Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the first quarter
of 2018. Net income attributable to HEP for the first quarter was
$46.2 million ($0.44 per basic and diluted limited partner unit)
compared to $25.6 million ($0.13 per basic and diluted limited
partner unit) for the first quarter of 2017.
Distributable cash flow was $69.1 million for the quarter, up
$11.8 million, or 20.6% compared to the first quarter of 2017. HEP
announced its 54th consecutive distribution increase on April 19,
2018, raising the quarterly distribution from $0.650 to $0.655 per
unit, which represents an increase of 5.6% over the distribution
for the first quarter of 2017.
The increase in earnings is primarily due to higher pipeline
throughputs and revenues as well as increased earnings related to
our acquisition of the remaining interest in the SLC and Frontier
pipelines in the fourth quarter 2017, which were partially offset
by higher interest expense. In addition, we recognized a loss on
early extinguishment of debt of $12.2 million in the first quarter
of 2017.
Commenting on our 2018 first quarter results, George Damiris,
Chief Executive Officer, stated, “The acquisition of the SLC and
Frontier pipelines along with solid volume growth in the Southwest
allowed us to maintain a distribution coverage ratio greater than
1.0x for the quarter.
“Looking forward, we expect to see a typical slight seasonal
downturn in the second quarter followed by a strong rebound in the
second half of 2018.”
First Quarter 2018 Revenue Highlights
Revenues for the quarter were $128.9 million, an increase of
$23.3 million compared to the first quarter of 2017. The increase
is primarily attributable to our acquisition of the remaining
interest in the SLC and Frontier pipelines and the turnaround at
HollyFrontier Corporation's ("HFC" or "HollyFrontier") Navajo
refinery in the first quarter of 2017. These two changes led to an
increase in overall pipeline volumes of 47%.
- Revenues from our refined product
pipelines were $34.9 million, an increase of $4.6 million
compared to the first quarter of 2017, and shipments averaged 217.0
mbpd compared to 192.4 mbpd for the first quarter of 2017. Revenues
and volumes both increased primarily due to the turnaround at HFC's
Navajo refinery in the first quarter of 2017.
- Revenues from our intermediate
pipelines were $8.5 million, an increase of $3.2 million, on
shipments averaging 127.0 mbpd compared to 104.3 mbpd for the first
quarter of 2017. These increases were principally due to the
turnaround at HFC's Navajo refinery in the first quarter of
2017.
- Revenues from our crude
pipelines were $28.8 million, an increase of $11.9 million, on
shipments averaging 486.4 mbpd compared to 268.9 mbpd for the first
quarter of 2017. The increases are mainly attributable to our
acquisition of the remaining interest in the SLC and Frontier
pipelines in the fourth quarter of 2017 as well as increased
volumes on our crude pipeline systems in New Mexico and Texas.
- Revenues from terminal, tankage and
loading rack fees were $38.2 million, an increase of $4.4
million compared to the first quarter of 2017. Refined products and
crude oil terminalled in the facilities averaged 452.8 mbpd
compared to 444.6 mbpd for the first quarter of 2017. These
increases are primarily due to higher volumes in several of our
terminals as well as an adjustment in revenue recognition.
- Revenues from refinery processing
units were $18.5 million, a decrease of $0.8 million on
throughputs averaging 66.9 mbpd compared to 62.8 mbpd for the third
quarter of 2017. The decrease in revenue is principally due to
lower throughputs at the Woods Cross refinery due to
maintenance.
Revenues for the three months ended March 31, 2018, include the
recognition of $2.2 million of prior shortfalls billed to shippers
in 2017. As of March 31, 2018, deferred revenue reflected in
our consolidated balance sheet related to shortfalls billed was
$2.5 million.
Operating Costs and Expenses Highlights
Operating costs and expenses were $64.5 million for the three
months ended March 31, 2018, representing an increase of $10.6
million for the three months ended March 31, 2018. The increase is
primarily due to new operating costs and expenses related to our
acquisition of the remaining interest in the SLC and Frontier
pipelines in the fourth quarter of 2017.
Interest expense was $17.6 million for the three months ended
March 31, 2018, representing an increase of $4.0 million over the
same period of 2017. The increase is primarily due to interest
expense associated with the private placement of an additional $100
million in aggregate principal amount of our 6% Senior Notes due in
2024 completed in the third quarter of 2017, higher average
balances outstanding under our senior secured revolving credit
facility during the first quarter of 2018, and market interest rate
increases under that facility.
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=1188769&tp_key=88f117643e
An audio archive of this webcast will be available using the
above noted link through May 15, 2018.
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, Arizona, 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 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 45,000 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.
Additionally, HollyFrontier owns Petro-Canada Lubricants Inc.,
whose Mississauga, Ontario facility produces 15,600 barrels per day
of base oils and other specialized lubricant products, and owns a
57% limited partner interest and the 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:
- 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, Delek US Holdings, Inc. and our other customers;
- 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 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;
- the impact of recent changes in tax
laws and regulations that affect master limited partnerships;
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 VolumesThe following
tables present income, distributable cash flow and volume
information for the three months ended March 31, 2018 and 2017.
Three Months Ended March 31,
Change from 2018 2017
2017 (In thousands, except per unit data)
Revenues
Pipelines: Affiliates – refined product pipelines $ 21,294 $ 17,744
$ 3,550 Affiliates – intermediate pipelines 8,469 5,284 3,185
Affiliates – crude pipelines 19,797 16,881
2,916 49,560 39,909 9,651 Third parties –
refined product pipelines 13,582 12,538 1,044 Third parties – crude
pipelines 9,026 — 9,026
72,169 52,447 19,722 Terminals, tanks and loading racks: Affiliates
33,334 29,736 3,598 Third parties 4,847 4,071
776 38,181 33,807
4,374 Affiliates - refinery processing units
18,534 19,380 (846 )
Total revenues 128,884 105,634
23,250
Operating costs and expenses Operations 36,202
32,489 3,713 Depreciation and amortization 25,142 18,777 6,365
General and administrative 3,122 2,634
488 64,466 53,900
10,566
Operating income 64,418 51,734 12,684
Equity in earnings of equity method investments 1,279 1,840 (561 )
Interest expense, including amortization (17,581 ) (13,539 ) (4,042
) Interest income 515 102 413 Loss on early extinguishment of debt
— (12,225 ) 12,225 Gain on sale of assets and other 86
73 13 (15,701 )
(23,749 ) 8,048
Income before income taxes
48,717 27,985 20,732 State income tax expense (82 )
(106 ) 24
Net income 48,635 27,879 20,756
Allocation of net income attributable to noncontrolling interests
(2,467 ) (2,316 ) (151 )
Net income
attributable to Holly Energy Partners 46,168 25,563 20,605
General partner interest in net income, including incentive
distributions(1) — (17,138 ) 17,138
Limited partners’ interest in net income $ 46,168
$ 8,425 $ 37,743
Limited partners’ earnings
per unit – basic and diluted(1) $ 0.44 $ 0.13 $
0.31
Weighted average limited partners’ units
outstanding 103,836 63,113
40,723
EBITDA(2) $ 88,458 $ 57,883 $
30,575
Adjusted EBITDA(2) $ 88,458 $ 70,108
$ 18,350
Distributable cash flow(3) $ 69,099
$ 57,289 $ 11,810
Volumes (bpd)
Pipelines: Affiliates – refined product pipelines 144,805 107,266
37,539 Affiliates – intermediate pipelines 126,993 104,340 22,653
Affiliates – crude pipelines 360,409 268,890
91,519 632,207 480,496 151,711 Third parties –
refined product pipelines 72,239 85,141 (12,902 ) Third parties –
crude pipelines 126,014 —
126,014 830,460 565,637 264,823 Terminals and loading racks:
Affiliates 390,481 374,923 15,558 Third parties 62,352
69,647 (7,295 ) 452,833
444,570 8,263 Affiliates –
refinery processing units 66,875 62,829
4,046
Total for pipelines and terminal
assets (bpd) 1,350,168 1,073,036
277,132 (1) Prior to the equity
restructuring transaction on October 31, 2017, net income
attributable to Holly Energy Partners was allocated between limited
partners and the general partner interest in accordance with the
provisions of the partnership agreement. HEP net income allocated
to the general partner included incentive distributions that were
declared subsequent to quarter end. There were no distributions
made on the general partner interest after October 31, 2017 and
general partner distributions were $17.8 million for the three
months ended March 31, 2017. (2)
Earnings before interest, taxes,
depreciation and amortization (“EBITDA”) is calculated as net
income attributable to Holly Energy Partners plus (i) interest
expense and loss on early extinguishment of debt, net of interest
income, (ii) state income tax and (iii) depreciation and
amortization. Adjusted EBITDA is calculated as EBITDA plus loss on
early extinguishment of debt. EBITDA and Adjusted EBITDA
are not calculations based upon generally accepted accounting
principles ("GAAP"). However, the amounts included in
the EBITDA and Adjusted EBITDA calculations are derived from
amounts included in our consolidated financial
statements. EBITDA and Adjusted EBITDA should not be
considered as alternatives to net income attributable to Holly
Energy Partners or operating income, as indications of our
operating performance or as alternatives to operating cash flow as
a measure of liquidity. EBITDA and Adjusted EBITDA are
not necessarily comparable to similarly titled measures of other
companies. EBITDA and Adjusted EBITDA are presented here because
they are widely used financial indicators used by investors and
analysts to measure performance. EBITDA and Adjusted
EBITDA are also used by our management for internal analysis and as
a basis for compliance with financial covenants.
Set forth below is our calculation of EBITDA.
Three Months Ended March 31, 2018
2017 (In thousands)
Net income attributable to
Holly Energy Partners $ 46,168 $ 25,563 Add (subtract):
Interest expense 16,824 12,769 Interest Income (515 ) (102 )
Amortization of discount and deferred debt charges 757 770 State
income tax expense 82 106 Depreciation and amortization
25,142 18,777
EBITDA $ 88,458 $ 57,883
Add loss on early extinguishment of debt —
12,225
Adjusted EBITDA $ 88,458 $ 70,108
(3) Distributable cash flow is not a
calculation based upon GAAP. However, the amounts included in the
calculation are derived from amounts presented in our consolidated
financial statements, with the general exception of maintenance
capital expenditures. Distributable cash flow should not be
considered in isolation or as an alternative to net income
attributable to Holly Energy Partners 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 is also used by management for
internal analysis and our performance units. We believe that this
measure provides investors an enhanced perspective of the operating
performance of our assets and the cash our business is generating.
Set forth below is our calculation of distributable cash
flow.
Three Months Ended March 31,
2018 2017 (In thousands)
Net income
attributable to Holly Energy Partners $ 46,168 $ 25,563 Add
(subtract): Depreciation and amortization 25,142 18,777
Amortization of discount and deferred debt charges 757 770 Loss on
early extinguishment of debt — 12,225 Customer billings greater /
(less) than revenue recognized (1,681 ) 1,178 Maintenance capital
expenditures (4) (318 ) (825 ) Decrease in environmental liability
(140 ) (246 ) Decrease in reimbursable deferred revenue (1,177 )
(925 ) Other non-cash adjustments 348 772
Distributable cash flow $ 69,099 $ 57,289
(4) 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, safety and to address
environmental regulations.
March 31,
December 31, 2018 2017 (In
thousands)
Balance Sheet Data Cash and cash equivalents $
8,565 $ 7,776 Working capital $ 15,470 $ 18,906 Total assets $
2,134,789 $ 2,154,114 Long-term debt $ 1,390,952 $ 1,507,308
Partners' equity (5) $ 493,404 $ 393,959 (5) As a
master limited partnership, we distribute our available cash, which
historically has exceeded our net income attributable to Holly
Energy Partners 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 attributable
to Holly Energy Partners. 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 would have been recorded in our
financial statements as increases to our properties and equipment
and intangible assets at the time of acquisition instead of
decreases to partners’ equity.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180501005478/en/
Holly Energy Partners, L.P.Richard L. Voliva III,
214-954-6511Executive Vice President andChief Financial
OfficerorCraig Biery, 214-954-6511Director, Investor Relations
Holly Energy Partners (NYSE:HEP)
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