Attached files

file filename
8-K - FORM 8-K - HOLLY ENERGY PARTNERS LPc12611e8vk.htm
Exhibit 99.1
     
Press Release

February 15, 2011
  (HOLLY ENERGY PARTNERS LOGO)
Holly Energy Partners, L.P. Reports Fourth Quarter and Year End Results
Dallas, Texas — Holly Energy Partners, L.P. (“HEP” or the “Partnership”) (NYSE-HEP) today reported financial results for the fourth quarter of 2010. For the quarter, distributable cash flow was $24.3 million, up $3.7 million, or 18% compared to fourth quarter of 2009. For the year ended December 31, 2010, distributable cash flow was $91.1 million, up $18.8 million or 26% compared to the same period of 2009. Based on these results, HEP announced its 25th consecutive distribution increase on January 26, 2011, raising the quarterly distribution from $0.835 to $0.845, representing a 5% increase over the distribution for the fourth quarter of 2009.
For the quarter, income from continuing operations was $18.5 million ($0.68 per basic and diluted limited partner unit) compared to $12 million ($0.47 per basic and diluted limited partner unit) for the fourth quarter of 2009. Net income was $18.5 million ($0.68 per basic and diluted limited partner unit) versus $27.6 million ($1.22 per basic and diluted limited partner unit) for the fourth quarter of 2009, which included Rio Grande Pipeline Company’s operating results and a gain on sale of $14.5 million, presented as discontinued operations. Excluding discontinued operations, the increase in overall earnings is due principally to contributions from our December 2009 and March 2010 asset acquisitions, higher shipment volumes and an increase in deferred revenue realized, partially offset by increased interest costs.
For the year, income from continuing operations was $58.9 million ($2.12 per basic and diluted limited partner unit) compared to $46.2 million ($2.12 per basic and diluted limited partner unit) for 2009. Net income was $58.9 million ($2.12 per basic and diluted limited partner unit) versus $66 million ($3.18 per basic and diluted limited partner unit) for the year ended December 31, 2009, which included discontinued operations.
Commenting on the fourth quarter of 2010, Matt Clifton, Chairman of the Board and Chief Executive Officer stated, “The fourth quarter generated solid financial results, extending our track record of producing consistent levels of distributable cash flow and EBITDA. For the quarter, increased distributable cash flow over the same period of 2009 allowed us to declare our 25th consecutive distribution increase. EBITDA (reaching a new quarterly high) was $35.7 million, an increase of $9.8 million or 38% over last year’s fourth quarter, and for the full year period, was $123.8 million, an increase of $23.1 million or 23% over 2009, reflecting earnings contributions from our 2009 and March 2010 asset acquisitions. Furthermore, overall shipping levels on our pipeline systems reached an all time high. We are extremely pleased with these operating results.”
“Currently, we are on track to complete the interconnect pipeline project at Holly’s Tulsa refinery in the spring and are finalizing terms to provide throughput services under a long-term service agreement with Holly. Looking forward, we will continue to explore other opportunities to provide further growth in our distributable cash flow, asset base and geographic footprint,” Clifton said.
Fourth Quarter 2010 Revenue Highlights
Total revenues from continuing operations for the quarter were $49.4 million, a $10.9 million increase compared to the fourth quarter of 2009. This was due to revenues attributable to our December 2009 and March 2010 asset acquisitions, increased pipeline shipments and a $0.8 million increase in previously deferred revenue realized. Overall pipeline shipments increased 9% over the fourth quarter of 2009, reflecting a 7% and 26% increase in affiliate and third-party pipeline shipments, respectively.
   
Revenues from our refined product pipelines were $21.4 million, an increase of $2.6 million, on shipments averaging 147.1 thousand barrels per day (“mbpd”) compared to 133.4 mbpd for the fourth quarter of 2009. This includes a $0.6 million increase in previously deferred revenue realized.
   
Revenues from our intermediate pipelines were $5.3 million, an increase of $0.4 million, on shipments averaging 88.5 mbpd compared to 85.5 mbpd for the fourth quarter of 2009. This includes a $0.2 million increase in previously deferred revenue realized.

 

 


 

   
Revenues from our crude pipelines were $10 million, an increase of $2 million. This is primarily due to a $1.5 million year-over-year increase in revenues attributable to our Roadrunner Pipeline agreement beginning in December 2009. Volumes shipped on our crude pipelines averaged 156 mbpd compared to 140 mbpd for the fourth quarter of 2009.
   
Revenues from terminal, tankage and loading rack fees were $12.6 million, an increase of $6 million compared to the fourth quarter of 2009. This includes a $5.7 million year-over-year increase in revenues attributable to volumes transferred and stored at our Tulsa storage and rack facilities.
Revenues from continuing operations for the three months ended December 31, 2010 include the recognition of $2.7 million of prior shortfalls billed to shippers in 2009, as they did not meet their minimum volume commitments in any of the subsequent four quarters. As of December 31, 2010, deferred revenue in our consolidated balance sheet was $10.4 million. Such deferred revenue will be recognized in earnings either as payment for shipments in excess of guaranteed levels or when shipping rights expire unused over the next four quarters.
Full Year 2010 Revenue Highlights
Total revenues from continuing operations for the year were $182.1 million, a $35.5 million increase compared to 2009. This was due to our recent asset acquisitions and higher tariffs on affiliate shipments, partially offset by a $7.3 million decrease in previously deferred revenue realized. For 2010, overall pipeline shipments were up 7%, reflecting increased affiliate volumes attributable to Holly Corporation’s (“Holly”) first quarter of 2009 Navajo refinery expansion, including volumes shipped on our new 16” intermediate and Beeson pipelines, partially offset by a decrease in third-party shipments. Additionally, prior year affiliate shipments reflect lower first quarter volumes as a result of production downtime during a major maintenance turnaround of the Navajo refinery during the first quarter of 2009.
   
Revenues from our refined product pipelines were $76.4 million, a decrease of $4.7 million. This is primarily due to an $8.5 million decrease in previously deferred revenue realized that was partially offset by an overall increase refined product pipeline shipments. Volumes shipped on our refined product pipelines averaged 135 mbpd compared to 131.7 mbpd for year ended December 31, 2009, reflecting an increase in affiliate shipments, partially offset by a decline in third-party shipments.
   
Revenues from our intermediate pipelines were $21 million, an increase of $4.6 million, on shipments averaging 84.3 mbpd compared to 69.8 mbpd for the year ended December 31, 2009. This increase includes revenues attributable to volumes shipped on our 16-inch intermediate pipeline and a $1.2 million increase in previously deferred revenue realized.
   
Revenues from our crude pipelines were $38.9 million, an increase of $9.7 million. This is primarily due to a $8.4 million year-over-year increase in revenues attributable to our Roadrunner Pipeline agreement. Volumes shipped on our crude pipelines averaged 144 mbpd compared to 137.2 mbpd for the year ended December 31, 2009.
   
Revenues from terminal, tankage and loading rack fees were $45.7 million, an increase of $25.9 million compared to the year ended December 31, 2009. This includes a $24.7 million year-over-year increase in revenues attributable to volumes transferred and stored at our Tulsa storage and rack facilities.
Our revenues from continuing operations for the year ended December 31, 2010 include the recognition of $8.4 million of prior shortfalls billed to shippers in 2009, as they did not meet their minimum volume commitments in any of the subsequent four quarters.

 

 


 

Cost and Expense Highlights
Operating costs and expenses were $23.1 million and $91.3 million for the three months and year ended December 31, 2010, respectively, representing increases of $1.1 million and $13 million compared to the same periods of 2009. These increases were due to costs attributable to our recent asset acquisitions, higher year-to-date throughput volumes on our heritage pipelines, early 2010 transaction related expenses, and higher depreciation, maintenance and payroll expense.
Additionally, interest expense was $8.5 million and $34 million for the three months and year ended December 31, 2010, respectively, representing increases of $3.2 million and $12.5 million compared to the same periods of 2009. These increases reflect interest on our 8.25% senior notes issued in March 2010 and costs of $1.1 million from a partial settlement of an interest rate swap in the second quarter of 2010.
We have scheduled a webcast conference call today at 4:00 PM Eastern Time to discuss financial results. This webcast may be accessed at: http://www.videonewswire.com/event.asp?id=76110.
An audio archive of this webcast will be available using the above noted link through February 28, 2011.
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 Holly Corporation subsidiaries. The Partnership owns and operates petroleum product and crude gathering pipelines, tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma and Utah. In addition, the Partnership owns a 25% interest in SLC Pipeline LLC, a 95-mile intrastate pipeline system serving refineries in the Salt Lake City, Utah area.
Holly Corporation operates through its subsidiaries a 100,000 barrels-per-stream-day (“bpsd”) refinery located in Artesia, New Mexico, a 31,000 bpsd refinery in Woods Cross, Utah and a 125,000 bpsd refinery in Tulsa, Oklahoma. A Holly Corporation subsidiary owns a 34% interest (including the general partner interest) in the Partnership.
The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: 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. Forward looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. 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. Such 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. These factors include, but are 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 in our terminals;
   
the economic viability of Holly Corporation, Alon USA, Inc. and our other customers;
   
the demand for refined petroleum products in markets we serve;
   
our ability to successfully purchase and integrate additional operations in the future;
   
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; 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 Volumes
The following tables present income, distributable cash flow and volume information for the three months and years ended December 31, 2010 and 2009.
                         
    Three Months Ended        
    December 31,     Change from  
    2010     2009     2009  
    (In thousands, except per unit data)  
Revenues
                       
Pipelines:
                       
Affiliates — refined product pipelines
  $ 12,595     $ 12,020     $ 575  
Affiliates — intermediate pipelines
    5,325       4,924       401  
Affiliates — crude pipelines
    10,025       8,051       1,974  
 
                 
 
    27,945       24,995       2,950  
Third parties — refined product pipelines
    8,818       6,805       2,013  
 
                 
 
    36,763       31,800       4,963  
Terminals and loading racks:
                       
Affiliates
    10,442       4,654       5,788  
Third parties
    2,164       1,971       193  
 
                 
 
    12,606       6,625       5,981  
 
                 
Total revenues
    49,369       38,425       10,944  
Operating costs and expenses:
                       
Operations
    12,760       11,927       833  
Depreciation and amortization
    8,644       7,505       1,139  
General and administrative
    1,735       2,607       (872 )
 
                 
 
    23,139       22,039       1,100  
 
                 
Operating income
    26,230       16,386       9,844  
 
                       
Equity in earnings of SLC Pipeline
    798       610       188  
Interest income
    1       1        
Interest expense, including amortization
    (8,491 )     (5,276 )     (3,215 )
Other income
    15       2       13  
 
                 
 
    (7,677 )     (4,663 )     (3,014 )
 
                 
Income from continuing operations before income taxes
    18,553       11,723       6,830  
 
                       
State income tax
    (80 )     246       (326 )
 
                 
Income from continuing operations
    18,473       11,969       6,504  
Discontinued operations(1)
                       
Income from discontinued operations, net of noncontrolling interest of $388
          1,196       (1,196 )
Gain on sale of interest in Rio Grande
          14,479       (14,479 )
 
                 
Income from discontinued operations
          15,675       (15,675 )
 
                 
Net income
    18,473       27,644       (9,171 )
Less general partner interest in net income, including incentive distributions(2)
    3,425       2,784       641  
 
                 
Limited partners’ interest in net income
  $ 15,048     $ 24,860     $ (9,812 )
 
                 
 
                       
Limited partners’ earnings per unit — basic and diluted:(2)
                       
Income from continuing operations
  $ 0.68     $ 0.47     $ 0.21  
Income from discontinued operations
          0.75       (0.75 )
 
                 
Net income
  $ 0.68     $ 1.22     $ (0.54 )
 
                 
 
Weighted average limited partners’ units outstanding
    22,079       20,434       1,645  
 
                 
 
EBITDA(3)
  $ 35,687     $ 25,876     $ 9,811  
 
                 
 
Distributable cash flow(4)
  $ 24,254     $ 20,536     $ 3,718  
 
                 
 
                       
Volumes from continuing operations (bpd)(1)
                       
 
Pipelines:
                       
Affiliates — refined product pipelines
    99,301       95,455       3,846  
Affiliates — intermediate pipelines
    88,530       85,519       3,011  
Affiliates — crude pipelines
    156,048       140,000       16,048  
 
                 
 
    343,879       320,974       22,905  
Third parties — refined product pipelines
    47,775       37,958       9,817  
 
                 
 
    391,654       358,932       32,722  
Terminals and loading racks:
                       
Affiliates
    181,745       136,576       45,169  
Third parties
    41,772       40,228       1,544  
 
                 
 
    223,517       176,804       46,713  
 
                 
Total for pipelines and terminal assets (bpd)
    615,171       535,736       79,435  
 
                 

 

 


 

                         
    Years Ended        
    December 31,     Change from  
    2010     2009     2009  
    (In thousands, except per unit data)  
Revenues
                       
Pipelines:
                       
Affiliates — refined product pipelines
  $ 48,482     $ 43,206     $ 5,276  
Affiliates — intermediate pipelines
    20,998       16,362       4,636  
Affiliates — crude pipelines
    38,932       29,266       9,666  
 
                 
 
    108,412       88,834       19,578  
Third parties — refined product pipelines
    27,954       37,930       (9,976 )
 
                 
 
    136,366       126,764       9,602  
Terminals and loading racks:
                       
Affiliates
    37,964       12,561       25,403  
Third parties
    7,767       7,236       531  
 
                 
 
    45,731       19,797       25,934  
 
                 
Total revenues
    182,097       146,561       35,536  
Operating costs and expenses:
                       
Operations
    52,947       44,003       8,944  
Depreciation and amortization
    30,682       26,714       3,968  
General and administrative
    7,719       7,586       133  
 
                 
 
    91,348       78,303       13,045  
 
                 
Operating income
    90,749       68,258       22,491  
 
                       
Equity in earnings of SLC Pipeline
    2,393       1,919       474  
Interest income
    7       11       (4 )
Interest expense, including amortization
    (34,001 )     (21,501 )     (12,500 )
Other income
    17       67       (50 )
SLC Pipeline acquisition costs
          (2,500 )     2,500  
 
                 
 
    (31,584 )     (22,004 )     (9,580 )
 
                 
Income from continuing operations before income taxes
    59,165       46,254       12,911  
State income tax
    (296 )     (20 )     (276 )
 
                 
Income from continuing operations
    58,869       46,234       12,635  
Discontinued operations(1)
                       
Income from discontinued operations, net of noncontrolling interest of $1,579
          5,301       (5,301 )
Gain on sale of interest in Rio Grande
          14,479       (14,479 )
 
                 
Income from discontinued operations
          19,780       (19,780 )
 
                 
Net income
    58,869       66,014       (7,145 )
Less general partner interest in net income, including incentive distributions(2)
    12,152       7,947       4,205  
 
                 
Limited partners’ interest in net income
  $ 46,717     $ 58,067     $ (11,350 )
 
                 
 
                       
Limited partners’ earnings per unit — basic and diluted:(2)
                       
Income from continuing operations
  $ 2.12     $ 2.12     $  
Income from discontinued operations
          1.06       (1.06 )
 
                 
Net income
  $ 2.12     $ 3.18     $ (1.06 )
 
                 
 
                       
Weighted average limited partners’ units outstanding
    22,079       18,268       3,811  
 
                 
 
                       
EBITDA(3)
  $ 123,841     $ 100,707     $ 23,134  
 
                 
 
                       
Distributable cash flow(4)
  $ 91,054     $ 72,213     $ 18,841  
 
                 
 
                       
Volumes from continuing operations (bpd)(1)
                       
 
                       
Pipelines:
                       
Affiliates — refined product pipelines
    96,094       88,001       8,093  
Affiliates — intermediate pipelines
    84,277       69,794       14,483  
Affiliates — crude pipelines
    144,011       137,244       6,767  
 
                 
 
    324,382       295,039       29,343  
Third parties — refined product pipelines
    38,910       43,709       (4,799 )
 
                 
 
    363,292       338,748       24,544  
Terminals and loading racks:
                       
Affiliates
    178,903       114,431       64,472  
Third parties
    39,568       42,206       (2,638 )
 
                 
 
    218,471       156,637       61,834  
 
                 
Total for pipelines and terminal assets (bpd)
    581,763       495,385       86,378  
 
                 

 

 


 

     
(1)  
On December 1, 2009, we sold our 70% interest in Rio Grande. Results of operations of Rio Grande are presented in discontinued operations. Pipeline volume information excludes volumes attributable to Rio Grande.
 
(2)  
Net income is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes incentive distributions declared subsequent to quarter end. For the three months and year ended December 31, 2010, general partner incentive distributions were $3.1 million and $11.2 million, respectively, and were $2.3 million and $6.7 million for the respective periods of 2009. Net income attributable to the limited partners is divided by the weighted average limited partner units outstanding in computing the limited partners’ per unit interest in net income.
 
(3)  
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon U.S. generally accepted accounting principles (“GAAP”). However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements, with the exception of EBITDA from discontinued operations. EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA also is 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     Years Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
    (In thousands)  
Income from continuing operations
  $ 18,473     $ 11,969     $ 58,869     $ 46,234  
 
                               
Add (subtract):
                               
Interest expense
    8,223       5,224       30,453       20,620  
Amortization of discount and deferred debt issuance costs
    268       177       1,008       706  
Increase (decrease) in interest expense — change in fair value of interest rate swaps and swap settlement costs
          (125 )     2,540       175  
Interest income
    (1 )     (1 )     (7 )     (11 )
State income tax
    80       (246 )     296       20  
Depreciation and amortization
    8,644       7,505       30,682       26,714  
EBITDA from discontinued operations
(excludes gain on sale of Rio Grande)
          1,373             6,249  
 
                       
 
                               
EBITDA
  $ 35,687     $ 25,876     $ 123,841     $ 100,707  
 
                       
     
(4)  
Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts separately presented in our consolidated financial statements, with the exception of equity in excess cash flows over earnings of SLC Pipeline, maintenance capital expenditures and distributable cash flow from discontinued operations. Distributable cash flow should not be considered in isolation or as an alternative to net income 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 also is 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     Years Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
    (In thousands)  
Income from continuing operations
  $ 18,473     $ 11,969     $ 58,869     $ 46,234  
 
                               
Add (subtract):
                               
Depreciation and amortization
    8,644       7,505       30,682       26,714  
Amortization of discount and deferred debt issuance costs
    268       177       1,008       706  
Increase (decrease) in interest expense — change in fair value of interest rate swaps and swap settlement costs
          (125 )     2,540       175  
Equity in excess cash flows over earnings of SLC Pipeline
    (118 )     165       407       552  
Increase (decrease) in deferred revenue
    (1,244 )     820       2,035       (7,256 )
SLC Pipeline acquisition costs*
                      2,500  
Maintenance capital expenditures**
    (1,769 )     (1,333 )     (4,487 )     (3,595 )
Distributable cash flow from discontinued operations (excludes gain on sale of Rio Grande)
          1,358             6,183  
 
                       
 
                               
Distributable cash flow
  $ 24,254     $ 20,536     $ 91,054     $ 72,213  
 
                       
     
*  
We expensed the $2.5 million finder’s fee associated with our joint venture agreement with Plains that closed in March 2009. These costs directly relate to our interest in the new joint venture pipeline and are similar to expansion capital expenditures; accordingly, we have added back these costs to arrive at distributable cash flow.
 
**  
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, and safety and to address environmental regulations.
                 
    December 31,     December 31,  
    2010     2009  
    (In thousands)  
Balance Sheet Data
               
 
               
Cash and cash equivalents
  $ 403     $ 2,508  
Working capital
  $ (7,758 )   $ 4,404  
Total assets
  $ 643,273     $ 616,845  
Long-term debt(5)
  $ 491,648     $ 390,827  
Total equity(6)
  $ 109,372     $ 193,864  
     
(5)  
Includes $159 million and $206 million of credit agreement advances at December 31, 2010 and 2009, respectively.
 
(6)  
As a master limited partnership, we distribute our available cash, which historically has exceeded our net income 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. Additionally, if the assets transferred to us upon our initial public offering in 2004, the intermediate pipelines purchased from Holly in 2005 and the assets purchased from Holly in 2009 and March 2010 had been acquired from third parties, our acquisition cost in excess of Holly’s basis in the transferred assets of $218 million would have been recorded as increases to our properties and equipment and intangible assets instead of decreases to partners’ equity.
FOR FURTHER INFORMATION, Contact:
Bruce R. Shaw, Senior Vice President and
     Chief Financial Officer
M. Neale Hickerson, Vice President,
     Investor Relations
Holly Energy Partners, L.P.
214/871-3555