Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the second quarter
of 2018. Net income attributable to HEP for the second quarter was
$40.1 million ($0.38 per basic and diluted limited partner unit)
compared to $41.3 million ($0.36 per basic and diluted limited
partner unit) for the second quarter of 2017.
Distributable cash flow was $65.2 million for the quarter, up
$4.3 million, or 7.0% compared to the second quarter of 2017. HEP
announced its 55th consecutive distribution increase on July 19,
2018, raising the quarterly distribution from $0.655 to $0.660 per
unit, which represents an increase of 4.3% over the distribution
for the second quarter of 2017.
The decrease in earnings is primarily due to higher interest
expense partially offset by higher crude pipeline throughputs and
revenues.
Commenting on our 2018 second quarter results, George Damiris,
Chief Executive Officer, stated, “Normal seasonality masks the
underlying strength in our business, particularly our Delaware
Basin crude gathering system.
“Looking forward, we expect the continued strength in crude
gathering, combined with contractual tariff escalators effective in
the third quarter, will drive a strong rebound in earnings growth
and our distribution coverage ratio, which we expect to be greater
than 1.0x for the second half of the year.”
Second Quarter 2018 Revenue Highlights
Revenues for the quarter were $118.8 million, an increase of
$9.6 million compared to the second quarter of 2017. The increase
is primarily attributable to our acquisition of the remaining
interest in the SLC and Frontier pipelines, which led to an
increase in overall pipeline volumes of 24%.
- Revenues from our refined product
pipelines were $31.1 million for both the second quarters of
2018 and 2017, and shipments averaged 185.6 thousand barrels per
day ("mbpd") compared to 206.0 mbpd for the second quarter of 2017.
The volume decrease is mainly due to pipelines servicing
HollyFrontier Corporation's ("HFC" or "HollyFrontier") Woods Cross
refinery, which had lower throughput due to operational issues at
the refinery. Revenue remained constant due to contractual minimum
volume guarantees.
- Revenues from our intermediate
pipelines were $7.3 million for both the second quarters ended
2018 and 2017, on shipments averaging 151.5 mbpd compared to 151.7
mbpd for the second quarter of 2017.
- Revenues from our crude
pipelines were $27.2 million, an increase of $10.3 million, on
shipments averaging 437.9 mbpd compared to 269.4 mbpd for the
second 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 $34.4 million, a decrease of $2.0
million compared to the second quarter of 2017. Refined products
and crude oil terminalled in the facilities averaged 505.1 mbpd
compared to 529.0 mbpd for the second quarter of 2017. The revenue
and volume decreases are mainly due to lower volumes at terminals
associated with UNEV Pipeline, LLC and lower volumes at our Tulsa
tanks.
- Revenues from refinery processing
units were $18.8 million, an increase of $1.3 million on
throughputs averaging 71.1 mbpd compared to 67.3 mbpd for the third
quarter of 2017. The increase in revenue is mainly due to higher
volumes at our Woods Cross refinery processing units.
Revenues for the second quarter of 2018, include the recognition
of $0.4 million of prior shortfalls billed to shippers in 2017. As
of June 30, 2018, deferred revenue reflected in our
consolidated balance sheet related to shortfalls billed was $4.4
million.
Six Months Ended June 30, 2018 Revenue Highlights
Revenues for the six months ended June 30, 2018, were $247.6
million, an increase of $32.9 million compared to the six months
ended June 30, 2017. The increase is primarily attributable to our
acquisition of the remaining interest in the SLC and Frontier
pipelines and the turnaround at HollyFrontier's Navajo refinery in
the first quarter of 2017.
- Revenues from our refined product
pipelines were $66.0 million, an increase of $4.6 million, on
shipments averaging 201.2 mbpd compared to 199.2 mbpd for the six
months ended June 30, 2017. Revenues increased due to the
turnaround at HFC's Navajo refinery in the first quarter of
2017.
- Revenues from our intermediate
pipelines were $15.7 million, an increase of $3.2 million, on
shipments averaging 139.3 mbpd compared to 128.1 mbpd for the six
months ended June 30, 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 $56.0 million, an increase of $22.2 million, on
shipments averaging 462.5 mbpd compared to 269.2 mbpd for the six
months ended June 30, 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 $72.6 million, an increase of $2.4
million compared to the six months ended June 30, 2017. Refined
products and crude oil terminalled in the facilities averaged 479.1
mbpd compared to 487.0 mbpd for the six months ended June 30, 2017.
The increase in revenue is primarily due to higher volumes in
several of our terminals as well as an adjustment in revenue
recognition. Total volumes decreased mainly due to lower volumes at
our Tulsa tanks, which are supported by minimum volume
commitments.
- Revenues from refinery processing
units were $37.4 million, an increase of $0.5 million on
throughputs averaging 69.0 mbpd compared to 65.1 mbpd for the six
months ended June 30, 2017. The increase in revenue is mainly due
to higher volumes at our Woods Cross refinery processing
units.
Revenues for the six months ended June 30, 2018, include the
recognition of $2.6 million of prior shortfalls billed to shippers
in 2017 as they did not exceed their minimum volume commitments
within the contractual make-up period.
Operating Costs and Expenses Highlights
Operating costs and expenses were $61.8 million and $126.3
million for the three and six months ended June 30, 2018,
representing an increase of $5.2 million and $15.7 million from the
three and six months ended June 30, 2017. 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 and $35.2 million for the
three and six months ended June 30, 2018, representing an increase
of $3.9 million and $7.9 million over the same periods of 2017.
These increases are 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 2024
completed in the third quarter of 2017, higher average balances
outstanding under our senior secured revolving credit facility, 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=1200323&tp_key=3e74bee54b.
An audio archive of this webcast will be available using the
above noted link through August 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 or cyber
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 and the six months ended June 30, 2018
and 2017.
Three Months Ended June
30, Change from 2018 2017
2017 (In thousands, except per unit data)
Revenues
Pipelines: Affiliates – refined product pipelines $ 18,744 $ 19,432
$ (688 ) Affiliates – intermediate pipelines 7,255 7,250 5
Affiliates – crude pipelines 18,479 16,919
1,560 44,478 43,601 877 Third parties –
refined product pipelines 12,348 11,647 701 Third parties – crude
pipelines 8,713 — 8,713
65,539 55,248 10,291 Terminals, tanks and loading racks: Affiliates
30,700 32,012 (1,312 ) Third parties 3,686
4,344 (658 ) 34,386 36,356
(1,970 ) Affiliates - refinery processing
units 18,835 17,539 1,296
Total revenues 118,760 109,143
9,617
Operating costs and expenses Operations
34,533 34,097 436 Depreciation and amortization 24,608 19,945 4,663
General and administrative 2,673 2,615
58 61,814 56,657
5,157
Operating income 56,946 52,486 4,460
Equity in earnings of equity method investments 1,734 4,053 (2,319
) Interest expense, including amortization (17,626 ) (13,748 )
(3,878 ) Interest income 526 103 423 Gain on sale of assets and
other (53 ) 89 (142 ) (15,419 )
(9,503 ) (5,916 )
Income before income taxes
41,527 42,983 (1,456 ) State income tax expense (28 )
(127 ) 99
Net income 41,499 42,856 (1,357 )
Allocation of net income attributable to noncontrolling interests
(1,356 ) (1,521 ) 165
Net income
attributable to Holly Energy Partners 40,143 41,335 (1,192 )
General partner interest in net income, including incentive
distributions(1) — (18,328 ) 18,328
Limited partners’ interest in net income $ 40,143
$ 23,007 $ 17,136
Limited partners’
earnings per unit – basic and diluted(1) $ 0.38 $ 0.36
$ 0.36
Weighted average limited partners’ units
outstanding 105,429 64,086
64,086
EBITDA(2) $ 81,879 $ 75,052 $
6,827
Distributable cash flow(3) $ 65,180 $
60,908 $ 4,272
Volumes (bpd) Pipelines:
Affiliates – refined product pipelines 112,371 134,357 (21,986 )
Affiliates – intermediate pipelines 151,537 151,683 (146 )
Affiliates – crude pipelines 322,850 269,418
53,432 586,758 555,458 31,300 Third parties –
refined product pipelines 73,196 71,612 1,584 Third parties – crude
pipelines 115,011 — 115,011
774,965 627,070 147,895 Terminals and loading racks:
Affiliates 446,089 461,329 (15,240 ) Third parties 59,035
67,657 (8,622 ) 505,124
528,986 (23,862 ) Affiliates – refinery
processing units 71,117 67,310
3,807
Total for pipelines and terminal assets
(bpd) 1,351,206 1,223,366
127,840
Six
Months Ended June 30, Change from 2018
2017 2017 (In thousands, except per unit data)
Revenues Pipelines:
Affiliates – refined product pipelines
$ 40,038 $ 37,176 $ 2,862
Affiliates – intermediate pipelines
15,724 12,534 3,190
Affiliates – crude pipelines
38,276 33,800 4,476
94,038 83,510 10,528
Third parties – refined product
pipelines
25,930 24,185 1,745
Third parties – crude pipelines
17,740 — 17,740 137,708
107,695 30,013 Terminals, tanks and loading racks: Affiliates
64,034 61,748 2,286 Third parties 8,533 8,415
118 72,567 70,163
2,404 Affiliates - refinery processing units
37,369 36,919 450
Total revenues 247,644 214,777
32,867
Operating costs and expenses Operations 70,735
66,586 4,149 Depreciation and amortization 49,750 38,722 11,028
General and administrative 5,795 5,249
546 126,280 110,557
15,723
Operating income 121,364 104,220 17,144
Equity in earnings of equity method investments 3,013 5,893
(2,880 ) Interest expense, including amortization (35,207 ) (27,287
) (7,920 ) Interest income 1,041 205 836 Loss on early
extinguishment of debt — (12,225 ) 12,225 Gain (loss) on sale of
assets and other 33 162 (129 )
(31,120 ) (33,252 ) 2,132
Income
before income taxes 90,244 70,968 19,276 State income tax
expense (110 ) (233 ) 123
Net
income 90,134 70,735 19,399 Allocation of net income
attributable to noncontrolling interests (3,823 )
(3,837 ) 14
Net income attributable to Holly
Energy Partners 86,311 66,898 19,413 General partner interest
in net income, including incentive distributions(1) —
(35,466 ) 35,466
Limited partners’ interest
in net income $ 86,311 $ 31,432 $ 54,879
Limited partners’ earnings per unit—basic and
diluted(1) $ 0.82 $ 0.49 $ 0.33
Weighted average limited partners’ units outstanding
104,637 63,602 41,035
EBITDA(2) $ 170,337 $ 132,935 $ 37,402
Adjusted EBITDA(2) $ 170,337 $ 145,160
$ 25,177
Distributable cash flow(3) $ 134,279
$ 118,197 $ 16,082
Volumes (bpd)
Pipelines: Affiliates – refined product pipelines 128,498 120,886
7,612 Affiliates – intermediate pipelines 139,333 128,143 11,190
Affiliates – crude pipelines 341,922 269,155
72,767 609,753 518,184 91,569 Third parties –
refined product pipelines 72,720 78,339 (5,619 ) Third parties –
crude pipelines 120,568 —
120,568 803,041 596,523 206,518 Terminals and loading racks:
Affiliates 418,439 418,365 74 Third parties 60,684
68,646 (7,962 ) 479,123
487,011 (7,888 ) Affiliates – refinery
processing units 69,008 65,082
3,926
Total for pipelines and terminal assets
(bpd) 1,351,172 1,148,616
202,556 (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 $18.7 million and $36.5 million for the
three and the six months ended June 30, 2017, respectively.
(2) 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 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 and Adjusted
EBITDA.
Three Months Ended June
30, Six Months Ended June 30, 2018
2017 2018 2017 (In thousands)
Net income attributable to Holly Energy Partners $ 40,143 $
41,335 $ 86,311 $ 66,898 Add (subtract): Interest expense 16,867
12,982 33,691 25,751 Interest Income (526 ) (103 ) (1,041 ) (205 )
Amortization of discount and deferred debt charges 759 766 1,516
1,536 State income tax expense 28 127 110 233 Depreciation and
amortization 24,608 19,945
49,750 38,722
EBITDA $ 81,879 $ 75,052
$ 170,337 $ 132,935 Add loss on early extinguishment of debt
— — — 12,225
Adjusted EBITDA $ 81,879 $ 75,052 $ 170,337
$ 145,160 (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 June
30, Six Months Ended June 30, 2018
2017 2018 2017 (In thousands)
Net income attributable to Holly Energy Partners $ 40,143 $
41,335 $ 86,311 $ 66,898 Add (subtract): Depreciation and
amortization 24,608 19,945 49,750 38,722 Amortization of discount
and deferred debt charges 759 766 1,516 1,536 Loss on early
extinguishment of debt — — — 12,225 Customer billings greater than
revenue recognized 1,819 1,524 138 2,701 Maintenance capital
expenditures (4) (987 ) (2,242 ) (1,305 ) (3,067 ) Decrease in
environmental liability (78 ) (313 ) (218 ) (559 ) Decrease in
reimbursable deferred revenue (1,243 ) (923 ) (2,420 ) (1,848 )
Other non-cash adjustments 159 816
507 1,589
Distributable cash
flow $ 65,180 $ 60,908 $ 134,279 $
118,197 (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.
Set forth below is certain balance sheet data.
June 30, December
31, 2018 2017 (In thousands)
Balance Sheet
Data Cash and cash equivalents $ 6,656 $ 7,776 Working capital
$ 6,403 $ 18,906 Total assets $ 2,116,063 $ 2,154,114 Long-term
debt $ 1,395,599 $ 1,507,308 Partners' equity (5) $ 468,397 $
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/20180801005155/en/
Holly Energy Partners, L.P.Richard L. Voliva III,
214-954-6511Executive Vice President andChief Financial
OfficerorCraig Biery, 214-954-6511Director, Investor Relations
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