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July 31, 2019
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--(BUSINESS WIRE)--Jul. 31, 2019-- 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 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'sTulsa 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.
  • 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;
  • 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.

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

 

 

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

 

(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

 

(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.

 

Source: Holly Energy Partners, L.P.

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