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

April 29, 2010

DALLAS, April 29 /PRNewswire-FirstCall/ — Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE: HEP) today reported financial results for the first quarter of 2010. For the quarter, distributable cash flow was $20.2 million, up $5.6 million, or 38% compared to first quarter of 2009. Based on these results, on April 23, 2010, HEP announced a distribution increase, raising the quarterly distribution from $0.805 to $0.815 per unit, representing a 5% increase over the distribution for the first quarter of 2009.

For the quarter, income from continuing operations was $10.7 million ($0.36 per basic and diluted limited partner unit) compared to $3.8 million ($0.16 per basic and diluted limited partner unit) for the first quarter of 2009. Net income was $10.7 million ($0.36 per basic and diluted limited partner unit) versus $5.4 million ($0.25 per basic and diluted limited partner unit) for the first quarter of 2009 which included Rio Grande discontinued operations.

Commenting on the first quarter of 2010, Matt Clifton, Chairman of the Board and Chief Executive Officer stated, “We have begun 2010 with record first quarter operating results. For the quarter, distributable cash flow increased significantly over the first quarter of 2009, allowing us to declare our 22nd consecutive distribution increase. EBITDA was $25.5 million, an increase of $8.4 million or 49% over last year’s first quarter, reflecting earnings contributions from our 2009 asset acquisitions. We are pleased with these results particularly considering that first quarter pipeline volumes were lower than recent quarterly levels due to planned lower production levels at Holly’s Navajo refinery required to complete certain upgrade projects, and lower production at Alon’s refinery.”

“On March 31, 2010 we acquired additional tankage and loading rack assets located at Holly’s Tulsa refinery east facility and its Navajo refinery Lovington facility. Under related throughput agreements with Holly, these assets will contribute $13.9 million in minimum annual revenues to us. Combined with our 2009 acquisitions, our annual minimum revenue commitments are up over $50 million as compared to this time last year. We look forward to the increased earnings contributions from these acquisitions and will continue to explore additional organic and external growth opportunities that will further enhance unitholder value,” Clifton said.

First Quarter 2010 Highlights

Total revenues from continuing operations for the quarter were $40.7 million, an $11.4 million increase compared to the first quarter of 2009. This increase was due to overall increased shipments on our pipeline systems, higher tariff rates on affiliate shipments and revenues attributable to our 2009 asset acquisitions. These factors were partially offset by a $0.6 million decrease in previously deferred revenue realized. Increased volumes attributable to Holly Corporation’s (“Holly”) first quarter of 2009 Navajo refinery expansion, including volumes shipped on our new 16″ intermediate and Beeson pipelines, contributed to a 40% increase in affiliate pipeline shipments. Additionally, affiliate shipments were somewhat low during the first quarter of 2010 as production was down at Holly’s Navajo refinery due mainly to planned project work, compared to the first quarter of 2009 when volumes were significantly lower as the Navajo refinery underwent a major maintenance turnaround.

  • Revenues from our refined product pipelines were $16.9 million, a slight decrease of $0.1 million. This decrease is primarily due to a $2.2 million decrease in previously deferred revenue realized that was mostly offset by an increase in refined product shipments. Volumes on our refined product pipelines averaged 124.2 thousand barrels per day (“mbpd”) compared 111.6 mbpd for the first quarter of 2009 reflecting an increase in affiliate shipments, partially offset by a decline in third-party refined product pipeline shipments.
  • Revenues from our intermediate pipelines were $5.8 million, an increase of $4 million, on shipments averaging 79.1 mbpd compared to 34.3 mbpd for the first quarter of 2009. This increase includes a $1.6 million increase in previously deferred revenue realized. Current year volumes include volumes shipped on our 16″ pipeline acquired in May 2009.
  • Revenues from our crude pipelines were $9.4 million, an increase of $2.5 million, on shipments averaging 134.9 mbpd compared to 122.2 mbpd for the first quarter of 2009. This increase is primarily due to $2.2 million in revenues attributable to our Roadrunner Pipeline transportation agreement acquired in December 2009.
  • Revenues from terminal, tankage and loading rack fees were $8.6 million, an increase of $5.0 million compared to the first quarter of 2009. This increase includes $3.3 million in revenues attributable to volumes transferred and stored at our Tulsa storage and rack facilities.

Our revenues from continuing operations for the three months ended March 31, 2010 include the recognition of $2.5 million of prior shortfalls billed to shippers in 2009 as they did not meet their minimum volume commitments in any of the subsequent four quarters. As of March 31, 2010, deferred revenue in our consolidated balance sheet was $9.5 million. Although shortfall billings are initially recorded as deferred revenue, they are included in our distributable cash flow as they occur. These deferred revenue amounts are later recognized as revenue and included in net income within a one year period either when a shipper exceeds its minimum volume commitments and is able to utilize these shortfall payments as a credit or when a shipper’s rights to these shortfall payments expire and are no longer subject to recapture.

Operating costs and expenses were $22.8 million for the quarter ended March 31, 2010, an increase of $5.1 million compared to the same period of 2009. These increases were due to increased costs attributable to our 2009 asset acquisitions, higher throughput volumes on our heritage pipelines, 2010 transaction related expenses, and higher depreciation, maintenance and payroll expense.

We have scheduled a webcast conference call today at 4:00 PM Eastern Time to discuss financial results. This webcast may be accessed at: http://www.videonewswire.com/event.asp?id=68092.

An audio archive of this webcast will be available using the above noted link through May 13, 2010.

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 Holly Corporation subsidiaries. The Partnership owns and operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma and Utah. In addition, the Partnership owns a 25% interest in SLC Pipeline LLC, a 95-mile intrastate pipeline system serving refineries in the Salt Lake City, Utah area.

Holly Corporation operates through its subsidiaries a 100,000 barrels-per-stream-day (“bpsd”) refinery located in Artesia, New Mexico, a 31,000 bpsd refinery in Woods Cross, Utah and a 125,000 bpsd refinery in Tulsa, Oklahoma. A Holly Corporation subsidiary owns a 34% interest (including the general partner interest) in the Partnership.

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: 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,” “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. Such 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:

  • risks and uncertainties with respect to the actual quantities of petroleum products and crude oil shipped on our pipelines and/or terminalled in our terminals;
  • the economic viability of Holly Corporation, Alon USA, Inc. and our other customers;
  • the demand for refined petroleum products in markets we serve;
  • our ability to successfully purchase and integrate additional operations in the future;
  • 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.

    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, 2010 and
    2009.
                                   Three Months Ended
                                   ------------------         Change from
                                       March 31,
                                       ---------
                                    2010           2009             2009
                                    ----           ----             ----
                                  (In thousands, except per unit data)
    Revenues
    Pipelines:
       Affiliates - refined
        product pipelines        $11,480         $7,553           $3,927
       Affiliates - intermediate
        pipelines                  5,792          1,766            4,026
       Affiliates - crude
        pipelines                  9,405          6,901            2,504
                                   -----          -----            -----

                                  26,677         16,220           10,457
       Third parties - refined
        product pipelines          5,404          9,475           (4,071)
                                   -----          -----           ------

                                  32,081         25,695            6,386

    Terminals, refinery
     tankage and loading
     racks:
       Affiliates                  6,920          2,103            4,817
       Third parties               1,695          1,534              161
                                   -----          -----              ---
                                   8,615          3,637            4,978
                                   -----          -----            -----

    Total revenues                40,696         29,332           11,364

    Operating costs and
     expenses:
       Operations                 13,060         10,342            2,718
       Depreciation and
        amortization               7,210          6,016            1,194
       General and
        administrative             2,563          1,334            1,229
                                   -----          -----            -----
                                  22,833         17,692            5,141
                                  ------         ------            -----

    Operating income              17,863         11,640            6,223

    Other income (expense):
       Equity in earnings of SLC
        Pipeline                     481            175              306
       Interest income                 3              6               (3)
       Interest expense,
        including amortization    (7,544)        (5,403)          (2,141)
       Other                          (7)             -               (7)
       SLC Pipeline acquisition
        costs                          -         (2,500)           2,500
                                     ---         ------            -----

                                  (7,067)        (7,722)             655
                                  ------         ------              ---

    Income from continuing
     operations before            10,796          3,918            6,878
       income taxes

    State income tax                 (94)           (73)             (21)
                                     ---            ---              ---

    Income from continuing
     operations                   10,702          3,845            6,857

    Income from discontinued
     operations, net of                -          1,594           (1,594)
        noncontrolling interest
         of $495(1)                  ---          -----           ------

    Net income                    10,702          5,439            5,263

    Less general partner
     interest in net income,       2,646          1,293            1,353
        including incentive
         distributions(2)          -----          -----            -----

    Limited partners'
     interest in net income       $8,056         $4,146           $3,910
                                  ======         ======           ======
    Limited partners'
     earnings per unit -
     basic
       and diluted:(2)
       Income from continuing
        operations                 $0.36          $0.16            $0.20
       Income from discontinued
        operations                     -           0.09            (0.09)
                                     ---           ----            -----

       Net income                  $0.36          $0.25            $0.11
                                   =====          =====            =====
    Weighted average limited
     partners' units              22,079         16,328            5,751
        outstanding               ======         ======            =====
    EBITDA(3)                    $25,547        $17,184           $8,363
                                 =======        =======           ======
    Distributable cash
     flow(4)                     $20,159        $14,584           $5,575
                                 =======        =======           ======

    Volumes from continuing
     operations -
       barrels per day
        ("bpd")(1)
    Pipelines:
       Affiliates - refined
        product pipelines         93,382         62,338           31,044
       Affiliates - intermediate
        pipelines                 79,118         34,296           44,822
       Affiliates - crude
        pipelines                134,889        122,207           12,682
                                 -------        -------           ------
                                 307,389        218,841           88,548
       Third parties - refined
        product pipelines         30,835         49,289          (18,454)
                                  ------         ------          -------
                                 338,224        268,130           70,094
    Terminals and loading
     racks:
       Affiliates                163,796         82,836           80,960
       Third parties              34,843         43,406           (8,563)
                                  ------         ------           ------
                                 198,639        126,242           72,397
                                 -------        -------           ------
    Total for pipelines and
     terminal assets (bpd)       536,863        394,372          142,491
                                 =======        =======          =======

    (1)  On December 1, 2009, we sold our 70% interest in Rio Grande.
    Results of operations of Rio Grande are presented in discontinued
    operations.  Pipeline volume information excludes volumes
    attributable to Rio Grande.
    (2)  Net income 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 for the three months ended
     March 31, 2010 were $2.5 million, and for the three months ended
    March 31, 2009 were $1.2 million.  Net income attributable to the
    limited partners is divided by the weighted average limited partner
    units outstanding in computing the limited partners' per unit
    interest in net income.
    (3)  Earnings before interest, taxes, depreciation and amortization
    ("EBITDA") is calculated as net income plus (i) interest expense,
    net of interest income, (ii) state income tax and (iii) depreciation
    and amortization.  EBITDA is not a calculation based upon U.S.
    generally accepted accounting principles ("GAAP").  However, the
    amounts included in the EBITDA calculation are derived from amounts
    included in our consolidated financial statements, with the
    exception of EBITDA from discontinued operations.  EBITDA should not
    be considered as an alternative to net income 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 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,
                                                         ---------
                                                     2010           2009
                                                     ----           ----
                                                      (In thousands)

    Income from continuing operations             $10,702         $3,845

    Add (subtract):
       Interest expense                             5,886          5,011
       Amortization of discount and deferred debt
        issuance costs                                194            176
       Increase in interest expense -change in
        fair value of interest rate swaps           1,464            216
       Interest income                                 (3)            (6)
       State income tax                                94             73
       Depreciation and amortization                7,210          6,016
       EBITDA from discontinued operations              -          1,853
                                                      ---          -----

    EBITDA                                        $25,547        $17,184
                                                  =======        =======
    (4)  Distributable cash flow is not a calculation based upon GAAP.
    However, the amounts included in the calculation are derived from
    amounts separately presented in our consolidated financial
    statements, with the exception of equity in excess cash flows over
    earnings of SLC Pipeline, maintenance capital expenditures and
    distributable cash flow from discontinued operations.  Distributable
    cash flow should not be considered in isolation or as an alternative
    to net income 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.  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,
                                                          ---------
                                                      2010           2009
                                                      ----           ----
                                                       (In thousands)

    Income from continuing operations              $10,702         $3,845

    Add (subtract):
      Depreciation and amortization                  7,210          6,016
      Amortization of discount and deferred debt
       issuance costs                                  194            176
      Increase in interest expense -change in
       fair value of interest rate swaps             1,464            216
      Equity in excess cash flows over earnings of
       SLC Pipeline                                    178             53
      Increase in deferred revenue                   1,108            362
      SLC Pipeline acquisition costs*                    -          2,500
      Maintenance capital expenditures**              (697)          (418)
      Distributable cash flow - discontinued
       operations                                        -          1,834
                                                       ---          -----

    Distributable cash flow                        $20,159        $14,584
                                                   =======        =======

    *  We expensed the $2.5 million finder's fee associated with our
    joint venture agreement with Plains that closed in March 2009.   As
    these costs directly relate to our interest in the new joint venture
    pipeline and are similar to expansion capital expenditures, we have
    added back these costs to arrive at distributable cash flow.
    ** 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.


                                      March    December
                                       31,        31,
                                        2010        2009
    Balance Sheet  Data                 (In thousands)

    Cash and cash equivalents        $16,609      $2,508
    Working capital                  $18,141      $4,404
    Total assets                    $660,689    $616,845
    Long-term debt(5)               $503,393    $390,827
    Total equity(6)                 $126,492    $193,864

    (5)  Includes $171 million and $206 million of credit agreement
    advances at March 31, 2010 and December 31, 2009, respectively.

    (6)  As a master limited partnership, we distribute our available
    cash, which historically has exceeded our net income 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.  Additionally, if the assets transferred to us upon our
    initial public offering in 2004, the intermediate pipelines
    purchased from Holly in 2005 and the assets purchased from Holly in
    2009 and March 2010 had been acquired from third parties, our
    acquisition cost in excess of Holly's basis in the transferred
    assets of $216.2 million would have been recorded as increases to
    our properties and equipment and intangible assets instead of
    decreases to partners' equity.

SOURCE Holly Energy Partners, L.P.


Source: newswire



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