HF Sinclair's Q3 2025: Contradictions Emerge on SRE Benefits, Refining Margins, and Midstream Strategy

Date of Call: October 30, 2025

Financials Results

• EPS: $2.15 per diluted share reported; adjusted net income $2.44 per diluted share vs $0.51 in Q3 2024 (special items decreased net income by $56M)

Guidance:

• Full-year 2025 CapEx: ~ $775M sustaining (including turnarounds/catalysts) and ~$100M growth capital.
• Q4 2025 crude throughput expected between 550,000 and 590,000 bpd (Puget Sound turnaround driven).
• Expect lower turnarounds and reduced sustaining CapEx in 2026; FID for pipeline projects targeted by mid-2026.

Business Commentary:

• Refining Performance and Margin Enhancements:
• HF Sinclair reported strong sequential improvements in refining throughput, capture, and operating expenses, resulting in a record low operating expense of $7.12 per throughput barrel.
• The gross margin per barrel benefited from strong cracks in the company's regions and the impact of small refinery exemptions granted by the EPA.

• These improvements were driven by increased efficiencies, favorable refining margins, and strategic optimizations in refinery operations.

• Shareholder Return and Capital Allocation:

• The company returned $254 million in cash to shareholders in Q3, consisting of $166 million in share repurchases and $94 million in regular dividends.
• Since the Sinclair acquisition in 2022, HF Sinclair has returned over $4.5 billion to shareholders, reducing their share count by over 61 million shares.

• This strategy reflects the company's commitment to maintaining an investment-grade balance sheet while returning excess cash to shareholders.

• Midstream Expansion and Supply Demand Dynamics:

• HF Sinclair announced a multiphase expansion of its midstream refined products footprint across PADD 4 and PADD 5 to address supply and demand imbalances, focusing on markets like Nevada and California.
• The first phase aims to increase capacity by 35,000 barrels per day to move supply from the Rockies production into Nevada.

• This expansion is part of HF Sinclair's strategic focus on asset integration and value chain optimization, leveraging its geographic footprint to support long-term growth.

• Renewable Diesel and Producer Tax Credit:

• HF Sinclair's Renewables segment reported an adjusted EBITDA of negative $13 million, with recognition of incrementally more value from the producer's tax credit.
• The company expects to capture additional incremental value in the fourth quarter of 2025.
• This improvement reflects the strategic capture of value from tax incentives and the ongoing optimization of the renewable diesel segment.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "strong third quarter results," record-low operating expense of $7.12/throughput barrel, returned $254M to shareholders and announced a $0.50 quarterly dividend; CFO reported adjusted EBITDA $870M vs $316M in Q3 2024 and called the outlook for refining "bullish" given tight distillate markets.

Q&A:

• Question from Manav Gupta (UBS): You announced a multiphase expansion targeting PADD 4 and PADD 5 — what is your competitive edge versus other projects?
  Response: Management: Competitive edge is existing in‑ground infrastructure and equity barrels (Rockies corridor), enabling quicker, lower‑cost expansion to serve Nevada/PADD 5 versus other southern routes.

• Question from Manav Gupta (UBS): What's your near‑term / medium‑term outlook for refining margins in your regions over the next 3–6 months?
  Response: Management: Bullish — distillate (jet/diesel) fundamentals supportive from low inventories, global outages and strong cracks; expect supportive capture into Q4 and into early 2026.

• Question from Ryan Todd (Piper Sandler): Clarify the $115M and $56M SRE impacts — are they incremental and how should we think about future SREs?
  Response: Management: $115M reduced cost of sales (prior expense reversal, ~$0.47 EPS) and $56M was additional RINs trading revenue (~$0.23 EPS); company resubmitted SRE applications for 5 refineries and sees upside but won't quantify probabilities.

• Question from Ryan Todd (Piper Sandler): Any color on Q4 margin capture trends a month in — what drives capture this quarter?
  Response: Management: Expect improved Q4 capture driven by strong distillate/jet cracks, flattening backwardation (better roll) and product mix (butane blending), though light/heavy diff help is modest.

• Question from Douglas George Blyth Leggate (Wolfe Research): Why weren't the $115M and $56M treated as nonrecurring and where do they appear in the P&L?
  Response: Management (CFO): $115M appears as a credit to cost of sales (recovery of previously expensed costs); $56M is recognized in revenue from RINs optimization/trading.

• Question from Douglas George Blyth Leggate (Wolfe Research): Is the SRE impact a single‑quarter item or cumulative recovery of prior years?
  Response: Management (CFO): It's a cumulative recovery based on the exemptions granted and recognized in Q3.

• Question from Douglas George Blyth Leggate (Wolfe Research): Your CapEx run‑rate looks light versus full‑year guide — what's sustaining CapEx and timing?
  Response: Management: Timing explains Q3 build; they reaffirm full‑year guidance and expect about $100M of sustainable carry‑forward benefit, with more specifics at December guidance.

• Question from Phillip Jungwirth (BMO): How will you finance the pipeline expansion and are the economics consistent with ~5–6x build multiples?
  Response: Management: Financing approach TBD after project economics; options include balance sheet liquidity, JV partners; no FID yet and no tariff/economic specifics disclosed.

• Question from Phillip Jungwirth (BMO): Rationale for potentially reversing Medicine Bow pipeline (not in Phase 1)?
  Response: Management: Denver market expansion will pull barrels into Denver lowering value there, so reversing/expanding Med Bow would move equity barrels from Mid‑Con/Rockies into higher‑value Nevada/California markets.

• Question from Paul Cheng (Scotiabank): Will Phase 1 (35,000 bpd) be supplied mainly by your equity barrels — i.e., anchor shipper?
  Response: Management: Yes — a substantial portion would be equity barrels, and they believe they have sufficient anchor volume; will follow open‑season/FERC rules if progressed.

• Question from Paul Cheng (Scotiabank): What tariff should we assume for the pipeline?
  Response: Management: Not commenting on tariff structure at this stage; details will be provided closer to FID.

• Question from Paul Cheng (Scotiabank): How does the lubricants market look and are you pursuing M&A bolt‑ons?
  Response: Management (SVP Lubes): Market healthy, segment returned to historic run‑rates; team continues to pursue inorganic bolt‑on opportunities but has nothing to announce today.

• Question from Matthew Blair (TPH): Clarify SRE resubmissions eligibility for Parko/Tulsa/Artesia and potential deliberate lower runs under 75kbd?
  Response: Management: Parko is near 75kbd and utilization will be considered annually; Tulsa and Artesia are separate facilities and management noted similar refineries have qualified historically.

• Question from Matthew Blair (TPH): Why invest in Puget Sound upgrades given growing flows to PADD 5 — where does PSR sit on the cost curve?
  Response: Management: Puget Sound's dock capability and access provide flexibility to produce CARB components and swing diesel/jet, enabling advantaged local/California supply and export optionality with modest incremental CapEx.

• Question from Neil Mehta (Goldman Sachs): Q4 crude charge guide (550–590kbd) — is this purely Puget Sound turnaround or conservative?
  Response: Management: It's driven by the Puget Sound turnaround and timing shifts of smaller maintenance into Q4, resulting in the lower crude charge guidance.

• Question from Neil Mehta (Goldman Sachs): Any early thoughts on 2026 turnarounds?
  Response: Management (EVP Operations): Expect fewer and lower‑cost turnarounds in 2026; formal guidance to follow.

• Question from Neil Mehta (Goldman Sachs): How are you thinking about returns of capital going forward (target payout levels)?
  Response: Management (CFO/CEO): Target a minimum payout ratio of 50% of net income as a floor; priority is nondiscretionary spend and high‑return organic growth, with excess cash returned to shareholders.

• Question from Jason Gabelman (TD Cowen): Cash balance built approaching $1B — should we expect more near‑term returns of excess cash?
  Response: Management (CFO): Not stockpiling cash; much of the build occurred in Q3 and they intend to return excess cash but won't provide specific timing.

• Question from Jason Gabelman (TD Cowen): Can you break out SRE margin benefit by region and disclose RINs position?
  Response: Management: They will not break out SRE benefit by region nor disclose RINs long/short positions; that level of detail is not provided.

Contradiction Point 1

Small Refinery Exemptions (SREs) and Financial Impact

It involves the financial impact of Small Refinery Exemptions (SREs) on the company's results, which is crucial for financial forecasting and investor expectations.

How will small refinery exemptions (SREs) impact your results and future process? - Ryan Todd (Piper Sandler & Co.)

2025Q3: We received cumulative benefits of $115 million related directly to SREs and $56 million from optimizing RINs strategy. - Timothy Go(CEO)

What's the competitive advantage of your midstream expansion into PADD 4 and PADD 5? - Manav Gupta (UBS Investment Bank)

2025Q1: We currently expect that the $1.5 billion in our cash and cash equivalents at year-end 2024 will reflect the present value of our RFS compliance strategy and other financial obligations. - Atanas Atanasov(CFO)

Contradiction Point 2

Refining Market Outlook and Demand Trends

The contradictions involve differing perspectives on the refining market outlook and demand trends, which are critical for strategic decision-making and investor confidence.

What is the refining sector's macroeconomic outlook for the next 3-6 months, particularly in your operating regions? - Manav Gupta (UBS Investment Bank)

2025Q3: We're excited about our current market position. Globally, we're net short 800,000 barrels per day, with capacity closures outpacing demand. - Steven Ledbetter(EVP, Commercial)

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2025Q2: The U.S. market is healthy, and we're seeing strength in product demand. U.S. refinery utilization has been increasing as new capacity comes online. - Steven C. Ledbetter(EVP, Commercial)

Contradiction Point 3

Midstream Expansion Strategy and Competitive Advantage

It reflects differing perspectives on the strategic advantages and competitive positioning of the company's midstream expansion plans, which could impact investment decisions and market expectations.

What is your competitive advantage in the multiphase expansion into PADD 4 and PADD 5? - Manav Gupta (UBS Investment Bank)

2025Q3: We believe we have a strategic advantage due to our existing production and midstream infrastructure. The proposed expansion will be complementary to other lines and will focus on Rockies barrels moving north into Nevada. We're utilizing our existing infrastructure, which should be more cost-effective and quicker than other projects. - Timothy Go(CEO)

What's driving midstream business growth, and the outlook for future growth? - Manav Gupta (UBS Investment Bank)

2025Q1: Growth in midstream is driven by increased pipeline revenues, particularly in products and crude pipelines. Integrated value unlocking is a focus area. - Steve Ledbetter(EVP, Commercial)

Contradiction Point 4

Small Refinery Exemptions (SREs) and Benefits

It involves inconsistencies in the reporting and expectations surrounding SRE benefits, which could impact financial planning and investor expectations.

What is the impact of small refinery exemptions (SREs) on your results and the forward-looking process? - Ryan Todd (Piper Sandler & Co.)

2025Q3: We received cumulative benefits of $115 million related directly to SREs. - Timothy Go(CEO)

What is the status of small refinery exemptions and their potential impact on the business? - Roger Read (Wells Fargo)

2024Q4: Regarding the ongoing SRE discussions, the U.S. Court ruled in our favor late in December, confirming that the decision of the U.S. Court of Appeals for the District of Columbia was incorrect in its prior ruling against us. - Timothy Go(CEO)

Contradiction Point 5

Refining Margin Expectations

It involves changes in financial forecasts, specifically regarding refining margin expectations, which are critical indicators for investors.

What is your near-term and medium-term outlook for refining margins, considering current trends? - Manav Gupta (UBS Investment Bank)

2025Q3: We believe demand will continue to outpace supply, especially in distillate. The market is underestimating impacts of Russia outages and lower product inventories. We think the supportive refining backdrop positions us well as we head into 2026. - Timothy Go(CEO)

What is the Mid-Con refining situation's seasonality? What is the outlook for margins? - Neil Mehta (Goldman Sachs)

2024Q4: We are excited about our current market position. Globally, we're net short 800,000 barrels per day, with capacity closures outpacing demand. Our regions are seeing strong gas and diesel demand. The distillate make is supportive, and we're in max diesel mode, which is positive for our capture. - Steven Ledbetter(CMO)