HF Sinclair Corp
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HF Sinclair Corp
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Welcome to HollyFrontier Corporation's Third Quarter 2021 Conference Call and Webcast. Hosting the call today from HollyFrontier is Mike Jennings, President and Chief Executive Officer. He's joined with Rich Voliva, Executive Vice President and Chief Financial Officer; Tim Go, Executive Vice President and Chief Operating Officer; Tom Creery, President, Refining and Marketing; and Bruce Lerner, President, HollyFrontier Lubricants and Specialties.
[Operator Instructions]
Please note that this conference call is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Vice President of Investor Relations. Craig, you may begin.
Thank you, Rain. Good morning, everyone, and welcome to HollyFrontier Corporation's Third Quarter 2021 Earnings Call. This morning, we issued a press release announcing results for the quarter ending September 30, 2021.
If you would like a copy of the press release, you may find one on our website at hollyfrontier.com. Before we proceed with remarks, please note the safe harbor disclosure statement in today's press release.
In summary, it's the statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings.
The call also may include discussion of non-GAAP measures. Please see the earnings press release for reconciliations to GAAP financial measures. Also, please note any time-sensitive information provided on today's call may no longer be accurate at the time of any webcast replay or rereading of the transcript.
And with that, I'll turn the call over to Mike Jennings.
Thanks, Craig. Good morning, everyone. Today, we reported third quarter net income attributable to HollyFrontier shareholders of $281 million or $1.71 per diluted share. These results reflect special items that collectively increased net income by $71 million. Excluding these items, adjusted net income for the third quarter was $210 million or $1.28 per diluted share versus an adjusted net loss of $67 million or negative $0.41 per diluted share for the same period in 2020. Adjusted EBITDA for the period was $408 million, an increase of $342 million compared to the third quarter of 2020. The refining segment reported EBITDA of $295 million compared to a $39 million loss for the third quarter of 2020 and consolidated refinery gross margin was $14.87 per produced barrel, a 140% increase compared to the same period last year. This increase was primarily due to stronger product demand across the markets we serve. Third quarter crude throughput was approximately 416,000 barrels per day above our guidance of 380,000 to 400,000. We recently completed planned turnaround work at our Tulsa Refinery, which was on time and on budget. At the beginning of October, we began a significant turnaround at the Navajo refinery, which is scheduled to be completed in mid-November. Our Lubricants and Specialty Products segment reported EBITDA of $168 million for the third quarter versus $61 million reported in the same period last year. Excluding an $86 million gain on the sale of property at our Mississauga plant, adjusted EBITDA was $82 million.
The Rack Back portion of this business continues to see outstanding margins and earnings driven by a combination of strong demand and limited global base oil supply due to a number of factors.
In the Rack Forward portion, despite strong sales volumes and price increases, the continued rapid rise in base oil prices through the quarter compressed margins. Overall, we're encouraged by the consolidated earnings performance of the Lubricants and Specialties business this year, and we're optimistic that we'll see a solid finish to the year as demand for both base oils and finished products remains strong. Holly Energy Partners reported adjusted EBITDA of $83 million for the third quarter compared to $86 million in the third quarter of last year. HEP delivered solid results in the quarter, supported by record volumes on the Salt Lake City and Frontier pipelines in the Rockies region.
During the quarter, we completed the Cushing Connect pipeline project, which will replace third-party providers as the primary source of crude supply for our Tulsa refinery.
Now I'd like to update on strategic business initiatives. Earlier this week, we closed on our previously announced acquisition of the Puget Sound Refinery for aggregate cash consideration of $613.6 million, which consisted of a base cash price of $350 million, hydrocarbon inventory with an estimated closing value of $266.2 million, and other closing adjustments and accrued liabilities of $2.6 million. This purchase price represents an attractive acquisition multiple of 1.5 to 2x EBITDA net of inventory based on the refinery's historical financial performance.
The Puget Sound Refinery has a strong record of financial and operational performance that we believe will complement our existing refining business. The refinery supplies transportation fuels into the premium Pacific Northwest region and sources at refining asset base.
We're committed to the continued safe and environmentally responsible operations of the facility, and I'd really like to welcome Puget Sound's highly skilled workforce to the HollyFrontier family.
In our Renewables segment, I'm pleased to announce that we are progressing ahead of schedule on the Giant renewable diesel conversion project. The 6,000 barrel per day renewable diesel unit is expected to be mechanically complete later this week, and we expect to run our first batch of feed by the end of the year. Given current economics between refined soybean oil and other feedstocks, we prioritized completion of the pretreatment unit located in the -- at the Artesia New Mexico facility, and we now expect to complete the PTU in the first quarter of 2022, a full quarter ahead of schedule, allowing us to run a more favorable mix of feedstocks.
The Artesia renewable diesel unit is now expected to be completed in the second quarter of 2022. We are still on budget and expect to spend a total of $800 million to $900 million for all 3 projects. In regard to our previously announced acquisition of assets from Sinclair, we still expect to close in mid-2022, subject to regulatory clearance and the satisfaction or waiver of all other closing conditions.
We look forward to further diversifying our asset base with Sinclair's branded marketing, renewable diesel, refining and logistics businesses. Looking forward, we remain focused on executing these strategic initiatives, which we believe will allow us to reward our shareholders through the capital return plans we previously announced in August.
With that, let me turn the call over to Rich.
Thank you, Mike. As previously mentioned, the third quarter included a few unusual items.
Pretax earnings were positively impacted by an $86 million gain on the sale of property at our Mississauga facility partially offset by $4 million of pre-closed acquisition integration costs, $7 million of charges related to the Cheyenne refinery conversion to renewable diesel production, and severance charges totaling approximately $200,000. A table of these items can be found in our earnings press release.
Cash flow from operations was $249 million in the third quarter, which reflected -- which included, excuse me, $65 million of turnaround spending and a $94 million increase in working capital, driven by the start of planned turnarounds at our Tulsa and Navajo refineries.
HollyFrontier's stand-alone capital expenditures totaled $196 million for the quarter. As of September 30, 2021, our total liquidity stood at approximately $2.8 billion comprised of a stand-alone cash balance of $1.5 billion, along with our undrawn $1.35 billion unsecured credit facility. As of September 30, we have $1.75 billion of stand-alone debt with a debt-to-cap ratio of 23% and a net debt-to-cap ratio of 4%.
We anticipate recovering between 60 -- excuse me, $50 million and $60 million in cash tax benefit in 2021 from the loss carryback under the CARES Act during the fourth quarter of this year. HEP distributions received by HollyFrontier during the third quarter totaled $21 million. HollyFrontier owns 59.6 million HEP limited partner units, representing 57% of HEP's LP units at a market value of approximately $1.1 billion as of last night's close.
With respect to capital spending in 2021, we are decreasing our guidance, specifically in the Renewables segment based on updated project time lines and in the turnarounds and catalyst bucket, due to strong overall execution and some scope reduction at the Navajo turnaround. We now expect to spend between $550 million to $600 million in renewables for the full year of 2021 versus our previous guidance of $625 million to $675 million.
In total, the renewables projects remain on budget, and we anticipate the remaining $175 million to $225 million to be incurred in 2022. We still expect to spend between $190 million to $200 million for capital at HollyFrontier Refining and $40 million to $50 million at HollyFrontier lubricants and specialty products. We now expect to spend between $290 million to $320 million from turnarounds in catalysts, versus our previous guidance of $320 million to $350 million.
At HEP, we now expect to spend between $15 million and $20 million for maintenance capital, $40 million to $45 million for expansion capital, which includes our investments in the recently completed Cushing Connect joint venture, and $2 million to $4 million in refining reprocessing unit turnarounds.
Given the record base oil prices and more importantly, the speed of their increase in 2021, we have updated our Rack Forward guidance to reflect short-term margin compression in the finished product side of our Lubricants and Specialties segment.
We now expect to earn between $65 million to $85 million in income from operations and $115 million to $135 million of EBITDA. We expect Rack Back earnings to remain at these elevated levels in the fourth quarter based on the favorable supply-demand dynamics.
Within our Refining segment for the fourth quarter of 2021, we expect to run between 450,000 and 470,000 barrels per day of crude oil, which includes expected volumes from the Puget Sound refinery in November and December.
And with that, Rain, we're ready to take questions.
[Operator Instructions]
Our first question comes from Manav Gupta from Credit Suisse.
Rich and Mike, my first question to you is about 6 months ago, you gave us the Puget Sound acquisition. And at that time, the guidance was $150 million to $200 million. And I'm just trying to understand if anything has moved for that guidance to change? And the reason I'm asking this question is, in the past, we have heard assets being acquired from majors and a high guidance number being given. And when the results actually start coming in, they're pretty disappointing. And that's why there is this like sour sentiment on buying a West Coast asset from a major. So just trying to understand, has anything changed for your guidance on the Puget Sound acquisition.
Yes. Manav, we're sticking with our guidance. The biggest variable is probably RINs pricing. The market demand out there is recovering, as you can probably see in the regional numbers, still probably 8%, 10% below 2019 levels. But the trajectory is upward. As we've gotten to know the asset better, we like it more, and we're sticking to our guidance.
And the second question, since you mentioned RINs, was we had a release out there from Reuters, which kind of put out some RVO numbers, which were actually very supportive of D4, but not so supportive of D6.
Now as I understand, once your R&D facilities start, you would be long D4, you'd still be short D6, but maybe a little net short D6. But if there's a price spread difference between D4 to D6. So D4 premium goes up, you could still meet all your obligations. Can you just walk us through that maths one more time?
Yes, it's Rich. So yes, you're right. We will be long D4 RINs prospective of the renewable diesel facilities coming online. As Mike alluded to, Puget Sound brings a little more obligation to us. And then once the Sinclair transaction is closed, we will be long D4s, short D6 and basically balanced on an absolute number basis. To your point, from our perspective, a higher D4 price versus D6 price is beneficial.
Your next question comes from Ryan Todd from Simmons
[Audio Gap]
So performance of the business, both in refining and lubes has continued to exceed expectations since you announced the PSR acquisition earlier this year, including your cash flow of $250 million this quarter. If the relatively constructive and refining environment holds, how are you thinking about the dividend going forward? And what do you need to see to feel comfortable in restarting the dividend? And any thoughts on that timing?
Yes, Ryan, thanks for the question. You're right. The refining and lubricants environments are both constructive for us and building as well, our performance operationally in both is doing quite well. So looking forward, we're sticking to the capital plan that we laid out, the return of capital guidance that we laid out in August, which is return on the dividend after the 12-month hiatus and repurchase as suggested in that guidance.
So how it develops from there, how aggressively we lean into it as we go forward, we'll see. But we're very much sticking with the plan that we've laid out. And if anything, we're more constructive.
Great. And then I guess as we -- you gave some guidance on CapEx, which is helpful. I mean as we think about -- I guess, maybe a couple of comments on the 2021 CapEx, the renewable diesel number coming down, is that just -- that's just clearly a matter of timing? And as we think about 2022 CapEx, any high-level thoughts in terms of what's the updated kind of maintenance capital? You've got a lot of moving pieces in your portfolio. What's a good idea for -- or a good rule of thumb for kind of maintenance capital in 2022 and what that growth CapEx wedge might look like as well?
No. So to your point on renewables, yes, the overall projects are still within an $800 million to $900 million range. So we'd expect that balance to flow into 2022. At a high level, capital spending and turnaround spending will decline in '22 versus '21. We expect to issue formal guidance in December. So we'll have some numbers for you in a few weeks.
Your next question comes from Phil Gresh from JPMorgan.
First question, I appreciate the update on the renewable diesel side of things. What are your latest thoughts on kind of the feedstock mix you're looking at, at this point in time?
Yes, Phil, this is Tom. We're still sticking to our guns on that one. For Cheyenne, we're looking at a combination of soy and tallow and just to make it clear, we have secured few stocks at this time for a start-up, and we're in good shape. We haven't had any trouble buying feedstocks. And as the PTU comes up, we will look at buying additional feedstocks, both degummed and low CI material. And we're doing analysis on an ongoing basis to find the feedstock that have the best value for us, just not price because it's more about value than anything else at this point in time.
Okay. Got it. And then just one question. When we read through your proxy filing, the guidance for the pro forma EBITDA of the company was a bit lower than the slide presentation you had given. So was that just conservatism or anything we should be thinking about there? Like, I guess, how would you suggest we think about your pro forma kind of mid-cycle versus what was stated.
Yes, Phil, it's Rich. So it's important to emphasize that was a point in time snapshot from July, and it was best market views and frankly, the best forward curves we could come up with at the time. Clearly, the market has performed better than that, and it does not affect our view of mid-cycle. But that we had in July, largely based on where our markets were pointed.
Okay. So you'd suggest we stick with kind of the mid-cycle provided in the slide presentation...
Absolutely. And to prove that point further, obviously, our third quarter earnings in several segments were above mid-cycle already.
Our next question comes from Paul Cheng from Scotia Howard Weil.
Two questions, please. Mike and Rich, there's a number of transactions happened in the midstream, consolidating and some people is either selling down or that rolling it up. When we're looking at HEP, the granddaddy, and the MLP. And at this point, does it really make sense for you to stay as an independent or that from the corporation standpoint, would it be more advantageous to simplify your corporate structure and just roll that in. And if you don't really need the control should you maybe trying to just sell it and deconsolidate? That's the first question. The second question is related to the Mid-Con is a really strong result. And is there anything you need in this quarter other than, say, the RIN price is down that lead to such a strong margin capture as well as the overall throughput is so strong. I want to see if the third quarter is a good base now to use for the Mid-Con region going forward?
Okay, Paul. We're going to take that on. We're going to ham and egg it among us. Rich and I will address the question around HEP deconsolidation. I will start with just how integral those assets are to our business strategy in terms of their ownership and their use as we connect our refining assets to supply sources and markets. So very strategic for us to own and operate those assets. The structure of ownership. I'll ask Rich to speak with around deconsolidation or retention of the MLP.
Yes. Thanks, Mike. So look, Paul, I think we demonstrated the value of HEP of a financial vehicle in the Sinclair transaction. But look, we're going to do the right thing for the shareholder here whether HEP is, as a financial vehicle has rolled up, consolidated whatever. This is essentially a corporate finance discussion to make any transaction like that accretive would require an incredible amount of cash, which we think is probably spoken for better by our shareholders. But look, we'll continue to monitor the situation and respond to the market and do the best thing for our shareholders.
The second question, Paul, was, are there any sort of unique good guys lingering around...
Can I just ask some more questions first?
Oh, absolutely, Paul.
Rich, when you say that you take a lot of cash, if you want to roll it up, why that -- I mean, my -- PSXP, they just did 1 by issuing the share of PSXP in exchange for the HEP. So that's mainly is more on cash. If anything then they have a higher dividend yield than you guys, obviously, it seems that you didn't have any dividend even after the RINs they probably still have a higher dividend yield. And so from that standpoint on a going-forward basis, you're rolling it up actually will improve your cash flow?
So Paul, we've done the math. We keep the math live. For us, it would not improve our cash flow, it would dilute it on a per share basis. Obviously, look, we've got a very wide valuation difference between HollyFrontier and HEP. That could easily change over time and change this discussion. To your point, HEP trades at a much lower dividend yield than PSXP does, for example. That colors this discussion. Like you're headed down the right path here. The math from our perspective does not work currently for that kind of transaction, but we will continue to monitor it.
Yes. I think the other comment is that it would be a levering transaction to do so. Just in respect of capital structure, HEP supports 3.5x debt-to-EBITDA, while our target on the HFC side is considerably lower in order to maintain our investment grade credit rating.
So I think we have to look at both cash flow and the immediate cash impact of the transaction and for us it would be a levering transaction. As Rich said, we think that capital is better return to our shareholders than in a buyout of HEP.
Yes. So second question was around refining results in this quarter. I'd ask Tim to speak to that. And then whether there are any particular good guys rolling around in 3Q? Or is this a good model for going forward?
Yes, Paul, this is Tim Go. Yes, we're very pleased with the Mid-Con performance this quarter. The 3 biggest factors, stronger gasoline margins associated with stronger demand, stronger base oil margins, which I know you've been watching and then, of course, lower RIN impacts to the region. But you're asking, should we expect this type of performance going forward? Really, if you look back to the second quarter, we also demonstrated strong Mid-Con results then both on volumes and demand and margins. So I think you're seeing an improved performance just overall over the last 6 months. Seasonally, we'll see some weaker demand in the winter that you would expect. But overall, we've been trying to take full advantage of not just the markets and the group but we've also been able to see some of the strong margins in the Rockies and move some of our barrels in that direction as well. And we hope to be able to continue to do that in the years to come.
Our next question comes from Theresa Chen from Barclays.
I wanted to ask about the lubes business. And given the updated guidance and the Rack Forward portion that -- just was curious, is this purely as a result of needing time to pass through the higher base oil costs? Or is this likely to persist for some time for the foreseeable period. What is your outlook there?
Your assumption is correct. So base oil prices are ramping at a faster rate than we can apply price and pass-through price increases for that specific component in this business. We have a fair proportion of finished lubricants clients that are contracted. And so there's some limiters on the timing. It's not that we can't push the price through, but on the timing. And so you see a lag between the ability to raise the price of the finished side versus the instantaneous impact of the base oil markers increasing.
Got it. And on the renewable diesel side, Tom, I was hoping to kind of go back to your comments about feedstocks and understand that you've had no trouble buying feedstocks for start-up at this point. Can you just give us a sense of the execution around that on a go-forward basis? Are you going to be in the spot market potentially? Is any of it bought for or bought on a contracted basis? What are your expectation as these units start up?
Okay, Theresa, we'll give it a shot here. We are buying spot right now. And then buy spot, I'd say, it's not very long -- maybe a term of 3 to 6 months on some contracts, but mostly what I would call spot. However, we are investigating other opportunities. For example, we are looking at participating in crush plant economics to get a little further back in the value chain. So we've been talking to various partners in that field, trying to learn what's going on and whether there's room for us and kind of role that we could play on a going-forward basis. We've also been talking to producers of [ DCO ] as well along the same thing. Early phases at this point in time, we're still evaluating the markets, but it's definitely one of those things that we are looking at as we move forward and become a regular offtaker.
Our next question comes from Connor Lynagh from Morgan Stanley.
Just trying to piece together the sort of phasing of the renewable diesel projects here. So as we think through the sort of mid-cycle targets that you guys have laid out there, is that a number that we should expect sort of hit a run rate of in 2022? Do you think it takes some more time to iron out the kinks in operations, et cetera. How should we think about when that's a realizable earnings number?
That's going to be realizable in the second half of 2022 as we start the PTU up line out Cheyenne and get the RDU in Artesia, it's going to take us some time, and we're going to have to get into it. So definitely over the second half of 2022, that would be our expectations.
Okay. That's helpful. Maybe just pivoting to Puget Sound. I'm just trying to piece together some of the comments you made just in terms of, obviously, the market has improved, RINs are still a challenge. Net-net, do you feel that, that asset is operating at or near the mid-cycle level that you've put out for that? How should we think about sort of the near-term earnings contribution of that?
Yes. The short answer to that question is yes. You probably understand that there's seasonality, particularly in that geography. Throughput in the winter is lower. But in terms of the overall market structure and margin opportunity versus what we've put out, yes, that we see it consistent with the guidance we've given.
Okay. So maybe a little bit lower in the near term, but moving towards that in 2022?
Yes.
Connor, just to follow that up. I think if you look at the proxy statement we put out in association with Sinclair, there are numbers for Puget Sound up through the first half of 2021. That will probably give you some help there.
Our next question comes from Roger Read from Wells Fargo.
Just like to catch up on the lubes business, maybe a little bit to understand the Rack Forward, Rack Back and your supply of base oil relative to the amount of product you sell. In other words, are you 100% sourced, 80% sourced, 120%? Just trying to understand the balance in this business as things transition from type base oil into, I don't know, I guess, we'll call it more normalized market, hopefully, in '22.
So our base oil production is fully capable of covering all of our finished lubricants business as well as our formulated such as railroad engine oil business as well. And we are, of course, in the specialty area heavily backward integrated into our own feedstock supplies out of Tulsa, but we do purchase some feedstocks like waxes and other base oils externally for some of the former Sonneborn products that are in the specialty business. That's why we have a portion of the business that is in excess of finish that we sell as straight base oils.
So reasonable to presume is the base oil market normalizes and the pricing catches up on the Rack Forward side, the level of performance you're seeing now could slip a little bit, but for the most part, auto remain fairly strong?
Yes. So we think that's the case. And of course, it's a little bit of this pricing in between the 2, a little bit of left pocket, right pocket in that sense. So as Rack Forward recognizes the full extent of the price increases as they catch up with the clientele even if the base oil has declined a bit, we make it up on the other side.
Okay. That's helpful. And then I don't know if this question is for you, Rich, or not. But the guidance of remaining -- I shouldn't say necessarily remaining, but the total CapEx guidance and then thinking about what's remaining on the renewable diesel projects, the range of $800 million to $900 million, I'm surprised it's still quite so wide this far through the projects, what are the remaining sort of risk factors that would affect the higher or lower end of that range?
So let me take a first pass at this, and I'll ask Tom to add on if I miss anything, Roger. I think there are really 2 issues right now. We are seeing universally applicable supply chain issues right now, and they pop up unexpectedly, to be honest. So that's still out there. And obviously, then COVID and our ability to keep workforce on site and work and can really affect schedule and by extension cost.
Yes. The only other thing that I would add, Roger, is that we're getting into winter here in the Northern Hemisphere, and that's going to have an impact. We've already seen it in our Cheyenne operations. They've had snow a couple of times, freezing rain, which impedes our ability to get workers out in the field, and we expect to see that as we go forward at Artesia as well. So that's a big unknown at this point in time.
Your next question comes from Neil Mehta from Goldman Sachs.
Nice quarter here. The first question I had was around refining specifically around crude differentials. And we've seen Brent TI trade pretty tight, and we've seen some backwardation show back up in this market. Just your thoughts on the outlook for Cushing in navigating the crude differential environment?
Yes, Neil, this is Tim. I'll take that. We are definitely seeing the tightness of short term, at least in the Brent TI dips. All the things you talked about, the low cushion inventories, the backwardation, cap line reversal, all of those contributing, we believe, in the short term. But if you look at the long-term structure and long-term fundamentals, we still believe the Brent TI spread going to be in that $3 range. If you look at our kind of our assets, though, it's -- it helps to look at each one to understand what the impact of this Brent TI spread really means to each of them. So in El Dorado's case, because they have 30% of their crude slate associated with WCS and the WCS spread as you see, has widened, it is provided some offset and some cushion, I guess, over at El Dorado. If you look at the Permian and our [ Navajo ] Refinery, the WTS spread has weakened significantly here as you see the market discounting, the WTS and the high sour crudes. That's helping our Artesia refinery. And of course, we talked about Tulsa a little bit already. The base oil margins are strong still, and we'll continue to justify the target spread on the Brent TI spread. So if you look at our assets that are mostly affected by the WTI Brent spread, we still are very positive going forward.
Okay. And you think, Tim, $3 is the right number over the medium term to anchor to based on transportation economics?
That's right. Yes.
Okay. That's helpful. And Rich, the follow-up is for you just around capital returns to execute the recent M&A, there was obviously the decision to cut the dividend. Just what is your perspective in terms of the resumption of capital returns in what form, whether it be buybacks or a dividend payout?
So Neil, we'd reiterate the guidance we gave, concurrent with the Sinclair acquisition, which is we'd expect to return the dividend, as Mike said, in the first half of 2022. Through the first quarter of 2023, we'd expect to return $1 billion of total cash to our shareholders in both dividends and share repurchase. And then through 2023 and beyond, we intend to go to a 50% payout ratio of net income based on both dividends and share repurchase.
Your next question comes from Kalei Akamine from Bank of America.
Standing in for Doug. Maybe first off, I'm interested in the marketing opportunities at Puget Sound. So my understanding is that, that Vancouver is advantaged over Seattle. So I'm wondering about your ability to sell there as a way to step up margin. And additionally, what the crude differentials look like for the Canadian medium that you run up there, noting that WCS has widened out, but they're not exactly the same.
Yes. This is Tim. I'll take that question on Puget Sound. We do have the ability to move products into Canada, and we do so even today. We'll continue to look for those opportunities. Typically, they go on smaller barges as we move the both on to the West Coast there. But we have ability to move just both into Canada as well as in the California. As we see the CARB gasoline market improve, we'll have the opportunities to play into that market too.
As far as crude dips, we still believe that the Canadian crude represents price-advantaged opportunities for us. We generally tend to blend that Canadian crude mix to match kind of an A&S-type quality as we bring it into the Puget Sound refinery. But we do see opportunities to continue to bring that advantage crude into Puget Sound.
And my follow-up is just on capital expenditures. Again, I think your guidance implies a big step-up in renewable expense for first quarter of '22. So I'm just hoping that you could put it all together for us and the offloads for this quarter and next, considering that this will be the peak period for spend and Puget Sound is closed.
So Kalei, as we said, we'd expect to spend between $500 million and $600 million for 2021 in renewables. That leaves about $150 million to $175 million to go in 2021. And then as guided, for 2022, we'd expect to spend between $175 million and $225 million in renewables.
And is most of that going to be in the first quarter or the first half?
First half, will be done in the first half. I don't have enough insight to a quarterly split at this point.
Your next question comes from Jason Gabelman from Cowen.
I first wanted to ask on the Rockies, or I should say, the West region. The indicators have held up pretty well. And as demand kind of normalizes here in a refining environment that looks different with some assets gone. Can you just discuss if there's a step change in the supply-demand balances in those West regions relative to where they were pre-COVID or if there were some transitory items benefiting in 3Q and seemingly as we move into 4Q. And second, I wanted to ask about the Sinclair acquisition, understanding there are some sensitivities as you're going through the closing process. But the Biden administration has been vocal on looking more closely at oil and gas mergers. And I'm wondering if that has resulted in a more in-depth process, I guess, I could put it relative to what you would have expected or Mike, even relative to when Holly and Frontier combined in 2011, just looking for general thoughts if you could compare this process versus that one?
Sure. Look, I'll give you a little insight on question 2. I'll ask Tim to speak to your first question. It won't surprise you that at this point, we are deep into the regulatory process and, frankly, have very little to say about it other than we think the transaction is clearly designed to close, and we look forward to serving these customers. But as to how the FTC is seeing it and what questions they're asking, that's a little too intimate right now. So we'll pass on that piece, and we're working hard at it. Tim?
Yes, Jason, on your question on the West refining region, again, we're very pleased with the execution that we've had, not just in the third quarter, but the second quarter as well. We're seeing -- we saw stronger gasoline margins, stronger diesel margins and then again, lower RINs costs that were basically boosting our capture on the West. Structurally, as you pointed out, we've taken out a lot of fixed costs by converting our Cheyenne refinery into the renewable diesel project, and that's basically helping our overall economics in the West as we continue to serve those markets just with one less facility.
[Operator Instructions] You next question comes from Paul Cheng from Scotia Howard Weil.
Mike, just curiosity, a number of your peers that your independent refiner, including some small, some bigger ones have said, due to the energy transition they really have no plan to further expand their refining footprint neither in the organic investment or that inorganic. You guys probably is just the exception here. So from your standpoint after you finish in care, do you think that you have sufficient of capacity or that say after you digest it, you will still be interested, yes, that's a value opportunity to further expand your refining footprint? And how you see that differently comparing to your peers on that?
Yes. Well, Paul, obviously, every company has its own strategy and ours is not intentionally contrarian. But we actually do believe in petroleum fuels. And those are the fuels of today. And most of consumers still use gasoline and diesel. And so our intention is to serve those customers reliably, safely and at a very reasonable cost. At the same time, we're not ignorant to energy transition, and we're doing things inside our company around renewable fuels with the supply chain around feedstocks and potential opportunities around carbon capture. So I think we have a portfolio outlook that also includes specialties like lubricants and our own integrated transportation network. What we're trying to be is a very competitive company that generates high returns internally and ultimately with cash to return to our shareholders. It doesn't favor renewables relative to petroleum fuels, we believe in both. And what we want to do is to produce both really well in markets that reward us for that. So I hope that describes the strategy from a very high level. Obviously, as time rolls forward, we'll look at individual opportunities. We don't believe in generic capacity acquisition for its own sake. But at the same time, when we're able to add solid assets like that of Puget Sound refinery that can really help our portfolio with operational capability and serve a premium market, you bet we're going to do that.
So yes, that's what we're doing going forward. Right now, we've got a very full plate. Execution is our mantra, and we really need to focus on bringing these things that we've committed to across renewables, Puget Sound and Sinclair a home to the benefit of our company and our shareholders, and that's what we're working on doing.
And my second question is that from a high level, some of your peers when they're looking at the energy transition, they also expand into maybe beyond or outside the traditional refining space, including one of your peers getting into investment into the battery business and then maybe also doing the CCS. How the HollyFrontier looking at those? I mean if those over the next 5 years that the company may be interested to branch out beyond your current business mix or that over the next 5 years, you're going to stick with your current business mix?
Yes. So Paul, our principal skills are in liquid fuels production and distribution. So that's what we're going to favor. We're going to try to reduce carbon intensity through time in our renewables efforts. And also look inside the fence line in terms of Scope 1 and 2 emissions and potentially invest in carbon capture and storage. Batteries, that feels like a stretch for us. I'd like to never say never. But really, we're going to focus on those things that we can provide skill and advantage to, and I think I've called those out here.
There is no further questions at this time. I would now like to turn the call over to Craig for closing remarks.
Thanks, everyone. We appreciate you taking the time to join us on today's call. If you have any follow-up questions, as always, reach out to Investor Relations. Otherwise, we look forward to sharing our fourth quarter results with you in February.
Thank you. This concludes today's conference call. Please disconnect your line at this time, and have a wonderful day.