HFC
#I think on the RIN cost, it really hasn't changed much over the last few quarters.
It runs about mid $40 millions, $40 million a quarter.
So, what I would say is, we have seen it be as high as $54 million in a quarter, at least over the last 1-1/2 years.
I think as <UNK> said mid $40 millions, Q1 ---+ you do think there is some averaging that goes on in terms of the RIN cost, where you purchase them, so some carryover that might have been used in previous years.
What I would say is that approximates mid-$50 millions RIN price for that $46 million we spent this quarter.
Current market is higher than that, in the low to mid $70 millions.
As we burn through our lower cost RINs and start getting into the higher price RINs, you'd expect that number to creep up into the next quarters going forward.
No.
Nothing one time would highlight a big portion, about 40% of the decrease of cost was due to natural gas or fuel cost.
So that is running about [$2, $1 million] for natural gas
I think that's exactly right.
That's a year end run rate.
I think, again, the two biggest pieces to that are the Woods Cross expansion that we've highlighted in the past is 480 million to $100 million of that $200 million.
And then as far as the rest of it, we tried to give you a feel for that with the Tulsa modernization being $20 million and the El Dorado crude expansion being another $20 million.
So those are the largest components of that.
I think our yield of asphalt typically runs about 1% to 2% of our crude rate.
I think asphalt demand is looking pretty strong so far this year and we have a low price environment, this fixed state budgets further obviously as a lower cost of asphalt.
Asphalt's typically running in about 80% WTI.
$130 a ton, so if you want to divide that by 5-1/2 to get it to dollars per barrel.
In addition to asphalt, we sell a lot of roofing flux out of Tulsa and that typically commands appreciable premium say, $100 to $150 a ton over asphalt.
Usually with a lot of these asphalt contracts, <UNK>, there is an escalator that is associated with the crude price.
So it should be agnostic to the margin, should adjust for the increasing crude price.
Could you go back to the first part of your question.
I'm not sure I followed.
I think if you want to model it in, I would stay on the conservative side and say that the EBITDA starts in the third quarter.
So that $80 million to $100 million run rate that we just talked about, I'd model $40 million to $50 million of it in the second half of this year and then $80 million to $100 million starting for full-year 2017.
I'm sorry.
And then I think on your UNEV question and the impact on local markets, we would view the majority of our expansion gasoline and diesel production going down UNEV.
We might be able to squeeze some more into the Utah and Idaho markets, but those are well served now obviously, so incrementally I think it is safe to assume that the majority of expansion volume is going to go down UNEV.
I think the view on M&A is it is very opportunistic, you never know when an asset is going to become available.
I think if and when assets become available that are attractive to us, we are going to look at them.
And obviously when we are in a tighter refining margin environment like we are now, it makes you think even harder about it.
But again, these properties don't come up available for sale very frequently.
So, again if an asset comes up that's appealing to us, we're going to pursue it.
As far as the brent WTI spread, I think it being around the $2 level it is now.
Same thing for the coastal differentials for WTI, say in Houston and [LLS].
All those should be in that $2 region.
I think fundamental transportation costs would argue for a wider differential for WTI in Houston, but I think there is excess capacity both from pushing in Midland to get WTI barrels from those two locations to Houston.
So the differential is trading below full transportation costs.
I still think $2 is a good number.
And I'd echo that and say that obviously we read what you guys write and appreciate that there is a trend towards preference for Gulf Coast refining and siding with the lower US production could lead to tightening of that spread.
And we've seen that some already, as <UNK> has talked about, we've seen some fluctuation in that spread.
And short term you can see anything in our opinion.
At the end of the day if you're inland producer, do you really want to put a barrel on a pipe and pay a tariff to move it to the gulf coast and get a lower net back, ultimately when you get there.
We think as we said now even dating back to the time when pipelines are been reversed in 2013 and 2014, that eventually that spread should look like a transportation differential.
And so we think our geography suits as well in terms of being close to that crude barrel, depending on which refinery we are talking about.
And our guess is probably slightly more educated than most, but that is where we think it is, as <UNK> said, maybe $2 this year.
And probably growing between flat to $4 long-term, just depending on where the crude is being produced and what different discounts are there.
We will send you a petition.
<UNK>, we saw your note this morning and as we work through the math think maybe somebody had the signs reversed.
We calculated our effective tax rate being about 34% for the quarter, and that is slightly below what you would have expected to see as a 38% or so tax rate.
Because HEP, which we get favorable tax treatment on, was a larger percentage of our earnings this quarter.
So we would be happy to work through that with you, but the HEP earnings being a larger percentage we also had a small number in terms of manufacturing tax deductions that slightly lower the rate.
But we show it at 34% and <UNK> would be happy to walk through that with anyone.
That is correct.
No, we don't think so.
We are buying ethanol at market and we're selling our products at market.
It is the same market that everybody else is buying and selling into.
Again, it's a big proportional impact on us because, again margins are small, so you're dividing a relatively fixed number in the RIN charge anyway, by a smaller gross margin number.
The percentage looks exaggerated because, again you are dividing by a small gross margin number if you will.
We've said the past that we blend about half and sell about half, both as clear barrels.
Remember, again, <UNK>, this is the first quarter in a longtime that ethanol margins have been negative.
Again, it was driven primarily by the low crude price dragging down the gasoline price with it.
So, the other relevant point here to remember is even if peers that have retail associated with them, they are buying ethanol and blending it as well, and again, we are not overpaying for ethanol and not under ---+
Thank you, <UNK> for your thoughts.
It's in cost of goods sold.
I think round numbers OpEx reduction target was right around $100 million.
And I think what we've explained in the past is that we achieved about $30 million of it last year.
I think we're seeing some of that come through in the first quarter here.
One of the reductions we had in operating cost was about the same magnitude as natural gas, was lower maintenance related, what we call XO or extraordinary projects, so that been the savings was about the order magnitude of lower fuel costs this quarter.
About $10 million for the quarter.
<UNK> has a breakdown that she can provide, but again, overall we are doing well and the OpEx portion of our business improvement plan.
And a lot of that as you noted is reliability related, when you run your plants reliably you need less maintenance cost and that's less of this XO project category that we just finished talking about.
As far as opportunity cost that, I think the best way to think about that ---+
Opportunity capital.
I think, thinking about that as being $50 million of EBITDA each year from last year through 2018.
So we're going get $200 million in that bucket in $450 million annual additions.
I think if anything I am more optimistic in what we are seeing because of projects like the El Dorado crude expansion that we just highlighted in our prepared remarks.
That one was a phenomenal effort by operation and engineering teams again to get 6000 barrels per day of additional crude rate out of the units that we've run historically at 138.
With nominal, less than $1 million of capital.
That is really an outstanding application of intellectual capital to replace capital investment.
I think Q1 the margins were a little bit better because crude prices lower, and whenever there is a crude movement those prices are stickier than the crude price.
I think the crack very good, the crack was down, flat to down slightly, with fourth quarter was actually pretty good too.
We actually made basically 1 percentage point more, the cracks were marginally down.
So net-net it was a wash basically versus the previous quarter.
That would be our expectation.
I think the biggest difference is RBO, that was published in November was higher than anticipated, so that drove the RIN price from roughly $0.50 per RIN at that time to the $0.70 level that it is now.
The other point is, when you look at first quarter, ethanol margins were negative so you compare the two, you compare the cost of the RIN versus blending and that's the other component.
That's quarter on quarter.
I think one of the things you are seeing there is we implemented a project last year that allowed us to draw more diesel off of the crude pillar.
That diesel draw allowed us to increase our crude rate.
Maybe on a percentage basis the distillate yield went up, but on absolute volume basis that allowed us to run more crude at the refinery.
Yes, I'd say as a blanket statement that is true.
In an acquisition for a period of time would you go higher than that if there was reason to do so.
I think potentially, but probably not more than 1-1/2 times for that instance and then obviously the big question is what is EBITDA.
But what we laid out at Analyst Day, I think was generally $1 billion of debt sort of in the outlook time we were looking at, which was from now until 2018.
And I think we still feel like that is the appropriate amount of leverage.
Yes.
Everything is going well.
Thank you everyone for joining us today.
As always if you have any follow-up questions or would like to discuss any of these other items in the Q&A in detail I will be around all day, just reach out.
And with that I will look forward to sharing our next quarter results with you in August.
Have a good day.
