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Welcome to HollyFrontier Corporation's Fourth Quarter 2020 Conference Call and Webcast. Hosting the call today from HollyFrontier is Mike Jennings, President and Chief Executive Officer. He is joined by 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 is being recorded. It is now my pleasure to turn the floor over to Craig Biery, Vice President, Investor Relations. Craig, you may begin.
Thank you, James. Good morning, everyone, and welcome to HollyFrontier Corporation's Fourth Quarter 2020 Earnings Call. This morning, we issued a press release announcing results for the quarter ending December 31, 2020. If you would like a copy of this 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, 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 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.
Great. Thanks, Craig. Good morning, everyone. 2020 was an unprecedented year for HollyFrontier. In the face of extraordinary challenges created by the COVID-19 pandemic, HollyFrontier persevered and took important steps to strengthen our business in both the short and long term. We controlled what we could, focusing on the fundamentals of the business, maintaining a disciplined approach to capital allocation and continuing our efforts to further enhance reliability, safety and efficiency. We made key investments in renewable initiatives that will enable HollyFrontier to capture new opportunities as our industry evolves, and our lubricants business realized strong earnings in the second half of the year despite the global pandemic. We ended the year with a strong balance sheet, healthy liquidity and high-quality assets that position us to capitalize on our competitive advantages.
Looking ahead to '21 and beyond, I believe that HollyFrontier is well-positioned for long-term success as our core businesses rebound, and we continue our expansion into renewables.
Turning to the fourth quarter results. We reported a net loss attributable to HollyFrontier shareholders of $118 million or $0.73 per diluted share. These results reflect special items that collectively increased the net loss by $1 million. Excluding these items, adjusted net loss for the fourth quarter was $119 million or $0.74 per diluted share versus adjusted net income of $78 million or $0.48 per diluted share for the same period in 2019. Adjusted EBITDA for the period was negative $22 million, a decrease of $285 million compared to the fourth quarter of 2019. The Refining segment reported adjusted EBITDA loss of $112 million compared to $172 million earnings for the fourth quarter of 2019. And consolidated refinery gross margin of $4.02 per produced barrel was a 71% decrease compared to the same period last year. This decrease was primarily due to the impact of continued weak demand for transportation fuels, coupled with compressed crude differentials. Fourth quarter margins were also impacted by year-end inventory LIFO charge of approximately $35 million or $0.85 per barrel on a consolidated basis. Fourth quarter crude throughput was approximately 380,000 barrels per day at the top end our of guidance of 360,000 to 380,000.
Despite the tremendous obstacles we faced in 2020, we achieved strong safety performance and operational availability within our Refining segment. Our Lubricants and Specialty Products business reported EBITDA of negative $33 million compared to $35 million in the fourth quarter of 2019. This decrease was driven by a goodwill impairment charge of $82 million related to Sonneborn. Excluding the impairment, our Lubricants and Specialty segment reported adjusted EBITDA of $49 million. Rack Forward adjusted EBITDA was $48 million, representing an 11% adjusted EBITDA margin. Despite typical seasonality in the fourth quarter, Rack Forward reported a solid quarter due to continued demand improvement in our industrial and transportation end markets.
Sales volumes were essentially flat compared to the third quarter and were down only 2% versus the prior year. Within the Rack Back portion, demand for base oils remained healthy as margins strengthened to their highest levels since 2017. Holly Energy Partners reported EBITDA of $87 million for the fourth quarter compared to $88 million in the fourth quarter of last year.
Despite lower volumes year-over-year, HEP delivered strong fourth quarter earnings, supported by long-term minimum volume commitment contracts.
Looking to 2021, we're optimistic for better market conditions that will facilitate HollyFrontier's continued growth, evolution and success. Within our Refining segment for the first quarter of 2021, we expect to run between 350,000, 380,000 barrels per day of crude oil. In addition to the continued weakness in demand resulting from the COVID-19 pandemic, the crude charge in the first quarter of '21 has also been adversely impacted by scheduled maintenance at our Tulsa West and Woods Cross refineries as well as reduced availability of natural gas due to the extreme recent cold weather throughout the Mid-Continent and Southwest. We believe that demand for transportation fuels will strengthen as COVID-19 vaccines are distributed and the global economy recovers from the pandemic.
We expect to adjust refinery production levels commensurate with market demand. Within our Lubricants and Specialty Products segment, underlying demand for both finished products and base oil remain strong, and we expect a normal seasonal rebound in the first quarter of 2021. However, we do not have enough visibility to issue 2021 guidance at this time. Similar to our Refining segment, we expect to adjust production levels commensurate with market demand. At ATP, we expect to see demand for transportation and terminaling services grow with underlying demand for transportation fuels and crude oil. In 2021, HEP expects to hold the quarterly distribution constant at $0.35 per unit or $1.40 on an annualized basis. We remain committed to our distribution strategy focused on funding all capital expenditures and distributions within free cash flow and maintaining distributable cash flow coverage of 1.3x or greater, with the goal of reducing leverage to 3.0x to 3.5x EBITDA.
In our Renewables segment, we're advancing our renewable diesel and pretreatment units in Artesia, New Mexico and our renewable diesel unit in Cheyenne, Wyoming. We're on track to complete the projects on time and at the high end of our budgeted range with the ability to produce over 200 million gallons of renewable diesel beginning in the first quarter of 2022. We ended 2020 with a solid operational performance and a strong financial foundation. We strategically maintain a conservative balance sheet positioning HollyFrontier to withstand cyclicality while maintaining our strategic priorities. Our focus remains on generating high returns while operating safely and efficiently, further improving our refinery reliability, progressing our transition into renewables, enhancing our environmental and sustainability performance and continuing to prudently deploy capital to advance our shareholders' best interest. So with that, let me turn the call over to Rich.
Thank you, Mike. As previously mentioned, the fourth quarter included a few unusual items. Pretax earnings were positively impacted by a lower of cost or market adjustment of $149 million, partially offset by goodwill and long-lived asset impairment charges totaling $108 million, in addition to costs related to the Cheyenne refinery conversion to renewable diesel production. These costs include the decommissioning charges of $12 million, LIFO inventory liquidation costs of $3 million and severance costs totaling approximately $300,000. A table of these items can be found in our press release. Cash flow from operations was $67 million in the fourth quarter, which included $21 million of turnaround spending and $93 million of working capital gains. We were successfully able to draw down inventory in the fourth quarter to better manage working capital. HollyFrontier's stand-alone capital expenditures totaled $97 million for the quarter and $271 million for the full year of 2020.
As of December 31, 2020, our total liquidity stood at approximately $2.7 billion, comprised of a stand-alone cash balance of over $1.3 billion. Along with our undrawn $1.35 billion unsecured credit facility. As of December 31, we had $1.75 billion of stand-alone debt outstanding with debt-to-cap ratio of 25% and a net debt-to-cap ratio of 6%.
During the fourth quarter, we declared and paid a dividend of $0.35 per share, totaling $58 million. HEP distributions received by HFC during the fourth quarter totaled $21 million. HollyFrontier owns $59.6 million HEP limited partner units, representing 57% of HEP's LP units with a market value of over $950 million as of last night's close.
Looking ahead in the first half of 2021, and we anticipate recovering $50 million to $60 million in cash tax benefit from carryback of a net operating loss under the CARES Act and an additional $21 million to recover estimated tax payments that were made during 2020. With respect to capital spending, we have slightly increased our guidance for 2021, specifically in our renewables segment, to account for the timing of invoices from 2020 into 2021. We now expect to spend between $520 million to $550 million in renewables versus our original guidance of $500 million to $530 million. We still expect to spend between $190 million and $220 million for capital at HollyFrontier Refining, $40 million to $50 million at HollyFrontier Lubes and Specialties; and $320 million to $350 million for turnarounds and catalyst. At HEP, we expect to spend $14 million to $18 million for maintenance capital, $30 million to $35 million for expansion capital, which includes our investment in the Cushing Connect joint venture. And $5 million to $8 million in refinery processing unit turnarounds.
Beginning in the fourth quarter, activities associated with the conversion of HollyFrontier's Cheyenne Refinery to renewable diesel production, along with the construction of renewable diesel and pretreatment units in Artesia, New Mexico, are reported in HollyFrontier's Corporate and other segment.
For fiscal year 2021, we expect Corporate segment operating expenses to be in the range of $100 million to $120 million, which includes decommissioning and severance costs related to the Cheyenne Refinery conversion in the range of $20 million to $30 million.
And with that, James, we're ready to take questions.
[Operator Instructions] Our first question comes from the line of Manav Gupta with Crédit Suisse.
So I think when you envisioned the PCLI business, 1 of the key goals was that Rack Back should break even on EBITDA and then Rack Forward should generate the positive EBITDA. So in terms of Rack Back, I think you have achieved your goal in this quarter, Rack Back was neutral. Just trying to understand on the Rack forward side, 4Q was good, but 3Q was better. And so from a run rate perspective, when we are thinking about the first half of 2021, would the 3Q run rate on for Rack Forward be a better guidance or a 4Q could be a better guidance, specifically as it relates to Rack Forward?
So Manav, it's Rich. So a couple of things happened in the fourth quarter. Keep in mind that there's always a little bit of a lag here. So base oil prices obviously rose throughout the fourth quarter. And we had to absorb that on the Rack Forward side. So that did impact the quarter, and there is also always some annual seasonality around the year-end period. So that really drove the 2 things we can point to in the fourth quarter. Think to your point, demand is very strong, But we're -- as Mike said, right, we cannot issue guidance at this time because we are still seeing obviously a lot of volatility in the market. So like in the long run, I'd take you back to our expectation that we're going to do $250 million to $300 million of EBITDA in this business, and that is our long-run belief.
Okay. And a quick follow-up here is, Rich, I think when you had first come up with the prospects of expanding our renewable diesel business, you had kind of given out a range of returns that you expected. Now since then, a few things have happened, ultra-low sulfur diesel prices have moved up as the global economy has recovered as crude has moved up, RIN prices have moved up significantly but so have the feedstock prices. I'm just trying to understand from the perspective of the return, has there been any change on the HollyFrontier on their internal rate of return calculation, considering the 3 parameters have moved in different directions?
Yes. Manav, this is Tom Creery. Yes, we have seen that in the marketplace, and we've put that into our models and taking a look at it to see what the profitability and earnings would be on a go-forward basis. And we don't really see that much variation in regard to what's happening now as to what our original plan was. Maybe I could sum it up as a rising tide lifts all boats, but we have seen soybean oils go up in price. We've seen RINs go up in price. We've seen fats, oils. Everything is going up on price along with crude oil and RINs as well. So...
Yes, the other piece of that is there's now probably an expectation that the blender's tax credit persists for longer than just 2022. And that was not baked into our original outlook. So overall, higher, at least because of that.
Yes. When we did our initial modeling, we only took blender's tax credit to the end of '22 and then forecasted 0 thereafter.
And if blender's tax credit is extended, which most likely will be considering the stance of the Biden administration on renewables, that's straight $210 million of EBITDA to you, right?
That is correct, yes.
Our next question comes from the line of Ryan Todd with Simmons Energy.
Maybe a follow-up on the renewable diesel business. I guess, quickly, what was the driver of the upward revision to CapEx for this year? And then as you move closer to completion of the RD plants, can you talk about some of your ongoing efforts to establish supply chains on the feedstock side? Are you in conversations with feedstock aggregators particularly for low CI feedstocks? And can you talk a little bit about your confidence in your ability to efficiently access a range of feeds that your pretreatment will allow?
Ryan, I'll -- let me do the capital number. I'll hand it to Tom to speak to your other questions. So on capital, really, it's just timing of some of these invoices and the cash flows being in '21 versus late '20. So to give you some color here, we ended up spending about $120 million in 2020 instead of our guided $130 million to $145 million. So we're about $20 million short of cash out the door in '20. And hence, our guidance for '21 has gone up by about that number. But really just timing.
Ryan, in regard to your question about what agreements we've entered into and are looking at. Yes, on the feedstock side, we've been talking to local tallow guys as well as other feedstock providers of soybean oil. And degum soybean oil, soybean oil that's both refined and degummed as well as other feedstocks, including corn oil. We've got one agreement in place in terms of the feedstocks already inked up. And then on the offtake agreement, we have several contracts that we have entered into for disposition to California, as you could well imagine, at pricing that is very favorable in our opinion as we go forward. So we're in pretty good shape. We also -- we've been talking to co-ops. We've been talking to just about anybody, rendering plants, anybody that has feedstock available for supply issues. And part of the problem on the feedstock that we're seeing is that it's difficult to enter into some of these agreements when we're still 10 months away. And some of these things will happen a lot faster as we get closer to completion, both mechanical and operational, and they see that we're there to do business.
Great. I appreciate that color. Maybe switching gears to the refining side. I mean, refining margins are obviously up significantly year-to-date. And although RIN pricing is probably going to cut into some of that. I mean, can you talk about what you're seeing out there and what your outlook is for the next couple of quarters in terms of gasoline and distillate market dynamics?
Sure. In terms of gasoline and other refined products, diesel, before we went into this polar vortex situation, we were pretty pleased with where demand was going. In gasoline, I would say that our best recovery has been in PADD 4 on gasoline and probably the worst, and it hasn't been that bad, was Group III. When we compare to 2019, the demand was probably off 4% or 5% in total. So that's not much of a decrease compared to 2019. Distillate, on the other hand, we were very pleased with distillate. It was at or higher than all 2019 levels. So distillate was in good demand.
In terms of crack, it's hard to forecast that -- and on a go-forward basis. But we would expect cracks to improve as we get into the driving season as well as the ag season as they start to plant crops again. With what we're seeing in crop prices, whether it be soybean, corn or anything else, I think the farmers will be busy this summer. And with the relaxation of COVID and vaccinations, more people will be moving around both by car, truck and hopefully, by airplane. So that should help in terms of crack as we move forward.
Our next question comes from the line of Paul Cheng with Scotiabank.
My -- I'm just curious that when we're looking at that now, the renewable diesel plan budget you think is going to be at the high end of the range. So what's the risk factor end up when they see much higher than the budget? We recall, say, a number of years ago, when you did the major back racks expansion and upgrade in your Woods Cross, and of that, the capital costs turn out to be much higher than the original budget. So what's the risk factor here and how big is that risk? Secondly...
Paul, you have a long memory. So I'll address that. Look, the risk factor, we provide a range for these capital projects. And as more engineering is completed, that range tends to narrow on a single number, leaving basically field construction as the principal risk factor for which we provide a contingency. At present, we're at the high end of our range as we've completed most of our engineering and are ready to basically start issuing what we call IFC ISOs. But basically, piping circuits for construction to start taking them out to the field. So we're quite far along in terms of the engineering and initial phases of construction. So we're getting more confident. And at the same time, narrowing our range, but at the higher end. If we want to contrast it to a project from years ago, the issue was simply the engineering wasn't done prior to making a finer point estimate. And as the engineering evolve, the projects grew.
So these projects are fairly distinct from that. We're following the stage-gate process. And we're really near to ordering. We've ordered all the heavy equipment, the major equipment, if you will, vessels, compressors, et cetera. So we have fixed prices on all that. The engineering is largely complete. And what's in front of us is field construction. There's some risk around field construction during COVID. The COVID numbers are down, and that's good, and we've added the estimates to reflect different practices to maintain a safe workforce.
Okay. And second question is on the lubricant. I mean after the last several years of the ownership, I think we have run through, it seems like that from time to time, the Rack Forward look really good and then Rack Back was challenging. And in this quarter that the Rack Back finally has been breakeven and Rack Forward, on the other hand, margin go down. So I mean, are we -- still we truly believe this is a business that we can generate $250 million to $300 million in EBITDA. I mean, in hindsight, is that something that we have learned after the last several years that perhaps may be different than the original expectation to led you to either that more optimistic or more pessimistic about this business? Do we really have the necessary scale and the organization and the people to really make this as a profitable business for you?
Yes. The short answer is yes. We have a really talented team running this business, Paul. I think the big difference between expectations and reality through the last couple of years has been a commodity base oils business that went through a deep recession, okay? And when you get to group 1, group 2 cracks versus vacuum gas oil of $10, $11 a barrel. That was not our expectation. And that's not a healthy margin for the industry. The team that we have in place understands the business is capable of growing the Rack Forward business, the finished lubricants and specialties business. intelligently in the markets where we have advantage. And the base oil piece appears to be more constructive now. That's going to be the commodity part of the business. It will be more volatile through time. Today's dynamic is actually really favorable. So I would guess I'd caveat it and say the base oils will be variable, and will continue to grow our effectiveness and margin in Rack Forward.
I thought that Exxon is going to add a quite substantial sum of base oil in a couple of years' time.
I think we've seen that in Rotterdam on the Gulf Coast, Paul. What continues to come, well, it will depend on their own investment plans. But for the time being, I think we're pretty stable.
Our next question comes from the line of Phil Gresh with JPMorgan.
The first one is just on -- if we look at refining and the capture rates there. Any color you could share just on the impact of RINS, whether it's just kind of the ongoing expense effect or some kind of mark-to-market, obviously, RINs going up 4Q over 3Q, I'm sure impacted the capture rates there? And then what is your view about where RINs will go? I feel like we're getting the question a lot, do you think as renewable diesel starts up -- we start to see RINs prices dissipate later this year and into '22?
Phil, it's Rich. Let me do the capture impact. To be honest, it was not that big in the fourth quarter. Please keep in mind that we use a weighted average inventory cost methodology here. So our RIN cost will lag the spot market. So our RIN expense in the fourth quarter is about $40 million versus $34 million in the third quarter. And let me hand it to Tom and Tim to talk about the market outlook.
Yes. Let -- Phil, this is Tim. Let me just mention on the Mid-Con capture as well. We had a year-end revaluation costs that Mike mentioned in his opening remarks, that was $32.5 million, specifically in the Mid-Con. That impacted the gross margin, translates to about $1.39 a barrel. And so without that inventory valuation, the capture rate would have been 45% for the Mid-Con. So the total of what's that 3 -- 3 30 I think, on -- 3 32 on general gross margin. We also had some lower gasoline margins that further impacted the capture contribution in the Mid-Con. And as you know, when cracks are lower, the percent of fixed costs tend to impact the capture rate more so than when cracks are higher. So those were the issues that were affecting the Mid-Con.
On the West side. Demand was more impacted in the fourth quarter by COVID with the hot spots in that area in the Southwest area of the country. So gasoline margins were specifically impacted on margin contribution, probably more than normal. We also had higher laden crude costs that impacted the margin capture in the Southwest.
So -- and Phil, I get the dubious distinction of trying to figure out where RINs are going from here. So -- but what we've seen -- let me start by saying what we've seen in the market so far. I think when you say why are RINs rising, I think it's our opinion that without SRES and with declining gasoline demand, there is a fear in the marketplace that we're going to be short of reaching the 15 billion gallons of D6 RINs that are required. And as a result, what's going to happen is that people are going to start using D4s to retire D6 obligations. And what -- we can see that in the marketplace is because D4 -- D6s, they're climbing and getting closer to D6 all the time, that the spread is a lot less than it was before. So then that takes the question, what the hell is happening with D4s. And that's a lot to do with rising soybean prices. And the soybean price has been going up.
What we've seen is on an bushel barrel -- bushel basis, it's gone from $19.9 to $14 a bushel. And that's basically because of China. And as they replenish their pig population from the swine flu outbreak, they're having a higher demand of soybean. We're also seeing some weather impacting South American supply. So going forward, there's a lot of that is already baked into the market. So -- and those are the main factors that's driven the RIN price to where it is now. I think in the event that we get more gasoline demand and there's more D6 RINs generated as a result what that's going to do is increase the supply and help temper the prices from going any further on the D6s and then the D4s are just going to do their own thing on the basis of the BOHO spread as it moves forward. So that's going to be more of a relationship-driven than a political decision at this point in time. So I think we've seen big increases on the D6s and then the D4S to date. I don't think we're going to see those kind of increases as we go through the year as a lot of these factors are already built into the marketplace.
Got it. I appreciate you taking a shot at that. Rich, just to clarify with the lag effect, do you have an estimate or expectation of -- if prices stay where they are, what the RINs expense would be in 1Q or 2021?
No. It would trend higher. Assuming a lot of this rolls around volume and blend rates. But directionally, right, you would expect that to trend higher with higher spot prices.
Okay, okay. And then you gave the throughput for 1Q. Other companies have talked about OpEx headwinds from higher natural gas. Are you seeing any of those types of impacts on the refining side at this point? Or more muted for you guys? Or just any color there would be helpful.
Yes, Phil, this is Tim again. Our Mid-Con plants were actually in part of the coldest temperatures associated with Storm Uri and the polar vortex. Tulsa was already in planned maintenance. And so the storm effects will basically just extend the downtime that we had there a little bit longer. Other than that, the other plants had some individual unit outages that occurred. But 2 of the plants are completely back to normal, and the third one will be back to normal later this week. So the guidance of 350,000 to 380,000 barrels a day that Mike mentioned in the prepared remarks reflect both the impact and the planned maintenance as well as the unplanned cold weather impacts.
And would there be a specific natural gas price effects that you would anticipate as well?
Not one that we call out, Phil. I mean we -- these were extreme spikes, right, but they were very transitory. So nothing we'd offer now as guidance.
Our next question comes from the line of Theresa Chen with Barclays.
Wanted to turn back to the LSP segment. And if you could share further in terms of details related to end market demand beyond what you're seeing in industrial and transportation, how is the Personal Care segment doing? And what is your outlook in terms of from here, what needs to happen for you to issue guidance again? Is it just a matter of volumes turning to a more normalized level? Is there something else? Any color there would be great.
In terms of the traditional demand markets for personal care, pharmaceutical and those related food also type markets, demand is very robust. We have high asset utilization in both facilities, actually all 3 facilities, making those products, which encompass white oils, petrolatums, and waxes. So demand remains very robust and really was not heavily impacted by the coronavirus in the same way that refined and gasoline and diesel and so forth were. In terms of any questions related to guidance expectations I'm going to refer to Rich to follow on.
Not much to offer there, Theresa. I would like it's -- so as Bruce mentioned, right, things are getting better. I think kind of similar as what we're seeing everywhere. We expect it to get better as the Coronavirus restrictions on the economy or lifted here.
Got it. And in terms of the weather impact, just following up on Phil's questioning, I don't believe Salt Lake was impacted, in particular, just from your earlier call on the midstream entity. The questions will be around, what implications does that have on capture? And for that area if you were able to really increase throughput during that time and take advantage of the wider crack?
Yes. Theresa, Salt Lake City was the least impacted in terms of temperature and impacts from the storm. Salt Lake City is running normal, and we'll continue to see maybe a slightly stronger demand as a result of the storms, but it's probably isolated more so from the Gulf than probably what you're thinking.
Yes. Theresa, it's Rich. To Tim's point, when he said Salt Lake has impacted the entire valley was unimpacted, right? So there was really no market dynamic at work there, good or bad, frankly, from the storm.
Our next question comes from the line of Matthew Blair with Tudor, Pickering and Holt.
Can you talk about how construction is progressing on the renewable diesel side? Was it impacted by this winter storm? And exactly what are you thinking in terms of start-up for I guess the Artesia RD as well as the pretreatment unit?
Matt, it's Tom. Looking at Cheyenne. Cheyenne was in the middle of a Wyoming winter and it wasn't much different than it is every other year up in Cheyenne, and it wasn't affected to any great degree by the polar vortex that hit the middle part of the country. So construction is going well. We are moving dirt. We're putting -- we're leveling for the rail facilities to go in. We've got a lot of the permits in place. So we don't expect any delays from that standpoint as we move forward on construction. And in Artesia, there, again, there was some effects of the winter storm, but nothing major. We are proceeding with construction. Tanks are going up. Rail lines are going in. We're making good progress. We are on schedule.
And to your ultimate question, we don't see any deviations from meeting the schedule as previously released at this point in time.
Sounds good. And then on the refining side, your West OpEx came in, I believe at $97 million without Cheyenne. Is that a good run rate that we can roll forward into 2021?
Yes. We saw -- we saw a little bit of a higher natural gas price in the fourth quarter than probably what we had seen in the third quarter. We had a few year-end accruals that hit us as we typically do at the end of the year. So maybe it was a little bit higher than what we'd normally see on a normal run rate basis. But that's probably very close.
Our next question comes from the line of Doug Leggate with Bank of America.
This is Kalei on for Doug. A lot has already been hit here, but I've got a couple. So as you guys thought about your renewable diesel sourcing strategy, I wonder if you've ever considered going upstream for feedstock i.e., contracting the farming of your own plant-based feedstock, which would insulate you guys from market-based pricing? And if you guys have thought about that, what are the present comps?
Yes. This is Tom Creery. A quick answer is, yes, we have looked at going upstream. We've looked at crush plants and what involved in there. But we've basically stopped at that point in terms of soybean, I think it would be a stretch for us to get into farming or the rendering of cattle at this point in time. So we would -- do want to go too far upstream, but we do -- like I said, we do have looked at crush plants, and if that's going to be a constraint going forward, it would be something that we might invest in because it's part of the value chain in our business. So that's what we looked at so far.
Perfect. Can you also provide an update on the sustaining capital including the renewable diesel plants.
So Kalei, generally sustaining capital. We continue to see that, it's -- call it, $175 million, $200 million a year across the corporation. With a lot of volatility, obviously, driven by turnaround schedule. So in a 5-year cycle, that would probably be the average. The reality is the renewable diesel business will not add a lot in terms of sustaining capital. Turnaround costs there are relatively minor. You do have catalyst change out of a similar cycle to a refinery. But it doesn't look anything like a turnaround of fuels refinery.
Yes. So the $175 million to $200 million include turnaround, right?
Sorry, you're breaking up, Kalei.
The $175 million to $200 million include the turnaround, correct?
Correct.
[Operator Instructions] Our next question comes from the line of Jason Gabelman with Cowen.
Yes. Two questions. One, just on the working capital benefit that you mentioned in 4Q. What drove that and is that a durable benefit? Or do you expect that to reverse over the course of '21? And then the second question, just on going back to the renewable diesel business. Is there a desire or an interest to sell some of the stake in the renewable diesel plants? Maybe as you get closer to completion, just kind of offset from some of the capital costs and maybe that could be another angle to helping secure advantaged feedstock.
Jason, let me -- it's Rich. Let me speak to working capital. So in the fourth quarter, obviously, we managed inventory really well at ran some barrels down. We have the tail end of Cheyenne inventories, which is a permanent reduction, obviously. We'll continue to stay very vigilant given the macroeconomic situation, our cash flow on working capital, realistically, right? In a rising crude price environment, you're going to see working capital benefit so we're optimistic about the economy the -- ergo, we would expect crude prices to rise and ergo, we would expect to continue to see working capital benefit.
Jason, on the renewable portfolio side. We're proud of this investment and committed to building it out, developing this as a part of our company. At the same time, we're capitalists, and we're conscious that these things trade at a high multiple. So we're going to evaluate that through time. I think what we know to be fact is that we need to complete the projects, get them up and running and demonstrate the value before we have any real alternatives to separately recognize that value other than as a part of Hollyfrontier Corporation. So for the time being, we're in the mode of building this business, building the commercial and supply chain aspects of it. And obviously, securing feedstocks and markets, and we're really not spending any time looking to sell it at this point.
Our next question comes from the line of Neil Mehta with Goldman Sachs.
First question is just around HEP and midstream and less about whether you want to fold this in and just more about the strategy around the midstream business over the next couple of years. Is the goal here to basically run the business for free cash flow, pay out the distribution, not necessarily focused on the top line, we see top line opportunities here as well?
Neil, it's Rich. No, I think we're in an interesting position right now in the midstream business, in general, in the industry. So our near term, call it, for the next 12 to 18 months focus here is getting the Cushing Connect Pipeline up and running and then continuing to delever to get to our leverage target of 3.0 to 3.5x. We think that's going to put us in a great position then to have flexibility to either increase distributions, repurchase units or if there are opportunities to grow the business, go ahead and pursue those. We'd like to grow the business. The reality rate is the midstream space was incredibly frothy over the last 5 years, and it feels like we're coming out of that. So we're optimistic there will be opportunity. But the good news is if there isn't, we don't see an opportunity to grow that creates unitholder value, we'll go ahead and increase distributions.
And the follow-up here might be for Tom. But just your outlook on key crude differentials. On your perspective on Brent/WTI, do you see a path for this kind of sustaining in the $3 to $4 level? Or do we need U.S. production as refining utilization comes back with demand post the freeze-offs? And then thoughts on WPS, where there are a number of competing horses between OPEC barrels coming back but also line of sight to pipes coming on.
Yes. On Brent TI, Neil, I think what we're looking at is probably that $300 million to $350 million in the short to medium term as we move forward. And a lot of this is going to have to do not only on the Brent Ti differential, but on the WCS differential is what happens with OPEC and the quotas as we move forward. I guess our expectation is WCS differential is probably trading in the range of $11 to $14. For the remainder of this year, and particularly what we've seen on WCS is we've seen the rise of rail movements out of Alberta in the fourth quarter and into the first quarter. So that's going to put an artificial floor or a real floor on differentials because of rail economics and getting it to the Gulf Coast. So we still see pretty good demand numbers and pretty good delivered prices in the Gulf Coast, and that's part we do to the OPEC and Venezuela situation.
So that's what we're looking for as we move forward. And just to finish that off on Midland and crude differentials, we see that continuing to trade over Cushing anywhere from $0.5 to $1 for the remainder of this year.
And there are no further questions at this time. I'd like to turn the call back over to Mike Jennings for some final comments.
Great. Thank you very much, and thank you all for participating with us this morning. In summary, HFC is really well-equipped with its investment-grade balance sheet, $2.7 billion of stand-alone liquidity and then really ready to stage a come back in our core fuels business. Our lubricants business continues to show strength and resiliency as post another solid quarter of earnings and is operating really in a favorable base oils environment. And finally, we're progressing our renewables projects across the board, which are going to further diversify our asset base, strengthen our earnings power and allow us to participate in a new and, I think, very lucrative market for the long term. So thanks for participating today. Look forward to talking to you soon.
Thank you. And this does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.