HF Sinclair Corp 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Item 7 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K. 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. 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. References herein to HF Sinclair “we,” “our,” “ours,” and “us” with respect to time periods from and after March 14, 2022 include the operations of the Acquired Sinclair Businesses. 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. 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. OVERVIEW 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, 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. Market Developments 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. 59 Table of Content 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, 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 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 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 (at the time of closing, 25.06% and currently, a 25.12% non-operated interest); Pioneer Investments Corp. (49.995% non-operated interest); 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). 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 the Puget Sound Refinery. The acquisition closed on November 1, 2021. Renewable Fuel Standard Regulations Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such blending. 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. 60 Table of Content 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. These volume requirements are used to determine an obligated party’s renewable volume obligation (“RVO”). The EPA released a final rule on June 3, 2022 that, among other things, reduced the volume targets for 2020 and established targets for 2021 and 2022. In 2020, we recognized the cost of the RVO using the 2020 volume targets set by the EPA at that time, and in 2021 and the three months ended March 31, 2022, we recognized the cost of the RVO using our estimates. 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. 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 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. 61 Table of Content RESULTS OF OPERATIONS Financial Data Years Ended December 31, 2023 2022 2021 (In thousands, except per share data) Sales and other revenues $ 31,964,395 $ 38,204,839 $ 18,389,142 Operating costs and expenses: Cost of products sold (exclusive of depreciation and amortization): Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 25,784,449 30,680,013 15,567,052 Lower of cost or market inventory valuation adjustment 270,419 52,412 (310,123) 26,054,868 30,732,425 15,256,929 Operating expenses (exclusive of depreciation and amortization) 2,438,148 2,334,893 1,517,478 Selling, general and administrative expenses (exclusive of depreciation and amortization) 498,240 426,485 362,010 Depreciation and amortization 770,573 656,787 503,539 Total operating costs and expenses 29,761,829 34,150,590 17,639,956 Income from operations 2,202,566 4,054,249 749,186 Other income (expense): Earnings (loss) of equity method investments 17,369 (260) 12,432 Interest income 93,468 30,179 4,019 Interest expense (190,796) (175,628) (125,175) Gain on business interruption insurance settlement — 15,202 — Gain on tariff settlement — — 51,500 Gain on early extinguishment of debt — 604 — Gain (loss) on foreign currency transactions 2,530 (1,637) (2,938) Gain on sale of assets and other 27,370 13,337 98,128 (50,059) (118,203) 37,966 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 attributable to HF Sinclair stockholders $ 1,589,666 $ 2,922,668 $ 558,324 Earnings per share: Basic $ 8.29 $ 14.28 $ 3.39 Diluted $ 8.29 $ 14.28 $ 3.39 Cash dividends declared per common share $ 1.80 $ 1.20 $ 0.35 Average number of common shares outstanding: Basic 190,035 202,566 162,569 Diluted 190,035 202,566 162,569 Other Financial Data Years Ended December 31, 2023 2022 2021 (In thousands) Net cash provided by operating activities $ 2,297,235 $ 3,777,159 $ 406,682 Net cash used for investing activities $ (371,323) $ (774,488) $ (1,327,219) Net cash used for financing activities $ (2,243,882) $ (1,560,759) $ (211,803) Capital expenditures $ 385,413 $ 524,007 $ 813,409 EBITDA (1) $ 2,899,179 $ 4,619,776 $ 1,306,917 62 Table of Content (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; however, the amounts included in the EBITDA calculation are derived from amounts included on our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. 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 Annual Report on Form 10-K. Supplemental Segment Operating Data 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. Refining Segment Operating Data The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region is comprised of the El Dorado and Tulsa Refineries. The West region is comprised of the Puget Sound, Navajo, Woods Cross, Parco and Casper Refineries. The Puget Sound Refinery was acquired November 1, 2021, and thus is included for the period November 1, 2021 through December 31, 2023. In addition, the refinery operations of the Parco and Casper Refineries are included for the period March 14, 2022 (date of acquisition) through December 31, 2023. 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 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 Annual Report on Form 10-K. Years Ended December 31, 2023 2022 (8) 2021 (9) Mid-Continent Region Crude charge (BPD) (1) 237,510 283,160 260,350 Refinery throughput (BPD) (2) 256,810 299,380 276,430 Sales of produced refined products (BPD) (3) 248,330 280,800 265,470 Refinery utilization (4) 91.4 % 108.9 % 100.1 % Average per produced barrel sold (5) Refinery gross margin $ 17.49 $ 22.01 $ 9.44 Refinery operating expenses (6) 7.02 6.19 6.42 Net operating margin $ 10.47 $ 15.82 $ 3.02 Refinery operating expenses per throughput barrel (7) $ 6.79 $ 5.81 $ 6.17 Feedstocks: Sweet crude oil 56 % 58 % 61 % Sour crude oil 20 % 20 % 15 % Heavy sour crude oil 16 % 16 % 18 % Other feedstocks and blends 8 % 6 % 6 % Total 100 % 100 % 100 % 63 Table of Content Years Ended December 31, 2023 2022 (8) 2021 (9) Mid-Continent Region Sales of refined products: Gasolines 51 % 51 % 52 % Diesel fuels 30 % 33 % 33 % Jet fuels 6 % 6 % 5 % Fuel oil 1 % 1 % 1 % Asphalt 4 % 3 % 3 % Base oils 4 % 4 % 4 % LPG and other 4 % 2 % 2 % Total 100 % 100 % 100 % West Region Crude charge (BPD) (1) 330,030 323,820 140,370 Refinery throughput (BPD) (2) 360,200 347,590 155,440 Sales of produced refined products (BPD) (3) 353,950 347,540 158,630 Refinery utilization (4) 79.0 % 81.4 % 82.7 % Average per produced barrel sold (5) Refinery gross margin $ 24.13 $ 30.64 $ 13.32 Refinery operating expenses (6) 10.14 9.31 8.09 Net operating margin $ 13.99 $ 21.33 $ 5.23 Refinery operating expenses per throughput barrel (7) $ 9.97 $ 9.31 $ 9.27 Feedstocks: Sweet crude oil 30 % 28 % 22 % Sour crude oil 45 % 50 % 58 % Heavy sour crude oil 11 % 10 % 1 % Black wax crude oil 6 % 5 % 10 % Other feedstocks and blends 8 % 7 % 9 % Total 100 % 100 % 100 % Sales of refined products: Gasolines 54 % 53 % 54 % Diesel fuels 31 % 32 % 35 % Jet fuels 6 % 5 % 1 % Fuel oil 2 % 3 % 3 % Asphalt 2 % 3 % 4 % LPG and other 5 % 4 % 3 % Total 100 % 100 % 100 % Consolidated Crude charge (BPD) (1) 567,540 606,980 400,720 Refinery throughput (BPD) (2) 617,010 646,970 431,870 Sales of produced refined products (BPD) (3) 602,280 628,340 424,100 Refinery utilization (4) 83.7 % 92.3 % 93.1 % Average per produced barrel (5) Refinery gross margin $ 21.39 $ 26.78 $ 10.89 Refinery operating expenses (6) 8.86 7.92 7.04 Net operating margin $ 12.53 $ 18.86 $ 3.85 Refinery operating expenses per throughput barrel (7) $ 8.65 $ 7.69 $ 6.92 64 Table of Content Years Ended December 31, 2023 2022 (8) 2021 (9) Consolidated Feedstocks: Sweet crude oil 42 % 42 % 47 % Sour crude oil 34 % 36 % 31 % Heavy sour crude oil 13 % 13 % 12 % Black wax crude oil 3 % 3 % 4 % Other feedstocks and blends 8 % 6 % 6 % Total 100 % 100 % 100 % Sales of refined products: Gasolines 53 % 52 % 53 % Diesel fuels 30 % 32 % 34 % Jet fuels 6 % 6 % 4 % Fuel oil 1 % 2 % 1 % Asphalt 3 % 3 % 3 % Base oils 2 % 2 % 2 % LPG and other 5 % 3 % 3 % Total 100 % 100 % 100 % (1) Crude charge represents the barrels per day of crude oil processed at our refineries. (2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries. (3) Represents barrels sold of refined products produced at our refineries (including Asphalt and inter-segment sales) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. (4) Represents crude charge divided by total crude capacity (BPSD). As a result of our acquisition of the Puget Sound Refinery on November 1, 2021, our consolidated crude capacity increased from 405,000 BPSD at December 31, 2020 to 554,000 BPSD at December 31, 2021, and further increased to 678,000 BPSD at December 31, 2022 as a result of our acquisition of the Parco and Casper Refineries on March 14, 2022. (5) Represents average amount per produced barrel sold, which is a non-GAAP measure. 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 Annual Report on Form 10-K. (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. Refining operating data for the year ended December 31, 2022 includes crude oil and feedstocks processed and refined products sold at our Parco and Casper Refineries for the period March 14, 2022 through December 31, 2022 only, averaged over the 365 days in the year ended December 31, 2022. (9) We acquired the Puget Sound Refinery on November 1, 2021. Refining operating data for the year ended December 31, 2021 includes crude oil and feedstocks processed and refined products sold at our Puget Sound Refinery for the period November 1, 2021 through December 31, 2021 only, averaged over the 365 days in the year ended December 31, 2021. 65 Table of Content Renewables Operating Data 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. 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 Annual Report on Form 10-K. Years Ended December 31, 2023 2022 Renewables Sales volumes (in thousand gallons) 215,510 136,204 Average per produced gallon (1) Renewables gross margin $ 0.50 $ 0.30 Renewables operating expenses (2) 0.51 0.82 Net operating margin $ (0.01) $ (0.52) (1) Represents average amount per produced gallon sold, which is a non-GAAP measure. 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 Annual Report on Form 10-K. (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, 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. 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 Annual Report on Form 10-K. Years Ended December 31, 2023 2022 Marketing Number of branded sites at period end (1) 1,540 1,513 Sales volumes (in thousand gallons) 1,441,607 1,118,444 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. 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 Annual Report on Form 10-K. 66 Table of Content 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 & Specialties Sales of produced barrels sold (BPD) 30,210 32,530 34,016 Sales of produced refined products: Finished products 50 % 51 % 51 % Base oils 27 % 28 % 27 % Other 23 % 21 % 22 % Total 100 % 100 % 100 % 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 Midstream Volumes (BPD) Pipelines: 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 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 67 Table of Content Results of Operations - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Summary 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 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 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 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 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 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 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 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, 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. 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 the Osage Pipeline. 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. 68 Table of Content Interest Income 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 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 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. 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, 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. Income Taxes 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 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 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 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. 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. 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. 69 Table of Content 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 Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature in one year or less. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity. 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. Liquidity We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. 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 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 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. 70 Table of Content 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. These primarily consist of investments in conservative, highly rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value. 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. 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, 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. 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 $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 . 71 Table of Content Cash Flows – Investing Activities and Planned Capital Expenditures Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 For the year ended December 31, 2023, our net cash flows used for investing activities were $371.3 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 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. When conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. Refinery turnaround spending is amortized over the useful life of the turnaround. The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates. Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. 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. Expected capital and turnaround cash spending for 2024 is as follows: Expected Cash Spending (In millions) HF Sinclair Refining $ 235.0 Renewables 5.0 Lubricants & Specialties 40.0 Marketing 10.0 Midstream 30.0 Corporate 65.0 Turnarounds and catalyst 415.0 Total sustaining 800.0 Growth capital 75.0 Total capital $ 875.0 72 Table of Content Cash Flows – Financing Activities Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 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, 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, 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 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. Payments Due by Period Contractual Obligations and Commitments Total 2024 2025 & 2026 2027 & 2028 Thereafter (In thousands) HF Sinclair Corporation Long-term debt - principal (1) $ 2,755,500 $ — $ 1,455,500 $ 900,000 $ 400,000 Long-term debt - interest (1) 490,770 159,500 229,250 70,520 31,500 Financing arrangements (2) 37,043 37,043 — — — Supply agreements (3) 987,658 541,729 435,072 9,038 1,819 Transportation and storage agreements (4) 2,173,435 237,534 444,719 411,226 1,079,956 Operating and finance leases (5) 563,919 133,381 141,768 78,250 210,520 Other long-term obligations 179,368 45,412 49,179 22,148 62,629 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 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. We have estimated future payments under these fixed-quantity agreements expiring between 2024 and 2028 using current market rates. (4) Consists of contractual obligations under agreements with third parties for the transportation of crude oil, natural gas and feedstocks to our refineries and for terminal and storage services under contracts expiring between 2024 and 2038. (5) Operating and finance lease obligations include options to extend terms that are reasonably certain of being exercised. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows. For additional information, see Note 1 “Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. 73 Table of Content Goodwill and Long-lived Assets 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. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. 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. 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. The estimated fair values of our reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. The excess of the fair values of the reporting units over their respective carrying values ranged from 23% to 91%. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our annual goodwill testing. In performing our impairment test of goodwill, we developed cash flow forecasts for each of our reporting units. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end-user demand, selling prices, gross margins, operating costs and capital expenditures. Another key assumption applied to these forecasts to determine the fair value of a reporting unit is the discount rate. 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. We continually monitor and evaluate various factors for potential indicators of goodwill and long-lived asset impairment. A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and / or long-lived asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. Contingencies We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. RISK MANAGEMENT We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. Commodity Price Risk Management Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. Foreign Currency Risk Management We are exposed to market risk related to the volatility in foreign currency exchange rates. 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. dollar. 74 Table of Content 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): Contract Description Total Outstanding Notional Unit of Measure NYMEX futures (WTI) - short 640,000 Barrels Forward gasoline contracts - long 800,000 Barrels Foreign currency forward contracts 387,613,367 U.S. dollar Forward commodity contracts (platinum) (1) 36,969 Troy ounces Natural gas price swaps (basis spread) - long 6,667,000 MMBTU (1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements. The following sensitivity analysis provides the hypothetical effects of market price fluctuations in commodity prices for our open commodity derivative contracts at December 31, 2023 and 2022: Derivative Fair Value Gain (Loss) at December 31, 2023 2022 (In thousands) 10% increase in underlying commodity prices $ (4,682) $ (3,502) 10% decrease in underlying commodity prices $ 4,682 $ 3,298 Interest Rate Risk Management 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 (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: Outstanding Principal Estimated Fair Value Estimated Change in Fair Value (In thousands) 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. At December 31, 2023, outstanding borrowings under the HEP Credit Agreement wer e $455.5 million . 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, 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. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments. 75 Table of Content We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals.