Hollyfrontier Corporation 2016 Annual Report
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ANNUAL REPORT EL DORADO REFINERY • Located in El Dorado, Kansas • 135,000 BPSD capacity • Processes sour and heavy Canadian crude oils into high-value light products • Distributes to high-margin markets in Colorado and Mid-Continent/Plains states TULSA REFINERY • Located in Tulsa, Oklahoma • 125,000 BPSD capacity MID-CONTINENT • Processes predominantly sweet crude oil with up to 10,000 BPD of heavy Canadian crudes • Distributes to the Mid-Continent states NAVAJO REFINERY • Located in Artesia, New Mexico, and operated in conjunction with a refining facility 65 miles east in Lovington, New Mexico • 100,000 BPSD capacity • Processes sour crude oil into high-value light products • Distributes to high-margin markets in Arizona, New Mexico and West Texas SOUTHWEST CHEYENNE REFINERY • Located in Cheyenne, Wyoming • 52,000 BPSD capacity • Processes sour and heavy Canadian crude oils into high-value light products • Distributes to high-margin Eastern Rockies and Plains states WOODS CROSS REFINERY • Located in Woods Cross, Utah (near Salt Lake City) • 45,000 BPSD capacity • Processes regional sweet and advantaged waxy crude as well as ROCKY MOUNTAIN Canadian sour crude oils • Distributes to high-margin markets in Utah, Idaho, Nevada, Wyoming and eastern Washington HOLLY ENERGY PARTNERS Holly Energy Partners owns and operates substantially all of the refined product pipeline and terminalling assets that support our refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain Regions of the United States. • Approximately 3,400 miles of crude oil and petroleum product pipelines • 14 million barrels of refined product and crude oil storage • 8 terminals and 7 loading rack facilities • Refinery processing units in Woods Cross, Utah and El Dorado, Kansas Mid-Continent Crude and Product Mix Sales of Refinery Feedstocks Gasoline 50% Produced Products • Sweet crude oil 58% 261,200 BPD • • Diesel fuels 33% Sour crude oil 18% • Jet fuels 7% The Mid-Continent • Heavy sour Region comprises our • Other 3% crude oil 17% • El Dorado and Tulsa • Lubricants 5% refineries and has a • Other feedstocks • Asphalt 2% combined crude oil and blends 7% processing capacity of 260,000 BPSD. Southwest Sales of Refinery Produced Products Crude and Product Mix Feedstocks 108,280 BPD • Gasoline 54% Sweet crude oil 28% The Southwest Region • • Diesel fuels 40% consists of our Navajo • Sour crude oil 63% • Other 5% refinery and has a crude • Other feedstocks • Asphalt 1% oil processing capacity and blends 9% of 100,000 BPSD. In addition, we manufacture and market commodity and modified asphalt products throughout the Southwest Region. Rocky Mountain Sales of Refinery Produced Products Crude and Product Mix Feedstocks 65,940 BPD • Gasoline 60% Sweet crude oil 39% The Rocky Mountain • • Diesel fuels 33% Heavy sour Region comprises our • Other 4% crude oil 35% • Cheyenne and Woods • Asphalt 3% Cross refineries and has • Black wax a combined crude oil crude oil 18% processing capacity of • Other feedstocks 97,000 BPSD. and blends 8% • 75% joint-venture interest in the UNEV Pipeline – • 50% joint-venture interest in the Osage Pipeline – a 427-mile refined products pipeline system a 135-mile crude oil pipeline from Cushing, Oklahoma connecting Salt Lake area refiners to the to El Dorado, Kansas Las Vegas product market • 25% joint-venture interest in the SLC Pipeline L.L.C. – • 50% joint-venture interest in the Cheyenne Pipeline – a 95-mile crude oil pipeline system serving refineries a 87-mile crude oil pipeline from Fort Laramie, in the Salt Lake City area Wyoming to Cheyenne, Wyoming • 50% joint-venture interest in the Frontier Pipeline – a 289-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah Spokane PADD IV Fargo PADD II Boise Casper Minneapolis Sioux Falls Mountain Home Guernsey CHEYENNE SALT LAKE CITY Chicago PADD I Sidney Omaha Des Moines PADD V Denver Topeka Kansas City Cedar City EL DORADO St. Louis Las Vegas Springfield Bloomfield TULSA Rogers Moriarty Cushing Phoenix Oklahoma City Albuquerque Duncan Little Rock Roswell ARTESIA Wichita Falls El Paso Tucson Abilene PADD III Orla Midland Houston Proximity to Growing North American Crude Production All five HFC refineries are advantageously positioned near production growth. Spokane PADD IV Fargo PADD II Boise Casper Minneapolis Sioux Falls Mountain Home Guernsey CHEYENNE SALT LAKE CITY Chicago PADD I Sidney Omaha Des Moines PADD V Denver Topeka Kansas City Cedar City EL DORADO St. Louis Las Vegas PURE-PLAY STRONG FINANCIAL Springfield COMPETITIVE REFINER PERFORMANCE Bloomfield TULSA • Five refineries with • Track record of cash return Rogers 457,000 barrels per stream to shareholders Cushing Moriarty day refining capacity Phoenix Oklahoma City • Strong balance sheet Albuquerque Duncan Little Rock ATTRACTIVE NICHE HEP OWNERSHIP Roswell PRODUCT MARKETS ARTESIA • Stable cash flows from HEP Wichita Falls WITH ADVANTAGED through quarterly regular Tucson El Paso CRUDE SUPPLY Abilene and incentive distributions • Rocky Mountains, Southwest PADD III • HFC owns 37% of HEP Orla Midland and Mid-Continent/Plains including the 2% GP interest states • HFC received $105 million in Houston STRONG INVESTMENT cash distributions in 2016* TRACK RECORD * Q4 2015 through Q3 2016 • Future growth focused quarterly LP and GP distributions, on underwritten projects announced and paid in 2016 • Woods Cross, El Dorado and Tulsa Refineries purchased at industry lows on a per barrel basis HOLLYFRONTIER PIPELINES HEP crude pipelines HEP crude gathering HEP product pipeline HollyFrontier refineries HFC product markets Crude hub HEP terminals Dear Fellow Shareholders, 2016 was a transformational year for HollyFrontier. We continued to execute on our business improvement plan while significantly advancing our strategy to grow and diversify our business. We completed the Woods Cross Refinery expansion and asset dropdown to Holly Energy Partners, and announced the largest acquisition in company history with the addition of our Petro-Canada Lubricants business. Financial Results Reflect Challenging in Canada with 15,600 barrels per Diversification into Lubricants Operating Environment day of lubricant production capacity. We are working to further enhance In 2016, we achieved: PCLI brings HollyFrontier industry HollyFrontier’s scale, diversify the • Net income attributable to HFC leading product innovation and Company’s revenue stream and stockholders of $82 million (exclud- R&D capabilities, a global sales force expand underappreciated segments ing the non-cash lower of cost or and distribution network and a strong of our business. The PCLI acquisition, market “LOCM” adjustment and globally recognized brand portfolio. which was completed on February 1, asset and goodwill impairments); • Completion and dropdown 2017, is a key part of this strategy. • Gross refining margins of $8.38 of Woods Cross Refinery Units: Through the acquisition, we added per produced barrel; HollyFrontier completed the drop- significant scale to make lubricants down of the Woods Cross Refinery • Operating cash flow of a more important component of Units constructed as part of the $602 million; and HollyFrontier’s business profile. We Woods Cross expansion, including have been investing in our existing • $1.1 billion in cash and short-term the newly constructed crude, fluid lubricants capabilities in Tulsa since investments as of December 31, catalytic cracking and polymeriza- 2009, and we now anticipate that 2016, and approximately $991 mil- tion units, for cash consideration lubricants will account for more than lion in long-term debt (exclusive of approximately $275 million. 20% of HollyFrontier’s refining earnings of HEP debt). • Significant progress on our Business in a normal margin environment, with HollyFrontier has a strong balance Improvement Plan: We continued to an even larger percentage occurring sheet and excellent liquidity position. make investments in our infrastruc- when refining margins are low. We are confident that HollyFrontier ture to enhance the capabilities and Our Vision for 2020 remains well positioned to capitalize on efficiency of our refineries, which In 2016, we developed an aspirational potential future growth opportunities. have 457,000 barrels per day of vision to grow each of our businesses – refining capacity. During the year, refining, midstream and lubricants – by 2016 Highlights: Key Transactions our El Dorado Refinery operated 2020. Our vision takes into account the and Continued Execution of our at a record monthly crude rate challenging market environment and is Business Improvement Plan of 150,000 barrels per day, and based on growing scale and increasing In 2016, we completed or announced set an annual crude rate record of diversification. In our refining business, several key transactions and continued 142,500 barrels per day. We believe we believe that increasing scale provides to execute on our strategies to drive we have the opportunity to capture important competitive advantages improvements across our refineries. $565 million of EBITDA in today’s in terms of system integration, crude Highlights of the year include: margin environment. To date, we and feedstock supply and product have achieved approximately • Transformative acquisition of Petro- synergies, as well as in the acquisition $300 million of this opportunity Canada Lubricants Inc.: The Petro- of talent. In our midstream business, and expect to execute the remaining Canada Lubricants (PCLI) plant, Holly Energy Partners