HollyFrontier 2015 Annual Report Download - page 6

TO OUR STOCKHOLDERS
2015 was a year of transition and continuous improvement
for HollyFrontier. We established and began executing a
strategy to both improve our refining operations through
reliability improvement initiatives, and enhance our gross
margin and free cash generation through commercial
optimization and opportunity capital investments. Our
reported full-year operational results illustrate the initial
benefits and execution of our business improvement plan.
We reported strong earnings driven by record refinery
utilization rates and lower operating costs. We also made
significant progress on key capital investment projects
that are making our refining systems even stronger. We
are confident that the actions we are taking will enable
us to increase our competitive advantages and extend
our lengthy track record of success to create further value
for all HollyFrontier stockholders.
Solid Financial Results in a Volatile Market Environment
HollyFrontier’s financial results in 2015 reflect the inherent
advantages of our refineries, our focus on operational
execution and impact of the investments we are making
to improve our refining capabilities, safety and reliability.
In 2015, we achieved:
• Net income attributable to HFC stockholders
of $879 million (excluding the non-cash lower
of cost or market “LOCM” adjustment);
• Gross refining margins of $16.07 per produced barrel;
• Operating cash flow of $980 million; and
• A sterling balance sheet with $211 million in cash and
short-term investments as of December 31, 2015, and
just $31 million in total debt (exclusive of HEP debt);
• Approximately $990 million in capital returned
to shareholders.
We benefited from the growing demand for gasoline and
strong margins through most of the year. The commodity
price environment remains volatile and we are confident
that our core motor fuels and specialty products will be
highly demanded going forward. In addition, the actions
we are taking to increase our core competitive advantages
will position us to meet our mission of achieving superior
sustainable financial performance and profitable growth.
Prudent Investments to Support Continued Growth
In 2015, we invested more than $600 million to enhance
and expand our manufacturing operations, improve safety
and reliability and minimize our environmental impact.
We are nearing completion on several components of
our large capital investment program. Going forward, our
focus is on our opportunity capital program, where we
will deploy small amounts of capital targeted at extract-
ing more out of our existing refinery units. Combined,
we expect these large capital and opportunity capital
investments will help us capture an annual average
EBITDA opportunity of $365 million by 2018. Some of
the highlights of the capital projects from 2015 include:
• El Dorado Naphtha Fractionation: This project to
increase yields by reducing byproducts such as fuel gas,
propane and butane and reduce the benzene content of
our gasoline pool was completed. Through it, we gained
an additional 2,000 barrels per day of gasoline production.
In September 2015, HollyFrontier dropped down the
newly constructed naphtha fractionation and hydrogen
generation units to our MLP affiliate Holly Energy Partners
for consideration of approximately $62 million.
• Cheyenne Hydrogen Upgrade: At the Cheyenne Refinery,
we completed installation of a new hydrogen plant in
the fourth quarter resulting in improved liquid yield and
the ability to process higher volumes of advantaged
heavy crude.
• Woods Cross Refinery Expansion: The initial phase of
the Woods Cross expansion from 31,000 barrels per
day to 45,000 barrels per day is expected to be put into
operation during the first quarter of 2016. Given the
commodity price volatility which persisted through 2015,
we elected to invest an incremental $20 million in this
project to allow for greater crude slate flexibility.
• Opportunity Capital Program: Going forward, our
focus is on our opportunity capital investment program
targeting liquid yield improvement and debottlenecking
opportunities. In 2016, work is scheduled at both our
Tulsa and Cheyenne Refineries, where the catalytic
cracking units will be modernized driving an improve-
ment in liquid yield. Work is also underway to address
bottlenecks at our El Dorado Refinery which we expect
will increase crude capacity by 6,000 barrel per day
at minimal cost. Together we expect the opportunity
capital investments identified to generate $200 million
in annual EBITDA by the end of 2018.
2 HollyFrontier Corporation 2015 Annual Report