HollyFrontier Corporation Reports Second Quarter 2012 Results

DALLAS--()--HollyFrontier Corporation (NYSE: HFC) (“HollyFrontier” or the “Company”) today reported second quarter net income attributable to HollyFrontier stockholders of $493.5 million or $2.39 per diluted share for the quarter ended June 30, 2012, compared to $192.2 million or $1.79 per diluted share for the quarter ended June 30, 2011. For the six months ended June 30, 2012, net income attributable to HollyFrontier stockholders totaled $735.2 million or $3.54 per diluted share compared to $276.9 million or $2.58 per diluted share for the six months ended June 30, 2011.

For the second quarter, net income attributable to our stockholders increased by $301.3 million, or 157% compared to the same period of 2011, principally reflecting increased operating scale due to our July 2011 merger, higher second quarter refining margins as well as sustained differentials between inland and coastal-sourced crude oils. Refinery gross margins were $27.43 per produced barrel, a 28% increase compared to $21.42 for the second quarter of 2011. Production levels averaged approximately 435,000 barrels per day (“BPD”) and crude oil charges averaged approximately 412,000 BPD for the current quarter. Operating expenses for the quarter were $222.7 million or $5.00 per barrel compared to $139.3 million or $5.48 per barrel for the second quarter of last year.

HollyFrontier’s President & CEO Mike Jennings commented, “We are extremely pleased with our outstanding second quarter results, reaching near all-time highs. For the quarter, sustained heavy crude oil differentials as well as inland to coastal crude oil differentials helped drive product margins to near record levels. Our crude advantage combined with our increased scale and the efforts of our dedicated employees have put us on track for another milestone year. We believe that the structural crude advantages currently increasing our operating margins will continue to boost our free cash generation as we go forward, allowing us to continue to pay both regular and special dividends and supporting our objective of increasing total shareholder return.”

For the second quarter of 2012, net cash provided by operations totaled $175.6 million. During the period, we paid dividends to shareholders of $123.9 million and repurchased $127.2 million in common stock. Following approval of an additional $350 million stock repurchase program by our Board of Directors in June, we had $410.2 million of remaining stock repurchase authorization under our stock repurchase programs at quarter end. Our combined balance of cash and short-term investments totaled $1.6 billion at June 30, 2012. Our consolidated debt was $1.3 billion and $682.0 million excluding Holly Energy Partners' debt, which is nonrecourse to HollyFrontier. We had no cash borrowings or outstanding principal under our credit facility during the quarter.

The Company has scheduled a webcast conference call for today, August 8, 2012, at 10:00 AM Eastern Time to discuss second quarter financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1007420. An audio archive of this webcast will be available using the above noted link through August 22, 2012.

HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high-value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day (“bpsd”) refinery located in El Dorado, Kansas, two refinery facilities with a combined capacity of 125,000 bpsd located in Tulsa, Oklahoma, a 100,000 bpsd refinery located in Artesia, New Mexico, a 52,000 bpsd refinery located in Cheyenne, Wyoming and a 31,000 bpsd refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. A subsidiary of HollyFrontier also owns a 44% interest (including the general partner interest) in Holly Energy Partners, L.P.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: The statements in this press release relating to matters that are not historical facts are “forward-looking statements” based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties, including those contained in our filings with the Securities and Exchange Commission. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Any differences could be caused by a number of factors, including, but not limited to, risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company’s markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and market prices for crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, effects of governmental and environmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of the Company’s capital investments and marketing strategies, the Company’s efficiency in carrying out construction projects, the ability of the Company to acquire refined product operations or pipeline and terminal operations on acceptable terms and to integrate any future acquired operations, the possibility of terrorist attacks and the consequences of any such attacks, general economic conditions and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Financial Data (all information in this release is unaudited)

  Three Months Ended

June 30,

  Change from 2011
2012   2011 Change   Percent
(In thousands, except per share data)
Sales and other revenues $ 4,806,681 $ 2,967,133 $ 1,839,548 62.0 %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 3,681,764 2,447,095 1,234,669 50.5
Operating expenses (exclusive of depreciation and amortization) 222,726 139,345 83,381 59.8
General and administrative expenses (exclusive of depreciation and amortization) 32,106 18,682 13,424 71.9
Depreciation and amortization   56,948     31,832     25,116   78.9
Total operating costs and expenses   3,993,544     2,636,954     1,356,590   51.4
Income from operations 813,137 330,179 482,958 146.3
Other income (expense):
Earnings in equity method investments 886 467 419 89.7
Interest income 681 657 24 3.7
Interest expense (26,942 ) (15,193 ) (11,749 ) 77.3
Gain on sale of marketable securities 326 326
Merger transaction costs       (2,316 )   2,316   (100.0 )
  (25,049 )   (16,385 )   (8,664 ) 52.9
Income before income taxes 788,088 313,794 474,294 151.1
Income tax provision   285,718     111,961     173,757   155.2
Net income 502,370 201,833 300,537 148.9
Less net income attributable to noncontrolling interest   8,871     9,598     (727 ) (7.6 )
Net income attributable to HollyFrontier stockholders $ 493,499   $ 192,235   $ 301,264   156.7 %
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 2.40   $ 1.80   $ 0.60   33.3 %
Diluted $ 2.39   $ 1.79   $ 0.60   33.5 %
Cash dividends declared per common share $ 0.65   $ 0.075   $ 0.575   766.7 %
Average number of common shares outstanding:
Basic 205,727 106,730 98,997 92.8 %
Diluted 206,481 107,340 99,141 92.4 %
EBITDA $ 862,426 $ 350,564 $ 511,862 146.0 %
   
Six Months Ended

June 30,

Change from 2011
2012   2011 Change   Percent
(In thousands, except per share data)
Sales and other revenues $ 9,738,419 $ 5,293,718 $ 4,444,701 84.0 %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation and amortization) 7,868,681 4,431,712 3,436,969 77.6
Operating expenses (exclusive of depreciation and amortization) 464,353 274,088 190,265 69.4
General and administrative expenses (exclusive of depreciation and amortization) 59,634 35,500 24,134 68.0
Depreciation and amortization   113,050     63,140     49,910   79.0
Total operating costs and expenses   8,505,718     4,804,440     3,701,278   77.0
Income from operations 1,232,701 489,278 743,423 151.9
Other income (expense):
Equity in earnings of SLC Pipeline 1,603 1,207 396 32.8
Interest income 1,141 742 399 53.8
Interest expense (60,257 ) (31,397 ) (28,860 ) 91.9
Gain on sale of marketable securities 326 326
Merger transaction costs       (6,014 )   6,014   (100.0 )
  (57,187 )   (35,462 )   (21,725 ) 61.3
Income before income taxes 1,175,514 453,816 721,698 159.0
Income tax provision   426,124     160,972     265,152   164.7
Net income 749,390 292,844 456,546 155.9
Less net income attributable to noncontrolling interest   14,195     15,915     (1,720 ) (10.8 )
Net income attributable to HollyFrontier stockholders $ 735,195   $ 276,929   $ 458,266   165.5 %
Earnings per share attributable to HollyFrontier stockholders:
Basic $ 3.55   $ 2.60   $ 0.95   36.5 %
Diluted $ 3.54   $ 2.58   $ 0.96   37.2 %
Cash dividends declared per common share $ 1.25   $ 0.15   $ 1.10   733.3 %
Average number of common shares outstanding:
Basic 207,129 106,672 100,457 94.2 %
Diluted 207,938 107,286 100,652 93.8 %
EBITDA $ 1,333,485 $ 531,696 $ 801,789 150.8 %
 

Our consolidated financial and operating results reflect the operations of the merged Frontier businesses beginning July 1, 2011.

Balance Sheet Data

    June 30,     December 31,
2012 2011
(In thousands)
Cash, cash equivalents and investments in marketable securities $ 1,648,446 $ 1,840,610
Working capital $ 2,144,007 $ 2,030,063
Total assets $ 9,382,532 $ 9,576,243
Long-term debt $ 1,295,163 $ 1,214,742
Total equity $ 5,947,625 $ 5,835,900
 

Segment Information

Our operations are organized into two reportable segments, Refining and HEP. Our operations that are not included in the Refining and HEP segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Consolidations and Eliminations. The Refining segment includes the operations of our El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries and NK Asphalt and involves the purchase and refining of crude oil and wholesale and branded marketing of refined products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. The petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and northern Mexico. Additionally, specialty lubricant products produced at our Tulsa West facility are marketed throughout North America and are distributed in Central and South America. NK Asphalt manufactures and markets asphalt and asphalt products in Arizona, New Mexico, Oklahoma, Kansas, Missouri, Texas and northern Mexico.

The HEP segment involves all of the operations of HEP, which owns and operates logistic assets consisting of petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines and by charging fees for terminalling petroleum products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals. Additionally, HEP owns a 25% interest in the SLC Pipeline that serves refineries in the Salt Lake City, Utah area. Revenues from the HEP segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation services provided for our refining operations.

               
Refining HEP

Corporate
and Other

Consolidations
and
Eliminations

Consolidated
Total

(In thousands)
Three Months Ended June 30, 2012
Sales and other revenues $ 4,795,469 $ 63,692 $ 4,411 $ (56,891 ) $ 4,806,681
Depreciation and amortization $ 43,665 $ 8,728 $ 4,762 $ (207 ) $ 56,948
Income (loss) from operations $ 812,936 $ 34,554 $ (33,756 ) $ (597 ) $ 813,137
Capital expenditures $ 56,262 $ 5,681 $ 4,690 $ $ 66,633
 
Three Months Ended June 30, 2011
Sales and other revenues $ 2,953,226 $ 50,940 $ 153 $ (37,186 ) $ 2,967,133
Depreciation and amortization $ 23,478 $ 7,309 $ 1,252 $ (207 ) $ 31,832
Income (loss) from operations $ 321,032 $ 27,692 $ (18,040 ) $ (505 ) $ 330,179
Capital expenditures $ 25,152 $ 11,425 $ 45,690 $ $ 82,267
 
Six Months Ended June 30, 2012
Sales and other revenues $ 9,715,200 $ 127,207 $ 8,635 $ (112,623 ) $ 9,738,419
Depreciation and amortization $ 85,197 $ 18,587 $ 9,680 $ (414 ) $ 113,050
Income (loss) from operations $ 1,228,062 $ 69,183 $ (63,505 ) $ (1,039 ) $ 1,232,701
Capital expenditures $ 101,796 $ 12,008 $ 14,216 $ $ 128,020
 
Six Months Ended June 30, 2011
Sales and other revenues $ 5,268,318 $ 95,945 $ 801 $ (71,346 ) $ 5,293,718
Depreciation and amortization $ 46,461 $ 14,544 $ 2,549 $ (414 ) $ 63,140
Income (loss) from operations $ 473,136 $ 51,303 $ (34,138 ) $ (1,023 ) $ 489,278
Capital expenditures $ 45,784 $ 22,900 $ 87,621 $ $ 156,305
 
June 30, 2012
Cash, cash equivalents and investments in marketable securities $ 19 $ 4,216 $ 1,644,211 $ $ 1,648,446
Total assets $ 7,213,749 $ 988,670 $ 1,222,787 $ (42,674 ) $ 9,382,532
Long-term debt $ $ 613,195 $ 698,156 $ (16,188 ) $ 1,295,163
 
December 31, 2011
Cash, cash equivalents and investments in marketable securities $ $ 3,269 $ 1,837,341 $ $ 1,840,610
Total assets $ 6,280,426 $ 995,120 $ 2,421,140 $ (120,443 ) $ 9,576,243
Long-term debt $ $ 598,761 $ 705,331 $ (89,350 ) $ 1,214,742
 

Refining Operating Data

Our refinery operations include the El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross refineries. The following tables set forth information, including non-GAAP performance measures about our refinery operations. The cost of products and refinery gross margin do not include the effect of depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.

   
Three Months Ended

June 30,

Six Months Ended

June 30,

2012   2011 2012   2011
Mid-Continent Region (El Dorado and Tulsa Refineries)
Crude charge (BPD) (1) 243,150 110,100 249,710 107,860
Refinery throughput (BPD) (2) 259,250 111,850 266,020 109,290
Refinery production (BPD) (3) 251,870 110,110 260,070 107,050
Sales of produced refined products (BPD) 242,560 112,710 250,810 106,400
Sales of refined products (BPD) (4) 246,130 114,300 255,260 107,390
Refinery utilization (5) 93.5 % 88.1 % 96.0 % 86.3 %
 
Average per produced barrel (6)
Net sales $ 118.72 $ 129.11 $ 119.38 $ 122.65
Cost of products (7)   94.16     109.94     98.31     105.53  
Refinery gross margin 24.56 19.17 21.07 17.12
Refinery operating expenses (8)   4.63     5.56     4.73     5.76  
Net operating margin $ 19.93   $ 13.61   $ 16.34   $ 11.36  
 
Refinery operating expenses per throughput barrel (9) $ 4.33 $ 5.60 $ 4.46 $ 5.61
 
Feedstocks:
Sweet crude oil 71 % 93 % 71 % 95 %
Sour crude oil 7 % % 8 % %
Heavy sour crude oil 16 % 5 % 15 % 4 %
Other feedstocks and blends   6 %   2 %   6 %   1 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 46 % 38 % 46 % 37 %
Diesel fuels 28 % 30 % 30 % 30 %
Jet fuels 10 % 8 % 9 % 8 %
Asphalt 2 % 5 % 2 % 5 %
Lubricants 5 % 10 % 5 % 11 %
Gas oil/intermediates % 6 % % 6 %
LPG and other   9 %   3 %   8 %   3 %
Total   100 %   100 %   100 %   100 %
   
Three Months Ended

June 30,

Six Months Ended

June 30,

2012   2011 2012   2011
Southwest Region (Navajo Refinery)
Crude charge (BPD) (1) 92,960 86,080 87,050 78,070
Refinery throughput (BPD) (2) 101,090 94,190 95,740 86,600
Refinery production (BPD) (3) 100,960 93,620 94,010 85,220
Sales of produced refined products (BPD) 98,680 94,340 92,970 87,130
Sales of refined products (BPD) (4) 103,380 98,120 98,250 92,440
Refinery utilization (5) 93.0 % 86.1 % 87.1 % 78.1 %
 
Average per produced barrel (6)
Net sales $ 123.25 $ 126.36 $ 124.50 $ 119.35
Cost of products (7)   94.98     104.24     100.33     100.30  
Refinery gross margin 28.27 22.12 24.17 19.05
Refinery operating expenses (8)   5.06     5.17     5.81     5.71  
Net operating margin $ 23.21   $ 16.95   $ 18.36   $ 13.34  
 
Refinery operating expenses per throughput barrel (9) $ 4.94 $ 5.18 $ 5.64 $ 5.74
 
Feedstocks:
Sweet crude oil 4 % 4 % 2 % 4 %
Sour crude oil 80 % 71 % 80 % 72 %
Heavy sour crude oil 8 % 16 % 9 % 14 %
Other feedstocks and blends   8 %   9 %   9 %   10 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 49 % 52 % 51 % 52 %
Diesel fuels 40 % 32 % 38 % 33 %
Jet fuels % 1 % % 1 %
Fuel oil 6 % 7 % 6 % 6 %
Asphalt 2 % 4 % 2 % 4 %
LPG and other   3 %   4 %   3 %   4 %
Total   100 %   100 %   100 %   100 %
 
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Crude charge (BPD) (1) 75,680 26,840 72,960 26,310
Refinery throughput (BPD) (2) 83,860 28,740 81,300 28,320
Refinery production (BPD) (3) 82,270 28,320 79,730 27,480
Sales of produced refined products (BPD) 80,230 27,600 78,440 27,130
Sales of refined products (BPD) (4) 82,360 27,600 80,840 27,170
Refinery utilization (5) 91.2 % 86.6 % 87.9 % 84.9 %
   
Three Months Ended

June 30,

Six Months Ended

June 30,

2012   2011 2012   2011
Rocky Mountain Region (Cheyenne and Woods Cross Refineries)
Average per produced barrel (6)
Net sales $ 120.97 $ 128.02 $ 115.98 $ 118.62
Cost of products (7)   85.93     99.79     91.24     94.95  
Refinery gross margin 35.04 28.23 24.74 23.67
Refinery operating expenses (8)   6.05     6.16     6.30     6.29  
Net operating margin $ 28.99   $ 22.07   $ 18.44   $ 17.38  
 
Refinery operating expenses per throughput barrel (9) $ 5.79 $ 5.92 $ 6.08 $ 6.03
 
Feedstocks:
Sweet crude oil 43 % 61 % 44 % 59 %
Sour crude oil 2 % % 2 % %
Heavy sour crude oil 34 % 5 % 33 % 5 %
Black wax crude oil 11 % 28 % 11 % 29 %
Other feedstocks and blends   10 %   6 %   10 %   7 %
Total   100 %   100 %   100 %   100 %
 
Sales of produced refined products:
Gasolines 54 % 61 % 55 % 61 %
Diesel fuels 33 % 31 % 32 % 30 %
Jet fuels % 1 % % 1 %
Fuel oil 1 % 3 % 2 % 3 %
Asphalt 6 % 2 % 5 % 3 %
LPG and other   6 %   2 %   6 %   2 %
Total   100 %   100 %   100 %   100 %
 
Consolidated
Crude charge (BPD) (1) 411,790 223,020 409,720 212,240
Refinery throughput (BPD) (2) 444,200 234,780 443,060 224,210
Refinery production (BPD) (3) 435,100 232,050 433,810 219,750
Sales of produced refined products (BPD) 421,470 234,650 422,220 220,660
Sales of refined products (BPD) (4) 431,870 240,020 434,350 227,000
Refinery utilization (5) 93.0 % 87.1 % 92.5 % 82.9 %
 
Average per produced barrel (6)
Net sales $ 120.21 $ 127.87 $ 119.87 $ 120.85
Cost of products (7)   92.78     106.45     97.44     102.16  
Refinery gross margin 27.43 21.42 22.43 18.69
Refinery operating expenses (8)   5.00     5.48     5.26     5.80  
Net operating margin $ 22.43   $ 15.94   $ 17.17   $ 12.89  
 
Refinery operating expenses per throughput barrel (9) $ 4.75 $ 5.47 $ 5.01 $ 5.71
 
Feedstocks:
Sweet crude oil 51 % 54 % 51 % 55 %
Sour crude oil 22 % 29 % 22 % 28 %
Heavy sour crude oil 18 % 9 % 17 % 8 %
Black wax crude oil 2 % 3 % 2 % 4 %
Other feedstocks and blends   7 %   5 %   8 %   5 %
Total   100 %   100 %   100 %   100 %
 
Three Months Ended

June 30,

Six Months Ended

June 30,

2012 2011 2012   2011
Consolidated
Sales of produced refined products:
Gasolines 48 % 46 % 49 % 46 %
Diesel fuels 32 % 31 % 32 % 32 %
Jet fuels 6 % 4 % 6 % 4 %
Fuel oil 2 % 3 % 2 % 3 %
Asphalt 3 % 5 % 2 % 4 %
Lubricants 3 % 5 % 3 % 5 %
Gas oil / intermediates % 3 % % 3 %
LPG and other   6 %   3 %   6 %   3 %
Total   100 %   100 %   100 %   100 %
 
(1) Crude charge represents the barrels per day of crude oil processed at our refineries.
(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries.
(3) Refinery production represents the barrels per day of refined products yielded from processing crude and other refinery feedstocks through the crude units and other conversion units at our refineries.
(4) Includes refined products purchased for resale.
(5)

Represents crude charge divided by total crude capacity (BPSD). As a result of our merger effective July 1, 2011, our consolidated crude capacity increased from 256,000 BPSD to 443,000 BPSD.

(6) Represents average per barrel amount for produced refined products sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” below.
(7) Transportation costs billed from HEP are included in cost of products.
(8) Represents operating expenses of our refineries, exclusive of depreciation and amortization.
(9) Represents refinery operating expenses, exclusive of depreciation and amortization divided by refinery throughput.
 

Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles

Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in financial statements.

Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as net income attributable to HollyFrontier stockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under accounting principles generally accepted in the United States; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants.

Set forth below is our calculation of EBITDA.

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2012   2011 2012   2011
(In thousands)
 
Net income attributable to HollyFrontier stockholders $ 493,499 $ 192,235 $ 735,195 $ 276,929
Add income tax provision 285,718 111,961 426,124 160,972
Add interest expense 26,942 15,193 60,257 31,397
Subtract interest income (681 ) (657 ) (1,141 ) (742 )
Add depreciation and amortization   56,948     31,832     113,050     63,140  
EBITDA $ 862,426   $ 350,564   $ 1,333,485   $ 531,696  
 

Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements.

Refinery gross margin and net operating margin are non-GAAP performance measures that are used by our management and others to compare our refining performance to that of other companies in our industry. We believe these margin measures are helpful to investors in evaluating our refining performance on a relative and absolute basis.

Refinery gross margin per barrel is the difference between average net sales price and average cost of products per barrel of produced refined products. Net operating margin per barrel is the difference between refinery gross margin and refinery operating expenses per barrel of produced refined products. These two margins do not include the effect of depreciation and amortization. Each of these component performance measures can be reconciled directly to our consolidated statements of income.

Other companies in our industry may not calculate these performance measures in the same manner.

Refinery Gross and Net Operating Margins

Below are reconciliations to our consolidated statements of income for (i) net sales, cost of products and operating expenses, in each case averaged per produced barrel sold, and (ii) net operating margin and refinery gross margin. Due to rounding of reported numbers, some amounts may not calculate exactly.

Reconciliations of refined product sales from produced products sold to total sales and other revenues

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2012   2011 2012   2011
(Dollars in thousands, except per barrel amounts)
 
Consolidated
Average sales price per produced barrel sold $ 120.21 $ 127.87 $ 119.87 $ 120.85
Times sales of produced refined products (BPD) 421,470 234,650 422,220 220,660
Times number of days in period   91     91     182     181  
Refined product sales from produced products sold $ 4,610,507   $ 2,730,427   $ 9,211,295   $ 4,826,684  
 
Total refined product sales $ 4,610,507 $ 2,730,427 $ 9,211,295 $ 4,826,684
Add refined product sales from purchased products and rounding (1)   120,676     63,170     276,066     138,718  
Total refined product sales 4,731,183 2,793,597 9,487,361 4,965,402
Add direct sales of excess crude oil (2) 32,558 138,492 190,840 273,901
Add other refining segment revenue (3)   31,728     21,137     36,999     29,015  
Total refining segment revenue 4,795,469 2,953,226 9,715,200 5,268,318
Add HEP segment sales and other revenues 63,692 50,940 127,207 95,945
Add corporate and other revenues 4,411 153 8,635 801
Subtract consolidations and eliminations   (56,891 )   (37,186 )   (112,623 )   (71,346 )
Sales and other revenues $ 4,806,681   $ 2,967,133   $ 9,738,419   $ 5,293,718  
 

Reconciliation of average cost of products per produced barrel sold to total cost of products sold

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2012   2011 2012     2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Average cost of products per produced barrel sold $ 92.78 $ 106.45 $ 97.44 $ 102.16
Times sales of produced refined products (BPD) 421,470 234,650 422,220 220,660
Times number of days in period   91     91     182     181  
Cost of products for produced products sold $ 3,558,463   $ 2,273,043   $ 7,487,683   $ 4,080,215  
 
Total cost of products for produced products sold $ 3,558,463 $ 2,273,043 $ 7,487,683 $ 4,080,215
Add refined product costs from purchased products sold and rounding (1)   121,872     64,206     278,196     139,746  
Total cost of refined products sold 3,680,335 2,337,249 7,765,879 4,219,961
Add crude oil cost of direct sales of excess crude oil (2) 29,733 135,981 185,543 268,861
Add other refining segment cost of products sold (4)   27,649     10,205     28,087     12,539  
Total refining segment cost of products sold 3,737,717 2,483,435 7,979,509 4,501,361
Subtract consolidations and eliminations   (55,953 )   (36,340 )   (110,828 )   (69,649 )
Costs of products sold (exclusive of depreciation and amortization) $ 3,681,764   $ 2,447,095   $ 7,868,681   $ 4,431,712  
 

Reconciliation of average refinery operating expenses per produced barrel sold to total operating expenses

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2012   2011 2012   2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Average refinery operating expenses per produced barrel sold $ 5.00 $ 5.48 $ 5.26 $ 5.80
Times sales of produced refined products (BPD) 421,470 234,650 422,220 220,660
Times number of days in period   91     91     182     181  
Refinery operating expenses for produced products sold $ 191,769   $ 117,015   $ 404,200   $ 231,649  
 
Total refinery operating expenses for produced products sold $ 191,769 $ 117,015 $ 404,200 $ 231,649
Add other refining segment operating expenses and rounding (5)   9,382     8,266     18,232     15,711  
Total refining segment operating expenses 201,151 125,281 422,432 247,360
Add HEP segment operating expenses 17,923 14,366 34,911 27,162
Add corporate and other costs 3,786 (168 ) 7,352 (174 )
Subtract consolidations and eliminations   (134 )   (134 )   (342 )   (260 )
Operating expenses (exclusive of depreciation and amortization) $ 222,726   $ 139,345   $ 464,353   $ 274,088  
 

Reconciliation of net operating margin per barrel to refinery gross margin per barrel to total sales and other revenues

  Three Months Ended

June 30,

  Six Months Ended

June 30,

2012   2011 2012   2011
(Dollars in thousands, except per barrel amounts)
Consolidated
Net operating margin per barrel $ 22.43 $ 15.94 $ 17.17 $ 12.89
Add average refinery operating expenses per produced barrel   5.00     5.48     5.26     5.80  
Refinery gross margin per barrel 27.43 21.42 22.43 18.69
Add average cost of products per produced barrel sold   92.78     106.45     97.44     102.16  
Average sales price per produced barrel sold $ 120.21 $ 127.87 $ 119.87 $ 120.85
Times sales of produced refined products (BPD) 421,470 234,650 422,220 220,660
Times number of days in period   91     91     182     181  
Refined product sales from produced products sold $ 4,610,507   $ 2,730,427   $ 9,211,295   $ 4,826,684  
 
Total refined product sales from produced products sold $ 4,610,507 $ 2,730,427 $ 9,211,295 $ 4,826,684
Add refined product sales from purchased products and rounding (1)   120,676     63,170     276,066     138,718  
Total refined product sales 4,731,183 2,793,597 9,487,361 4,965,402
Add direct sales of excess crude oil (2) 32,558 138,492 190,840 273,901
Add other refining segment revenue (3)   31,728     21,137     36,999     29,015  
Total refining segment revenue 4,795,469 2,953,226 9,715,200 5,268,318
Add HEP segment sales and other revenues 63,692 50,940 127,207 95,945
Add corporate and other revenues 4,411 153 8,635 801
Subtract consolidations and eliminations   (56,891 )   (37,186 )   (112,623 )   (71,346 )
Sales and other revenues $ 4,806,681   $ 2,967,133   $ 9,738,419   $ 5,293,718  
 
(1)   We purchase finished products when opportunities arise that provide a profit on the sale of such products, or to meet delivery commitments.
(2) We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as inventory and then upon sale as cost of products sold. Additionally, at times we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at carryover cost.
(3) Other refining segment revenue includes the incremental revenues associated with NK Asphalt and miscellaneous revenue.
(4) Other refining segment cost of products sold includes the incremental cost of products for NK Asphalt and miscellaneous costs.
(5) Other refining segment operating expenses include the marketing costs associated with our refining segment and the operating expenses of NK Asphalt.

Contacts

HollyFrontier Corporation
Douglas S. Aron, 214-871-3555
Executive Vice President and Chief Financial Officer
or
M. Neale Hickerson, 214-871-3555
Vice President, Investor Relations

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Contacts

HollyFrontier Corporation
Douglas S. Aron, 214-871-3555
Executive Vice President and Chief Financial Officer
or
M. Neale Hickerson, 214-871-3555
Vice President, Investor Relations