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

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

DALLAS--(BUSINESS WIRE)-- Holly Energy Partners, L.P. ("HEP" or the "Partnership") (NYS: HEP) today reported financial results for the third quarter of 2012. For the quarter, distributable cash flow was $40.4 million, up $14.7 million, or 57% compared to the third quarter of 2011. Based on these results, HEP announced its 32nd consecutive distribution increase on October 26, 2012, raising the quarterly distribution from $0.91 to $0.925, representing a 6% increase over the distribution for the third quarter of 2011.

Net income attributable to Holly Energy Partners for the third quarter was $24.5 million ($0.68 per basic and diluted limited partner unit) compared to $16.7 million ($0.58 per basic and diluted limited partner unit) for the third quarter of 2011. This increase in earnings is due principally to increased pipeline shipments, earnings attributable to our November 2011 asset acquisition and annual tariff increases. These factors were offset partially by increased operating costs and expenses and higher interest expense.


Commenting on the third quarter of 2012, Matt Clifton, Chairman of the Board and Chief Executive Officer stated, "We are extremely pleased with our financial results, particularly with the record levels of our distributable cash flow and EBITDA. EBITDA for the third quarter was $49.8 million, an increase of $16.5 million, or 50%, over last year's third quarter."

"Increased domestic oil production has positively impacted the gross margins of the refineries we serve throughout our Midcontinent, Rocky Mountain and Southwest asset base. This has given our refinery shippers strong incentives to increase their production levels, which has correspondingly raised our pipeline and terminal utilization rates. Additionally, increased oil drilling activity near our crude oil gathering pipelines in Southeast New Mexico has continued to raise the amount of oil we gather and transport on our New Mexico crude oil pipeline assets. These positive industry fundamentals have increased the financial contribution from our heritage assets while our tankage and terminals acquisition in November 2011 and our UNEV pipeline acquisition in July 2012 further fueled significant additions to our year over year growth in distributable cash flow," Clifton said.

Third Quarter 2012 Revenue Highlights

Revenues for the quarter were $72.5 million, a $23.5 million increase compared to the third quarter of 2011. The revenue increase was due to increased pipeline shipments, revenues attributable to our July 2012 and November 2011 acquisitions and the effect of annual tariff increases. Overall pipeline volumes were up 23% compared to the third quarter of 2011.

  • Revenues from our refined product pipelines were $25.9 million, an increase of $6.9 million primarily due to increased refined pipeline shipments, revenues attributable to UNEV and annual tariff increases. Shipments averaged 180.4 thousand barrels per day ("mbpd") compared to 140.3 mbpd for the third quarter of 2011.

  • Revenues from our intermediate pipelines were $7.3 million, an increase of $1.4 million, on shipments averaging 132.2 mbpd compared to 91.8 mbpd for the third quarter of 2011. This includes $1.3 million in revenues attributable to our Tulsa interconnect pipelines that were placed in service in September 2011.

  • Revenues from our crude pipelines were $12.3 million, an increase of $1.5 million, on shipments averaging 187.9 mbpd compared to 175.5 mbpd for the third quarter of 2011.

  • Revenues from terminal, tankage and loading rack fees were $27.0 million, an increase of $13.7 million compared to the third quarter of 2011. This includes $12.4 million in revenues attributable to our assets acquired in November 2011 that serve HollyFrontier's El Dorado and Cheyenne refineries. Refined products terminalled in our facilities increased to an average of 325.1 mbpd compared to 227.2 mbpd for the third quarter of 2011.

Revenues for the three months ended September 30, 2012 include the recognition of $0.7 million of prior shortfalls billed to shippers in 2011, as they did not meet their minimum volume commitments within the contractual make-up period. As of September 30, 2012, deferred revenue in our consolidated balance sheet was $9.3 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.

Nine Months Ended September 30, 2012 Revenue Highlights

Revenues for the nine months ended September 30, 2012 were $207.0 million, a $62.1 million increase compared to the same period of 2011. The revenue increase was due to increased pipeline shipments, revenues attributable to our July 2012 and November 2011 acquisitions and the effect of annual tariff increases, partially offset by a $6.7 million decrease in previously deferred revenue realized. Overall pipeline volumes were up 25% compared to the same period of 2011.

  • Revenues from our refined product pipelines were $74.6 million, an increase of $13.6 million primarily due to increased refined pipeline shipments, revenues attributable to UNEV and annual tariff increases partially offset by the effects of a $7.2 million decrease in previously deferred revenue realized. Shipments averaged 166.7 mbpd compared to 136.3 mbpd for the nine months ended September 30, 2011.

  • Revenues from our intermediate pipelines were $21.1 million, an increase of $5.4 million, on shipments averaging 131.0 mbpd compared to 81.6 mbpd for the nine months ended September 30, 2011. This includes $3.7 million in revenues attributable to our Tulsa interconnect pipelines and the effects of a $0.5 million increase in previously deferred revenue realized.

  • Revenues from our crude pipelines were $33.8 million, an increase of $3.5 million, on shipments averaging 169.9 mbpd compared to 157.6 mbpd for the nine months ended September 30, 2011.

  • Revenues from terminal, tankage and loading rack fees were $77.5 million, an increase of $39.5 million compared to the nine months ended September 30, 2011. This includes $36.0 million in revenues attributable to our terminal, tankage and loading racks serving HollyFrontier's El Dorado and Cheyenne refineries. Refined products terminalled in our facilities increased to an average of 318.9 mbpd compared to 217.0 mbpd for the nine months ended September 30, 2011.

Revenues for the nine months ended September 30, 2012 include the recognition of $3.2 million of prior shortfalls billed to shippers in 2011, as they did not meet their minimum volume commitments within the contractual make-up period.

Cost and Expense Highlights

Operating costs and expenses were $35.8 million and $107.2 million for the three and the nine months ended September 30, 2012, respectively, representing increases of $8.4 million and $33.8 million over the respective periods of 2011. These increases reflect incremental operating costs and expenses attributable to UNEV and our recently acquired assets serving HollyFrontier's El Dorado and Cheyenne refineries and higher throughput levels on our legacy assets, as well as year-over-year increases in depreciation expense, maintenance service and payroll costs and professional fees.

Interest expense was $12.5 million and $34.3 million for the three and the nine months ended September 30, 2012, respectively, representing increases of $3.7 million and $8.2 million over the respective periods of 2011 due to higher year-over-year debt levels. Also, we recognized a loss of $3.0 million for the nine months ended September 30, 2012, on the early extinguishment of our $185 million 6.25% senior notes.

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=1009340.

An audio archive of this webcast will be available using the above noted link through November 15, 2012.

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, L.L.C., the owner of a Holly Energy operated refined products pipeline running from Utah to Las Vegas, Nevada, and related product terminals and a 25% interest in SLC Pipeline, L.L.C., 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 44% 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, stored and throughput 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 the nine months ended September 30, 2012 and 2011.

Three Months Ended

September 30,

Change from

2012

2011

2011

(In thousands, except per unit data)

Revenues

Pipelines:

Affiliates - refined product pipelines

$

16,350

$

12,414

$

3,936

Affiliates - intermediate pipelines

7,319

5,935

1,384

Affiliates - crude pipelines

12,306

10,846

1,460

35,975

29,195

6,780

Third parties - refined product pipelines

9,538

6,525

3,013

45,513

35,720

9,793

Terminals, tanks and loading racks:

Affiliates

24,601

11,519

13,082

Third parties

2,382

1,797

585

26,983

13,316

13,667

Total revenues

72,496

49,036

23,460

Operating costs and expenses:

Operations

21,324

16,398

4,926

Depreciation and amortization

13,044

8,916

4,128

General and administrative

1,399

2,012

(613

)

35,767

27,326

8,441

Operating income

36,729

21,710

15,019

Equity in earnings of SLC Pipeline

877

641

236

Interest expense, including amortization

(12,540

)

(8,828

)

(3,712

)

Other income

20

(20

)

(11,663

)

(8,167

)

(3,496

)

Income before income taxes

25,066

13,543

11,523

State income tax expense

(137

)

77

(214

)

Net income

24,929

13,620

11,309

Allocation of net loss attributable to Predecessors(1)

146

3,000

(2,854

)

Allocation of net loss (income) attributable to noncontrolling interests

(582

)

124

(706

)

Net income attributable to Holly Energy Partners

24,493

16,744

7,749

General partner interest in net income, including incentive distributions(2)

(5,299

)

(4,009

)

(1,290

)

Limited partners' interest in net income

$

19,194

$

12,735

$

6,459

Limited partners' earnings per unit - basic and diluted:(2)

$

0.68

$

0.58

$

0.10

Weighted average limited partners' units outstanding

28,268

22,079

6,189

EBITDA(3)

$

49,770

$

33,228

$

16,542

Distributable cash flow(4)

$

40,431

$

25,731

$

14,700

Volumes (bpd)

Pipelines:

Affiliates - refined product pipelines

114,113

96,105

18,008

Affiliates - intermediate pipelines

132,220

91,783

40,437

Affiliates - crude pipelines

187,861

175,459

12,402

434,194

363,347

70,847

Third parties - refined product pipelines

66,274

44,212

22,062

500,468

407,559

92,909

Terminals and loading racks:

Affiliates

267,638

183,987

83,651

Third parties

57,496

43,224

14,272

325,134

227,211

97,923

Total for pipelines and terminal assets (bpd)

825,602

634,770

190,832

Nine Months Ended

September 30,

Change from

2012

2011

2011

(In thousands, except per unit data)

Revenues

Pipelines:

Affiliates - refined product pipelines

$

46,726

$

33,370

$

13,356

Affiliates - intermediate pipelines

21,076

15,637

5,439

Affiliates - crude pipelines

33,844

30,296

3,548

101,646

79,303

22,343

Third parties - refined product pipelines

27,856

27,588

268

129,502

106,891

22,611

Terminals, tanks and loading racks:

Affiliates

70,695

32,571

38,124

Third parties

6,792

5,447

1,345

77,487

38,018

39,469

Total revenues

206,989

144,909

62,080

Operating costs and expenses:

Operations

61,355

43,804

17,551

Depreciation and amortization

39,899

24,627

15,272

General and administrative

5,925

4,948

977

107,179

73,379

33,800

Operating income

99,810

71,530

28,280

Equity in earnings of SLC Pipeline

2,502

1,848

654

Interest expense, including amortization

(34,269

)

(26,101

)

(8,168

)

Loss on early extinguishment of debt

(2,979

)

(2,979

)

Other expense

8

(8

)

(34,746