HollyFrontier: Rising Regulatory Costs Diminish An Otherwise Compelling Long Thesis
Tristan R. Brown • 23 Comments
Tristan R. Brown • 23 Comments
HollyFrontier's Best Days Might Be Over But It Still Merits A Look
Tristan R. Brown
Tristan R. Brown
Mon, Dec. 5, 3:48 PM
- HollyFrontier (HFC +6.3%) pops more than 6% higher after Credit Suisse upgrades shares to Outperform from Neutral with a $38 price target, raised from $29, seeing reasons to believe 2017 will be much brighter for the company after falling 22% YTD.
- Credit Suisse cites the possibility that the obligation to buy Renewable Identification Numbers may shift away from refiners, and that a lower corporate tax rate would help HFC more than its peers.
- With a solid balance sheet and organic cash flow, HFC's 5% yield is well supported, and total shareholder return, including capital appreciation, should be healthy as EBITDA recovers, the firm says.
Wed, Nov. 23, 7:47 PM
- The EPA today issued final regulations requiring that the amount of ethanol and other biofuels that must be blended into the U.S. fuel supply must increase by 6% next year.
- Since the result is a significant gain over the 4% the EPA recommended in an earlier draft proposal, it is a victory for ethanol makers and a defeat for oil companies that say using more biofuels in gasoline and diesel is costly and unachievable.
- The EPA set the 2017 target for total renewable fuel use at 19.28B gallons, higher than the initial proposal for 18.8B gallons as well as this year's 18.1B gallon requirement; the new mandate includes 15B gallons for conventional biofuel, which is mostly corn-based ethanol, vs. 14.5B gallons last year.
- Tesoro (NYSE:TSO) exec Stephen Brown says the plan is "unworkable" as it forces the use of biofuels beyond the blend wall and that it highlights the need for a legislative overhaul of the program.
- Shares in oil refiners mostly fell in today's trade: TSO -1.4%, VLO -0.8%, HFC -1.8%, MPC -0.3%, WNR -2.2%, PBF -3.5%, PSX +0.2%.
- Shares of biofuels producers rose: GEVO +8.5%, PEIX +7.1%, GPRE +2.1%, REGI +2%, REX +0.8%.
Thu, Nov. 10, 5:48 PM
- The EPA says it will deny several petitions from oil groups to change the U.S. biofuels program, although it will open a 60-day public comment period.
- Valero Energy (NYSE:VLO), HollyFrontier (NYSE:HFC), Monroe Energy and the American Fuel and Petrochemical Manufacturers have petitioned the EPA to consider changing the rule to reduce the onus on refiners that have little capacity to blend biofuels at their operations.
- The change the refiners are requesting "would not address the challenges associated" with boosting availability of advanced fuels and getting more ethanol into the fuel system, the EPA says.
- Tesoro (NYSE:TSO) and Marathon Petroleum (NYSE:MPC), which have invested in biofuels blending capacity, say they support the EPA's move toward denying the change.
Wed, Nov. 9, 4:45 PM
Wed, Nov. 9, 12:44 PM
- U.S. independent refiners are rallying as investors bet that a Trump administration will ease costly renewable fuel regulations.
- During the campaign, Trump unveiled an energy policy calling for the elimination of many regulations, including the system of buying and selling RINs, although Trump also has said he supports ethanol.
- RINs tracking ethanol use for 2016 have more than doubled in the past year, and RINs tracking biodiesel have jumped 59% Y/Y, according to Bloomberg data.
- In today's trade: CVI +22.5%, CVRR +15.4%, PBF +12.2%, HFC +11.7%, DK +6.1%, VLO +4.8%, WNR +4.4%, TSO +2.9%, MPC +2.8%, PSX +1.9%.
Thu, Nov. 3, 9:58 AM
- HollyFrontier (HFC -1.1%) turns lower despite beating Wall Street expectations for Q3 earnings and revenues, as lower costs helped soften a steep decline in refining margins.
- HFC's Q3 refining margin was cut in half to $9.83/bbl from $19.85/bbl a year ago, following other refiners that have reported shrinking margins due to the spike in U.S. inventories of refined products.
- Q3 revenues fell 20.6% Y/Y to $2.85B, but total operating costs and expenses fell nearly 17% to $2.72B.
- HFC says it refined ~457K bbl/day in the quarter, vs. ~474K bbl/day in the year-ago quarter.
- HFC says it expects 2017 capital and turnaround spending of $400M-$450M, depending on the 2017 margin environment.
Thu, Nov. 3, 6:42 AM
Wed, Nov. 2, 5:30 PM
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Mon, Oct. 31, 7:22 AM
- HollyFrontier (NYSE:HFC) agrees to acquire Suncor Energy's (NYSE:SU) Petro-Canada lubricants unit for C$1.125B ($845M), confirming earlier speculation.
- HFC says the deal will immediately add to its EPS and cash flow, and make it the fourth largest lubricants producer in North America, with a capacity of 28K bbl/day, or ~10% of North American production.
- The Petro-Canada Lubricants plant, located in Mississauga, Ontario, is the largest producer of base oils in Canada with 15.6K bbl/day of lubricant production capacity.
Fri, Oct. 21, 6:26 PM
- HollyFrontier (NYSE:HFC) rose 4.7% in today's trade following a Reuters report that it is in advanced talks to acquire Suncor Energy's (NYSE:SU) Petro-Canada lubricants division for a little over $1B, after submitting the highest bid in an auction.
- A potential deal would allow HFC to diversify its refining business, which has been hurt by the gasoline glut that has eroded profit margins, while giving SU a cash boost to help pay down debt incurred as a result of recent acquisitions, according to the report.
- Petro-Canada produces more than 350 advanced lubricants for industries ranging from beauty to heavy manufacturing, and is the world's largest manufacturer of white mineral oil.
Mon, Sep. 19, 10:36 AM
- Holly Energy Partners (HEP +2.1%) agrees to acquire certain Woods Cross Refinery units constructed as part of the Woods Cross expansion from HollyFrontier (HFC +1.2%) for ~$275M.
- The companies say they will enter into 15-year tolling agreements for each respective unit containing minimum quarterly throughput commitments from HFC.
- HEP expects the deal to be immediately accretive to unitholders and contribute towards the achievement of its 8% distribution growth target.
Tue, Aug. 16, 4:42 AM
- Billionaire investor Carl Icahn has called on the EPA to make changes to the market for renewable fuel credits or else risk "the mother of all short squeezes" that could bankrupt refiners.
- "The RIN market is the quintessential example of a 'rigged' market where large gas station chains, big oil companies and large speculators are assured to make windfall profits at the expense of small and midsized independent refineries which have been designated the 'obligated parties' to deliver RINs."
- Related tickers: VLO, NTI, CLMT, MPC, TSO, ALDW, CVI, WNR, PBF, DK, HFC, CVRR, NTI, ALJ, TSO, WNR, PSX, XOM, PBF
Thu, Aug. 11, 6:57 PM
- Major U.S. refiners are on track to pay record amounts this year for credits to comply with U.S. renewable fuel rules, a trend that is bound to continue to hurt profits for the group, Reuters reports.
- A group of 10 refinery owners including Marathon Petroleum (NYSE:MPC) and Valero Energy (NYSE:VLO) spent at least $1.1B buying RINs, according to a Reuters review of their filings, placing them on track to surpass the annual record of $1.3B spent by the same group in 2013.
- RINs averaged ~$0.78 each during Q2, ~25% above the same period a year ago, according to the analysis, due to more ambitious targets from U.S. regulators on the volumes of ethanol required to be blended with gasoline.
- Other relevant tickers include PBF, CVRR, HFC, TSO, PSX, WNR, DK.
Fri, Aug. 5, 12:25 PM
- The American Fuel and Petrochemical Manufacturers trade group is petitioning the EPA to change the way the agency enforces the U.S. biofuel mandate, shifting the responsibility of program compliance with distributors who blend gasoline with ethanol for delivery to filling stations, not with refiners who make the fuels.
- The AFPM and other oil and gas groups have long been opposed to the Renewable Fuel Standard, which sets the amounts of biofuels such as ethanol that must be blended into U.S. gasoline and diesel supplies annually, arguing the mandates are costly for refiners and do not reflect actual gasoline demand, which has not risen as fast as lawmakers originally envisioned.
- Renewable fuel credits have surged 32% in the past two months, even as crude oil prices have dropped; this year, U.S. refiners will pay $1.8B for the RIN credits, adding to the pain of the lowest summer profit margins in five years.
- Relevant tickers include VLO, PBF, CVRR, HFC, REGI, PEIX, REX, GPRE
Wed, Aug. 3, 6:35 AM
Wed, Aug. 3, 6:32 AM