Holly Energy Partners, L.P. Reports Third Quarter Results
DALLAS, Oct. 28 /PRNewswire-FirstCall/ — Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE: HEP) today reported financial results for the third quarter of 2010. For the quarter, distributable cash flow was $24 million, up $3.3 million, or 16% compared to third quarter of 2009. For the nine months ended September 30, 2010, distributable cash flow was $66.8 million, up $15.1 million or 29% compared to the same period of 2009. Based on these results, HEP announced a distribution increase on October 26, 2010, raising the quarterly distribution from $0.825 to $0.835 per unit, representing a 5% increase over the distribution for the third quarter of 2009.
For the quarter, income from continuing operations was $16.3 million ($0.59 per basic and diluted limited partner unit) compared to $15.5 million ($0.73 per basic and diluted limited partner unit) for the third quarter of 2009. Net income was $16.3 million ($0.59 per basic and diluted limited partner unit) versus $16.5 million ($0.78 per basic and diluted limited partner unit) for the third quarter of 2009, which included Rio Grande discontinued operations. Excluding discontinued operations, the slight increase in overall earnings is due principally to contributions from our December 2009 and March 2010 asset acquisitions, partially offset by a decrease in realized deferred revenue, lower shipment volumes and increased interest costs.
For the current nine month period, income from continuing operations was $40.4 million ($1.43 per basic and diluted limited partner unit) compared to $34.3 million ($1.66 per basic and diluted limited partner unit) for the same nine month period of 2009. Net income was $40.4 million ($1.43 per basic and diluted limited partner unit) versus $38.4 million ($1.89 per basic and diluted limited partner unit) for the first nine months of 2009.
Commenting on the third quarter of 2010, Matt Clifton, Chairman of the Board and Chief Executive Officer stated, “The third quarter generated solid financial results as distributable cash flow and EBITDA again reached new quarterly highs. For the quarter, increased distributable cash flow over the same period of 2009 allowed us to declare our 24th consecutive distribution increase. EBITDA was $32 million, an increase of $2.1 million or 7% over last year’s third quarter, and for the current nine month period, EBITDA was $88.2 million, an increase of $13.3 million or 18% over last year’s respective period, reflecting earnings contributions from our 2009 and March 2010 asset acquisitions. Although shipments on our pipelines did not meet targeted levels, we are pleased with these operating results.”
“Looking forward, we will continue to explore opportunities that should provide further growth in our distributable cash flow, asset base and geographic footprint,” Clifton said.
Third Quarter 2010 Revenue Highlights
Total revenues from continuing operations for the quarter were $46.5 million, a $5.7 million increase compared to the third quarter of 2009. This was due to revenues attributable to our December 2009 and March 2010 asset acquisitions, partially offset by a $3.4 million decrease in previously deferred revenue realized and a decrease in pipeline shipments. The small decrease in affiliate pipeline shipments reflects slightly lower run rates at Holly’s Navajo refinery during the third quarter due to the impact of unscheduled downtime of certain operating units.
- Revenues from our refined product pipelines were $19.6 million, a decrease of $3.2 million. This decrease is primarily due to a $3.2 million decrease in previously deferred revenue realized. Volumes shipped on our refined product pipelines averaged 135.2 thousand barrels per day (“mbpd”) compared to 142.8 mbpd for the third quarter of 2009.
- Revenues from our intermediate pipelines were $4.9 million, a decrease of $0.5 million, on shipments averaging 83.2 mbpd compared to 88.1 mbpd for the third quarter of 2009. This includes a $0.2 million decrease in previously deferred revenue realized.
- Revenues from our crude pipelines were $9.8 million, an increase of $2.2 million. This increase is primarily due to $2.3 million in revenues attributable to our Roadrunner Pipeline agreement entered into in December 2009. Volumes shipped on our crude pipelines averaged 143.6 mbpd compared to 143.9 mbpd for the third quarter of 2009.
- Revenues from terminal, tankage and loading rack fees were $12.2 million, an increase of $7.2 million compared to the third quarter of 2009. This increase includes $7.1 million in revenues attributable to volumes transferred and stored at our Tulsa storage and rack facilities.
Revenues from continuing operations for the three months ended September 30, 2010 include the recognition of $1.6 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 September 30, 2010, deferred revenue in our consolidated balance sheet was $11.7 million. Such deferred revenue will be recognized in earnings either as payment for shipments in excess of guaranteed levels or when shipping rights expire unused over the next four quarters.
Nine Months Ended September 30, 2010 Revenue Highlights
Total revenues from continuing operations for the nine months were $132.7 million, a $24.6 million increase compared to the same period of 2009. This was due to our recent asset acquisitions and higher tariffs on affiliate shipments, partially offset by an $8.1 million decrease in previously deferred revenue realized. On a year-to-date basis, overall pipeline shipments were up 7%, reflecting increased affiliate 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, partially offset by a decrease in third-party shipments. Additionally, prior year affiliate shipments reflect lower first quarter volumes as a result of production downtime during a major maintenance turnaround of the Navajo refinery during the first quarter of 2009.
- Revenues from our refined product pipelines were $55 million, a decrease of $7.3 million. This decrease is primarily due to a $9.1 million decrease in previously deferred revenue realized. Volumes shipped on our refined product pipelines averaged 130.9 mbpd compared to 131.1 mbpd for the first nine months of 2009, reflecting a decline in third-party shipments, offset by an increase in affiliate shipments.
- Revenues from our intermediate pipelines were $15.7 million, an increase of $4.2 million, on shipments averaging 82.8 mbpd compared to 64.5 mbpd for the nine months ended September 30, 2009. This increase is primarily due to volumes shipped on our 16-inch intermediate pipeline combined with a $1 million increase in previously deferred revenue realized.
- Revenues from our crude pipelines were $28.9 million, an increase of $7.7 million, on shipments averaging 140 mbpd compared to 136.3 mbpd for the nine months ended September 30, 2009. This increase is primarily due to $6.9 million in revenues attributable to our Roadrunner Pipeline agreement.
- Revenues from terminal, tankage and loading rack fees were $33.1 million, an increase of $20 million compared to the nine months ended September 30, 2009. This increase includes $19 million in revenues attributable to volumes transferred and stored at our Tulsa storage and rack facilities.
Our revenues from continuing operations for the nine months ended September 30, 2010 include the recognition of $5.7 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.
Cost and Expense Highlights
Operating costs and expenses were $22.4 million and $68.2 million for the three and nine months ended September 30, 2010, respectively, representing increases of $2.8 million and $11.9 million compared to the same periods of 2009. These increases were due to costs attributable to our recent asset acquisitions, higher year-to-date throughput volumes on our heritage pipelines, early 2010 transaction related expenses, and higher depreciation, maintenance and payroll expense.
Additionally, interest expense was $8.4 million and $25.5 million for the three and nine months ended September 30, 2010, respectively, representing increases of $2 million and $9.3 million compared to the same periods of 2009. These increases reflect interest on our 8.25% senior notes issued in March 2010 and costs of $1.1 million from a partial settlement of an interest rate swap in the second quarter of 2010.
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=73286.
An audio archive of this webcast will be available using the above noted link through November 11, 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 and the nine months ended September
30, 2010 and 2009.
Three Months Ended
Change
------------------ from
September 30,
-------------
2010 2009 2009
---- ---- ----
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates - refined
product pipelines $12,340 $12,267 $73
Affiliates -
intermediate
pipelines 4,917 5,370 (453)
Affiliates - crude
pipelines 9,774 7,563 2,211
----- ----- -----
27,031 25,200 1,831
Third parties -
refined product
pipelines 7,277 10,552 (3,275)
----- ------ ------
34,308 35,752 (1,444)
Terminals and loading
racks:
Affiliates 10,282 3,159 7,123
Third parties 1,959 1,894 65
----- ----- ---
12,241 5,053 7,188
------ ----- -----
Total revenues 46,549 40,805 5,744
Operating costs and
expenses:
Operations 13,632 11,103 2,529
Depreciation and
amortization 7,237 6,580 657
General and
administrative 1,508 1,848 (340)
----- ----- ----
22,377 19,531 2,846
------ ------ -----
Operating income 24,172 21,274 2,898
Equity in earnings of
SLC Pipeline 570 711 (141)
Interest income 1 2 (1)
Interest expense,
including
amortization (8,417) (6,418) (1,999)
Other income 9 - 9
--- --- ---
(7,837) (5,705) (2,132)
------ ------ ------
Income from continuing
operations before
income taxes 16,335 15,569 766
State income tax (76) (100) 24
--- ---- ---
Income from continuing
operations 16,259 15,469 790
Income from
discontinued
operations, net of
noncontrolling - 1,070 (1,070)
interest of $269 (1) --- ----- ------
Net income 16,259 16,539 (280)
Less general partner
interest in net
income, including
incentive
distributions (2) 3,172 2,022 1,150
----- ----- -----
Limited partners'
interest in net
income $13,087 $14,517 $(1,430)
======= ======= =======
Limited partners'
earnings per unit -
basic and diluted:
(2)
Income from continuing
operations $0.59 $0.73 $(0.14)
Income from
discontinued
operations - 0.05 (0.05)
--- ==== -----
Net income $0.59 $0.78 $(0.19)
===== ===== ======
Weighted average
limited partners'
units outstanding 22,079 18,520 3,559
====== ====== =====
EBITDA (3) $31,988 $29,888 $2,100
======= ======= ======
Distributable cash
flow (4) $23,969 $20,678 $3,291
======= ======= ======
Volumes from
continuing operations
(bpd) (1)
Pipelines:
Affiliates - refined
product pipelines 93,194 98,987 (5,793)
Affiliates -
intermediate
pipelines 83,227 88,053 (4,826)
Affiliates - crude
pipelines 143,617 143,902 (285)
------- ------- ----
320,038 330,942 (10,904)
Third parties -
refined product
pipelines 41,967 43,858 (1,891)
------ ------ ------
362,005 374,800 (12,795)
Terminals and loading
racks:
Affiliates 183,312 122,413 60,899
Third parties 43,633 44,459 (826)
------ ------ ----
226,945 166,872 60,073
------- ------- ------
Total for pipelines
and terminal assets
(bpd) 588,950 541,672 47,278
======= ======= ======
Nine Months Ended
Change
----------------- from
September 30,
-------------
2010 2009 2009
---- ---- ----
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates - refined
product pipelines $35,887 $31,186 $4,701
Affiliates -
intermediate
pipelines 15,673 11,438 4,235
Affiliates - crude
pipelines 28,907 21,215 7,692
------ ------ -----
80,467 63,839 16,628
Third parties -
refined product
pipelines 19,136 31,125 (11,989)
------ ------ -------
99,603 94,964 4,639
Terminals and loading
racks:
Affiliates 27,522 7,907 19,615
Third parties 5,603 5,265 338
----- ----- ---
33,125 13,172 19,953
------ ------ ------
Total revenues 132,728 108,136 24,592
Operating costs and
expenses:
Operations 40,187 32,076 8,111
Depreciation and
amortization 22,038 19,209 2,829
General and
administrative 5,984 4,979 1,005
----- ----- -----
68,209 56,264 11,945
------ ------ ------
Operating income 64,519 51,872 12,647
Equity in earnings of
SLC Pipeline 1,595 1,309 286
Interest income 6 10 (4)
Interest expense,
including
amortization (25,510) (16,225) (9,285)
Other income 2 65 (63)
SLC Pipeline
acquisition costs - (2,500) 2,500
--- ------ -----
(23,907) (17,341) (6,566)
------- ------- ------
Income from continuing
operations before
income taxes 40,612 34,531 6,081
State income tax (216) (266) 50
---- ---- ---
Income from continuing
operations 40,396 34,265 6,131
Income from
discontinued
operations, net of
noncontrolling
interest of 1,191 (1) - 4,105 (4,105)
--- ----- ------
Net income 40,396 38,370 2,026
Less general partner
interest in net
income, including
incentive
distributions (2) 8,727 5,163 3,564
----- ----- -----
-
Limited partners'
interest in net
income $31,669 $33,207 $(1,538)
======= ======= =======
Limited partners'
earnings per unit -
basic and diluted:
(2)
Income from continuing
operations $1.43 $1.66 $(0.23)
Income from
discontinued
operations - 0.23 (0.23)
--- ==== -----
Net income $1.43 $1.89 $(0.46)
===== ===== ======
Weighted average
limited partners'
units outstanding 22,079 17,546 4,533
====== ====== =====
EBITDA (3) $88,154 $74,831 $13,323
======= ======= =======
Distributable cash
flow (4) $66,800 $51,677 $15,123
======= ======= =======
Volumes from
continuing operations
(bpd) (1)
Pipelines:
Affiliates - refined
product pipelines 95,013 85,489 9,524
Affiliates -
intermediate
pipelines 82,844 64,494 18,350
Affiliates - crude
pipelines 139,955 136,315 3,640
------- ------- -----
317,812 286,298 31,514
Third parties -
refined product
pipelines 35,923 45,647 (9,724)
------ ------ ------
353,735 331,945 21,790
Terminals and loading
racks:
Affiliates 177,946 106,969 70,977
Third parties 38,825 42,873 (4,048)
------ ------ ------
216,771 149,842 66,929
------- ------- ------
Total for pipelines
and terminal assets
(bpd) 570,506 481,787 88,719
======= ======= ======
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
(1) volumes attributable to Rio Grande.
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 and the nine months ended
September 30, 2010 were $2.9 million and $8.1 million. For the
three and the nine months ended September 30, 2009 the
distributions were $1.7 million and $4.5 million,
respectively. Net income attributable to the limited partners
is divided by the weighted average limited partner units
outstanding in computing the limited partners' per unit
(2) interest in net income.
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 also is used by our
management for internal analysis and as a basis for compliance
(3) with financial covenants.
Set forth below is our calculation of EBITDA.
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2010 2009 2010 2009
---- ---- ---- ----
(In thousands)
Income from
continuing
operations $16,259 $15,469 $40,396 $34,265
Add (subtract):
Interest expense 8,135 5,314 22,230 15,396
Amortization of
discount and
deferred
debt issuance
costs 282 176 740 529
Increase in
interest expense
- change in - 928 2,540 300
fair value of
interest rate
swaps and
swap settlement
costs
Interest income (1) (2) (6) (10)
State income tax 76 100 216 266
Depreciation and
amortization 7,237 6,580 22,038 19,209
EBITDA from
discontinued
operations - 1,323 - 4,876
--- ----- --- -----
EBITDA $31,988 $29,888 $88,154 $74,831
======= ======= ======= =======
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. It also is 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
(4) is generating.
Set forth below is our calculation of distributable cash flow.
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2010 2009 2010 2009
---- ---- ---- ----
(In thousands)
Income from
continuing
operations $16,259 $15,469 $40,396 $34,265
Add (subtract):
Depreciation and
amortization 7,237 6,580 22,038 19,209
Amortization of
discount and
deferred 176
debt issuance costs 282 740 529
Increase in
interest expense -
change - 2,540
in fair value of
interest rate
swaps and 928 300
swap settlement
costs
Equity in excess
cash flows over 167
earnings of SLC
Pipeline 173 525 387
Increase (decrease)
in deferred
revenue 758 (3,407) 3,279 (8,076)
SLC Pipeline
acquisition costs* - - - 2,500
Maintenance capital
expenditures** (740) (545) (2,718) (2,262)
Distributable cash
flow from - 1,310 - 4,825
discontinued
operations --- ----- --- -----
Distributable cash
flow $23,969 $20,678 $66,800 $51,677
======= ======= ======= =======
We expensed the $2.5 million finder's fee associated with our joint
venture agreement with Plains that closed in March 2009. These
costs directly relate to our interest in the new joint venture
pipeline and are similar to expansion capital expenditures;
accordingly, 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.
September
30, December 31,
2010 2009
---- ----
Balance Sheet Data (In thousands)
Cash and cash equivalents $706 $2,508
Working capital (5) $(155,392) $4,404
Total assets $634,584 $616,845
Long-term debt (6) $332,564 $390,827
Total equity (7) $110,948 $193,864
Our credit agreement expires in August 2011; therefore, working
capital at September 30, 2010 reflects $157 million of credit
agreement borrowings that are classified as current
liabilities. We intend to renew the credit agreement prior to
expiration and to continue to finance the outstanding credit
agreement balance, which we will then reclassify as long-term
debt. Excluding the $157 million credit agreement borrowings,
(5) working capital was $1.6 million at September 30, 2010.
Includes $206 million of credit agreement advances at December
(6) 31, 2009.
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 $217.9
million would have been recorded as increases to our
properties and equipment and intangible assets instead of
(7) decreases to partners' equity.
SOURCE Holly Energy Partners, L.P.
