, and we'll continue to focus on cost management and improving utilization as we drive towards achieving our near-term target of $7.25 per throughput barrel. Our optimization efforts resulted in a quarterly record for jet production across our fleet, and our Woods Cross refinery set a quarterly record for premium production. In Renewables, for the third quarter of 2024, we set a record for the highest quarterly sales volumes of renewable diesel and achieved our lowest operating expenses per gallon. Our team's optimization and reliability efforts resulted in another quarter of positive adjusted EBITDA, despite continued headwinds from weak RINs and LCFS credit prices. Our strategy for the renewable diesel business remains centered on the things we can control: one, reduce the level of high-cost inventories; two, increase our low CI feedstock mix; and three, lower our operating expenses. In marketing, in the third quarter of 2024, we continue to grow our store count with the addition of 22 net new branded sites. And on a year-to-date basis, we have added a net of 46 fully branded sites to our portfolio. Our strong third quarter results reflect the growth strategies we are executing since the Sinclair acquisition. Looking forward, we continue to expand our growth pipeline and now have new signed contracts to convert 168 stores to branded wholesale over the next six to 12 months, and we continue to target 10% annual growth for branded sites. In Lubricants and Specialties, we reported another strong quarter of results despite the FIFO headwinds from falling oil prices. Our strategic initiatives of: one, optimizing our sales mix; two, operational efficiency; and three, furthering our base oil integration efforts continue to strengthen our lubricants business. In addition to our efforts to organically grow the business by high grading our finished products portfolio, we have also introduced digital tools that provide better visibility to our supply chain and manufacturing cost structures, and have developed new product offerings to serve growing end-use markets. In our midstream business, for the third quarter of 2024, we delivered another strong quarter of performance as we continue our integration work to drive our growth in this segment. Year-to-date, we have set record affiliate and third party transportation volumes, supported by strength in our crude pipeline systems in the Rockies and Southwest. In the third quarter, we returned $222 million to shareholders through share repurchases and dividends. Since the Sinclair acquisition in March 2022, we have returned over $3.9 billion in cash to shareholders and have reduced our share count by over 57 million shares, which represents 71% of the shares we issued for both the Sinclair and HEP transactions. As of September 30, 2024, we have approximately $800 million outstanding on our share repurchase authorization, and we remain committed to our long-term cash return strategy and long-term payout ratio while maintaining a strong balance sheet and investment-grade credit rating. As I mentioned earlier, we also announced that our Board of Directors declared a regular quarterly dividend of $0.50 per share payable on December 4, 2024, to holders of record on November 21, 2024. Looking forward, we remain committed to improving our safe and reliable operations, and we believe our diversified business portfolio positions us to generate attractive through cyclical cash flows and continued strong returns to our shareholders. With that, let me turn the call over to Atanas.

Thank you, Tim, and good morning, everyone. Let's begin by reviewing HF Sinclair's financial highlights. Today, we reported a third quarter net loss attributable to HF Sinclair shareholders of $76 million, or negative $0.40 per diluted share. These results reflect special items that collectively decreased net income by $172 million. Excluding these items, adjusted net income for the third quarter was $97 million, or $0.51 per diluted share compared to adjusted net income of $760 million, or $4.06 per diluted share for the same period in 2023. Adjusted EBITDA for the third quarter was $316 million, compared to $1.2 billion in the third quarter of 2023. In our Refining segment, third quarter adjusted EBITDA was $110 million, compared to $1 billion in the third quarter of 2023. This decrease was primarily driven by lower adjusted refinery gross margins in both the West and Mid-Con regions as a result of high global supply across the industry, which were partially offset by higher refined product sales volumes. Crude oil charge averaged 607,000 barrels per day for the third quarter, compared to 602,000 barrels per day for the third quarter of 2023. This increase was primarily a result of improved reliability and decreased turnaround activities at our refineries compared to the third quarter of 2023. In our Renewables segment, we reported adjusted EBITDA of $2 million for the third quarter compared to $5 million in the third quarter of 2023. This decrease was primarily due to lower indicator margins despite increased sales volumes and feedstock optimization in the third quarter of 2024. Total sales volumes were 69 million gallons for the third quarter compared to 55 million gallons for the third quarter of 2023. Our Marketing segment reported EBITDA of $22 million for the third quarter, compared to $21 million for the third quarter of 2023. This increase was primarily driven by higher margins in the third quarter of 2024. Our Lubricants and Specialties segment reported EBITDA of $76 million for the third quarter, compared to EBITDA of $118 million for the third quarter of 2023. This decrease was primarily driven by a $27 million FIFO charge from consumption of high-priced feedstock inventory in the third quarter of 2024 compared to a $30 million FIFO benefit in the third quarter of 2023, partially offset by improvements in the underlying business, including increased sales volumes, sales mix optimization, and base oil integration in the third quarter of 2024. Our Midstream segment reported adjusted EBITDA of $112 million in the third quarter compared to $101 million in the same period of last year. This increase was primarily driven by higher revenues from increased volumes and higher tariffs in the third quarter of 2024. Net cash provided by operations totaled $708 million, which includes $90 million of turnaround spend in the quarter. HF Sinclair capital expenditures totaled $124 million for the third quarter. As of September 30, 2024, HF Sinclair's total liquidity stood at approximately $3.7 billion, which includes a cash balance of $1.23 billion, our undrawn $1.65 billion unsecured credit facility, and $850 million availability on the HEP credit facility. As of September 30, we had $2.7 billion of debt outstanding with a debt-to-cap ratio of 22% and net debt-to-cap ratio of 12%. Let's go through some guidance items. With respect to capital spending for full year 2024, we still expect to spend approximately $800 million in sustaining capital, including turnarounds and catalysts. In addition, we expect to spend $75 million in growth capital investments across our business segments. For the fourth quarter of 2024, we expect to run between 565,000 and 600,000 barrels per day of crude oil in our Refining segment, which reflects the planned turnaround at our El Dorado refinery. We're now ready to take some questions from the audience.

The floor is now open for questions. Thank you. Our first question is coming from Ryan Todd with Piper Sandler. Please go ahead.

Thanks. Congrats on the quarter. Maybe a question, first of all, in terms of kind of cash allocation. You got a great balance sheet. You've maintained an attractive level of shareholder returns in the quarter. As we think about going forward, if margins stay weak, how should we expect you to manage the balance sheet and the trade-offs between how you approach shareholder returns versus the possibility of increasing that debt or managing that debt?

Yeah. Good morning, Ryan, this is Tim. Let me ask Atanas to jump right in.

Thank you for your question, Ryan. I would highlight our history and our actions this year in a challenging market environment. We have maintained a very strong balance sheet with net debt and a net leverage ratio of under 1x. Year-to-date, our cash return stands at 11%, while on a 12-month trailing basis, it's at 14%. Even amid ongoing weakness, we believe we can continue to provide a competitive cash return to our shareholders. We are fully committed to our dividend and our buybacks, ensuring total returns to our shareholders. Additionally, our investment-grade rating is a significant advantage for us, and we prioritize maintaining a conservatively managed balance sheet while continually returning cash to our shareholders.

Yeah. And Ryan, this is Tim. I'll just jump in and say, remember, one of the reasons we bought in our HEP business last year was for the free cash flow and was for times like this where we knew that having that cash flow within our portfolio was going to be better. And so we're very happy we did that, and we're positioned better for it.

Great. Thanks. I have a question about refining operations. The throughput this quarter was very strong, continuing the trend of high reliability towards year-end. Can you discuss what has been successful in your efforts to improve operational reliability and what you are still focusing on? Are there areas where we can expect further improvements as we look ahead?

Yeah, Ryan, thanks for the question. As you know, focusing on improving our reliability has been our core priority here for the last several years, and it is good to see the fruits of that labor starting to show. So let me ask Valerie to comment.

Good morning. As we've discussed before, our strategy has been centered around significant turnarounds over the past few years, and with each of these efforts, we've seen improvements. Our turnaround performance has been effective, as we address reliability opportunities with appropriate capital and scope, leading to predictable outcomes, as we've seen this year with Parco and other completed turnarounds. Additionally, our technology-driven efficiency improvements are also proving beneficial. We are implementing various technology enhancements to boost efficiency in our operations and maintenance, which is starting to reduce our operating costs through decreased equipment count. The strategies we've been discussing are beginning to yield positive results.

And Ryan, I would just say, not only is that showing up in turnaround performance, it's showing up in throughput, but it's also showing up in OpEx per barrel. And even though our OpEx was a little bit higher this quarter, it was mostly due to the maintenance items that we had. Year-to-date, we're $0.66 a barrel lower than we were last year, and that's a tribute to the improved reliability that Val and her team are delivering to the bottom line.

Okay. Thanks Tim.

Your next question comes from Manav Gupta with UBS.

Good morning team. It looks like you guys are very focused on growing your marketing business. Help us understand why there is a strategic focus here? Does it give you the ability to place the product, some pipelines are being built into your regions? Does that allow you to offset those pipelines, those product pipelines? Help us understand the real reason you are so focused on growing your marketing business.

Yes. Thanks for the question, Manav. As you know, when we merged with Sinclair and brought them into the family, growing the marketing business was our core priority. And again, we're really starting to see that find its legs, and Steve, why don't you talk a little bit more about the value and the benefit of doing that?

Yes, sure. Thanks, Manav. This is Steve. Following on with Tim's comments, we really believe that there's a significant opportunity here to increase our branded put. We think there are logistical advantages to producing in markets that we serve and being connected through our midstream assets, and we're looking to exploit that. And the final piece is we think that the brand is undervalued in terms of how we get value out of it. So, that branded put gives us some resiliency through the cycle. And to be honest, there's quite a bit of interest and demand for DINO. And so what we've seen so far in our growth, as Tim mentioned earlier, we have an additional signed sites of 168 that will be on the ground between six and 12 months. And that, coupled with what we're doing in terms of getting more value out of the brand, we believe should be an increased value to the overall enterprise.

So, Manav, as you noticed, we're on a run rate of, call it, $75 million to $80 million of EBITDA in our marketing business, which is much higher than the $50 million of mid-cycle that we started with at the acquisition. But what you're seeing in that marketing segment is really only the tip of the iceberg because what's happening is for every branded barrel we're able to place, it really comes out of the marginal bulk barrel that we have to sell at a much lower price. And those bulk barrels and the uplift associated with that is actually in the refining business. And so what you see reported in the marketing segment is really just a piece of the value of these branded bulk barrels because it's also uplifting the refining netback on the wholesale barrels too.

My second question is about lubricants. When we account for the FIFO impact, it has been a strong quarter. You have continued to enhance this business, reaching a run rate of around $350 million in EBITDA, despite the volatility in commodity prices. Could you explain some of the projects or measures you’ve implemented that have enabled you to achieve this $350 million EBITDA run rate in this segment?

Yes. Thanks, Manav. The lubes business just continues to perform quarter-over-quarter. It's really our poster child of what we can do when we focus on integration and optimization. And I think Matt and his team have really done a great job. Matt, do you want to talk about what's going on?

Sure. Manav, Matt here. You know, what we saw is, of course, we had a lot of FIFO headwinds, which, of course, means that we're going to use those feedstock inventories and consume older, more expensive feed versus our replacement costs. But in any case, these tend to balance out throughout the year. And the underlying business remains very healthy. Actually, absent of that FIFO in this quarter, it was one of our strongest quarters since we've held the businesses over the past many years. And it's really driven through a focus on operational efficiencies that we've talked about. The team has done a tremendous job of getting after some digital tools that are allowing us to have better visibility of transportation planning and pricing management. And that's a big part of the secret sauce that we're using. I referred to it in past quarters as our housekeeping, but we've done a really nice job of that. And on top of it, we've gone out with some regional core growth opportunities and developed new offerings that place our base oils in the highest value applications that we can. One that we're really proud of is in our specialties portfolio. We introduced a new ingredient rubber processing technology for the tire and construction industry this past quarter called Circosol 5100. That will provide a much needed source of TDAE treated distillate aromatic extracts in the North American market and provide significant improvement in the tire industry. And that's under test right now. We're going to see some modest sales start in early 2025. And then the other one that we've just introduced is really exciting called Innovate, which is a new dielectric immersion cooling fluid technology intended for use in the data centers and digital mining space. So again, looking for new different areas to grow and see where our molecules and our technologies can be used to better improve our business and those businesses and markets we serve.

So Manav, as you've heard, we've discussed the integration of our base oil business with our finished lubricants business, which is contributing significantly to our resilience during the base oil crack cycle. What Matt is referring to is growth, particularly in the finished lubricants business. We are seeing substantial growth in North America, with double-digit increases over the last several years, and this growth is a key driver of the positive results we are experiencing.

Thank you so much for taking my questions.

Our next question comes from Paul Cheng with Scotiabank. Please go ahead.

Good morning. Can I have two questions? The first one, I want to go back into lubricant. Tim, in the past, I think you guys have mentioned that in the long-haul, this may not be a core business, or that may not be part of your core portfolio. But I'm just curious that with your improvement in the business and you gained the expertise in there, is there any reason why it cannot be part of your core portfolio in the long run? Is there any particular reason what you don't like about this business and as such that you think in the long haul, it may be better off to be in someone else's portfolio other than, yes, the valuation could be maybe a little bit higher multiple. But I mean, after you pay tax and everything, is it really that much value added? So that's the first question.

It's a good question, Paul. I want to clarify that we have always been satisfied with our lubes business. Our main concern was not receiving proper recognition for its value. In previous discussions about maximizing shareholder value, we considered whether our lubes business would perform better in another company's portfolio, based on the idea that it wasn't accurately valued within ours. However, over the last few quarters, it's become evident that the appreciation and valuation of our lubes business are receiving more attention. With the recent weakening of refining margins, there’s greater recognition of its worth in our portfolio. So to answer your question, yes, we see it as a core business for the long-term and are committed to its growth. As our stock and shareholders begin to recognize its value, we will continue to grow and hold onto it.

Thank you. The second question is that a number of your peers have specifically announced some kind of cost reduction programs, one of your peers that this morning just announced a $200 million of cost-saving efforts. I know that you guys, obviously, that continue to work on in that space. Is there any number you can share over the next several years that your initiative that is there any area, major area that you're focusing that is going to drive down cost? And then if there is, could you quantify for us? Thank you.

Yeah, Paul, good question. Obviously, as we go into a downturn, everyone is going to be worried about costs. I've already mentioned that our OpEx per barrel in refining is down $0.10 versus a year ago. But Valerie is not finished yet and is continuing to work down those costs. I'll let her talk a little bit more about what she's doing there.

We are actively managing our operating expenses and concentrating on maintenance, which constitutes a significant portion of our costs related to maintenance personnel and activities. As we enhance our reliability, we anticipate a reduction in these expenses. We are beginning to see better performance from our more advanced programs, particularly in the West, and we expect this trend to extend throughout the entire fleet. While we will not specify an exact dollar amount for cost reductions, we have internal targets, with a primary goal of maintaining $725 consistently.

Yeah. And that's refining, Paul. I'll just point out a couple of other things. I mean, we're working hard to reduce costs. That's part of our integration and optimization priority. But I can just point out a couple of things like in the lubes business that Matt just talked about. If you look at their OpEx, I think they're under-running $15 million this year versus last year. I think that's not by accident. It's by the efforts that have been going on and hitting the bottom line. I think if you look at our G&A, we're running about $20 million this year below what we ran last year. And again, that's not by accident. That's all associated with the integration and optimization efforts that we've got going on. Midstream has got the same thing with the integration efforts that we have going on. And then, of course, renewables has the lowest OpEx per barrel this quarter that we've been able to demonstrate. So we're not going out there with a flashy program. But instead, we're trying to show in the bottom line numbers what we're doing to reduce costs.

Thank you.

Our next question comes from Doug Leggate with Wolfe Research. Please go ahead.

Good morning. Thank you for taking my questions. Tim or I'm not sure who wants to take this one, but obviously, your market, your refining market is probably seeing some of the biggest changes you've seen in quite some time with Cenovus bringing back capacity with slightly your realized for Whiting running at full tilt. And obviously, there's a lot of changes going on with TMX in terms of crude availability. So I guess I'm looking at the reset you gave us in your mid-cycle margin assumption some quarters ago on slide 8 of your latest deck. I just wonder how we should think about risking that in light of these changes. Are you still confident that this is a reasonable baseline? Or how would you think about the risk to that $15 gross margin assumption?

Yes, Doug. Good to hear from you. Yeah, we're confident in our mid-cycle numbers. And remember, that's a cycle. And we know that there's going to be ups and downs in the cycle. And right now, we're below mid-cycle, as you're pointing out. But that doesn't change our view of the strengthening of the business that we've done in our refining business in particular. There is a lot going on. I'll let Steve talk a little bit about that. But the bottom line is we're still confident in our mid-cycle numbers. Steve, do you want to cover?

Sure. Doug, this is Steve. Thanks for the question. You mentioned two specific things. One relates to supply, so I'll address that. As we head into the winter demand slump in Q4, seasonal driving decreases and refineries complete maintenance. Looking ahead to 2025, we expect to be closer to mid-cycle for a few reasons. Overall, we see various factors in play with shutdowns and new capacity expected to add about 300,000 barrels. However, we anticipate that demand will outpace this. Timing is important, but we believe we'll be in a balanced margin environment for 2025, which aligns with mid-cycle expectations. You also brought up TMX, and we have noticed some impacts on crude values. For example, the price dips have narrowed, and we project that the light to heavy price difference will be around $12.50 to $15, depending on several factors. Notably, Q1 2025 pricing appears to be about $6 lower than Q1 2024. Our position in the Pacific Northwest, with sufficient dock capacity and the capability to handle multiple crude types, puts us in a strong position to compete for these barrels as more crude is transported. While slight compression in price dips may impact our Mid-Con and PARCO refineries until production exceeds pipeline capacity at TMX, we remain well connected to various hubs and are actively working to optimize crude options and flexibility. Overall, we believe 2025 will support conditions closer to mid-cycle, and that’s our current outlook.

Yeah, I guess we're going to watch the dynamics, but I appreciate the confidence, and I hope you're right for sure. But my follow-up is on renewable diesel. And I guess it's just really specific to your portfolio mix. As the BTC goes away, at the end of this year and we have more of a CI-based credit system. How do you see your system set up in terms of take advantage of that or not the case?

Yes. So I'll take that one as well. We're watching the BTC very closely as it goes away and the PTC comes on in a CI-based. As you mentioned, we've continued to push very hard to get more CI or low CI feedstock in our kit through better sourcing our capability on the PTU and actually a few small tweaks in the plants. And so we think we could compete with our current setup. We also have the ability to go take barrels to different markets that are not as dependent on low CI for that value, and we've been able to move barrels into Canada and some local markets as well where there has been some uplift. So there's some uncertainty heading into the first part of the year, and we think that it's going to end up having to settle out with some more support from RINs. And so that's a bit of how does that happen and when does that happen? And then on the positive side associated with this, there'll be fewer imported finished barrels. So we think the supply structure and demand structure tighten up a bit that shows some supportive margin for 2025. But there's still a bit of uncertainty in the first part of the year, but we're watching it very closely, and we'll manage that risk carefully.

And Doug, that’s commentary around the BTC and the PTC. However, when looking at the overall renewable diesel factors and end market, we believe the LCFS credit prices are likely to increase in 2025, which should benefit our business. The New Mexico LCFS program is being finalized over the next few months, and we expect that when it launches at the end of 2025 or early 2026, it will support us as we will be the only renewable diesel producer in New Mexico. Additionally, we anticipate that overall RINs prices will also rise. Despite the current low cycle conditions, we have demonstrated our ability to produce positive EBITDA, positioning us well for these potential advantages in the coming years.

Got it. Thank you guys. Appreciate the answers.

Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Yeah. Good morning, Tim, and team. The first question is just around capital as we think about next year. This year, I think you guided to $875 million, of which $75 million is growth, $800 million sustaining. How do you think about some of those moving pieces as we go into 2025? And is this a reasonable run rate as we think about next year?

Neil, good morning. This is Atanas. Thank you for your question. I think this is a reasonable assumption over the next couple of years in that ZIP code of $800 million to $875 million, including some growth CapEx in it. So I think you're right.

We are currently working on our budget, so there is no official guidance at this time. We will release that in December, as we usually do. However, we are not anticipating any significant peaks for the coming year. I believe that is what Atanas is trying to convey, and we will provide a clearer estimate by the end of the year.

Perfect. Yes, that helps us frame it out. And then as we think about the midstream side of your business, can you just talk about priorities from here? And how do you see that as part of the business going forward? Is this a free cash flow engine? Or can it be a vehicle for growth? So big priorities around the midstream side of your business over the next year or so?

Yes, Neil, this is Steve. Thanks. I look after our midstream business as well. As part of the proposition of buying it in, we feel like there was an untapped opportunity there, and I think we're starting to see that. We really believe that there is utilization to go get, and we think there are some pieces of the kit that we can optimize or go add to really allow us to unlock the integrated value chain and operate our kits as such. So we're focused on how do we go make sure that we're touching the molecules early and often and getting them on our system. Perfect example is things that we can unlock now because we are under one umbrella. Our Permian Southwest gathering asset, we're working and investing to go move more barrels from third-party or alternative modes of transport onto our system and helping that all the way through to our plants and in between the plants. And that's just one example that we see as an opportunity. So we think it is a growth engine, and we think that this is something we'll continue to focus on as well as improving our overall cost profile. And we believe that there are some things that we can do between the operating platforms in refining as well as midstream, where we can share the best practices and learn and do things, common solutions for common problems. But we're pretty excited about the opportunities ahead of us and what we can go do with the midstream sector.

Yes. And Neil, I would just chime in, too. We talked about buying in the HEP business a year ago. And one of the reasons was for the free cash flow accretion associated with that, that's going to pay us dividends now. The other one was for the growth, and that's what you're pointing out. This quarter, I think we had record pipeline volumes. Last quarter, I think we had record total volumes going through. If you look at our run rate, our run rate is $50 million EBITDA higher than it was a year ago. And that's associated with not just higher tariffs, which we knew were coming, but also these higher volumes, lower op costs, as we've talked about, and higher third-party volumes that go with that as well. So we do think midstream is going to be a growth engine. We've talked a lot about lubes and how lubes has been a real bright spot for us over the last several years. I really believe that you're going to see the same thing in midstream, and you're going to see the same thing in marketing as we continue to grow those, what we call higher multiple businesses in our portfolio.

Tim, just to follow up on that, when you refer to it as a growth engine, are you primarily talking about organic growth? Or do you see the possibility for acquisitions in midstream as well?

Our current focus is on organic growth. This past year, we have emphasized the importance of enhancing our internal reliability, integration, and optimization. However, as we build a solid foundation, I believe there will be opportunities for modest inorganic growth as well. While it's not our top priority at the moment, we are definitely considering it for the future.

The next question comes from Theresa Chen with Barclays. Please go ahead.

Morning. Steve, I'd love to get some additional details on your comments about demand across your footprint by products and related to what you said earlier on expectations for demand outpacing supply over time, how does that translate to your specific markets, inland more niche areas plus the Pacific Northwest?

Thank you, Theresa. There's been a lot of concern about a potential structural issue with demand, but what we've observed is that there is no structural problem. Demand has remained relatively flat and even increased in some markets. The challenges we've faced, such as cracks, are related to the additional supply in the market from various factors we've discussed before. In our markets, there are regions with advantages where growth is still occurring, and people are relocating to those areas, which presents us with opportunities to capitalize on. We're focused on enhancing our midstream operations and expanding our brand presence through our retail stations. Overall, we're optimistic about the regions we serve. One of our most promising growth areas has been the Pacific Northwest, which is a great opportunity for us to optimize operations between our plants and that area. We've also seen strong demand and growth in the Southwest, and we plan to further develop other regions where we already have a significant presence with our brand.

Got it. And on that branded put, based on your execution and rollout thus far, how much of an incremental margin benefit does that bring? And is that sustainable over the medium-term? How should we think about that incremental financial uplift?

Yeah. So on a revenue replacement basis, when we go put a new site up versus a site that doesn't really fit in our portfolio, we see between 60% and 120% increase in overall volume over time, and they're in better locations. And so the margin structure continues to improve with better sites. We're not giving explicit guidance, but we're starting to see it in the run rate. I think Tim mentioned earlier, the EBITDA run rate of between $75 million and $80 million, we believe is realistic based on what we've seen in 2024, and we think there's further opportunity. So higher margin, resilient, and better volume locations, high-grading from a bulk to an unbranded to a branded outlet is really the strategy and the key to continue to unlock value.

Thank you.

The next question comes from Jason Gabelman with TD Cowen. Please go ahead.

Morning. Thanks for taking my questions. One quick accounting one. It looks like cash flow was very strong, well above what's implied by your EBITDA numbers. So just wondering if there was a working capital benefit or something else going on with cash from ops.

Yes, Jason, this is Atanas. That's an accurate observation. We did have a working capital tailwind in the winter over the summer months as we're working down inventory. So that helped us.

Okay. And then the other one, just thinking about position, and this has been touched on quite a bit on the call. But it sounds like part of the growth in retail is to secure demand outlets for that supply. But as we think about what's going on in California and refinery shutting down, I was hoping you could, one, talk about your ability to supply that state from both the New Mexico plant and the Washington plant. And then if there's an interest in kind of pushing the logistics further west to move product from your Rockies footprint.

Yes, Jason, this is Tim. I'll jump in. I do think that the recent announcement in California and it's consistent with our long-term outlook for those supply-demand balances in California. And that is supporting our overall long-term strategy to be able to move barrels west. We've talked about this before, but of course, the Puget Sound refinery has the ability to make car gasoline and will benefit as the gasoline becomes short in California. We've already been able to take some part in that market, and we'll hopefully be able to take more of it as the balances continue to go short on gasoline. But as you point out, our Woods Cross refinery supplies Las Vegas which gets half of its supply from California and our New Mexico refinery supplies Phoenix, which gets about half of its supply from California. So as the California gasoline production continues to reduce, we do stand to benefit by being able to place our barrels and take more of that market share in those regions. Even though they're not specifically in California, they are tied to the California market, and we believe that we're going to be beneficiaries of that effect.

Yes. Got it. That's great color. Thanks.

Our next question comes from Matthew Blair with TPH. Please go ahead.

Thank you and good morning. It looks like in the third quarter, the marketing volumes were down about 8% year-over-year, even though your site count was up 3%. Could you talk about some of the dynamics that caused that?

Yes, Matt, this is Steve. This is really a timing issue where we're relieving our lower volume and our lower-margin sites and are high-grading with higher volume and higher-margin sites. They take a bit of time to ramp up, and we see that will come on. So this is really a timing issue in the volume. Like I said earlier, we're seeing growth in EBITDA and the margin, and that's a direct result of us high-grading the portfolio already.

Sounds good, right? The margins did improve. Okay. And then could you talk about any expectations for refining capture rates into the fourth quarter here? I think you posted 48% capture in Q3. It seems like higher RINs could be a small headwind to your indicator, but then there might be tailwinds from areas like butane blending, crude dips, and market structure. So how do you see refining capture shaking out in the fourth quarter?

We are not providing specific guidance on capture rates, but we are monitoring several trends. One trend is that the light to heavy index is narrower than in the past. Additionally, we are keeping an eye on our El Dorado plant, which is undergoing maintenance and is a significant producer of heavy crude. There may be some offsets from butane blending. As we increase our jet production, that has been beneficial for us, and we are focused on maximizing that, extending the jet value chain, and maximizing our premium production through both our retail and heavy oil value chains. We are also working on upgrading our products from wholesale to retail. These are the areas we will continue to focus on; however, we are not ready to make definitive calls just yet, but we see opportunities to take advantage of and drive growth.

Sounds good. Thank you.

Our next question comes from Joe Laetsch with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for the time. Just one question for me this morning. So on the lubricant side, I know you talked about organic growth. But on the inorganic side, I think lubricants is a pretty fragmented market. Are there opportunities to grow inorganically here? Or is it really just more of a focus on the organic side? Thank you.

Thanks, Joe. It's Matt here. I appreciate the question. And yeah, one of the things if you look back across the past couple of years, we've really focused internally to ensure that we're in the best place to organically build a foundation, a solid foundation, and you're seeing that track record of success. But as we've established looking forward, I think that this is an excellent opportunity to look out at our portfolio, see where we have segment strengths, where we have some gaps where there might be some really nice bolt-on acquisitions. And we'll look at those and consider them for growth in the future. So I think that it's absolutely plausible to see something like that, and we'll keep you informed as and when we make progress or choose to go down that path in the future.

Yes, as you mentioned, the industry is quite fragmented. In the past, we have consolidated within the industry by bringing PCLI, Sonneborn, and Red Giant together. The last few years have been focused on building our foundation and optimizing that portfolio. As Matt noted, we are actively seeking opportunities to enhance that portfolio, and we would definitely consider them if they arise.

I am now turning the floor back over to Tim for any closing remarks.

Thank you, Novi. In summary, our third quarter results demonstrate the earnings power of our diversified portfolio. We are focused on executing our strategic priorities, and these business improvements are growing the bottom line of our Midstream, Marketing, and Lubricants and Specialties businesses. In our Refining and Renewables segments, we're focused on what we can control during these challenging market conditions. Both segments are delivering better turnarounds, reliability, and lower operating costs to drive solid performance in below mid-cycle conditions. All of these are indicative of the hard work and commitment of our employees executing our plan. In short, our focus over the past few years is working, and our business and our balance sheet are much stronger than before. Looking ahead, our priorities remain the same: to improve our reliability; to integrate and optimize our new portfolio of assets; and to return excess cash to our shareholders. Thank you for joining our call, and have a great day.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.