Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the third quarter
of 2018. Net income attributable to HEP for the third quarter was
$45.0 million ($0.43 per basic and diluted limited partner unit)
compared to $42.1 million ($0.66 per basic and diluted limited
partner unit) for the third quarter of 2017.
Distributable cash flow was $66.6 million for the quarter, up
$7.4 million, or 12.4% compared to the third quarter of 2017. HEP
announced its 56th consecutive distribution increase on October 19,
2018, raising the quarterly distribution from $0.660 to $0.665 per
unit, which represents an increase of 3.1% over the distribution
for the third quarter of 2017.
The increase in net income attributable to HEP was primarily due
to our acquisition of the remaining interests in the SLC and
Frontier pipelines in the fourth quarter of 2017 and higher crude
oil gathering volumes around the Permian Basin. These gains were
partially offset by higher interest expense and lower earnings on
equity investments. Limited partners' earnings per unit in the
third quarter declined compared to the third quarter of 2017
despite higher net income attributable to the partners. This
decrease was driven by the issuance of new common units primarily
associated with the incentive distribution rights simplification
transaction on October 31, 2017.
Commenting on our 2018 third quarter results, George Damiris,
Chief Executive Officer, stated, “HEP delivered solid financial
results in the third quarter, which allowed us to maintain our
record of consecutive quarterly distribution increases. Despite
seasonal headwinds and the Woods Cross refinery running at lower
throughput, third quarter results highlight the cash flow stability
of HEP’s business model.
“Looking forward, we anticipate higher earnings and
distributable cash flow in the fourth quarter. HEP remains on track
to report a distribution coverage ratio of 1.0x for the full year
2018.”
Third Quarter 2018 Revenue Highlights
Revenues for the quarter were $125.8 million, an increase of
$15.4 million compared to the third quarter of 2017. The increase
was primarily attributable to our acquisition of the remaining
interests in the SLC and Frontier pipelines and higher crude oil
gathering volumes around the Permian Basin in New Mexico and Texas,
which contributed to an increase in overall pipeline volumes of
22%.
- Revenues from our refined product
pipelines were $32.0 million, a decrease of $0.2 million, on
shipments averaging 187.1 thousand barrels per day ("mbpd")
compared to 217.3 mbpd for the third quarter of 2017. The volume
decrease was 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 during the quarter, lower volumes on pipelines servicing
HFC's Navajo refinery and lower volumes from Delek. Revenue
remained relatively consistent due to contractual minimum revenue
commitments and contractual tariff escalators.
- Revenues from our intermediate
pipelines were $6.8 million, a decrease of $1.1 million
compared to the third quarter of 2017, on shipments averaging 148.3
mbpd compared to 151.6 mbpd for the third quarter of 2017. The
decreases were mainly attributable to a decrease in production at
HFC's Navajo refinery and a $0.6 million decrease in deferred
revenue realized.
- Revenues from our crude
pipelines were $31.0 million, an increase of $16.9 million, on
shipments averaging 442.1 mbpd compared to 267.9 mbpd for the third
quarter of 2017. The increases were mainly attributable to our
acquisition of the remaining interests 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 $36.5 million, an increase of $0.8
million compared to the third quarter of 2017. Refined products and
crude oil terminalled in the facilities averaged 475.1 mbpd
compared to 495.5 mbpd for the third quarter of 2017. The volume
decrease was mainly due to the planned turnaround at HFC's El
Dorado refinery in the third quarter of 2018 as well as the
cessation of HEP's operations at the Tucson terminal in April
2018.
- Revenues from refinery processing
units were $19.6 million, a decrease of $1.0 million, on
throughputs averaging 65.6 mbpd compared to 61.5 mbpd for the third
quarter of 2017. Although throughput increased, revenue decreased,
driven by lower reimbursable natural gas costs.
Revenues for the third quarter of 2018 included an immaterial
recognition of prior shortfalls billed to shippers in 2017. As of
September 30, 2018, deferred revenue reflected in our
consolidated balance sheet related to shortfalls billed was $5.7
million.
Nine Months Ended September 30, 2018 Revenue
Highlights
Revenues for the nine months ended September 30, 2018, were
$373.4 million, an increase of $48.3 million compared to the nine
months ended September 30, 2017. The increase was primarily
attributable to our acquisition of the remaining interests 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 $98.0 million, an increase of $4.5 million, on
shipments averaging 196.5 mbpd compared to 205.3 mbpd for the nine
months ended September 30, 2017. The volume decrease was mainly due
to pipelines servicing HFC's Woods Cross refinery, which had lower
throughput due to operational issues at the refinery beginning in
the first quarter of 2018. These decreases were partially offset by
higher volumes on our product pipelines in New Mexico due to the
turnaround at HFC's Navajo refinery in the first quarter of 2017.
Revenue increased as a result of the higher volumes on the New
Mexico product pipelines and remained relatively consistent around
pipelines servicing HFC's Woods Cross refinery due to contractual
minimum volume commitments.
- Revenues from our intermediate
pipelines were $22.5 million, an increase of $2.1 million, on
shipments averaging 142.4 mbpd compared to 136.1 mbpd for the nine
months ended September 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 $87.0 million, an increase of $39.1 million, on
shipments averaging 455.6 mbpd compared to 268.7 mbpd for the nine
months ended September 30, 2017. The increases were mainly
attributable to our acquisition of the remaining interests 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 $109.0 million, an increase of $3.2
million compared to the nine months ended September 30, 2017.
Refined products and crude oil terminalled in the facilities
averaged 477.8 mbpd compared to 489.9 mbpd for the nine months
ended September 30, 2017. Despite the decrease in volume, revenue
increased due to volumes at higher revenue terminals combined with
an adjustment to revenue recognition.
- Revenues from refinery processing
units were $56.9 million, a decrease of $0.6 million on
throughputs averaging 67.9 mbpd compared to 63.9 mbpd for the nine
months ended September 30, 2017. Although throughput increased,
revenue decreased, driven by lower reimbursable natural gas
costs.
Revenues for the nine months ended September 30, 2018, included
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 $62.9 million and $189.1
million for the three and nine months ended September 30, 2018,
representing an increase of $4.2 million and $20.0 million from the
three and nine months ended September 30, 2017. The increase was
primarily due to new operating costs and expenses related to our
acquisition of the remaining interests in the SLC and Frontier
pipelines in the fourth quarter of 2017.
Interest expense was $18.0 million and $53.2 million for the
three and nine months ended September 30, 2018, representing an
increase of $4.0 million and $11.9 million over the same periods of
2017. These increases were 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://78449.themediaframe.com/dataconf/productusers/hep/mediaframe/26443/indexl.html.
An audio archive of this webcast will be available using the
above noted link through November 13, 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, 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, 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, 2018 and 2017.
Three Months Ended September 30,
Change from 2018 2017
2017 (In thousands, except per unit data)
Revenues
Pipelines: Affiliates – refined product pipelines $ 20,803 $ 20,801
$ 2 Affiliates – intermediate pipelines 6,772 7,832 (1,060 )
Affiliates – crude pipelines 20,461 14,089
6,372 48,036 42,722 5,314 Third parties –
refined product pipelines 11,194 11,350 (156 ) Third parties –
crude pipelines 10,505 — 10,505
69,735 54,072 15,663 Terminals, tanks and loading racks:
Affiliates 32,572 31,825 747 Third parties 3,897
3,876 21 36,469
35,701 768 Affiliates - refinery
processing units 19,580 20,591
(1,011 ) Total revenues 125,784 110,364
15,420
Operating costs and expenses
Operations 35,996 35,998 (2 ) Depreciation and amortization 24,367
19,007 5,360 General and administrative 2,498
3,623 (1,125 ) 62,861 58,628
4,233
Operating income 62,923 51,736
11,187 Equity in earnings of equity method investments 1,114
5,072 (3,958 ) Interest expense, including amortization (18,042 )
(14,072 ) (3,970 ) Interest income 540 101 439 Gain on sale of
assets and other 38 155 (117 )
(16,350 ) (8,744 ) (7,606 )
Income before
income taxes 46,573 42,992 3,581 State income tax benefit
(expense) (39 ) 69 (108 )
Net
income 46,534 43,061 3,473 Allocation of net income
attributable to noncontrolling interests (1,531 )
(990 ) (541 )
Net income attributable to Holly Energy
Partners 45,003 42,071 2,932 General partner interest in net
income, including incentive distributions(1) —
419 (419 )
Limited partners’ interest in net
income $ 45,003 $ 42,490 $ 2,513
Limited partners’ earnings per unit – basic and diluted(1) $
0.43 $ 0.66 $ (0.23 )
Weighted average limited
partners’ units outstanding 105,440 64,319
41,121
EBITDA(2) $ 86,911 $
74,980 $ 11,931
Distributable cash flow(3) $
66,598 $ 59,248 $ 7,350
Volumes
(bpd) Pipelines: Affiliates – refined product pipelines 120,024
142,624 (22,600 ) Affiliates – intermediate pipelines 148,347
151,622 (3,275 ) Affiliates – crude pipelines 322,590
267,911 54,679 590,961 562,157 28,804
Third parties – refined product pipelines 67,112 74,703 (7,591 )
Third parties – crude pipelines 119,503 —
119,503 777,576 636,860 140,716 Terminals and
loading racks: Affiliates 417,079 426,122 (9,043 ) Third parties
57,990 69,405 (11,415 )
475,069 495,527 (20,458 )
Affiliates – refinery processing units 65,640
61,453 4,187
Total for pipelines and
terminal assets (bpd) 1,318,285 1,193,840
124,445
Nine Months Ended September 30, Change from
2018 2017 2017 (In thousands,
except per unit data)
Revenues Pipelines: Affiliates –
refined product pipelines $ 60,841 $ 57,977 $ 2,864 Affiliates –
intermediate pipelines 22,496 20,366 2,130 Affiliates – crude
pipelines 58,737 47,890 10,847
142,074 126,233 15,841 Third parties – refined product
pipelines 37,124 35,535 1,589 Third parties – crude pipelines
28,245 — 28,245 207,443
161,768 45,675 Terminals, tanks and loading racks: Affiliates
96,606 93,573 3,033 Third parties 12,430
12,291 139 109,036
105,864 3,172 Affiliates - refinery
processing units 56,949 57,510
(561 ) Total revenues 373,428 325,142
48,286
Operating costs and expenses
Operations 106,731 102,584 4,147 Depreciation and amortization
74,117 57,729 16,388 General and administrative 8,293
8,872 (579 ) 189,141
169,185 19,956
Operating income 184,287
155,957 28,330 Equity in earnings of equity method
investments 4,127 10,965 (6,838 ) Interest expense, including
amortization (53,249 ) (41,359 ) (11,890 ) Interest income 1,581
306 1,275 Loss on early extinguishment of debt — (12,225 ) 12,225
Gain (loss) on sale of assets and other 71 317
(246 ) (47,470 ) (41,996 )
(5,474 )
Income before income taxes 136,817 113,961 22,856
State income tax expense (149 ) (164 ) 15
Net income 136,668 113,797 22,871 Allocation of net
income attributable to noncontrolling interests (5,354 )
(4,827 ) (527 )
Net income attributable to Holly
Energy Partners 131,314 108,970 22,344 General partner interest
in net income, including incentive distributions(1) —
(35,047 ) 35,047
Limited partners’ interest
in net income $ 131,314 $ 73,923 $ 57,391
Limited partners’ earnings per unit—basic and
diluted(1) $ 1.25 $ 1.16 $ 0.09
Weighted average limited partners’ units outstanding
104,908 63,845 41,063
EBITDA(2) $ 257,248 $ 207,916 $ 49,332
Adjusted EBITDA(2) $ 257,248 $ 220,141
$ 37,107
Distributable cash flow(3) $ 200,878
$ 177,436 $ 23,442
Volumes (bpd)
Pipelines: Affiliates – refined product pipelines 125,642 128,212
(2,570 ) Affiliates – intermediate pipelines 142,371 136,055 6,316
Affiliates – crude pipelines 336,224 268,736
67,488 604,237 533,003 71,234 Third parties –
refined product pipelines 70,830 77,114 (6,284 ) Third parties –
crude pipelines 119,344 —
119,344 794,411 610,117 184,294 Terminals and loading racks:
Affiliates 418,009 420,979 (2,970 ) Third parties 59,776
68,902 (9,126 ) 477,785
489,881 (12,096 ) Affiliates – refinery
processing units 67,873 63,858
4,015
Total for pipelines and terminal assets
(bpd) 1,340,069 1,163,856
176,213 (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. No general partner
distributions were declared for the three months ended September
30, 2017, and general partner distributions of $36.5 million were
declared for the nine months ended September 30, 2017. (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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018
2017 (In thousands)
Net income attributable to Holly
Energy Partners $ 45,003 $ 42,071 $ 131,314 $ 108,970 Add
(subtract): Interest expense 17,280 13,291 50,971 39,042 Interest
Income (540 ) (101 ) (1,581 ) (306 ) Amortization of discount and
deferred debt charges 762 781 2,278 2,317 State income tax
(benefit) expense 39 (69 ) 149 164 Depreciation and amortization
24,367 19,007 74,117
57,729
EBITDA $ 86,911 $ 74,980 $ 257,248 $
207,916 Add loss on early extinguishment of debt —
— — 12,225
Adjusted
EBITDA $ 86,911 $ 74,980 $ 257,248 $
220,141 (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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018
2017 (In thousands)
Net income attributable to Holly
Energy Partners $ 45,003 $ 42,071 $ 131,314 $ 108,970 Add
(subtract): Depreciation and amortization 24,367 19,007 74,117
57,729 Amortization of discount and deferred debt charges 762 781
2,278 2,317 Loss on early extinguishment of debt — — — 12,225
Customer billings greater than revenue recognized 1,294 1,134 2,994
3,835 Maintenance capital expenditures (4) (3,198 ) (3,240 ) (4,504
) (6,308 ) Decrease in environmental liability (150 ) (180 ) (368 )
(741 ) Decrease in reimbursable deferred revenue (1,517 ) (917 )
(3,937 ) (2,765 ) Other non-cash adjustments 37
592 (1,016 ) 2,174
Distributable cash flow $ 66,598 $ 59,248
$ 200,878 $ 177,436 (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.
September 30, December 31, 2018
2017 (In thousands)
Balance Sheet Data Cash and cash
equivalents $ 6,375 $ 7,776 Working capital $ 20,914 $ 18,906 Total
assets $ 2,107,042 $ 2,154,114 Long-term debt $ 1,416,748 $
1,507,308 Partners' equity (5) $ 446,946 $ 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/20181030005219/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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