HollyFrontier Corporation HFC recently announced that its Cheyenne Refinery will shift from refining petroleum to producing renewable diesel fuel processed from soybean oil. This conversion to renewable diesel production will induce termination of HollyFrontier’s petroleum refining operation and a cutback in workforce at the Cheyenne refinery.
Further, the company plans to construct a pre-treatment unit (PTU) for both its Cheyenne and Artesia diesel refinery units. With this transition, the company hopes to produce more than 200 million gallons of renewable diesel every year with the Cheyenne refinery producing nearly half that amount.
HollyFrontier’s decision follows the rise in demand for renewable diesel and other lower carbon fuels. The company is grabbing a decent market share on the back of changing consumer tastes and adequate aid obtained from federal and state government-sponsored stimulus packages. This paradigm shift will spawn a huge scope for HollyFrontier to infuse capital for organic growth, which in turn, will boost its profit margins as well as fortify its presence in helming environmentally-friendly projects.
HollyFrontier Corporation Price
HollyFrontier Corporation price | HollyFrontier Corporation Quote
The Cheyenne facility, which has functioned as a petroleum refinery for 86 years, anticipates completing the transformation in the first quarter of 2022 and expects generating an internal rate of 20-30% return. The conversion process is expected to cost about $125-$175 million. Also, HollyFrontier plans to invest approximately $650-$750 million in its renewables business.
For 2020, this Dallas, TX-based company expects its capital expenditure guidance in the $525-$625 million range wherein its refining unit is estimated to spend between $202 million and $221 million. This lower range of investment highlights effective management of refinery capital resources and a cautious approach to expenses at the Cheyenne Refinery. The company’s renewables unit forecasts capex worth $150-$180 million for the ongoing year, which comprises capital charges for the Artesia renewable diesel unit, the PTU and the Cheyenne refinery conversion.
Zacks Rank & Key Picks
HollyFrontier is one of the largest independent refiners and marketers of petroleum products in the United States. The company’s operations are organized under three reportable segments, namely Refining (accounts for the bulk of its earnings), Lubricants and Specialty Products, and Holly Energy Partners.
HollyFrontier carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Core Laboratories N.V. CLB, Comstock Resources, Inc. CRK and Concho Resources Inc. CXO, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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