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's 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. At this time, all participants have been placed in a listen-only mode and floor will be open for your questions, following the presentation. Please note that this conference is being recorded. It's 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. 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. In summary, it says 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.

Thanks, Craig. Good morning, everyone. 2020 was an unprecedented year for HollyFrontier. Faced with the 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. 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 2021 and beyond, I believe 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, the adjusted net loss for the fourth quarter was $119 million or $0.74 per 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 a 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 of our 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's 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 improvements 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 level 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 2021 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 remains 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 HEP, we expect to see demand for transportation and terminalling 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 1.3 times or greater, with the goal of reducing leverage to 3 to 3.5 times 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 maintained 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 interests. 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 standalone 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 standalone 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 standalone debt outstanding with a debt-to-cap ratio of 25% and a net debt-to-capital 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, 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 renewable 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 for HollyFrontier Lubes & Specialties, and $320 million to $350 million for turnarounds and catalysts. 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 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.

And the floor is now open for questions. Our first question comes from the line of Manav Gupta with Credit Suisse.

Hey, guys. So, I think, when you envisioned the PCLI business, one 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. Just trying to understand, on the Rack Forward side, 4Q was good, but 3Q was better. And so, from a runway perspective, and again, we’re thinking about the first half of 2021, would 3Q run rate on for Rack Forward be a better guidance or a 4Q could be better guidance, specifically, as it relates to Rack Forward?

So, Manav, it’s Rich. A couple of things happened in the fourth quarter. Keep in mind that there’s always a slight delay with base oil prices, which increased throughout the fourth quarter. We had to absorb that on the Rack Forward side, impacting the quarter. There’s also inherent annual seasonality around the year-end period, which was another factor in the fourth quarter. I believe demand is very strong, but as Mike mentioned, we can't provide guidance at this time due to ongoing market volatility. However, in the long run, we expect our business to achieve EBITDA between $250 million to $300 million, which is our long-term outlook.

And a quick follow-up there is, Rich, I think when you had first come up with the prospects of expanding 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. So, I'm just trying to understand from the perspective of the return, has there been any change on the HollyFrontier’s internal rate of return calculation, considering the three parameters that moved in different directions?

Yes. Manav, this is Tom Creery. Yes. We have seen that in the marketplace and we put that into our models and taken a look at it to see what the profitability and earnings would be on a go-forward basis. 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 oil go up in price, we've seen RINs go up in price, we've seen fats, oils, everything is going up in price along with crude oil and RINs as well. So, the other piece of that is, there's now probably an expectation that the blender's tax credit persists for longer than just 2022. That was not baked into our original outlook. So, overall, higher at least because of that. When we did our initial modeling, we only took the blender's tax credit to the end of 2022 and then forecasted zero thereafter.

And if the blender's tax credit is extended, which most likely will be, considering the stance of the Biden administration on their new bills, that saves $210 million of EBITDA to you, right?

That is correct. Yes.

Thank you for taking my questions.

Our next question comes from the line of Ryan Todd with Simmons Energy. Go ahead, please. Your line is open.

Great, thanks. 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 and the R&D 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 PIP stocks? Can you talk a little bit about your confidence in your ability to efficiently access a range of feeds that your feed shipment will allow?

Hey Ryan, I'll provide the capital number and then Tom can address your other questions. Regarding capital, it primarily concerns the timing of some invoices and cash flows occurring in 2021 rather than late 2020. To give you more details, we spent approximately $120 million in 2020, which is less than our guidance of $130 to $145 million. This means we were about $20 million short in cash expenditure for 2020. Consequently, our guidance for 2021 has increased by that amount, but it is mainly due to timing.

Good morning, Ryan. Regarding your question about the agreements we’ve established and are exploring, we have been in discussions with local tallow suppliers, as well as providers of soybean oil, including both refined and degummed soybean oil, and other feedstocks like corn oil. We have already secured one agreement for feedstocks. Additionally, we have several contracts in place for offtake destined for California, which we believe is at very favorable pricing as we move forward. Overall, we are in a solid position. We have also engaged with co-ops and various sources, including rendering plants, to secure feedstock supply. One challenge we face is that entering into these agreements can be difficult when we are still ten months away from completion. However, as we get closer to finishing both mechanical and operational aspects, we expect things to move more quickly as partners recognize our commitment to doing business.

Great, thanks. I appreciate that color. And 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 where demand was going. In gasoline, I would say that our best recovery has been in PADD 4 gasoline. Probably the worst—and it hasn't been that bad—was group 3; when we compare it 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 on a go-forward basis. But we would expect crack 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. With the relaxation of COVID and vaccinations, more people will be moving around both by car, truck, and hopefully by airplane. That should help in terms of crack as we move forward.

Our next question comes from the line of Paul Cheng with Scotiabank. Go ahead, please. Your line is open.

I was just curious that when we’re looking at the amount of renewable diesel plant budget, do you think that's going to be at the high end of the range? So, what does the reach factor end up when they see much higher than the budget? If we recall, a number of years ago when you did the major expansion and upgrade in the Woods Cross and the capital cost turned out to be much higher than the original budget. So, what's the risk factor here, and how big is that risk?

Paul, you have a good memory, so I’ll address your concern. The risk involves a range we provide for these capital projects. As we complete more engineering work, that range typically narrows to a specific number, with field construction being the main risk factor for which we set aside a contingency. Right now, we are at the high end of our range since we have finished most of our engineering and are about to start issuing what we refer to as IFC ISOs, essentially marking circuits for construction to take out to the field. We are quite advanced in the engineering and initial construction phases, which increases our confidence while also narrowing our range at the top end. If we compare this to a project from years past, the problem then was that the engineering wasn’t completed before providing a detailed estimate, and as the engineering progressed, the project expanded. These current projects are quite different; we are adhering to the stage gate process and are close to ordering, having already ordered all the heavy equipment, including vessels, compressors, and so on, which means we have fixed prices for all those items. The engineering is mostly finished, and what lies ahead is field construction. There is some risk related to field construction during COVID, but the numbers are improving, which is encouraging, and we have updated our estimates to incorporate various practices to ensure a safe workforce.

And the second question is on the lubricant. The last several years of ownership, I think we went to same site from time to time, the Rack Forward looked really good and then Rack Backward was challenging. This quarter, the Rack Back finally is in breakeven, and Rack Forward, on the other hand, margin goes down. I mean, still we need 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 over the last several years that perhaps may be different than your original expectation to make you either that more optimistic or more pessimistic about this vision? Do we really have the necessary skill and organization and the people to really make this as a profitable business for you?

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? When you get to 1 or 2 cracks versus back in 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 and is capable of growing the Rack Forward business to finish lubricants and specialist business intelligently in the markets where we have advantage. The base oil piece appears to be more constructive now. That's going to be the commodity part of the business. It'll 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 we'll continue to grow our effectiveness in margin in Rack Forward.

I thought that Exxon is going to add quite a substantial sum of base oil in a couple of years’ time.

I think we've seen that in Rotterdam and on the Gulf Coast, Paul. What continues to come 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 JP Morgan.

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 Q4 over Q3 I'm sure impacted the capture rates there. What in your view, where do you think RINs will go? I feel like we're getting into questioning a lot. Do you think as renewable diesel starts up, we start to see RIN prices dissipate later this year and into '22?

Hey, Phil, it's Rich. Let me do the capture; in fact, 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 was about $40 million versus $34 million in the third quarter. Let me hand this to Tom and Tim to talk about the market outlook.

Phil, this is Tim. Let me just mention on the Mid-Con capture as well. We had at year-end revaluation of 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. Without that inventory valuation, the capture rate would have been 45% for the Mid-Con. The total of 3.32 on general gross margin. We also had some lower gasoline margins that further impacted the capture contribution in the return. As you know, when cracks are lower, the percent of fixed costs tends 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 hotspots 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 laid-in crude costs that impacted the margin capture in the Southwest.

So, Phil, I have the interesting task of discussing where RINs are headed this year. Based on market observations, our view is that RINs are rising due to the absence of Small Refinery Exemptions and decreasing gasoline demand, which has created concern that we won't meet the required 15 billion gallons of D6 RINs. Consequently, people may begin using D4s to fulfill D6 obligations. This trend is evident in the market as D4 and D6 prices are converging and the spread is much narrower than before. You might wonder about the situation with D4s, which is largely influenced by rising soybean prices. The price of soybeans has surged from $9 to $14 per bushel, primarily because of increased demand from China as they rebuild their pig population following a swine flu outbreak. We're also witnessing some weather-related supply issues in South America, although much of that is already reflected in the market. These factors are driving current prices. If gasoline demand rises and generates more D6 RINs, that will increase supply and help moderate D6 prices. D4 prices will follow their own trends based on the BOHO spread moving forward. There have been significant increases in both D6 and D4 prices so far, but I don't anticipate seeing similar increases as we continue through the year since many of these factors are already incorporated into the market.

Rich, just to clarify with the lag effect, do you have an estimate or expectation of if prices stay where they are with what the rent expenses would be in Q1 of 2021?

No. It would trend higher. Assuming a lot of it revolves around volume and blend rates. But directionally, right, you'd expect it to trend higher with higher spot prices.

Okay. And then, your throughput for Q1; 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. So, this is Tim again. Our Mid-Con plants, we're actually in part of the coldest temperatures associated with storm and the polar vortex. Tulsa was already in planned maintenance. 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 two of the plants are completely back to normal. The third one would be back to normal later this week. The guidance of 350,000 to 380,000 barrels a day that Mike mentioned in the prepared remarks reflects both the impact and the planned maintenance, as well as the unplanned cold weather impacts.

And would there be specific natural gas price effects that you would anticipate as well?

Not one that we call out, Phil. I mean, these were extreme spikes, but they are very transitory. So, nothing we’d offer now as guidance.

Thank you.

Our next question comes from the line of Theresa Chen with Barclays. Go ahead, please. Your line is open.

Good morning. I wanted to return to the LSP segment. Can you provide more details regarding end market demand beyond what you're observing in industrial and transportation? How is the personal care sector performing? What is your outlook moving forward, and what needs to occur for you to provide guidance? Is it simply a matter of volumes returning to a more normalized level, or is there something else at play? Any insights would be appreciated.

So, good morning. In terms of the traditional demand markets for personal care, pharmaceuticals, and those related, food type market, demand is very robust. We have high asset utilization in both facilities, actually all three facilities, making those products which encompass soy oils, petrol, and waxes. Demand remained very robust and really was not heavily impacted by coronavirus in the same way that refined gasoline and diesel and so forth were. In terms of any questions related to guidance, I hand it to Rich to follow on.

As Bruce mentioned, things are getting better, kind of similar to what we're seeing everywhere. We expect it to get better as the coronavirus restrictions on the economy are lifted here.

Got it. And in terms of the weather impacts, 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 would be around what implications does that have on capture for that area if you were able to really increase throughput during that time and take advantage of the wider cracks?

Salt Lake City was the least impacted in terms of temperature and impacts from the storm. Salt Lake City is running normal and will continue to see maybe a slightly stronger demand as a result of the storm. 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 is impacted, the entire valley was unimpacted. There was really no market dynamic work there, good or bad, frankly, from the storm.

Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Go ahead please. Your line is open.

Can you talk about how construction is progressing on the renewable diesel side? Is it impacted by this winter storm? Exactly what are you thinking in terms of startups for, I guess, Artesia, RD, as well as the pre-treatment unit?

Good morning, Matt. It’s Tom. Regarding Cheyenne, it was experiencing typical winter weather for Wyoming, unaffected to a significant extent by the polar vortex that affected other areas. Construction is progressing well; we are preparing the site for the rail facilities and have secured many of the necessary permits. We do not anticipate any delays as construction continues. In Artesia, although the winter storm had some impact, it was not significant. Construction is underway with tanks being installed and rail lines being constructed. We are making good progress and remain on schedule. To answer your question, we do not foresee any changes to our previously announced schedule at this 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. Matt, we saw a little bit of a higher natural gas price in the fourth quarter than probably what we would have 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 where it comes.

Our next question comes from the line of Doug Leggate with Bank of America. Go ahead, please. Your line is open.

Hey. Good morning. 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, broadening of your own plant-based feedstock, what you have thought about that, what are the pros and cons?

Yes, this is Tom Creery. The short answer is yes. We have considered moving upstream and have explored crush plants and their requirements, but we have essentially halted our efforts regarding soybeans. It would likely be too ambitious for us to enter farming or cattle rendering at this time. We prefer not to venture too far upstream. As I mentioned, we have examined crush plants, and if this becomes a limitation in the future, it could be an area where we might consider investment, as it is a component of our business value chain.

Can you also provide an update on the sustaining capital, including the renewable diesel plant?

So, Kalei, generally sustaining capital, we continue to see that as, call it $175 million, $200 million a year across the corporation with a lot of volatility, obviously driven by turnaround schedule. So, five-year cycle, that would probably be the average. The reality is the renewable diesel business will not add a lot in terms of sustaining capitals. Turnaround costs are relatively minor. You do have catalyst changes from a similar cycle to a refinery, but it doesn't look anything like turnaround of fuels refinery.

Yes.

Sorry. You're breaking up, Kalei.

The $175 million to $200 million correct?

Correct.

Our next question comes from the line of Jason Gabelman with Cowen.

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 try to reverse over the course of '21? 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 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 advantage feedstock?

Hey Jason, it's Rich. Let me speak on working capital. So, in the fourth quarter, obviously, we managed inventory really well and ran some barrels down. We had 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, any rising crude price environment, you're going to see working capital benefit. We’re optimistic about the economy; a year ago we would expect crude prices to rise, and a year ago we expected to continue to see working capital benefits.

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. 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. 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. We're really not spending any time looking to sell it at this point.

Our next question comes from the line of Neal Mehta with Goldman Sachs.

First question is just around HEP and midstream and less about whether you want to fold this in, 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 focus on the top-line, the top-line opportunities here as well?

Hey Neal, it’s Rich. No, I think we're in an interesting position right now in the midstream business and generally industry. Our near-term, call it, for the next 12 to 18 months focus here is getting the Cushing Connect Pipeline up and running, then continuing to delever to get to our leverage target of 3 to 3.5 times. We think that's going to put us in a great position to increase distributions or 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, right, is the midstream space was incredibly frothy the last five years. It feels like we're coming out of that. We're optimistic there'll be opportunity. But if there isn't, we don't see an opportunity to grow that creates unitholder value, we'll go ahead and increase distribution.

And the follow-up here might be for Tom, but just your outlook on key crew differentials. What's your perspective on Brent WTI? Do you see a path for this to sustain in the $3 to $4 level, or do we need U.S. production as refining utilization comes back with demand post the freeze-off? Then, thoughts on WCS where there are a number of competing forces between OPEC barrels coming back but also line of sight coming on?

Brent/TI, Neal, I think what we're looking at is probably that $3 to $3.50 in the short to medium-term as we move forward. A lot of this is going to have to do not only on the Brent TI differential, but on the WCS differentials is what happens with OPEC and the quotas as we move forward. Our expectation is WCS differentials probably trade in the range of $11 to $14 for the remainder of this year. We've seen the rise of rail movements out of Alberta in the fourth quarter and into the first quarter. That’s going to put us an artificial floor or a real floor on differentials because of rail economics and getting into the Gulf Coast. So, we still see pretty good demand numbers and pretty good delivered prices in the Gulf Coast, and that's partly due to the OPEC and Venezuela situation.

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. 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 standalone liquidity, and then really ready to stage a comeback in our core fuels business. Our lubricants business continues to show strength and resiliency, has posed another solid quarter of earnings and is operating really in a favorable base oils environment. Finally, we're progressing on 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. I 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.