HollyFrontier plans to construct a new RDU at its Artesia refinery, which is expected to have a production capacity of approximately 125 million gallons a year
HollyFrontier Corporation today announced a series of strategic actions targeting growth, risk management and shareholder returns: a new renewable diesel unit (“RDU”) project, regular dividend annual growth target and a new HollyFrontier share repurchase authorization.
Commenting on the announcements, Franklin Myers, Chairman of the Board of HollyFrontier, stated, “Today’s announcements illustrate HollyFrontier’s commitment to both grow our business and deliver superior cash returns to shareholders. We expect our new renewable diesel plant will generate attractive returns and help us meet our requirements under the Renewable Fuel Standard. At the same time, we are increasing cash returns to shareholders through an increase in our regular dividend with a path for future dividend growth and a new HollyFrontier share repurchase authorization.
All of these actions are consistent with our balanced approach to capital allocation: 1) reinvest in and maintain our existing assets, 2) maintain a healthy balance sheet with an investment grade credit profile, 3) pay a competitive and sustainable regular dividend through the cycle, 4) invest in growth capital projects or acquisitions with a superior return, and 5) return excess cash to shareholders through share repurchases.”
Construction of a Renewable Diesel Unit
HollyFrontier plans to construct a new RDU at its Artesia refinery. 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 our annual RIN purchase obligation under current market conditions. The RDU, along with corresponding rail infrastructure and storage tanks, is estimated to have a total capital cost of $350 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 between 20% and 30%.
Regular Dividend Annual Growth Target
On November 13, 2019, HollyFrontier announced that its Board of Directors declared a regular quarterly dividend of $0.35 per share, an increase of 6% from $0.33 per share the prior quarter, payable on December 11, 2019 to holders of record of common stock on November 27, 2019. Over the next three years, HollyFrontier plans to review the dividend annually and target an expected dividend growth rate of approximately 5% per year.
New HFC Share Repurchase Authorization
HollyFrontier’s Board of Directors authorized a new $1 billion share repurchase program. This authorization replaces all existing share repurchase authorizations, of which there was approximately $281 million remaining. Over the past 15 months, HollyFrontier has returned over $719 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.