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HollyFrontier Corporation Reports Quarterly Results

  • Reported net loss attributable to HollyFrontier stockholders of $(304.6) million, or $(1.88) per diluted share, and adjusted net income of $86.5 million, or $0.53 per diluted share, for the first quarter
  • Reported EBITDA of $(307.6) million and adjusted EBITDA of $268.8 million for the first quarter
  • Returned $57.2 million to shareholders through dividends in the first quarter

HollyFrontier Corporation (NYSE:HFC) ("HollyFrontier" or the "Company") today reported first quarter net loss attributable to HollyFrontier stockholders of $(304.6) million, or $(1.88) per diluted share, for the quarter ended March 31, 2020, compared to net income of $253.1 million, or $1.47 per diluted share, for the quarter ended March 31, 2019.

The first quarter results reflect special items that collectively decreased net income by a total of $391.1 million. On a pre-tax basis, these items include a lower of cost or market inventory valuation adjustment of $560.5 million, Sonneborn integration and regulatory costs of $1.3 million and HollyFrontier's pro-rata share of Holly Energy Partners, L.P.'s ("HEP") loss on early extinguishment of debt of $14.7 million. Excluding these items, net income for the current quarter was $86.5 million ($0.53 per diluted share) compared to $93.2 million ($0.54 per diluted share) for the first quarter of 2019, which excludes certain items that collectively increased net income by $159.9 million for the three months ended March 31, 2019.

HollyFrontier’s President & CEO, Michael Jennings, commented, "HollyFrontier delivered strong financial results in the first quarter driven by healthy margins in our refining and finished lubricants businesses. As we continue to navigate the COVID-19 pandemic, our top priority remains the health and safety of our employees, communities and contractors. We are committed to delivering safe and reliable operations during this challenging environment. We believe our disciplined approach to capital allocation, led by our strong balance sheet and liquidity position, will help position HollyFrontier for long term success."

The Refining segment reported adjusted EBITDA of $175.9 million compared to $193.4 million for the first quarter of 2019. This decrease was primarily driven by lower product margins and higher laid-in crude costs which resulted in a consolidated refinery gross margin of $11.32 per produced barrel, a 11% decrease compared to $12.74 for the first quarter of 2019. Crude oil charge averaged 436,360 barrels per day ("BPD") for the current quarter compared to 400,430 BPD for the first quarter 2019.

Our Lubricants and Specialty Products segment reported EBITDA of $32.3 million, compared to $11.2 million in the first quarter 2019. Rack Forward EBITDA was $76.7 million, compared to $43.6 million in the prior year.

HEP reported EBITDA of $64.4 million for the first quarter 2020 compared to $93.5 million in the first quarter of 2019. The first quarter of 2020 includes a non-recurring loss on early extinguishment of debt of $25.9 million related to its previously outstanding 6% senior notes due 2024.

For the first quarter of 2020, net cash provided by operations totaled $190.1 million. During the period, we declared and paid a dividend of $0.35 per share to shareholders totaling $57.2 million. At March 31, 2020, our cash and cash equivalents totaled $909.1 million, a $23.9 million increase over cash and cash equivalents of $885.2 million at December 31, 2019. Additionally, our consolidated debt was $2,496.0 million. Our debt, exclusive of HEP debt, which is nonrecourse to HollyFrontier, was $993.9 million at March 31, 2020.

The COVID-19 pandemic caused a decline in U.S. and global economic activities during the first quarter of 2020. As a result, the demand for, and the resulting price we receive for, the sale of our products, including gasoline, jet fuel, lubricants and other products, has decreased during the last weeks of the first quarter of 2020. We expect the lower product prices and lower demand to continue into the second quarter of 2020. Additional detail regarding the impact of COVID-19 on HollyFrontier will be provided in our Form 10-Q for the quarter ended March 31, 2020.

The Company has scheduled a webcast conference call for today, May 7, 2020, at 8:30 AM Eastern Time to discuss first quarter financial results. This webcast may be accessed at: https://event.on24.com/wcc/r/2160316/88180B2DF06B6F373740F836B942A13F. An audio archive of this webcast will be available using the above noted link through May 21, 2020.

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 Corporation subsidiaries.

The following is a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are "forward-looking statements" based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such 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 the Company serves; risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in the Company’s markets; the spread between market prices for refined products and market prices for crude oil; the possibility of constraints on the transportation of refined products or lubricant and specialty products, 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 current restrictions on various commercial and economic activities in response to the COVID-19 pandemic; the availability and cost of financing to the Company, the effectiveness of the Company’s capital investments and marketing strategies, the Company’s efficiency in carrying out and consummating construction projects; the ability of the Company to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms and to integrate any existing or future acquired operations; the possibility of terrorist or cyberattacks and the consequences of any such attacks; 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 COVID-19 could result in an impairment of goodwill; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)

 

 

Three Months Ended
March 31,

 

Change from 2019

 

2020

 

2019

 

Change

 

Percent

 

(In thousands, except per share data)

Sales and other revenues

$

3,400,545

 

 

$

3,897,247

 

 

$

(496,702

)

 

(13

)%

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of products sold:

 

 

 

 

 

 

 

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

2,693,726

 

 

3,199,205

 

 

(505,479

)

 

(16

)

Lower of cost or market inventory valuation adjustment

560,464

 

 

(232,346

)

 

792,810

 

 

(341

)

 

3,254,190

 

 

2,966,859

 

 

287,331

 

 

10

 

Operating expenses

328,345

 

 

331,592

 

 

(3,247

)

 

(1

)

Selling, general and administrative expenses

87,737

 

 

88,034

 

 

(297

)

 

 

Depreciation and amortization

140,575

 

 

121,421

 

 

19,154

 

 

16

 

Total operating costs and expenses

3,810,847

 

 

3,507,906

 

 

302,941

 

 

9

 

Income (loss) from operations

(410,302

)

 

389,341

 

 

(799,643

)

 

(205

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Earnings of equity method investments

1,714

 

 

2,100

 

 

(386

)

 

(18

)

Interest income

4,073

 

 

6,375

 

 

(2,302

)

 

(36

)

Interest expense

(22,639

)

 

(36,647

)

 

14,008

 

 

(38

)

Loss on early extinguishment of debt

(25,915

)

 

 

 

(25,915

)

 

 

Gain (loss) on foreign currency transactions

(4,233

)

 

2,265

 

 

(6,498

)

 

(287

)

Other, net

1,850

 

 

557

 

 

1,293

 

 

232

 

 

(45,150

)

 

(25,350

)

 

(19,800

)

 

78

 

Income (loss) before income taxes

(455,452

)

 

363,991

 

 

(819,443

)

 

(225

)

Income tax expense (benefit)

(162,166

)

 

87,505

 

 

(249,671

)

 

(285

)

Net income (loss)

(293,286

)

 

276,486

 

 

(569,772

)

 

(206

)

Less net income attributable to noncontrolling interest

11,337

 

 

23,431

 

 

(12,094

)

 

(52

)

Net income (loss) attributable to HollyFrontier stockholders

$

(304,623

)

 

$

253,055

 

 

$

(557,678

)

 

(220

)%

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to HollyFrontier stockholders:

 

 

 

 

 

 

 

Basic

$

(1.88

)

 

$

1.48

 

 

$

(3.36

)

 

(227

)%

Diluted

$

(1.88

)

 

$

1.47

 

 

$

(3.35

)

 

(228

)%

Cash dividends declared per common share

$

0.35

 

 

$

0.33

 

 

$

0.02

 

 

6

%

Average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

161,873

 

 

170,851

 

 

(8,978

)

 

(5

)%

Diluted

161,873

 

 

172,239

 

 

(10,366

)

 

(6

)%

EBITDA

$

(307,648

)

 

$

492,253

 

 

$

(799,901

)

 

(162

)%

Adjusted EBITDA

$

268,769

 

 

$

281,797

 

 

$

(13,028

)

 

(5

)%

 

Balance Sheet Data

 

 

March 31,

 

December 31,

 

2020

 

2019

 

(In thousands)

Cash and cash equivalents

$

909,126

 

 

$

885,162

 

Working capital

$

1,200,258

 

 

$

1,620,261

 

Total assets

$

11,221,794

 

 

$

12,164,841

 

Long-term debt

$

2,496,006

 

 

$

2,455,640

 

Total equity

$

6,110,478

 

 

$

6,509,426

 

Segment Information

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.

The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and HollyFrontier Asphalt Company LLC ("HFC Asphalt") (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HFC Asphalt operates various terminals in Arizona, New Mexico and Oklahoma.

The Lubricants and Specialty Products segment involves Petro-Canada Lubricants Inc.’s ("PCLI") production operations, located in Mississauga, Ontario, that include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America, the operations of Red Giant Oil, one of the largest suppliers of locomotive engine oil in North America and the operations of Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe.

The HEP segment involves all of the operations of HEP, a consolidated variable interest entity, which owns and operates logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The HEP segment also includes a 75% interest in UNEV Pipeline, LLC (an HEP consolidated subsidiary), and a 50% ownership interest in each of Osage Pipeline Company, LLC, Cheyenne Pipeline LLC and Cushing Connect Pipeline & Terminal LLC. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.

 

 

 

Refining

 

Lubricants and Specialty Products

 

HEP

 

Corporate, Other and Eliminations

 

Consolidated Total

 

 

(In thousands)

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

2,850,620

 

 

$

523,499

 

 

$

26,426

 

 

$

 

 

$

3,400,545

 

Intersegment revenues

 

84,246

 

 

3,104

 

 

101,428

 

 

(188,778

)

 

 

 

 

$

2,934,866

 

 

$

526,603

 

 

$

127,854

 

 

$

(188,778

)

 

$

3,400,545

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

2,468,751

 

 

$

391,380

 

 

$

 

 

$

(166,405

)

 

$

2,693,726

 

Lower of cost or market inventory valuation adjustment

 

$

560,464

 

 

$

 

 

$

 

 

$

 

 

$

560,464

 

Operating expenses

 

$

259,174

 

 

$

54,131

 

 

$

34,981

 

 

$

(19,941

)

 

$

328,345

 

Selling, general and administrative expenses

 

$

31,000

 

 

$

48,962

 

 

$

2,702

 

 

$

5,073

 

 

$

87,737

 

Depreciation and amortization

 

$

90,179

 

 

$

22,049

 

 

$

23,978

 

 

$

4,369

 

 

$

140,575

 

Income (loss) from operations

 

$

(474,702

)

 

$

10,081

 

 

$

66,193

 

 

$

(11,874

)

 

$

(410,302

)

Income (loss) before interest and income taxes

 

$

(474,702

)

 

$

10,290

 

 

$

42,498

 

 

$

(14,972

)

 

$

(436,886

)

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

1,216

 

 

$

10,121

 

 

$

11,337

 

Earnings of equity method investments

 

$

 

 

$

 

 

$

1,714

 

 

$

 

 

$

1,714

 

Capital expenditures

 

$

53,014

 

 

$

9,081

 

 

$

18,942

 

 

$

2,712

 

 

$

83,749

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

Sales and other revenues:

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

3,372,666

 

 

$

493,334

 

 

$

31,138

 

 

$

109

 

 

$

3,897,247

 

Intersegment revenues

 

74,744

 

 

 

 

103,359

 

 

(178,103

)

 

 

 

 

$

3,447,410

 

 

$

493,334

 

 

$

134,497

 

 

$

(177,994

)

 

$

3,897,247

 

Cost of products sold (exclusive of lower of cost or market inventory)

 

$

2,962,540

 

 

$

389,017

 

 

$

 

 

$

(152,352

)

 

$

3,199,205

 

Lower of cost or market inventory valuation adjustment

 

$

(232,346

)

 

$

 

 

$

 

 

$

 

 

$

(232,346

)

Operating expenses

 

$

264,497

 

 

$

53,559

 

 

$

37,513

 

 

$

(23,977

)

 

$

331,592

 

Selling, general and administrative expenses

 

$

26,977

 

 

$

39,719

 

 

$

2,620

 

 

$

18,718

 

 

$

88,034

 

Depreciation and amortization

 

$

74,415

 

 

$

20,171

 

 

$

23,830

 

 

$

3,005

 

 

$

121,421

 

Income (loss) from operations

 

$

351,327

 

 

$

(9,132

)

 

$

70,534

 

 

$

(23,388

)

 

$

389,341

 

Income (loss) before interest and income taxes

 

$

351,327

 

 

$

(8,995

)

 

$

72,325

 

 

$

(20,394

)

 

$

394,263

 

Net income attributable to noncontrolling interest

 

$

 

 

$

 

 

$

1,832

 

 

$

21,599

 

 

$

23,431

 

Earnings of equity method investments

 

$

 

 

$

 

 

$

2,100

 

 

$

 

 

$

2,100

 

Capital expenditures

 

$

41,762

 

 

$

7,860

 

 

$

10,718

 

 

$

3,395

 

 

$

63,735

 

 

 

Refining

 

Lubricants and Specialty Products

 

HEP

 

Corporate, Other and Eliminations

 

Consolidated Total

 

 

(In thousands)

March 31, 2020

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

 

$

164,317

 

 

$

19,282

 

 

$

725,527

 

 

$

909,126

 

Total assets

 

$

6,326,831

 

 

$

2,123,451

 

 

$

2,195,442

 

 

$

576,070

 

 

$

11,221,794

 

Long-term debt

 

$

 

 

$

 

 

$

1,502,154

 

 

$

993,852

 

 

$

2,496,006

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,755

 

 

$

169,277

 

 

$

13,287

 

 

$

692,843

 

 

$

885,162

 

Total assets

 

$

7,189,094

 

 

$

2,223,418

 

 

$

2,205,437

 

 

$

546,892

 

 

$

12,164,841

 

Long-term debt

 

$

 

 

$

 

 

$

1,462,031

 

 

$

993,609

 

 

$

2,455,640

 

 

Refining Segment Operating Data

The following tables set forth information, including non-GAAP (Generally Accepted Accounting Principles) performance measures about our refinery operations. Refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" below.

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Mid-Continent Region (El Dorado and Tulsa Refineries)

 

 

Crude charge (BPD) (1)

 

252,380

 

 

213,180

 

Refinery throughput (BPD) (2)

 

270,920

 

 

230,050

 

Sales of produced refined products (BPD) (3)

 

259,240

 

 

217,600

 

Refinery utilization (4)

 

97.1

%

 

82.0

%

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

Refinery gross margin

 

$

9.54

 

 

$

11.14

 

Refinery operating expenses (6)

 

5.30

 

 

6.66

 

Net operating margin

 

$

4.24

 

 

$

4.48

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

5.07

 

 

$

6.30

 

 

 

 

 

 

Feedstocks:

 

 

 

 

Sweet crude oil

 

52

%

 

50

%

Sour crude oil

 

22

%

 

26

%

Heavy sour crude oil

 

19

%

 

17

%

Other feedstocks and blends

 

7

%

 

7

%

Total

 

100

%

 

100

%

 

 

 

 

 

Sales of produced refined products:

 

 

 

 

Gasolines

 

51

%

 

53

%

Diesel fuels

 

32

%

 

28

%

Jet fuels

 

7

%

 

9

%

Fuel oil

 

1

%

 

1

%

Asphalt

 

3

%

 

3

%

Base oils

 

4

%

 

4

%

LPG and other

 

2

%

 

2

%

Total

 

100

%

 

100

%

...

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Southwest Region (Navajo Refinery)

 

 

 

 

Crude charge (BPD) (1)

 

106,810

 

 

106,030

 

Refinery throughput (BPD) (2)

 

117,440

 

 

116,220

 

Sales of produced refined products (BPD) (3)

 

113,590

 

 

123,390

 

Refinery utilization (4)

 

106.8

%

 

106.0

%

 

 

 

 

 

Average per produced barrel (5)

 

 

 

 

Refinery gross margin

 

$

12.63

 

 

$

15.95

 

Refinery operating expenses (6)

 

5.28

 

 

4.94

 

Net operating margin

 

$

7.35

 

 

$

11.01

 

 

 

 

 

 

Refinery operating expenses per throughput barrel (7)

 

$

5.10

 

 

$

5.24

 

 

 

 

 

 

Feedstocks:

 

 

 

 

Sweet crude oil

 

23

%

 

16

%

Sour crude oil

 

68

%

 

75

%

Other feedstocks and blends

 

9

%

 

9

%

Total

 

100

%

 

100

%