HollyFrontier Corporation

Welcome to Holly Frontier Corporation's fourth quarter 2020 conference call and webcast. Hosting the call today from Holly Frontier is Mike Jennings, President and Chief Executive Officer. He is joined by Rich Valiva, Executive Vice President and Chief Financial Officer, Tim Goh, Executive Vice President and Chief Operating Officer, Tom Creary, President, Refining and Marketing, and Bruce Lerner, President Holly Frontier, Lubricants and Specialties. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you'd like to ask a question at that time, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star 0. We do ask that you please limit yourself to one question and one follow-up. Additionally, we ask that you pick up your handset to allow optimal sound quality. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Deary, Vice President, Investor Relations. Craig, you may begin. Thank you.

Thank you, James. Good morning, everyone, and welcome to Holly Frontier Corporation's fourth quarter 2020 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31st, 2020. If you would like a copy of this press release, you may find one on our website at hollyfrontier.com. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release. In summary, the statements made regarding management expectations, judgments, or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal security laws. There are many factors that could cause results to differ from expectations, including those noted in our FCC file. The call also may include discussion of non-GAAP measures. Please see the press release for reconciliations to GAAP financial measures. Also, please note any time-sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I'll turn the call over to Mike Jennings.

Great. Thank you, Craig. Good morning, everyone. 2020 was an unprecedented year for Highlight Frontier. In the face of extraordinary challenges created by the COVID-19 pandemic, Highlight Frontier persevered and took important steps to strengthen our business in both the short and long term. We controlled what we could, focusing on the fundamentals of the 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 Holly Frontier to capture new opportunities as our industry evolves, and our lubricants business realized strong earnings in the second half of the year, despite the global pandemic. We ended the year with a strong balance sheet, healthy liquidity, and high-quality assets that position us capitalized on our competitive advantages. Looking ahead to 21 and beyond, I believe that Holly Frontier is well-positioned for long-term success as our core business is rebound and we continue our expansion into renewables. Turning to the fourth quarter results, we reported a net loss attributable to High Frontier shareholders of $118 million, or 73 cents per diluted share. These results reflect special items that collectively increased the net loss by $1 million. Excluding these items, adjusted net loss for the fourth quarter was $119 million, or 74 cents per diluted share. versus adjusted net income of $78 million or $0.48 for diluted share for the same period in 2019. Adjusted EBITDA for the period was negative $22 million, a decrease of $285 million compared to the fourth quarter of 2019. The refining segment reported adjusted EBITDA loss of $112 million compared to $172 million earnings for the fourth quarter of 2019. And consolidated refinery gross margin of $4.02 per produced barrel was a 71% decrease compared to the same period last year. This decrease was primarily due to the impact of continued weak demand for transportation fuels coupled with compressed crude differentials. Fourth quarter margins were also impacted by year-end inventory LIFO charge of approximately $35 million. or 85 cents per barrel on a consolidated basis. Fourth quarter crude throughput was approximately 380,000 barrels per day at the top end of our guidance of 360 to 380,000. Despite the tremendous obstacles we faced in 2020, we achieved strong safety performance and operational availability within our refining segment. Our lubricants and specialty products business reported EBITDA of negative 33 million compared to 35 million in the fourth quarter of 2019. This decrease was driven by a goodwill impairment charge of 82 million related to sonoporn. Excluding the impairment, our lubricants and specialty segment reported adjusted EBITDA of $49 million. Back forward adjusted EBITDA was 48 million, representing an 11% adjusted EBITDA margin. Despite typical seasonality in the fourth quarter, Rack Forward reported a solid quarter due to continued demand improvement in our industrial and transportation end markets. Sales volumes were essentially flat compared to the third quarter and were down only 2% versus the prior year. Within the Rack Back portion, demand for base oils remained healthy as margins strengthened to their highest levels since 2017. Holley Energy Partners reported EBITDA of $87 million for the fourth quarter compared to $88 million in the fourth quarter of last year. Despite lower volumes year over year, HEP delivered strong fourth quarter earnings supported by long-term minimum volume commitment contracts. Looking to 2021, we're optimistic for better market conditions that will facilitate Holley Frontier's continued growth, evolution, and success. Within our refining segment for the first quarter of 2021, we expect to run between 350,000 and 380,000 barrels per day of crude oil. In addition to the 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 of natural gas due to the extreme recent cold weather throughout the mid-continent southwest. We believe that demand for transportation fuels will strengthen as COVID-19 vaccines are distributed and the global economy recovers from the pandemic. We expect to adjust refinery production levels commensurate with market demand. Within our lubricants and specialty products segment, underlying demand for both finished products and base oil remains strong, and we expect a normal seasonal rebound in the first quarter of 2021. However, we do not have enough visibility to issue 2021 guidance at this time. Similar to our refining segment, we expect to adjust production levels commensurate with market demand. At AGP, we expect to see demand for transportation and terminaling 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. We remain committed to our distribution strategy focused on funding all capital expenditures and distributions within free cash flow and maintaining distributable cash flow coverage of 1.3 times or greater with the goal of reducing leverage to 3.0 to 3.5 times EBITDA. In our renewable segment, we're advancing our renewable diesel and pretreatment units in Artesia, New Mexico, and our renewable diesel unit in Cheyenne, Wyoming. We're on track to complete the projects on time and at the high end of our budgeted range with the ability to produce over 200 million gallons of renewable diesel beginning in the first quarter of 2022. We ended 2020 with a solid operational performance and a strong financial foundation. We strategically maintain a conservative balance sheet, positioning Holly Frontier to withstand cyclicality while maintaining our strategic priorities. Our focus remains on generating high returns while operating safely and efficiently, further improving our refinery reliability, progressing our transition into renewables, enhancing our environmental and sustainability performance, and continuing to prudently deploy capital to advance our shareholders' best interests. So with that, let me turn the call over to Rich.