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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-28 · 190 added, 282 removed, 383 unchanged (55% of the section changed)

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In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person with certain exceptions.

Generally, the words “we,” “our,” “ours” and “us” include HEP and its subsidiaries as consolidated subsidiaries of HF Sinclair, unless when used in disclosures of transactions or obligations between HEP and HF Sinclair or its other subsidiaries.

This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HF Sinclair.

When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.

References herein to HF Sinclair “we,” “our,” “ours” and “us” with respect to time periods prior to March 14, 2022 refer to HollyFrontier and its consolidated subsidiaries and do not include the Acquired Sinclair Businesses.

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Unless otherwise specified, the financial statements included herein include financial information for HF Sinclair, which for the time period from March 14, 2022 to December 31, 2023 includes the combined business operations of HollyFrontier and the Acquired Sinclair Businesses.

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References herein to HEP with respect to time periods prior to the closing of the HEP Merger Transaction on December 1, 2023 refers to HEP and its consolidated subsidiaries.

We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products.

We own and operate refineries located in Kansas, Oklahoma, New Mexico, Washington, Utah and Wyoming.

We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states.

We supply high-quality fuels to more than 1,500 branded stations and license the use of the Sinclair brand at more than 300 additional locations throughout the country.

We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah.

We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry.

We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,500 branded stations and license the use of the Sinclair brand at more than 300 additional locations throughout the country.

We produce renewable diesel at two of our facilities in Wyoming and our facility in New Mexico.

In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries.

Through our subsidiaries, we produce renewable diesel at two of our facilities in Wyoming and our facility in New Mexico.

We also own a 47% limited partner interest and a non-economic general partner interest in HEP, a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HF Sinclair subsidiaries.

Market Developments

For the year ended December 31, 2022, net income attributable to HF Sinclair stockholders was $2,922.7 million compared to net income of $558.3 million and net loss of $601.4 million for the years ended December 31, 2021, and 2020, respectively.

Gross refining margin per produced barrel sold in our Refining segment for 2022 increased 146% over the year ended December 31, 2021.

Our results for the year ended December 31, 2022 were favorably impacted by continued strong global economic activity with global demand for transportation fuels, lubricants and the transportation and terminal services having returned to pre-pandemic levels.

Following the rapid increases in crude oil prices and market crack spreads in the first half of the year, crude oil prices and market crack spreads remained at a high level as a result of continued robust demand and the global supply disruption related to actions taken in response to both the COVID-19 pandemic and sanctions imposed on Russia for its invasion of Ukraine.

We continue to adjust our operational plans to the evolving market conditions.

The extent to which our future results are affected by volatile regional and global economic or geopolitical conditions or the COVID-19 pandemic will depend on various factors and consequences beyond our control.

For the year ended December 31, 2023, net income attributable to HF Sinclair stockholders was $1,589.7 million compared to $2,922.7 million and $558.3 million for the years ended December 31, 2022, and 2021, respectively.

Gross refining margin per produced barrel sold in our Refining segment for 2023 decreased 20% over the year ended December 31, 2022.

Our results for the year ended December 31, 2023 were favorably impacted by healthy demand for transportation fuels, lubricants and transportation and terminal services and constrained refined product supply.

We continue to adjust our operational plans to evolving market conditions.

The extent to which our future results are affected by volatile regional and global economic conditions will depend on various factors and consequences beyond our control.

In the Refining segment, we saw healthy refining margins in both the West and Mid-Continent regions in 2023 as a result of steady demand and tight supply during the period.

We completed a significant number of planned turnarounds during the year ended December 31, 2023.

These turnarounds have provided us with the opportunity to execute maintenance strategies focused on improving operational reliability.

For the first quarter of 2024, we expect to run between 585,000 – 615,000 barrels per day of crude oil.

This guidance reflects planned maintenance activities at our Puget Sound Refinery during the first quarter.

Refined product margins are expected to be impacted by typical seasonal weakness in gasoline.

In the Renewables segment, we continued to optimize the operation of our assets during 2023.

For the first quarter of 2024, we expect continued weakening in RINs and LCFS prices to impact margins, and we will continue to focus on the economic optimization of our assets.

In the Marketing segment, we continued to see strong value in the Sinclair brand during 2023 as the marketing business continued to provide a consistent sales channel with margin uplift for our produced fuels.

We continue to target 5% or more annual growth in the number of sites.

In the Lubricants & Specialties segment, effective the first quarter of 2023, management views the segment as an integrated business of processing feedstocks into base oils and processing base oils into finished lubricant products along with the packaging, distribution and sales to customers.

During 2023, despite weakening base oil prices during the period, we continued to see strong performance (excluding FIFO) driven by sales mix optimization across our finished products portfolio.

In the Midstream segment, 2023 was favorably impacted by our refining activity.

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In August 2023, our Board of Directors authorized a new $1.0 billion share repurchase program, and we expect to repurchase shares in the first quarter of 2024.

On February 14, 2024, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $0.50 per share, an increase of $0.05 over our previous dividend of $0.45 per share.

The dividend is payable on March 5, 2024 to holders of record of common stock on February 26, 2024.

HEP Merger Transaction

On December 1, 2023, pursuant to the Agreement and Plan of Merger, dated as of August 15, 2023 (the “Merger Agreement”), by and among HEP, HF Sinclair, Navajo Pipeline Co., L.P., a Delaware limited partnership and an indirect wholly owned subsidiary of HF Sinclair (“HoldCo”), Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of HoldCo (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH, Merger Sub merged with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (the “HEP Merger Transaction”).

Under the terms of the Merger Agreement, each outstanding common unit representing a limited partner interest in HEP (an “HEP common unit”), other than the HEP common units already owned by HF Sinclair and its subsidiaries, was converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest.

The Merger Agreement consideration totaled $267.6 million in cash and resulted in the issuance of 21,072,326 shares of HF Sinclair common stock from treasury stock.

For a description of our existing indebtedness, as well as the changes thereto associated with the HEP Merger Transaction, see Note 13 “Debt” in the Notes to Consolidated Financial Statements.

Sinclair Acquisition

On March 14, 2022 (the “Closing Date”), HollyFrontier and HEP announced the establishment of HF Sinclair as the new parent holding company of HollyFrontier and HEP and their subsidiaries, and the completion of their respective acquisitions of Sinclair Oil Corporation (now known as Sinclair Oil LLC, “Sinclair Oil”) and Sinclair Transportation Company LLC (“STC”) from The Sinclair Companies (now known as REH Company and referred to herein as “REH Company”).

On the Closing Date, HF Sinclair completed its previously announced acquisition of Sinclair Oil by effecting (a) a holding company merger with HollyFrontier surviving such merger as a direct wholly owned subsidiary of HF Sinclair (the “HFC Merger”) and (b) immediately following the HFC Merger, a contribution whereby REH Company contributed all of the equity interests of Hippo Holding LLC (now known as Sinclair Holding LLC), the parent company of Sinclair Oil (the “Target Company”) to HF Sinclair in exchange for 60,230,036 shares of HF Sinclair common stock, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair (the “HFC Transactions”).

At the effective time of the HFC Merger, all of HollyFrontier’s outstanding shares were automatically converted into equivalent corresponding shares of HF Sinclair, and HF Sinclair became the successor issuer to HollyFrontier pursuant to Rule 12g-3(a) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and replaced HollyFrontier as the public company trading on the New York Stock Exchange (“NYSE”) under the symbol “DINO.”

On March 14, 2022, HollyFrontier and HEP announced the establishment of HF Sinclair as the new parent holding company of HollyFrontier and HEP and their subsidiaries, and the completion of their respective acquisitions (the “Sinclair Transactions”) of Sinclair Oil Corporation (now known as Sinclair Oil LLC, “Sinclair Oil”) and Sinclair Transportation Company LLC (“STC”) from The Sinclair Companies (now known as REH Company and referred to herein as “REH Company”).

HF Sinclair acquired REH Company’s refining, branded marketing, renewables, and midstream businesses.

The branded marketing business supplies high-quality fuels to more than 1,300 Sinclair branded stations and licenses the use of the Sinclair brand at more than 300 additional locations throughout the United States.

The branded marketing business supplies high-quality fuels to Sinclair branded stations and licenses the use of the Sinclair brand to additional locations throughout the United States.

The renewables business includes the operation of a renewable diesel unit located in Sinclair, Wyoming.

The refining business includes two Rocky Mountains-based refineries located in Casper, Wyoming and Sinclair, Wyoming.

Under the terms of the Contribution Agreement, HEP acquired STC, REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Sinclair refineries and third parties, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage.

Under the terms of that certain Contribution Agreement as amended on March 14, 2022 (the “Contribution Agreement”), HEP acquired STC, REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Sinclair refineries and third parties, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage.

In addition, HEP acquired STC’s interests in three pipeline joint ventures for crude gathering and product offtake including:

Saddle Butte Pipeline III, LLC (25.06% non-operated interest);

Saddle Butte Pipeline III, LLC (at the time of closing, 25.06% and currently, a 25.12% non-operated interest);

Pioneer Investments Corp.

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and UNEV Pipeline, LLC (“UNEV”) (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP).

The addition of Sinclair Oil and STC to the HollyFrontier business created a combined company with increased scale and ability to diversify and is expected to drive growth through the expanded refining and renewables business.

In addition, the HFC Transactions added an integrated branded wholesale distribution network to our business.

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See Note 2 “Acquisitions” and Note 4 “Holly Energy Partners” in the Notes to Consolidated Financial Statements for additional information.

See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information.

Puget Sound Refinery Acquisition

On May 4, 2021, HollyFrontier Puget Sound Refining LLC (now known as HF Sinclair Puget Sound Refining LLC), a wholly owned subsidiary of HollyFrontier, entered into a sale and purchase agreement with Equilon Enterprises LLC d/b/a Shell Oil Products US (“Shell”) to acquire Shell's Puget Sound refinery and related assets, including the on-site cogeneration facility and related logistics assets.

The acquisition closed on November 1, 2021.

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Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling $790.8 million for the year ended December 31, 2023.

At December 31, 2022, our open RINs credit obligations were $81.2 million.

See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on RINs credit obligations assumed in the Sinclair Transactions.

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Under the RFS regulations, the EPA is required to set annual volume targets of renewable fuels that obligated parties, such as us, must blend into petroleum-based transportation fuels consumed in the United States.

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As a result of the final rule released by the EPA on June 3, 2022 as noted above, we recognized a benefit of $72.0 million in the year ended December 31, 2022 related to the modification of the 2020 and 2021 volume targets.

Tax Legislation

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act") into law.

The Inflation Reduction Act includes a new corporate alternative minimum tax (the "Corporate AMT") of 15% on the adjusted financial statement income ("AFSI") of corporations with average AFSI exceeding $1.0 billion over a three-year period.

The Corporate AMT is effective for us beginning January 1, 2023.

We are evaluating the Corporate AMT and its potential impact on our future U.S.

tax expense, cash taxes, and effective tax rate.

The Inflation Reduction Act also extends the federal blender’s tax credit at the current rate of $1 per gallon for renewable diesel through the end of 2024.

Additionally, the Inflation Reduction Act imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022.

The impact of this provision will be dependent on the extent of net share repurchases made after January 1, 2023.

Within our Refining segment, for the first quarter of 2023, we expect to run between 500,000 – 530,000 barrels per day of crude oil.

This guidance reflects the lingering effects of winter weather events and planned maintenance activities at our Puget Sound, Woods Cross and El Dorado Refineries during the period.

Refined product margins are expected to remain healthy driven by constrained refined product supply in the markets we serve.

Within our Renewables segment, for the first quarter of 2023, we expect to continue to increase throughputs by optimizing our operations, and we expect to achieve normalized run rates in the second half of the year.

Within our Marketing segment, we expect similar growth in the number of sites we achieved in 2022 to continue in 2023.

Within our Lubricants and Specialty Products segment, we expect strong demand for base oils and finished products and the recent trends related to the FIFO impact of higher priced feedstocks experienced in the second half of 2022 will continue in the first quarter of 2023.

HEP remains committed to its capital allocation strategy focused on funding all capital expenditures and distributions within operating cash flow, with the goal of achieving its leverage target of 3.0 - 3.5x and distributable cash flow coverage of 1.3x or greater in mid-2023.

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In September 2022, our Board of Directors authorized a new $1.0 billion share repurchase program, and we expect to actively repurchase shares throughout the first quarter of 2023.

On February 23, 2023, our Board of Directors also declared a regular quarterly dividend in the amount of $0.45 per share, an increase of $0.05 over our previous dividend of $0.40 per share.

The dividend is payable on March 17, 2023 to holders of record of common stock on March 7, 2023.

On March 27, 2020, the U.S.

government passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an approximately $2 trillion stimulus package that included various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others.

At this time, we have not sought relief in the form of loans or grants from the CARES Act.

During the second quarter of 2022, we received $83 million in cash tax benefit from the net operating loss carryback provisions under the CARES Act.

We have received all the carryback claims related to the CARES Act.

In June 2023, the EPA established the targets for 2023 through 2025, which increase RVOs in each of the concurrent years.

A more detailed discussion of our financial and operating results for the years ended December 31, 2023 and 2022 is presented in the following sections.

Discussions of year-over-year comparisons for 2021 and 2020 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of HollyFrontier’s Annual Report on Form 10-K for the year ended December 31, 2021.

Discussions of year-over-year comparisons for 2022 and 2021 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Depreciation and amortization 770,573 656,787 503,539

Goodwill and long-lived asset impairments — — 545,293

Total operating costs and expenses 29,761,829 34,150,590 17,639,956

Income (loss) from operations 4,054,249 749,186 (733,743)

Income from operations 2,202,566 4,054,249 749,186

Other income (expense):

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Gain on tariff settlement — — 51,500

Gain on sales-type leases — — 33,834

Gain (loss) on early extinguishment of debt 604 — (25,915)

Gain on early extinguishment of debt — 604 —

Gain (loss) on foreign currency transactions 2,530 (1,637) (2,938)

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(50,059) (118,203) 37,966

Income (loss) before income taxes 3,936,046 787,152 (747,046)

Income tax expense (benefit) 894,872 123,898 (232,147)

Net income (loss) 3,041,174 663,254 (514,899)

Income before income taxes 2,152,507 3,936,046 787,152

Income tax expense 441,612 894,872 123,898

Net income 1,710,895 3,041,174 663,254

Less net income attributable to noncontrolling interest 121,229 118,506 104,930

Net income (loss) attributable to HF Sinclair stockholders $ 2,922,668 $ 558,324 $ (601,448)

Earnings (loss) per share:

Net income attributable to HF Sinclair stockholders $ 1,589,666 $ 2,922,668 $ 558,324

Earnings per share:

Basic $ 8.29 $ 14.28 $ 3.39

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Net cash used for investing activities $ (371,323) $ (774,488) $ (1,327,219)

Net cash provided by (used for) financing activities $ (1,560,759) $ (211,803) $ 353,226

Net cash used for financing activities $ (2,243,882) $ (1,560,759) $ (211,803)

Capital expenditures $ 385,413 $ 524,007 $ 813,409

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(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income (loss) attributable to HF Sinclair stockholders plus (i) income tax provision, (ii) interest expense, net of interest income and (iii) depreciation and amortization.

(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net income attributable to HF Sinclair stockholders plus (i) income tax provision, (ii) interest expense, net of interest income and (iii) depreciation and amortization.

EBITDA is not a calculation provided for under GAAP;

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EBITDA is also used by our management for internal analysis and as a basis for financial covenants.

EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K.

EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Annual Report on Form 10-K.

Supplemental Segment Operating Data

Our operations are organized into five reportable segments, Refining, Renewables, Marketing, Lubricants and Specialty Products and HEP.

Our operations are organized into five reportable segments, Refining, Renewables, Marketing, Lubricants & Specialties and Midstream.

See Note 20 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments.

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The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations.

The refinery gross and net operating margins do not include the non-cash effects of long-lived asset impairment charges, lower of cost or market inventory valuation adjustments and depreciation and amortization.

Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K.

The refinery gross and net operating margins do not include lower of cost or market inventory valuation adjustments and depreciation and amortization.

Years Ended December 31,

2023 2022 (8)

Mid-Continent Region

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Years Ended December 31,

2023 2022 (8)

Mid-Continent Region

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Years Ended December 31,

2023 2022 (8)

Sweet crude oil 42 % 42 % 47 %

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(5) Represents average amount per produced barrel sold, which is a non-GAAP measure.

(6) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment charges and depreciation and amortization, divided by sales volumes of refined products produced at our refineries.

(7) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment charges and depreciation and amortization, divided by refinery throughput.

(6) Represents total Mid-Continent and West regions operating expenses, exclusive of depreciation and amortization, divided by sales volumes of refined products produced at our refineries.

(7) Represents total Mid-Continent and West regions operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.

(8) We acquired the Parco and Casper Refineries on March 14, 2022.

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Renewables Operating Data

The following table sets forth information about our renewables operations and includes our Sinclair businesses for the period March 14, 2022 (the date of acquisition) through December 31, 2022.

December 31, 2022

The following table sets forth information, including non-GAAP performance measures, about our renewables operations and includes our Wyoming renewable diesel unit acquired as part of the Sinclair Transactions for the period March 14, 2022 (the date of acquisition) through December 31, 2023.

The renewables gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization.

Years Ended December 31,

Sales volumes (in thousand gallons) 215,510 136,204

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(1) Represents average amount per produced gallon sold, which is a non-GAAP measure.

(2) Represents total Renewables segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of renewable diesel produced at our renewable diesel units.

Marketing Operating Data

The following table sets forth information about our Marketing operations and includes our Sinclair businesses for the period March 14, 2022 (the date of acquisition) through December 31, 2022.

December 31, 2022

The following table sets forth information, including non-GAAP performance measures, about our marketing operations and includes our Sinclair branded fuel business for the period March 14, 2022 (the date of acquisition) through December 31, 2023.

The marketing gross margin does not include the non-cash effects of depreciation and amortization.

Years Ended December 31,

Number of branded sites at period end (1)

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Margin per gallon of sales (2)

$ 0.07 $ 0.06

(1) Includes non-Sinclair branded sites from legacy HollyFrontier agreements.

(2) Represents average amount per gallon sold, which is a non-GAAP measure.

Lubricants and Specialty Products Segment Operating Data

The following table sets forth information about our lubricants and specialty products operations.

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Lubricants & Specialties Segment Operating Data

The following table sets forth information about our lubricants and specialties operations.

Years Ended December 31,

2023 2022 2021

Lubricants and Specialty Products

Throughput (BPD) 18,330 19,177 19,645

Lubricants & Specialties

Sales of produced barrels sold (BPD) 30,210 32,530 34,016

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Total 100 % 100 % 100 %

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Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below:

Rack Back (1)

Rack Forward (2)

Eliminations (3)

Total Lubricants and Specialty Products

(In thousands)

Year Ended December 31, 2022

Sales and other revenues $ 1,254,929 $ 2,859,718 $ (956,047) $ 3,158,600

Cost of products sold $ 958,537 $ 2,330,666 $ (956,047) $ 2,333,156

Operating expenses $ 135,275 $ 142,247 $ — $ 277,522

Selling, general and administrative expenses $ 23,511 $ 144,696 $ — $ 168,207

Depreciation and amortization $ 30,148 $ 53,299 $ — $ 83,447

Income from operations $ 107,458 $ 188,810 $ — $ 296,268

Year Ended December 31, 2021

Sales and other revenues $ 1,005,152 $ 2,378,332 $ (822,872) $ 2,560,612

Cost of products sold $ 646,107 $ 1,992,567 $ (822,872) $ 1,815,802

Operating expenses $ 120,750 $ 131,706 $ — $ 252,456

Selling, general and administrative expenses $ 27,071 $ 143,084 $ — $ 170,155

Depreciation and amortization $ 28,093 $ 51,674 $ — $ 79,767

Income from operations $ 183,131 $ 59,301 $ — $ 242,432

Year Ended December 31, 2020

Sales and other revenues $ 505,424 $ 1,667,809 $ (370,023) $ 1,803,210

Cost of products sold

Effective the first quarter of 2023, management views the Lubricants & Specialties segment as an integrated business of processing feedstocks into base oils and processing base oils into finished lubricant products along with the packaging, distribution and sales to customers.

Midstream Segment Operating Data

The following table sets forth information about our midstream operations.

Years Ended December 31,

2023 2022 2021

Operating expenses $ 96,463 $ 119,605 $ — $ 216,068

Selling, general and administrative expenses $ 22,276 $ 135,540 $ — $ 157,816

Depreciation and amortization $ 29,071 $ 51,585 $ — $ 80,656

Goodwill and long-lived asset impairments (4)

Volumes (BPD)

Affiliates—refined product pipelines 152,462 143,303 108,767

Affiliates—intermediate pipelines 110,720 129,295 125,225

Affiliates—crude pipelines 437,586 456,797 279,514

700,768 729,395 513,506

Income (loss) from operations $ (265,597) $ 56,405 $ — $ (209,192)

(1) Rack back consists of our PCLI base oil production activities, by-product sales to third parties and intra-segment base oil sales to rack forward.

(2) Rack forward activities include the purchase of base oils from rack back and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties.

(3) Intra-segment sales of rack back produced base oils to rack forward are eliminated under the “Eliminations” column.

(4) During the year ended December 31, 2020, a goodwill impairment charge of $81.9 million was recorded in rack forward.

Also, during the year ended December 31, 2020, a long-lived asset impairment charge of $204.7 million was recorded of which $167.0 million was in rack back and $37.7 million was in rack forward.

Results of Operations - Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net income attributable to HF Sinclair stockholders for the year ended December 31, 2022 was $2,922.7 million ($14.28 per basic and diluted share), a $2,364.3 million increase compared to net income of $558.3 million ($3.39 per basic and diluted share) for the year ended December 31, 2021.

The increase in net income was principally driven by stronger product demand, higher sales prices and the acquisition of the Puget Sound Refinery and the Acquired Sinclair Businesses, which resulted in higher refined product sales volumes and an increase in refinery gross margins.

Lower of cost or market inventory reserve adjustments decreased pre-tax earnings by $52.4 million for the year ended December 31, 2022 and increased pre-tax earnings by $310.1 million for the year ended December 31, 2021.

Net income for the year ended December 31, 2021 was impacted by winter storm Uri, which increased natural gas costs across our refining system.

Refinery gross margins for the year ended December 31, 2022 increased to $26.78 per produced barrel from $10.89 for the year ended December 31, 2021.

Third parties—refined product pipelines 38,834 38,000 49,356

Third parties—crude pipelines 197,659 144,478 129,084

937,261 911,873 691,946

Terminals and loading racks:

Affiliates 728,128 560,038 391,698

Third parties 42,567 38,211 51,184

770,695 598,249 442,882

Affiliates—refinery processing units 62,057 70,222 69,628

Total for pipelines, terminals and refinery processing unit assets (BPD) 1,770,013 1,580,344 1,204,456

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Results of Operations - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net income attributable to HF Sinclair stockholders for the year ended December 31, 2023 was $1,589.7 million ($8.29 per basic and diluted share), a $1,333.0 million decrease compared to net income of $2,922.7 million ($14.28 per basic and diluted share) for the year ended December 31, 2022.

The decrease in net income was principally driven by lower refinery gross margins and lower refined product sales volumes.

Lower of cost or market inventory reserve adjustments decreased pre-tax earnings by $270.4 million and $52.4 million for the years ended December 31, 2023 and 2022, respectively.

Refinery gross margins for the year ended December 31, 2023 decreased to $21.39 per produced barrel sold from $26.78 for the year ended December 31, 2022.

Sales and Other Revenues

Sales and other revenues increased 108% from $18,389.1 million for the year ended December 31, 2021 to $38,204.8 million for the year ended December 31, 2022 principally due to the increase in sales prices and higher refined product sales volumes, in part due to the acquisition of the Puget Sound Refinery and the Acquired Sinclair Businesses.

Sales and other revenues included $3,911.9 million, $3,149.1 million and $654.9 million in unaffiliated revenues related to our Marketing, Lubricants and Specialty Products and Renewables segments, respectively, for the year ended December 31, 2022.

Sales and other revenues included $2,550.6 million in unaffiliated revenues related to our Lubricants and Specialty Products segment for the year ended December 31, 2021.

Sales and other revenues decreased 16% from $38,204.8 million for the year ended December 31, 2022 to $31,964.4 million for the year ended December 31, 2023, principally due to decreased refined product sales prices and lower refined product sales volumes.

Sales and other revenues included $4,146.3 million, $2,762.8 million and $781.3 million in unaffiliated revenues related to our Marketing, Lubricants & Specialties and Renewables segments, respectively, for the year ended December 31, 2023.

Sales and other revenues included $ 3,911.9 million, $3,149.1 million and $ 654.9 million in unaffiliated revenues related to our Marketing, Lubricants & Specialties and Renewables segments, respectively, for the year ended December 31, 2022.

Cost of Products Sold

Total cost of products sold increased 101% from $15,256.9 million for the year ended December 31, 2021 to $30,732.4 million for the year ended December 31, 2022, principally due to higher crude oil costs and higher refined product sales volumes, in part due to the acquisition of the Puget Sound Refinery and the Acquired Sinclair Businesses.

During the years ended December 31, 2022 and 2021, we recognized a lower of cost or market inventory valuation adjustment charge of $52.4 million and a benefit of $310.1 million, respectively.

Within our Lubricants and Specialty Products segment, FIFO impact was a benefit of $77.6 million and $86.6 million for the years ended December 31, 2022 and 2021, respectively.

Total cost of products sold decreased 15% from $30,732.4 million for the year ended December 31, 2022 to $26,054.9 million for the year ended December 31, 2023, principally due to lower crude oil costs and lower refined product sales volumes.

During the years ended December 31, 2023 and 2022, we recognized a lower of cost or market inventory valuation adjustment charge of $270.4 million and $52.4 million, respectively.

Within our Lubricants & Specialties segment, FIFO impact was a charge of $13.4 million for the year ended December 31, 2023 and a benefit of $77.6 million f or the year ended December 31, 2022.

Gross Refinery Margins

Gross refinery margin per barrel sold increased 146% from $10.89 for the year ended December 31, 2021 to $26.78 for the year ended December 31, 2022 principally due to the increase in the average per barrel sold sales prices during 2022, partially offset by the increase in crude oil and feedstock prices.

Gross refinery margin per barrel sold decreased 20% from $26.78 for the year ended December 31, 2022 to $21.39 for the year ended December 31, 2023.

The decrease was due to lower average per barrel sold sales prices, partially offset by lower crude oil and feedstock prices.

Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization.

See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K for a reconciliation to the income statement of sale prices of products sold and cost of products purchased.

See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Annual Report on Form 10-K for a reconciliation to the income statement of sale prices of products sold and cost of products purchased.

Operating Expenses

Operating expenses, exclusive of depreciation and amortization, increased 54% from $1,517.5 million for the year ended December 31, 2021 to $2,334.9 million for the year ended December 31, 2022 primarily due to our acquisition of the Puget Sound Refinery and the Acquired Sinclair Businesses.

Operating expenses, exclusive of depreciation and amortization, increased 4% from $2,334.9 million for the year ended December 31, 2022 to $2,438.1 million for the year ended December 31, 2023, primarily due to increased maintenance activities and our acquisition of the Acquired Sinclair Businesses, partially offset by lower natural gas costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 18% from $362.0 million for the year ended December 31, 2021 to $426.5 million for the year ended December 31, 2022 primarily due to higher employee related expenses from recent acquisitions and professional services and legal costs primarily incurred in connection with the Sinclair Transactions.

See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on these acquisitions.

Selling, general and administrative expenses increased 17% from $426.5 million for the year ended December 31, 2022 to $498.2 million for the year ended December 31, 2023, primarily due to higher costs related to information technology, other professional services and employee costs as compared to the prior period and our acquisition of the Acquired Sinclair Businesses, partially offset by a decrease in acquisition integration and regulatory costs.

We incurred $39.4 million and $52.9 million in acquisition integration and regulatory costs during the years ended December 31, 2023 and 2022, respectively.

Depreciation and Amortization Expenses

Depreciation and amortization increased 17% from $656.8 million for the year ended December 31, 2022 to $770.6 million for the year ended December 31, 2023.

This increase was due principally to depreciation and amortization attributable to the acquisition of the Puget Sound Refinery, the Acquired Sinclair Businesses and newly capitalized projects related to our renewable diesel units.

This increase was principally due to depreciation and amortization attributable to capitalized turnaround costs, capitalized improvement projects and the Acquired Sinclair Businesses.

Earnings (Loss) of Equity Method Investments

For the year ended December 31, 2022, we recorded a net loss of $0.3 million as compared to net earnings of $12.4 million of equity method investments for the year ended December 31, 2021.

Net loss during the year ended December 31, 2022 was primarily due to HEP’s 50% share of incurred and estimated environmental remediation and recovery expenses, net of insurance proceeds received to date, for Osage Pipeline.

In July 2022, Osage Pipeline, which carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil.

The pipeline resumed operations during the third quarter of 2022 and remediation efforts are underway.

For the year ended December 31, 2023, we recorded net earnings of $17.4 million of equity method investments as compared to a net loss of $0.3 million for the year ended December 31, 2022.

I n July 2022, the Osage Pipeline, which carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil.

The pipeline resumed operations during the third quarter of 2022.

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Interest Income

Interest income was $30.2 million for the year ended December 31, 2022 compared to $4.0 million for the year ended December 31, 2021.

The increase in interest income was primarily due to higher interest rates on cash investments.

Interest income wa s $93.5 million f or the year ended December 31, 2023 compared to $30.2 million for the year ended December 31, 2022.

The increase in interest income was primarily due to the increase in the average cash balance and higher interest rates on cash investments.

Interest Expense

Interest expense was $190.8 million for the year ended December 31, 2023 compared to $175.6 million for the year ended December 31, 2022.

This increase was primarily due to the April 2022 issuance of $400 million in aggregate principal amount of HEP's 6.375% senior notes maturing in April 2027 and higher market interest rates on HEP's revolving credit facility during the year ended December 31, 2022.

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For the years ended December 31, 2022 and 2021, interest expense attributable to our HEP Segment was $82.6 million and $53.8 million, respectively.

This increase was primarily due to the April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior notes maturing in April 2027 and higher market interest rates on HEP's revolving credit facility during the year ended December 31, 2023.

Gain on Business Interruption Insurance Settlement

During the year ended December 31, 2022, we recorded a gain of $15.2 million from the settlement of our business interruption claim related to winter storm Uri that occurred in the first quarter of 2021.

Gain on Tariff Settlement

For the year ended December 31, 2021, we recorded a gain of $51.5 million upon the settlement of a tariff rate case.

See Note 19 “Contingencies” in the Notes to Consolidated Financial Statements for additional information on this case and settlement.

During the year ended December 31, 2022, we recorded a gain of $15.2 million from a settlement of our business interruption claim related to winter storm Uri that occurred in the first quarter of 2021.

Gain on Early Extinguishment of Debt

For the year ended December 31, 2022, we recorded a $0.6 million gain on the extinguishment of debt related to our open market repurchase of $42.2 million in principal of our $350 million aggregate principal amount of our 2.625% senior notes maturing October 2023 at a cost of $41.4 million.

Loss on Foreign Currency Transactions

Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes were a loss of $1.6 million and $2.9 million for the years ended December 31, 2022 and 2021, respectively.

For the years ended December 31, 2022 and 2021, loss on foreign currency transactions include d a gain of $27.8 million and a loss of $4.0 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Gain (loss) on Foreign Currency Transactions

Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes was a gain o f $2.5 million for the year ended December 31, 2023 compared to a loss of $1.6 million for the year ended December 31, 2022.

For the years ended December 31, 2023 and 2022, gain (loss) on foreign currency transactions include d a loss of $7.4 million and a gain of $27.8 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).

Gain on Sale of Assets and Other

For the year ended December 31, 2021, we recorded an $86.0 million gain related to the sale of real property in Mississauga, Ontario, and HEP recorded a $5.3 million gain related to the sale of certain pipeline assets.

See Note 1 “Description of Business and Presentation of Financial Statements” in the Notes to Consolidated Financial Statements for additional information.

For the year ended December 31, 2023, we recorded a $15.0 million gain from the settlement of a preservation of property claim related to winter storm Uri that occurred in the first quarter of 2021.

For the year ended December 31, 2023, we recorded an income tax expense of $441.6 million compared to $894.9 million for the year ended December 31, 2022.

This increase was principally due to higher pre-tax income during the year ended December 31, 2022 compared to the year ended December 31, 2021.

This decrease was principally due to lower pre-tax income during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Our effective tax rates were 20.5% and 22.7% for the years ended December 31, 2023 and 2022, respectively.

The year-over-year increase in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes.

The year-over-year decrease in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes and other non-taxable permanent differences.

LIQUIDITY AND CAPITAL RESOURCES

HF Sinclair Credit Agreement

On April 27, 2022, after giving effect to the consummation of the exchange offers and the issuance of the HF Sinclair Senior Notes (as defined below), HF Sinclair entered into a $1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “HF Sinclair Credit Agreement”).

We have a $1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “HF Sinclair Credit Agreement”).

The HF Sinclair Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes.

The HF Sinclair Credit Agreement replaced the $1.35 billion senior unsecured revolving credit facility of HollyFrontier, which was terminated on April 27, 2022.

At December 31, 2023, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling $0.3 million under the HF Sinclair Credit Agreement.

HollyFrontier Bond Exchange and HF Sinclair Senior Notes

On April 27, 2022, HF Sinclair completed its offers to exchange any and all outstanding HollyFrontier 2.625% senior notes maturing October 2023 (the “HollyFrontier 2.625% Senior Notes”), 5.875% senior notes maturing April 2026 (the “HollyFrontier 5.875% Senior Notes”) and 4.500% senior notes maturing October 2030 (the “HollyFrontier 4.500% Senior Notes”) (and, collectively, the “HollyFrontier Senior Notes”) for 2.625% senior notes maturing October 2023 (the “HF Sinclair 2.625% Senior Notes”), 5.875% senior notes maturing April 2026 (the “HF Sinclair 5.875% Senior Notes”) and 4.500% senior notes maturing October 2030 (the “HF Sinclair 4.500% Senior Notes”) (and, collectively, the “HF Sinclair Senior Notes”) to be issued by HF Sinclair and cash.

Additionally, HF Sinclair solicited consents to adopt certain amendments to the indenture governing the HollyFrontier Senior Notes.

HEP Credit Agreement

Through our wholly owned subsidiary, HEP, we have a $1.2 billion senior secured revolving credit facility maturing in July 2025 (the “HEP Credit Agreement”).

The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes.

It is also available to fund letters of credit up to a $50 million sub-limit and has an accordion feature that allows us to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion.

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In connection with the exchange offers and consent solicitations, HollyFrontier amended the indenture governing the HollyFrontier Senior Notes to eliminate (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default”, (iii) the SEC reporting covenant and (iv) with respect to the HollyFrontier 2.625% Senior Notes and the HollyFrontier 4.500% Senior Notes only, the offer to repurchase such senior notes upon certain change of control triggering events.

The HF Sinclair Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.

Each series of HF Sinclair Senior Notes has the same interest rate (including interest rate adjustment provisions, as applicable), interest payment dates, maturity date and redemption terms as the corresponding series of HollyFrontier Senior Notes.

The HF Sinclair Senior Notes were issued in exchange for the HollyFrontier Senior Notes pursuant to a private exchange offer exempt from registration under the Securities Act of 1933, as amended (the Securities Act”).

On September 12, 2022, HF Sinclair filed a registration statement, which was declared effective on September 21, 2022, to exchange the HF Sinclair Senior Notes for an equal principal amount of the respective series of the HF Sinclair Senior Notes (the “Registered HF Sinclair Senior Notes”).

The Registered HF Sinclair Senior Notes are substantially identical to the HF Sinclair Senior Notes in all material respects except the Registered HF Sinclair Senior Notes are registered under the Securities Act and will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreement, dated April 27, 2022, and will not have the registration rights applicable to the HF Sinclair Senior Notes.

On October 21, 2022, HF Sinclair completed its offers to exchange HF Sinclair Senior Notes for Registered HF Sinclair Senior Notes.

Further, we may from time to time seek to retire some or all of our outstanding debt or debt agreements through cash purchases, and/or exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise.

Such transactions, if any, may be material and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

During the fourth quarter of 2022, we made open market repurchases of HF Sinclair 2.625% Senior Notes and HollyFrontier 2.625% Senior Notes that resulted in the extinguishment of $42.2 million in principal of the HF Sinclair 2.625% Senior Notes and fifteen thousand dollars in principal of the HollyFrontier 2.625% Senior Notes.

Total cash consideration paid to repurchase the principal amount outstanding, excluding accrued interest, totaled $41.4 million, and we recognized a $0.6 million gain on the extinguishment of debt during the year ended December 31, 2022.

The HF Sinclair 2.625% Senior Notes and the HollyFrontier 2.625% Senior Notes are due October 2023 and are classified as “Current debt” on our consolidated balance sheet.

In connection with the consummation of the HEP Merger Transaction, we amended the HEP Credit Agreement to, among other things, (a) provide a guaranty from us and terminated all guaranties from subsidiaries of HEP, (b) amend the definition of “Investment Grade Rating” (as defined in the HEP Credit Agreement) to reference the credit rating of our senior unsecured indebtedness, (c) eliminate the requirement to deliver separate audited and unaudited financial statements for HEP and its subsidiaries and only provide certain segment-level reporting for HEP with any compliance certificate delivered in accordance with the HEP Credit Agreement and (d) amend certain covenants to eliminate certain restrictions on (i) amendments to intercompany contracts, (ii) transactions with us and our subsidiaries and (iii) investments in and contributions, dividends, transfers and distributions to us and our subsidiaries.

During the year ended December 31, 2023, HEP had net repayments of $212.5 million under the HEP Credit Agreement.

At December 31, 2023, we were in compliance with all of its covenants, had outstanding borrowings of $455.5 million and no outstanding letters of credit under the HEP Credit Agreement.

HF Sinclair Senior Notes and HEP Senior Notes Exchange

In October 2023, we repaid at maturity our $59.637 million aggregate principal amount HollyFrontier 2.625% senior notes maturing October 2023 (the “HollyFrontier 2.625% Senior Notes”) and $248.190 million aggregate principal amount HF Sinclair 2.625% senior notes maturing October 2023 (the “HF Sinclair 2.625% Senior Notes”).

On December 4, 2023, we completed our offers to exchange any and all outstanding HEP 5.000% senior notes maturing February 2028 (the “HEP 5.000% Senior Notes”) and HEP 6.375% senior notes maturing April 2027 (the “HEP 6.375% Senior Notes”) (and, collectively, the “HEP Senior Notes”) for HF Sinclair 5.000% senior notes maturing February 2028 (the “HF Sinclair 5.000% Senior Notes”) and HF Sinclair 6.375% senior notes maturing April 2027 (the “HF Sinclair 6.375% Senior Notes”) (and, collectively, the “New HF Sinclair Senior Notes”) to be issued by HF Sinclair with registration rights and cash.

In connection with the exchange offers, HEP amended the indenture governing the HEP Senior Notes to eliminate (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default,” (iii) the SEC reporting covenant and (iv) the requirement of HEP to offer to purchase the HEP Senior Notes upon a change of control.

The New HF Sinclair Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.

Each series of the New HF Sinclair Senior Notes has the same interest rate, interest payment dates, maturity date and redemption terms as the corresponding series of HEP Senior Notes.

The New HF Sinclair Senior Notes were issued in exchange for the HEP Senior Notes pursuant to a private exchange offer exempt from registration under the Securities Act of 1933, as amended.

This exchange was part of a broader corporate strategy, including the HEP Merger Transaction, which closed on December 1, 2023.

HF Sinclair Financing Arrangements

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Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity.

HEP Credit Agreement

HEP has a $1.2 billion senior secured revolving credit facility maturing in July 2025 (the “HEP Credit Agreement”).

In August 2022, the HEP Credit Agreement was amended to, among other things, provide an alternative reference rate for LIBOR.

The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes.

It is also available to fund letters of credit up to a $50 million sub-limit and has an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion.

During the year ended December 31, 2022, HEP had net repayments of $172.0 million under the HEP Credit Agreement.

At December 31, 2022, HEP was in compliance with all of its covenants, had outstanding borrowings of $668.0 million and no outstanding letters of credit under the HEP Credit Agreement.

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HEP Senior Notes

On April 8, 2022, HEP closed a private placement of $400 million in aggregate principal amount of 6.375% senior notes maturing April 2027 (the “HEP 6.375% Senior Notes”) at par for net proceeds of approximately $393 million, after deducting the initial purchasers’ discounts and commissions and estimated offering expenses.

The HEP 6.375% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on HEP’s ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates and enter into mergers.

The net proceeds from the offering of the HEP 6.375% Senior Notes were used to partially repay outstanding borrowings under the HEP Credit Agreement.

HF Sinclair may, from time to time, issue letters of credit pursuant to uncommitted letters of credit facilities with its lenders.

At December 31, 2023, there were no letters of credit outstanding under such facilities.

See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.

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Such transactions, if any, may be material and will depend on prevailing market conditions, our liquidity requirements and other factors.

In addition, components of our long-term growth strategy include the optimization of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow.

In addition, components of our long-term growth strategy include the optimization of existing units at our facilities and selective acquisition of complementary assets for our operations intended to increase earnings and cash flow.

We also expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and for the repurchase of common stock under our share repurchase program.

Our standalone (excluding HEP) liquidity was approximately $3.30 billion at December 31, 2022, consisting of cash and cash equivalents of $1.65 billion and an undrawn $1.65 billion credit facility.

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Our liquidity was approximately $3.75 billion at December 31, 2023, consisting of cash and cash equivalents of $1.35 billion, a n undrawn $1.65 billion credit facility under the HF Sinclair Credit Agreement and $744.5 million remaining availability under the HEP Credit Agreement.

We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents.

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Cash equivalents are stated at cost, which approximates market value.

In November 2019, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share repurchase programs as of that time, authorizing us to repurchase common stock in the open market or through privately negotiated transactions.

In June 2022, our Board of Directors determined that privately negotiated repurchases from REH Company (formerly known as The Sinclair Companies) are also authorized under the share repurchase program, subject to REH Company’s interest in selling its shares and other limitations.

As of December 31, 2022, we had repurchased $975.0 million under this share repurchase program, of which $500.0 million were repurchased pursuant to privately negotiated repurchases from REH Company.

On September 21, 2022, our Board of Directors approved a new $1.0 billion share repurchase program, which, effective September 26, 2022, replaced all existing share repurchase programs, including $25.0 million remaining under the previously existing $1.0 billion share repurchase program.

This new share repurchase program authorizes us to repurchase common stock in the open market or through privately negotiated transactions.

Privately negotiated repurchases from REH Company are also authorized under the share repurchase program, subject to REH Company’s interest in selling its shares and other limitations.

In September 2022, our Board of Directors approved a $1.0 billion share repurchase program (the “ September 2022 Share Repurchase Program”), which replaced all existing share repurchase programs at that time, authorizing us to repurchase common stock in the open market or through privately negotiated transactions.

Privately negotiated repurchases from REH Company were also authorized under the September 2022 Share Repurchase Program, subject to REH Company’s interest in selling its shares and other limitations.

As of August 15, 2023, we had repurchased $995.0 million u nder the September 2022 Share Repurchase Program.

On August 15, 2023, our Board of Directors approved a new $1.0 billion share repurchase program (the “ August 2023 Share Repurchase Program”), which replaced all existing share repurchase programs, including the $5.0 million remaining authorization under the September 2022 Share Repurchase Program.

The August 2023 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions.

Privately negotiated repurchases from REH Company are also authorized under the August 2023 Share Repurchase Program, subject to REH Company’s interest in selling its shares and other limitations.

The timing and amount of share repurchases, including those from REH Company, will depend on market conditions and corporate, tax, regulatory and other relevant considerations.

This program may be discontinued at any time by our Board of Directors.

As of December 31, 2022, we repurchased $338.0 million under this new share repurchase program, of which $250.0 million were repurchased pursuant to privately negotiated repurchases from REH Company.

In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs.

The August 2023 Share Repurchase Program may be discontinued at any time by our Board of Directors.

During the year ended December 31, 2023, we made open market and privately negotiated purchases of 18,779,880 shares for $974.5 million under our share repurchase programs, of which 15,515,302 shares were repurchased for $810.6 million pursuant to privately negotiated repurchases from REH Company.

As of December 31, 2022 we had remaining authorization to repurchase up to $662.0 million under the new share repurchase program, of which we repurchased 913,883 shares for $48.0 million year-to-date February 15, 2023.

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On December 14, 2022, we agreed to repurchase an aggregate of 1,000,000 shares of our outstanding common stock from a registered broker for an aggregate purchase price of $48.6 million (the “December Repurchase”).

As of December 31, 2023, we had remaining authorization to repurchase up to $676.4 million under the August 2023 Share Repurchase Program .

On January 3, 2024, we repurchased 454,380 shares of our outstanding common stock from REH Company in a privately negotiated transaction under the August 2023 Share Repurchase Program and pursuant to the Stock Purchase Agreement, dated January 3, 2024 (the “January Stock Purchase Agreement”), between us and REH Company.

The price paid by us under the January Stock Purchase Agreement was $55.02 per share resulting in an aggregate purchase price of $25.0 million.

The purchase price was funded with cash on hand.

The shares repurchased are held as treasury stock.

The December Repurchase was made in connection with the sale by REH Company of approximately 5,000,000 shares of common stock, inclusive of the 1,000,000 shares we repurchased, in an unregistered block trade permitted under applicable securities laws (such sale, the “Sale”).

In connection with the Sale, REH Company agreed to customary “lock-up” restrictions that will expire 60 days following the date of the Sale, subject to waiver by the broker and certain exceptions, including, but not limited to, privately negotiated sales or transfers of common stock to us from REH Company.

The December Repurchase was made pursuant to separate authorization from our Board of Directors and not as part of our $1.0 billion share repurchase program authorized by our Board of Directors on September 21, 2022, and accordingly, did not reduce the remaining authorization thereunder.

On February 8, 2024, we repurchased 1,061,946 shares of our outstanding common stock from REH Company in a privately negotiated transaction under the August 2023 Share Repurchase Program and pursuant to the Stock Purchase Agreement, dated February 8, 2024 (the “February Stock Purchase Agreement”), between us and REH Company.

The price paid by us under the February Stock Purchase Agreement was $56.50 per share resulting in an aggregate purchase price of $60.0 million.

The purchase price was funded with cash on hand.

As of February 15, 2024, we had remaining authorization to repurchase up to $591.4 million under the August 2023 Share Repurchase Program.

Cash Flows – Operating Activities

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net cash flows provided by operating activities were $3,777.2 million for the year ended December 31, 2022 compared to $406.7 million for the year ended December 31, 2021, an increase of $3,370.5 million.

The increase in operating cash flows was primarily due to the increase in gross refinery margins, partially offset by higher operating expenses.

Changes in working capita l increased operatin g cash flows by $28.7 million and decreased operating cash flows by $264.9 million for the years ended December 31, 2022 and 2021, respectively.

Net cash flows provided by operating activities were $2,297.2 million for the year ended December 31, 2023 compared to $3,777.2 million for the year ended December 31, 2022, a decrease of $1,479.9 million primarily driven by lower income from operations combined with higher turnaround spend during the year ended December 31, 2023.

Changes in working capita l decreased operatin g cash flows by $119.1 million and increased o perating cash flows by $28.7 million for the years ended December 31, 2023 and 2022, respectively.

Additionally, for the year ended December 31, 2023 , turnaround expenditures were $555.7 million compared to $144.8 million for the year ended December 31, 2022 .

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Cash Flows – Investing Activities and Planned Capital Expenditures

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For the year ended December 31, 2023, our net cash flows used for investing activities were $371.3 million.

On March 14, 2022, we closed the Sinclair Transactions and paid cash of $251.4 million.

Cash expenditures for properties, plants and equipment for the year ended December 31, 2023 were $385.4 million for the year ended December 31, 2023.

For the year ended December 31, 2022, our net cash flows used for investing activities were $774.5 million .

On March 14, 2022, we closed the Sinclair Transactions for cash consideration of $251.4 million.

The remainder of the purchase consideration was funded with the issuance of HF Sinclair common stock and HEP common units.

See Note 2 “Acquisitions” in the Notes to Consolidated Financial Statements for additional information on the Sinclair Transactions.

Cash expenditures for properties, plants and equipment for the year ended December 31, 2022 were $524.0 million, which included HEP capital expenditures of $39.0 million for the year ended December 31, 2022.

For the year ended December 31, 2021, our net cash flows used for investing activities were $1,327.2 million.

On November 1, 2021, we closed the acquisition of the Puget Sound Refinery for aggregate cash consideration of $624.3 million.

Cash expenditures for properties, plants and equipment for the year ended December 31, 2021 were $813.4 million, which included HEP capital expenditures of $88.3 million for the year ended December 31, 2021.

During the twelve months ended December 31, 2021, we received proceeds of $98.8 million, or CAD 125 million, for the sale of real property in Mississauga, Ontario.

HF Sinclair Corporation

Cash expenditures for properties, plants and equipment for the year ended December 31, 2022 were $524.0 mill ion, which included HEP capital expenditures of $39.0 million for the year ended December 31, 2022.

Each year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake.

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Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining processes.

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Each year the Holly Logistic Services, L.L.C.

board of directors approves HEP’s annual capital budget, which specifies capital projects that HEP management is authorized to undertake.

Additionally, at times when conditions warrant or as new opportunities arise, special projects may be approved.

The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project.

Therefore, HEP’s planned capital expenditures for a given year consist of expenditures approved for capital projects included in its current year capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years.

In addition, HEP may spend funds periodically to perform capital upgrades or additions to its assets where a customer reimburses HEP for such costs.

The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.

Expected capital and turnaround cash spending for 2024 is as follows:

Expected Cash Spending Range

Expected Cash Spending

(In millions)

$ 250.0 $ 280.0

Renewables 5.0

Lubricants and Specialty Products

Lubricants & Specialties 40.0

Marketing 10.0

Midstream 30.0

Corporate 65.0

Turnarounds and catalyst

Total HF Sinclair 910.0 1,105.0

Expansion and joint venture investment

Total $ 940.0 $ 1,150.0

Total sustaining 800.0

Growth capital 75.0

Total capital $ 875.0

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Cash Flows – Financing Activities

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For the year ended December 31, 2023, our net cash flows used for financing activities were $2,243.9 million.

During the year ended December 31, 2022, we purchased $1,371.7 million of treasury stock, paid $255.9 million in dividends and paid $41.4 million to extinguish $42.2 million in principal of the HF Sinclair 2.625% Senior Notes and HollyFrontier 2.625% Senior Notes.

During the year ended December 31, 2022, HEP received $400.0 million in proceeds from the issuance of the HEP 6.375% Senior Notes, had n et repayments of $172.0 million under the HEP Credit Agreement and paid distributions of $96.2 million to noncontrolling interests.

During the year ended December 31, 2023, we purchased $999.3 million of treasury stock, paid $340.7 million in dividends, paid $307.8 million upon the maturity of our HF Sinclair 2.625% Senior Notes and HollyFrontier 2.625% Senior Notes, paid $267.6 million as cash consideration in connection with the HEP Merger Transaction and had net repayments of $212.5 million under the HEP Credit Agreement.

For the year ended December 31, 2022, our net cash flows used for financing activities were $1,560.8 million.

During the year ended December 31, 2021, we paid $57.7 million in dividends, purchased $7.1 million of treasury stock and paid $7.9 million of financing costs in connection with the amendment of the HollyFrontier Credit Agreement in April 2021.

During the year ended December 31, 2021, HEP had net repayments of $73.5 million under the HEP Credit Agreement and paid $6.6 million of financing costs in connection with the amendment of the HEP Credit Agreement in April 2021.

In addition, HEP paid distributions of $75.4 million to noncontrolling interests and received contributions from noncontrolling interests of $23.2 million.

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During the year ended December 31, 2022, HEP received $400.0 million in proceeds from the issuance of the HEP 6.375% Senior Notes, had net repayments of $172.0 million under the HEP Credit Agreement and paid distributions of $96.2 million to noncontrolling interests.

Contractual Obligations and Commitments

The following table presents our long-term contractual obligations as of December 31, 2023 in total and by period due beginning in 2024.

The table below does not include our contractual obligations to HEP under our long-term transportation agreements as these related-party transactions are eliminated in the Consolidated Financial Statements.

A description of these agreements is provided under “Holly Energy Partners, L.P.” under Items 1 and 2, “Business and Properties.”

Payments Due by Period

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HF Sinclair Corporation

Long-term and current debt - principal (1)

Long-term debt - principal (1)

$ 2,755,500 $ — $ 1,455,500 $ 900,000 $ 400,000

Long-term and current debt - interest (1)

Long-term debt - interest (1)

490,770 159,500 229,250 70,520 31,500

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Other long-term obligations 179,368 45,412 49,179 22,148 62,629

6,962,416 2,120,501 1,620,572 1,461,562 1,759,781

Holly Energy Partners, L.P.

Long-term debt - principal (1)

1,568,000 — 668,000 400,000 500,000

Long-term debt - interest (1)

287,194 70,200 131,973 82,938 2,083

Operating and finance leases (5)

100,097 8,953 15,647 14,143 61,354

Other agreements 250,885 8,811 15,823 11,887 214,364

2,206,176 87,964 831,443 508,968 777,801

Total $ 7,187,693 $ 1,154,599 $ 2,755,488 $ 1,491,182 $ 1,786,424

(1) See Note 13 “Debt” in the Notes to Consolidated Financial Statements for a description of our outstanding debt.

(2) We have a financing arrangement related to the sale and subsequent lease-back of certain of our precious metals.

(2) We have financing arrangements related to the sale and subsequent lease-back of certain of our precious metals.

(3) We have long-term supply agreements to secure certain quantities of crude oil, feedstock and other resources used in the production process at market prices.

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Inventory Valuation

Inventories related to our refining operations are stated at the lower of cost, using the LIFO method for crude oil and unfinished and finished refined products, or market.

Inventories related to our renewable business are stated at the lower of cost, using the LIFO method for feedstock and unfinished and finished renewable products, or market.

In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods.

In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods.

The excess of replacement cost over the LIFO carrying value of refinery inventories was $39.0 million and $111.1 million at December 31, 2022 and 2021, respectively.

Future decreases in overall inventory values could result in an establishment of a lower of cost or market inventory valuation reserve and additional charges to cost of products sold.

Our renewables inventories that are valued at the lower of LIFO cost or market reflect a valuation reserve of $61.2 million and $8.7 million at December 31, 2022 and 2021, respectively.

A new market reserve of $61.2 million as of December 31, 2022 was based on market conditions and prices at that time.

The effect of the change in the lower of cost or market reserve was an increase to cost of products sold totaling $52.4 million and $8.7 million for the years ended December 31, 2022 and 2021, respectively.

Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value.

Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the FIFO method, or net realizable value.

Goodwill and Long-lived Assets

As of December 31, 2022, our goodwill balance was $3.0 billion, with goodwill assigned to our Refining, Renewables, Marketing, Lubricants and Specialty Products and HEP segments of $1,977.4 million, $159.0 million, $163.8 million, $246.0 million and $432.0 million, respectively.

As of December 31, 2023, our goodwill balance was $3.0 billion, with goodwill assigned to our Refining, Renewables, Marketing, Lubricants & Specialties and Midstream segments.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed.

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If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of reporting unit over the related fair value.

For purposes of long-lived asset impairment evaluation, we group our long-lived assets as follows:

(i) our refinery asset groups, which include certain HEP logistics assets, (ii) our renewables products asset groups (iii) our Lubricants and Specialty Products asset groups, (iv) our Marketing assets and (v) our HEP asset groups, which comprises HEP assets not included in our refinery asset groups.

These asset groups represent the lowest level for which independent cash flows can be identified.

Our long-lived assets are evaluated for impairment by identifying whether indicators of impairment exist and, if so, assessing whether such long-lived assets are recoverable from estimated future undiscounted cash flows.

The actual amount of impairment loss measured, if any, is equal to the amount by which the asset group’s carrying value exceeds its fair value.

We performed our annual goodwill impairment testing quantitatively as of July 1, 2023 and determined there was no impairment of goodwill attributable to our reporting units.

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The discount rate is intended to reflect the weighted average cost of capital for a market participant and the risks associated with the realization of the estimated future cash flows.

Our fair value estimates are based on projected cash flows, which we believe to be reasonable.

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Our fair value estimates are based on

projected cash flows, which we believe to be reasonable.

We continually monitor and evaluate various factors for potential indicators of goodwill and long-lived asset impairment.

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Future impairment charges could be material to our results of operations and financial condition.

Valuation of Business Combinations

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date.

Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase.

The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate;

the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates;

and the market approach which uses market data and adjusts for entity-specific differences.

We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance.

The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain.

Accordingly, actual results may differ materially from the projected results used to determine fair value.

Contingencies

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We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S.

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As of December 31, 2023, we have the following notional contract volumes related to all outstanding derivative contracts used to mitigate commodity price and foreign currency risk (all maturing in 2024):

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NYMEX futures (WTI) - short 640,000 Barrels

Forward gasoline and diesel contracts - long 425,000 Barrels

Forward gasoline contracts - long 800,000 Barrels

Foreign currency forward contracts 387,613,367 U.S.

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Natural gas price swaps (basis spread) - long 6,667,000 MMBTU

Natural gas collar contracts 29,200,000 MMBTU

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(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions.

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The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as discussed below.

For the fixed rate HF Sinclair Senior Notes, HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows.

For the fixed rate HF Sinclair Senior Notes, HollyFrontier Senior Notes and HEP Senior Notes (each as defined in Note 13 “Debt” in the Notes to Consolidated Financial Statements), changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows.

The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of December 31, 2023 is presented below:

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(In thousands)

HollyFrontier and HF Sinclair Senior Notes $ 1,707,827 $ 1,655,726 $ 33,118

HEP Senior Notes $ 900,000 $ 852,658 $ 24,213

HF Sinclair, HollyFrontier and HEP Senior Notes $ 2,300,000 $2,271,856 $ 41,358

For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value.

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A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows.

Our operations are subject to catastrophic losses, hazards of petroleum processing operations and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and other events beyond our control.

Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and other events beyond our control.

We maintain various insurance coverages, including general liability, property damage, business interruption and cyber insurance, subject to certain deductibles and insurance policy terms and conditions.

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We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments.

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We have a risk management oversight committee consisting of members from our senior management.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis