Welcome to HollyFrontier Corporation's 4th Quarter 2019 Conference Call and Webcast. Hosting the call today from HollyFrontier is Mike Jennings, President and Chief Executive Officer. He is joined by Rich Voliva, Executive Vice President and Chief Financial Officer and Tom Creery, President, Refining and Marketing. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Director, Investor Relations.
Craig, you may begin.
Thank you, James. Good morning, everyone, and welcome to HollyFrontier Corporation's 4th quarter 2019 earnings call. This morning, we issued a press release announcing results for the quarter ending December 31, 2019. If you would like a copy of the press release, you may find 1 on our website at hollyfrontier.com. Before we proceed with remarks, please note the Safe Harbor disclosure statement in today's press release.
In summary, it says statements made regarding management expectations, judgments or predictions are forward looking statements. These statements are to be intended are to be covered under the Safe Harbor provisions of federal security laws. There are many factors that could cause results to differ from expectations, including those noted in our filings. The call also may include discussion of non GAAP measures. Please see the press release for reconciliations to GAAP Financial Measures.
Also, please note any time sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript. And with that, I'll turn the call over to Mike Jennings.
Thanks, Greg. Good morning, everyone. Today, we reported 4th quarter net income attributable to HollyFrontier shareholders of $61,000,000 or $0.37 per diluted share. 4th quarter results reflect special items that collectively decreased net income by $17,000,000 Excluding these items, net income for the Q4 was $78,000,000 or 0.48 dollars per diluted share versus adjusted net income of $394,000,000 or $2.25 per diluted share for the same period of 2018. Adjusted EBITDA for the period was $263,000,000 a decrease of $378,000,000 compared to the Q4 of 2018.
This decrease in earnings was driven by heavy planned refinery maintenance coupled with lower product margins and crude differentials. The Refining segment reported adjusted EBITDA of $172,000,000 compared to $583,000,000 for the Q4 of 2018. Consolidated refinery gross margin was $13.58 per produced barrel, a 39% decrease compared to the 22 17 for the same period last year. Our Lubricants and Specialty Products business reported EBITDA of $35,000,000 compared to a negative $4,000,000 in the Q4 of 2018. Rack Forward EBITDA was $61,000,000 representing a 14% EBITDA margin.
Full year Rack Forward adjusted EBITDA was $230,000,000 representing a 12% EBITDA margin. In 2020, we remain constructive on global demand for finished and specialty products and expect gradual improvement in Rack Back EBITDA from strengthening base oil markets as demand for premium base oils increases and against limited capacity growth. Full year Rack Forward EBITDA is expected in the range of $250,000,000 to $275,000,000 with an EBITDA margin of 11% to 16 percent of sales. Holly Energy Partners reported EBITDA of $88,000,000 for the Q4 compared to $90,000,000 in the Q4 of last year. HEP EBITDA was impacted by lower volumes due to heavy plant maintenance across HFC's refining system.
Looking forward, we expect to bring in our Cushing Connect JV project on schedule and on budget. HEP expects to maintain its quarterly cash distribution of $0.6725 throughout 2020, while generating a coverage ratio of 1.0x for the full year of 2020. During the quarter, we announced and paid a dividend of $0.35 per share totaling $57,000,000 and repurchased $61,000,000 of HFC common stock. Our strong cash generation for the full year 2019 allowed us to return $758,000,000 in cash to shareholders through dividends and share repurchases. In November of 2019, we announced our new renewable diesel unit project at the Navajo Refinery.
We are in the early construction process and anticipate commissioning during the Q1 of 2022. The RDU will have production capacity of 125,000,000 gallons per year and allow HFC to process soybean oil and other renewable feedstocks into renewable diesel. This investment will provide HollyFrontier the opportunity to provide high quality low carbon fuels for our customers while substantially mitigating our annual RIN purchase obligation. Project is attractive for three reasons. It mitigates our exposure to RINs.
It is expected to generate an approximate 30% IRR and has a favorable ESG profile as it reduces greenhouse gas emissions attributable to middle distillates. Looking to 2020, we expect that demand for gasoline and diesel will strengthen into the driving season, margins for finished lubricants will remain strong and the base oil market will improve as existing capacity absorbs growing demand for premium base oils. As most of you are likely aware, I rejoined HollyFrontier as its CEO effective January 1 this year. I've maintained close contact with the company and its management team as a Director of both HFC and HEP during the past 4 years. And I'm fortunate to have the chance to join this management team in a leadership role.
Obviously, there are differences both inside and outside the company since I was last its CEO, most notably our investment in the finished lubricants business via PCLI, Sonneborn and Red Giant. These are good businesses and together with our Group 1 Lubricants business in Tulsa provide a growing platform for participation in a more differentiated specialties market. The decline in base oils margin over the past couple of years has provided a headwind for this segment, but our product offerings are strong and I anticipate growth in earnings and value coming out of our HFLSP business. More broadly, I expect to execute a corporate strategy that emphasizes continuing operational improvement within our manufacturing operations, capital discipline and return of capital to shareholders, investment in our renewables business to create scale and advantage within feedstock selection and processing, continued growth of our midstream business, particularly in applications where we're able to integrate midstream services presently provided by 3rd parties. I believe we have attractive organic opportunities to generate growth at HollyFrontier, but these will compete with our goal of providing strong cash returns to shareholders as we consider capital allocation.
So now I'll turn the call over to Tom for an update on our commercial operations.
Thanks Mike. For the Q4 of 2019, we ran 381,000 barrels per day of crude oil composed of 38% Permian, 17% WCS and black wax crude oil. Overall, lower throughput volume was primarily due to planned turnarounds at our El Dorado, Cheyenne and Woods Cross Refinery. Our average laid in crude cost was under WTI by $2.71 in the Rockies, dollars 0.24 in the mid East and over WTI by $2.33 in the Southwest. For the Q4 of 2019, we ended the year with gasoline inventories at high levels and gasoline cracks at low levels in most of our markets.
In the Magellan system, we ended the quarter at 9,800,000 barrels, roughly 3,200,000 barrels higher than the Q3 of 2019. Diesel inventories ended the quarter at 6,900,000 barrels, some 800,000 barrels lower than 3rd quarter levels. Days supply of both gasoline diesel in the group finished at 33 and 43 days respectively. 4th quarter 3/2/1 cracks in the Mid Con were $14.57 $27.90 in the Southwest and $28.36 in the Rockies. Crude differentials widened across the heavy barrels during the Q4.
In the Canadian market, 4th quarter differentials for WCS at Hardisty ended the year at a $20.20 discount. Recently, we have seen this differential compress to the $18 range due to concerns around of apportionment on the Enbridge system remain high. And in March, we were announced that apportionment would be 43% for heavy crude oils. We continue to be able to purchase and deliver adequate volumes of price advantaged heavy crude oil from Canada to meet our refining needs. Midland differentials averaged the quarter at $0.65 over Cushing and we see the same differential trading at similar levels for the remainder of the year.
Canadian heavy and sour runs averaged 52,000 barrels per day at our plants in the Mid Con and Rockies. This was below normal levels as both El Dorado and Cheyenne were down for plain maintenance in this period. We refined approximately 143,000 barrels per day of Permian crude in our refining system composed at 85,000 barrels per day at the Navajo complex and 58,000 barrels per day by the Centurion pipeline at our El Dorado refinery. Our RINs expense for the quarter was $31,000,000 For the full year 2019, we ran 400 and 28,000 barrels per day compared to 432,000 barrels per day for 2018. Our consolidated operating expense per throughput barrel was $6.54 for 2019 compared to $6.24 in 2018, driven primarily by heavy maintenance.
Looking to 2020, we have a turnaround scheduled in September at our Mississauga base oil plant. With our light planned maintenance schedule, we anticipate running healthy utilization rates across the refining system with improved operating expenses in all of our regions. We expect to run between 425,000 barrels per day for the quarter Q1 of 2020. And with that, let me turn the call over to Rich.
Thank you, Tom. As Mike mentioned, the Q4 included a few unusual items. Pretax earnings were negatively impacted by a lower of cost or market charge of $31,000,000 and Sonneborn integration costs of $4,000,000 which were partially offset by an $18,000,000 gain from the reinstitution of the biodiesel blenders tax credit for the years 2018 2019. A table of these items can be found in our press release. Cash flow from operations was $137,000,000 in the 4th quarter and over $1,500,000,000 for the full year, which included turnaround spending of $166,000,000 $318,000,000 respectively.
HollyFrontier standalone capital expenditures totaled $92,000,000 for the quarter $264,000,000 for the full year 2019. During the Q4, we returned a total of $116,000,000 of cash to shareholders comprised of a $0.35 per share regular dividend totaling $57,000,000 and share repurchase totaling $61,000,000 For the full year of 2019, HollyFrontier paid $225,000,000 in regular dividends and spent $533,000,000 repurchasing approximately 11,000,000 shares of common stock for a total cash return of 758,000,000 dollars As of December 31, our total cash balance stood at $885,000,000 which is above our target cash balance of 500,000,000 dollars This strong cash position along with our undrawn $1,350,000,000 credit facility puts our total liquidity over $2,200,000,000 As of December 31, we have $1,000,000,000 of standalone debt outstanding and a debt to capital ratio of 14%. HEP distributions received by HollyFrontier during the 4th quarter totaled $38,000,000 HollyFrontier owns 59 600,000 HEP Limited Partner Units, representing 57 percent of HEP's LP units with value of $1,400,000,000 as of last 9th close. With respect to capital spending in 2020, we expect to spend between $270,000,000 $300,000,000 for capital at HollyFrontier Refining and Marketing, $130,000,000 to $150,000,000 in Renewables, dollars 40,000,000 to $60,000,000 at HollyFrontier Lubricants and Specialty Products, and $125,000,000 to $150,000,000 for turnarounds and catalysts.
With respect to the Arteaga renewable diesel unit, we expect to realize the majority of this year spending in the second half of twenty twenty and the balance of the capital in 2021. At HEP, we expect to spend $8,000,000 to $12,000,000 for maintenance capital, dollars 45,000,000 to $50,000,000 for expansion capital, which includes our investment in the Cushing Connect joint venture and $5,000,000 to $7,000,000 for refinery processing unit turnarounds. And with that, James, we're ready to take questions.
And our first question comes from the line of Brad Heffern from RBC Capital Markets. Go ahead please. Your line is open.
Hey, good morning everyone. Mike, appreciate the comments earlier about the strategy going forward with you back in the CEO seat. I noticed that you didn't mention M and A at all. So I was wondering if you could talk through your thoughts on the strategy going forward, whether we're likely to see more lubes M and A. And then maybe if you could talk about the relatively large number of assets that seem to be on the market in your region and how you feel about a new refining acquisition?
Start out with lubricants.
I do see opportunities within the lubricants and specialties space, particularly for bolt on acquisitions that fill out product offerings and geographic market opportunities. As to significant manufacturing of base oil, I think that's less likely for us. Moving on to the refineries within the market, I think those are sort of a case by case basis. But what we see internally is that there's tremendous opportunity for organic improvement and significantly in the renewable diesel space and renewable fuels. So I think our attention is going to be focused toward those areas that I called out and opportunistically in terms of external refining M and A.
Okay. Thanks for that. And then on the renewable diesel front, I guess can you talk about the advantages that you have at the Navajo facility either in terms of location or feedstock? And then is this just the start of a broader push into renewable diesel and we'll potentially see more units being constructed? Thanks.
You bet, Brad. I'm going to ask Tom Creery to answer that question as he's leading the renewables effort.
Good morning, Brad. To answer the first part, Novel presents us with some great advantages that we're willing to take advantage of at this point in time. And mostly it revolves around refinery assets in terms of utilities, people. From a location standpoint, we've got lots of land, the ability to build rail facilities. We've got the permits already.
So from an environmental, governmental standpoint, from a city and town standpoint, everybody is excited about this project as we are. And it just was a good fit for us to start the renewable diesel effort at that location. In terms of future expansions, still early days as far as we're concerned. We're sort of getting our we've just broken ground on the first one and it's and we're looking over the tips of our skis to see what else is on the horizon. But it's just probably a little bit too early at this point in time to make any major comments about expansion into that business.
Having said that, we are excited about it and we see a great deal of opportunity within it.
Yes. If I can elaborate, Brad, we view this as a business and not a project. And so I think you can read between the lines. We're going to be reasonably aggressive and looking for additional opportunities.
Thank you.
Our next question comes from the line of Manav Gupta from Credit Suisse. Go ahead please. Your line is open.
Hi, guys. Quick question. Looking at the turnaround expense guidance you issued, it appears it's almost 50% lower than what you ended up spending in 2019. So should we assume 2020 would be a year of much lower turnarounds for your refining system?
Yes, Pranav, that's correct. It's Rich. We've got really one significant turnaround at our Mississauga base off facility, which is scheduled for the Q4. And then we do have some spending getting ready for 2021 as well as some catalyst change.
Thanks, Rich. A quick follow-up here. When we're looking at the Southwest margins, what you have issued for the month of January, they look particularly strong. And I'm trying to understand, is it your West Coast leverage? What's driving such strength in the West Coast margins?
And should we expect you to capture most of them because you have no turnaround at Navajo in 1Q?
Yes, Manav, it's Tom. You're correct. We are taking advantage especially in the Phoenix market with the situation that we saw in the Q4 on the West Coast where there were some refinery problems. We saw very high crack spreads for gasoline and diesel in the Phoenix market. And because of turnarounds in the Q1 for some of the Southwest refiners, we're seeing those differentials continue into January early February at this point in time.
We'll have to see what happens for the rest of the quarter. But right now, it's pretty good on that aspect. The other big factor is that we geared up volume at our Orla truck stop to supply diesel into the drilling in the Permian Basin. And probably in the Q4 and into the Q1, we got higher volumes there than we had seen prior to. That's probably one of our best netbacks on diesel as you can well imagine.
So that was a contributing factor as well.
Thank you for taking my questions.
Our next question comes from the line of Roger Read with Wells Fargo. Go ahead please. Your line is open.
Yes, thanks. Good morning and Mike, welcome back. Good to have you.
Thank you, Roger.
I'd like to carry on a little bit more with the second question from Brad and your answer on refining a greater internal focus. I was just curious, what do you think the best internal opportunities are? And from our perspective, how should we be thinking about measuring that? Is it a I mean, I generally think of it as an uptime issue or a lower OpEx, but I was just curious how you're approaching it?
Right. So one of the great internal opportunities that we have is exactly that. It's uptime, it's reliability. And so we're going to be spending obsessive focus on that and some internal investment as well to make for more robust facilities. Beyond that, and I think we'll probably get to it, but Tier 3 presents octane related opportunities that I know you're all aware of.
As people post treat their gasoline, the octane premium has grown and we're seeing opportunities within the markets that we serve. So I think probably between reliability and octane that encompasses a lot of the internal opportunity for investment.
And should we consider that within the CapEx guidance, the $270,000,000 to $300,000,000 for refining plus whatever turnaround expense might be kind of targeted that direction?
Yes, that's correct.
Okay. And then kind of the second question here on an OpEx front. Natural gas is about as cheap as it's been. Just curious if there are any ways you can take advantage of that other than just sort of a straight line. It's a buck cheaper than a year ago, so that's worth something to you in terms of the OpEx thought process.
Roger, yes, this is Rich. Yes, it's a buck cheaper than last year. Additionally, I think we've finally fully anniversaried a very bad set of natural gas hedges that we had put on 4, 5 years ago. So we should get a little bit better benefit than just the straight tailwind that will be in the order of $10,000,000 to $20,000,000 a
Our next question comes from the line of Paul Cheng with Scotiabank. Go ahead, please. Your line is open.
Hey guys, good morning and my welcome back. Good morning. My just curious that I mean I think at least that for the last 10 plus years you guys have been talking about uptime and reliability is a focus, is an opportunity, but that's always seems to be the case. So just curious that when you are doing the internal review and looking at what is the root cause of the underperformance or at least not the consistent performance of your refining operation? Is it hardware?
Is it culture? Is it people? Or is it a combination of all? And what we need, if you've been trying for the last 10 years without really that significant success, I mean, why should we believe that this time is going to be better? What initiative you're going to be putting pace that to ensure it's going to work this time?
Well, that's the center of the target, Paul, that's for sure. Listen, here's the deal. Refining reliability and safety and environmental impact are core to any refining manufacturer, ourselves included. And those last 2 or 3 percentage points of utilization and availability are incredibly valuable, particularly during high margin seasons. So that lost opportunity hurts badly, particularly when self induced.
What I would tell you is your question is what's different. And I understand that this is going to be a show me market. I don't expect people to pencil it into forward models until we demonstrate it. But we are aggressively pursuing and implementing an operational excellence program across our fleet of refineries. That's different from the way we operated in the past, which was on a more decentralized basis.
We've invested in a lot more talent centrally to assist our operations and we're putting capital into these businesses on a more aggressive basis to effectively add robustness to refining process. So we have a focused and structured program. I believe that's different from what we've had in the past and we're going to pursue it like a religion.
My on the renewable business, since that is the economic to actually that I think is solely driven by the government mandate. So how big is the business that you will feel comfortable if there's opportunity? I mean how big do you want it to be as a percentage of your overall business?
Look, I think Tom said it properly that we're going to walk before we run. But I could be very comfortable in having 2 or 3 such plants of 100,000,000 gallons a year. And as a percentage of overall production capacity, Paul, I think you'd appreciate it's small. That might be 30,000, 40,000 barrels out of 400,000, but it addresses a growing need, yes, supported by government programs necessarily, but also with some other attractive attributes that I think particularly our host refining facilities can be very synergistic with as compared to greenfield investment in this space. So we're excited about it.
It's new. It's a growth vector, if you will. But I don't expect it will be anywhere the size of our petroleum refining operations certainly within the next few years.
And for the current plant you are building that they are using the soybean or the other plant based feedstock. Would they have the capacity or capability to also use the animal fats or the waste oil, cooking oil that kind of feedstock?
Good morning, Paul. It's Tom Creery. Yes, we are going to have flexibility to run a variety of different fuels. We've looked at soybean to begin with, but that doesn't exclude distiller corn oil, tallow and other things as well. I think a big key in these renewable diesel plants is fuel flexibility and we're certainly going to build towards that to be able to take advantage and remain competitive in the marketplace.
So Tom, so they will also be able to process the animal fat, those kind of ways, right? Is that Yes.
We're currently looking at tallow right now, and we haven't looked at some of the other ones such as hog fat or things like that. We're just sticking with the beef products for right now.
Paul, for years, we've made a living by optimizing crude slates. We see this as very similar. We need to pre invest or we need to invest in pretreatment and metallurgy in order to give us that flexibility. But that's the goal is to be able to optimize among a whole variety of different feeds according to price and what are called CI indexes.
Thank you. A final question for me. My one of your competitor, I think that recently that they did something pretty interesting. They did a wholesale refinery, IU, and they just did a joint venture on we find on the retail store with another operator in California. So is there some kind of business or that opportunity that you guys may look into in your local market?
Or is there any opportunity to do something like that? Well, I
don't know if that's unique to California. It doesn't sound like it is. Obviously, we're not present in that market. But I'd say real investment in retail is probably less likely for us, but JV in terms of supply and getting closer to end use markets is attractive, but not something we currently have in the hopper.
Thank you.
Thank you.
Our next question comes from the line of Theresa Chen with Barclays. Go ahead please. Your line is open.
Good morning and welcome back Mike.
Thank you, Theresa.
So follow-up on the discussion of renewable diesel, I guess, kind of taking Paul's question and cutting it a different way. As you put together your plans for this project and getting into this market, can you help us quantify what your framework is for the supply and demand balance for the next, call it, like 1 to 2 years? And how sustainable do you think the margins are?
Theresa, good morning. It's Tom. I think for the next 1 to 2 years, if you just look at the California demand at this point in time and you look at the plants that are actually going to come on stream and be able to produce into that market, there's going to be a shortage of renewable diesel into that market. After that, there's a lot of different factors that are going to come into play whether or not other states adopt an LCFS model such as Washington, Oregon, what's happening in the Canadian and also the international market as well. So there's a lot of question marks.
But as far as we're concerned or what we're looking at, we think that early entrance to market is key. We're going to be stream relatively quickly as compared to some of our other peers and we're going to be able to capture some of those early days economics and then just move forward and be able to sell and have the capability to sell into the markets that are going to give us the highest netback. But going forward, when you see things like renewable jet as well as renewable diesel, there seems to be a lot more demand out there than there is supply at this point in time.
And will your facility also be creating renewable naphtha as a byproduct?
We will. It's not large volumes as you can well imagine. And we haven't made a decision as what we're going to do with that renewable diesel weather to sell it outside the refinery or use it internally and capture the benefits thereof.
Got it. And my follow-up question is related to the base oil market. Mike, related to your comments about how it's going to improve as existing capacity absorbs growing demand for premium base oils. The line of sight that you have in terms of timeline and just what inning we're at currently, can you give us some color on that?
Hey, Theresa, it's Rich. So yes, we are expecting improvement year over year. We continue to believe that we saw the true through seasonally adjusted trough in supply demand in the base oil market in the spring of 2019. As normal, we saw seasonal weakness in late December early January and this was compounded by the timing of the Chinese New Year. But I'm happy to say we've seen a nice rebound based on prices and cracks really in the last few weeks, so call it early February.
Look, we're expecting this to your point about baseball analogies. This is probably the bottom of the first inning. So we have a ways to go here. But again, we are expecting year over year improvement.
Great. Thank you.
Our next question comes from the line of Neil Mehta with Goldman Sachs. Go ahead please. Your line is open.
Hey guys. Mike, welcome back. It's great to spend time with you again and wish George well here in his next phase and retirement. Mike, I guess the first question for you here would be just going through your 2020 capital spend budget. I know you guys read it out on the call, but could you just take us through it with a little more granularity, go segment by segment?
What are the important moving pieces and kind of flush it out for?
Sure, Neal, it's Rich. Go ahead, Rich. So as we said, dollars 2.78 to about $300,000,000 within our refining business. To some of the earlier discussion, that's primarily reliability, safety and environmental spending. The renewable diesel unit we obviously talked about that will be about $130,000,000 to $150,000,000 this year.
At HEP then, the majority of the spend there will be related to the Cushing Connect joint venture. And then I mentioned turnarounds in Catalyst before, call it, a third of that or so is going to be the Mississauga turnaround, a third of that is pre spending. We have a very heavy year in 2021, so it's getting ready for that. And then call it a third
of that is catalyst. Okay.
All right. That's helpful. And then the follow-up is just want to talk about these 3 small refinery exemptions that were struck down in a court ruling recently. Can you talk about what that means for HollyFrontier, but at a bigger picture level, what that means for the RINs market on a go forward basis? And is there a risk that we're going to be talking about higher RINs prices on a go forward basis?
Hey, Neil, it's Rich again. So yes, as you mentioned, on the 24th January, the 10th Circuit hand down a decision which vacated the SREs for 3 refineries, which included our Cheyenne and Woods Cross plants for the year of 2016. We believe the decision is wrong. The Renewable Fuel Standard hold that refineries can apply for an SRE at any time and the EPA should be able to grant them at any time without any regard to whether refinery has received an exemption each year since the beginning of the program. The EPA also correctly applied the standard in granting SREs, which is disproportionate economic hardship.
So we expect to appeal for en banc hearing and we urge the EPA to do so as well. So Neil to your point on the broader market, look on its face this decision only applies to the 10th Circuit. However, the national implications are pretty clear and there's no realistic way this could or would be applicable only within a few states. Obviously, DPA is worried they can't make up the lost volumes for SREs. They showed they can do that with a 2020 RVO, exemptions.
We also urge EPA to look at that reallocation of forecasted SREs in 2020. Some broad comment, look, Neil, the RFS is really poorly constructed and it serves as a tax on consumers and jobs. The SREs have helped a lot, while having absolutely no impact on the amount of biofuel produced in the U. S. So we're expecting and urge EPA to take some corrective action here to avoid some of the implications you're probably worried about.
Yes. No, it's helpful. It just strikes me that this is going to become a topic that we put away for a while that has the risk of reemerging as a focus topic. So appreciate it.
Yes. That's a fair comment. It's not just 3 refiners in one particular year obviously. This has broad reaching consequences and I believe that we as an industry will be working hard legally and through advocacy to get to a little more sane solution.
Great. Thanks, team.
And our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Go ahead please. Your line is open.
Great. Thanks for taking my questions here. And Mike, welcome back. Thanks, Matt. Just maybe just to continue on Neil's question there.
What happens to that to those 20 reserve and pay those back? Could you just walk us through kind of the financial implications here?
Sure, Matti. It's Rich. So what I can tell you is that what we booked for those 2016 RINs was a little under $60,000,000 your question, to be honest, we have absolutely no idea what happens to these RINs. Obviously, there are no 2016 RINs in existence anymore. We don't know the EPA this was remanded back to the EPA for corrective action, but we have no idea what that action would look like.
And the reality is, obviously, we
don't think this is going
to stand up anyways. So at this point, there's no accounting or financial implication. We'll just have to stay tuned.
Yes. It's a bit of what's the value of 20 16 Super Bowl tickets. I don't know.
It's going to be
an interesting process to watch this unfold.
Sounds good. And then Rich, did you have a pretty big working capital benefit in 2019, maybe like a $250,000,000 tailwind? Can you hold things where they are in 2020 or would you expect a reversal?
Matthew, so yes, we had a little over $300,000,000 working capital benefit in 2020. I would expect we can hold the vast majority of that, probably not all of it. There was a little bit of inventory that we're able to pull and probably running a little below operating targets by the end of the year. So a little bit might need to go back in the tanks, but a lot of that came out of our lubricants business where we have very high working capital really throughout 2018 and we expect to hold that gain.
Sounds good. Thanks.
Thanks, Matthew.
Our next question comes from the line of Doug Leggate from Bank of America. Go ahead, please. Your line is open.
Thanks. Good morning everyone. And Mike, let me add my welcome back to you also. It's great to have you back in the seat. I got 2 questions, if I may.
The first is use of cash. You've obviously had a very strong balance sheet for quite a long time. It gives you a lot of options. I'm just curious how you think about that. Obviously, the lubes expansion in the last several years has been one potential use of cash going forward, but you've also been active with your buyback program.
So I'm just curious, how do you think about your balance sheet and how you might exploit where the share price is currently?
Yes. So the share price has fallen a bit recently obviously with most of the rest of the industry. We're looking forward at a fairly high CapEx year and growth within our renewables business. So those are competing uses of capital. Doug, with that said, our formula is pretty explicit in that we expect to grow the dividend annually and substantively.
And the remainder really will be a combination of share repurchase and growth investment and the 2 have to compete with each other. That's really not different in terms of priority than the company has had through the last few years. So I don't think that it's a meaningfully different capital allocation strategy. What might be different is probably our view of internal opportunity versus external opportunity. And I think that the internal needs and opportunities are simply greater.
Okay. We'll watch what interest that plays out. My last question or my second question really is really more about just your point about the recent sector performance. And I was reflecting back on the Analyst Day from 20 17. You obviously weren't in the chair at the time.
But when your announcement to leave was made in December 2015, the share price was about 10% higher. And wholly has underperformed pretty much all of your refining peers despite that toolbox. So I guess my question is, what can you do differently? What are you thinking about that? What is the investment case in your mind for Holly?
And if I can add a last piece to that, a flat share price for best part of 8 years, it's not in a market which is less than 4% energy. Is there any consideration that wholly could be a participant in consolidation but as a seller rather than a buyer? I'll leave it there. Thank you.
Okay. Well, that's a lot of question, Doug, and we'll take it head on. First off, the HollyFrontier was one of the great beneficiaries of inland crude differentials and we made a heck of a lot of money in monetizing those differentials for the direct benefit of our shareholders. A lot of that money was paid out in cash, not necessarily in share repurchase. And as such, I wouldn't expect it to affect share price on an ongoing basis.
Beyond that, we have put a good deal of money into a lubricants business that I think will have very substantial value to us as we rationalize it and improve it going forward. Clearly, the base oils margin has been a headwind for us. We expect that we'll get through that and demonstrate the value of what we purchased. As to what the investment case is for HollyFrontier, it really is around our portfolio of businesses, which we see as having substantial sum of the parts value. And I know it's on us to demonstrate that value, and we expect to do that.
Finally, your question was effectively are we part of industry consolidation? And what I would say is this, we're a public company. We're responsive to our shareholders. Our purpose is to make it expensive and valuable. And our Board will respond as they need to, but we're not selling the company and our purpose is to grow it and build it.
Thanks, Mike. Good luck.
Yes. Thank you.
Our next question comes from the line of Phil Gresh with JPMorgan. Go ahead please. Your line is open.
Yes. Hi. A couple of
quick questions. First, just coming back to the Rack Forward outlook of $250,000,000 to $275,000,000 of EBITDA. How should we think about that progressing through the year? And I'm specifically asking this because obviously the macroeconomic situation with China and all that has been in flux. So are you expecting more of a 2H weighted kind of recovery there or just any thoughts?
Thank you.
Hey, Phil, it's Rich. So seasonally, we'd expect the 2nd and the 3rd quarters, maybe late the Q1 to be the bulk or the best time of the year, call it 60%, 70% of the earnings. Keep in mind that we do have a turnaround at our Mississauga facility in the Q4 of 2020. Look, it's a big priority for us in the next few years to move our Rack Forward business so that it's less dependent on our own base oil production and we can minimize these kind of impacts. We're not quite there yet.
So that will exacerbate the Q4. And then Bill, to your point, look, we're closely watching the China situation, but I don't think we have any particular insight. We haven't seen any demand impact yet, but it's admittedly early days.
Okay, understood. My second question, I guess, is a follow-up to some of the other ones. But if I go back to the Analyst Day, a while back, and I believe there was a long term guidance that throughput could be 450,000 to 470,000 barrels a day. The CapEx could be $5.50 a barrel and it was $6.50 this year. So obviously, you've highlighted a couple of the things you're doing there.
But I mean, is that something we should be still thinking about as the bogeys for throughput and OpEx? This year is supposed to be a lower maintenance year and the Q1 is still below the $450,000,000 to $470,000,000 Maybe there's some seasonality to that, but just any thoughts on those targets?
Okay. I think those targets are still valid. The nameplate capacity of these plants has been crept up. And while the Q1 is a little lower, it reflects some lingering maintenance from turnaround season last year. But the opportunity that was laid out in 2017 in the Analyst Day, I think is very much valid.
The OpEx is probably higher as progression through time. But no, I see those as good targets for us.
Okay. Last question just for Rich. With the spending on the renewable diesel facility this year, the high level of turnarounds that you highlighted for 2021 and the cash on the balance sheet, is any of that cash being maintained above the normal $500,000,000 just because of these upcoming events? Or would you is there a willingness to use buybacks as a value creation tool and draw down that cash closer to the $500,000,000 as we look through 2020? Thanks.
Yes, Phil. I think in the first half of the year, that's a very fair comment, right? A lot of our spend this year is going to be back half loaded and then we've got a heavy turnaround season in the first half of twenty twenty one. So I'd expect we'll probably run a little more cash in the first half of twenty twenty. However, as Mike said, look, we're going to continue to use the buyback when we have excess cash to create value.
So we that's not been shut off. We're just trying to manage the ship correctly over the next 12 to 24 months.
Okay. Thank you.
Our next question comes from the line of Paul Sankey with Mizuho. Go ahead, please. Your line is open.
Yes. That's the Japanese pronunciation of Sankey. Hi, everyone. Hi, Paul. I actually was going to ask about the cash balance, which Phil very eloquently just did.
So I slightly have my question taken away from me, but Mike, welcome back. You know that if Rich softens up at all on the subject of rents, you can always bring back Doug Aaron, right? So you've always got that tool up your sleeve. Actually, given the cash balance question was asked, I did wonder, is there any perspective on how this dreadful RIN subject might change in the case of a surprise election outcome? I know it's already so involved that it's almost impossible to second guess, but I just wondered if there was one side or the other that might or not might be better for how that might resolve itself going forward?
Thanks.
Is one administration preferable to the other? I think we have seen both parties participate in this creation of the renewables fuel structure, if you will. And I don't know that it matters that much. Clearly, there's pressure toward carbon reduction and pressure toward a strong agricultural lobby. So we're trying to be responsive to that.
On the other side of it, our industry and we are providing very low cost, high capability fuels that really run this country. So there has to be balance. I think despite election rhetoric, there will be balance and occasionally we see this thing pop out like squeezing on a balloon in the 10th Circuit Court. It has to find a stable place in order for the industry to function and our purpose is to have a strong voice in that. I wish I could tell you where it's going, but I can't.
It obviously is impactful to our company and our shareholders, and we're working it hard.
Yes. I hear you, Mike. Thank you very much, and welcome back. Thanks. Thank you.
And our next question comes from the line of Chris Sighinolfi from Jefferies. Go ahead please. Your line is open.
Hey, good morning guys. Thanks for all the color. Rich, if I could circle back to LSP for a moment, I know your forecast for Rack Forward is an EBITDA forecast, but I did notice a pretty healthy step up or it seemed like maybe a reallocation of just depreciation between Rack Forward, Rack Back in the quarter versus prior quarters. I just point of clarification if I missed something in terms of either asset allocation or I guess simplistically what occurred there?
Bear with me one second, Chris. I'm just pulling the number out.
Sure.
So, yes, I think you had kind of a one off issue in the Q4. I would expect that to revert. Yes, to call it the $12,000,000 to $15,000,000 level in depreciation for the Rack Forward business. The big driver there in the Q4 was some environmental accrual, which was part of purchase accounting at our Sonneborn entity. So that would be the big difference from the 3rd to the 4th quarter.
Okay. Yes, I noticed that the total level had remained roughly flat. So it seemed like an allocation. I figured it was something on the accounting front. I guess sticking on this with a quick follow-up is just you noted earlier inventory declines across LSB was one of the contributors to working capital benefit in 'nineteen.
I'm just curious as an update on where we stood. I know you gave some forecast for Sonneborn synergy and ultimate Rack Forward contribution. Any update on that would be great.
Yes. So I think look, our long term view is that this is still a $275,000,000 to $300,000,000 business. The difference, I think Chris, to your point versus where we're at in 2020 is the Mississauga turnaround, which I already mentioned. And second, look, we've got some opportunity to take expense out of this business still and we're going to we plan to work that over the next 12 to 24 months. The last piece to your point is on Sonneborn synergies.
We're at a run rate right now, call it $12,000,000 to $13,000,000 versus as what you'll recall what we guided at $20,000,000 a year. The next 8 or so will probably become a little bit slower, so call it over the next 12 to 18 months. And that's really the optimization around intermediate streams between Petrolia, Tulsa and Mississauga. We've done some of that really out of the Tulsa plant already, and we're going to keep working that going forward.
Does the full attainment of that number, Rich, just is it predicated on just a normal operating framework where you're not seeing meaningful turnaround activity? Yes. Yes. Okay. All right.
Thanks again for the time.
Thanks, Chris.
And there are no further questions at this time. I'd like to turn the call back over to Craig Biery for closing remarks.
Thanks everyone. We appreciate you taking the time to join us on today's call. If you have any follow-up questions as always reach out to Investor Relations. Otherwise, we look forward to sharing our Q1 results with you in May.
Thank you. And this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.