Court ruling forces HollyFrontier to end petroleum refining in Wyoming

 

An unfavorable court ruling on biofuel waivers has led HollyFrontier Corporation, owner and operators of refineries in Tulsa, Oklahoma, Kansas and other states to end its petroleum refining operation after 86 years in Cheyenne, Wyoming and instead convert it to renewable diesel production as part of a nearly $750 million effort company wide.

The 10th U.S. Circuit Court of Appeals ruling came in a fight over EPA biofuel production waivers granted to small refinery operators including at least one in Oklahoma. As a result of the ruling, it is leading to the loss of jobs in Cheyenne.

The company blamed the COVID-19 pandemic impact and the Denver federal appeals court ruling against EPA biofuels waivers for small refinery operators.

“This decision was primarily based on the expectation that future free cash flow generation in Cheyenne would be challenged due to lower gross margins resulting from the economic impact of the COVID-19 pandemic and compressed crude differentials resulting from dislocations in the crude oil market, coupled with forecasted uncompetitive operating and maintenance costs and the anticipated loss of the Environmental Protection Agency’s small refinery exemption,” stated HollyFrontier in its announcement.

While HollyFrontier has given up fighting for waivers, others might not have done the same. As OK Energy Today reported in late May, attorneys for the Wynnewood Refining Company did not tip their hand about appealing the court ruling to the U.S. Supreme Court.

The directors of HollyFrontier in Dallas also approved a nearly $225 million construction of a pre-treatment unit at the Artesia Refinery in New Mexico where the firm had previously announced the start of a renewable diesel unit.

The two diesel units, Artesia and Cheyenne will have a combined capacity to produce more than 200 million gallons a year of renewable diesel.

HollyFrontier expects to invest between $650-$750 million in its renewables business, with an expected aggregate internal rate of return of 20-30%. The entry into the renewables business will also include sales of feedstocks generated from the diesel fuel production.

Mike Jennings, HollyFrontier’s President and Chief Executive Officer, commented, “Demand for renewable diesel, as well as other lower carbon fuels, is growing and taking market share based on both consumer preferences and support from substantial federal and state government incentive programs.”

Calling the venture a new challenge, Jennings also admitted it would lead to a reduction in the company’s workforce.

“We realize that this decision affects many employees, their families and the community. We are thankful to all of our colleagues in Cheyenne and will work closely with those impacted by this decision.”

The conversion of the Cheyenne refinery won’t be completed until early in 2022. Work on a similar renewable diesel plant in Artesia, New Mexico is expected to process 80% of the feedstock from both of the plants. The construction of the pre-treatment unit in Artesia won’t be finished until sometime in the first half of 2022.

In 2020, HollyFrontier expects to maintain its total capital spending guidance of $525-$625 million. For Refining, the company expects to spend between $202-$221 million. This lower range reflects further optimization of refinery capital budgets and lower spending at the Cheyenne Refinery.

For Renewables, HollyFrontier expects capital expenditures in 2020 of $150-$180 million, which includes capital costs for the Artesia renewable diesel unit, the Cheyenne conversion and the PTU. There is no change to the $30-$45 million capital spend for Lubricants & Specialty Products or the $85-$110 million for turnarounds & catalysts. Capital expenditures for Holly Energy Partners also remains unchanged at $58-$69 million.

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Source: Business Wire

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