2020
ANNUAL
REPORT
REFINING
MID-CONTINENT
EL DORADO REFINERY
• Located in El Dorado, Kansas
• 135,000 BPD capacity
• Processes sweet and sour domestic 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 BPD capacity
• Processes predominantly sweet crude
oil with up to 10,000 BPD of sour
Canadian crude oil
• Distributes to the Mid-Continent states
MID - CONTINENT SALES OF REFINERY
PRODUCED PRODUCTS 248,320 BPD
The Mid-Continent Region comprises our
El Dorado and Tulsa refineries and has a
combined crude oil processing capacity
of 260,000 BPD.
6
58+
52+
Crude and Feedstocks
Sweet crude oil 58%
Sour crude oil 19%
Heavy sour crude oil 17%
Other feedstocks and blends 6%
Product Mix
Gasoline 52%
Diesel fuels 34%
Jet fuels 4%
Base oils 4%
Other 3%
Asphalt 3%
WEST
NAVAJO REFINERY
• Located in Artesia, New Mexico, and
operates in conjunction with a refining facility
65 miles east in Lovington, New Mexico
• 100,000 BPD capacity
• Processes sour crude oil into high-value
light products
• Distributes to high-margin markets in
Arizona, New Mexico and West Texas
WOODS CROSS REFINERY
• Located in Woods Cross, Utah
(near Salt Lake City)
• 45,000 BPD capacity
• Processes regional sweet and
advantaged waxy crude
• Distributes to high-margin markets in
Utah, Idaho, Nevada, Wyoming and
eastern Washington
WEST SALES OF REFINERY PRODUCED
PRODUCTS 143,350 BPD
The West Region comprises our Navajo and
Woods Cross refineries and has a crude oil
processing capacity of 145,000 BPD.
In addition, we manufacture and market
commodity and modified asphalt products
throughout the Southwest states.
30+
56+
4
Crude and Feedstocks
Sweet crude oil 30%
Sour crude oil 49%
Black wax crude oil 11%
Other feedstocks and blends 10%
Product Mix
Gasoline 56%
Diesel fuels 35%
Other 5%
Asphalt 4%
19
+
17
+
34
+
4
+
4
+
3
+
3
49
+
11
+
10
35
+
5
+
MIDSTREAM
LUBRICANTS
HOLLY ENERGY
PARTNERS, L.P.
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 geographic regions
of the United States.
APPROXIMATELY 3,400 MILES
of Crude Oil and Petroleum
Product Pipelines
APPROXIMATELY 15 MILLION
Barrels of Refined Product and Crude
Oil Storage
9 TERMINALS AND 7 LOADING
RACK FACILITIES
REFINERY PROCESSING UNITS
in Woods Cross, Utah and
El Dorado, Kansas
75% JOINT-VENTURE INTEREST
in the UNEV Pipeline – A 427-mile
refined products pipeline system
connecting Salt Lake area refiners to
the Las Vegas product market
50% INTEREST
in the Cheyenne Pipeline – An 87-mile
crude oil pipeline from Fort Laramie,
Wyoming to Cheyenne, Wyoming
50% INTEREST
in the Osage Pipeline – A 135-mile
crude oil pipeline from Cushing,
Oklahoma to El Dorado, Kansas
50% INTEREST
in Cushing Connect – A joint venture
formed for (i) the development,
construction, ownership and operation
of a new 160,000 barrel per day
common carrier crude oil pipeline that
will connect the Cushing, Oklahoma
crude oil hub to our Tulsa Refineries
and (ii) the ownership and operation
of 1.5 million barrels of crude oil
storage in Cushing, Oklahoma
HOLLYFRONTIER LUBRICANTS
AND SPECIALTY PRODUCTS
HollyFrontier Lubricants & Specialty Products
(HFLSP) produces base oils and other specialized
lubricants in the United States, Canada and the
Netherlands, exporting products to more than
80 countries worldwide. In addition to specialty
lubricant products produced at our Tulsa Refinery,
HFLSP includes operations in Mississauga, Ontario,
Petrolia, Pennsylvania, Council Bluffs, Iowa and
the Netherlands. Products are marketed under the
Petro-Canada Lubricants, Sonneborn, Red Giant
Oil and HollyFrontier Specialty Products brands.
The Mississauga facility produces automotive,
industrial and food grade lubricants, greases, base
oils, process oils and specialty fluids. It is one of
the largest manufacturers of high margin Group
III base oils in North America. These products are
marketed worldwide to a diverse customer base,
in virtually every industry, through a global sales
force and distributor network.
Facilities in Petrolia and the Netherlands produce
specialty hydrocarbon chemicals such as white
oils, petrolatums and waxes for the personal care,
cosmetic, pharmaceutical and food processing
industries. Combined with Mississauga, we are one
of the world’s largest producers of pharmaceutical
white oils.
The Council Bluffs facility produces both single
and multi-grade oils and offers a range of value-
added services and solutions for customers in the
railroad industry.
The Tulsa Refinery produces base oils, specialty
process oils, horticultural oils, asphalt modifiers
and wax. Products are marketed worldwide
through strategically located terminals in the
United States, as well as our comprehensive
distributor network in North America.
5TH-LARGEST
Base Oils Producer in North America
35,000 BPD
Lubricants And Specialty Product
Production Capacity
9%
of North American Base Oil Production
Spokane
PADD 4
PADD 5
Boise
Fargo
Mountain Home
Casper
Guernsey
Sioux Falls
R
N TIE
O
/ F R
S L C
Minneapolis
PADD 2
SALT LAKE CITY
U N E V PIP E LIN E
Cedar City
Las Vegas
CHEYENNE
Sidney
Omaha
Des Moines
Council Bluffs
Chicago
Denver
Topeka
Kansas City
St Louis
Bloomfield
EL DORADO
Springfield
Mississauga
PADD 1
Petrolia
Phoenix
Albuquerque
Tucson
ARTESIA
El Paso
Moriarty
Osage
Cushing
Catoosa
TULSA
Rogers
Oklahoma City
Duncan
Little Rock
R
E
N
N
U
R
D
A
O
R
Wichita
Falls
Abilene
HQ
Midland
Midland
Orla
Orla
Big Spring
Joshua
PADD 3
SONNEBORN
NETHERLANDS
UK
Amsterdam
BELGIUM GERMANY
HFC
REFINERIES
RENEWABLE DIESEL FACILITY
Expected 1Q22
HFC REFINERY +
LUBE PRODUCTION
HFLS
LUBRICANTS FACILITY
HEP TERMINAL/
HFC PRODUCT MARKETS
HFC PRODUCT
MARKETS
HEP PRODUCT
PIPELINES
HEP CRUDE
PIPELINES
CUSHING CONNECT PIPELINE
Expected 2Q21
CRUDE
HUB
CRUDE
GATHERING
CENTURION SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS
2020 was an
unprecedented year
for HollyFrontier. In the
face of extraordinary
challenges, even as the
COVID-19 pandemic and
reduced global economic
activity affected our
businesses and our
daily lives, HollyFrontier
persevered and took
important steps to strengthen our
business and extend our long record of
value creation.
We controlled what we could, focusing
on the fundamentals of our business,
maintaining a disciplined approach to
capital allocation and continuing our
efforts to further enhance reliability,
safety and efficiency. We made key
investments in renewable initiatives
that will enable HollyFrontier to
capture new opportunities as our
industry evolves. We ended the year
with a strong balance sheet, healthy
liquidity and high-quality assets
that position us to capitalize on our
competitive advantages. Looking
ahead to 2021 and beyond, I believe
that HollyFrontier is well-positioned
for long-term success as our core
businesses rebound and we continue
our expansion into renewables.
MEETING THE
CHALLENGES OF 2020
Beyond the progress we are making
with our business, I’m incredibly
proud of how our team met the key
challenges that defined 2020.
In response to the COVID-19 pandemic,
we took a number of actions to protect
the health and safety of our employees
while continuing safe and responsible
operations. In addition to operating
our facilities safely throughout the
year, members of the HollyFrontier
team stepped up to support first
responders and healthcare workers by
producing and donating hand sanitizer
and 3D face shields. HollyFrontier
employees also contributed their time
and donated to many organizations,
helping our neighbors hit hardest by
the pandemic. I could not be more
proud of this team as we continue to
support these efforts today.
The impact of the COVID-19 pandemic
on the global macro economy created
unprecedented demand destruction
for many of the transportation fuels,
lubricants and specialty products
we provide, as well as the associated
transportation and terminal services
we offer. As a result, volumes and
unit margins across our businesses
declined in 2020, resulting in lower
gross margins and earnings. We saw
an improvement in demand for our
essential products in the second half of
2020 and believe demand will recover
to normalized levels in 2021.
With respect to the calls for social
justice, like many companies,
HollyFrontier recognized the need
to look internally and assess whether
we as a company are providing the
leadership and real opportunities
that are expected of a company like
HollyFrontier. We have prioritized our
diversity efforts in terms of recruiting
and hiring, and have also recently
added new diverse members to our
Board of Directors. HollyFrontier is
proud of its increased diversity, from
our boardroom to the field, and we are
dedicated to continuous improvement
on this front.
OPERATIONS
Despite the market environment, we
took concrete actions to reinforce
HollyFrontier’s already strong
foundation across our Refining,
Midstream, and Lubricants and
Specialty Products business segments.
Some highlights include:
Refining: This segment performed well
in safety and successfully managed
large swings in throughput as customer
demand was affected by the COVID-19
pandemic.
Looking ahead, we are prepared to
meet demand as it rebounds and
recapture incremental increases in
margins. To achieve this, we will rely
on the hallmarks of this business: the
proximity of our four refineries to
crude oil production basins with
inland coastal crude discounts and
the ability to process various crudes
and produce a high percentage of
gasoline, diesel fuel and other high
value refined products.
Midstream: HollyFrontier continues
to benefit from Holly Energy Partners,
L.P.’s (HEP) strong and stable cash
flow stream. HEP’s system of crude
pipelines, storage tanks, distribution
terminal and loading rack facilities
are positioned near HollyFrontier’s
refining assets in high growth
markets. In 2020, HEP achieved
strong volume performance, driven
by its oil pipeline systems in Wyoming
and Utah, as well as its UNEV product
pipeline. Throughout the year, HEP
provided stability through its steady
financial contribution and made
progress on the expansion of its
Frontier/SLC crude system.
Additionally, 2020 saw the
commencement of field construction
on a new 160,000 barrel per day
crude oil pipeline that will connect
the Cushing, Oklahoma crude oil hub
to HollyFrontier’s Tulsa refinery. The
pipeline is owned by a joint venture
between HEP and Plains All American
Pipeline LP. The joint venture also
owns and operates 1.5 million barrels
of crude oil storage in Cushing,
supporting HollyFrontier’s Tulsa and
El Dorado refineries.
During the year, HEP reset its
distribution strategy focused on
funding all capital expenditures and
distributions within free cash flow
and maintaining distributable cash
flow coverage of 1.3x or greater while
reducing leverage to 3.0-3.5x EBITDA.
HollyFrontier Lubricants and
Specialty Products (HFLSP): This
segment produces base oils and
specialty lubricants under the Petro-
Canada Lubricants, Sonneborn, Red
Giant Oil (RGO) and HollyFrontier
brands. It consists of “Rack Back”
operations that capture the value
between feedstock cost and base oil
market prices and “Rack Forward”
2
HOLLYFRONTIER CORPORATION 2020 ANNUAL REPORT
operations that capture the value
between the base oil market prices
and product sale revenues from its
well-recognized brands and finished
lubricants.
At the onset of the pandemic, HFLSP
throughput was nearly halved, but
the business bounced back quickly
to generate strong earnings in the
second half of the year. The strong
second half performance has us
excited about the growth and value
creation prospects of the HFLSP
business moving forward.
Across all of our operations, safety
continued to be our top priority
in 2020. Despite the COVID-19
pandemic, we achieved strong
safety performance in 2020, with
a 41% reduction in employee injury
rates and 25% reduction in API Tier
1 process safety incidents. We are
committed to maintaining a safe work
environment enriched by diversity
and characterized by championing a
culture of teamwork and ownership.
DELIVERING SOLID
FINANCIAL RESULTS
Resilient financial performance
in 2020 reflected an
emphasis on fundamentals, a
disciplined approach to capital
allocation, sound operational
execution and our sustained
concentration on safety and
efficiency
$458 MILLION
Operating Cash Flow
$7.29
Refinery Gross Margin
per Produced Barrel Sold
$1.4 BILLION
Cash and Cash Equivalents
S&P, FITCH, MOODY’S
Investment Grade Credit Rating
By thoughtfully managing our balance
sheet and liquidity position through
the pandemic, HollyFrontier returned
approximately $230 million to
shareholders in 2020 through regular
quarterly dividends.
FOCUSING ON THE FUTURE
WITH RENEWABLES
In 2020, we continued to advance
HollyFrontier’s renewables strategy
to diversify our business, meet the
growing demand for lower carbon
fuels and position HollyFrontier
for sustainable, long-term success.
Our industry is evolving, and
there is a significant opportunity
to enhance both the profitability
and the environmental footprint
of HollyFrontier through these
investments.
We began converting our Cheyenne
refinery from a traditional petroleum
fuels refinery into a renewable
diesel facility, made major strides on
engineering and procurement for the
renewable diesel unit at our Navajo
refinery in Artesia, New Mexico, and
announced a feedstock pre-treatment
unit in Artesia, New Mexico. Our
investment in pre-treatment will
enable our facilities to process a
wider variety of feedstocks, allowing
us to minimize feedstock risk while
maximizing low carbon fuel standard
value.
When completed, our renewable
diesel units are expected to produce
over 200 million gallons and generate
an expected $165 million in annual
free cash flow excluding the blender’s
tax credit. We expect to begin
renewable diesel production in the
first quarter of 2022.
In September of 2020, we successfully
raised $750 million in a public bond
offering, which will help support
these projects. Looking ahead, we’re
excited about the opportunity to
strengthen HollyFrontier by placing
it at the forefront of the next frontier
in energy and will continue seeking
opportunities to grow this area of our
business.
LOOKING AHEAD:
WELL POSITIONED TO
CAPITALIZE ON THE UP-CYCLE
We ended 2020 with solid
operational performance and
a strong financial foundation.
We strategically maintain a
conservative balance sheet,
positioning HollyFrontier to
withstand cyclicality while
maintaining our strategic
priorities. In 2021, our focus
remains on generating high
returns while operating safely
and efficiently, further improving
refinery reliability, progressing
our transition into renewables,
enhancing our environmental
and sustainability performance
and reporting, and continuing
to prudently deploy capital to
advance shareholders’ best
interests.
Our resilience in 2020 was
reflective of our team’s collective
perseverance. Due to their
work ethic and our collective
commitment to safe and
responsible operations, we were
able to create value for our
stakeholders.
Our company’s prospects in 2021
are promising as we look forward
to better market conditions that
will facilitate HollyFrontier’s
continued growth, evolution and
success. We expect to continue
operating reliably and deliver
exceptional performance. On
behalf of our Board of Directors
and our employees, thank you
for your trust and investment in
HollyFrontier.
Sincerely,
Michael C. Jennings
Chief Executive Officer
and President
3
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31
Sales and other revenues
Income (loss) before income taxes
Net income (loss) attributable to HFC stockholders
Net income (loss) per common share – diluted
Cash flows from operating activities
Cash flows used for capital expenditures
Total assets
HFC stockholders' equity
Sales of produced refined products –
barrels per day ("BPD")
$ in thousands, except per share data
2019
2020
$
$
$
$
$
$
$
$
17,486,578
1,171,504
772,388
4.61
1,548,611
293,763
12,164,841
5,978,193
414,370
$
$
$
$
$
$
$
$
11,183,643
(747,046)
(601,448)
(3.72)
457,931
330,160
11,506,864
5,168,361
391,670
Employees
4,074
3,891
SALES AND
OTHER REVENUES
NET INCOME (LOSS)
ATTRIBUTABLE TO HFC
STOCKHOLDERS
CASH FLOWS FROM
OPERATING ACTIVITIES
$ in millions
$ in millions
$ in millions
17,715
17,487
14,251
10,536
11,184
1,098
805
772
1,554
1,549
951
607
458
2016
2017
2018
2019
2020
2016
2017
2018
2019
(260)
(601)
2020
2016
2017
2018
2019
2020
TOTAL ASSETS
HFC STOCKHOLDERS’ EQUITY
$ in millions
12,165
11,507
10,692
10,995
9,436
$ in millions
5,371
4,681
5,919
5,978
5,168
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
4
HOLLYFRONTIER CORPORATION 2020 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-3876
HOLLYFRONTIER CORPORATION
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
75-1056913
2828 N. Harwood, Suite 1300
Dallas
Texas
(Address of principal executive offices)
75201
(Zip Code)
(214) 871-3555
Registrant’s telephone number, including area code
-------------------------------------------------------------------
Securities registered pursuant to 12(b) of the Securities Exchange Act of 1934:
Title of each class
Common Stock $0.01 par value
Trading Symbol(s)
Name of each exchange on which registered
HFC
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to
be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
☒
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the Common Stock, par
value $0.01 per share, held by non-affiliates of the registrant was approximately $4.3 billion, based upon the closing price on the New York Stock Exchange on
such date. (This is not deemed an admission that any person whose shares were not included in the computation of the amount set forth in the preceding
sentence necessarily is an “affiliate” of the registrant.)
162,414,838 shares of Common Stock, par value $.01 per share, were outstanding on February 16, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of stockholders to be held on May 12, 2021, which proxy statement will be filed with the
Securities and Exchange Commission within 120 days after December 31, 2020, are incorporated by reference in Part III.
Table of Content
Item
TABLE OF CONTENTS
Forward-Looking Statements
Definitions
1 and 2. Business and Properties
1A. Risk Factors
1B. Unresolved Staff Comments
3. Legal Proceedings
4. Mine Safety Disclosures
PART I
PART II
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
PART III
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accounting Fees and Services
PART IV
15. Exhibits, Financial Statement Schedules
Signatures
Page
3
4
6
23
40
41
43
44
45
46
61
61
63
115
115
115
115
115
115
116
116
116
122
2
Table of Content
FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10‑K contains certain “forward-looking statements” within the meaning of the federal securities
laws. All statements, other than statements of historical fact included in this Form 10-K, including, but not limited to, those
under “Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A, “Legal Proceedings” in Item 3 and
“Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking
statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,”
“intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and
objectives for future operations. These statements are based on management's beliefs and assumptions using currently available
information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and
uncertainties. All statements concerning our expectations for future results of operations are based on forecasts for our existing
operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be
correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these
statements. Any differences could be caused by a number of factors including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the extraordinary market environment and effects of the COVID-19 pandemic, including a significant decline in
demand for refined petroleum products in markets we serve;
risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of
refined petroleum products or lubricant and specialty products in our markets;
the spread between market prices for refined products and market prices for crude oil;
the possibility of constraints on the transportation of refined products or lubricant and specialty products;
the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to infection
in the workforce or in response to reductions in demand;
the effects of current and future governmental and environmental regulations and policies, including the effects of
current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
the availability and cost of our financing;
the effectiveness of our capital investments and marketing strategies;
our efficiency in carrying out and consummating construction projects, including our ability to complete announced
capital projects, such as the conversion of the Cheyenne Refinery to a renewable diesel facility and the construction of
the Artesia renewable diesel unit and pretreatment unit, on time and within budget;
our ability to timely obtain or maintain permits, including those necessary for operations or capital projects,
our ability to acquire refined or lubricant product operations or pipeline and terminal operations on acceptable terms
and to integrate any existing or future acquired operations;
the possibility of terrorist or cyberattacks and the consequences of any such attacks;
general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in
the United States;
continued deterioration in gross margins or a prolonged economic slowdown due to the COVID-19 pandemic which
could result in an impairment of goodwill and / or additional long-lived asset impairments; and
other financial, operational and legal risks and uncertainties detailed from time to time in our SEC filings.
Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are
set forth in this Form 10-K, including without limitation the forward-looking statements that are referred to above. You should
not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep
in mind the risk factors and other cautionary statements set forth in this Form 10-K under “Risk Factors” in Item 1A and in
conjunction with the discussion in this Form 10-K in “Management's Discussion and Analysis of Financial Condition and
Results of Operations” under the heading “Liquidity and Capital Resources.” All forward-looking statements included in this
Form 10-K and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date
made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
3
Table of Content
DEFINITIONS
Within this report, the following terms have these specific meanings:
“Alkylation” means the reaction of propylene or butylene (olefins) with isobutane to form an iso-paraffinic gasoline
(inverse of cracking).
“Aromatic oil” is long chain oil that is highly aromatic in nature and is used to manufacture tires and industrial rubber
products and in the production of specialty asphalt.
“BPD” means the number of barrels per calendar day of crude oil or petroleum products.
“BPSD” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum
products.
“Base oil” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis that is used in
producing lubricant products such as lubricating greases, motor oil and metal processing fluids.
“Biodiesel” means a clean alternative fuel produced from renewable biological resources.
“Black wax crude oil” is a low sulfur, low gravity crude oil produced in the Uintah Basin in Eastern Utah that has certain
characteristics that require specific facilities to transport, store and refine into transportation fuels.
“Catalytic reforming” means a refinery process which uses a precious metal (such as platinum) based catalyst to convert
low octane naphtha to high octane gasoline blendstock and hydrogen. The hydrogen produced from the reforming process is
used to desulfurize other refinery oils and is a primary source of hydrogen for the refinery.
“Cracking” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler
and lighter molecules.
“Crude oil distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the
vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products.
“Ethanol” means a high octane gasoline blend stock that is used to make various grades of gasoline.
“FCC,” or fluid catalytic cracking, means a refinery process that breaks down large complex hydrocarbon molecules into
smaller more useful ones using a circulating bed of catalyst at relatively high temperatures.
“Gas oil” is a group of petroleum distillation products having boiling points between kerosene and lubricating oil and is
used as fuel in construction and agricultural machinery.
“Hydrodesulfurization” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen
and a catalyst at relatively high temperatures.
“Hydrogen plant” means a refinery unit that converts natural gas and steam to high purity hydrogen, which is then used
in the hydrodesulfurization, hydrocracking and isomerization processes.
“HF alkylation” or hydrofluoric alkylation, means a refinery process which combines isobutane and C3/C4 olefins using
HF acid as a catalyst to make high octane gasoline blend stock.
“Isomerization” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size
or chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks.
“LPG” means liquid petroleum gases.
“Lubricant” or “lube” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger
car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process
oil.
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“MSAT2” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the U.S. Environmental
Protection Agency to reduce hazardous emissions from motor vehicles and motor vehicle fuels.
“MEK” means a lube process that separates waxy oil from non-waxy oils using methyl ethyl ketone as a solvent.
“MMBTU” means one million British thermal units.
“Natural gasoline” means a low octane gasoline blend stock that is purchased and used to blend with other high octane
stocks produced to make various grades of gasoline.
“Paraffinic oil” is a high paraffinic, high gravity oil produced by extracting aromatic oils and waxes from gas oil and is
used in producing high-grade lubricating oils.
“Rack back” represents the portion of our Lubricants and Specialty Products business operations that entails the
processing of feedstocks into base oils.
“Rack forward” represents the portion of our Lubricants and Specialty Products business operations that entails the
processing of base oils into finished lubricants and the packaging, distribution and sale to customers.
“Refinery gross margin” means the difference between average net sales price and average cost per barrel sold. This
does not include the associated depreciation and amortization costs.
“Reforming” means the process of converting gasoline type molecules into aromatic, higher octane gasoline blend
stocks while producing hydrogen in the process.
“Renewable diesel” means a diesel fuel derived from vegetable oils or animal fats that is produced through various
processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the
presence of a catalyst.
“RINs” means renewable identification numbers and refers to serial numbers assigned to credits generated from
renewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard (“RFS”) regulations, which
require blending renewable fuels into the nation's fuel supply. In lieu of blending, refiners may purchase these transferable
credits in order to comply with the regulations.
“Roofing flux” is produced from the bottom cut of crude oil and is the base oil used to make roofing shingles for the
housing industry.
“ROSE,” or “Solvent deasphalter / residuum oil supercritical extraction,” means a refinery unit that uses a light
hydrocarbon like propane or butane to extract non-asphaltene heavy oils from asphalt or atmospheric reduced crude. These
deasphalted oils are then further converted to gasoline and diesel in the FCC process. The remaining asphaltenes are either sold,
blended to fuel oil or blended with other asphalt as a hardener.
“Scanfiner” is a refinery unit that removes sulfur from gasoline to produce low sulfur gasoline blendstock.
“Sour crude oil” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “sweet crude
oil” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight.
“Vacuum distillation” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the
vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products.
“White oil” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from
pharmaceutical to cosmetic products.
“WTI” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a
sweet crude oil and has a relatively low density.
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Items 1 and 2. Business and Properties
COMPANY OVERVIEW
References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its consolidated subsidiaries. In
accordance with the Securities and Exchange Commission's (“SEC”) “Plain English” guidelines, this Annual Report on Form
10-K has been written in the first person. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier
and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person, with certain
exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy Partners, L.P. (“HEP”) and its subsidiaries
as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of transactions or obligations between HEP and
HollyFrontier or its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its
consolidated subsidiaries and do not necessarily represent obligations of HollyFrontier. When used in descriptions of
agreements and transactions, “HEP” refers to HEP and its consolidated subsidiaries.
We are principally an independent petroleum refiner that produces high-value light products such as gasoline, diesel fuel, jet
fuel, specialty lubricant products, and specialty and modified asphalt. We were incorporated in Delaware in 1947 and maintain
our principal corporate offices at 2828 N. Harwood, Suite 1300, Dallas, Texas 75201-1507. Our telephone number is
214-871-3555, and our internet website address is www.hollyfrontier.com. The information contained on our website does not
constitute part of this Annual Report on Form 10-K. A print copy of this Annual Report on Form 10-K will be provided without
charge upon written request to the Vice President, Investor Relations at the above address. A direct link to our SEC filings is
available on our website under the Investor Relations tab. Also available on our website are copies of our Corporate
Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating / Corporate Governance
Committee Charter, Environmental, Health, Safety, and Public Policy Committee Charter and Code of Business Conduct and
Ethics, all of which will be provided without charge upon written request to the Vice President, Investor Relations at the above
address. Our Code of Business Conduct and Ethics applies to all of our officers, employees and directors, including our
principal executive officer, principal financial officer and principal accounting officer. Our common stock is traded on the New
York Stock Exchange under the trading symbol “HFC.”
In November 2019, we announced our plans to construct a new renewable diesel unit (“RDU”) at our Artesia facility. The RDU
will have a production capacity of approximately 120 million gallons a year and allow us to process soybean oil and other
renewable feedstocks into renewable diesel. This investment will provide us the opportunity to meet the demand for low-carbon
fuels while covering the cost of our annual RINs purchase obligation under current market conditions.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently
began converting certain assets at our Cheyenne Refinery to renewable diesel production. The Cheyenne RDU will have a
production capacity of approximately 90 million gallons a year. This decision was primarily based on a positive outlook in the
market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne Refinery would be
challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and compressed crude
differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating and maintenance
costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s (“EPA”) small
refinery exemption.
Additionally, we are constructing a pre-treatment unit (“PTU”) at our Artesia facility that will provide feedstock flexibility for
both our Artesia and Cheyenne RDUs. The RDUs and PTU, along with corresponding rail infrastructure and storage tanks, are
estimated to have a total capital cost of $650 million to $750 million. The RDUs are expected to be completed in the first
quarter of 2022 and the PTU in the first half of 2022.
On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the issued and outstanding capital
stock of Sonneborn US Holdings Inc. and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively,
“Sonneborn”). The acquisition closed on February 1, 2019. Cash consideration paid was $662.7 million. Sonneborn is a
producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the
United States and Europe.
On July 10, 2018, we entered into a definitive agreement to acquire Red Giant Oil Company LLC (“Red Giant Oil”), a
privately-owned lubricants company. The acquisition closed on August 1, 2018. Cash consideration paid was $54.2 million.
Red Giant Oil is one of the largest suppliers of locomotive engine oil in North America and is headquartered in Council Bluffs,
Iowa.
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On October 29, 2016, we entered into a share purchase agreement with Suncor Energy Inc. (“Suncor”) to acquire 100% of the
outstanding capital stock of Petro-Canada Lubricants Inc. (“PCLI”). The acquisition closed on February 1, 2017. Cash
consideration paid was $862.1 million, or $1.125 billion Canadian dollars. PCLI, located in Mississauga, Ontario, is the largest
producer of base oils in Canada with a plant having 15,600 BPD of lubricant production capacity and is one of the largest
manufacturers of high margin Group III base oils in North America.
As of December 31, 2020, we:
•
•
•
•
•
•
•
owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), two refinery facilities
located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in
conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington,
New Mexico (collectively, the “Navajo Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross
Refinery”);
owned a facility in Cheyenne, Wyoming, which operated as a petroleum refinery until early August 2020, at which
time its assets began to be converted to renewable diesel production (the “Cheyenne Refinery”);
owned and operated PCLI located in Mississauga, Ontario, which produces base oils and other specialized lubricant
products;
owned and operated Sonneborn with manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which
produce specialty lubricant products such as white oils, petrolatums and waxes;
owned and operated Red Giant Oil, which supplies locomotive engine oil and has storage and distribution facilities in
Iowa and Wyoming, along with a blending and packaging facility in Texas;
owned and operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”), which operates various asphalt terminals
in Arizona, New Mexico and Oklahoma; and
owned a 57% limited partner interest and a non-economic general partner interest in HEP. HEP owns and operates
logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and
refinery processing units that principally support our refining and marketing operations in the Mid-Continent,
Southwest and Rocky Mountain geographic regions of the United States.
HEP is a variable interest entity (“VIE”) as defined under U.S. generally accepted accounting principles (“GAAP”).
Information on HEP's assets and acquisitions completed in the past three years can be found under the “Holly Energy Partners,
L.P.” section provided later in this discussion of Items 1 and 2, “Business and Properties.”
Our operations are currently organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP.
The Refining segment includes the operations of our El Dorado, Tulsa, Navajo and Woods Cross Refineries and HFC Asphalt.
The Lubricants and Specialty Products segment includes the operations of our Petro-Canada Lubricants business, Red Giant Oil
and Sonneborn in addition to specialty lubricant products produced at our Tulsa Refinery. The HEP segment involves all of the
operations of HEP. See Note 20 “Segment Information” in the Notes to Consolidated Financial Statements for additional
information on our reportable segments.
REFINERY OPERATIONS
Our refinery operations serve the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. We
own and operate four complex refineries having a combined crude oil processing capacity of 405,000 barrels per stream day.
Each of our refineries has the complexity to convert discounted, heavy and sour crude oils into a high percentage of gasoline,
diesel and other high-value refined products.
The tables presented below and elsewhere in this discussion of our refinery operations set forth information, including non-
GAAP performance measures, about our refinery operations. The cost of products and refinery gross and net operating margins
do not include the non-cash effects of long-lived asset impairment charges, lower of cost or market inventory valuation
adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under
“Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this
Form 10-K.
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As of December 31, 2020, our refinery operations included the El Dorado, Tulsa, Navajo and Woods Cross Refineries. In the
third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently began
converting certain assets at our Cheyenne Refinery to renewable diesel production. The disaggregation of our refining
geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our
refining operations. The Mid-Continent region will continue to be comprised of the El Dorado and Tulsa Refineries, and the
new West region will be comprised of the Navajo and Woods Cross Refineries. All prior period geographic operating data
included below has been retrospectively adjusted to reflect the revised regional groupings.
Consolidated
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Sales of produced refined products (BPD) (3)
Refinery utilization (4)
Average per produced barrel sold (5)
Refinery gross margin
Refinery operating expenses (6)
Net operating margin
Refinery operating expenses per throughput barrel (7)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Black wax crude oil
Other feedstocks and blends
Total
Years Ended December 31,
2019
2020
2018
365,190
395,080
391,670
388,860
417,570
414,370
384,380
413,780
408,390
90.2 %
96.0 %
94.9 %
$
$
$
7.29
6.05
1.24
6.00
$
$
$
15.92
6.12
9.80
6.07
$
$
$
16.50
6.06
10.44
5.98
48 %
29 %
11 %
4 %
8 %
100 %
45 %
34 %
10 %
4 %
7 %
100 %
44 %
35 %
10 %
4 %
7 %
100 %
(1) Crude charge represents the barrels per day of crude oil processed at our refineries.
(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other
conversion units at our refineries.
(3) Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include
volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 405,000 BPSD.
(5) Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported
under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles”
following Item 7A of Part II of this Form 10-K.
(6) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment charges and
depreciation and amortization, divided by sales volumes of refined products produced at our refineries.
(7) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment charges and
depreciation and amortization, divided by refinery throughput.
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Products and Customers
Set forth below is information regarding refined product sales:
Consolidated
Sales of refined products:
Gasolines
Diesel fuels
Jet fuels
Fuel oil
Asphalt
Base oils
LPG and other
Total
Years Ended December 31,
2019
2020
2018
54 %
34 %
3 %
1 %
4 %
2 %
2 %
100 %
52 %
34 %
4 %
2 %
3 %
2 %
3 %
100 %
52 %
34 %
4 %
2 %
3 %
3 %
2 %
100 %
Light products are shipped to customers via product pipelines or are available for loading at our refinery truck facilities and
terminals. Light products are also made available to customers at various other locations via exchange with other parties.
Our principal customers for gasoline include other refiners, convenience store chains, independent marketers and retailers.
Diesel fuel is sold to other refiners, truck stop chains, wholesalers and railroads. Jet fuel is sold for commercial airline use. Base
oils are intercompany sales to our Lubricants and Specialty Products segment. LPG's are sold to LPG wholesalers and LPG
retailers. We produce and purchase asphalt products that are sold to governmental entities, paving contractors or manufacturers.
Asphalt is also blended into fuel oil and is either sold locally or is shipped to the Gulf Coast. See Note 5 “Revenues” in the
Notes to Consolidated Financial Statements for additional information on our significant customers.
Mid-Continent Region (El Dorado and Tulsa Refineries)
Facilities
The El Dorado Refinery is a high-complexity coking refinery with a 135,000 barrels per stream day processing capacity and the
ability to process significant volumes of heavy and sour crudes. The integrated refining processes at the Tulsa West and East
refinery facilities provide us with a highly complex refining operation having a combined crude processing rate of
approximately 125,000 barrels per stream day.
The following table sets forth information about our Mid-Continent region operations, including non-GAAP performance
measures.
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Sales of produced refined products (BPD) (3)
Refinery utilization (4)
Average per produced barrel sold (5)
Refinery gross margin
Refinery operating expenses (6)
Net operating margin
Refinery operating expenses per throughput barrel (7)
Years Ended December 31,
2019
2018
2020
241,140
257,030
248,320
254,010
268,500
259,310
249,240
264,730
255,800
92.7 %
97.7 %
95.9 %
$
$
$
5.17
5.46
(0.29)
5.27
$
$
$
13.71
5.77
7.94
5.58
$
$
$
14.44
5.51
8.93
5.33
Footnote references are provided under our Consolidated Refinery Operating Data table on page 8.
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Table of Content
Mid-Continent Region (El Dorado and Tulsa Refineries)
Feedstocks:
Sweet crude oil
Sour crude oil
Heavy sour crude oil
Other feedstocks and blends
Total
Years Ended December 31,
2020
2019
2018
58 %
19 %
17 %
6 %
100 %
55 %
24 %
16 %
5 %
100 %
54 %
24 %
16 %
6 %
100 %
The El Dorado Refinery is located on 1,100 acres south of El Dorado, Kansas and is a fully integrated refinery. The principal
processing units at the El Dorado Refinery consist of crude and vacuum distillation; hydrodesulfurization of naphtha, kerosene,
diesel, and gas oil streams; isomerization; catalytic reforming; aromatics recovery; catalytic cracking; alkylation; delayed
coking; hydrogen production; and sulfur recovery.
The Tulsa West facility is located on a 750-acre site in Tulsa, Oklahoma situated along the Arkansas River. The principal
processing units at the Tulsa West facility consist of crude and vacuum distillation (with light ends recovery), naphtha
hydrodesulfurization, propane de-asphalting, lubes extraction, MEK dewaxing, delayed coker and butane splitter units.
The Tulsa East facility is located on a 466-acre site also in Tulsa, Oklahoma situated along the Arkansas River. The principal
processing units at the Tulsa East facility consist of crude and vacuum distillation, naphtha hydrodesulfurization, FCC,
isomerization, catalytic reforming, alkylation, scanfiner, diesel hydrodesulfurization and sulfur units.
Markets and Competition
The primary markets for the El Dorado Refinery's refined products are Colorado and the Plains States, which include the
Kansas City metropolitan area. The gasoline, diesel and jet fuel produced by the El Dorado Refinery are primarily shipped via
pipeline to terminals for distribution by truck or rail. We ship product via the NuStar Pipeline Operating Partnership L.P.
Pipeline to the northern Plains States, via the Magellan Pipeline Company, L.P. (“Magellan”) mountain pipeline to Denver,
Colorado, and on the Magellan mid-continent pipeline to the Plains States. Additionally, HEP's on-site truck and rail racks
facilitate access to local refined product markets.
The El Dorado Refinery faces competition from other Plains States and Mid-Continent refiners, but the principal competitors
for the El Dorado Refinery are Gulf Coast refiners. Our Gulf Coast competitors typically have lower production costs due to
greater economies of scale; however, they incur higher refined product transportation costs, which allows the El Dorado
Refinery to compete effectively in the Plains States and Rocky Mountain region with Gulf Coast refineries.
The Tulsa Refineries serve the Mid-Continent geographic region of the United States. Distillates and gasolines are primarily
delivered from the Tulsa Refineries to market via pipelines owned and operated by Magellan. These pipelines connect the
refinery to distribution channels throughout Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska and
Arkansas. Additionally, HEP's on-site truck and rail racks facilitate access to local refined product markets.
The Tulsa Refineries’ principal customers for conventional gasoline include other refiners, convenience store chains,
independent marketers and retailers. Truck stop operators and railroads are the primary diesel customers. Jet fuel is sold
primarily for commercial use. The refinery's asphalt and roofing flux products are sold via truck or railcar directly from the
refineries or to customers throughout the Mid-Continent geographic region primarily to paving contractors and manufacturers
of roofing products.
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Table of Content
Products
Set forth below is information regarding refined product sales attributable to our Mid-Continent region:
Mid-Continent Region (El Dorado and Tulsa Refineries)
Sales of refined products:
Gasolines
Diesel fuels
Jet fuels
Fuel oil
Asphalt
Base oils
LPG and other
Total
Years Ended December 31,
2019
2020
2018
52 %
34 %
4 %
1 %
3 %
4 %
2 %
100 %
51 %
32 %
7 %
1 %
3 %
4 %
2 %
100 %
51 %
33 %
6 %
1 %
3 %
4 %
2 %
100 %
Crude Oil and Feedstock Supplies
Both of our Mid-Continent Refineries are connected via pipeline to Cushing, Oklahoma, a significant crude oil pipeline trading
and storage hub. The El Dorado Refinery and the Tulsa Refineries are located approximately 125 miles and 50 miles,
respectively, from Cushing, Oklahoma. Local pipelines provide direct access to regional Oklahoma crude production as well as
access to United States onshore and Canadian crudes. The proximity of the refineries to the Cushing pipeline and storage hub
provides the flexibility to optimize their crude slate with a wide variety of crude oil supply options. Additionally, we have
transportation service agreements to transport Canadian crude oil on the Spearhead and Keystone Pipelines, enabling us to
transport Canadian crude oil to Cushing for subsequent shipment to either of our Mid-Continent Refineries.
We also purchase isobutane, natural gasoline, butane and other feedstocks for processing at our Mid-Continent Refineries. The
El Dorado Refinery is connected to Conway, Kansas, a major gas liquids trading and storage hub, via the Oneok Pipeline. From
time to time, other feedstocks such gas oil, naphtha and light cycle oil are purchased from other refiners for use at our refineries.
West Region (Navajo and Woods Cross Refineries)
Facilities
The Navajo Refinery has a crude oil processing capacity of 100,000 barrels per stream day and has the ability to process sour
crude oils into high-value light products such as gasoline, diesel fuel and jet fuel.
The Woods Cross Refinery has a crude oil processing capacity of 45,000 barrels per stream day and processes regional sweet
and black wax crude into high-value light products.
The following table sets forth information about our West region operations, including non-GAAP performance measures.
West Region (Navajo and Woods Cross Refineries)
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Sales of produced refined products (BPD) (3)
Refinery utilization (4)
Average per produced barrel sold (5)
Refinery gross margin
Refinery operating expenses (6)
Net operating margin
Refinery operating expenses per throughput barrel (7)
Years Ended December 31,
2019
2018
2020
124,050
138,050
143,350
134,850
149,070
155,060
135,140
149,050
152,590
85.6 %
93.0 %
93.2 %
$
$
$
10.97
7.07
3.90
7.34
$
$
$
19.62
6.69
12.93
6.96
$
$
$
19.96
6.99
12.97
7.15
Footnote references are provided under our Consolidated Refinery Operating Data table on page 8.
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Table of Content
West Region (Navajo and Woods Cross Refineries)
Feedstocks:
Sweet crude oil
Sour crude oil
Black wax crude oil
Other feedstocks and blends
Total
Years Ended December 31,
2020
2019
2018
30 %
49 %
11 %
10 %
100 %
26 %
52 %
12 %
10 %
100 %
27 %
52 %
12 %
9 %
100 %
The Navajo Refinery's Artesia, New Mexico facility is located on a 561-acre site and is a fully integrated refinery with crude
distillation, vacuum distillation, FCC, ROSE (solvent deasphalter), HF alkylation, catalytic reforming, hydrodesulfurization,
mild hydrocracking, isomerization, sulfur recovery and product blending units.
The Artesia facility is operated in conjunction with a refining facility located in Lovington, New Mexico, approximately 65
miles east of Artesia. The principal equipment at the Lovington facility consists of a crude distillation unit and associated
vacuum distillation units. The Lovington facility processes crude oil into intermediate products that are transported to Artesia
by means of three intermediate pipelines owned by HEP. These products are then upgraded into finished products at the Artesia
facility. The combined crude oil capacity of the Navajo Refinery facilities is 100,000 BPSD and it typically processes or blends
an additional 10,000 BPSD of natural gasoline, butane, gas oil and naphtha.
The Woods Cross Refinery facility is located on a 200-acre site and is a fully integrated refinery with crude distillation, solvent
deasphalter, FCC, HF alkylation, catalytic reforming, hydrodesulfurization, isomerization, sulfur recovery and product blending
units. The facility typically processes or blends an additional 2,000 BPSD of natural gasoline, butane and gas oil over its 45,000
BPSD capacity.
Markets and Competition
The Navajo Refinery primarily serves the southwestern United States market, including the metropolitan areas of El Paso,
Texas; Albuquerque, Moriarty and Bloomfield, New Mexico; Phoenix and Tucson, Arizona; and portions of northern Mexico.
Our products are shipped through HEP's pipelines from Artesia, New Mexico to El Paso, Texas and from El Paso to
Albuquerque and to Mexico via products pipeline systems owned by Magellan and from El Paso to Tucson and Phoenix via a
products pipeline system owned by Kinder Morgan's subsidiary, SFPP, L.P. (“SFPP”). In addition, petroleum products from the
Navajo Refinery are transported to markets in northwest New Mexico, to Moriarty, New Mexico, near Albuquerque, via HEP's
pipelines running from Artesia to San Juan County, New Mexico, and to Bloomfield, New Mexico. We have refined product
storage through our pipelines and terminals agreement with HEP at terminals in Artesia and Moriarty, New Mexico.
The Woods Cross Refinery's primary market is Utah, which is currently supplied by a number of local refiners and the Pioneer
Pipeline. It also supplies a small percentage of the refined products consumed in the combined Idaho, Wyoming, eastern
Washington and Nevada markets. Our Woods Cross Refinery ships refined products over a common carrier pipeline system
owned by Andeavor Logistics Northwest Pipelines LLC to numerous terminals, including HEP's terminal at Spokane,
Washington and to third-party terminals at Pocatello and Boise, Idaho and Pasco, Washington as well as to Cedar City, Utah
and Las Vegas, Nevada via the UNEV Pipeline.
Products
Set forth below is information regarding refined product sales attributable to our West region:
West Region (Navajo and Woods Cross Refineries)
Sales of refined products:
Gasolines
Diesel fuels
Fuel oil
Asphalt
LPG and other
Total
12
Years Ended December 31,
2019
2018
2020
56 %
35 %
3 %
4 %
2 %
100 %
53 %
37 %
3 %
4 %
3 %
100 %
53 %
38 %
3 %
3 %
3 %
100 %
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Crude Oil and Feedstock Supplies
The Navajo Refinery is situated near the Permian Basin, an area that has historically, and continues to have, abundant supplies
of crude oil available both for regional users and for export to other areas. We purchase crude oil from independent producers in
southeastern New Mexico and west Texas as well as from major oil companies. The crude oil is gathered through HEP's
pipelines and through third-party tank trucks and crude oil pipeline systems for delivery to the Navajo Refinery.
We also purchase volumes of isobutane, natural gasoline and other feedstocks to supply the Navajo Refinery from sources in
Texas and the Mid-Continent area that are delivered to our region on a common carrier pipeline owned by Enterprise Products,
L.P. Ultimately all volumes of these products are shipped to the Artesia refining facilities on HEP's intermediate pipelines
running from Lovington to Artesia. From time to time, we purchase gas oil, naphtha and light cycle oil from other refiners for
use as feedstock.
The Woods Cross Refinery currently obtains crude oil from suppliers in Canada, Wyoming and Utah as delivered via common
carrier pipelines, including the SLC Pipeline and Frontier Pipeline owned by HEP. Supplies of black wax crude oil are shipped
via truck.
HollyFrontier Asphalt Company
We manufacture commodity and modified asphalt products at our manufacturing facilities located in Glendale, Arizona;
Albuquerque, New Mexico; Artesia, New Mexico and Catoosa, Oklahoma. Our Albuquerque and Artesia facilities manufacture
modified hot asphalt products and commodity and modified asphalt emulsions from base asphalt materials provided by our
refineries and third-party suppliers. Our Glendale facility manufactures modified hot asphalt products from base asphalt
materials provided by our refineries and third-party suppliers. Our Catoosa facility manufactures specialty modified asphalt and
commodity asphalt products. We market these asphalt products in Arizona, California, Colorado, New Mexico, Oklahoma,
Kansas, Missouri, Texas, Arkansas and northern Mexico. Our products are shipped via third-party trucking companies to
commercial customers that provide asphalt based materials for commercial and government projects.
LUBRICANTS AND SPECIALTY PRODUCTS OPERATIONS
Our lubricants and specialty products operations consist of our Petro-Canada Lubricants, Red Giant Oil, Sonneborn and the
Tulsa rack forward businesses.
Our Petro-Canada Lubricants business produces automotive, industrial and food grade lubricants and greases, base and process
oils and specialty fluids. It is one of the largest manufacturers of high margin Group III base oils in North America. Products
are marketed in over 80 countries worldwide to a diverse customer base through a global sales force and distributor network.
Our Red Giant Oil business provides high quality lubricants to the railroad industry, which represents a market of a small
number of high-value customers who associate the Red Giant Oil name with a niche suite of products.
Sonneborn is a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes for the personal care,
cosmetic, pharmaceutical and food processing industries. Combined with Petro-Canada Lubricants, it is one of the world's
largest producers of pharmaceutical white oils.
Our Tulsa Refinery produces high quality base oils, process oils, waxes, horticultural oils and asphalt performance products.
Products are marketed worldwide through strategically located terminals in the United States and selected distributors
internationally.
The following table sets forth information about our lubricants and specialty products operations and includes Red Giant Oil for
the period August 1, 2018 (date of acquisition) through December 31, 2020, and Sonneborn for the period February 1, 2019
(date of acquisition) through December 31, 2020.
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Lubricants and Specialty Products
Throughput (BPD)
Sales of produced refined products (BPD)
Sales of produced refined products:
Finished products
Base oils
Other
Total
Years Ended December 31,
2020
2019
2018
19,645
32,902
20,251
34,827
19,590
30,510
49 %
26 %
25 %
100 %
49 %
27 %
24 %
100 %
48 %
31 %
21 %
100 %
PCLI owns and operates a production facility located in Mississauga, Ontario having lubricant production capacity of 15,600
BPD and has the flexibility to match unique lubricant product formulations. The primary operating units are high-pressure
hydrotreating and hydrofinishing, solvent dewaxing and catalytic dewaxing. In addition, the facility operates a hydrogen plant,
naphtha hydrotreater and catalytic reformer, along with other utility units to support production. The Mississauga plant also
includes packaging facilities and has extensive distribution capabilities with marine, truck and rail access.
Red Giant Oil, headquartered in Council Bluffs, Iowa, owns and operates blending and distribution facilities in Council Bluffs,
Iowa; Joshua, TX and Newcastle, Wyoming.
Sonneborn has manufacturing facilities in Petrolia, Pennsylvania and the Netherlands. The Sonneborn Petrolia site has a
production capacity of 6,000 BPD with flexibility to produce a full range of finished specialty products. The primary operating
unit is a high-pressure hydrotreater with hydrofinishing. In addition, the facility operates a hydrogen plant along with other
utility units to support production. The Petrolia plant also includes packaging facilities with distribution capabilities through rail
and trucking. The Sonneborn Netherlands sites include processing facilities in Amsterdam and Koog with a production capacity
of approximately 1,500 BPD. The primary operating units include base oil acid treating, percolation filtration, and bleaching &
steaming operations. The Netherlands sites include packaging facilities with distribution capabilities through truck and marine.
HOLLY ENERGY PARTNERS, L.P.
HEP is a Delaware limited partnership that trades on the New York Stock Exchange under the trading symbol “HEP.” HEP
owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack
facilities and refinery processing units that principally support our refining and marketing operations, as well as other third-
party refineries, in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. Additionally,
HEP owns a 75% interest in UNEV Pipeline, LLC (“UNEV”), the owner of a pipeline running from Woods Cross, Utah to Las
Vegas, Nevada (the “UNEV Pipeline”) and associated product terminals, and a 50% ownership interest in each of Osage Pipe
Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”),
Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the
“Cheyenne Pipeline”) and Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage
terminal in Cushing, Oklahoma and a pipeline under construction that will run from Cushing, Oklahoma to our Tulsa
Refineries.
HEP generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by charging
fees for terminalling and storing refined products and other hydrocarbons and providing other services at its storage tanks,
terminals and refinery processing units. HEP does not take ownership of products that it transports, terminals, stores or refines;
therefore, it is not directly exposed to changes in commodity prices.
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Investment in Joint Venture
Cushing Connect Joint Venture
In October 2019, HEP Cushing LLC, a wholly-owned subsidiary of HEP, and Plains Marketing, L.P., a wholly-owned
subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect, for (i) the
development, construction, ownership and operation of a new 160,000 barrel per day common carrier crude oil pipeline (the
“Cushing Connect Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to our Tulsa Refineries and (ii) the
ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “Cushing Connect Terminal”).
The Cushing Connect Terminal was fully in service beginning in April 2020, and the Cushing Connect Pipeline is expected to
be placed in service during the second quarter of 2021. Long-term commercial agreements have been entered into to support the
Cushing Connect assets.
Cushing Connect will contract with an affiliate of HEP to manage the construction and operation of the Cushing Connect
Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in
Cushing Connect will be shared proportionately among the partners, and HEP estimates its share of the cost of the Cushing
Connect Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $65.0 million.
However, any Cushing Connect Pipeline construction costs exceeding 10% of the budget are borne solely by HEP.
Transportation Agreements
Agreements with HEP
HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling
agreements expiring from 2021 through 2036. Under these agreements, we pay HEP fees to transport, store and process
throughput volumes of refined products, crude oil and feedstocks on HEP's pipelines, terminals, tankage, loading rack facilities
and refinery processing units that result in minimum annual payments to HEP, including UNEV (a consolidated subsidiary of
HEP). Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based
upon the percentage change in Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of
December 31, 2020, these agreements required minimum annualized payments to HEP of $351.1 million. However, as
previously disclosed, subsequent to year end these agreements were modified to account for the conversion of our Cheyenne
Refinery to renewable diesel production, and as of January 1, 2021, require minimum annualized payments to HEP of $341.9
million.
Our transactions with HEP including the transactions discussed above and fees paid under our transportation agreements with
HEP and UNEV are eliminated and have no impact on our consolidated financial statements.
As of December 31, 2020, HEP's assets included:
Pipelines
•
approximately 800 miles of refined product pipelines, including 340 miles of leased pipelines, that transport gasoline,
diesel and jet fuel principally from our Navajo Refinery in New Mexico to our customers in the metropolitan and rural
areas of Texas, New Mexico, Arizona, Colorado, Utah and northern Mexico;
approximately 510 miles of refined product pipelines that transport refined products from Delek's Big Spring refinery in
Texas to its customers in Texas and Oklahoma;
two 65-mile pipelines that transport intermediate feedstocks and crude oil from our Navajo Refinery crude oil
distillation and vacuum facilities in Lovington, New Mexico to our petroleum refinery facilities in Artesia, New
Mexico;
one 65-mile intermediate pipeline that is used for the shipment of crude oil from the gathering systems in Barnsdall and
Beeson, New Mexico to our Navajo Refinery;
the SLC Pipeline, a 95-mile intrastate crude oil pipeline system that transports crude oil into the Salt Lake City, Utah
area from the Utah terminus of the Frontier Pipeline, as well as crude oil flowing from Wyoming and Utah via Plains
Rocky Mountain Pipeline;
the Frontier Pipeline, a 289-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah through a
connection to the SLC Pipeline;
approximately 940 miles of crude oil trunk, gathering and connection pipelines located in west Texas, New Mexico and
Oklahoma that primarily deliver crude oil to our Navajo Refinery;
approximately 8 miles of refined product pipelines that support our Woods Cross Refinery located near Salt Lake City,
Utah;
gasoline and diesel connecting pipelines that support our Tulsa East facility;
five intermediate product and gas pipelines between our Tulsa East and Tulsa West facilities;
•
•
•
•
•
•
•
•
•
15
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•
•
•
•
•
crude receiving assets located at our Cheyenne facility;
a 75% interest in the UNEV Pipeline, a 427-mile, 12-inch refined products pipeline running from Woods Cross, Utah to
Las Vegas, Nevada;
a 50% interest in the Osage Pipeline, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to our El
Dorado Refinery and also has a connection to the Jayhawk pipeline that services the CHS refinery in McPherson,
Kansas;
a 50% interest in the Cheyenne Pipeline, an 87-mile crude oil pipeline running from Fort Laramie, Wyoming to
Cheyenne, Wyoming; and
a 50% interest in Cushing Connect, a joint venture formed to construct a 160,000 BPD pipeline to connect the Cushing,
Oklahoma crude oil hub to our Tulsa Refineries.
Refined Product Terminals and Refinery Tankage
•
•
•
•
•
•
•
•
•
•
•
•
•
three refined product terminals located in Orla, Texas and Moriarty and Bloomfield, New Mexico, with an aggregate
capacity of approximately 458,000 barrels, that are integrated with HEP's refined product pipeline system that serves
our Navajo Refinery;
one refined product terminal located in Spokane, Washington, with a capacity of approximately 420,000 barrels, that
serves third-party common carrier pipelines;
one refined product terminal near Mountain Home, Idaho, with a capacity of 120,000 barrels, that serves a nearby
United States Air Force Base;
two refined product terminals, located in Wichita Falls and Abilene, Texas, and one tank farm in Orla, Texas with
aggregate capacity of approximately 600,000 barrels, that are integrated with HEP's refined product pipelines that serve
Delek's Big Spring, Texas refinery;
a refined product terminal in Catoosa, Oklahoma that stores specialty lubricant products and is utilized by our Tulsa
Refineries;
a refined product loading rack facility at each of our El Dorado, Tulsa, Navajo and Woods Cross Refineries and our
Cheyenne facility, heavy product / asphalt loading rack facilities at our Tulsa East facility, Navajo Refinery Lovington
facility and Cheyenne facility, LPG loading rack facilities at our El Dorado Refinery, Tulsa West facility and Cheyenne
facility, lube oil loading racks at our Tulsa West facility and crude oil Leased Automatic Custody Transfer units located
at our Cheyenne facility;
on-site crude oil tankage at our Tulsa, Navajo and Woods Cross Refineries and Cheyenne facility having an aggregate
storage capacity of approximately 1,530,000 barrels;
on-site refined and intermediate product tankage at our El Dorado and Tulsa and Refineries and Cheyenne facility
having an aggregate storage capacity of approximately 8,600,000 barrels;
eleven crude oil tanks adjacent to our El Dorado Refinery with a capacity of approximately 1,100,000 barrels that
primarily serve our El Dorado Refinery;
crude oil tankage with an aggregate storage capacity of approximately 480,000 barrels that primarily serve our Navajo
Refinery;
Frontier Pipeline's tankage with an aggregate capacity of approximately 380,000 barrels;
a 75% interest in UNEV Pipeline's product terminals near Cedar City, Utah and Las Vegas, Nevada with an aggregate
capacity of approximately 660,000 barrels; and
a 50% interest in Cushing Connect's crude oil tankage with a capacity of approximately 1,500,000 barrels in Cushing,
Oklahoma.
Refinery Processing Units
•
•
•
•
•
a naphtha fractionation tower at our El Dorado Refinery, with a capacity of 50,000 BPD of desulfurized naphtha;
a hydrogen generation unit at our El Dorado Refinery, with a capacity of 6.1 million standard cubic feet per day of
natural gas.
a crude unit, which is primarily an atmospheric distillation tower, a desalter and heat exchangers, at our Woods Cross
Refinery, with a feedstock capacity of 15,000 BPD of crude oil;
a FCC unit at our Woods Cross Refinery, which converts crude oil to high-value refined products such as gasoline,
diesel and liquefied petroleum gases, with a capacity of 8,000 BPD; and
a polymerization unit at our Woods Cross Refinery, that uses the output of the fluid cracking unit and converts them
into gasoline blendstock, with a capacity of 2,500 BPD.
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ADDITIONAL OPERATIONS AND OTHER INFORMATION
Corporate Offices
Our principal corporate offices are leased and located in Dallas, Texas. Functions performed in our Dallas office include overall
corporate management, refinery and HEP management, planning and strategy, corporate finance, crude acquisition, logistics,
contract administration, marketing, investor relations, governmental affairs, accounting, tax, treasury, information technology,
legal and human resources support functions.
Human Capital
Our People
Our people differentiate us from our peers. Our “One HFC Culture” focuses on four key values – safety, integrity, teamwork
and ownership. These values influence our decisions, shape our behaviors and provide the opportunity for our employees to
thrive. Safety is our first priority. We care about our people and have implemented policies and procedures designed to help
make sure they return home safely every day. We focus on integrity and doing the right thing. We champion a culture of
teamwork and ownership by supporting each other and empowering employees to take action where they see a need or
opportunity.
As of December 31, 2020, we had 3,891 employees located in the following geographies: 2,933 employees in the United
States, 711 employees in Canada and 247 employees in Europe and Asia. As of December 31, 2020, 1,306 employees were
covered by collective bargaining agreements with various expiration dates ranging between 2021 and 2024. We have
experienced no material interruptions of operations due to disputes with our employees and management attempts to have and
believes that we have positive working relationships with our local unions and their members.
Oversight
Our Board of Directors and Board committees provide oversight on our strategies and policies related to human capital
management. Our Compensation Committee is responsible for periodically reviewing HollyFrontier’s strategies and policies
regarding the promotion of employee diversity, equity and inclusion, talent and performance management, pay equity and
employee engagement, as well as our executive succession planning. Our Nominating, Governance and Social Responsibility
Committee oversees our policies and practices regarding human rights in our operations and supply chain. This high level
oversight is designed to ensure that our actions are well aligned with our strategies in attracting, retaining and developing a
workforce that aligns with our values and strategies.
Diversity & Inclusion
Our leadership is committed to attracting, retaining and developing a highly engaged, high-performing, diverse workforce and
cultivating an inclusive workplace where all employees feel valued and have a sense of belonging. Increasing our diversity and
inclusion efforts is an organizational priority and strategic oversight of our efforts is provided by our Compensation Committee.
We have introduced diversity awareness programs focused on increasing the number of underrepresented persons in
engineering roles in our refineries and corporate office. Our university recruiting team has partnered with historically Black
colleges and universities to offer full-time and summer internship opportunities and various diversity and inclusion
organizations at universities to sponsor and participate in events, such as the North Texas Women’s Energy Network and the
National Society of Black Engineers Convention. In addition, to help foster a culture of inclusion, we have two employee
resource groups focused on strengthening our support of women and veterans in the workplace.
Health & Safety
The safety of our employees, contractors and communities is an overarching priority and fundamental to our operational
success. We are grounded by our “Goal Zero” vision, which reflects our belief that safe production can be achieved each and
every day. Our commitment to safety is embedded throughout our organization, from frontline employees and contractors to
our executive leadership and board of directors. Our Operational Excellence Management System provides the framework
through which we identify, monitor and reduce risks. Our Environment, Health and Safety (“EHS”) Leadership Council,
comprised of company executives, including our CEO, business unit leaders and corporate safety specialists, sets EHS strategy
and reviews performance. The Environmental, Health, Safety and Public Policy Committee of our Board of Directors provides
board-level oversight of our strategies and performance in these areas.
To achieve Goal Zero, our employee and contractor safety education and training programs are conducted on an ongoing basis.
We set specific goals for workplace safety and measure attainment of those goals. Over the past five years ended December 31,
2020, our OSHA total recordable incident rate (“TRIR”) declined by 35 percent. In response to the coronavirus (“COVID-19”)
pandemic, and with the health and safety of our employees as a top priority, we have temporarily modified our business
practices by limiting employee and contractor presence at our facilities to essential operating personnel, using a work from
home policy, restricting travel, and quarantining employees when necessary.
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Total Rewards & Development
We believe that the health of our company is linked to the performance and health of our people. We want to inspire and
empower our employees to feel confident in their long-term well-being and are committed to offering a comprehensive and
competitive total rewards programs for our employees, as benchmarked against our peers. While our benefit offerings vary
depending on each country’s market practices, they are designed to support employee health, financial and emotional needs.
Our benefits include comprehensive coverage for health care, a competitive retirement savings benefit, vacation and holiday
time and other income protection and work life benefits. We also provide tools to help recognize and reward employee
performance consistent with our One HFC Culture.
Consistent with our culture of ownership and growth, we offer training, development and engagement programs across every
level of our organization to provide employees the opportunity to develop their career by enhancing skills and capabilities
consistent with the needs of the business. In 2019, we launched HFC LEAD. “LEAD” stands for Leadership, Excellence and
Development and is comprised of a number of programs focused on developing current and future leaders, including the Future
HFC Leader Development, Front Line Leader, and Leading the HFC Way programs. We invested $6.0 million in our employee
training and development programs in fiscal 2020.
Governmental Regulation
We are subject to numerous international, federal, state, provincial and local laws and regulations regulating worker health and
safety, the discharge of substances into the environment, or otherwise relating to the protection of the environment and natural
resources. Permits or other authorizations are required under these laws and regulations for the operation of our refineries,
pipelines and related facilities, which can result in the imposition of costly reporting, installation of pollution control equipment
and maintenance obligations. Moreover, these permits and authorizations are subject to revocation, modification and renewal,
as well as challenges from third parties.
Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and
criminal penalties; the imposition of investigatory, remedial or corrective action obligations or the incurrence of capital
expenditures; the occurrence of delays in the permitting, development or expansion of projects; the issuance of injunctive relief
limiting or prohibiting certain operations; and reputational harm. In addition, many environmental laws provide a mechanism
for citizens to file suit against regulated facilities for alleged environmental violations. Compliance with applicable
environmental laws, regulations and permits or other authorizations will continue to have an impact on our operations, the
results of our operations and our capital expenditures.
Rate Regulation - Some of HEP’s existing pipelines are considered interstate common carrier pipelines subject to regulation by
the Federal Energy Regulatory Commission (“FERC”) under the Interstate Commerce Act (the “ICA”). The ICA requires that
tariff rates for oil pipelines, a category that includes crude oil and petroleum product pipelines, be just and reasonable and not
unduly discriminatory. The ICA permits interested persons to challenge newly proposed or changed rates and authorizes FERC
to suspend the effectiveness of such rates for a period of up to seven months and to investigate such rates. If, upon completion
of an investigation, FERC finds that the new or changed rate is unlawful, it is authorized to require the carrier to refund the
revenues in excess of the prior tariff collected during the pendency of the investigation. FERC also may investigate, upon
complaint or on its own motion, rates that are already in effect and may order a carrier to change its rates prospectively. Upon
an appropriate showing, a shipper may obtain reparations for damages sustained during the two years prior to the filing of a
complaint.
The Energy Policy Act of 1992 deemed petroleum products pipeline tariff rates that were (i) in effect for the 365-day period
ending on the date of enactment or (ii) in effect on the 365th day preceding enactment and had not been subject to complaint,
protest or investigation during the 365-day period, in each case, to be just and reasonable or “grandfathered” under the ICA.
The Energy Policy Act also limited the circumstances under which a complaint can be made against such grandfathered rates.
Petroleum products pipelines may change their rates within prescribed ceiling levels that are tied to an inflation index. Shippers
may protest rate increases made within the ceiling levels, but such protests must show that the portion of the rate increase
resulting from application of the index is substantially in excess of the pipeline’s increase in costs from the previous year. A
pipeline must, as a general rule, utilize the indexing methodology to change its rates. Cost-of-service ratemaking, market-based
rates and settlement rates are alternatives to the indexing approach and may be used in certain specified circumstances to
change rates.
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Clean Air Act - Our operations are subject to certain requirements of the Federal Clean Air Act (“CAA”) as well as related state
and local laws and regulations. Certain CAA regulatory programs applicable to our facilities require capital expenditures for the
installation of certain air pollution control devices, operational procedures to minimize emissions, and monitoring and reporting
of emissions. Additionally, the Environmental Protection Agency (“EPA”) has the authority under the CAA to modify the
formulation of the refined transportation fuel products we manufacture in order to limit the emissions associated with their final
use. Also, the EPA has reduced several National Ambient Air Quality Standards (“NAAQS”), and implementation of such
revised NAAQS could result in stricter permitting requirements, delay or the inability to obtain such permits, and increased
expenditures for pollution control equipment, the costs of which could be significant. Moreover, in February 2016, a new EPA
rule became effective that requires, among other things, benzene monitoring at the refinery fence line beginning in January
2018 and submittal of fence line monitoring data to the EPA on a quarterly basis; upgraded storage tank controls requirements,
including new applicability thresholds; enhanced performance requirements for flares, continuous monitoring of flares and
pressure release devices, and analysis and remedy of flare release events; compliance with emissions standards for delayed
coking units; and requirements related to air emissions resulting from startup, shutdown and maintenance events. These new
rules, as well as subsequent rulemaking under the CAA or similar laws, or new agency interpretations of existing laws and
regulations, may necessitate additional expenditures in future years and result in increased costs on our operations.
Fuel Quality Regulation - We are subject to the EPA’s Control of Hazardous Air Pollutants from Mobile Sources (also known
as the Mobile Source Air Toxics rule, or “MSAT2”) regulations that impose reductions in the benzene content of our produced
gasoline. In addition to reducing benzene concentration in our gasoline, our refineries currently purchase benzene credits to
meet these requirements. If economically justified or otherwise determined to be beneficial, we may implement additional
benzene reduction projects to eliminate or reduce the need to purchase benzene credits.
Pursuant to the Energy Independence and Security Act of 2007 (“EISA”), and the EPA’s corresponding Renewable Fuel
Standard (“RFS”) regulations, most refiners are required to blend increasing amounts of biofuels with refined products through
2022 or purchase Renewable Identification Numbers (“RINs”) in lieu of blending. Under the RFS, the percentage of renewable
fuels that refineries are obligated to blend into their finished petroleum products is adjusted annually. In November 2018, the
EPA finalized the RFS targets for 2019, which maintained the volume required for conventional (i.e., corn ethanol) renewable
fuel, increased the volume required for advanced biofuels, and increased the volume required for cellulosic biofuel compared to
the 2018 RFS requirements. The EPA also increased the biomass-based diesel volume for 2020 compared to 2019. The EPA
has not yet finalized the 2021 RFS requirements for any fuel other than biodiesel, creating some uncertainty regarding our
compliance obligations for 2021. Because the EISA requires specified volumes of biofuels, if the demand for motor fuels
decreases in future years, even higher percentages of biofuels may be required.
The EPA has historically used its waiver authority to establish volumes lower than the statutory volumes required by EISA, but
the EPA’s interpretation of its waiver authority, as well as its implementation of the RFS, has been subject to numerous court
challenges. Lawsuits have been filed by the renewable fuel industry challenging the EPA's grant of small refinery exemptions.
For additional information regarding risks relating to our small refinery exemptions, see Item 1A, “Risk Factors - The
availability and cost of renewable identification numbers and other required credits could have an adverse effect on our
financial condition and results of operations.” Legal challenges of the EPA's decision are ongoing. We cannot predict the
outcome of these matters or whether they may result in increased RFS compliance costs. There also continues to be a shortage
of advanced biofuel production resulting in increased difficulties meeting RFS mandates. As a result, we may be unable to
blend sufficient quantities of renewable fuel to meet our requirements and, therefore, may have to purchase an increasing
number of RINs. It is not possible at this time to predict with certainty what those volumes or costs may be, but given the
potential increase in volumes and the volatile price of RINs, increases in renewable volume requirements could have an adverse
impact on our results of operations.
Finally, while there is no current regulatory standard that authenticates RINs that may be purchased on the open market from
third parties, we believe that the RINs we purchase are from reputable sources, are valid and serve to demonstrate compliance
with applicable RFS requirements. However, if any of the RINs purchased by us on the open market are subsequently found by
the EPA to be invalid, we could incur significant costs, penalties, or other liabilities in connection with replacing any invalid
RINs and resolving any enforcement action brought by the EPA.
In April 2014, the EPA promulgated the Tier 3 Motor Vehicle Emission and Fuel Standards, which requires a reduction in
annual average gasoline sulfur content from 30 ppm to 10 ppm. These requirements, other CAA requirements, and other
presently existing or future environmental regulations may cause us to make substantial capital expenditures and purchase
sulfur credits at significant cost to enable our refineries to produce products that meet applicable requirements.
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Climate Change - In recent years, various legislative and regulatory measures to address climate change and greenhouse gas
(“GHG”) emissions (including carbon dioxide, methane and nitrous oxides) have been discussed or implemented. They include
proposed and enacted federal regulation and state actions to develop statewide, regional or nationwide programs designed to
control and reduce GHG emissions from fixed sources, such as our refineries, as well as power plants, mobile transportation
sources and fuels. Measures to date have included but are not limited to cap and trade programs, carbon taxes, vehicle
efficiency standards, electric vehicle mandates, combustion engine phaseouts and low carbon fuel standards. Although it is not
possible to predict the requirements of any GHG legislation that may be enacted, any laws or regulations that may be adopted to
restrict or reduce GHG emissions will likely require us to incur increased operating and capital costs. In August 2015, the EPA
finalized the “Clean Power Plan” requiring states to reduce carbon dioxide emissions from coal-fired power plants that will
likely result in a combination of plant closures, switching to renewable energy and natural gas, and demand reduction.
However, in July 2019, the EPA issued a replacement rule titled the Affordable Clean Energy (“ACE”) Rule, which replaced
the Clean Power Plan and is focused solely on electric generating units. However, in January 2021, the D.C. Circuit vacated the
ACE rule, and the Biden Administration may consider reimplementing the Clean Power Plan or a similar rule. Neither the
Clean Power Plan nor the Affordable Clean Energy Rule would directly affect our operations. To the extent the EPA fully
implements a rule that imposes higher costs on electricity generating units it could result in increased power costs for our
refineries in future years.
EPA rules require us to report GHG emissions from our refinery operations and consumer use of fuel products produced at our
refineries on an annual basis. While the cost of compliance with the reporting rule is not material, data gathered under the rule
may be used in the future to support additional regulation of GHG. Moreover, the EPA directly regulates GHG emissions from
refineries and other major sources through the Prevention of Significant Deterioration (“PSD”) and Federal Operating Permit
programs and may require Best Available Control Technology (“BACT”) for GHG emissions above a certain threshold if
emissions of other pollutants would otherwise require PSD permitting. While this does not impose any limits or controls on
GHG emissions from current operations, future projects or operational changes that increase GHG emissions, such as capacity
increases, may be subject to emission limits or technological requirements pertaining to GHG emissions, such as BACT.
Severe limitations on GHG emissions could also adversely affect demand for the gasoline that we produce. Recently, activists
concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy
companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their
investment in oil and natural gas activities. There is also a risk that financial institutions will be required to adopt policies that
have the effect of reducing the funding provided to the fossil fuel sector. Recently, the Federal Reserve announced that it has
joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-
related risks in the financial sector. Ultimately, this could make it more difficult to secure funding for exploration and
production activities and result in decreased production of oil, which indirectly could have an adverse impact on our operations.
Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth’s
atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of
storms, floods and other extreme weather events; if any such effects were to occur, they could have an adverse effect on our
operations.
The incoming administration is proposing an “all of government” approach to climate change in which the federal government
would use not only its regulatory and enforcement authority but also its policy and purchasing power to encourage investment
and use of renewable energy sources and to otherwise impede and reduce fossil fuel use. This approach may include elements
that could directly or indirectly result in decreased demand for transportation fuel and could have an adverse impact on our
operations. For example, on January 27, 2021, President Biden issued an executive order that commits to substantial action on
climate change, calling for, among other things, the increased use of zero-emissions vehicles by the federal government, the
elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across
governmental agencies and economic sectors.
Water Discharges - Our operations are also subject to the Federal Clean Water Act (“CWA”), the Federal Safe Drinking Water
Act (“SDWA”) and comparable state and local requirements. The CWA, the SDWA and analogous laws prohibit any discharge
into surface waters, ground waters, injection wells and publicly-owned treatment works except in conformance with legal
authorization, such as pre-treatment permits and National Pollutant Discharge Elimination System (“NPDES”) permits, issued
by federal, state and local governmental agencies. The EPA commenced a study from 2015-2017 related to the discharges of
metals and dioxin from petroleum refining operations and wastewater discharges from refineries in connection with the
consideration of new effluent limitation guidelines that would be incorporated into refinery sector NPDES permits. To date, the
EPA has not proposed any new effluent limitation guidelines applicable to our operations, but future rulemakings related to this
issue could require us to incur increased costs related to the treatment of wastewater resulting from our operations.
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The CWA also regulates filling or discharges to wetlands and other “waters of the United States.” On January 23, 2020, the
EPA, in conjunction with the U.S. Army Corps of Engineers (the “Corps”), issued a final rule regarding the definition of
“waters of the United States,” which narrowed the regulatory reach of the CWA regulations relative to a prior 2015 rulemaking.
The final rule became effective June 22, 2020. Because the rule does not expand the scope of the CWA’s jurisdiction, it will not
likely adversely impact our operations; however, the final rule is subject to litigation, and multiple challenges to the EPA's prior
rulemakings remains pending, both of which create uncertainty. Additionally, the new administration may seek to revise or
withdraw the final rule, creating further uncertainty.
Hazardous Substances and Wastes - We generate wastes that may be subject to the Resource Conservation and Recovery Act
and comparable state and local requirements. The EPA and various state agencies have limited the approved methods of
disposal for certain hazardous and non-hazardous wastes. Although the EPA is currently working on several rulemakings that
could impact how our refineries manage various waste streams, it does not appear that these rules will significantly impact our
refineries.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as “Superfund,”
imposes strict, and under certain circumstances, joint and several liability on certain classes of persons who are considered to be
responsible for the cost of cleaning up hazardous substances that have been released into the environment and for damages to
natural resources. These persons include current and former owners or operators of property where a release has occurred, and
any persons who disposed of, or arranged for the transport or disposal of, hazardous substances at the property. In the course of
our historical operations, as well as in our current operations, we have generated waste, some of which falls within the statutory
definition of a “hazardous substance” and some of which may have been disposed of at sites that may be subject to cleanup and
cost recovery actions under CERCLA in the future. Similarly, locations now owned or operated by us, where third parties have
disposed such hazardous substances in the past, may also be subject to cleanup and cost recovery actions under CERCLA.
Some states have enacted laws similar to CERCLA which impose similar responsibilities and liabilities on responsible parties.
It is also not uncommon for neighboring landowners and other third parties to file claims under state law for personal injury and
property damage allegedly caused by hazardous substances or other pollutants released into the environment.
Oil Pollution Act - The Oil Pollution Act of 1990 (“OPA”) and regulations thereunder generally subject owners and operators
of facilities to strict, joint and several liability for all containment and cleanup costs, natural resource damages, and potential
governmental oversight costs arising from oil spills into the waters of the U.S. The OPA also imposes ongoing requirements on
a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover
environmental cleanup and restoration costs that could be incurred in connection with an oil spill.
Other Environmental Regulations - Our Canadian assets and operations are also required to comply with various Canadian
federal, provincial and municipal regulations. The regulations are in many cases conceptually similar to those described above
for our U.S. operations. The principal legislation affecting our Canadian operations is the Canadian Environmental Protection
Act, the Fisheries Act, the Greenhouse Gas Pollution Pricing Act and their regulations at a federal level and various provincial
statutes and regulations such as the Ontario Environmental Protection Act, the Ontario Occupational Health and Safety Act and
the Ontario Water Resources Act. All these laws contain broad prohibitions against causing harm to air, land, water, people or
any other living organism and in many cases contain detailed prescriptive rules governing many aspects of our operations.
Regulatory trends towards more stringent emission requirements and operating controls are expected to continue at federal,
provincial and local levels.
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Additionally, our assets and operations in the Netherlands are required to comply with Dutch regulations that are similar to, and
in some cases more stringent than, those described above for our U.S. operations. The statutes to which our Dutch assets and
operations are subject include the Environmental Protection Act, the Activities Decree, the Environmental Licensing (General
Provisions) Act, the Water Act, the Soil Protection Act, the Major Accidents (Risks) Decree, the European Birds and Habitats
Directive, the Economic Offences Act and other subordinate decrees and regulations relative to environmental control,
permitting and enforcement. However, a large legislative operation is being developed that should lead to the integration of all
environmental laws in one, being the Environment and Planning Act, which is expected to enter into force in January 2022.
Generally, these regulations create a system of environmental permits covering the most significant emissions to water, air and
soil, as well as other environmental impacts. The Netherlands also participates in certain broader European legal initiatives,
including GHG cap and trade programs. Additionally, in December 2019, the High Council of the Netherlands upheld a court
order for the government of the Netherlands to reduce the country's GHG emissions by 25% (compared to 1990) by 2020, and
in January 2020,the Climate Act came into force, with the goal of significantly reducing GHG emissions by 49% (compared to
1990) by 2030 and by at least 95% (compared to 1990) by 2050. Furthermore, the target is that 100% of the electricity
production will be CO2 neutral in 2050. The Climate Act also establishes that the government must prepare a Climate Plan. The
first Climate Plan covers the period between 2021 and 2030 and includes measures in view of a reduction of 49% of GHG
emissions in 2030. It is unclear what further measures the Dutch government will take to reduce GHG emissions pursuant to
this law.
Enforcement and Litigation Proceedings - As is the case with all companies engaged in industries similar to ours, we face
potential exposure to future claims and lawsuits involving environmental matters. These matters include soil and water
contamination, air pollution, GHG emissions, personal injury and property damage allegedly caused by substances that we
manufactured, handled, used, released or disposed. We currently have environmental remediation projects that relate to
recovery, treatment and monitoring activities resulting from past releases of refined product and crude oil into the environment.
As of December 31, 2020, we had an accrual of $115.0 million related to such environmental liabilities.
We are and have been the subject of various local, state, provincial, federal and private proceedings and inquiries relating to
compliance with environmental laws and regulations and conditions, including those discussed above. Compliance with current
and future environmental regulations is expected to require additional expenditures, including expenditures for investigation
and remediation, which may be significant. To the extent that future expenditures for these purposes are material and can be
reasonably determined, these costs are disclosed and accrued, if applicable.
Occupational Health and Safety - Our operations are subject to various laws and regulations relating to occupational health
and safety, including the Occupational Safety and Health Act (“OSHA”), comparable state statutes, Canadian regulations
applicable to our operations in Canada and Dutch regulations, including the Health and Safety Act, applicable to our operations
in the Netherlands. We maintain a comprehensive safety program, including mechanical integrity and safety-related
maintenance programs and training, to ensure compliance with all applicable laws and regulations to protect the safety of our
workers and the public. Some of our operations are also subject to OSHA Process Safety Management (“PSM”) regulations and
EPA Risk Management Plan (“RMP”) regulations, both of which are designed to prevent or minimize chemical accidents and
any resulting releases of toxic, reactive, flammable or explosive chemicals. In January 2017, the EPA revised the RMP
requirements for incident investigation and accident history reporting, emergency preparedness, and the performance of process
hazard analyses and third party compliance audits. Many of the revised requirements do not become effective until 2021, and
the EPA issued a final rule in December 2019 that rescinded several of the requirements of the 2017 rule. The new
administration may consider reissuing some of the rescinded requirements or making other changes. Also in January 2017,
OSHA announced changes to its National Emphasis Program, which specifically identified oil refineries as facilities for
increased inspections and instructed inspectors to use data gathered from EPA RMP inspections to identify refiners for
additional PSM inspections. Compliance with applicable state and federal occupational health and safety laws and regulations,
as well as environmental regulations, has required, and continues to require, substantial expenditures.
Occupational health and environmental legislation, regulations and regulatory programs change frequently. We cannot predict
what additional occupational health and environmental legislation or regulations will be enacted or become effective in the
future or how existing or future laws or regulations will be administered or interpreted with respect to our operations.
Compliance with more stringent laws or regulations or adverse changes in the interpretation of existing laws or regulations by
government agencies could have an adverse effect on our financial position and the results of our operations and could require
substantial expenditures for the installation and operation of systems and equipment that we do not currently possess.
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Insurance
Our operations are subject to hazards of operations, including fire, explosion and weather-related perils. We maintain various
insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against
certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not
justify such expenditures.
We have a risk management oversight committee consisting of members from our senior management. This committee oversees
our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that
may adversely affect the achievement of our goals.
Item 1A. Risk Factors
Risk Factor Summary
Investing in us involves a degree of risk. You should carefully consider all information in this Form 10-K, including the
Management’s Discussion & Analysis section and the financial statements and related notes, prior to investing in our common
stock. These risks and uncertainties include, but are not limited to, the following:
Risks Related to our Business:
•
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•
•
The prices of crude oil and refined and finished lubricant products materially affect our profitability, and are dependent
upon many factors that are beyond our control.
To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating
expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the
market conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash
flows could be materially and adversely affected.
The COVID-19 pandemic or any other widespread outbreak of an illness or pandemic or other public health crisis, and
actions taken in response thereto, as well as certain developments in the global oil markets, have had and may continue
to have a material adverse effect on our operations, business, financial condition and results of operations and cash
flows.
Competition in the refining and marketing industry and in our lubricants and specialty products segment is highly
competitive, an increase in competition could adversely affect our earnings and profitability.
A disruption to or proration of the refined product distribution systems or manufacturing facilities we utilize could
negatively impact our profitability.
A material decrease in the supply of crude oil or other raw materials available to our refineries and other facilities
could significantly reduce our production levels and negatively affect our operations.
• We depend upon HEP for a substantial portion of the crude supply and distribution network that serve our refineries,
•
•
•
and we own a significant equity interest in HEP.
Our acquisition strategy involves numerous risks, any of which could adversely affect us.
An impairment of our long-lived assets or goodwill could reduce our earnings or negatively impact our financial
condition and results of operations.
Potential product, service or other related liability claims and litigation could adversely affect our business, reputation
and results of operations.
• We sell many of our lubricants and specialty products through distributors, which presents risks that could adversely
affect our operating results.
Our hedging transactions may limit our gains and expose us to other risks.
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Risks Related to Government Regulation
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•
There are various risks associated with greenhouse gases and climate change, including increased regulation of CO2
emissions, that could result in increased operating costs and litigation and reduced demand for the refined products we
produce and investment in our industry.
The availability and cost of renewable identification numbers and other required credits could have an adverse effect
on our financial condition and results of operations.
• We are subject to significant regulation and oversight by governmental agencies. We incur significant costs, and
expect to incur additional costs in the future, to comply with existing, new and changing environmental, energy, health
and safety laws and regulations, and face potential exposure for environmental matters.
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Our business is subject to complex and evolving global laws, regulations and security standards regarding privacy,
cybersecurity and data protection, which could result in claims, increased cost of operations, or otherwise harm our
business.
General Risk Factors
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•
Cyberattacks, data security breaches, information technology system failures, network disruptions, terrorist attacks or
domestic vandalism, continued global hostilities or other sustained military campaigns could have a material adverse
effect on our business, financial condition and results of operations.
Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions and other disruptive
risks for which we may not be adequately insured.
• We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit
and capital markets.. Our credit facility contains certain covenants and restrictions that may constrain our business and
financing activities.
Our business is subject to the risks of international operations, including currency fluctuations.
•
• We are exposed to the credit risks, and certain other risks, of our key customers and vendors.
• We may be unable to pay future dividends.
• We may be unable to adequately protect our intellectual property, which may increase our cost of doing business or
•
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otherwise hurt our ability to compete in the market.
Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect
on our liquidity and limit our ability to purchase sufficient quantities of crude oil to operate our refineries at desired
capacity.
Our business may suffer due to a departure of any of our key employees, a shortage of skilled labor or disruptions in
our workforce. A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee
relations could adversely affect our business.
The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could
be impacted.
Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of
operations and cash flows.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and
adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition,
results of operations could be materially and adversely affected. The headings provided in this Item 1A. are for convenience and
reference purposes only and shall not affect or limit the extent or interpretation of the risk factors.
RISKS RELATED TO OUR BUSINESS
The prices of crude oil and refined and finished lubricant products materially affect our profitability, and are dependent
upon many factors that are beyond our control, including general market demand and economic conditions, seasonal and
weather-related factors, regional and grade differentials and governmental regulations and policies.
Among these factors is the demand for crude oil and refined and finished lubricant products, which is largely driven by the
conditions of local and worldwide economies, as well as by weather patterns, changes in consumer preferences and the taxation
of these products relative to other energy sources. Governmental regulations and policies, particularly in the areas of taxation,
energy and the environment, and more recently in response to the COVID-19 pandemic, also have a significant impact on our
activities. Operating results can be affected by these industry factors, product and crude pipeline capacities, crude oil
differentials (including regional and grade differentials), changes in transportation costs, accidents or interruptions in
transportation, competition in the particular geographic areas that we serve, global market conditions, actions by foreign nations
and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery
operations. The demand for crude oil and refined and finished lubricant products can also be reduced due to a local or national
recession or other adverse economic condition, which results in lower spending by businesses and consumers on gasoline and
diesel fuel, higher gasoline prices due to higher crude oil prices, a shift by consumers to more fuel-efficient vehicles or
alternative fuel vehicles (such as ethanol or wider adoption of gas/electric hybrid vehicles), or an increase in vehicle fuel
economy, whether as a result of technological advances by manufacturers, legislation mandating or encouraging higher fuel
economy or the use of alternative fuel.
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We do not produce crude oil and must purchase all our crude oil, the price of which fluctuates based upon worldwide and local
market conditions. Our profitability depends largely on the spread between market prices for refined petroleum products and
crude oil prices. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined
products are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of
certain existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to
markets that serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable
pricing. A deterioration of crack spreads or price differentials between domestic and foreign crude oils could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
Additionally, due to the seasonality of refined products markets and refinery maintenance schedules, results of operations for
any particular quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the
event of unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the
markets in which we sell our petroleum products. In general, prices for refined products are influenced by the price of crude oil.
Although an increase or decrease in the price for crude oil may result in a similar increase or decrease in prices for refined
products, there may be a time lag in the realization of the similar increase or decrease in prices for refined products. The effect
of changes in crude oil prices on operating results, therefore, depends in part on how quickly refined product prices adjust to
reflect these changes. A substantial or prolonged increase in crude oil prices without a corresponding increase in refined product
prices, a substantial or prolonged decrease in refined product prices without a corresponding decrease in crude oil prices, or a
substantial or prolonged decrease in demand for refined products could have a significant negative effect on our earnings and
cash flow. Also, our crude oil and refined products inventories are valued at the lower of cost or market under the last-in, first-
out (“LIFO”) inventory valuation methodology. If the market value of our inventory were to decline to an amount less than our
LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of products sold even when there is no
underlying economic impact at that point in time. Continued volatility in crude oil and refined products prices could result in
lower of cost or market inventory charges in the future, or in reversals reducing cost of products sold in subsequent periods
should prices recover. For example, we recorded a charge and increase to cost of products sold in the amount of $78.5 million
and a non-cash decrease to cost of products sold in the amount of $119.8 million for the years ended December 31, 2020 and
2019, respectively.
To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating
expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the market
conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash flows could
be materially and adversely affected.
Our facilities consist of many processing units, a number of which have been in operation for many years. One or more of the
units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled
turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the
units are not operating. We have taken significant measures to expand and upgrade units in our facilities by installing new
equipment and redesigning older equipment to improve refinery capacity or to address changes in consumer preferences, such
as the growing demand for renewable diesel and other lower carbon fuels. The installation and redesign of key equipment at our
facilities, including the conversion of our Cheyenne Refinery to renewable diesel production and the construction of the
renewable diesel and pre-treatment units at our Artesia facility, involves significant uncertainties, including the following: our
upgraded equipment may not perform at expected levels; operating costs of the upgraded equipment may be higher than
expected; the yield and product quality of new equipment may differ from design and/or specifications and redesign,
modification or replacement of the equipment may be required to correct equipment that does not perform as expected, which
could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new
equipment, redesigned older equipment, or repaired equipment could lead to lower revenues or higher costs or otherwise have a
negative impact on our future financial condition and results of operations. In the third quarter of 2020, we permanently ceased
refining operations at our Cheyenne Refinery and subsequently began converting certain assets at the Cheyenne Refinery to
renewable diesel production due, in part, to uncompetitive operating and maintenance costs for the refinery.
One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and
refurbishment of used units from another refinery) and the conversion or expansion of existing ones, such as the conversion of
the Cheyenne Refinery to renewable diesel production and the connection of a new renewable diesel and a pre-treatment unit at
the Navajo Refinery. Projects are generally initiated to increase the yields of higher-value products, increase the amount of
lower cost crude oils that can be processed, increase refinery production capacity, meet new governmental requirements or take
advantage of new government incentive programs, or maintain the operations of our existing assets. Additionally, our growth
strategy includes projects that permit access to new and/or more profitable markets, including the growing demand for
renewable diesel and other lower carbon fuels. The construction process involves numerous regulatory, environmental,
political, and legal uncertainties, most of which are not fully within our control, including:
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third party challenges to, denials, or delays with respect to the issuance of requisite regulatory approvals and/or
obtaining or renewing permits, licenses, registrations and other authorizations;
societal and political pressures and other forms of opposition;
compliance with or liability under environmental regulations;
unplanned increases in the cost of construction materials or labor;
disruptions in transportation of modular components and/or construction materials;
severe adverse weather conditions, natural disasters, terrorists or cyberattacks, domestic vandalism or other events
(such as equipment malfunctions, explosions, fires, spills) affecting our facilities, or those of vendors and suppliers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
•
• market-related increases in a project's debt or equity financing costs; and/or
•
nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved
with a project.
If we are unable to complete capital projects at their expected costs or in a timely manner our financial condition, results of
operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our
facilities could subject us to fines or penalties as well as affect our ability to supply certain products we make. In addition, our
revenues may not increase immediately upon the expenditure of funds on a particular project. For instance, the construction of
our previously announced renewable diesel units and pre-treatment unit at our Cheyenne and Artesia facilities will occur over
an extended period of time and we will not receive any material increases in revenues until after completion of the project.
Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel
in a region in which such growth does not materialize. As a result, new capital investments may not achieve our expected
investment return, which could adversely affect our financial condition or results of operations.
In addition, we expect to execute turnarounds at our refineries, which involve numerous risks and uncertainties. These risks
include delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades,
overhaul and repair of process equipment and materials, during which time all or a portion of the refinery will be under
scheduled downtime.
Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within
our control, including changes in general economic conditions, available alternative supply, global market conditions, actions
by foreign nations and customer demand.
The COVID-19 pandemic or any other widespread outbreak of an illness or pandemic or other public health crisis, and
actions taken in response thereto, as well as certain developments in the global oil markets, have had and may continue to
have a material adverse effect on our operations, business, financial condition and results of operations and cash flows.
Our success depends on the demand for petroleum products such as transportation fuels and finished lubricant products, which
is largely driven by the conditions of local and worldwide economies, and the supply of crude oil and other feedstocks.
COVID-19’s spread across the globe and governmental actions in response thereto have negatively affected worldwide
economic and commercial activity, significantly reduced global demand for oil, gas and refined products, and created
significant volatility and disruption of financial and commodity markets in the first half of 2020. Other factors currently
impacting crude oil supply include production levels implemented by OPEC members, other large oil producers such as Russia
and domestic and Canadian oil producers. The oversupply of crude oil in the market has caused certain domestic and Canadian
oil producers from whom we source crude oil to shut-in their production, which could impact our ability to readily source crude
oil once the stored crude oil is depleted. While demand for refined products stabilized in the second half of 2020, this
combination of events contributed to an overall drop in prices, as well as a lack of forward visibility in demand, for crude oil
and refined products in 2020. See “Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of COVID-19 on Our Business” for additional discussion of the impact of COVID-19 on our business.
In addition, the supply and demand for refined and finished lubricant products depends on many other factors outside of our
control, some of which include:
•
•
•
changes in domestic and international demand for, and the marketability of, our refined and finished lubricant products
due to governmental actions, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns,
which could result in a full or partial shutdown of our facilities;
increased price volatility, including the price we receive for refined and finished lubricant products;
the health of our workforce, including contractors and subcontractors, and their access to our facilities, which could
result in a full or partial shutdown of our facilities if a significant portion of the workforce at a facility is impacted;
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the availability, distribution and effectiveness of vaccines for COVID-19;
the ability or willingness of our vendors and suppliers to provide the equipment, parts, crude oil or other raw materials
for our operations or otherwise fulfill their contractual obligations, which could reduce our production levels or
otherwise cause our delay or failure to deliver refined or other finished lubricant products timely or at all or cause
delay or failure to complete projects at our facilities;
the ability or willingness of our customers to fulfill their contractual obligations or any material reduction in, or loss of,
revenue from our customers;
increased potential for the occurrence of operational hazards, including terrorism, cyberattacks or domestic vandalism,
as well as information system failures or communication network disruptions;
increased cost and reduced availability of capital for growth or capital expenditures;
availability and operability of terminals, tankage and pipelines that store and transport crude oil and refined and
finished lubricant products;
delay by government authorities in issuing or maintaining permits necessary for our business or our capital projects;
shareholder activism and activities by non-governmental organizations to limit sources of funding for the energy
sector;
increased costs of operation in relation to the COVID-19 outbreak, which costs may not be fully recoverable or
adequately covered by insurance; and
the impact of any economic downturn, recession or other disruption of the U.S. and global economies and financial
and commodity markets.
The spread of COVID-19 has caused us to significantly modify our business practices (including limiting employee and
contractor presence at our work locations, restricting travel unless approved by senior leadership, quarantining employees when
necessary, reducing our expected total consolidated capital expenditures for 2020 and reducing utilization at our refineries), and
we may take further actions as may be required by government authorities or that we determine are in the best interests of our
employees, contractors, customers, suppliers and communities. There is no certainty that such measures will be sufficient to
mitigate the risks posed by the virus, and our ability to perform critical functions could be adversely impacted. In addition,
deterioration in gross margins and the economic slowdown resulting from the COVID-19 pandemic was a contributing factor in
certain goodwill and long-lived asset impairments we recorded in 2020. See “An impairment of our goodwill or long-lived
assets could reduce our earnings or negatively impact our financial condition and results of operations” for further discussion of
the impairment risk in our business and the impairments we recorded in 2020. A reasonable expectation exists that further
deterioration in gross margins or a prolonged economic slowdown due to the COVID-19 pandemic could result in an additional
impairment of assets or of goodwill at some point in the future. Such impairment charges could be material.
The effects of COVID-19 are difficult to predict and the duration of any potential business disruption or the extent to which it
may negatively affect our operating results is uncertain. Any additional impact will depend on future developments and new
information that may emerge regarding the spread, severity and duration of the COVID-19 pandemic and the actions taken by
authorities to contain it or manage its impact, all of which are beyond our control. In addition, if the volatility and seasonality in
the oil and gas industry were to increase, the demand for our products and the prices that we will be able to charge for those
products may decline. We continue to monitor the situation to assess further possible implications to our business and to take
actions in an effort to mitigate adverse consequences. The effects of the COVID-19 pandemic, as well as the volatility in global
oil markets, while uncertain, have and may continue to, materially adversely affect our business, financial condition, results of
operations and/or cash flows, as well as our ability to pay dividends to our shareholders.
Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we
sell our products could adversely affect our earnings and profitability.
We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of
their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our
competitors may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the
economic risks inherent in all areas of the refining industry.
We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used
at our refineries. We do not have a retail business and therefore are dependent upon others for outlets for our refined products.
Certain of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail
outlets. Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to
offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to
withstand periods of depressed refining margins or feedstock shortages.
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In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in our
geographic market. These transactions could increase the future competitive pressures on us.
The markets in which we compete may be impacted by competitors' plans for expansion projects and refinery improvements
that could increase the production of refined products in our areas of operation and significantly affect our profitability.
Also, the potential operation of new or expanded refined product transportation pipelines, or the conversion of existing
pipelines into refined product transportation pipelines, could impact the supply of refined products to our existing markets and
negatively affect our profitability.
In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our
industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental
regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and
demand for our products and our profitability. There are presently significant governmental and consumer pressures to increase
the use of alternative fuels in the United States.
The market for our lubricants and specialty products segment is highly competitive and requires us to continuously develop
and introduce new products and product enhancements.
Our ability to grow our Lubricants and Specialty Products segment depends, in part, on our ability to continuously develop,
manufacture and introduce new products and product enhancements on a timely and cost-effective basis, in response to
customers’ demands for higher performance process lubricants, coatings, greases and other product offerings. Our competitors
may develop new products or enhancements to their products that offer performance, features and lower prices that may render
our products less competitive or obsolete, and, as a consequence, we may lose business and/or significant market share. Our
efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely
affected by unfavorable margins or difficulties or delays in product development and service innovation, including the inability
to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain
intellectual property protection or gain market acceptance of new products or service techniques. The development and
commercialization of new products require significant expenditures over an extended period of time, and some products that we
seek to develop may never become profitable, and we could be required to write-off our investments related to a new product
that does not reach commercial viability.
A disruption to or proration of the refined product distribution systems or manufacturing facilities we utilize could
negatively impact our profitability.
We utilize various common carrier or other third party pipeline systems to deliver our products to market. The key systems
utilized by the El Dorado, Navajo, Woods Cross, and Tulsa Refineries are NuStar Energy and Magellan, SFPP and Plains,
Chevron and UNEV, and Magellan, respectively.
Our U.S. refineries also utilize systems owned by HEP. If these key pipelines or their associated tanks and terminals become
inoperative or decrease the capacity available to us, we may not be able to sell our product, or we may be required to hold our
product in inventory or supply products to our customers through an alternative pipeline or by rail or additional tanker trucks
from the refinery, all of which could increase our costs and result in a decline in profitability.
We have manufacturing facilities in foreign countries that support the Lubricants and Specialty Products segment. If one of our
facilities is damaged or disrupted, resulting in production being halted for an extended period, we may not be able to timely
supply our customers. We take steps to mitigate this risk, including business continuity and contingency planning and procuring
property insurance (including business interruption) and casualty insurance. Nevertheless, the loss of sales in any one region
over an extended period of time could have a material adverse effect on our business, financial condition and results of
operations.
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A material decrease in the supply of crude oil or other raw materials available to our refineries and other facilities could
significantly reduce our production levels and negatively affect our operations.
To maintain or increase production levels at our refineries, we must continually contract for crude oil supplies from third
parties. There are a limited number of crude oil suppliers in certain geographic regions, and in such cases, we may be required
to source from a single third party supplier. If we are unable to maintain or extend our existing contracts with any such crude oil
suppliers, or enter into new agreements on similar terms, the supply of crude oil could be adversely impacted, or we may incur
a higher cost. A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed
commodity prices, lack of drilling activity, natural production declines, catastrophic events or otherwise, could result in a
decline in the volume of crude oil available to our refineries. In addition, any prolonged disruption of a significant pipeline that
is used in supplying crude oil to our refineries or the potential operation of a new, converted or expanded crude oil pipeline that
transports crude oil to other markets could result in a decline in the volume of crude oil available to our refineries. Such an
event could result in an overall decline in volumes of refined products processed at our refineries and therefore a corresponding
reduction in our cash flow. In addition, the future growth of our operations will depend in part upon whether we can contract for
additional supplies of crude oil at a greater rate than the rate of natural decline in our currently connected supplies. If we are
unable to secure additional crude oil supplies of sufficient quality or crude pipeline expansion to our refineries, we will be
unable to take full advantage of current and future expansion of our refineries' production capacities.
For certain raw materials and utilities used by our refineries and other facilities, there are a limited number of suppliers and, in
some cases, we source from a single supplier and/or suppliers in economies that have experienced instability or the supplies are
specific to the particular geographic region in which a facility is located. Any significant disruption in supply could affect our
ability to obtain raw materials, or increase the cost of such raw materials, which could significantly reduce our production levels
or have a material adverse effect on our business, financial condition and results of operations. In addition, certain raw materials
that we use are subject to various regulatory laws, and a change in the ability to legally use such raw materials may impact our
liquidity, financial position and results of operations.
It is also common in the refining industry for a facility to have a sole, dedicated source for its utilities, such as steam, electricity,
water and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising
raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current
supply agreements.
Additionally, there is growing concern over the reliability of water sources. The decreased availability or less favorable pricing
for water as a result of population growth, drought or regulation could negatively impact our operations.
If our raw material, utility or water supplies were disrupted, our businesses may incur increased costs to procure alternative
supplies or incur excessive downtime, which would have a direct negative impact on our operations.
We depend upon HEP for a substantial portion of the crude supply and distribution network that serve our refineries, and
we own a significant equity interest in HEP.
At December 31, 2020, we owned a 57% limited partner interest and a non-economic general partner interest in HEP. HEP
operates a system of crude oil and petroleum product pipelines, distribution terminals and refinery tankage in Idaho, Kansas,
Nevada, New Mexico, Oklahoma, Texas, Utah, Washington and Wyoming and refinery units in Kansas and Utah. HEP
generates revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, leasing certain
pipeline capacity to third parties, charging fees for terminalling refined products and other hydrocarbons and storing and
providing other services at its terminals. HEP serves the El Dorado, Navajo, Woods Cross and Tulsa Refineries under several
long-term pipeline and terminal, tankage and throughput agreements expiring in 2022 through 2036 serves the El Dorado
Refinery under long-term tolling agreements expiring in 2030 and serves the Woods Cross Refinery under long-term tolling
agreements expiring in 2031. Furthermore, our financial statements include the consolidated results of HEP. HEP is subject to
its own operating and regulatory risks, including, but not limited to:
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its reliance on its significant customers, including us;
competition from other pipelines;
environmental regulations affecting pipeline operations;
operational hazards and risks;
pipeline tariff regulations affecting the rates HEP can charge;
limitations on additional borrowings and other restrictions due to HEP's debt covenants; and
other financial, operational and legal risks.
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The occurrence of any of these risks could directly or indirectly affect HEP's as well as our financial condition, results of
operations and cash flows as HEP is a consolidated VIE. Additionally, these risks could affect HEP's ability to continue
operations which could affect their ability to serve our supply and distribution network needs.
While we own a 57% limited partner interest and a non-economic general partner interest in HEP, HEP is a publicly-traded
master limited partnership and is a legally distinct entity. Conflicts of interest may arise between us and HEP, which may
subject us to claims from HEP's public unitholders.
For additional information about HEP, see “Holly Energy Partners, L.P.” under Items 1 and 2, “Business and Properties.” For
risks related to HEP's business, see Item 1A of HEP's Annual Report on Form 10-K for the fiscal year ended December 31,
2020.
Our acquisition strategy involves numerous risks, any of which could adversely affect us.
An additional component of our growth strategy is to selectively acquire complementary assets or businesses for our refining
operations in order to increase earnings and cash flow. Our ability to do so will be dependent upon a number of factors,
including our ability to identify attractive acquisition candidates, consummate acquisitions on favorable terms, successfully
integrate acquired assets and obtain financing to fund acquisitions and to support our growth, and other factors beyond our
control. Risks associated with acquisitions include those relating to:
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diversion of management time and attention from our existing business;
challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that
may result therefrom;
difficulties in integrating the financial, technological and management standards, processes, procedures and controls of
an acquired business with those of our existing operations;
liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification
or insurance;
greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for
investments to improve operating results;
difficulties or delays in achieving anticipated operational improvements or benefits or inaccurate assumptions about
future synergies or revenues;
incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets; and
issuance of additional equity, which could result in further dilution of the ownership interest of existing stockholders.
Any acquisitions that we do consummate may have adverse effects on our business and operating results.
An impairment of our goodwill or long-lived assets could reduce our earnings or negatively impact our financial condition
and results of operations.
An impairment of our goodwill or long-lived assets could reduce our earnings or negatively impact our results of operations and
financial condition. We continually monitor our business, the business environment and the performance of our operations to
determine if an event has occurred that indicates that a goodwill or long-lived asset may be impaired. If a triggering event
occurs, which is a determination that involves judgment, we may be required to utilize cash flow projections to assess our
ability to recover the carrying value based on the ability to generate future cash flows. We may also conduct impairment testing
based on both the guideline public company and guideline transaction methods. Our goodwill and long-lived assets impairment
analyses are sensitive to changes in key assumptions used in our analysis, estimates of future crack spreads, forecasted
production levels, operating costs and capital expenditures. If the assumptions used in our analysis are not realized, it is possible
a material impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any
additional impairments of goodwill or long-lived assets in the future.
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As market prices for refined products and market prices for crude oil continue to fluctuate, we will need to continue to evaluate
the carrying value of our refinery reporting units. During the year ended December 31, 2020, we recorded long-lived asset
impairment charges of $232.2 million that related to our Cheyenne Refinery, $26.5 million for construction-in-progress
consisting primarily of engineering work for potential upgrades to certain processing units at our Tulsa and El Dorado
Refineries and $204.7 million related to PCLI. Also, during the year ended December 31, 2020, we recorded a goodwill
impairment charge of $81.9 million that related to Sonneborn. A reasonable expectation exists that further deterioration in our
operating results or overall economic conditions could result in an impairment of goodwill and / or additional long-lived asset
impairments at some point in the future. Future impairment charges could be material to our results of operations and financial
condition.
Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and
results of operations.
A significant portion of our operating responsibility on refined product pipelines is to insure the quality and purity of the
products loaded at our loading racks. If our quality control measures were to fail, we may have contaminated or off-
specification commingled pipelines and storage tanks or off-specification product could be sent to public gasoline stations. The
development, manufacture and sale of specialty lubricant products also involves an inherent risk of exposure to potential
product liability claims. These types of incidents could result in product liability claims from our customers. Our Lubricants and
Specialty Products segment could also be subject to false advertising claims, product recalls, workplace exposure, product
seizures and related adverse publicity.
Any of these incidents is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions
against manufacturers and resellers based upon claims for injuries caused by the use of or exposure to various products. There
can be no assurance that product liability claims against us would not have a material adverse effect on our business, reputation
or results of operations or our ability to maintain existing customers or retain new customers. Although we maintain product
and other general liability insurance, there can be no assurance that the types or levels of coverage maintained are adequate to
cover these potential risks, or that we will be able to continue to maintain existing insurance or obtain comparable insurance at a
reasonable cost, if at all.
We sell many of our lubricants and specialty products through distributors, which presents risks that could adversely affect
our operating results.
A large portion of our lubricants and specialty product sales, both in domestic and international markets, occur through
distributors. As a result, we are dependent on these distributors to promote and create demand for our products. We cannot
assure you that we will be successful in maintaining and strengthening our relationships with our distributors or establishing
relationships with new distributors who have the ability to market, sell and support our products effectively. We may rely on
one or more key distributors for a product or a region, and the loss of these distributors could reduce our revenue. The sales,
business practices and reputation of our distributors may affect our business and our reputation. The consolidation of
distributors, loss of a relationship with a distributor, significant disagreement with a distributor, or significant deterioration in
the financial condition of a distributor could also have an adverse effect on our operating results and may also result in
increased competition in the applicable jurisdiction.
Our hedging transactions may limit our gains and expose us to other risks.
We periodically enter into derivative transactions as it relates to inventory levels and/or future production to manage the risks
from changes in the prices of crude oil, refined products and other feedstocks. These transactions limit our potential gains if
commodity prices move above or below the certain price levels established by our hedging instruments. We hedge price risk on
inventories above our target levels to minimize the impact these price fluctuations have on our earnings and cash flows.
Consequently, our hedging results may fluctuate significantly from one reporting period to the next depending on commodity
price fluctuations and our relative physical inventory positions. These transactions may also expose us to risks of financial
losses; for example, if our production is less than we anticipated at the time we entered into a hedge agreement or if a
counterparty to our hedge agreements fails to perform its obligations under the agreements.
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RISKS RELATED TO GOVERNMENT REGULATION
There are various risks associated with greenhouse gases and climate change that could result in increased operating costs
and litigation and reduced demand for the refined products we produce and investment in our industry.
Climate change continues to attract considerable attention in the United States, Canada, Europe, and other regions. Numerous
proposals have been made and could continue to be made at the international, national, regional and state levels of government
to monitor and limit existing emissions of greenhouse gases, or “GHGs”, to restrict or eliminate such future emissions, and to
require or incentivize the use of lower-carbon or renewable alternatives. As a result, our operations are subject to a series of
regulatory, political, litigation, and financial risks associated with the refining of petroleum products and emission of GHGs.
The EPA has determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health
and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth's
atmosphere and other climatic changes. The U.S. Supreme Court has also found that GHG emissions constitute a pollutant
under the CAA. Accordingly, the EPA has adopted rules that, among other things, establish construction and operating permit
reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG
emissions from certain petroleum and natural gas sources in the United States or to control or reduce emissions of GHGs,
including methane, from such sources. In addition, the EPA, together with the DOT, implement GHG emission and corporate
average fuel economy standards for vehicles manufactured in the United States. Moreover, on January 27, 2021, President
Biden issued an executive order that commits to substantial action on climate change, calling for, among other things, the
increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the fossil fuel
industry, and increased emphasis on climate-related risks across governmental agencies and economic sectors. Additionally,
various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory
initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs,
restriction of emissions, electric vehicle mandates and combustion engine phaseouts. Similar such regulations exist at the
provincial and federal levels in Canada, including a nation-wide greenhouse gas pricing initiative and regulations related to the
control of GHGs from automobiles and light duty trucks and either cap and trade programs or carbon taxes in the provinces of
Quebec, Ontario, and Alberta. The Netherlands also participates in certain European legal initiatives, including GHG cap and
trade programs, and the Climate Act with the goal of significantly reducing GHG emissions by 49% (compared to 1990) by
2030 and by at least 95% (compared to 1990) by 2050. The Climate Act also establishes that the government must prepare a
Climate Plan. The first Climate Plan covers the period between 2021 and 2030. This plan contains, amongst others, the
principles by which the government intends to achieve the goals set out in the Climate Act. It is unclear what further measures
the Dutch government will take to reduce GHG emissions pursuant to this law. At the international level, the United Nations-
sponsored “Paris Agreement” calls for member nations to limit their GHG emissions through nationally-determined reduction
goals reevaluated every five years after 2020. The United States initially joined and then withdrew from such agreement,
effective November 4, 2020. Under the new administration, the United States rejoined the agreement effective February 19,
2021 and has instructed the federal government to begin formulating the United States' emissions reduction goal. EU member
states have agreed to reduce emissions by at least 40% by 2030. The Netherlands target is 49% reduction in GHG emissions by
2030.
The adoption of legislation or regulatory programs to reduce emissions of GHGs could require us to incur increased operating
costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or comply with new
regulatory or reporting requirements. Any such legislation or regulatory programs could also increase the cost of consuming,
and thereby reduce demand for, the refined products that we produce. Additionally, political, litigation and financial risks may
result in curtailed refinery activity, incurred liability, or other adverse effects on our business, financial condition and results of
operations.
There are also increasing risks of litigation related to climate change effects. Governments and third-parties have brought suit
against some fossil fuel companies alleging, among other things, that such companies created public and private nuisances by
producing fuels that contributed to climate change, such as rising sea levels, and therefore are responsible for roadway and
infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for
some time but defrauded their investors or customers by failing to adequately disclose those impacts. While we are not party to
such suits at this time, we may become subject to such litigation in the future. Such cases could also adversely impact public
perception and the demand for fossil fuels and petroleum products, which could subsequently result in decreased demand for
our services and refined products and a drop in our share price.
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Our share price could be adversely impacted if existing shareholders, including institutional investors, elect in the future to shift
some or all of their investments into renewable energy or non-energy related sectors based on social and environmental
considerations. Additionally, in recent years institutional lenders have become more attentive to sustainable lending practices
and have been lobbied intensively, and often publicly, by environmental activists, proponents of the international Paris
Agreement, and foreign citizenry concerned about climate change not to provide funding for fossil fuel energy companies.
Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation
of drilling programs or development or production activities, could result in a reduction of available capital funding for
potential development projects and could also adversely affect demand for our services and refined products, all of which could
impact our future financial results.
The availability and cost of renewable identification numbers and other required credits could have an adverse effect on our
financial condition and results of operations.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS regulations reflecting the increased
volume of renewable fuels mandated to be blended into the nation's fuel supply. The regulations, in part, require refiners to add
annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of
such blending. We currently purchase RINs for some fuel categories on the open market in order to comply with the quantity of
renewable fuels we are required to blend under the RFS regulations. Since the EPA first began mandating biofuels in excess of
the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has been extremely
volatile. While we cannot predict the future prices of RINs, the costs to obtain the necessary number of RINs could be material.
If we are unable to pass the costs of compliance with the RFS regulations on to our customers, if sufficient RINs are
unavailable for purchase, if we have to pay a significantly higher price for RINs or if we are otherwise unable to meet the RFS
mandates, our financial condition and results of operations could be adversely affected.
In the past, we have received small refinery exemptions under the RFS program for certain of our refineries. However, there is
no assurance that such an exemption will be obtained for any of our refineries in future years. For example, the EPA has
recently indicated it plans to more closely align the agency’s criteria for granting small refinery exemptions with the
recommendation of the Department of Energy, which could result in fewer such exemptions being granted. The failure to obtain
such exemptions for certain of our refineries could result in the need to purchase more RINs than we currently have estimated
and accrued for in our consolidated financial statements. EPA recently promulgated new RFS regulations that could require the
agency to increase the volume of renewable fuel or RINs that refiners are required to purchase if the agency anticipates it will
grant small refinery exemptions. This also could increase the number of RINs we need to purchase. Additionally, a recent
decision by the U.S. Court of Appeals for the 10th Circuit vacated two small refinery exemption decisions for the 2016
compliance year and remanded the case to the EPA for further proceedings. That decision is before the Supreme Court for
further review. It is not clear at this time what steps the EPA will take with respect to our 2016 small refinery exemptions, or
how the case will impact future small refinery exemptions.
In addition, the RFS regulations are highly complex and evolving, requiring us to periodically update our compliance systems.
The RFS regulations require the EPA to determine and publish the applicable annual volume and percentage standards for each
compliance year by November 30 for the forthcoming year, and such blending percentages could be higher or lower than
amounts estimated and accrued for in our consolidated financial statements. The future cost of RINs is difficult to estimate until
such time as the EPA finalizes the applicable standards for the forthcoming compliance year, but the EPA does not always do
so by the statutory deadline. Moreover, in addition to increased price volatility in the RINs market, there have been multiple
instances of RINs fraud occurring in the marketplace over the past several years. The EPA has initiated several enforcement
actions against refiners who purchase fraudulent RINs, resulting in substantial costs to the refiner. We cannot predict with
certainty our exposure to increased RINs costs in the future, nor can we predict the extent by which costs associated with RFS
regulations will impact our future results of operations.
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We incur significant costs, and expect to incur additional costs in the future, to comply with existing, new and changing
environmental, energy, health and safety laws and regulations, and face potential exposure for environmental matters.
Operations of our facilities and pipelines are subject to international, foreign, federal, state, provincial and local laws regulating,
among other things, the generation, storage, handling, use, transportation and distribution of petroleum and hazardous
substances by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste
management, and characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the
protection of the environment. In addition, we have manufacturing and distribution operations in foreign countries that are
subject to the environmental laws and regulations of such foreign countries. Permits or other authorizations are required under
these laws for the operation of our facilities, pipelines and related operations, and these permits and authorizations are subject to
revocation, modification and renewal or may require operational changes, which may involve significant costs. Furthermore, a
violation of permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions,
permit revocations, injunctions, refinery shutdowns, and reputational harm. In addition, major modifications of our operations
due to changes in the law could require changes to our existing permits or expensive upgrades to our existing pollution control
equipment, which could have a material adverse effect on our business, financial condition, or results of operations. For
example, in October 2015, the EPA lowered the NAAQS for ozone from 75 to 70 parts per billion for both the 8-hour primary
and secondary standards and, in 2018, published attainment/nonattainment designations. State implementation of the revised
NAAQS could result in stricter permitting requirements, delay or prohibit our ability to obtain such permits, and result in
increased expenditures for pollution control equipment, the costs of which could be significant. Also, in February 2016, a new
EPA rule became effective that amends three refinery standards already in effect, imposing additional or, in some cases, new
emission control requirements on subject refineries. The final rule requires, among other things, benzene monitoring at the
refinery fence line and submittal of fence line monitoring data to the EPA on a quarterly basis; upgraded storage tank controls
requirements, including new applicability thresholds; enhanced performance requirements for flares, continuous monitoring of
flares and pressure release devices and analysis and remedy of flare release events; and compliance with emissions standards
for delayed coking units. In November 2018, the EPA published amendments to the new rules to clarify and correct certain
requirements. These rules, as well as subsequent rulemaking under the CAA or similar laws, or new agency interpretations of
existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs on our
operations. Compliance with applicable environmental laws, regulations and permits will continue to have an impact on our
operations, results of our operations and capital requirements.
As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits
involving environmental matters. The matters include, but are not limited to, soil, groundwater and waterway contamination, air
pollution, personal injury and property damage allegedly caused by substances which we processed, manufactured, handled,
used, released or disposed.
We are and have been the subject of various local, state, provincial, federal, foreign, international and private proceedings
relating to environmental regulations, conditions and inquiries. Current and future environmental regulations are expected to
require additional expenditures, including expenditures for investigation and remediation, which may be significant, at our
facilities. To the extent that future expenditures for these purposes are material and can be reasonably determined, these costs
are disclosed and accrued.
Our operations are also subject to various foreign and domestic laws and regulations relating to occupational health and safety.
We maintain safety, training and maintenance programs as part of our ongoing efforts to ensure compliance with applicable
laws and regulations but cannot guarantee that these efforts will always be successful. Compliance with applicable health and
safety laws and regulations has required and continues to require substantial expenditures. Failure to appropriately manage
occupational health and safety risks associated with our business could also adversely impact our employees, communities,
stakeholders, reputation and results of operations.
The costs of environmental and safety regulations are already significant and compliance with more stringent laws or
regulations or adverse changes in the interpretation of existing regulations by government agencies or courts could have an
adverse effect on the financial position and the results of our operations and could require substantial expenditures for the
installation and operation of systems and equipment that we do not currently possess.
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We are also subject to existing, and may in the future be subject to new or changing, domestic and foreign energy policy
legislation. For example, in the United States, the Energy Independence and Security Act mandates annually increasing levels
for the use of renewable fuels such as ethanol and increasing energy efficiency goals, among other steps. Dutch law also
focuses on increasing the use of renewal fuels, and in Canada, fuel content legislation exists at the federal and provincial level.
These statutory mandates may have the impact over time of offsetting projected increases in the demand for refined petroleum
products in certain markets, particularly gasoline. In the near term, the new renewable fuel standard presents ethanol production
and logistics challenges for both the ethanol and refining industries and may require additional capital expenditures or expenses
by us to accommodate increased ethanol use. Other legislative changes may similarly alter the expected demand and supply
projections for refined petroleum products in ways that cannot be predicted.
For additional information on regulations and related liabilities or potential liabilities affecting our business, see “Regulation”
under Items 1 and 2, “Business and Properties,” and Item 3, “Legal Proceedings.”
We are subject to significant regulation and oversight by governmental agencies.
New laws, policies, regulations, rulemaking and oversight, as well as changes to those currently in effect, could adversely
impact our earnings, cash flows and operations. Our assets and operations are subject to regulation and oversight by foreign,
federal, state and local regulatory authorities. Legislative changes, as well as regulatory actions taken by these agencies, have
the potential to adversely affect our profitability. In addition, a certain degree of regulatory uncertainty is created by the new
administration because it remains unclear specifically what the new administration may do with respect to future policies and
regulations that may affect us. Regulation affects almost every part of our business. Furthermore, we could incur additional
costs to comply with such statutes, rules, regulations and orders. Should we fail to comply with any applicable statutes, rules,
regulations, and orders of regulatory authorities, we could be subject to substantial penalties and fines. New laws, regulations or
policy changes sometimes arise from unexpected sources. New laws or regulations, unexpected policy changes or
interpretations of existing laws or regulations, applicable to our income, operations, assets or another aspect of our business,
could have a material adverse impact on our earnings, cash flow, financial condition and results of operations.
Our business is subject to complex and evolving global laws, regulations and security standards regarding privacy,
cybersecurity and data protection (“data protection laws”). Many of these laws are subject to change and uncertain
interpretation, and could result in claims, increased cost of operations, or otherwise harm our business.
The constantly evolving regulatory and legislative environment surrounding data privacy and protection poses increasingly
complex compliance challenges, and complying with such data protection laws could increase the costs and complexity of
compliance. While we do not collect significant amounts of personal information from consumers, we do have personal
information from our employees, job applicants and some business partners, such as contractors and distributors. Any failure,
whether real or perceived, by us to comply with applicable data protection laws could result in proceedings or actions against us
by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to
change our business practices, increase the costs and complexity of compliance, and adversely affect our business. Our
compliance with recently enacted laws like the General Data Protection Regulation, and other similar privacy/security laws, as
well as any associated inquiries or investigations or any other government actions related to these laws, may increase our
operating costs.
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Increases in required fuel economy and regulation of CO2 emissions from motor vehicles may reduce demand for
transportation fuels.
The EPA and the National Highway Traffic Safety Administration (“NHTSA”) are required to promulgate requirements
regarding the Corporate Average Fuel Economy (“CAFE”) of the nation's passenger fleet. On August 28, 2012, the EPA and
NHTSA adopted standards through model year 2025 in two phases. The first phase established final standards for 2017-2021
model year vehicles that are projected to require 40.3 - 41.0 m.p.g. in model year 2021 on an average industry fleet-wide basis.
The second phase of the CAFE program represents non-final “augural” standards for 2022-2025 model year vehicles that are
projected to require 48.7 - 49.7 m.p.g. in model year 2025 on an average industry fleet-wide basis. However, following the
change in presidential administrations, there have been attempts to modify these standards. In August 2018, the EPA and
NHTSA proposed the Safer Affordable Fuel Economy Rule which amended the existing CAFE standards and proposed new
standards covering model years through 2026. While the EPA issued a rule in September 2019 that seeks to preempt the ability
of states to set stricter standards than those set by the federal government, no final rule has yet been issued regarding
amendments to the current CAFE standards. All of these rulemakings will likely be subject to challenge by a variety of parties
seeking stricter GHG and CAFE standards. Additionally, several states are seeking to promote zero emission vehicles, such as
electric vehicles, and to mandate transition away from internal combustion engines. Any increases in fuel economy standards,
along with mandated increases in use of renewable fuels discussed above, as well as electric vehicle mandates or combustion
engine bans, could result in decreasing demand for petroleum fuels. Decreasing demand for petroleum fuels could have a
material effect on our financial condition and results of operation.
GENERAL RISK FACTORS
Cyberattacks or security breaches could have a material adverse effect on our business, financial condition and results of
operations.
Our business is dependent upon information systems and other digital technologies for controlling our plants and pipelines,
processing transactions and summarizing and reporting results of operations. The secure processing, maintenance and
transmission of information is critical to our operations. We monitor our information systems on a 24/7 basis in an effort to
detect cyberattacks or security breaches. Preventative and detective measures we utilize include independent cybersecurity
audits and penetration tests. We implemented these efforts along with other risk mitigation procedures to detect and address
unauthorized and damaging activity on our network, stay abreast of the increasing threat landscape and improve our security
posture. Information technology system failures, communications network disruptions (whether intentional by a third party or
due to natural disaster), and security breaches could still impact equipment and software used to control plants and pipelines,
resulting in improper operation of our assets, potentially including delays in the delivery or availability of our customers’
products, contamination or degradation of the products we transport, store or distribute, or releases of hydrocarbon products and
other damage to our facilities for which we could be held liable.
Furthermore, we collect and store sensitive data in the ordinary course of our business, including personally identifiable
information of our employees as well as our proprietary business information and that of our customers, suppliers, investors and
other stakeholders. Despite our security measures, our information systems may become the target of cyberattacks or security
breaches (including employee error, malfeasance or other breaches), which could result in the theft or loss of the stored
information, misappropriation of assets, disruption of transactions and reporting functions, our ability to protect customer or
company information and our financial reporting. Even with insurance coverage, a claim could be denied or coverage delayed.
A cyber-attack or security breach could result in liability under data privacy laws, regulatory penalties, damage to our
reputation or a loss of consumer confidence in our products and services, or additional costs for remediation and modification
or enhancement of our information systems to prevent future occurrences, all of which could have a material and adverse effect
on our business, financial condition or results of operations.
Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions and other disruptive
risks for which we may not be adequately insured.
Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks such
as natural disasters, adverse weather, accidents, maritime disasters (including those involving marine vessels/terminals), fires,
explosions, hazardous materials releases, terror or cyberattacks, domestic vandalism, power failures, mechanical failures and
other events beyond our control. These events could result in an injury, loss of life, property damage or destruction, as well as a
curtailment or an interruption in our operations and may affect our ability to meet marketing commitments.
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We may not be able to maintain or obtain insurance of the type and amount we desire at commercially reasonable rates and
exclusions from coverage may limit our ability to recover the amount of the full loss in all situations. As a result of market
conditions, premiums and deductibles for certain of our insurance policies could increase. In some instances, certain insurance
could become unavailable or available only for reduced amounts of coverage.
There can be no assurance that insurance will cover all or any damages and losses resulting from these types of hazards. We are
not fully insured against all risks to our business and therefore, we self-insure certain risks. If any of our facilities were to
experience an interruption in operations, our earnings could be materially adversely affected (to the extent not recoverable
through insurance) because of lost production and repair costs.
The energy industry is highly capital intensive, and the entire or partial loss of individual facilities can result in significant costs
to both industry companies, such as us, and their insurance carriers. In recent years, several large energy industry claims have
resulted in significant increases in the level of premium costs and deductible periods for participants in the energy industry. As
a result of large energy industry claims, insurance companies that have historically participated in underwriting energy-related
facilities may discontinue that practice or demand significantly higher premiums or deductible periods to cover these facilities.
If significant changes in the number or financial solvency of insurance underwriters for the energy industry occur, or if other
adverse conditions over which we have no control prevail in the insurance market, we may be unable to obtain and maintain
adequate insurance at reasonable cost. In addition, we cannot assure you that our insurers will renew our insurance coverage on
acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal.
Further, our underwriters could have credit issues that affect their ability to pay claims. If a significant accident or event occurs
that is self-insured or not fully insured, it could have a material adverse effect on our business, financial condition and results of
operations.
We may be subject to information technology system failures, communications network disruptions and data breaches.
We depend on the efficient and uninterrupted operation of hardware and software systems and infrastructure, including our
operating, communications and financial reporting systems. These systems are critical in meeting customer expectations,
effectively tracking, maintaining and operating our equipment, directing and compensating our employees, and interfacing with
our financial reporting system. We have implemented safeguards and other preventative measures to protect our systems and
data, including sophisticated network security and internal control measures; however, our information technology systems and
communications network, and those of our information technology and communication service providers, remain vulnerable to
interruption by fire, earthquake, power loss, telecommunications failure, terrorist attacks, Internet failures, computer malware,
cyberattacks, data breaches and other events unforeseen or generally beyond our control.
We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and
capital markets. This may hinder or prevent us from meeting our future capital needs.
The domestic and global financial markets and economic conditions are disrupted and volatile from time to time due to a
variety of factors, including low consumer confidence, high unemployment, geoeconomic and geopolitical issues, weak
economic conditions and uncertainty in the financial services sector. In addition, the fixed-income markets have experienced
periods of extreme volatility, which negatively impacted market liquidity conditions. Recently, the equity and debt markets for
many energy industry companies have been adversely affected by low oil prices. As a result, the cost of raising money in the
debt and equity capital markets has increased substantially at times while the availability of funds from these markets
diminished significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency
of lending counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and
institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms
or at all and reduce, or in some cases cease to provide, funding to borrowers. In addition, lending counterparties under any
existing revolving credit facility and other debt instruments may be unwilling or unable to meet their funding obligations, or we
may experience a decrease in our capacity to issue debt or obtain commercial credit or a deterioration in our credit profile,
including a rating agency lowering or withdrawing of our credit ratings if, in its judgment, the circumstances warrant. Due to
these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms. If funding is not
available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due
or we may be required to sell assets. Moreover, without adequate funding, we may be unable to execute our growth strategy,
complete future acquisitions or construction projects, take advantage of other business opportunities or respond to competitive
pressures, comply with regulatory requirements, or meet our short-term or long-term working capital requirements, any of
which could have a material adverse effect on our revenues and results of operations. Failure to comply with regulatory
requirements in a timely manner or meet our short-term or long-term working capital requirements could subject us to
regulatory action.
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Our business is subject to the risks of international operations, including currency fluctuations
We derive a portion of our revenue and earnings from international operations. Our acquisitions of Petro-Canada Lubricants
and Sonneborn have expanded our operations and sales in foreign countries and correspondingly may increase our exposure to
foreign exchange risks. Any significant change in the value of the currencies of the countries in which we do business against
the U.S. dollar could affect our revenue, competitiveness and cost of doing business, which could have a material adverse effect
on our business, financial condition and results of operations.
In addition, compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, anti-
corruption laws, data privacy regulations and foreign exchange controls and cash repatriation restrictions, environmental laws,
labor laws and anti-competition regulations, increases the cost of doing business in foreign jurisdictions. Although we have
implemented policies and procedures to comply with these laws and regulations, a violation by any of our employees,
contractors, distributors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one
country could violate the laws and regulations of another country. Violations of these laws and regulations could materially
adversely affect our company's brand, international growth efforts and business.
In addition, global market risks, actions by foreign nations and other international conditions, particularly in a time of
increasing economic and global instability, may have a material adverse effect on our results and operations. The consequences
of such uncertainty cannot be anticipated or quantified.
We are exposed to the credit risks, and certain other risks, of our key customers and vendors.
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We derive a significant portion
of our revenues from contracts with key customers.
If any of our key customers default on their obligations to us, our financial results could be adversely affected. Furthermore,
some of our customers may be highly leveraged and subject to their own operating and regulatory risks. In addition,
nonperformance by vendors who have committed to provide us with products or services could result in higher costs or
interfere with our ability to successfully conduct our business.
Any substantial increase in the nonpayment and/or nonperformance by our customers or vendors could have a material adverse
effect on our results of operations and cash flows.
Terrorist attacks, and the threat of terrorist attacks or domestic vandalism, have resulted in increased costs to our business.
Continued global hostilities or other sustained military campaigns may adversely impact our results of operations.
The long-term impacts of terrorist attacks and the threat of future terrorist attacks on the energy transportation industry in
general, and on us in particular, are unknown. Increased security measures taken by us as a precaution against possible terrorist
attacks or domestic vandalism have resulted in increased costs to our business. Uncertainty surrounding continued global
hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or
indirect casualties of, an act of terror, may affect our operations in unpredictable ways, including disruptions of crude oil
supplies and markets for refined products. In addition, disruption or significant increases in energy prices could result in
government-imposed price controls. Any one of, or a combination of, these occurrences could have a material adverse effect on
our business, financial condition and results of operations.
Changes in the insurance markets attributable to terrorist attacks and domestic vandalism could make certain types of insurance
more difficult for us to obtain. Moreover, the insurance that may be available to us may be significantly more expensive than
our existing insurance coverage. Instability in the financial markets as a result of terrorism, vandalism or war could also affect
our ability to raise capital including our ability to repay or refinance debt.
We may be unable to pay future dividends.
We will only be able to pay dividends from our available cash on hand, cash from operations or borrowings under our credit
agreement. The declaration of future dividends on our common stock is evaluated quarterly and will be at the discretion of our
board of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital
requirements, and restrictions in our debt agreements and legal requirements. We cannot assure you that any dividends will be
paid or the frequency or amounts of such payments.
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We may be unable to adequately protect our intellectual property, which may increase our cost of doing business or
otherwise hurt our ability to compete in the market.
We use intellectual property in the ordinary course of our business, including trademarks, trade secrets, copyrighted work and
innovations, some of which is material to our business. We take measures to identify and protect our intellectual property
through practices appropriate for securing and protecting exclusive rights in and to our intellectual property, including applying
for registrations in the United States and in various foreign countries. Despite our efforts to protect such intellectual property, it
is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our trademarks (or other marks
likely to cause confusion among our consumers), technologies, products and processes. In addition, the laws and/or judicial
systems and enforcement mechanisms of foreign countries in which we create, market and sell our products may afford little or
no effective protection of our intellectual property. We may also be subject to infringement complaints from others challenging
our use of a technology. We cannot guarantee that our efforts to enforce our intellectual property rights against unauthorized
use and appropriation, or our efforts to defend against third party claims of infringement would be successful. These potential
risks to our intellectual property could subject us to increased competition and negatively impact our liquidity, financial
position and results of operations.
Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our
suppliers, which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities
of crude oil to operate our refineries at desired capacity.
An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view
our ability to make payments and induce them to shorten the payment terms of their invoices with us or require credit
enhancement. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by
our suppliers of more burdensome payment terms or credit enhancement requirements on us may have a material adverse effect
on our liquidity and our ability to make payments to our suppliers. This in turn could cause us to be unable to operate our
refineries at desired capacity. A failure to operate our refineries at desired capacity could adversely affect our profitability and
cash flow.
Our credit facility contains certain covenants and restrictions that may constrain our business and financing activities.
The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely
affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For
example, our revolving credit facility imposes usual and customary requirements for this type of credit facility, including: (i)
limitations on liens and indebtedness; (ii) a prohibition on changes in control and (iii) restrictions on engaging in mergers and
consolidations. If we fail to satisfy the covenants set forth in the credit facility or another event of default occurs under the
credit facility, the maturity of the loan could be accelerated or we could be prohibited from borrowing for our future working
capital needs and issuing letters of credit. We might not have, or be able to obtain, sufficient funds to make these immediate
payments. If we desire to undertake a transaction that is prohibited by the covenants in our credit facility, we will need to obtain
consent under our credit facility. Such refinancing may not be possible or may not be available on commercially acceptable
terms.
Our business may suffer due to a departure of any of our key senior executives or other key employees. Furthermore, a
shortage of skilled labor may make it difficult for us to maintain labor productivity.
Our future performance depends to a significant degree upon the continued contributions of our senior management team and
key technical personnel. We do not currently maintain key person life insurance, non-compete agreements, or employment
agreements with respect to any member of our senior management team. The loss or unavailability to us of any member of our
senior management team or a key technical employee could significantly harm us. We face competition for these professionals
from our competitors, our customers and other companies operating in our industry. To the extent that the services of members
of our senior management team and key technical personnel would be unavailable to us for any reason, we may be required to
hire other personnel to manage and operate our company. We may not be able to locate or employ such qualified personnel on
acceptable terms, or at all.
Furthermore, our operations require skilled and experienced laborers with proficiency in multiple tasks. A shortage of trained
workers due to retirements or otherwise could have an adverse impact on our labor productivity and costs and our ability to
expand production in the event there is an increase in the demand for our products and services, which could adversely affect
our operations.
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A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could
adversely affect our business.
We depend on unionized labor for the operation of many of our facilities. As of December 31, 2020, approximately 29% of our
employees were represented by labor unions under collective bargaining agreements with various expiration dates. In addition,
employees who are not currently represented by labor unions may seek union representation in the future. We may not be able
to renegotiate our collective bargaining agreements when they expire on satisfactory terms or at all. If we are unable to
renegotiate our collective bargaining agreements when they expire, any work stoppages or other labor disturbances at these
facilities could have an adverse effect on our business, impact our ability to make distributions to our unitholders and payments
of our debt obligations, and increase our costs. In addition, our existing labor agreements may not prevent a strike or work
stoppage or other adverse employee relations event at any of our facilities in the future, and any work stoppage could negatively
affect our results of operations and financial condition.
The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be
impacted.
The market price of our common stock may be influenced by many factors, some of which are beyond our control, including:
•
•
•
•
•
•
•
•
our quarterly or annual earnings or those of other companies in our industry;
changes in accounting standards, policies, guidance, interpretations or principles;
general economic, industry global and stock market conditions;
the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
future sales of our common stock;
announcements by us or our competitors of significant contracts or acquisitions;
sales of common stock by us, our senior officers or our affiliates; and/or
the other factors described in these Risk Factors.
In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many companies, including companies in our industry. The price of our
common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations
could materially reduce our stock price.
Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of
operations and cash flows.
We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales
and use, payroll, franchise, withholding and property taxes. New tax laws and regulations and changes in existing tax laws and
regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely
impact our financial condition, results of operations and cash flows.
Additionally, many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to interest
and penalties.
Item 1B. Unresolved Staff Comments
We do not have any unresolved staff comments.
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Item 3. Legal Proceedings
Commitment and Contingency Reserves
In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental
investigations, including environmental and other matters. Damages or penalties may be sought from us in some matters and
certain matters may require years to resolve. While the outcome and impact of these proceedings and investigations on us
cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes
that the resolution of these proceedings and investigations through settlement or adverse judgment will not either individually
or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows.
The environmental proceedings are reported to comply with SEC regulations which require us to disclose proceedings arising
under provisions regulating the discharge of materials into the environment or protecting the environment when a governmental
authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe
could exceed $300,000 or more. Certain disclosures made under the SEC’s prior $100,000 threshold will remain until their
resolution.
Environmental Matters
Our respective subsidiaries have or will develop corrective action plans regarding these disclosures that will be implemented in
consultation with the respective federal and state agencies. It is not possible to predict the ultimate outcome of these
proceedings, although none are currently expected to have a material effect on our financial condition, results of operations or
cash flows.
Cheyenne
HollyFrontier Cheyenne Refining LLC (“HFCR”) has been in discussions with the Wyoming Department of Environmental
Quality (“WDEQ”) and the United States Environmental Protection Agency (“EPA”) relating to alleged violations of air quality
emission limitations and requirements related to operation of certain refinery units at the Cheyenne Refinery.
Notices of Violations were issued by the WDEQ in late 2016 and 2018. On July 18, 2019, HFCR and the WDEQ entered into a
consent decree, and on August 9, 2019, HFCR paid penalties in the amount of $117,000 related to alleged violations of air
quality limits that occurred during the second quarter of 2016 through the second quarter of 2017. Separately, on October 23,
2019, HFCR received a Notice of Violation from the WDEQ for possible violations of air quality standards during the first and
second quarters of 2019. HFCR and WDEQ have been in discussions to resolve WDEQ’s alleged violations of air quality limits
that occurred during the third quarter of 2017 through calendar year 2019. The WDEQ and HFCR also previously agreed that
the discussions would also include exceedances that occurred during the first quarter of 2020 through the cessation of petroleum
refining operations at the Cheyenne Refinery in the third quarter of 2020. During a settlement conference on November 9, 2020,
WDEQ proposed a settlement that would impose a penalty of $95,075 to resolve the alleged violations that occurred during the
third quarter of 2017 through the date of the refinery shutdown. As part of the settlement process, on January 15, 2021, the State
of Wyoming filed a complaint with the Wyoming District Court addressing the alleged violations. The WDEQ and HFCR
agreed on the terms of a consent decree to resolve the alleged violations, and on February 18, 2021, a Joint Motion for Entry of
Consent Decree and the Consent Decree were filed with the Wyoming District Court. HFCR expects that the Wyoming District
Court will enter the Consent Decree during the first quarter of 2021.
El Dorado
HollyFrontier El Dorado Refining LLC (“HFEDR”) has been engaged in discussions with, and has responded to document
requests from, the EPA, the U.S. Department of Justice (“DOJ”) and the State of Kansas regarding alleged Clean Air Act civil
violations relating to flaring devices and other equipment at the refinery. Topics of the discussions included: (a) three
information requests for activities beginning in January 2009, (b) Risk Management Program compliance issues relating to a
November 2014 inspection and subsequent events, (c) a Notice of Violation issued by the EPA in August 2017, and (d) possible
late reporting under the Emergency Planning and Community Right-to-Know Act for the release of sulfur dioxide and visible
emissions from October 2018.
Some of the foregoing civil investigations resulted from fires that occurred at the El Dorado Refinery in September 2017,
October 2018 and March 2019. An employee fatality occurred during the September 2017 event. On May 28, 2020, HFEDR
reached a settlement in the form of a proposed consent decree with the EPA, the DOJ, and the State of Kansas regarding the
alleged Clean Air Act civil violations relating to flaring devices and other equipment at the refinery, as well as compliance with
the Clean Air Act’s Risk Management Program (“RMP”).
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The proposed consent decree was lodged with the U.S. District Court for the District of Kansas, and the 30-day public comment
period ended on July 18, 2020. On July 27, 2020, the EPA, the DOJ and the State of Kansas filed their Unopposed Motion to
enter the Consent Decree with the U.S. District Court for the District of Kansas, and on August 27, 2020, the consent decree
was entered by the district judge and became effective. Pursuant to the consent decree, among other terms and conditions,
HFEDR is required to complete certain projects, implement protocols regarding the examination of its fired heaters and conduct
a third party RMP audit of certain of its processes. In addition, HFEDR is required to pay a civil penalty of $2 million to the
United States and $2 million to the State of Kansas in two installments, the first half within 30 days of entry of the consent
decree and the second within six months of entry of the consent decree. The initial payment of $1 million each was paid to the
EPA on September 18, 2020 and the State of Kansas on September 22, 2020, and HFEDR has undertaken several of the
required projects. The consent decree resolves the alleged federal and state civil Clean Air Act liability for penalties and
injunctive relief, other than potential civil penalties for RMP violations. Finally, as part of the settlement, a 2009 consent decree
applicable to the refinery was terminated.
The Occupational Safety and Health Administration (“OSHA”) conducted investigations into both the September 2017 and
March 2019 events identified above, and HFEDR settled the OSHA claims related to those investigations in 2018 and 2019,
respectively. In April 2019, HFEDR became aware that the EPA also initiated a criminal investigation into one or more of the
foregoing events. HFEDR has received a grand jury subpoena requesting certain documents be provided to the EPA with
respect to the September 2017 event. We are cooperating with this investigation.
Tulsa
HollyFrontier Tulsa Refining LLC (“HFTR”) operates under two Consent Decrees with the EPA and the Oklahoma Department
of Environmental Quality (“ODEQ”) for the East and West Refineries. On April 3, 2019, the EPA notified HFTR of potential
violations of the Consent Decrees. On December 1, 2020, ODEQ, on behalf of ODEQ and the EPA, issued two demand letters
alleging violations under the Consent Decrees, which stemmed from inspections conducted by the EPA at the refineries from
May 1 through 5, 2017, as well as from a review of the refineries’ records. The alleged violations included the failure to comply
with applicable continuous emissions monitoring system (CEMS) requirements and exceedances of the hydrogen sulfide (H2S)
emission limits. During a follow-up conference call with ODEQ, on January 6, 2021, ODEQ shared its stipulated penalty
amounts for alleged violations pursuant to the two Consent Decrees. HFTR submitted timely responses to the ODEQ demand
letters on February 8, 2021. It is too soon to predict the outcome of this matter.
Woods Cross
HollyFrontier Woods Cross Refining LLC (“HFWCR”) operates under a federal consent decree with the EPA and the Utah
Department of Environmental Quality. On November 3, 2020, HFWCR received a letter from the EPA identifying potential
violations of HFWCR’s federal consent decree that occurred from calendar year 2015 through the date of the letter. HFWCR
provided a response letter to the EPA on December 3, 2020 disputing certain of the potential violations in the EPA's November
3, 2020 letter, and HFWCR supplemented its response letter on February 5, 2021 with additional information. It is too soon to
predict the outcome of this matter.
Federal Trade Commission
On July 23, 2019, the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand and a related Subpoena Duces
Tecum requesting we provide specified information relating to the Sonneborn acquisition that closed on February 1, 2019.
We cooperated with the FTC in its investigation. On December 2, 2020, the FTC notified us that no further action was
warranted, and it had closed the investigation.
Renewable Fuel Standard
Various subsidiaries of HollyFrontier are currently intervenors in three lawsuits brought by renewable fuel interest groups
against the EPA in federal courts alleging violations of the Renewable Fuel Standard under the Clean Air Act and challenging
the EPA’s handling of small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery
exemptions because we believe the EPA correctly applied applicable law to the matters at issue.
On January 24, 2020, in the first of these lawsuits, the U.S. Court of Appeals for the Tenth Circuit vacated the small refinery
exemptions granted to two of our refineries for 2016 and remanded the case to the EPA for further proceedings. On April 15,
2020, the Tenth Circuit entered its mandate, remanding the matter back to the EPA. On September 4, 2020, various subsidiaries
of HollyFrontier filed a Petition for a Writ of Certiorari with the U.S. Supreme Court appealing the Tenth Circuit decision. On
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January 8, 2021, the U.S. Supreme Court granted HollyFrontier’s petition. We anticipate decision from the Supreme Court in
June 2021. We expect that we will not know what steps the EPA will take with respect to our 2016 small refinery exemptions or
how the case will impact future small refinery exemptions until after the Supreme Court’s decision in this matter.
The second lawsuit is before the Tenth Circuit. The matter is fully briefed and remains pending before that court.
The third lawsuit is before the DC Circuit. Briefing of the issues before the court commenced on December 7, 2020; however,
in light of the Supreme Court’s decision to hear HollyFrontier’s appeal of the Tenth Circuit decision, this case was stayed
pending a decision from the Supreme Court.
In December 2020, various subsidiaries of HollyFrontier also filed a petition for review in the DC Circuit challenging EPA’s
denial of small refinery exemption petitions for years prior to 2016. The petition was consolidated with petitions from eight
other refining companies challenging the same decision. In light of the Supreme Court’s decision to hear HollyFrontier’s appeal
of the Tenth Circuit decision, this case was stayed pending a decision from the Supreme Court.
Other
We are a party to various other litigation and proceedings that we believe, based on advice of counsel, will not either
individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not Applicable.
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PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the New York Stock Exchange under the trading symbol “HFC.”
In November 2019, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share
repurchase programs. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory
and other relevant considerations. We do not intend to repurchase common stock under our $1.0 billion share repurchase
program until commodity prices and demand for products normalize. This program may be discontinued at any time by the
Board of Directors. The following table includes repurchases made under this program during the fourth quarter of 2020.
Period
October 2020
November 2020
December 2020
Total for October to December 2020
Total Number of
Shares Purchased
Average Price
Paid Per Share
—
—
—
— $
— $
— $
—
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Dollar
Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
— $
— $
— $
—
1,000,000,000
1,000,000,000
1,000,000,000
As of February 16, 2021, we had approximately 101,664 stockholders, including beneficial owners holding shares in street
name.
We intend to consider the declaration of a dividend on a quarterly basis, although there is no assurance as to future dividends
since they are dependent upon future earnings, capital requirements, our financial condition and other factors.
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Item 6. Selected Financial Data
The following table shows our selected financial information as of the dates or for the periods indicated. This table should be
read in conjunction with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
2020
Years Ended December 31,
2018
2017
2019
2016
(In thousands, except per share data)
FINANCIAL DATA
For the period
Sales and other revenues
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Less net income attributable to noncontrolling interest
Net income (loss) attributable to HollyFrontier
stockholders
$ 11,183,643 $ 17,486,578 $ 17,714,666 $ 14,251,299 $ 10,535,700
(171,534)
19,411
(190,945)
69,508
1,171,504
299,152
872,352
99,964
1,524,467
347,243
1,177,224
79,264
(747,046)
(232,147)
(514,899)
86,549
868,863
(12,379)
881,242
75,847
$
(601,448) $
772,388 $ 1,097,960 $
805,395 $
(260,453)
Earnings (loss) per share - basic
Earnings (loss) per share - diluted
Cash dividends declared per common share
Average number of common shares outstanding:
Basic
Diluted
$
$
$
(3.72) $
4.64 $
6.25 $
4.54 $
(1.48)
(3.72) $
1.40 $
4.61 $
1.34 $
6.19 $
1.32 $
4.52 $
1.32 $
(1.48)
1.32
161,983
161,983
166,287
167,385
175,009
176,661
176,174
177,196
176,101
176,101
Net cash provided by operating activities
Net cash used for investing activities
Net cash provided by (used for) financing activities
$
$
$
457,931 $ 1,548,611 $ 1,554,416 $
(360,520) $
(972,914) $
(330,162) $
(664,328) $
(848,255) $
353,226 $
951,390 $
(959,670) $
(72,630) $
606,948
(801,597)
838,695
At end of period
Cash, cash equivalents and investments in marketable
securities
Working capital
Total assets
Total debt
Total equity
885,162 $ 1,154,752 $
$ 1,368,318 $
630,757 $ 1,134,727
$ 1,935,605 $ 1,620,261 $ 2,128,224 $ 1,640,118 $ 1,767,780
$ 11,506,864 $ 12,164,841 $ 10,994,601 $ 10,692,154 $ 9,435,661
$ 3,142,718 $ 2,455,640 $ 2,411,540 $ 2,498,993 $ 2,235,137
$ 5,722,203 $ 6,509,426 $ 6,459,059 $ 5,896,940 $ 5,301,985
45
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Item 7 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of this Annual Report
on Form 10-K. In this document, the words “we,” “our,” “ours” and “us” refer only to HollyFrontier and its consolidated
subsidiaries or to HollyFrontier or an individual subsidiary and not to any other person with certain exceptions. Generally, the
words “we,” “our,” “ours” and “us” include HEP and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when
used in disclosures of transactions or obligations between HEP and HollyFrontier or its other subsidiaries. This document
contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily
represent obligations of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its
consolidated subsidiaries.
OVERVIEW
We are an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet
fuel, specialty lubricant products and specialty and modified asphalt. We own and operate refineries located in Kansas,
Oklahoma, New Mexico and Utah and market our refined products principally in the Southwest United States, the Rocky
Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, we produce base oils and
other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries.
We also own a 57% limited partner interest and a non-economic general partner interest in HEP, a master limited partnership
that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum
industry, including HollyFrontier Corporation subsidiaries.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently
began converting certain assets at our Cheyenne Refinery to renewable diesel production. This decision was primarily based on
a positive outlook in the market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne
Refinery would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and
compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating
and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the EPA’s small refinery exemption.
The renewable diesel units are expected to be completed in the first quarter of 2022 with an expected capital budget between
$125-$175 million.
During the second quarter of 2020, we recorded long-lived asset impairment charges of $232.2 million related to our Cheyenne
Refinery asset group. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we
recognized $24.7 million in decommissioning expense for the year ended December 31, 2020. In addition, for the year ended
December 31, 2020, we recorded a reserve of $9.0 million against our repair and maintenance supplies inventory and $3.8
million in employee severance costs related to the conversion of our Cheyenne Refinery to renewable diesel production. These
decommissioning, inventory reserve and severance costs were recognized in operating expenses, of which $24.8 million was
recorded in our Refining segment and $12.7 million was recorded in our Corporate and Other segment.
During the second quarter of 2020, we also initiated and completed a corporate restructuring, which is expected to save
approximately $30 million per year of ongoing cash expenses. As a result of this restructuring, we recorded $3.7 million in
employee severance costs, which were recognized primarily as operating expenses in our Refining segment and selling, general
and administrative expenses in our Corporate and Other segment.
During the first quarter of 2021, we initiated a restructuring within our Lubricants and Specialty Products segment, which is
expected to save approximately $15 million per year of ongoing cash expenses. Over the next twelve months, we anticipate pre-
tax costs of $8 -$10 million for severance obligations.
On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the issued and outstanding capital
stock of Sonneborn. The acquisition closed on February 1, 2019. Cash consideration paid was $662.7 million. Sonneborn is a
producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the
United States and Europe.
On July 10, 2018, we entered into a definitive agreement to acquire Red Giant Oil, a privately-owned lubricants company. The
acquisition closed on August 1, 2018. Cash consideration paid was $54.2 million. Red Giant Oil is one of the largest suppliers
of locomotive engine oil in North America and is headquartered in Council Bluffs, Iowa with storage and distribution facilities
in Iowa and Wyoming, along with a blending and packaging facility in Texas.
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For the year ended December 31, 2020, net loss attributable to HollyFrontier stockholders was $(601.4) million compared to net
income of $772.4 million and $1,098.0 million for the years ended December 31, 2019, and 2018, respectively. Overall gross
refining margins per produced barrel sold for 2020 decreased 54% over the year ended December 31, 2019 due to lower crack
spreads and crude oil basis differentials. Included in our financial results for the year ended December 31, 2020 were non-cash
items consisting of goodwill and long-lived asset impairment charges.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS regulations, which increased the
volume of renewable fuels mandated to be blended into the nation's fuel supply. The regulations, in part, require refiners to add
annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of
such blending. Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling
$148.5 million for the year ended December 31, 2020.
Impact of COVID-19 on Our Business
The COVID-19 pandemic caused a decline in U.S. and global economic activity starting in the first quarter of 2020. This
decrease reduced both volumes and unit margins across our businesses, resulting in lower gross margins and earnings.
Following a rebound in the late second and third quarters, demand for transportation fuels continued to be weak compared to
2019. In response to this level of demand, during the fourth quarter of 2020, we operated our Refining segment refineries at an
average crude charge of 379,910 BPD.
In our Lubricants and Specialty Products segment, the Rack Forward portion saw improvement in industrial and transportation-
related end markets, which drove higher demand and unit margins during the second half of 2020. Within the Rack Back
portion, demand for base oils increased to 2019 levels while supply was limited due to a number of factors, which drove higher
margins and utilization at our facilities in the third quarter.
The stabilization of demand drove a broad increase in commodity prices, resulting in values for our inventories held at
December 31, 2020 above the costs of these inventories using the last-in, first-out (“LIFO”) method and in a lower of cost or
market valuation gain of $149.2 million for the three months ended December 31, 2020. We also drew down on our inventory
levels to better manage working capital in the fourth quarter of 2020, which resulted in a $35 million increase in cost of
products sold for the quarter.
Our standalone (excluding HEP) liquidity was approximately $2,696.3 million at December 31, 2020, consisting of cash and
cash equivalents of $1,346.3 million and an undrawn $1.35 billion credit facility maturing in 2022. Our standalone (excluding
HEP) long-term debt was $1.75 billion as of December 31, 2020, which consists of $350.0 million in 2.625% senior notes due
in 2023, $1.0 billion of 5.875% senior notes due in 2026 and $400.0 million in 4.500% senior notes due in 2030.
OUTLOOK
The impact of the COVID-19 pandemic on the global macroeconomy created an unprecedented reduction in demand in the first
half of 2020, as well as a lack of forward visibility, for many of the transportation fuels, lubricants and specialty products and
the associated transportation and terminal services we provide. We have seen improvement in demand for these products and
services since the initial wave of COVID-19 infections during the second quarter of 2020, and with the increasing availability
of vaccines, we believe there is a path to a fulsome recovery in demand in 2021.
In response to the COVID-19 pandemic, and with the health and safety of our employees as a top priority, we continue a range
of initiatives, including limiting onsite staff at all of our facilities, implementing a work-from-home policy for certain
employees and restricting travel unless approved by senior leadership. We will continue to monitor COVID-19 developments
and the dynamic environment to properly address these policies going forward.
Within our Refining segment, for the first quarter of 2021, we expect to run between 350,000-380,000 barrels per day of crude
oil. In addition to continued weakness in demand resulting from the COVID-19 pandemic, the crude charge in the first quarter
of 2021 has also been adversely impacted by scheduled maintenance at our Tulsa West and Woods Cross refineries as well as
reduced availability, and an increase in the price, of natural gas due to the recent extreme cold weather throughout the Mid-
Continent and Southwest. We expect to adjust refinery production levels commensurate with market demand.
Within our Lubricants and Specialty Products segment, we expect a normal seasonal rebound in the first quarter of 2021.
However, we do not have enough visibility to issue forward guidance at this time. Similar to our Refining segment, we expect
to adjust production levels commensurate with market demand.
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At HEP, we expect to see demand for transportation and terminal services grow with underlying demand for transportation
fuels and crude oil. In 2021, HEP expects to hold the quarterly distribution constant at $0.35 per unit, or $1.40 on an annualized
basis. HEP remains committed to its distribution strategy focused on funding all capital expenditures and distributions within
free cash flow and maintaining distributable cash flow coverage of 1.3x or greater with the goal of reducing leverage to
3.0-3.5x.
During the third quarter of 2020, we increased our liquidity by $750.0 million with the issuance of $350.0 million in 2.625%
senior notes due in 2023 and $400.0 million in 4.500% senior notes due in 2030. This additional liquidity may be used for
general corporate purposes and is expected to support the planned growth of our renewables business and the unexpected
economic impact of COVID-19, as needed. We do not intend to repurchase common stock under our $1.0 billion share
repurchase program until demand for our products normalize.
On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
an approximately $2 trillion stimulus package that includes various provisions intended to provide relief to individuals and
businesses in the form of tax changes, loans and grants, among others. At this time, we have not sought relief in the form of
loans or grants from the CARES Act; however, we have benefited from certain tax deferrals in the CARES Act and may benefit
from other tax provisions if we meet the requirements to do so. We anticipate $50.0 million to $60.0 million in cash tax benefit
in 2021 from the loss carryback potential under the CARES Act. As a result of the net operating loss incurred in the year ended
December 31, 2020, we will also file refund claims of approximately $21.0 million to recover estimated tax payments made
during the year.
The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and
consequences beyond our control, such as the duration and scope of the pandemic, additional actions by businesses and
governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. The COVID-19
pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors
identified in this Form 10-K under “Risk Factors” in Item 1A. The COVID-19 pandemic may also materially adversely affect
our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our
business.
A more detailed discussion of our financial and operating results for the years ended December 31, 2020 and 2019 is presented
in the following sections. Discussions of year-over-year comparisons for 2019 and 2018 can be found in “Management's
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-
K for the year ended December 31, 2019.
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RESULTS OF OPERATIONS
Financial Data
Sales and other revenues
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory
valuation adjustment)
Lower of cost or market inventory valuation adjustment
Operating expenses (exclusive of depreciation and amortization)
Selling, general and administrative expenses (exclusive of depreciation and
amortization)
Depreciation and amortization
Goodwill and long-lived asset impairments
Total operating costs and expenses
Income (loss) from operations
Other income (expense):
Earnings of equity method investments
Interest income
Interest expense
Gain on business interruption insurance settlement
Gain on sales-type leases
Loss on early extinguishment of debt
Gain on foreign currency transactions
Other, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Less net income attributable to noncontrolling interest
Net income (loss) attributable to HollyFrontier stockholders
Earnings (loss) per share:
Basic
Diluted
Cash dividends declared per common share
Average number of common shares outstanding:
Basic
Diluted
Other Financial Data
Net cash provided by operating activities
Net cash used for investing activities
Net cash provided by (used for) financing activities
Capital expenditures
EBITDA (1)
49
2020
Years Ended December 31,
2019
(In thousands, except per share data)
2018
$
11,183,643 $
17,486,578 $
17,714,666
9,158,805
78,499
9,237,304
1,300,277
313,600
520,912
545,293
11,917,386
(733,743)
6,647
7,633
(126,527)
81,000
33,834
(25,915)
2,201
7,824
(13,303)
(747,046)
(232,147)
(514,899)
86,549
(601,448) $
(3.72) $
(3.72) $
1.40 $
13,918,384
(119,775)
13,798,609
1,394,052
354,236
509,925
152,712
16,209,534
1,277,044
5,180
22,139
(143,321)
—
—
—
5,449
5,013
(105,540)
1,171,504
299,152
872,352
99,964
772,388 $
13,940,782
136,305
14,077,087
1,285,838
290,424
437,324
—
16,090,673
1,623,993
5,825
16,892
(131,363)
—
—
—
6,197
2,923
(99,526)
1,524,467
347,243
1,177,224
79,264
1,097,960
4.64 $
4.61 $
1.34 $
6.25
6.19
1.32
161,983
161,983
166,287
167,385
175,009
176,661
2020
Years Ended December 31,
2019
(In thousands)
2018
457,931 $
(330,162) $
353,226 $
330,160 $
(193,789) $
1,548,611 $
(972,914) $
(848,255) $
293,763 $
1,702,647 $
1,554,416
(360,520)
(664,328)
311,029
1,996,998
$
$
$
$
$
$
$
$
$
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(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as net
income (loss) attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax
provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the
amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements.
EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating
performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable
to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator
used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis
and as a basis for financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to
Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K.
Supplemental Segment Operating Data
Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. See Note
20 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable
segments.
Refining Segment Operating Data
Our refinery operations include the El Dorado, Tulsa, Navajo and Woods Cross Refineries. The following tables set forth
information, including non-GAAP performance measures, about our consolidated refinery operations, which has been
retrospectively adjusted to reflect the revised regional groupings upon the Cheyenne Refinery permanently ceasing petroleum
refining operations in the third quarter of 2020. The cost of products and refinery gross and net operating margins do not
include the non-cash effects of long-lived asset impairment charges, lower of cost or market inventory valuation adjustments
and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to
Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A of Part II of this Form 10-K.
Consolidated
Crude charge (BPD) (1)
Refinery throughput (BPD) (2)
Sales of produced refined products (BPD) (3)
Refinery utilization (4)
Average per produced barrel (5)
Refinery gross margin
Refinery operating expenses (6)
Net operating margin
Refinery operating expenses per throughput barrel (7)
Years Ended December 31,
2019
2018
2020
365,190
395,080
391,670
388,860
417,570
414,370
384,380
413,780
408,390
90.2 %
96.0 %
94.9 %
$
$
$
7.29
6.05
1.24
6.00
$
$
$
15.92
6.12
9.80
6.07
$
$
$
16.50
6.06
10.44
5.98
(1) Crude charge represents the barrels per day of crude oil processed at our refineries.
(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and
other conversion units at our refineries.
(3) Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include
volumes of refined products purchased for resale or volumes of excess crude oil sold.
(4) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity is 405,000 BPSD.
(5) Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts
reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted
Accounting Principles” following Item 7A of Part II of this Form 10-K.
(6) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment
charges and depreciation and amortization, divided by sales volumes of refined products produced at our refineries.
(7) Represents total Mid-Continent and West regions operating expenses, exclusive of long-lived asset impairment
charges and depreciation and amortization, divided by refinery throughput.
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Lubricants and Specialty Products Segment Operating Data
The following table sets forth information about our lubricants and specialty products operations and includes Red Giant Oil for
the period August 1, 2018 (date of acquisition) through December 31, 2020, and Sonneborn for the period February 1, 2019
(date of acquisition) through December 31, 2020.
Lubricants and Specialty Products
Throughput (BPD)
Sales of produced barrels sold (BPD)
Years Ended December 31,
2019
2018
2020
19,645
32,902
20,251
34,827
19,590
30,510
Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below:
Year Ended December 31, 2020
Sales and other revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Goodwill and long-lived asset impairments (4)
Income (loss) from operations
Year Ended December 31, 2019
Sales and other revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Goodwill impairment (5)
Income (loss) from operations
Year Ended December 31, 2018
Sales and other revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Income (loss) from operations
Rack Back (1)
Rack Forward (2)
Eliminations (3)
(In thousands)
Total Lubricants
and Specialty
Products
$
$
$
$
$
$
505,424 $
456,194
96,463
22,276
29,071
167,017
(265,597) $
661,523 $
620,660
116,984
31,854
37,001
152,712
(297,688) $
682,892 $
633,459
111,155
32,086
26,955
(120,763) $
1,667,809 $
1,185,116
119,605
135,540
51,585
119,558
56,405 $
1,883,920 $
1,412,291
114,539
136,741
51,780
—
168,569 $
1,650,056 $
1,268,326
56,665
111,664
16,300
197,101 $
(370,023) $
(370,023)
—
—
—
—
— $
(452,915) $
(452,915)
—
—
—
—
— $
(520,245) $
(520,245)
—
—
—
— $
1,803,210
1,271,287
216,068
157,816
80,656
286,575
(209,192)
2,092,528
1,580,036
231,523
168,595
88,781
152,712
(129,119)
1,812,703
1,381,540
167,820
143,750
43,255
76,338
(1) Rack back consists of our PCLI base oil production activities, by-product sales to third parties and intra-segment base
oil sales to rack forward.
(2) Rack forward activities include the purchase of base oils from rack back and the blending, packaging, marketing and
distribution and sales of finished lubricants and specialty products to third parties.
(3) Intra-segment sales of rack back produced base oils to rack forward are eliminated under the “Eliminations” column.
(4) During the year ended December 31, 2020, a goodwill impairment charge of $81.9 million was recorded in rack
forward. Also, during the year ended December 31, 2020, a long-lived asset impairment charge of $204.7 million was
recorded of which $167.0 million was in rack back and $37.7 million was in rack forward.
(5) During the year ended December 31, 2019, a goodwill impairment charge of $152.7 million was recorded in the PCLI
reporting unit within the Lubricants and Specialty Products segment. We separately allocated this charge for purposes
of management’s discussion and analysis presentation of rack back and rack forward results entirely to rack back.
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Results of Operations - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Summary
Net loss attributable to HollyFrontier stockholders for the year ended December 31, 2020 was $(601.4) million ($(3.72) per
basic and diluted share), a $1,373.8 million decrease compared to net income of $772.4 million ($4.64 per basic and $4.61 per
diluted share) for the year ended December 31, 2019. Net income decreased due principally to long-lived asset and goodwill
impairment charges of $545.3 million offset by an $81.0 million gain recognized upon the settlement of a business interruption
insurance claim. In addition, net income decreased as a result of lower gross refining margins and lower refining segment sales
volumes. For the year ended December 31, 2020, lower of cost or market inventory reserve adjustments decreased pre-tax
earnings by $78.5 million compared to an increase of $119.8 million for the year ended December 31, 2019. Refinery gross
margins for the year ended December 31, 2020 decreased to $7.29 per produced barrel from $15.92 for the year ended
December 31, 2019. The year ended December 31, 2019 included a goodwill impairment charge of $152.7 million.
Sales and Other Revenues
Sales and other revenues decreased 36% from $17,486.6 million for the year ended December 31, 2019 to $11,183.6 million for
the year ended December 31, 2020 due to a year-over-year decrease in sales prices and lower refined product sales volumes.
Sales and other revenues for the years ended December 31, 2020 and 2019 include $98.0 million and $121.0 million,
respectively, in HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally,
sales and other revenues included $1,792.7 million and $2,081.2 million in unaffiliated revenues related to our Lubricants and
Specialty Products segment for the years ended December 31, 2020 and 2019, respectively.
Cost of Products Sold
Total cost of products sold decreased 33% from $13,798.6 million for the year ended December 31, 2019 to $9,237.3 million
for the year ended December 31, 2020, due principally to lower crude oil costs and lower refined product sales volumes.
Additionally, for the year ended December 31, 2020, we recognized a $78.5 million lower of cost or market inventory valuation
charge compared to a benefit of $119.8 million for the same period of 2019, resulting in a new $318.9 million inventory reserve
at December 31, 2020. The lower of cost or market reserve at December 31, 2020 is based on market conditions and prices at
that time. During the year ended December 31, 2019, we recorded a $36.6 million RINs cost reduction as a result of our
Cheyenne Refinery and Woods Cross Refinery small refinery exemptions. Also, during the year ended December 31, 2019, we
recorded an $18.0 million reduction to cost of products sold as a result of U.S. blender's tax credit legislation that was signed in
December 2019 and applied retroactively for the years 2019 and 2018.
Gross Refinery Margins
Gross refinery margin per barrel sold decreased 54% from $15.92 for the year ended December 31, 2019 to $7.29 for the year
ended December 31, 2020. This was due to a decrease in the average per barrel sold sales price during the current year period,
partially offset by decreased crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash
effects of lower of cost or market inventory valuation adjustments, long-lived asset impairment charges or depreciation and
amortization. See “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7A
of Part II of this Form 10-K for a reconciliation to the income statement of sale prices of products sold and cost of products
purchased.
Operating Expenses
Operating expenses, exclusive of depreciation and amortization, decreased 7% from $1,394.1 million for the year ended
December 31, 2019 to $1,300.3 million for the year ended December 31, 2020 due principally to lower repair and maintenance
costs primarily related to the shutdown of our Cheyenne Refinery, partially offset by decommissioning costs associated with the
Cheyenne Refinery shutdown recorded in the year ended December 31, 2020. Prior year period operating expenses included
higher repair and maintenance costs related to a February 2019 fire in an FCC unit at our El Dorado Refinery.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 11% from $354.2 million for the year ended December 31, 2019 to
$313.6 million for the year ended December 31, 2020 due principally to lower professional services and employee-related
expenses. We incurred $2.0 million and $24.2 million in direct acquisition and integration costs for our Sonneborn business
during the years ended December 31, 2020 and 2019.
Depreciation and Amortization Expenses
Depreciation and amortization increased 2% from $509.9 million for the year ended December 31, 2019 to $520.9 million for
the year ended December 31, 2020. This increase was due principally to depreciation and amortization attributable to
capitalized improvement projects and capitalized refinery turnaround costs, partially offset by lower depreciation expense
resulting from the assets impaired in the current year period.
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Goodwill and Long-lived Asset Impairments
During the year ended December 31, 2020, we recorded long-lived asset impairment charges of $232.2 million that related to
our Cheyenne Refinery, $26.5 million for construction-in-progress consisting primarily of engineering work for potential
upgrades to certain processing units at our Tulsa and El Dorado Refineries and $204.7 million related to PCLI. Also, during the
year ended December 31, 2020, we recorded a goodwill impairment charge of $81.9 million that related to Sonneborn. During
the year ended December 31, 2019 we recorded a goodwill impairment charge of $152.7 million that related to PCLI. See Note
11 “Goodwill, Long-lived Assets and Intangibles” in the Notes to Consolidated Financial Statements for additional information
on these impairments.
Interest Income
Interest income for the year ended December 31, 2020 was $7.6 million compared to $22.1 million for the year ended
December 31, 2019. This decrease was primarily due to lower interest rates on cash investments.
Interest Expense
Interest expense was $126.5 million for the year ended December 31, 2020 compared to $143.3 million for the year ended
December 31, 2019. This decrease was primarily due to lower market interest rates on HEP’s credit facility and HEP’s
refinancing of its 6.0% senior notes due 2024, partially offset by interest expense on our senior notes issued in 2020.
Additionally, we recorded unrealized losses on the mark-to-market change in the fair value of the embedded derivative in our
catalyst financing arrangements of $4.3 million for the year ended December 31, 2020 and $6.4 million for the same period in
2019. For the years ended December 31, 2020 and 2019, interest expense included $52.9 million and $74.8 million,
respectively, in interest costs attributable to HEP operations.
Gain on Business Interruption Insurance Settlement
During the year ended December 31, 2020, we recorded a gain of $81.0 million upon the settlement of our business interruption
claim with our insurance carrier related to a loss at our Woods Cross Refinery that occurred in the first quarter of 2018.
Gain on Sales-type Leases
During the second quarter of 2020, HEP and Delek US Holdings, Inc. renewed the original throughput agreement on specific
HEP assets. Portions of the new throughput agreement meet the definition of sales-type leases, which resulted in an accounting
gain of $33.8 million upon the initial recognition of the sales-type lease during the year ended December 31, 2020.
Loss on Early Extinguishment of Debt
For the year ended December 31, 2020, HEP recorded a $25.9 million loss on the redemption of its $500 million aggregate
principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million.
Gain on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by
PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency
exposure on these intercompany notes were gains of $2.2 million and $5.4 million for the years ended December 31, 2020 and
2019, respectively. For the years ended December 31, 2020 and 2019, gain on foreign currency transactions included losses of
$7.3 million and $17.4 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge).
Income Taxes
For the year ended December 31, 2020, we recorded an income tax benefit of $232.1 million compared to income tax expense
of $299.2 million for the year ended December 31, 2019. This decrease was due principally to a pre-tax loss during the year
ended December 31, 2020 compared to pre-tax earnings for the year ended December 31, 2019. Our effective tax rates were
31.1% and 25.5% for the years ended December 31, 2020 and 2019, respectively. The year-over-year increase in the effective
tax rate is due principally to the relationship between the pre-tax results and the earnings attributable to the noncontrolling
interest that is not included in income for tax purposes and benefits related to the CARES Act.
LIQUIDITY AND CAPITAL RESOURCES
HollyFrontier Credit Agreement
We have a $1.35 billion senior unsecured revolving credit facility maturing in February 2022 (the “HollyFrontier Credit
Agreement”). The HollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to
time and is available to fund general corporate purposes. At December 31, 2020, we were in compliance with all covenants, had
no outstanding borrowings and had outstanding letters of credit totaling $5.7 million under the HollyFrontier Credit Agreement.
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HollyFrontier Senior Notes
On September 28, 2020, we completed a public offering of $350.0 million in aggregate principal amount of 2.625% senior
notes maturing October 2023 and $400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030.
We intend to use the net proceeds for general corporate purposes, which may include capital expenditures. These senior notes
are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and
unsubordinated indebtedness.
HollyFrontier Financing Arrangements
In December 2018, certain of our wholly-owned subsidiaries entered into financing arrangements whereby such subsidiaries
sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in
exchange for total cash received of $32.5 million. The volume of the precious metals catalyst and the lease rate are fixed over
the one-year term of each lease, and the lease payments are recorded as interest expense. The leases mature on February 1,
2022. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity.
HEP Credit Agreement
HEP has a $1.4 billion senior secured revolving credit facility maturing in July 2022 (the “HEP Credit Agreement”) and is
available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general
partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and has a $300 million accordion.
During the year ended December 31, 2020, HEP received advances totaling $258.5 million and repaid $310.5 million under the
HEP Credit Agreement. At December 31, 2020, HEP was in compliance with all of its covenants, had outstanding borrowings
of $913.5 million and no outstanding letters of credit under the HEP Credit Agreement.
HEP Senior Notes
On February 4, 2020, HEP closed a private placement of $500.0 million in aggregate principal amount of 5.0% HEP senior
unsecured notes maturing February 2028. On February 5, 2020, HEP redeemed its existing $500.0 million aggregate principal
amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million. HEP recognized a $25.9 million
early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized discount and financing costs
of $3.4 million. HEP funded the $522.5 million redemption with proceeds from the issuance of its 5.0% senior notes and
borrowings under the HEP Credit Agreement.
See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments.
HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to
time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the year ended
December 31, 2020, HEP did not issue any common units under this program. As of December 31, 2020, HEP has issued
2,413,153 common units under this program, providing $82.3 million in gross proceeds.
Liquidity
We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under
our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the
foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or
debt financings in the public and private capital markets. In addition, subject to our current cash conservation strategies as
discussed above in “Outlook,” components of our growth strategy include the expansion of existing units at our facilities and
selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. We also
expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and, once commodity
prices and demand for products normalize, for the repurchases of our common stock under our share repurchase program.
Our standalone (excluding HEP) liquidity was approximately $2.70 billion at December 31, 2020, consisting of cash and cash
equivalents of $1.35 billion and an undrawn $1.35 billion credit facility.
We consider all highly-liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents.
Cash equivalents are stated at cost, which approximates market value. These primarily consist of investments in conservative,
highly-rated instruments issued by financial institutions, government and corporate entities with strong credit standings and
money market funds.
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In November 2019, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share
repurchase programs, authorizing us to repurchase common stock in the open market or through privately negotiated
transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other
relevant considerations. This program may be discontinued at any time by our Board of Directors. As of December 31, 2020,
we had not repurchased common stock under this stock repurchase program. In addition, we are authorized by our Board of
Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. We do not
intend to repurchase common stock under our $1.0 billion share repurchase program until commodity prices and demand for
products normalize.
Cash and cash equivalents increased $483.2 million for the year ended December 31, 2020. Net cash provided by operating and
financing activities of $457.9 million and $353.2 million, respectively, exceeded cash used for investing activities of $330.2
million for the year ended December 31, 2020.
Cash Flows – Operating Activities
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net cash flows provided by operating activities were $457.9 million for the year ended December 31, 2020 compared to
$1,548.6 million for the year ended December 31, 2019, a decrease of $1,090.7 million. Net loss for the year ended
December 31, 2020 was $514.9 million, a decrease of $1,387.3 million compared to net income of $872.4 million for the year
ended December 31, 2019. Non-cash adjustments to net income / loss consisting of depreciation and amortization, goodwill and
long-lived asset impairments, lower of cost or market inventory valuation adjustment, earnings of equity method investments,
inclusive of distributions, loss on early extinguishment of debt, gain on sales-type leases, gain / loss on sale of assets, deferred
income taxes, equity-based compensation expense and fair value changes to derivative instruments totaled $1,019.1 million for
the year ended December 31, 2020 compared to $700.5 million for the same period in 2019. Adjusted for non-cash items,
changes in working capital increased operating cash flows by $43.5 million and $312.8 million for the years ended
December 31, 2020 and 2019, respectively. Additionally, for the year ended December 31, 2020, turnaround expenditures
decreased to $94.7 million from $318.4 million for the same period of 2019.
Cash Flows – Investing Activities and Planned Capital Expenditures
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net cash flows used for investing activities were $330.2 million for the year ended December 31, 2020 compared to $972.9
million for the year ended December 31, 2019, a decrease of $642.8 million, primarily driven by prior year investing activity
reflecting the acquisition of Sonneborn for a net cash outflow of $662.7 million. Cash expenditures for properties, plants and
equipment for 2020 increased to $330.2 million from $293.8 million for the same period in 2019. These include HEP capital
expenditures of $59.3 million and $30.1 million for the years ended December 31, 2020 and 2019, respectively. Additionally,
HEP invested $2.4 million and $17.9 million in the Cushing Connect Pipeline & Terminal LLC joint venture for the years
ending December 31, 2020 and 2019, respectively.
HollyFrontier Corporation
Each year our Board of Directors approves our annual capital budget which includes specific projects that management is
authorized to undertake. Additionally, when conditions warrant or as new opportunities arise, additional projects may be
approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on
the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures
appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been
completed. Refinery turnaround spending is amortized over the useful life of the turnaround.
The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes
replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve
operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production
yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety
compliance and include initiatives as a result of federal and state mandates.
Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities
as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we
seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining
processes.
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HEP
Each year the Holly Logistic Services, L.L.C. board of directors approves HEP’s annual capital budget, which specifies capital
projects that HEP management is authorized to undertake. Additionally, at times when conditions warrant or as new
opportunities arise, special projects may be approved. The funds allocated for a particular capital project may be expended over
a period in excess of a year, depending on the time required to complete the project. Therefore, HEP’s planned capital
expenditures for a given year consist of expenditures approved for capital projects included in its current year capital budget as
well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. In addition, HEP may
spend funds periodically to perform capital upgrades or additions to its assets where a customer reimburses HEP for such costs.
The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.
Expected capital and turnaround cash spending for 2021 is as follows:
HollyFrontier Capital Expenditures
Refining
Renewable Diesel Units
Lubricants and Specialty Products
Turnarounds and catalyst
Total HollyFrontier
HEP
Maintenance
Expansion and joint venture investment
Refining unit turnarounds
Total HEP
Total
Expected Cash Spending Range
(In millions)
$
$
190.0
520.0
40.0
320.0
1,070.0
14.0
30.0
5.0
49.0
1,119.0
$
$
220.0
550.0
50.0
350.0
1,170.0
18.0
35.0
8.0
61.0
1,231.0
Cash Flows – Financing Activities
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net cash flows provided by financing activities were $353.2 million for the year ended December 31, 2020 compared to net
cash flows used for financing activities of $848.3 million for the year ended December 31, 2019, an increase of $1,201.5
million. During the year ended December 31, 2020, we received $742.1 million in net proceeds from the issuance of HFC’s
2.625% and 4.500% senior notes, purchased $7.6 million of treasury stock and paid $229.5 million in dividends. Also during
this period, HEP received $258.5 million and repaid $310.5 million under the HEP Credit Agreement, paid $522.5 million upon
the redemption of HEP’s 6.0% senior notes and received $491.3 million in net proceeds from the issuance of HEP 5.0% senior
notes, paid distributions of $89.0 million to noncontrolling interests and received contributions from noncontrolling interests of
$23.9 million. During the year ended December 31, 2019, we purchased $533.1 million of treasury stock and paid $225.2
million in dividends. Also during 2019, HEP received $365.5 million and repaid $323.0 million under the HEP Credit
Agreement, paid distributions of $132.3 million to noncontrolling interests and received a contribution of $3.2 million from
noncontrolling interests.
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Contractual Obligations and Commitments
The following table presents our long-term contractual obligations as of December 31, 2020 in total and by period due
beginning in 2021. The table below does not include our contractual obligations to HEP under our long-term transportation
agreements as these related-party transactions are eliminated in the Consolidated Financial Statements. A description of these
agreements is provided under “Holly Energy Partners, L.P.” under Items 1 and 2, “Business and Properties.”
Contractual Obligations and Commitments
Total
2021
Payments Due by Period
2022 & 2023
(In thousands)
2024 & 2025
Thereafter
HollyFrontier Corporation
Long-term debt - principal (1)
Long-term debt - interest (2)
Financing arrangements (3)
Supply agreements (4)
Transportation and storage agreements (5)
Operating and finance leases (6)
Other long-term obligations
Holly Energy Partners
Long-term debt - principal (7)
Long-term debt - interest (8)
Operating and finance leases (6)
Other agreements
$ 1,750,000 $
509,203
43,948
1,487,924
1,163,751
352,838
31,597
5,339,261
— $
85,937
43,948
538,616
129,661
103,593
14,422
916,177
350,000 $
169,578
—
506,011
226,648
154,585
15,304
1,422,126
— $ 1,400,000
100,188
—
—
580,889
42,197
292
2,123,566
153,500
—
443,297
226,553
52,463
1,579
877,392
1,413,500
—
913,500
—
500,000
207,283
113,061
3,310
1,737,154
44,200
8,383
1,933
54,516
61,000
15,802
1,377
50,000
14,222
—
52,083
74,654
—
991,679
64,222
626,737
Total
$ 7,076,415 $
970,693 $ 2,413,805 $
941,614 $ 2,750,303
(1) Our long-term debt consists of the $350.0 million principal balance on our 2.625% senior notes, $1.0 billion principal balance on
our 5.875% senior notes and $400.0 million principal balance on our 4.500% senior notes.
Interest payments consist of interest on our 2.625% senior notes, 5.875% senior notes and 4.500% senior notes.
(2)
(3) We have a financing arrangement related to the sale and subsequent lease-back of certain of our precious metals.
(4) We have long-term supply agreements to secure certain quantities of crude oil, feedstock and other resources used in the
production process at market prices. We have estimated future payments under these fixed-quantity agreements expiring between
2021 and 2025 using current market rates. Additionally, commitments include purchases of 20,000 BPD of crude oil under a 10-
year agreement that commenced in 2015 to supply our Woods Cross Refinery.
(5) Consists of contractual obligations under agreements with third parties for the transportation of crude oil, natural gas and
feedstocks to our refineries and for terminal and storage services under contracts expiring between 2021 and 2039.
(6) Operating and finance lease obligations include options to extend terms that are reasonably certain of being exercised.
(7) HEP's long-term debt consists of the $500.0 million principal balance on the 5.0% HEP senior notes and $913.5 million of
(8)
outstanding borrowings under the HEP Credit Agreement. The HEP Credit Agreement expires in 2022.
Interest payments consist of interest on the 5.0% HEP senior notes and interest on long-term debt under the HEP Credit
Agreement. Interest on the HEP Credit Agreement debt is based on the weighted average rate of 2.10% at December 31, 2020.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial
statements. Actual results may differ from these estimates under different assumptions or conditions. We consider the following
policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our
results of operations, financial condition and cash flows. For additional information, see Note 1 “Description of Business and
Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.
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Inventory Valuation
Inventories related to our refining operations are stated at the lower of cost, using the LIFO method for crude oil and unfinished
and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down
to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory
method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging
cost of sales with LIFO inventory costs generated in prior periods. At December 31, 2020 and 2019, market values had fallen
below historical LIFO inventory costs and, as a result, we recorded lower of cost or market inventory valuation reserves of
$318.9 million and $240.4 million, respectively.
At December 31, 2020, our lower of cost or market inventory valuation reserve was $318.9 million. This amount, or a portion
thereof, is subject to reversal as a reduction to cost of products sold in subsequent periods as inventories giving rise to the
reserve are sold, and a new reserve is established. Such a reduction to cost of products sold could be significant if inventory
values return to historical cost price levels. Additionally, further decreases in overall inventory values could result in additional
charges to cost of products sold should the lower of cost or market inventory valuation reserve be increased.
Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-
average cost or net realizable value. Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the
lower of cost, using the FIFO method, or net realizable value.
In connection with our announcement of the conversion of our Cheyenne Refinery to renewable diesel production, we recorded
a reserve of $9.0 million for the year ended December 31, 2020 against our repair and maintenance supplies inventory.
Goodwill and Long-lived Assets
As of December 31, 2020, our goodwill balance was $2.3 billion, with goodwill assigned to our Refining, Lubricants and
Specialty Products and HEP segments of $1,733.5 million, $247.6 million and $312.9 million, respectively. Goodwill
represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill
is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first
entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is
more likely than not that the carrying value of the reporting unit is greater than its fair value, a quantitative test is performed in
which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value,
the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of
reporting unit over the related fair value.
For purposes of long-lived asset impairment evaluation, we have grouped our long-lived assets as follows: (i) our refinery asset
groups, which include certain HEP logistics assets, (ii) our Lubricants and Specialty Products asset groups and (iii) our HEP
asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups represent the lowest
level for which independent cash flows can be identified. Our long-lived assets are evaluated for impairment by identifying
whether indicators of impairment exist and if so, assessing whether the long-lived assets are recoverable from estimated future
undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset
group’s carrying value exceeds its fair value.
Goodwill and long-lived asset impairments
During the second quarter of 2020, we determined that indicators of potential goodwill and long-lived asset impairments were
present and performed recoverability testing for long-lived assets and an interim test for goodwill impairment as of May 31,
2020. Impairment indicators included the recent economic slowdown caused by the COVID-19 pandemic, reductions in the
prices of our finished goods and raw materials and the related decrease in our gross margins, as well as the recent decline in our
market capitalization. Additionally, our second quarter announcement of the planned conversion of our Cheyenne Refinery to
renewable diesel production was also considered a triggering event requiring assessment of potential impairments to the
carrying value of our Cheyenne Refinery asset group. As a result of our long-lived asset recoverability testing, we determined
that the carrying value of the long-lived assets of our Cheyenne Refinery and PCLI asset groups were not recoverable, and thus
recorded long-lived asset impairment charges of $232.2 million and $204.7 million, respectively, in the second quarter of 2020.
Our interim goodwill impairment testing indicated that there was no impairment of goodwill at our Refining and Lubricants and
Specialty Products reporting units as of May 31, 2020. The estimated fair values of the Cheyenne Refinery and PCLI asset
groups were determined using a combination of the income and cost approaches. The income approach was based on
management’s best estimates of the expected future cash flows over the remaining useful life of the asset group. The cost
approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and
economic obsolescence.
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As of July 1, 2020, we performed our annual goodwill impairment testing quantitatively and determined there was no
impairment of goodwill attributable to our reporting units at that time. The excess of the fair values of the reporting units over
their respective carrying values ranged from 10% to 229%. Increasing the discount rate by 1.0% or reducing the terminal cash
flow growth rate by 1.0% would not have changed the results of our goodwill impairment testing performed in the second and
third quarters of 2020.
During the fourth quarter of 2020, we incurred long-lived asset impairment charges of $26.5 million for construction-in-
progress, consisting primarily of engineering work for potential upgrades to certain processing units at our Tulsa and El Dorado
Refineries. During the quarter, we concluded not to pursue these projects in light of recent economic and market conditions.
Additionally, in the fourth quarter of 2020, our budgeting processes identified downward forecast revisions specific to the
Sonneborn reporting unit within our Lubricants and Specialty Products segment largely from declines in gross margin as
compared to historic levels and an increase in forecasted capital expenditures. As such, we concluded it was more likely than
not that the carrying value of the Sonneborn reporting unit exceeded its fair value, and we performed an interim quantitative test
for goodwill impairment as of December 1, 2020. As a result of our impairment testing, we recognized a goodwill impairment
charge of $81.9 million during the fourth quarter for the Sonneborn reporting unit. Our annual test performed on July 1, 2020
indicated that the fair value of our El Dorado reporting unit exceeded its carrying value by approximately 10%. However, based
on our reviews of updated budgets, and other factors such as economic and industry conditions we concluded that El Dorado
and our other reporting units within our Lubricants and Specialty Products segment did not require an interim impairment test
during the fourth quarter.
We continually monitor and evaluate various factors for potential indicators of goodwill and long-lived asset impairment. A
reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in an
impairment of goodwill and / or additional long-lived asset impairments at some point in the future. Future impairment charges
could be material to our results of operations and financial condition.
In performing our impairment tests of long-lived assets and goodwill, we developed cash flow forecasts for each of our asset
groups and reporting units. Significant judgment is involved in performing these fair value estimates since the results are based
on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end
user demand, selling prices, gross margins, operating costs and capital expenditures. Another key assumption applied to these
forecasts to determine the fair value of an asset group or reporting unit is the discount rate. The discount rate is intended to
reflect the weighted average cost of capital for a market participant and the risks associated with the realization of the estimated
future cash flows. Assumptions about the effects of the COVID-19 pandemic on future demand and market conditions are
inherently subjective and difficult to forecast. Our fair value estimates are based on projected cash flows, which we believe to
be reasonable.
Contingencies
We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are
required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable
losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing with these matters.
RISK MANAGEMENT
We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk
exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial
position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit.
Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and
refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into
derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price
exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.
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Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative
contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with
fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar.
As of December 31, 2020, we have the following notional contract volumes related to all outstanding derivative contracts used
to mitigate commodity price and foreign currency risk ( all maturing in 2021):
Contract Description
Natural gas price swaps - long
NYMEX futures (WTI) - short
Forward gasoline and diesel contracts - long
Total
Outstanding
Notional
Unit of
Measure
1,800,000 MMBTU
160,000 Barrels
195,000 Barrels
Foreign currency forward contracts
Forward commodity contracts (platinum) (1)
418,192,532 U.S. dollar
40,867 Troy ounces
(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under
certain conditions. See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing
arrangements.
The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity hedged under
our derivative contracts:
Derivative Contracts
Estimated Change in Fair Value at December 31,
2020
2019
Hypothetical 10% change in underlying commodity prices
$
(In thousands)
344 $
7,420
Interest Rate Risk Management
The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as
discussed below.
For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of
the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value
(assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of December 31, 2020 is presented below:
HollyFrontier Senior Notes
HEP Senior Notes
Outstanding
Principal
Estimated
Fair Value
(In thousands)
Estimated
Change in
Fair Value
$
$
1,750,000 $
1,903,867 $
500,000 $
506,540 $
31,428
14,535
For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At
December 31, 2020, outstanding borrowings under the HEP Credit Agreement were $913.5 million. A hypothetical 10% change
in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows.
Our operations are subject to hazards of petroleum processing operations, including but not limited to fire, explosion and
weather-related perils. We maintain various insurance coverages, including property damage and business interruption
insurance, subject to certain deductibles and insurance policy terms and conditions. We are not fully insured against certain
risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such
expenditures.
Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their
ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to
experience, any difficulty in the counterparties honoring their commitments.
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Table of Content
We have a risk management oversight committee consisting of members from our senior management. This committee oversees
our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that
may adversely affect the achievement of our goals.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles
Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under
generally accepted accounting principles in financial statements.
Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income (loss)
attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii)
depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be
considered as an alternative to net income or operating income as an indication of our operating performance or as an
alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures
of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to
measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants.
Set forth below is our calculation of EBITDA.
Net income (loss) attributable to HollyFrontier stockholders
Add (subtract) income tax provision
Add interest expense
Subtract interest income
Add depreciation and amortization
EBITDA
2020
Years Ended December 31,
2019
(In thousands)
2018
$
$
(601,448) $
(232,147)
126,527
(7,633)
520,912
(193,789) $
772,388 $
299,152
143,321
(22,139)
509,925
1,702,647 $
1,097,960
347,243
131,363
(16,892)
437,324
1,996,998
Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally
accepted accounting principles in financial statements.
Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and
others to compare our refining performance to that of other companies in our industry. We believe these margin measures are
helpful to investors in evaluating our refining performance on a relative and absolute basis. Refinery gross margin per produced
barrel sold is total refining segment revenues less total refining segment cost of products sold, exclusive of lower of cost or
market inventory valuation adjustments, divided by sales volumes of produced refined products sold. Net operating margin per
barrel sold is the difference between refinery gross margin and refinery operating expenses per produced barrel sold. These two
margins do not include the non-cash effects of long-lived asset impairment charges, lower of cost or market inventory valuation
adjustments or depreciation and amortization. Each of these component performance measures can be reconciled directly to our
consolidated statements of income. Other companies in our industry may not calculate these performance measures in the same
manner.
Below are reconciliations to our consolidated statements of income for refinery net operating and gross margin and operating
expenses, in each case averaged per produced barrel sold. Due to rounding of reported numbers, some amounts may not calculate
exactly.
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Reconciliation of average refining segment net operating margin per produced barrel sold to refinery gross margin to total sales
and other revenues
Consolidated
Net operating margin per produced barrel sold
Add average refinery operating expenses per produced barrel sold
Refinery gross margin per produced barrel sold
Times produced barrels sold (BPD)
Times number of days in period
Refining gross margin
Add (subtract) rounding
West and Mid-Continent regions gross margin
Add West and Mid-Continent regions cost of products sold
Add Cheyenne Refinery sales and other revenues
Refining segment sales and other revenues
Add lubricants and specialty products segment sales and other
revenues
Add HEP segment sales and other revenues
Subtract corporate, other and eliminations
Sales and other revenues
Years Ended December 31,
2018
2019
2020
(Dollars in thousands, except per barrel amounts)
$
$
$
$
1.24 $
6.05
7.29 $
391,670
366
1,045,030 $
523
1,045,553
7,992,047
501,589
9,539,189
1,803,210
497,848
(656,604)
11,183,643 $
9.80 $
6.12
15.92 $
414,370
365
2,407,821 $
215
2,408,036
12,062,661
1,126,091
15,596,788 1
5
2,092,528
532,777
(735,515)
17,486,578 $
10.44
6.06
16.50
408,390
365
2,459,529
285
2,459,814
12,313,533
1,403,216
16,176,563
1,812,703
506,220
(780,820)
17,714,666
Reconciliation of average refining segment operating expenses per produced barrel sold to total operating expenses
Consolidated
Average refinery operating expenses per produced barrel sold
Times produced barrels sold (BPD)
Times number of days in period
Refinery operating expenses
Add (subtract) rounding
West and Mid-Continent regions operating expenses
Add Cheyenne Refinery operating expenses
Total refining segment operating expenses
Add lubricants and specialty products segment operating expenses
Add HEP segment operating expenses
Subtract corporate, other and eliminations
Operating expenses (exclusive of depreciation and amortization)
$
$
$
Years Ended December 31,
2020
2018
2019
(Dollars in thousands, except per barrel amounts)
6.05 $
391,670
366
867,275 $
(381)
866,894
121,151
988,045
216,068
147,692
(51,528)
1,300,277 $
6.12 $
414,370
365
925,620 $
(338)
925,282
170,206
1,095,488
231,523
161,996
(94,955)
1,394,052 $
6.06
408,390
365
903,318
(162)
903,156
152,053
1,055,209
167,820
146,430
(83,621)
1,285,838
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Item 8. Financial Statements and Supplementary Data
MANAGEMENT'S REPORT ON ITS ASSESSMENT OF THE COMPANY'S INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of HollyFrontier Corporation (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the Company's internal control over financial reporting as of December 31, 2020 using the criteria for
effective control over financial reporting established in “Internal Control - Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management concludes
that, as of December 31, 2020, the Company maintained effective internal control over financial reporting.
The Company's independent registered public accounting firm has issued an attestation report on the effectiveness of the
Company's internal control over financial reporting as of December 31, 2020. That report is included herein.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of HollyFrontier Corporation
Opinion on Internal Control over Financial Reporting
We have audited HollyFrontier Corporation’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, HollyFrontier Corporation (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December
31, 2020, and the related notes of the Company and our report dated February 24, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on its Assessment of the Company’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
February 24, 2021
64
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Income for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the years ended
December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
Reference
66
69
70
71
72
73
73
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of HollyFrontier Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HollyFrontier Corporation (the Company) as of December
31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of
the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 24, 2021 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02 (Topic 842)
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in
2019 to reflect the accounting method change due to the adoption of ASU 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which they relate.
66
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Valuation of Goodwill
At December 31, 2020, the Company’s goodwill was $2,294 million, including goodwill assigned to the
Refining, Lubricants and Specialty Products, and HEP segments of $1,733 million, $248 million, and $313
million, respectively. As described in Note 1 and Note 11 of the financial statements, goodwill is tested for
impairment at least annually on July 1 at the reporting unit level or more frequently if events or changes in
circumstances indicate the asset might be impaired. During the fourth quarter of 2020, the Company
performed interim goodwill impairment testing of the Sonneborn reporting unit included in the Lubricants
and Specialty Products segment, resulting in an impairment charge of $82 million on this reporting unit.
Auditing management’s goodwill impairment tests was complex and highly judgmental for the Company’s
Sonneborn and El Dorado Refinery reporting units due to the significant estimation required to determine
the fair value of these reporting units. In particular, the fair value estimates were sensitive to significant
assumptions, such as revenue growth rates, gross margins, and discount rates, which are affected by
expectations about future market or economic conditions. These assumptions have a significant effect on
the fair value estimates.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company's goodwill impairment testing process. For example, we tested controls over management's
review of the significant inputs and assumptions used in determining the reporting unit fair values.
To test the estimated fair value of the Company’s Sonneborn and El Dorado Refinery reporting units, we
performed audit procedures with the support of a valuation specialist that included, among others,
assessing methodologies and testing the significant assumptions discussed above and the underlying data
used by the Company in its analysis. We compared the significant assumptions used by management to
relevant industry and economic trends, published forward prices, third party analyst reports, historical
operating results and other relevant factors. We performed sensitivity analyses of significant assumptions
to evaluate the changes in the fair value of the reporting units that would result from changes in the
assumptions. We also tested management’s reconciliation of the fair value of the reporting units to the
market capitalization of the Company.
Description of
the Matter
Environmental Liabilities
At December 31, 2020, the Company’s accrual for environmental liabilities was $115 million, of which
$94 million was classified as other long-term liabilities. As described in Note 1 and Note 12 of the
consolidated financial statements, these accruals include remediation and monitoring costs expected to be
incurred over an extended period of time. Liabilities are recorded when site restoration and environmental
remediation, cleanup and other obligations are either known or considered probable and can be reasonably
estimated.
How We
Addressed the
Matter in Our
Audit
Auditing management’s estimates for environmental liabilities was challenging and highly judgmental due
to the significant judgment required to develop assumptions related to future costs expected for the
remediation of environmental obligations. In particular, the liability estimates require judgment with
respect to costs, time frame and extent of required remedial and clean-up activities.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s accrued environmental liability cost estimate and review process.
To test management’s accrued environmental liabilities, we performed audit procedures that included,
among others, obtaining a rollforward of the environmental liabilities reflecting activity in the accruals for
the past year, performing a look back analysis comparing the prior year short-term accrual estimates to
actual current year expenditures, and comparing actual expenditures made to supporting invoices and cash
payments. We also utilized an environmental specialist to assist in our evaluation of certain environmental
site accruals, including the testing of a sample of cost estimates by inspecting relevant supporting
documentation and performing a search of publicly filed records with environmental agencies to test the
completeness of environmental liabilities.
67
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Impairment of Long-Lived Assets
As described in Note 11 of the financial statements, the Company recognized long-lived asset impairment
charges of $204.7 million during the second quarter of 2020 related to property, plant, and equipment and
other long-lived assets associated with the PCLI asset group. The Company evaluates long-lived assets for
impairment by first identifying whether indicators of impairment exist. If indicators are present for an asset
group, the Company evaluates recoverability by comparing the estimated future undiscounted cash flows to
the carrying amount of the asset group. If the asset group's carrying amount exceeds its estimated future
undiscounted cash flows, the fair value of the asset group is then estimated by management and compared
to its carrying amount. An impairment charge is recognized on a long-lived asset group when the carrying
amount exceeds fair value.
Auditing management’s evaluation of long-lived asset impairment at PCLI involved a high degree of
subjectivity and auditor judgment due to the estimation required to assess significant assumptions utilized
in estimating the fair value of the asset group based on a discounted cash flow model, such as assumptions
related to revenue growth rates, gross margins, and the discount rate. These assumptions have a significant
effect on the fair value estimates.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s long-lived asset impairment evaluation process, including controls over management’s
review of significant assumptions used.
To test the Company’s long-lived asset impairment evaluation process, we performed audit procedures that
included, among others, assessing the methodologies used, evaluating the significant assumptions
discussed above and testing the completeness and accuracy of the underlying data used by the Company in
its analysis. We compared the significant assumptions used by management to relevant industry and
economic trends, external market data, historical operating results, and other relevant factors. We also
performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the
asset group that would result from changes in the underlying assumptions. We involved our valuation
specialists to assist in our evaluation of certain significant assumptions used on the calculation of fair value
estimates including the fair value of real and personal property and the discount rate.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1977.
Dallas, Texas
February 24, 2021
68
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ASSETS
Current assets:
HOLLYFRONTIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2020
2019
Cash and cash equivalents (HEP: $21,990 and $13,287, respectively)
$
1,368,318 $
885,162
Accounts receivable: Product and transportation (HEP: $14,543 and $18,732, respectively)
Crude oil resales
Inventories: Crude oil and refined products
Materials, supplies and other (HEP: $895 and $833, respectively)
Income taxes receivable
Prepayments and other (HEP: $8,591 and $6,795, respectively)
Total current assets
Properties, plants and equipment, at cost (HEP: $2,119,295 and $2,047,674, respectively)
Less accumulated depreciation (HEP: $(644,149) and $(552,786)), respectively)
Operating lease right-of-use assets (HEP: $2,979 and $2,652, respectively)
Other assets: Turnaround costs
Goodwill (HEP: $312,873 and $312,873, respectively)
Intangibles and other (HEP: $365,773 and $319,569, respectively)
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (HEP: $28,565 and $18,050, respectively)
Income taxes payable
Operating lease liabilities (HEP $3,827 and $3,608, respectively)
Accrued liabilities (HEP: $29,518 and $30,418, respectively)
Total current liabilities
Long-term debt (HEP: $1,405,603 and $1,462,031, respectively)
Noncurrent operating lease liabilities (HEP $68,454 and $72,000, respectively)
Deferred income taxes (HEP: $449 and $424, respectively)
Other long-term liabilities (HEP: $55,105 and $59,021, respectively)
Commitments and contingencies (Note 19)
Equity:
HollyFrontier stockholders’ equity:
Preferred stock, $1.00 par value – 5,000,000 shares authorized; none issued
Common stock $0.01 par value – 320,000,000 shares authorized; 256,046,051 and 256,042,554 shares
issued as of December 31, 2020 and December 31, 2019
Additional capital
Retained earnings
Accumulated other comprehensive income
Common stock held in treasury, at cost - 93,632,391 and 94,196,029 shares as of
December 31, 2020 and December 31, 2019, respectively
Total HollyFrontier stockholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
590,526
39,510
630,036
965,858
207,618
1,173,476
91,348
47,583
3,310,761
7,299,517
(2,726,378)
4,573,139
350,548
314,816
2,293,935
663,665
3,272,416
11,506,864 $
834,771
44,914
879,685
1,282,789
191,413
1,474,202
5,478
61,662
3,306,189
7,237,297
(2,414,585)
4,822,712
467,109
521,278
2,373,907
673,646
3,568,831
12,164,841
1,000,959 $
1,801
97,937
274,459
1,375,156
3,142,718
285,785
713,703
267,299
1,215,555
27,965
104,415
337,993
1,685,928
2,455,640
364,420
889,270
260,157
$
$
—
—
2,560
4,207,672
3,913,179
13,462
2,560
4,204,547
4,744,120
14,774
(2,968,512)
5,168,361
553,842
5,722,203
11,506,864 $
(2,987,808)
5,978,193
531,233
6,509,426
12,164,841
$
Parenthetical amounts represent asset and liability balances attributable to Holly Energy Partners, L.P. (“HEP”) as of December 31, 2020 and 2019.
HEP is a variable interest entity.
See accompanying notes.
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Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Sales and other revenues
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization):
Cost of products sold (exclusive of lower of cost or market inventory
valuation adjustment)
Lower of cost or market inventory valuation adjustment
Operating expenses (exclusive of depreciation and amortization)
Selling, general and administrative expenses (exclusive of depreciation and
amortization)
Depreciation and amortization
Goodwill and long-lived asset impairments
Total operating costs and expenses
Income (loss) from operations
Other income (expense):
Earnings of equity method investments
Interest income
Interest expense
Gain on business interruption insurance settlement
Gain on sales-type leases
Loss on early extinguishment of debt
Gain on foreign currency transactions
Other, net
Income (loss) before income taxes
Income tax expense (benefit):
Current
Deferred
Net income (loss)
Less net income attributable to noncontrolling interest
Net income (loss) attributable to HollyFrontier stockholders
Earnings (loss) per share:
Basic
Diluted
Average number of common shares outstanding:
Basic
Diluted
See accompanying notes.
Years Ended December 31,
2019
2018
2020
$
11,183,643 $
17,486,578 $
17,714,666
9,158,805
13,918,384
13,940,782
78,499
9,237,304
1,300,277
313,600
520,912
545,293
(119,775)
136,305
13,798,609
14,077,087
1,394,052
1,285,838
354,236
509,925
152,712
290,424
437,324
—
11,917,386
16,209,534
16,090,673
(733,743)
1,277,044
1,623,993
6,647
7,633
5,180
22,139
5,825
16,892
(126,527)
(143,321)
(131,363)
81,000
33,834
(25,915)
2,201
7,824
(13,303)
(747,046)
(55,420)
(176,727)
(232,147)
(514,899)
86,549
—
—
—
5,449
5,013
—
—
—
6,197
2,923
(105,540)
1,171,504
(99,526)
1,524,467
220,486
78,666
299,152
872,352
99,964
270,274
76,969
347,243
1,177,224
79,264
$
$
$
(601,448) $
772,388 $
1,097,960
(3.72) $
(3.72) $
4.64 $
4.61 $
6.25
6.19
161,983
161,983
166,287
167,385
175,009
176,661
70
Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustment
Hedging instruments:
Change in fair value of cash flow hedging instruments
Reclassification adjustments to net income (loss) on settlement of cash flow
hedging instruments
Net unrealized gain (loss) on hedging instruments
Pension and other post-retirement benefit obligations:
Actuarial gain (loss) on pension plans
Pension plans gain reclassified to net income (loss)
Actuarial gain (loss) on post-retirement healthcare plans
Post-retirement healthcare plans gain reclassified to net income (loss)
Actuarial gain (loss) on retirement restoration plan
Retirement restoration plan loss reclassified to net income (loss)
Net change in pension and other post-retirement benefit obligations
Other comprehensive income (loss) before income taxes
Income tax benefit
Other comprehensive income (loss)
Total comprehensive income (loss)
Less noncontrolling interest in comprehensive income
Years Ended December 31,
2020
2019
2018
$
(514,899) $
872,352 $
1,177,224
6,226
13,337
(38,227)
(7,475)
2,604
(4,871)
1,862
(422)
(1,129)
(3,564)
(230)
22
(3,461)
(2,106)
(794)
(1,312)
(516,211)
86,549
14,364
(19,713)
(5,349)
(990)
—
(2,412)
(3,587)
(224)
6
(7,207)
781
(370)
1,151
873,503
99,964
5,166
6,055
11,221
(923)
—
2,612
(3,481)
258
27
(1,507)
(28,513)
(5,585)
(22,928)
1,154,296
79,264
Comprehensive income (loss) attributable to HollyFrontier stockholders
$
(602,760) $
773,539 $
1,075,032
See accompanying notes.
71
Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Goodwill and long-lived asset impairments
Lower of cost or market inventory valuation adjustment
Earnings of equity method investments, inclusive of distributions
Loss on early extinguishment of debt
Gain on sales-type leases
(Gain) loss on sale of assets
Deferred income taxes
Equity-based compensation expense
Change in fair value – derivative instruments
(Increase) decrease in current assets:
Accounts receivable
Inventories
Income taxes receivable
Prepayments and other
Increase (decrease) in current liabilities:
Accounts payable
Income taxes payable
Accrued liabilities
Turnaround expenditures
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Additions to properties, plants and equipment
Additions to properties, plants and equipment – HEP
Acquisitions, net of cash acquired
Investment in equity company - HEP
Proceeds from sale of assets
Other, net
Net cash used for investing activities
Cash flows from financing activities:
Borrowings under credit agreements
Repayments under credit agreements
Proceeds from issuance of senior notes – HFC
Proceeds from issuance of senior notes – HEP
Redemption of senior notes - HEP
Purchase of treasury stock
Dividends
Distributions to noncontrolling interest
Proceeds of financing arrangements
Proceeds from issuance of common units - HEP
Contribution from noncontrolling interests
Payments on finance leases
Deferred financing costs
Other, net
Net cash provided by (used for) financing activities
Effect of exchange rate on cash flow
Cash and cash equivalents:
Increase (decrease) for the period
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes, net
Accrued and unpaid capital expenditures
See accompanying notes.
72
Years Ended December 31,
2019
2018
2020
$
(514,899) $
872,352 $
1,177,224
520,912
545,293
78,499
1,084
25,915
(33,834)
(201)
(176,727)
31,654
26,456
254,684
230,142
(85,442)
(2,541)
(241,765)
(25,897)
(85,708)
(94,692)
4,998
457,931
(270,877)
(59,283)
—
(2,438)
1,554
882
(330,162)
258,500
(310,500)
748,925
500,000
(522,500)
(7,642)
(229,493)
(89,001)
—
—
23,899
(2,995)
(15,538)
(429)
353,226
509,925
152,712
(119,775)
(213)
—
—
50
78,666
42,269
36,888
(150,437)
91,599
32,368
3,633
312,794
9,048
13,748
(318,415)
(18,601)
1,548,611
(263,651)
(30,112)
(662,665)
(17,886)
194
1,206
(972,914)
365,500
(323,000)
—
—
—
(533,083)
(225,170)
(132,268)
—
—
3,210
(1,551)
—
(1,893)
(848,255)
437,324
—
136,305
(149)
—
—
2,171
76,969
42,172
(31,515)
35,793
136,551
7,752
(10,340)
(326,030)
15,281
53,281
(217,228)
18,855
1,554,416
(256,888)
(54,141)
(54,179)
—
3,100
1,588
(360,520)
337,000
(426,000)
—
—
—
(363,437)
(233,544)
(125,653)
32,547
114,759
—
—
—
—
(664,328)
2,161
2,968
(5,573)
483,156
885,162
1,368,318 $
(269,590)
1,154,752
885,162 $
523,995
630,757
1,154,752
(120,257) $
(54,256) $
73,867 $
(133,809) $
(178,967) $
19,752 $
(130,106)
(252,644)
28,066
$
$
$
$
Table of Content
HOLLYFRONTIER CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
HollyFrontier Stockholders' Equity
Common
Stock
Additional
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Non-
controlling
Interest
Total Equity
Balance at December 31, 2017
$
2,560 $ 4,132,696 $ 3,346,615 $
29,869
$ (2,140,911) $
526,111 $
5,896,940
Net income
Dividends ($1.32 declared per common
share)
Distributions to noncontrolling interest
holders
Other comprehensive loss, net of tax
Equity attributable to HEP common unit
issuances, net of tax
Issuance of common stock under incentive
compensation plans, net of forfeitures
Equity-based compensation
Purchase of treasury stock
Purchase of HEP units for restricted grants
Adoption of accounting standards
—
—
—
—
—
—
—
—
—
—
—
1,097,960
—
(233,544)
—
—
42,199
(17,742)
38,972
—
—
—
—
—
—
—
—
—
—
(14,129)
—
—
—
(22,928)
—
—
—
—
—
6,682
—
—
—
—
—
17,742
—
(367,470)
—
—
79,264
1,177,224
—
(233,544)
(125,653)
—
(125,653)
(22,928)
58,134
100,333
—
3,200
—
(568)
—
—
42,172
(367,470)
(568)
(7,447)
Balance at December 31, 2018
$
2,560 $ 4,196,125 $ 4,196,902 $
13,623
$ (2,490,639) $
540,488 $
6,459,059
Net income
Dividends ($1.34 declared per common
share)
Distributions to noncontrolling interest
holders
Other comprehensive income, net of tax
Equity attributable to HEP common unit
issuances, net of tax
Issuance of common stock under incentive
compensation plans, net of forfeitures
Equity-based compensation
Purchase of treasury stock
Purchase of HEP units for restricted grants
Contributions from noncontrolling
interests
—
—
—
—
—
—
—
—
—
—
—
772,388
—
(225,170)
—
—
—
(31,314)
39,736
—
—
—
—
—
—
—
—
—
—
—
Balance at December 31, 2019
$
2,560 $ 4,204,547 $ 4,744,120 $
Net income (loss)
Dividends ($1.40 declared per common
share)
Distributions to noncontrolling interest
holders
Other comprehensive loss, net of tax
Issuance of common stock under incentive
compensation plans
Equity-based compensation
Purchase of treasury stock
Purchase of HEP units for restricted grants
Contributions from noncontrolling
interests
Other
—
—
—
—
—
—
—
—
—
—
—
(601,448)
—
(229,493)
—
—
(26,938)
29,460
—
—
—
603
—
—
—
—
—
—
—
—
—
—
—
1,151
—
—
—
—
—
—
14,774
—
—
—
(1,312)
—
—
—
—
—
—
—
—
—
—
—
31,314
—
(528,483)
—
—
99,964
872,352
—
(225,170)
(132,268)
(132,268)
—
1,151
(139)
(139)
—
2,533
—
(1,893)
—
42,269
(528,483)
(1,893)
22,548
22,548
$ (2,987,808) $
531,233 $
6,509,426
—
—
—
—
26,938
—
(7,642)
—
—
—
86,549
(514,899)
—
(229,493)
(89,001)
—
(89,001)
(1,312)
—
2,194
—
(1,032)
23,899
—
—
31,654
(7,642)
(1,032)
23,899
603
Balance at December 31, 2020
$
2,560 $ 4,207,672 $ 3,913,179 $
13,462
$ (2,968,512) $
553,842 $
5,722,203
See accompanying notes.
73
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
Description of Business and Summary of Significant Accounting Policies
Description of Business: References herein to HollyFrontier Corporation (“HollyFrontier”) include HollyFrontier and its
consolidated subsidiaries. In accordance with the Securities and Exchange Commission’s (“SEC”) “Plain English” guidelines,
this Annual Report on Form 10-K has been written in the first person. In these financial statements, the words “we,” “our,”
“ours” and “us” refer only to HollyFrontier and its consolidated subsidiaries or to HollyFrontier or an individual subsidiary and
not to any other person, with certain exceptions. Generally, the words “we,” “our,” “ours” and “us” include Holly Energy
Partners, L.P. (“HEP”) and its subsidiaries as consolidated subsidiaries of HollyFrontier, unless when used in disclosures of
transactions or obligations between HEP and HollyFrontier or its other subsidiaries. These financial statements contain certain
disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations
of HollyFrontier. When used in descriptions of agreements and transactions, “HEP” refers to HEP and its consolidated
subsidiaries.
We are an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet
fuel, specialty lubricant products and specialty and modified asphalt. We own and operate petroleum refineries that serve
markets throughout the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. In addition,
we produce base oils and other specialized lubricants in the United States, Canada and the Netherlands, with retail and
wholesale marketing of our products through a global sales network with locations in Canada, the United States, Europe, China
and Latin America.
As of December 31, 2020, we:
•
•
•
•
•
•
•
owned and operated a petroleum refinery in El Dorado, Kansas (the “El Dorado Refinery”), two refinery facilities
located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), a refinery in Artesia, New Mexico that is operated in
conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington,
New Mexico (collectively, the “Navajo Refinery”) and a refinery in Woods Cross, Utah (the “Woods Cross
Refinery”);
owned a facility in Cheyenne, Wyoming, which operated as a petroleum refinery until early August 2020, at which
time its assets began to be converted to renewable diesel production (the “Cheyenne Refinery”);
owned and operated Petro-Canada Lubricants Inc. (“PCLI”) located in Mississauga, Ontario, which produces base oils
and other specialty lubricant products;
owned and operated Sonneborn (as defined below) with manufacturing facilities in Petrolia, Pennsylvania and the
Netherlands, which produce specialty lubricant products, such as white oils, petrolatums and waxes;
owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has
storage and distribution facilities in Iowa and Wyoming, along with a blending and packaging facility in Texas;
owned and operated HollyFrontier Asphalt Company LLC (“HFC Asphalt”), which operates various asphalt terminals
in Arizona, New Mexico and Oklahoma; and
owned a 57% limited partner interest and a non-economic general partner interest in HEP, a variable interest entity
(“VIE”). HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines, terminals,
tankage, loading rack facilities and refinery processing units that principally support our refining and marketing
operations in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States.
In the third quarter of 2020, we permanently ceased petroleum refining operations at our Cheyenne Refinery and subsequently
began converting certain assets at our Cheyenne Refinery to renewable diesel production. This decision was primarily based on
a positive outlook in the market for renewable diesel and the expectation that future free cash flow generation at our Cheyenne
Refinery would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and
compressed crude differentials due to dislocations in the crude oil market. Additional factors included uncompetitive operating
and maintenance costs forecasted for our Cheyenne Refinery and the anticipated loss of the Environmental Protection Agency’s
(“EPA”) small refinery exemption.
74
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
During the second quarter of 2020, we recorded long-lived asset impairment charges of $232.2 million related to our Cheyenne
Refinery asset group. In connection with the cessation of petroleum refining operations at our Cheyenne Refinery, we
recognized $24.7 million in decommissioning expense for the year ended December 31, 2020. In addition, for the year ended
December 31, 2020, we recorded a reserve of $9.0 million against our repair and maintenance supplies inventory and $3.8
million in employee severance costs related to the conversion of our Cheyenne Refinery to renewable diesel production. These
decommissioning, inventory reserve and severance costs were recognized in operating expenses, of which $24.8 million was
recorded in our Refining segment and $12.7 million was recorded in our Corporate and Other segment.
During the second quarter of 2020, we also initiated and completed a corporate restructuring. As a result of this restructuring,
we recorded $3.7 million in employee severance costs, which were recognized primarily as operating expenses in our Refining
segment and selling, general and administrative expenses in our Corporate and Other segment.
On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the issued and outstanding capital
stock of Sonneborn US Holdings Inc. and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively,
“Sonneborn”). The acquisition closed on February 1, 2019.
On July 10, 2018, we entered into a definitive agreement to acquire Red Giant Oil, a privately-owned lubricants company. The
acquisition closed on August 1, 2018.
See Note 2 for additional information on these acquisitions.
Principles of Consolidation: Our consolidated financial statements include our accounts and the accounts of partnerships and
joint ventures that we control through an ownership interest greater than 50% or through a controlling financial interest with
respect to variable interest entities. All significant intercompany transactions and balances have been eliminated.
Variable Interest Entities: HEP is a VIE as defined under U.S. generally accepted accounting principles (“GAAP”). A VIE is
a legal entity whose equity owners do not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support or, as a group, the equity holders lack the power, through voting rights, to direct the activities
that most significantly impact the entity's financial performance, the obligation to absorb the entity's expected losses or rights to
expected residual returns. As the general partner of HEP, we have the sole ability to direct the activities of HEP that most
significantly impact HEP's financial performance, and therefore as HEP's primary beneficiary, we consolidate HEP.
In 2019, HEP Cushing LLC, a wholly-owned subsidiary of HEP, and Plains Marketing, L.P., a wholly-owned subsidiary of
Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect Pipeline & Terminal LLC.
Cushing Connect Pipeline & Terminal LLC and its two subsidiaries, Cushing Connect Pipeline and Cushing Connect Terminal,
are each VIE’s because they do not have sufficient equity at risk to finance their activities without additional financial support.
HEP is the primary beneficiary of two of these entities as HEP is constructing and will operate the Cushing Connect Pipeline,
and HEP has more ability to direct the activities that most significantly impact the financial performance of Cushing Connect
Pipeline & Terminal LLC and Cushing Connect Pipeline. Therefore, HEP consolidates these two entities. HEP is not the
primary beneficiary of Cushing Connect Terminal, which HEP accounts for using the equity method of accounting.
Use of Estimates: The preparation of financial statements in accordance with GAAP requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash Equivalents: We consider all highly liquid instruments with a maturity of three months or less at the date of purchase to
be cash equivalents. Cash equivalents are stated at cost, which approximates market value and are primarily invested in highly-
rated instruments issued by government or municipal entities with strong credit standings.
Balance Sheet Offsetting: We purchase and sell inventories of crude oil with certain same-parties that are net settled in
accordance with contractual net settlement provisions. Our policy is to present such balances on a net basis since it presents our
accounts receivables and payables consistent with our contractual settlement provisions.
75
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Accounts Receivable: Our accounts receivable consist of amounts due from customers that are primarily companies in the
petroleum industry. Credit is extended based on our evaluation of the customer's financial condition, and in certain
circumstances collateral, such as letters of credit or guarantees, is required. We reserve for doubtful accounts based on our
historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of
future economic conditions. Credit losses are charged to the allowance for doubtful accounts when an account is deemed
uncollectible. Our allowance for doubtful accounts was $3.4 million at December 31, 2020 and $4.5 million at December 31,
2019.
Accounts receivable attributable to crude oil resales generally represent the sale of excess crude oil to other purchasers and / or
users in cases when our crude oil supplies are in excess of our immediate needs as well as certain reciprocal buy / sell
exchanges of crude oil. At times we enter into such buy / sell exchanges to facilitate the delivery of quantities to certain
locations. In many cases, we enter into net settlement agreements relating to the buy / sell arrangements, which may mitigate
credit risk.
Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”)
method for crude oil and unfinished and finished refined products, or market. Cost, consisting of raw material, transportation
and conversion costs, is determined using the LIFO inventory valuation methodology and market is determined using current
replacement costs. Under the LIFO method, the most recently incurred costs are charged to cost of sales and inventories are
valued at the earliest acquisition costs. In periods of rapidly declining prices, LIFO inventories may have to be written down to
market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method
may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of
sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at
the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on
management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation.
Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out
(“FIFO”) method, or net realizable value.
Inventories consisting of process chemicals, materials and maintenance supplies and renewable identification numbers (“RINs”)
are stated at the lower of weighted-average cost or net realizable value.
Leases: Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842). At
inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU
assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease
term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our
leases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized
basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate
when readily determinable.
Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our
consolidated balance sheet. Finance leases are included in properties, plants and equipment and accrued liabilities and other
long-term liabilities on our consolidated balance sheet.
Our lease term includes an option to extend the lease when it is reasonably certain that we will exercise that option. Leases with
a term of 12 months or less are not recorded on our balance sheet. For certain equipment leases, we apply a portfolio approach
for the operating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and
exclude them from the determination of net present value of lease payment obligations. In addition, HEP, as a lessor, does not
separate the non-lease (service) component in contracts in which the lease component is the dominant component. HEP treats
these combined components as an operating lease.
Derivative Instruments: All derivative instruments are recognized as either assets or liabilities in our consolidated balance
sheets and are measured at fair value. Changes in the derivative instrument's fair value are recognized in earnings unless
specific hedge accounting criteria are met. See Note 14 for additional information.
76
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Properties, Plants and Equipment: Properties, plants and equipment are stated at cost. Depreciation is provided by the
straight-line method over the estimated useful lives of the assets, primarily 15 to 32 years for refining, pipeline and terminal
facilities, 10 to 40 years for buildings and improvements, 5 to 30 years for other fixed assets and 5 years for vehicles.
Asset Retirement Obligations: We record legal obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and / or the normal operation of long-lived assets. The fair value of the estimated
cost to retire a tangible long-lived asset is recorded as a liability with the associated retirement costs capitalized as part of the
asset's carrying amount in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can
be made. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient
information is available to estimate the liability's fair value. Certain of our refining assets have no recorded liability for asset
retirement obligations since the timing of any retirement and related costs are currently indeterminable.
Our asset retirement obligations were $42.6 million and $35.9 million at December 31, 2020 and 2019, respectively, which are
included in “Other long-term liabilities” in our consolidated balance sheets. Accretion expense was insignificant for the years
ended December 31, 2020, 2019 and 2018.
Intangibles, Goodwill and Long-lived Assets: Intangible assets are assets (other than financial assets) that lack physical
substance, and goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and
liabilities assumed. Goodwill acquired in a business combination and intangibles with indefinite useful lives are not amortized,
whereas intangible assets with finite useful lives are amortized on a straight-line basis. Goodwill and intangible assets that are
not subject to amortization are tested for impairment annually or more frequently if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment
testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative
factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative
test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit
exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the
carrying amount of the reporting unit over the related fair value. The carrying amount of our intangible assets and goodwill may
fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill and intangible assets
assigned to our Lubricants and Specialty Products segment.
For purposes of long-lived asset impairment evaluation, we have grouped our long-lived assets as follows: (i) our refinery asset
groups, which include certain HEP logistics assets, (ii) our Lubricants and Specialty Products asset groups and (iii) our HEP
asset groups, which comprises HEP assets not included in our refinery asset groups. These asset groups represent the lowest
level for which independent cash flows can be identified. Our long-lived assets are evaluated for impairment by identifying
whether indicators of impairment exist and if so, assessing whether the long-lived assets are recoverable from estimated future
undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset
group’s carrying value exceeds its fair value.
See Note 11 for additional information regarding our goodwill and long-lived assets including impairment charges recorded
during the years ended December 31, 2020 and 2019.
Equity Method Investments: We account for investments in which we have a noncontrolling interest, yet have significant
influence over the entity, using the equity method of accounting, whereby we record our pro-rata share of earnings and
contributions to and distributions from joint ventures as adjustments to our investment balance. HEP has a 50% interest in
Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage
Pipeline”) and a 50% interest in Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to
Cheyenne, Wyoming (the “Cheyenne Pipeline”). HEP also accounts for Cushing Connect Terminal, a subsidiary of the Cushing
Connect Pipeline & Terminal LLC joint venture, using the equity method of accounting, as HEP does not have the ability to
direct the activities that most significantly impact the entity. As of December 31, 2020, HEP's underlying equity and recorded
investment balances in the joint ventures are $93.2 million and $120.5 million respectively. The differences are being amortized
as adjustments to HEP's pro-rata share of earnings in the joint ventures.
77
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Revenue Recognition: Revenues on refined product and excess crude oil sales are recognized when delivered (via pipeline, in-
tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed.
All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers.
Shipping and handling costs incurred are reported as cost of products sold.
Our lubricants and specialty products business has sales agreements with marketers and distributors that provide certain rights
of return or provisions for the repurchase of products previously sold to them. Under these agreements, revenues and cost of
revenues are deferred until the products have been sold to end customers. Our lubricants and specialty products business also
has agreements that create an obligation to deliver products at a future date for which consideration has already been received
and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer.
HEP recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered.
Additionally, HEP has certain throughput agreements that specify minimum volume requirements, whereby HEP bills a
customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no
future performance obligations, HEP recognizes these deficiency payments as revenue. In certain of these throughput
agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its
minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform
future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels,
including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up
period. HEP recognizes the service portion of these deficiency payments as revenue when HEP does not expect it will be
required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer. Payment
terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the
date of invoice.
Cost Classifications: Costs of products sold include the cost of crude oil, other feedstocks, blendstocks and purchased finished
products, inclusive of transportation costs. We purchase crude oil that at times exceeds the supply needs of our refineries.
Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the
sales price recorded as revenues and the corresponding acquisition cost as cost of products sold. Additionally, we enter into
buy / sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at
cost. Operating expenses include direct costs of labor, maintenance materials and services, utilities and other direct operating
costs. Selling, general and administrative expenses include compensation, professional services and other support costs.
Deferred Maintenance Costs: Our refinery units require regular major maintenance and repairs which are commonly referred
to as “turnarounds.” Catalysts used in certain refinery processes also require regular “change-outs.” The required frequency of
the maintenance varies by unit and by catalyst, but generally is every two to five years. Turnaround costs are deferred and
amortized over the period until the next scheduled turnaround. Other repairs and maintenance costs are expensed when
incurred. Deferred turnaround and catalyst amortization expense was $158.4 million, $141.9 million and $110.9 million for the
years ended December 31, 2020, 2019 and 2018, respectively.
Environmental Costs: Environmental costs are charged to operating expenses if they relate to an existing condition caused by
past operations and do not contribute to current or future revenue generation. We have ongoing investigations of environmental
matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters.
Liabilities are recorded when site restoration and environmental remediation, cleanup and other obligations are either known or
considered probable and can be reasonably estimated. Such estimates are undiscounted and require judgment with respect to
costs, time frame and extent of required remedial and clean-up activities and are subject to periodic adjustments based on
currently available information. Recoveries of environmental costs through insurance, indemnification arrangements or other
sources are included in other assets to the extent such recoveries are considered probable.
Contingencies: We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other
matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential
ranges of probable losses. We accrue for contingencies when it is probable that a loss has occurred and when the amount of that
loss is reasonably estimable. A determination of the amount of reserves required, if any, for these contingencies is made after
careful analysis of each individual issue. The required reserves may change in the future due to new developments in each
matter or changes in approach such as a change in settlement strategy in dealing with these matters.
78
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Foreign Currency Translation: Assets and liabilities recorded in foreign currencies are translated into U.S. dollars using
exchange rates in effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average
exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of
accumulated other comprehensive income.
In connection with our PCLI acquisition, we issued intercompany notes to initially fund certain of our foreign businesses.
Remeasurement adjustments resulting from the conversion of such intercompany financing amounts to functional currencies are
recorded as gains and losses as a component of other income (expense) in the income statement. Such adjustments are not
recorded to the Lubricants and Specialty Products segment operations, but to Corporate and Other. See Note 20 for additional
information on our segments.
Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial
and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate
changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also
requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be
realized.
Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have
appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax
liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations
of tax law applied to the facts of each matter.
Inventory Repurchase Obligations: We periodically enter into same-party sell / buy transactions, whereby we sell certain
refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such
sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell
is recognized as inventory repurchase obligations that are subsequently reversed when the inventories are repurchased. For the
years ended December 31, 2020, 2019 and 2018, we received proceeds of $44.9 million, $52.1 million and $51.2 million and
subsequently repaid $46.4 million, $49.2 million and $52.5 million, respectively, under these sell / buy transactions.
Accounting Pronouncements - Recently Adopted
Income Tax Accounting
In December 2019, ASU 2019-12, “Simplifying the Accounting for Income Taxes,” was issued which eliminates some
exceptions to the general approach in ASC Topic 740 “Income Taxes” and also provides clarification of other aspects of ASC
740. We adopted this standard effective January 1, 2020 on a prospective basis, and it did not have a material affect on our
financial condition, results of operations or cash flows for the periods presented.
Fair Value Measurements
In August 2018, ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement,” was issued which
removed, modified and added certain disclosures for fair value measurements. We adopted this standard effective January 1,
2020, and it did not affect our financial condition, results of operations or cash flows.
Defined Benefit Plans
In August 2018, ASU 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans,” was issued which
removed disclosure requirements for (i) the amounts in accumulated other comprehensive income expected to be recognized as
components of net periodic benefit cost over the next fiscal year and (ii) the effects of a one-percentage-point change in
assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic benefit costs
and the benefit obligation for postretirement health care benefits. Additionally, a new disclosure required under this standard is
an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. We
adopted this standard effective December 31, 2020 with the updated disclosures in Note 18. The adoption of this standard had
no impact on our financial condition, results of operations or cash flows.
79
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Credit Losses Measurement
In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of
all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based
on historical experience, current conditions and reasonable and supportable forecasts. We adopted this standard effective
January 1, 2020, at which time our review of historic and expected credit losses resulted in a decrease of $3.2 million in our
reserve for doubtful accounts. Based upon our assessment of the potential impact of current and forecasted conditions, we
increased our reserve for doubtful accounts by $2.1 million during the the year ended December 31, 2020. Assumptions about
the potential effects of the COVID-19 pandemic on our estimate of expected credit losses are inherently subjective and difficult
to forecast. However, we believe that our current estimate of allowance for doubtful accounts to be reasonable based upon
current information and forecasts.
NOTE 2:
Acquisitions
Sonneborn
On November 12, 2018, we entered into an equity purchase agreement to acquire 100% of the capital stock of Sonneborn. The
acquisition closed on February 1, 2019. Aggregate consideration totaled $701.6 million and consisted of $662.7 million in cash
paid at acquisition, net of cash acquired. Sonneborn is a producer of specialty hydrocarbon chemicals such as white oils,
petrolatums and waxes with manufacturing facilities in the United States and Europe.
This transaction was accounted for as a business combination using the acquisition method of accounting, with the purchase
price allocated to the fair value of the acquired Sonneborn assets and liabilities as of the February 1, 2019 acquisition date, with
the excess purchase price recorded as goodwill. This goodwill was assigned to our Lubricants and Specialty Products segment
and is not deductible for income tax purposes.
Fair values were as follows: cash and cash equivalents $38.9 million, current assets $139.4 million, properties, plants and
equipment $168.2 million, goodwill $282.3 million, intangibles and other noncurrent assets $231.5 million, current liabilities
$47.9 million and deferred income tax and other long-term liabilities $110.8 million.
Intangibles included customer relationships, trademarks, patents and technical know-how totaling $214.6 million that are being
amortized on a straight-line basis over a 12-year period.
Our consolidated financial and operating results reflect the Sonneborn operations beginning February 1, 2019. Our results of
operations include revenue and income before income taxes of $340.3 million and $5.1 million, respectively, for the period
from February 1, 2019 through December 31, 2019 related to these operations.
The following unaudited pro forma information for the years ended December 31, 2019 and 2018 presents the revenues and
operating income for our Lubricants and Specialty Products segment assuming the acquisition of Sonneborn had occurred as of
January 1, 2018. The proforma effects on consolidated HFC revenue and operating income are not material.
Sales and other revenues
Operating income (1)
Years Ended December 31,
2019
2018
(In thousands)
$
$
2,124,778 $
(116,254) $
2,195,690
99,371
(1) The year ended December 31, 2019, includes goodwill impairment of $152.7 million from the PCLI reporting unit of our
Lubricants and Specialty Products segment. See Note 11 for additional information on this goodwill impairment.
Red Giant Oil
On July 10, 2018, we entered into a definitive agreement to acquire Red Giant Oil, a privately-owned lubricants company. The
acquisition closed on August 1, 2018. Cash consideration paid was $54.2 million. Red Giant Oil is one of the largest suppliers
of locomotive engine oil in North America and is headquartered in Council Bluffs, Iowa.
80
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
This transaction was accounted for as a business combination using the acquisition method of accounting, with the purchase
price allocated to the fair value of the acquired Red Giant Oil assets and liabilities as of the August 1 acquisition date, with the
excess purchase price recorded as goodwill assigned to our Lubricants and Specialty Products segment. This goodwill is
deductible for income tax purposes. Fair values were as follows: current assets $14.4 million, properties and equipment $21.3
million, intangible assets $9.7 million, goodwill $10.8 million and current liabilities $2.0 million.
We incurred $2.0 million, $24.2 million and $3.6 million, for the years ended December 31, 2020, 2019 and 2018, respectively,
in incremental direct integration and regulatory costs that principally relate to legal, advisory, regulatory and other professional
fees and are presented as selling, general and administrative expenses.
NOTE 3:
Leases
Lessee
We have operating and finance leases for land, buildings, pipelines, storage tanks, transportation and other equipment for our
operations. Our leases have remaining terms of one to 59 years, some of which include options to extend the leases for up to 10
years. Certain of our leases for pipeline assets include provisions for variable payments which are based on a measure of
throughput and also contain a provision for the lessor to adjust the rate per barrel periodically over the life of the lease. These
variable costs are not included in the initial measurement of ROU assets and lease liabilities.
The following table presents the amounts and balance sheet locations of our operating and financing leases recorded on our
consolidated balance sheets.
Operating leases:
Operating lease right-of-use assets
Operating lease liabilities
Noncurrent operating lease liabilities
Total operating lease liabilities
Finance leases:
Properties, plants and equipment, at cost
Accumulated amortization
Properties, plants and equipment, net
Accrued liabilities
Other long-term liabilities
Total finance lease liabilities
December 31,
2020
2019
(In thousands)
350,548 $
467,109
97,937
285,785
383,722 $
24,321 $
(5,713)
18,608 $
1,916 $
5,097
7,013 $
104,415
364,420
468,835
13,406
(6,233)
7,173
1,567
5,163
6,730
$
$
$
$
$
$
81
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Supplemental balance sheet information related to our leases was as follows:
Weighted average remaining lease term (in years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
The components of lease expense were as follows:
Operating lease expense
Finance lease expense:
Amortization of right-of-use assets
Interest on lease liabilities
Variable lease cost
Total lease expense
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
December 31,
2020
2019
7.2
3.3
4.1 %
5.3 %
Years Ended December 31,
2019
2020
(In thousands)
121,608 $
4,400
415
3,580
130,003 $
Years Ended December 31,
2019
2020
(In thousands)
126,313 $
415 $
2,995 $
18,823 $
4,085 $
$
$
$
$
$
$
$
7.2
8.1
4.0 %
5.2 %
112,770
1,543
334
4,449
119,096
116,980
334
1,551
121,750
2,096
82
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
As of December 31, 2020, minimum future lease payments of our operating and finance lease obligations were as follows:
2021
2022
2023
2024
2025
2025 and thereafter
Future minimum lease payments
Less: imputed interest
Total lease obligations
Less: current obligations
Long-term lease obligations
Operating
Finance
(In thousands)
$
$
109,756 $
91,172
75,878
51,859
12,871
116,502
458,038
74,316
383,722
97,937
285,785 $
2,220
1,651
1,686
1,209
746
349
7,861
848
7,013
1,916
5,097
As of December 31, 2020, we have entered into certain leases that have not yet commenced. Such leases include a 2-year lease
for petroleum tank storage, with estimated future lease payments of $2.6 million, expected to commence in the first quarter of
2021.
Lessor
Our consolidated statements of income reflect lease revenue recognized by HEP for contracts with third parties in which HEP is
the lessor.
Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and HEP believes
these assets will continue to have value when the current agreements expire due to HEP's risk management strategy for
protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term.
One of HEP’s throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed during the year ended
December 31, 2020. Certain components of this agreement met the criteria of sales-type leases since the underlying assets are
not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease
accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of
the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling
profit or loss arising from the lease. Therefore, HEP recognized a gain on sales-type leases totaling $33.8 million during the
year ended December 31, 2020. This sales-type lease transaction, including the related gain, was a non-cash transaction.
83
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Lease income recognized was as follows:
Years Ended December 31,
2020
2019
(In thousands)
Operating lease revenues
Gain on sales-type leases
Sales-type lease interest income
Lease revenues relating to variable lease payments not included in
measurement of the sales-type lease receivable
$
$
$
$
22,636 $
33,834 $
1,928 $
1,690 $
33,242
—
—
—
For HEP’s sales-type leases, HEP included customer obligations related to minimum volume requirements in guaranteed
minimum lease payments. Portions of HEP’s minimum guaranteed pipeline tariffs for assets subject to sales-type lease
accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. HEP
recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and
these variable lease payments were recorded in lease revenues.
Annual minimum undiscounted lease payments in which HEP is a lessor to third-party contracts as of December 31, 2020 were
as follows:
2021
2022
2023
2024
2025
Thereafter
Total lease payment receipts
Less: imputed interest
Unguaranteed residual assets at end of leases
Net investment in leases
$
$
Operating
Sales-type
(In thousands)
11,586 $
9,128
9,000
9,000
2,512
—
41,226
$
2,955
2,955
2,955
2,955
2,955
27,335
42,110
(32,262)
9,848
25,182
35,030
Net investment in sales-type leases recorded on our consolidated balance sheet was composed of the following:
Lease receivables
Unguaranteed residual assets
Net investment in leases
NOTE 4: Holly Energy Partners
December 31, 2020
(In thousands)
$
$
26,045
8,985
35,030
HEP is a publicly held master limited partnership that owns and operates logistic assets consisting of petroleum product and
crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining
and marketing operations, as well as other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountain
geographic regions of the United States. Additionally, as of December 31, 2020, HEP owned a 75% interest in UNEV Pipeline,
LLC (“UNEV”), the owner of a pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”) and
associated product terminals, and a 50% ownership interest in each of Osage Pipe Line Company, LLC, the owner of a pipeline
running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”); Cheyenne Pipeline, LLC, the owner of a
pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”) and Cushing Connect
Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a pipeline
under construction that will run from Cushing, Oklahoma to our Tulsa Refineries.
84
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
At December 31, 2020, we owned a 57% limited partner interest and a non-economic general partner interest in HEP. As the
general partner of HEP, we have the sole ability to direct the activities that most significantly impact HEP's financial
performance, and therefore as HEP's primary beneficiary, we consolidate HEP.
HEP has two primary customers (including us) and generates revenues by charging tariffs for transporting petroleum products
and crude oil though its pipelines, by charging fees for terminalling refined products and other hydrocarbons, and by storing
and providing other services at its storage tanks and terminals. Under our long-term transportation agreements with HEP
(discussed further below), we accounted for 80% of HEP’s total revenues for the year ended December 31, 2020. We do not
provide financial or equity support through any liquidity arrangements and / or debt guarantees to HEP.
HEP has outstanding debt under a senior secured revolving credit agreement and its senior notes. HEP’s creditors have no
recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries. See
Note 13 for a description of HEP’s debt obligations.
HEP has risk associated with its operations. If a major customer of HEP were to terminate its contracts or fail to meet desired
shipping or throughput levels for an extended period of time, revenue would be reduced and HEP could suffer substantial losses
to the extent that a new customer is not found. In the event that HEP incurs a loss, our operating results will reflect HEP’s loss,
net of intercompany eliminations, to the extent of our ownership interest in HEP at that point in time.
Cushing Connect Joint Venture
In October 2019, HEP Cushing LLC (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Plains Marketing, L.P.
(“PMLP”), a wholly-owned subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing
Connect, for (i) the development, construction, ownership and operation of a new 160,000 barrel per day common carrier crude
oil pipeline (the “Cushing Connect Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to our Tulsa Refineries
and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “Cushing Connect
Terminal”). The Cushing Connect Terminal was fully in service beginning in April 2020, and the Cushing Connect Pipeline is
expected to be placed in service during the second quarter of 2021. Long-term commercial agreements have been entered into
to support the Cushing Connect assets.
Cushing Connect will contract with an affiliate of HEP to manage the construction and operation of the Cushing Connect
Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in
Cushing Connect will be shared proportionately among the partners, and HEP estimates its share of the cost of the Cushing
Connect Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $65.0 million.
However, any Cushing Connect Pipeline construction costs exceeding 10% of the budget are borne solely by HEP.
Transportation Agreements
HEP serves our refineries under long-term pipeline, terminal and tankage throughput agreements and refinery processing tolling
agreements expiring from 2021 through 2036. Under these agreements, we pay HEP fees to transport, store and process
throughput volumes of refined products, crude oil and feedstocks on HEP's pipelines, terminals, tankage, loading rack facilities
and refinery processing units that result in minimum annual payments to HEP including UNEV (a consolidated subsidiary of
HEP). Under these agreements, the agreed upon tariff rates are subject to annual tariff rate adjustments on July 1 at a rate based
upon the percentage change in Producer Price Index or Federal Energy Regulatory Commission index. As of December 31,
2020, these agreements required minimum annualized payments to HEP of $351.1 million. However, subsequent to year end,
these agreements were modified to account for the conversion of our Cheyenne Refinery to renewable diesel production, and as
of January 1, 2021, require minimum annualized payments to HEP of $341.9 million.
Our transactions with HEP and fees paid under our transportation agreements with HEP and UNEV are eliminated and have no
impact on our consolidated financial statements.
85
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Incentive Distribution Rights Simplification Agreement
On October 31, 2017, we closed on an equity restructuring transaction with HEP pursuant to which our incentive distribution
rights were canceled and our 2% general partner interest in HEP was converted into a non-economic general partner interest in
HEP. In consideration, we received 37,250,000 HEP common units. In addition, we agreed to waive $2.5 million of limited
partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued were eligible
to receive distributions as consideration.
HEP Private Placement Agreements
On January 25, 2018, HEP entered into a common unit purchase agreement in which certain purchasers agreed to purchase in a
private placement 3,700,000 HEP common units, representing limited partner interests, at a price of $29.73 per common unit.
The private placement closed on February 6, 2018, at which time HEP received proceeds of $110.0 million, which were used to
repay indebtedness under the HEP Credit Agreement.
HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may issue and sell common units from time to
time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. During the year ended
December 31, 2020, HEP did not issue any common units under this program. As of December 31, 2020, HEP has issued
2,413,153 common units under this program, providing $82.3 million in gross proceeds.
As a result of these transactions and resulting HEP ownership changes, we adjusted additional capital and equity attributable to
HEP's noncontrolling interest holders to reallocate HEP's equity among its unitholders.
NOTE 5:
Revenues
Substantially all revenue-generating activities relate to sales of refined product and excess crude oil inventories sold at market
prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to HEP logistics
services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling
agreements with third parties.
Disaggregated revenues were as follows:
Revenues by type
Refined product revenues
Transportation fuels (1)
Specialty lubricant products (2)
Asphalt, fuel oil and other products (3)
Total refined product revenues
Excess crude oil revenues (4)
Transportation and logistic services
Other revenues (5)
Total sales and other revenues
Years Ended December 31,
2020
2019
(In thousands)
2018
$
$
7,825,625 $
1,657,344
672,371
10,155,340
884,248
98,039
46,016
11,183,643 $
12,952,899 $
1,864,450
1,025,663
15,843,012
1,470,148
121,027
52,391
17,486,578 $
13,326,654
1,636,859
985,234
15,948,747
1,597,321
108,412
60,186
17,714,666
86
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Refined product revenues by market
United States
Mid-Continent
Southwest
Rocky Mountains
Northeast
Canada
Europe, Asia and Latin America
Total refined product revenues
2020
Years Ended December 31,
2019
(In thousands)
2018
$
$
5,096,268 $
2,310,432
1,311,416
552,069
616,683
268,472
10,155,340 $
8,424,191 $
3,621,273
2,208,541
578,932
721,169
288,906
15,843,012 $
8,427,200
3,772,278
2,476,044
339,407
732,321
201,497
15,948,747
(1) Transportation fuels consist of gasoline, diesel and jet fuel. For the year ended December 31, 2020, $1.6 million is
reported in our Corporate and Other segment.
(2) Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.
(3) Asphalt, fuel oil and other products revenue include revenues attributable to our Refining, Lubricants and Specialty
Products and Corporate and Other segments of $533.5 million, $135.4 million and $3.5 million respectively, for the
year ended December 31, 2020. For the year ended December 31, 2019 such revenues attributable to our Refining and
Lubricants and Specialty Products segments were $808.9 million and $216.8 million, respectively, and $822.6 million
and $162.6 million, respectively, for the year ended December 31, 2018.
(4) Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of
our refineries.
(5) Other revenues are principally attributable to our Refining segment.
Our consolidated balance sheets reflect contract liabilities related to unearned revenues attributable to future service obligations
under HEP’s third-party transportation agreements and production agreements from the acquisition of Sonneborn on February
1, 2019. The following table presents changes to contract liabilities for the years ended December 31, 2020 and 2019:
Balance at January 1
Sonneborn acquisition
Increase
Recognized as revenue
Balance at December 31
2020
Years Ended December 31,
2019
2018
$
$
(In thousands)
4,652 $
—
28,746
(26,660)
6,738 $
132 $
6,463
26,751
(28,694)
4,652 $
179
—
6,748
(6,795)
132
As of December 31, 2020, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel,
lubricants and specialty products to be sold ratably at market prices through 2025. Such volumes are typically nominated in the
month preceding delivery and delivered ratably throughout the following month. Future prices are subject to market
fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts under
Accounting Standards Codification 606-10-50-14A. Aggregate minimum volumes expected to be sold (future performance
obligations) under our long-term product sales contracts with customers are as follows:
Refined product sales volumes (barrels)
19,318
13,771
(In thousands)
12,795
11,698
57,582
2021
2022
2023
Thereafter
Total
Additionally, HEP has long-term contracts with third-party customers that specify minimum volumes of product to be
transported through its pipelines and terminals that result in fixed-minimum annual revenues through 2025. Annual minimum
revenues attributable to HEP’s third-party contracts as of December 31, 2020 are presented below:
87
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
HEP contractual minimum revenues
$ 22,041 $ 11,053 $
9,000 $
11,512 $ 53,606
2021
2022
2023
(In thousands)
Thereafter
Total
We have no customers which had accounted for over 10% of our annual revenues for the years ended December 31, 2020, 2019
or 2018.
NOTE 6:
Fair Value Measurements
Our financial instruments measured at fair value on a recurring basis consist of derivative instruments.
Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or
liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as
follows:
•
•
•
(Level 1) Quoted prices in active markets for identical assets or liabilities.
(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by
observable market data.
(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.
The carrying amounts of derivative instruments at December 31, 2020 and 2019 were as follows:
Financial Instrument
December 31, 2020
Assets:
Commodity forward contracts
Total assets
Liabilities:
NYMEX futures contracts
Commodity price swaps
Commodity forward contracts
Foreign currency forward contracts
Total liabilities
Carrying
Amount
Fair Value by Input Level
Level 1
Level 2
Level 3
(In thousands)
$
$
$
$
275 $
275 $
418 $
359
196
23,005
23,978 $
— $
— $
418 $
—
—
—
418 $
275 $
275 $
— $
359
196
23,005
23,560 $
—
—
—
—
—
—
—
88
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Financial Instrument
December 31, 2019
Assets:
Commodity price swaps
Commodity forward contracts
Total assets
Liabilities:
NYMEX futures contracts
Commodity price swaps
Commodity forward contracts
Foreign currency forward contracts
Total liabilities
Level 1 Financial Instruments
Carrying
Amount
Fair Value by Input Level
Level 1
Level 2
Level 3
(In thousands)
$
$
$
$
13,455 $
4,133
17,588 $
2,578 $
1,230
3,685
6,722
14,215 $
— $
—
— $
13,455 $
4,133
17,588 $
2,578 $
—
—
—
2,578 $
— $
1,230
3,685
6,722
11,637 $
—
—
—
—
—
—
—
—
Our NYMEX futures contracts are exchange traded and are measured and recorded at fair value using quoted market prices, a
Level 1 input.
Level 2 Financial Instruments
Derivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and
purchase contracts are measured and recorded at fair value using Level 2 inputs. The fair value of the commodity price swap
contracts is based on the net present value of expected future cash flows related to both variable and fixed rate legs of the
respective swap agreements. The measurements are computed using market-based observable input and quoted forward
commodity prices with respect to our commodity price swaps. The fair value of the forward sales and purchase contracts are
computed using quoted forward commodity prices. The fair value of foreign currency forward contracts are based on values
provided by a third party, which were derived using market quotes for similar type instruments, a Level 2 input.
Nonrecurring Fair Value Measurements
During the year ended December 31, 2020, we recognized goodwill and long-lived asset impairment charges based on fair
value measurements utilized during our goodwill and long-lived asset impairment testing (see Note 11). The fair value
measurements were based on a combination of valuation methods including discounted cash flows, the guideline public
company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.
During the year ended December 31, 2020, HEP recognized a gain on sales-type leases (see Note 4). The estimated fair value of
the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end
of the lease term were used in determining the net investment in leases and related recognized gain on sales-type leases. The
asset valuation estimates included Level 3 inputs based on a replacement cost valuation method.
89
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 7:
Earnings Per Share
Basic earnings per share is calculated as net income (loss) attributable to HollyFrontier stockholders, adjusted for participating
securities’ share in earnings divided by the average number of shares of common stock outstanding. Diluted earnings per share
includes the incremental shares resulting from our restricted stock units and performance share units if the effect is dilutive. The
following is a reconciliation of the denominators of the basic and diluted per share computations for net income (loss)
attributable to HollyFrontier stockholders:
Net income (loss) attributable to HollyFrontier stockholders
Participating securities’ share in earnings
Net income (loss) attributable to common shares
Average number of shares of common stock outstanding
Effect of dilutive variable restricted stock units and performance
share units (1)
Average number of shares of common stock outstanding assuming
dilution
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
$
$
2020
Years Ended December 31,
2019
(In thousands, except per share data)
2018
(601,448) $
772,388 $
1,097,960
1,811
1,034
3,714
(603,259) $
771,354 $
1,094,246
161,983
166,287
175,009
—
1,098
1,652
161,983
167,385
176,661
(3.72) $
(3.72) $
4.64 $
4.61 $
6.25
6.19
238
(1) Excludes anti-dilutive restricted and performance share units of:
1,082
302
NOTE 8:
Stock-Based Compensation
We have a principal share-based compensation plan (the “2020 Long-Term Incentive Plan”), which allows us to grant new
equity awards until February 12, 2030. We also have a long-term incentive compensation plan which expired pursuant to its
terms on December 31, 2020, but it will continue to govern outstanding equity awards granted thereunder. The compensation
cost charged against income for these plans was $29.7 million, $41.5 million and $39.0 million for the years ended
December 31, 2020, 2019 and 2018, respectively. Our accounting policy for the recognition of compensation expense for
awards with pro-rata vesting is to expense the costs ratably over the vesting periods.
Additionally, HEP maintains a share-based compensation plan for Holly Logistic Services, L.L.C.'s non-employee directors and
certain executives and employees. Compensation cost attributable to HEP’s share-based compensation plan was $2.2 million,
$2.5 million and $3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Restricted Stock Units
Under our long-term incentive plan, we grant certain officers and other key employees restricted stock unit awards, which are
payable in stock or cash and generally vest over a period of three years. Restricted stock unit award recipients have the right to
receive dividends, however, restricted stock units do not have any other rights of absolute ownership. Upon vesting, restrictions
on the restricted stock units lapse at which time they convert to common shares or cash. In addition, we grant non-employee
directors restricted stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of
each restricted stock unit award is measured based on the grant date market price of our common shares and is amortized over
the respective vesting period. We account for forfeitures on an estimated basis.
90
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
A summary of restricted stock unit activity during the year ended December 31, 2020 is presented below:
Restricted Stock Units
Outstanding at January 1, 2020
Granted
Vested
Forfeited
Converted from performance share units
Outstanding at December 31, 2020
Weighted
Average Grant
Date Fair
Value
Aggregate
Intrinsic Value
($000)
Grants
1,101,781 $
1,574,929 $
(549,144) $
(89,971) $
19,450 $
2,057,045 $
53.30
22.20
51.40
53.66
38.13
29.76 $
53,175
For the years ended December 31, 2020, 2019 and 2018, restricted stock and restricted stock units vested having a grant date
fair value of $28.2 million, $30.9 million and $30.0 million, respectively. For the years ended December 31, 2019 and 2018, we
granted restricted stock units having a weighted average grant date fair value of $52.62 and $64.96, respectively. As of
December 31, 2020, there was $40.4 million of total unrecognized compensation cost related to non-vested restricted stock unit
grants. That cost is expected to be recognized over a weighted-average period of 1.7 years. For the years ended December 31,
2020, 2019 and 2018, we paid $1.3 million, $1.7 million and $0.1 million, respectively, in cash equal to the value of the stock
award on the vest date to certain employees to settle 55,222, 32,648 and 2,481, respectively, restricted stock units.
Performance Share Units
Under our long-term incentive plan, we grant certain officers and other key employees performance share units, which are
payable in stock or cash upon meeting certain criteria over the service period, and generally vest over a period of three years.
Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance”
criteria. Financial performance is based on our financial performance compared to a peer group of independent refining
companies, while market performance is based on the relative standing of total shareholder return achieved by HollyFrontier
compared to peer group companies. The number of shares ultimately issued or cash paid under these awards can range from
zero to 200% of target award amounts. Holders of performance share units have the right to receive dividend equivalents and
other distributions with respect to such performance share units based on the target level of payout.
A summary of performance share unit activity and changes during the year ended December 31, 2020 is presented below:
Performance Share Units
Outstanding at January 1, 2020
Granted
Vested
Forfeited
Converted to restricted stock units
Outstanding at December 31, 2020
Grants
375,588
434,378
(124,303)
(31,009)
(19,450)
635,204
For the year ended December 31, 2020, we issued 296,801 shares of common stock, representing a 150% payout on vested
performance share units having a grant date fair value of $6.2 million. For the years ended December 31, 2019 and 2018, we
issued common stock upon the vesting of the performance share units having a grant date fair value of $7.3 million and $8.8
million, respectively. As of December 31, 2020, there was $14.5 million of total unrecognized compensation cost related to
non-vested performance share units having a grant date fair value of $35.45 per unit. That cost is expected to be recognized
over a weighted-average period of 2.5 years.
91
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 9:
Inventories
Inventory consists of the following components:
Crude oil
Other raw materials and unfinished products(1)
Finished products(2)
Lower of cost or market reserve
Process chemicals(3)
Repairs and maintenance supplies and other (4)
Total inventory
December 31,
2020
2019
(In thousands)
451,967 $
260,495
572,258
(318,862)
35,006
172,612
1,173,476 $
489,169
394,045
639,938
(240,363)
36,786
154,627
1,474,202
$
$
(1) Other raw materials and unfinished products include feedstocks and blendstocks, other than crude.
(2) Finished products include gasolines, jet fuels, diesels, lubricants, asphalts, LPG’s and residual fuels.
(3) Process chemicals include additives and other chemicals.
(4)
Includes RINs
Our inventories that are valued at the lower of LIFO cost or market reflect a valuation reserve of $318.9 million and
$240.4 million at December 31, 2020 and 2019, respectively. The December 31, 2019 market reserve of $240.4 million was
reversed due to the sale of inventory quantities that gave rise to the 2019 reserve. A new market reserve of $318.9 million was
established as of December 31, 2020 based on market conditions and prices at that time. The effect of the change in the lower of
cost or market reserve was an increase to cost of products sold totaling $78.5 million for the year ended December 31, 2020, a
decrease of $119.8 million for the year ended December 31, 2019 and an increase of $136.3 million for the year ended
December 31, 2018.
At December 31, 2020, 2019 and 2018, the LIFO value of inventory, net of the lower of cost or market reserve, was equal to
current costs. For the year ended December 31, 2020, we recognized a charge of $36.9 million to cost of products sold as we
liquidated certain quantities of LIFO inventory at our Cheyenne Refinery that were carried at historical acquisition costs above
market prices at the time of liquidation
During the three months ended September 30, 2019, the EPA granted the Cheyenne Refinery and the Woods Cross Refinery
each a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2018
calendar year end. As a result, the Cheyenne Refinery’s and the Woods Cross Refinery’s gasoline and diesel production are not
subject to the Renewable Volume Obligation (“RVO”) for 2018. In the third quarter of 2019, we increased our inventory of
RINs and reduced our cost of products sold by $36.6 million representing the net cost of the RINs charge to cost of products
sold in 2018, less the loss incurred for selling 2018 vintage RINs in excess of those which we can use subject to the 20%
carryover limit.
During the three months ended June 30, 2018, the EPA granted the Woods Cross Refinery a one-year small refinery exemption
from the RFS program requirements for the 2017 calendar year end. As a result, the Woods Cross Refinery’s gasoline and
diesel production are not subject to the RVO for 2017. In the second quarter of 2018, we increased our inventory of RINs and
reduced our cost of products sold by $25.3 million, representing the net cost of the Woods Cross Refinery’s RINs charge to cost
of products sold in 2017, less the loss incurred for selling 2017 vintage RINs in excess of those which we can use subject to the
20% carryover limit.
During the three months ended March 31, 2018, the EPA granted the Cheyenne Refinery a one-year small refinery exemption
from the RFS program requirements for the 2015 and 2017 calendar years end. As a result, the Cheyenne Refinery’s gasoline
and diesel production are not subject to the RVO for those years. At the date we received the 2017 Cheyenne Refinery
exemption, we had not yet retired RINs to satisfy the 2017 RVO, which we intended to satisfy, in part, with 2016 vintage RINs
subject to the 20% carryover limit. In the first quarter of 2018, we increased our inventory of RINs and reduced our cost of
products sold by $37.9 million, representing the net cost of the Cheyenne Refinery’s RINs charged to cost of products sold in
2017, less the loss incurred from selling 2016 vintage RINs prior to their expiration in 2018.
92
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
In the first quarter of 2018, the EPA provided us 2018 vintage RINs to replace the RINs previously retired to meet the
Cheyenne Refinery’s 2015 RVO. In the first quarter of 2018, we increased our inventory of RINs and reduced our cost of
products sold by $33.8 million representing the fair value of the 2018 replacement RINs obtained from the Cheyenne
Refinery’s exemption of its 2015 RVO.
NOTE 10: Properties, Plants and Equipment
The components of properties, plants and equipment are as follows:
Land, buildings and improvements
Refining facilities
Pipelines and terminals
Transportation vehicles
Other fixed assets
Construction in progress
Accumulated depreciation
December 31,
2020
2019
(In thousands)
$
517,829 $
4,202,524
1,786,279
26,715
400,159
366,011
7,299,517
447,547
4,258,764
1,775,657
27,214
540,953
187,162
7,237,297
(2,726,378)
(2,414,585)
$
4,573,139 $
4,822,712
We capitalized interest attributable to construction projects of $4.1 million, $2.5 million and $4.8 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
Depreciation expense was $333.0 million, $334.2 million and $309.0 million for the years ended December 31, 2020, 2019 and
2018, respectively.
NOTE 11: Goodwill, Long-lived Assets and Intangibles
Goodwill and long-lived assets
As of December 31, 2020, our goodwill balance was $2.3 billion. The carrying amount of our goodwill may fluctuate from
period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants and
Specialty Products segment.
93
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following is a summary of our goodwill by segment:
Balance at December 31, 2019
Goodwill
Accumulated impairment losses
Lubricants
and Specialty
Products
Refining
HEP
Total
(In thousands)
$ 2,042,790 $
(309,318)
1,733,472
480,274 $
(152,712)
327,562
312,873 $
—
312,873
2,835,937
(462,030)
2,373,907
Foreign currency translation adjustment
Current year impairment losses
—
—
1,895
(81,867)
—
—
1,895
(81,867)
Balance at December 31, 2020
Goodwill
Accumulated impairment losses
2,042,790
(309,318)
$ 1,733,472 $
482,169
(234,579)
247,590 $
312,873
—
312,873 $
2,837,832
(543,897)
2,293,935
Goodwill and long-lived asset impairment testing
During the second quarter of 2020, we determined that indicators of potential goodwill and long-lived asset impairments were
present and performed recoverability testing for long-lived assets and an interim test for goodwill impairment as of May 31,
2020. Impairment indicators included the recent economic slowdown caused by the COVID-19 pandemic, reductions in the
prices of our finished goods and raw materials and the related decrease in our gross margins, as well as the recent decline in our
market capitalization. Additionally, our second quarter announcement of the planned conversion of our Cheyenne Refinery to
renewable diesel production was also considered a triggering event requiring assessment of potential impairments to the
carrying value of our Cheyenne Refinery asset group. As a result of our long-lived asset recoverability testing, we determined
that the carrying value of the long-lived assets of our Cheyenne Refinery and PCLI asset groups were not recoverable, and thus
recorded long-lived asset impairment charges of $232.2 million and $204.7 million, respectively, in the second quarter of 2020.
Our interim goodwill impairment testing indicated that there was no impairment of goodwill at our Refining and Lubricants and
Specialty Products reporting units as of May 31, 2020. The estimated fair values of the Cheyenne Refinery and PCLI asset
groups were determined using a combination of the income and cost approaches. The income approach was based on
management’s best estimates of the expected future cash flows over the remaining useful life of the asset group. The cost
approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and
economic obsolescence. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for
further discussion of Level 3 inputs.
As of July 1, 2020, we performed our annual goodwill impairment testing quantitatively and determined there was no
impairment of goodwill attributable to our reporting units at that time.
During the fourth quarter of 2020, we incurred long-lived asset impairment charges of $26.5 million for construction-in-
progress, consisting primarily of engineering work for potential upgrades to certain processing units at our Tulsa and El Dorado
Refineries. During the quarter, we concluded not to pursue these projects in light of recent economic and market conditions.
Additionally, in the fourth quarter of 2020, our annual budgeting process identified downward forecast revisions specific to the
Sonneborn reporting unit within our Lubricants and Specialty Products segment; largely from declines in gross margin as
compared to historic levels and an increase in forecasted capital expenditures. As such, we concluded it was more likely than
not that the carrying value of the Sonneborn reporting unit exceeded its fair value, and we performed an interim quantitative test
for goodwill impairment as of December 1, 2020. As a result of our impairment testing, we recognized a goodwill impairment
charge of $81.9 million during the fourth quarter for the Sonneborn reporting unit. No other reporting units required an interim
impairment test during the fourth quarter.
94
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The estimated fair values of our reporting units tested quantitatively in the current year were derived using a combination of
income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted
production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both
the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical
market transactions of other like kind assets. These fair value measurements involve significant unobservable inputs (Level 3
inputs). See Note 6 for further discussion of Level 3 inputs.
There was no impairment of long-lived assets during the years ended December 31, 2019 and 2018.
During the year ended December 31, 2019, we recorded a goodwill impairment charge of $152.7 million to fully impair the
goodwill of the PCLI reporting unit included in our Lubricants and Specialty Products segment. There was no impairment of
goodwill during the year ended December 31, 2018.
A reasonable expectation exists that further deterioration in our operating results or overall economic conditions could result in
an impairment of goodwill and / or additional long-lived assets impairments at some point in the future. Future impairment
charges could be material to our results of operations and financial condition.
Intangibles
The carrying amounts of our intangible assets presented in “Intangibles and other” in our consolidated balance sheet are as
follows:
Customer relationships
Transportation agreements
Trademarks, patents and other
Accumulated amortization
Total intangibles, net
Useful Life
2020
2019
December 31
10 - 20 years
30 years
10 - 20 years
(In thousands)
239,773 $
59,933
157,120
456,826
(122,024)
334,802 $
245,479
59,933
154,863
460,275
(86,768)
373,507
$
$
Amortization expense was $34.1 million, $33.8 million and $16.6 million for the years ended December 31, 2020, 2019 and
2018, respectively and expected to approximate $34.1 million for each of the next five years.
NOTE 12: Environmental
We expensed $7.1 million, $11.2 million and $14.8 million for the years ended December 31, 2020, 2019 and 2018,
respectively, for environmental remediation obligations. The accrued environmental liability reflected in our consolidated
balance sheets was $115.0 million and $117.7 million at December 31, 2020 and 2019, respectively, of which $94.0 million and
$95.6 million, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring
costs expected to be incurred over an extended period of time (up to 30 years for certain projects). Estimated liabilities could
increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably
estimated.
NOTE 13: Debt
HollyFrontier Credit Agreement
We have a $1.35 billion senior unsecured revolving credit facility maturing in February 2022 (the “HollyFrontier Credit
Agreement”). The HollyFrontier Credit Agreement may be used for revolving credit loans and letters of credit from time to
time and is available to fund general corporate purposes. At December 31, 2020, we were in compliance with all covenants, had
no outstanding borrowings and had outstanding letters of credit totaling $5.7 million under the HollyFrontier Credit Agreement.
95
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Indebtedness under the HollyFrontier Credit Agreement bears interest, at our option at either a) an alternate base rate (as
defined in the credit agreement) plus an applicable margin of (ranging from 0.125% - 1.000%), b) LIBOR plus an applicable
margin (ranging from 1.125% to 2.000%), or c) Canadian Dealer Offered Rate plus an applicable margin (ranging from 1.125%
to 2.000%) for Canadian dollar denominated borrowings.
HEP Credit Agreement
HEP has a $1.4 billion senior secured revolving credit facility maturing in July 2022 (the “HEP Credit Agreement”) and is
available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general
partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit and has a $300 million accordion.
During the year ended December 31, 2020, HEP received advances totaling $258.5 million and repaid $310.5 million under the
HEP Credit Agreement. At December 31, 2020, HEP was in compliance with all of its covenants, had outstanding borrowings
of $913.5 million and no outstanding letters of credit under the HEP Credit Agreement.
Indebtedness under the HEP Credit Agreement bears interest, at HEP's option, at either a reference rate announced by the
administrative agent plus an applicable margin or at a rate equal to LIBOR plus an applicable margin. In each case, the
applicable margin is based upon the ratio of HEP’s funded debt to earnings before interest, taxes, depreciation and amortization
(as defined in the HEP Credit Agreement). The weighted average interest rates in effect on HEP’s Credit Agreement
borrowings was 2.58%and 4.24% for December 31, 2020 and 2019, respectively.
HEP’s obligations under the HEP Credit Agreement are collateralized by substantially all of HEP’s assets and are guaranteed
by HEP's material wholly-owned subsidiaries. Any recourse to the general partner would be limited to the extent of HEP
Logistics Holdings, L.P.’s assets, which other than its investment in HEP are not significant. HEP’s creditors have no recourse
to our other assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.
HollyFrontier Senior Notes
On September 28, 2020, we completed a public offering of $350.0 million in aggregate principal amount of 2.625% senior
notes maturing October 2023 (the “2.625% Senior Notes”) and $400.0 million in aggregate principal amount of 4.500% senior
notes maturing October 2030 (the “4.500% Senior Notes”). We intend to use the net proceeds for general corporate purposes,
which may include capital expenditures.
As a result, as of December 31, 2020, our outstanding senior notes consist of $1.0 billion in aggregate principal amount of
5.875% senior notes maturing April 2026 (the “5.875% Senior Notes”), the 2.625% Senior Notes and the 4.500% Senior Notes
(collectively, the “HollyFrontier Senior Notes”). The HollyFrontier Senior Notes are unsecured and unsubordinated obligations
of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness.
HollyFrontier Financing Arrangements
In December 2018, certain of our wholly-owned subsidiaries entered into financing arrangements whereby such subsidiaries
sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in
exchange for total cash received of $32.5 million. The volume of the precious metals catalyst and the lease rate are fixed over
the term of each lease, and the lease payments are recorded as interest expense. The leases mature on February 1, 2022. Upon
maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity. These financing
arrangements are recorded at a Level 2 fair value totaling $43.9 million and $40.0 million at December 31, 2020 and 2019,
respectively, and are included in “Accrued liabilities” in our consolidated balance sheets. See Note 6 for additional information
on Level 2 inputs.
HEP Senior Notes
On February 4, 2020, HEP closed a private placement of $500.0 million in aggregate principal amount of 5.0% HEP senior
unsecured notes maturing in February 2028 (the “HEP Senior Notes”). On February 5, 2020, HEP redeemed its existing $500.0
million aggregate principal amount of 6.0% senior notes maturing August 2024 at a redemption cost of $522.5 million. HEP
recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized
discount and financing costs of $3.4 million. HEP funded the $522.5 million redemption with proceeds from the issuance of its
5.0% senior notes and borrowing under the HEP Credit Agreement.
96
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The HEP Senior Notes are unsecured and impose certain restrictive covenants, including limitations on HEP’s ability to incur
additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with
affiliates, and enter into mergers. HEP was in compliance with the restrictive covenants for the HEP Senior Notes as of
December 31, 2020. At any time when the HEP Senior Notes are rated investment grade by either Moody’s or Standard &
Poor’s and no default or event of default exists, HEP will not be subject to many of the foregoing covenants. Additionally, HEP
has certain redemption rights under the HEP Senior Notes.
Indebtedness under the HEP Senior Notes is guaranteed by HEP’s wholly-owned subsidiaries. HEP’s creditors have no
recourse to our assets. Furthermore, our creditors have no recourse to the assets of HEP and its consolidated subsidiaries.
The carrying amounts of long-term debt are as follows:
HollyFrontier
2.625% Senior Notes
5.875% Senior Notes
4.500% Senior Notes
Unamortized discount and debt issuance costs
Total HollyFrontier long-term debt
HEP
HEP Credit Agreement
5.00% Senior Notes
6.00% Senior Notes
Unamortized discount and debt issuance costs
Total HEP long-term debt
Total long-term debt
The fair values of the senior notes are as follows:
HollyFrontier Senior Notes
HEP Senior Notes
December 31,
2020
2019
(In thousands)
$
350,000 $
1,000,000
400,000
1,750,000
—
1,000,000
—
1,000,000
(12,885)
(6,391)
1,737,115
993,609
913,500
500,000
—
500,000
965,500
—
500,000
500,000
(7,897)
(3,469)
1,405,603
1,462,031
$
3,142,718 $
2,455,640
December 31,
2020
2019
(In thousands)
$
$
1,903,867 $
1,127,610
506,540 $
522,045
These fair values are based on a Level 2 input. See Note 6 for additional information on Level 2 inputs.
97
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Principal maturities of long-term debt as of December 31, 2020 are as follows:
Years Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
(In thousands)
$
$
—
913,500
350,000
—
—
1,900,000
3,163,500
NOTE 14: Derivative Instruments and Hedging Activities
Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and
refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into
derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price
exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.
Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative
contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with
fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar.
Accounting Hedges
We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas. We also
periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales
contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as
accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other
comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature.
The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value
adjustments and maturities of hedging instruments under hedge accounting:
Net Unrealized Gain (Loss)
Recognized in OCI
Gain (Loss) Reclassified into Earnings
Derivatives Designated
as Cash Flow Hedging
Instruments
Years Ended December 31,
2020
2019
2018
Income Statement
Location
Years Ended December 31,
2020
2019
2018
Commodity contracts
$
(4,871) $
(5,349) $
11,221 Sales and other revenues
$
(In thousands)
Total
$
(4,871) $
(5,349) $
11,221
$
Cost of products sold
Operating expenses
(5,168) $
4,281
(1,717)
(2,604) $
(1,799) $
22,876
(1,364)
19,713 $
(5,093)
—
(962)
(6,055)
98
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Economic Hedges
We have commodity contracts including NYMEX futures contracts to lock in prices on forecasted purchases and sales of
inventory and forward purchase and sell contracts, as well as periodically have contracts to lock in basis spread differentials on
forecasted purchases of crude oil and swap contracts to lock in the crack spread of WTI and gasoline, that serve as economic
hedges (derivatives used for risk management, but not designated as accounting hedges). We also have forward currency
contracts to fix the rate of foreign currency. In addition, our catalyst financing arrangements discussed in Note 13 could require
repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts
are measured at fair value with offsetting adjustments (gains / losses) recorded directly to income.
The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:
Gain (Loss) Recognized in Earnings
Derivatives Not Designated as
Hedging Instruments
Income Statement Location
2020
Years Ended December 31,
2019
(In thousands)
2018
Commodity contracts
Cost of products sold
Interest expense
Foreign currency contracts
Gain on foreign currency transactions
Total
$
$
18,646 $
(4,250)
(8,475) $
(6,427)
(7,300)
(17,430)
7,096 $
(32,332) $
16,655
(198)
41,834
58,291
As of December 31, 2020, we have the following notional contract volumes related to outstanding derivative instruments (all
maturing in 2021):
Derivatives designated as hedging instruments:
Natural gas price swaps - long
Derivatives not designated as hedging instruments:
NYMEX futures (WTI) - short
Forward gasoline and diesel contracts - long
Foreign currency forward contracts
Forward commodity contracts (platinum)
Total
Outstanding
Notional
Unit of
Measure
1,800,000 MMBTU
160,000 Barrels
195,000 Barrels
418,192,532 U. S. dollar
40,867 Troy ounces
99
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the fair value and balance sheet locations of our outstanding derivative instruments. These
amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our
consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with
provisions of our master netting arrangements.
Derivatives in Net Asset Position
Derivatives in Net Liability Position
Gross
Liabilities
Offset in
Balance Sheet
Gross Assets
Net Assets
Recognized in
Balance Sheet
Gross
Liabilities
Gross Assets
Offset in
Balance Sheet
Net Liabilities
Recognized in
Balance Sheet
(In thousands)
December 31, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap
contracts
$
$
— $
— $
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts
Commodity forward contracts
Foreign currency forward
contracts
$
$
— $
275
—
275 $
Total net balance
Balance sheet classification:
Prepayment and other
— $
— $
— $
—
—
— $
$
$
— $
— $
— $
275
—
275 $
275
275
359 $
359 $
418 $
196
23,005
23,619 $
Accrued liabilities
— $
— $
— $
—
—
— $
$
$
359
359
418
196
23,005
23,619
23,978
23,978
Derivatives in Net Asset Position
Derivatives in Net Liability Position
Gross
Liabilities
Offset in
Balance Sheet
Gross Assets
Net Assets
Recognized in
Balance Sheet
Gross
Liabilities
Gross Assets
Offset in
Balance Sheet
Net Liabilities
Recognized in
Balance Sheet
(In thousands)
December 31, 2019
Derivatives designated as cash flow hedging instruments:
Commodity price swap
contracts
$
$
7,526 $
7,526 $
(1,784) $
(1,784) $
5,742 $
5,742 $
1,230 $
1,230 $
— $
— $
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts
Commodity price swap
contracts
Commodity forward contracts
Foreign currency forward
contracts
$
— $
— $
— $
2,578 $
— $
7,713
4,133
—
—
7,713
4,133
—
3,685
—
11,846 $
$
—
— $
—
11,846 $
6,722
12,985 $
—
—
—
— $
Total net balance
Balance sheet classification:
Prepayments and other
$
$
$
17,588
17,588
17,588
Accrued liabilities
Other long-term liabilities
$
$
$
1,230
1,230
2,578
—
3,685
6,722
12,985
14,215
12,985
1,230
14,215
At December 31, 2020, we had a pre-tax net unrealized loss of $0.4 million classified in accumulated other comprehensive
income that relates to all accounting hedges having contractual maturities through 2021, which assuming commodity prices
remain unchanged will be effectively transferred from accumulated other comprehensive income into the statement of income
as the hedging instruments contractually mature over the next twelve-month period.
100
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 15:
Income Taxes
The provision for income taxes is comprised of the following:
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
2020
Years Ended December 31,
2019
(In thousands)
2018
$
$
(59,452) $
(5,391)
9,423
(64,836)
(52,872)
(59,019)
(232,147) $
187,134 $
29,547
3,805
77,916
26,073
(25,323)
299,152 $
239,566
40,788
(10,080)
46,434
27,845
2,690
347,243
The statutory federal income tax rate applied to pre-tax book income reconciles to income tax expense (benefit) as follows:
Tax computed at statutory rate
Effect of the Tax Cuts and Jobs Act
State income taxes, net of federal tax benefit
Noncontrolling interest in net income
CARES Act benefits
Foreign rate differential
Effect of nondeductible goodwill impairment charge
Other
2020
Years Ended December 31,
2019
(In thousands)
2018
$
(156,880) $
—
(41,566)
(21,799)
(19,837)
(14,294)
16,573
5,656
(232,147) $
$
246,013 $
—
47,259
(25,494)
—
—
32,069
(695)
299,152 $
320,138
(7,800)
56,936
(20,215)
—
—
—
(1,816)
347,243
101
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Our deferred income tax assets and liabilities as
of December 31, 2020 and 2019 are as follows:
Assets
December 31, 2020
Liabilities
(In thousands)
Total
Deferred income taxes
Properties, plants and equipment (due primarily to tax in excess of
book depreciation)
Lease obligation
Accrued employee benefits
Accrued post-retirement benefits
Accrued environmental costs
Hedging instruments
Inventory differences
Deferred turnaround costs
Net operating loss and tax credit carryforwards
Investment in HEP
Valuation allowance
Other
Total
$
$
— $
(712,339) $
94,447
21,819
11,646
27,200
—
—
—
51,227
—
—
6,356
212,695 $
—
—
—
—
(903)
(24,271)
(85,326)
—
(94,982)
(8,577)
—
(926,398) $
Assets
December 31, 2019
Liabilities
(In thousands)
Total
Deferred income taxes
Properties, plants and equipment (due primarily to tax in excess of
book depreciation)
Lease obligation
Accrued employee benefits
Accrued post-retirement benefits
Accrued environmental costs
Hedging instruments
Inventory differences
Deferred turnaround costs
Net operating loss and tax credit carryforwards
Investment in HEP
Valuation allowance
Other
Total
$
$
— $
(809,966) $
120,435
13,635
11,027
28,708
—
—
—
22,912
—
—
5,475
202,192 $
—
—
—
—
(2,439)
(43,500)
(135,920)
—
(95,037)
(4,600)
—
(1,091,462) $
We have Kansas income tax credits of $12.8 million and Oklahoma income tax credits of $5.5 million that can be carried
forward 16 and 19 tax years, respectively. We also have net operating losses of $61.8 million in Luxembourg and $27.6 million
in Canada. We have reflected a valuation allowance of $8.6 million in 2020 and $4.6 million in 2019 with respect to these net
operating carry forwards that primarily relate to the losses in Luxembourg.
102
(712,339)
94,447
21,819
11,646
27,200
(903)
(24,271)
(85,326)
51,227
(94,982)
(8,577)
6,356
(713,703)
(809,966)
120,435
13,635
11,027
28,708
(2,439)
(43,500)
(135,920)
22,912
(95,037)
(4,600)
5,475
(889,270)
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Balance at December 31
Years Ended December 31,
2020
2019
(In thousands)
2018
$
56,621 $
53,752 $
53,752
6
2,893
(1,500)
(228)
(24)
—
—
—
—
$
54,899 $
56,621 $
53,752
At December 31, 2020, 2019 and 2018, there were $54.9 million, $56.6 million, and $53.8 million, respectively, of
unrecognized tax benefits that, if recognized, would affect our effective tax rate. Unrecognized tax benefits are adjusted in the
period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.
Approximately $53.7 million of the unrecognized tax benefits relates to claims filed with the IRS on the federal income tax
treatment of refundable biodiesel/ethanol blending tax credits for certain prior years. The issues related to the claims are
complex and uncertain, and we cannot conclude that it is more likely than not that we will sustain the claims. Therefore, no tax
benefit has been recognized for the filed claims. During the next 12 months, it is reasonably possible that an ultimate resolution
regarding these claims could reduce unrecognized tax benefits (due to possible court rulings in favor of the IRS).
We recognize interest and penalties relating to liabilities for unrecognized tax benefits as an element of tax expense. We have
not recorded any penalties related to our uncertain tax positions as we believe that it is more likely than not that there will not
be any assessment of penalties.
We are subject to U.S. and Canadian federal income tax, Oklahoma, Kansas, New Mexico, Iowa, Arizona, Utah, Colorado and
Nebraska income tax and to income tax of multiple other state jurisdictions. We have substantially concluded all state and local
income tax matters for tax years through 2015. Other than the federal claim noted above, we have materially concluded all U.S.
federal income tax matters for tax years through December 31, 2016.
NOTE 16: Stockholders' Equity
Shares of our common stock outstanding and activity for the years ended December 31, 2020, 2019 and 2018 are presented
below:
Common shares outstanding at January 1
Vesting of performance units
Vesting of restricted stock with performance feature
Forfeitures of restricted stock
Purchase of treasury stock (1)
Common shares outstanding at December 31
Years Ended December 31,
2019
2018
2020
161,846,525
296,801
553,381
—
(283,047)
162,413,660
172,121,491
592,602
412,465
(13,807)
(11,266,226)
161,846,525
177,407,622
115,596
543,396
(58,497)
(5,886,626)
172,121,491
(1)
Includes 283,047, 415,466 and 369,255 shares, respectively, withheld under the terms of stock-based compensation agreements to
provide funds for the payment of payroll and income taxes due at the vesting of share-based awards, as well as other stock
repurchases under separate authority from our Board of Directors.
103
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
In November 2019, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share
repurchase programs authorizing us to repurchase common stock in the open market or through privately negotiated
transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other
relevant considerations. This program may be discontinued at any time by the Board of Directors. As of December 31, 2020, we
had not repurchased common stock under this stock repurchase program. In addition, we are authorized by our Board of
Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs.
During the years ended December 31, 2020, 2019 and 2018, we withheld shares of our common stock from certain employees
in the amounts of $7.6 million, $21.9 million and $19.6 million, respectively. These withholdings were made under the terms of
restricted stock unit and performance share unit agreements upon vesting, at which time, we concurrently made cash payments
to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts
to pay such taxes.
NOTE 17: Other Comprehensive Income (Loss)
The components and allocated tax effects of other comprehensive income are as follows:
Before-Tax
Tax Expense
(Benefit)
(In thousands)
After-Tax
Year Ended December 31, 2020
Net change in foreign currency translation adjustment
Net unrealized loss on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive loss attributable to HollyFrontier stockholders
Year Ended December 31, 2019
Net change in foreign currency translation adjustment
Net unrealized loss on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive income attributable to HollyFrontier
stockholders
Year Ended December 31, 2018
Net change in foreign currency translation adjustment
Net unrealized gain on hedging instruments
Net change in pension and other post-retirement benefit obligations
Other comprehensive loss attributable to HollyFrontier stockholders
$
$
$
$
$
$
6,226 $
(4,871)
(3,461)
(2,106) $
1,357 $
(1,228)
(923)
(794) $
13,337 $
(5,349)
(7,207)
2,848 $
(1,365)
(1,853)
4,869
(3,643)
(2,538)
(1,312)
10,489
(3,984)
(5,354)
781 $
(370) $
1,151
(38,227) $
11,221
(1,507)
(28,513) $
(8,064) $
2,857
(378)
(5,585) $
(30,163)
8,364
(1,129)
(22,928)
104
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table presents the income statement line item effects for reclassifications out of accumulated other
comprehensive income (“AOCI”):
AOCI Component
Gain (Loss) Reclassified From AOCI
Income Statement Line Item
Hedging instruments:
Commodity price swaps
$
Other post-retirement benefit obligations:
Pension obligations
Post-retirement healthcare obligations
Retirement restoration plan
Years Ended December 31,
2020
2019
(In thousands)
2018
(5,168) $
4,281
(1,717)
(2,604)
(664)
(1,940)
(1,799) $
22,876
(1,364)
19,713
5,027
14,686
(5,093) Sales and other revenues
— Cost of products sold
(962) Operating expenses
(6,055)
(1,544) Income tax expense (benefit)
(4,511) Net of tax
422
108
314
3,564
909
2,655
—
—
—
3,587
915
2,672
— Other, net
—
Income tax expense
— Net of tax
3,481 Other, net
888
Income tax expense
2,593 Net of tax
(22)
(6)
(16)
(6)
(2)
(4)
(27) Other, net
(7) Income tax benefit
(20) Net of tax
Total reclassifications for the period
$
1,013 $
17,354 $
(1,938)
Accumulated other comprehensive income in the equity section of our consolidated balance sheets includes:
Foreign currency translation adjustment
Unrealized loss on pension obligations
Unrealized gain on post-retirement benefit obligations
Unrealized gain (loss) on hedging instruments
Accumulated other comprehensive income
NOTE 18: Pension and Post-retirement Plans
Years Ended December 31,
2020
2019
$
$
(In thousands)
2,682 $
(248)
11,310
(282)
13,462 $
(2,187)
(1,733)
15,333
3,361
14,774
Certain PCLI employees are participants in union and non-union pension plans which are closed to new entrants. It is our
intention that, effective June 30, 2022, no additional benefits will be accrued under these plans, and the plans will become
frozen and employees will be transitioned to a defined contribution plan. Accordingly, these changes have been accounted for
as curtailments and contractual termination benefits. In addition, Sonneborn employees in the Netherlands have a defined
benefit pension plan which was frozen and all plan participants became inactive in 2016. The plan assets are in the form of a
third-party insurance contract that is valued based on the assets held by the insurer and insures a value which approximates the
accrued benefits related to the plan’s accumulated benefit obligation. At that time, a new plan was established to provide future
indexation benefits to participants who had accrued benefits under the expiring arrangements.
105
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table sets forth the changes in the benefit obligation and plan assets of our PCLI pension plans for the years
ended December 31, 2020 and 2019, and for our Sonneborn Netherlands plans for the period February 1, 2019 to December 31,
2019 and for the year ended December 31, 2020:
Change in plans' benefit obligations
Pension plans benefit obligation - beginning of period
Acquisition of Sonneborn
Service cost
Interest cost
Actuarial loss
Benefits paid
Curtailment
Contractual termination benefits
Transfer from other plans
Foreign currency exchange rate changes
Pension plans benefit obligation - end of year
Change in pension plans assets
Fair value of plans assets - beginning of period
Acquisition of Sonneborn
Return on plans assets
Employer contributions
Benefits paid
Transfer payments
Foreign currency exchange rate changes
Fair value of plans assets - end of year
Funded status
Under-funded balance
Amounts recognized in consolidated balance sheets
Other long-term liabilities
Amounts recognized in accumulated other comprehensive income
Cumulative actuarial loss
Years Ended December 31,
2019
2020
(In thousands)
110,410 $
—
3,929
2,772
8,391
(1,558)
(4,078)
915
479
5,360
126,620 $
105,358 $
—
10,936
3,487
(1,558)
479
5,248
123,950 $
64,435
31,686
4,135
3,026
5,161
(1,132)
—
—
330
2,769
110,410
62,462
29,376
7,947
3,681
(1,132)
330
2,694
105,358
(2,670) $
(5,052)
(2,670) $
(5,052)
1,658 $
3,155
$
$
$
$
$
$
$
The accumulated benefit obligation was $119.2 million and $100.5 million at December 31, 2020 and 2019, respectively, which
are also the measurement dates used for our pension plans.
The following tables provide information regarding pension plans with a projected benefit obligation and accumulated benefit
obligation in excess of the fair value of plan assets:
Projected benefit obligation
Fair value of plan assets
December 31,
2020
2019
$
$
(In thousands)
79,866 $
77,035 $
110,410
105,358
106
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Accumulated benefit obligation
Fair value of plan assets
December 31,
2020
2019
$
$
(In thousands)
41,654 $
39,105 $
36,001
33,509
The weighted average assumptions used to determine end of period benefit obligations for the PCLI plans for the years ended
December 31, 2020 and 2019 were discount rates of 2.60% and 3.10%, respectively, and rates of future compensation increases
of 3.00% for each year. For the years ended December 31, 2020 and 2019, the weighted average assumption used to determine
end of period benefit obligations for Sonneborn were discount rates of 1.10% and 1.50%, respectively.
Net periodic pension expense consisted of the following components:
2020
Years Ended December 31,
2019
(In thousands)
2018
Service cost - benefit earned during the period
Interest cost on projected benefit obligations
Expected return on plans assets
Amortization of gain
Curtailment
Contractual termination benefits
Net periodic pension expense
$
$
3,929 $
2,772
(4,578)
(422)
(137)
915
2,479 $
4,135 $
3,026
(3,840)
—
—
—
3,321 $
4,420
2,249
(3,464)
—
—
—
3,205
The components, other than service cost, of our net periodic pension expense are recorded in Other, net in our consolidated
statements of income.
At December 31, 2020 and 2019, PCLI's pension plans assets were allocated as follows:
Asset Category
Canadian equities
Fixed income
Real estate and infrastructure
Other
Cash
Total
Percentage of Plan Assets at Year End
December 31,
2020
December 31,
2019
42 %
57 %
— %
1 %
— %
100 %
47 %
29 %
14 %
9 %
1 %
100 %
At December 31, 2020, these fair values are based on Level 2 inputs. See Note 6 for additional information on Level 2 inputs.
The expected long-term rate of return on plan assets is 3.00% for the PCLI pension plans, and is based on a target investment
mix of 16% Canadian equities, 75% fixed income, 5% real estate and infrastructure and 4% other.
We expect to contribute $3.5 million to the PCLI and Sonneborn pensions plans in 2021. Benefit payments, which reflect
expected future service, are expected to be paid as follows: $2.1 million in 2021, $2.5 million in 2022, $3.0 million in 2023,
$3.3 million in 2024, $3.8 million in 2025 and $24.5 million in 2026 to 2030.
Post-retirement Healthcare Plans
We have post-retirement healthcare and other benefits plans that are available to certain of our employees who satisfy certain
age and service requirements. These plans are unfunded and provide differing levels of healthcare benefits dependent upon hire
date and work location. Not all of our employees are covered by this plan at December 31, 2020.
107
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The following table sets forth the changes in the benefit obligation and plan assets of our post-retirement healthcare plans for
the years ended December 31, 2020 and 2019:
Change in plans' benefit obligation
Post-retirement plans' benefit obligation - beginning of year
Sonneborn acquisition
Service cost
Interest cost
Benefits paid
Actuarial loss
Foreign currency exchange rate changes
Post-retirement plans' benefit obligation - end of year
Change in plan assets
Fair value of plan assets - beginning of year
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets - end of year
Funded status
Under-funded balance
Amounts recognized in consolidated balance sheets
Accrued liabilities
Other long-term liabilities
Amounts recognized in accumulated other comprehensive income
Cumulative actuarial loss
Prior service credit
Total
Years Ended December 31,
2020
2019
(In thousands)
31,273 $
—
1,616
870
(1,766)
1,131
354
33,478 $
— $
1,742
24
(1,766)
— $
26,880
877
1,582
1,029
(2,028)
2,412
521
31,273
—
2,003
25
(2,028)
—
(33,478) $
(31,273)
(1,946) $
(31,532)
(33,478) $
(1,523) $
18,511
16,988 $
(1,817)
(29,456)
(31,273)
(197)
21,992
21,795
$
$
$
$
$
$
$
$
$
Benefit payments, which reflect expected future service, are expected to be paid as follows: $1.9 million in 2021; $1.9 million
in 2022; $1.9 million in 2023; $1.9 million in 2024; $1.9 million in 2025; and $9.2 million in 2026 through 2030.
The weighted average assumptions used to determine end of period benefit obligations:
Discount rate
Current health care trend rate
Ultimate health care trend rate
Year rate reaches ultimate trend rate
December 31,
2020
1.88%-2.60%
5.50%-6.00%
4.50%-5.00%
2022-2023
2019
2.94% - 3.20%
6.00% - 6.50%
4.50% - 5.00%
2022 - 2023
108
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Net periodic post-retirement credit consisted of the following components:
Service cost – benefit earned during the year
Interest cost on projected benefit obligations
Amortization of prior service credit
Amortization of gain
Net periodic post-retirement credit
2020
Years Ended December 31,
2019
(In thousands)
2018
$
$
1,616 $
870
(3,481)
(83)
(1,078) $
1,582 $
1,029
(3,481)
(106)
(976) $
1,648
938
(3,481)
—
(895)
The components, other than service cost, of our net periodic post-retirement credit are recorded in Other, net in our consolidated
statements of income. Prior service credits are amortized over the average remaining effective period to obtain full benefit
eligibility for participants.
Retirement Restoration Plan
We have an unfunded retirement restoration plan that provides for additional payments from us so that total retirement plan
benefits for certain executives will be maintained at the levels provided in the retirement plan before the application of Internal
Revenue Code limitations. We expensed $0.1 million for each of the years ended December 31, 2020, 2019 and 2018 in
connection with this plan. The accrued liability reflected in the consolidated balance sheets was $2.5 million and $2.4 million at
December 31, 2020 and 2019, respectively. As of December 31, 2020, the projected benefit obligation under this plan was $2.5
million. Annual benefit payments of $0.2 million are expected to be paid through 2030, which reflect expected future service.
Defined Contribution Plans
We have defined contribution plans that cover substantially all qualified employees in the U.S, Canada and the Netherlands.
Our contributions are based on an employee's eligible compensation and years of service. We also partially match our
employees’ contributions. We expensed $43.3 million, $30.3 million and $19.1 million for the years ended December 31, 2020,
2019 and 2018, respectively, in connection with these plans.
NOTE 19: Contingencies and Contractual Commitments
We are a party to various litigation and legal proceedings which we believe, based on advice of counsel, will not either
individually or in the aggregate have a materially adverse effect on our financial condition, results of operations or cash flows.
We filed a business interruption claim with our insurance carriers related to a loss at our Woods Cross Refinery that occurred in
the first quarter 2018. During the year ended December 31, 2020, we reached a final settlement agreement regarding the
amounts owed to us pursuant to our business interruption coverage, and we recognized a gain of $81.0 million, which is
reflected in our Corporate and Other segment.
During 2017, 2018 and 2019, the EPA granted the Cheyenne Refinery and Woods Cross Refinery each a one-year small
refinery exemption from the RFS program requirements for the 2016, 2017 and 2018, respectively, calendar years. As a result,
the Cheyenne Refinery’s and Woods Cross Refinery’s gasoline and diesel production are not subject to the RVO for the
respective years. Upon each exemption granted, we increased our inventory of RINs and reduced our cost of products sold.
109
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Various subsidiaries of HollyFrontier are currently intervenors in three lawsuits brought by renewable fuel interest groups
against the EPA in federal courts alleging violations of the RFS under the Clean Air Act and challenging the EPA’s handling of
small refinery exemptions. We intervened to vigorously defend the EPA’s position on small refinery exemptions because we
believe the EPA correctly applied applicable law to the matters at issue. On January 24, 2020, in the first of these lawsuits, the
U.S. Court of Appeals for the Tenth Circuit vacated the small refinery exemptions granted to two of our refineries for 2016 and
remanded the case to the EPA for further proceedings. On April 15, 2020, the Tenth Circuit entered its mandate, remanding the
matter back to the EPA. On September 4, 2020, various subsidiaries of HollyFrontier filed a Petition for a Writ of Certiorari
with the U.S. Supreme Court appealing the Tenth Circuit decision. On January 8, 2021, the U.S. Supreme Court granted
HollyFrontier's petition. We anticipate a decision from the Supreme Court in June 2021. We expect that we will not know what
steps the EPA will take with respect to our 2016 small refinery exemptions, or how the case will impact future small refinery
exemptions until after the Supreme Court's decision in this matter. The second lawsuit is before the Tenth Circuit. The matter is
fully briefed and remains pending before that court. The third lawsuit is before the DC Circuit. Briefing of the issues before the
court commenced on December 7, 2020; however, in light of the Supreme Court's decision to hear HollyFrontier's appeal of the
Tenth Circuit decision, this case was stayed pending a decision from the Supreme Court. In December 2020, various
subsidiaries of HollyFrontier also filed a petition for review in the DC Circuit challenging the EPA's denial of small refinery
exemption petitions for years prior to 2016. The petition was consolidated with petitions from eight other refining companies
challenging the same decision. In light of the Supreme Court's decision to hear HollyFrontier's appeal of the Tenth Circuit
decision, this case was stayed pending a decision from the Supreme Court. We are unable to estimate the costs we may incur, if
any, at this time. It is too early to assess how the matter currently on appeal to the U.S. Supreme Court will impact future small
refinery exemptions or whether the remaining cases are expected to have any impact on us.
We have been party to multiple proceedings before the Federal Energy Regulatory Commission (“FERC”) challenging the rates
charged by SFPP, L.P. (“SFPP”) on its East Line pipeline facilities from El Paso, Texas to Phoenix, Arizona. In March 2018,
FERC ruled that SFPP, as a master limited partnership, was prohibited from including an allowance for investor income taxes
in the cost of service underlying its East Line rates. We reached a negotiated settlement with SFPP that provides for a payment
to us of $51.5 million. FERC approved the settlement on December 31, 2020 subject to a rehearing period that resulted in a
settlement effective date of February 2, 2021. Under the terms of the settlement agreement, SFPP made the $51.5 million
payment to us on February 10, 2021. As of December 31, 2020, we had no enforceable right to collect any of the settlement.
Accordingly, recognition of a gain occurred when the uncertainties were resolved, and we held an enforceable right to collect
on February 2, 2021.
Contractual Commitments
We have various long-term agreements (entered in the normal course of business) to purchase crude oil, natural gas, feedstocks
and other resources to ensure we have adequate supplies to operate our refineries. The substantial majority of our purchase
obligations are based on market prices or rates. These contracts expire in 2021 through 2025.
We also have long-term agreements with third parties for the transportation and storage of crude oil, natural gas and feedstocks
to our refineries and for terminal and storage services that expire in 2021 through 2039. At December 31, 2020, the minimum
future transportation and storage fees under transportation agreements having terms in excess of one year are as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$
(In thousands)
129,661
113,288
113,360
112,884
113,669
580,889
$
1,163,751
Transportation and storage costs incurred under these agreements totaled $139.0 million, $144.8 million and $143.3 million for
the years ended December 31, 2020, 2019 and 2018, respectively. These amounts do not include contractual commitments
under our long-term transportation agreements with HEP, as all transactions with HEP are eliminated in these consolidated
financial statements.
110
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 20: Segment Information
Our operations are organized into three reportable segments: Refining, Lubricants and Specialty Products and HEP. Our
operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate
and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations.
Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column.
The Refining segment represents the operations of the El Dorado, Tulsa, Navajo and Woods Cross Refineries and HFC Asphalt
(aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and
branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily
marketed in the Mid-Continent, Southwest and Rocky Mountain geographic regions of the United States. HFC Asphalt operates
various asphalt terminals in Arizona, New Mexico and Oklahoma. The Refining segment also included the operations of the
Cheyenne Refinery until it permanently ceased petroleum refining operations during the third quarter of 2020.
The Lubricants and Specialty Products segment involves PCLI’s production operations, located in Mississauga, Ontario, that
includes lubricant products such as base oils, white oils, specialty products and finished lubricants, and the operations of our
Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global
sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty
Products segment includes specialty lubricant products produced at our Tulsa Refineries that are marketed throughout North
America and are distributed in Central and South America and Red Giant Oil, one of the largest suppliers of locomotive engine
oil in North America. Also, effective with our acquisition that closed February 1, 2019, the Lubricants and Specialty Products
segment includes Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with
manufacturing facilities in the United States and Europe..
The HEP segment includes all of the operations of HEP, which owns and operates logistics and refinery assets consisting of
petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units in the Mid-
Continent, Southwest and Rocky Mountain geographic regions of the United States. The HEP segment also includes a 75%
ownership interest in UNEV (a consolidated subsidiary of HEP) and 50% ownership interest in each of the Osage Pipeline, the
Cheyenne Pipeline and Cushing Connect. Revenues from the HEP segment are earned through transactions with unaffiliated
parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation
services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may
not agree to amounts reported in HEP’s periodic public filings.
111
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
The accounting policies for our segments are the same as those described in the summary of significant accounting policies (see
Note 1).
Refining
Lubricants
and Specialty
Products
Corporate, Other
and Eliminations
(2)
Consolidated
Total
HEP
(In thousands)
Year Ended December 31, 2020
Sales and other revenues:
Revenues from external customers
Intersegment revenues
Cost of products sold (exclusive of lower of cost
or market inventory valuation adjustment)
Lower of cost or market inventory valuation
adjustment
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Goodwill and long-lived asset impairments (1)
Income (loss) from operations
Earnings of equity method investments
Capital expenditures
Total assets
$
$
$
$
$
$
$
$
$
$
$
$
9,286,658 $ 1,792,745 $
252,531
10,465
9,539,189 $ 1,803,210 $
98,039 $
399,809
497,848 $
6,201 $ 11,183,643
(662,805)
—
(656,604) $ 11,183,643
8,439,680 $ 1,271,287 $
— $
(552,162) $
9,158,805
82,214 $
988,045 $
127,298 $
324,617 $
241,760 $
(664,425) $
— $
152,726 $
— $
216,068 $
157,816 $
80,656 $
286,575 $
(209,192) $
— $
32,473 $
6,203,847 $ 1,864,313 $
— $
147,692 $
9,989 $
95,445 $
16,958 $
227,764 $
6,647 $
59,283 $
2,198,478 $
(3,715) $
(51,528) $
18,497 $
20,194 $
— $
(87,890) $
— $
85,678 $
78,499
1,300,277
313,600
520,912
545,293
(733,743)
6,647
330,160
1,240,226 $ 11,506,864
112
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
Year Ended December 31, 2019
Sales and other revenues:
Revenues from external customers
Intersegment revenues
Cost of products sold (exclusive of lower of cost
or market inventory valuation adjustment)
Lower of cost or market inventory valuation
adjustment
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Goodwill impairment
Income (loss) from operations
Earnings of equity method investments
Capital expenditures
Total assets
Year Ended December 31, 2018
Sales and other revenues:
Revenues from external customers
Intersegment revenues
Cost of products sold (exclusive of lower of cost
or market inventory valuation adjustment)
Lower of cost or market inventory valuation
adjustment
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Income (loss) from operations
Earnings of equity method investments
Capital expenditures
Total assets
Refining
Lubricants
and Specialty
Products
Corporate, Other
and Eliminations
Consolidated
Total
HEP
(In thousands)
$ 15,284,110 $ 2,081,221 $
312,678
11,307
$ 15,596,788 $ 2,092,528 $
121,027 $
411,750
532,777 $
220 $ 17,486,578
(735,735)
—
(735,515) $ 17,486,578
$ 12,980,506 $ 1,580,036 $
— $
(642,158) $ 13,918,384
$
$
$
$
$
$
$
$
$
(119,775) $
1,095,488 $
120,518 $
309,932 $
— $
1,210,119 $
— $
199,002 $
— $
231,523 $
168,595 $
88,781 $
152,712 $
(129,119) $
— $
40,997 $
7,189,094 $ 2,223,418 $
— $
161,996 $
10,251 $
96,706 $
— $
263,824 $
5,180 $
30,112 $
2,205,437 $
(119,775)
— $
1,394,052
(94,955) $
354,236
54,872 $
509,925
14,506 $
152,712
— $
1,277,044
(67,780) $
5,180
— $
23,652 $
293,763
546,892 $ 12,164,841
$ 15,806,304 $ 1,799,506 $
370,259
13,197
$ 16,176,563 $ 1,812,703 $
108,412 $
397,808
506,220 $
444 $ 17,714,666
(781,264)
—
(780,820) $ 17,714,666
$ 13,250,849 $ 1,381,540 $
— $
(691,607) $ 13,940,782
$
$
$
$
$
$
$
$
136,305 $
1,055,209 $
113,641 $
284,439 $
1,336,120 $
— $
202,791 $
— $
167,820 $
143,750 $
43,255 $
76,338 $
— $
37,448 $
6,465,155 $ 1,506,209 $
— $
146,430 $
11,041 $
98,492 $
250,257 $
5,825 $
54,141 $
2,142,027 $
136,305
— $
1,285,838
(83,621) $
290,424
21,992 $
437,324
11,138 $
1,623,993
(38,722) $
5,825
— $
16,649 $
311,029
881,210 $ 10,994,601
(1) The results of our HEP reportable segment for the year ended December 31, 2020 include a long-lived asset impairment charge attributed
to HEP’s logistics assets at our Cheyenne Refinery.
(2) For the year ended December 31, 2020, Corporate and Other includes $3.9 million of operating expenses and $65.1 million of capital
expenditures related to the construction of our renewable diesel units. Also, for the year ended December 31, 2020, Corporate and Other
includes $14.0 million of decommissioning and other shutdown costs related to our Cheyenne Refinery. In addition, for the year ended
December 31, 2020, Corporate and Other includes $11.4 million in other operating costs related to our Cheyenne facility.
113
HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE 21: Quarterly Information (Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
(In thousands, except per share data)
Fourth
Quarter
Year
Year Ended December 31, 2020
Sales and other revenues
Operating costs and expenses
Loss from operations (1) (2)
Income (loss) before income taxes
Net loss attributable to HollyFrontier
stockholders
Net loss per share - basic
Net loss per share - diluted
Dividends per common share
Average number of shares of common
stock outstanding:
Basic
Diluted
Year Ended December 31, 2019
Sales and other revenues
Operating costs and expenses
Income from operations (3)(4)
Income before income taxes
Net income attributable to HollyFrontier
stockholders
Net income per share - basic
Net income per share - diluted
Dividends per common share
Average number of shares of common
stock outstanding:
Basic
Diluted
$ 3,400,545 $ 2,062,930 $ 2,819,400 $ 2,900,768 $ 11,183,643
$ 3,810,847 $ 2,252,906 $ 2,846,618 $ 3,007,015 $ 11,917,386
(733,743)
$
(747,046)
$
(106,247) $
(138,194) $
(410,302) $
(455,452) $
(189,976) $
(181,318) $
(27,218) $
27,918 $
$
(304,623) $
(176,677) $
(2,401) $
(117,747) $
(601,448)
$
$
$
(1.88) $
(1.88) $
0.35 $
(1.09) $
(1.09) $
0.35 $
(0.01) $
(0.01) $
0.35 $
(0.73) $
(0.73) $
0.35 $
(3.72)
(3.72)
1.40
161,873
161,873
161,889
161,889
162,015
162,015
162,151
162,151
161,983
161,983
$ 3,897,247 $ 4,782,615 $ 4,424,828 $ 4,381,888 $ 17,486,578
$ 3,507,906 $ 4,450,874 $ 3,998,049 $ 4,252,705 $ 16,209,534
129,183 $ 1,277,044
$
100,359 $ 1,171,504
$
389,341 $
363,991 $
331,741 $
306,153 $
426,779 $
401,001 $
$
$
$
$
253,055 $
1.48 $
1.47 $
0.33 $
196,915 $
1.16 $
1.15 $
0.33 $
261,813 $
1.60 $
1.58 $
0.33 $
60,605 $
0.38 $
0.37 $
0.35 $
772,388
4.64
4.61
1.34
170,851
172,239
169,356
170,547
163,676
165,011
161,398
162,898
166,287
167,385
(1) For 2020, loss from operations reflects non-cash lower of cost or market inventory valuation charges of $560.5 million for the first quarter,
and benefits of $269.9 million, $62.8 million and $149.2 million for the second, third and fourth quarters, respectively.
(2) For 2020, loss from operations reflects non-cash long-lived asset impairment charges of $436.9 million in the second quarter and goodwill
and long-lived asset impairment charges of $108.4 million in the fourth quarter.
(3) For 2019, income from operations reflects non-cash lower of cost or market inventory valuation benefits of $232.3 million for the first
quarter, and charges of $47.8 million, $34.1 million and $30.7 million for the second, third and fourth quarters, respectively.
(4) For 2019, income from operations reflects goodwill impairment charges of $152.7 million in the second quarter.
114
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have had no change in, or disagreement with, our independent registered public accountants on matters involving
accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer have
evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period
covered by this annual report on Form 10-K. Our disclosure controls and procedures are designed to provide reasonable
assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal executive officer and principal financial officer, or
persons performing similar functions,as appropriate, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and
forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our
disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.
Changes in internal control over financial reporting. There have been no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting.
See Item 8 for “Management's Report on its Assessment of the Company's Internal Control Over Financial Reporting” and
“Report of the Independent Registered Public Accounting Firm.”
Item 9B. Other Information
There have been no events that occurred in the fourth quarter of 2020 that would need to be reported on Form 8-K that have not
previously been reported.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K in response to this item will
be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on May 12, 2021 and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in
our definitive proxy statement for the annual meeting of stockholders to be held on May 12, 2021 and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The equity compensation plan information required by Item 201(d) and the information required by Item 403 of Regulation S-K
in response to this item will be set forth in our definitive proxy statement for the annual meeting of stockholders to be held on
May 12, 2021 and is incorporated herein by reference.
115
Table of Content
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive
proxy statement for the annual meeting of stockholders to be held on May 12, 2021 and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy
statement for the annual meeting of stockholders to be held on May 12, 2021 and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report
(1)
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Income for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended
December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the years ended
December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(2)
Index to Consolidated Financial Statement Schedules
Page in
Form 10-K
66
69
70
71
72
73
74
All schedules are omitted since the required information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in the consolidated financial statements or
notes thereto.
(3)
Exhibits
Filed or furnished, as applicable, as part of this Form 10-K are the following exhibits:
116
Table of Content
Exhibit
Number
2.1†
2.2†
2.3†
2.4†
2.5†
2.6
3.1
3.2*
4.1
4.2
4.3
4.4
4.5*
10.1
Description
Asset Sale and Purchase Agreement, dated October 19, 2009, between Holly Refining & Marketing-Tulsa LLC,
HEP Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to Exhibit 2.1 of Registrant's
Current Report on Form 8-K filed October 21, 2009, File No. 1-03876).
Amendment No. 1 to Asset Sale and Purchase Agreement, dated December 1, 2009, between Holly Refining &
Marketing-Tulsa LLC, HEP Tulsa LLC and Sinclair Tulsa Refining Company (incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K filed December 7, 2009, File No. 1-03876).
Asset Sale and Purchase Agreement, dated April 15, 2009, between Holly Refining & Marketing-Midcon, L.L.C.
and Sunoco, Inc. (incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K filed
April 16, 2009, File No. 1-03876).
Share Purchase Agreement, dated October 29, 2016, by and between Suncor Energy Inc. and 9952110 Canada Inc.
(incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K filed October 31, 2016, File
No. 1-03876).
Equity Purchase Agreement, dated November 12, 2018, by and between Sonneborn Holdings, L.P., Sonneborn Co-
Op LLC, Sonneborn Coöperatief U.A. and HollyFrontier LSP Holdings LLC (incorporated by reference to Exhibit
2.1 of Registrant's Current Report on Form 8-K filed November 13, 2018, File No. 1-03846).
Waiver and Amendment to Equity Purchase Agreement, dated January 31, 2019, by and between Sonneborn
Holdings, L.P., Sonneborn Co-Op LLC, Sonneborn Coöperatief U.A. and HollyFrontier LSP Holdings LLC
(incorporated by reference to Exhibit 2.7 of Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 2018. File No. 1-03876).
Amended and Restated Certificate of Incorporation of HollyFrontier Corporation (incorporated by reference to
Exhibit 3.1 of Registrant's Current Report on Form 8-K filed July 8, 2011, File No. 1-03876).
Amended and Restated Bylaws of HollyFrontier Corporation.
Indenture, dated March 22, 2016, between HollyFrontier Corporation and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K filed March 22, 2016, File No.
1-03876).
Supplemental Indenture, dated March 22, 2016, between HollyFrontier Corporation and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.2 of Registrant's Current Report on Form 8-K filed March 22,
2016, File No. 1-03876).
Second Supplemental Indenture, dated as of September 28, 2020, between HollyFrontier Corporation and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form
8-K dated September 28, 2020, File No. 1-03876).
Indenture, dated February 4, 2020, by and among Holly Energy Partners, L.P., Holly Energy Finance Corp., each of
the Guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Holly
Energy Partners, L.P.’s Current Report on Form 8-K filed February 4, 2020, File No. 1-32225).
Description of Capital Stock pursuant to Item 601(b)(4) of Reg. S-K.
Amended and Restated Intermediate Pipelines Agreement, dated June 1, 2009, among Holly Corporation, Navajo
Refining Company, L.L.C, Holly Energy Partners, L.P., Holly Energy Partners – Operating, L.P., HEP Pipeline,
L.L.C., Lovington-Artesia, L.L.C., HEP Logistics Holdings, L.P., Holly Logistics Services, L.L.C. and HEP
Logistics GP, L.L.C. (incorporated by reference to Exhibit 10.2 of Holly Energy Partners, L.P.'s Current Report on
Form 8-K filed June 5, 2009, File No. 1-32225).
117
Table of Content
Exhibit
Number
10.2
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Description
Amendment to Amended and Restated Intermediate Pipelines Agreement, dated December 9, 2010, among Navajo
Refining Company, L.L.C, Holly Energy Partners, L.P., Holly Energy Partners – Operating, L.P., HEP Pipeline,
L.L.C., Lovington-Artesia, L.L.C., HEP Logistics Holdings, L.P., Holly Logistics Services, L.L.C. and HEP
Logistics GP, L.L.C. (incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for its
fiscal year ended December 31, 2010, File No. 1-03876).
Tulsa Purchase Option Agreement, dated August 1, 2009, between Holly Refining & Marketing - Tulsa LLC and
HEP Tulsa LLC (incorporated by reference to Exhibit 10.4 of Holly Energy Partners L.P.'s Current Report on Form
8-K filed August 6, 2009, File No. 1-32225).
Third Amended and Restated Crude Pipelines and Tankage Agreement, dated March 12, 2015, by and among
Navajo Refining Company, L.L.C., Holly Refining & Marketing Company - Woods Cross LLC, HollyFrontier
Refining & Marketing LLC, Holly Energy Partners-Operating, L.P., HEP Pipeline, L.L.C. and HEP Woods Cross
L.L.C. (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed March 16,
2015, File No. 1-03876).
First Amendment to Third Amended and Restated Crude Pipelines and Tankage Agreement, dated April 22, 2019,
by and among HollyFrontier Navajo Refining LLC, HollyFrontier Woods Cross Refining LLC, HollyFrontier
Refining & Marketing LLC, Holly Energy Partners - Operating, L.P., HEP Pipeline, L.L.C. and HEP Woods Cross,
L.L.C. (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 10-Q for the quarterly
period ended March 31, 2019, File No. 1-03876).
Second Amendment to Third Amended and Restated Crude Pipelines and Tankage Agreement dated as of May 26,
2020, by and among HollyFrontier Navajo Refining LLC, HollyFrontier Woods Cross Refining LLC,
HollyFrontier Refining & Marketing LLC, Holly Energy Partners - Operating, L.P., HEP Pipeline, L.L.C. and HEP
Woods Cross, L.L.C. (incorporated by reference to Exhibit 10.4 of Registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2020, File No. 1-03876).
Third Amendment to Third Amended and Restated Crude Pipelines and Tankage Agreement entered into as of
February 8, 2021, effective as of January 1, 2021, by and among HollyFrontier Navajo Refining LLC,
HollyFrontier Woods Cross Refining LLC, HollyFrontier Refining & Marketing LLC, Holly Energy Partners -
Operating, L.P., HEP Pipeline, L.L.C. and HEP Woods Cross, L.L.C. (incorporated by reference to Exhibit 10.8 of
Registrant’s Current Report on Form 8-K dated February 11, 2021, File No. 1-03876).
Twenty-First Amended and Restated Omnibus Agreement, entered into as of February 8, 2020, effective as of
January 1, 2021, by and between HollyFrontier Corporation, Holly Energy Partners, L.P. and certain of their
respective subsidiaries (incorporated by reference to Exhibit 10.5 of Registrant's Current Report on Form 8-K filed
February 11, 2021, File No. 1-03876).
Senior Unsecured 5-Year Revolving Credit Agreement, dated July 1, 2014, among HollyFrontier Corporation, as
borrower, Union Bank, N. A. as administrative agent, and each of the financial institutions party thereto as lenders
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed July 8, 2014, File No.
1-03876).
First Amendment to Senior Unsecured 5-Year Revolving Credit Agreement, dated as of February 16, 2017, among
HollyFrontier Corporation, as borrower, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent, and the
lenders party thereto (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed
February 21, 2017, File No. 1-03876).
Release of Subsidiary Guarantee, dated December 29, 2015, by and among HollyFrontier Corporation and Union
Bank, N.A. (incorporated by reference to Exhibit 10.40 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, File No. 1-03876).
Amended and Restated Limited Liability Company Agreement of HEP UNEV Holdings LLC, dated July 12, 2012,
among HEP UNEV Holdings LLC, HollyFrontier Holdings LLC and Holly Energy Partners, L.P. (incorporated by
reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2012, File No. 1-03876).
Amended and Restated Unloading and Blending Services Agreement, dated January 18, 2017, effective September
16, 2016, by and between HollyFrontier Refining & Marketing LLC, Holly Energy Partners - Operating, L.P. and
HEP Refining L.L.C. (incorporated by reference to Exhibit 10.26 of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2016, File No. 1-03876).
118
Table of Content
Exhibit
Number
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Description
Seventh Amended and Restated Master Throughput Agreement, entered into as of February 8, 2021, effective as of
January 1, 2021, by and between HollyFrontier Refining & Marketing LLC and Holly Energy Partners - Operating,
L.P. (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed February 11,
2021, File No. 1-03876).
Construction Payment Agreement, dated as of October 16, 2015, by and between HEP Refining, L.L.C. and
HollyFrontier Refining & Marketing LLC (incorporated by reference to Exhibit 10.3 of Registrant's Current Report
on Form 8-K filed October 21, 2015, File No. 1-03876).
Fourth Amended and Restated Services and Secondment Agreement, entered into as of February 8, 2021, effective
as of January 1, 2021, by and among Holly Logistic Services, L.L.C., certain subsidiaries of Holly Energy
Partners, L.P. and certain subsidiaries of HollyFrontier Corporation (incorporated by reference to Exhibit 10.7 to
Registrant's Current Report on Form 8-K filed February 11, 2021, File No. 1-03876).
Sixth Amended and Restated Master Lease and Access Agreement, dated as of February 8, 2021, effective as of
January 1, 2021, by and among certain subsidiaries of Holly Energy Partners, L.P. and certain subsidiaries of
HollyFrontier Corporation (incorporated by reference to Exhibit 10.6 of Registrant's Current Report on Form 8-K
filed February 11, 2021, File No. 1-03876).
Master Tolling Agreement (Refinery Assets), dated as of November 2, 2015, by and between Frontier El Dorado
Refining LLC and Holly Energy Partners-Operating L.P. (incorporated by reference to Exhibit 10.2 of Registrant's
Current Report on Form 8-K filed November 3, 2015, File No. 1-03876).
Amendment to Master Tolling Agreement (Refinery Assets), dated effective January 1, 2017, by and among
HollyFrontier El Dorado Refining LLC, HollyFrontier Woods Cross Refining LLC, and Holly Energy Partners-
Operating, L.P. (incorporated by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2017, File No. 1-03876).
Amended and Restated Master Tolling Agreement (Operating Assets), dated October 3, 2016, by and between
HollyFrontier El Dorado Refining LLC, HollyFrontier Woods Cross Refining LLC, Holly Energy Partners -
Operating L.P., HollyFrontier Corporation and Holly Energy Partners, L.P. (incorporated by reference to Exhibit
10.2 to Registrant's Current Report on Form 8-K filed October 4, 2016, File No. 1-03876).
Amendment to Amended and Restated Master Tolling Agreement (Operating Assets), dated effective January 1,
2017, by and among HollyFrontier El Dorado Refining LLC, HollyFrontier Woods Cross Refining LLC, and Holly
Energy Partners-Operating, L.P. (incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2017, File No. 1-03876).
Second Amendment to Amended and Restated Master Tolling Agreement (Operating Assets), dated effective
October 29, 2018, by and between HollyFrontier El Dorado Refining LLC, HollyFrontier Woods Cross Refining
LLC and Holly Energy Partners - Operating L.P. (incorporated by reference to Exhibit 10.7 of Registrant's Current
Report on Form 8-K filed November 1, 2018, File No. 1-03846).
Pipeline Deficiency Agreement, dated August 8, 2016, by and between HollyFrontier Refining & Marketing LLC
and Holly Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.5 to Registrant's Current
Report on Form 8-K filed August 10, 2016, File No. 1-03876).
Construction Payment Agreement, dated October 29, 2018, effective December 13, 2017, by and among HEP
Tulsa, LLC and HollyFrontier Refining & Marketing LLC (incorporated by reference to Exhibit 10.3 of
Registrant's Current Report on Form 8-K filed November 1, 2018, File No. 1-03876).
Services Agreement, entered into as of February 8, 2021, effective as of January 1, 2021, by and between
HollyFrontier Refining & Marketing LLC and Holly Energy Partners – Operating, L.P. (incorporated by reference
to Exhibit 10.3 of Registrant's Current Report on Form 8-K filed February 11, 2021, File No. 1-03876).
Asset Lease Agreement, entered into as of February 8, 2021, effective as of January 1, 2021, by and between
Cheyenne Logistics LLC and Cheyenne Renewable Diesel Company LLC (incorporated by reference to Exhibit
10.4 of Registrant's Current Report on Form 8-K filed February 11, 2021, File No. 1-03876).
119
Table of Content
Exhibit
Number
10.28+
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
10.36+
10.37+
10.38+
10.39+
10.40+
Description
HollyFrontier Corporation Long-Term Incentive Compensation Plan (formerly the Holly Corporation Long-Term
Incentive Compensation Plan), as amended and restated on May 24, 2007 as approved at the Annual Meeting of
Stockholders of Holly Corporation on May 24, 2007 (incorporated by reference to Exhibit 10.4 of Registrant's
Annual Report on Form 10-K for its fiscal year ended December 31, 2008, File No. 1-03876).
First Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2008,
File No. 1-03876).
Second Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 18, 2011, File No. 1-03876).
Third Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 4.6 of the Registrant's Registration Statement on Form S-8 filed November 9, 2012, File No.
333-184877).
Fourth Amendment to the HollyFrontier Corporation Long-Term Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed May 15, 2015, File No. 1-03876).
Fifth Amendment to the HollyFrontier Corporation Long-Term Incentive Plan, effective May 11, 2016
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed May 16, 2016, File
No. 1-03876).
HollyFrontier Corporation 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 8-K for filed May 15, 2020, File No. 1-03876).
HollyFrontier Corporation Long-Term Incentive Plan UK Sub-Plan, effective February 14, 2017 (incorporated by
reference to Exhibit 10.43 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2016, File No. 1-03876).
HollyFrontier Corporation 2020 Long-Term Incentive Plan Sub-Plan for UK Employees (incorporated by
reference to Exhibit 4.4 of Registrant's Registration Statement on Form S-8 filed June 1, 2020, File No.
333-238835).
HollyFrontier Corporation Employee Form of Change in Control Agreement (incorporated by reference to Exhibit
10.46 of Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2016, File No. 1-03876).
Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.54 of Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 2018, File No. 1-03876).
Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.42 of Registrant’s Annual
Report on Form 10-K for its fiscal year ended December 31, 2019, File No. 1-03876).
Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2020, File No. 1-03876).
10.41+*
Form of Performance Share Unit Agreement.
10.42+*
10.43+*
10.44+
10.45+
10.46+
Form of Restricted Stock Unit Agreement (for non-employee directors).
Form of Notice of Grant of Restricted Stock Units (for non-employee directors).
Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.61 of
Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2018. File No. 1-03876).
Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.62 of
Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2018. File No. 1-03876).
Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.49 of
Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2019. File No. 1-03876).
120
Table of Content
Exhibit
Number
10.47+
10.48+
10.49+*
10.50+*
10.51+
10.52+
10.53+
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
101++
Description
Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.2 of
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, File No. 1-03876).
Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.50 of
Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 2019, File No. 1-03876).
Form of Restricted Stock Unit Agreement (for employees).
Form of Notice of Grant of Restricted Stock Units (for employees).
HollyFrontier Corporation Executive Nonqualified Deferred Compensation Plan (formerly the Frontier Deferred
Compensation Plan) (incorporated by reference to Exhibit 10.73 of Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 2012, File No. 1-03876).
Form of HollyFrontier Corporation Indemnification Agreement to be entered into with officers and directors of
HollyFrontier Corporation and its subsidiaries (incorporated by reference to Exhibit 10.2 of registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2019, File no. 1-03876).
Amended and Restated Consulting Agreement and Release, dated June 30, 2020, by and between HollyFrontier
Corporation, HollyFrontier Payroll Services, Inc. and James Stump (incorporated by reference to Exhibit 10.1 of
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, File No. 1-03876).
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information from Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 2020, formatted as inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income,
(iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to the
Consolidated Financial Statements. The instance document does not appear in the interactive data file because its
XBRL tags are embedded within the inline XBRL document.
104++
Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101).
* Filed herewith.
** Furnished herewith.
+ Constitutes management contracts or compensatory plans or arrangements.
++ Filed electronically herewith.
† Schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant
agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.
121
Table of Content
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 24, 2021
HOLLYFRONTIER CORPORATION
(Registrant)
/s/ Michael C. Jennings
Michael C. Jennings
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and as of the date indicated.
Signature
Capacity
/s/ Michael C. Jennings
Michael C. Jennings
/s/ Richard L. Voliva III
Richard L. Voliva III
/s/ Indira Agarwal
Indira Agarwal
/s/ Franklin Myers
Franklin Myers
/s/ Anne-Marie N. Ainsworth
Anne-Marie N. Ainsworth
/s/ Douglas Y. Bech
Douglas Y. Bech
/s/ Anna C. Catalano
Anna C. Catalano
/s/ Leldon Echols
Leldon Echols
/s/ Manuel J. Fernandez
Manuel J. Fernandez
/s/ R. Craig Knocke
R. Craig Knocke
/s/ Robert J. Kostelnik
Robert J. Kostelnik
/s/ James H. Lee
James H. Lee
/s/ Michael E. Rose
Michael E. Rose
Chief Executive Officer, President
and Director
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Date
February 24, 2021
February 24, 2021
February 24, 2021
Chairman of the Board
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
February 24, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
122
CORPORATE INFORMATION
CORPORATE OFFICERS
Michael C. Jennings
Chief Executive Officer and President
Anna C. Catalano
Former Group Vice President,
Marketing for BP plc
AUDITORS
Ernst & Young LLP
Dallas, Texas
Richard L. Voliva, Ill
Executive Vice President and
Chief Financial Officer
Timothy Go
Executive Vice President and
Chief Operating Officer
Thomas G. Creery
Senior Vice President, Commercial
Bruce A. Lerner
President, HollyFrontier Lubricants
& Specialties
Vaishali S. Bhatia
Senior Vice President, General
Counsel and Secretary
BOARD OF DIRECTORS
Franklin Myers
Chairman of the Board of
HollyFrontier Corporation
Michael C. Jennings
Chief Executive Officer and President
of HollyFrontier Corporation and
Chairman of the Board and Chief
Executive Officer of Holly Logistic
Services, L.L.C.
Anne-Marie N. Ainsworth
Former President and Chief Executive
Officer of the general partner of
Oiltanking Partners, L.P. and of
Oiltanking Holding Americas, Inc.
Douglas Y. Bech
Chairman and Chief Executive Officer
of Raintree Resorts International
STOCK PERFORMANCE
Set forth is a line graph comparing, for the
period commencing December 31, 2015,
and ending December 31, 2020, the annual
percentage change in cumulative total
stockholder return on our common stock to the
cumulative total stockholder return of the S&P
Composite 500 Stock Index and an industry
peer group chosen by the Company. The stock
price performance depicted in the following
graph is not necessarily indicative of future price
performance. The graph will not be deemed
to be incorporated by reference in any filing
by the Company under the Securities Act of
1933 or the Securities Exchange of 1934, except
to the extent that the Company specifically
incorporates such graph by reference. The
amounts shown assume that the value of the
investment in HollyFrontier and each index
was $100 on December 31, 2015 and that all
dividends were reinvested.
Leldon E. Echols
Former Executive Vice President
and Chief Financial Officer of
Centex Corporation
Manuel J. Fernandez
Former Managing Partner of
KPMG’s Dallas office
R. Craig Knocke
Director of Turtle Creek Trust
Company, Chief Investment Officer
and Portfolio Manager of Turtle Creek
Management, LLC and Principal and a
non-controlling manager and member
of TCTC Holdings, LLC.
Robert J. Kostelnik
Principal at Glenrock Recovery
Partners, LLC
James H. Lee
Managing General Partner and
Principal Owner of Lee, Hite &
Wisda Ltd.
Michael E. Rose
Former Executive Vice President
Finance and Chief Financial Officer of
Anadarko Petroleum Corporation
CORPORATE OFFICE
HollyFrontier Corporation
2828 North Harwood, Suite 1300
Dallas, Texas 75201-1507
214.871.3555
www.hollyfrontier.com
STOCK EXCHANGE LISTING
New York Stock Exchange Ticker Symbol:
HFC
STOCK TRANSFER AGENT AND
REGISTRAR
EQ Shareowner Services
1110 Centre Point Curve, Suite 101
Mendota Heights, Minnesota 55120
1.800.401.1957
www.shareowneronline.com
Correspondence or questions concerning
share holdings, transfers, lost certificates,
dividends, or address or registration
changes should be directed to EQ
Shareowner Services.
ANNUAL MEETING
The Annual Meeting of Stockholders will
be held at 8:30 a.m. Central Daylight
Time, on May 12, 2021, in a virtual meeting
format only via live audio webcast at
www.virtualshareholdermeeting.com/
HFC2021.
SEC FILINGS
A direct link to the filings of HollyFrontier
Corporation at the U.S. Securities
and Exchange Commission website
is available on the HollyFrontier
Corporation website at www.hollyfrontier.
com on the Investor Relations page.
$250
$200
$150
$100
$50
2015
2016
2017
2018
2019
HollyFrontier
100.00
85.91
140.27
143.06
145.84
2020
78.06
S&P 500 Index
100.00
111.96
136.40
130.42
171.49
203.04
Peer Group
100.00
102.37
134.33
118.62
144.46
94.18
The Peer Group consists of CVR Energy, Inc., Delek US Holdings, Inc., Marathon Petroleum Corporation, PBF Energy Inc., Phillips 66 and Valero Energy Corporation.
2828 NORTH HARWOOD | SUITE 1300 | DALLAS, TX 75201-1507