EX-99.1 2 hepq22019earningsrelease.htm EXHIBIT 99.1 Exhibit



Earnings Release
July 31, 2019
heplogoa12.jpg
Holly Energy Partners, L.P. Reports Second Quarter Results
•
Reported net income attributable to HEP of $45.7 million or $0.43 per unit
•
Announced 59th consecutive quarterly distribution increase to $0.6725 per unit, a 1.9% increase over second quarter 2018
•
Reported EBITDA of $88.6 million and distributable cash flow of $67.5 million providing a 0.99x distribution coverage ratio
Dallas, Texas -- Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE:HEP) today reported financial results for the second quarter of 2019. Net income attributable to HEP for the second quarter was $45.7 million ($0.43 per basic and diluted limited partner unit) compared to $40.1 million ($0.38 per basic and diluted limited partner unit) for the second quarter of 2018.
Distributable cash flow was $67.5 million for the quarter, an increase of $2.3 million, or 3.5% compared to the second quarter of 2018. HEP announced its 59th consecutive distribution increase on July 18, 2019, raising the quarterly distribution from $0.6700 to $0.6725 per unit, which represents an increase of 1.9% over the distribution for the second quarter of 2018.
The increase in net income attributable to HEP was mainly due to higher crude oil pipeline volumes around the Permian Basin and our crude pipeline systems in Wyoming and Utah as well as contractual tariff escalators. These gains were partially offset by higher operating costs and interest expense.
Commenting on our 2019 second quarter results, George Damiris, Chief Executive Officer, stated, “Strong crude oil pipeline volumes in the Permian Basin and Rockies regions supported solid financial results, which allowed us to maintain our record of quarterly distribution increases.
“Looking forward, we expect strong performance in the second half of 2019, driven by the increase in contractual tariff escalators and healthy demand for pipeline volumes.”
Second Quarter 2019 Revenue Highlights
Revenues for the second quarter were $130.8 million, an increase of $12.0 million compared to the second quarter of 2018. The increase was mainly attributable to higher crude oil pipeline volumes around the Permian Basin and our crude pipeline systems in Wyoming and Utah, which contributed to an increase in overall pipeline volumes of 10%, and contractual tariff escalators.

•
Revenues from our refined product pipelines were $32.5 million, an increase of $1.4 million compared to the second quarter of 2018, on shipments averaging 197.8 thousand barrels per day ("mbpd") compared to 185.6 mbpd for the second quarter of 2018. The volume increase was mainly due to pipelines servicing HollyFrontier Corporation's ("HFC" or "HollyFrontier") Woods Cross refinery, which had lower throughput during the second quarter of 2018 due to operational issues at the refinery. The increase in revenues was mainly due to the higher throughput and contractual tariff escalators.

•
Revenues from our intermediate pipelines were $7.3 million for both of the second quarters of 2019 and 2018, on shipments averaging 141.3 mbpd for the second quarter of 2019 compared to


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151.5 mbpd for the second quarter of 2018. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HollyFrontier's Tulsa refinery due to flooding during the quarter. Revenue remained constant due to contractual minimum volume guarantees.

•
Revenues from our crude pipelines were $32.4 million, an increase of $5.2 million compared to the second quarter of 2018, on shipments averaging 510.9 mbpd compared to 437.9 mbpd for the second quarter of 2018. The increases were mainly attributable to increased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah as well as contractual tariff escalators.

•
Revenues from terminal, tankage and loading rack fees were $39.1 million, an increase of $4.7 million compared to the second quarter of 2018. Refined products and crude oil terminalled in the facilities averaged 490.9 mbpd compared to 505.1 mbpd for the second quarter of 2018. The volume decrease was mainly due to lower volumes at HFC's Tulsa refinery, partially offset by volumes at our new Orla diesel rack and higher volumes at HFC's El Dorado refinery, the Spokane terminal, and the Woods Cross rack. The increase in revenue was mainly due to the higher volumes at HFC's El Dorado refinery and revenues from our Orla diesel rack, which began operations in the first quarter of 2019.

•
Revenues from refinery processing units were $19.4 million, an increase of $0.6 million compared to the second quarter of 2018, on throughputs averaging 77.7 mbpd compared to 71.1 mbpd for the second quarter of 2018. The increase in revenue was mainly due to contractual rate increases.

Six Months Ended June 30, 2019 Revenue Highlights
Revenues for the six months ended June 30, 2019, were $265.2 million, an increase of $17.6 million compared to the six months ended June 30, 2018. The increase was mainly attributable to higher crude oil pipeline volumes around the Permian Basin and our crude pipeline systems in Wyoming and Utah, higher revenues on our refinery processing units, and contractual tariff escalators.

•
Revenues from our refined product pipelines were $68.9 million, an increase of $2.9 million compared to the six months ended June 30, 2018, on shipments averaging 204.8 mbpd compared to 201.2 mbpd for the six months ended June 30, 2018. The volume and revenue increases were mainly due to higher Delek volumes, higher volumes on pipelines servicing HFC's Woods Cross refinery, which had lower throughput in 2018 due to operational issues at the refinery beginning in the first quarter of 2018, and contractual tariff escalators.

•
Revenues from our intermediate pipelines were $14.6 million, a decrease of $1.1 million compared to the six months ended June 30, 2018, on shipments averaging 136.1 mbpd compared to 139.3 mbpd for the six months ended June 30, 2018. The decrease in revenue was primarily attributable to a decrease in deferred revenue realized.

•
Revenues from our crude pipelines were $63.9 million, an increase of $7.9 million compared to the six months ended June 30, 2018, on shipments averaging 519.1 mbpd compared to 462.5 mbpd for the six months ended June 30, 2018. The increases were mainly attributable to increased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah as well as contractual tariff escalators.

•
Revenues from terminal, tankage and loading rack fees were $76.7 million, an increase of $4.1 million compared to the six months ended June 30, 2018. Refined products and crude oil terminalled in the facilities averaged 466.9 mbpd compared to 479.1 mbpd for the six months ended June 30, 2018. The volume decrease was mainly due to lower volumes at HFC's Tulsa refinery as a result of the planned turnaround in the first quarter and flooding in the second quarter as well as lower volumes at HFC's El Dorado refinery due to operational issues in the first quarter, partially offset by volumes at our new Orla diesel rack and higher volumes at the Spokane terminal. The increase in revenue was mainly due to our Orla diesel rack, which began operations in the first quarter of 2019, and higher revenues at our Spokane and UNEV terminals.


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•
Revenues from refinery processing units were $41.2 million, an increase of $3.8 million compared to the six months ended June 30, 2018, on throughputs averaging 71.8 mbpd compared to 69.0 mbpd for the six months ended June 30, 2018. The increase in revenue was mainly due to an adjustment in revenue recognition and contractual rate increases.

Operating Costs and Expenses Highlights
Operating costs and expenses were $66.8 million and $130.8 million for the three and six months ended June 30, 2019, respectively, representing increases of $5.0 million and $4.5 million from the three and six months ended June 30, 2018, respectively. These increases were mainly due to higher employee compensation expenses, maintenance costs and property taxes.
Interest expense was $19.2 million and $38.3 million for the three and six months ended June 30, 2019, representing increases of $1.6 million and $3.0 million over the same periods of 2018. These increases were mainly due to higher average balances outstanding under our senior secured revolving credit facility and market interest rate increases under that facility.
 
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://78449.themediaframe.com/dataconf/productusers/hep/mediaframe/30664/indexl.html

An audio archive of this webcast will be available using the above noted link through August 15, 2019.
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 pipelines, tankage and terminals in Texas, New Mexico, 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 owns and operates refineries located in Kansas, Oklahoma, New Mexico, Wyoming and Utah and 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 produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic general partner interest in Holly Energy Partners, L.P., a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HollyFrontier.
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, Delek US Holdings, Inc. and our other customers;
•
the demand for refined petroleum products in markets we serve;


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•
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 or cyber attacks and the consequences of any such attacks;
•
general economic conditions;
•
the impact of recent or proposed changes in tax laws and regulations that affect master limited partnerships; and
•
other financial, operational 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 three and the six months ended June 30, 2019 and 2018.
 
Three Months Ended June 30,
 
Change from
 
2019
 
2018
 
2018
 
(In thousands, except per unit data)
Revenues
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
$
20,759

 
$
18,744

 
$
2,015

Affiliates – intermediate pipelines
7,297

 
7,255

 
42

Affiliates – crude pipelines
20,651

 
18,479

 
2,172

 
48,707

 
44,478

 
4,229

   Third parties – refined product pipelines
11,778

 
12,348

 
(570
)
Third parties – crude pipelines
11,778

 
8,713

 
3,065

 
72,263

 
65,539

 
6,724

Terminals, tanks and loading racks:
 
 
 
 
 
Affiliates
34,263

 
30,700

 
3,563

Third parties
4,826

 
3,686

 
1,140

 
39,089

 
34,386

 
4,703

 
 
 
 
 
 
Affiliates - refinery processing units
19,399

 
18,835

 
564

 
 
 
 
 
 
Total revenues
130,751

 
118,760

 
11,991

Operating costs and expenses
 
 
 
 
 
Operations
40,602

 
34,533

 
6,069

Depreciation and amortization
24,247

 
24,608

 
(361
)
General and administrative
1,988

 
2,673

 
(685
)
 
66,837

 
61,814

 
5,023

Operating income
63,914

 
56,946

 
6,968

 
 
 
 
 
 
Equity in earnings of equity method investments
1,783

 
1,734

 
49

Interest expense, including amortization
(19,230
)
 
(17,626
)
 
(1,604
)
Interest income
551

 
526

 
25

Gain on sale of assets and other
111

 
(53
)
 
164

 
(16,785
)
 
(15,419
)
 
(1,366
)
Income before income taxes
47,129

 
41,527

 
5,602

State income tax benefit (expense)
30

 
(28
)
 
58

Net income
47,159

 
41,499

 
5,660

Allocation of net income attributable to noncontrolling interests
(1,469
)
 
(1,356
)
 
(113
)
Net income attributable to Holly Energy Partners
$
45,690

 
$
40,143

 
$
5,547

Limited partners’ earnings per unit – basic and diluted
$
0.43

 
$
0.38

 
$
0.05

Weighted average limited partners’ units outstanding
105,440

 
105,429

 
11

EBITDA(1)
$
88,586

 
$
81,879

 
$
6,707

Distributable cash flow(2)
$
67,486

 
$
65,180

 
$
2,306

Volumes (bpd)
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
130,802

 
112,371

 
18,431

Affiliates – intermediate pipelines
141,345

 
151,537

 
(10,192
)
Affiliates – crude pipelines 
370,351

 
322,850

 
47,501

 
642,498

 
586,758

 
55,740

Third parties – refined product pipelines
66,963

 
73,196

 
(6,233
)
Third parties – crude pipelines
140,555

 
115,011

 
25,544

 
850,016

 
774,965

 
75,051

Terminals and loading racks:
 
 
 
 
 
Affiliates
431,509

 
446,089

 
(14,580
)
Third parties
59,343

 
59,035

 
308

 
490,852

 
505,124

 
(14,272
)
 
 
 
 
 
 
Affiliates – refinery processing units
77,728

 
71,117

 
6,611

 
 
 
 
 
 
Total for pipelines and terminal assets (bpd)
1,418,596

 
1,351,206

 
67,390




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Six Months Ended June 30,
 
Change from
 
2019
 
2018
 
2018
 
(In thousands, except per unit data)
Revenues
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
$
41,491

 
$
40,038

 
$
1,453

Affiliates – intermediate pipelines
14,578

 
15,724

 
(1,146
)
Affiliates – crude pipelines
41,772

 
38,276

 
3,496

 
97,841

 
94,038

 
3,803

   Third parties – refined product pipelines
27,382

 
25,930

 
1,452

Third parties – crude pipelines
22,140

 
17,740

 
4,400

 
147,363

 
137,708

 
9,655

Terminals, tanks and loading racks:
 
 
 
 
 
Affiliates
66,669

 
64,034

 
2,635

Third parties
9,998

 
8,533

 
1,465

 
76,667

 
72,567

 
4,100

 
 
 
 
 
 
Affiliates - refinery processing units
41,218

 
37,369

 
3,849

 
 
 
 
 
 
Total revenues
265,248

 
247,644

 
17,604

Operating costs and expenses
 
 
 
 
 
Operations
78,121

 
70,735

 
7,386

Depreciation and amortization
48,071

 
49,750

 
(1,679
)
General and administrative
4,608

 
5,795

 
(1,187
)
 
130,800

 
126,280

 
4,520

Operating income
134,448

 
121,364

 
13,084

 
 
 
 
 
 
Equity in earnings of equity method investments
3,883

 
3,013

 
870

Interest expense, including amortization
(38,252
)
 
(35,207
)
 
(3,045
)
Interest income
1,079

 
1,041

 
38

Gain (loss) on sale of assets and other
(199
)
 
33

 
(232
)
 
(33,489
)
 
(31,120
)
 
(2,369
)
Income before income taxes
100,959

 
90,244

 
10,715

State income tax expense
(6
)
 
(110
)
 
104

Net income
100,953

 
90,134

 
10,819

Allocation of net income attributable to noncontrolling interests
(4,081
)
 
(3,823
)
 
(258
)
Net income attributable to Holly Energy Partners
$
96,872

 
$
86,311

 
$
10,561

Limited partners’ earnings per unit—basic and diluted
$
0.92

 
$
0.82

 
$
0.10

Weighted average limited partners’ units outstanding
105,440

 
104,637

 
803

EBITDA(1)
$
182,122

 
$
170,337

 
$
11,785

Distributable cash flow(2)
$
138,085

 
$
134,279

 
$
3,806

 
 
 
 
 
 
Volumes (bpd)
 
 
 
 
 
Pipelines:
 
 
 
 
 
Affiliates – refined product pipelines
130,805

 
128,498

 
2,307

Affiliates – intermediate pipelines
136,116

 
139,333

 
(3,217
)
Affiliates – crude pipelines
385,490

 
341,922

 
43,568

 
652,411

 
609,753

 
42,658

Third parties – refined product pipelines
73,975

 
72,720

 
1,255

Third parties – crude pipelines
133,565

 
120,568

 
12,997

 
859,951

 
803,041

 
56,910

Terminals and loading racks:
 
 
 
 

Affiliates
402,909

 
418,439

 
(15,530
)
Third parties
64,028

 
60,684

 
3,344

 
466,937

 
479,123

 
(12,186
)
 
 
 
 
 
 
Affiliates – refinery processing units
71,816

 
69,008

 
2,808

 
 
 
 
 
 
Total for pipelines and terminal assets (bpd)
1,398,704

 
1,351,172

 
47,532






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(1)
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, 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 indications 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 is also 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,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
Net income attributable to Holly Energy Partners
 
$
45,690

 
$
40,143

 
$
96,872

 
$
86,311

Add (subtract):
 
 
 
 
 
 
 
 
Interest expense
 
18,461

 
16,867

 
36,717

 
33,691

Interest Income
 
(551
)
 
(526
)
 
(1,079
)
 
(1,041
)
Amortization of discount and deferred debt charges
 
769

 
759

 
1,535

 
1,516

State income tax (benefit) expense
 
(30
)
 
28

 
6

 
110

Depreciation and amortization
 
24,247

 
24,608

 
48,071

 
49,750

EBITDA
 
$
88,586

 
$
81,879

 
$
182,122

 
$
170,337

(2)
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.    

Set forth below is our calculation of distributable cash flow.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
Net income attributable to Holly Energy Partners
 
$
45,690

 
$
40,143

 
$
96,872

 
$
86,311

Add (subtract):
 
 
 
 
 
 
 
 
Depreciation and amortization
 
24,247

 
24,608

 
48,071

 
49,750

Amortization of discount and deferred debt charges
 
769

 
759

 
1,535

 
1,516

Revenue recognized (greater) less than customer billings
 
(297
)
 
1,819

 
(3,331
)
 
138

Maintenance capital expenditures (3)
 
(625
)
 
(987
)
 
(1,360
)
 
(1,305
)
Decrease in environmental liability
 
(277
)
 
(78
)
 
(555
)
 
(218
)
Decrease in reimbursable deferred revenue
 
(2,061
)
 
(1,243
)
 
(3,640
)
 
(2,420
)
Other non-cash adjustments
 
40

 
159

 
493

 
507

Distributable cash flow
 
$
67,486

 
$
65,180

 
$
138,085

 
$
134,279



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(3)
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, safety and to address environmental regulations.
Set forth below is certain balance sheet data.
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
(In thousands)
Balance Sheet Data
 
 
 
 
Cash and cash equivalents
 
$
6,941

 
$
3,045

Working capital
 
$
18,155

 
$
8,577

Total assets
 
$
2,147,843

 
$
2,102,540

Long-term debt
 
$
1,437,710

 
$
1,418,900

Partners' equity (4)
 
$
390,022

 
$
427,435


(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 in our financial statements 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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