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

  • Reported net income attributable to HEP of $63.0 million or $0.50 per unit
  • Announced quarterly distribution of $0.35 per unit
  • Reported EBITDA of $94.4 million and Adjusted EBITDA of $118.5 million

Holly Energy Partners, L.P. ("HEP") (NYSE: HEP) today reported financial results for the third quarter of 2023. Net income attributable to HEP for the third quarter of 2023 was $63.0 million ($0.50 per basic and diluted limited partner unit), compared to $42.0 million ($0.33 per basic and diluted limited partner unit) for the third quarter of 2022.

Results for the third quarters of 2023 and 2022 reflect reductions to our equity in earnings of equity method investments of $4.3 million and $20.3 million, respectively, for HEP's 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties, net of insurance proceeds received, associated with a release of crude oil on the Osage Pipe Line Company, LLC ("Osage") pipeline that occurred on July 8, 2022. Excluding these reductions, net income attributable to HEP for the third quarters of 2023 and 2022 was $67.3 million ($0.53 per basic and diluted limited partner unit) and $62.2 million ($0.49 per basic and diluted limited partner unit), respectively. The increase in net income attributable to HEP in the third quarter of 2023 was mainly due to higher revenues associated with tariff increases that went into effect on July 1, 2023, partially offset by higher interest expense and higher general and administrative expenses.

Distributable cash flow was $78.5 million for the third quarter of 2023, a decrease of $0.3 million, or 0.3%, compared to the third quarter of 2022. HEP declared a quarterly cash distribution of $0.35 per unit on October 19, 2023.

Commenting on our 2023 third quarter results, Michael Jennings, Chief Executive Officer and President, stated, “HEP generated solid results during the quarter, supported by safe and reliable operations and strong volumes across our transportation and storage systems. We also announced a quarterly distribution of $0.35 per unit to be paid on November 10, 2023 to unitholders of record on October 30, 2023.”

Third Quarter 2023 Revenue Highlights

Revenues for the third quarter of 2023 were $158.4 million, an increase of $9.4 million compared to the third quarter of 2022. The increase was mainly due to tariff increases that went into effect on July 1, 2023 as well as more customer billings recognized as revenue rather than interest income under sales-type lease accounting.

  • Revenues from our refined product pipelines were $34.6 million, an increase of $3.2 million compared to the third quarter of 2022. Shipments averaged 186.1 thousand barrels per day ("mbpd") compared to 205.7 mbpd for the third quarter of 2022. The volume decrease was mainly due to lower volumes on our product pipelines serving HF Sinclair Corporation's ("HF Sinclair") Navajo refinery. The increase in revenues was mainly due to tariff increases that went into effect on July 1, 2023 as well as more customer billings recognized as revenue rather than interest income under sales-type lease accounting.
  • Revenues from our intermediate pipelines were $9.1 million, an increase of $1.1 million compared to the third quarter of 2022. Shipments averaged 107.0 mbpd for the third quarter of 2023 compared to 137.0 mbpd for the third quarter of 2022. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HF Sinclair's Navajo and Tulsa refineries while revenues increased due to tariff increases on contractual minimum volume guarantees.
  • Revenues from our crude pipelines were $41.4 million, an increase of $3.6 million compared to the third quarter of 2022. Shipments averaged 631.4 mbpd compared to 639.0 mbpd for the third quarter of 2022. The decrease in volumes was mainly attributable to lower volumes on our New Mexico and Texas crude pipelines as well as our crude pipeline servicing HF Sinclair's Tulsa refinery while revenues increased due to tariff increases that went into effect on July 1, 2023.
  • Revenues from terminal, tankage and loading rack fees were $48.3 million, an increase of $3.9 million compared to the third quarter of 2022. Refined products and crude oil terminalled in the facilities averaged 802.4 mbpd compared to 620.9 mbpd for the third quarter of 2022. The increase in volumes was mainly due to higher volumes on the Sinclair Transportation Company LLC ("Sinclair Transportation") assets we acquired on March 14, 2022 and certain crude tanks. Revenues increased mainly due to higher revenues from the increased volumes on the acquired Sinclair Transportation assets as well as rate increases that went into effect on July 1, 2023.
  • Revenues from refinery processing units were $25.0 million, a decrease of $2.4 million compared to the third quarter of 2022, and throughputs averaged 67.2 mbpd compared to 72.1 mbpd for the third quarter of 2022. The decrease in volumes was due to decreased throughputs at our El Dorado and Woods Cross refinery processing units. Revenues decreased mainly due to lower natural gas cost recoveries partially offset by rate increases on contractual minimum volume guarantees.

Nine Months Ended September 30, 2023 Revenue Highlights

Revenues for the nine months ended September 30, 2023 were $441.4 million, an increase of $36.4 million compared to the nine months ended September 30, 2022. The increase was mainly attributable to revenues from our Sinclair Transportation assets acquired on March 14, 2022, higher revenues on our Woods Cross refinery processing units, which were down for a scheduled turnaround in March 2022, and rate increases that went into effect on July 1, 2023, partially offset by lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery.

  • Revenues from our refined product pipelines were $88.4 million, an increase of $4.7 million compared to the nine months ended September 30, 2022. Shipments averaged 182.8 mbpd compared to 180.3 mbpd for the nine months ended September 30, 2022. The volume and revenue increases were mainly due to volumes on the acquired Sinclair Transportation assets, partially offset by lower volumes on our product pipelines servicing HF Sinclair's Navajo refinery due to lower throughput at the refinery.
  • Revenues from our intermediate pipelines were $25.7 million, an increase of $2.6 million compared to the nine months ended September 30, 2022. Shipments averaged 108.6 mbpd compared to 126.6 mbpd for the nine months ended September 30, 2022. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HF Sinclair's Navajo refinery while revenues increased due to the acquired Sinclair Transportation intermediate pipelines as well as contractual minimum volume guarantees and rate increases that went into effect on July 1, 2023.
  • Revenues from our crude pipelines were $112.6 million, an increase of $9.1 million compared to the nine months ended September 30, 2022. Shipments averaged 626.5 mbpd compared to 594.2 mbpd for the nine months ended September 30, 2022. The increase in volumes was mainly attributable to volumes on the acquired Sinclair Transportation crude pipelines. The increase in revenues was mainly due to the acquired Sinclair Transportation crude pipelines, higher revenues on our crude pipeline systems in New Mexico and Texas and rate increases that went into effect on July 1, 2023.
  • Revenues from terminal, tankage and loading rack fees were $140.3 million, an increase of $14.3 million compared to the nine months ended September 30, 2022. Refined products and crude oil terminalled in the facilities averaged 755.2 mbpd compared to 575.2 mbpd for the nine months ended September 30, 2022. Volumes increased mainly due to volumes on the acquired Sinclair Transportation assets and certain crude tanks. Revenues increased mainly due to revenues from the increased volumes on the acquired Sinclair Transportation assets, higher butane blending revenues, and rate increases that went into effect on July 1, 2023.
  • Revenues from refinery processing units were $74.4 million, an increase of $5.7 million compared to the nine months ended September 30, 2022. Throughputs averaged 60.1 mbpd compared to 69.9 mbpd for the nine months ended September 30, 2022. Revenues increased mainly due to higher revenues from our Woods Cross refinery processing units, which were down for a scheduled turnaround in March 2022, as well as rate increases. The decrease in volumes was primarily due to a turnaround at the El Dorado refinery.

Operating Costs and Expenses Highlights

Operating costs and expenses were $90.7 million and $256.7 million for the three and nine months ended September 30, 2023, respectively, representing increases of $1.3 million and $12.6 million from the three and nine months ended September 30, 2022, respectively. The nine-month increase was mainly due to operating costs and expenses associated with the acquired Sinclair Transportation assets as well as higher employee costs, partially offset by lower natural gas costs.

Interest Expense and Interest Income Highlights

Interest expense was $27.3 million and $79.7 million for the three and nine months ended September 30, 2023, respectively, representing increases of $4.3 million and $22.8 million from the three and nine months ended September 30, 2022, respectively. The increases were mainly due to higher interest rates on our long-term debt due to market interest rate increases on our senior secured revolving credit facility and our April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior unsecured notes maturing in April 2027, the proceeds of which were used to partially repay outstanding borrowings under our senior secured credit facility following the funding of the cash portion of the Sinclair Transportation acquisition.

Interest income for the three and nine months ended September 30, 2023 totaled $20.3 million and $61.1 million, representing decreases of $3.9 million and $0.2 million compared to the three and nine months ended September 30, 2022, respectively. The decreases were mainly due to more pipeline tariffs recognized as revenue rather than interest income under sales-type lease accounting.

HEP and HF Sinclair have scheduled a joint webcast conference on November 2, 2023 at 9:30 a.m. Eastern time to discuss financial results.

This webcast may be accessed at:

https://events.q4inc.com/attendee/172908001

An audio archive of this webcast will be available using the above noted link through November 16, 2023.

About Holly Energy Partners, L.P.

Holly Energy Partners, L.P. (“HEP” or the “Partnership”), headquartered in Dallas, Texas, provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including subsidiaries of HF Sinclair Corporation ("HF Sinclair"). The Partnership, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Colorado, Idaho, Iowa, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas, Utah, Washington and Wyoming, as well as refinery processing units in Kansas and Utah.

HF Sinclair, headquartered in Dallas, Texas, is an independent energy company that produces and markets high value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. HF Sinclair owns and operates refineries located in Kansas, Oklahoma, New Mexico, Washington, Wyoming 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. HF Sinclair supplies high-quality fuels to more than 1,500 branded stations and licenses the use of the Sinclair brand at more than 300 additional locations throughout the country. In addition, subsidiaries of HF Sinclair produce and market base oils and other specialized lubricants in the U.S., Canada and the Netherlands, and export products to more than 80 countries. Through its subsidiaries, HF Sinclair produces renewable diesel at two of its facilities in Wyoming and also at its facility in Artesia, New Mexico. HF Sinclair also owns a 47% limited partner interest and a non-economic general partner interest in HEP.

The statements in this press release contain various "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. When used in this press release, words such as “anticipate,” “project,” “expect,” “will,” “plan,” “goal,” “forecast,” “strategy,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. These forward-looking 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, including those contained in our filings with the Securities and Exchange Commission (the “SEC”). 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. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Certain factors could cause actual results to differ materially from results anticipated in the forward-looking statements or affect our unit price. These factors include, but are not limited to:

  • the risk that the transactions contemplated by the Agreement and Plan of Merger, dated August 15, 2023 (the “Merger Agreement”), which provides for the merger of a subsidiary of HF Sinclair with and into HEP, with HEP surviving as an indirect wholly owned subsidiary of HF Sinclair (such merger, together with the other transactions contemplated by the Merger Agreement, being referred to herein as the “HF Sinclair Merger Transaction”) are not consummated during the expected timeframe, or at all;
  • failure to obtain the required approvals for the HF Sinclair Merger Transaction, including the ability to obtain the requisite approvals from HF Sinclair stockholders or our unitholders;
  • the substantial transaction-related costs that may be incurred by HF Sinclair and us in connection with the HF Sinclair Merger Transaction;
  • the possibility that financial projections by us may not prove to be reflective of actual future results;
  • the focus of management time and attention on the HF Sinclair Merger Transaction and other disruptions arising from the HF Sinclair Merger Transaction, which may make it more difficult to maintain relationships with customers, employees or suppliers;
  • legal proceedings that may be instituted against HF Sinclair or us in connection with the HF Sinclair Merger Transaction;
  • the demand for and supply of crude oil and refined products, including uncertainty regarding the increasing societal expectations that companies address climate change;
  • risks and uncertainties with respect to the actual quantities of petroleum products and crude oil shipped on our pipelines and/or terminalled, stored or throughput in our terminals and refinery processing units;
  • the economic viability of HF Sinclair, 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 the markets we serve;
  • our ability to purchase operations and integrate the operations we have acquired or may acquire, including the acquired Sinclair Transportation business;
  • 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 reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, infection in the workforce, weather events, global health events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, terminal facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party providers or lower gross margins due to the economic impact of inflation and labor costs, and any potential asset impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions;
  • the effects of current and future government regulations and policies, including increases in interest rates;
  • 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 cyberattacks and the consequences of any such attacks;
  • uncertainty regarding the effects and duration of global hostilities, including the Israel-Gaza conflict, the Russia-Ukraine war, and any associated military campaigns which may disrupt crude oil supplies and markets for refined products and create instability in the financial markets that could restrict our ability to raise capital;
  • general economic conditions, including economic slowdowns caused by a local or national recession or other adverse economic condition, such as periods of increased or prolonged inflation;
  • the impact of recent or proposed changes in the tax laws and regulations that affect master limited partnerships; and
  • other business, financial, operational and legal risks and uncertainties detailed from time to time in our SEC 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 nine months ended September 30, 2023 and 2022.

 

 

Three Months Ended September 30,

 

Change from

 

 

2023

 

 

 

2022

 

 

 

2022

 

 

(In thousands, except per unit data)

Revenues

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

$

25,972

 

 

$

24,731

 

 

$

1,241

 

Affiliates – intermediate pipelines

 

9,059

 

 

 

7,988

 

 

 

1,071

 

Affiliates – crude pipelines

 

25,540

 

 

 

23,169

 

 

 

2,371

 

 

 

60,571

 

 

 

55,888

 

 

 

4,683

 

Third parties – refined product pipelines

 

8,640

 

 

 

6,694

 

 

 

1,946

 

Third parties – crude pipelines

 

15,831

 

 

 

14,565

 

 

 

1,266

 

 

 

85,042

 

 

 

77,147

 

 

 

7,895

 

Terminals, tanks and loading racks:

 

 

 

 

 

Affiliates

 

43,722

 

 

 

39,557

 

 

 

4,165

 

Third parties

 

4,602

 

 

 

4,875

 

 

 

(273

)

 

 

48,324

 

 

 

44,432

 

 

 

3,892

 

 

 

 

 

 

 

Refinery processing units - Affiliates

 

24,994

 

 

 

27,423

 

 

 

(2,429

)

 

 

 

 

 

 

Total revenues

 

158,360

 

 

 

149,002

 

 

 

9,358

 

Operating costs and expenses

 

 

 

 

 

Operations (exclusive of depreciation and amortization)

 

58,422

 

 

 

60,470

 

 

 

(2,048

)

Depreciation and amortization

 

24,362

 

 

 

25,236

 

 

 

(874

)

General and administrative

 

7,947

 

 

 

3,751

 

 

 

4,196

 

 

 

90,731

 

 

 

89,457

 

 

 

1,274

 

Operating income

 

67,629

 

 

 

59,545

 

 

 

8,084

 

 

 

 

 

 

 

Equity in earnings of equity method investments

 

3,581

 

 

 

(16,334

)

 

 

19,915

 

Interest expense, including amortization

 

(27,285

)

 

 

(22,965

)

 

 

(4,320

)

Interest income

 

20,294

 

 

 

24,234

 

 

 

(3,940

)

Gain on sale of assets and other

 

708

 

 

 

494

 

 

 

214

 

 

 

(2,702

)

 

 

(14,571

)

 

 

11,869

 

Income before income taxes

 

64,927

 

 

 

44,974

 

 

 

19,953

 

State income tax expense

 

(16

)

 

 

(38

)

 

 

22

 

Net income

 

64,911

 

 

 

44,936

 

 

 

19,975

 

Allocation of net income attributable to noncontrolling interests

 

(1,886

)

 

 

(2,985

)

 

 

1,099

 

Net income attributable to Holly Energy Partners

$

63,025

 

 

$

41,951

 

 

$

21,074

 

Limited partners’ earnings per unit – basic and diluted

$

0.50

 

 

$

0.33

 

 

$

0.17

 

Weighted average limited partners’ units outstanding

 

126,440

 

 

 

126,440

 

 

 

 

EBITDA(1)

$

94,394

 

 

$

65,956

 

 

$

28,438

 

Adjusted EBITDA(1)

$

118,514

 

 

$

110,092

 

 

$

8,422

 

Distributable cash flow(2)

$

78,465

 

 

$

78,731

 

 

$

(266

)

Volumes (bpd)

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

152,541

 

167,618

 

(15,077

)

Affiliates – intermediate pipelines

107,019

 

137,049

 

(30,030

)

Affiliates – crude pipelines

426,418

 

507,419

 

(81,001

)

 

685,978

 

812,086

 

(126,108

)

Third parties – refined product pipelines

33,549

 

38,040

 

(4,491

)

Third parties – crude pipelines

204,970

 

131,622

 

73,348

 

 

924,497

 

981,748

 

(57,251

)

Terminals and loading racks:

 

 

 

 

 

Affiliates

761,956

 

583,089

 

178,867

 

Third parties

40,440

 

37,782

 

2,658

 

 

802,396

 

620,871

 

181,525

 

 

 

 

 

 

 

Refinery processing units - Affiliates

67,192

 

72,065

 

(4,873

)

 

 

 

 

 

 

Total for pipelines and terminal assets (bpd)

1,794,085

 

1,674,684

 

119,401

 

 

Nine Months Ended September 30,

 

Change from

 

 

2023

 

 

 

2022

 

 

 

2022

 

 

(In thousands, except per unit data)

Revenues

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

$

64,092

 

 

$

62,511

 

 

$

1,581

 

Affiliates – intermediate pipelines

 

25,659

 

 

 

23,015

 

 

 

2,644

 

Affiliates – crude pipelines

 

70,872

 

 

 

62,417

 

 

 

8,455

 

 

 

160,623

 

 

 

147,943

 

 

 

12,680

 

Third parties – refined product pipelines

 

24,288

 

 

 

21,169

 

 

 

3,119

 

Third parties – crude pipelines

 

41,731

 

 

 

41,134

 

 

 

597

 

 

 

226,642

 

 

 

210,246

 

 

 

16,396

 

Terminals, tanks and loading racks:

 

 

 

 

 

Affiliates

 

121,039

 

 

 

108,997

 

 

 

12,042

 

Third parties

 

19,303

 

 

 

17,008

 

 

 

2,295

 

 

 

140,342

 

 

 

126,005

 

 

 

14,337

 

 

 

 

 

 

 

Refinery processing units - Affiliates

 

74,425

 

 

 

68,719

 

 

 

5,706

 

 

 

 

 

 

 

Total revenues

 

441,409

 

 

 

404,970

 

 

 

36,439

 

Operating costs and expenses

 

 

 

 

 

Operations

 

163,706

 

 

 

156,994

 

 

 

6,712

 

Depreciation and amortization

 

74,922

 

 

 

74,397

 

 

 

525

 

General and administrative

 

18,094

 

 

 

12,745

 

 

 

5,349

 

 

 

256,722

 

 

 

244,136

 

 

 

12,586

 

Operating income

 

184,687

 

 

 

160,834

 

 

 

23,853

 

 

 

 

 

 

 

Equity in earnings of equity method investments

 

11,008

 

 

 

(7,261

)

 

 

18,269

 

Interest expense, including amortization

 

(79,711

)

 

 

(56,951

)

 

 

(22,760

)

Interest income

 

61,050

 

 

 

61,212

 

 

 

(162

)

Gain on sale of assets and other

 

983

 

 

 

640

 

 

 

343

 

 

 

(6,670

)

 

 

(2,360

)

 

 

(4,310

)

Income before income taxes

 

178,017

 

 

 

158,474

 

 

 

19,543

 

State income tax expense

 

(18

)

 

 

(83

)

 

 

65

 

Net income

 

177,999

 

 

 

158,391

 

 

 

19,608

 

Allocation of net income attributable to noncontrolling interests

 

(7,223

)

 

 

(10,089

)

 

 

2,866

 

Net income attributable to Holly Energy Partners

$

170,776

 

 

$

148,302

 

 

$

22,474

 

Limited partners’ earnings per unit—basic and diluted

$

1.35

 

 

$

1.22

 

 

$

0.13

 

Weighted average limited partners’ units outstanding

 

126,440

 

 

 

120,902

 

 

 

5,538

 

EBITDA(1)

$

264,377

 

 

$

218,521

 

 

$

45,856

 

Adjusted EBITDA(1)

$

330,591

 

 

$

299,673

 

 

$

30,918

 

Distributable cash flow(2)

$

235,648

 

 

$

221,643

 

 

$

14,005

 

 

 

 

 

 

 

Volumes (bpd)

 

 

 

 

 

Pipelines:

 

 

 

 

 

Affiliates – refined product pipelines

 

144,082

 

 

 

138,608

 

 

 

5,474

 

Affiliates – intermediate pipelines

 

108,579

 

 

 

126,550

 

 

 

(17,971

)

Affiliates – crude pipelines

 

429,965

 

 

 

460,641

 

 

 

(30,676

)

 

 

682,626

 

 

 

725,799

 

 

 

(43,173

)

Third parties – refined product pipelines

 

38,702

 

 

 

41,646

 

 

 

(2,944

)

Third parties – crude pipelines

 

196,552

 

 

 

133,598

 

 

 

62,954

 

 

 

917,880

 

 

 

901,043

 

 

 

16,837

 

Terminals and loading racks:

 

 

 

 

 

Affiliates

 

710,905

 

 

 

534,305

 

 

 

176,600

 

Third parties

 

44,263

 

 

 

40,923

 

 

 

3,340

 

 

 

755,168

 

 

 

575,228

 

 

 

179,940

 

 

 

 

 

 

 

Refinery processing units - Affiliates

 

60,131

 

 

 

69,903

 

 

 

(9,772

)

 

 

 

 

 

 

Total for pipelines and terminal assets (bpd)

 

1,733,179

 

 

 

1,546,174

 

 

 

187,005

 

(1) 

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus or minus (i) interest expense, (ii) interest income, (iii) state income tax expense and (iv) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus or minus (i) our share of Osage environmental remediation costs included in equity in earnings of equity method investments, (ii) acquisition integration and regulatory costs, (iii) tariffs and fees not included in revenues due to impacts from lease accounting for certain tariffs and fees and (iv) pipeline lease payments not included in operating costs and expenses. Portions of our minimum guaranteed tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. Similarly, certain pipeline lease payments were previously recorded as operating costs and expenses, but the underlying lease was reclassified from an operating lease to a financing lease, and these payments are now recorded as interest expense and reductions in the lease liability. 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 September 30,

 

Nine Months Ended September 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

(In thousands)

Net income attributable to Holly Energy Partners

 

$

63,025

 

 

$

41,951

 

 

$

170,776

 

 

$

148,302

 

Add (subtract):

 

 

 

 

 

 

 

 

Interest expense

 

 

27,285

 

 

 

22,965

 

 

 

79,711

 

 

 

56,951

 

Interest income

 

 

(20,294

)

 

 

(24,234

)

 

 

(61,050

)

 

 

(61,212

)

State income tax expense

 

 

16

 

 

 

38

 

 

 

18

 

 

 

83

 

Depreciation and amortization

 

 

24,362

 

 

 

25,236

 

 

 

74,922

 

 

 

74,397

 

EBITDA

 

 

94,394

 

 

 

65,956

 

 

 

264,377

 

 

 

218,521

 

Share of Osage environmental remediation costs

 

 

69

 

 

 

20,297

 

 

 

1,289

 

 

 

20,297

 

Acquisition integration and regulatory costs

 

 

4,285

 

 

 

373

 

 

 

5,757

 

 

 

2,095

 

Tariffs and fees not included in revenues

 

 

21,372

 

 

 

25,072

 

 

 

63,987

 

 

 

63,579

 

Lease payments not included in operating costs

 

 

(1,606

)

 

 

(1,606

)

 

 

(4,819

)

 

 

(4,819

)

Adjusted EBITDA

 

$

118,514

 

 

$

110,092

 

 

$

330,591

 

 

$

299,673

 

(2) 

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 September 30,

 

Nine Months Ended September 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

(In thousands)

Net income attributable to Holly Energy Partners

 

$

63,025

 

 

$

41,951

 

 

$

170,776

 

 

$

148,302

 

Add (subtract):

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,362

 

 

 

25,236

 

 

 

74,922

 

 

 

74,397

 

Amortization of discount and deferred debt charges

 

 

1,088

 

 

 

1,060

 

 

 

3,241

 

 

 

2,863

 

Customer billings greater than net income recognized

 

 

2,138

 

 

 

(587

)

 

 

11,908

 

 

 

34

 

Maintenance capital expenditures(3)

 

 

(5,859

)

 

 

(4,679

)

 

 

(13,597

)

 

 

(15,262

)

Increase (decrease) in environmental liability

 

 

(1,550

)

 

 

5,364

 

 

 

(2,553

)

 

 

5,120

 

Share of Osage insurance coverage

 

 

 

 

 

12,500

 

 

 

500

 

 

 

12,500

 

Reimbursable deferred revenue

 

 

(3,620

)

 

 

(3,538

)

 

 

(12,534

)

 

 

(10,127

)

Other

 

 

(1,119

)

 

 

1,424

 

 

 

2,985

 

 

 

3,816

 

Distributable cash flow

 

$

78,465

 

 

$

78,731

 

 

$

235,648

 

 

$

221,643

 

(3) 

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,

 

 

2023

 

2022

 

 

(In thousands)

Balance Sheet Data

 

 

 

 

Cash and cash equivalents

 

$

11,223

 

$

10,917

Working capital

 

$

15,594

 

$

17,293

Total assets

 

$

2,707,434

 

$

2,747,502

Long-term debt

 

$

1,468,505

 

$

1,556,334

Partners' equity

 

$

896,066

 

$

857,126

 

Contacts

John Harrison, Senior Vice President,

Chief Financial Officer and Treasurer

Craig Biery, Vice President, Investor Relations

Holly Energy Partners, L.P.

214-954-6511

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