Welcome to HollyFrontier Corporation's Third Quarter 2021 conference call and webcast. Proceeding the call today from HollyFrontier is Mike Jennings, President and Chief Executive Officer.

He's join with Rich Voliva, Executive Vice President and Chief Financial Officer, Tim Go, Executive Vice President and Chief Operating Officer, Tom Creery, President Refining and Marketing, and Bruce Lerner, President HollyFrontier Lubricants and Specialties. At this time, all participants have been placed in a listen-only mode.

End of floor will be open for your questions following the presentation. [ Operator Instructions].

Thank you, Ryan. Good morning, everyone..

And welcome to HollyFrontier Corporation's Third Quarter 2021 Earnings Call. This morning, we issued a press release announcing the results for the quarter ending September 30, 2021. If you would like a copy of the press release, you may find one on our website at hollyfrontier.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 Securities Law.

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. Good morning, everyone. Today we reported third quarter net income that's attributable to HollyFrontier shareholders of $281 million or $1.71 per diluted share. These results reflects special items that collectively increased net income by $71 million.

Excluding these items, adjusted net income for the third quarter was $210 million or $1.28 per diluted share versus an adjusted net loss of $67 million or a negative $0.41 per diluted share for the same period in 2020. Adjusted EBITDA for the period was $408 million, an increase of $342 million compared to the third quarter of 2020.

Refining segment reported EBITDA of $295 million compared to a $39 million loss for the third quarter of 2020 and consolidated refinery gross margin was $14.87 cents per produced barrel, a 140% increase compared to the same period last year. This increase was primarily due to stronger product demand across the markets we serve.

Third quarter crude throughput was approximately 416,000 barrels per day, above our guidance of 380,000 to 400,000. We recently completed planned turnaround work at our Tulsa Refinery, which was on time and on budget.

At the beginning of October, we began a significant turnaround at the Navajo Refinery, which is scheduled to be completed in mid-November. Our lubricants specialty products segment reported EBITDA of $168 million for the third quarter versus $61 million reported in the same period last year.

Excluding an $86 million gain on the sale of property at our Mississauga plant, adjusted EBITDA was $82 million. The rack back portion of this business continues to see outstanding margins and earnings driven by a combination of strong demand and limited global base oil supply due to a number of factors.

In the Rack forward portion, despite strong sales volumes and price increases, the continued rapid rise in base oil prices through the quarter compressed margins.

Overall, we're encouraged by the consolidated earnings performance of the lubricants and specialties business this year, and we're optimistic that we'll see a solid finish to the year as demand for both base oils and finished products remained strong.

Holly Energy Partners reported Adjusted EBITDA of $83 million for the third quarter, compared to $86 million in the third quarter of last year. HEP delivered solid results in the quarter supported by record volumes on the Salt Lake City and Frontier pipelines in the Rockies region.

During the quarter, we completed the Cushing Connect Pipeline project which will replace third-party providers as the primary source of crude supply for our Tulsa refinery. Now, I'd like to update on Strategic Business Initiatives.

Early this week -- earlier this week, we closed on our previously announced acquisition of the Puget Sound Refinery for aggregate cash consideration of $613.6 million, which consisted of a base cash price of $350 million.

Hydrocarbon inventory with an estimated closing value of $266.2 million, and other closing adjustments and accrued liabilities of $2.6 million. This purchase price represents an attractive acquisition multiple of 1.5 to 2 times EBITDA net of inventories based on the refinery's historical financial performance.

The Puget Sound recliner has a strong record of financial and operational performance that will bleed -- that we believe will complement our existing refining business.

The refinery supplies transportation fuels into the premium Pacific Northwest region and sources advantaged Canadian crude, further enhancing and diversifying, diversifying our refining asset base.

We're committed to the continued safe and environmentally responsible operations of the facility and I'd really like to welcome Puget Sound 's highly skilled workforce to the HollyFrontier family. In our renewable segment, I'm pleased to announce that we are progressing ahead of schedule on the Cheyenne Renewable Diesel Conversion Project.

The 6,000 barrel per day renewable diesel unit is expected to be mechanically complete later this week, and we expect to run our first batch of feed by the end of the year.

Given current economics between refined soybean oil and other feedstocks, we've prioritized completion of the pre -treatment unit located in the art -- at the Artesian Mexico facility. And we now expect to complete the PTU in the first quarter of 2022, a full quarter ahead of schedule, allowing us to run a more favorable mix of feedstocks.

The Artesia renewable diesel unit is now expected to be completed in the second quarter of 2022. We are still on budget and expect to spend a total of $800 million to $900 million for all 3 projects.

In regard to our previously announced acquisition of assets from Sinclair, we still expect to close in mid-2022, subject to regulatory clearance and the satisfaction or waiver of all other closing conditions.

We look forward to further diversifying our asset base with Sinclair branded marketing, renewable diesel, refining and refining, and logistics businesses.

Looking forward, we remain focused on executing these strategic initiatives which we believe will allow us to reward our shareholders through the capital return plans we previously announced in August. With that, let me turn the call over to Rich..

Thank you, Mike. As previously mentioned, the third quarter included a few unusual items. Pre -tax earnings were positively impacted by an $86 million gain on the sale of property at our Mississauga facility. Partially offset by $4 million of pre -close acquisition integration costs.

$7 million of charges related to the Cheyenne refinery conversion to renewable diesel production, and severance charges totaling approximately $200 thousand. A table of these items can be found in our earnings press release.

Cash flow from operations was $249 million in the third quarter, which reflected -- which included, excuse me, $65 million of turnaround spending and a $94 million increase in working capital driven by the start of planned turnarounds at our Tulsa and Navajo refineries.

HollyFrontier stand-alone capital expenditures totaled $196 million for the quarter. As of September 30, 2021, our total liquidity stood at approximately $2.8 billion dollars comprised of a standalone cash balance of $1.5 billion dollars along with our undrawn $1.35 billion unsecured credit facility.

As of September 30, we have $1.75 billion dollars of standalone debt, with a debt to cap ratio of 23% and a net debt to cap ratio of 4%. We anticipate recovering between $60 -- excuse me -- $50 and $60 million in cash tax benefit in 2021 from the loss carryback under the CARES Act during the fourth quarter of this year.

HEP distributions received by HollyFrontier during the third quarter totaled $21 million. HollyFrontier owns $59.6 million HEP limited partner units, representing 57% of LP units at a market value of approximately $1.1 billion as of last night's close.

With respect to capital spending in 2021, we are decreasing our guidance specifically in the renewable segment based on updated project timelines and in the turnarounds and catalyst bucket, due to strong overall execution and some scope production at the Navajo turnaround.

We now expect to spend between $550 to $600 million in renewables for the full-year of 2021 versus our previous guidance of $625 to $675 million. In total, the renewables projects remain on budget, and we anticipate the remaining $175 to $225 million to be incurred in 2022.

We still expect to spend between a $190 to $200 million for capital at HollyFrontier refining. And $40 to $50 million at HollyFrontier Lubricants and specialty products. We now expect to spend between $290 to $320 million for turnarounds and catalysts versus our previous guidance of $320 to $350 million.

At HCP, we now expect to spend between $15 to $20 million for maintenance capital, $40 to $45 million for expansion capital, which includes our investments in the recently completed Cushing Connect Joint Venture, and $2 to $4 million in refining the processing unit turnarounds.

Given record, base oil prices and more importantly the speed of their increase in 2021, we have updated our Rack Forward guidance to reflect short-term margin compression in the finished product side of our Lubricants and Specialties segment.

We now expect to earn between $65 to $85 million in income from operations, and $115 to $135 million of EBITDA. We expect Rack Back earnings to remain at these elevated levels in the fourth quarter based on the favorable supply and demand dynamics.

With our refining segment for the fourth quarter of 2021, we expect to run between 450,000 and 470,000 barrel per day of crude oil. Which includes expected volumes from the Puget Sound Refinery in November and December. And with that Rain, we're ready to take questions..

Thank you. The floor is now open for questions. [Operator instructions]. We ask that you please limit your self to 1 question and 1 follow-up. If you have additional question, we welcome you to rejoin the queue. [ Operator Instructions] Our first guest question comes from Manav Gupta from Credit Suisse..

Hey, Rich and Mike. My first question for you is about 6 months ago, you gave us the Puget Sound acquisition. And at that time the guidance was $150 million to $200 million. And I'm just trying to understand if anything has moved toward that guidance to change.

And the reason I'm asking this question is, in the past we have heard assets being acquired from major and a high guidance number being given. And when the results actually start coming in they're pretty disappointing. And that's why there's a facade sentiment on buying a West Coast asset from a major.

So just trying to understand, has anything changed for your guidance on the Puget Sound acquisition?.

Manav, we're sticking with our guidance. The biggest variable is probably RINs pricing. The market demand out there is recovering as you can probably see in the regional numbers. It's still probably at 10% below 2019 levels, but the trajectory is upward. As we've gotten Navajo asset better we'd like it more. And we're sticking to our guidance..

And the second question since you mentioned RINs was, we had a release out there from Reuters, which put out some our view numbers which would actually very supportive of D4 but not so supportive of D6. Now, as I understand, once your R&D facilities start, you would be long D4, you'd still be short D6, but maybe a little net short D6.

But if there's a price spread difference between D4 to D6, so D4 premium goes up. You could still meet all your obligations.

Can you just walk us through that maps one more time?.

You are right, Rich. So yes, you are right. We will be long D4 RINS perspective of the renewable diesel facilities coming online. As Mike alluded to, Puget Sound brings a little more obligation to us.

And then once the Sinclair transaction is closed, we will be long D4s, short D6, and basically balanced on an absolute number basis to your point, from our perspective, a higher D4 price versus D6 prices beneficial..

Thank you so much for taking my questions..

Thanks, Manav..

Your next question comes from Ryan Todd from Simmons. Your line is open..

Good. Thanks. So performance in the business falls in refining and we've just continue to exceed expectations since you announced the PSR acquisition earlier this year, including your cash flow of $250 million this quarter.

It's a relatively constructive and refining environment hold, how are you thinking about the dividend going forward? And what do you need to see to feel comfortable in restarting the dividend? And any thoughts on that timing..

Yeah, Ryan. Thanks for the question. You're right. The refining and lubricants environments are both constructive for us in building as well our performance operationally in both is doing quite well.

So looking forward, we're sticking to the capital plan that we laid out, the return of capital guidance that we laid out in August, which is return of the dividend after the 12 months hiatus, and repurchase as suggested in that guidance. So how it develops from there, how aggressively we lean into it as we go forward, we'll see.

But we're very much sticking with the plan that we've laid out. And if anything, we're more constructive..

Great. Thanks. And then, I guess as we -- you gave some guidance on CAPEX, which is helpful. And then as we think about, I guess maybe a couple of comments on the 2021 CAPEX, the renewable diesel numbers coming down. Is that just -- that's just clearly a matter of timing.

And as we think about 2022 CAPEX, any high-level thoughts in terms of what the updated kind of maintenance capital you've got a lot of moving pieces in your portfolio. What's a good idea for -- or a good rule of thumb for kind of maintenance capital in 2022.

And what that growth CAPEX was might look like as well?.

Good morning, Ryan. So to your point on renewables, yes, the overall projects are still within an $800 to $900 million range. So we'd expect that balance to flow into 2022. At a high level, capital spending and turnaround spending will decline in '22 versus '21. We expect to issue formal guidance in December.

So we'll have some number for you in a few weeks..

Thanks, Mr. Mike..

Your next question comes from Phil Gresh from JP Morgan. Your line is open..

Good morning. The first question. Appreciate the update on the renewable diesel side of things.

Where is your -- what are your latest thoughts on the feedstock mixture looking at at this point in time?.

Yeah, Phil, this is Tom. We're still sticking to our guns on that one, for Cheyenne we're looking at a combination of soy and tallow and just to make it clear, we have secured feedstocks at this time for startup and we're in good shape. We haven't had any trouble buying feedstocks.

And as the PTU comes up, we will look at buying additional feedstocks both being valued and low CI material. And we're doing analysis on an ongoing basis to find the feedstocks that have the best value for us, just not priced, because it's more about value than anything else at this point in time..

Got it. And then just 1 question, when we read through your proxy filing, the guidance for the proforma EBITDA, the Company was a bit lower than the slide presentation you had given.

So would that just conservatism or anything we should be thinking about there, I guess how -- how would you suggest we think about your proforma high mid-cycle versus what was stated?.

Yeah, I felt Rich. So it's important to emphasize that was a point in time snapshot from July. And it was best market views. And frankly, the best forward curve we can come up with at the time. Clearly the market has performed better than that, and it does not affect our view of mid-cycle.

Like we've had in July, largely based on wear-to-work markets and point..

Okay. So you'd suggest we stick with kind of a mid-cycle provided in slide breed initiative..

Absolutely. Prove that point further, obviously, our third quarter earnings in several segments were abutment cycle already..

Right. Right. Okay. Thank you..

Our next question comes from Paul Cheng from Scotia Howard Weil. Your line is open..

Hey guys. Good morning..

Hi, Paul..

Two questions, please, Mike and Rich. There's a number of transition happened in the midstream consolidating and some people use either selling down or that rolling it up. When we're looking at HEP, is the granddaddy? and the MLP.

And at this form, does it really make sense for you to stay as an independent or that, from the corporation standpoint, what would be more advantageous and to simplify your corporate structure and just rolling it gain. And if you don't really need the control should you maybe that chance just sow you then consolidate. That's the first question.

The second question is related to the Mid-Con is a really strong we saw. And is there anything unique in this quarter other than say Lynparza is down that lead to such a strong margin capture, as well as the overall footprint is so strong.

What I'd want to see is, is the third quarter is a good baseline to use for the Mid-Con region going forward?.

Okay, Paul, we are going to take that on. We're going to have a negative among us. Rich and I will address the question around ATP deconsolidation. I will start with just how integral those assets are to our business strategy. In terms of their ownership and their use as we connect our refining assets to supply sources and market.

It's very strategic for us to own and operate those assets. The structure of ownership I'll ask Rich to speak with around deconsolidation or retention of the MLP..

Thanks, Mike. Paul, I think we demonstrated the value of HEP as a financial vehicle in the Sinclair transaction.

We're going to do the right thing for the shareholder here, whether HEP is as a financial vehicle has rolled up, consolidated, or whatever, this is essentially a corporate finance discussion to make any transaction like that, our equity would require an incredible amount of cash which we think is probably spoken for better by our shareholders.

We'll continue to monitor the situation, respond to the market, and do the best thing for our shareholders..

The second question, Paul was -- are there any unique good guys lingering around?.

Can I ask questions to this?.

Absolutely..

Rich, when you say that you pick a run-off cash, if you want to roll yet up, Why that yet? I mean, I you PS6, they just paid one by each showing the share of PS6 and unit change both HEP.

So, that's we need no cash, by anything then, they have a higher dividend view, than you guys obviously since that you didn't have any dividend even off that your gains, we in state, they probably still have a higher dividend than you.

And so from that standpoint on the following forward basis due -- rolling it up, actual will improve your cash flow?.

So Paul, we've done the math, we keep the math live, for us, it would not improve our cash flow with diluted on a per-share basis. Honestly, look, we've got a very wide valuation difference between HollyFrontier and HEP that could easily change over time and changes discussion.

To your point, HEP trades at a much lower dividend yield than PSXP does, for example, that colors this discussion. Like you're headed down the right path here. The math from our perspective, does not work currently for that kind of transaction, but we will continue to monitor it..

The other comment is that it would be a levering transaction. And to do so just in respective capital structure, HEP supports 3.5 times debt to EBITDA. While our target on the HFC side is considerably lower in order to maintain our investment-grade credit rating.

So I think we have to look at both cash flow and the immediate cash impact of the transaction. And for us, it would be a levering transactions. Rich said that filings that capital is better returned to our shareholders than in a buyout of HEP. Thank you.

So second question was around refining results in this quarter, I asked Tim to speak to that and whether there are any particular good guys rolling around in 3Q or is this a good model for going forward?.

Tom,-- yeah Paul, this is Tim Go. Yeah. we're very pleased with the Mid-Con performance this quarter. The three biggest factors, stronger gasoline margins associated with stronger demand, stronger base oil margins, which you've been launching. And then, of course, lower RIN impacts to the region.

But you're asking, should we expect this type of performance going forward? Really, if you look back to the second quarter, we also demonstrated strong Mid-Con results then. Move on volumes in demand and margins. So I think you're seeing an improvement performance just overall over the last six months.

Seasonally, we'll see some weaker demand in the winter that you would expect. But overall, we've been trying to take full advantage of not just the markets and the group, but we've also been able to see some of the strong margins in the Rockies. Please, and move some of our barrel s that direction as well.

And we hope to be able to continue to do that in the years to come..

Thank you..

Our next question comes from Elisa Chen from Barclays. Your line is open..

Good morning. I wanted to ask about the boot business and given the updated guidance and the Rack Forward portion that just was curious if this purely as a result of meeting time to pass through the higher base well, costs or is it likely to persist for some time for the -- well, stable period.

What is your outlook there?.

Your assumption is correct. So base oil prices are ramping at a faster rate than we can apply price that has the price increases for that specific component. In this business, we have a fair proportion of finished lubricant clients that are contracted.

And so there's some limiters on the timing, not that we can push the price through, but on the timing, and so you see a lag between the ability to raise the price on the finished side versus the instantaneous impact of the base oil markers increasing..

Got it. And on the renewable diesel side, Tom, I was hoping if you could go back to your comments about feedstocks and understand that you've had no trouble buying feedstocks for startup. At this point, can you just give us a sense of the execution around that on a go-forward basis.

Are you going to be in the spot market perpetually is any of it bought forward or bought on a contracted basis? What are your expectation as unit start-up?.

Okay, Theresa we'll give it a shot here. We are buying spot right now, by spot I'd say it's not very long, maybe term of 3 to 6 months on some contracts. But mostly it would I would call spot. However, we are investigating other opportunities.

For example, we are looking at participating in crush plant economics to get a little further back in the value chain. So we've been talking to various partners in that field, trying to learn what's going on and whether there's room for us and we -- a role that we could play on a going forward basis.

We've also been talking to producers of DCO as well along the same thing. Early phases at this point in time, we're still evaluating the markets, but it's definitely one of those things that we are looking at as we move forward and become a regular off taker..

Thank you..

Thanks, Theresa..

Our next question comes from Connor Lynn from Morgan Stanley. Your lines open..

Yes. Thanks. Just trying to piece together the sort of phasing of the renewable diesel projects here. So as we think through the sort of mid-cycle targets that you guys have laid out there, is that a number that we should expect sort of hitting a run rate of in 2022? Do you take take some more time to iron out kinks in operations, etc.

how should we think about when that's a realizable earnings number?.

That's going to be realizable in the second half of 2022 as we start the PTU of line out Cheyenne and get the RDU in Artesia. It's going to take us some time and we're going to have to get into it. So, definitely over the second half of 2022, that would be our expectations..

Okay. That's helpful. Maybe just pivoting to Puget Sound s. Just trying to piece together some of the comments you made just in terms of obviously, the market has improved. RINS are still a challenge. Net, you feel that asset is operating at or near the mid-cycle level that you've put out for that.

How should we think about through the near-term earnings contribution of that?.

The short answer to that question is, yes. You probably understand that there's seasonality, particularly in that geography. Throughput in the winter is lower. But in terms of the overall market structure and margin opportunity versus what we've put out, yeah, that we see it consistent with the guidance we've given..

Okay. So maybe a little bit lower in the near-term, but moving towards that in 2022..

Yeah..

All right. Thanks very much..

Hey, Connor, just to follow it up. Do you think, if you look at the proxy statement we put out in association with Sinclair, there are numbers for Puget Sound up through the first half of 2021. I'll probably give you some help there..

Our next question comes from Roger Read from Wells Fargo. Your line is open..

Yeah, thank you. Good morning..

Hi, Roger..

I just like to catch up on the lead business, maybe a little bit to understand the Rack Forward, Rack Back, and your supply of base oil relative to the amount of products you sell.

In other words, are you 100% sourced, 80% sourced, or 120%, I'm just trying to understand the balance in this business as things transition from type base oil into, I don't know, I guess we'll call it a more normalized market hopefully in '22?.

So our base oil production is fully capable of covering all of our finished lubricants business, as well as our formulated such as railroad engine oil business as well. And we are, of course, in the specialty area, heavily backward integrated into our own feedstock supplies at our Tulsa.

But we could purchase some feedstocks like flaxes and other base oils externally for some of the former Sonneborn products that are in the specialty business. That's why we have a portion of the business that is -- it is an excess to finish that we sell as straight -based oil..

So, reasonable in Brazil as the base oil market normalizes, and the pricing catches up on the Rack forward side, the level of performance you're seeing now could slip a little bit but for the most part, ought to remain fairly strong?.

Yes. So we are -- we think that's the case. And of course it's a little bit of this pricing in between the 2, a little bit of left pocket, right pocket in that sense. So as rack forward recognizes the full extent of the price increases as they catch-up with the clientele. Even if the base order was declined a bit, we make it up on the other side..

Okay. Thanks. That's helpful. And then look, this question is for you Rich or not, but the guidance of remaining -- well, I shouldn't say necessarily remaining. But the total capex guidance and then thinking about what's remaining on the renewable diesel projects, the range of 8 to 900 and surprised it's still quite so wide.

This far through the projects, what are the remaining sort of risk factors that would affect the higher or lower end of that range?.

Let me take a first pass at this on Tim to add on if I miss anything, Roger. I'd really 2 -- 2 issues right now, we are seeing the universally applicable supply chain issues right now, and they pop up unexpectedly to be honest. So that's still out there.

And obviously then COVID and our ability to keep workforce on site and work and can really affect schedule and by extension costs.

Yes, the only other thing that I would add, Roger, is that we're getting into winter here in the Northern hemisphere and that's going to have an impact. We've already seen it in our Cheyenne operations. They've had snow a couple of times, freezing rain, which impedes our ability to get workers out in the field.

And we expect to see that as we go forward, that's our key issue as well. That's a big unknown at this point in time..

Thank you. I appreciate it. Thank you..

Okay..

Our next question comes from Neil Mehta from Goldman Sachs. Your line is open..

Good morning, team. Nice quarter here. The first question I had was around refining specifically around crude differentials. We've seen Brent-TI trade pretty tight and we've seen some backwardation show back up in this market.

Just your thoughts on the outlook for cushing and navigating the crude differential environment?.

Neil, this is Tim, I'll take that. We are definitely seeing the tightness, short-term at least in Brent-TI iDev, all the things you talked about, the low cushion inventories, the backwardation, capitalized reversal, all of those contributing, we believe in the short-term.

But if you look at the long-term structure and long-term fundamentals, we still believe the Brent-TI spread is going to be in that $3 range. If you look at our -- kind of our assets though, it helps to look at each one to understand what the impact of this Brent TI spread really means to each of them.

So in El Dorado's case, because they have 30% of their crude slate associated with WCS. And the WCS spread, as you see, has widened. It's providing some offset and some cushion I guess, over at El Dorado. If you look at the Permian and our Navajo Refinery, the WCS spread has weakened significantly here, as you see.

The market discounting the WCS in the high sour crudes. That's helping our teaser refinery. And, of course, we talked about Tulsa a little bit already. Base oil margins are strong still and we'll continue to justify the tiger spread and the Brent WTI spread.

If you look at our assets that are mostly affected by the WTI Brent spread, we still are very positive going forward..

Okay, and you think, Tim, $3 is the right number over the medium-term to anchor to based on transportation economics?.

That's right, yeah..

Okay, that's helpful. And Rich, the follow-ups for you just around capital returns to execute the recent M&A. There was obviously the decision to cut the dividend.

Just so what is your perspective on -- in terms of the resumption of capital returns and in what form, whether it's the buybacks or a dividend payout?.

For me, I've -- we've reiterate the guidance we gave concurrent with the Sinclair acquisition, which as we'd expect to return a dividend, as Mike said. In the first half of 2022. Through the first quarter of 2023, we would expect to return a billion dollars of total cash to our shareholders in both dividends and share repurchase.

And then into early 2023 and beyond, we intend to go to a 50% payout ratio of net income based on both dividends and share repurchase..

Thanks, Rich. Appreciate.

Your next question comes from Kalei Akamine from Bank of America. Your line is open..

Hey, good morning, guys. Standing in for Doug. Thanks for taking the question. Maybe first off, I'm interested in the marketing opportunities at Puget Sound. So my understanding is that Vancouver is advantaged over Seattle. So I'm wondering about your ability to sell there is a way to step up margin.

And additionally, what the crude differentials look like for the Canadian mediums that you run up there, noting that WCS is widened out, but they're not exactly the same..

Yes. This is Tim, I'll take that question on Puget Sound. We do have the ability to move products into Canada, and we do so even -- even today, we'll continue to look for those opportunities. Typically, they go on smaller margins as we move a lot into the a -- onto the West Coast there.

But we have ability to move just both into Canada, as well as in the California. As we see the CARB gasoline market improve, we'll have the opportunities to play into that market too. As far as crude diffs, we still believe that the Canadian crude represents price advantaged opportunities for us.

We generally tend to blend that Canadian crude mix to match kind of an ANS type quality as we bring it into the end of Puget Sound Refinery. But we do see opportunities to continue to bring that advantage crude in the Puget Sound..

Thank you. And Michael opens your foreign capital expenditures. Again. I think your guidance implies a big step-up in renewable expense for first quarter of '22. So I'm just hoping that you could put it all together for us and the outflows for this quarter and next. considering that, this will be the peak period for spend and Puget Sound disclosed..

So [Indiscernible], as we said, we would expect to spend between $5 and $600 million for 2021 in renewables. That leaves about $150 million to $175 million to go in 2021. And then as guided for 2022, we'd expect this going between a $175 and $225 million in renewables..

And is most of that going to be in the first or -- first quarter or the first half?.

First half. Will be done in the first half. I don't have enough insight of quarterly split at this point..

Okay. That's perfect. Thanks, Rich..

Your next question comes from Jason Gabelman from Cowen, your line is open..

Hey, good morning. Thanks for taking my questions. Are first wanted to ask on the Rockies, or I should say, the west region. Indicators have held up pretty well in as demand kind of normalize this year in refining environment that looks different with some assets gone.

Can you just discuss if there's a step change in the supply demand balances in those west regions relative to wherever pre - COVID or if there were some transitory items benefiting in 3Q and seemingly as we move into 4Q? And second, I wanted to ask about the Sinclair acquisition, understanding, there's some sensitivities as you're going through the closing process.

the Biden administration has been vocal on looking more closely at oil and gas mergers, and I'm wondering if that has resulted in a more in-depth process. I guess I could put it relative to what you would have expected or Mike, even relative to.

When Holly and Frontier combined in 2011, just looking for general thoughts, if you could compare this process versus outcome. Thanks..

Sure. I'll give you a little insight on questions, I'll ask Tim to speak to your first question. It won't surprise you that at this point we are deep into the regulatory process and frankly have very little to say about it. Other than we think the transaction is clearly designed to close. And we look forward to serving these customers.

But as to how the FTC as seeing it and what questions they are asking. And that's a little too intimate right now. So we'll pass on that piece and we're working hard at it. Tim..

Yeah Jason, on your question on the west refining region. Again, we're very pleased with the execution that we've had, not just in the third quarter but the second quarter as well. We're seeing -- we saw stronger gasoline margins, stronger diesel margins, and then again, lower RINs costs that would've basically boosting our capture on the West.

Structurally, as you pointed out, we've taken out a lot of fixed costs by converting our Cheyenne Refinery into the renewable diesel project. And that's basically helping our overall economics in the west as we continue to serve those markets just with one less facility..

[ Operator instructions] Your next question comes from Paul Cheng from Scotia Howard Weil. Your line is open..

Hey, Mike, just a curiosity. Number of your key years that you independent refiner, including some small, some bigger one has said, due to the energy transition, they really have no plan to further expand their refining for train neither in the organic investment or that in inorganic, you guys have probably have the exceptions here.

From your standpoint after you finishing care, do you think that you have sufficient of the capacity or that say after you digest it, you will still be interested as a way opportunity for -- to further expand your refining footprint and how you see that differently comparing to your PS on that?.

Well, Paul, obviously every Company has its own strategy and ours is not intentionally contrarian. And but we actually do believe in petroleum fuels. And those those are the fuels of today. And most of consumers still use gasoline and diesel. And so our intention is to serve those customers reliably safely and then a very reasonable cost.

At same time, we're not ignorant to energy transition, and we're doing things inside our Company around renewable fuels that the supply chain around feedstocks, and potential opportunities around carbon capture. So I think we have a portfolio outlook that also includes specialties like lubricants, in our own integrated transportation network.

What we're trying to be is very competitive Company that generates high returns internally and ultimately with cash to return to our shareholders. It doesn't favor renewables relative to petroleum fuels. We believe in both. And when we want to do is to produce both really well in markets that reward us for that.

I hope that describes the strategy from a very high level. Obviously as time rolls forward, we'll look at individual opportunities. We don't believe in generic capacity acquisition for its own sake.

But at the same time when we're able to add solid assets like that of Puget Sound Refinery that can really help our portfolio with operational capability and serve a premium market, we're going to do that. So yeah, that's what we're doing going forward right now. We've got a very full plate. Execution is our mantra.

And we really need to focus on bringing these things that we've committed to across renewables, Puget Sound, and Sinclair, are home to the benefit of our Company and our shareholders. And that's what we're working on doing..

And my second question is that from a high level, some of your peers, when they are looking at the energy transition, they also expand into maybe beyond or outside the traditional refining space. Including one of your peer getting into the investment, into the factory business and then maybe also doing the CCS.

How HollyFrontier looking at those? I mean those over the next 5 years that the Company may be interested to branch out beyond your carbon business mix or that over the next 5 years you're going to speculate your permanent business mix?.

Yeah. So Paul, our principal skills are in liquid fuels production and distribution. So that's what we're going to favor. We're going to try to reduce carbon intensity through time in our renewables efforts. And also look inside the fence line in terms of scope 1 and 2 emissions, and potentially invest in carbon capture and storage.

Batteries that feels like a stretch for us. I like to never say never. But really, we're going to focus on those things that we can provide skill and advantage to. And I think I've called those out here..

Thank you..

You bet..

There is no further question at this time. I would now like to turn the call over to Craig for closing remarks..

Thanks, everyone. We appreciate you taking the time to join us on today's call. If you have any follow-up questions, as always, reach out to Investor Relations. Otherwise, we look forward to sharing our fourth quarter results with you in February..

Thank you. This ends today's conference call. Please disconnect your line at this time and have a wonderful day..