dino-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________________

FORM 10-Q

_________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

Commission File Number 001-41325

_________________________________________________________________

HF SINCLAIR CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						87-2092143
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
2828 N. Harwood, Suite 1300
Dallas, Texas						75201
(Address of principal executive offices)						(Zip Code)

(214) 871-3555

(Registrant’s telephone number, including area code)

_________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.01 par value	DINO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

179,666,154 shares of Common Stock, par value $.01 per share, were outstanding on October 31, 2023.

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HF SINCLAIR CORPORATION

INDEX


			Page

Forward-Looking Statements			3

Definitions			5

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets
September 30, 2023 (Unaudited) and December 31, 2022			6

Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 2023 and 2022			7

Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended September 30, 2023 and 2022			8

Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2023 and 2022			9

Consolidated Statements of Equity (Unaudited)
Three and Nine Months Ended September 30, 2023 and 2022			10

Notes to Consolidated Financial Statements (Unaudited)			12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			40

Item 3. Quantitative and Qualitative Disclosures About Market Risk			59

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles			59

Item 4. Controls and Procedures			62

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			63

Item 1A. Risk Factors			64

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			66

Item 5. Other Information			66

Item 6. Exhibits			67

Signatures			68

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FORWARD-LOOKING STATEMENTS

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 Sinclair Holding LLC, STC or their respective consolidated subsidiaries (collectively, 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 September 30, 2023 includes the combined business operations of HollyFrontier and its consolidated subsidiaries and the Acquired Sinclair Businesses.

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations,” “Liquidity and Capital Resources” and “Risk Management” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and those in Part II, Item 1 “Legal Proceedings” are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “will,” “expect,” “plan,” “goal,” “forecast,” “strategy,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. Unless specifically noted, all statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:

•the risk that the HEP Merger Transaction (as defined herein) is not consummated during the expected timeframe, or at all;

•failure to obtain the required approvals for the HEP Merger Transaction, including the ability to obtain the requisite approvals from our stockholders or HEP unitholders;

•the substantial transaction-related costs that may be incurred by us and HEP in connection with the HEP Merger Transaction;

•the risk that the market value of our common stock will decline;

•potential dilution on our earnings per share of our common stock;

•the possibility that financial projections by us and HEP may not prove to be reflective of actual future results;

•the focus of management time and attention on the HEP Merger Transaction and other disruptions arising from the HEP Merger Transaction, which may make it more difficult to maintain relationships with customers, employees or suppliers;

•legal proceedings that may be instituted against us or HEP in connection with the HEP Merger Transaction;

•limitations on our ability to effectuate share repurchases due to market conditions and corporate, tax, regulatory and other considerations;

•our and HEP’s ability to successfully integrate the Acquired Sinclair Businesses with our existing operations and fully realize the expected synergies of the Sinclair Transactions or on the expected timeline;

•our ability to successfully integrate the operation of the Puget Sound refinery with our existing operations;

•the demand for and supply of crude oil and refined products, including uncertainty regarding the increasing societal expectations that companies address climate change;

•risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in our markets;

•the spread between market prices for refined products and market prices for crude oil;

•the possibility of constraints on the transportation of refined products or lubricant and specialty products;

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•the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, infection in the workforce, weather events, global health events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party providers, and any potential asset impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions;

•the effects of current and/or future governmental and environmental regulations and policies, including increases in interest rates;

•the availability and cost of our financing;

•the effectiveness of our capital investments and marketing strategies;

•our and HEP’s efficiency in carrying out and consummating construction projects, including our ability to complete announced capital projects on time and within capital guidance;

•our and HEP’s ability to timely obtain or maintain permits, including those necessary for operations or capital projects;

•our ability to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations;

•the possibility of terrorist or cyberattacks and the consequences of any such attacks;

•uncertainty regarding the effects and duration of global hostilities, including the Israel-Gaza conflict, the Russia-Ukraine war, and any associated military campaigns which may disrupt crude oil supplies and markets for our refined products and create instability in the financial markets that could restrict our ability to raise capital;

•general economic conditions, including economic slowdowns caused by a local or national recession or other adverse economic condition, such as periods of increased or prolonged inflation;

•the outcome of the Exchange Offers (as defined herein) and Consent Solicitations (as defined herein);

•the impact of the proposed amendments to the HEP Credit Agreement (as defined herein); and

•other business, financial, operational and legal risks and uncertainties detailed from time to time in our and HEP’s Securities Exchange Commission filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth under the heading “Risk Factors” included in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 and in conjunction with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Outlook” and “Liquidity and Capital Resources.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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DEFINITIONS

Within this report, the following terms have these specific meanings:

“BPD” means the number of barrels per calendar day of crude oil or petroleum products.

“BPSD” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum products.

“Base oil” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis that is used in producing lubricant products such as lubricating greases, motor oil and metal processing fluids.

“Black wax crude oil” is a low sulfur, low gravity crude oil produced in the Uintah Basin in Eastern Utah that has certain characteristics that require specific facilities to transport, store and refine into transportation fuels.

“Crack” or “Cracking” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules.

“LPG” means liquid petroleum gases.

“Lubricant” or “lube” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process oil.

“MMBTU” means one million British thermal units.

“Refinery gross margin” means the difference between average net sales price and average cost per barrel sold. This does not include the associated depreciation and amortization costs.

“Renewable diesel” means a diesel fuel derived from renewable feedstock such as vegetable oil or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst.

“RINs” means renewable identification numbers and refers to serial numbers assigned to credits generated from renewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard regulations, which require blending renewable fuels into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits in order to comply with the regulations.

“Sour crude oil” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “sweet crude oil” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight.

“Vacuum distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products.

“White oil” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from pharmaceutical to cosmetic products.

“WTI” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a sweet crude oil and has a relatively low density.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HF SINCLAIR CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (HEP:$11,223 and $10,917, respectively)	$	2,214,751	$	1,665,066

Accounts receivable: Product, transportation and other (HEP: $17,460 and $16,344, respectively)	1,691,020		1,626,199
Crude oil resales	258,359		76,950
	1,949,379		1,703,149
Inventories: Crude oil and refined products	2,800,684		2,853,425
Materials, supplies and other (HEP: $1,333 and $1,246, respectively)	332,869		361,103
	3,133,553		3,214,528
Income taxes receivable	29,004		53,563
Prepayments and other (HEP: $2,682 and $5,699, respectively)	75,705		112,013
Total current assets	7,402,392		6,748,319

Properties, plants and equipment, at cost (HEP: $2,207,898 and $2,173,248, respectively)	10,373,440		10,146,652
Less accumulated depreciation (HEP: $(824,326) and $(761,210), respectively)	(3,793,423)		(3,457,747)
	6,580,017		6,688,905
Operating lease right-of-use assets (HEP: $63,663 and $66,382, respectively)	326,076		351,068

Other assets: Turnaround costs (HEP: $21,280 and $24,154, respectively)	658,125		376,158
Goodwill (HEP: $431,985 and $431,985, respectively)	2,977,315		2,978,315
Intangibles and other (HEP: $348,803 and $360,768, respectively)	957,887		982,718
	4,593,327		4,337,191
Total assets	$	18,901,812	$	18,125,483

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $28,438 and $27,199, respectively)	$	2,366,267	$	2,334,107
Income taxes payable	137,073		7,818
Operating lease liabilities (HEP: $4,144 and $4,204, respectively)	112,964		109,926
Current debt	307,819		306,959
Accrued liabilities (HEP: $35,512 and $39,110, respectively)	553,096		486,719
Total current liabilities	3,477,219		3,245,529

Long-term debt (HEP: $1,468,505 and $1,556,334, respectively)	2,861,962		2,948,513
Noncurrent operating lease liabilities (HEP: $59,885 and $62,550, respectively)	222,001		254,215
Deferred income taxes (HEP: $339 and $374, respectively)	1,345,621		1,262,165
Other long-term liabilities (HEP: $47,346 and $55,373, respectively)	379,742		397,489

Equity:
HF Sinclair stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued	—		—
Common stock $.01 par value – 320,000,000 shares authorized; 223,231,546 shares issued as of September 30, 2023 and December 31, 2022	2,232		2,232
Additional capital	6,491,642		6,468,775
Retained earnings	5,523,245		4,130,252
Accumulated other comprehensive loss	(24,743)		(22,013)
Common stock held in treasury, at cost – 42,192,491 and 26,152,344 shares as of September 30, 2023 and December 31, 2022, respectively	(2,167,694)		(1,335,431)
Total HF Sinclair stockholders’ equity	9,824,682		9,243,815
Noncontrolling interest	790,585		773,757
Total equity	10,615,267		10,017,572
Total liabilities and equity	$	18,901,812	$	18,125,483

Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of September 30, 2023 and December 31, 2022. HEP is a variable interest entity.

See accompanying notes.

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HF SINCLAIR CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Sales and other revenues	$	8,905,471	$	10,599,002	$	24,304,259	$	29,219,912
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)	6,935,650		8,375,253		19,313,312		23,457,180
Lower of cost or market inventory valuation adjustment	(43,848)		16,847		(4,114)		42,839
	6,891,802		8,392,100		19,309,198		23,500,019
Operating expenses (exclusive of depreciation and amortization)	622,532		604,591		1,808,715		1,688,152
Selling, general and administrative expenses (exclusive of depreciation and amortization)	124,213		102,677		347,514		323,974
Depreciation and amortization	195,562		171,973		558,905		480,618

Total operating costs and expenses	7,834,109		9,271,341		22,024,332		25,992,763
Income from operations	1,071,362		1,327,661		2,279,927		3,227,149
Other income (expense):
Earnings (loss) of equity method investments	3,009		(16,334)		10,436		(7,261)
Interest income	24,577		9,821		62,103		12,662
Interest expense	(48,686)		(44,830)		(141,490)		(118,650)




Gain on foreign currency transactions	860		1,544		2,478		778
Gain on sale of assets and other	8,954		2,130		11,737		8,345
	(11,286)		(47,669)		(54,736)		(104,126)
Income before income taxes	1,060,076		1,279,992		2,225,191		3,123,023
Income tax expense:
Current	208,265		294,548		393,089		683,647
Deferred	26,750		7,305		87,551		23,028
	235,015		301,853		480,640		706,675
Net income	825,061		978,139		1,744,551		2,416,348
Less net income attributable to noncontrolling interest	34,139		23,734		92,702		80,707
Net income attributable to HF Sinclair stockholders	$	790,922	$	954,405	$	1,651,849	$	2,335,641
Earnings per share:
Basic	$	4.23	$	4.45	$	8.57	$	11.35
Diluted	$	4.23	$	4.45	$	8.57	$	11.35
Average number of common shares outstanding:
Basic	185,456		212,388		191,047		203,610
Diluted	185,456		212,388		191,047		203,610

See accompanying notes.

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HF SINCLAIR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net income	$	825,061	$	978,139	$	1,744,551	$	2,416,348
Other comprehensive income (loss):
Foreign currency translation adjustment	(13,471)		(30,977)		(693)		(47,142)
Hedging instruments:
Change in fair value of cash flow hedging instruments	(3,506)		—		(3,236)		(4,962)
Reclassification adjustments to net income on settlement of cash flow hedging instruments	3,506		—		3,236		5,288
Net unrealized gain on hedging instruments	—		—		—		326
Pension and other post-retirement benefit obligations:

Pension plans gain reclassified to net income	(45)		(43)		(135)		(133)

Post-retirement healthcare plans gain reclassified to net income	(918)		(870)		(2,754)		(2,610)
Retirement restoration plan loss reclassified to net income	3		9		9		27
Net change in pension and other post-retirement benefit obligations	(960)		(904)		(2,880)		(2,716)
Other comprehensive loss before income taxes	(14,431)		(31,881)		(3,573)		(49,532)
Income tax benefit	(3,067)		(6,742)		(843)		(10,513)
Other comprehensive loss	(11,364)		(25,139)		(2,730)		(39,019)
Total comprehensive income	813,697		953,000		1,741,821		2,377,329
Less noncontrolling interest in comprehensive income	34,139		23,734		92,702		80,707
Comprehensive income attributable to HF Sinclair stockholders	$	779,558	$	929,266	$	1,649,119	$	2,296,622

See accompanying notes.

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HF SINCLAIR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	1,744,551	$	2,416,348
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	558,905		480,618

Lower of cost or market inventory valuation adjustment	(4,114)		42,839
Earnings of equity method investments, inclusive of distributions	6,646		22,084


Gain on sale of assets	(7,718)		(2,958)
Deferred income taxes	87,551		23,028
Equity-based compensation expense	26,368		20,940
Change in fair value – derivative instruments	4,396		(41,829)
(Increase) decrease in current assets:
Accounts receivable	(245,337)		(117,883)
Inventories	83,068		(477,863)
Income taxes receivable	24,568		65,286
Prepayments and other	27,729		(2,879)
Increase (decrease) in current liabilities:
Accounts payable	42,547		182,218
Income taxes payable	129,346		156,849
Accrued liabilities	82,123		148,524
Turnaround expenditures	(471,076)		(97,820)
Other, net	(22,982)		44,707
Net cash provided by operating activities	2,066,571		2,862,209

Cash flows from investing activities:
Additions to properties, plants and equipment	(239,459)		(386,249)
Additions to properties, plants and equipment – HEP	(21,978)		(31,194)
Acquisitions, net of cash acquired	—		(251,448)
Proceeds from sale of assets	16,474		3,341
HEP investment in Osage Pipe Line Company LLC	(4,750)		(5,000)
Distributions from equity method investments in excess of equity earnings	1,993		4,724
Net cash used for investing activities	(247,720)		(665,826)

Cash flows from financing activities:
Borrowings under credit agreements	60,000		460,000
Repayments under credit agreements	(149,500)		(594,000)

Proceeds from issuance of senior notes - HEP	—		400,000

Purchase of treasury stock	(833,623)		(977,020)
Dividends	(258,856)		(175,432)
Distributions to noncontrolling interests	(76,961)		(70,365)

Payments on finance leases	(9,332)		(8,658)
Deferred financing costs	—		(9,269)
Other, net	(1)		(734)
Net cash provided by (used for) financing activities	(1,268,273)		(975,478)

Effect of exchange rate on cash flow	(893)		(7,990)

Cash and cash equivalents:
Increase (decrease) for the period	549,685		1,212,915
Beginning of period	1,665,066		234,444
End of period	$	2,214,751	$	1,447,359

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	(119,752)	$	(91,373)
Income taxes, net	$	(240,347)	$	(462,218)
Decrease in accrued and unpaid capital expenditures	$	(12,187)	$	(39,624)

See accompanying notes.

HF SINCLAIR CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands except per share data)


	Three Months Ended September 30, 2023
	Common Stock			Additional Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-controlling Interest		Total Equity
	Shares	Amount								Shares	Amount

Balance at June 30, 2023	223,231	$	2,232	$	6,480,581	$	4,815,908	$	(13,379)	30,918	$	(1,576,390)	$	781,752	$	10,490,704
Net income	—	—		—		790,922		—		—	—		34,139		825,061
Dividends ($0.45 declared per common share)	—	—		—		(83,585)		—		—	—		—		(83,585)
Other comprehensive loss, net of tax	—	—		—		—		(11,364)		—	—		—		(11,364)

Issuance of common shares under incentive compensation plans	—	—		(43)		—		—		(1)	43		—		—
Equity-based compensation	—	—		11,104		—		—		—	—		370		11,474
Purchase of treasury stock, inclusive of excise tax	—	—		—		—		—		11,275	(591,347)		—		(591,347)


Distributions to noncontrolling interest holders	—	—		—		—		—		—	—		(25,676)		(25,676)



Balance at September 30, 2023	223,231	$	2,232	$	6,491,642	$	5,523,245	$	(24,743)	42,192	$	(2,167,694)	$	790,585	$	10,615,267


	Three Months Ended September 30, 2022
	Common Stock			Additional Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-controlling Interest		Total Equity
	Shares	Amount								Shares	Amount

Balance at June 30, 2022	223,231	$	2,232	$	6,496,299	$	2,754,590	$	(11,209)	2,723	$	(132,200)	$	765,198	$	9,874,910
Net income	—	—		—		954,405		—		—	—		23,734		978,139
Dividends ($0.40 declared per common share)	—	—		—		(85,274)		—			—		—		(85,274)
Other comprehensive loss, net of tax	—	—		—		—		(25,139)		—	—		—		(25,139)

Issuance of common shares under incentive compensation plans	—	—		(4,000)		—		—		(79)	4,000		—		—
Equity-based compensation	—	—		5,794		—		—		—	—		264		6,058
Purchase of treasury stock	—	—		—		—		—		18,911	(944,217)		—		(944,217)


Distributions to noncontrolling interest holders	—	—		—		—		—		—	—		(25,465)		(25,465)
Purchase of HEP units for equity grants	—	—		—		—		—		—	—		(487)		(487)



Balance at September 30, 2022	223,231	$	2,232	$	6,498,093	$	3,623,721	$	(36,348)	21,555	$	(1,072,417)	$	763,244	$	9,778,525


	Nine Months Ended September 30, 2023
	Common Stock			Additional Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-controlling Interest		Total Equity
	Shares	Amount								Shares	Amount

Balance at December 31, 2022	223,231	$	2,232	$	6,468,775	$	4,130,252	$	(22,013)	26,152	$	(1,335,431)	$	773,757	$	10,017,572
Net income	—	—		—		1,651,849		—		—	—		92,702		1,744,551
Dividends ($1.35 declared per common share)	—	—		—		(258,856)		—		—	—		—		(258,856)
Other comprehensive loss, net of tax	—	—		—		—		(2,730)		—	—		—		(2,730)

Issuance of common shares under incentive compensation plans	—	—		(2,413)		—		—		(47)	2,413		—		—
Equity based compensation	—	—		25,280		—		—		—	—		1,088		26,368
Purchase of treasury stock, inclusive of excise tax	—	—		—		—		—		16,087	(834,676)		—		(834,676)


Distributions to noncontrolling interest holders	—	—		—		—		—		—	—		(76,961)		(76,961)
Purchase of HEP units for equity grants	—	—		—		—		—		—	—		(1)		(1)


Balance at September 30, 2023	223,231	$	2,232	$	6,491,642	$	5,523,245	$	(24,743)	42,192	$	(2,167,694)	$	790,585	$	10,615,267


	Nine Months Ended September 30, 2022
	Common Stock			Additional Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-controlling Interest		Total Equity
	Shares	Amount								Shares	Amount

Balance at December 31, 2021	256,046	$	2,560	$	4,220,075	$	4,413,836	$	2,671	93,045	$	(2,951,257)	$	606,580	$	6,294,465
Net income	—	—		—		2,335,641		—		—	—		80,707		2,416,348
Dividends ($0.80 declared per common share)	—	—		—		(175,432)		—		—	—		—		(175,432)
Other comprehensive loss, net of tax	—	—		—		—		(39,019)		—	—		—		(39,019)
Issuance of common shares for HFC Transactions	60,230	602		2,148,406		—		—		—	—		—		2,149,008
Issuance of common shares under incentive compensation plans	—	—		(4,606)		—		—		(98)	4,606		—		—
Equity-based compensation	—	—		19,436		—		—		—	—		1,504		20,940
Purchase of treasury stock	—	—		—		—		—		21,653	(1,077,020)		—		(1,077,020)
Retirement of treasury stock	(93,045)	(930)		—		(2,950,324)		—		(93,045)	2,951,254		—		—
Distributions to noncontrolling interests	—	—		—		—		—		—	—		(70,365)		(70,365)
Purchase of HEP units for equity grants	—	—		—		—		—		—	—		(564)		(564)
Equity attributable to HEP common unit issuance, net of tax	—	—		95,047		—		—		—	—		223,392		318,439
Acquisition of remaining UNEV interests	—	—		19,735		—		—		—	—		(78,010)		(58,275)
Balance at September 30, 2022	223,231	$	2,232	$	6,498,093	$	3,623,721	$	(36,348)	21,555	$	(1,072,417)	$	763,244	$	9,778,525

See accompanying notes.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1:Description of Business and Presentation of Financial Statements

On March 14, 2022 (the “Closing Date”), HollyFrontier Corporation (“HollyFrontier”) and Holly Energy Partners, L.P. (“HEP”) announced the establishment of HF Sinclair Corporation, a Delaware corporation (“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) 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, pursuant to that certain Business Combination Agreement, dated as of August 2, 2021 (as amended on March 14, 2022, the “Business Combination Agreement”), by and among HollyFrontier, HF Sinclair, Hippo Merger Sub, Inc., a wholly owned subsidiary of HF Sinclair (“Parent Merger Sub”), REH Company, and Hippo Holding LLC (now known as Sinclair Holding LLC), a wholly owned subsidiary of REH Company (the “Target Company”), HF Sinclair completed its previously announced acquisition of the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HollyFrontier merged with and into Parent Merger Sub, 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 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, HollyFrontier became a wholly owned subsidiary of HF Sinclair, and all of HollyFrontier’s outstanding shares were automatically converted into equivalent corresponding shares of HF Sinclair. Pursuant to the HFC Merger, HF Sinclair became the successor issuer to HollyFrontier pursuant to Rule 12g-3(a) under the Securities and Exchange Act of 1934, as amended, and replaced HollyFrontier as the public company trading on the New York Stock Exchange under the symbol “DINO.” See Note 2 and Note 4 for additional information.

In these financial statements, 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. These financial statements contain 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.

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 and 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. 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. At September 30, 2023, we owned a 47% limited partner interest and a non-economic general partner interest in HEP, a variable interest entity (“VIE”). HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

On August 15, 2023, HF Sinclair entered into an Agreement and Plan of Merger (the “Merger Agreement”) with HEP, 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 (the “General Partner”), pursuant to which Merger Sub will merge with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (such merger, together with the other transactions contemplated by the Merger Agreement, being referred to herein as the “HEP Merger Transaction”).

Under the terms of the Merger Agreement, each outstanding common unit of HEP, other than the HEP common units already owned by HF Sinclair and its subsidiaries, will be converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. Completion of the HEP Merger Transaction is subject to the approval of HF Sinclair stockholders and HEP unitholders and the satisfaction of certain customary closing conditions. The HEP Merger Transaction is expected to close in the fourth quarter of 2023, assuming the satisfaction or waiver of all the conditions to the HEP Merger Transaction.

For a description of HF Sinclair’s and HEP’s existing indebtedness, as well as proposed changes thereto associated with the HEP Merger Transaction, see Note 10.

In connection with the HEP Merger Transaction, we incurred $4.2 million and $4.4 million for the three and nine months ended September 30, 2023, respectively, in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as selling, general and administrative expenses in our statements of income.

We have prepared these consolidated financial statements without audit. In management’s opinion, these consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our consolidated financial position as of September 30, 2023, the consolidated results of income, comprehensive income and statements of equity for the three and nine months ended September 30, 2023 and 2022 and consolidated cash flows for the nine months ended September 30, 2023 and 2022 in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although certain notes and other information required by generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 that has been filed with the SEC.

Accounts Receivable: Our accounts receivable primarily consist of amounts due from customers that are primarily from sales of refined products and renewable diesel. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances collateral, such as letters of credit or guarantees, is required. We reserve for expected credit losses based on our historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for expected credit losses when an account is deemed uncollectible. Our allowance for expected credit losses was $7.2 million at September 30, 2023 and $7.7 million at December 31, 2022.

Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil and unfinished and finished refined products, or market. Inventories related to our renewables 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. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.

Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or net realizable value.

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

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Leases: At inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable.

Operating leases are recorded in “Operating lease right-of-use assets” and current and noncurrent “Operating lease liabilities” on our consolidated balance sheet. Finance leases are included in “Properties, plants and equipment, at cost” and “Accrued liabilities” and “Other long-term liabilities” on our consolidated balance sheet.

Our lease term includes an option to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on our balance sheet. For certain equipment leases, we apply a portfolio approach for the operating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations. In addition, HEP, as a lessor, does not separate the non-lease (service) component for operating leases in contracts in which the lease component is the dominant component. HEP treats these combined components as a lease. HEP bifurcates the consideration received for sales-type lease contracts between lease and service revenue, with the service component accounted for within the scope of Accounting Standards Codification 606.

Goodwill: As of September 30, 2023, our goodwill balance was $3.0 billion, with goodwill assigned to our Refining, Renewables, Marketing, Lubricants and Specialty Products and HEP segments. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments. 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 the 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.

Revenue Recognition: Revenues on refined product, branded fuel sales, renewable diesel, and excess crude oil sales are recognized when delivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported as cost of products sold.

Our lubricants and specialty products business has sales agreements with marketers and distributors that provide certain rights of return or provisions for the repurchase of products previously sold to them. Under these agreements, revenues and cost of revenues are deferred until the products have been sold to end customers. Our lubricants and specialty products business also has agreements that create an obligation to deliver products at a future date for which consideration has already been received and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

HEP recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered. Additionally, HEP has certain throughput agreements that specify minimum volume requirements, whereby HEP bills a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, HEP recognizes these deficiency payments as revenue. In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. HEP recognizes the service portion of these deficiency payments as revenue when HEP does not expect it will be required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer.

Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice.

Foreign Currency Translation: Assets and liabilities recorded in foreign currencies are translated into U.S. dollars using exchange rates in effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income.

We have intercompany notes that were issued to fund certain of our foreign businesses. Remeasurement adjustments resulting from the conversion of intercompany financing amounts to functional currencies are recorded as gains and losses as a component of other income (expense) in the consolidated statements of income. Such adjustments are not recorded to the Lubricants and Specialty Products segment operations, but to Corporate and Other. See Note 15 for additional information on our segments.

Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. We account for U.S. tax on global intangible low-taxed income in the period in which it is incurred.

Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

For the nine months ended September 30, 2023, we recorded an income tax expense of $480.6 million compared to $706.7 million for the nine months ended September 30, 2022. This decrease was principally due to lower pre-tax income during the nine months ended September 30, 2023 compared to the same period of 2022. Our effective tax rates were 21.6% and 22.6% for the nine months ended September 30, 2023 and 2022, respectively. The difference between the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2023 is primarily due to the impact of federal tax credits and the relationship between pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S. federal statutory rate and the effective tax rate for the nine months ended September 30, 2022 was primarily due to the impact of federal tax credits and the decrease in the state tax rate applied to our deferred tax assets and liabilities as a result of the Sinclair Transactions.

Inventory Repurchase Obligations: We periodically enter into same-party sell / buy transactions, whereby we sell certain refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell is recognized as an inventory repurchase obligation that is subsequently reversed when the inventory is repurchased. For the nine months ended September 30, 2023 and 2022, we received proceeds of $19.1 million and $31.8 million, respectively, and subsequently repaid $20.4 million and $32.2 million, respectively, under these sell / buy transactions.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

NOTE 2:Acquisitions

On March 14, 2022, pursuant to the Business Combination Agreement, HF Sinclair completed its acquisition of the Target Company by effecting (a) the HFC Merger and (b) immediately following the HFC Merger, a contribution whereby REH Company contributed all of the equity interests of the Target Company to HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair.

In connection with the closing of the HFC Transactions, HF Sinclair issued 60,230,036 shares of HF Sinclair common stock, par value $0.01 per share, to REH Company, representing 27% of the pro forma equity of HF Sinclair with a value of approximately $2,149 million based on HollyFrontier’s fully diluted shares of common stock outstanding and closing stock price on March 11, 2022. Pursuant to the Business Combination Agreement, REH Company made a $77.5 million cash payment to HF Sinclair, inclusive of final working capital adjustments, which reduced the aggregate transaction value to approximately $2,072 million. Of the 60,230,036 shares of HF Sinclair common stock, 2,570,000 shares are currently held in escrow to secure REH Company’s RINs credit obligations under Section 6.22 of the Business Combination Agreement. Additionally, on the Closing Date, and immediately prior to the consummation of the HFC Transactions, HEP completed its acquisition of STC, REH Company’s integrated crude and refined products midstream business, and issued 21,000,000 common limited partner units and paid cash consideration of $329.0 million, inclusive of final working capital adjustments, to REH Company in exchange for all the outstanding equity interests of STC (the “HEP Transaction” and together with the HFC Transactions, the “Sinclair Transactions”). Of these 21,000,000 common limited partner units, 5,290,000 units were held in escrow and were released to REH Company in April 2023 upon their satisfaction of the corresponding RINs credit obligations to HF Sinclair to secure REH Company’s RINs credit obligations under Section 6.22 of the Business Combination Agreement.

The Sinclair Transactions were accounted for as a business combination using the acquisition method of accounting, with the assets acquired and liabilities assumed at their respective acquisition date fair values at the effective date, with the excess consideration recorded as goodwill.

The following tables present the purchase consideration and final purchase price allocation of the assets acquired and liabilities assumed on March 14, 2022:


Purchase Consideration (in thousands except for per share amounts)
Shares of HF Sinclair common stock issued	60,230
Closing price per share of HFC common stock (1)	$	35.68
Purchase consideration paid in HF Sinclair common stock	2,149,008
Shares of HEP common units issued to REH Company	21,000
Closing price per share of HEP common units (2)	$	16.62
Purchase consideration paid in HEP common units	349,020
Total equity consideration	2,498,028
Cash consideration paid by HEP	328,955
Cash consideration received by HF Sinclair	(77,507)
Total cash consideration	251,448
Total purchase consideration	$	2,749,476

(1)Based on the HollyFrontier closing stock price on March 11, 2022.

(2)Based on the HEP closing unit price on March 11, 2022.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued


	(In thousands)
Assets Acquired
Accounts receivable	$	467,530


Inventories: Crude oil and refined products	906,461
Inventories: Materials, supplies and other	39,350

Properties, plants and equipment	1,242,549
Operating lease right-of-use assets	4,585
Other assets: Intangibles and other	495,621
Total assets acquired	$	3,156,096

Liabilities Assumed
Accounts payable	$	564,385

Operating lease liabilities	1,030
Accrued liabilities	84,298
Noncurrent operating lease liabilities	3,554
Deferred income taxes	351,189
Other long-term liabilities	88,098
Total liabilities assumed	$	1,092,554
Net assets acquired	$	2,063,542
Goodwill	$	685,934

The final purchase price allocation resulted in the recognition of $685.9 million in goodwill. Our Refining, Renewables, Marketing and HEP segments recognized $244.0 million, $159.0 million, $163.8 million and $119.1 million of goodwill, respectively. The goodwill recognized is primarily attributable to operating and administrative synergies and net deferred tax liabilities arising from the differences between the estimated fair values of assets and liabilities and the tax basis of these assets and liabilities. There are qualitative assumptions of long-term factors that this acquisition creates for our stockholders, including increased scale and diversification that is expected to drive growth through the expanded refining and renewables businesses and the addition of an integrated branded wholesale distribution network. This goodwill is not deductible for income tax purposes.

The fair value measurements for properties, plants and equipment were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

The fair value of properties, plants and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recent published data and adjusting replacement cost for physical deterioration, functional, and economic obsolescence. We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties. The fair value of crude oil and refined products inventory was based on market prices as of the acquisition date.

Intangibles include the Sinclair trade name, fuel agreements and customer relationships totaling $221.4 million that are being amortized on a straight-line basis over a range of four to twenty-year period. The intangible assets were valued using the income approach.

The fair value of equity method investments totaled $234.3 million and was based on a combination of valuation methods including discounted cash flows and the guideline public company method.

Accrued liabilities include $70.6 million of RINs credit obligations, including 2022 obligations through the Closing Date, which were valued based on market prices for RINs at the effective date, a Level 2 input. REH Company is financially responsible for satisfaction of RINs credit obligations for all periods prior to the closing. This receivable totaled $68.4 million and was valued based on market prices for RINs at the effective date.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

During the three and nine months ended September 30, 2023, we purchased RINs for an aggregate amount of $3.1 million and $14.9 million, respectively, on behalf of REH Company from third parties at applicable market prices in connection with our provision of services to REH Company under the transition services agreement that we and REH Company entered into at the closing of the Sinclair Transactions. We acted as an agent in these RINs transactions and did not recognize sales or cost of products sold as a result. During the nine months ended September 30, 2023, we recognized sales of $21.2 million related to the sale of RINs to REH Company based on applicable market prices.

All other fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

The fair values of all other current receivable and payables were equivalent to their carrying values due to their short-term nature.

We incurred $2.4 million and $10.7 million for the three months ended September 30, 2023 and 2022, respectively, and $9.7 million and $48.1 million for the nine months ended September 30, 2023 and 2022, respectively, in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as selling, general and administrative expenses in our statements of income.

NOTE 3:Holly Energy Partners

HEP is a publicly held master limited partnership that owns and / or operates logistic and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining and marketing operations, as well as other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. Additionally, as of September 30, 2023, HEP owned a 50% ownership interest in each of Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”); Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”) and Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a pipeline that runs from Cushing, Oklahoma to our Tulsa West and Tulsa East facilities (collectively, the “Tulsa refineries”); a 25.06% ownership interest in Saddle Butte Pipeline III, LLC, the owner of a pipeline from the Powder River Basin to Casper, Wyoming (the “Saddle Butte Pipeline”); and a 49.995% ownership interest in Pioneer Investments Corp., the owner of a pipeline from Sinclair, Wyoming to the North Salt Lake City, Utah Terminal (the “Pioneer Pipeline”).

At September 30, 2023, we owned a 47% limited partner interest and a non-economic general partner interest in HEP. As the general partner of HEP, we have the sole ability to direct the activities that most significantly impact HEP’s financial performance, and therefore, as HEP’s primary beneficiary, we consolidate HEP.

HEP generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and by storing and providing other services at its storage tanks and terminals. Under our long-term transportation agreements with HEP (discussed further below), we accounted for 81% of HEP’s total revenues for the nine months ended September 30, 2023. We do not provide financial or equity support through any liquidity arrangements and / or debt guarantees to HEP.

HEP has outstanding debt under its senior secured revolving credit agreement and its senior notes. HEP’s creditors have no recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries. See Note 10 for a description of HEP’s debt obligations.

HEP has risk associated with its operations. If a major customer of HEP were to terminate its contracts or fail to meet desired shipping or throughput levels for an extended period of time, revenue would be reduced and HEP could suffer substantial losses to the extent that a new customer is not found. In the event that HEP incurs a loss, our operating results will reflect HEP’s loss, net of intercompany eliminations, to the extent of our ownership interest in HEP at that point in time.

HF SINCLAIR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

STC Acquisition

On August 2, 2021, HEP, REH Company and STC, a wholly owned subsidiary of REH Company, entered into a contribution agreement (as amended on March 14, 2022, the “Contribution Agreement”), which closed on March 14, 2022. Pursuant to the Contribution Agreement, HEP acquired all of the outstanding equity interests of STC in exchange for 21,000,000 newly issued common limited partner units of HEP with a value of approximately $349.0 million based on HEP’s fully diluted common limited partner units outstanding and HEP’s closing unit price on March 11, 2022, and cash consideration equal to $329.0 million, inclusive of final working capital adjustments pursuant to the Contribution Agreement for an aggregate transaction value of $678.0 million.

As a result of this common unit issuance and our resulting HEP ownership change, we adjusted additional capital and equity attributable to HEP’s noncontrolling interest holders to reallocate HEP’s equity among its unitholders.

As part of HEP’s acquisition of STC, HEP acquired the 25.0% non-operated interest of UNEV Pipeline, LLC (“UNEV”) not already owned by HEP and as such, UNEV, the owner of a pipeline running from Woods Cross, Utah to Las Vegas, Nevada and associated product terminals, became a wholly owned subsidiary of HEP.

Transportation Agreements

HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling agreements expiring from 2024 through 2037. Under these agreements, we pay HEP fees to transport, store and process throughput volumes of refined products, crude oil and feedstocks on HEP's pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to HEP. Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based upon the percentage change in Producer Price Index or Federal Energy Regulatory Commission index. As of September 30, 2023, these agreements require minimum annualized payments to HEP of $496.5 million.

Our transactions with HEP and fees paid under our transportation agreements with HEP are eliminated and have no impact on our consolidated financial statements.

Lessor Accounting

Our consolidated statements of income reflect lease revenue recognized by HEP for contracts with third parties in which HEP is the lessor.

Lease income recognized was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Operating lease revenues	$	3,998	$	3,373	$	12,710	$	10,530


Sales-type lease interest income	$	402	$	628	$	1,233	$	1,889
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	$	70	$	659	$	933	$	1,728

NOTE 4:Revenues

Substantially all revenue-generating activities relate to sales of refined product, branded fuel, renewable diesel and excess crude oil inventories sold at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to HEP logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties.