HF Sinclair will separate the lubricants business whose quarterly earnings just rose from $33m to $181m, and retire its Canadian base oil refinery
The lubricants business HF Sinclair intends to separate is the one that just earned more than five times what it earned a year ago.
The company said on Tuesday that it plans to pursue a separation of its Lubricants and Specialties segment through the capital markets, creating a new independent, publicly traded company, and that it has decided to retire its base oil refining assets in Mississauga, Ontario, with the transition expected to be substantially completed over the course of 2027. Nothing has been filed yet. The release says the transaction is intended to be executed over the next 12 to 18 months, in a manner it describes as tax-efficient for HF Sinclair and its shareholders, and that it will not require a shareholder vote. It does not say which capital markets mechanism will be used.
The listed conditions are customary and there are a great many of them: final approval by the board, a tax opinion from counsel, a private letter ruling from the Internal Revenue Service, the filing and effectiveness of any registration statements with the Securities and Exchange Commission, approval for listing on the New York Stock Exchange, applicable regulatory approvals and satisfactory completion of financing for the independent business. The release states that there can be no assurance that any separation will ultimately occur, or of its terms or timing. Goldman Sachs and Co. LLC is exclusive financial advisor. Vinson and Elkins L.L.P. is legal counsel.
Ontario keeps most of what it has. The lubricants business will continue to run its research and development laboratory there, along with lubricant blending and packaging, supply chain, logistics and commercial operations. What goes is the base oil refining itself, and the company says the supply will be replaced through new commercial agreements with two global base oil manufacturers, complemented by continued access to Group I and specialty products from its Tulsa refinery.
The quarter underneath the announcement was a large one. Net income attributable to HF Sinclair stockholders was $892m, or $4.93 per diluted share, against $208m and $1.10 a year earlier, and adjusted net income was $960m, or $5.31 per diluted share, against $322m and $1.70. Reported EBITDA was $1,404m and adjusted EBITDA was $1,482m. Refining did most of it.
The refining segment reported income before interest and income taxes of $877m against $166m, on an adjusted refinery gross margin of $25.95 per produced barrel sold, a 57 percent increase from $16.50. Crude oil charge averaged 639,680 barrels per day against 615,930. Lubricants and Specialties, the segment being separated, reported income before interest and income taxes of $181m against $33m, and adjusted EBITDA of $207m against $55m. Inventory accounting is part of that. The company recognised a first in, first out benefit of $46m in the quarter, against a first in, first out charge of $20m in the same quarter last year.
The board declared a quarterly dividend of $0.525 per share, an increase of 5 percent on the previous $0.50, payable on September 2 to holders of record on August 11. During the quarter the company paid $89m of dividends and spent $179m on share repurchases, including $3m of excise tax. Cash and cash equivalents were $2,262m at June 30 against $978m at December 31. Consolidated debt was $2,772m.
The two releases count the retail network differently. The transformation release describes more than 1,600 independent Sinclair branded stations across more than 30 states. The earnings release says the company supplies more than 1,800 branded stations and licenses the use of the Sinclair brand to more than 350 additional locations.
Management discussed the quarter on a call at 8:30 a.m. eastern time on Tuesday.
