Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the first quarter
of 2013. For the quarter, distributable cash flow was $32.4
million, down $4.2 million, or 11% compared to the first quarter of
2012. HEP announced its 34th consecutive distribution increase on
April 25, 2013, raising the quarterly distribution from $0.47 to
$0.4775 per unit, representing a 7% increase over the distribution
for the first quarter of 2012.
Net income attributable to Holly Energy Partners for the first
quarter was $18.4 million ($0.21 per basic and diluted limited
partner unit) compared to $21.8 million ($0.30 per basic and
diluted limited partner unit) for the first quarter of 2012. This
decrease in earnings is due principally to lower pipeline shipments
resulting from major maintenance turnarounds at both
HollyFrontier's Navajo refinery and Alon's Big Spring refinery that
had a significant impact on pipeline and terminal volumes. Also
operating costs and expenses increased.
Commenting on the first quarter of 2013, Matt Clifton, Chairman
of the Board and Chief Executive Officer, stated, “Although our
distributable cash flow and earnings were down in the first
quarter, they were near expected levels due to the major refinery
maintenance work performed at HollyFrontier's Navajo refinery and
at Alon's Big Spring refinery. With these two refinery turnarounds
now completed, shipments through our pipelines have increased,
returning to pre-turnaround throughput rates. Looking forward,
positive industry fundamentals combined with HEP's strong asset
base and our planned capital projects should drive continued growth
in our distributable cash flow.”
First Quarter 2013 Revenue Highlights
Revenues for the quarter were $74.3 million, a $5.9 million
increase compared to the first quarter of 2012. This is principally
due to a $5.0 million increase in deferred revenue realized,
increased shipments on the UNEV Pipeline and the effect of annual
tariff increases. However, major maintenance performed at two of
the refineries we serve significantly impacted revenue and resulted
in overall pipeline volumes being down 6% compared to the three
months ended March 31, 2012.
- Revenues from our refined product
pipelines were $27.1 million, an increase of $2.8 million
primarily due to the effects of a $5.6 million increase in deferred
revenue realized, increased revenues of $1.7 million from increased
volumes on the UNEV Pipeline and the effect of annual tariff
increases. Shipments averaged 147.1 thousand barrels per day
(“mbpd”) compared to 161.5 mbpd for the first quarter of 2012, with
the decrease due principally to the major maintenance performed at
the two refineries.
- Revenues from our intermediate
pipelines were $6.2 million, a decrease of $0.9 million, on
shipments averaging 120.8 mbpd compared to 123.6 mbpd for the first
quarter of 2012.
- Revenues from our crude
pipelines were $11.6 million, an increase of $1.0 million, on
shipments averaging 145.9 mbpd compared to 153.7 mbpd for the first
quarter of 2012. Although crude pipeline shipments were down,
revenues from our crude pipelines increased due to annual tariff
increases, increased volumes on certain pipeline segments and
minimum quarterly revenue billings on segments where volumes
decreased.
- Revenues from terminal, tankage and
loading rack fees were $29.4 million, an increase of $2.9
million compared to the first quarter of 2012. This increase is due
principally to increased tankage revenues. Refined products
terminalled in our facilities averaged 315.7 mbpd compared to 314.6
mbpd for the first quarter of 2012.
Revenues for the three months ended March 31, 2013 include
the recognition of $6.7 million of prior shortfalls billed to
shippers in 2012, as they did not meet their minimum volume
commitments within the contractual make-up period. As of
March 31, 2013, deferred revenue in our consolidated balance
sheet was $5.4 million. Such deferred revenue will be recognized in
earnings either as payment for shipments in excess of guaranteed
levels, if and to the extent the pipeline system will not have the
necessary capacity for shipments in excess of guaranteed levels, or
when shipping rights expire unused over the contractual make-up
period.
Cost and Expense Highlights
Operating costs and expenses were $43.3 million for the three
months ended March 31, 2013, representing an increase of $6.4
million over the same period of 2012. This increase is due to
higher maintenance costs incurred to coincide with refinery
turnaround, environmental accruals and employee costs.
Interest expense was $12.5 million for the three months ended
March 31, 2013, representing increases of $2.1 million over the
respective period of 2012 due to higher year-over-year debt
levels.
We have scheduled a webcast conference call today at 4:00 PM
Eastern Time to discuss financial results. This webcast may be
accessed at:
https://event.webcasts.com/starthere.jsp?ei=1015237.
An audio archive of this webcast will be available using the
above noted link through May 14, 2013.
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, Utah, Wyoming and Kansas. In addition,
the Partnership owns a 75% interest in UNEV Pipeline, LLC, the
owner of a Holly Energy operated refined products pipeline running
from Utah to Las Vegas, Nevada, and related product terminals and 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 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 31,000 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.
A subsidiary of HollyFrontier owns a 39% 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 purchase and integrate
additional operations in the future successfully;
- 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 VolumesThe following
tables present income, distributable cash flow and volume
information for the three months ended March 31, 2013 and 2012.
Three Months Ended March 31,
Change from
2013 2012 2012 (In thousands,
except per unit data)
Revenues Pipelines: Affiliates –
refined product pipelines $ 16,770 $ 14,856 $ 1,914 Affiliates –
intermediate pipelines 6,172 7,045 (873 ) Affiliates – crude
pipelines 11,579 10,545 1,034
34,521 32,446 2,075 Third parties – refined product
pipelines 10,343 9,469 874
44,864 41,915 2,949 Terminals, tanks and loading racks:
Affiliates 26,991 24,085 2,906 Third parties 2,443
2,415 28 29,434
26,500 2,934 Total revenues 74,298 68,415
5,883
Operating costs and expenses: Operations 25,865 20,475
5,390 Depreciation and amortization 14,154 14,300 (146 ) General
and administrative 3,232 2,039
1,193 43,251 36,814 6,437
Operating income 31,047 31,601 (554 ) Equity
in earnings of SLC Pipeline 657 831 (174 ) Interest expense,
including amortization (12,484 ) (10,405 ) (2,079 ) Interest income
103 — 103 Loss on early extinguishment of debt — (2,596 ) 2,596
Gain on sale of assets 2,022 —
2,022 (9,702 ) (12,170 ) 2,468
Income before income taxes 21,345 19,431 1,914 State income
tax expense (56 ) (75 ) 19
Net
income 21,289 19,356 1,933 Allocation of net loss attributable
to Predecessors — 1,861 (1,861 ) Allocation of net loss (income)
attributable to noncontrolling interests (2,890 ) 557
(3,447 )
Net income attributable to Holly Energy
Partners 18,399 21,774 (3,375 ) General partner interest in net
income, including incentive distributions(1) (6,231 )
(5,503 ) (728 )
Limited partners’ interest in net
income $ 12,168 $ 16,271 $ (4,103 )
Limited
partners’ earnings per unit – basic and diluted:(1) $ 0.21
$ 0.30 $ (0.09 )
Weighted average limited
partners’ units outstanding 56,990 54,722
2,268
EBITDA(2) $ 44,990 $
45,426 $ (436 )
Distributable cash flow(3) $ 32,385
$ 36,555 $ (4,170 )
Volumes (bpd)
Pipelines: Affiliates – refined product pipelines 94,148 97,226
(3,078 ) Affiliates – intermediate pipelines 120,777 123,568 (2,791
) Affiliates – crude pipelines 145,926 153,662
(7,736 ) 360,851 374,456 (13,605 ) Third parties –
refined product pipelines 52,986 64,287
(11,301 ) 413,837 438,743 (24,906 ) Terminals and loading
racks: Affiliates 260,242 262,230 (1,988 ) Third parties
55,459 52,383 3,076
315,701 314,613 1,088
Total
for pipelines and terminal assets (bpd) 729,538
753,356 (23,818 ) (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. General
partner incentive distributions were $6.0 million and $5.2 million
for the three months ended March 31, 2013 and 2012, 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. (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 (excluding
Predecessor amounts). EBITDA is not a calculation based upon 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
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. 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 March 31, 2013 2012
(In thousands)
Net income attributable to Holly Energy
Partners $ 18,399 $ 21,774 Add (subtract): Interest expense
11,105 8,760 Interest Income (103 ) — Amortization of discount and
deferred debt charges 530 371 Loss on early extinguishment of debt
— 2,596 Increase in interest expense - non-cash charges
attributable to interest rate swaps 849 1,274 State income tax 56
75 Depreciation and amortization 14,154 14,300 Predecessor
depreciation and amortization — (3,724 )
EBITDA $ 44,990 $ 45,426 (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 billed crude revenue settlement
and 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 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 March 31, 2013
2012 (In thousands)
Net income attributable to Holly
Energy Partners $ 18,399 $ 21,774 Add (subtract): Depreciation
and amortization 14,154 14,300 Predecessor depreciation and
amortization — (3,724 ) Amortization of discount and deferred debt
charges 530 371 Loss on early extinguishment of debt — 2,596
Increase in interest expense - non-cash charges attributable to
interest rate swaps 849 1,274 Increase (decrease) in deferred
revenue attributable to shortfall billings (1,224 ) (592 ) Billed
crude revenue settlement 918 918 Maintenance capital expenditures*
(2,335 ) (307 ) Other non-cash adjustments 1,094
(55 )
Distributable cash flow $ 32,385 $
36,555 * 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.
March 31, December
31, 2013 2012 (In thousands)
Balance Sheet
Data Cash and cash equivalents $ 18,193 $ 5,237 Working capital
$ 32,315 $ 11,826 Total assets $ 1,398,186 $ 1,394,110 Long-term
debt $ 811,913 $ 864,674 Partners' equity(4) $ 412,604 $ 352,653
(4) 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 of $305.5 million
would have been recorded as increases to our properties and
equipment and intangible assets instead of decreases to partners’
equity.
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