Holly Energy Partners, L.P. Reports First Quarter Results

  • Reported net income attributable to HEP of $51.2 million or $0.49 per
    unit
  • Announced 58th consecutive quarterly distribution increase
    to $0.6700 per unit, a 2.3% increase over first quarter 2018
  • Reported EBITDA of $93.5 million and distributable cash flow of $70.6
    million providing a 1.03x distribution coverage ratio

DALLAS–(BUSINESS WIRE)–Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE:HEP)
today reported financial results for the first quarter of 2019. Net
income attributable to HEP for the first quarter was $51.2 million
($0.49 per basic and diluted limited partner unit) compared to $46.2
million ($0.44 per basic and diluted limited partner unit) for the first
quarter of 2018.

Distributable cash flow was $70.6 million for the quarter, up $1.5
million, or 2.2% compared to the first quarter of 2018. HEP announced
its 58thconsecutive distribution increase on April 18, 2019,
raising the quarterly distribution from $0.6675 to $0.6700 per unit,
which represents an increase of 2.3% over the distribution for the first
quarter of 2018.

The increase in net income attributable to HEP was mainly due to higher
crude oil pipeline volumes around the Permian Basin, higher revenues on
our refinery processing units, and contractual tariff escalators. These
gains were partially offset by higher interest expense.

Commenting on our 2019 first quarter results, George Damiris, Chief
Executive Officer, stated, “HEP delivered strong financial results for
the first quarter driven by the continued growth of our crude pipeline
volumes and seasonal strength on the UNEV system, which allowed us to
maintain our record of quarterly distribution increases.

“Looking forward, we remain optimistic about our organic growth
potential. HEP remains on track to continue growing our distribution
while maintaining a distribution coverage ratio of 1.0x for the full
year 2019.”

First Quarter 2019 Revenue Highlights

Revenues for the quarter were $134.5 million, an increase of $5.6
million compared to the first quarter of 2018. The increase was mainly
attributable to higher crude oil pipeline volumes around the Permian
Basin, which contributed to an increase in overall pipeline volumes of
5%, higher revenues on our refinery processing units and contractual
tariff escalators.

  • Revenues from our refined product pipelines were $36.3 million,
    an increase of $1.5 million, on shipments averaging 211.9 thousand
    barrels per day (“mbpd”) compared to 217.0 mbpd for the first quarter
    of 2018. The volume decrease was mainly due to pipelines servicing
    HollyFrontier Corporation’s (“HFC” or “HollyFrontier”) Woods Cross
    refinery, which had lower throughput due to operational issues at the
    refinery during the quarter partially offset by higher volumes from
    Delek. The increase in revenues was mainly due to higher Delek volumes
    and contractual tariff escalators.
  • Revenues from our intermediate pipelines were $7.3 million, a
    decrease of $1.2 million compared to the first quarter of 2018, on
    shipments averaging 130.8 mbpd compared to 127.0 mbpd for the first
    quarter of 2018. The decrease in revenue was primarily attributable to
    a decrease in deferred revenue realized.
  • Revenues from our crude pipelines were $31.5 million, an
    increase of $2.7 million, on shipments averaging 527.3 mbpd compared
    to 486.4 mbpd for the first 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.
  • Revenues from terminal, tankage and loading rack fees were
    $37.6 million, a decrease of $0.6 million compared to the first
    quarter of 2018. Refined products and crude oil terminalled in the
    facilities averaged 442.7 mbpd compared to 452.8 mbpd for the first
    quarter of 2018. The volume decrease and associated revenue decrease
    were mainly due to the planned turnaround at HFC’s Tulsa refinery and
    operational issues at HFC’s El Dorado refinery in the first quarter of
    2019.
  • Revenues from refinery processing units were $21.8 million, an
    increase of $3.3 million, on throughputs averaging 65.8 mbpd compared
    to 66.9 mbpd for the first quarter of 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 $64.0 million for the three months
ended March 31, 2019, representing a decrease of $0.5 million from the
three months ended March 31, 2018. The decrease was mainly due to lower
professional services costs and lower amortization of intangible assets
and asset retirement obligations partially offset by higher property
taxes and employee compensation expenses.

Interest expense was $19.0 million for the three months ended March 31,
2019, representing an increase of $1.4 million over the same period of
2018. The increase was 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/29217/indexl.html

An audio archive of this webcast will be available using the above noted
link through May 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;
  • 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 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.

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow and Volumes

The following tables present income, distributable cash flow and volume
information for the three months ended March 31, 2019 and 2018.

       
Three Months Ended March 31, Change from
2019   2018 2018
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates – refined product pipelines $ 20,732 $ 21,294 $ (562 )
Affiliates – intermediate pipelines 7,281 8,469 (1,188 )
Affiliates – crude pipelines   21,121     19,797     1,324  
49,134 49,560 (426 )
Third parties – refined product pipelines 15,604 13,582 2,022
Third parties – crude pipelines   10,362     9,027     1,335  
75,100 72,169 2,931
Terminals, tanks and loading racks:
Affiliates 32,406 33,334 (928 )
Third parties   5,172     4,847     325  
  37,578     38,181     (603 )
 
Affiliates – refinery processing units   21,819     18,534     3,285  
 
Total revenues   134,497     128,884     5,613  
Operating costs and expenses
Operations 37,519 36,202 1,317
Depreciation and amortization 23,824 25,142 (1,318 )
General and administrative   2,620     3,122     (502 )
  63,963     64,466     (503 )
Operating income 70,534 64,418 6,116
 
Equity in earnings of equity method investments 2,100 1,279 821
Interest expense, including amortization (19,022 ) (17,581 ) (1,441 )
Interest income 528 515 13
Gain (loss) on sale of assets and other   (310 )   86     (396 )
  (16,704 )   (15,701 )   (1,003 )
Income before income taxes 53,830 48,717 5,113
State income tax expense   (36 )   (82 )   46  
Net income 53,794 48,635 5,159
Allocation of net income attributable to noncontrolling interests   (2,612 )   (2,467 )   (145 )
Limited partners’ interest in net income $ 51,182   $ 46,168   $ 5,014  
Limited partners’ earnings per unit—basic and diluted $ 0.49   $ 0.44   $ 0.05  
Weighted average limited partners’ units outstanding   105,440     103,836     1,604  
EBITDA(1) $ 93,536   $ 88,458   $ 5,078  
Distributable cash flow(2) $ 70,599   $ 69,099   $ 1,500  
 
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines 130,807 144,805 (13,998 )
Affiliates – intermediate pipelines 130,830 126,993 3,837
Affiliates – crude pipelines   400,797     360,409     40,388  
662,434 632,207 30,227
Third parties – refined product pipelines 81,064 72,239 8,825
Third parties – crude pipelines   126,496     126,014     482  
869,994 830,460 39,534
Terminals and loading racks:
Affiliates 373,912 390,481 (16,569 )
Third parties   68,765     62,352     6,413  
  442,677     452,833     (10,156 )
 
Affiliates – refinery processing units   65,837     66,875     (1,038 )
 
Total for pipelines and terminal assets (bpd)   1,378,508     1,350,168     28,340  
 
     
(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 March 31,
2019   2018
(In thousands)
Net income attributable to Holly Energy Partners $ 51,182 $ 46,168
Add (subtract):
Interest expense 18,256 16,824
Interest Income (528 ) (515 )
Amortization of discount and deferred debt charges 766 757
State income tax (benefit) expense 36 82
Depreciation and amortization   23,824     25,142  
EBITDA $ 93,536   $ 88,458  
 
     
(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 March 31,
2019   2018
(In thousands)
Net income attributable to Holly Energy Partners $ 51,182 $ 46,168
Add (subtract):
Depreciation and amortization 23,824 25,142
Amortization of discount and deferred debt charges 766 757
Revenue recognized greater than customer billings (3,034 ) (1,681 )
Maintenance capital expenditures (3) (735 ) (318 )
Decrease in environmental liability (278 ) (140 )
Decrease in reimbursable deferred revenue (1,579 ) (1,177 )
Other non-cash adjustments   453     348  
Distributable cash flow $ 70,599   $ 69,099  
 
     
(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.
 
      March 31,   December 31,
2019 2018
(In thousands)
Balance Sheet Data
Cash and cash equivalents $ 11,540 $ 3,045
Working capital $ 21,841 $ 8,577
Total assets $ 2,162,220 $ 2,102,540
Long-term debt $ 1,438,054 $ 1,418,900
Partners’ equity (4) $ 412,117 $ 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.
 

Contacts

Richard L. Voliva III, Executive Vice President and
Chief Financial
Officer

Craig Biery, Director, Investor Relations
Holly Energy Partners,
L.P.
214/954-651

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