HollyFrontier steady amid thinning margins

OREANDA-NEWS. August 04, 2016. Thin margins and rising environmental compliance costs won't lead HollyFrontier to cut throughputs in the second half of the year or make hasty retail investments, executives said today.

The US independent refiner said only limited maintenance remained at its facilities through the rest of the year. HollyFrontier expected "challenging market conditions and continued volatility in the months ahead" but to run at roughly the same throughput as the third quarter of last year, at up to 450,000 b/d.

Economic run cuts would not be necessary for the midcontinent and Rocky mountain refiner, chief executive George Damiris said in a quarterly earnings call.

"I think that's going to be more of an east coast phenomenon, where the Bakken barrel doesn't fit anymore," Damiris said.

Compliance costs associated with US biofuel blending mandates added to thin refining margins that swung the refiner to a loss in the second quarter. Prices for the renewable identification numbers (RINs) refiners collect and submit to show compliance with the Renewable Fuel Standard (RFS) rose by almost 30pc over the second quarter and in July averaged three times the price regulated companies paid last year. The rising costs have led merchant refiners to organize and push the Environmental Protection Agency, Congress or the courts to change the program.

Prices have also led refiners that previously ruled out wholesale distribution and retail businesses, including HollyFrontier, to consider investing there. But such assets have become overpriced as RINs prices rose, Damiris said.

"I would say that RIN prices are at the high end of the range now, so buying retail to take care of the RIN position, you're basically buying today's RINs for the 15 to 20-year life of the acquisition project," Damiris said. "Having said that, I've come off of my position of 'never say never' on retail, and it's something we're looking at as well as other strategies for better controlling our ability to blend and generate RINs."

The company continued to seek potential refining acquisitions in the midcontinent or US Gulf coast.

HollyFrontier reported a \\$388mn loss for the quarter, down from a \\$588mn profit in the same quarter last year.

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