Hf Sinclair Corporation · NYSE:DINO
Hf Sinclair — HollyFrontier — Investor Day (December 2017)
65 slides from Hf Sinclair's investor day presentation, Dec 7, 2017
Slide 1: HollyFrontier 2017 Analyst Day
HOLLYFRONTIER 2017 ANALYST DAY December 7, 2017
Slide 2: Welcome
WELCOME Craig Biery Director, Investor Relations
Slide 3: Disclosure Statement
Disclosure Statement Statements made during the course of this presentation that are not historical facts are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and necessarily involve risk
Slide 4: Agenda
Agenda OPENING REMARKS George Damiris REFINING Jim Stump Tom Creery HOLLY ENERGY PARTNERS George Damiris BREAK LUBRICANTS & SPECIALTY PRODUCTS Mark Plake Tony Weatherill FINANCIALS & VALUATION Rich Voliva Q&A 4
Slide 5: Opening Remarks
OPENING REMARKS George Damiris Chief Executive Officer
Slide 6: Mission & Values
Mission & Values OUR MISSION IS to be the premier North American petroleum refining, lubricants and logistics company as measured by superior financial performance and sustainable, profitable growth. WE SEEK TO ACCOMPLISH THIS BY WE PUT HEALTH AND We conduct our business with primary emphasis on the
Slide 7: Executive Summary
Executive Summary Positioned for Value Creation Across all Segments REFINING MIDSTREAM SPECIALTY LUBRICANTS Inland merchant refiner Operate Crude and Product Pipelines, Integrated specialty lubricants loading racks, terminals and tanks in and producer Flexible refining system with fleet wide
Slide 8: HollyFrontier Asset Footprint
HollyFrontier Asset Footprint 8
Slide 9: Strategy
Strategy Safe & Reliable Operations Value Creation Through Growth Financial Strength & Discipline 9
Slide 10: Refining: Operations
R E F I N I N G : O P E R AT I O N S Jim Stump Senior Vice President, Refining
Slide 11: Health & Safety Top Priority
Health & Safety Top Priority HollyFrontier Recordable Incident Rates Tier 1 Process Safety Incident Rate vs Count Total Recordable Incident Rate1 Tier 1 Incident Rate2 Tier 1 Incident Count 1.5 0.4 20 0.3 15 1.0 0.2 10 0.5 0.1 5 0.0 0.0 0 2012 2013 2014 2015 2016 YTD 2017 2012 2013 2014 2015 2016 YT
Slide 12: 15% Increase in Capacity Since 2015
15% Increase in Capacity Since 2015 Mid-Con Southwest Rockies CRUDE CHARGE CAPACITY CRUDE CHARGE CAPACITY CRUDE CHARGE CAPACITY Barrels Per Day Barrels Per Day Barrels Per Day 350,000 120,000 100,000 115,000 95,000 300,000 300,000 110,000 90,000 260,000 83,000 100,000 250,000 100,000 80,000 200,000
Slide 13: Refinery Operations
Refinery Operations Annual Crude Charge Rate 450,000 – 470,000 BPD Consolidated Crude Charge Opex Per Throughput Barrel $/throughput BBL Barrels Per Day $6.16 $6.25 $5.95 450,000 $5.75 $5.50 Target $5.25 $5.39 $5.40 $5.30 425,000 $4.75 2013 2014 2015 2016 2017E Opex/throughput BBL Target from 2015 A
Slide 14: Refining: Commercial
REFINING:COMMERCIAL Tom Creery Senior Vice President, Commercial
Slide 15: Refining Segment Earnings Power
Refining Segment Earnings Power HFC Consolidated 3-2-1 Index Mid-Cycle Refining EBITDA $1.0B – $1.2B $/Barrel $25 Gulf Coast 3-2-1 Crack $10.00 Brent/TI Spread $4.00 $21.22 Product Transportation to HFC $20.06 $3.00 Markets $20 HFC Index $17.00 $17.93 $17.89 Capture Rate 75% Realized Gross Margin Pe
Slide 16: Maximizing Feedstock Flexibility
Maximizing Feedstock Flexibility Optimized transportation - Increased ability to move crude between refineries - Improved internal synergies of intermediates Increased purchasing power 16
Slide 17: Maximizing Value in the Marketplace
Maximizing Value in the Marketplace Maximizing Premium Gasoline Production Upgrading more VTB’s into Flux Volumes Premium Gasoline Production Flux Production % of Gasoline Production Barrels per day 18% 5,500 16% 4,500 14% 12% 3,500 10% 2012 2013 2014 2015 2016 2017E 2,500 2014 2015 2016 2017E Per G
Slide 18: Holly Energy Partners
H O L LY E N E R G Y PA R T N E R S George Damiris Chief Executive Officer
Slide 19: Business Profile
Business Profile Operate a system of petroleum product and Consistent Distribution Growth Despite crude pipelines, storage tanks, distribution Crude Price Volatility terminals and loading rack facilities located near Distribution $/LP Unit WTI Price HFC’s refining assets in high growth markets $0.80
Slide 20: Ownership Structure
Ownership Structure IDR Simplification Provides Lower Cost of Capital for HEP HOLLYFRONTIER CORPORATION (HFC) 100% Interest GENERAL PARTNER (GP) HOLLY LOGISTIC SERVICES, L.L.C PUBLIC Non-economic GP Interest 59.6mm HEP units1 59% LP Interest $2.0B Value2 41.9mm HEP units1 41% LP Interest $1.4B Value
Slide 21: HEP Historical Growth
HEP Historical Growth Committed to Continuing Track Record of Increasing Distribution Holly Tulsa 50% JV with Acquired Holly Corporation dropdown of Crude gathering Plains for remaining and Frontier Oil Holly intermediate loading rack system Frontier interests in SLC / Corporation feedstock pipeline
Slide 22: HEP Avenues for Growth
HEP Avenues for Growth ORGANIC ACQUISITIONS DROPDOWNS FROM HFC Leverage HEP’s existing Pursue logistics assets in HEP’s Partnering with HFC to build footprint, specifically in current geographic region and/or acquire new assets / Permian Basin businesses Replace incumbent HFC service Contr
Slide 23: Break
BREAK
Slide 24: HF Lubricants & Specialty Products
HF LUBRICANTS & S P E C I A LT Y P R O D U C T S Mark Plake President
Slide 25: HF Lubricants & Specialty Products
HF Lubricants & Specialty Products The World’s Machinery is Driving Towards Greater Efficiency, Reliability and Longevity Advanced lubricants are a crucial requirement in the drive HF LSP is a to develop more reliable, efficient and environmentally leading producer compliant industrial machinery wor
Slide 26: Key Highlights
Key Highlights INTEGRATED LUBRICANTS Integrated across the lubricants value chain from base oil production to PRODUCER finished lubricants INDUSTRY LEADING PRODUCT Strong track record of researching, developing and producing world- INNOVATION AND DEVELOPMENT class advanced lubricants through its sea
Slide 27: Global Lubricants Footprint 80+ Countries World-Wide
Global Lubricants Footprint Our Lubricants are sold to Customers in 80+ Countries World-Wide 27
Slide 28: Value Opportunity: Rack Backward
HollyFrontier Lubricants & Specialty Products “Rack Backward” Introduction RACK BACK RACK FORWARD Sales Customer Order Fulfillment Marketing Finished Lubricants Value Opportunity R&D & Greases Waxes Distribution Blending White & Packaging Oils Feedstock & Production Specialty Products (Warehousing &
Slide 29: Base Oil Qualities
Base Oil Qualities Base Oil is the foundation of all lubricants 80% of a lubricant is made up of Base Oil Impurities hinder the performance of the final lubricant, not allowing the additives to work at their best Additives are blended with Base Oils to make - Impurities reduce life of lubrican
Slide 30: How We Make Base Oils
How We Make Base Oils Feedstock Refining Process Base Oil Product TULSA Solvent Extraction (LEU) Group I Vacuum Gas Oil Solvent Dewaxing (MEK) (VGO) MISSISSAUGA High Pressure Hydrotreating (HTU) Group II Vacuum Gas Oil Solvent Dewaxing (MEK) (VGO) MISSISSAUGA Catalytic Dewaxing (CDW) Group II/II+ Hy
Slide 31: Group III Base Oil Opportunity
Group III Base Oil Opportunity Western Hemisphere Group III Base Oil: Production Capacity vs Demand¹ Increasing Demand for Higher ˜3% CAGR Demand Growth (2016-2026) Performance Finished KBD Lubricants & Specialty 25 Products Higher industry standards driving demand for lubricants formulated from G
Slide 32: Finished Lubricants & Specialty Products
FINISHED LUBRICANTS & S P E C I A LT Y P R O D U C T S Tony Weatherill Managing Director of Marketing, Research and Development
Slide 33: Value Opportunity: Rack Forward
HollyFrontier Lubricants & Specialty Products “Rack Forward” Introduction RACK BACK RACK FORWARD Sales Customer Order Fulfillment Marketing Finished Lubricants Value Opportunity R&D & Greases Waxes Distribution Blending White & Packaging Oils Feedstock & Production Specialty Products (Warehousing &
Slide 34: How We Make Finished Lubricants & Specialty Products
How We Make Finished Lubricants & Specialty Products Blend Base Oils with Finished Products Base Oil Additive Technology Points of Difference Group I Better wear protection: Longer engine and equipment Group II Control Chemical Contaminant life Group II+ Breakdown Control Superior resistance to
Slide 35: Strategic Geographic Areas
Strategic Geographic Areas Our Lubricants are sold to Customers in 80+ Countries World-Wide The Petro-Canada brand is highly China is one of the largest and fastest growing recognized and instills confidence finished lubricants markets in the world & trust HF LSP Finished Product market share
Slide 36: Strong Suite of Differentiated Products
Strong Suite of Differentiated Products Our Key Products Base Oils White Oils Specialty Products Wax Finished Lubricants PURITY™ line of Group II PURETOL™ white mineral SUNSPRAY® ULTRA-FINE® PUREWAX™ water DURON™ heavy-duty and Group II+ base oils oils (USP, NF, NSF, EP, SPRAY OIL horticul
Slide 37: Providing Solutions Across Diverse Industries
Providing Solutions Across Diverse Industries Gas Plants, Pipelines Automotive Food & Beverage Industrial & Power Generation Automotive Gear Fluid Food Grade Industrial Gear Oils Natural Gas Engine Oils Lubricants Automatic Transmission Compressor Fluids Turbine Fluids Fluids White O
Slide 38: DURON Industry Leading Heavy Duty Engine Oil
DURONTM Industry Leading Heavy Duty Engine Oil Ultimate Protection Without Compromise DURON is specially formulated using DURON is engineered to succeed in extreme off our leading-edge lubricant technology and on road conditions to combine the best additives with the purest base oil DURON Cummins IS
Slide 39: Passenger Car Motor Oil (PCMO)
Passenger Car Motor Oil (PCMO) New PCMO standards Creates Opportunity for HF LSP Industry demand for high performance, PCMO Grade Typical base Oil Formulation low viscosity grade PCMO is being Synthetic 0W-16 III/III+ accelerated by: Synthetic 5W-30 III OEM technical demand 5W-20 II/II+ or II+/III
Slide 40: Opportunity Across the Value Chain
Opportunity Across the Value Chain Upgrade Existing Base Oils into Finished Products Converting one barrel of Base Oil sales into Finished Product sales results in a margin uplift of ~$50/bbl Consolidated Margin Value $/bbl Product Sales 2016 Finished Lubricants Finished Lubricants & & Greases Greas
Slide 41: Financials & Valuation
FINANCIALS & VA L U AT I O N Rich Voliva Chief Financial Officer
Slide 42: New Segment Reporting
New Segment Reporting HF HF REFINING LUBRICANTS & HOLLY CORPORATE, ENERGY & SPECIALTY OTHER & CONSOLIDATED MARKETING PRODUCTS (HEP) ELIMINATIONS (HF R&M) (HF LSP) Rack Back Rack Forward SG&A allocated to each segment Rack Back includes transfer pricing based on Argus spot average for each base o
Slide 43: Rack Forward EBITDA Margin Stability
Rack Forward EBITDA Margin Stability 2018 Rack Forward – EBITDA Margin1 Guidance2 EBITDA ($ in millions) EBITDA Margin % 80 20% EBITDA 17% $175 – 200MM 16% 16% 16% EBITDA Margin 60 14% 15% 10-15% 13% 12% 10% 9% 9% 40 9% 10% 69 58 58 55 53 45 48 20 38 40 5% 29 30 0 0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q
Slide 44: Rack Forward versus Public Lubricant Peers
Rack Forward versus Public Lubricant Peers Peers Trade at 9x – 13x Multiple Average Range of Quarterly 2018E EBITDA Margin EBITDA Margins: EV / EBITDA 1Q15 − 3Q17 1Q15 – 3Q17 Valvoline (VVV) 24% 11 – 37% 11.9 x Newmarket (NEU) 19% 16 – 22% 12.2 x Innospec (IOSP) 17% 12 – 27% 10.5 x Fuchs (FPE GY) 17
Slide 45: HF Lubricants & Specialty Products
HF Lubricants & Specialty Products Mid-Cycle EBITDA Rack Forward EBITDA ($ in millions) $190 EBITDA Margin 10-15% Annual SG&A $125 - $135MM Target Multiple 10x Annual DD&A $30 - $35MM Upside with Organic Growth and M&A Enterprise Value ($ in millions) $1,900 Opportunities 10x multiple in-lin
Slide 46: HF Refining & Marketing
HF Refining & Marketing Mid-Cycle EBITDA HF Refining & Marketing EBITDA ($ in millions) $1,100 460 KBPD $17 Consolidated 3-2-1 Index Target Multiple 6x 75% capture 4-year historical average Annual Opex/bbl of $5.50 Enterprise Value ($ in millions) $6,600 Annual SG&A $105 - $115MM Annual
Slide 47: Holly Energy Partners
Holly Energy Partners HEP’s Value to HFC HEP Target Price $35.00 $35 HEP target price 12 month consensus HEP LP Units Owned 59.6 HFC’s ownership of 59.6mm LP units (millions) Annual SG&A $12 - $15MM HFC's Ownership Value $2,087 Annual DD&A $75 - $80MM ($ in millions) Mid-Cycle Capex $30 – $5
Slide 48: Total Sum-of-the-Parts Valuation
Total Sum-of-the-Parts Valuation HFC Consolidated SOTP Valuation (US$ millions) HF Refining & Marketing EBITDA (Mid-Cycle) $1,100 Target Multiple 6x Enterprise Value $6,600 Share Count1 (millions) 176.6 Lubricants HF Refining & Marketing (per share) $37 16% HEP Target Price $35 HEP LP Units Owned 59
Slide 49: Summary
Summary REFINING MIDSTREAM SPECIALTY LUBRICANTS 450 – 470 KBPD crude rate HFC owns 59.6 million HEP units Rack Forward business generates $175 - $200 million of annual $1.0 – $1.2 billion mid-cycle IDR simplification transaction lowers EBITDA EBITDA per year HEP’s cost of capital Special
Slide 50: Appendix
APPENDIX
Slide 51: 2018 Guidance
2018 Guidance Refining & Marketing - $5.50 Opex/bbl - Turnaround Schedule - Tulsa – 1Q18 - El Dorado – 4Q18 - Capex $375 – $425 million HF LSP - $175 – 200 mm Rack Forward EBITDA - Mississauga Turnaround - 4Q18 - Capex $60 – $80 million HEP - Target Distribution Coverage of 1.0x - 1.1x - Capex
Slide 52: HollyFrontier Capital Structure and Credit Profile
HollyFrontier Capital Structure and Credit Profile HFC Consolidated Capital Structure HFC Standalone Capital Structure As of September 30, 2017 (US$ millions) As of September 30, 2017 (US$ millions) Cash and Short Term Marketable Securities $631 Cash and Short Term Marketable Securities $624 HOLLYFR
Slide 53: Optimize Capital Structure
Optimize Capital Structure Investment Grade Rating Peer Group Debt Metrics − 9/30/17 - Moody’s Baa3 Debt Ratio % - S&P BBB- 50% - Fitch BBB- $624 million cash as of 9/30/17 40% $1 billion outstanding debt as of 9/30/17 - excludes non-recourse HEP debt 30% Total debt to capital ratio 17.3% as
Slide 54: Our Business Plan Update
Our Business Plan Update Business Improvement Plan Progress Annual EBITDA in $ MM’s 2015 Analyst Day Target1 Full Year 2017E Acheived1 Refining Operations $245 $107 Reliability $90 $10 Cost $105 $58 Turnaround $50 $39 Optimization $90 $220 Planning $30 $113 Products $30 $64 Feedstock $30 $43 Capital
Slide 55: Rack Backward & Rack Forward – 2017
Combined HF LSP Rack Backward & Rack Forward – 2017 Lubricants & ($ In Thousands) Rack Back Rack Forward Eliminations Specialty Products (1) Q3 2017 Sales 166,851 369,822 (123,599) 413,074 Cost of products sold 127,371 265,069 (123,599) 268,841 Operating expenses 26,691 33,035 - 59,726 Selling, gene
Slide 56: Rack Backward & Rack Forward – 2016
Combined HF LSP Rack Backward & Rack Forward – 2016 Lubricants & ($ In Thousands) Rack Back Rack Forward Eliminations Specialty Products(1) Q4 2016 Sales 150,885 339,765 (105,885) 384,765 Cost of products sold 120,809 234,151 (105,885) 249,075 Operating expenses 25,716 32,271 - 57,987 Selling, gener
Slide 57: Rack Backward & Rack Forward – 2015
Combined HF LSP Rack Backward & Rack Forward – 2015 Lubricants & ($ in Thousands) Rack Back Rack Forward Eliminations Specialty Products(1) Q4 2015 Sales 135,561 337,120 (99,363) 373,318 Cost of products sold 120,018 246,599 (99,363) 267,254 Operating expenses 13,994 32,530 - 46,524 Selling, general
Slide 58: Combined Segment Reporting YTD 2017
Combined Segment Reporting YTD 2017 Corporate, Other Consolidated ($ in Thousands) HF R&M HF LSP(1) HEP & Eliminations Total Q3 2017 Sales and other operating revenues 3,374,122 413,074 110,364 (178,313) 3,719,247 Cost of products sold 2,774,703 270,279 0 (156,452) 2,888,530 Lower of cost or market
Slide 59: Combined Segment Reporting 2016
Combined Segment Reporting 2016 Corporate, Other Consolidated ($ in Thousands) HF R&M HF LSP(1) HEP & Eliminations Total Q4 2016 Sales and other operating revenues 2,898,018 384,765 112,526 (168,161) 3,227,148 Cost of products sold 2,608,746 250,295 0 (147,061) 2,711,980 Lower of cost or market adju
Slide 60: Combined Segment Reporting 2015
Combined Segment Reporting 2015 Corporate, Other Consolidated ($ in Thousands) HF R&M HF LSP(1) HEP & Eliminations Total Q4 2015 Sales and other operating revenues 2,894,664 373,318 97,251 (154,425) 3,210,808 Cost of products sold 2,508,608 266,394 0 (150,987) 2,624,015 Lower of cost or market adjus
Slide 61: Speaker Biographies
Speaker Biographies George Damiris Richard Voliva CEO, PRESIDENT CFO, EXECUTIVE VICE PRESIDENT Mr. Damiris has served as Chief Executive Officer and President since Mr. Voliva has served as Executive Vice President and Chief Financial Officer of January 2016. He previously served as Executive Vice P
Slide 62: Speaker Biographies
Speaker Biographies Mark Plake Tony Weatherill PRESIDENT, PETRO-CANADA LUBRICANTS INC MANAGING DIRECTOR OF MARKETING, RESEARCH AND DEVELOPMENT Mr. Plake became President of Petro-Canada Lubricants Inc. at the time Mr. Weatherill joined Petro-Canada Lubricants Inc. (PCLI) in 2014, and became of the a
Slide 63: Definitions
Definitions BPD: the number of barrels per calendar day of crude oil or petroleum products. FCC: 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 CAGR: The compound annual grow
Slide 64: Definitions
Definitions Non GAAP measurements: We report certain financial measures that are not prescribed Reforming: The process of converting gasoline type molecules into aromatic, higher or authorized by U. S. generally accepted accounting principles ("GAAP"). We discuss octane gasoline blend stocks while p
Slide 65: HollyFrontier Corporation
HollyFrontier Corporation (NYSE: HFC) 2828 N. Harwood, Suite 1300 Dallas, Texas 75201 (214) 954-6510 www.hollyfrontier.com Craig Biery | Director, Investor Relations investors@hollyfrontier.com 214-954-6510 Jared Harding | Investor Relations investors@hollyfrontier.com 214-954-6510