EX-99.1 2 hepq22017earningsrelease.htm EXHIBIT 99.1 Exhibit



Earnings Release
August 1, 2017
heplogoa06.jpg
Holly Energy Partners, L.P. Reports Second Quarter Results
Dallas, Texas -- Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE:HEP) today reported financial results for the second quarter of 2017. Net income attributable to HEP for the second quarter was $41.3 million ($0.36 per basic and diluted limited partner unit) compared to $39.1 million ($0.45 per basic and diluted limited partner unit) for the second quarter of 2016.
Distributable cash flow was $60.9 million for the quarter, up $5.2 million, or 9.3% compared to the second quarter of 2016. HEP announced its 51st consecutive distribution increase on July 27, 2017, raising the quarterly distribution from $0.62 to $0.6325 per unit, which represents an increase of 8.1% over the distribution for the second quarter of 2016, exceeding HEP's distribution growth target of 8%.
The increase in earnings is primarily due to increased operating income from our Woods Cross refinery processing units of $4.5 million, offset by higher interest expense of $2.5 million.
Commenting on 2017 second quarter results, George Damiris, Chief Executive Officer, stated, “We are pleased with our solid financial performance in the second quarter, which allowed us to maintain our record of continuous quarterly distribution increases and achieve our distribution growth target of 8%, while still maintaining a distribution coverage ratio greater than 1.0. Looking forward, we will continue to leverage our talented employee base, our relationship with HollyFrontier and our Mid-Continent, Northwest and Southwest logistics footprint to generate new organic and external growth opportunities."
Second Quarter 2017 Revenue Highlights
Revenues for the quarter were $109.1 million, an increase of $14.2 million compared to the second quarter of 2016. The increase is primarily attributable to the $12.9 million of revenue recorded for the Woods Cross processing units acquired in the fourth quarter of 2016. Overall pipeline volumes were up 2% compared to the three months ended June 30, 2016, largely due to an increase in intermediate pipeline shipments.

•
Revenues from our refined product pipelines were $31.1 million, an increase of $0.3 million compared to the second quarter of 2016 and shipments averaged 206.0 mbpd compared to 199.9 mbpd for the second quarter of 2016. Revenues and volumes both increased primarily due to higher spot sales on our UNEV pipeline, offset by lower throughput on the Alon system.

•
Revenues from our intermediate pipelines were $7.3 million, an increase of $0.5 million, on shipments averaging 151.7 mbpd compared to 135.2 mbpd for the second quarter of 2016. These volume increases were principally due to (a) 10.8 mbpd increase on HollyFrontier Corporation's ("HFC") Tulsa refinery interconnect lines and (b) 5.7 mbpd increase in HFC's Navajo refinery intermediate lines due to increased refinery crude rate after their first quarter 2017 turnaround. These volume increases did not all translate to increased revenue as there are minimum volume commitments on both sets of intermediate pipelines.

•
Revenues from our crude pipelines were $16.9 million, a decrease of $1.7 million, on shipments averaging 269.4 mbpd compared to 278.4 mbpd for the second quarter of 2016. Revenues decreased mainly due to a decrease in deferred revenue recognized.

•
Revenues from terminal, tankage and loading rack fees were $36.4 million, an increase of $1.8 million compared to the second quarter of 2016. Refined products terminalled in the facilities


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averaged 529.0 mbpd compared to 489.6 mbpd for the second quarter of 2016. The volume and revenue increases are mainly due to increased throughput at our Tulsa tankage and loading racks, Cheyenne loading racks, and UNEV Pipeline, LLC terminals.

•
Revenues from refinery processing units were $17.5 million, an increase of $13.4 million on throughputs averaging 67.3 mbpd compared to 50.4 mbpd for the second quarter of 2016. This increase in revenue and volume is primarily due to the Woods Cross refinery processing units acquired in the fourth quarter of 2016.

Revenues for the three months ended June 30, 2017, include the recognition of $0.6 million of prior shortfalls billed to shippers in 2016 as they did not exceed their minimum volume commitments within the contractual make-up period. As of June 30, 2017, shortfall deferred revenue reflected in our consolidated balance sheet was $8.0 million. Such deferred revenue will be recognized in earnings either as (a) payment for shipments in excess of guaranteed levels, if and to the extent the pipeline system has the necessary capacity for shipments in excess of guaranteed levels, or (b) when shipping rights expire unused over the contractual make-up period.
Six Months Ended June 30, 2017 Revenue Highlights
Revenues for the six months ended June 30, 2017, were $214.8 million, an increase of $17.9 million compared to the six months ended June 20, 2016. The increase is primarily attributable to the $27.6 million of revenue recorded for the Woods Cross refinery processing units acquired in the fourth quarter of 2016, offset by a $7.9 million decrease in revenues around assets serving HFC's Navajo refinery due to the substantial turnaround at the Navajo refinery during the first quarter of 2017.

•
Revenues from our refined product pipelines were $61.4 million, a decrease of $9.4 million, on shipments averaging 199.2 mbpd compared to 205.3 mbpd for the six months ended June 30, 2016. Revenues and volumes both decreased mainly due to the turnaround at HFC's Navajo refinery in the first quarter of 2017.

•
Revenues from our intermediate pipelines were $12.5 million, a decrease of $1.7 million, on shipments averaging 128.1 mbpd compared to 136.3 mbpd for the six months ended June 30, 2016. These volume decreases were primarily due to the turnaround at HFC's Navajo refinery, offset by increases on both the Tulsa and Navajo interconnect lines.

•
Revenues from our crude pipelines were $33.8 million, a decrease of $2.3 million, on shipments averaging 269.2 mbpd compared to 282.9 mbpd for the six months ended June 30, 2016. Revenues and volumes decreased principally due to HFC's Navajo refinery turnaround in the first quarter of 2017 and a decrease in deferred revenue recognized.

•
Revenues from terminal, tankage and loading rack fees were $70.2 million, an increase of $3.0 million compared to the six months ended June 30, 2016. Refined products terminalled in the facilities averaged 487.0 mbpd compared to 464.0 mbpd for the six months ended June 30, 2016. The volume and revenue increase are mainly due to our Tulsa crude tanks acquired on the last day of the first quarter of 2016 offset by the transfer of the El Paso terminal to HollyFrontier in the first quarter of 2016.

•
Revenues from refinery processing units were $36.9 million, an increase of $28.2 million on throughputs averaging 65.1 mbpd compared to 46.4 mbpd for the six months ended June 30, 2016. The increase in revenue and volume is primarily due to the Woods Cross refinery processing units acquired in the fourth quarter of 2016.

Revenues for the six months ended June 30, 2017, include the recognition of $2.7 million of prior shortfalls billed to shippers in 2016 as they did not exceed their minimum volume commitments within the contractual make-up period.


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Operating Costs and Expenses Highlights
Operating costs and expenses were $56.7 million and $110.6 million for the three and six months ended June 30, 2017, representing increases of $8.9 million and $15.3 million from the three and six months ended June 30, 2016. The increases are primarily due to new operating costs and expenses for our Woods Cross refinery processing units acquired in the fourth quarter of 2016.
Interest expense was $13.7 million and $27.3 million for the three and six months ended June 30, 2017, representing increases of $2.5 million and $5.5 million over the same periods of 2016. The increases are due to the offering of $400 million aggregate principal 6% senior notes in July 2016, higher average balances outstanding under our senior secured revolving credit facility, and market interest rate increases.
We have scheduled a webcast conference call today at 4:00 PM Eastern Time to discuss financial results. This webcast may be accessed at: https://event.webcasts.com/starthere.jsp?ei=1154339.
An audio archive of this webcast will be available using the above noted link through August 15, 2017.












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About Holly Energy Partners, L.P.
Holly Energy Partners, L.P., headquartered in Dallas, Texas, provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier Corporation subsidiaries. The Partnership, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as refinery processing units in Utah and Kansas.
HollyFrontier Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel, jet fuel and other specialty products. HollyFrontier operates through its subsidiaries a 135,000 barrels per stream day ("bpsd") refinery located in El Dorado, Kansas, a 125,000 bpsd refinery in Tulsa, Oklahoma, a 100,000 bpsd refinery located in Artesia, New Mexico, a 52,000 bpsd refinery located in Cheyenne, Wyoming and a 45,000 bpsd refinery in Woods Cross, Utah. HollyFrontier markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier, through its subsidiary, owns Petro-Canada Lubricants Inc., whose Mississauga, Ontario facility produces 15,600 barrels per day of base oils and other specialized lubricant products, and owns a 36% interest (including a 2% general partner interest) in Holly Energy Partners, L.P.
The statements in this press release relating to matters that are not historical facts are “forward-looking statements” within the meaning of the federal securities laws. These statements are based on our beliefs and assumptions and those of our general partner using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. Although we and our general partner believe that such expectations reflected in such forward-looking statements are reasonable, neither we nor our general partner can give assurance that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:
•
risks and uncertainties with respect to the actual quantities of petroleum products and crude oil shipped on our pipelines and/or terminalled, stored and throughput in our terminals;
•
the economic viability of HollyFrontier Corporation, Alon USA, Inc. and our other customers;
•
the demand for refined petroleum products in markets we serve;
•
our ability to purchase and integrate future acquired operations;
•
our ability to complete previously announced or contemplated acquisitions;
•
the availability and cost of additional debt and equity financing;
•
the possibility of reductions in production or shutdowns at refineries utilizing our pipeline and terminal facilities;
•
the effects of current and future government regulations and policies;
•
our operational efficiency in carrying out routine operations and capital construction projects;
•
the possibility of terrorist attacks and the consequences of any such attacks;
•
general economic conditions; and
•
other financial, operations and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.

The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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RESULTS OF OPERATIONS (Unaudited)
       
Income, Distributable Cash Flow and Volumes
The following tables present income, distributable cash flow and volume information for the six months ended June 30, 2017 and 2016.
 
Three Months Ended June 30,
 
Change from
 
2017
 
2016
 
2016
 
(In thousands, except per unit data)
Revenues
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
$
19,432

 
$
19,392

 
$
40

Affiliates – intermediate pipelines
7,250

 
6,780

 
470

Affiliates – crude pipelines
16,919

 
18,581

 
(1,662
)
 
43,601

 
44,753

 
(1,152
)
   Third parties – refined product pipelines
11,647

 
11,434

 
213

 
55,248

 
56,187

 
(939
)
Terminals, tanks and loading racks:
 
 
 
 
 
Affiliates
32,012

 
30,250

 
1,762

Third parties
4,344

 
4,285

 
59

 
36,356

 
34,535

 
1,821

 
 
 
 
 
 
Affiliates - refinery processing units
17,539

 
4,175

 
13,364

 
 
 
 
 
 
Total revenues
109,143

 
94,897

 
14,246

Operating costs and expenses
 
 
 
 
 
Operations
34,097

 
29,212

 
4,885

Depreciation and amortization
19,945

 
15,712

 
4,233

General and administrative
2,615

 
2,863

 
(248
)
 
56,657

 
47,787

 
8,870

Operating income
52,486

 
47,110

 
5,376

 
 
 
 
 
 
Equity in earnings of equity method investments
4,053

 
3,623

 
430

Interest expense, including amortization
(13,748
)
 
(11,276
)
 
(2,472
)
Interest income
103

 
112

 
(9
)
Gain (loss) on sale of assets and other
89

 
—

 
89

 
(9,503
)
 
(7,541
)
 
(1,962
)
Income before income taxes
42,983

 
39,569

 
3,414

State income tax expense
(127
)
 
(54
)
 
(73
)
Net income
42,856

 
39,515

 
3,341

Allocation of net loss to Predecessor
—

 
1,960

 
(1,960
)
Allocation of net income attributable to noncontrolling interests
(1,521
)
 
(2,355
)
 
834

Net income attributable to Holly Energy Partners
41,335

 
39,120

 
2,215

General partner interest in net income, including incentive distributions(1)
(18,328
)
 
(12,677
)
 
(5,651
)
Limited partners’ interest in net income
$
23,007

 
$
26,443

 
$
(3,436
)
Limited partners’ earnings per unit – basic and diluted(1)
$
0.36

 
$
0.45

 
$
(0.09
)
Weighted average limited partners’ units outstanding
64,086

 
58,865

 
5,221

EBITDA(2)
$
75,052

 
$
66,047

 
$
9,005

Distributable cash flow(3)
$
60,908

 
$
55,709

 
$
5,199

Volumes (bpd)
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
134,357

 
125,535

 
8,822

Affiliates – intermediate pipelines
151,683

 
135,165

 
16,518

Affiliates – crude pipelines 
269,418

 
278,414

 
(8,996
)
 
555,458

 
539,114

 
16,344

  Third parties – refined product pipelines
71,612

 
74,386

 
(2,774
)
 
627,070

 
613,500

 
13,570

Terminals and loading racks:
 
 
 
 
 
Affiliates
461,329

 
418,233

 
43,096

Third parties
67,657

 
71,415

 
(3,758
)
 
528,986

 
489,648

 
39,338

 
 
 
 
 
 
Affiliates – refinery processing units
67,310

 
50,376

 
16,934

 
 
 
 
 
 
Total for pipelines and terminal assets (bpd)
1,223,366

 
1,153,524

 
69,842




5



 
Six Months Ended
June 30,
 
Change from
 
2017
 
2016
 
2016
 
(In thousands, except per unit data)
Revenues
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates—refined product pipelines
$
37,176

 
$
44,574

 
$
(7,398
)
Affiliates—intermediate pipelines
12,534

 
14,193

 
(1,659
)
Affiliates—crude pipelines
33,800

 
36,072

 
(2,272
)
 
83,510

 
94,839

 
(11,329
)
   Third parties—refined product pipelines
24,185

 
26,200

 
(2,015
)
 
107,695

 
121,039

 
(13,344
)
Terminals, tanks and loading racks:
 
 
 
 
 
Affiliates
61,748

 
58,503

 
3,245

Third parties
8,415

 
8,683

 
(268
)
 
70,163

 
67,186

 
2,977

 
 
 
 
 
 
Affiliates - refinery processing units
36,919

 
8,682

 
28,237

 
 
 
 
 
 
Total revenues
214,777

 
196,907

 
17,870

Operating costs and expenses
 
 
 
 
 
Operations
66,586

 
57,067

 
9,519

Depreciation and amortization
38,722

 
32,263

 
6,459

General and administrative
5,249

 
5,954

 
(705
)
 
110,557

 
95,284

 
15,273

Operating income
104,220

 
101,623

 
2,597

 
 
 
 
 
 
Equity in earnings of equity method investments
5,893

 
6,388

 
(495
)
Interest expense, including amortization
(27,287
)
 
(21,811
)
 
(5,476
)
Interest income
205

 
224

 
(19
)
Loss on early extinguishment of debt
(12,225
)
 
—

 
(12,225
)
Gain (loss) on sale of assets and other
162

 
(8
)
 
170

 
(33,252
)
 
(15,207
)
 
(18,045
)
Income before income taxes
70,968

 
86,416

 
(15,448
)
State income tax expense
(233
)
 
(149
)
 
(84
)
Net income
70,735

 
86,267

 
(15,532
)
Allocation of net loss to Predecessor
—

 
3,110

 
(3,110
)
Allocation of net income attributable to noncontrolling interests
(3,837
)
 
(7,282
)
 
3,445

Net income attributable to Holly Energy Partners
66,898

 
82,095

 
(15,197
)
General partner interest in net income, including incentive distributions(1)
(35,466
)
 
(24,779
)
 
(10,687
)
Limited partners’ interest in net income
$
31,432

 
$
57,316

 
$
(25,884
)
Limited partners’ earnings per unit—basic and diluted(1)
$
0.49

 
$
0.96

 
$
(0.47
)
Weighted average limited partners’ units outstanding
63,602

 
58,761

 
4,841

EBITDA(2)
$
145,160

 
$
135,973

 
$
9,187

Distributable cash flow(3)
$
118,197

 
$
111,075

 
$
7,122

 
 
 
 
 
 
Volumes (bpd)
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
120,886

 
128,983

 
(8,097
)
Affiliates – intermediate pipelines
128,143

 
136,288

 
(8,145
)
Affiliates – crude pipelines
269,155

 
282,923

 
(13,768
)
 
518,184

 
548,194

 
(30,010
)
Third parties – refined product pipelines
78,339

 
76,360

 
1,979

 
596,523

 
624,554

 
(28,031
)
Terminals and loading racks:
 
 
 
 

Affiliates
418,365

 
387,628

 
30,737

Third parties
68,646

 
76,370

 
(7,724
)
 
487,011

 
463,998

 
23,013

 
 
 
 
 
 
Affiliates – refinery processing units
65,082

 
46,409

 
18,673

 
 
 
 
 
 
Total for pipelines and terminal assets (bpd)
1,148,616

 
1,134,961

 
13,655





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June 30,
 
December 31,
 
2017
 
2016
 
(In thousands)
Balance Sheet Data
 
 
 
Cash and cash equivalents
$
16,339

 
$
3,657

Working capital (deficit)
$
16,591

 
$
(7,782
)
Total assets
$
1,867,891

 
$
1,884,237

Long-term debt
$
1,236,739

 
$
1,243,912

Partners' equity(4)
$
387,370

 
$
378,234

(1)
Net income attributable to Holly Energy Partners is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes incentive distributions declared subsequent to quarter end. General partner incentive distributions were $17.5 million and $12.1 million for the three months ended June 30, 2017 and 2016, respectively and $34.1 million and $23.6 million for the six months ended June 30, 2017 and 2016, respectively.
(2)
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense and loss on early extinguishment of debt, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income attributable to Holly Energy Partners or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA also is used by our management for internal analysis and as a basis for compliance with financial covenants.

Set forth below is our calculation of EBITDA.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Net income attributable to Holly Energy Partners
 
$
41,335

 
$
39,120

 
$
66,898

 
$
82,095

Add (subtract):
 
 
 
 
 
 
 
 
Interest expense
 
12,982

 
10,493

 
25,751

 
20,435

Interest Income
 
(103
)
 
(112
)
 
(205
)
 
(224
)
Amortization of discount and deferred debt charges
 
766

 
783

 
1,536

 
1,376

Loss on early extinguishment of debt
 
—

 
—

 
12,225

 
—

State income tax expense
 
127

 
54

 
233

 
149

Depreciation and amortization
 
19,945

 
15,712

 
38,722

 
32,263

Predecessor depreciation and amortization
 
—

 
(3
)
 
—

 
(121
)
EBITDA
 
$
75,052

 
$
66,047

 
$
145,160

 
$
135,973

(3)
Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exception of maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income attributable to Holly Energy Partners or operating income, as an indication of our operating performance, or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It is also used by management for internal analysis and our performance units. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.    


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Set forth below is our calculation of distributable cash flow.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands)
Net income attributable to Holly Energy Partners
 
$
41,335

 
$
39,120

 
$
66,898

 
$
82,095

Add (subtract):
 
 
 
 
 
 
 
 
Depreciation and amortization
 
19,945

 
15,712

 
38,722

 
32,263

Amortization of discount and deferred debt charges
 
766

 
783

 
1,536

 
1,376

Loss on early extinguishment of debt
 
—

 
—

 
12,225

 
—

Increase (decrease) in deferred revenue attributable to shortfall billings
 
1,524

 
1,731

 
2,701

 
(1,927
)
Maintenance capital expenditures*
 
(2,242
)
 
(2,661
)
 
(3,067
)
 
(4,322
)
Decrease in environmental liability
 
(313
)
 
(113
)
 
(559
)
 
(442
)
Decrease in reimbursable deferred revenue
 
(923
)
 
(628
)
 
(1,848
)
 
(1,155
)
Other non-cash adjustments
 
816

 
1,768

 
1,589

 
3,308

Predecessor depreciation and amortization
 
—

 
(3
)
 
—

 
(121
)
Distributable cash flow
 
$
60,908

 
$
55,709

 
$
118,197

 
$
111,075

    
*
Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, and safety and to address environmental regulations.

(4)
As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to Holly Energy Partners because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to Holly Energy Partners. Additionally, if the assets contributed and acquired from HollyFrontier while we were a consolidated variable interest entity of HollyFrontier had been acquired from third parties, our acquisition cost in excess of HollyFrontier’s basis in the transferred assets would have been recorded as increases to our properties and equipment and intangible assets at the time of acquisition instead of decreases to partners’ equity.


FOR FURTHER INFORMATION, Contact:

Richard L. Voliva III, Executive Vice President and
Chief Financial Officer
Craig Biery, Director, Investor Relations
Holly Energy Partners, L.P.
214/954-6511


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