- Reported net income attributable to HEP of $51.3 million or
$0.49 per unit
- Announced quarterly distribution of $0.35 per unit
- Reported EBITDA of $86.8 million and Adjusted EBITDA of $88.3
million
Holly Energy Partners, L.P. (“HEP” or the “Partnership”)
(NYSE:HEP) today reported financial results for the fourth quarter
of 2020. Net income attributable to HEP for the fourth quarter was
$51.3 million ($0.49 per basic and diluted limited partner unit)
compared to $45.7 million ($0.43 per basic and diluted limited
partner unit) for the fourth quarter of 2019.
Distributable cash flow was $70.0 million for the quarter, an
increase of $5.5 million, or 8.5%, compared to the fourth quarter
of 2019. HEP declared a quarterly cash distribution of $0.35 on
January 22, 2021.
The increase in net income attributable to HEP was mainly due to
lower interest expense and higher equity in earnings of equity
method investments, partially offset by lower volumes on our crude
and product pipeline systems.
Commenting on our 2020 fourth quarter results, Michael Jennings,
Chief Executive Officer, stated, “HEP delivered another quarter of
solid financial and operational results demonstrating the strength
and resiliency of HEP's business model. Our assets continue to
generate strong and steady cash flows, and we believe we are well
positioned to progress our deleveraging efforts while continuing to
fully fund our quarterly distributions and our anticipated capital
expenditures.
Impact of COVID-19 on Our Business
Our business depends in large part on the demand for the various
petroleum products we transport, terminal and store in the markets
we serve. The impact of the COVID-19 pandemic on the global
macroeconomy has created diminished demand, as well as a lack of
forward visibility, for refined products and crude oil
transportation, and for the terminalling and storage services that
we provide. Over the course of the third and fourth quarters,
demand for transportation fuels showed incremental improvement over
the second quarter of 2020. We expect our customers will continue
to adjust refinery production levels commensurate with market
demand and ultimately expect demand to return to pre-COVID-19
levels. For additional details of the impact of COVID-19 on our
business, please see our Form 10-K for the year ended December 31,
2020.
Fourth Quarter 2020 Revenue Highlights
Revenues for the quarter were $127.5 million, a decrease of $4.2
million compared to the fourth quarter of 2019. The decrease was
mainly attributable to lower volumes on our product pipelines
servicing Delek US Holdings, Inc. and our crude pipelines systems
in New Mexico and Texas, partially offset by higher revenues on our
refinery units. Compared to the fourth quarter of 2019, our overall
pipeline volumes decreased for the quarter by 11%.
- Revenues from our refined product pipelines were $28.6
million, a decrease of $2.2 million, on shipments averaging 155.8
thousand barrels per day ("mbpd") compared to 175.7 mbpd for the
fourth quarter of 2019. The revenue and volume decreases were
mainly due to lower volumes on our product pipelines servicing
Delek US Holdings, Inc. partially offset by higher volumes on our
product pipelines servicing HFC's Navajo refinery. Revenue also
decreased due to a reclassification of certain pipeline income from
revenue to interest income under sales-type lease accounting.
- Revenues from our intermediate pipelines were $7.5
million, consistent with the fourth quarter of 2019. Shipments
averaged 134.8 mbpd compared to 136.4 mbpd for the fourth quarter
of 2019.
- Revenues from our crude pipelines were $32.0 million, a
decrease of $1.8 million, on shipments averaging 410.4 mbpd
compared to 479.2 mbpd for the fourth quarter of 2019. The revenue
decreased mainly due to lower volumes on our crude pipeline systems
in New Mexico and Texas.
- Revenues from terminal, tankage and loading rack fees
were $38.9 million, a decrease of $2.5 million compared to the
fourth quarter of 2019. Refined products and crude oil terminalled
in the facilities averaged 440.7 mbpd compared to 456.7 mbpd for
the fourth quarter of 2019. The revenue decrease was mainly due to
lower butane blending margins and lower reimbursable project
revenues.
- Revenues from refinery processing units were $20.5
million, an increase of $2.3 million compared to the fourth quarter
of 2019, and throughputs averaged 63.9 mbpd compared to 55.7 mbpd
for the fourth quarter of 2019. The revenue increase was primarily
due to higher revenues from our Woods Cross FCC unit, which was
unavailable for a portion of the fourth quarter of 2019 due to
maintenance. The volume increase was mainly due to higher volumes
on our naphtha fractionation unit in El Dorado and the crude unit
in Woods Cross.
Year Ended December 31, 2020 Revenue Highlights
Revenues for the year ended December 31, 2020, were $497.8
million, a decrease of $34.9 million compared to the year ended
December 31, 2019. The decrease was mainly attributable to an 18%
reduction in overall crude and product pipeline volumes
predominantly in our Southwest and Northwest regions.
- Revenues from our refined product pipelines were $116.9
million, a decrease of $15.4 million, on shipments averaging 161.5
mbpd compared to 195.5 mbpd for the year ended December 31, 2019.
The volume and revenue decreases were mainly due to lower volumes
on pipelines servicing HFC's Navajo refinery, Delek's Big Spring
refinery and our UNEV pipeline largely as a result of demand
destruction associated with the COVID-19 pandemic as well as the
recording of certain pipeline tariffs as interest income as the
related throughput contract renewals were determined to be
sales-type leases.
- Revenues from our intermediate pipelines were $30.0
million, an increase of $0.5 million compared to the year ended
December 31, 2019. Shipments averaged 137.1 mbpd compared to 140.6
mbpd for the year ended December 31, 2019.
- Revenues from our crude pipelines were $118.9 million, a
decrease of $11.8 million compared to the year ended December 31,
2019. Shipments averaged 387.7 mbpd compared to 501.2 mbpd for the
December 31, 2019. The decreases were mainly attributable to
decreased volumes on our crude pipeline systems in the Permian
Basin, Wyoming and Utah largely as a result of demand destruction
associated with the COVID-19 pandemic.
- Revenues from terminal, tankage and loading rack fees
were $151.7 million, a decrease of $8.8 million compared to the
year ended December 31, 2019. Refined products and crude oil
terminalled in the facilities averaged 442.2 mbpd compared to 483.2
mbpd for the year ended December 31, 2019. The revenue and volume
decreases were mainly as a result of demand destruction associated
with the COVID-19 pandemic across many of our facilities.
- Revenues from refinery processing units were $80.3
million, an increase of $0.6 million compared to the year ended
December 31, 2019. Throughputs averaged 61.4 mbpd compared to 68.8
mbpd for the year ended December 31, 2019. The decrease in volumes
was mainly due to reduced throughput for both our Woods Cross and
El Dorado processing units largely as a result of demand
destruction associated with the COVID-19 pandemic. Revenues
remained relatively constant due to contractual minimum volume
guarantees.
Operating Costs and Expenses Highlights
Operating costs and expenses were $64.8 million and $292.9
million for the three months and year ended December 31, 2020,
respectively, representing a decrease of $1.6 million and an
increase of $24.0 million from the three months and year ended
December 31, 2019, respectively. The increase for the year ended
December 31, 2020 was mainly due to the goodwill impairment charge
related to our Cheyenne business unit, partially offset by lower
rental expenses, property taxes and variable costs such as
electricity and chemicals associated with lower volumes.
Interest expense was $13.8 million and $59.4 million for the
three months and year ended December 31, 2020, respectively,
representing decreases of $6.0 million and $17.4 million over the
same periods of 2019. The decreases were mainly due to market
interest rate decreases under our senior secured revolving credit
facility and refinancing our $500 million aggregate principal
amount of 6.0% senior notes due 2024 to $500 million aggregate
principal amount of 5.0% senior notes due 2028.
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.on24.com/wcc/r/2947931/69912ABCD95D2FE2A18BF7810FD7788C
An audio archive of this webcast will be available using the
above noted link through March 8, 2021.
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 pipelines, tankage and
terminals in Texas, New Mexico, 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 owns and operates refineries
located in Kansas, Oklahoma, New Mexico, 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. In addition, HollyFrontier produces base
oils and other specialized lubricants in the U.S., Canada and the
Netherlands, and exports products to more than 80 countries.
HollyFrontier also owns a 57% limited partner interest and a
non-economic 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,” “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 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 any assurances 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:
- the extraordinary market environment and effects of the
COVID-19 pandemic, including a significant decline in demand for
refined petroleum products in markets we serve;
- 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 and refinery
processing units;
- the economic viability of HollyFrontier Corporation, 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 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 temporary or permanent reductions in
production or shutdowns at refineries utilizing our pipelines,
terminal facilities and refinery processing units, due to reasons
such as infection in the workforce, in response to reductions in
demand or lower gross margins due to the economic impact of the
COVID-19 pandemic, and any potential asset impairments resulting
from such actions;
- the effects of current and future government regulations and
policies, including the effects of current and future restrictions
on various commercial and economic activities in response to the
COVID-19 pandemic;
- our operational efficiency in carrying out routine operations
and capital construction projects;
- the possibility of terrorist or cyberattacks and the
consequences of any such attacks;
- general economic conditions, including uncertainty regarding
the timing, pace and extent of an economic recovery in the United
States;
- the impact of recent or proposed changes in tax laws and
regulations that affect master limited partnerships; and
- other financial, operational 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 the years ended December 31,
2020 and 2019.
Three Months Ended December
31,
Change from
2020
2019
2019
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
18,568
$
16,550
$
2,018
Affiliates – intermediate pipelines
7,537
7,490
47
Affiliates – crude pipelines
20,103
21,969
(1,866
)
46,208
46,009
199
Third parties – refined product
pipelines
10,011
14,262
(4,251
)
Third parties – crude pipelines
11,898
11,834
64
68,117
72,105
(3,988
)
Terminals, tanks and loading racks:
Affiliates
35,156
35,802
(646
)
Third parties
3,721
5,543
(1,822
)
38,877
41,345
(2,468
)
Affiliates - refinery processing units
20,462
18,184
2,278
Total revenues
127,456
131,634
(4,178
)
Operating costs and expenses
Operations
37,971
38,952
(981
)
Depreciation and amortization
24,376
24,513
(137
)
General and administrative
2,419
2,929
(510
)
64,766
66,394
(1,628
)
Operating income
62,690
65,240
(2,550
)
Equity in earnings of equity method
investments
1,462
(37
)
1,499
Interest expense, including
amortization
(13,775
)
(19,764
)
5,989
Interest income
2,787
2,195
592
Gain on sale of assets and other
251
329
(78
)
(9,275
)
(17,277
)
8,002
Income before income taxes
53,415
47,963
5,452
State income tax expense
(58
)
(4
)
(54
)
Net income
53,357
47,959
5,398
Allocation of net income attributable to
noncontrolling interests
(2,018
)
(2,292
)
274
Net income attributable to Holly Energy
Partners
$
51,339
$
45,667
$
5,672
Limited partners’ earnings per unit –
basic and diluted
$
0.49
$
0.43
$
0.06
Weighted average limited partners’
units outstanding
105,440
105,440
—
EBITDA(1)
$
86,761
$
87,753
$
(992
)
Adjusted EBITDA(1)
$
88,269
$
86,916
$
1,353
Distributable cash flow(2)
$
69,999
$
64,508
$
5,491
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
113,400
104,875
8,525
Affiliates – intermediate pipelines
134,780
136,416
(1,636)
Affiliates – crude pipelines
279,695
345,497
(65,802)
527,875
586,788
(58,913)
Third parties – refined product
pipelines
42,414
70,871
(28,457)
Third parties – crude pipelines
130,752
133,713
(2,961)
701,041
791,372
(90,331)
Terminals and loading racks:
Affiliates
394,289
399,739
(5,450)
Third parties
46,393
56,952
(10,559)
440,682
456,691
(16,009)
Affiliates – refinery processing units
63,927
55,728
8,199
Total for pipelines, terminals and
refinery processing unit assets (bpd)
1,205,650
1,303,791
(98,141)
Years Ended December
31,
Change from
2020
2019
2019
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
73,571
$
77,443
$
(3,872
)
Affiliates – intermediate pipelines
30,023
29,558
465
Affiliates – crude pipelines
80,026
85,415
(5,389
)
183,620
192,416
(8,796
)
Third parties – refined product
pipelines
43,371
54,914
(11,543
)
Third parties – crude pipelines
38,843
45,301
(6,458
)
265,834
292,631
(26,797
)
Terminals, tanks and loading racks:
Affiliates
135,867
139,655
(3,788
)
Third parties
15,825
20,812
(4,987
)
151,692
160,467
(8,775
)
Affiliates - refinery processing units
80,322
79,679
643
Total revenues
497,848
532,777
(34,929
)
Operating costs and expenses
Operations
147,692
161,996
(14,304
)
Depreciation and amortization
99,578
96,705
2,873
General and administrative
9,989
10,251
(262
)
Goodwill impairment
35,653
—
35,653
292,912
268,952
23,960
Operating income
204,936
263,825
(58,889
)
Equity in earnings of equity method
investments
6,647
5,180
1,467
Interest expense, including
amortization
(59,424
)
(76,823
)
17,399
Interest income
10,621
5,517
5,104
Loss on early extinguishment of debt
(25,915
)
—
(25,915
)
Gain on sales-type leases
33,834
35,166
(1,332
)
Gain on sale of assets and other
8,691
272
8,419
(25,546
)
(30,688
)
5,142
Income before income taxes
179,390
233,137
(53,747
)
State income tax expense
(167
)
(41
)
(126
)
Net income
179,223
233,096
(53,873
)
Allocation of net income attributable to
noncontrolling interests
(8,740
)
(8,212
)
(528
)
Net income attributable to Holly Energy
Partners
$
170,483
$
224,884
$
(54,401
)
Limited partners’ earnings per
unit—basic and diluted
$
1.61
$
2.13
$
(0.52
)
Weighted average limited partners’
units outstanding
105,440
105,440
—
EBITDA(1)
$
319,031
$
392,936
$
(73,905
)
Adjusted EBITDA(1)
$
345,978
$
359,308
$
(13,330
)
Distributable cash flow(2)
$
283,057
$
271,431
$
11,626
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
115,827
123,986
(8,159
)
Affiliates – intermediate pipelines
137,053
140,585
(3,532
)
Affiliates – crude pipelines
277,025
368,699
(91,674
)
529,905
633,270
(103,365
)
Third parties – refined product
pipelines
45,685
71,545
(25,860
)
Third parties – crude pipelines
110,691
132,507
(21,816
)
686,281
837,322
(151,041
)
Terminals and loading racks:
Affiliates
393,300
422,119
(28,819
)
Third parties
48,909
61,054
(12,145
)
442,209
483,173
(40,964
)
Affiliates – refinery processing units
61,416
68,780
(7,364
)
Total for pipelines, terminals and
refinery processing unit assets (bpd)
1,189,906
1,389,275
(199,369
)
(1)
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. Adjusted EBITDA is calculated as
EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill
impairment and (iii) pipeline tariffs not included in revenues due
to impacts from lease accounting for certain pipeline tariffs minus
(iv) gain on sales-type leases, (v) HEP's pro-rata share of gain on
business insurance settlement and (vi) pipeline lease payments not
included in operating costs and expenses. Portions of our minimum
guaranteed pipeline 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. These
pipeline tariffs were previously recorded as revenues prior to the
renewal of the throughput agreement, which triggered sales-type
lease accounting. 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
December 31,
Years Ended December
31,
2020
2019
2020
2019
(In thousands)
Net income attributable to Holly Energy
Partners
$
51,339
$
45,667
$
170,483
$
224,884
Add (subtract):
Interest expense
13,775
19,764
59,424
76,823
Interest income
(2,787
)
(2,195
)
(10,621
)
(5,517
)
State income tax expense
58
4
167
41
Depreciation and amortization
24,376
24,513
99,578
96,705
EBITDA
$
86,761
$
87,753
$
319,031
$
392,936
Loss on early extinguishment of debt
—
—
25,915
—
Gain on sales-type leases
—
—
(33,834
)
(35,166
)
Goodwill impairment
—
—
35,653
—
HEP's pro-rata share of gain on business
interruption insurance settlement
—
—
(6,079
)
—
Pipeline tariffs not included in
revenues
3,114
2,375
11,717
4,750
Lease payments not included in operating
costs
(1,606
)
(3,212
)
(6,425
)
(3,212
)
Adjusted EBITDA
$
88,269
$
86,916
$
345,978
$
359,308
(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
December 31,
Years Ended December
31,
2020
2019
2020
2019
(In thousands)
Net income attributable to Holly Energy
Partners
$
51,339
$
45,667
$
170,483
$
224,884
Add (subtract):
Depreciation and amortization
24,376
24,513
99,578
96,705
Amortization of discount and deferred debt
charges
840
773
3,319
3,080
Loss on early extinguishment of debt
—
—
25,915
—
Revenue recognized (greater) less than
customer billings
(44
)
394
(743
)
(2,433
)
Maintenance capital expenditures (3)
(3,451
)
(2,994
)
(8,643
)
(6,471
)
Decrease in environmental liability
(1,206
)
(277
)
(1,020
)
(741
)
Decrease in reimbursable deferred
revenue
(3,113
)
(2,432
)
(12,175
)
(8,036
)
Gain on sales-type lease
—
—
(33,834
)
(35,166
)
Goodwill impairment
—
—
35,653
—
Other
1,258
(1,136
)
4,524
(391
)
Distributable cash flow
$
69,999
$
64,508
$
283,057
$
271,431
(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.
December 31,
2020
2019
(In thousands)
Balance Sheet Data
Cash and cash equivalents
$
21,990
$
13,287
Working capital
$
14,246
$
20,758
Total assets
$
2,167,565
$
2,199,232
Long-term debt
$
1,405,603
$
1,462,031
Partners' equity
$
379,292
$
381,103
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210223005243/en/
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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