- Renewables business expected to produce over 200 million
gallons per year of renewable diesel with feedstock
flexibility
- Conversion of the Cheyenne Refinery to renewable diesel
production
- Construction of pre-treatment unit at the Artesia
Refinery
HollyFrontier Corporation (NYSE: HFC) (“HollyFrontier”) today
announced that its Board of Directors has approved a plan to
convert the Cheyenne Refinery to renewable diesel production and to
construct a pre-treatment unit (“PTU”) located at the Artesia
Refinery. Including the previously announced renewable diesel unit
at the Artesia Refinery, HollyFrontier is expected to have a
combined capacity to produce over 200 million gallons per year of
renewable diesel and pre-treat over 80% of its feedstock.
HollyFrontier expects to invest between $650-$750 million in its
renewables business, with an expected aggregate internal rate of
return of 20-30%.
Mike Jennings, HollyFrontier’s President and Chief Executive
Officer, commented, “Demand for renewable diesel, as well as other
lower carbon fuels, is growing and taking market share based on
both consumer preferences and support from substantial federal and
state government incentive programs. This represents an exciting
opportunity to enhance both the profitability and environmental
footprint of HollyFrontier through organic investment.
“Today’s announcements lay the groundwork for an integrated
renewables business at HollyFrontier, including multiple renewable
diesel plants with feedstock flexibility. After 86 years as a
petroleum refinery, Cheyenne will take on a new challenge. We
realize that this decision affects many employees, their families
and the community. We are thankful to all of our colleagues in
Cheyenne and will work closely with those impacted by this
decision.”
Conversion of the Cheyenne Refinery to Renewable Diesel
Production
With expected capital spending of $125-$175 million,
HollyFrontier intends to repurpose Cheyenne’s current footprint and
a portion of its existing assets to produce approximately 90
million gallons per year of renewable diesel. HollyFrontier expects
the project will be completed in the first quarter of 2022 and
generate an internal rate of return of 20-30%.
Construction of Pre-Treatment Unit at the Artesia
Refinery
HollyFrontier also plans to construct a PTU that will process
over 80% of the feedstock for both of HollyFrontier’s renewable
diesel plants. The PTU is expected to provide feedstock
flexibility, mitigating single feedstock risk and generating value
through the use of lower carbon intensity feed.
HollyFrontier estimates the capital cost of the PTU to be
$175-$225 million and the in-service date to be in the first half
of 2022. The PTU has an expected internal rate of return of 10-15%
but is intended to protect the returns of HollyFrontier’s
renewables business against potential volatility in the feedstock
markets.
Petroleum Refining in Cheyenne
The conversion to renewable diesel production will result in
HollyFrontier ceasing petroleum refining and reducing the workforce
at the Cheyenne Refinery. This decision was primarily based on the
expectation that future free cash flow generation in Cheyenne would
be challenged due to lower gross margins resulting from the
economic impact of the COVID-19 pandemic and compressed crude
differentials resulting from dislocations in the crude oil market,
coupled with forecasted uncompetitive operating and maintenance
costs and the anticipated loss of the Environmental Protection
Agency’s small refinery exemption.
Based on the initial review of its long-lived assets, over the
second and third quarters of 2020, HollyFrontier expects to record
non-cash charges of $225-$275 million for impairment and
depreciation charges and $3-$12 million for asset retirement
obligations. Additionally, over the next twelve months,
HollyFrontier anticipates pre-tax costs of $25-$45 million for
decommissioning assets and $5-$7 million for severance obligations
and proceeds of $50-$70 million from the liquidation of working
capital.
Capital Expenditures Update
In 2020, HollyFrontier expects to maintain its total capital
spending guidance of $525-$625 million. For Refining, the company
expects to spend between $202-$221 million. This lower range
reflects further optimization of refinery capital budgets and lower
spending at the Cheyenne Refinery. For Renewables, HollyFrontier
expects capital expenditures in 2020 of $150-$180 million, which
includes capital costs for the Artesia renewable diesel unit, the
Cheyenne conversion and the PTU. There is no change to the $30-$45
million capital spend for Lubricants & Specialty Products or
the $85-$110 million for turnarounds & catalysts. Capital
expenditures for Holly Energy Partners also remains unchanged at
$58-$69 million.
HollyFrontier has scheduled a webcast conference call for today,
June 1, 2020, at 5:00 PM Eastern Time to discuss these
announcements. This webcast may be accessed at:
https://event.on24.com/wcc/r/2389016/72EC77A7F6631595FD82AEAE2C8F63E0.
An audio archive of this webcast will be available using the above
noted link through June 15, 2020.
About HollyFrontier Corporation:
HollyFrontier Corporation, headquartered in Dallas, Texas, is an
independent petroleum refiner and marketer that produces high value
light products such as gasoline, diesel fuel, jet fuel and other
specialty products. HollyFrontier owns and operates refineries
located in Kansas, Oklahoma, New Mexico, Wyoming and Utah and
markets its refined products principally in the Southwest U.S., the
Rocky Mountains extending into the Pacific Northwest and in other
neighboring Plains states. In addition, HollyFrontier produces base
oils and other specialized lubricants in the U.S., Canada and the
Netherlands, and exports products to more than 80 countries.
HollyFrontier also owns a 57% limited partner interest and a
non-economic general partner interest in Holly Energy Partners,
L.P., a master limited partnership that provides petroleum product
and crude oil transportation, terminalling, storage and throughput
services to the petroleum industry, including HollyFrontier.
HFC Forward Looking Statements:
The statements contained herein relating to current estimates,
expectations and projections about future results, performance,
returns, production, prospects, opportunities, plans, actions and
events and other statements, concerns, or matters that are not
historical facts are "forward-looking statements" within the
meaning of the federal securities laws. These statements are based
on our 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. Although we believe that such expectations reflected
in such forward-looking statements are reasonable, we cannot give
assurance 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 extraordinary market environment and effects of the
COVID-19 pandemic, including the continuation of a material decline
in demand for refined petroleum products in markets HollyFrontier
serves;
- HollyFrontier’s inability to complete the decommissioning of
assets at the Cheyenne Refinery as planned or within the time
periods anticipated, whether due to changes in regulations,
technology or other factors;
- changes in preliminary accounting estimates due to the
significant judgments and assumptions required;
- HollyFrontier's efficiency in carrying out construction
projects, including its ability to complete announced capital
projects, such as the conversion of the Cheyenne Refinery and
construction of the PTU, on time and within budget;
- HollyFrontier’s inability to timely obtain or maintain permits,
including those necessary for capital projects, such as the
conversion of the Cheyenne Refinery and construction of the
PTU;
- risks and uncertainties with respect to the actions of actual
or potential competitive suppliers of refined petroleum products in
HollyFrontier's markets;
- the demand for and supply of crude oil and refined
products;
- the spread between market prices for refined products and
market prices for crude oil;
- the possibility of constraints on the transportation of refined
products;
- the possibility of inefficiencies, curtailments or shutdowns in
refinery operations or pipelines, whether due to infection in the
workforce or in response to reductions in demand;
- effects of governmental and environmental regulations and
policies, including the effects of restrictions on various
commercial and economic activities in response to the COVID-19
pandemic;
- the availability and cost of financing to HollyFrontier;
- the effectiveness of HollyFrontier's capital investments and
marketing strategies;
- the ability of HollyFrontier to acquire refined product
operations or pipeline and terminal operations on acceptable terms
and to integrate any future acquired operations;
- the possibility of terrorist attacks or cyber attacks and the
consequences of any such attacks;
- general economic conditions, including uncertainty regarding
the timing, pace and extent of an economic recovery in the United
States;
- further deterioration in gross margins or a prolonged economic
slowdown due to the COVID-19 pandemic could result in an impairment
of goodwill; and
- other financial, operational and legal risks and uncertainties
detailed from time to time in HollyFrontier's Securities and
Exchange Commission filings, including those risks and
uncertainties included under “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in our latest Annual Report on Form 10-K and Quarterly
Report on Form 10-Q.
The forward-looking statements speak only as of the date made
and, other than as required by law, HollyFrontier undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200601005487/en/
HollyFrontier Corporation Craig Biery, 214-954-6510 Director,
Investor Relations or Trey Schonter, 214-954-6510 Investor
Relations
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