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HollyFrontier Cuts 2020 Capex View to Survive Oil Price Rout

Zacks Equity Research

HollyFrontier Corporation HFC plans to trim its 2020 capital spending guidance by nearly 15% from its prior expectation of $623-$729 million to the $525-$625 million range after taking into consideration the ongoing decline in commodity prices.

Segmental and Project Updates

This Dallas, TX-based company's Lubricants and Specialty Products segment is dismissing 2020 outlook for Rack Forward due to deteriorating global market demand. Further, HollyFrontier’s Refining unit limited its running capacity at 70%.

HollyFrontier also recommended restricting the strength of onsite workers to just essential operational employees.The company is prudently scrutinizing its operational and project activities mainly at the refinery and intends to regulate or suspend some minor projects. It will also avoid okaying new projects due to low oil price environment.

Financial Position

As of Mar 31, this one of the largest independent refiners and marketers of petroleum products in the United States, had standalone liquidity in excess of $2.2 billion, entailing $900 million in cash and an undrawn credit facility worth $1.35 billion with maturity in 2022.

Notably, HollyFrontier’s standalone (excluding HEP) debt to capital ratio is 14% and net-debt to capital ratio, 1%.

HollyFrontier Corporation Price

HollyFrontier Corporation Price

HollyFrontier Corporation price | HollyFrontier Corporation Quote

Global Oil Prices

The ongoing commodity price retreat was due to bearish global demand as the novel coronavirus impacted global economic growth. Governments across the globe are issuing directives pertaining to travel, temporary closure of schools, factories, offices and asking people to avoid mass gatherings, which are adversely impacting demand for crude.

Saudi Arabia, the world’s top oil exporter, has plans to increase crude oil production above 10 million barrels per day in April following the failure of its OPEC supply cut agreement with Russia. The decisions of Russia and Saudi Arabia, which are major crude producers apart from the United States,  to produce more crude volumes can further lower the commodity price from its current level due to supply glut.

The fluctuating graph of global oil prices is expected to continue in the near term until demand for commodities resumes normalcy and oil producing majors reach an agreement to soften production volumes, which in turn, will stabilize oil prices.

Other Companies’ Cost-Saving Efforts

Reacting to the current downbeat market territory, this Zacks Rank #5 (Strong Sell) HollyFrontier joins other refining players like Phillips 66 PSX and Sunoco LP SUN in cutting budgets as oil prices persistently trend $30 per dollar.

Even integrated majors with large downstream presence, such as BP plc BP resorted to reducing refinery rates on weak demand. These industry players aim to overcome the tough times while sustaining financial flexibility and operational excellence. Notably, strengthening the companies’ cash-boxes at a time when oil prices yield zero profits to most industry operators is indeed an astute action. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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