Par Pacific Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Welcome to Par Pacific's earnings conference call. Joining me today are Will Monteleone, President CEO, Richard Creamer, EVP of Refining and Logistics, and Shawn Flores, CFO. 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. Actual results may differ materially from these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements. 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 additional information. I'll now turn the call over to our President and CEO, Will Monteleone.

Thank you, Jeff. Good morning, everyone. We're pleased to report strong second-quarter financial results driven by excellent operational and commercial execution. Amidst extreme volatility, each of our business units executed crisply and used the full commercial flexibility of our asset base to capture market conditions. System throughput ran at elevated levels through the peak margin window. Our commercial team optimized crude sourcing and product placement, generating excellent capture rates. Fine product cracks remained materially above historical norms through the quarter. Our combined market index averaged approximately $33 per barrel, well above the 2025 average of $12.40 per barrel and exceeding the second quarter of 2022 when the Russia-Ukraine conflict was intensifying. Reduced Persian Gulf and Russian origin refined product exports, Asian refiners running conservatively to preserve crude supply chain duration, and protectionist policies restricting free trade drove these favorable market conditions.

Looking forward, global refined product inventories remain tight. The structural factors supporting margins remain. Turning to retail, same-store fuel volumes declined by 0.8%, while in-store sales increased by 1% compared to the second quarter of 2025. Despite pressure on fuel margins in a higher price environment, the merchandising and food programs continued to advance, strengthening the underlying earnings power of the segment. On the strategic front, our Hawaii renewables business made steady progress. renewable diesel production ramped through the quarter, with June throughput reaching approximately 3,000 barrels per day before we commenced the Hawaii plant-wide turnaround. In addition, we completed the first commercial renewable diesel sales during the quarter. Volumes were small and reflect the early-stage nature of the commercial ramp. They established the operational pathway from production to sales.

On the capital allocation front, we meaningfully strengthened the balance sheet during the quarter, reducing our term debt balance by over 20% via the inaugural senior unsecured notes issuance. We ended the quarter with total liquidity of approximately $1.4 billion, placing our balance sheet in a very strong position to pursue growth and continue to allocate capital thoughtfully through cycles. In closing, our through-cycle discipline on operations, commercial positioning, and capital allocation is what allowed us to convert an exceptional market environment into a durably stronger balance sheet and strong per-share earnings. We remain focused on maintaining that discipline as market conditions evolve. With that, I'll hand the call to Richard, who will walk through our refining logistics results.

Thank you, Will. I want to begin by congratulating the Wyoming and Montana teams for the safe and efficient completion of their scheduled outages in April. In addition, the Tacoma team achieved a new record quarterly production rate of 41.2 thousand barrels per day, or 98.1% utilization through the second quarter. In Hawaii, the Q2 throughput was 73.2 thousand barrels per day, and production costs were $6.43 per barrel. The lower production versus plan was the result of the refinery experiencing end-of-cycle conditions. The team delivered on all customer fuel requirements despite challenges associated with the ongoing conflict in the Middle East. The turnaround in Hawaii began in late June, and I am pleased to report that the team executed the turnaround safely and cleanly while also delivering costs and schedules near target. At this point, the Hawaii turnaround is substantially complete, and major operations have been safely restarted.

As I stated, Washington throughput set a new quarterly record at 41.2 thousand barrels per day, and production costs were $4.21 per barrel, capturing market conditions following the Q1 planned outage. Shifting to Wyoming, throughput was 14,000 barrels per day, and production costs were $15.28 per barrel, reflecting the April outage downtime and costs. Following the outage, the refinery shifted to routine operations supported by strong seasonal demand. In Montana, second quarter throughput was 53,000 barrels per day, and production costs were $10.16 per barrel. The team executed the April crude outage safely, on time, and on budget. In May and June, Par Montana Refining set new monthly throughput and OpEx per barrel records of approximately 62,000 barrels per day at $7.56 per barrel.

Looking ahead to the third quarter, we expect Hawaii conventional throughput between 59,000 and 65,000 barrels per day and renewable throughput between 1,500 and 2,000 barrels per day, reflecting the turnaround event in July through early August. In the mainland, Washington is expected between 40,000 and 42,000 barrels per day, Wyoming between 17,000 and 20,000, and Montana between 56,000 and 61,000. The Montana coker was down in July for routine maintenance and is expected to return to service by mid-August. From today's date, there are no significant planned downtime for the balance of the year. The Q3 midpoint throughput guidance is 182,000 barrels per day. Now I'll turn the call over to Shawn to cover our financial results.

Thank you, Richard. Second quarter adjusted EBITDA was $571 million and adjusted net income was $499 million or $10.10 per share. Our refining segment reported adjusted EBITDA of $552 million in the second quarter compared to $69 million in the first quarter, reflecting a sharp step-up in market conditions driven by the disruptions in crude and refined product supply. Our combined refining index averaged approximately $33 per barrel, an increase of roughly $14 per barrel compared to the first quarter. System-wide refining capture was 125%, or 112% on a normalized basis after adjusting for Hawaii price lag and Wyoming FIFO impacts. Starting in Hawaii, the Singapore 3-2-1 averaged approximately $50 per barrel, and our landed crude differential was $3.93, resulting in a Hawaii index of approximately $46 per barrel. Hawaii capture was 124%, including a net price lag benefit of approximately $77 million or $11.49 per barrel.

Normalized for the price lag impact, Hawaii capture was 99%. In Montana, the second quarter index averaged $25.76 per barrel with margin capture of 144%. Capture was well above our target range, driven by favorable clean product to asphalt sales mix and refined product inventory drawdowns that sustained volumes during the April outage. In Wyoming, the second quarter index averaged $28.73 per barrel. Margin capture was 118%, including the benefit of refined product inventory draws during the April outage, partially offset by a $3 million FIFO headwind from declining crude oil prices. In Washington, our index averaged $20.27 per barrel. Margin capture was 100%, supported by continued jet-to-diesel strength on the West Coast. Turning to the logistics segment, adjusted EBITDA was $30 million in the second quarter compared to $32 million in the first quarter, reflecting reduced crude imports ahead of the Hawaii turnaround.

In the retail segment, adjusted EBITDA was $17 million compared to $15 million in the first quarter. The sequential improvement was driven by a partial recovery in fuel margins and continued growth in food service sales in both regions. Moving to cash flow, second quarter cash from operations totaled $614 million, excluding working capital outflows of $312 million and deferred turnaround costs of $19 million. The working capital outflows were primarily driven by building refined product inventories ahead of the Hawaii turnaround and higher commodity prices, which increased the value of hydrocarbon inventories. We expect a substantial portion of these working capital outflows to reverse as inventory levels normalize after the Hawaii turnaround and commodity prices stabilize. Second quarter capital expenditures, including deferred turnaround costs, totaled approximately $59 million. During the quarter, we continued to benefit from our excess RIN inventories associated with the prior period small refinery exemptions.

As a reminder, our adjusted EBITDA and adjusted net income reflect full RIN expense at current period RIN prices, which does not reflect the benefit of our excess RIN position. Our GAAP results, by contrast, include approximately $35 million gain in the quarter, representing the difference between current RIN prices and the book value of our RIN assets on our balance sheet. Shifting to the balance sheet, we completed a $500 million offering of senior unsecured notes, reducing gross term debt by more than $130 million during the quarter. We also reduced ABL borrowings by $78 million, resulting in a total net debt reduction of over $220 million. Given the heightened market volatility during the period, we moderated our opportunistic share repurchase activity in favor of strengthening the balance sheet through debt reduction.

Year to date, through the second quarter, we have repurchased approximately $48 million of common stock, including cash-settled options. As of June 30th, total liquidity was approximately $1.4 billion and our cash balance was $185 million. Looking to the third quarter, our July consolidated refining index was $31.34 per barrel or approximately $1.60 below the Q2 average. In Hawaii, the financial impact of the refinery turnaround will be concentrated in the third quarter. Increased refined product imports are expected to hold capture below our typical guidance range. Our third quarter Hawaii crude differential is expected to land between $11.50 and $13.50 per barrel, reflecting higher freight costs and steeper backwardation. Across our mainland system, distillate margins have remained firm and seasonal demand has been strong quarter to date.

As Richard mentioned, Montana will complete its annual coker maintenance during the third quarter, resulting in roughly $6 million-$8 million of incremental OpEx and a heavier asphalt sales mix. In renewables, we expect a gradual ramp in third-party sales volumes and earnings contribution as we restart the units following the Hawaii turnaround. Overall, the second quarter demonstrated the significant earnings power of our business in a favorable market. Our strong balance sheet and liquidity position will provide financial flexibility to invest in strategic growth opportunities while maintaining an opportunistic approach to share repurchases. This concludes our prepared remarks. Sarah will turn it back to you for the Q&A.