HollyFrontier Corp (HFC) Q4 2020 Earnings Call Transcript

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HollyFrontier Corp (HFC)
Q4 2020 Earnings Call
Feb 24, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to HollyFrontier Corporation's Fourth Quarter 2020 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; Tim Go, Executive Vice President and Chief Operating Officer; Tom Creery, President, Refining and Marketing; and Bruce Lerner, President, HollyFrontier Lubricants & Specialties. [Operator Instructions]

It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relation. Craig, you may begin.

Craig Biery -- Vice President of Investor Relations

Thank you, James. Good morning, everyone and welcome to HollyFrontier Corporation's fourth quarter 2020 earnings call. This morning we issued a press release announcing results for the quarter ending December 31, 2020. If you would like a copy of this press release, you may find one 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, the statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the Safe Harbor provision of federal security laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC 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.

Michael C. Jennings -- Chief Executive Officer and President

Great. Thank you, Craig. Good morning, everyone. 2020 was an unprecedented year for HollyFrontier. In the face of extraordinary challenges created by the COVID-19 pandemic, HollyFrontier persevered and took important steps to strengthen our business in both the short and long-term. We controlled what we could, focusing on the fundamentals of the business, maintaining a disciplined approach to capital allocation and continuing our efforts to further enhance reliability, safety and efficiency.

We made key investments in renewable initiatives that will enable HollyFrontier to capture new opportunities as our industry evolves and our lubricants business realized strong earnings in the second half of the year, despite the global pandemic. We ended the year with a strong balance sheet, healthy liquidity and high-quality assets that position us to capitalize on our competitive advantages. Looking ahead to '21 and beyond, I believe that HollyFrontier is well positioned for long-term success as our core business is rebound and we continue our expansion into renewables.

Turning to the fourth quarter results, we reported a net loss attributable to HollyFrontier shareholders to $118 million or $0.73 per diluted share. These results reflect special items that collectively increase the net loss by $1 million, excluding these items, adjusted net loss for the fourth quarter was $119 million or $0.74 per diluted share versus adjusted net income of $78 million or $0.48 per diluted share for the same period in 2019. Adjusted EBITDA for the period was negative $22 million, a decrease of $285 million compared to the fourth quarter of 2019. The Refining segment reported adjusted EBITDA loss of $112 million compared to $172 million earnings for the fourth quarter of 2019 and consolidated refinery gross margin of $4.02 per produced barrel was a 71% decrease compared to the same period last year. This decrease was primarily due to the impact of continued weak demand for transportation fuels coupled with compressed crude differentials.

Fourth quarter margins were also impacted by year-end inventory LIFO charge of approximately $35 million or $0.85 per barrel on a consolidated basis. Fourth quarter crude throughput was approximately 380,000 barrels per day at the top end of our guidance of 360,000 to 380,000. Despite the tremendous obstacles we faced in 2020, we achieved strong safety performance and operational availability within our Refining segment. Our Lubricants and Specialty Products business reported EBITDA of negative $33 million compared to $35 million in the fourth quarter of 2019.

This decrease was driven by a goodwill impairment charge of $82 million related to Sonneborn. Excluding the impairment, our Lubricants and Specialties segment reported adjusted EBITDA of $49 million. Rack Forward adjusted EBITDA was $48 million, representing an 11% adjusted EBITDA margin. Despite typical seasonality in the fourth quarter Rack Forward reported a solid quarter due to continued demand improvement in our industrial and transportation end markets. Sales volumes were essentially flat compared to the third quarter and were down only 2% versus the prior year.

Within the Rack Back portion, demand for base oils remained healthy as margin strengthened to their highest levels since 2017. Holly Energy Partners reported EBITDA of $87 million for the fourth quarter compared to $88 million in the fourth quarter of last year. Despite lower volumes year-over-year, HEP delivered strong fourth quarter earnings supported by long-term minimum volume commitment contracts.

Looking to 2021, we're optimistic for better market conditions that will facilitate HollyFrontier's continued growth, evolution and success. Within our Refining segment for the first quarter of 2021, we expect to run between 350,000 to 380,000 barrels per day of crude oil. In addition to the continued weakness in demand resulting from the COVID-19 pandemic, the crude charge in the first quarter of '21 has also been adversely impacted by scheduled maintenance at our Tulsa West and Woods Cross refineries as well as reduced availability of natural gas due to the extreme recent cold weather throughout the Mid-Continent Southwest. We believe that demand for transportation fuels will strengthen as COVID-19 vaccines are distributed and the global economy recovers from the pandemic. We expect to adjust refinery production levels commensurate with market demand.

Within our Lubricants and Specialty Products segment underlying demand for both finished products and base oil remains strong and we expect a normal seasonal rebound in the first quarter of 2021. However, we do not have enough visibility to issue 2021 guidance at this time. Similar to our Refining segment, we expect to adjust production levels commensurate with market demand. At HEP, we expect to see demand for transportation and terminaling services grow with underlying demand for transportation fuels and crude oil. In 2021, HEP expects to hold the quarterly distribution constant at $0.35 per unit or a $1.40 on an annualized basis. We remain committed to our distribution strategy focused on funding all capital expenditures and distributions within free cash flow and maintaining distributable cash flow coverage of 1.3 times or greater with the goal of reducing leverage to 3.0 to 3.5 times EBITDA.

In our renewables segment, we're advancing our renewable diesel and pre-treatment units in Artesia, New Mexico and our renewable diesel unit in Cheyenne, Wyoming. We're on track to complete the projects on time and at the high end of our budgeted range with the ability to produce over $200 million gallons of renewable diesel beginning in the first quarter of 2022. We ended 2020 with a solid, pardon me, operational performance and a strong financial foundation. We strategically maintained a conservative balance sheet positioning HollyFrontier to withstand cyclicality, while maintaining our strategic priorities. Our focus remains on generating high returns while operating safely and efficiently, further improving our refinery reliability progressing our transition into renewables enhancing our environmental and sustainability performance and continuing to prudently deploy capital to advance our shareholders' best interests.

So with that let me turn the call over to Rich.

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Thank you, Mike. As previously mentioned, the fourth quarter included a few unusual items. Pre-tax earnings were positively impacted by a lower of cost to market adjustments of $149 million, partially offset by goodwill and long life asset impairment charges, totaling $108 million in addition to costs related to the Cheyenne Refinery conversion to renewable diesel production. These costs include decommissioning charges of $12 million, LIFO inventory liquidation costs of $3 million and severance costs totaling approximately $300,000. The table of these items can be found in our press release. Cash flow from operations was $67 million in the fourth quarter, which included $21 million of turnaround spending and $93 million for working capital gains. We were successfully able to drawdown inventory in the fourth quarter to better manage working capital.

HollyFrontier's stand-alone capital expenditures totaled $97 million for the quarter and $271 million for the full year of 2020. As of December 31, 2020 our total liquidity stood at approximately $2.7 billion comprised of a stand-alone cash balance of over $1.3 billion along with our undrawn $1.35 billion unsecured credit facility. As of December 31, we had $1.75 billion of stand-alone debt outstanding with a debt to cap ratio of 25% and a net debt to cap ratio of 6%. During the fourth quarter, we declared and paid a dividend of $0.35 per share, totaling $58 million. HEP distributions received by HFC during the fourth quarter totaled $21 million, HollyFrontier owns $59.6 million HEP limited partnering units representing 57% of HEP's LP units with a market value of over $950 million as of last plant closed.

Looking ahead, in the first half of 2021, we anticipate recovering $50 million to $60 million in cash tax benefit from carry back of a net operating loss under the CARES Act and an additional $21 million to recover estimated tax payments that were made during 2020. With respect to capital spending, we have slightly increased our guidance for 2021 specifically in our renewables segment to account for the timing of invoices from 2020 into 2021. We now expect to spend between $520 million to $550 million renewables versus our original guidance of $500 million and $530 million.

We still expect to spend between $190 million and $220 million for capital at HollyFrontier Refining, $40 million to $50 million at HollyFrontier Lubes and Specialties, and then $320 million to $350 million for Turnarounds & Catalysts. At HEP, we expect to spend $14 million to $18 million for maintenance capital, $30 million to $35 million for expansion capital, which includes our investment in the Cushing Connect joint venture and $5 million to $8 million in refinery processing unit turnaround.

Beginning in the fourth quarter, activities associated with the conversion of HollyFrontier Cheyenne Refinery to renewable diesel production along with the construction of renewable diesel and pre-treatment units in Artesia, New Mexico are reported in HollyFrontier's Corporate and Other segment. For fiscal year 2021, we expect corporate segment operating expenses to be in the range of $100 million to $120 million, which includes decommissioning and severance costs related to the Cheyenne Refinery conversion in the range of $20 million to $30 million. And with that James, we're ready to take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Manav Gupta with Credit Suisse. Go ahead please. Your line is open.

Manav Gupta -- Credit Suisse -- Analyst

Hey, guys. So I think when you envisioned the PCLI business, one of the key goals was that Rack Back should breakeven on EBITDA and then the Rack Forward should generate the positive EBITDA. So in terms of Rack Back, I think you have achieved your goal in this quarter, Rack Back was neutral. Just trying to understand on the Rack Forward side, 4Q was good but 3Q was better and so from a run rate perspective, when we are thinking about the first half of 2021, would a 3Q run rate for Rack Forward be a better guidance or 4Q could be a better guidance, specifically as it relates to Rack Forward?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

So Manav, it's Rich. So a couple of things happened in the fourth quarter. Keep in mind that there is always a little bit of a lag here, so base oil prices obviously rose throughout the fourth quarter and we had to absorb that on the Rack Forward side, so that did impact the quarter and there is also always some annual seasonality around the year-end period. So that really drove the two things we can point to on the fourth quarter. I think to your point, demand is very strong, but as Mike said, we cannot issue guidance at this time because we are still seeing obviously a lot of volatility in the market. So again a long run, I take you back to our expectation that we're going to do $250 million to $300 million of EBITDA in this business and that is -- that is our long run belief.

Manav Gupta -- Credit Suisse -- Analyst

Okay. And a quick follow-up here Rich, I think when you had first come up with prospects of expanding renewable diesel business you had kind of given out a range of returns that you expected. Now since then a few things that happen, ultra-low sulfur diesel prices have moved up as the global economy has recovered as crude has moved up. RIN prices have moved up significantly, but still have the feedstock prices. I'm just trying to understand from the perspective of returns, has there been any change of the HollyFrontier on that internal rate of return calculation considering the three parameters and moved in different directions?

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Yeah, I mean this is Tom Creery. Yeah, we have seen that in the marketplace and we've put that into our models and taken a look at it to see what the profitability and earnings would be on a go-forward basis. And we don't really see that much variation in regard to what's happening now, as to what our original plan was, maybe I could sum it up is a rising tide floats all boats, but we have seen soybean oil go up in price, we've seen RINs go up in price, we've seen fats, oils, everything is going up in price along with crude oil and RINs as well.

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

The other piece of that is there is now at probably an expectation that the blenders tax credit persist for longer than just 2022 and that was not baked into our original outlook. So overall higher at least because of that.

Michael C. Jennings -- Chief Executive Officer and President

Yes, when we did our initial modeling, we only took blenders tax credit to the end of '22 and then -- and then forecasted zero thereafter.

Manav Gupta -- Credit Suisse -- Analyst

And if blender's tax credit is extended, which most likely will be considering the stance of Biden Administration on renewables, that's straight $210 million of EBITDA to you right?

Michael C. Jennings -- Chief Executive Officer and President

That is correct. Yes.

Manav Gupta -- Credit Suisse -- Analyst

Thank you for taking my questions.

Operator

Our next question comes from the line of Ryan Todd with Simmons Energy. Go ahead please. Your line is open.

Ryan Todd -- Simmons Energy -- Analyst

Great thanks. Maybe a follow-up on the renewable diesel business. I guess quickly what was the driver of the upward revision to capex for this year? And then as you move closer to completion of the R&D plans, can you talk about some of your ongoing effort to establish supply chains on the feedstock side or are you in conversation with feedstock aggregators particularly for low CI feedstocks? And can you talk a little bit about your confidence in your ability to efficiently access a range of feeds that your pre-treatment will allow?

Michael C. Jennings -- Chief Executive Officer and President

Hey Ryan, I'll -- let me do the capital number, I'll hand it to Tom to speak to your other questions so on capital, really just timing of some of these invoices and the cash flows being in '21 versus late '20, so to give you some color here. We ended up spending about $120 million in 2020 instead of our guided $130 million and $145 million, so we're about $20 million short of cash out the door in '20 and hence our guidance for '21 has gone up by about that number, but really just timing.

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Good morning, Ryan. In regards to your question about what agreements we've entered into and are looking at. Yes, on the feedstock side we've been talking to local tallow [Phonetic] guys as well as other feedstock providers of soybean oil and degums soybean oil, soybean oil that's both refined and degummed as well as other feedstocks including corn oil. We've got one agreement in place in terms of the feedstocks already inked up and then on the off-take agreement we have several contracts that we have entered into for positioned to California as you could well imagine at pricing that is very favorable in our opinion as we go forward.

So we're in pretty good shape. We also, we've been talking to co-ops. We've been talking to just about anybody rendering plants, anybody that has these stock available for supply issues and part of the problem on the feedstocks that we're seeing is that it's difficult to enter into some of these agreements when we're still 10 months away and some of these things will happen a lot faster as we get closer to completion both mechanical and operational and they see that we're there to do business.

Ryan Todd -- Simmons Energy -- Analyst

Great thanks. I appreciate that color. May be a switching gears to the refining side, refining margins are obviously up significantly year-to-date and although RIN pricing is probably going to cut into some of that. I mean can you talk about what you're seeing out there and what your outlook is for the next couple of quarters in terms of gasoline and distillate market dynamics?

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Sure. In terms of gasoline and other refined products diesel, before we went into this polar vortex situation, we were pretty pleased where demand was going and gasoline I would say that our best recovery has been in Pad 4 on gasoline and probably the worst and it hasn't been that bad with Group 3, when we compared to 2019 the demand was probably off 4% or 5% in total. So that's not much of a decrease compared to 2019. Distillate on the other hand, we were very pleased with distillate it was at or higher than all 2019 levels, so distillate was in good demand.

In terms of crack, it's hard to forecast that on a go-forward basis, but we would expect cracks to improve as we get into the driving season as well as the Ag season as they start to plant crops again, with what we're seeing crop prices whether it'd be soybean, corn or anything else, I think the farmers will be a busy this summer. And with the relaxation of COVID and vaccinations, more people will be moving around both by car, truck and hopefully by airplane. So that should help in terms of crack as we move forward.

Ryan Todd -- Simmons Energy -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Paul Cheng with Scotiabank. Go ahead please. Your line is open.

Paul Cheng -- Scotiabank -- Analyst

Thank you good morning guys. My -- I was just curious that when we're looking at the amount of renewable diesel plan budget, do you think it is going to be at the high end of the range? So what's the risk factor and we may see much higher than the budget. If we recall say a number of years ago, when you did the major [Indecipherable] expansion and upgrade in the Woods Cross and the capital cost turn out to be much higher than the regional budget. So what's the risk factor here and how big is that risk?

Michael C. Jennings -- Chief Executive Officer and President

Paul you have a long memory. So I'll address that. Look, the risk factor -- we provide a range for these capital projects and as more engineering is completed that range tends to narrow on a single number leaving basically field construction is the principal risk factor for which we provide a contingency. At present we're at the high end of our range as we've completed most of our engineering and are ready to basically start issuing what we call IFC ISO, but basically piping circuits for construction to start taking them out to the field.

So we're quite far along in terms of the engineering and initial phases of construction. So we're getting more confident and at the same time narrowing our range, but at the higher end. If we want to contrast it to a project from years ago, the issue was simply the engineering wasn't done prior to making a finer point estimate and as the engineering evolved the project through. So these projects are fairly distinct from that, we're following this stage gate process and we're really near to ordering. We've ordered all the heavy equipment, major equipment if you will vessels, compressors etc. So we have fixed prices on all that, the engineering is largely complete and what's in front of us is field construction. There is some risk around field construction during COVID. The COVID numbers are down and that's good and we've added the estimates to reflect different practices to maintain a safe workforce.

Paul Cheng -- Scotiabank -- Analyst

Okay. And second question is on the lubricant. I mean often the last several years of the ownership, I think we went to same site [Phonetic] from time-to-time. The Rack Forward looked really good and Rack Back was challenging and in this quarter that the Rack Back finally is in breakeven and Rack Forward on the other hand margin goes down. So -- I mean are we still we need truly believe this is a business that we can generate $250 million to $300 million in EBITDA, I mean in hindsight is that something that we had learn after that the last several years that perhaps may be different than the original expectation to make you to either that more optimistic or more pessimistic about this vision. Do we really have the necessary skill and the organization and the people, so we will make this as profitable business for you?

Michael C. Jennings -- Chief Executive Officer and President

The short answer is yes. We have a really talented team running this business, Paul. I think the big difference between expectations and reality through last couple of years has been a commodity base oils business that went through a deep recession, OK. And when you get to Group 1 to Group 2 cracks versus vacuum gas oil $10 a barrel or $11 a barrel, that was not our expectation and that's not a healthy margin for the industry.

The team that we have in place understands the business is capable of growing the Rack Forward business, the finished Lubricants and Specialties business intelligently into markets where we have advantage and the base oil piece appears to be more constructive now that's going to be the commodity part of the business it will be more volatile through time. Today's dynamic is actually really favorable. So I would guess I'd caveat it and say base oils will be variable and will continue to grow our effectiveness and margin in Rack Forward.

Paul Cheng -- Scotiabank -- Analyst

I thought that Exxon is going to add quite substantial somewhat base oil in couple of years time.

Michael C. Jennings -- Chief Executive Officer and President

I think we've seen that in the Rotterdam and on the Gulf Coast, Paul. What continues to come, will depend on their own investment plans, but for the time being, I think we're pretty stable.

Paul Cheng -- Scotiabank -- Analyst

All right. Thank you.

Operator

Our next question comes from the line of Phil Gresh with J.P. Morgan. Go ahead please. Your line is open.

Phil Gresh -- J.P. Morgan -- Analyst

Hi, good morning. Thanks for taking my question. The first on is just on, if we look at refining and the capture rates there, any color you could share just on the impact of RINs, whether it's just kind of the ongoing expense fact or some kind of mark-to-market, obviously, RIN is going up 4Q over 3Q, I'm sure impacted the capture rates there. And then what is your view about where RINs will go, I feel like we're getting the question a lot, do you think as renewable diesel starts up, we start to see RINs prices dissipate later this year and into 22?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Hey Phil, it's Rich. Let me do the capture impact. To be honest, it was not that big in the fourth quarter. Please keep in mind that we use a weighted average inventory cost methodology here, so our RIN cost will lag the spot market. So RIN expense in the fourth quarter is about $40 million versus $34 million in the third quarter. And let me hand it to Tom and Tim to talk about the market outlook.

Timothy Go -- Executive Vice President and Chief Operating Officer

Yeah. Phil, this is Tim. Let me just mentioned on the Mid-Con capture as well. We had a year end revaluation of costs that Mike mentioned in his opening remarks, that was $32.5 million specifically in the Mid-Con that impacted the gross margin translates to about a $1.39 a barrel. And so without that inventory valuation, the capture rate would have been 45% for the Mid-Con, so the total of 3.32 [Phonetic] on general gross margin. We also had some lower gasoline margins that further impacted the capture contribution in the Mid-Con and as you know when cracks are lower, the percent of fixed costs tend to impact the capture rate more so than when cracks are higher.

So those are the issues that are affecting the Mid-Con. On the West side, demand was more impacted in the fourth quarter by COVID with the hotspots in that area in the Southwest area of the country. So gasoline margins were specifically impacted on margin contribution, probably more than normal. We also had higher laid-in crude costs that impacted the margin capture in the Southwest.

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

So, and Phil, I get the dubious distinction of trying to figure out where RINs are going here. So -- but what we've seen it -- let me start by saying, what we've seen in the market so far. I think when you say why are RINs rising, I think it's our opinion that without SREs and with declining gasoline demand, there is a fear in the marketplace that we're going to be short of reaching the $15 billion gallons of D6 RINs that are required and as a result what's going to happen is that people are going to start using D4s to retire D6 obligations. And what -- we can see that in the marketplaces because D4 -- D6s are climbing and getting closer to D6 all the time that the spread is a lot less than it was before.

So then that begs the question what the hell is happening on with D4s and that's a lot to do with rising soybean prices and the soybean price has been going up what we've seen is on bushel -- partial basis it's gone from $19.9 to $14 a bushel, and that's basically because of China and as they replenish their pig population from the swine flu outbreak, they're having a higher demand as soybean. We're also seeing some weather impacting South American supply. So going forward, there is a lot of that is already baked into the market. So -- and those are the main factors that drive driven the RIN price to where it is now.

I think in the event that we get more gasoline demand and there is more D6 RINs generated as a result, what's that's going to do is increase the supply and help temper the prices from going any further on the D6s. And then the D4s are just going to do their own thing on the basis of the BOHO spread as it moves forward. So that's going to be more of a relationship driven than a political decision at this point in time. So I think we're seeing big increases on the D6s and the D4s to date. I don't think we're going to see those kind of increases as we go through the year as a lot of these factors are already built into the marketplace.

Phil Gresh -- J.P. Morgan -- Analyst

I appreciate you taking a shot at that. Rich, just to clarify, with the lag effect. Do you have an estimate or expectation of -- if prices stay where they are, what the RINs expense would be in 1Q or 2021?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

No, it would trend higher as well. Assuming a lot us draws out volume and blend, but directionally, you would expect that the trend higher with higher spot prices.

Phil Gresh -- J.P. Morgan -- Analyst

Okay. Okay. And then you gave the throughput for 1Q, other companies have talked about opex headwinds from higher natural gas. Are you seeing any of those types of impacts on the refining side at this point or more muted for you guys or just any color there would be helpful?

Timothy Go -- Executive Vice President and Chief Operating Officer

Yeah. So, this is Tim again. Our Mid-Con plants, we're actually in part of the coldest temperatures associated with formulary and the polar vortex. Tulsa was already in plant maintenance. And so the storm effects will basically gets extended the downtime that we had there a little bit longer. Other than that, the other plants had some individual unit outages that occurred, but two of the plants are completely back to normal and the third one will be back to normal later this week. So the guidance of 350,000 to 380,000 barrels a day that Mike mentioned in the prepared remarks reflect both the impact and the planned maintenance as well as the unplanned cold weather impacts.

Phil Gresh -- J.P. Morgan -- Analyst

Would there be a specific natural gas price effects that you would anticipate as well?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Now, one that we call out Phil, I mean we -- these were extreme spikes rate, but they were very transitory. So nothing we offer now is guidance.

Phil Gresh -- J.P. Morgan -- Analyst

Thank you.

Operator

Our next question comes from the line of Theresa Chen with Barclays. Go ahead please. Your line is open.

Theresa Chen -- Barclays -- Analyst

Good morning. I wanted to turn back to the LSP segment and if you could share further in terms of details related to end market demand beyond what you're seeing in industrial and transportation, how is the personal care segment doing and what is your outlook in terms of --from here what needs to happen for you to issue guidance again? Is it just a matter of volumes turning to a more normalized level, is there something else and any color there would be great?

Michael C. Jennings -- Chief Executive Officer and President

So good morning. In terms of the traditional the land markets to personal care and pharmaceutical and those related also the type of markets. Demand is very robust. We have high asset utilization in both facilities, actually three facilities making those products, which encompass soy oils, petrol and waxes. So demand remains very robust and really is not heavily impacted by the corona virus in the same way that refined gasoline and diesel and so forth were. In terms of any questions related to guidance expectations, Rich to follow up.

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Not much to offer Theresa. Look as Bruce mentioned things are getting better thing kind of similar is what we're seeing everywhere. We expect it to get better as the corona virus restrictions on the economy are lifted here.

Theresa Chen -- Barclays -- Analyst

Got it. And in terms of the weather impact, just following up on Phil's questioning, I don't believe Salt Lake was impacted in particular, just from the earlier call on the Midstream entity. The questions will be around what implications does that have on capture and for that area, if you were able to really increase throughput during that time and took advantage of the wider cracks?

Timothy Go -- Executive Vice President and Chief Operating Officer

Yeah, Theresa. Salt Lake City was the least impacted in terms of temperature and impacts from the storm. Salt Lake City is running normal and we'll continue to -- continue to see maybe a slightly stronger demand as a result of the storms, but it's probably isolated more so from the Gulf than probably what you're thinking.

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Yeah, Theresa, it's Rich, to Tim's point, when he Salt Lake is impact of the entire value was unimpacted, right. So there was really no market dynamic at work there, good or bad, frankly from the storm.

Theresa Chen -- Barclays -- Analyst

Thank you.

Operator

Our next question comes from the line of Matthew Blair with Tudor Pickering & Holt. Go ahead please. Your line is open.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Hey, good morning everyone. Can you talk about how construction is progressing on the renewable diesel side? Was impacted by this storm and exactly what are you thinking in terms of start-up for, I guess the Artesia R&D as well as the pre-treatment unit?

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Good morning, Matthew. It's Tom. Looking at Cheyenne, Cheyenne was in the middle of a Wyoming winter and it was a much different than it is every other year up in Cheyenne and it wasn't affected to any great degree by the polar vortex that hit them the middle part of the country. So transport -- construction is going well. We are moving dirt. We're putting -- we're leveling for the rail facilities to go in. We've got a lot of the permits in place, so we don't expect any delays from that standpoint as we move forward on construction. And then Artesia, there again, there was some effects of the winter storm, but nothing major. We are proceeding with construction. Tanks are going up. Rail lines are going in. We're making good progress. We are on schedule and to your ultimate question, we don't see any deviations from meeting the schedule as previously released at this point in time.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Sounds good. And then on the refining side, your West opex came in I believe at $97 million without Cheyenne, is that a good run rate on that -- we can move forward into 2021?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Yeah. We saw a little bit of a higher natural gas price in the fourth quarter than probably what we have seen in the third quarter. We had a few year end accruals that hit us as we -- as we typically do at the end of the year. So, maybe it was a little bit higher than what we normally see on normal running basis, but that's probably where it comes.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from the line of Doug Leggate with Bank of America. Go ahead please. Your line is open

Kalei Akamine -- Bank of America -- Analyst

Hey guys, good morning. This is Kalei on for Doug. A lot has already hit here, but I've got a couple. So I think you guys talked about the year renewable diesel sourcing strategy. I wonder if you've ever considered going upstream for [Technical Issues] broadening of your own plant based feedstock, which went into insulate you guys from market based pricing and if you guys have thought about that what are the pros and cons?

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Yeah, this is Tom Creery. Quick answer is, yes, we have looked at going upstream, we've looked at crush plants and what involved in there. But we basically stopped at that point in terms of soybean. I think it would be a stretch for us to get into farming or the rendering of cattle at this point in time. So we will drive going to go too far upstream, but we do -- like I said, we do have looked at crush plants and if that's going to be a constraint going forward, it will be something that we might invest in because, it's, it is part of the value chain in our business. So we looked at so far.

Kalei Akamine -- Bank of America -- Analyst

Perfect. Can you also provide an update on any capital including the renewable diesel plants?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

So Kalei, generally sustaining capital we continue to see that call it a $175 million to $200 million a year across the corporation with a lot of volatility, obviously, driven by turnaround schedule. So in a five year cycle that would probably be the average. The reality is renewable -- renewable diesel business will not add a lot in terms of sustaining capital turnaround costs. They are relatively minor. You did have catalyst change from a similar cycle to our refining -- refinery, but it doesn't look anything like turnaround of fuels refinery.

Kalei Akamine -- Bank of America -- Analyst

Yeah, so [Technical Issues]

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Sorry, you're breaking up Kalei.

Kalei Akamine -- Bank of America -- Analyst

The $175 million to $200 million includes the turnaround, correct?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Correct.

Kalei Akamine -- Bank of America -- Analyst

Perfect, thank you.

Operator

[Operator Instructions] Our next question comes from the line of Jason Gabelman with Cowen. Go ahead please. Your line is open.

Jason Gabelman -- Cowen and Company -- Analyst

Yeah. Hey, good morning everyone. Few questions, one, just on the working capital benefit that you mentioned in 4Q. What drove that and is that a durable benefit or do you expect that to reverse over the course of '21? And then the second question just on going back to the renewable diesel business, is there a desire or an interest to sell some of the stake in the renewable diesel plants, maybe as you get closer to completion, just kind of offset from some of the --some of the capital cost and maybe that could be another angle the helping secure advantage feedstock? Thanks.

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Hey Jason, let me -- it's Rich, let me speak to working capital. So in the fourth quarter obviously, we manage inventory really well and ran some barrels. We have the tail end of Cheyenne inventories, which is a permanent reduction obviously. We'll continue to stay very vigilant given the macroeconomic situation or cash flow on working capital realistically right any rising crude price environment, you're going to see working capital benefit. So we're optimistic about the economy, we would expect crude prices to rise and we would expect to continue to see working capital benefit.

Michael C. Jennings -- Chief Executive Officer and President

Jason, on the renewable portfolio side, we're proud of this investment and committed to building it out, developing this as a part of our Company. At the same time we're capitalists and we're conscious that these things trade at a high multiple. So we're going to evaluate that through time. I think what we know to be fact is that we need to complete the projects, get them up and running and demonstrate the value before we have any real alternatives to separately recognize that value other than as a part of HollyFrontier Corporation. So for the time being, we're in the mode of building this business, building the commercial and supply chain aspects of it and obviously securing feedstocks and markets and we're really not spending any time looking to sell it at this point.

Jason Gabelman -- Cowen and Company -- Analyst

Okay. Thanks for your answers.

Operator

Our next question comes from the line of Neil Mehta with Goldman Sachs. Go ahead please. Your line is open.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, guys. First question is just around HEP and midstream and less about whether you want to fold this in and then just more about the strategy around the midstream business over the next couple of years. Is the goal in here to basically run the business for free cash flow, payout the distribution, not necessarily focused on the top line, do you see top line opportunities here as well?

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Hey Neil, it's Rich. No, I think we're in interesting position right now in the midstream business and general in the industry. So our near-term call for the next 12 months to 18 months, focus here is getting -- cushing kind of pipeline up and running and then continuing to delever to get to our leverage target of 3 to 3.5 times. We think that's going to put us in a great position and to have flexibility to either increase distributions, repurchase units or if there are opportunities to grow the business go ahead and pursue those. We'd like to grow the business, the reality right is the midstream space was incredibly frothy over the last five years and it feels like we're coming out of that. So we're optimistic to every opportunity, but the good news is, if there isn't, we don't see opportunity to grow that creates unit holder value, we'll go ahead and increase distributions.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks guys. The follow-up here might be for Tom, but just your outlook on key crude differentials, one, your perspective on Brent WTI, do you see a path for this kind of sustaining in the $3 to $4 level or do we need US production as refining utilization comes back with demand and post the freeze-offs? And then thoughts on WPS, where there are a number of competing forces between OPEC barrels coming back, but also line of sight to pipes coming on?

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Yeah, on Brent TI Neil, I think what we're looking at is probably that $3 to $3.50 [Phonetic] in the short to medium term as we move forward and a lot of this is going to have to do not only on the Brent TI differential, but on the WCS differential is what happens with OPEC and the quarters as we move forward. You know, I guess our expectation is WCS differentials probably trade in the range of $11 to $14 for the remainder of this year, particularly what we've seen on WCS is we've seen the rise of rail movements out of Alberta in the fourth quarter and into the first quarter, so that's going to put an artificial floor -- real floor on differentials because of rail economics and getting it to the Gulf Coast.

So we still see pretty good demand numbers and pretty good delivered prices in the Gulf Coast and that part we do the OPEC and Venezuela situation. So that's what we're looking for as we move forward. And just to finish that off on Midland and crude differentials, we see that continuing to trade over Cushing, anywhere from $0.50 to $1 for the remainder of this year.

Neil Mehta -- Goldman Sachs -- Analyst

Thank you so much.

Operator

And there are no further questions at this time. I'd like to turn the call back over to Mike Jennings for some final comments.

Michael C. Jennings -- Chief Executive Officer and President

Great thank you very much and thank you all for -- pardon me, participating with us this morning. In summary, HFC is really well equipped with its investment grade balance sheet, $2.7 billion of stand-alone liquidity and then really ready to stage a come back in our core fuels business. Our Lubricant business continues to show strength and resiliency, has posted another solid quarter of earnings and is operating really in a favorable base oils environment.

And finally, we're progressing our renewables projects across the board, which we're going to further diversify our asset base, strengthen our earnings power and allow us to participate in a new and I think very lucrative market for the long term. So thanks for participating today. Look forward to talking to you soon.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Craig Biery -- Vice President of Investor Relations

Michael C. Jennings -- Chief Executive Officer and President

Richard L. Voliva -- Executive Vice President and Chief Financial Officer

Thomas G. Creery -- Senior Vice President of Commercial and President of Refining & Marketing

Timothy Go -- Executive Vice President and Chief Operating Officer

Manav Gupta -- Credit Suisse -- Analyst

Ryan Todd -- Simmons Energy -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Phil Gresh -- J.P. Morgan -- Analyst

Theresa Chen -- Barclays -- Analyst

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Kalei Akamine -- Bank of America -- Analyst

Jason Gabelman -- Cowen and Company -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

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