Q4 2020 HollyFrontier Corp Earnings Call
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Welcome to Holly Frontier Corporation fourth quarter, 2020 conference call and webcast.
Hosting the call today from Holly Frontier is Mike Jennings, President and Chief Executive Officer.
He is joined by rich <unk> lever.
Executive Vice President and Chief Financial Officer.
Jimmy go Executive Vice President and Chief operating Officer, Tom <unk>, President refining and marketing.
And Bruce Lerner.
Holly frontier lubricants and specialty.
At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation.
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Please note that this conference is being recorded.
It is now my pleasure to turn the floor over to Craig Biery, Vice President Investor relation and Craig you may begin.
Thank you James and good morning, everyone and welcome to Holly Frontier Corporation fourth quarter 2020 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31, 2020, if you would like a copy of this press release you may find one on our website at Holly frontier Dot Com, where.
Before we proceed with remarks. Please note the safe Harbor disclosure statement and today's press release and summary statements made regarding management expectations judgments or predictions are forward looking statements.
These statements are intended to be covered under the safe Harbor provision 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 and 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 rereading of the transcript and with that I'll turn the call over to Mike Jennings Alright. Thank you Greg.
Morning, everyone 2020 was an unprecedented year for Holly frontier and.
And the face of extraordinary challenges created by the COVID-19, pandemic Holly frontier persevered and took important steps to strengthen our business and both the short and long term.
We controlled what we could focusing on the fundamentals of the business maintaining a disciplined approach to capital allocation and continuing our efforts to further enhance reliability safety and efficiency.
We made key investments and renewable initiatives that will enable highly frontier to capture new opportunities as our industry evolves.
And our lubricants business realized strong earnings and the second half of the year. Despite the global pandemic.
We ended the year with a strong balance sheet healthy liquidity and high quality assets position us to capitalize on our competitive advantages.
Looking ahead to 'twenty, one and beyond I believe with Holly frontier is well positioned for long term success as our core business is rebound and we continue our expansion into renewables.
Turning to the fourth quarter results, we reported a net loss attributable to highlight frontier shareholders with $118 million or <unk> 73 per.
Per diluted share.
These results reflect special items and collectively increased the net loss by $1 million.
Excluding these items adjusted net loss for the fourth quarter was $119 million or <unk> 74 per diluted share.
Versus adjusted net income of 78 million or <unk> 48 per diluted share for the same period and 2019.
Adjusted EBITDA for the period was negative 22 million, a decrease of $285 million compared to the fourth quarter of 2019.
And the refining segment reported adjusted EBITDA loss of $112 million compared to $172 million earnings for the fourth quarter of 2019 and.
And consolidated refinery gross margin of $4 per <unk> per produced barrel was a 71% decrease compared to the same period last year.
This decrease was primarily due to the impact of continued weak demand for transportation fuels.
Coupled with compressed crude differentials.
Fourth quarter margins were also impacted by yearend inventory LIFO charge of approximately $35 million or <unk> 85 per barrel on a consolidated basis.
And fourth quarter crude throughput was approximately 380000 barrels per day.
At the top end of our guidance of $3 60 to 380000.
Despite the tremendous obstacles we faced in 2020, we achieved strong safety performance and operational availability within our refining segment.
Our lubricants and specialty products business reported EBITDA.
Negative $33 million compared to $35 million and the fourth quarter of 2019.
The decrease was driven by a goodwill impairment charge of $82 million related to sonneborn.
Excluding the impairment, our lubricants and specialty segments segment reported adjusted EBITDA of $49 million.
<unk> forward adjusted EBITDA was $48 million, representing an 11% adjusted EBITDA margin.
Despite typical seasonality and the fourth quarter rack forward reported a solid quarter due to continued demand improvement and our industrial and transportation and markets.
Sales volumes were essentially flat compared to the third quarter and were down only 2% versus the prior year.
Within the rack back portion and demand for base oil has remained healthy as margin strengthen to their highest levels since 2017.
Holly Energy partners reported EBITDA of $87 million per the fourth quarter compared to $88 million and the fourth quarter of last year.
Despite lower volumes year over year ATP delivered strong fourth quarter earnings supported by long term minimum volume commitment contracts.
Looking to 2021, we're optimistic for better market conditions that will facilitate highlight frontier's continued growth evolution and success.
Within our refining segment for the first quarter of 2021, we expect to run between 350 308000 barrels per day of crude oil.
In addition to the continued weakness and demand, resulting from the COVID-19 pandemic.
The crude charge and the first quarter of 'twenty. One has also been adversely impacted by scheduled maintenance at our Tulsa, West and Woods Cross refinery as well as reduced availability of natural gas due to the extreme recent cold weather throughout the mid continent and southwest.
We believe that demand for transportation fuels will strengthen as COVID-19 vaccines are distributed and the global economy recovers from the pandemic.
We expect to adjust refinery production levels commensurate with market demand.
Within our lubricants and specialty products segment underlying demand for both finished products and base oil remains strong and we expect a normal seasonal rebound and the first quarter of 2021.
However, we do not have enough visibility to issue 2021 guidance at this time.
Similar to our refining segment, we expect to adjust production levels commensurate with market demand.
And ATP, we expect to see demand for transportation and Terminalling services grow with underlying demand for transportation fuels and crude oil.
And 2021, ATP expects to hold the quarterly distribution constant at 35 per unit or $1 40 on an annualized basis.
We remain committed to our distribution strategy focused on funding all capital expenditures and distributions within free cash flow and maintaining distributable cash flow coverage of one three times or greater with the goal of reducing leverage to three <unk> to three five times EBITDA.
And our renewable segment, we're advancing our renewable diesel and pre treatment units in Artesia, New Mexico, and our renewable diesel unit and Cheyenne Wyoming <unk>.
We're on track to complete the projects on time and at the high end of our budgeted range with the ability to produce over 200 million gallons of renewable diesel beginning in the first quarter of 2022.
We ended 2020 with a solid pardon me operational performance and a strong financial foundation.
We strategically maintain a conservative balance sheet positioning highly frontier to withstand cyclicality, while maintaining our strategic priorities.
Our focus remains on generating high returns, while operating safely and efficiently.
Further improving our refinery reliability progressing our transition into renewables enhancing our environmental and sustainability performance and continuing to prudently deploy capital to advance our shareholders' best interests.
So with that let me turn the call over to rich.
Thank you Mike.
Previously mentioned the fourth quarter included a few unusual items.
Pretax earnings were positively impacted by a lower of cost per market adjustment of $149 million.
Really offset by goodwill and long lived asset impairment charges totaling $108 million.
In addition to costs related to the Cheyenne refinery conversion to renewable diesel production.
These costs include Demission decommissioning charges of $12 million.
LIFO inventory liquidation costs of $3 million and severance costs.
Totaling approximately $300000.
The table of these items can be found in our press release.
Cash flow from operations was $67 million.
And fourth quarter, which included $21 million of turnaround spending and $93 million and working capital gains.
We were successfully able to draw down inventory and the fourth quarter to better manage working capital.
Holly Frontier's Standalone capital expenditures totaled $97 million for the quarter and $271 million for the full year of 2020.
As of December 31, 2020, our total liquidity stood at approximately $2 7 billion.
Comprised of.
Standalone cash balance and over $1 3 billion.
Along with our Undrawn.
Three 5 billion unsecured.
And credit facility.
As of December 31, we had $1 $75 billion of Standalone debt outstanding with debt to cap ratio of 25% and a net.
Net debt to cap ratio of 6%.
During the fourth quarter, we declared and paid a dividend of <unk> 35 per share totaling $58 million.
ETP distributions received by HFC during the fourth quarter totaled $21 million.
Holly Frontier owns $59 6 million ETP limited partner units.
Presenting 57% of Hep's LP units with a market value of over $950 million as of last night's close.
Looking ahead, and the first half of 2021 and <unk>.
Dissipate recovering $50 million to $60 million and.
And cash tax benefit.
From Carryback of net operating loss under the cares Act.
And an additional $21 million to recover estimated tax payments that were made during 2020.
With respect to capital spending.
We have slightly increased our guidance for 2021, specifically and our renewable segment to account for the timing of invoices from 2020 into 2021.
We now expect to spend between $520 million to $550 million and renewables versus our original guidance of $500 and $530 million.
And we still expect to spend between 190 and $220 million per capital and Holly frontier refining.
$40 million to $50 million, and Holly frontier, Lubes and specialties and.
And $320 million to $350 million per turnarounds and catalyst.
And ETP, we expect to spend $14 million to $18 million for maintenance capital.
And to $35 million for expansion capital, which includes our investment and the Cushing connect joint venture.
And $5 million to $8 million and refinery processing unit turnarounds.
Beginning in the fourth quarter activities associated with the conversion of Holly Frontier's Cheyenne refinery to renewable diesel production.
Along with the construction of renewable diesel and pre treatment units and our teacher and new Mexico.
Our reported and Holly Frontier's corporate and other segment.
For fiscal year 2021, we expect corporate and segment operating expenses to be and the range of $100 million to $120 million.
Which includes decommissioning and severance costs related to the Cheyenne refinery conversion and a range of $20 million to $30 million.
And with that James we're ready to take questions.
Okay.
And the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone, we ask that you. Please limit yourself to one question and one follow up.
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Thank you.
Our first question comes from the line of Manav Gupta with credit Suisse.
Go ahead. Please your line is open.
Hey, guys. So I think when you envision.
The C&I business one of the Eagles, what's that perhaps back should breakeven on an EBITDA and then the rack forward should generate positive EBITDA. So in terms of Frac back I think you have <unk> and this quarter gross backlog.
I guess trying to understand and that forward side.
<unk> was good but <unk> was data and so from a run rate perspective, and Nevada, and then getting.
The first half, Okay, and 'twenty, one will the tequila and based on for that forward based on our guidance on a protocol could be a day.
Specifically as it relates to rack forward.
So manav it's rich.
So a couple of things happened and the fourth quarter keep in mind that there is always a little bit of a lag here. So base oil prices, obviously rose throughout the fourth quarter and we had to absorb that on the rack forward side. So that did impact a quarter and there is also always some annual seasonality around the year and period.
So that really drove the two things, we can point to and the fourth quarter.
To your point demand is very strong, but as Mike said, we cannot issue guidance at this time, because we are still seeing obviously a lot of volatility and the market.
So like in the long run.
Take you back to our expectation that we're going to do $250 million to $300 million of EBITDA and this business and Thats alright, those are long run belief.
Okay, and a quick follow up and I'd say think thing you had to come up with the prospects of expanding our renewable diesel and still had kind of given out a range of.
And John.
And if that can expected now since then a few things have happened.
Powerful and diesel prices have moved up as the global economy as it kind of like as crude has moved up and are in prices have moved up significantly, but still have low feedstock prices and I'm just trying to understand from the perspective of <unk>.
Has there been any change at the Holly frontier on day.
Internal rate of return calculation, considering that pre bought it and it does all moved in different directions.
And this is Tom yes, we have seen that and the marketplace and.
Put that into our models and taken a look at it to see what the profitability and earnings would be on a go forward basis.
And we don't really see that much variation in regard to what's happening now as to what our original plan was.
Maybe I could sum it up as a rising tide floats all boats, but we have seen soybean oil to go up and price. We've seen rents go up and price, we've seen fats and oils everything is going up and price along with crude oil and <unk> as well so yes.
The other piece of that is now at probably an expectation that the blenders tax credit persisted for longer than just 2022 and that was not baked into our original outlook. So overall higher at least because of that yes. When we did our initial modeling we only took blenders tax credit to the end of 'twenty, two and then and then.
Forecast with zero thereafter.
And if blenders tax credit is extended which most likely will be and sort of English and so forth.
And that administration on renewables.
$210 million, even with that and you're right.
That is correct yes.
Thank you for taking my questions.
Our next question comes from the line of Ryan Todd with Simmons Energy go ahead. Please your line is open.
Great Thanks, and maybe.
And I'll follow up on the renewable diesel business.
I guess quickly what was the driver of the upward revision.
Capex for this year.
And then as you as you move closer to completion of the R&D plans can you talk about some of your ongoing efforts to establish supply chains on the feedstock side are you and conversations with feedstock aggregators.
Particularly for low Ci feedstocks.
And can you talk a little bit about your confidence and your ability to efficiently access our range of needs.
Thank you appreciate and will allow.
Hey, Ryan now ill, let me do the capital number I'll hand, it per pound to speak to the other questions sung capital really its just timing of some of these invoices and the cash flow as being in 'twenty one versus late 'twenty.
And so to give you some color here.
Ended up spending about $120 million and 2020, instead of our guided $1 30 to 145, so were about $20 million shortage and cash out the door and 2000 and hence our guidance for 'twenty. One that's gone up by about that number but really just timing.
Good morning, Ryan.
The answer to your question about what agreements we've entered into and are looking at gas on the feedstock side.
We've been talking to local tallo guys.
As well as other feedstock providers.
Soybean oil and Degum soybean oil soybean oil and Thats, both refining and <unk> as well as other feedstocks, including corn oil.
We've got one agreement in place in terms of the feedstocks already inked up.
And then on the Offtake agreement, we have several contracts that we have entered into for the physician and the California as you could well imagine.
At pricing.
That is very favorable and in our opinion as we go forward. So we're in pretty good shape.
We also we've been talking to co ops, we have been talking to just about anybody rendering plants anybody that has feedstock available.
For supply issues.
And part of the problem on the feedstock that we're seeing is that's difficult to enter into some of these agreements when we're still 10 months away and.
Some of these things will happen a lot faster.
As we get closer to completion, both mechanical and operational and.
And basically that we're there to do business.
Great. Thanks, I appreciate that color.
And maybe.
Switching gears to the refining side.
And margins are at.
And significantly year to date, and although being priced and it's probably going to cut it.
Some of that and then can you talk about what youre seeing out there and what your outlook is for the next couple of quarters in terms of gasoline and distillate market dynamics.
Sure in terms of gasoline and other.
And either refining products diesel.
Before we went into this polar vortex situation we were.
Pretty pleased where with demand was going.
And gasoline I would say that.
And our best recovery has been and pad four on gasoline and.
And probably the worst and it hasn't been that bad was group, three where and when we compare it to 2019 the demand was probably off four 5% and total so that's not much of a decrease compared to 2019.
Distillate on the other hand, we were we were very pleased with discipline and it was at or higher than all of 2019 levels.
And so distillate.
Good demand in terms of crack.
It's hard to forecast that.
Hugh.
And on a go forward basis, but we would expect cracks to improve as we get into the driving season as well as the AG season as they start to plant crops again.
What we're seeing and crop prices, whether it be soybean and corn or anything else I think the farmers will be on a busy this summer.
And with the relaxation of Covid and vaccinations more people will be moving.
Moving around both by car truck and hopefully by airplane, so that should help in terms of crackers, we move forward.
Okay. Thank you.
Our next question comes from the line of Paul Cheng with Scotiabank go ahead. Please your line is open.
Good morning, guys.
And.
My I just <unk>.
<unk> net.
When we looking at that now the renewable diesel plant, but jacobson.
Thing is going to be at the high end of the range. So what's the factor.
And.
And we may seen much higher than the budget.
And <unk> coal sales.
And <unk>.
Number of years ago.
And when you hit the major banks.
And expansion and upgrade in.
Joel with costs and.
At the capital cost channel to.
And to be much higher than <unk>, so, what's most of which factor here.
And how big is that right.
Secondly, you have a long memory, so I'll address that.
Look.
The risk fact, we provide a range for these capital projects and as more engineering is completed that range tends to narrow on a single number and leaving basically field construction as the principal risk factor for which we provide a contingency.
Present were at the high end of our range as we've completed most of our engineering.
And are ready to basically start issuing what.
And what we call IFC iso's, but basically piping circuits for construction to start taking them out to the field. So we're quite far along in.
In terms of the engineering and initial phases of construction and so we're getting more confident and at the same time and narrowing our range, but at the higher and.
And if we want to contrast, it to to a project from years ago. The issue is simply the engineering wasn't done.
Prior to making a finer point estimate and is the engineering and evolve the project through so these projects are fairly distinct from that and we're following this stage gate process.
And we're really near to ordering we've ordered all the hardest and heavy equipment and major equipment. If you will vessels compressors et cetera. So we have fixed prices on all of that the engineering is largely complete and what's in front of us as field construction. There is some risk around field construction during COVID-19.
And the Covid numbers are down and Thats, good and we've added the estimates to reflect different practices to maintain a safe workforce.
Okay.
And second question is on the lubricants.
And often.
Several years of ownership.
I think we have learned through it seems like that from time to time.
And the wet fall wed look really good and and way okay.
And what's challenging and in.
This quarter that the West Bank final genius and.
Alright breakeven and work forward on data and margin goes down.
So I mean, we still we truly believe this is a business that we can generate 250 day too.
And in EBITDA.
And I'm sorry.
And something that we had announced that they lost that they'll get that perhaps.
May be different than the original expectation.
You too.
But that more optimistic oil more pessimistic about this.
And so we may have and Thats sadly.
Scale.
And and.
Organization and the people so when they make this as say Paul FIFO basis for you.
The short answer is yes.
We have a really talented team running this business Paul I think the big difference between.
Expectations and reality through last couple of years has been a commodity base oil business.
And that went through a deep recession, okay, and when you get to.
One group two cracks versus vacuum gas oil of 10 and $11 a barrel that was not our expectation and.
That's not a healthy margin for the industry. The team that we have in place understands the business is capable of growing the rack forward business. The finished lubricants and specialties business intelligently and to markets, where we have advantage.
And the base oil piece appears to be more constructive now that's going to be the commodity part of the business it will be more volatile through time.
Todays dynamic is actually really favorable so.
I guess I would caveat it and say the base oil will be variable and we will continue to grow our effectiveness and margin and rack forward.
I thought that Exxon and that's going to add a quite substantial sum of base oil.
Again couple of Years' time.
I think we've seen that and Rotterdam and on the Gulf Coast Paul.
And what continues to come but it will depend on their own investment plans, but for the time being I think were pretty stable.
Alright, thank you.
Our next question comes from the line of Phil Gresh with Jpmorgan go ahead. Please your line is open.
Hi, good morning, Thanks for taking my question.
And first of all I was just on if you look at refining and.
The capture rates, there and any color you could share just on the impact of brands.
Whether it's just kind of the ongoing expense effect or some kind of mark to market obviously.
And it's going up <unk> and Im sure impacted.
And the capture rates there and then.
And what is your view about where rents will go and feel like we're getting the question a lot or do you think as renewable diesel and starts up as we start to see rins.
<unk> dissipate later this year and into 'twenty two.
Hey, Phil It's rich let me just.
The capture impact to be honest it was not that big and the fourth quarter. Please keep in mind that we use a weighted average inventory cost methodology here. So our RIN cost will lag the spot market.
And so our rent expense and the fourth quarter and about $40 million versus 34, and the third quarter.
Let me and as Tom and Tim talked about the market outlook.
Phil This is Tim let me just mentioned on the mid con capture as well, we had a year and revalue.
Revaluation costs that Mike mentioned in his opening remarks that was $32 5 million, specifically and the mid con.
And that impacted the.
The gross margin translates to about $1 39, a barrel.
And so without that.
Inventory valuation.
Yes.
And the capture rate would have been 45% for the mid con so a total of.
Okay.
What that three.
3332 on general.
Gross margin.
We also had some lower gasoline margins and further impacted.
The capture contribution.
And the mid Con.
And as you know when cracks or lower per.
And our fixed costs tend to impact the capture rate more so than.
When cracks are higher so those were the <unk>.
And that reflecting the mid con on the west side.
Demand was more impacted in the fourth quarter by Covid.
With the hotspots in that area and the southwest area and the country.
So gasoline margins were specifically impacted on margin.
Contribution probably more than normal.
We also had higher lead and crude costs and.
And impacted the margin capture and the southwest.
So and fill I get the dubious distinction and they're trying to figure out where rents are growing and here.
And so.
But what we've seen and ill, let me start by saying, what we've seen and the market so far.
And then.
And when you say wire Rins are rising I think it's our opinion that without <unk> and with declining gasoline demand. There is a fear and the marketplace that we're going to be short of reaching the 15 billion gallons a day six rooms that are required and as a result of what's going to happen is that people are going to start using <unk>.
To retire day six obligations.
And when we can see that and the marketplaces, because deepwater and <unk> as their climbing and getting closer to <unk>. All the time that the spread is a lot less and it was before.
So then that begs the question what what the house happened and would be for us.
And that's a lot to do with rising soybean prices and the slightly and price has been going up what we've seen us and unfortunately barrel partial basis, it's gone from 19, 9% to $14 per bushel and Thats basically because of China and his day replenish their pig population from the swine flu outbreak.
They're having a higher demand and soybean.
We're also seeing some weather impacting south American supply so going forward. There is a lot of that is already baked into the market. So.
And those are the main factors that have driven the RIN price to where it is now.
And the event that we get more gasoline demand and Theres more day six rens generated as a result, what's thats going to do is increase the supply and help temper the prices from going any further on that these fixes and then the day for US are just going to do their own thing on the basis of both.
<unk> spread as it moves forward, so that's going to be more of a relationship driven and a political decision at this point and time.
<unk>.
I think we've seen big increases on the day fixes and the day for us to date.
I think we're going to see those kind of increases as we go through the year as a lot of these factors are already built into the marketplace.
I appreciate you taking a shot at that rich just to clarify with the lag effect do you have an estimate or expectation.
Prices stay where they are what the rins expenses would be and <unk> or 2021.
No.
And it would trend higher as assuming and allowed us to <unk> volume and blend rates, but directionally, you're right you would expect that to trend higher with higher spot prices.
Okay. Okay.
And then you gave.
And the throughput for lung Q other companies and talks about opex headwinds from higher natural gas.
Seeing any of those types of impacts on the refining side at this point or.
So we have more muted for you guys or just any color there would be helpful.
Yes. So this is Tim again.
Our mid con plants, we're at.
Actually and part of the coldest temperatures.
Associated with strong here.
And the polar vortex.
Tulsa was already and plan and maintenance and so and the storm effects will basically.
Extend the downtime that we had there a little bit longer.
Other than that the other plants had some individual unit outages.
It occurred.
But two of the plants are completely back to normal and the third one will be back to normal later this week so.
The guidance of 350 to 308000 barrels a day that Mike mentioned and the prepared remarks reflect both the impact and the planned maintenance as well as the unplanned cold weather impacts.
And would there be a specific natural gas price effects.
And we would anticipate as well.
And one that we call out Phil and these were.
Sure.
Extreme spikes right, but they were very transitory so.
And nothing we'd offer announced guidance.
Okay. Thank you.
Our next question comes from the line of Theresa Chen with Barclays. Go ahead. Please your line is open.
Good morning, and.
Mid to turn back to the RFP strength.
And if you could share and further in terms of details related to end market demand and.
And what you've seen and industrial and transportation and <unk>.
How is the personal care and second swing and what is here.
Outlook in terms of from here.
To happen that fleet and to issue guidance again is it just.
A matter of volume.
Turning to a more normalized level is it something else and any color there would be great.
So good morning, and terms of the traditional demand markets and personal care pharmaceutical and.
And those related.
Good.
Also tightened market demand is very robust, we have high asset utilization and volume facility national III facilities.
And those products, which encompass flywheel.
And total items and.
And waxes, so demand remains very robust and really does not.
And heavily impacted by the coronavirus and the same way that refinery gasoline and diesel and so forth worth.
In terms of any questions really.
Guidance expectations, and the rich and funnel.
Not much to offer today, so we're looking to.
As Bruce mentioned things are getting better.
And then kind of similar to what we're seeing and everywhere and we expect it to get better as they can.
And one of Iris restrictions on the economy are listed here.
Got it and.
And in terms of the weather impact.
Following up on sales.
Questioning.
I don't believe Salt Lake was impacted and.
Particular inches from the earlier call on the midstream entity.
And the questions.
Employ a day around what and.
Implications does that have on capture and for that area and we're able to really increase throughput during that time and and take advantage of.
Okay.
Turning to Salt Lake City was the least impacted in terms of temperature and impacts from the storm.
Salt Lake City is running.
Normal.
And we will continue to.
Continue to.
Maybe it's slightly stronger demand as a result of the storms, but its probably isolated more so from the Gulf and.
And probably what Youre thinking.
To 30 service rich to Tim's point.
When when he said Salt Lake has impacted the entire valley was an impacted right. So there was really no market dynamic at work, there and good or bad frankly from the storm.
Thank you.
Okay.
Our next question comes from the line of Matthew Blair with Tudor Pickering and Cole go ahead. Please your line is open.
Hey, good morning, everyone talks about how construction is progressing on the renewable diesel side was and impacted by the winter storm and exactly what are you thinking in terms of startup core.
And I guess, the Artesia R&D as both a pretreatment unit.
Good morning, Matthew It's Tom.
Looking at Cheyenne Cheyenne was.
And the middle of our Wyoming winter and it wasn't much different than it is every other year up and Cheyenne and it wasn't affected.
And then any great degree by the polar vortex that hit the the middle part of the country.
So transferred Eric construction is going well.
We are moving dirt we're putting.
We're leveling for the rail facilities to go in and we've got.
A lot of the permits in place. So we don't expect any delays.
And from that standpoint, as we move forward on construction and then Artesia. There again, there was some effects of the winter storm, but nothing major.
We are proceeding with construction and tanks are going up rail lines are going in and we're making good progress we are on schedule.
And to your Ultimate question, we don't see any deviation from meeting the schedule as previously released at this point and time.
Sounds good and then on the refining side.
And your West Opex came in and I believe it at $97 million.
And is that a good run rate that we can roll forward into 'twenty and 'twenty one.
Yes.
We saw net and we saw a little bit of a higher natural gas price and the fourth quarter than probably what we had seen and the third quarter.
We had a few year and.
Crude oils that hit us as we as we typically do at the end of the year. So maybe it was a little bit higher than what we'd normally see on a normal run rate basis.
But that's that's probably fair and it comes.
Thank you very much.
Our next question comes from the line of Doug Leggate with Bank of America Go ahead. Please your line is open.
Hey, guys. Good morning, and this is clay on for Doug.
And have already been hit here and I've got a couple.
So I think I've thought about the year renewable diesel and sourcing strategy and we're going to keep ever considered going upstream for feedstock.
E contracting and the bundling of your own plant based feedstock, which split and insulate.
And insulate you guys from market based pricing and if you guys have thought about that what are the pros and cons.
Yes. This is this is concrete.
Quick answer is yes, we have looked at going upstream we've looked it at crush plants, and what involved and there and but we basically stopped it at that point in terms of soybean.
I think it would be a stretch for us to get into farming or the rendering of cattle at this point and time.
So we don't want to go too far upstream, but we do like I said, we do have looked at crush plants.
And that's going to be a constraint going forward it will be something that we might invest in because it's.
It's part of the value chain and and our business. So.
Alright.
Looked at so far.
Perfect.
And you also provide an update on and the capital, including the renewable diesel.
So <unk>.
Generally sustaining capital we continue to see that as call it a $175 million to $200 million a year across the corporation.
And with a lot of volatility, obviously driven by turnaround schedule so and.
Five year cycle that would probably be the average and.
The reality is renewables renewable diesel business will not add a lot in terms of sustaining capital and turnaround costs are relatively minor.
And of catalyst change outs on a similar cycle, two and refining refinery, but it doesn't look anything like <unk>.
Turnaround and fuels refinery.
Yes.
Bob.
Okay.
Sorry, you were breaking up.
The $175 million to $200 million includes day turnarounds correct.
Correct.
Okay. Thanks, guys.
And again as a reminder, if you would like to ask a question. Please press star and then one on your telephone keypad. Our next question comes from the line of Jason You gave them and with Cowen Go ahead. Please your line is open.
Yeah, Hey, good morning, everyone. Two questions one just on the working capital benefit that you mentioned and for Q.
And what drove that and and.
That <unk>.
<unk> benefit already checked that through a reverse over the course and 'twenty one and then the second question just on going back and renewable diesel business.
And is there a desire or and interests too.
To sell some.
Mistaken and renewable diesel plant and maybe as we get closer to completion just.
Kind of offset from some of the some of the capital cost and maybe that could be another angle.
And helping secure.
Advantaged feedstock.
Hey, Jason Let me, it's rich let me.
Speak to working capital, so and the fourth quarter, obviously, we manage inventory really well and ran some barrels and we had the tail end of Cheyenne inventories, which is a permanent reduction obviously.
And we'll continue to stay very vigilant, given the macroeconomic situation and our our cash flow.
On working capital and realistically right and a rising crude price environment youre going to see working capital benefit.
So we're optimistic about the economy. There go we would expect crude prices to rise and ergo, we would expect to continue to see working capital benefit.
And Jason on the renewable portfolio side.
We're proud of this investment and committed to building it out developing this as a part of our company at the same time, we're capitalists and we're conscious that these things traded a high multiple so.
And we're going to evaluate that through time I think what we know to be fact is that we need to complete the projects get them up and running and demonstrate the value before we have any real alternatives.
Separately recognized that value other than as a part of Holly Frontier Corporation. So for the time being we're and the mode of building this business.
Building, the commercial and supply chain aspects of it.
And obviously, securing feedstocks and markets and we're really not spending any time looking to sell it at this point.
Okay.
Thanks, and the answers.
Yes.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Go ahead. Please your line is open.
Good morning, guys. First question is just around ATP and midstream and less about whether you want to fold and then and just more about the strategy around the midstream business over the next couple of years is the goal and year to.
Basically run the business for free cash flow path of distribution and not necessarily focus on the top line do you see topline opportunities here as well.
Hey, Neil it's rich no I think we're and Ah interesting position right now and the midstream business and general and the industry. So our near term for call. It for the next 12 to 18 months focus here is getting and Cushing connect pipeline up and running and then continuing to delever to get to our leverage target of 3%.
Three five times.
We think thats going to put that put us and a great position then to have flexibility to either increase distributions repurchase units or if there are opportunities to grow the business go ahead and pursue those we'd like to grow the business. The reality is the midstream space was incredibly frothy over five years and.
And it feels like we're coming out of that and we're optimistic there'll be opportunity.
But the good news is if there isn't we don't see and opportunities to grow that creates unit holder value. We'll go ahead and increase distributions.
Thanks, guys and then the follow up here might be for Tom, but just your outlook on key crude differentials.
And your perspective on Brent <unk> do you see a path or this kind of sustaining and the three to $4 level or do we need U S production as refining utilization comes back with demand and post the freeze offs and then thoughts on WPS, where there are a number of competing forces between OPEC barrels coming back but also.
And a site to pipes coming on.
Yes, and Brent Ti Neal I think what we're looking at is probably that 3% to $3 50 and in the short to medium term as we move forward.
And a lot of this is going to have to do not only on the Brent Ti differential but on the WCS differential is what happens.
With OPEC and the quota is as we move forward.
I guess, our expectations WCS differential is probably trading them and.
And the range of 11% to $14 for the remainder of this year and.
Particularly what we've seen on WCS as we've seen.
Rise of rail movements out of Alberta and.
The fourth quarter and into the first quarter.
So thats going to put a and artificial floor real floor on on differentials because of rail economics and getting it to the Gulf coast. So we.
Still see pretty good demand numbers and pretty good delivered prices and the Gulf coast and net partly due to the OPEC and Venezuela situations. So.
That's what we're looking for as we move forward and.
Just to finish that off on Midland and crude differentials, we see that continuing to trade over Cushing.
Anywhere from 50 to one dollar for the remainder of this year.
Thank you so much.
<unk>.
Yes.
And there are no further questions at this time I would like to turn the call back over to Mike Jennings for some final comments.
Great. Thank you very much and thank you all for partnering participating with US this morning and <unk>.
Summary, HFC is really well equipped with its investment grade balance sheet, $2 7 billion of Standalone liquidity, and and really ready to stage and come back in our core fuels business and our lubricants business continues to show strength and resiliency has posted another solid quarter of earnings and is operating really and.
And a favorable base oil environment and.
And finally, we're progressing our and renewables projects across the board, which youre going to further diversify our asset base.
And our earnings power and allow us to participate and a new and I think very lucrative market for the long term.
Thanks for participating today look forward to talking to you soon.
Thank you and this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
[music].
Yes.