Paul Cheng: Thank you, Tim. But Steve, can I just go back into my question? I’m just curious that if that means that you will be able to run more WCS and then mix it with other grade to make it more ANS type or that that’s not really going to be the case. And if you do one more WCS, will that impact on your product slate in Puget Sound. I think that really is what I’m trying to figure out.
Tim Go: Yes. Paul, let me try to take a shot at that. This is Tim. Having more crude around our refinery in Washington is always a good thing. And so, having the TMX start up and having more barrels available to us both via the pipeline, as well as via the water is going to be an advantage for Puget Sound. So Puget Sound was designed to run 100% ANS and so what we do, as you may know is, we blend up the Canadian barrels, both the heavy and [indiscernible] and the MSW, to basically fit the ANS profile. And we can run 100% of that from the Canadian side. So the real advantage we have is because we have a unique configuration with both a [cat] (ph) unit and a cocker in that refinery, we’re able to basically pick and choose whatever the right crudes are of the month in order to optimize our crude slate at Puget Sound. So we view this as a positive in terms of giving us flexibility and lowering our crude cost at Puget Sound.
Paul Cheng: Okay, thank you. And my second question is that, Tim, it’s probably not a fair question because it’s not under your watch when it was sanctioned. The RD project has been challenging whether it’s during the development, it was course-over run and also that being delayed in terms of the startup and after the startup that also the economic has been challenging and operation has been challenging. So, as I look back, what lessons that the organization has learned in terms of the future project FID or devaluation? I mean, what have we learned? And how that is changing your devaluation process going forward?
Tim Go: Yes, Paul, we have been working on our renewable diesel business here for a couple of years, as you pointed out. And I think there’s lots of lessons learned, and we talk about that amongst our management team. We talk about that amongst our board all the time. But the biggest change that has occurred has been the market dynamics around LCFS and the RINs. And we knew that was going to be out of our control, and we knew that was going to be something that was going to be subject to external interference, I guess, I would say, and it may not be the right word. But we still thought it was the right thing to do. We still think it’s the right thing to do going forward. We have not given up on our renewable diesel business.
I just want to make sure our investors know that. And we still believe that with the operational improvements that we’ve made, and as I mentioned, we were not limited by hydrogen in the first quarter. In fact, from an operation standpoint, we ran pretty smoothly. We were limited by the economics around RINs and LCFS. When you look at the backwardation in the feedstock market, that was also one of the reasons that our results were lower in the first quarter than they were in the fourth quarter. So we know those will turn around. It will be cyclical. And so our plan is to continue to get ourselves in a position so that: A, if conditions don’t change, we’ll be breakeven to slightly positive; and B, when the market does change and we do think the LCFS and the RINs markets will improve.
It may take a year or so to make that happen, but keep in mind the California board has signaled that they are going to be tightening the LCFS credits. You saw New Mexico has announced their own LCFS program that will significantly benefit our renewable diesel plant that’s located in New Mexico. And you look at the — just the way the market is shaping up right now. We believe the biodiesel plants that are currently out in the market are competitively disadvantaged versus the renewable diesel plants that are out there. And so, we think there’ll be some additional attrition. You saw some of that announced already here in the first quarter in the biodiesel world. And we think the renewable diesel market will recover and come back off its cyclical lows here.
So lots of learnings, Paul, and we can talk about that sometime over a beer. But we do believe that we’re going be set up here for success as the market continues to improve.
Paul Cheng: All right, thank you.
Operator: Your next question comes from the line of Matthew Blair of TPH. Please go ahead.
Matthew Blair: Thank you and good morning. I know it’s a small segment, but your wholesale marketing business posted positive EBITDA in a pretty tough environment. It’s actually up quarter by quarter. Could you talk about the things that are going right here?
Steve Ledbetter: Yes, Matt, this is Steve. Thanks for the question. We are very excited about our marketing business and very excited about the performance in the quarter. Some of the improvement is associated with integration and bringing the full slate on quarter one 2024 versus quarter one 2023. But we have taken some opportunities to go improve the overall performance from a margin perspective. I think we’re looking very strategically at how we’re pricing in the market and making sure that we’re capturing the value from the brand. We really believe that this is a tremendous value that is yet untapped as a strategic growth lever. And we’re putting some things in place to make sure that we can go fully explore that and get that value and drop it to the bottom line.
We’re creating very much a clear picture on our retail network plan and we’re expanding our branding partnerships to go really grow this. And we’re allocating resources both of people and capital to make that happen. And from a revenue replacement perspective, as we go put new sites on, we’re seeing between 60% and 150% more volume than the fleet average. So, as we go continue to grow, of which we look to do more and more, we’re seeing that the overall margin structure and volume picture continues to improve. This is something we look to take advantage of as we continue to move forward.
Tim Go: And Matt, I’ll just chime in. Again, thanks for noticing the marketing segment. I think it’s something that often gets overlooked, but it’s absolutely part of our core strategy. So remember, refining, midstream, marketing, those three segments together combine to be really our core value chain that we offer here at HF Sinclair. And you’ll see, it was brought up earlier in the call, our midstream performance is strong. You just mentioned our marketing performance is strong. And when you combine that with our refining business, you get a better picture of what the earnings potential is of our core business. Some other of our peers kind of include marketing in their refining, or they include midstream in their refining, we break ours out. But you’ve got to be able to look at the three together to understand really what we’re trying to offer to the market in terms of our portfolio.
Matthew Blair: Sounds good. And then I wanted to ask about the outlet markets for diesel for your Puget Sound refinery. I think there was a comment earlier that the West Coast has been impacted by increasing RD penetration. Does this refinery typically send barrels — diesel barrels down to California? And if so, is that still occurring or do you have to look for new markets, sending those barrels to Canada or to Mexico or possibly Asia instead?
Steve Ledbetter: Yes, Matt, this is Steve. I think I made the comment, so I’ll follow up on it. As we look at the diesel supply demand balance on the West Coast with the RD penetration and growth, we look to make sure that we have placement where we have local logistics, and we’re going to do that. But there are also some opportunities to go move that into Latin America. As you know, moving barrels over the water with the Jones Act impact makes that more difficult into the United States and into California, but we see an opportunity and we think we compete well to Latin America barrels, and that’s where some of our cargos are going.
Tim Go: Yes. And Matt, I would just point out that when we brought the Puget Sound refinery into our portfolio, we acknowledged at the time that diesel was probably going to get a little long, given the fact that the renewable diesel push and the LCFS credits, but the Puget Sound refinery was more of a gasoline producing refinery than it was a diesel producing refinery with the cat unit that we had there. And it’s playing out like we expected, and I think the Puget Sound refinery is competitively advantaged. It’s able to make carb gasoline, and so while we’re not moving diesel to California, we are moving gasoline to California. And we think that’s going to continue to take advantage of the [ARBs] (ph) that are opening up there.
We also think with the recent conversions in California and the shortages of gasoline, that that’s also a tailwind for our Pad 4 markets, Phoenix and Las Vegas in particular, which we have access to through our Rockies refineries and our New Mexico refineries that are also benefiting as we move gasoline barrels west to take advantage of that shortage.
Matthew Blair: Great. Thank you very much.
Operator: Your next question comes from the line of Theresa Chen of Barclays. Please go ahead.
Theresa Chen: Good morning. Thank you for taking my questions. First on the capture front, I wanted to follow up on the comment earlier about leaning more into your premium sales. Just given the octane spread that we’re observing, can you give us a sense of how much octane enhancement or production capability you have in your system and that you’re with a backdrop of the overall gasoline margin outlook for the summer.
