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, 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
Tue, Aug. 2, 5:30 PM
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Mon, Jul. 25, 12:56 PM
- Some U.S. refiners, stuck with the highest inventories of gasoline for this time of year in a quarter of a century, have started blending winter grade gasoline a month earlier than usual to sell later in the year, Reuters reports.
- Looking to cut costs, refiners and blenders reportedly are making an early move to mix cheap butane - a cheaper blending component than most other ingredients - to convert the summer barrels into winter barrels.
- Mixing more winter gasoline now threatens to worsen the glut later, but that's a risk willingly taken by an industry left with few other choices, the report says.
- Independent U.S. refiners are expected to post another quarter of weak earnings en route to possibly the worst year since the shale boom began in 2011.
- Refiners are broadly lower today as crude oil prices drop: PSX -1.6%, VLO -0.7%, MPC -2.3%, TSO -1.6%, HFC -0.7%, WNR -0.3%, PBF -1.5%, DK -0.6%, ALJ -1.7%.
Wed, Jun. 29, 3:58 PM
- Tesoro (TSO +1.9%) is upgraded to Buy from Neutral with a $100 price target, lifted from $96, at Goldman Sachs, citing a more constructive outlook for the California refining market, underappreciated value in non-refining assets, and limited risk from higher RINs and a lower Brent-WTI spread.
- Goldman thinks the California refining market will remain well-balanced, despite Torrance returning to service, driven by growing regional demand and the currently low inventories, and that investors have not been giving TSO fair value for its non-refining businesses.
- At the same time, the firm downgrades PBF Energy (PBF +1.2%) to Neutral from Buy with a $26 price target, cut from $37, expecting the company to be “disproportionately negatively impacted” by expectations of higher RINs prices.
- Along with TSO, Goldman rates Valero (VLO +0.1%) and Marathon Petroleum (MPC +4%) as Buys among refiners, while maintaining Sell ratings on Phillips 66 (PSX +1.2%), HollyFrontier (HFC +0.1%), CVR Energy (CVI -0.4%) and CVR Refining (CVRR -1%).
Wed, Jun. 8, 6:39 PM
- Gasoline profit margins have fallen to their narrowest seasonal levels since 2010, dropping by $5/bbl in slightly more than two weeks, as high imports have kept U.S. inventories elevated even as gasoline demand rises.
- The decline was not stemmed by yesterday’s EIA projection that summer gasoline demand will rise to a record 9.5M bbl/day, as gasoline imports into the U.S. east coast, which primarily come from refineries in eastern Canada and Europe, have kept U.S. inventories at the highest levels in at least 20 years.
- "We’re seeing the economics change to the point that many refiners along the coast are looking at maximizing jet fuel and diesel at the expense of gasoline," analyst Andy Lipow tells Bloomberg.
- The falling margins are hurting refiners, with Bloomberg's North America Refining & Marketing index down 28% Y/Y; in today's trade, WNR -3.1%, HFC -2.7%, CVRR -2.2%, VLO -2.2%, TSO -2%, NTI -0.8%, ALJ -0.8%.
Thu, May 26, 6:36 PM
- Oil refiners such as Marathon Petroleum (NYSE:MPC), Delek US Holdings (NYSE:DK) and HollyFrontier (NYSE:HFC) are better positioned than the market suggests, Deutsche Bank analysts say.
- The firm thinks current refiner share price levels offer an attractive entry point or to add to positions for longer-term investors, with MPC, DK and HFC screening best with respective 19%, 13% and 8% upside; while from a free cash flow standpoint, only Valero Energy (NYSE:VLO), MPC and HFC find themselves in positive territory, offering respective 6.3%, 5% and 1%.
- For shorter-term investors, the firm sees PBF Energy (NYSE:PBF), HFC and DK with the highest downside risk, while MPC is a relative winner in both cases.
- Contrary to popular belief that higher crude prices are all else being equal a negative for refiners, Deutsche Bank believes a slow grind higher to $60-$65/bbl could be a sweet spot for refiners since the structural advantage of U.S. refiners vs. international refining is more pronounced.
Wed, May 11, 4:50 PM
Wed, May 4, 3:43 PM
- HollyFrontier (HFC -9.2%) sinks nearly 10% after posting a solid Q1 earnings beat, but Wells Fargo points out that the company, like its peers so far in Q1, came in with weaker than expected refining margins despite higher than expected throughputs.
- Wells says Q1 consolidated refinery production of 416K boe/day topped its forecast for 405K boe/day but declined vs. 421K boe/day in Q4 2015 and 431K a year ago, while refining margin of $7.58/boe was lower than the firm's forecast of $8.92/boe and lower than $9.92/boe in Q4 and $16.69/boe a year ago.
- HFC says Q1 earnings reflect seasonally weak industry refining margins, which were 40% below year-ago levels, but gasoline margins continue to strengthen - up 40%-70% Y/Y - and the company expect gasoline margins to strengthen further thanks to strong data in vehicle miles traveled.
- Now read Holly Frontier: Deutsche sees 66% upside
Wed, May 4, 6:32 AM
Tue, May 3, 5:30 PM
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Fri, Apr. 8, 2:58 AM
- After hosting HollyFrontier's (NYSE:HFC) new CEO George Damiris for two days, Deutsche remains uber-bullish.
- "While the narrowing of the Brent-WTI spread and relative attractiveness of medium/heavy sour differentials has driven an understandable market preference for complex, Gulf Coast refiners, we expect that the market is likely under appreciating some of the underlying geographic advantage of HFC’s portfolio.
- "With a three-legged investment case driven by advantaged crude, peer-leading gasoline yield and the tailwind of an underappreciated business improvement program (+$265m of incremental EBITDA in 2016), we remain constructive HFC."
- Firm rates HFC a Buy with $57 price target (implied upside 66%) based on a sum-of-parts valuation.