Holly Energy Partners, L.P.
Aug 4, 2015

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

DALLAS--(BUSINESS WIRE)-- Holly Energy Partners, L.P. ("HEP" or the "Partnership") (NYSE:HEP) today reported financial results for the second quarter of 2015. For the quarter, distributable cash flow was $47.3 million, up $3.8 million, or 9% compared to the second quarter of 2014. HEP announced its 43rd consecutive distribution increase on July 23, 2015, raising the quarterly distribution from $0.5375 to $0.5450 per unit, which represents an increase of nearly 6% over the distribution for the second quarter of 2014.

Net income attributable to Holly Energy Partners for the second quarter was $30.4 million ($0.34 per basic and diluted limited partner unit) compared to $23.0 million ($0.25 per basic and diluted limited partner unit) for the second quarter of 2014. The increase in earnings is primarily due to higher pipeline volumes and annual tariff increases.

Commenting on the second quarter of 2015, Mike Jennings, Chief Executive Officer, stated, "We are pleased our financial results for the second quarter of 2015 allowed us to maintain our record of raising quarterly distributions. HEP's steady growth is supported by our fee-based commercial structure with underlying long-term minimum commitments by our key customers.

"We continue to leverage our logistic capabilities and HFC's refining footprint to create unique third party acquisition opportunities like our acquisition of the El Dorado crude tank farm in March 2015. We have also identified potential dropdown assets including the naphtha fractionation unit at HFC's El Dorado refinery and certain assets related to the initial phase of the expansion at HFC's Woods Cross refinery.

"I am optimistic about HEP's growth outlook given our talented employees, high quality assets in traditionally favorable geographic locations, and ongoing support from our general partner, HollyFrontier."

Second Quarter 2015 Revenue Highlights

Revenues for the quarter were $83.5 million, an increase of $8.5 million compared to the second quarter of 2014 due to the effect of higher pipeline volumes and annual tariff increases. Overall pipeline volumes were up 31% compared to the three months ended June 30, 2014, largely due to increased volumes from the New Mexico gathering system expansion as well as lower volumes in the second quarter of 2014 resulting from major maintenance performed at Alon's Big Spring refinery.

Revenues for the three months ended June 30, 2015, include the recognition of $0.5 million of prior shortfalls billed to shippers in 2014 as they did not meet their minimum volume commitments within the contractual make-up period. As of June 30, 2015, shortfall deferred revenue in our consolidated balance sheet was $6.3 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, 2015 Revenue Highlights

Revenues for the six months ended June 30, 2015, were $173.2 million, an $11.2 million increase compared to the six months ended June 30, 2014. This is due principally to the effect of annual tariff increases and increased pipeline shipments largely due to increased volumes from the New Mexico gathering system expansion.

Revenues for the six months ended June 30, 2015, include the recognition of $8.0 million of prior shortfalls billed to shippers in 2014, as they did not meet their minimum volume commitments within the contractual make-up period.

Operating Costs and Expenses Highlights

Operating costs and expenses were $43.0 million and $89.0 million for the three and the six months ended June 30, 2015, respectively, representing an increase of $0.1 million from the three months ended June 30, 2014, and an increase of $4.5 million from the six months ended June 30, 2014. The increase for the six months ended June 30, 2015, is primarily due to an increase in environmental remediation provisions of $3.5 million and higher maintenance project expense.

Interest expense was $9.1 million and $17.8 million for the three and the six months ended June 30, 2015, respectively, representing an increase of $0.7 million and a decrease of $1.0 million over the same periods of 2014. The increase for the three months ended June 30, 2015, is due to an increase in borrowings under our credit agreement. The decrease for the six months ended June 30, 2015, is principally due to the early extinguishment of our 8.25% Senior Notes in March 2014.

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=1069898.

An audio archive of this webcast will be available using the above noted link through August 18, 2015.

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 owns and operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma, Utah, Wyoming and Kansas. In addition, the Partnership owns a 75% interest in UNEV Pipeline, LLC, the owner of a Holly Energy operated refined products pipeline running from Salt Lake City, Utah to Las Vegas, Nevada, and related product terminals and a 25% interest in SLC Pipeline LLC, a 95-mile intrastate pipeline system serving refineries in the Salt Lake City, Utah area.

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 31,000 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. A subsidiary of HollyFrontier also owns a 39% interest (including the 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. Forward-looking statements use words such as "anticipate," "project," "expect," "plan," "goal," "forecast," "intend," "should," "would," "could," "believe," "may," and similar expressions and statements regarding our plans and objectives for future operations. 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. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Certain factors could cause actual results to differ materially from results anticipated in the forward-looking-statements. These factors include, but are not limited to:

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, 2015 and 2014.

     
 
Three Months Ended June 30,

Change from

2015   2014 2014
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates - refined product pipelines $ 18,245 $ 17,536 $ 709
Affiliates - intermediate pipelines 7,172 6,683 489
Affiliates - crude pipelines   15,096     13,032     2,064  
40,513 37,251 3,262
Third parties - refined product pipelines   11,213     7,480     3,733  
51,726 44,731 6,995
Terminals, tanks and loading racks:
Affiliates 27,784 27,229 555
Third parties   3,969     3,038     931  
  31,753     30,267     1,486  
Total revenues 83,479 74,998 8,481
Operating costs and expenses:
Operations 25,289 24,567 722
Depreciation and amortization 15,063 15,882 (819 )
General and administrative   2,696     2,516     180  
  43,048     42,965     83  
Operating income 40,431 32,033 8,398
 
Equity in earnings of SLC Pipeline 631 748 (117 )
Interest expense, including amortization (9,056 ) (8,329 ) (727 )
Interest income 3 3
Other income   71     26     45  
  (8,351 )   (7,555 )   (796 )
Income before income taxes 32,080 24,478 7,602
State income tax benefit (expense)   64     (28 )   92  
Net income 32,144 24,450 7,694
Allocation of net income attributable to noncontrolling interests   (1,743 )   (1,416 )   (327 )
Net income attributable to Holly Energy Partners 30,401 23,034 7,367
General partner interest in net income, including incentive distributions(1)   (10,196 )   (8,393 )   (1,803 )
Limited partners' interest in net income $ 20,205   $ 14,641   $ 5,564  
Limited partners' earnings per unit - basic and diluted:(1) $ 0.34   $ 0.25   $ 0.09  
Weighted average limited partners' units outstanding   58,657     58,657      
EBITDA(2) $ 54,453   $ 47,273   $ 7,180  
Distributable cash flow(3) $ 47,299   $ 43,495   $ 3,804  
 
Volumes (bpd)
Pipelines:
Affiliates - refined product pipelines 121,982 119,328 2,654
Affiliates - intermediate pipelines 143,140 143,396 (256 )
Affiliates - crude pipelines   295,793     178,564     117,229  
560,915 441,288 119,627
Third parties - refined product pipelines   73,659     43,858     29,801  
634,574 485,146 149,428
Terminals and loading racks:
Affiliates 281,318 269,260 12,058
Third parties   79,133     56,563     22,570  
  360,451     325,823     34,628  
Total for pipelines and terminal assets (bpd)   995,025     810,969     184,056  
     
 
Six Months Ended June 30, Change from
2015   2014 2014
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates—refined product pipelines $ 40,786 $ 41,709 $ (923 )
Affiliates—intermediate pipelines 14,034 14,594 (560 )
Affiliates—crude pipelines   32,090     25,650     6,440  
86,910 81,953 4,957
Third parties—refined product pipelines   24,936     19,098     5,838  
111,846 101,051 10,795
Terminals, tanks and loading racks:
Affiliates 53,642 54,359 (717 )
Third parties   7,747     6,592     1,155  
  61,389     60,951     438  
Total revenues 173,235 162,002 11,233
Operating costs and expenses
Operations 53,255 47,379 5,876
Depreciation and amortization 29,757 31,470 (1,713 )
General and administrative   5,986     5,667     319  
  88,998     84,516     4,482  
Operating income 84,237 77,486 6,751
Equity in earnings of SLC Pipeline 1,365 1,270 95
Interest expense, including amortization (17,824 ) (18,783 ) 959
Interest income 3 3
Loss on early extinguishment of debt (7,677 ) 7,677
Other   230     34     196  
  (16,226 )   (25,153 )   8,927  
Income before income taxes 68,011 52,333 15,678
State income tax expense   (37 )   (103 )   66  
Net income 67,974 52,230 15,744
Allocation of net income attributable to noncontrolling interests   (5,770 )   (5,053 )   (717 )
Net income attributable to Holly Energy Partners 62,204 47,177 15,027
General partner interest in net income, including incentive distributions (1)   (20,006 )   (16,394 )   (3,612 )
Limited partners' interest in net income $ 42,198   $ 30,783   $ 11,415  
Limited partners' earnings per unit—basic and diluted (1) $ 0.71   $ 0.52   $ 0.19  
Weighted average limited partners' units outstanding   58,657     58,657      
EBITDA (2) $ 109,819   $ 105,207   $ 4,612  
Distributable cash flow (3) $ 93,189   $ 85,303   $ 7,886  
 
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines 118,724 121,239 (2,515 )
Affiliates—intermediate pipelines 140,620 141,015 (395 )
Affiliates—crude pipelines   289,285     177,763     111,522  
548,629 440,017 108,612
Third parties—refined product pipelines   72,546     55,014     17,532  
621,175 495,031 126,144
Terminals and loading racks:
Affiliates 276,823 265,966 10,857
Third parties   76,574     67,075     9,499  
  353,397     333,041     20,356  
Total for pipelines and terminal assets (bpd)   974,572     828,072     146,500  
 

(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 $9.8 million and $8.1 million for the three months ended June 30, 2015 and 2014, respectively, and $19.1 million and $15.8 million for the six months ended June 30, 2015 and 2014, 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 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,

2015   2014 2015   2014
(In thousands)
Net income attributable to Holly Energy Partners $ 30,401 $ 23,034 $ 62,204 $ 47,177
Add (subtract):
Interest expense 8,562 7,893 16,894 17,836
Interest Income (3 ) (3 ) (3 )
Amortization of discount and deferred debt charges 494 436 930 947
Loss on early extinguishment of debt 7,677
State income tax (benefit) expense (64 ) 28 37 103
Depreciation and amortization   15,063     15,882   29,757     31,470  
EBITDA $ 54,453   $ 47,273 $ 109,819   $ 105,207  
 

(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.

Set forth below is our calculation of distributable cash flow.

     

Three Months Ended
June 30,

Six Months Ended
June 30,

2015   2014 2015   2014
(In thousands)
Net income attributable to Holly Energy Partners $ 30,401 $ 23,034 $ 62,204 $ 47,177
Add (subtract):
Depreciation and amortization 15,063 15,882 29,757 31,470
Amortization of discount and deferred debt charges 494 436 930 947
Loss on early extinguishment of debt 7,677
Increase (decrease) in deferred revenue attributable to shortfall billings 1,355 4,760 (2,195 ) (1,138 )
Maintenance capital expenditures* (1,870 ) (842 ) (3,519 ) (1,691 )
Increase (decrease) in environmental liability (386 ) (3 ) 3,471 361
Increase (decrease) in reimbursable deferred revenue 1,537 (629 ) 992 (1,211 )
Other non-cash adjustments   705     857     1,549     1,711  
Distributable cash flow $ 47,299   $ 43,495   $ 93,189   $ 85,303  
 

* 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.

     
June 30, December 31,
2015 2014
(In thousands)
Balance Sheet Data
Cash and cash equivalents $ 10,424 $ 2,830
Working capital $ 13,194 $ 3,140
Total assets $ 1,425,243 $ 1,401,555
Long-term debt $ 900,905 $ 867,579
Partners' equity(4) $ 300,940 $ 320,362
 

(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 of $305.3 million 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.

Holly Energy Partners, L.P.
Douglas S. Aron, 214-954-6511
Executive Vice President and
Chief Financial Officer
or
Julia Heidenreich, 214-954-6511
Vice President, Investor Relations
or
Craig Biery, 214-954-6511
Investor Relations

Source: Holly Energy Partners, L.P.

News Provided by Acquire Media