HollyFrontier 2014 Annual Report Download - page 18

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Table of Content
10
The El Dorado Refinery faces competition from other Plains States and Mid-Continent refiners, but the principal competitors for
the El Dorado Refinery are Gulf Coast refiners. Our Gulf Coast competitors typically have lower production costs due to greater
economies of scale; however, they incur higher refined product transportation costs, which allows the El Dorado Refinery to
compete effectively in the Plains States and Rocky Mountain region with Gulf Coast refineries.
For the year ended December 31, 2014, sales to Shell Oil represented approximately 22% of the El Dorado Refinery's total sales
and 11% of our total consolidated sales. We have an offtake agreement with an affiliate of Shell Oil under which Shell Oil purchases
gasoline, diesel and jet fuel production of the El Dorado Refinery at market-based prices through October 2015 primarily to support
its branded and unbranded marketing network. We market gasoline and diesel primarily in Denver and throughout the Plains States.
The Tulsa Refineries serve the Mid-Continent region of the United States. Distillates and gasolines are primarily delivered from
the Tulsa Refineries to market via pipelines owned and operated by Magellan. These pipelines connect the refinery to distribution
channels throughout Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska and Arkansas. Additionally,
HEP's on-site truck and rail racks facilitate access to local refined product markets.
We have an offtake agreement through November 2019 with an affiliate of Sinclair whereby Sinclair purchases 45,000 to 50,000
BPD of gasoline and distillate products at market prices from us to supply its branded and unbranded marketing network throughout
the Midwest. Upon expiration, the offtake agreement can be renewed by Sinclair for an additional five-year term. For the year
ended December 31, 2014, sales to Sinclair represented approximately 30% of the Tulsa Refineries' total sales and 10% of our
total consolidated sales.
The Tulsa Refineries' principal customers for conventional gasoline include Sinclair, other refiners, convenience store chains,
independent marketers and retailers. Sinclair, truck stop operators and railroads are the primary diesel customers. Jet fuel is sold
primarily for commercial use. The refinery's asphalt and roofing flux products are sold via truck or railcar directly from the
refineries or to customers throughout the Mid-Continent region primarily to paving contractors and manufacturers of roofing
products.
Our Tulsa West facility also produces specialty lubricant products sold in both commercial and specialty markets throughout North
America and to customers with operations in Central America and South America. The specialty lubricant products are high-value
products that provide a significantly higher margin contribution to the refinery. Base oil customers include blender-compounders
who prepare the various finished lubricant and grease products sold to end users. Agricultural products are formulated as
supplemental carriers for herbicides and as Environmental Protection Agency (“EPA”) registered pesticide oils, are sold to product
formulators. Process oil customers include rubber and chemical industry customers. Specialty waxes are sold primarily to packaging
customers as coating material for paper and cardboard, and to non-packaging customers in the construction materials, adhesive
and candle-making markets. Our production represents approximately 6% of paraffinic oil capacity and 13% of wax production
capacity in the United States market and is one of four refineries of specialty aromatic oils in North America.
Principal Products
Set forth below is information regarding the principal products produced at our El Dorado and Tulsa Refineries:
Years Ended December 31,
2014 2013 2012
Mid-Continent Region (El Dorado and Tulsa Refineries)
Sales of produced refined products:
Gasolines 47% 47% 48%
Diesel fuels 33% 31% 29%
Jet fuels 7% 8% 9%
Fuel oil 1% 1% 1%
Asphalt 3% 3% 2%
Lubricants 4% 4% 5%
LPG and other 5% 6% 6%
Total 100% 100% 100%