Q4 2019 Earnings Call
Frontier Corporation's fourth quarter, 2019 conference call and web.
Hosting the call today from Holly Frontier as Mike Jenny President and Chief Executive Officer. He is joined by Rich Voliva.
Executive Vice President and Chief Financial Officer, and Tom Cree, President refining and marketing.
This time, all participants I've been placed in listen only mode before will be open for your questions. Following the presentation.
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Please note that this conference is being recorded.
Now my pleasure to turn the floor over to Craig Biery Director Investor Relations, Greg you may begin.
Thank you James Good morning, everyone and welcome to Hollyfrontier Corporation's fourth quarter 2019 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31st 2019, if he would like a copy of the press release, you may find one on our website at Holly Frontier Dot com.
Before we proceed with remarks. Please note the safe Harbor disclosure statement in today's press release.
In summary that says statements made regarding management expectations judgments or predictions are forward looking statements. These statements are to be intended.
Our to be covered under the safe Harbor provisions of federal security laws.
There are many factors that could cause results to differ from expectations, including those noted in our SEC filings.
The call also may include discussion of non-GAAP measures. Please see the press release for reconciliations to GAAP financial measures also please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or reading the transcript and with that I'll turn the call over to Mike Jennings. Thanks, Greg Good morning, everyone.
Today, we reported fourth quarter net income attributable to Hollyfrontier shareholders.
$61 million or 30, 737 cents per diluted share.
Fourth quarter results reflect special items that collectively decreased net income by $17 million. Excluding these items net income for the fourth quarter was 78 million or 48 cents per diluted share versus adjusted net income of 394 million or $2.25 per diluted share for the same period of two.
2018.
Adjusted EBITDA for the period was 263 million a decrease of 378 million compared to the fourth quarter of 2018.
This decrease in earnings was driven by heavy planned refinery maintenance, coupled with lower product margins in crude differentials.
Refining segment reported adjusted EBITDA of $172 million compared to 583 million for the fourth quarter of 28 team.
Consolidated refinery gross margin was $13.58 per produced barrel, a 39% decrease compared to the 20 217 for the same period last year.
Our lubricants and specialty products business reported EBITDA of $35 million compared to a negative 4 million in the fourth quarter of 2018 rack forward EBITDA was 61 million, representing a 14% EBITDA margin.
Full year record adjusted EBITDA was $230 million, representing a 12% EBITDA margin.
In 2020, we remain constructive one global demand for finished in specialty products and expect gradual improvement in rack back EBITDA from strengthening based all markets as demand for premium base oils increases and against limited capacity growth.
Full year rack forward EBITDA is expected in the range of $250 million to $275 million with an EBITDA margin of 11% to 16% of sales.
Oh, the energy partners reported EBITDA of 88 million for the fourth quarter compared to 90 million in the fourth quarter of last year.
AHGP EBITDA was impacted by lower volumes due to heavy plant maintenance across HFC is refining system.
Looking forward, we expect to bring in our Christian connect JV project on schedule and on budget.
ATP expects to maintain its quarterly cash distribution of 67 in a quarter sense.
Throughout 2020.
Well generating a coverage ratio of 1.0 times for the full year of 2020.
During quarter, we announced and paid a dividend of 35 cents per share totaling $57 million and repurchased 61 million of HFC common stock.
Our strong cash generation for the full year 2019 allowed us to returned $758 million in cash to shareholders through dividends and share repurchases.
In November of 2019, we announced our new renewable diesel unit project at the Navajo refinery.
We are in the early construction process and anticipate commissioning during the first quarter of 2022.
The already you will have production capacity of 125 million gallons per year and allow HFC process soybean oil and other renewable feedstocks into renewable diesel.
This investment will provide hollyfrontier the opportunity to provide high quality low carbon fuels for our customers, while substantially mitigating our annual rent purchase obligation.
The project is attractive for three reasons it mitigates our exposure to Rins.
It is expected to generate an approximate 30% IR and has a favorable SG profile as it reduces greenhouse gas emissions attributable to middle distillate.
Looking to 2020, we expect the demand for gasoline and diesel will strengthen into the driving season margins for finished lubricants will remain strong and the based on market will improve as existing capacity absorbed growing demand for premium base oils.
As most of you are likely aware I rejoin color frontier as its see <unk> CEO.
Effective January onest of this year.
Maintained close contact with the company and his management team as a director of both HFC at AHGP during the past four years and I'm fortunate to have the chance to join this management team and a leader leadership role.
Obviously, there are differences both inside and outside the company since I would lasted CEO, most notably our investment in the finished lubricants business via Bcl lives Sonneborn and Red giant.
These are good businesses and together with our group one lubricants business in Tulsa provide a growing platform for participation in a more differentiated specialties market.
The decline and based on those margin over the past couple of years has provided a headwind for this segment, but our product offerings are strong and I anticipate growth in earnings and value coming out of our HF LSP business.
More broadly I expect to execute a corporate strategy that emphasizes.
Continuing operational improvement within our manufacturing operations.
Capital discipline and return of capital to shareholders.
Investment in our renewables business to create scale and advantage within feedstock selection and processing.
Continued growth of our midstream business, particularly in applications, where we're able to integrate midstream services presently provided by third parties.
I believe we have attractive organic opportunities to generate growth at Holly frontier, but these will compete with our goal of providing strong cash returns to shareholders as we consider capital allocation.
So now I'll turn the call over to Tom for an update on our commercial operations.
Thanks, Mike.
For the fourth quarter of 2019, we ran 381000 barrels per day of crude oil composed of 38% premium Permian.
17%, WCS and black wax crude oil.
Overall lower throughput volume was primarily due to planned turnarounds at our El Dorado, Cheyenne and Woods Cross refinery.
Our average laid in crude cost was under W.P.I. by $2.71 on the Rockies 24 cents in the mid.
And over Wi Fi by $2.33 on the southwest.
For the fourth quarter of 2019, we ended the year with gasoline inventories at high levels and gasoline cracks at low levels and most of our markets and the Magellan system. We ended the quarter at 9.8 million barrels roughly 3.2 million barrels higher than the third quarter of 2019.
Diesel inventories ended the quarter at 6.9 million barrels some 800000 barrels lower than third quarter levels day supply of both gasoline and diesel and the group finished at 33 and 43 days respectively.
Fourth quarter three to one.
Tracks in the mid Con were $14.57 $27 in 90 cents in the southwest and $28 in 36 cents on the Rockies.
Crude differentials widened to cross the heavy barrels during the fourth quarter.
And the Canadian market fourth quarter differential for WCS Hardisty ended the year to 20 dollar and 20 cents discount.
Recently, we have seen this differential compressed to the $18 range due to concerns around economic growth.
Around the Corona virus and lower overall flat crude price the levels of apportionment on the Enbridge has to remain high and in March we were announced.
Apportionment would be 43% for heavy crude oils, we continued to be able to purchase and deliver adequate volumes of price advantaged heavy crude oil from Canada to meet our refining needs Midland differentials average the quarter at 65 cents over Cushing and we see the same differential trading.
Similar levels for the remainder of the year.
Canadian heavy sour runs averaged 52000 barrels per day at our plants in the mid Con and Rockies. This was below normal levels as both El Dorado and Cheyenne were down for planned maintenance in the period.
We refine approximately 143000 barrels per day, Permian crude and our refining system composed at 85000 barrels per day of the novel compounds and 58000 barrels per day by the Centurion pipeline at our El Dorado refinery.
Our rins expense for the quarter was $31 million.
For the full year 2019, we ran 428000 barrels per day compared to 432000 barrels per day for 2018, our consolidated operating expense per throughput barrel was $6 and 54.
For 29.
Team compared to $6 in 24 cents in 2018.
Driven primarily by heavy maintenance.
Looking to 2020, we have a turnaround scheduled in September at our Messes Saga base oil plant.
With our light.
Planned maintenance schedule, we anticipate running healthy utilization rates across the refining system with improved operating expenses and all of our regions. We expect to run between 425 and 435000 barrels per day.
For the quarter first quarter of 2020, and with that let me turn the call over to rich.
Thank you Tom as Mike mentioned in the fourth quarter included a few unusual items.
Pre tax earnings were negatively impacted by a lower of cost or market charge of $31 million.
Sonneborn integration costs of $4 million.
Which were partially offset by an $18 million gain reinstitution of the biodiesel blenders tax credit for the years 2018 and 29 team.
The table these items can be found in our press release.
Cash flow from operations was $137 million in the fourth quarter in over 1.5 billion for the full year.
Which included turnaround spending of 166 million and $318 million respectively.
Hollyfrontier Standalone capital expenditures totaled $92 million for the quarter and $264 million for the full year 29 team.
During the fourth quarter, we returned a total of $160 million of cash to shareholders comprised of a 35 cents per share regular dividend totaling $57 million and share repurchase totaling $61 million.
For the full year 2019, hollyfrontier paid $225 million in regular dividends and spend $533 million repurchasing approximately 11 million shares of common stock for a total cash return of 758 million.
As of December 30, Onest, our total cash balance stood at 885 billion, which is above our target cash balance of 500 million.
The strong cash position, along with our Undrawn $1.35 billion credit facility puts our total liquidity over $2.2 billion.
As of December 30, Onest were $1 billion are still a debt outstanding debt to capital ratio 14%.
ATP distributions received by Hollyfrontier during the fourth quarter totaled $38 billion.
Hollyfrontier owns 59.6 million EGP limited partner units, representing 57% of EGPC LP units with a market value of $1.4 billion as a blast mines close.
With respect to capital spending in 2020.
We expect to spend between 217 and $300 million for capital at Holly Frontier refining and marketing.
$130 million to $150 million and renewables.
$40 million to $60 million that hollyfrontier lubricants specialty products.
And $125 million to $150 million for turnarounds and catalysts.
With respect to the parties or renewable diesel unit.
We expect to realize the majority of this you're spending in the second half of 2020.
And the balance of the capital in 2021.
At AHGP, we expect to spend $8 million to $12 million for maintenance capital 45 to 50 for expansion capital, which includes our investment in the Cushing connect joint venture in $5 million to $7 million refinery processing unit turnarounds.
And with that James we're ready to take questions.
And the floor is now open for questions. At this time, if you have a question or comments. Please press star one on your Touchtone phone. We ask that you. Please limit your question to one and one follow up if you have additional questions. We welcome you to rejoin the queue.
If at any point. Your question has been answered you may remove yourself from the Q by pressing the pound Keith.
And our first question comes from the line of Brad Heffern from RBC Capital markets. Go ahead. Please your line is open.
Hey, good morning, everyone.
Mike I appreciate the comments earlier about the strategy going forward with you back in the CEO seat I noticed that you didn't mention M&A at all so I was wondering if you could talk for your thoughts on.
The strategy going forward, whether we're likely to see more lubes M&A and then maybe if you could talk about.
The relatively large number of assets that seem to be on the market in your region and how you feel about I know, we're finding acquisition.
Start out with lubricants.
I do see opportunities within the lubricants, the specialties space up, particularly for bolt on acquisitions that fill out product offerings and geographic market opportunities.
As to significant manufacturing of base oil I think thats less likely for us.
Moving on to the refineries within the market I think those are sort of a case by case basis, but what we see internally is that there's tremendous opportunity for organic improvement.
And and significantly in the renewable diesel space and renewable fuels.
So I think our AR.
Attention is going to be focused toward those areas that I called out.
And opportunistically in terms of external refining M&A.
Okay. Thanks for that and then on the renewable diesel front I guess can you talk about the advantages that you have.
At the Navajo facility, either in terms of location or feedstock and then it's just the start of a broader push into renewable diesel and will potentially see more units being constructed thanks.
You bet, Brad I don't ask Tom period to to answer that question as he is leading the renewables effort good morning, Brad.
After the first park.
Novel presents us with some great advantages that we're willing to take advantage of at this point in time and mostly it revolves around the infrastructure of being able to to use the refinery assets in terms of utilities.
People from a location standpoint, we've got lots of land the ability to build rail facilities.
We've got the permits already so from an environmental governmental standpoint.
From a city and count standpoint, everybody's excited about this project as we are and then it just was a good fit.
For us just to start the renewable diesel effort at that location.
In terms of future expansions.
Still early days as far as we're concerned we're sort of getting our we've just broken ground on our on the first one thats.
And over the tips of our ski is to see what else is on the horizon, but it's probably a little bit too early at this point in time to make any major comments about expansion into that that business.
Having said that we are excited about it and we see a great deal of opportunity within it.
I can elaborate Brad we view this as a business and not a project and so I think you can read between the lines were going to be reasonably aggressive and looking for additional opportunities.
Thank you.
Yes.
Our next question comes from the line of Manav.
With credit Suisse go ahead. Please your line is open.
Hi, guys quick question looking at the turnaround expense guidance you issued.
Business, it's almost 50% killer then what you ended up spending in 2019, so should we assume 2020 would be.
Much you to look on announced.
Signing system.
Yes, that's correct. It's rich we've got really one significant turnaround at our Mississauga base off facility, which is scheduled for the fourth quarter.
And then we have to do have some spending getting ready for 2021.
As well some catalyst change so.
Thanks Rich.
Quick follow up here, then you're looking at the southwest margins look you have issued for the month till January they look, particularly strong and I'm trying to understand is it your best cost leverage what's driving such trends in the vast gross margins and should we expect you to catch up most of them because you have not done around at Navajo.
On Q.
Yes, Manav, it's com you're correct, we are taking advantage, especially in the Phoenix market with the situation that we saw in the fourth quarter on the West Coast, where there was some refinery problems. We saw very high crack spreads for gasoline and diesel in the Phoenix market and because of turnaround.
Sounds in the first quarter for some of the southwest refiners. We're seeing those differentials continue ended January in early February at this point in time want to see what happens for the rest of the quarter, but right now it's pretty good on that aspect. The other big factor is that we we geared up volume at our Orla.
Truck stop to supply diesel into the drilling in the Permian basin, and probably in the fourth quarter and into the first quarter, we got higher volumes there than we had seen prior to.
Thats, probably our best one of our best Netbacks on diesel as you can well imagine so that was a contributing factor as well.
Thank you for taking my question.
Our next question comes from the line of Roger read with Wells Fargo. Go ahead. Please your line is open.
Yes. Thanks, good morning at like waste welcome back good to have you.
Thank you Roger.
I'd like to carry on a little bit more with the second question from Brad near answer on a.
Refining a greater internal focus.
Just curious what do you think the best internal opportunities are and from our perspective, how should we be thinking about measuring that is it.
I generally think of it isn't uptime issue or a lower opex, but I was just curious how you're approaching it.
Right. So so one of the great internal opportunities that we have is exactly that it's uptime and reliability.
And so we're going to be spending obsessive focus on that.
And some internal investment as well to to make for more robust facilities.
Beyond that I think we'll probably get to it but but tier three presents octane related opportunities that I know you're all aware of.
As people post Street Theyre gasoline the octane premium has grown and we're seeing opportunities within the markets that we serve so I think probably between reliability and octane that encompasses a lot of the internal.
Opportunity for investment.
And should we consider that within the Capex guidance the to 70 to 300 for refining plus.
Whatever turnaround expense might be kind of targeted that direction.
Yes, that's correct.
Okay and then.
The second question here on an opex fraud.
Natural gas is about as cheap as it's been just curious if there any ways to you can take advantage of that other than just sort of a straight line.
It's a buck cheaper in a year ago, so thats or something.
To you in terms of the Opex thought process.
Roger Yeah. This is rich, yes, it's about cheaper than last year. Additionally.
I think we've finally fully anniversary to very bad set of natural gas hedges that being put on for five years ago.
So we should get a little bit better benefit than just the straight tailwind there will be in the order of $10 million to $20 million a year.
Okay I appreciate it thank you guys.
You're welcome.
Our next question comes from the line of Paul Chang with Scotiabank go ahead. Please your line is open.
Hey, guys, good morning, and Mike I'll come back.
And I'm talking the top.
Might.
Just two is that I mean I think.
He is that for the last 10, plus yes, you guys has been talking about uptime and reliability is a focus is an opportunity.
But that's always seems to be the case.
So just curious that when you do into intend, though we view and looking at.
What is the with Kohl's.
They end up if all the noise at least not.
Consistent performance self funding operation is it hardware, yes. It how would you use it people. It is a combination the whole and what we need if you've been trying for the last 10 years, we thought when it does significance that says I mean, why should we believe that this time just going to be better what initiated.
Going to be putting piece that to ensure you it's going to what this time.
Well, that's a center of the target Paul that's for sure.
Listen here's the deal refining reliability and safety and environmental impact our core to any refining manufacturer.
Ourselves included and those last two or three percentage points of utilization and availability are incredibly valuable, particularly during high margin seasons, so that lost opportunity hurts badly, particularly when self induced.
What I would tell you is your your question is what's different and I understand that this is going to be a show me market.
I don't expect people to pencil it into forward models until we demonstrated but we are aggressively pursuing and then implementing an operational excellence.
Program across our fleet of refinery that's different.
From the way we operated in the past which was.
On a more decentralized basis, we've invested in a lot more talent centrally to assist our operations and we're putting capital into these businesses.
On a more aggressive basis too.
Effectively add robustness to refining process. So we have a focused and structured program I believe that's different from what we've had in the past and we're going to pursue it like a religion.
Mike on the renewable business.
Since that yes, the economic to actually that thing is solely driven by the given the Mandy.
So how big is the business that you would feel comfortable this opportunity I mean, how big do you want it to be as a percentage.
Yes.
I think Tom said it properly that we're going to walk before we run.
But but I could be very comfortable in having two or three such plans of 100 million gallons a year.
And as a percentage of overall production capacity Paul I think you appreciate its small that might be 30 40000 barrels out of 400000.
But it addresses a growing need yes supported by government programs necessarily.
But also with some other attractive attributes.
That I think particularly our host refining facilities can be very synergistic with as compared to Greenfield investment in this space.
So we're excited about it it's new it's a growth.
Vector if you will but I don't expect it will be.
Where the size of our petroleum refining operations.
Certainly within the next few years.
And for the the current trend you appealing that they are using this only be nordea.
Fan base of feedstock.
They have to capacity or capability.
I will use the animal fats that waste oil coking coal feedstock.
Good morning, Paul its top occurred.
Yes, we're going to have flexibility to run a variety of different fuels.
We've looked at swiping to begin with but that doesn't exclude distillers corn oil Carlo.
And other things as well I think big key in these renewable diesel plans is fuel flexibility and we're certainly going to build towards that to be able to take advantage to remain competitive in the marketplace.
So Tom So Dave will also be able to process the animal fat.
It was kind of ways right is that yes. We're currently looking at at Tallow right now.
And we Havent looked at some of the other one such as.
Hog fatter things like that were just specific sticking with the be products for right now.
Paul for years to living by optimizing crude slates. We see this is very similar we need to pre investor we need to invest in pretreatment and metallurgy in order to give us that flexibility.
That's the goal is to be able to optimize among a whole variety of different feeds according to price and what are called see indexes.
Thank you final question for me, Mike one of your competitor I think that we suddenly that they did something pretty interesting the.
So we find that you and they just did a joint venture on.
We fight on do we test store within that though.
In California.
So is there some comp.
Yes on what that opportunity that you guys may look into your local market.
Well what that is there any opportunity to do something like that.
Paul I don't know if that's unique California. It doesn't sound like it is obviously, we're not present in that market.
But I'd say real investment in retail is probably less likely for us, but JV in terms of supply.
And getting closer to end use markets is attractive.
But but not something we currently have an offer.
Thank you.
Thank you.
Our next question comes from the line of Theresa Chen with Barclays. Go ahead. Please your line is open.
Good morning, and welcome back Mike.
Thank you Theresa.
So following up on the discussion.
I guess.
Kind of taking Paul's question cutting it differently as you put together your plans for this project and getting into this market.
Can you quantify what your framework is for on the supply demand balance for the next caller I'd like one or two years and how sustainable do you think that margins are.
I'm curious if good morning, it's Tom.
I think for the next one to two years I. If you just look at the California demand at this point in time when you look at at the plants that are actually going to come on stream and be able to produce into that market.
There's going to be a shortage of written renewable diesel into that market after that.
There's a lot of different factors that are going to come into play whether or not other states adopt an LCR past models, such as Washington, Oregon.
It's happening in the Canadian and also that the international market as well so there's a lot of question marks.
But as far as we're concerned or what were looking at we think that early entrance to market is key we're going to be on stream.
Relatively quickly as compared to some of our other peers and we're going to be able to capture some of those early days economics.
And then just move forward and be able to sell and have the capability to sell into the markets that are going to give us the highest netback, but going forward. When you see things like renewable jet as well as renewable diesel there seems to be a lot more demand out there than there is supply at this point in time.
And we'll your facility also be creating renewable naphtha as a byproduct.
We will.
It's not large volumes.
As you can well imagine and.
We havent made a decision as what we're going to do it that renewable diesel whether to to sell it outside the refinery or use it internally and capture that the benefits there.
Got it and my question is related to the base oil market, Mike related to your comments about.
How it's going to improve as existing capacity absorb.
Growing demand for premium base oil the.
Line of sight that you had in terms of timeline and just what inning.
Currently can you give us some color on that.
Hey, 30 cents rich.
Yeah, we are expecting improvement year over year.
Continue to believe that we saw the true through seasonally adjusted trough in supply demand based on market in the spring of 2019.
As normal we saw a seasonal weakness in late December in early January and this was compounded by the timing of the Chinese new year.
But I'm happy to say, we've seen nice rebound basal prices in cracks really in the last few weeks so call. It early February.
The core expecting this to your point about baseball analogies. This is probably the bottom of the first thing. So we have a waste and go here, but again, we are expecting year over year improvement.
Great. Thank you.
Our next question comes from line of Neal NATO with Goldman Sachs. Go ahead. Please your line is open.
Hey, guys, Mike welcome back it's great to spend time with the again and wish George well here and its next next phase and retirement.
Mike I guess, that's the first question for you here would be just going through your 2020 capital spending budget I know you guys Red Red out on the call. They could you take us through it with a little more granularity go segment by segment what are the important moving pieces and kind of flush it flush it out.
Sure Neil and they really go ahead right. So as we said 278 about 300 million within a refining business.
Some of the earlier discussion Thats primarily.
Reliability safety environmental spending.
The renewable diesel unit, we've obviously talked about that worry about 130.
The 150 this year at AHGP then.
The majority of the spend there'll be a related to the Cushing connect joint venture.
And then I mentioned.
Turnarounds and catalyst before call. It a third of that per so it's going to be the Mississauga turnaround.
To that is pre spending we've a very heavy year in 2021, so it's getting ready for that and call. It a third of that as catalyst.
Okay, Alright, that's helpful. And then a follow up it is just wanted to talk about these three small refinery exemptions that were worse struck down in a court ruling recently can you talk about what that means for hollyfrontier, but at a bigger picture level, what that means for the rins market on a go forward basis sound is there.
Risks that we're going to be talking about higher rins prices on a go forward basis.
Anyones rich again, so yeah as you mentioned on the 24th in January the 10th Circuit hands down the decision was vacated the salaries for three refineries, which included or Cheyenne and Woods Cross plans for the year of 2016.
We believe the decision is wrong.
The renewable fuels the entered hold that refineries can apply furnace, sorry anytime in the EPA should be able to grantham at any time without any regard to weather refinery has received an exemption each year since the beginning of the program.
The EPA also correctly applied the standard granting us our reserves, which is disproportionate economic hardship.
So we expect to appeal for unblock hearing and wears EPA to do so as well.
So I need to your point on a broader market look on its face. This decision only applies to the 10th circuit.
However, the national implications are pretty clear in there.
No realistic way this could or would be applicable owning within a few states.
Obviously DP is worried that can't make up a lot volumes for histories. They showed they can do that with the 2020 RV show.
In which unfairly penalized the industry effects are either an older granted to refineries that did not have continuous exemptions and we also ers EPA to look at that reallocation of forecasted SRT is in 2020.
Some broad.
Broad comment look beyond the RFS is really poorly constructed and it serves as a tax on consumers and jobs. The salaries have helped a lot.
Well, having absolutely no impact on the amount of biofuel produced the news. So we're expecting energy period. It takes some corrective action here to avoid some of the implications are probably worried about.
Yeah No. It's helpful is it just strikes me that this is going to become a topic that.
We put away for a while that has the risk of re emerging as a focus topics I appreciate it.
Thats a fair comment that say, it's not just three refiners in one particular year. Obviously this has broad reaching consequences and I believe that we as an industry will be working hard legally Andrew advocacy to get to a little more same solution.
Great.
Thanks, Steve.
Our next question comes from the line of Matthew Blair with Tudor Pickering Holt go ahead. Please your line is open.
Great. Thanks for taking my questions here and Mike Welcome back.
Thanks.
Just maybe just to continue on Neil's question there.
What happens to that so those 2016.
Rins do you have to take reserve and.
Pay those back can you just walk us through the financial implications here.
Sure Matt its rich.
So.
Well I can tell you is that what we booked for those 2016 Rins was a little under $60 million.
To your question to be honest, we have absolutely no idea what happens to these are enough. Obviously there are no 2016 rins in existence anymore.
We don't know the EPA.
This was remanded back to the EPA for corrective action, but we have no idea what that action would look like.
And the reality is obviously, we don't think this is going to stand up anyways. So at this point Theres, no accounting or financial implication and we'll just have to stay tuned.
Yes, it's a bit of what's the value of 2016 Super Bowl.
Hi.
An interesting process to watch this unfold.
Sounds good and then rich did you have a pretty big working capital benefit in 2019, you know maybe like a 250 million dollar tailwind can you hold things where they are in 2020 or would you expect reversal.
And at the so yeah, we have a little over 300 million dollar working capital benefit.
2020.
I would expect we can hold the vast majority of that probably not all of it there was a little bit of inventory that we are able poll and probably running a little bit below operating targets by the end of the year.
So little bit might need to go back in the tanks, but a lot of that came out of our lubricants business, where we have very high working capital.
Really throughout 2018, and we expect the whole that gain.
Sounds good thanks.
Thanks, Matt.
Our next question comes from the line of Doug eight from Bank of America Go ahead. Please your line is open.
Thanks, Good morning, everyone and Mike Let me add my my welcome back to you and also it's great to like good W. bucking the seat.
I got two questions. If I may the forces use of cash you've obviously had a very strong balance sheet for quite a long time.
Gives you a lot of options Im just curious how you think about thought.
Obviously, the loops expansion over the last several years has been one potential.
Use of cash going forward, but you've also been active with your buyback program. So I'm just curious how do you think about your balance sheet and how you might exploits where the share prices currently.
Yes, so that the share prices falling a bit recently obviously.
Most of the rest of the industry.
We're looking forward at a fairly high capex year and growth within our renewables business. So those are competing uses of capital.
With that said our formula is pretty explicit in that we expect to grow the dividend annually and substantively.
And the remainder really will be a combination of or share repurchase and.
Growth investment and the to have to compete with each other that's really not different in terms of priority than than the company has had on through the last few years. So I don't think that it's a meaningfully different capital allocation strategy.
What might be different is probably our view of internal opportunity versus external opportunity and I think that the internal needs and opportunities are simply greater.
Okay, I will watch we'll watch for them to set up please.
Last question on my second question really is really more about just your point about recent sector performance and I was reflecting back on the analyst day from 2017.
Obviously going to ensure the time, but when you are an announcement to leave was made in December 2015, the share price was about 10% higher on Holly is on the performed pretty much all of your refining peers. Despite thought to bite. So I guess my question is what can you do differently. What are you thinking about thought what is the investment case in your mind.
For wholly enough I cannot a loss piece to that.
Flat share price for best part of eight years.
Small is in a market, which is less than 4% energy.
Is there any consideration wholly could be up participant in consolidation, but as a seller rather than the buyer I'll leave it there. Thank you.
Okay, well, that's a lot of question, Doug and we'll take it head on.
First off.
Holly Frontier was one of the great beneficiaries of inland crude differentials and we made a heck of a lot of money.
In monetizing those differentials for the direct benefit of our shareholders a lot of that money was paid out in cash not necessarily in share repurchase and as such I wouldn't expect it to affect share price on an ongoing basis.
Beyond that we have put a good deal money into a lubricants business that I think we'll have very substantial value to us as we rationalize it and improve it going forward clearly the base oils margin has been a headwind for us we expect that we'll get through that and demonstrate the value.
What we purchased.
As to what the investment cases for Hollyfrontier. It really is around our portfolio of businesses, which we see as having substantial some of the parts value and I know, it's on us to demonstrate that value.
And we expect to do that finally your question was effectively are we part of industry consolidation.
And what I would say is this where a public company, where responsive to our shareholders. Our purpose is to make an expensive and valuable and our board will respond as they need to but we're not.
Selling the company and our purposes to grow and build it.
Thanks, Good luck.
Yes. Thank you.
And once again, if you do have a question you May press star one on your Touchtone phone at this time. Our next question comes on line of Phil Gresh with JP. Morgan Go ahead. Please your line is open.
Yes, Hi, a couple of quick questions first just coming back to the RAC forward outlook of term 50 to 275 million EBITDA.
Should we think about that progressing through the year and specifically asking this because obviously.
The macroeconomic situation.
China and all that is a bit influx so.
Are you expecting more of the two h. weighted kind of recovery there.
Thank you.
Hey, Phil its rich so seasonally we'd expect the second in the third quarter, maybe late the first quarter to meet the bulk or the best time of the year.
Ill call it 60, 70% of the earnings.
Keep in mind that we do have a turnaround or Mississauga facility in the fourth quarter of 2020.
Look at the big priority for Us in the next few years to move our wrecked forward business sort of its less dependent on base oil production and we can minimize it kind of impacts not quite there yet.
So that will exacerbate the fourth quarter.
And then built to your point look we're closely watching the China situation, but I don't think we have any particular insight, we havent seen any demand impact yet.
But its admittedly early days.
Okay understood.
Second question I guess as a follow up to some of the other ones, but if I go back to the analyst day, a while back and I believe there was a long term guidance that throughput could be for 52 to 470000 barrels a day the capex could be.
$5 at 50 cents, a barrel and 650 this year. So obviously you've highlighted a couple of things you're doing there, but I mean is that something we should be still thinking about as the bogeys for throughput.
Thanks.
This year is supposed to be lower maintenance here in the first quarter is still below the four shifted for seven days, maybe there's some seasonality to that but just any thoughts in those targets.
I think those targets are still valid.
The nameplate capacity these plants has been crept up.
And well the first quarter is a little lower it reflects some some lingering maintenance from turnaround season last year.
But the opportunity it was laid out in 272017 in the analyst day.
I think is very much valent, the opex is probably higher as progression through time.
But no I see those is good targets for us.
Okay last question just sort of rich.
With the spending on the renewable diesel facility. This year the high level turnarounds, you highlighted for 2021 and the cash and the balance sheet is any of that cash being.
Maintained above the normal 500 million just because of these upcoming events or would you as their willingness to use buybacks.
As a value creation tool to drawdown that cash closer to 500 million as we look through 2020. Thanks.
Yes, I felt like I think in the first half the year, that's a very fair comment right a lot of our spend this year is going to be back half loaded and then we've got a heavy turnaround season. The first half a 21, so I'd expect will probably around a little more cash in the first half of 2020.
However, as Mike said look we're going to continue to use the buyback when we have excess cash to.
To create value. So we did some of thats not been shut off we're just trying to manage the ship correctly over the next 12 to 24 months.
Okay. Thank you.
Our next question comes on line of Paul fan tie with Mizuho had please your line is open.
Yeah, that's the Japanese furnace this thing.
[laughter] everyone bye.
I actually was going to ask about the cash balance switch filled very eloquently just did so slightly up it's a question taken away from me, but Mike will come but you know that if rich softens up a tool on the subject to friends you can always been but Doug I run right. So.
That's a tool obviously I.
Actually given the cash balance question was so I did one that is there any perspective on how the strip for rins subject much change in the case of.
A surprise election outcome.
No. It's already so it will for the socialist impossible to a second guess, but I just wondered if that was.
Well inside of the other that mountain that might.
Well not might.
Would be better for how that might resolve itself going forward. Thanks.
Okay.
Okay.
Let's put.
Right Thats setback that yet.
As one administration preferable to the other I think we have seen.
Both parties participate in this creation of renewables fuel.
Structure, if you will and I don't know that matters that much clearly, there's there's pressure toward.
Carbon reduction and pressure toward a strong agricultural lobby.
So so we're trying to be responsive to that on the other side of it.
Our industry and we are providing very low cost high capability fuels.
That really run this country so.
There has to be balance I think despite election rhetoric, there will be balance and occasionally we see this thing pop out like squeeze in on a balloon.
Circuit Court.
Yeah.
It has defined as stable place in order for the industry to function and our purpose is to have a strong voice in that I wish I could tell you, where it's going but it can't on it obviously is impactful to our company in our shareholders and we're working hard.
Yeah, Hey, you might thank you very much and welcome back thanks.
Thank you.
And our next question comes from the line of Craig Craig Chris signal fee from Jefferies. Go ahead. Please your line is open.
Hey, good morning, guys. Thanks for all the color.
Richard if I could circle back to LSP for a moment I know your forecast for.
Rack for it is an EBITDA forecast, but I did notice.
Pretty healthy step up.
Seemed like maybe im a reallocation of just depreciation between rack forward rack back in the quarter versus prior quarters I'm just point of clarification, if I Miss something in terms of either asset allocation or I guess simplistically, what what what occurred there.
Through with the one SEC prisons pulling the number out.
Sure.
So.
Yeah, I think you had kind of a one off issue in the fourth quarter I would expect that to river.
Yes.
Call it the $12 million to $15 million level and depreciation for the rack forward business.
The big driver there in the fourth quarter was some environmental accrual, which was part of purchase accounting.
And our sonneborn entity.
So that'd be the big difference.
Third to fourth quarter.
Okay, Yeah, I noticed the total level had remained roughly flat. So it seems like an allocation I figured it was something on accounting front.
I guess is sticking on this with a quick follow up is just you noted earlier inventory declines across LSB was one of the contributors for working capital benefit in 19.
I'm just curious as an update on where we stood I know you gave some forecast for sonneborn synergy and ultimate a rack forward contribution any update.
On that great.
Yes, so I think look our long term view is that this is still a 275 to 300 million dollar business the difference and Chris to your point versus where we're at 2020 is the Mississauga turnaround, which already mentioned.
And second look we've got some opportunity to take expense out of this business still we're going to we plan to work that over the next 12 to 24 months.
The last piece to your point is on Sonneborn synergies, we're at a run rate right now call it $12 million to $13 million versus is with you'll recall, what we guided a $20 million a year.
The next eight or so, we'll probably become a little bit slower so call. It over the next 12 to 18 month and Thats really optimization around intermediate streams between petroleum Tulsa and Mississauga, we've done some of that really out of the Tulsa plan already.
We're going to keep working that going forward.
As the full attainment of that number rich just so is it predicated on just a normal operating range framework, where you're not seeing.
Meaningful turnaround activity.
Yes.
Okay.
All right. Thanks again for the time.
Thanks, Chris.
And there are no further questions at this time I'd like to turn the call back over to Craig Biery for closing remarks.
Thanks, everyone. We appreciate you taking the time to join US on todays call. If you have any follow up questions is always result reach out to Investor relations otherwise, we look forward to sharing our first quarter results with you in may.
Thank you and this does conclude todays teleconference. Please disconnect your lines at this time and have a wonderful day.
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