Holly Energy Partners, L.P. Reports First Quarter Results

Source: www.gulfoilandgas.com 5/9/2022, Location: North America

- Reported net income attributable to HEP of $49.6 million or $0.45 per unit
- Announced quarterly distribution of $0.35 per unit
- Reported EBITDA of $72.8 million and Adjusted EBITDA of $85.3 million
- Closed the acquisition of Sinclair Transportation Company LLC

Holly Energy Partners, L.P. ("HEP" or the "Partnership") reported financial results for the first quarter of 2022. Net income attributable to HEP for the first quarter of 2022 was $49.6 million ($0.45 per basic and diluted limited partner unit), compared to $64.4 million ($0.61 per basic and diluted limited partner unit) for the first quarter of 2021.

Results for the first quarter of 2021 reflect special items that collectively increased net income attributable to HEP by a total of $13.6 million. These items included a gain on sales-type leases of $24.7 million and a goodwill impairment charge of $11.0 million related to our Cheyenne assets. Excluding these items, net income attributable to HEP for the first quarter of 2021 was $50.8 million ($0.48 per basic and diluted limited partner unit).

Distributable cash flow was $64.5 million for the first quarter of 2022, a decrease of $8.8 million, or 12.0%, compared to the first quarter of 2021. The decrease was mainly due to increased maintenance capital expenditures and a decrease in customer billings in excess of net income recognized in the first quarter of 2022. HEP declared a quarterly cash distribution of $0.35 per unit on April 21, 2022.

As previously announced, we completed our acquisition of Sinclair Transportation Company LLC (“Sinclair Transportation”) pursuant to that certain Contribution Agreement, dated August 2, 2021 (as amended on March 14, 2022, the “Contribution Agreement”), on March 14, 2022 in exchange for 21 million newly issued common limited partner units of HEP (the “HEP Units”), representing 17% of the outstanding HEP Units with a value of approximately $349 million based on HEP’s fully diluted common limited partner units outstanding and closing unit price on March 11, 2022, and cash consideration equal to $321.4 million, inclusive of estimated working capital adjustments pursuant to the Contribution Agreement for an aggregate transaction value of $670.4 million. Our consolidated financial and operating results for the first quarter of 2022 reflect Sinclair Transportation operations beginning March 14, 2022.

Commenting on our 2022 first quarter results, Michael Jennings, Chief Executive Officer, stated, “During the quarter, we successfully completed the Sinclair Transportation acquisition and have re-contracted the acquired assets with long-term minimum volume commitment contracts. Additionally, we are pleased with HEP’s solid financial performance in the first quarter, supported by on-going strength in our crude pipelines in Wyoming and Utah, which includes the recently acquired Sinclair Transportation crude pipeline system.”

“As we look forward, we believe HEP is positioned for significant earnings growth due to the quality and geographic location of our assets, our talented employee base, and our financially strong and supportive general partner, HF Sinclair.”

First Quarter 2022 Revenue Highlights
Revenues for the first quarter of 2022 were $120.2 million, a decrease of $7.0 million compared to the first quarter of 2021. The decrease was mainly due to lower revenues on our Cheyenne assets as a result of the conversion of HF Sinclair Corporation's (“HF Sinclair”) Cheyenne refinery to renewable diesel production, lower revenues on our Woods Cross refinery processing units, which were down for planned maintenance in March 2022, and lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery. These revenue decreases were partially offset by higher revenues on our UNEV pipeline and revenues on our newly acquired Sinclair Transportation assets.

- Revenues from our refined product pipelines were $26.1 million, a decrease of $2.3 million compared to the first quarter of 2021. Shipments averaged 156.2 thousand barrels per day ("mbpd") compared to 164.0 mbpd for the first quarter of 2021. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HF Sinclair's Navajo refinery, partially offset by higher volumes and revenues on our UNEV pipeline and our newly acquired Sinclair Transportation product pipelines.
- Revenues from our intermediate pipelines were $7.5 million, consistent with the first quarter of 2021. Shipments averaged 117.8 mbpd for the first quarter of 2022 compared to 115.2 mbpd for the first quarter of 2021. The increase in volumes was mainly due to higher throughputs on our intermediate pipelines servicing HF Sinclair's Tulsa refinery while revenue remained constant mainly due to contractual minimum volume guarantees.
- Revenues from our crude pipelines were $31.2 million, an increase of $0.6 million compared to the first quarter of 2021. Shipments averaged 527.2 mbpd compared to 373.9 mbpd for the first quarter of 2021. The increase in volumes was mainly attributable to our Cushing Connect pipeline, which went into service in September 2021, as well as volumes on our newly acquired Sinclair Transportation crude pipelines. The increase in revenues was mainly due to our crude pipeline systems in Wyoming and Utah, including the Sinclair Transportation crude pipelines. Revenues did not increase in proportion to volumes due to recognizing most of the Cushing Connect Pipeline and Sinclair Transportation crude pipeline tariffs as interest income under sales-type lease accounting.
- Revenues from terminal, tankage and loading rack fees were $37.0 million, a decrease of $1.2 million compared to the first quarter of 2021. Refined products and crude oil terminalled in the facilities averaged 494.4 mbpd compared to 369.0 mbpd for the first quarter of 2021. The increase in volumes was mainly the result of higher throughputs at HF Sinclair's Tulsa refinery. Revenues decreased mainly because the first quarter of 2021 included the recognition of $6.5 million of the $10 million termination fee related to the termination of HF Sinclair's minimum volume commitment on our Cheyenne assets as a result of the conversion of the HF Sinclair Cheyenne refinery to renewable diesel production, partially offset by revenues on our newly acquired Sinclair Transportation terminal assets and higher revenues at our Tulsa and El Dorado tank farms.
- Revenues from refinery processing units were $18.4 million, a decrease of $4.1 million compared to the first quarter of 2021, and throughputs averaged 65.2 mbpd compared to 60.7 mbpd for the first quarter of 2021. The increase in volumes was mainly due to increased throughput at our El Dorado refinery processing units, partially offset by lower throughput at our Woods Cross refinery processing units, which were down for a scheduled turnaround in March 2022. Revenues decreased mainly due to the turnaround at Woods Cross, partially offset by higher natural gas recoveries in revenues. Revenues did not increase in proportion to the increase in volumes mainly due to contractual minimum volume guarantees.

Operating Costs and Expenses Highlights
Operating costs and expenses were $69.1 million for the three months ended March 31, 2022, representing a decrease of $11.3 million from the three months ended March 31, 2021. The first quarter decrease was mainly due to the goodwill impairment charge related to our Cheyenne reporting unit in 2021, lower depreciation expense, maintenance costs and natural gas costs, partially offset by higher property taxes, materials and supplies, employee costs, insurance and Sinclair Transportation acquisition costs.

Interest Expense and Interest Income Highlights
Interest expense was $13.6 million for the three months ended March 31, 2022, representing an increase of $0.4 million from the three months ended March 31, 2021. The increase was mainly due to higher average borrowings outstanding under our senior secured revolving credit facility related to the funding of the cash portion of the Sinclair Transportation acquisition.

Interest income for the three months ended March 31, 2022, totaled $12.6 million, an increase of $6.1 million compared to the three months ended March 31, 2021. The increase was mainly due to higher sales-type lease interest income from our Cushing Connect pipeline, which was placed into service at the end of the third quarter of 2021, and our newly acquired Sinclair Transportation pipelines and terminals.


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