HollyFrontier to buy Sinclair, form new downstream parent company

HollyFrontier Corp. has entered a definitive agreement to acquire privately owned Sinclair Cos.’ Sinclair Oil Corp. in a deal that would result in formation of newly proposed parent company HF Sinclair Corp., which would operate 678,000-b/sd of combined crude oil processing capacity across seven refineries, as well as produce an overall 380 million gal/year of renewable diesel.

As part of the Aug. 3 agreement, HollyFrontier will purchase and combine Sinclair Oil’s downstream businesses—including two Rocky Mountains-based refineries, a renewable diesel production unit, and logistics assets—with the former’s own assets to create HF Sinclair, which would replace HollyFrontier as the publicly traded entity on the NYSE, the companies said.

Upon the transaction’s scheduled closing in mid-2022, existing shares of HollyFrontier would automatically convert on a one-for-one basis into shares of common stock of HF Sinclair, which will then issue 60.2 million shares of common stock—representing 26.75% of HF Sinclair’s proforma equity—to Sinclair.

While Sinclair will be granted the right to nominate two directors to the HF Sinclair board at closing, HollyFrontier’s existing senior management team will operate the newly combined company, which will be headquartered in Dallas with business offices in Salt Lake City, Utah.

The companies estimated overall value of the proposed HollyFrontier-Sinclair Oil merger at about $1.8 billion based on HollyFrontier’s fully diluted shares of common stock outstanding and closing stock price on July 30, 2021.

Pending the transaction’s approval by HollyFrontier stockholders as well as customary closing conditions and regulatory clearances, the proposed HF Sinclair would own and operate the combined HollyFrontier-Sinclair Oil downstream assets, the most notable of which include:

• HollyFrontier’s existing 135,000-b/sd El Dorado refinery in El Dorado, Kan., which processes a mix of heavy, sour US and Canadian crudes into light products for distribution to markets in Colorado and other US Midcontinent-Plains states.
• HollyFrontier’s existing 125,000-b/sd integrated Tulsa West and Tulsa East refinery system in Tulsa, Okla., which predominantly processes US sweet crude as well as up to 10,000 b/sd of sour Canadian crude into refined products for distribution primarily via pipeline to distribution channels throughout the US Midcontinent, including Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska, and Arkansas.
• HollyFrontier’s existing 100,000-b/sd Navajo refinery in Artesia, NM, which—operating in conjunction with the company’s associated crude distillation and vacuum distillation units located 65 miles east of Artesia in Lovington, NM—processes domestic sour crudes into light products for distribution via pipeline to markets in the southwestern US, including New Mexico, Arizona, West Texas, and portions of northern Mexico.
• HollyFrontier’s existing 45,000-b/sd refinery in Woods Cross, Utah, which processes regional sweet and advantaged waxy crudes into finished products for distribution via pipeline to markets in Utah, Idaho, Nevada, Wyoming, and eastern Washington.
• HollyFrontier’s soon-to-be-owned 149,000-b/sd Puget Sound refinery and related logistics assets near Anacortes, Wash., about 80 miles north of Seattle, which the operator agreed to buy from Royal Dutch Shell PLC in a deal scheduled to close during fourth-quarter 2021 (OGJ Online, May 5, 2021). The Puget Sound refinery is equipped to process a mix of light, medium, heavy sweet, and sour crudes—including discounted Canadian grades and Alaskan North Slope (ANS) crude—to produce a mix of clean products for distribution via pipeline to US Pacific Northwest premium product markets, including Washington, Oregon, and British Columbia.
• HollyFrontier Corp. subsidiary Cheyenne Renewable Diesel Co. LLC’s renewable diesel production unit currently under construction as part of the operator’s conversion of its 2020-decomissioned 52,000-b/sd refinery in Cheyenne, Wyo. (OGJ Online, Oct. 9, 2020). Scheduled for startup in first-quarter 2022, the converted Cheyenne refinery will be equipped to produce about 90 million gal/year of renewable diesel, HollyFrontier said in a June 2021 presentation to investors.
• HollyFrontier Corp. subsidiary Artesia Renewable Diesel Co. LLC’s grassroots renewable diesel production and pretreatment units now under construction at the operator’s existing Navajo refinery in Artesia, NM (OGJ Online, Mar. 23, 2020). Slated to enter service during first-quarter 2022, the new renewable diesel unit will have a production capacity of about 120 million gal/year. Designed to increase flexibility and upgrading of renewable feedstock by treating degummed and unrefined soybean oil, bleachable fancy tallow, and distillers corn oil, the proposed PTU—which will cover about 80% of HollyFrontier’s total feedstock requirements for both the Artesia and Cheyenne renewable diesel plants —is also scheduled to begin operations in first-quarter 2022, HollyFrontier told investors in June.
• Sinclair Oil’s existing 94,000-b/sd refinery in Sinclair, Wyo., which processes a mix of Canadian heavy and Rocky Mountain sweet crudes to produce finished products for distribution via pipeline to markets primarily in Denver, Colo., and Salt Lake City.
• Sinclair Oil’s existing renewable diesel production unit collocated at the Sinclair refinery, which processes soybean oil and tallow to produce 10,000-b/sd of renewable diesel sold into the California market. HollyFrontier said its purchase also includes a new pretreatment unit for distillers corn oil, tallow, and degummed soybean oil that—currently under construction at the site—is due for startup in mid-2022.
• Sinclair Oil’s existing 30,000-b/sd refinery in Casper, Wyo., which processes Rocky Mountain sweet crudes to produce a mix of products for pipeline distribution to markets in the Rocky Mountain region and South Dakota.

The merger also will include acquisition of Sinclair Oil’s brand and integrated wholesale fuel distribution network, HollyFrontier said.

Separate midstream deal

In addition to the HollyFrontier-Sinclair Oil planned merger, Holly Energy Partners LP (HEP) entered into a separate Aug. 3 definitive agreement to take ownership of Sinclair subsidiary Sinclair Transportation Co.’s (STC) integrated crude and refined products pipelines and terminal assets, including about 1,200 miles of pipelines, eight product terminals, and two crude terminals with about 4.5 million bbl of operated storage.

As part of the proposed transaction, HEP would also acquire Sinclair’s interests in three pipeline joint ventures (JV), including:

• Sinclair’s nonoperated 32.5% interest in the Powder Flats crude gathering pipeline JV, which alongside a 220-mile system of 4-12 in. diameter pipeline that delivers 60,000-b/d of unblended crude from the Power River basin in Casper-Guernsey to Sinclair refineries, also includes the Highland Flats terminal that houses two tanks with combined storage capacity of 160,000 bbl.
• Sinclair’s nonoperated 49.9% interest in the Pioneer pipeline and product logistics JV with Phillips 66, which includes a 310-mile system of 8-12 in. diameter pipelines that transport 63,000-b/d of product from Sinclair to the Pioneer North Salt Lake terminal’s 16 storage tanks (655,000 bbl total capacity) for distribution to the Salt Lake City market.
• Sinclair’s nonoperated 25% interest in the UNEV pipeline and product logistics JV with majority owner and operator HEP (75%). Consisting of an 8-in., 10-mile pipeline and 12-in., 417-mile pipeline running from Woods Cross, Utah to Las Vegas Valley, Nev., the combined 427-mile system transports 60,000-b/d of product to HEP’s 200,000-bbl Cedar City, Utah, and 330,000-bbl North Las Vegas storage terminals.

Subject to customary closing adjustments, HEP estimated overall value of the STC acquisition—including equity issuance of 21 million HEP common units and a $325-million cash payment—at about $758 million based on the closing price of HEP units on July 30, 2021.

As part of the agreement, HEP—whose senior management team will continue to operate the combined company under the HEP name—will grant Sinclair the right to nominate one director to HEP’s board upon finalizing the transaction in mid-2022, the company said.

Following completion of the proposed HollyFrontier-Sinclair Oil and HEP-STC transactions—which are cross-conditioned on each other—Sinclair will hold about 60.2 million shares of HF Sinclair common stock and 21 million HEP common units, equating to ownership interests in the companies of 26.75% and 16.6%, respectively.

Given the oil and gas industry’s evolution in recent years, Sinclair said divestment of its downstream and midstream interests comes amid the company’s expectation that HollyFrontier and HEP are better equipped than Sinclair itself to ensure longevity of the assets and secure ongoing employment of Sinclair Oil and STC current workforces, the majority of which will be invited to remain on following the combination.

Sinclair will continue to operate actively in the oil and gas space, however, through subsidiary Sinclair Oil and Gas Co., which manages the privately-held company’s exploration and production portfolios via participation in major US oil and gas development projects.

HollyFrontier and HEP said acquisitions of the Sinclair assets align with the companies’ respective strategies to further expand and build upon the strength of their existing US refining, renewables production, and midstream logistics assets by capturing new organic growth opportunities that increase shareholder returns and enable ongoing business investments.