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8-K - FORM 8-K - HOLLY ENERGY PARTNERS LP | c23739e8vk.htm |
Exhibit 99.1
Press Release October 27, 2011 |
Holly Energy Partners, L.P. Reports Third Quarter Results
Dallas, Texas Holly Energy Partners, L.P. (HEP or the Partnership) (NYSE-HEP) today reported
financial results for the third quarter of 2011. For the quarter, distributable cash flow was
$25.7 million, up $1.8 million, or 7% compared to third quarter of 2010. On October 26, 2011, HEP
announced its 28th consecutive distribution increase, raising the quarterly distribution
from $0.865 to $0.875, representing a 5% increase over its distribution for the third quarter of
2010.
Net income for the third quarter was $16.7 million ($0.58 per basic and diluted limited partner
unit) compared to $16.3 million ($0.59 per basic and diluted limited partner unit), an increase of
$0.5 million, or 3% over the third quarter of 2010. This increase in overall earnings is due
principally to an increase in overall pipeline shipments, revenues attributable to our Tulsa
interconnect pipelines and annual tariff increases, net of the effects of a decrease in deferred
revenue realized and increased operating costs and expenses.
Commenting on the third quarter of 2011, Matt Clifton, Chairman of the Board, Chief Executive
Officer and President stated, We are very pleased with our financial results with distributable
cash flow reaching a new quarterly high. For the quarter, EBITDA was $33.2 million, an increase of
$1.2 million or 4% over last years third quarter. During the quarter, we benefited from
significantly improved related-party pipeline shipments as HollyFrontiers Navajo refinery
performed at higher planned levels throughout the quarter. Also, we completed the interconnect
pipeline project at HollyFrontiers Tulsa refinery which contributed to the increase in revenues
for the third quarter. Under an agreement with HollyFrontier, effective September 1, 2011, the
interconnect pipelines will generate minimum annual revenues of $4.9 million.
Earlier this month, we announced an agreement in principle with HollyFrontier for the
proposed acquisition of certain tankage, loading rack and crude receiving assets that serve its
legacy Frontier refineries. Upon closing, we intend to enter into long-term throughput agreements
with HollyFrontier that are expected to yield an estimated $47 million in incremental annual
revenues. Additionally, we have an option to purchase HollyFrontiers interest in the UNEV
Pipeline, which is on target for completion in November. We are very enthusiastic about these
tremendous expansion opportunities. Looking forward, we shall continue to strive for further
growth in our asset base, geographic footprint and distributable cash flow, Clifton said.
Third Quarter 2011 Revenue Highlights
Revenues for the quarter were $49.3 million, a $2.7 million increase compared to the third quarter
of 2010. The revenue increase was due to increased pipeline shipments and the effect of annual
tariff increases. These factors were partially offset by a $0.8 million decrease in previously
deferred revenue realized. Overall pipeline volumes were up 13% compared to the third quarter of
2010.
| Revenues from our refined product pipelines were $19.5 million, a decrease of $0.2
million, on shipments averaging 140.3 thousand barrels per day (mbpd) compared to 135.2
mbpd for the third quarter of 2010. This includes the effects of a $1.1 million decrease
in previously deferred revenue realized. |
| Revenues from our intermediate pipelines were $5.9 million, an increase of $1 million,
on shipments averaging 91.8 mbpd compared to 83.2 mbpd for the third quarter of 2010. This
includes $0.4 million in revenues attributable to the Tulsa interconnect pipelines and a
$0.3 million increase in previously deferred revenue realized. |
| Revenues from our crude pipelines were $10.6 million, an increase of $0.8 million, on
shipments averaging 175.5 mbpd compared to 143.6 mbpd for the third quarter of 2010. |
| Revenues from terminal, tankage and loading rack fees were $13.3 million, an increase of
$1.1 million compared to the third quarter of 2010. |
Revenues for the three months ended September 30, 2011 include the recognition of $0.8 million of
prior shortfalls billed to HollyFrontier in 2010, as they did not meet their minimum volume
commitments within the contractual make-up period. As of September 30, 2011, deferred revenue in
our consolidated balance sheet was $6.5 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 contractual make-up period.
Nine Months Ended September 30, 2011 Revenue Highlights
Revenues for the nine months ended September 30, 2011 were $145.2 million, a $12.5 million increase
compared to the same period of 2010. This was due to an overall increase in pipeline shipments,
revenues attributable to our March 2010 asset acquisitions, a $4.1 million increase in previously
deferred revenue realized and the effect of annual tariff increases. Overall pipeline volumes were
up 6% from the same period of 2010 due to an increase in third-party refined product pipeline
shipments.
| Revenues from our refined product pipelines were $62 million, an increase of $7 million,
on shipments averaging 136.2 mbpd compared to 130.9 mbpd for the nine months ended
September 30, 2010. This includes a $4.3 million increase in previously deferred revenue
realized. |
| Revenues from our intermediate pipelines were $15.6 million on shipments averaging 81.6
mbpd compared to 82.8 mbpd for the nine months ended September 30, 2010. This includes
$0.4 million in revenues attributable to the Tulsa interconnect pipelines and the effects
of a $0.2 million decrease in previously deferred revenue realized. |
| Revenues from our crude pipelines were $29.5 million, an increase of $0.6 million, on
shipments averaging 157.6 mbpd compared to 140 mbpd for the nine months ended September 30,
2010. |
| Revenues from terminal, tankage and loading rack fees were $38 million, an increase of
$4.9 million compared to the nine months ended September 30, 2010, reflecting revenues
attributable to our Tulsa storage and rack facilities acquired from HollyFrontier in March
2010. |
Revenues for the nine months ended September 30, 2011 include the recognition of $9.9 million of
prior shortfalls billed to shippers in 2010, as they did not meet their minimum volume commitments
within the contractual make-up period.
Cost and Expense Highlights
Operating costs and expenses were $24.4 million and $69.9 million for the three and nine months
ended September 30, 2011, respectively, representing an increase of $2.1 million and $1.7 million
over the respective periods of 2010. Year over year, third quarter and year-to-date operating
costs include higher maintenance service and payroll costs. Additionally, property taxes increased
on a year-to-date basis. Although professional fees were up for the current year third quarter due
to our pending HollyFrontier asset acquisition, current year-to-date professional fees decreased
compared to the nine months ended September 30, 2010.
Interest expense was $8.8 million and $26.1 million for the three and nine months ended September
30, 2011, respectively, representing an increase of $0.4 million and $0.6 million over the
respective periods of 2010 due to higher year-over-year debt levels. Additionally, interest
expense for the nine months ended September 30, 2010 include a charge of $1.1 million due to the
partial settlement of an interest rate swap.
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=82951.
An audio archive of this webcast will be available using the above noted link through November 9,
2011.
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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 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.
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 100,000 barrels per stream
day (bpsd) refinery located in Artesia, New Mexico, a 125,000 bpsd refinery in Tulsa, Oklahoma, a
31,000 bpsd refinery in Woods Cross, Utah, a 135,000 bpsd refinery located in El Dorado, Kansas,
and a 52,000 bpd refinery located in Cheyenne, Wyoming. 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. A subsidiary of HollyFrontier also owns a 34% interest (including
the 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. 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, stored and throughput in our
terminals; |
| the economic viability of HollyFrontier 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.
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RESULTS OF OPERATIONS (Unaudited)
Income, Distributable Cash Flow and Volumes
Income, Distributable Cash Flow and Volumes
The following tables present income, distributable cash flow and volume information for the three
and nine months ended September 30, 2011 and 2010.
Three Months Ended | Change | |||||||||||
September 30, | from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands, except per unit data) | ||||||||||||
Revenues |
||||||||||||
Pipelines: |
||||||||||||
Affiliates refined product pipelines |
$ | 12,937 | $ | 12,340 | $ | 597 | ||||||
Affiliates intermediate pipelines |
5,935 | 4,917 | 1,018 | |||||||||
Affiliates crude pipelines |
10,555 | 9,775 | 780 | |||||||||
29,427 | 27,032 | 2,395 | ||||||||||
Third parties refined product pipelines |
6,525 | 7,277 | (752 | ) | ||||||||
35,952 | 34,309 | 1,643 | ||||||||||
Terminals, tanks and loading racks: |
||||||||||||
Affiliates |
11,519 | 10,281 | 1,238 | |||||||||
Third parties |
1,797 | 1,959 | (162 | ) | ||||||||
13,316 | 12,240 | 1,076 | ||||||||||
Total revenues |
49,268 | 46,549 | 2,719 | |||||||||
Operating costs and expenses |
||||||||||||
Operations |
14,689 | 13,632 | 1,057 | |||||||||
Depreciation and amortization |
7,733 | 7,237 | 496 | |||||||||
General and administrative |
2,012 | 1,508 | 504 | |||||||||
24,434 | 22,377 | 2,057 | ||||||||||
Operating income |
24,834 | 24,172 | 662 | |||||||||
Equity in earnings of SLC Pipeline |
641 | 570 | 71 | |||||||||
Interest income |
| 1 | (1 | ) | ||||||||
Interest expense, including amortization |
(8,828 | ) | (8,417 | ) | (411 | ) | ||||||
Other |
20 | 9 | 11 | |||||||||
(8,167 | ) | (7,837 | ) | (330 | ) | |||||||
Income before income taxes |
16,667 | 16,335 | 332 | |||||||||
State income tax |
77 | (76 | ) | 153 | ||||||||
Net income |
16,744 | 16,259 | 485 | |||||||||
Less general partner interest in net income, including incentive
distributions (1) |
4,009 | 3,172 | 837 | |||||||||
Limited partners interest in net income |
$ | 12,735 | $ | 13,087 | $ | (352 | ) | |||||
Limited partners earnings per unit basic and diluted (1) |
$ | 0.58 | $ | 0.59 | $ | (0.01 | ) | |||||
Weighted average limited partners units outstanding |
22,079 | 22,079 | | |||||||||
EBITDA (2) |
$ | 33,228 | $ | 31,988 | $ | 1,240 | ||||||
Distributable cash flow (3) |
$ | 25,731 | $ | 23,969 | $ | 1,762 | ||||||
Volumes (bpd) |
||||||||||||
Pipelines: |
||||||||||||
Affiliates refined product pipelines |
96,105 | 93,194 | 2,911 | |||||||||
Affiliates intermediate pipelines |
91,783 | 83,227 | 8,556 | |||||||||
Affiliates crude pipelines |
175,459 | 143,617 | 31,842 | |||||||||
363,347 | 320,038 | 43,309 | ||||||||||
Third parties refined product pipelines |
44,212 | 41,967 | 2,245 | |||||||||
407,559 | 362,005 | 45,554 | ||||||||||
Terminals and loading racks: |
||||||||||||
Affiliates |
183,987 | 183,312 | 675 | |||||||||
Third parties |
43,224 | 43,633 | (409 | ) | ||||||||
227,211 | 226,945 | 266 | ||||||||||
Total for pipelines and terminal assets (bpd) |
634,770 | 588,950 | 45,820 | |||||||||
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Nine Months Ended | Change | |||||||||||
September 30, | from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands, except per unit data) | ||||||||||||
Revenues |
||||||||||||
Pipelines: |
||||||||||||
Affiliates refined product pipelines |
$ | 34,484 | $ | 35,887 | $ | (1,403 | ) | |||||
Affiliates intermediate pipelines |
15,637 | 15,673 | (36 | ) | ||||||||
Affiliates crude pipelines |
29,500 | 28,907 | 593 | |||||||||
79,621 | 80,467 | (846 | ) | |||||||||
Third parties refined product pipelines |
27,586 | 19,136 | 8,450 | |||||||||
107,207 | 99,603 | 7,604 | ||||||||||
Terminals, tanks and loading racks: |
||||||||||||
Affiliates |
32,571 | 27,522 | 5,049 | |||||||||
Third parties |
5,447 | 5,603 | (156 | ) | ||||||||
38,018 | 33,125 | 4,893 | ||||||||||
Total revenues |
145,225 | 132,728 | 12,497 | |||||||||
Operating costs and expenses |
||||||||||||
Operations |
41,851 | 40,187 | 1,664 | |||||||||
Depreciation and amortization |
23,086 | 22,038 | 1,048 | |||||||||
General and administrative |
4,948 | 5,984 | (1,036 | ) | ||||||||
69,885 | 68,209 | 1,676 | ||||||||||
Operating income |
75,340 | 64,519 | 10,821 | |||||||||
Equity in earnings of SLC Pipeline |
1,848 | 1,595 | 253 | |||||||||
Interest income |
| 6 | (6 | ) | ||||||||
Interest expense, including amortization |
(26,101 | ) | (25,510 | ) | (591 | ) | ||||||
Other |
8 | 2 | 6 | |||||||||
(24,245 | ) | (23,907 | ) | (338 | ) | |||||||
Income before income taxes |
51,095 | 40,612 | 10,483 | |||||||||
State income tax |
(169 | ) | (216 | ) | 47 | |||||||
Net income |
50,926 | 40,396 | 10,530 | |||||||||
Less general partner interest in net income, including incentive
distributions (1) |
11,418 | 8,727 | 2,691 | |||||||||
Limited partners interest in net income |
$ | 39,508 | $ | 31,669 | $ | 7,839 | ||||||
Limited partners earnings per unit basic and diluted (1) |
$ | 1.79 | $ | 1.43 | $ | 0.36 | ||||||
Weighted average limited partners units outstanding |
22,079 | 22,079 | | |||||||||
EBITDA (2) |
$ | 100,282 | $ | 88,154 | $ | 12,128 | ||||||
Distributable cash flow (3) |
$ | 67,924 | $ | 66,800 | $ | 1,124 | ||||||
Volumes (bpd) |
||||||||||||
Pipelines: |
||||||||||||
Affiliates refined product pipelines |
88,172 | 95,013 | (6,841 | ) | ||||||||
Affiliates intermediate pipelines |
81,618 | 82,844 | (1,226 | ) | ||||||||
Affiliates crude pipelines |
157,598 | 139,955 | 17,643 | |||||||||
327,388 | 317,812 | 9,576 | ||||||||||
Third parties refined product pipelines |
48,107 | 35,923 | 12,184 | |||||||||
375,495 | 353,735 | 21,760 | ||||||||||
Terminals and loading racks: |
||||||||||||
Affiliates |
174,866 | 177,946 | (3,080 | ) | ||||||||
Third parties |
42,102 | 38,825 | 3,277 | |||||||||
216,968 | 216,771 | 197 | ||||||||||
Total for pipelines and terminal assets (bpd) |
592,463 | 570,506 | 21,957 | |||||||||
(1) | 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 ended September 30, 2011 and 2010, general partner incentive distributions
were $3.7 million and $2.9 million, respectively. For the nine months ended September 30,
2011 and 2010, the distributions were $10.6 million and $8.1 million, respectively. 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. |
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(2) | 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.
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income |
$ | 16,744 | $ | 16,259 | $ | 50,926 | $ | 40,396 | ||||||||
Add (subtract): |
||||||||||||||||
Interest expense |
8,520 | 8,135 | 25,198 | 22,230 | ||||||||||||
Amortization of discount and deferred
debt issuance costs |
308 | 282 | 903 | 740 | ||||||||||||
Increase in interest expense change in
fair value of interest rate swaps and
swap settlement costs |
| | | 2,540 | ||||||||||||
Interest income |
| (1 | ) | | (6 | ) | ||||||||||
State income tax |
(77 | ) | 76 | 169 | 216 | |||||||||||
Depreciation and amortization |
7,733 | 7,237 | 23,086 | 22,038 | ||||||||||||
EBITDA |
$ | 33,228 | $ | 31,988 | $ | 100,282 | $ | 88,154 | ||||||||
(3) | 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 and maintenance capital expenditures. 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income |
$ | 16,744 | $ | 16,259 | $ | 50,926 | $ | 40,396 | ||||||||
Add (subtract): |
||||||||||||||||
Depreciation and amortization |
7,733 | 7,237 | 23,086 | 22,038 | ||||||||||||
Amortization of discount and
deferred debt issuance costs |
308 | 282 | 903 | 740 | ||||||||||||
Increase in interest expense change
in fair value of interest rate
swaps and swap settlement costs |
| | | 2,540 | ||||||||||||
Equity in excess cash flows over
earnings of SLC Pipeline |
198 | 173 | 512 | 525 | ||||||||||||
Increase (decrease) in deferred revenue |
1,201 | 758 | (3,917 | ) | 3,279 | |||||||||||
Maintenance capital expenditures* |
(453 | ) | (740 | ) | (3,586 | ) | (2,718 | ) | ||||||||
Distributable cash flow |
$ | 25,731 | $ | 23,969 | $ | 67,924 | $ | 66,800 | ||||||||
* | 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. |
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September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Balance Sheet Data |
||||||||
Cash and cash equivalents |
$ | 1,802 | $ | 403 | ||||
Working capital (deficit) |
$ | 7,587 | $ | (7,758 | ) | |||
Total assets |
$ | 657,703 | $ | 643,273 | ||||
Long-term debt |
$ | 534,902 | $ | 491,648 | ||||
Partners equity (4) |
$ | 94,976 | $ | 109,372 |
(4) | 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 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 HollyFrontiers 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:
Douglas S. Aron, Executive Vice President and
Chief Financial Officer
M. Neale Hickerson, Vice President,
Investor Relations
Holly Energy Partners, L.P.
214/871-3555
Chief Financial Officer
M. Neale Hickerson, Vice President,
Investor Relations
Holly Energy Partners, L.P.
214/871-3555
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