HFシンクレア（DINO）2026年第3四半期決算説明会：調整後EBITDAは30億ドルに到達

主要な要点

• HFシンクレアが発表した2026年第3四半期の株主帰属純利益は20億ドル（希薄化後1株当たり11.38ドル）となった。調整後純利益は21億ドル（希薄化後1株当たり11.75ドル）となり、前年同期（2025年第3四半期）の4億5900万ドル（同2.44ドル）から増加した。
• 調整後EBITDAは、輸送用燃料の供給逼迫、クラックスプレッドの高騰、小規模製油所に対するRIN免除の恩恵に伴い、製油部門の26億ドルが牽引し、前年同期の8億7000万ドルから30億ドルに増加した。
• 営業キャッシュフローは18億ドルに達した。同社は自社株買い4億7900万ドルと配当9300万ドルを通じて計5億7200万ドルを株主に還元すると同時に、2026年の還元率目標50%を改めて表明した。
• 経営陣は、エルドラド製油所で予定されている定期修理を反映し、2026年第4四半期の製油所原油処理量を日量56万〜60万バレルと予想している。
• スティーブ・レッドベター氏が2027年1月1日付でCEOに就任する。同社は、サイクルを通じてより安定したキャッシュフローを確立するため、製油の信頼性向上、マーケティング、ミッドストリームの接続性に対する自律的成長投資（オーガニック投資）を優先する。
• 「ウェスト・ライン・コネクト」の第1フェーズは、2027年第1四半期に最終投資決定（FID）に至る見込みである。これによりユタ州およびネバダ州への石油製品輸送能力が日量約3万5000バレル追加され、2029年の稼働開始を目指す。

主要財務データ

事業および業績の動向

製油部門

製油部門の調整後EBITDAは、2025年第3四半期の6億6100万ドルから26億ドルへと増加した。経営陣は改善の要因として、輸送用燃料の供給逼迫、クラックスプレッドの高騰、小規模製油所に対するRIN免除の恩恵、米国西部での堅調な燃料販売を挙げた。これらの増益効果は、エルドラド製油所の定期修理に伴う米国中西部での処理量減少により一部相殺された。

原油処理量は日量平均61万4000バレルとなり、前年同期の日量63万9000バレルから減少した。小規模製油所の免除効果を除くと、製油マージン補足率は約105%であったと経営陣は述べており、信頼性の高まり、商業的最適化、軽質留分製品の歩留まり向上を反映している。

エルドラド製油所の減圧加熱炉プロジェクトにより、信頼性と製品歩留まりが向上するとともに、コスト優位性のある重質原油を最大で日量1万バレル追加処理できるようになる見通しである。

マーケティングおよびミッドストリーム部門

マーケティング部門のEBITDAは、前年同期の2900万ドルから3900万ドルに増加した。ブランド燃料の販売量は、2025年第3四半期の3億6000万ガロンから4億2000万ガロンに増加した。

ミッドストリーム部門のEBITDAは、1億1400万ドルから1億100万ドルへと減少した。にもかかわらず経営陣は、より安定したキャッシュフローの創出と、現在バルクやノーブランド・チャネルで販売されている原油・製品の価値向上を図るため、ミッドストリームの接続性およびマーケティング拡大を優先領域と位置づけている。

再生可能エネルギー部門

再生可能エネルギー部門の調整後EBITDAは、3000万ドルの低価法に基づく在庫評価益を除き1億900万ドルとなり、前年同期の1300万ドルの赤字から改善した。業績は、RIN価格の上昇、生産者税額控除の恩恵拡大、販売量の増加から恩恵を受けた。

再生可能燃料の販売量は、前年同期の5700万ガロンから6300万ガロンに増加した。経営陣によると、原料調達、地理的分散、営業費用の規律維持が改善を支えた。シャイアン製油所の定期修理の影響を除いた当四半期の稼働率は72%であった。

潤滑油および特殊製品部門

調整後EBITDAは、販売ミックスの最適化、ならびに製品およびベースオイル価格の上昇に支えられ、前年同期の7800万ドルから1億7400万ドルに増加した。同部門は2200万ドルの先入先出（FIFO）益を計上した（2025年第3四半期は200万ドル）。

特殊項目（特別要因）として、放棄された建設中資産に関連する減損損失2700万ドル、およびミシサガ製油所の閉鎖に伴う退職金関連費用2800万ドルが含まれている。また、同社は5400万ドルの減価償却費および無形資産償却費の加速償却を計上した。

HFシンクレアは潤滑油事業の分離を進めている。経営陣は2027年第3四半期初めまでに独立企業としての運営準備完了を目指しており、ミシサガの移行は2027年後半にほぼ完了する見通しである。新会社は、最終的な資本構成は未定であるものの、柔軟でレバレッジの低い貸借対照表（バランスシート）で発足する見込みである。

経営陣の見通し（ガイダンス）

同社は、ウェスト・ライン・コネクトおよびウェスタン・ゲートウェイへの資金拠出を手元現金および営業キャッシュフローで賄う見込みである。経営陣は、成長投資の大部分は大規模な企業買収ではなく自律的成長機会に向けられると述べた。

リスクと注目領域

• 経営陣は、中東とロシア全体で日量約400万バレルの精製能力が停止したままであり、クリーン燃料の供給制約と極めて低い在庫水準につながっていると述べた。
• 同社は、時期には不確実性が残るものの、製油システム全体の本格的な回復は2028年まで見込めないと考えている。
• WCS（ウエスタン・カナディアン・セレクト）の価格差（ディファレンシャル）は最近、1バレル当たり25ドルを超え、最大で30ドルに達した。経営陣は格差が縮小しつつも少なくとも2027年までは拡大した状態が続くと見込んでいるが、将来のパイプライン容量拡大によってディスカウントが縮小する可能性がある。
• 小規模製油所のRIN免除による恩恵はコンプライアンス費用の減少として認識されたが、関連するRIN在庫は当四半期中に現金化されなかった。経営陣は、この恩恵を現時点での現金創出ではなく、将来の現金支払義務の繰延べと位置づけている。
• 製油部門の営業費用は、環境関連の引当金調整、従業員給付費用、触媒や化学品のインフレ、および追加の信頼性維持メンテナンスの影響を受けた。経営陣は、以前掲げていた1バレル当たり7.25ドルの営業費用目標を改めて表明しなかった。
• ウェスト・ライン・コネクトは、2027年第1四半期に予定されている投資決定の前に、最終的な事業範囲とルートの決定が残されている。

アナリスト質疑応答の要点

資本配分：経営陣は投資の柔軟性を維持しつつ、50%の還元率目標を改めて表明しました。同社は自律的成長プロジェクトを検討する中で高水準の現金残高を維持していますが、配当および自社株買いを継続する計画です。

成長戦略：レッドベター氏は、主な重点領域はマーケティング、ミッドストリームの接続性、および製油の信頼性における自律的成長であると述べました。買収については、収益拡大（アクレティブ）につながり、戦略に合致し、投資ハードルを満たす場合にのみ検討される可能性があります。

西部進出戦略：経営陣は「ウェスタン・ゲートウェイ」と「ウェスト・ライン・コネクト」を競合ではなく相互補完的なプロジェクトと位置づけています。どちらもHFシンクレアの製油システムを米国西部および南西部の市場と接続しつつ、より安定したミッドストリームのキャッシュフローを追加することを目的としています。

再生可能エネルギー事業の業績回復：直接的な原料調達の改善、カリフォルニア州への依存度低下、プラント運用の向上により収益性が大幅に改善しました。再生可能ディーゼルの販売の50%以上が、太平洋北西部、カナダ、メキシコを含め、現在カリフォルニア州外で行われています。

経営陣の移行：レッドベター氏が2027年1月1日付でCEOに就任します。フランクリン・マイヤーズ氏は、移行のサポートと潤滑油事業の分離監督のため、2027年前半に執行会長（Executive Chair）を務める予定です。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Welcome to HF Sinclair Corporation's Third Quarter 2026 Conference Call and Webcast. Hosting the call today is Franklin Myers, who is serving as Chief Executive Officer of HF Sinclair. He is joined by Steve Ledbetter, President and COO; Vivek Garg, Acting Chief Financial Officer; Valerie Pona, President, Growth, Technology and Transformation; and Matt Joyce, SVP of Lubricants and Specialties. [Operator Instructions] Please note that this conference is being recorded.

It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin.

Craig Biery

Thank you, Kelsey. Good morning, everyone, and welcome to HF Sinclair Corporation's Third Quarter 2026 Earnings Call. This morning, we issued a press release announcing results for the quarter ending September 30, 2026. If you would like a copy of the earnings press release, you may find one on our website at hfsinclair.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 security laws. 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. For any forward-looking non-GAAP measures, the company is unable to provide a reconciliation without unreasonable effort due to the unpredictability and uncertainty of certain items. 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 Franklin.

Franklin Myers

Thank you, Craig, and thank you for joining us on the HF Sinclair earnings call for the third quarter. As you've already seen from this morning's news release, the company has had a very good quarter. All segments of the business performed well with all areas adding to our earnings and working hard to capture market gains in these unique circumstances. I want to say thank you to the over 5,000 employees of the company for their efforts in contributing to the success of the quarter. I'd like to give a special shoutout to the team at our El Dorado refinery who are wrapping up their turnaround in a safe and compliant manner, which sets the plan up for several years of operations to come. On the geopolitical front, nothing has really changed during the last three months. Modest improvement has been made in the transit of crude to the straight for moves, but limitations on refining complex in the Middle East still exist and kinetic activity by the many parties still occur on most days. Likewise, the Ukraine-Russian conflict remains at a stalemate with very little, if any, improvement to the Russian refining complex. Finally, the Chinese continue to curtail the export of product to their historical customers. This is due to a combination of the need to replenish their strategic reserves and not being able to access discounted crude from Venezuela and around, which kept them competitive with U.S. sources. We continue to believe, as we've mentioned in our last call that full recovery is unlikely to occur within the broader refining assets and therefore, their products until sometime into 2028.

Our view continues to be that we must stay the course on how we operate our assets as we should expect an extended time of experiencing shortage in the frogs and lubes markets. The activity surrounding the previously announced spinoff of the company's lubes business continues to pace. Likewise, progress is occurring with the safe shutdown of the Missile refining assets. We are targeting a completion of the spin and the finalization of the shutdown in the middle of next year. We will keep the market updated appropriately as we get closer in time. As I'm sure you've also noted in a separate press release this morning that we've determined exactly how long temporary actually is.

Beginning January 1, 2027, Steve Ledbetter will assume the role of CEO of the company. Both the Bor and I are very excited for Steve and the company as we look forward to as tenure and leading the company. I will continue to play a role for the first couple of quarters of next year as I step back into an Executive Chair role to assure a smooth transition and lend oversight to the activities surrounding the spin of the loss business. With that, let me turn it over to Steve to take us through some of the results.

Steven Ledbetter

Thank you, Franklin, and thank you all for joining our call. I'm excited to take on the role of CEO and President of HF Sinclair. Having worked across our businesses and closely with our employees over the past several years, I have tremendous confidence in our people, our assets and our ability to execute. We have a strong foundation and a portfolio of high-quality, strategically positioned businesses. As we move forward, our objectives are clear: operate safely, compliantly and reliably. Drive commercial excellence, continue our competitiveness improvement, both at the site level and through leveraging our value chain, invest selectively to further our competitive advantages and maintain a disciplined approach to capital allocation.

I would like to thank Franklin for his leadership and successful tenure as CEO in 2026, and I'm honored and humbled to lead HF Sinclair into its next chapter.

I will now cover our strategic highlights. Third quarter results reflected the strength of our diversified portfolio as each business segment contributed meaningfully through solid operational performance and commercial execution. From a strategic perspective, we continue to progress the previously announced multi-phase Western expansion project, which we have now named West Line Connect and expect to reach final investment decision on the first phase in the first quarter of 2027. This phase would increase the capacity to move product supply from our Rockies production into Utah and Nevada by approximately 35,000 barrels per day and is targeted to be online in 2029.

We expect to fund the project with cash on hand and operating cash flows. At our El Dorado refinery, we are wrapping up the turnaround and our previously discussed vacuum furnace project. We expect the project to enhance reliability improved product yields enable us to process up to an additional 10,000 barrels per day of advantaged heavy crude. More broadly, we continue to advance growth, technology and transformation initiatives designed to strengthen our competitiveness, improve safety and reliability. We continue to see compelling organic investment opportunities across the portfolio, and we are comfortable carrying a higher cash balance while we complete our valuations and make final investment decisions.

At the same time, we will continue to return cash to shareholders through share repurchases and our quarterly dividend while targeting a 50% payout ratio and preserving our disciplined capital allocation framework. During the quarter, we returned $572 million in cash to shareholders, consisting of $93 million in regular dividends and $479 million in share repurchases. Since the Sinclair acquisition in March 2022. We have returned approximately $5.7 billion in cash to shareholders and have reduced our share count by over 73 million shares.

Today, we also announced that our Board of Directors declared a regular quarterly dividend of $0.525 per share. As we look ahead, we believe the current environment presents attractive opportunities to further strengthen the competitive advantages of our portfolio and grow more ratable and stable cash flows through the cycle by optimizing our integrated value chain. We see accretive opportunities through growth investments in our marketing and midstream businesses while also investing in our refining assets to reduce risk and improve operational reliability, safety and yields.

We have the unique opportunity to advance our competitive position and take advantage of the current market environment, and we are confident that our diversified asset base will continue to deliver strong results. With that, let me turn the call over to Vivek.

Vivek Garg

Thank you, Steve, and good morning, everyone. Let's begin by reviewing HF Sinclair's financial highlights. Today, we reported third quarter net income attributable to HF Sinclair shareholders of $2 billion or $11.38 per diluted share. These results reflect special items that collectively decreased net income by $64 million. Excluding these items, adjusted net income for the third quarter was $2.1 billion or $11.75 per diluted share, compared to adjusted net income of $459 million or $2.44 per diluted share for the same period in 2025.

Adjusted EBITDA for the third quarter was $3 billion compared to $870 million in the third quarter of 2025. In our refining segment, third quarter adjusted EBITDA was $2.6 billion compared to $661 million in the third quarter of 2025. This increase was principally driven by the tight supply of transportation fuels across the markets, elevated crack spreads and benefits from the small refinery RINs waivers granted by the EBA. Additionally, strong transportation fuel sales in the West region were offset by lower sales volumes in the Mid-Con region due to the planned turnaround at our El Dorado refinery.

Crude charge averaged 614,000 barrels per day for the third quarter compared to 639,000 barrels per day for the third quarter of 2025. Our Marketing segment reported EBITDA of $39 million for the third quarter compared to $29 million for the third quarter of 2025. Total branded fuel sales volumes were 420 million gallons for the third quarter of 2026 compared to 360 million gallons for the third quarter of 2025. Our Midstream segment reported EBITDA of $101 million in the third quarter compared to $114 million in the same period of last year.

In our Renewables segment, excluding the lower of cost or market inventory valuation adjustment benefit of $30 million, we reported adjusted EBITDA of $109 million for the third quarter compared to negative $13 million for the third quarter of 2025. Adjusted renewables gross margins increased as a result of improved RINs prices, higher producers tax credit benefits and increased sales volumes compared to the third quarter of 2025. The Total sales volumes were 63 million gallons for the third quarter of 2026 as compared to 57 million gallons for the third quarter of 2025.

The third quarter Lubricants and Specialties results reflect special items related to the decision to retire our Message refinery with the transition expected to be substantially completed in the second half of 2027. During the period, we incurred onetime costs related to the Mis saga asset retirement, including the impairment charge for the abandonment of certain assets under construction of $27 million and severance charges totaling $28 million in addition to certain acquisition integration and regulatory costs of $1 million.

Excluding these items, the segment reported adjusted EBITDA of $174 million for the third quarter compared to $78 million for the third quarter of 2025. The increase was primarily driven by sales mix optimization and strong product and base oil prices in the third quarter of 2026 compared to the third quarter of 2025. During the third quarter of 2026, we recognized a FIFO benefit of $22 million compared to FIFO benefit of $2 million during the third quarter of 2025. We also recorded incremental accelerated depreciation and amortization of $54 million related to the Mis saga asset retirement during the quarter.

Net cash provided by operations totaled $1.8 billion in the third quarter, which included $114 million of turnaround spend. HS and class capital expenditure totaled $137 million for the third quarter. As of September 30, 2026, HF Symcare's total liquidity stood at approximately $5.3 billion, which includes a cash balance of approximately $3.3 billion and our undrawn $2 billion unsecured credit facility. As of September 30, we had $2.8 billion debt outstanding with a debt-to-cap ratio of 19% and net debt-to-cap ratio of negative 4%.

Let's go through some guidance items. With respect to capital spending for full year 2026, we have revised our capital guidance and now expect to spend approximately $725 million on sustaining capital and turnarounds and $150 million in growth capital. Included in growth capital is our expected spend in 2026 for investments in Western Gateway West Line Connect and marketing joint ventures. For the fourth quarter of 2026, we expect to run 560,000 to 600,000 barrels per day of crude oil in our refining segment, which reflects the planned turnaround at our El Dorado refinery in the period. We are now ready to take questions from the audience. Kelcy?

Operator

[Operator Instructions] Your first question comes from the line of Neil Mehta with Goldman Sachs & Company. Neil.

質疑応答

Neil Mehta

Frankly, it's been great working with you. Steve, congratulations. And maybe that's the first question it's appropriate to go to you, Steve, is just talk about your vision as you step into this role. In your comments, you spent a lot of time talking about developing more ratable cash flows through growth investments in marketing and midstream. Is that an important part of what you think about this business needs to do in order to drive value on the go forward?

Franklin Myers

Thanks, Neil. Appreciate it. I'm looking forward to it. I think you're absolutely right. We believe that what makes us different is that we can continue to grow our ratable and stable cash flow businesses that prove consistency over the cycle. This margin environment we're enjoying currently will come back to normal, and we're going to take this opportunity to make sure that we are more stable and some of our investments will be focused both in midstream and marketing, which really unlocks the value of our integrated value chain. From a priorities perspective, nothing changes. Our priorities are going to be we must remain safe, compliant, reliable. We got to continue to improve the baseline, be disciplined in our capital allocation focus and then take advantage of our market concentration and integrated position. And it's an exciting time. We have a lot to work from. The people in this company and the culture is second to none, I believe, in our asset base and our market position. And then I think that we've continued to demonstrate our improvement in the underlying base. And so we won't take our eye off that ball while we continue to go grow and take different positions from an integrated value chain perspective. So very excited about the future and looking forward to getting after it.

Neil Mehta

Awesome. And then I just wanted to get your perspective on some of these crude grades, specifically on WCS, which has widened out quite a bit. So what are you seeing that's driving this differential widen? And how do you think about the medium term, so think about deferred differentials and how those could ultimately play out? And remind us again, what percentage of your crude charge is WCS right now?

Franklin Myers

Yes. So I mean, WCS, we have the ability to run just north of heavy, total heavy about 100,000 barrels. A good portion of that is WCS. So we're exposed to a lot of Canadian exposure. I think what you're seeing is some about what we've talked about playing out over the past couple of years, and that is production is outpacing egress. It's getting to that point. And so you're starting to see some of that pressure. I think most significant driver currently is what we're seeing in the freight and what's happening in the rest of the world, the ship-to-ship transfers in the Gulf of Oman, different trade flows that's becoming very expensive. And we believe there's something to do with quite a bit of crude on the water in tankers that are holding up the additional fleet from being able to make those flows. Additional impact into the Gulf Coast is the VIN crude that is coming on. And so all of that ends up putting pressure on WCS, and we see the differentials that you guys have seen anywhere north of $25 up to the $30. Now that will be how long that lasts. We don't know, but that's beneficial for us. And we think in the near term, we'll take advantage of it. We think that moderates, but we do see that the differentials stay wider than they have throughout the near term, at least through 2027.

Operator

Your next question comes from the line of Manav Gupta with UBS ahead.

Manav Gupta

Congrats, Steve, we are 100% confident you will lead better and I would like to congratulate you on that. My first question to you is a little bit on the refining macro. Very strong earnings from Refining segment, even if you strip out like onetime benefits of maybe $500 million to $600 million on SREs. The overall capture is improving. So if you could talk about the performance of the refining assets in the current environment? And when do you actually expect some of these margins to start normalizing?

Steven Ledbetter

Yes. Thanks, Manav. Again, very excited. Appreciate the tagline to lead better. That was quite limbic and gave us all the chuckle here this morning. So I appreciate that. From a refining macro, we don't know how long this is going to last. This is traditionally what we've seen since the geopolitical issues, particularly in the Middle East, has been mainly a distillate story. But the factors that continue to play out in terms of shortage of refining capacity, that's not coming back anytime soon. And depending on who you talk to. And I think that the picture is getting even more murky. I understand there was another impact last night.

But there's roughly 4 million barrels a day of refining production offline, split kind of 2.5 million barrels in the Middle East, another 1.5 million barrels in Russia. And all that creates a major constraint in terms of clean fuels on the market, and the inventories are at all-time lows. So -- as far as the market environment, I see us enjoying the benefits and the most competitive refining complex in the world in the United States. And so that tightness will continue.

As far as our performance, I feel like we've done a lot in the past to ensure the underlying liability performance as well as our commercial execution and optimization. Our crude guidance, we just came in slightly above the midpoint closer to the high end, and I think that's 100% associated with us operating better and looking at the opportunities in between the refineries and ensuring that we can take the shorts to other parts and use the integrated value chain a little better. We're placing barrels in better markets we are high-grading the molecules, and we have better light product yield across the fleet. And the combination of those things, I think, continue to demonstrate our improvement through year-over-year capture.

If you strip out SR our capture was right at 105%. And so year-over-year, that is a structural improvement, and we've continued to see that quarter-over-quarter. So staying focused on commercial excellence and improving our reliability. We're seeing that start to play out in the outcomes, and we'll continue to drive that journey forward as far as our base principle.

Manav Gupta

Very clear. My quick follow-up is on shareholder returns. You have a clear formula. I think you were lagging a little in the first half, but the second -- like the third quarter shows, now you're in a big catch-up mode. So should we expect you will stick to the formula and allow the shareholders to participate in the upside in refining margin environment.

Vivek Garg

Thanks, Manav. Yes, our capital allocation strategy remains unchanged. We expect to end the year at our target payout ratio of 50%. And so that's what you should be expecting.

Operator

Your next question comes from the line of Theresa Chen with Barclays.

Theresa Chen

Congratulations to Steve as well. I wish you all the best and looking forward to working with you in this new role. On the West Line Connect project, as we await FID in early 2027, what are the key gating factors between now and then? And based on the commercial work you've done over the past few months, how are you thinking about the scope and timing of potential follow-on phases.

Steven Ledbetter

Yes. So thanks, Teresa. We've talked about our FID approach. One of the things that we're very careful about is making sure we not only do the right thing. And we had previously discussed maybe taking FID in Q4. We have some options in terms of route in terms of scope that may make a better outcome. And so we're pushing that FID target to 2027. But the underlying premise from the commercial perspective, we're still very bullish on this project. We think it's complementary to the other project that we took a position in Western Gateway. And we're in the middle of scope definition right now. So nothing more to guide on other than we're still very bullish on this, and we'll come back to the market in Q1.

We believe it does set us apart and will help the overall not only our midstream business, but the entire commodity complex for our integrated assets.

Theresa Chen

Understood. And as we sit here at the end of October in 2026 and looking at 2027. When we think about 2027 spending, what are your early thoughts on potential size and magnitude of CapEx next year with Line Connect or pushing FID and other growth opportunities across your portfolio, how much could CapEx step up next year?

Steven Ledbetter

Yes. So it's a bit early to guide on 2027. We just raised our guidance, as Vivek spoke about in '26, and that was predominantly associated with modest turnaround and sustaining as well as the current portion of spend for our Go West initiatives and our growth in marketing. So we're not indicating we still believe our turnaround and sustaining CapEx is range bound to the cycle. We will look to take opportunities to improve our risk profile and our small value creation elements within that, but we're still staying in that range. As we take FID, we will come back to the market with that incremental amount on other projects.

Operator

Your next question comes from the line of Doug Leggate with Wolf Research.

Douglas George Blyth Leggate

Steve, congrats from us as well. It's great to see after all the improvements that have been made over the years, which is actually my first question, if you don't mind. Where do you think you are in terms of refinery reliability optimization, upgrading at this point? Have you done what you wanted to do? Or is there more to do? And what's the capital implication? That's my first question.

Steven Ledbetter

Yes. I mean, so we've made heavy investments over the past several years and taken some very good steps forward in terms of PSM risk reduction, personal risk reduction and reliability. Are you ever done investing in these things. I don't know that you ever are, and there's really a baseline set that you will continue to have to invest. That's what I mentioned earlier, this range bound of turnaround and sustaining capital.

Having said that, we will look and take the current market environment and the opportunity in this cash build scenario to see where we could take a step forward, not only investments in the kit, but also investments in technology where we see opportunities to go improve, seeing things sooner, fixing things sooner and learning through AI technology that will give us a better footprint in terms of improvement and finding small and fixing small. So not guiding really any more on explicit projects, but we are going to be very diligent in terms of how we evaluate any additional capital spend, and where we find projects like the El Dorado Vactor furnace project are being implemented and wrapping up now to the extent that they meet our capital allocation framework and investment hurdles, we'll take those decisions at that time.

Douglas George Blyth Leggate

I appreciate that. My follow-up is I expect this for Vivek, but whoever you want to allocate this to. So you had about a $600 million SRE tailwind. It seems this quarter. But I'd like to understand the mechanism as to how you realize that. What was the cash mechanism if you like? Are you selling RINs into the market -- how is that -- is that a swing in working capital? If you could walk us through how it actually shows up in cash flow, that would be great? And any expectations for the future would be appreciated.

Vivek Garg

Thanks, Doug. I'll take those questions. So we recognize the expense as we generate the obligation, as you would expect through the year with the SRE granted towards the end of the quarter, we essentially ended up reducing our expense or reversing our expense that we had already taken over the period. Now we're left with incremental rents in our inventory and we have not monetized on any of those because we do have the flexibility to utilize a lot of those against our next year's compliance. And so while you see the benefit come through in earnings, you will actually not see any of that benefit come through cash flow statement.

Steven Ledbetter

Yes, I would look at it as a deferred cash obligation in the future years as we think about it from monetizing and trading activity.

Operator

Your next question comes from the line of Philip Genworth with BMO.

Phillip Jungwirth

Yes. And also wanted to extend my congratulations to Steve. I was hoping you could talk through the rationale for participating in Western Gateway as an equity partner and just the benefits to Dino, plus you already have West line, although I understand you don't view them as competing projects? And is the plan also to fund Western Gateway capital commitments through operating cash flow?

Steven Ledbetter

Yes. And on Western Gateway, I think we've talked about this a little bit in terms of our Go West initiatives. The reality that we believe in our market view in the Midwest is that depending what happens, we believe that there's something coming as far as E15, you see the demand and people moving out demand patterns or people Ruben West. And as part of that, with our asset locations, it made a lot of sense to go participate in Western Gateway, not only because we believe the Southwest is a key important market, and we've going to be connected to our El Dorado Tulsa and Artesia refinery.

And then ultimately, when we take an equity investment, we feel like growing again, some of our ratable stable cash flow businesses. That's a great way to do it, and it somewhat backstops our placement. So that falls right in with our thesis from a strategy perspective. It's a project that we think makes a lot to the overall complex. And then, again, it does not, in our view, compete with West line Connect. When you think about what's happening in California with the recent refinery closures and the cost to operate in that geography.

We think that's only going to continue. And so the combination of both of these projects should be competitive to supply efficiently those markets, and we think we have a strategic advantage there. As far as cash goes, we will fund that out of normal operating cash flows and cash on the balance sheet and don't anticipate any liquidity impacts or draw into our credit facilities to make that happen.

Phillip Jungwirth

Great. And then, Steve, as you step into the CEO role, just hoping to get your views on refining M&A in this environment versus the opportunity for higher growth CapEx across the business, plus M&A across other business lines such as midstream and marketing?

Steven Ledbetter

Yes. I mean, so just to be clear, this may be a question because we are building a sizable amount of cash when we're talking about growth and we structured the organization to go execute that growth well with Valcom taking the President of Growth transformation technology, putting some strength and capability associated with doing projects right the majority of our growth is going to be targeted at organic opportunities. While we're not active in material inorganic, of course, we would look at things where it makes sense, and we're accretive and fit our strategic approach and investment hurdles, but that's not the primary growth objective for us. And when we talk about M&A or growth in midstream and marketing, we've been happy with the performance of our joint venture that we entered into late last year.

That continues to grow. We continue to find packages and put it in there, but growing and scaling JVs, having exposure to the rack to retail and the full suite of that integrated value delivery is something that we like. I would also like to point out that as we grow our marketing business, it's not just what we see in marketing, it high grades our entire commodity stack as we move our lowest-valued barrels out of bulk and unbranded into that channel. So it improves refining capture. And I failed to mention that was another element that we continue to see improving our year-over-year capture. In the midstream space, we would hesitate to look at anything that didn't have massive integrated value. So to the extent that we find something that can accelerate connectivity of our production facilities and our markets that we are targeting to go grow, we will evaluate those projects. But make no mistake, our focus is on growth in mainly organic opportunities at this point.

Operator

Your next question comes from the line of Matthew Blair with TPH.

Matthew Blair

Congrats, Steve, on the promotion. Your renewable Beef results continue to impress in 2026, you're more profitable per gallon than some of your larger peers even though you're still at less than 70% utilization, could you talk about this transformation? And did the Q3 results include any sort of one-off items? And then finally, for Q4, in any early thoughts on renewable diesel capture in the fourth quarter? Do you think you'd experienced some feedstock lag benefits?

Steven Ledbetter

Yes. Thanks, Matt. This is an area of which we've been pretty proud. It was pretty hard sledding for a couple of years in this business, but the team has done an outstanding job in terms of three key things. One is in our feedstock strategy, and we believe that getting really focused on direct versus brokers and location proximity has really helped us out. That's a significant amount. And then market placement, we're greater than 50% outside of California now. That has been an objective to make sure that we find markets that are not reliant on an area that is to be honest, chart full with distillate product and renewable diesel.

And so we're finding areas in the Pacific Northwest, leveraging our integrated products value chain as well as Canada and the new market in Mexico, we're seeing benefits already from. And then OpEx, we remain disciplined there, keeping it flat. And our performance in running these kits is improving. You mentioned we were below 70% utilization, but just to call out, when you take out the Cheyenne turnaround this past quarter, we were at 72% utilization. And last quarter, when you take out the PARCO outage, we were at 67%. We think our sweet spot because of the co-located facilities is north of 70%. We delivered that the Cheyenne turnaround, and we see that moving forward as of the target utilization given the macro and the backdrop.

I couldn't be more proud of this team. And I do believe that this is an area of bright spot that has been a significant business turnaround for our company. And we see the future of it bright for Q4. We don't normally guide on capture, but we have plans to take advantage of the favorable market environment. For next quarter or this quarter.

Matthew Blair

It sounds good. And then on the refining side, your OpEx moved up quarter-over-quarter in Q3. Could you talk about what drove that up? And I think at one point, there was a target to hit $7.25 a barrel on refining OpEx. Is that a good target for 2027? Or has that changed?

Steven Ledbetter

Yes. I mean so we had some onetime OpEx events in the quarter and year-to-date, really driven by environmental accrual true-ups when they become probable and Essie and it was time to do that. given our performance of employee benefit charges. And then we've seen some inflationary pressures, particularly in the cat Chem space, we're running harder and producing more accolade as an example. Sorferacid has gone quite a bit higher. And then going after some maintenance items to improve risk and reliability performance where we have a window to do so. And that accounted for the majority of it.

The trajectory of our underlying programs to drive our competitiveness continue to mature. And we're seeing that as evidenced by our holistic delivery of crude charge and our associated reliability trends across the fleet. So we feel like we're being good stewards of cost. Now let me talk about the $7.25 target we're committed to improving our competitiveness across the entire fleet. And but we're focused on technology and capability to drive reliability. And ultimately, we want to improve not only cost, but total earnings. And we want to be mindful that we don't prioritize the cost-only picture without contemplating the underlying operational safety and reliability performance.

As you know, that's foundational to the profitability of our business. So not committing to the $7.25million. If you look at the underlying trajectory, minus the onetime elements, we still are demonstrating cost efficiency and competitiveness, and we'll continue to keep that as one of the focus areas.

Operator

Your next question comes from the line of John Royall with Piper Sandler.

Unknown Analyst

Congrats to Steve. I was hoping first, maybe you could talk through the process of separating moves and what are the near-term steps we can expect from here? And any big pieces of progress we should expect from now to the next time we speak to you in January excuse me -- so the next time we speak to you in January.

Matt Joyce

John, this is Matt Joyce, and thanks for the question. Yes, the separation is still on track for the second quarter of '27 -- or second half of '27. And we continue to make solid progress across all the separation work streams moving from our planning processes now into an execution stage. And that includes the PLR, the Form 10 and getting some key leadership roles starting to get filled in. We're also undertaking a lot of work and understanding the lift and shift required for our IT infrastructure and all the operating agreements that go along with that.

So our focus is on being fully operational and ready as a stand-alone company by early quarter 3 and not simply completing the legal separation by that time.

Unknown Analyst

Great. And then maybe if we could stick with lubes and just more of a question on the underlying business versus the spin-off, but I was hoping you could just speak to the strength that we saw in $174 million of EBITDA is the second really strong quarter in a row. Just anything on the strength there and what that market looks like today?

Matt Joyce

Yes. The underlying business remains pretty healthy. Obviously, we've had some tailwinds from FIFO in the third quarter, but the demand and the mix has been very good. We've been working really hard with the team to recover costs as a lot of our raw material increases hit the business and the team did a really terrific job getting out with pricing and portfolio management. And that was primarily driven as well. There was a big piece of that, that we enjoyed from the base oils market that did get a little bit tighter on both Group II and Group III.

But both in the finished and specialty side of the business, we saw some pretty impressive performance and finished in particular, has been tremendously successful in pricing discipline and some new business gains that we were able to take advantage of, and we've secured those for longer-term contracted periods of time.

Operator

The next question comes from the line of Jason Gabelman with Cowen.

Jason Gabelman

My congratulations to Steve. I wanted to stick on lubes and the reorganization process. I know last quarter, there was some confusion because it sounds like you were going to be able to backfill the lost EBITDA from shutting down the Mississauga plant. So I was hoping you could provide more color on how you would be able to do that? And then also, if you could kind of provide what the kind of rack forward business, what type of debt they're going to be able to take on post the spin? .

Matt Joyce

Yes. Thanks, Jason. It's Matt Joyce again. With regards to the earnings potential and what the business looks like on a go-forward basis. We're really not guiding all that much on that particular point at this time. But we are changing the supply model, okay, where we're not going to be manufacturing base wells any longer. But we're not walking away from the market. We expect that we're going to have a more flexible supply model, lower fixed cost continued growth in both our finished and specialties business segments and improved operating efficiencies to help offset some of the historical contribution that came from Mississauga.

So that's really what we're looking to do. And I think we've given some indications as to what we expect with regards to historical 12-month trailing EBITDA that we would strive to secure and provide as a coming out into the marketplace as an independent company. With regards to the capital structure and how we view that as part of our stand-alone entity and the debt and so on and so forth. Our objective is really to launch Newco with a strong, flexible balance sheet that supports both the resilience of the business as well as our growth objectives.

And we're looking to continue to entertain and consider businesses that are tuck-ins that make sense for us to put on and complement our business, but we're also looking to get that organic growth out of the business that we have in hand. The final capitalization levels are still being determined, but financial flexibility remains the priority. And we don't plan to load this up with that.

Franklin Myers

And just to jump in here, Jason. You see the balance sheet of Sinclair just in general as we believe that having a very flexible under levered company gives us optionality for opportunities in the future. that attitude is not going to change with lubes as it comes out the door that they're going to have sufficient financial opportunities without too much debt on it. We haven't described or determined with now at as to how much debt that is at this point.

But it's not going to be, as you've seen with some spends that are loaded out and kicked out the door because this is a thriving business that has opportunity and they need to have the options to take advantage of that once they are independent.

Jason Gabelman

That's great. I appreciate that color. And my follow-up is on the refining business and growth opportunities there. We've discussed the widening WCS diffs. I know you mentioned some of that is transitory, but some of it may be more structural in nature. Do you see an ability to invest in some of your plants to increase the amount of WCS you're able to run?

Steven Ledbetter

Yes, Jason, thanks. That's exactly one of the benefits that the back tower furnace at Albarado that's coming online as we wrap up this turnaround is directed at, not only reliability but yield improvement. But it gives us the ability to run up to another 10,000 barrels a day of heavy crude, and then we can take further advantage of that through our heavy oil value chain in our retail asphalt business. But we will continue to look at those elements because I do think, structurally, near term, there's going to be some widening what happens as trade flows normalize. You've seen a lot of pipelines being announced that will bring more egress online.

And depending on production timing and egress capability that could have some narrowing when that shapes up. But structurally, it's going to be an opportunity, and we will look to continue to go drive as much discounted heavy advantage crude through our complex as we can.

Operator

We have reached the end of the Q&A session. I will now turn the call back to Franklin Myers for closing remarks.

Franklin Myers

Thank you so much, and thank you all for joining our call this morning. I just want to express my personal appreciation to the executive leadership team and to the many employees of Sinclair who've worked hard in making my temporary assignment here as CEO, an exciting and meaningful part of my time here.

Also, I want to thank you on the call for supporting our company. We have a great team here, and we have a great company that's been developed over many years with a lot of opportunity going forward. The Board has taken a deliberate approach looking inward at the team for the leadership to go forward because we believe that within this company, we have the talent to do that.

Steve's elevation, the CEO, is setting up the company for a great leadership, not only with Steve, but the entire team going forward. I look forward to many, many days of very good operations and results ahead of us. Thank you for supporting the company. Thank you for being us on the call.

Operator

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.