Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the first quarter
of 2017. Net income attributable to Holly Energy Partners for the
first quarter was $25.6 million ($0.13 per basic and diluted
limited partner unit) compared to $43.0 million ($0.52 per basic
and diluted limited partner unit) for the first quarter of
2016.
Distributable cash flow was $57.3 million for the quarter, up
$1.9 million, or 3.5% compared to the first quarter of 2016. HEP
announced its 50th consecutive distribution increase on April 27,
2017, raising the quarterly distribution from $0.6075 to $0.62 per
unit, which represents an increase of 7.8% over the distribution
for the first quarter of 2016 and progress towards HEP's 8%
distribution growth rate target.
The decrease in earnings is primarily due to (a) a charge of
$12.2 million related to the early redemption of our previously
outstanding $300 million aggregate principal amount of 6.5% senior
notes, due in 2020, (b) a reduction in pipeline revenues of $12.4
million primarily driven by a turnaround at HollyFrontier
Corporation's ("HFC") Navajo refinery, (c) higher interest expense
of $3.0 million and (d) lower equity in earnings from equity method
investments caused by an outage on the SLC pipeline offset by (e)
earnings from our Woods Cross refinery processing units acquired in
the fourth quarter of 2016. Excluding the loss on early
extinguishment of debt, net income attributable to Holly Energy
Partners for the first quarter would be $37.8 million ($0.32 per
basic and diluted limited partner unit).
Commenting on the first quarter of 2017, George Damiris, Chief
Executive Officer, stated, “Despite a significant turnaround at
HFC's Navajo refinery, we are pleased to be able to increase our
distributable cash flow quarter over quarter, which allowed us to
maintain our record of continuous quarterly distribution increases,
while still maintaining a distribution coverage ratio of 1.0.
Looking forward, we will continue to leverage our talented employee
base, our relationship with HollyFrontier and our Mid-Continent,
Northwest and Southwest logistics footprint to generate new organic
and external growth opportunities."
First Quarter 2017 Revenue Highlights
Revenues for the quarter were $105.6 million, an increase of
$3.6 million compared to the first quarter of 2016. Revenues around
assets serving HFC's Navajo refinery declined by $7.9 million due
to the substantial planned turnaround during the first quarter
2017. Excluding this decline, revenues increased by $11.5 million
primarily due to the Woods Cross processing units acquired in the
fourth quarter of 2016. Overall pipeline volumes were down 11%
compared to the three months ended March 31, 2016, largely due to
the turnaround at HFC's Navajo refinery.
- Revenues from our refined product
pipelines were $30.3 million, a decrease of $9.7 million
compared to the first quarter of 2016 and shipments averaged 192.4
mbpd compared to 210.8 mbpd for the first quarter of 2016. Revenues
and volumes both decreased due to the turnaround at HFC's Navajo
refinery as well as lower throughputs on our UNEV pipeline.
- Revenues from our intermediate
pipelines were $5.3 million, a decrease of $2.1 million, on
shipments averaging 104.3 mbpd compared to 137.4 mbpd for the first
quarter of 2016. These declines were due to the turnaround at HFC's
Navajo refinery.
- Revenues from our crude
pipelines were $16.9 million, a decrease of $0.6 million, on
shipments averaging 268.9 mbpd compared to 287.4 mbpd for the first
quarter of 2016. Revenues and volumes decreased mainly due to the
turnaround at HFC's Navajo refinery.
- Revenues from terminal, tankage and
loading rack fees were $33.8 million, an increase of $1.2
million compared to the first quarter of 2016. Refined products
terminalled in the facilities averaged 444.6 mbpd compared to 438.3
mbpd for the first quarter of 2016. The volume and revenue increase
is mainly due to volumes from our Tulsa crude tanks, acquired on
the last day of the first quarter of 2016, offset by the transfer
of the El Paso terminal to HollyFrontier in the first quarter of
2016.
- Revenues from refinery
processing units were $19.4 million, an increase of $14.9
million on throughputs averaging 62.8 mbpd compared to 42.4 mbpd
for 2016. This increase in revenue and volumes is due to the Woods
Cross refinery processing units acquired in the fourth quarter of
2016.
Revenues for the three months ended March 31, 2017, include the
recognition of $2.1 million of prior shortfalls billed to shippers
in 2016 as they did not meet their minimum volume commitments
within the contractual make-up period. As of March 31, 2017,
shortfall deferred revenue reflected in our consolidated balance
sheet was $6.2 million. Such deferred revenue will be recognized in
earnings either as (a) payment for shipments in excess of
guaranteed levels, if and to the extent the pipeline system has the
necessary capacity for shipments in excess of guaranteed levels, or
(b) when shipping rights expire unused over the contractual make-up
period.
Operating Costs and Expenses Highlights
Operating costs and expenses were $53.9 million for the three
months ended March 31, 2017, representing an increase of $6.4
million from the three months ended March 31, 2016. The increase is
primarily due to $8.2 million in operating costs and expenses for
our Woods Cross processing units acquired in the fourth quarter of
2016.
Interest expense was $13.5 million for the three months ended
March 31, 2017, representing an increase of $3.0 million over the
same period of 2016. The increase is due to the offering of $400
million aggregate principal amount of our 6% senior notes in July
2016.
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=1139803.
An audio archive of this webcast will be available using the
above noted link through May 16, 2017.
About Holly Energy Partners, L.P.
Holly Energy Partners, L.P., headquartered in Dallas, Texas,
provides petroleum product and crude oil transportation,
terminalling, storage and throughput services to the petroleum
industry, including HollyFrontier Corporation subsidiaries. The
Partnership, through its subsidiaries and joint ventures, owns
and/or operates petroleum product and crude gathering pipelines,
tankage and terminals in Texas, New Mexico, Arizona, Washington,
Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as
refinery processing units in Utah and Kansas.
HollyFrontier Corporation, headquartered in Dallas, Texas, is an
independent petroleum refiner and marketer that produces high value
light products such as gasoline, diesel fuel, jet fuel and other
specialty products. HollyFrontier operates through its subsidiaries
a 135,000 barrels per stream day ("bpsd") refinery located in El
Dorado, Kansas, a 125,000 bpsd refinery in Tulsa, Oklahoma, a
100,000 bpsd refinery located in Artesia, New Mexico, a 52,000 bpsd
refinery located in Cheyenne, Wyoming and a 45,000 bpsd refinery in
Woods Cross, Utah. HollyFrontier markets its refined products
principally in the Southwest U.S., the Rocky Mountains extending
into the Pacific Northwest and in other neighboring Plains states.
In addition, HollyFrontier, through its subsidiary, owns
Petro-Canada Lubricants Inc., whose Mississauga, Ontario facility
produces 15,600 barrels per day of base oils and other specialized
lubricant products, and owns a 36% interest (including a 2% general
partner interest) in Holly Energy Partners, L.P.
The statements in this press release relating to matters that
are not historical facts are “forward-looking statements” within
the meaning of the federal securities laws. These statements are
based on our beliefs and assumptions and those of our general
partner using currently available information and expectations as
of the date hereof, are not guarantees of future performance and
involve certain risks and uncertainties. Although we and our
general partner believe that such expectations reflected in such
forward-looking statements are reasonable, neither we nor our
general partner can give assurance that our expectations will prove
to be correct. Therefore, actual outcomes and results could
materially differ from what is expressed, implied or forecast in
these statements. Any differences could be caused by a number of
factors including, but not limited to:
- risks and uncertainties with respect to
the actual quantities of petroleum products and crude oil shipped
on our pipelines and/or terminalled, stored and throughput in our
terminals;
- the economic viability of HollyFrontier
Corporation, Alon USA, Inc. and our other customers;
- the demand for refined petroleum
products in markets we serve;
- our ability to purchase and integrate
future acquired operations;
- our ability to complete previously
announced or contemplated acquisitions;
- the availability and cost of additional
debt and equity financing;
- the possibility of reductions in
production or shutdowns at refineries utilizing our pipeline and
terminal facilities;
- the effects of current and future
government regulations and policies;
- our operational efficiency in carrying
out routine operations and capital construction projects;
- the possibility of terrorist 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 ended March 31, 2017 and
2016.
Three Months Ended March 31,
Change from
2017
2016 (5)
2016 (In thousands, except per unit data)
Revenues
Pipelines: Affiliates – refined product pipelines $ 17,744 $ 25,182
$ (7,438 ) Affiliates – intermediate pipelines 5,284 7,413 (2,129 )
Affiliates – crude pipelines 16,881 17,491
(610 ) 39,909 50,086 (10,177 ) Third parties –
refined product pipelines 12,538 14,766
(2,228 ) 52,447 64,852 (12,405 ) Terminals, tanks and
loading racks: Affiliates 29,736 28,253 1,483 Third parties
4,071 4,398 (327 ) 33,807 32,651 1,156
Affiliates – refinery processing units 19,380
4,507 14,873 Total revenues 105,634 102,010
3,624
Operating costs and expenses: Operations
(exclusive of depreciation and amortization) 32,489 27,855 4,634
Depreciation and amortization 18,777 16,551 2,226 General and
administrative 2,634 3,091 (457
) 53,900 47,497 6,403
Operating income 51,734 54,513 (2,779 ) Equity in
earnings of equity method investments 1,840 2,765 (925 ) Interest
expense, including amortization (13,539 ) (10,535 ) (3,004 )
Interest income 102 112 (10 ) Loss on early extinguishment of debt
(12,225 ) — (12,225 ) Gain (loss) on sale of assets and other
income 73 (8 ) 81 (23,749
) (7,666 ) (16,083 )
Income before income
taxes 27,985 46,847 (18,862 ) State income tax (expense)
benefit (106 ) (95 ) (11 )
Net income
27,879 46,752 (18,873 ) Add net loss applicable to predecessor —
1,150 (1,150 ) Allocation of net income attributable to
noncontrolling interests (2,316 ) (4,927 )
2,611
Net income attributable to Holly Energy
Partners 25,563 42,975 (17,412 ) General partner interest in
net income, including incentive distributions(1) (17,138 )
(12,103 ) (5,035 )
Limited partners’ interest in
net income $ 8,425 $ 30,872 $ (22,447 )
Limited partners’ earnings per unit – basic and diluted:(1)
$ 0.13 $ 0.52 $ (0.39 )
Weighted average limited
partners’ units outstanding 63,113 58,657
4,456
EBITDA(2) $ 70,108 $
69,926 $ 182
Distributable cash flow(3) $
57,289 $ 55,365 $ 1,924
Volumes
(bpd) Pipelines: Affiliates – refined product pipelines 107,266
132,430 (25,164 ) Affiliates – intermediate pipelines 104,340
137,410 (33,070 ) Affiliates – crude pipelines 268,890
287,433 (18,543 ) 480,496 557,273
(76,777 ) Third parties – refined product pipelines 85,141
78,334 (6,807 ) 565,637 635,607 (69,970
) Terminals and loading racks: Affiliates 374,923 357,022 17,901
Third parties 69,647 81,327
(11,680 ) 444,570 438,349 6,221 Affiliates – refinery processing
units 62,829 42,442 20,387
Total for pipelines and terminal assets (bpd)
1,073,036 1,116,398 43,362
March 31, December 31, 2017 2016 (In
thousands)
Balance Sheet Data Cash and cash equivalents $
7,007 $ 3,657 Working capital (deficit) $ 13,471 $
(7,782
)
Total assets $ 1,870,135 $ 1,884,237 Long-term debt $ 1,240,565 $
1,243,912 Partners' equity(4) $ 389,526 $ 378,234 (1) Net
income attributable to Holly Energy Partners 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 $16.6 million and $11.5 million for the three
months ended March 31, 2017 and 2016, respectively. (2)
Earnings before interest, taxes, depreciation and amortization
(“EBITDA”) is calculated as net income attributable to Holly Energy
Partners plus (i) interest expense and loss on early extinguishment
of debt, net of interest income, (ii) state income tax and (iii)
depreciation and amortization. EBITDA is not a calculation based
upon 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
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,(In
thousands)
2017 2016 Net income
attributable to Holly Energy Partners $ 25,563 $ 42,975 Add
(subtract): Interest expense 12,769 9,942 Interest income (102 )
(112 ) Amortization of discount and deferred debt charges 770 593
Loss on early extinguishment of debt 12,225 — State income tax 106
95 Depreciation and amortization 18,777 16,551 Predecessor
depreciation and amortization — (118 )
EBITDA $ 70,108 $ 69,926 (3)
Distributable cash flow is not a calculation based upon GAAP.
However, the amounts included in the calculation are derived from
amounts presented in our consolidated financial statements, with
the general exception of maintenance capital expenditures.
Distributable cash flow should not be considered in isolation or as
an alternative to net income attributable to Holly Energy Partners
or operating income, as an indication of our operating performance,
or as an alternative to operating cash flow as a measure of
liquidity. Distributable cash flow is not necessarily comparable to
similarly titled measures of other companies. Distributable cash
flow is presented here because it is a widely accepted financial
indicator used by investors to compare partnership performance. It
is also used by management for internal analysis and our
performance units. We believe that this measure provides investors
an enhanced perspective of the operating performance of our assets
and the cash our business is generating.
Set forth below is our calculation of
distributable cash flow.
Three Months Ended March 31,(In
thousands)
2017 2016 Net income
attributable to Holly Energy Partners $ 25,563 $ 42,975 Add
(subtract): Depreciation and amortization 18,777 16,551
Amortization of discount and deferred debt charges 770 593 Loss on
early extinguishment of debt 12,225 — Increase (decrease) in
deferred revenue attributable to shortfall billings 1,178 (3,658 )
Maintenance capital expenditures* (825 ) (1,661 ) Increase
(decrease) in environmental liability (246 ) (328 ) Increase
(decrease) in reimbursable deferred revenue (925 ) (528 ) Other
non-cash adjustments 772 1,539 Predecessor depreciation and
amortization $ — $ (118 )
Distributable cash flow $
57,289 $ 55,365 * 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. (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 would have been recorded as
increases to our properties and equipment and intangible assets at
the time of acquisition instead of decreases to partners’ equity.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170502005444/en/
Holly Energy Partners, L.P.Richard L. Voliva III,
214-954-6511Executive Vice President andChief Financial
OfficerorCraig Biery, 214-954-6511Director, Investor Relations
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