HollyFrontier's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Feb.28.12 | About: HollyFrontier Corp. (HFC)

HollyFrontier Corp (NYSE:HFC)

Q4 2011 Earnings Call

February 28, 2012 11:00 a.m. ET

Executives

Neale Hickerson – VP, IR

Mike Jennings – CEO and President

Dave Lamp – EVP and COO

Doug Aron – EVP and CFO

Analysts

Chi Chow – Macquarie Capital

Jeff Dietert – Simmons and Company

Ed Westlake – Credit Suisse

Arjun Murti – Goldman Sachs

Sam Margolin – Global Hunter Securities

Evan Calio – Morgan Stanley

Faisal Khan – Citigroup

Blake Fernandez – Howard Weil, Inc.

Operator

Welcome to the HollyFrontier Corporation Fourth Quarter Earnings Call. My name is Kim and I’ll be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Neale Hickerson. Mr. Hickerson, you may begin.

Neale Hickerson

Thanks Kim, good morning. Today we are proud to present our fourth quarter and full year 2011 results. I’m Neale Hickerson, Vice President of Investor Relations at HollyFrontier. On our call today are Mike Jennings, our CEO and President; Dave Lamp, our Chief Operating Officer; and Doug Aron, our Executive Vice President and CFO. We also have other key members of our management team here with us today to assist in the Q&A portion of our webcast.

We issued a press release this morning which announced results for our fourth quarter and full year 2011. This press release can be found on our website at www.hollyfrontier.com.

For our call this morning Mike, Dave and Doug will have prepared remarks and details around our operating and financial performance for the fourth quarter. After these remarks we will be ready to take your questions.

Before we move to these prepared remarks, please note the Safe Harbor disclosure statement that’s in our press release today. Statements today and in our press release are made under the Private Securities Litigation Reform Act of 1995. In summary, the Safe Harbor statement says that statements made regarding management’s expectation, judgments or predictions are forward-looking statements and these statements are intended to be covered by the Safe Harbor provisions of federal securities laws. There are many factors that could affect our results and outcomes, we’ve noted many of these in our 10-K and other filings with the SEC.

Today’s statements are not guarantees of future outcomes. This morning’s webcast may also include presentation and discussion of non-GAAP financial measures that we use in analyzing our financial results, please refer to today’s press release and our financial filings for required reconciliations to GAAP financial measures and other related disclosures.

Lastly, please note that information presented on today’s call speaks only as of today February 28, 2012, and any time sensitive information provided may no longer be accurate at the time of any webcast replay, or rereading of the transcript of our call.

I would like to turn things over to Mike Jennings.

Mike Jennings

Great, thanks Neale. Good morning, thank you all for joining us on HollyFrontier’s fourth quarter earnings call. This is our first year-end report following our July 1st merger, and I’ll tell you that we are really pleased with progress today, both financial performance and progress combining our operations to generate earnings through synergy.

Today, we reported fourth quarter net income attributable to HFC shareholders of $223 million or $1.06 per diluted share, which compares favorably to the $14.7 million or $0.13 a share posted in the fourth quarter of 2010 by Holly Corporation standalone.

Full year 2011 net income was $1.02 billion or $6.42 per diluted share. Fourth quarter EPS was about 7.5 times the 2010 fourth quarter and the full year result represented a 550% increase over the full year of 2010. Our prior year comparable results exclude the Frontier oil earnings but are considered indicative given the stock consideration in our merger.

Our biggest single achievement in 2011 was the completion of the merger, but throughout the year we also generated very strong financial results including $1.84 billion of EBITDA for the 12 months which is approximately 3.5 times the comparable 2010 numbers which included Frontier oil. Fourth quarter EBITDA remain solid at $414 million and those seasonally lower than the third quarter EBITDA of $896 million that was about 300% above the 2010 fourth quarter EBITDA figure of a $104 million which did include legacy Frontier oil results.

During fourth quarter of 2011, inland versus coastal sweet crude differentials came in from the very wide levels we saw in the third quarter, but our gross margins remained attractive. Throughout the year our plants ran well and with high throughput rates to deliver earnings cash flow against the margin opportunities served up the market. As much as we expect consistent operating performance from the plants it only happens through the diligent and disciplined efforts of our people, so my hats off to them and to their 2011 operating achievement.

For the fourth quarter we observed an average Brent-TI differential of about $14, which is marginally higher than the $13 indicated by the forward market for the remainder of 2012.

Inland crude production growth remains bolstered by strong liquids prices, good geology, and capital diverted from competing base such as the U.S. Gulf of Mexico. Transportation infrastructure project such as Seaway reversal and Keystone XL will provide an outlook for some of this crude. However, we believe that our geographic markets for both crude and products have enduring advantages due to new logistical bottlenecks and long term transportation costs, and we remain optimistic about our refining margins in the Mid-Con, Rockies, and Southwest markets that we serve.

HollyFrontier’s cash balance stood at over $1.8 billion on December 31st and our debt balance was $689 million excluding non-recourse Holly Energy Partner’s indebtedness.

We view the balance sheet as a strategic asset that will provide us flexibility as we work to build the company’s value going forward. For 2011 we paid out total dividends of $252 million which represented a 6.4% cash yield on the January 1, 2011 HFC stock price of $20.63. Of these dividends, about $210 million or $1 a share were special dividends to the HFC shareholders.

In addition, our board authorized a $350 million share repurchase program on January 3, 2012 which replaced the $100 million program implemented in September of 2011. Looking forward, our cash allocation strategy is to grow our regular dividends, pay specials, repurchase our shares when the opportunity presents, and reinvest in our core refining business in projects where we have a significant competitive advantage.

An example of such reinvestment is our recently announced Woods Cross refinery expansion project. We plan to increase the capacity of that facility from 31,000 barrels a day to 45,000 barrels by late 2014. Approximately, 24,000 barrels per day of the future Woods Cross crude slate is expected to be locally produced black wax crude. We’ve entered the 10 year crude supply agreement with Newfield Exploration Company covering 20,000 barrels per day of waxy crudes.

This project provides a very good example of our growth based on advantage strategy for deploying capital, and we anticipate attractive financial returns from the project.

I’ll close with obvious conclusion that 2011 was a phenomenal year for our company; record earnings, a strategic merger, successful integration, large checks unto shareholders, and tangible growth projects under development. As much as it’s difficult descript an encore we feel we’re very well positioned for the future and we have high expectations for the company going forward.

With that, let me turn it over to Dave Lamp, our Chief Operating Officer for review of operations during the quarter.

David Lamp

Thanks Mike. Throughput for the fourth quarter was 406,000 barrels per day of crude and above 448,000 barrel per day of total charge. The crude slate was 14% disadvantaged crudes which I’ll remind everyone as mainly WCS, black wax, and crude similar to those, and 22% sour.

During the quarter, the light-heavy and sweet-sour spreads narrowed versus WTI. So in general, our crude slate moved more towards sweet crudes particularly in the mid continent and the southwest regions.

Total operating cost for the quarter was $246 million. Throughputs for the fourth quarter in the Rocky’s region were 70,000 barrels per day and 77,000 barrels per day of total charge. Disadvantage crudes were approximately 48% of the slate, operating cost were approximately $6.34 a barrel. Woods Cross rates were affected by an unscheduled crude unit downtime during the quarter.

Throughputs for the fourth quarter in the mid continent region were 263,000 barrels of crude and 283,000 barrels of total charge. Disadvantage crudes were approximately 15% of the slate and 7% was sour. Operating cost were $4.94 per barrel, those rates were affected by a scheduled outage of the gulf [ph] refinery unit and the related units during the quarter.

Throughput for the fourth quarter for the southwest region were 86,000 barrels per day of crude and 99,000 barrels per day of total charge. Disadvantage crudes were approximately 1% of the slate and 86% were sour. Operating cost were approximately $5.96 per barrel and retail sales of asphalt were 56,000 tons for the quarter. Navajo rates were affected by an unscheduled hydrogen plant outage during the quarter.

For the first quarter of 2012 we expect to run abound 408,000 barrels a day of crude with 21% of those slate be in disadvantaged heavy crudes and 22% being sour. The Navajo refinery has a scheduled turn around of its CCR reformer ISO [ph] and associated hydrotreaters which will reduce its crude rate during the first quarter. The other refinery has a scheduled outage of its alki [ph] unit and the Cheyenne refinery plants to regenerate its reformer. No other downtime is planned in the first quarter that will affect crude rates.

Navajo completed its project to replace its mild hydrocrackers charge heater during the fourth quarter and has increased its gas oil destruction capability as a result. Navajo’s project to reduce benzene and gasoline will also be completed during the first quarter CCR turn around which will reduce benzene credit purchases.

The Salt Lake to the Las Vegas pipeline UNEV is now fully operational and are going to allow us to supply Vegas and CEDAR city from the Rocky’s refineries which typically enjoy a cost advantage versus other product suppliers in the region. We believe this flexibility will improve our profitability as we move forward. The total cost of the UNEV pipeline is estimated of $410 million. As a reminder HollyFrontier is responsible for about 75% of that $410 million or $308 million of the total cost.

With that I’ll turn it over to Doug for some closing remarks.

Douglas Aron

Thanks Dave. For the fourth quarter cash flow provided by operations totaled $246.6 million included in our quarterly results with $8 million of merger related expenses, and for the year our merger related expenses totaled $46.9 million both a quarterly and annual cost around a pretax basis. We believe most, if not all of our merger related expenses, should be completed at this time.

For the fourth quarter, our capital expenditures totaled $84.9 million which excludes roughly $7.8 million of HEP’s capital spending. For the 12 months ended December 31st, our capital spending totaled $335.8 million which excludes with $39.3 million for HEP but includes $42 million of spending for Frontier Oil in the first half of 2011. Additionally, we spent $4 million and $32 million on refinery turnarounds for the quarter and 12 months respectively.

For 2012, we expect to spend approximately $350 million on capital projects and a $120 million on turnarounds. Dividend spending totaled $122.8 million for the fourth quarter of last year and $252 million for 2011. Our cash and marketable securities at year end totaled approximately $1.8 billion and our debt totaled $689 million for HollyFrontier exclusive of $526 million of HEP debt which is nonrecourse to HollyFrontier.

Lastly, I’d like to update you on our quarter to date crack spreads. First in the Rocky’s region, which is in the winter time typically the worst in terms of particularly gasoline margins, the gasoline crack spread averaged about a $1.50 negative for the month of January and a $1.50 positive month to date in February noting that as of yesterday the Rocky’s gasoline crack spread approved approximately $10 per barrel. The diesel crack spread averaged about $23.70 for January and $28.25 month to date for February.

Moving to our mid-continent region, the gasoline crack spread averaged $7 for the month of January and roughly a $14, $15 month to date in February. The diesel crack spread averaged about $25.25 for January and $28.50 per barrel month to-date in February. Also in the mid continent, particularly at the Tulsa plant we do make lubricants. Our lube’s crack spreads averaged about $75 per barrel in the month of January and about $85 per barrel month to date for February.

Lastly, our Southwest region, the gasoline crack spread averaged $15.50 for January and about $18 month-to-date in February and the diesel crack spread averaged $28.25 for January and $29.50 per barrel month-to-date in February and I will note that each of those is based on West Texas intermediate barrel and not on, as Dave pointed out, the advantage crude oils that we run which would add an additional discount to our profitability. With that Kim that concludes our formal remarks. We are ready to take questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] At this time we have a question from Chi Chow from Macquarie Capitals. Please go ahead.

Chi Chow - Macquarie Capital

Great, thank you. Doug, really quick, in the quarter was there unrealized hedging gain realized in fourth quarter?

Doug Aron

No. Chi, not of substance. The crack spread hedge that we entered into last year and talked to you about on our third quarter call, received hedge accounting treatment and as a result we will see those flow through likely as a reduction in cost of goods sold assuming they’ll stay in the money or increase in cost of goods sold should they go out of the money ratably through 2012.

Chi Chow - Macquarie Capital

Okay, got it. Then on the HEP call, you talked a little about the unit drop down, maybe looking at an alternative structure for the drop down, can you talk a little bit about that?

Mike Jennings

Sure. Chi, the pipeline is obviously recently completed. The Holly Frontier commitment in terms of throughput and tariff revenue may not support the entire cost of that line, and yet it doesn’t require the entire capacity of the line either. So there is potential for sort of two transactions, one that’s near term that addresses current volumes, and then looking forward thereafter HollyFrontier would retain in this construct a portion of line and sell it later when throughput increases presumably due to the refinery expansion and of 2014.

Chi Chow - Macquarie Capital

Does the commitment, like a first ride offered to HEP do that extend beyond the 180 days then in the second phase of the potential dropdown?

Dave Lamp

That would be restructured completely through this negotiation.

Chi Chow - Macquarie Capital

Okay, and Mike on a question, Holly is certainly one of the pioneers within refining to effectively monetize the [indiscernible] assets through an MOP [ph] than others have or are trying to do that. Now that the dropdowns are slowing down, do you feel like you have gotten efficient evaluation from the interest in HCP in HollyFrontier’s shares?

Mike Jennings

Well, we see the relationship is very strategic Chi, if that the question. The ability to retain the general partner interest and to be able to direct HEP activities we will still see is important. In addition the value of that continues to grow prospectively with the UNEV dropdown. As to the LP units that we own, we’ve seen probably $10 appreciation over the last two or three months. So that has proven to be a pretty good investment as well.

Through time the LP units are almost likely a financial investment as opposed to strategic but as long as the cash balance on our balance sheet remains high, those things are yielding between 5% and 6%, so still pretty attractive.

Chi Chow - Macquarie Capital

All right. Okay, thanks Mike. Thanks for the results.

Operator

Thank you. Our next question comes from Jeff Dietert from Simmons. Please go ahead.

Jeff Dietert – Simmons and Company

Good morning.

Dave Lamp

Hi Jeff.

Jeff Dietert - Simmons and Company

You highlighted the special dividends, three different specials $0.50 each on a Q4 [indiscernible] split adjusted basis and yet your capitals or your cash is continuing to build. Can you talk about what process you work through in determining the amount of the specials? How you are – I think it appears pretty stable despite changing margin environments?

Doug Aron

Sure. The specials and the regular represented more than 50% of fourth quarter earnings, substantially less as a percentage of third quarter earnings. I guess our goal here is to through the cycle create a higher yield refining investment vehicle where people have some visibility to cash flow that isn’t completely dependent on high margins. So, we would like to keep it a little steadier and a little bit longer just as a means of differentiating the stock, but also showing commitment to the longer term shareholder.

Jeff Dietert – Simmons and Company

Thank you. Could you update us on any hedging strategy or any incremental hedging that you may be considering?

Mike Jennings

Jeff, there hasn’t been any additional product hedges that we have entered into. We talked about obviously gasoline and diesel and the Mid-Continent. What I would tell you is that Western Canadian Select as an example is one that we saw trade as wide as $32, $33, may be even $35 off of WTI, it points in February, and so we’ve looked to some suppliers for some physical deals, we’ve also looked at some paper trades. I don’t have exact information to update you with, but likely we will at the end of our first quarter call. That’s something that we find attractive.

Another that we may have a look at would be natural gas, where we’ve seen that continually trade sort of in the $2.50 range, and out of the curve in the low $3 range, which is very attractive to guys like ourselves that use quite a bit of natural gas.

Jeff Dietert – Simmons and Company

Thanks for your comments guys.

Mike Jennings

Thanks Jeff.

Operator

Thank you. Our next question comes from Ed Westlake from Credit Suisse. Please go ahead.

Ed Westlake – Credit Suisse

Yeah, good morning guys. I guess you are just kicking off the first phase of Woods Cross, but there might be potentials to expand that further, maybe give us any comments on whether there is going to be more capital put into that refinery over the part we’ve already announced.

Mike Jennings

Well we are looking at some phase two that would involve really making some lubricants out of the waxy type crudes. We need really additional supply of black wax to cement that but we are looking at the various producers in the area to see if that’s feasible. If not, we will look at it as just with the black wax we have. But it appears to be a pretty attractive project in terms of making a group three type lubricant and additional diesel for that market which is short.

Ed Westlake – Credit Suisse

And the timing of when you might be able to get to that kind of a decision?

Unidentified Company Representative

We are still contemplating the project now. We would start engineering probably in the middle of this year, July, somewhere in there, and that’s a three year project to make that happen.

Ed Westlake – Credit Suisse

Yeah, thank you. Maybe a comment on some of the physical discounts. Obviously, we can see what’s on the screen, but Cheyenne is right in the Niobrara, obviously Navajo get some permean and there is always timing delays on capturing some of the wide WCS discounts. Maybe give us some color in terms of how the actual physical markets as opposed to just the benchmarks we get on Bloomberg trending.

Dave Lamp

Well, right now, as Mike mentioned, the rent WTI spreads are around $14, $15. WCS’s prompt barrels are about $23, $24 under, has been as high as $30. The WTI has gotten a little dislocated and WCS in the permean basin, because basin has been folded to do some maintenance on that pipeline. So the depths are pretty strong from that perspective. The North Dakota sweet has also been fairly wide lately too.

Of course they move around a lot, tend to balance quite a bit depending on liquidity on moving barrels out but that’s what we’re seeing right now.

Mike Jennings

Ed, I would add that, I’m not sure this was part of your question, but for modeling purposes Western Canadian Select lays in the Cheyenne typically sort of 20 to 25 days after it’s been purchased given its proximity to Guernsey, Wyoming, and Guernsey’s proximity to Hardisty, whereas for our mid-continent refineries particularly El Dorado which would be the larger of Western Canadian Select you’re going to see a roughly 60 day lag between what you see on the screen and when it actually lands into the refinery as a result to the transit time down to Cushing and then back up into our refinery.

Dave Lamp

And some of those pipelines have become prorated too, which is kind of strangling the supply of WCS.

Jeff Dietert – Simmons and Company

But you’ll still be able to run about 75,000?

Dave Lamp

Yes, today we are. Yes.

Jeff Dietert – Simmons and Company

Okay. And then a final question. Given all of the chatter particularly around the consolidation in and around Cushing, I mean would you see any sort of any FTC concerns if there was further consolidation particularly if Holly was involved?

Mike Jennings

Well, we’ve got 260,000 barrels of capacity which might be, I don’t know, 15% up to 20% depending on how you define it. Really the swing factor is what do you attribute to explore a pipeline. At full rates explorer is effectively 3 or 4 good size refineries, yet if it’s not flowing obviously the product isn’t there to compete. So, we have a hard time handicapping it for what we would say is – the consolidation most likely continues in our industry on the same path and for a lot of the same reasons that we’ve seen. It’s a very mature industry, people are consolidating these plants in order to extract benefits from doing so.

Jeff Dietert – Simmons and Company

Thank you.

Operator

Thank you. Arjun Murti from Goldman Sachs. Please go ahead.

Arjun Murti – Goldman Sachs

Thank you. Just a follow up on the return to shareholders question. Mike, I think in your answer just now you mentioned that you’re trying to give investors confidence that over a cycle Holly will have some amount of return of cash to shareholders. The dividends are called special which implies that the down cycle did go way. Are you kind of giving people confidence that in the up cycle you will give the free cash flow back or should we think that the current path is something you would like to maintain over a full cycle?

Mike Jennings

The concept of paying special dividends is something that we’d like to maintain over a full cycle whether its $0.50 or a $1.25 it’s really hard to predict. But if we were able with a $0.60, $0.35 a quarter regular dividend I mean sure we would be committed to it but the fact is people would discount it because there’re some likelihood we couldn’t sustain it through the downturn. So we’ve tended to have a dividend that we feel is safe for [indiscernible] and a special on top of that that we’d like to maintain as I described through the cycle.

Arjun Murti – Goldman Sachs

That’s helpful. On the stock buyback, I think you used the phrase when opportunity presents, do that imply it’s more likely to be bought on sell-offs or below some threshold evaluation you deemed to be too cheap, did I hear that correctly?

Mike Jennings

You did.

Arjun Murti – Goldman Sachs

Yes. Do you care to share those parameters that when you view your stock as too cheap?

Mike Jennings

No, and we never will. We’re sort of proud of our internal evaluations, and circumstances change. But I guess strategically we buy the stock because we consider it to be cheap not because we are defending or trying to make a statement about it. We feel like having capital to manage on behalf of shareholders require some amount of conservatism and we’re going to be careful with it.

Arjun Murti – Goldman Sachs

Got it. And then one somewhat operational question, on the 20,000 barrels a day of black wax you’re doing with new field or for any similar type deal, what obligation do they have to provide that kind of irrespective of the circumstances, if oil prices crash to some very low number they are made to feel the economic what would be their responsibility to still providing you the 20,000 barrels a day, if the geology of the field changed in some way that didn’t allow that level of production, how obligated are they to provide these to you?

Dave Lamp

Well in the contract, Arjun, we have what’s called a shortfall fee for any barrels that they cannot deliver. There is some economic considerations for a lower type crude price. But they are pretty much obligated the supply.

Arjun Murti – Goldman Sachs

Can we think about that fee as being comparable to the margin you would otherwise have received on those barrels?

Dave Lamp

It’s more around something to do with the capital investment than it is to do with anything else.

Arjun Murti – Goldman Sachs

Yeah, got it. Thank you very much.

Mike Jennings

Thanks Arjun.

Operator

Thank you. Our next question comes from Sam Margolin from Global Hunter Securities.

Sam Margolin – Global Hunter Securities

Good morning. Thanks for taking the question.

Mike Jennings

Hi Sam.

Sam Margolin – Global Hunter Securities

Back to the basin differential serve for a minute, not just that it’s hard to see, but clear brent too, it wasn’t just the differential that blew up, but it looked like price has got really low just kind of on an absolute basis. Were you able to do anything out of the ordinary with storage or anything in that regard?

Dave Lamp

Nothing in particular.

Sam Margolin – Global Hunter Securities

Okay.

Dave Lamp

It tend to be pretty ratable purchasers we don’t have a lot of additional storage assets or anything like that.

Sam Margolin – Global Hunter Securities

Okay, thank you. Just on the CapEx, aside from Woods Cross is there any other material specific project that you are in a position to talk about or is it really just for maintenance aside from Utah.

Dave Lamp

Well, we have about $85 million of that capital spend is sustaining capital related, on the gross side and reliability side we have both $73 million and then compliances of roughly a $100 million of that spent. So, you can see it’s heavily weighted more towards sustaining and compliance and safety.

Sam Margolin – Global Hunter Securities

Okay. My other questions have been answered. Thank you very much.

Dave Lamp

Thanks Sam.

Operator

Our next question comes from Evan Calio from Morgan Stanley.

Evan Calio – Morgan Stanley

Good morning guys. Great year and outlook.

Dave Lamp

Thank you.

Evan Calio – Morgan Stanley

A few follow-ups here. On the buy back question, can you share with us what you acquired since authorization in January, an average price, or do we have to wait till the 10-Q?

Mike Jennings

I think because we’ve still got a program that’s in place and we are in the market that we rather share that information with you when we file the March Q if that’s okay.

Evan Calio – Morgan Stanley

Understood. Follow-up to on option to purchase UNEV and you discussed different structures, I mean do you still expect that ramp in 2Q and any thoughts on comments whether you take cash or preferred shares in consideration on that drop?

Dave Lamp

I still expect that we can get something done in 2Q, but you have to recognize that there are two different boards and conflicts committees that have to see the transaction in a similar light in order to get that done, but we still believe in the strategy that HEP is the logical owner of our logistic assets and that relationship has proven to be very productive through time. So, I'm optimistic about it. I think we can get it done. I don’t think that it will likely expand the entire interest in the pipeline.

As to consideration, it’s a very high base asset because it’s new and therefore lends itself very well to a cash transaction without a tax hit. So, we are sort of viewing it in that manner.

Evan Calio – Morgan Stanley

Good, good. And then you mentioned in your hedge discussion, it has potential in natural gas, I mean can you quantify the loaded gas exposure, hydrogen empower, what do you think of locking it in here and obviously a very suitably warm winter and it’s reasonable input into a refinery?

Dave Lamp

Well, sensitivity of natural gas to our earnings is about 15 million per dollar of change, and we look at the market all the time and it is contango, so we are pretty selective when we might pick to purchase and we really haven’t done much yet. The market hasn’t necessarily hit the bottom yet.

Evan Calio – Morgan Stanley

Right. You primarily view that as a futures market hedge versus any kind of physical type of hedge, is that fair?

Dave Lamp

Well, we are really short, so we look at it both ways, but the fact is there are going to be credit considerations in either of those two trades in getting volume done. And further you have got the contango, and it’s very hard to step into five year strip where it’s going to be buck and a half or whatever over the current spot particularly when we see the associated gas production coming along with all liquids drilling. So, it’s tough to jump in right now despite the fact that the stock price is very low. It also have basis risk too that you have to be careful of.

Evan Calio – Morgan Stanley

If WCS were to stay wide versus where it’s been historically or versus against your option in the TI [ph] priced crude, you mentioned some physical restraints in getting crude into El Dorado or Cheyenne, what should we think about? Should we think of the historical theoretic maxim in terms of how much WCS you could run versus what’s your run in say 4Q?

Dave Lamp

Because of delivery constraints into the Mid-Con, I think we have a total of 50 to upside maybe 60 of pipeline capacity for both balken [ph] Clearbrook and WCS. So we are obviously optimizing between those two. In addition, down the express line coming to the Cheyenne plant, probably another 30,000 a day of appetite, but again that’s competing against balken guarantee. So expectation with the current differential structure both those crudes that I mentioned are transportation limited, and then they are very much competing against each other. So, I’d expect maybe of the 75 or 80 potential to may be half of that would be 50 of WCS, in the high side, and we are working with forwards, we are putting some hedges in for 2012 and 2013 in the low to mid 20s to secure some of that, we think that those differentials are pretty attractive.

Evan Calio – Morgan Stanley

Just lastly, there was a question on kind of FTC really into consolidation. But, with regard to, there is two refineries in Kansas, you own one, do you think there is any FTC limitation with regard to Coffeyville potentially in your portfolio? I'm not sure whether the FTC defines that market area. I’ll leave it at that.

Dave Lamp

Yeah. It’s something that we wouldn’t comment on and don’t really have a lot of particular insight into. So, we will have to leave that to more of the speculators.

Evan Calio – Morgan Stanley

Appreciate it guys. Thank you.

Dave Lamp

Thank you.

Operator

Thank you. Our next question comes from Faisal Khan from Citigroup. Please go ahead.

Faisal Khan – Citigroup

Thanks. Good morning. I think I missed this data that you gave on your prepared remarks. But, how much WCS crude do you run in the fourth quarter?

Dave Lamp

In the fourth quarter?

Faisal Khan – Citigroup

Yes.

Dave Lamp

We ran roughly 22% of heavy which is probably about – all of that is WCS except for the black wax portion we run, which is typically 10,000 barrels a day, 9 to 10.

Faisal Khan – Citigroup

Okay.

Dave Lamp

I would say around 70,000 barrels a day, yeah.

Faisal Khan – Citigroup

Okay, got it, understood. Then on the expansion of Woods Cross, can you highlight, you talked a little bit about the potential product yield of the expansion. Could you go over that one more time in terms of what you guys would expect out of the expansion?

Dave Lamp

Well, the one we have announced is cat cracker based, so the yield will be kind of typical cat cracker configuration yield, 60-40 roughly diesel-gasoline on the increment. The phase II side that we are looking at is more geared towards diesel and lubes. So, very little additional gasoline mostly distillate and lubes.

Faisal Khan – Citigroup

Okay, I got it, understood. On the UNEV pipeline, you said you were running about – was it 23,000 barrels a day through that pipeline and the ones that pass through the line I think.

Dave Lamp

The overall capacity of the line is 60,000 barrels per day in rough terms. Our commitment which was volume based now revenue based, but it translates into about 15,000 barrels per day of HollyFrontier commitment. So, if we start with 60,000 of capacity we own 75% of that. So 45% equity ownership, 45,000 of equity ownership in barrels per day. Our commitment is to ship about 15,000 barrels per day currently. NOI, still very much in start up, but given the attractiveness of Las Vegas and Southern Utah margins versus Salt Lake City it’s gearing up very nicely.

Faisal Khan – Citigroup

Okay. So you expect to get to your full equity commitment either this quarter or next quarter?

Dave Lamp

We would expect to get to our committed volumes, yes. We don’t have the production in Woods Cross to fill our full equity position in the line.

Faisal Khan – Citigroup

Fair enough. Okay, got you. Okay, thanks a lot. I appreciate the time.

Operator

Thank you. Our next question comes from Blake Fernandez from Howard Weil.

Blake Fernandez – Howard Weil, Inc.

Good morning guys. Lot of questions on the feedstocks. I guess a bit of a macro oriented one for you on the product side. Just with some of the dynamics at work, Motiva starting up on the Gulf Coast and the typical product flow from the gulf to up into the Mid-Con and then the east coast closures. I'm just curious if you have any thoughts on how that could impact opportunity for the Mid-Con refining space?

Dave Lamp

Mid-Con refining space. The Mid-Con has a tremendous crude advantage currently and that we think we will have at least a fraction of that going forward if nothing else because of transportation costs. The product demand in the Mid-Con has been hit this winter and then it has declined versus prior year between mid single digits and low double digits depending on what source you look at. So I think the likelihood of strong competition from the coastal refineries into the Mid-Con pretty remote, I believe they have more productive places to put their barrels particularly the U.S. East Coast on account of tab one closures and Caribbean closures. You know, you never say never. But I think the Mid-Con plans will most likely run full and the incremental production from the Gulf coast will go the East Coast.

Blake Fernandez – Howard Weil, Inc.

Mike, do you see any opportunity for the Mid-Con to fill any of that East Coast forward, or is that all going to come from the Gulf coast in your view.

Mike Jennings

Yeah. The current transportation network or system doesn’t really accommodate that. But that’s the margin and that’s where our industry works as you know. Mid-Con barrels likely flow towards the central mid west and Gulf coast barrels flow further east.

Blake Fernandez – Howard Weil, Inc.

The other one, and I'm not sure if this is the right forum, but Doug provided the kind of quarter-to-date gasoline and diesel price for each region. Is there anyway we can get the numbers for fourth quarter? If you prefer to do it after the call it’s fine or if you don’t mind giving them now, it’s great.

Mike Jennings

We will follow-up with you, we don’t have it immediately on our fingertips, but we obviously have the numbers so give us a few minutes.

Blake Fernandez – Howard Weil, Inc.

That’ll be great. Thank you so much.

Operator

Thank you. At this time I’ll turn the conference back to Mr. Hickerson.

Neale Hickerson

I want to thank everybody for listening today and we look forward to sharing our first quarter results with you in probably early May. Thanks a lot everyone.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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