November 29, 2020

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

Reported net income attributable to HEP of $17.8 million or $0.17 per unit Announced quarterly distribution of $0.35 per unit Reported EBITDA of $55.3 million and Adjusted EBITDA of $86.4 million DALLAS--(BUSINESS WIRE)--Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE:HEP) today reported financial results for the third quarter of 2020. Net income attributable to HEP for the third quarter was $17.8 million ($0.17 per basic and diluted limited partner unit), compared to $82.3 million ($0.78 per basic and diluted limited partner unit) for the third quarter of 2019. The third quarter results reflect special items that collectively decreased net income attributable to HEP by a total of $29.6 million. These items include a goodwill impairment charge of $35.7 million related to our Cheyenne business unit and a $6.1 million gain related to HEP's pro-rata share of a business interruption insurance claim settlement resulting from a loss at HollyFrontier's Woods Cross Refinery. In addition, net income attributable to HEP for the third quarter of 2019 included a gain on sales-type leases of $35.2 million. Excluding these items, net income attributable to HEP for the third quarter of 2020 was $47.4 million ($0.45 per basic and diluted limited partner unit) compared to net income attributable to HEP for the third quarter of 2019 of $47.2 million ($0.45 per basis can diluted limited partner unit). Distributable cash flow was $76.9 million for the quarter, an increase of $8.1 million, or 11.7% compared to the third quarter of 2019, which was largely attributable to the Woods Cross Refinery business interruption claim. HEP declared a quarterly cash distribution of $0.35 per unit on October 22, 2020. Commenting on our 2020 third quarter results, Michael Jennings, Chief Executive Officer, stated, "HEP generated solid results in the quarter, supported by minimum volume commitment contracts across our asset base and strong third-party crude volumes." “We announced a distribution of $0.35 per unit and used excess cash to reduce leverage by continuing to pay down our revolving credit facility. Looking forward, we believe we are well positioned to deliver strong earnings and remain committed to deleveraging and returning cash to our unitholders." Project Updates Cheyenne Conversion As a result of HollyFrontier Corporation’s ("HollyFrontier") previously announced conversion of its Cheyenne Refinery to renewable diesel production, HEP and HollyFrontier have reached an agreement in principle to terminate the existing minimum volume commitments for HEP's Cheyenne assets and enter into new agreements on the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HollyFrontier's use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HollyFrontier will pay a base tariff to HEP for available crude oil storage and HollyFrontier and HEP will split any profits generated on crude oil contango opportunities, and (3) a $10 million one-time cash payment from HollyFrontier to HEP for the termination of the existing minimum volume commitment. Frontier Aspen Pipeline Expansion HEP successfully completed its binding open season for the expansion of the Frontier Aspen Pipeline. HEP expects to invest approximately $7 million in additional tankage, which will allow the transportation of an additional 10,000 barrels per day of crude oil on the Frontier Aspen Pipeline. The expansion is expected to be completed in the third quarter of 2021. Incremental shipments on the Frontier Aspen Pipeline are also expected to provide additional earnings potential for HEP’s SLC Pipeline. Navajo Tanks Growth Project HEP will build and operate four new refined product tanks with a total shell capacity of 200,000 barrels at HollyFrontier’s Navajo refinery in Artesia, New Mexico. The estimated cost of the project is $7.5 million, and it is expected to be in service in the third quarter of 2021. HollyFrontier and HEP have reached an agreement in principle for HollyFrontier to enter into a fifteen-year minimum volume commitment contract with HEP, and HollyFrontier has the option to extend for an additional five years. This additional tankage will help HollyFrontier optimize refined product deliveries out of its Navajo refinery. Impact of COVID-19 on Our Business Our business depends in large part on the demand for the various petroleum products we transport, terminal and store in the markets we serve. The COVID-19 pandemic has created destruction of demand, as well as lack of forward visibility, for refined products and crude oil transportation, and for the terminalling and storage services that we provide. Over the course of the third quarter, demand for transportation fuels showed incremental improvement over the second quarter of 2020. We expect our customers will continue to adjust refinery production levels commensurate with market demand and ultimately expect demand to return to pre-COVID-19 levels. For additional details of the impact of COVID-19 on our business, please see our Form 10-Q for the quarter ended September 30, 2020. Third Quarter 2020 Revenue Highlights Revenues for the third quarter were $127.7 million, a decrease of $8.2 million compared to the third quarter of 2019. The decrease was mainly due to a 13% reduction in overall crude and product pipeline volumes predominantly in our Southwest region. Revenues from our refined product pipelines were $28.4 million, a decrease of $4.2 million compared to the third quarter of 2019. Shipments averaged 179.6 thousand barrels per day ("mbpd") compared to 197.1 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo refinery and Delek's Big Spring refinery largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases. Revenues from our intermediate pipelines were $7.5 million, consistent with the third quarter of 2019. Shipments averaged 142.8 mbpd for the third quarter of 2020 compared to 153.5 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HFC's Navajo refinery while revenue remained relatively constant mainly due to contractual minimum volume guarantees. Revenues from our crude pipelines were $32.3 million, a decrease of $0.7 million compared to the third quarter of 2019, and shipments averaged 404.3 mbpd compared to 488.1 mbpd for the third quarter of 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas partially offset by increased volumes on our crude pipeline systems in Utah. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees. Revenues from terminal, tankage and loading rack fees were $39.0 million, a decrease of $3.4 million compared to the third quarter of 2019. Refined products and crude oil terminalled in the facilities averaged 459.3 mbpd compared to 541.6 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees. Revenues from refinery processing units were $20.4 million, an increase of $0.1 million compared to the third quarter of 2019, and throughputs averaged 62.0 mbpd compared to 75.9 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to reduced throughput for our El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic while revenue remained relatively constant mainly due to contractual minimum volume guarantees. Nine Months Ended September 30, 2020 Revenue Highlights Revenues for the nine months ended September 30, 2020, were $370.4 million, a decrease of $30.8 million compared to the nine months ended September 30, 2019. The decrease was mainly attributable to a 19% reduction in overall crude and product pipeline volumes predominantly in our Southwest and Rockies regions. Revenues from our refined product pipelines were $88.4 million, a decrease of $13.2 million compared to the nine months ended September 30, 2019. Shipments averaged 172.6 mbpd compared to 202.2 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo refinery, Delek's Big Spring refinery and our UNEV pipeline largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases. Revenues from our intermediate pipelines were $22.5 million, an increase of $0.4 million compared to the nine months ended September 30, 2019. Shipments averaged 137.8 mbpd compared to 142.0 mbpd for the nine months ended September 30, 2019. Revenues from our crude pipelines were $86.9 million, a decrease of $10.0 million compared to the nine months ended September 30, 2019. Shipments averaged 380.1 mbpd compared to 508.6 mbpd for the nine months ended September 30, 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah largely as a result of demand destruction associated with the COVID-19 pandemic. Revenues from terminal, tankage and loading rack fees were $112.8 million, a decrease of $6.3 million compared to the nine months ended September 30, 2019. Refined products and crude oil terminalled in the facilities averaged 451.0 mbpd compared to 492.1 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities. Revenues from refinery processing units were $59.9 million, a decrease of $1.6 million compared to the nine months ended September 30, 2019. Throughputs averaged 60.6 mbpd compared to 73.2 mbpd for the nine months ended September 30, 2019. The decrease in volumes was mainly due to reduced throughput for both our Woods Cross and El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic. Revenues were higher in the nine months ended September 30, 2019 due to an adjustment in revenue recognition recorded during that period; otherwise, revenues for the two nine-month periods remained relatively constant due to contractual minimum volume guarantees. Operating Costs and Expenses Highlights Operating costs and expenses were $104.2 million and $228.1 million for the three and nine months ended September 30, 2020, respectively, representing increases of $32.4 million and $25.6 million from the three and nine months ended September 30, 2019, respectively. The increases were mainly due to the goodwill impairment charge related to our Cheyenne business unit, partially offset by lower rental expenses, maintenance costs and variable costs such as electricity and chemicals associated with lower volumes. Interest expense was $14.1 million and $45.7 million for the three and nine months ended September 30, 2020, respectively, representing decreases of $4.7 million and $11.4 million over the same periods of 2019, respectively. The decreases were mainly due to market interest rate decreases under our senior secured revolving credit facility and refinancing our $500 million aggregate principal amount of 6.0% senior notes due 2024 with $500 million aggregate principal amount of 5.0% senior notes due 2028. 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.on24.com/wcc/r/2627977/792AA96920FB0C011D30448BC2901ADB An audio archive of this webcast will be available using the above noted link through November 18, 2020. 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, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas, as well as refinery processing units in Utah and Kansas. 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 owns and operates refineries located in Kansas, Oklahoma, New Mexico and Utah and markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic 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. 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. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to: the extraordinary market environment and effects of the COVID-19 pandemic, including the continuation of a material decline in demand for refined petroleum products in markets we serve; 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 and refinery processing units; the economic viability of HollyFrontier Corporation, our other customers and our joint ventures' other customers, including any refusal or inability of our or our joint ventures' customers or counterparties to perform their obligations under their contracts; the demand for refined petroleum products in markets we serve; our ability to purchase and integrate future acquired operations; our ability to complete previously announced or contemplated acquisitions; the availability and cost of additional debt and equity financing; the possibility of temporary or permanent reductions in production or shutdowns at refineries utilizing our pipelines, terminal facilities and refinery processing units, due to reasons such as infection in the workforce, in response to reductions in demand or lower gross margins due to the economic impact of the COVID-19 pandemic, and any potential asset impairments resulting from such actions; the effects of current and future government regulations and policies, including the effects of current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic; delay by government authorities in issuing permits necessary for our business or our capital projects; our and our joint venture partners' ability to complete and maintain operational efficiency in carrying out routine operations and capital construction projects; the possibility of terrorist or cyber attacks and the consequences of any such attacks; general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States; the impact of recent or proposed changes in tax laws and regulations that affect master limited partnerships; and other financial, operational 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, 2020 and 2019. Three Months Ended September 30, Change from 2020 2019 2019 (In thousands, except per unit data) Revenues Pipelines: Affiliates – refined product pipelines $ 18,619 $ 19,401 $ (782) Affiliates – intermediate pipelines 7,537 7,490 47 Affiliates – crude pipelines 20,218 21,675 (1,457) 46,374 48,566 (2,192) Third parties – refined product pipelines 9,812 13,270 (3,458) Third parties – crude pipelines 12,106 11,327 779 68,292 73,163 (4,871) Terminals, tanks and loading racks: Affiliates 34,215 37,183 (2,968) Third parties 4,821 5,271 (450) 39,036 42,454 (3,418) Refinery processing units - Affiliates 20,403 20,278 125 Total revenues 127,731 135,895 (8,164) Operating costs and expenses Operations 40,003 44,924 (4,921) Depreciation and amortization 26,190 24,121 2,069 General and administrative 2,332 2,714 (382) Goodwill impairment 35,653 — 35,653 104,178 71,759 32,419 Operating income 23,553 64,136 (40,583) Equity in earnings of equity method investments 1,316 1,334 (18) Interest expense, including amortization (14,104) (18,807) 4,703 Interest income 2,803 2,243 560 Gain on sales-type leases — 35,166 (35,166) Other income 7,465 142 7,323 (2,520) 20,078 (22,598) Income before income taxes 21,033 84,214 (63,181) State income tax benefit (expense) (34) (30) (4) Net income 20,999 84,184 (63,185) Allocation of net income attributable to noncontrolling interests (3,186) (1,839) (1,347) Net income attributable to Holly Energy Partners $ 17,813 $ 82,345 $ (64,532) Limited partners’ earnings per unit – basic and diluted $ 0.17 $ 0.78 $ (0.61) Weighted average limited partners’ units outstanding 105,440 105,440 — EBITDA(1) $ 55,338 $ 123,060 $ (67,722) Adjusted EBITDA(1) $ 86,435 $ 90,269 $ (3,834) Distributable cash flow(2) $ 76,894 $ 68,838 $ 8,056 Volumes (bpd) Pipelines: Affiliates – refined product pipelines 119,403 129,681 (10,278) Affiliates – intermediate pipelines 142,817 153,547 (10,730) Affiliates – crude pipelines 270,840 358,867 (88,027) 533,060 642,095 (109,035) Third parties – refined product pipelines 60,203 67,440 (7,237) Third parties – crude pipelines 133,487 129,222 4,265 726,750 838,757 (112,007) Terminals and loading racks: Affiliates 401,904 482,291 (80,387) Third parties 57,355 59,307 (1,952) 459,259 541,598 (82,339) Refinery processing units - Affiliates 62,016 75,857 (13,841) Total for pipelines and terminal assets (bpd) 1,248,025 1,456,212 (208,187) Nine Months Ended September 30, Change from 2020 2019 2019 (In thousands, except per unit data) Revenues Pipelines: Affiliates – refined product pipelines $ 55,004 $ 60,892 $ (5,888) Affiliates – intermediate pipelines 22,486 22,068 418 Affiliates – crude pipelines 59,922 63,447 (3,525) 137,412 146,407 (8,995) Third parties – refined product pipelines 33,360 40,652 (7,292) Third parties – crude pipelines 26,946 33,467 (6,521) 197,718 220,526 (22,808) Terminals, tanks and loading racks: Affiliates 100,711 103,852 (3,141) Third parties 12,103 15,269 (3,166) 112,814 119,121 (6,307) Refinery processing units - Affiliates 59,860 61,496 (1,636) Total revenues 370,392 401,143 (30,751) Operating costs and expenses Operations 109,721 123,045 (13,324) Depreciation and amortization 75,202 72,192 3,010 General and administrative 7,569 7,322 247 Goodwill impairment 35,653 — 35,653 228,145 202,559 25,586 Operating income 142,247 198,584 (56,337) Equity in earnings of equity method investments 5,186 5,217 (31) Interest expense, including amortization (45,650) (57,059) 11,409 Interest income 7,834 3,322 4,512 Loss on early extinguishment of debt (25,915) — (25,915) Gain on sales-type leases 33,834 35,166 (1,332) Other income (loss) 8,439 (57) 8,496 (16,272) (13,411) (2,861) Income before income taxes 125,975 185,173 (59,198) State income tax expense (110) (36) (74) Net income 125,865 185,137 (59,272) Allocation of net income attributable to noncontrolling interests (6,721) (5,920) (801) Net income attributable to Holly Energy Partners $ 119,144 $ 179,217 $ (60,073) Limited partners’ earnings per unit—basic and diluted $ 1.13 $ 1.70 $ (0.57) Weighted average limited partners’ units outstanding 105,440 105,440 — EBITDA(1) $ 232,272 $ 305,182 $ (72,910) Adjusted EBITDA(1) $ 257,711 $ 272,391 $ (14,680) Distributable cash flow(2) $ 213,058 $ 206,923 $ 6,135 Volumes (bpd) Pipelines: Affiliates – refined product pipelines 116,641 130,426 (13,785) Affiliates – intermediate pipelines 137,816 141,991 (4,175) Affiliates – crude pipelines 276,128 376,518 (100,390) 530,585 648,935 (118,350) Third parties – refined product pipelines 55,921 71,773 (15,852) Third parties – crude pipelines 103,955 132,101 (28,146) 690,461 852,809 (162,348) Terminals and loading racks: Affiliates 401,245 429,660 (28,415) Third parties 49,753 62,437 (12,684) 450,998 492,097 (41,099) Refinery processing units - Affiliates 60,573 73,178 (12,605) Total for pipelines and terminal assets (bpd) 1,202,032 1,418,084 (216,052) (1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill impairment and (iii) pipeline tariffs not included in revenues due to impacts from lease accounting for certain pipeline tariffs minus (iv) gain on sales-type leases, (v) HEP's pro-rata share of gain on business interruption insurance settlement and (vi) pipeline lease payments not included in operating costs and expenses.Contacts John Harrison, Senior Vice President and Chief Financial Officer and Treasurer Craig Biery, Vice President, Investor Relations Holly Energy Partners, L.P. 214-954-6511 Read full story here
  • Reported net income attributable to HEP of $17.8 million or $0.17 per unit
  • Announced quarterly distribution of $0.35 per unit
  • Reported EBITDA of $55.3 million and Adjusted EBITDA of $86.4 million

DALLAS–(BUSINESS WIRE)–Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE:HEP) today reported financial results for the third quarter of 2020. Net income attributable to HEP for the third quarter was $17.8 million ($0.17 per basic and diluted limited partner unit), compared to $82.3 million ($0.78 per basic and diluted limited partner unit) for the third quarter of 2019.

The third quarter results reflect special items that collectively decreased net income attributable to HEP by a total of $29.6 million. These items include a goodwill impairment charge of $35.7 million related to our Cheyenne business unit and a $6.1 million gain related to HEP's pro-rata share of a business interruption insurance claim settlement resulting from a loss at HollyFrontier's Woods Cross Refinery. In addition, net income attributable to HEP for the third quarter of 2019 included a gain on sales-type leases of $35.2 million. Excluding these items, net income attributable to HEP for the third quarter of 2020 was $47.4 million ($0.45 per basic and diluted limited partner unit) compared to net income attributable to HEP for the third quarter of 2019 of $47.2 million ($0.45 per basis can diluted limited partner unit).

Distributable cash flow was $76.9 million for the quarter, an increase of $8.1 million, or 11.7% compared to the third quarter of 2019, which was largely attributable to the Woods Cross Refinery business interruption claim. HEP declared a quarterly cash distribution of $0.35 per unit on October 22, 2020.

Commenting on our 2020 third quarter results, Michael Jennings, Chief Executive Officer, stated, "HEP generated solid results in the quarter, supported by minimum volume commitment contracts across our asset base and strong third-party crude volumes."

“We announced a distribution of $0.35 per unit and used excess cash to reduce leverage by continuing to pay down our revolving credit facility. Looking forward, we believe we are well positioned to deliver strong earnings and remain committed to deleveraging and returning cash to our unitholders."

Project Updates

Cheyenne Conversion

As a result of HollyFrontier Corporation’s ("HollyFrontier") previously announced conversion of its Cheyenne Refinery to renewable diesel production, HEP and HollyFrontier have reached an agreement in principle to terminate the existing minimum volume commitments for HEP's Cheyenne assets and enter into new agreements on the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HollyFrontier's use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HollyFrontier will pay a base tariff to HEP for available crude oil storage and HollyFrontier and HEP will split any profits generated on crude oil contango opportunities, and (3) a $10 million one-time cash payment from HollyFrontier to HEP for the termination of the existing minimum volume commitment.

Frontier Aspen Pipeline Expansion

HEP successfully completed its binding open season for the expansion of the Frontier Aspen Pipeline. HEP expects to invest approximately $7 million in additional tankage, which will allow the transportation of an additional 10,000 barrels per day of crude oil on the Frontier Aspen Pipeline. The expansion is expected to be completed in the third quarter of 2021. Incremental shipments on the Frontier Aspen Pipeline are also expected to provide additional earnings potential for HEP’s SLC Pipeline.

Navajo Tanks Growth Project

HEP will build and operate four new refined product tanks with a total shell capacity of 200,000 barrels at HollyFrontier’s Navajo refinery in Artesia, New Mexico. The estimated cost of the project is $7.5 million, and it is expected to be in service in the third quarter of 2021. HollyFrontier and HEP have reached an agreement in principle for HollyFrontier to enter into a fifteen-year minimum volume commitment contract with HEP, and HollyFrontier has the option to extend for an additional five years. This additional tankage will help HollyFrontier optimize refined product deliveries out of its Navajo refinery.

Impact of COVID-19 on Our Business

Our business depends in large part on the demand for the various petroleum products we transport, terminal and store in the markets we serve. The COVID-19 pandemic has created destruction of demand, as well as lack of forward visibility, for refined products and crude oil transportation, and for the terminalling and storage services that we provide. Over the course of the third quarter, demand for transportation fuels showed incremental improvement over the second quarter of 2020. We expect our customers will continue to adjust refinery production levels commensurate with market demand and ultimately expect demand to return to pre-COVID-19 levels. For additional details of the impact of COVID-19 on our business, please see our Form 10-Q for the quarter ended September 30, 2020.

Third Quarter 2020 Revenue Highlights

Revenues for the third quarter were $127.7 million, a decrease of $8.2 million compared to the third quarter of 2019. The decrease was mainly due to a 13% reduction in overall crude and product pipeline volumes predominantly in our Southwest region.

  • Revenues from our refined product pipelines were $28.4 million, a decrease of $4.2 million compared to the third quarter of 2019. Shipments averaged 179.6 thousand barrels per day ("mbpd") compared to 197.1 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo refinery and Delek's Big Spring refinery largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases.
  • Revenues from our intermediate pipelines were $7.5 million, consistent with the third quarter of 2019. Shipments averaged 142.8 mbpd for the third quarter of 2020 compared to 153.5 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HFC's Navajo refinery while revenue remained relatively constant mainly due to contractual minimum volume guarantees.
  • Revenues from our crude pipelines were $32.3 million, a decrease of $0.7 million compared to the third quarter of 2019, and shipments averaged 404.3 mbpd compared to 488.1 mbpd for the third quarter of 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas partially offset by increased volumes on our crude pipeline systems in Utah. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees.
  • Revenues from terminal, tankage and loading rack fees were $39.0 million, a decrease of $3.4 million compared to the third quarter of 2019. Refined products and crude oil terminalled in the facilities averaged 459.3 mbpd compared to 541.6 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees.
  • Revenues from refinery processing units were $20.4 million, an increase of $0.1 million compared to the third quarter of 2019, and throughputs averaged 62.0 mbpd compared to 75.9 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to reduced throughput for our El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic while revenue remained relatively constant mainly due to contractual minimum volume guarantees.

Nine Months Ended September 30, 2020 Revenue Highlights

Revenues for the nine months ended September 30, 2020, were $370.4 million, a decrease of $30.8 million compared to the nine months ended September 30, 2019. The decrease was mainly attributable to a 19% reduction in overall crude and product pipeline volumes predominantly in our Southwest and Rockies regions.

  • Revenues from our refined product pipelines were $88.4 million, a decrease of $13.2 million compared to the nine months ended September 30, 2019. Shipments averaged 172.6 mbpd compared to 202.2 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo refinery, Delek's Big Spring refinery and our UNEV pipeline largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases.
  • Revenues from our intermediate pipelines were $22.5 million, an increase of $0.4 million compared to the nine months ended September 30, 2019. Shipments averaged 137.8 mbpd compared to 142.0 mbpd for the nine months ended September 30, 2019.
  • Revenues from our crude pipelines were $86.9 million, a decrease of $10.0 million compared to the nine months ended September 30, 2019. Shipments averaged 380.1 mbpd compared to 508.6 mbpd for the nine months ended September 30, 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah largely as a result of demand destruction associated with the COVID-19 pandemic.
  • Revenues from terminal, tankage and loading rack fees were $112.8 million, a decrease of $6.3 million compared to the nine months ended September 30, 2019. Refined products and crude oil terminalled in the facilities averaged 451.0 mbpd compared to 492.1 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities.
  • Revenues from refinery processing units were $59.9 million, a decrease of $1.6 million compared to the nine months ended September 30, 2019. Throughputs averaged 60.6 mbpd compared to 73.2 mbpd for the nine months ended September 30, 2019. The decrease in volumes was mainly due to reduced throughput for both our Woods Cross and El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic. Revenues were higher in the nine months ended September 30, 2019 due to an adjustment in revenue recognition recorded during that period; otherwise, revenues for the two nine-month periods remained relatively constant due to contractual minimum volume guarantees.

Operating Costs and Expenses Highlights

Operating costs and expenses were $104.2 million and $228.1 million for the three and nine months ended September 30, 2020, respectively, representing increases of $32.4 million and $25.6 million from the three and nine months ended September 30, 2019, respectively. The increases were mainly due to the goodwill impairment charge related to our Cheyenne business unit, partially offset by lower rental expenses, maintenance costs and variable costs such as electricity and chemicals associated with lower volumes.

Interest expense was $14.1 million and $45.7 million for the three and nine months ended September 30, 2020, respectively, representing decreases of $4.7 million and $11.4 million over the same periods of 2019, respectively. The decreases were mainly due to market interest rate decreases under our senior secured revolving credit facility and refinancing our $500 million aggregate principal amount of 6.0% senior notes due 2024 with $500 million aggregate principal amount of 5.0% senior notes due 2028.

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.on24.com/wcc/r/2627977/792AA96920FB0C011D30448BC2901ADB

An audio archive of this webcast will be available using the above noted link through November 18, 2020.

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, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas, as well as refinery processing units in Utah and Kansas.

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 owns and operates refineries located in Kansas, Oklahoma, New Mexico and Utah and markets its refined products principally in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states. In addition, HollyFrontier produces base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and exports products to more than 80 countries. HollyFrontier also owns a 57% limited partner interest and a non-economic 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. 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. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to:

  • the extraordinary market environment and effects of the COVID-19 pandemic, including the continuation of a material decline in demand for refined petroleum products in markets we serve;
  • 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 and refinery processing units;
  • the economic viability of HollyFrontier Corporation, our other customers and our joint ventures' other customers, including any refusal or inability of our or our joint ventures' customers or counterparties to perform their obligations under their contracts;
  • the demand for refined petroleum products in markets we serve;
  • our ability to purchase and integrate future acquired operations;
  • our ability to complete previously announced or contemplated acquisitions;
  • the availability and cost of additional debt and equity financing;
  • the possibility of temporary or permanent reductions in production or shutdowns at refineries utilizing our pipelines, terminal facilities and refinery processing units, due to reasons such as infection in the workforce, in response to reductions in demand or lower gross margins due to the economic impact of the COVID-19 pandemic, and any potential asset impairments resulting from such actions;
  • the effects of current and future government regulations and policies, including the effects of current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;
  • delay by government authorities in issuing permits necessary for our business or our capital projects;
  • our and our joint venture partners' ability to complete and maintain operational efficiency in carrying out routine operations and capital construction projects;
  • the possibility of terrorist or cyber attacks and the consequences of any such attacks;
  • general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
  • the impact of recent or proposed changes in tax laws and regulations that affect master limited partnerships; and
  • other financial, operational 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, 2020 and 2019.

Three Months Ended September 30,

Change from

2020

2019

2019

(In thousands, except per unit data)

Revenues

Pipelines:

Affiliates – refined product pipelines

$

18,619

$

19,401

$

(782)

Affiliates – intermediate pipelines

7,537

7,490

47

Affiliates – crude pipelines

20,218

21,675

(1,457)

46,374

48,566

(2,192)

Third parties – refined product pipelines

9,812

13,270

(3,458)

Third parties – crude pipelines

12,106

11,327

779

68,292

73,163

(4,871)

Terminals, tanks and loading racks:

Affiliates

34,215

37,183

(2,968)

Third parties

4,821

5,271

(450)

39,036

42,454

(3,418)

Refinery processing units – Affiliates

20,403

20,278

125

Total revenues

127,731

135,895

(8,164)

Operating costs and expenses

Operations

40,003

44,924

(4,921)

Depreciation and amortization

26,190

24,121

2,069

General and administrative

2,332

2,714

(382)

Goodwill impairment

35,653

35,653

104,178

71,759

32,419

Operating income

23,553

64,136

(40,583)

Equity in earnings of equity method investments

1,316

1,334

(18)

Interest expense, including amortization

(14,104)

(18,807)

4,703

Interest income

2,803

2,243

560

Gain on sales-type leases

35,166

(35,166)

Other income

7,465

142

7,323

(2,520)

20,078

(22,598)

Income before income taxes

21,033

84,214

(63,181)

State income tax benefit (expense)

(34)

(30)

(4)

Net income

20,999

84,184

(63,185)

Allocation of net income attributable to noncontrolling interests

(3,186)

(1,839)

(1,347)

Net income attributable to Holly Energy Partners

$

17,813

$

82,345

$

(64,532)

Limited partners’ earnings per unit – basic and diluted

$

0.17

$

0.78

$

(0.61)

Weighted average limited partners’ units outstanding

105,440

105,440

EBITDA(1)

$

55,338

$

123,060

$

(67,722)

Adjusted EBITDA(1)

$

86,435

$

90,269

$

(3,834)

Distributable cash flow(2)

$

76,894

$

68,838

$

8,056

Volumes (bpd)

Pipelines:

Affiliates – refined product pipelines

119,403

129,681

(10,278)

Affiliates – intermediate pipelines

142,817

153,547

(10,730)

Affiliates – crude pipelines

270,840

358,867

(88,027)

533,060

642,095

(109,035)

Third parties – refined product pipelines

60,203

67,440

(7,237)

Third parties – crude pipelines

133,487

129,222

4,265

726,750

838,757

(112,007)

Terminals and loading racks:

Affiliates

401,904

482,291

(80,387)

Third parties

57,355

59,307

(1,952)

459,259

541,598

(82,339)

Refinery processing units – Affiliates

62,016

75,857

(13,841)

Total for pipelines and terminal assets (bpd)

1,248,025

1,456,212

(208,187)

Nine Months Ended September 30,

Change from

2020

2019

2019

(In thousands, except per unit data)

Revenues

Pipelines:

Affiliates – refined product pipelines

$

55,004

$

60,892

$

(5,888)

Affiliates – intermediate pipelines

22,486

22,068

418

Affiliates – crude pipelines

59,922

63,447

(3,525)

137,412

146,407

(8,995)

Third parties – refined product pipelines

33,360

40,652

(7,292)

Third parties – crude pipelines

26,946

33,467

(6,521)

197,718

220,526

(22,808)

Terminals, tanks and loading racks:

Affiliates

100,711

103,852

(3,141)

Third parties

12,103

15,269

(3,166)

112,814

119,121

(6,307)

Refinery processing units – Affiliates

59,860

61,496

(1,636)

Total revenues

370,392

401,143

(30,751)

Operating costs and expenses

Operations

109,721

123,045

(13,324)

Depreciation and amortization

75,202

72,192

3,010

General and administrative

7,569

7,322

247

Goodwill impairment

35,653

35,653

228,145

202,559

25,586

Operating income

142,247

198,584

(56,337)

Equity in earnings of equity method investments

5,186

5,217

(31)

Interest expense, including amortization

(45,650)

(57,059)

11,409

Interest income

7,834

3,322

4,512

Loss on early extinguishment of debt

(25,915)

(25,915)

Gain on sales-type leases

33,834

35,166

(1,332)

Other income (loss)

8,439

(57)

8,496

(16,272)

(13,411)

(2,861)

Income before income taxes

125,975

185,173

(59,198)

State income tax expense

(110)

(36)

(74)

Net income

125,865

185,137

(59,272)

Allocation of net income attributable to noncontrolling interests

(6,721)

(5,920)

(801)

Net income attributable to Holly Energy Partners

$

119,144

$

179,217

$

(60,073)

Limited partners’ earnings per unit—basic and diluted

$

1.13

$

1.70

$

(0.57)

Weighted average limited partners’ units outstanding

105,440

105,440

EBITDA(1)

$

232,272

$

305,182

$

(72,910)

Adjusted EBITDA(1)

$

257,711

$

272,391

$

(14,680)

Distributable cash flow(2)

$

213,058

$

206,923

$

6,135

Volumes (bpd)

Pipelines:

Affiliates – refined product pipelines

116,641

130,426

(13,785)

Affiliates – intermediate pipelines

137,816

141,991

(4,175)

Affiliates – crude pipelines

276,128

376,518

(100,390)

530,585

648,935

(118,350)

Third parties – refined product pipelines

55,921

71,773

(15,852)

Third parties – crude pipelines

103,955

132,101

(28,146)

690,461

852,809

(162,348)

Terminals and loading racks:

Affiliates

401,245

429,660

(28,415)

Third parties

49,753

62,437

(12,684)

450,998

492,097

(41,099)

Refinery processing units – Affiliates

60,573

73,178

(12,605)

Total for pipelines and terminal assets (bpd)

1,202,032

1,418,084

(216,052)

(1) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill impairment and (iii) pipeline tariffs not included in revenues due to impacts from lease accounting for certain pipeline tariffs minus (iv) gain on sales-type leases, (v) HEP's pro-rata share of gain on business interruption insurance settlement and (vi) pipeline lease payments not included in operating costs and expenses.

Contacts

John Harrison, Senior Vice President and

Chief Financial Officer and Treasurer

Craig Biery, Vice President, Investor Relations

Holly Energy Partners, L.P.

214-954-6511

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