HollyFrontier Corporation announced plans to construct a new renewable diesel unit (RDU) at its Navajo Refinery located in Artesia, New Mexico, U.S.A. refinery, to lower costs related to blending renewable fuels. The RDU will have a production capacity of approximately 125 million gallons a year and allow HollyFrontier to process soybean oil and other renewable feedstocks into renewable diesel.
This investment will provide HollyFrontier the opportunity to meet the demand for low-carbon fuels while covering the cost of its annual Renewable Identification Number (RIN) purchase obligation under current market conditions. A Renewable Identification Number is a serial number assigned to a batch of biofuel for the purpose of tracking its production, use, and trading as required by the United States Environmental Protection Agency’s Renewable Fuel Standard (RFS). Oil companies have to blend increasing amounts of renewable fuels with their petroleum products or purchase credits or RIN to meet U.S. biofuel requirements. The company’s RIN costs totaled USD184 million in 2018.
The RDU, along with corresponding rail infrastructure and storage tanks, is estimated to have a total capital cost of USD350 million, and is expected to be completed in the first quarter of 2022. The RDU will be funded with cash on hand and is expected to generate an internal rate of return of between 20% and 30%.
The Navajo Refinery has a crude oil capacity of 100,000 barrels per day. The Navajo Refinery can process heavy, sour and light, sweet crude oils and runs a predominant slate of Permian Basin crudes that are gathered in West Texas and Southeast New Mexico. The refinery can also source a variety of crude oils from Cushing, Oklahoma including Canadian crudes. The Navajo refinery serves markets in the southwestern United States and northern Mexico.
HollyFrontier’s Board of Directors also authorized a new USD1 billion share repurchase program, which replaces all existing share repurchase authorizations, of which there was approximately USD281 million remaining. Over the past 15 months, HollyFrontier has returned more than USD719 million to shareholders under its previous share repurchase program and reduced the outstanding share count by 8%. Share repurchases may be made in the open market, through privately negotiated transactions from time to time or by other means in accordance with federal securities laws and are subject to a number of factors, including market conditions, applicable legal and regulatory requirements and other considerations. This share repurchase program may be discontinued at any time by the Board of Directors.