July 28, 2011

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

DALLAS, July 28, 2011 /PRNewswire/ -- Holly Energy Partners, L.P. ("HEP" or the "Partnership") (NYSE: HEP) today reported financial results for the second quarter of 2011. For the quarter, HEP announced its 27th consecutive distribution increase on July 27, 2011, raising the quarterly distribution from $0.855 to $0.865, representing a 5% increase over the distribution for the second quarter of 2010.

Net income for the second quarter was $19 million ($0.69 per basic and diluted limited partner unit) compared to $13.4 million ($0.48 per basic and diluted limited partner unit), an increase $5.6 million, or 42% over the second quarter of 2010. This increase in overall earnings is due principally to an increase in deferred revenue realized and increased third-party refined product pipeline shipments. For the quarter, distributable cash flow was $21.4 million, down $1.3 million, or 6% compared to second quarter of 2010. Increased maintenance costs and maintenance capital expenditures, which are typically overweighted in the second and third quarters [due to favorable weather conditions], were the main contributors to the decrease in distributable cash flow.

Commenting on the second quarter of 2011, Matt Clifton, Chairman of the Board, Chief Executive Officer and President stated, "For the quarter, EBITDA was $35.5 million, an increase of $4.8 million or 16% over last year's second quarter. Although we realized strong earnings and EBITDA, our distributable cash flow was lower than that of the prior year's second quarter. Distributable cash flow was reduced in the current period due to the timing of maintenance capital expenditures and to production that was below targeted levels at HollyFrontier's Navajo refinery. Refinery utilization increased throughout the quarter, and the Navajo refinery is currently running at planned rates.

"The interconnect pipeline project at HollyFrontier's Tulsa refinery is on track for completion in late summer. We are finalizing terms to provide throughput services under a long-term service agreement with HollyFrontier. Additionally, HollyFrontier's UNEV Pipeline is expected to be completed later this year. These projects, as well as other potential drop-down opportunities with HollyFrontier, should provide further growth in our distributable cash flow, asset base and geographic footprint," Clifton said.

Second Quarter 2011 Revenue Highlights

Revenues for the quarter were $50.9 million, a $5.5 million increase compared to the second quarter of 2010. The overall increase was due to a $3.8 million increase in previously deferred revenue realized combined with an overall increase in pipeline shipments. Overall pipeline volumes were up 7% from the second quarter of 2010 due mainly to an increase in third-party refined product pipeline shipments.

  • Revenues from our refined product pipelines were $23.6 million, an increase of $5.1 million including a $3.6 million increase in previously deferred revenue realized. Shipments increased to an average of 142.6 thousand barrels per day ("mbpd") compared to 133.3 mbpd for the second quarter of 2010.
  • Revenues from our intermediate pipelines were $5.1 million, an increase of $0.1 million. This reflects a $0.2 million increase in previously deferred revenue realized, partially offset by a decrease in intermediate pipeline shipments. Shipments averaged 84.2 mbpd compared to 86.1 mbpd for the second quarter of 2010.
  • Revenues from our crude pipelines were $9.6 million, a decrease of $0.1 million, on shipments averaging 160.6 mbpd compared to 141.3 mbpd for the second quarter of 2010. Although shipments were up, we did not realize higher revenues in the current year due to higher minimum revenue commitments fees received from HFC in 2010.
  • Revenues from terminal, tankage and loading rack fees were $12.7 million, an increase of $0.4 million compared to the second quarter of 2010.

Revenues for the three months ended June 30, 2011 include the recognition of $5.5 million of prior shortfalls billed to shippers in 2010, as they did not meet their minimum volume commitments within the contractual make-up period. This includes $2.4 million of third-party shortfalls billed in the third and fourth quarters of 2010 as a result of an amendment to a transportation agreement in June 2011. As of June 30, 2011, deferred revenue in our consolidated balance sheet was $5.3 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 contractual make-up period.

Six Months Ended June 30, 2011 Revenue Highlights

Revenues for the six months ended June 30, 2011 were $96 million, a $9.8 million increase compared to the same period of 2010. This was due to an overall increase in pipeline shipments, revenues attributable to our March 2010 asset acquisitions and a $4.9 million increase in previously deferred revenue realized. Overall pipeline volumes were up 3% from the same period of 2010 due to an increase in third-party refined product pipeline shipments that was partially offset by decreased affiliate pipeline shipments.

Related-party pipeline and throughput volumes were down during the current year-to-date period as a result of downtime at HollyFrontier's Navajo refinery following a plant-wide power outage in late January 2011 and subsequent delay in restoring production to planned levels.

  • Revenues from our refined product pipelines were $42.6 million, an increase of $7.2 million including a $5.3 million increase in previously deferred revenue realized. Shipments averaged 134.2 mbpd compared to 128.8 mbpd for the first six months of 2010.
  • Revenues from our intermediate pipelines were $9.7 million, a decrease of $1.1 million including a $0.4 million decrease in previously deferred revenue realized. Shipments averaged 76.5 mbpd compared to 82.6 mbpd for the six months ended June 30, 2010.
  • Revenues from our crude pipelines were $18.9 million, a decrease of $0.2 million, on shipments averaging 148.5 mbpd compared to 138.1 mbpd for the six months ended June 30, 2010. Although shipments were up, we did not realize higher revenues in the current year due to higher minimum revenue commitments fees received from HFC in 2010.
  • Revenues from terminal, tankage and loading rack fees were $24.7 million, an increase of $3.8 million compared to the six months ended June 30, 2010, reflecting revenues attributable to our Tulsa storage and rack facilities acquired from HollyFrontier in March 2010.

Revenues for the six months ended June 30, 2011 include the recognition of $9.1 million of prior shortfalls billed to shippers in 2010, as they did not meet their minimum volume commitments within the contractual make-up period.

Cost and Expense Highlights

Operating costs and expenses were $23.7 million and $45.5 million for the three and six months ended June 30, 2011, respectively, representing an increase of $0.7 million and a decrease of $0.4 million over the respective periods of 2010. Operating costs for the second quarter of 2011 reflect an increase in maintenance costs over the same period of 2010 that was partially offset by a decrease in professional fees. The year-to-date decrease in operating costs and expenses is due primarily to lower professional fees during the current year.

Additionally, interest expense was $8.7 million and $17.3 million for the three and six months ended June 30, 2011, respectively, representing a decrease of $0.8 million and an increase of $0.2 million over the respective periods of 2010. This reflects interest on year-over-year increases in outstanding debt, net of $1.1 million in costs attributable to the partial settlement of an interest rate swap during the three months ended June 30, 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=81146.

An audio archive of this webcast will be available using the above noted link through August 10, 2011.

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 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.

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 100,000 barrels per stream day ("bpsd") refinery located in Artesia, New Mexico, a 125,000 bpsd refinery in Tulsa, Oklahoma, a 31,000 bpsd refinery in Woods Cross, Utah, a 135,000 bpsd refinery located in El Dorado, Kansas, and a 52,000 bpd refinery located in Cheyenne, Wyoming. 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 34% 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," "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 HollyFrontier 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 six months ended June 30, 2011 and 2010.



                                      Three Months Ended            Change
                                      ------------------             from
                                           June 30,
                                           --------
                                       2011           2010           2010
                                       ----           ----           ----
                                        (In thousands, except per unit
                                                     data)
    Revenues
    Pipelines:
       Affiliates - refined product
        pipelines                   $11,689        $12,067          $(378)
       Affiliates - intermediate
        pipelines                     5,069          4,964            105
       Affiliates - crude pipelines   9,624          9,728           (104)
                                      -----          -----           ----
                                     26,382         26,759           (377)
       Third parties - refined
        product pipelines            11,906          6,455          5,451
                                     ------          -----          -----
                                     38,288         33,214          5,074
    Terminals and loading racks:
       Affiliates                    10,757         10,320            437
       Third parties                  1,895          1,949            (54)
                                      -----          -----            ---
                                     12,652         12,269            383
                                     ------         ------            ---
    Total revenues                   50,940         45,483          5,457

    Operating costs and expenses
       Operations                    14,366         13,495            871
       Depreciation and
        amortization                  7,713          7,591            122
       General and administrative     1,573          1,913           (340)
                                      -----          -----           ----
                                     23,652         22,999            653
                                     ------         ------            ---

    Operating income                 27,288         22,484          4,804

    Equity in earnings of SLC
     Pipeline                           467            544            (77)
    Interest income                       -              2             (2)
    Interest expense, including
     amortization                    (8,724)        (9,549)           825
                                     ------         ------            ---
                                     (8,257)        (9,003)           746
                                     ------         ------            ---

    Income before income taxes       19,031         13,481          5,550

    State income tax                    (18)           (46)            28
                                        ---            ---            ---

    Net income                       19,013         13,435          5,578

    Less general partner
     interest in net income,
     including incentive
     distributions (1)                3,847          2,909            938
                                      -----          -----            ---

    Limited partners' interest
     in net income                  $15,166        $10,526         $4,640
                                    =======        =======         ======

    Limited partners' earnings
     per unit - basic and
     diluted (1)                      $0.69          $0.48          $0.21
                                      =====          =====          =====

    Weighted average limited
     partners' units outstanding     22,079         22,079              -
                                     ======         ======            ===
    EBITDA (2)                      $35,468        $30,619         $4,849
                                    =======        =======         ======
    Distributable cash flow (3)     $21,421        $22,673        $(1,252)
                                    =======        =======        =======

    Volumes (bpd)
    Pipelines:
       Affiliates - refined product
        pipelines                    90,984         98,464         (7,480)
       Affiliates - intermediate
        pipelines                    84,201         86,140         (1,939)
       Affiliates - crude pipelines 160,648        141,263         19,385
                                    -------        -------         ------
                                    335,833        325,867          9,966
       Third parties - refined
        product pipelines            51,627         34,844         16,783
                                     ------         ------         ------
                                    387,460        360,711         26,749
    Terminals and loading racks:
       Affiliates                   182,394        186,515         (4,121)
       Third parties                 42,694         37,902          4,792
                                     ------         ------          -----
                                    225,088        224,417            671
                                    -------        -------            ---
    Total for pipelines and
     terminal assets (bpd)          612,548        585,128         27,420
                                    =======        =======         ======




                                       Six Months Ended             Change
                                       ----------------              from
                                           June 30,
                                           --------
                                       2011           2010           2010
                                       ----           ----           ----
                                        (In thousands, except per unit
                                                     data)
    Revenues
    Pipelines:
       Affiliates - refined product
        pipelines                   $21,547        $23,547        $(2,000)
       Affiliates - intermediate
        pipelines                     9,702         10,756         (1,054)
       Affiliates - crude pipelines  18,945         19,133           (188)
                                     ------         ------           ----
                                     50,194         53,436         (3,242)
       Third parties - refined
        product pipelines            21,061         11,859          9,202
                                     ------         ------          -----
                                     71,255         65,295          5,960
    Terminals and loading racks:
       Affiliates                    21,052         17,240          3,812
       Third parties                  3,650          3,644              6
                                      -----          -----            ---
                                     24,702         20,884          3,818
                                     ------         ------          -----
    Total revenues                   95,957         86,179          9,778

    Operating costs and expenses
       Operations                    27,162         26,555            607
       Depreciation and
        amortization                 15,353         14,801            552
       General and administrative     2,936          4,476         (1,540)
                                      -----          -----         ------
                                     45,451         45,832           (381)
                                     ------         ------           ----

    Operating income                 50,506         40,347         10,159

    Equity in earnings of SLC
     Pipeline                         1,207          1,025            182
    Interest income                       -              5             (5)
    Interest expense, including
     amortization                   (17,273)       (17,093)          (180)
                                    -------        -------           ----
    Other                               (12)            (7)            (5)
                                        ---            ---            ---
                                    (16,078)       (16,070)            (8)
                                    -------        -------            ---

    Income before income taxes       34,428         24,277         10,151

    State income tax                   (246)          (140)          (106)
                                       ----           ----           ----

    Net income                       34,182         24,137         10,045

    Less general partner
     interest in net income,
     including incentive
     distributions (1)                7,409          5,555          1,854
                                      -----          -----          -----

    Limited partners' interest
     in net income                  $26,773        $18,582         $8,191
                                    =======        =======         ======

    Limited partners' earnings
     per unit - basic and
     diluted (1)                      $1.21          $0.84          $0.37
                                      =====          =====          =====

    Weighted average limited
     partners' units outstanding     22,079         22,079              -
                                     ======         ======            ===
    EBITDA (2)                      $67,054        $56,166        $10,888
                                    =======        =======        =======
    Distributable cash flow (3)     $42,193        $42,831          $(638)
                                    =======        =======          =====

    Volumes (bpd)
    Pipelines:
       Affiliates - refined product
        pipelines                    84,139         95,937        (11,798)
       Affiliates - intermediate
        pipelines                    76,452         82,649         (6,197)
       Affiliates - crude pipelines 148,520        138,094         10,426
                                    -------        -------         ------
                                    309,111        316,680         (7,569)
       Third parties - refined
        product pipelines            50,086         32,850         17,236
                                     ------         ------         ------
                                    359,197        349,530          9,667
    Terminals and loading racks:
       Affiliates                   170,230        175,218         (4,988)
       Third parties                 41,532         36,381          5,151
                                     ------         ------          -----
                                    211,762        211,599            163
                                    -------        -------            ---
    Total for pipelines and
     terminal assets (bpd)          570,959        561,129          9,830
                                    =======        =======          =====



          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.  For the three months ended June 30, 2011 and
          2010, general partner incentive distributions were $3.5 million
          and $2.7 million, respectively. For the six months ended June
          30, 2011 and 2010, the distributions were $6.9 million and $5.2
          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
    (1)   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.  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
    (2)   with financial covenants.

      Set forth below is our calculation of EBITDA.



                         Three Months Ended            Six Months Ended
                         ------------------            ----------------
                              June 30,                     June 30,
                              --------                     --------
                            2011        2010           2011        2010
                            ----        ----           ----        ----
                                         (In thousands)

    Net income           $19,013     $13,435        $34,182     $24,137

    Add (subtract):
     Interest
      expense              8,419       8,209         16,678      14,095
     Amortization of
      discount and
      deferred               305         264            595         458
          debt issuance
           costs
     Increase in
      interest
      expense -
      change in                -       1,076              -       2,540
          fair value of
           interest rate
           swaps and
        swap settlement
         costs
      Interest income          -          (2)             -          (5)
      State income
       tax                    18          46            246         140
      Depreciation
       and
       amortization        7,713       7,591         15,353      14,801
                           -----       -----         ------      ------

    EBITDA               $35,468     $30,619        $67,054     $56,166
                         =======     =======        =======     =======



          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 and maintenance capital expenditures.
          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
    (3)   performance of our assets and the cash our business is generating.

      Set forth below is our calculation of distributable cash flow.



                          Three Months Ended            Six Months Ended
                          ------------------            ----------------
                               June 30,                     June 30,
                               --------                     --------
                             2011        2010           2011        2010
                             ----        ----           ----        ----
                                          (In thousands)

    Net income            $19,013     $13,435        $34,182     $24,137

    Add (subtract):
    Depreciation and
     amortization           7,713       7,591         15,353      14,801
    Amortization of
     discount and             305         264            595         458
         deferred debt
          issuance costs
    Increase in
     interest expense
     -  change                  -       1,076              -       2,540
       in fair value of
        interest rate
        swaps and  swap
        settlement costs
    Equity in excess
     cash flows over          308         174            314         352
          earnings of SLC
           Pipeline
    Increase
     (decrease) in
     deferred revenue      (4,014)      1,414         (5,118)      2,521
    Maintenance
     capital
     expenditures*         (1,904)     (1,281)        (3,133)     (1,978)
                           ------      ------         ------      ------
    Distributable cash
     flow                 $21,421     $22,673        $42,193     $42,831
                          =======     =======        =======     =======



         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.



                                            December
                              June 30,         31,
                                    2011         2010
    Balance Sheet  Data            (In thousands)

    Cash and cash equivalents     $1,402         $403
    Working capital deficit      $(2,026)     $(7,758)
    Total assets                $651,151     $643,273
    Long-term debt              $518,818     $491,648
    Partners' equity (4)         $99,947     $109,372



          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 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 $218 million would have been recorded
          as increases to our properties and equipment and intangible assets
    (4)   instead of decreases to partners' equity.

SOURCE Holly Energy Partners, L.P.