HollyFrontier, HEP ink dropdown deal for Woods Cross refinery units

Independent refiner HollyFrontier Corp., Dallas, has entered an agreement in principle to sell newly built crude, fluid catalytic cracking and polymerization units at its 45,000-b/sd Woods Cross refinery in West Bountiful, Utah, just north of Salt Lake City, to consolidated variable interest entity Holly Energy Partners LP (HEP), also of Dallas (OGJ Online, Sept. 8, 2015).

Subject to the execution of definitive agreements and other customary closing conditions, HEP subsidiary Holly Energy Partners Operating LP will purchase the units from HollyFrontier’s wholly owned subsidiary HollyFrontier Woods Cross Refining LLC (HFWCR) for aggregate cash consideration of $275 million, the companies said.

As part of the deal’s closing, HEP Operating and HFWCR plan to enter 15-year tolling agreements for each unit containing minimum quarterly throughput commitments from HFWCR, with the subsidiaries’ obligations under those agreements to be guaranteed by HEP and HollyFrontier.

In conjunction with the proposed transaction, HEP also has agreed to a private placement with unidentified clients of Tortoise Capital Advisors LLC for about $100 million of common equity.

The balance of the purchase price for HFWCR’s assets will be financed by borrowings under existing revolving-credit agreement, HEP said.

The proposed transaction, which HollyFrontier said it expects will be immediately accretive to unitholders, is scheduled to close on or about Oct. 1.

HEP’s acquisition of the processing assets comes as part of an ongoing collaborative effort with HollyFrontier to grow business by leveraging HollyFrontier’s refining footprint and commercial commitments alongside HEP’s logistic capabilities.

Woods Cross expansion

Designed to increase the refinery’s processing capacity by 14,000 b/sd to its current capacity of 45,000 b/sd capacity, Phase 1 of the Woods Cross expansion was commissioned in June, HollyFrontier said on Aug. 3 in its second-quarter earnings call.

Alongside the relocation-revamp of an 8,000-b/sd fluid catalytic cracker (FCC) and polymerization units from Western Refining Inc.’s shuttered refinery in Bloomfield, NM (OGJ Online, Jan. 4, 2012), the $420-430 million project was to include the addition of a rail-loading rack for intermediates and finished products associated with refining waxy crude oil.

With the crude expansion and installation of the site’s second FCC now completed, the refinery is equipped with the following capacities:

• Crude distillation: 45,000 b/sd.

• FCC: 18,000 b/sd.

• Alkylation-polymerization: 6,000 b/sd.

• Gas oil hydrocracking: 15,000 b/sd.

• Distillate hydrotreating: 10,000 b/sd.

While the expanded crude unit was designed to run primarily Utah West crudes, HollyFrontier currently is modifying the plant to enable increased runs of Canadian Syncrude as a result of crude pricing issues in the Uintah basin, George Damiris, HollyFrontier’s president and chief executive, said in August.

HollyFrontier has scheduled a turnaround of the Woods Cross refinery’s older FCC during this year’s fourth quarter, Damiris said.

Future plans

In a March presentation to investors, HollyFrontier said it also was considering a potential Phase 2 expansion at Woods Cross, which would expand capacity to 60,000 b/sd by 2018 at an estimated cost of $750 million-1 billion.

To date, the company has yet to reveal further details regarding the status of the possible Phase 2 expansion, which would involve increases to both crude and vacuum distillation capacities as well as installation of a hydro-isom unit, a hydrogen plant, and a distillate hydrotreater, the company previously said.

Contact Robert Brelsford at rbrelsford@ogjonline.com.

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