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MarketScreener Homepage  >  Equities  >  Nyse  >  HollyFrontier Corporation    HFC

HOLLYFRONTIER CORPORATION

(HFC)
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HOLLYFRONTIER : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2020 | 01:43pm EST
This Item 2 contains "forward-looking" statements. See "Forward-Looking
Statements" at the beginning of Part I of this Quarterly Report on Form 10-Q. In
this document, the words "we," "our," "ours" and "us" refer only to
HollyFrontier Corporation ("HollyFrontier") and its consolidated subsidiaries or
to HollyFrontier or an individual subsidiary and not to any other person with
certain exceptions. Generally, the words "we," "our," "ours" and "us" include
Holly Energy Partners, L.P. ("HEP") and its subsidiaries as consolidated
subsidiaries of HollyFrontier, unless when used in disclosures of transactions
or obligations between HEP and HollyFrontier or its other subsidiaries. This
document contains certain disclosures of agreements that are specific to HEP and
its consolidated subsidiaries and do not necessarily represent obligations of
HollyFrontier. When used in descriptions of agreements and transactions, "HEP"
refers to HEP and its consolidated subsidiaries.


OVERVIEW


We are principally an independent petroleum refiner that produces high-value
light products such as gasoline, diesel fuel, jet fuel, specialty lubricant
products and specialty and modified asphalt. As of September 30, 2020, we owned
and operated refineries located in El Dorado, Kansas (the "El Dorado Refinery"),
Tulsa, Oklahoma (the "Tulsa Refineries"), which comprise two production
facilities, the Tulsa West and East facilities, Artesia, New Mexico, which
operates in conjunction with crude, vacuum distillation and other facilities
situated 65 miles away in Lovington, New Mexico (collectively, the "Navajo
Refinery") and Woods Cross, Utah (the "Woods Cross Refinery"). As of September
30, 2020, we owned a facility in Cheyenne, Wyoming, which operated as a
petroleum refinery until early August 2020 (the "Cheyenne Refinery"). We market
our refined products principally in the Southwest United States, the Rocky
Mountains extending into the Pacific Northwest and in other neighboring Plains
states. In addition, we produce base oils and other specialized lubricants in
the United States, Canada and the Netherlands, and export products to more than
80 countries. We also own a 57% limited partner interest and a non-economic
general partner interest in HEP, a master limited partnership that provides
petroleum product and crude oil transportation, terminalling, storage and
throughput services to the petroleum industry, including HollyFrontier
Corporation subsidiaries.
In the third quarter of 2020, we permanently ceased petroleum refining
operations at our Cheyenne Refinery and subsequently began converting certain
assets at our Cheyenne Refinery to renewable diesel production. This decision
was primarily based on a positive outlook in the market for renewable diesel and
the expectation that future free cash flow generation at our Cheyenne Refinery
would be challenged due to lower gross margins resulting from the economic
impact of the COVID-19 pandemic and compressed crude differentials due to
dislocations in the crude oil market. Additional factors included uncompetitive
operating and maintenance costs forecasted for our Cheyenne Refinery and the
anticipated loss of the Environmental Protection Agency's ("EPA") small refinery
exemption. The renewable diesel units are expected to be completed in the first
quarter of 2022 with an expected capital budget between $125-$175 million.
During the second quarter of 2020, we recorded a long-lived asset impairment of
$232.2 million related to our Cheyenne Refinery asset group. In connection with
the cessation of petroleum refining operations at our Cheyenne Refinery, we
recognized $12.3 million in decommissioning expense during the third quarter of
2020. In addition, during the three and nine months ended September 30, 2020, we
recorded $2.4 million and $3.5 million, respectively, in employee severance
costs related to the conversion of our Cheyenne Refinery to renewable diesel
production. These decommissioning and severance costs were recognized in
operating expenses and were reported in our Refining segment.

During the second quarter of 2020, we also initiated and completed a corporate
restructuring, which is expected to save approximately $30 million per year of
ongoing cash expenses. As a result of this restructuring, we recorded $3.7
million in employee severance costs, which were recognized primarily as
operating expenses in our Refining segment and selling, general and
administrative expenses in our Corporate and Other segment.

On November 12, 2018, we entered into an equity purchase agreement to acquire
100% of the issued and outstanding capital stock of Sonneborn US Holdings Inc.
and 100% of the membership rights in Sonneborn Coöperatief U.A. (collectively,
"Sonneborn"). The acquisition closed on February 1, 2019. Cash consideration
paid was $662.7 million. Sonneborn is a producer of specialty hydrocarbon
chemicals such as white oils, petrolatums and waxes with manufacturing
facilities in the United States and Europe.

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For the three months ended September 30, 2020, net loss attributable to
HollyFrontier stockholders was $(2.4) million compared to net income of $261.8
million for the three months ended September 30, 2019. For the nine months ended
September 30, 2020, net loss attributable to HollyFrontier stockholders was
$(483.7) million compared to net income of $711.8 million for the nine months
ended September 30, 2019. Included in our financial results for the third
quarter of 2020 was an inventory reserve adjustment that resulted in a benefit
of $62.8 million and an $81.0 million gain recognized upon settlement of a
business interruption insurance claim. Third quarter earnings reflect continued
weak demand for transportation fuels across the industry, offset by an increase
in global demand for finished lubricants and base oils. Gross refining margin
per produced barrel sold in our Refining segment decreased 71% for the three
months ended September 30, 2020 over the same period of 2019.

Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated
the Renewable Fuel Standard ("RFS") regulations, which increased the volume of
renewable fuels mandated to be blended into the nation's fuel supply. The
regulations, in part, require refiners to add annually increasing amounts of
"renewable fuels" to their petroleum products or purchase credits, known as
renewable identification numbers ("RINs"), in lieu of such blending. Compliance
with RFS regulations significantly increases our cost of products sold, with
RINs costs totaling $33.8 million for the three months ended September 30, 2020.

Impact of COVID-19 on Our Business
The COVID-19 pandemic caused a decline in U.S. and global economic activity
starting in the first quarter of 2020. This decrease reduced both volumes and
unit margins across our businesses, resulting in lower gross margins and
earnings. Over the course of the third quarter of 2020, demand for
transportation fuels continued to be weak compared to the third quarter of 2019,
but showed incremental improvement over the second quarter of 2020. In response
to this level of demand, during the third quarter of 2020, we operated our
Refining segment refineries at an average crude charge of 390,580 BPD.

In our Lubricants and Specialty Products segment, the Rack Forward portion saw
improvement in industrial and transportation-related end markets, which drove
higher demand and unit margins during the third quarter of 2020. Within the Rack
Back portion, demand for base oils increased to fourth quarter 2019 levels while
supply was limited due to a number of factors, which drove higher margins and
utilization at our facilities in the third quarter.

The stabilization of demand drove a broad increase in commodity prices,
resulting in values for our inventories held at September 30, 2020 above the
costs of these inventories using the last-in, first-out ("LIFO") method and in a
lower of cost or market valuation gain of $62.8 million for the three months
ended September 30, 2020.

Our standalone (excluding HEP) liquidity was approximately $2.9 billion at
September 30, 2020, consisting of cash and cash equivalents of $1,506.8 million
and an undrawn $1.35 billion credit facility maturing in 2022. Our standalone
(excluding HEP) long-term debt was $1.75 billion as of September 30, 2020, which
consists of $350.0 million in 2.625% senior notes due in 2023, $1.0 billion of
5.875% senior notes due in 2026 and $400.0 million in 4.500% senior notes due in
2030.


OUTLOOK

The impact of the COVID-19 pandemic on the global macroeconomy has created an
unprecedented reduction in demand, as well as a lack of forward visibility, for
many of the transportation fuels, lubricants and specialty products and the
associated transportation and terminal services we provide. While we have seen
continued improvement in demand during the third quarter and expect to see a
recovery in demand for all of these essential products in the long term, there
is limited visibility on the timing or level of the recovery in the near term.

In response to the COVID-19 pandemic, and with the health and safety of our
employees as a top priority, we have continued several initiatives, including
limiting onsite staff at all of our facilities, implementing a work-from-home
policy for certain employees and restricting travel unless approved by senior
leadership. We will continue to monitor COVID-19 developments and the dynamic
environment to properly address these policies going forward.

Within our Refining segment, for the fourth quarter of 2020, we expect to run
between 360,000-380,000 barrels per day of crude oil based on market demand for
transportation fuels. Currently, the primary determinants of demand are the
various government orders and guidance restricting or discouraging travel. We
expect to adjust refinery production levels commensurate with market demand.

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Within our Lubricants and Specialty Products segment, while we have withdrawn
formal 2020 guidance, we expect the improved market conditions and increased
demand that we experienced in the third quarter of 2020 to continue up until the
normal seasonal decline in demand at year-end. Similar to our Refining segment,
we expect to adjust production levels commensurate with market demand.

At HEP, we continued to see incremental improvement in demand for transportation
and terminal services during the third quarter of 2020, particularly in HEP's
assets around the Salt Lake City area, and we expect this trend to continue
through the fourth quarter of 2020. HEP maintained its quarterly distribution to
$0.35 per unit, representative of a distribution policy focused on funding all
capital expenditures and distributions within its operating cash flow and
improving distributable cash flow coverage to 1.3x or greater with the goal of
reducing leverage to 3.0-3.5x.

During the third quarter of 2020, we increased our liquidity by $750.0 million
with the issuance of $350.0 million in 2.625% senior notes due in 2023 and
$400.0 million in 4.500% senior notes due in 2030. This additional liquidity may
be used for general corporate purposes and is expected to support the planned
growth of our renewables business and the unexpected economic impact of
COVID-19, as needed. We do not intend to repurchase common stock under our $1.0
billion share repurchase program until commodity prices and demand for our
products normalize.

On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act"), an approximately $2 trillion stimulus
package that includes various provisions intended to provide relief to
individuals and businesses in the form of tax changes, loans and grants, among
others. At this time, we have not sought relief in the form of loans or grants
from the CARES Act; however, we have benefited from certain tax deferrals in the
CARES Act and may benefit from other tax provisions if we meet the requirements
to do so.

The extent to which our future results are affected by the COVID-19 pandemic
will depend on various factors and consequences beyond our control, such as the
duration and scope of the pandemic, additional actions by businesses and
governments in response to the pandemic and the speed and effectiveness of
responses to combat the virus. The COVID-19 pandemic, and the volatile regional
and global economic conditions stemming from it, could also exacerbate the risk
factors identified in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2020. The COVID-19 pandemic may also materially adversely affect our
results in a manner that is either not currently known or that we do not
currently consider to be a significant risk to our business.

A more detailed discussion of our financial and operating results for the three
and nine months ended September 30, 2020 and 2019 is presented in the following
sections.

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RESULTS OF OPERATIONS

Financial Data
                                                                  Three Months Ended
                                                                     September 30,                              Change from 2019
                                                               2020                 2019                  Change                 Percent
                                                                                (In thousands, except per share data)
Sales and other revenues                                  $ 2,819,400$ 4,424,828$     (1,605,428)                 (36) %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation
and amortization):
Cost of products sold (exclusive of lower of cost
or market inventory valuation adjustment)                   2,377,238            3,403,767                (1,026,529)                 (30)
Lower of cost or market inventory valuation
adjustment                                                    (62,849)              34,062                   (96,911)                (285)
                                                            2,314,389            3,437,829                (1,123,440)                 (33)
Operating expenses (exclusive of depreciation and
amortization)                                                 332,496              345,578                   (13,082)                  (4)
Selling, general and administrative expenses
(exclusive of depreciation and amortization)                   74,453               87,626                   (13,173)                 (15)
Depreciation and amortization                                 125,280              127,016                    (1,736)                  (1)

Total operating costs and expenses                          2,846,618            3,998,049                (1,151,431)                 (29)
Income (loss) from operations                                 (27,218)             426,779                  (453,997)                (106)
Other income (expense):
Earnings of equity method investments                           1,316                1,334                       (18)                  (1)
Interest income                                                 1,011                6,164                    (5,153)                 (84)
Interest expense                                              (30,589)             (36,027)                    5,438                  (15)
Gain on business interruption insurance settlement             81,000                    -                    81,000                    -

Gain on foreign currency transactions                           1,030                  395                       635                  161
Other, net                                                      1,368                2,356                      (988)                 (42)
                                                               55,136              (25,778)                   80,914                 (314)
Income before income taxes                                     27,918              401,001                  (373,083)                 (93)
Income tax expense                                              4,573              103,021                   (98,448)                 (96)
Net income                                                     23,345              297,980                  (274,635)                 (92)
Less net income attributable to noncontrolling
interest                                                       25,746               36,167                   (10,421)                 (29)
Net income (loss) attributable to HollyFrontier
stockholders                                              $    (2,401)$   261,813$       (264,214)                (101) %
Earnings (loss) per share attributable to
HollyFrontier stockholders:
Basic                                                     $     (0.01)$      1.60          $          (1.61)                (101) %
Diluted                                                   $     (0.01)$      1.58          $          (1.59)                (101) %
Cash dividends declared per common share                  $      0.35$      0.33          $           0.02                    6  %
Average number of common shares outstanding:
Basic                                                         162,015              163,676                    (1,661)                  (1) %
Diluted                                                       162,015              165,011                    (2,996)                  (2) %


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                                                                    Nine Months Ended
                                                                      September 30,                               Change from 2019
                                                                2020                 2019                   Change                 Percent
                                                                                  (In thousands, except per share data)
Sales and other revenues                                   $ 8,282,875$ 13,104,690$     (4,821,815)                 (37) %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and
amortization):
Cost of products sold (exclusive of lower of cost or
market inventory valuation adjustment)                       6,647,960            10,307,856                (3,659,896)                 (36)
Lower of cost or market inventory valuation
adjustment                                                     227,711              (150,483)                  378,194                 (251)
                                                             6,875,671            10,157,373                (3,281,702)                 (32)
Operating expenses (exclusive of depreciation and
amortization)                                                  964,200             1,010,422                   (46,222)                  (5)
Selling, general and administrative expenses
(exclusive of depreciation and amortization)                   237,559               260,977                   (23,418)                  (9)
Depreciation and amortization                                  396,033               375,345                    20,688                    6
Long-lived asset and goodwill impairments                      436,908               152,712                   284,196                  186
Total operating costs and expenses                           8,910,371            11,956,829                (3,046,458)                 (25)
Income (loss) from operations                                 (627,496)            1,147,861                (1,775,357)                (155)
Other income (expense):
Earnings of equity method investments                            5,186                 5,217                       (31)                  (1)
Interest income                                                  6,590                17,127                   (10,537)                 (62)
Interest expense                                               (85,923)             (106,938)                   21,015                  (20)
Gain on business interruption insurance settlement              81,000                     -                    81,000                    -
Gain on sales-type leases                                       33,834                     -                    33,834                    -
Loss on early extinguishment of debt                           (25,915)                    -                   (25,915)                   -
Gain (loss) on foreign currency transactions                      (918)                4,873                    (5,791)                (119)
Other, net                                                       4,790                 3,005                     1,785                   59
                                                                18,644               (76,716)                   95,360                 (124)
Income (loss) before income taxes                             (608,852)            1,071,145                (1,679,997)                (157)
Income tax expense (benefit)                                  (188,504)              279,862                  (468,366)                (167)
Net income (loss)                                             (420,348)              791,283                (1,211,631)                (153)
Less net income attributable to noncontrolling
interest                                                        63,353                79,500                   (16,147)                 (20)
Net income (loss) attributable to HollyFrontier
stockholders                                               $  (483,701)$    711,783$     (1,195,484)                (168) %
Earnings (loss) per share attributable to
HollyFrontier stockholders:
Basic                                                      $     (2.99)$       4.23          $          (7.22)                (171) %
Diluted                                                    $     (2.99)$       4.20          $          (7.19)                (171) %
Cash dividends declared per common share                   $      1.05$       0.99          $           0.06                    6  %
Average number of common shares outstanding:
Basic                                                          161,927               167,935                    (6,008)                  (4) %
Diluted                                                        161,927               169,125                    (7,198)                  (4) %




Balance Sheet Data
                                September 30, 2020       December 31, 2019
                                    (Unaudited)
                                              (In thousands)
Cash and cash equivalents      $         1,524,888      $          885,162
Working capital                $         2,081,978      $        1,620,261
Total assets                   $        11,579,741$       12,164,841
Long-term debt                 $         3,176,349      $        2,455,640
Total equity                   $         5,876,569      $        6,509,426



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Other Financial Data
                                                    Three Months Ended September 30,               Nine Months Ended September 30,
                                                        2020                   2019                   2020                    2019
                                                                           

(In thousands) Net cash provided by operating activities $ 81,748 $ 441,854$ 391,050$ 1,411,404 Net cash used for investing activities

           $        (81,985)$  (74,455)$       (213,651)$  (856,764)
Net cash provided by (used for) financing
activities                                       $        618,726$ (299,473)$        463,207$  (729,337)
Capital expenditures                             $         83,272          $   74,588$        213,008$   195,057
EBITDA (1)                                       $        157,030$  521,713$       (196,839)$ 1,456,801



(1)Earnings before interest, taxes, depreciation and amortization, which we
refer to as "EBITDA," is calculated as net income (loss) attributable to
HollyFrontier stockholders plus (i) interest expense, net of interest income,
(ii) income tax provision, and (iii) depreciation and amortization. EBITDA is
not a calculation provided for under GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in our consolidated
financial statements. EBITDA should not be considered as an alternative to net
income or operating income as an indication of our operating performance or as
an alternative to operating cash flow as a measure of liquidity. EBITDA is not
necessarily comparable to similarly titled measures of other companies. EBITDA
is presented here because it is a widely used financial indicator used by
investors and analysts to measure performance. EBITDA is also used by our
management for internal analysis and as a basis for financial covenants. EBITDA
presented above is reconciled to net income under "Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles" following Item 3 of
Part I of this Form 10-Q.

Segment Operating Data

Our operations are organized into three reportable segments, Refining,
Lubricants and Specialty Products and HEP. See Note 15 "Segment Information" in
the Notes to Consolidated Financial Statements for additional information on our
reportable segments.

Refining Segment Operating Data


As of September 30, 2020, our refinery operations included the El Dorado, Tulsa,
Navajo and Woods Cross Refineries. In early August 2020, the Cheyenne Refinery
permanently ceased petroleum refining operations thus, the refining operating
data for the three and nine months ended September 30, 2020 included the
Cheyenne Refinery for the portion of the period it was in operation. The
following tables set forth information, including non-GAAP performance measures,
about our consolidated refinery operations. The cost of products and refinery
gross and net operating margins do not include the non-cash effects of
long-lived asset impairment charges, lower of cost or market inventory valuation
adjustments and depreciation and amortization. Reconciliations to amounts
reported under GAAP are provided under "Reconciliations to Amounts Reported
Under Generally Accepted Accounting Principles" following Item 3 of Part I of
this Form 10-Q.
                                              Three Months Ended September 30,               Nine Months Ended September 30,
                                                  2020                   2019                   2020                    2019

Mid-Continent Region (El Dorado and Tulsa Refineries) Crude charge (BPD) (1)

                            244,200               294,380                 234,550                257,590
Refinery throughput (BPD) (2)                     257,280               307,720                 249,430                272,440
Sales of produced refined products
(BPD) (3)                                         243,830               290,930                 239,800                260,780
Refinery utilization (4)                             93.9   %             113.2  %                 90.2    %              99.1  %

Average per produced barrel (5)
Refinery gross margin                      $         3.21           $     14.61          $         6.41            $     14.55
Refinery operating expenses (6)                      5.47                  5.05                    5.47                   5.48
Net operating margin                       $        (2.26)$      9.56          $         0.94            $      9.07

Refinery operating expenses per
throughput barrel (7)                      $         5.19           $      4.77          $         5.26            $      5.25

Feedstocks:
Sweet crude oil                                        62   %                59  %                   58    %                56  %
Sour crude oil                                         18   %                21  %                   19    %                23  %
Heavy sour crude oil                                   15   %                16  %                   17    %                16  %
Other feedstocks and blends                             5   %                 4  %                    6    %                 5  %
Total                                                 100   %               100  %                  100    %               100  %


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                                                       Three Months Ended September 30,                 Nine Months Ended September 30,
                                                         2020                     2019                    2020                     2019
Mid-Continent Region (El Dorado and Tulsa
Refineries)

Sales of produced refined products:
Gasolines                                                       53  %                  49  %                     52  %                  51  %
Diesel fuels                                                    35  %                  34  %                     34  %                  32  %
Jet fuels                                                        3  %                   6  %                      4  %                   7  %
Fuel oil                                                         1  %                   1  %                      1  %                   1  %
Asphalt                                                          2  %                   4  %                      3  %                   3  %
Base oils                                                        4  %                   4  %                      4  %                   4  %
LPG and other                                                    2  %                   2  %                      2  %                   2  %
Total                                                          100  %                 100  %                    100  %                 100  %


Southwest Region (Navajo Refinery)
(8)
Crude charge (BPD) (1)                            96,660              106,860               94,320              107,330
Refinery throughput (BPD) (2)                    106,780              117,250              104,570              117,660
Sales of produced refined products
(BPD) (3)                                        106,350              116,890              107,270              120,760
Refinery utilization (4)                            96.7  %             106.9  %              94.3  %             107.3  %

Average per produced barrel (5)
Refinery gross margin                       $       9.70$     18.61$     11.16$     19.35
Refinery operating expenses (6)                     5.07                 5.25                 5.17                 4.90
Net operating margin                        $       4.63          $     

13.36 $ 5.99$ 14.45


Refinery operating expenses per
throughput barrel (7)                       $       5.05$      5.23$      5.31$      5.03

Feedstocks:
Sweet crude oil                                       25  %                22  %                24  %                21  %
Sour crude oil                                        66  %                69  %                66  %                70  %
Other feedstocks and blends                            9  %                 9  %                10  %                 9  %
Total                                                100  %               100  %               100  %               100  %

Sales of produced refined products:
Gasolines                                             55  %                50  %                54  %                51  %
Diesel fuels                                          34  %                40  %                36  %                39  %
Fuel oil                                               2  %                 3  %                 2  %                 3  %
Asphalt                                                8  %                 5  %                 6  %                 5  %
LPG and other                                          1  %                 2  %                 2  %                 2  %
Total                                                100  %               100  %               100  %               100  %


Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
(8)
Crude charge (BPD) (1)                              49,720              74,790              63,300              78,530
Refinery throughput (BPD) (2)                       57,040              81,830              69,370              85,300
Sales of produced refined products (BPD)
(3)                                                 57,110              77,680              67,070              77,890
Refinery utilization (4)                              51.3  %             77.1  %             65.3  %             81.0  %

Average per produced barrel (5)
Refinery gross margin                           $     3.39$    24.97$    10.63$    19.73
Refinery operating expenses (6)                      15.94               11.95               13.25               11.39
Net operating margin                            $   (12.55)         $    

13.02 $ (2.62)$ 8.34


Refinery operating expenses per
throughput barrel (7)                           $    15.96$    11.34$    12.81$    10.40


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                                                Three Months Ended September 30,                 Nine Months Ended September 30,
                                                  2020                     2019                    2020                     2019
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
(8)

Feedstocks:
Sweet crude oil                                          38  %                  38  %                     36  %                  36  %
Heavy sour crude oil                                     19  %                  30  %                     33  %                  33  %
Black wax crude oil                                      30  %                  23  %                     22  %                  23  %
Other feedstocks and blends                              13  %                   9  %                      9  %                   8  %
Total                                                   100  %                 100  %                    100  %                 100  %

Sales of produced refined products:
Gasolines                                                57  %                  54  %                     56  %                  53  %
Diesel fuels                                             31  %                  32  %                     33  %                  34  %
Fuel oil                                                  3  %                   4  %                      3  %                   4  %
Asphalt                                                   5  %                   5  %                      5  %                   5  %
LPG and other                                             4  %                   5  %                      3  %                   4  %
Total                                                   100  %                 100  %                    100  %                 100  %


Consolidated
Crude charge (BPD) (1)                          390,580              476,030              392,170              443,450
Refinery throughput (BPD) (2)                   421,100              506,800              423,370              475,400
Sales of produced refined products
(BPD) (3)                                       407,280              485,500              414,140              459,440
Refinery utilization (4)                           85.5  %             104.2  %              85.8  %              97.0  %

Average per produced barrel (5)
Refinery gross margin                       $      4.93$     17.23$      8.33$     16.69
Refinery operating expenses (6)                    6.83                 6.20                 6.65                 6.33
Net operating margin                        $     (1.90)         $     

11.03 $ 1.68$ 10.36


Refinery operating expenses per
throughput barrel (7)                       $      6.61$      5.94$      6.50$      6.12

Feedstocks:
Sweet crude oil                                      50  %                47  %                46  %                44  %
Sour crude oil                                       27  %                29  %                27  %                30  %
Heavy sour crude oil                                 12  %                14  %                16  %                15  %
Black wax crude oil                                   4  %                 4  %                 4  %                 4  %
Other feedstocks and blends                           7  %                 6  %                 7  %                 7  %
Total                                               100  %               100  %               100  %               100  %


Sales of produced refined products:
Gasolines                                   54  %      50  %      54  %      51  %
Diesel fuels                                34  %      35  %      34  %      35  %
Jet fuels                                    2  %       4  %       2  %       4  %
Fuel oil                                     1  %       2  %       1  %       2  %
Asphalt                                      4  %       4  %       4  %       4  %
Base oils                                    3  %       2  %       2  %       2  %
LPG and other                                2  %       3  %       3  %       2  %
Total                                      100  %     100  %     100  %     100  %



(1)Crude charge represents the barrels per day of crude oil processed at our
refineries.
(2)Refinery throughput represents the barrels per day of crude and other
refinery feedstocks input to the crude units and other conversion units at our
refineries.
(3)Represents barrels sold of refined products produced at our refineries
(including HFC Asphalt) and does not include volumes
of refined products purchased for resale or volumes of excess crude oil sold.
(4)Represents crude charge divided by total crude capacity (BPSD). Our
consolidated crude capacity is 457,000 BPSD.
(5)Represents average amount per produced barrel sold, which is a non-GAAP
measure. Reconciliations to amounts reported under GAAP are provided under
"Reconciliations to Amounts Reported Under Generally Accepted Accounting
Principles" following Item 3 of Part I of this Form 10-Q.
(6)Represents total refining segment operating expenses, exclusive of
depreciation and amortization, divided by sales volumes
of refined products produced at our refineries.
(7)Represents total refining segment operating expenses, exclusive of
depreciation and amortization, divided by refinery throughput.
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(8)As previously disclosed, our Cheyenne Refinery ceased petroleum refining
operations in the third quarter of 2020. Beginning with the fourth quarter of
2020, activities associated with the conversion of our Cheyenne Refinery to
renewable diesel production will be reported in the Corporate and Other segment,
and the disaggregation of our refining geographic operating data will be
presented in two regions, Mid-Continent and West, to best reflect the economic
drivers of our refining operations. The Mid-Continent region will continue to be
comprised of our El Dorado and Tulsa Refineries, and the new West region will be
comprised of our Navajo and Woods Cross Refineries.

Lubricants and Specialty Products Operating Data


The following table sets forth information about our lubricants and specialty
products operations. For the nine months ended September 30, 2019, our
lubricants and specialty products operating results reflect the operations of
our Sonneborn business for the period February 1, 2019 (date of acquisition)
through September 30, 2019.
                                                  Three Months Ended September 30,                     Nine Months Ended September 30,
                                                   2020                      2019                      2020                      2019
Lubricants and Specialty Products
Throughput (BPD)                                      19,020                    23,190                    19,050                    19,920
Sales of produced refined products
(BPD)                                                 33,560                    36,160                    32,460                    34,740

Sales of produced refined products:
Finished products                                         50  %                     50  %                     51  %                     50  %
Base oils                                                 27  %                     24  %                     24  %                     27  %
Other                                                     23  %                     26  %                     25  %                     23  %
Total                                                    100  %                    100  %                    100  %                    100  %


Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below.

                                                                                                                      Total Lubricants
                                                                       Rack Forward                                     and Specialty
                                                Rack Back (1)              (2)               Eliminations (3)             Products
                                                                                   (In thousands)
Three months ended September 30, 2020
Sales and other revenues                      $      110,952$   423,418          $         (79,328)         $      455,042
Cost of products sold                         $       98,033$   283,998          $         (79,328)         $      302,703
Operating expenses                            $       25,400$    29,088          $               -          $       54,488
Selling, general and administrative
expenses                                      $        5,616$    31,157          $               -          $       36,773
Depreciation and amortization                 $        5,419$    12,013          $               -          $       17,432

Income (loss) from operations                 $      (23,516)$    67,162          $               -          $       43,646

Three months ended September 30, 2019
Sales and other revenues                      $      196,355$   477,261$        (135,898)$      537,718
Cost of products sold                         $      175,976$   357,848$        (135,898)$      397,926
Operating expenses                            $       27,825$    30,149          $               -          $       57,974
Selling, general and administrative
expenses                                      $        5,862$    38,013          $               -          $       43,875
Depreciation and amortization                 $       11,390$    11,310          $               -          $       22,700

Income (loss) from operations                 $      (24,698)$    39,941          $               -          $       15,243


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                                                                                                                            Total Lubricants
                                                                                                                              and Specialty
                                                Rack Back (1)           Rack Forward (2)           Eliminations (3)             Products
                                                                                      (In thousands)
Nine months ended September 30, 2020
Sales and other revenues                      $      361,638$       1,241,402$        (264,108)$    1,338,932
Cost of products sold                         $      345,843          $         870,695          $        (264,108)$      952,430
Operating expenses                            $       69,703          $          86,756          $               -          $      156,459
Selling, general and administrative
expenses                                      $       16,596          $         105,058          $               -          $      121,654
Depreciation and amortization                 $       22,163          $          37,097          $               -          $       59,260
Long-lived asset impairment                   $      167,017          $          37,691          $               -          $      204,708
Income (loss) from operations                 $     (259,684)         $         104,105          $               -          $     (155,579)

Nine months ended September 30, 2019
Sales and other revenues                      $      486,035$       1,428,786$        (338,423)$    1,576,398
Cost of products sold                         $      453,519$       1,087,200$        (338,423)$    1,202,296
Operating expenses                            $       87,970          $          82,685          $               -          $      170,655
Selling, general and administrative
expenses                                      $       25,707          $          99,974          $               -          $      125,681
Depreciation and amortization                 $       32,991          $          32,900          $               -          $       65,891
Goodwill impairment (4)                       $      152,712          $               -          $               -          $      152,712
Income (loss) from operations                 $     (266,864)         $         126,027          $               -          $     (140,837)



(1) Rack back consists of our PCLI base oil production activities, by-product
sales to third parties and intra-segment base oil sales to rack forward.
(2) Rack forward activities include the purchase of base oils from rack back and
the blending, packaging, marketing and distribution and sales of finished
lubricants and specialty products to third parties.
(3) Intra-segment sales of rack back produced base oils to rack forward are
eliminated under the "Eliminations" column.
(4) During the three months ended June 30, 2019, a goodwill impairment charge of
$152.7 million was recorded in the PCLI reporting unit within the Lubricants and
Specialty Products segment. We separately allocated this goodwill impairment
charge for purposes of management's discussion and analysis presentation of Rack
Back and Rack Forward results entirely to Rack Back.


Results of Operations - Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Summary

Net loss attributable to HollyFrontier stockholders for the three months ended
September 30, 2020 was $(2.4) million ($(0.01) per basic and diluted share), a
$264.2 million decrease compared to net income of $261.8 million ($1.60 per
basic and $1.58 per diluted share) for the three months ended September 30,
2019. Net income decreased due principally to lower gross refining margins and
lower refining segment sales volumes. For the three months ended September 30,
2020, lower of cost or market inventory reserve adjustments increased pre-tax
earnings by $62.8 million compared to a decrease to pre-tax earnings of $34.1
million for the three months ended September 30, 2019. Refinery gross margins
for the three months ended September 30, 2020 decreased to $4.93 per barrel sold
from $17.23 for the three months ended September 30, 2019. The three months
ended September 30, 2020 included an $81.0 million gain recognized upon the
settlement of a business interruption insurance claim. During the three months
ended September 30, 2019, our Cheyenne Refinery and Woods Cross Refinery were
each granted a one-year small refinery exemption from the EPA for the 2018
calendar year, at which time we recorded a total $36.6 million reduction to cost
of products sold.

Sales and Other Revenues
Sales and other revenues decreased 36% from $4,424.8 million for the three
months ended September 30, 2019 to $2,819.4 million for the three months ended
September 30, 2020 due to a year-over-year decrease in third quarter sales
prices and lower refined product sales volumes. Sales and other revenues for the
three months ended September 30, 2020 and 2019 included $26.7 million and $29.9
million, respectively, in HEP revenues attributable to pipeline and
transportation services provided to unaffiliated parties. Additionally, sales
and other revenues included $452.9 million and $529.6 million in unaffiliated
revenues related to our Lubricants and Specialty Products segment for the three
months ended September 30, 2020 and 2019, respectively.

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Cost of Products Sold
Total cost of products sold decreased 33% from $3,437.8 million for the three
months ended September 30, 2019 to $2,314.4 million for the three months ended
September 30, 2020 due principally to lower crude oil costs and lower refined
product sales volumes. Additionally, during the third quarter of 2020, we
recognized a lower of cost or market inventory valuation adjustment benefit of
$62.8 million compared to a charge of $34.1 million for the same period of 2019,
resulting in a new $468.1 million inventory lower of cost or market reserve at
September 30, 2020. The lower of cost or market reserve at September 30, 2020 is
based on market conditions and prices at that time. During the third quarter of
2019, we recorded a $36.6 million RINs cost reduction as a result of our
Cheyenne Refinery and Woods Cross Refinery small refinery exemptions.

Gross Refinery Margins
Gross refinery margin per barrel sold decreased 71% from $17.23 for the three
months ended September 30, 2019 to $4.93 for the three months ended
September 30, 2020. This was due to the effects of a decrease in the average per
barrel sold sales price during the third quarter of 2020, partially offset by
decreased crude oil and feedstock prices. Gross refinery margin per barrel does
not include the non-cash effects of lower of cost or market inventory valuation
adjustments or depreciation and amortization. See "Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles" following Item 3 of
Part I of this Form 10-Q for a reconciliation to the income statement of sale
prices of products sold and cost of products purchased.

Operating Expenses
Operating expenses, exclusive of depreciation and amortization, decreased 4%
from $345.6 million for the three months ended September 30, 2019 to $332.5
million for the three months ended September 30, 2020 due principally to lower
repair and maintenance costs compared to the third quarter of 2019, partially
offset by decommissioning costs for our Cheyenne Refinery recorded in the three
months ended September 30, 2020.

Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 15% from $87.6 million
for the three months ended September 30, 2019 to $74.5 million for the three
months ended September 30, 2020 due principally to lower incentive compensation
costs and employee travel-related expenses. We incurred $0.1 million and $3.9
million in direct acquisition and integration costs for our Sonneborn business
during the three months ended September 30, 2020 and 2019, respectively.

Depreciation and Amortization Expenses
Depreciation and amortization decreased 1% from $127.0 million for the three
months ended September 30, 2019 to $125.3 million for the three months ended
September 30, 2020. This decrease was due principally to lower depreciation
expense resulting from the assets impaired in the second quarter of 2020, offset
by depreciation and amortization attributable to capitalized improvement
projects and capitalized refinery turnaround costs.

Interest Income
Interest income for the three months ended September 30, 2020 was $1.0 million
compared to $6.2 million for the three months ended September 30, 2019. This
decrease was primarily due to lower interest rates on cash investments during
the current year quarter.

Interest Expense
Interest expense was $30.6 million for the three months ended September 30, 2020
compared to $36.0 million for the three months ended September 30, 2019. This
decrease was primarily due to lower market interest rates on HEP's credit
facility and HEP's refinancing of its 6.0% senior notes due 2024, partially
offset by an unrealized loss on the mark-to-market change of the fair value of
the embedded derivative in our catalyst financing arrangements during the
current year quarter. For the three months ended September 30, 2020 and 2019,
interest expense included $12.5 million and $18.8 million, respectively, in
interest costs attributable to HEP operations.

Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the
settlement of our business interruption claim with our insurance carrier related
to a loss at our Woods Cross Refinery that occurred in the first quarter of
2018.

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Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the
intercompany financing notes payable by PCLI net of mark-to-market valuations on
foreign exchange forward contracts with banks which hedge the foreign currency
exposure on these intercompany notes were net gains of $1.0 million and $0.4
million for the three months ended September 30, 2020 and 2019, respectively.
For the three months ended September 30, 2020 and 2019, gain on foreign currency
transactions included a loss of $8.2 million and a gain of $5.7 million,
respectively, on foreign exchange forward contracts (utilized as an economic
hedge).

Income Taxes
For the three months ended September 30, 2020, we recorded an income tax expense
of $4.6 million compared to $103.0 million for the three months ended
September 30, 2019. This decrease was due principally to the decrease in pre-tax
earnings during the three months ended September 30, 2020 compared to pre-tax
earnings in the same period of 2019. Our effective tax rates were 16.4% and
25.7% for the three months ended September 30, 2020 and 2019, respectively. The
year-over-year decrease in the effective tax rate is due principally to the
relationship between the pre-tax results and the earnings attributable to the
noncontrolling interest that is not included in income for tax purposes.


Results of Operations - Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Summary

Net loss attributable to HollyFrontier stockholders for the nine months ended
September 30, 2020 was $(483.7) million ($(2.99) per basic and diluted share), a
$1,195.5 million decrease compared to net income of $711.8 million ($4.23 per
basic and $4.20 per diluted share) for the nine months ended September 30, 2019.
Net income decreased due principally to long-lived asset impairment charges of
$436.9 million, lower gross refining margins and lower refining segment sales
volumes. For the nine months ended September 30, 2020, lower of cost or market
inventory reserve adjustments decreased pre-tax earnings by $227.7 million
compared to an increase to pre-tax earnings of $150.5 million for the nine
months ended September 30, 2019. Refinery gross margins for the nine months
ended September 30, 2020 decreased to $8.33 per barrel sold from $16.69 for the
nine months ended September 30, 2019. The nine months ended September 30, 2020
included an $81.0 million gain recognized upon the settlement of a business
interruption insurance claim. The nine months ended September 30, 2019 included
a goodwill impairment charge of $152.7 million. Also, during the nine months
ended September 30, 2019, our Cheyenne Refinery and Woods Cross Refinery were
each granted a one-year small refinery exemption from the EPA for the 2018
calendar year, at which time we recorded a total $36.6 million reduction to cost
of products sold.

Sales and Other Revenues
Sales and other revenues decreased 37% from $13,104.7 million for the nine
months ended September 30, 2019 to $8,282.9 million for the nine months ended
September 30, 2020 due to a year-over-year decrease in sales prices and lower
refined product sales volumes. Sales and other revenues for the nine months
ended September 30, 2020 and 2019 include $72.4 million and $89.4 million,
respectively, in HEP revenues attributable to pipeline and transportation
services provided to unaffiliated parties. Additionally, sales and other
revenues included $1,330.0 million and $1,568.2 million in unaffiliated revenues
related to our Lubricants and Specialty Products segment for the nine months
ended September 30, 2020 and 2019, respectively.

Cost of Products Sold
Total cost of products sold decreased 32% from $10,157.4 million for the nine
months ended September 30, 2019 to $6,875.7 million for the nine months ended
September 30, 2020 due principally to lower crude oil costs and lower refined
product sales volumes. Additionally, we recognized a lower of cost or market
inventory valuation charge of $227.7 million for the nine months ended
September 30, 2020 compared to a benefit of $150.5 million for the same period
of 2019, resulting in a new $468.1 million lower of cost or market reserve at
September 30, 2020. The lower of cost or market reserve at September 30, 2020 is
based on market conditions and prices at that time. During the nine months ended
September 30, 2019, we recorded a $36.6 million RINs cost reduction as a result
of our Cheyenne Refinery and Woods Cross Refinery small refinery exemptions.

Gross Refinery Margins
Gross refinery margin per barrel sold decreased 50% from $16.69 for the nine
months ended September 30, 2019 to $8.33 for the nine months ended September 30,
2020. This was due to the effects of a decrease in the average per barrel sold
sales price during the current year-to-date period, partially offset by
decreased crude oil and feedstock prices. Gross refinery margin per barrel does
not include the non-cash effects of lower of cost or market inventory valuation
adjustments or depreciation and amortization. See "Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles" following Item 3 of
Part I of this Form 10-Q for a reconciliation to the income statement of sales
prices of products sold and cost of products purchased.

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Operating Expenses
Operating expenses, exclusive of depreciation and amortization, decreased 5%
from $1,010.4 million for the nine months ended September 30, 2019 to $964.2
million for the nine months ended September 30, 2020 due principally to lower
repair and maintenance costs compared to nine months ended September 30, 2019,
partially offset by decommissioning costs for our Cheyenne Refinery recorded in
the nine months ended September 30, 2020. Prior year period operating expenses
included higher repair and maintenance costs related to a February 2019 fire in
an FCC unit at our El Dorado Refinery.

Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 9% from $261.0 million
for the nine months ended September 30, 2019 to $237.6 million for the nine
months ended September 30, 2020 due principally to lower incentive compensation
costs and employee travel-related expenses. We incurred $2.0 million and $20.1
million in direct acquisition and integration costs for our Sonneborn business
during the nine months ended September 30, 2020 and 2019, respectively.

Depreciation and Amortization Expenses
Depreciation and amortization increased 6% from $375.3 million for the nine
months ended September 30, 2019 to $396.0 million for the nine months ended
September 30, 2020. This increase was due principally to depreciation and
amortization attributable to capitalized improvement projects and capitalized
refinery turnaround costs, partially offset by lower depreciation expense
resulting from the assets impaired in the current year-to-date period.

Long-lived Asset and Goodwill Impairments
During the nine months ended September 30, 2020, we recorded long-lived asset
impairment charges of $232.2 million that related to our Cheyenne Refinery and
$204.7 million related to PCLI. During the nine months ended September 30, 2019,
we recorded a goodwill impairment charge of $152.7 million that related to PCLI.
See Note 1 "Description of Business and Presentation of Financial Statements" in
the Notes to Consolidated Financial Statements for additional information on
these impairments.

Interest Income
Interest income for the nine months ended September 30, 2020 was $6.6 million
compared to $17.1 million for the nine months ended September 30, 2019. This
decrease was primarily due to lower average cash balances and lower interest
rates on cash investments.

Interest Expense
Interest expense was $85.9 million for the nine months ended September 30, 2020
compared to $106.9 million for the nine months ended September 30, 2019. This
decrease was primarily due to lower market interest rates on HEP's credit
facility and HEP's refinancing of its 6.0% senior notes due 2024. Additionally,
we recorded an unrealized gain on the mark-to-market change in the fair value of
the embedded derivative in our catalyst financing arrangements of $2.5 million
for the nine months ended September 30, 2020 compared to an unrealized loss of
$3.0 million for the same period in 2019. For the nine months ended
September 30, 2020 and 2019, interest expense included $40.7 million and $57.1
million, respectively, in interest costs attributable to HEP operations.

Gain on Business Interruption Insurance Settlement
During the third quarter of 2020, we recorded a gain of $81.0 million upon the
settlement of our business interruption claim with our insurance carrier related
to a loss at our Woods Cross Refinery that occurred in the first quarter of
2018.

Gain on Sales-type Leases
During the second quarter of 2020, HEP and Delek US Holdings, Inc. renewed the
original throughput agreement on specific HEP assets. Portions of the new
throughput agreement meet the definition of sales-type leases, which resulted in
an accounting gain of $33.8 million upon the initial recognition of the
sales-type lease during the nine months ended September 30, 2020.

Loss on Early Extinguishment of Debt
For the nine months ended September 30, 2020, HEP recorded a $25.9 million loss
on the redemption of its $500 million aggregate principal amount of 6.0% senior
notes maturing August 2024 at a redemption cost of $522.5 million.

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Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the
intercompany financing notes payable by PCLI net of mark-to-market valuations on
foreign exchange forward contracts with banks which hedge the foreign currency
exposure on these intercompany notes were a net loss of $0.9 million for the
nine months ended September 30, 2020 compared to a net gain of $4.9 million for
the nine months ended September 30, 2019. For the nine months ended
September 30, 2020 and 2019, gain / loss on foreign currency transactions
included a net gain of $11.0 million and a net loss of $9.0 million,
respectively, on foreign exchange forward contracts (utilized as an economic
hedge).

Income Taxes
For the nine months ended September 30, 2020, we recorded an income tax benefit
of $188.5 million compared to income tax expense of $279.9 million for the nine
months ended September 30, 2019. This decrease was due principally to a pre-tax
loss during the nine months ended September 30, 2020 compared to pre-tax
earnings in the same period of 2019. Our effective tax rates were 31.0% and
26.1% for the nine months ended September 30, 2020 and 2019, respectively. The
year-over-year increase in the effective tax rate is due principally to the
relationship between the pre-tax results and the earnings attributable to the
noncontrolling interest that is not included in income for tax purposes.


LIQUIDITY AND CAPITAL RESOURCES


HollyFrontier Credit Agreement
We have a $1.35 billion senior unsecured revolving credit facility maturing in
February 2022 (the "HollyFrontier Credit Agreement"). The HollyFrontier Credit
Agreement may be used for revolving credit loans and letters of credit from time
to time and is available to fund general corporate purposes. At September 30,
2020, we were in compliance with all covenants, had no outstanding borrowings
and had outstanding letters of credit totaling $5.7 million under the
HollyFrontier Credit Agreement.

HollyFrontier Senior Notes
On September 28, 2020, we completed a public offering of $350.0 million in
aggregate principal amount of 2.625% senior notes maturing October 2023 and
$400.0 million in aggregate principal amount of 4.500% senior notes maturing
October 2030. We intend to use the net proceeds for general corporate purposes,
which may include capital expenditures. These senior notes are unsecured and
unsubordinated obligations of ours and rank equally with all our other existing
and future unsecured and unsubordinated indebtedness.

HollyFrontier Financing Arrangements
In December 2018, certain of our wholly-owned subsidiaries entered into
financing arrangements whereby such subsidiaries sold a portion of their
precious metals catalyst to a financial institution and then leased back the
precious metals catalyst in exchange for total cash received of $32.5 million.
The volume of the precious metals catalyst and the lease rate are fixed over the
term of each lease, and the lease payments are recorded as interest expense. The
leases mature on February 1, 2021. Upon maturity, we must either satisfy the
obligation at fair market value or refinance to extend the maturity.

HEP Credit Agreement
HEP has a $1.4 billion senior secured revolving credit facility maturing in July
2022 (the "HEP Credit Agreement") and is available to fund capital expenditures,
investments, acquisitions, distribution payments, working capital and for
general partnership purposes. It is also available to fund letters of credit up
to a $50 million sub-limit and has a $300 million accordion. During the nine
months ended September 30, 2020, HEP received advances totaling $219.5 million
and repaid $237.0 million under the HEP Credit Agreement. At September 30, 2020,
HEP was in compliance with all of its covenants, had outstanding borrowings of
$948.0 million and no outstanding letters of credit under the HEP Credit
Agreement.

HEP Senior Notes
On February 4, 2020, HEP closed a private placement of $500.0 million in
aggregate principal amount of 5.0% HEP senior unsecured notes maturing February
2028. On February 5, 2020, HEP redeemed its existing $500.0 million aggregate
principal amount of 6.0% senior notes maturing August 2024 at a redemption cost
of $522.5 million. HEP recognized a $25.9 million early extinguishment loss
consisting of a $22.5 million debt redemption premium and unamortized discount
and financing costs of $3.4 million. HEP funded the $522.5 million redemption
with proceeds from the issuance of its 5.0% senior notes and borrowings under
the HEP Credit Agreement.

See Note 9 "Debt" in the Notes to Consolidated Financial Statements for additional information on our debt instruments.

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HEP Common Unit Continuous Offering Program
In May 2016, HEP established a continuous offering program under which HEP may
issue and sell common units from time to time, representing limited partner
interests, up to an aggregate gross sales amount of $200 million. During the
nine months ended September 30, 2020, HEP did not issue any common units under
this program. As of September 30, 2020, HEP has issued 2,413,153 units under
this program, providing $82.3 million in gross proceeds.

Liquidity

We believe our current cash and cash equivalents, along with future internally
generated cash flow and funds available under our credit facilities, will
provide sufficient resources to fund currently planned capital projects and our
liquidity needs for the foreseeable future. We expect that, to the extent
necessary, we can raise additional funds from time to time through equity or
debt financings in the public and private capital markets. In addition, subject
to our current cash conservation strategies as discussed above in "Outlook,"
components of our growth strategy include the expansion of existing units at our
facilities and selective acquisition of complementary assets for our refining
operations intended to increase earnings and cash flow. We also expect to use
cash for payment of cash dividends, which are at the discretion of our Board of
Directors, and, once commodity prices and demand for products normalize, for the
repurchases of our common stock under our share repurchase program.

Our standalone (excluding HEP) liquidity was approximately $2.9 billion at September 30, 2020, consisting of cash and cash equivalents of $1,506.8 million and an undrawn $1.35 billion credit facility maturing in 2022.


We consider all highly-liquid instruments with a maturity of three months or
less at the time of purchase to be cash equivalents. Cash equivalents are stated
at cost, which approximates market value. These primarily consist of investments
in conservative, highly-rated instruments issued by financial institutions,
government and corporate entities with strong credit standings and money market
funds.

In November 2019, our Board of Directors approved a $1.0 billion share
repurchase program, which replaced all existing share repurchase programs,
authorizing us to repurchase common stock in the open market or through
privately negotiated transactions. The timing and amount of stock repurchases
will depend on market conditions and corporate, regulatory and other relevant
considerations. This program may be discontinued at any time by the Board of
Directors. As of September 30, 2020, we had not repurchased common stock under
this stock repurchase program. In addition, we are authorized by our Board of
Directors to repurchase shares in an amount sufficient to offset shares issued
under our compensation programs. In order to preserve liquidity, we do not
intend to repurchase common stock under our $1.0 billion share repurchase
program until commodity prices and demand for products normalize.

Cash and cash equivalents increased $639.7 million for the nine months ended
September 30, 2020. Net cash provided by operating and financing activities of
$391.1 million and $463.2 million, respectively, exceeded net cash used by
investing activities of $213.7 million.
Cash Flows - Operating Activities

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Net cash flows provided by operating activities were $391.1 million for the nine
months ended September 30, 2020 compared to $1,411.4 million for the nine months
ended September 30, 2019, a decrease of $1,020.4 million. Net loss for the nine
months ended September 30, 2020 of $(420.3) million was a decrease of $1,211.6
million compared to net income of $791.3 million for the nine months ended
September 30, 2019. Non-cash adjustments to net income consisting of
depreciation and amortization, long-lived asset and goodwill impairments, lower
of cost or market inventory valuation adjustment, earnings of equity method
investments, inclusive of distributions, loss on early extinguishment of debt,
gain on sales-type leases, gain / loss on sale of assets, deferred income taxes,
equity-based compensation expense and fair value changes to derivative
instruments totaled $923.4 million for the nine months ended September 30, 2020
compared to $531.5 million for the same period in 2019. Adjusted for non-cash
items, changes in working capital decreased operating cash flows by $50.0
million and increased operating cash flows by $244.3 million, for the nine
months ended September 30, 2020 and 2019, respectively. Additionally, for the
nine months ended September 30, 2020, turnaround expenditures decreased to $73.8
million from $152.4 million for the same period of 2019.

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Cash Flows - Investing Activities and Planned Capital Expenditures

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Net cash flows used for investing activities were $213.7 million for the nine
months ended September 30, 2020 compared to $856.8 million for the nine months
ended September 30, 2019, a decrease of $643.1 million. Cash expenditures for
properties, plants and equipment for the first nine months of 2020 increased to
$213.0 million from $195.1 million for the same period in 2019. These include
HEP capital expenditures of $38.6 million and $23.8 million for the nine months
ended September 30, 2020 and 2019, respectively. Additionally, HEP invested $2.4
million in the Cushing Connect Pipeline & Terminal LLC joint venture. Prior year
investing activities reflected a net cash outflow of $662.7 million upon the
acquisition of Sonneborn.

Planned Capital Expenditures

HollyFrontier Corporation
Each year our Board of Directors approves our annual capital budget, which
includes specific projects that management is authorized to
undertake. Additionally, when conditions warrant or as new opportunities arise,
additional projects may be approved. The funds appropriated for a particular
capital project may be expended over a period of several years, depending on the
time required to complete the project. Therefore, our planned capital
expenditures for a given year consist of expenditures appropriated in that
year's capital budget plus expenditures for projects appropriated in prior years
which have not yet been completed. Refinery turnaround spending is amortized
over the useful life of the turnaround.

The refining industry is capital intensive and requires on-going investments to
sustain our refining operations. This includes replacement of, or rebuilding,
refinery units and components that extend the useful life. We also invest in
projects that improve operational reliability and profitability via enhancements
that improve refinery processing capabilities as well as production yield and
flexibility. Our capital expenditures also include projects related to
environmental, health and safety compliance and include initiatives as a result
of federal and state mandates.

Our refinery operations and related emissions are highly regulated at both
federal and state levels, and we invest in our facilities as needed to remain in
compliance with these standards. Additionally, when faced with new emissions or
fuels standards, we seek to execute projects that facilitate compliance and also
improve the operating costs and / or yields of associated refining processes.

HEP

Each year the Holly Logistic Services, L.L.C. board of directors approves HEP's
annual capital budget, which specifies capital projects that HEP management is
authorized to undertake. Additionally, at times when conditions warrant or as
new opportunities arise, special projects may be approved. The funds allocated
for a particular capital project may be expended over a period in excess of a
year, depending on the time required to complete the project. Therefore, HEP's
planned capital expenditures for a given year consist of expenditures approved
for capital projects included in its current year capital budget as well as, in
certain cases, expenditures approved for capital projects in capital budgets for
prior years. HEP expects the majority of the expansion capital budget in 2020 to
be invested in the Cushing Connect joint venture. In addition, HEP may spend
funds periodically to perform capital upgrades or additions to its assets where
a customer reimburses HEP for such costs. The upgrades or additions would
generally benefit the customer over the remaining life of the related service
agreements.

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Due to the COVID-19 pandemic and resulting decline in U.S. and global economic
activities, we have reduced our 2020 expected total consolidated capital
expenditures by approximately 25% from our approved annual capital budget.
Expected capital and turnaround cash spending for 2020 is as follows:
                                                   Expected Cash Spending 

Range

                                                           (In millions)
   HollyFrontier Capital Expenditures
   Refining                                 $        187.0$ 212.0
   Renewable Diesel Unit                             130.0                      145.0
   Lubricants and Specialty Products                  30.0                       35.0
   Turnarounds and catalyst                           85.0                      100.0
   Total HollyFrontier                               432.0                      492.0

   HEP
   Maintenance                                         8.0                       12.0
   Expansion and joint venture investment             35.0                       45.0
   Refining unit turnarounds                             -                        1.0
   Total HEP                                          43.0                       58.0
   Total                                    $        475.0$ 550.0

Cash Flows - Financing Activities


Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Net cash flows provided by financing activities were $463.2 million for the nine
months ended September 30, 2020 compared to net cash flows used for financing
activities of $729.3 million for the nine months ended September 30, 2019, an
increase of $1,192.5 million. During the nine months ended September 30, 2020,
we received $744.1 million in net proceeds from the issuance of HFC's 2.625% and
4.500% senior notes, purchased $3.4 million of treasury stock and paid $171.6
million in dividends. Also during this period, HEP received $219.5 million and
repaid $237.0 million under the HEP Credit Agreement, paid $522.5 million upon
the redemption of HEP's 6.0% senior notes and received $491.3 million in net
proceeds from the issuance of HEP 5.0% senior notes, paid distributions of $70.9
million to noncontrolling interests and received contributions from
noncontrolling interests of $15.4 million. During the nine months ended
September 30, 2019, we purchased $472.0 million of treasury stock and paid
$168.0 million in dividends. Also during this period, HEP received $269.5
million and repaid $257.0 million under the HEP Credit Agreement and paid
distributions of $100.1 million to noncontrolling interests.

Contractual Obligations and Commitments

HollyFrontier Corporation

In September 2020, we issued $350.0 million in aggregate principal amount of 2.625% senior notes maturing October 2023 and $400.0 million in aggregate principal amount of 4.500% senior notes maturing October 2030.

There were no other significant changes to our long-term contractual obligations during the nine months ended September 30, 2020.

HEP


In February 2020, HEP issued $500.0 million in aggregate principal amount of
5.0% HEP senior notes maturing February 2028 and redeemed its existing $500.0
million 6.0% senior notes maturing August 2024.

During the nine months ended September 30, 2020, HEP had net repayments of $17.5 million resulting in $948.0 million of outstanding borrowings under the HEP Credit Agreement at September 30, 2020.

There were no other significant changes to HEP's long-term contractual obligations during this period.

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CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities as of the date of the financial statements. Actual results may
differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies" in our Annual Report on Form 10-K for
the year ended December 31, 2019. Certain critical accounting policies that
materially affect the amounts recorded in our consolidated financial statements
include the use of the last-in, first-out ("LIFO") method of valuing certain
inventories, assessing the possible impairment of certain long-lived assets and
goodwill, and assessing contingent liabilities for probable losses.

Inventory Valuation: Inventories related to our refining operations are stated
at the lower of cost, using the LIFO method for crude oil and unfinished and
finished refined products, or market. In periods of rapidly declining prices,
LIFO inventories may have to be written down to market value due to the higher
costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO
inventory method may result in increases or decreases to cost of sales in years
that inventory volumes decline as the result of charging cost of sales with LIFO
inventory costs generated in prior periods. An actual valuation of inventory
under the LIFO method is made at the end of each year based on the inventory
levels at that time. Accordingly, interim LIFO calculations are based on
management's estimates of expected year-end inventory levels and are subject to
the final year-end LIFO inventory valuation.

At September 30, 2020, our lower of cost or market inventory valuation reserve
was $468.1 million. This amount, or a portion thereof, is subject to reversal as
a reduction to cost of products sold in subsequent periods as inventories giving
rise to the reserve are sold, and a new reserve is established.

Inventories consisting of process chemicals, materials and maintenance supplies
and RINs are stated at the lower of weighted-average cost or net realizable
value. Inventories of our Petro-Canada Lubricants and Sonneborn businesses are
stated at the lower of cost, using the FIFO method, or net realizable value.

Goodwill and Long-lived Assets: As of September 30, 2020, our goodwill balance
was $2.4 billion, with goodwill assigned to our Refining, Lubricants and
Specialty Products and HEP segments of $1,733.5 million, $328.6 million and
$312.9 million, respectively. Goodwill represents the excess of the cost of an
acquired entity over the fair value of the assets acquired and liabilities
assumed. Goodwill is not subject to amortization and is tested annually or more
frequently if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
Our goodwill impairment testing first entails either a quantitative assessment
or an optional qualitative assessment to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying
amount. If we determine that based on the qualitative factors that it is more
likely than not that the fair value of the reporting unit is greater than its
carrying amount, a quantitative test is performed in which we estimate the fair
value of the related reporting unit. If the carrying amount of a reporting unit
exceeds its fair value, the goodwill of that reporting unit is impaired, and we
measure goodwill impairment as the excess of the carrying amount of reporting
unit over the related fair value.

For purposes of long-lived asset impairment evaluation, we have grouped our
long-lived assets as follows: (i) our refinery asset groups, which include
certain HEP logistics assets, (ii) our Lubricants and Specialty Products asset
groups and (iii) our HEP asset groups, which comprises HEP assets not included
in our refinery asset groups. These asset groups represent the lowest level for
which independent cash flows can be identified. Our long-lived assets are
evaluated for impairment by identifying whether indicators of impairment exist
and if so, assessing whether the long-lived assets are recoverable from
estimated future undiscounted cash flows. The actual amount of impairment loss
measured, if any, is equal to the amount by which the asset group's carrying
value exceeds its fair value.

Goodwill and long-lived asset impairments
Due to the economic slowdown caused by the COVID-19 pandemic, we determined that
indicators of potential long-lived asset impairments were present in the second
quarter of 2020. As a result of our long-lived asset impairment testing, we
determined that the carrying value of the long-lived assets of our Cheyenne
Refinery and PCLI asset groups were not recoverable, and thus recorded
long-lived asset impairment charges of $232.2 million and $204.7 million,
respectively, in the second quarter of 2020. Our testing did not result in any
other impairments of long-lived assets in the second quarter. There were no
additional indicators of long-lived asset impairment present in the third
quarter of 2020.

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Due to the economic slowdown caused by the COVID-19 pandemic and a decrease in
our market capitalization, we determined that indicators of potential goodwill
impairment for our Refining and Lubricants and Specialty Products reporting
units were present in the second quarter of 2020. As such, we performed an
interim test for goodwill impairment as of May 31, 2020. Our interim goodwill
impairment testing indicated that there was no impairment of goodwill at our
Refining and Lubricants and Specialty Products reporting units as of May 31,
2020.

We performed our annual goodwill impairment testing quantitatively as of July 1,
2020 and determined there was no impairment of goodwill attributable to our
reporting units. The excess of the fair values of the reporting units over their
respective carrying values ranged from 10% to 229%. Increasing the discount rate
by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have
changed the results of our interim or annual goodwill impairment testing.

In performing our impairment tests of goodwill and long-lived assets we
developed cash flow forecasts for each of our reporting units and asset groups.
Significant judgment is involved in performing these fair value estimates since
the results are based on forecasted financial information. The cash flow
forecasts include significant assumptions such as planned utilization, end-user
demand, selling prices, gross margins, operating costs and capital expenditures.
Another key assumption applied to these forecasts to determine the fair value of
a reporting unit or an asset group is the discount rate. The discount rate is
intended to reflect the weighted average cost of capital for a market
participant and the risks associated with the realization of the estimated
future cash flows. Assumptions about the effects of the COVID-19 pandemic on
future demand and market conditions are inherently subjective and difficult to
forecast. Our fair value estimates are based on projected cash flows, which we
believe to be reasonable.

A reasonable expectation exists that further deterioration in our operating
results or overall economic conditions could result in an impairment of goodwill
and / or additional long-lived asset impairments at some point in the future.
Future impairment charges could be material to our results of operations and
financial condition.


Contingencies
We are subject to proceedings, lawsuits and other claims related to
environmental, labor, product and other matters. We are required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in
settlement strategy in dealing with these matters.


RISK MANAGEMENT


We use certain strategies to reduce some commodity price and operational risks.
We do not attempt to eliminate all market risk exposures when we believe that
the exposure relating to such risk would not be significant to our future
earnings, financial position, capital resources or liquidity or that the cost of
eliminating the exposure would outweigh the benefit.

Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks
related to the volatility in crude oil and refined products, as well as
volatility in the price of natural gas used in our refining operations. We
periodically enter into derivative contracts in the form of commodity price
swaps, forward purchase and sales and futures contracts to mitigate price
exposure with respect to our inventory positions, natural gas purchases, sales
prices of refined products and crude oil costs.

Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency
exchange rates. We periodically enter into derivative contracts in the form of
foreign exchange forward and foreign exchange swap contracts to mitigate the
exposure associated with fluctuations on intercompany notes with our foreign
subsidiaries that are not denominated in the U.S. dollar.

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As of September 30, 2020, we have the following notional contract volumes
related to all outstanding derivative instruments used to mitigate commodity
price and foreign currency risk:
                                                                                           Notional Contract Volumes by Year of Maturity
Derivative Instrument                        Total Outstanding Notional                    2020                                       2021                               Unit of Measure

Natural gas price swaps - long                       2,250,000                              450,000                                 1,800,000                          MMBTU
Crude oil price swaps (basis spread)
- long                                               1,564,000                            1,564,000                                         -                          Barrels
WTI and gasoline crack spread swaps -
short                                                  100,000                              100,000                                         -                          Barrels
NYMEX futures (WTI) - short                          1,045,000                              830,000                                   215,000                          Barrels
Forward gasoline and diesel contracts
- long                                                 200,000                              200,000                                         -                          Barrels

Foreign currency forward contracts                 419,278,042                          106,910,645                               312,367,397                          U.S. dollar
Forward commodity contracts
(platinum) (1)                                          40,867                                    -                                    40,867                          Troy ounces


(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 9 "Debt" in the Notes to Consolidated Financial Statements for additional information on these financing arrangements.

The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity positions hedged under our derivative contracts:

                                                              Estimated 

Change in Fair Value at September

30,

Commodity-based Derivative Contracts                                  2020                     2019
                                                                            

(In thousands) Hypothetical 10% change in underlying commodity prices $ 3,659 $ 8,432




Interest Rate Risk Management
The market risk inherent in our fixed-rate debt is the potential change arising
from increases or decreases in interest rates as discussed below.

For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in
interest rates will generally affect fair value of the debt, but not earnings or
cash flows. The outstanding principal, estimated fair value and estimated change
in fair value (assuming a hypothetical 10% change in the yield-to-maturity
rates) for this debt as of September 30, 2020 is presented below:
                                                                    Estimated
                                 Outstanding       Estimated        Change in
                                  Principal       Fair Value       Fair Value
                                                (In thousands)
HollyFrontier Senior Notes      $ 1,750,000$ 1,835,996$    38,225

HEP Senior Notes                $   500,000$   490,155$    16,094



For the variable rate HEP Credit Agreement, changes in interest rates would
affect cash flows, but not the fair value. At September 30, 2020, outstanding
borrowings under the HEP Credit Agreement were $948.0 million. A hypothetical
10% change in interest rates applicable to the HEP Credit Agreement would not
materially affect cash flows.

Our operations are subject to hazards of petroleum processing operations,
including fire, explosion and weather-related perils. We maintain various
insurance coverages, including business interruption insurance, subject to
certain deductibles. We are not fully insured against certain risks because such
risks are not fully insurable, coverage is unavailable, or premium costs, in our
judgment, do not justify such expenditures.

Financial information is reviewed on the counterparties in order to review and
monitor their financial stability and assess their ongoing ability to honor
their commitments under the derivative contracts. We have not experienced, nor
do we expect to experience, any difficulty in the counterparties honoring their
commitments.

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We have a risk management oversight committee consisting of members from our
senior management. This committee oversees our risk enterprise program, monitors
our risk environment and provides direction for activities to mitigate
identified risks that may adversely affect the achievement of our goals.
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