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HollyFrontier to combine with Sinclair Oil to form HF Sinclair

HollyFrontier to combine with Sinclair Oil to form HF Sinclair
Photo courtesy of Sinclair Oil

HollyFrontier Corporation and Holly Energy Partners, L.P. (HEP) have signed a definitive agreement to acquire the branded marketing business, renewable diesel business and two Rocky Mountain-based oil refineries from Sinclair Oil Corporation and Sinclair Transportation Company.

Following the acquisition, HollyFrontier will form a new parent company, named HF Sinclair Corporation, which will replace HollyFrontier as the public company trading on the New York Stock Exchange (NYSE). 

The new company will be headquartered in Dallas, Texas, U.S.A., with combined business offices in Salt Lake City, Utah, U.S.A.

The transaction will transform HollyFrontier by accelerating its growth while increasing scale and diversification. It also allows HollyFrontier to integrate downstream into branded wholesale distribution. 

HF Sinclair will drive incremental free cash flow growth through its expanded refining business, integrated distribution network, leading renewable diesel position and growing lubricants and specialties business. 

Upon closing of the transaction, HollyFrontier’s existing senior management team will operate the combined company. Under the definitive agreements, Sinclair will be granted the right to nominate two directors to the HF Sinclair Board of Directors. 

The transactions have been unanimously approved by both HollyFrontier’s and HEP’s Board of Directors and are expected to close in mid-2022, subject to customary closing conditions and regulatory clearance.

“HollyFrontier was formed through a transformational merger that facilitated a decade of significant stockholder returns along with growth and diversification into lubricants and renewables. We believe these transactions with Sinclair represent a similar inflection point, marking the beginning of our next chapter as HF Sinclair,” said Mike Jennings, CEO of HollyFrontier and HEP. 

“With this accretive transaction, we are adding an integrated marketing business with an iconic brand while building on the strength of our expanded refining network, increasing our scale and accelerating the growth of our renewables business. Together, with Sinclair and the dedicated employees who make it successful, we will be positioned to further build this business, capture synergies, and generate cash that will facilitate both capital return to stockholders and further investment in the business.”

“At the same time, this transaction will significantly extend the reach of HEP. Strengthened by an integrated network of Sinclair pipelines and storage facilities, HEP will have the scale and incremental earnings power to capture new organic growth opportunities and increase cash returns to unitholders.”

At closing, existing shares of HollyFrontier will be converted into shares of common stock of HF Sinclair. HF Sinclair will issue approximately 60.2 million shares of common stock to Sinclair, representing 26.75% of the pro forma equity of HF Sinclair, with a transaction value of approximately USD1.8 billion based on HollyFrontier’s fully diluted shares of common stock outstanding and closing stock price on July 30, 2021. 

The transaction is expected to be accretive to HF Sinclair’s earnings, cash flow and free cash flow within the first full year, and to enable the combined company to increase its commitment to return cash to stockholders.

HEP Transaction

Under the terms of the HEP transaction, Holly Energy Partners will acquire Sinclair’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of pipelines, eight product terminals and two crude terminals with approximately 4.5 million barrels (MMbbl) of operated storage. In addition, HEP will acquire Sinclair’s interests in three pipeline joint ventures including: Powder Flats Pipeline (32.5% non-operated interest), Pioneer Pipeline (49.9% non-operated interest) and UNEV Pipeline (25% non-operated interest; HEP operates the pipeline and owns the remaining 75% interest). 

The purchase price for the HEP transaction will consist of an equity issuance of 21 million HEP common units and the payment of USD325 million of cash, subject to customary closing adjustments, representing a transaction value of approximately USD758 million based on the closing price of HEP units on July 30, 2021. 

Upon closing of the HEP transaction, HEP’s existing senior management team will continue to operate Holly Energy Partners. Under the definitive agreements, Sinclair will be granted the right to nominate one director to the HEP Board of Directors at the closing. The Sinclair stockholders have also agreed to certain customary lock up restrictions and registration rights for the HEP common units to be issued to the stockholders of Sinclair. HEP will continue to operate under the name Holly Energy Partners, L.P.

Ross Matthews, chairman and CEO of Sinclair commented, “As the oil and gas industry has evolved in recent years, we have carefully considered how best to position Sinclair’s refinery and logistics assets and their related operations for the future. We’re confident these businesses—and the dedicated employees who operate them—will continue to thrive under this new ownership structure. We expect these businesses will benefit significantly from HollyFrontier’s and HEP’s operational expertise, their network of refineries and midstream assets in the Western U.S., and the flexibilities that come with being part of a larger organization.”

“We also believe that HollyFrontier and HEP are an excellent cultural fit, with a shared commitment to integrity and respect for our employees, our communities and the environment,” Matthews said. “We anticipate a seamless transition for our employees, distributors and other stakeholders following the closing of the transactions.”