Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 2, 2018 (August 2, 2018)

 
HOLLYFRONTIER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or other
jurisdiction of incorporation)
001-03876
(Commission File Number)
75-1056913
(I.R.S. Employer
Identification Number)

2828 N. Harwood, Suite 1300
Dallas, TX
(Address of principal
executive offices)
 

75201
(Zip code)

Registrant’s telephone number, including area code: (214) 871-3555

Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company        ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨
  



Item 2.02. Results of Operations and Financial Condition.

On August 2, 2018, HollyFrontier Corporation (the “Company”) issued a press release announcing the Company’s second quarter 2018 results. The press release also announced a regular quarterly dividend of $0.33 per share. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and incorporated herein in its entirety.

The information contained in, or incorporated into, this Item 2.02 is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference to such filing.


Item 9.01 Financial Statements and Exhibits.

(d)    Exhibits.
99.1
—    Press Release of the Company issued August 2, 2018.*

* Furnished herewith pursuant to Item 2.02.







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOLLYFRONTIER CORPORATION

By:    /s/ Richard L. Voliva III            
Richard L. Voliva III
Executive Vice President and
Chief Financial Officer

Date: August 2, 2018




EXHIBIT INDEX



Exhibit
Number    Exhibit Title

99.1

* Furnished herewith pursuant to Item 2.02.


Exhibit


Press Release
August 2, 2018
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12384624&doc=3

HollyFrontier Corporation Reports Quarterly Results and Announces Regular Cash Dividend

Dallas, Texas, August 2, 2018 ‑‑ HollyFrontier Corporation (NYSE:HFC) (“HollyFrontier” or the “Company”) today reported second quarter net income attributable to HollyFrontier stockholders of $345.5 million or $1.94 per diluted share for the quarter ended June 30, 2018, compared to $57.8 million or $0.33 per diluted share for the quarter ended June 30, 2017.

The second quarter results reflect special items that collectively increased net income by a total of $86.6 million. These items include a lower of cost or market inventory valuation adjustment that increased pre-tax earnings by $106.9 million and a $25.3 million reduction to RINs costs as a result of our Woods Cross refinery's small refinery exemption for the 2017 calendar year. These items were partially offset by $14.7 million in charges related to damages attributable to our Woods Cross refinery outage that started in March 2018, net of estimated insurance claims.

Excluding these items, net income for the current quarter was $258.9 million ($1.45 per diluted share) compared to $116.0 million ($0.66 per diluted share) for the second quarter of 2017, which excludes certain items that collectively decreased earnings by $58.2 million for the three months ended June 30, 2017. These items include an inventory valuation adjustment, a RINs cost reduction as a result of the small refinery exemption granted to our Cheyenne refinery for the 2016 calendar year, Petro-Canada Lubricants Inc. ("PCLI") acquisition and integration costs, long-lived asset impairment charges and incremental cost of products sold attributable to our PCLI inventory value step-up. Adjusted for these items, net income increased $142.9 million compared to the same period of 2017 due principally to higher margins in our refining business. Total operating expenses for the quarter were $296.2 million compared to $316.3 million for the second quarter of last year.

HollyFrontier’s President & CEO, George Damiris, commented, “HollyFrontier's second quarter reflects our ability to take advantage of both location and quality discounts in the crude oil markets. Within our lubricants business, healthy finished product demand and our integrated business model are generating consistent earnings despite a weak base oil market. Going into the second half of the year, we expect the macro environment to remain very positive and look forward to finishing the year strong."

The Refining and Marketing segment reported adjusted EBITDA of $384.8 million compared to $192.8 million for the second quarter of 2017. This increase was primarily driven by lower laid-in crude costs which resulted in a consolidated refinery gross margin of $16.57 per produced barrel, a 46% increase compared to $11.36 for the second quarter of 2017. Crude oil charges averaged 463,480 barrels per day (“BPD”) for the current quarter compared to 467,090 BPD for the second quarter 2017. Our Woods Cross refinery ran at reduced rates throughout the quarter as a result of the outage beginning in March 2018. We expect to increase production during August and return to full run rate by early September.

Our Lubricants and Specialty Products segment reported EBITDA of $39.4 million, driven by consistent Rack Forward sales volumes and margins. Rack Forward EBITDA was $51.9 million for the quarter and HollyFrontier continues to expect Rack Forward EBITDA in the $190.0 million to $210.0 million range for 2018. Rack Back EBITDA was negatively impacted by weakness in the base oil markets. Additionally, we closed on our previously announced acquisition of Red Giant Oil Company on August 1, 2018.


1



Holly Energy Partners, L.P. ("HEP") reported EBITDA of $81.9 million for the second quarter compared to $75.1 million in the second quarter of 2017. This growth was driven by the acquisition of the SLC and Frontier Pipelines as well as volume growth in HEP’s Permian crude gathering system.

For the second quarter of 2018, net cash provided by operations totaled $394.4 million. During the period, we declared and paid a dividend of $0.33 per share to shareholders totaling $58.6 million and spent $28.6 million in stock repurchases. At June 30, 2018, our cash and cash equivalents totaled $979.9 million, a $198.4 million increase over cash and cash equivalents of $781.5 million at March 31, 2018. Additionally, our consolidated debt was $2,387.8 million. Our debt, exclusive of HEP debt, which is nonrecourse to HollyFrontier, was $992.2 million at June 30, 2018.

HollyFrontier also announced today that its Board of Directors declared a regular quarterly dividend of $0.33 per share. The dividend will be paid on September 20, 2018 to holders of record of common stock on August 23, 2018.

The Company has scheduled a webcast conference call for today, August 2, 2018, at 8:30 AM Eastern Time to discuss second quarter financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1200322&tp_key=944875c65d. An audio archive of this webcast will be available using the above noted link through August 16, 2018.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day (“BPSD”) refinery located in El Dorado, Kansas, two refinery facilities with a combined capacity of 125,000 BPSD located in Tulsa, Oklahoma, a 100,000 BPSD refinery located in Artesia, New Mexico, a 52,000 BPSD refinery located in Cheyenne, Wyoming and a 45,000 BPSD refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier, through its subsidiary, owns Petro-Canada Lubricants Inc., whose Mississauga, Ontario facility produces 15,600 barrels per day of base oils and other specialized lubricant products, and also owns a 57% interest and a non-economic general partner interest in Holly Energy Partners, L.P.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, effects of governmental and environmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company’s capital investments and marketing strategies, the Company’s efficiency in carrying out construction projects, the ability of the Company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations, the possibility of terrorist and cyber attacks and the consequences of any such attacks, general economic conditions and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


2



RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)
 
Three Months Ended
June 30,
 
Change from 2017
 
2018
 
2017
 
Change
 
Percent
 
(In thousands, except per share data)
Sales and other revenues
$
4,471,236

 
$
3,458,864

 
$
1,012,372

 
29
 %
Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
3,595,916

 
2,753,459

 
842,457

 
31

Lower of cost or market inventory valuation adjustment
(106,926
)
 
83,982

 
(190,908
)
 
(227
)
 
3,488,990

 
2,837,441

 
651,549

 
23

Operating expenses
296,215

 
316,261

 
(20,046
)
 
(6
)
Selling, general and administrative expenses
68,675

 
59,803

 
8,872

 
15

Depreciation and amortization
110,379

 
105,282

 
5,097

 
5

Asset impairment

 
19,247

 
(19,247
)
 
(100
)
Total operating costs and expenses
3,964,259

 
3,338,034

 
626,225

 
19

Income from operations
506,977

 
120,830

 
386,147

 
320

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Earnings of equity method investments
1,734

 
4,053

 
(2,319
)
 
(57
)
Interest income
2,934

 
176

 
2,758

 
1,567

Interest expense
(32,324
)
 
(29,645
)
 
(2,679
)
 
9

Gain (loss) on foreign currency transactions
(325
)
 
10,328

 
(10,653
)
 
(103
)
Other, net
1,364

 
327

 
1,037

 
317

 
(26,617
)
 
(14,761
)
 
(11,856
)
 
80

Income before income taxes
480,360

 
106,069

 
374,291

 
353

Income tax expense
117,447

 
31,996

 
85,451

 
267

Net income
362,913

 
74,073

 
288,840

 
390

Less net income attributable to noncontrolling interest
17,406

 
16,306

 
1,100

 
7

Net income attributable to HollyFrontier stockholders
$
345,507

 
$
57,767

 
$
287,740

 
498
 %
 
 
 
 
 
 
 
 
Earnings per share attributable to HollyFrontier stockholders:
 
 
 
 
 
 
 
Basic
$
1.96

 
$
0.33

 
$
1.63

 
494
 %
Diluted
$
1.94

 
$
0.33

 
$
1.61

 
488
 %
Cash dividends declared per common share
$
0.33

 
$
0.33

 
$

 
 %
Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
175,899

 
176,147

 
(248
)
 
 %
Diluted
177,586

 
176,302

 
1,284

 
1
 %
EBITDA
$
602,723

 
$
224,514

 
$
378,209

 
168
 %
Adjusted EBITDA
$
485,256

 
$
306,069

 
$
179,187

 
59
 %



3



 
Six Months Ended
June 30,
 
Change from 2017
 
2018
 
2017
 
Change
 
Percent
 
(In thousands, except per share data)
Sales and other revenues
$
8,599,663

 
$
6,539,347

 
$
2,060,316

 
32
 %
Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)

6,943,041

 
5,394,634

 
1,548,407

 
29

Lower of cost or market inventory valuation adjustment

(210,764
)
 
95,805

 
(306,569
)
 
(320
)
 
6,732,277

 
5,490,439

 
1,241,838

 
23

Operating expenses
616,503

 
623,987

 
(7,484
)
 
(1
)
Selling, general and administrative expenses
133,339

 
117,051

 
16,288

 
14

Depreciation and amortization
214,720

 
201,322

 
13,398

 
7

Asset impairment

 
19,247

 
(19,247
)
 
(100
)
Total operating costs and expenses
7,696,839

 
6,452,046

 
1,244,793

 
19

Income from operations
902,824

 
87,301

 
815,523

 
934

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Earnings of equity method investments
3,013

 
5,893

 
(2,880
)
 
(49
)
Interest income
5,524

 
995

 
4,529

 
455

Interest expense
(65,047
)
 
(56,803
)
 
(8,244
)
 
15

Loss on early extinguishment of debt

 
(12,225
)
 
12,225

 
(100
)
Gain on foreign currency transactions
5,235

 
395

 
4,840

 
1,225

Gain on foreign currency swap contracts

 
24,545

 
(24,545
)
 
(100
)
Other, net
2,710

 
1,397

 
1,313

 
94

 
(48,565
)
 
(35,803
)
 
(12,762
)
 
36

Income before income taxes
854,259

 
51,498

 
802,761

 
1,559

Income tax expense
202,484

 
15,207

 
187,277

 
1,232

Net income
651,775

 
36,291

 
615,484

 
1,696

Less net income attributable to noncontrolling interest
38,177

 
23,992

 
14,185

 
59

Net income attributable to HollyFrontier stockholders
$
613,598

 
$
12,299

 
$
601,299

 
4,889
 %
 
 
 
 
 
 
 
 
Earnings per share attributable to HollyFrontier stockholders:
 
 
 
 
 
 
 
Basic
$
3.47

 
$
0.07

 
$
3.40

 
4,857
 %
Diluted
$
3.44

 
$
0.07

 
$
3.37

 
4,814
 %
Cash dividends declared per common share
$
0.66

 
$
0.66

 
$

 
 %
Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
176,256

 
176,141

 
115

 
 %
Diluted
177,820

 
176,490

 
1,330

 
1
 %
EBITDA
$
1,090,325

 
$
284,636

 
$
805,689

 
283
 %
Adjusted EBITDA
$
800,911

 
$
391,529

 
$
409,382

 
105
 %


Balance Sheet Data
 
June 30,
 
December 31,
 
2018
 
2017
 
(In thousands)
Cash and cash equivalents
$
979,872

 
$
630,757

Working capital
$
2,146,625

 
$
1,640,118

Total assets
$
11,281,352

 
$
10,692,154

Long-term debt
$
2,387,759

 
$
2,498,993

Total equity
$
6,403,643

 
$
5,896,940



4




Segment Information

In the fourth quarter of 2017, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our business. Accordingly, our Tulsa refineries' lubricants operations, previously reported in the Refining segment, are now combined with the operations of our Petro-Canada Lubricants business (acquired February 1, 2017) and reported in the Lubricants and Specialty Products segment. Segment information for the three and six months ended June 30, 2017 has been retrospectively adjusted to reflect our current segment presentation.

Our operations are organized into three reportable segments, Refining, Lubricants and Specialty Products and HEP. Our operations that are not included in the Refining, Lubricants and Specialty Products and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under Corporate, Other and Eliminations column. The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and HFC Asphalt (aggregated as a reportable segment). Refining activities involve the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. HFC Asphalt operates various terminals in Arizona, New Mexico and Oklahoma.

The Lubricants and Specialty Products segment involves PCLI's production operations, located in Mississauga, Ontario, that
include lubricant products such as base oils, white oils, specialty products and finished lubricants and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States, Europe and China. Additionally, the Lubricants and Specialty Products segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America.

The HEP segment involves all of the operations of HEP, a consolidated variable interest entity, which owns and operates logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery process units in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The HEP segment also includes a 75% interest in UNEV Pipeline, LLC (an HEP consolidated subsidiary), and a 50% ownership interest in each of Osage Pipeline Company, LLC and Cheyenne Pipeline LLC. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations. Due to certain basis differences, our reported amounts for the HEP segment may not agree to amounts reported in HEP's periodic public filings.




5



 
 
Refining
 
Lubricants and Specialty Products
 
HEP
 
Corporate, Other and Eliminations
 
Consolidated Total
 
 
(In thousands)
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
Sales and other revenues:
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
 
$
3,987,115

 
$
459,405

 
$
24,746

 
$
(30
)
 
$
4,471,236

Intersegment revenues
 
$
91,866

 
$
8,284

 
$
94,014

 
$
(194,164
)
 
$

 
 
$
4,078,981

 
$
467,689

 
$
118,760

 
$
(194,194
)
 
$
4,471,236

Cost of products sold (exclusive of lower of cost or market inventory)
 
$
3,394,853

 
$
373,141

 
$

 
$
(172,078
)
 
$
3,595,916

Lower of cost or market inventory valuation adjustment
 
$
(106,926
)
 
$

 
$

 
$

 
$
(106,926
)
Operating expenses
 
$
262,558

 
$
19,905

 
$
34,533

 
$
(20,781
)
 
$
296,215

Selling, general and administrative expenses
 
$
26,201

 
$
35,257

 
$
2,673

 
$
4,544

 
$
68,675

Depreciation and amortization
 
$
72,989

 
$
10,020

 
$
24,609

 
$
2,761

 
$
110,379

Income (loss) from operations
 
$
429,306

 
$
29,366

 
$
56,945

 
$
(8,640
)
 
$
506,977

Earnings of equity method investments
 
$

 
$

 
$
1,734

 
$

 
$
1,734

Capital expenditures
 
$
42,188

 
$
16,842

 
$
18,957

 
$
1,950

 
$
79,937

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
Sales and other revenues:
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
 
$
2,999,054

 
$
444,000

 
$
15,990

 
$
(180
)
 
$
3,458,864

Intersegment revenues
 
$
105,545

 
$

 
$
93,153

 
$
(198,698
)
 
$

 
 
$
3,104,599

 
$
444,000

 
$
109,143

 
$
(198,878
)
 
$
3,458,864

Cost of products sold (exclusive of lower of cost or market inventory)
 
$
2,615,937

 
$
317,921

 
$

 
$
(180,399
)
 
$
2,753,459

Lower of cost or market inventory valuation adjustment
 
$
82,794

 
$
1,188

 
$

 
$

 
$
83,982

Operating expenses
 
$
242,713

 
$
55,750

 
$
34,160

 
$
(16,362
)
 
$
316,261

Selling, general and administrative expenses
 
$
22,654

 
$
27,769

 
$
2,618

 
$
6,762

 
$
59,803

Depreciation and amortization
 
$
75,426

 
$
7,532

 
$
19,541

 
$
2,783

 
$
105,282

Asset impairment
 
$
19,247

 
$

 
$

 
$

 
$
19,247

Income (loss) from operations
 
$
45,828

 
$
33,840

 
$
52,824

 
$
(11,662
)
 
$
120,830

Earnings of equity method investments
 
$

 
$

 
$
4,053

 
$

 
$
4,053

Capital expenditures
 
$
51,825

 
$
9,122

 
$
12,259

 
$
4,087

 
$
77,293




6



 
 
Refining
 
Lubricants and Specialty Products
 
HEP
 
Corporate, Other and Eliminations
 
Consolidated Total
 
 
(In thousands)
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
Sales and other revenues:
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
 
$
7,645,262

 
$
902,271

 
$
52,203

 
$
(73
)
 
$
8,599,663

Intersegment revenues
 
$
182,904

 
$
10,258

 
$
195,441

 
$
(388,603
)
 
$

 
 
$
7,828,166

 
$
912,529

 
$
247,644

 
$
(388,676
)
 
$
8,599,663

Cost of products sold (exclusive of lower of cost or market inventory)
 
$
6,606,557

 
$
680,672

 
$

 
$
(344,188
)
 
$
6,943,041

Lower of cost or market inventory valuation adjustment
 
$
(210,764
)
 
$

 
$

 
$

 
$
(210,764
)
Operating expenses
 
$
502,405

 
$
84,813

 
$
70,736

 
$
(41,451
)
 
$
616,503

Selling, general and administrative expenses
 
$
52,572

 
$
65,911

 
$
5,795

 
$
9,061

 
$
133,339

Depreciation and amortization
 
$
140,164

 
$
18,884

 
$
49,750

 
$
5,922

 
$
214,720

Income (loss) from operations
 
$
737,232

 
$
62,249

 
$
121,363

 
$
(18,020
)
 
$
902,824

Earnings of equity method investments
 
$

 
$

 
$
3,013

 
$

 
$
3,013

Capital expenditures
 
$
84,962

 
$
25,380

 
$
31,570

 
$
7,565

 
$
149,477

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
Sales and other revenues:
 
 
 
 
 
 
 
 
 
 
Revenues from external customers
 
$
5,741,781

 
$
765,269

 
$
32,599

 
$
(302
)
 
$
6,539,347

Intersegment revenues
 
$
185,453

 
$

 
$
182,178

 
$
(367,631
)
 
$

 
 
$
5,927,234

 
$
765,269

 
$
214,777

 
$
(367,933
)
 
$
6,539,347

Cost of products sold (exclusive of lower of cost or market inventory)
 
$
5,175,091

 
$
548,702

 
$

 
$
(329,159
)
 
$
5,394,634

Lower of cost or market inventory valuation adjustment
 
$
94,325

 
$
1,480

 
$

 
$

 
$
95,805

Operating expenses
 
$
497,084

 
$
95,069

 
$
66,712

 
$
(34,878
)
 
$
623,987

Selling, general and administrative expenses
 
$
45,019

 
$
41,082

 
$
5,255

 
$
25,695

 
$
117,051

Depreciation and amortization
 
$
144,864

 
$
12,836

 
$
37,914

 
$
5,708

 
$
201,322

Asset impairment
 
$
19,247

 
$

 
$

 
$

 
$
19,247

Income (loss) from operations
 
$
(48,396
)
 
$
66,100

 
$
104,896

 
$
(35,299
)
 
$
87,301

Earnings of equity method investments
 
$

 
$

 
$
5,893

 
$

 
$
5,893

Capital expenditures
 
$
99,259

 
$
10,957

 
$
20,524

 
$
6,310

 
$
137,050

June 30, 2018
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,223

 
$
92,483

 
$
6,656

 
$
872,510

 
$
979,872

Total assets
 
$
7,020,880

 
$
1,402,189

 
$
2,154,741

 
$
703,542

 
$
11,281,352

Long-term debt
 
$

 
$

 
$
1,395,599

 
$
992,160

 
$
2,387,759

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,488

 
$
41,756

 
$
7,776

 
$
573,737

 
$
630,757

Total assets
 
$
6,474,666

 
$
1,610,472

 
$
2,191,984

 
$
415,032

 
$
10,692,154

Long-term debt
 
$

 
$

 
$
1,507,308

 
$
991,685

 
$
2,498,993



7



Refining Segment Operating Data

The following tables set forth information, including non-GAAP (Generally Accepted Accounting Principles) performance measures about our refinery operations. Refinery gross and net operating margins do not include the non-cash effects of 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” below.

In the fourth quarter of 2017, we revised the following refining segment operating data computations: refinery gross margin; net operating margin; and operating expenses to better align with similar measurements provided by other companies in our industry and to facilitate comparison of our refining performance relative to our peers. Effective with this change, these measurements are now inclusive of all refining segment activities, including HFC Asphalt operations and revenues and costs related to products purchased for resale and excess crude oil sales. Refining segment operating data for the three and six months ended June 30, 2017 has been retrospectively adjusted to reflect our current presentation.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Mid-Continent Region (El Dorado and Tulsa Refineries)
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
289,820

 
290,460

 
258,930

 
256,370

Refinery throughput (BPD) (2)
 
300,030

 
304,840

 
273,200

 
263,730

Sales of produced refined products (BPD) (3)
 
270,710

 
282,950

 
261,950

 
255,900

Refinery utilization (4)
 
111.5
%
 
111.7
%
 
99.6
%
 
98.6
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (5)
 
 
 
 
 
 
 
 
Refinery gross margin (6)
 
$
11.90

 
$
9.10

 
$
11.30

 
$
7.73

Refinery operating expenses (7)
 
4.89

 
4.51

 
5.02

 
5.24

Net operating margin
 
$
7.01

 
$
4.59

 
$
6.28

 
$
2.49

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (8)
 
$
4.41

 
$
4.18

 
$
4.82

 
$
4.90

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
58
%
 
62
%
 
51
%
 
60
%
Sour crude oil
 
23
%
 
18
%
 
26
%
 
19
%
Heavy sour crude oil
 
16
%
 
15
%
 
18
%
 
15
%
Other feedstocks and blends
 
3
%
 
5
%
 
5
%
 
6
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
49
%
 
50
%
 
51
%
 
50
%
Diesel fuels
 
35
%
 
34
%
 
33
%
 
32
%
Jet fuels
 
6
%
 
6
%
 
6
%
 
7
%
Fuel oil
 
1
%
 
1
%
 
1
%
 
1
%
Asphalt
 
3
%
 
3
%
 
3
%
 
3
%
Base oils
 
4
%
 
4
%
 
4
%
 
5
%
LPG and other
 
2
%
 
2
%
 
2
%
 
2
%
Total
 
100
%
 
100
%
 
100
%
 
100
%



8



 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Southwest Region (Navajo Refinery)
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
111,900

 
102,120

 
109,020

 
88,370

Refinery throughput (BPD) (2)
 
120,340

 
112,720

 
118,510

 
96,200

Sales of produced refined products (BPD) (3)
 
118,240

 
113,490

 
120,240

 
96,280

Refinery utilization (4)
 
111.9
%
 
102.1
%
 
109.0
%
 
88.4
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (5)
 
 
 
 
 
 
 
 
Refinery gross margin (6)
 
$
21.04

 
$
11.56

 
$
15.38

 
$
10.53

Refinery operating expenses (7)
 
5.34

 
5.20

 
4.68

 
6.10

Net operating margin
 
$
15.70

 
$
6.36

 
$
10.70

 
$
4.43

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (8)
 
$
5.25

 
$
5.24

 
$
4.75

 
$
6.11

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
34
%
 
25
%
 
32
%
 
22
%
Sour crude oil
 
59
%
 
66
%
 
60
%
 
70
%
Other feedstocks and blends
 
7
%
 
9
%
 
8
%
 
8
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
47
%
 
49
%
 
51
%
 
50
%
Diesel fuels
 
41
%
 
41
%
 
39
%
 
39
%
Fuel oil
 
3
%
 
2
%
 
2
%
 
3
%
Asphalt
 
5
%
 
5
%
 
4
%
 
5
%
LPG and other
 
4
%
 
3
%
 
4
%
 
3
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
 
 
 
 
 
 
Crude charge (BPD) (1)
 
61,760

 
74,510

 
71,560

 
74,610

Refinery throughput (BPD) (2)
 
69,830

 
80,740

 
79,570

 
82,240

Sales of produced refined products (BPD) (3)
 
64,870

 
76,420

 
77,460

 
78,710

Refinery utilization (4)
 
63.7
%
 
76.8
%
 
73.8
%
 
76.9
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (5)
 
 
 
 
 
 
 
 
Refinery gross margin (6)
 
$
27.89

 
$
19.40

 
$
25.05

 
$
14.79

Refinery operating expenses (7)
 
14.34

 
10.41

 
11.58

 
10.30

Net operating margin
 
$
13.55

 
$
8.99

 
$
13.47

 
$
4.49

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (8)
 
$
13.33

 
$
9.85

 
$
11.28

 
$
9.86

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
18
%
 
32
%
 
26
%
 
35
%
Heavy sour crude oil
 
51
%
 
39
%
 
43
%
 
36
%
Black wax crude oil
 
20
%
 
21
%
 
21
%
 
20
%
Other feedstocks and blends
 
11
%
 
8
%
 
10
%
 
9
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 

9



 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
57
%
 
59
%
 
57
%
 
58
%
Diesel fuels
 
32
%
 
33
%
 
33
%
 
33
%
Fuel oil
 
3
%
 
2
%
 
2
%
 
2
%
Asphalt
 
5
%
 
4
%
 
4
%
 
5
%
LPG and other
 
3
%
 
2
%
 
4
%
 
2
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Consolidated
 
 
 
 
 
 
 
 
Crude charge (BPD) (1)
 
463,480

 
467,090

 
439,510

 
419,350

Refinery throughput (BPD) (2)
 
490,200

 
498,300

 
471,280

 
442,170

Sales of produced refined products (BPD) (3)
 
453,830

 
472,870

 
459,640

 
430,890

Refinery utilization (4)
 
101.4
%
 
102.2
%
 
96.2
%
 
91.8
%
 
 
 
 
 
 
 
 
 
Average per produced barrel (5)
 
 
 
 
 
 
 
 
Refinery gross margin (6)
 
$
16.57

 
$
11.36

 
$
14.68

 
$
9.64

Refinery operating expenses (7)
 
6.36

 
5.64

 
6.04

 
6.37

Net operating margin
 
$
10.21

 
$
5.72

 
$
8.64

 
$
3.27

 
 
 
 
 
 
 
 
 
Refinery operating expenses per throughput barrel (8)
 
$
5.89

 
$
5.35

 
$
5.89

 
$
6.07

 
 
 
 
 
 
 
 
 
Feedstocks:
 
 
 
 
 
 
 
 
Sweet crude oil
 
46
%
 
49
%
 
42
%
 
48
%
Sour crude oil
 
29
%
 
26
%
 
30
%
 
26
%
Heavy sour crude oil
 
17
%
 
16
%
 
18
%
 
15
%
Black wax crude oil
 
3
%
 
3
%
 
3
%
 
4
%
Other feedstocks and blends
 
5
%
 
6
%
 
7
%
 
7
%
Total
 
100
%
 
100
%
 
100
%
 
100
%
Consolidated
 
 
 
 
 
 
 
 
Sales of produced refined products:
 
 
 
 
 
 
 
 
Gasolines
 
50
%
 
51
%
 
52
%
 
51
%
Diesel fuels
 
36
%
 
35
%
 
35
%
 
34
%
Jet fuels
 
4
%
 
4
%
 
3
%
 
5
%
Fuel oil
 
1
%
 
1
%
 
2
%
 
1
%
Asphalt
 
4
%
 
4
%
 
3
%
 
4
%
Base oils
 
2
%
 
3
%
 
2
%
 
3
%
LPG and other
 
3
%
 
2
%
 
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” below.
(6)
Excludes lower of cost or market inventory valuation adjustments of $106.9 million and $84.0 million for the three months ended June 30, 2018 and 2017, respectively, and $210.8 million and $95.8 million for the six months ended June 30, 2018 and 2017, respectively.
(7)
Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of
refined products produced at our refineries.
(8) Represents total refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput.




10



Lubricants and Specialty Products Segment Operating Data

We acquired our Petro-Canada Lubricants business on February 1, 2017. For the six months ended June 30, 2017 our lubricants and specialty product operating results reflect the operations of our Petro-Canada Lubricants business for the period February 1, 2017 through June 30, 2017.

The following table sets forth information about our lubricants and specialty products operations.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Lubricants and Specialty Products
 
 
 
 
 
 
 
 
Throughput (BPD)
 
18,610

 
21,470

 
20,100

 
21,750

Sales of produced products (BPD)
 
31,000

 
36,300

 
31,400

 
36,080

 
 
 
 
 
 
 
 
 
Sales of produced products:
 
 
 
 
 
 
 
 
Finished products
 
48
%
 
44
%
 
48
%
 
43
%
Base oils
 
32
%
 
32
%
 
32
%
 
34
%
Other
 
20
%
 
24
%
 
20
%
 
23
%
Total
 
100
%
 
100
%
 
100
%
 
100
%

Our Lubricants and Specialty Products segment includes base oil production activities, by-product sales to third parties and intra-segment base oil sales to rack forward, referred to as “Rack Back.” "Rack Forward" includes the purchase of base oils and the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties. Supplemental financial data attributable to our Lubricants and Specialty Products segment is presented below:

 
 
Rack Back (1)
 
Rack Forward (2)
 
Eliminations (3)
 
Total Lubricants and Specialty Products
 
 
(In thousands)
Three months ended June 30, 2018
 
 
 
 
 
 
 
 
Sales and other revenues
 
$
175,642

 
$
425,461

 
$
(133,414
)
 
$
467,689

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
 
$
153,040

 
$
353,515

 
$
(133,414
)
 
$
373,141

Operating expenses
 
$
27,210

 
$
(7,305
)
 
$

 
$
19,905

Selling, general and administrative expenses
 
$
7,888

 
$
27,369

 
$

 
$
35,257

Depreciation and amortization
 
$
6,013

 
$
4,007

 
$

 
$
10,020

Income (loss) from operations
 
$
(18,509
)
 
$
47,875

 
$

 
$
29,366

EBITDA
 
$
(12,496
)
 
$
51,882

 
$

 
$
39,386

 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017
 
 
 
 
 
 
 
 
Sales and other revenues
 
$
160,786

 
$
394,485

 
$
(111,271
)
 
$
444,000

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
 
$
129,832

 
$
299,360

 
$
(111,271
)
 
$
317,921

Lower of cost or market inventory valuation adjustment
 
$

 
$
1,188

 
$

 
$
1,188

Operating expenses
 
$
22,934

 
$
32,816

 
$

 
$
55,750

Selling, general and administrative expenses
 
$
6,237

 
$
21,532

 
$

 
$
27,769

Depreciation and amortization
 
$
5,288

 
$
2,244

 
$

 
$
7,532

Income (loss) from operations
 
$
(3,505
)
 
$
37,345

 
$

 
$
33,840

EBITDA
 
$
1,783

 
$
39,589

 
$

 
$
41,372



11



 
 
Rack Back (1)
 
Rack Forward (2)
 
Eliminations (3)
 
Total Lubricants and Specialty Products
 
 
(In thousands)
Six months ended June 30, 2018
 
 
 
 
 
 
 
 
Sales and other revenues
 
$
349,074

 
$
824,500

 
$
(261,045
)
 
$
912,529

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
 
$
305,094

 
$
636,623

 
$
(261,045
)
 
$
680,672

Operating expenses
 
$
55,981

 
$
28,832

 
$

 
$
84,813

Selling, general and administrative expenses
 
$
14,707

 
$
51,204

 
$

 
$
65,911

Depreciation and amortization
 
$
11,641

 
$
7,243

 
$

 
$
18,884

Income (loss) from operations
 
$
(38,349
)
 
$
100,598

 
$

 
$
62,249

EBITDA
 
$
(26,708
)
 
$
107,841

 
$

 
$
81,133

 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017
 
 
 
 
 
 
 
 
Sales and other revenues
 
$
267,825

 
$
684,338

 
$
(186,894
)
 
$
765,269

Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment)
 
$
224,270

 
$
511,326

 
$
(186,894
)
 
$
548,702

Lower of cost or market inventory valuation adjustment
 
$

 
$
1,480

 
$

 
$
1,480

Operating expenses
 
$
38,561

 
$
56,508

 
$

 
$
95,069

Selling, general and administrative expenses
 
$
9,058

 
$
32,024

 
$

 
$
41,082

Depreciation and amortization
 
$
9,087

 
$
3,749

 
$

 
$
12,836

Income (loss) from operations
 
$
(13,151
)
 
$
79,251

 
$

 
$
66,100

EBITDA
 
$
(4,064
)