- Reported net income attributable to HEP of $57.5 million or
$0.45 per unit
- Announced quarterly distribution of $0.35 per unit
- Reported EBITDA of $87.8 million and Adjusted EBITDA of $108.4
million
Holly Energy Partners, L.P. ("HEP" or the "Partnership") (NYSE:
HEP) today reported financial results for the first quarter of
2023. Net income attributable to HEP for the first quarter of 2023
was $57.5 million ($0.45 per basic and diluted limited partner
unit), compared to $49.6 million ($0.45 per basic and diluted
limited partner unit) for the first quarter of 2022.
The increase in net income attributable to HEP was mainly due to
net income from Sinclair Transportation Company LLC ("Sinclair
Transportation"), which was acquired on March 14, 2022, as well as
higher revenues from our Woods Cross refinery processing units,
partially offset by higher interest expense.
Distributable cash flow was $83.9 million for the first quarter
of 2023, an increase of $19.5 million, or 30.2%, compared to the
first quarter of 2022. The increase was mainly due to distributable
cash flow from Sinclair Transportation, partially offset by higher
interest expense. HEP declared a quarterly cash distribution of
$0.35 per unit on April 20, 2023.
Commenting on our 2023 first quarter results, Michael Jennings,
Chief Executive Officer and President, stated, “HEP generated solid
results during the quarter, supported by safe and reliable
operations and strong volumes in both our crude and refined product
transportation and storage systems. In April, we announced a
quarterly distribution of $0.35 per unit.”
First Quarter 2023 Revenue Highlights
Revenues for the first quarter of 2023 were $143.3 million, an
increase of $23.1 million compared to the first quarter of 2022.
The increase was mainly due to revenues from our Sinclair
Transportation assets, higher revenues on our Woods Cross refinery
processing units, which were down for a scheduled turnaround in
March 2022, and rate increases that went into effect on July 1,
2022, partially offset by lower revenues on our product pipelines
servicing HF Sinclair Corporation's ("HF Sinclair") Navajo
refinery.
- Revenues from our refined product pipelines were $25.2
million, a decrease of $0.9 million compared to the first quarter
of 2022. Shipments averaged 183.4 thousand barrels per day ("mbpd")
compared to 156.2 mbpd for the first quarter of 2022. The volume
increase was mainly due to higher volumes on the acquired Sinclair
Transportation product pipelines. The decrease in revenues was
mainly due to lower volumes on our product pipelines serving HF
Sinclair's Navajo refinery. Revenues were lower in proportion to
volumes due to our recognition of a significant portion of the
Sinclair Transportation refined product pipeline tariffs as
interest income under sales-type lease accounting.
- Revenues from our intermediate pipelines were $8.3
million, an increase of $0.8 million compared to the first quarter
of 2022. Shipments averaged 114.3 mbpd for the first quarter of
2023 compared to 117.8 mbpd for the first quarter of 2022. The
increase in revenue was mainly due to rate increases that went into
effect on July 1, 2022.
- Revenues from our crude pipelines were $37.1 million, an
increase of $5.9 million compared to the first quarter of 2022.
Shipments averaged 649.7 mbpd compared to 527.2 mbpd for the first
quarter of 2022. The increase in volumes was mainly attributable to
the acquired Sinclair Transportation crude pipelines and higher
volumes on our crude pipeline systems in New Mexico and Texas. The
increase in revenues was mainly due to the acquired Sinclair
Transportation crude pipelines, higher volumes on our crude
pipeline systems in New Mexico and Texas and rate increases that
went into effect on July 1, 2022.
- Revenues from terminal, tankage and loading rack fees
were $46.2 million, an increase of $9.2 million compared to the
first quarter of 2022. Refined products and crude oil terminalled
in the facilities averaged 729.3 mbpd compared to 494.4 mbpd for
the first quarter of 2022. The increase in volumes was mainly due
to the acquired Sinclair Transportation assets. Revenues increased
mainly due to revenues on the acquired Sinclair Transportation
assets and rate increases that went into effect on July 1,
2022.
- Revenues from refinery processing units were $26.5
million, an increase of $8.1 million compared to the first quarter
of 2022, and throughputs averaged 53.3 mbpd compared to 65.2 mbpd
for the first quarter of 2022. Revenues increased mainly due to
higher revenues from our Woods Cross refinery processing units,
which were down for a scheduled turnaround in March 2022, as well
as rate increases that went into effect on July 1, 2022. The
decrease in volumes was due to maintenance at the El Dorado
refinery.
Operating Costs and Expenses Highlights
Operating costs and expenses were $81.4 million for the three
months ended March 31, 2023, representing an increase of $12.3
million from the three months ended March 31, 2022. The increase
was mainly due to operating costs and expenses associated with the
acquired Sinclair Transportation assets, higher employee costs,
higher natural gas costs and turnaround amortization costs.
Interest Expense and Interest Income Highlights
Interest expense was $26.0 million for the three months ended
March 31, 2023, representing an increase of $12.3 million over the
same period of 2022. The increase was mainly due to our April 2022
issuance of $400 million aggregate principal amount of 6.375%
senior unsecured notes maturing in April 2027, the proceeds of
which were used to partially repay outstanding borrowings under our
senior secured credit facility following the funding of the cash
portion of the Sinclair Transportation acquisition. In addition,
market interest rates increased on our senior secured revolving
credit facility.
Interest income was $20.4 million for the three months ended
March 31, 2023, representing an increase of $7.8 million compared
to the three months ended March 31, 2022. The increase was mainly
due to higher sales-type lease interest income from the acquired
Sinclair Transportation pipelines and terminals.
We have scheduled a conference call today at 8:30 AM Eastern
Time to discuss financial results. This webcast may be accessed at:
https://events.q4inc.com/attendee/866338392
An audio archive of this webcast will be available using the
above noted link through May 18, 2023.
About Holly Energy Partners, L.P.
Holly Energy Partners, L.P. (“HEP” or the “Partnership”),
headquartered in Dallas, Texas, provides petroleum product and
crude oil transportation, terminalling, storage and throughput
services to the petroleum industry, including subsidiaries of HF
Sinclair Corporation. The Partnership, through its subsidiaries and
joint ventures, owns and/or operates petroleum product and crude
pipelines, tankage and terminals in Colorado, Idaho, Iowa, Kansas,
Missouri, Nevada, New Mexico, Oklahoma, Texas, Utah, Washington and
Wyoming, as well as refinery processing units in Kansas and
Utah.
HF Sinclair Corporation (“HF Sinclair”), headquartered in
Dallas, Texas, is an independent energy company that produces and
markets high value light products such as gasoline, diesel fuel,
jet fuel, renewable diesel and other specialty products. HF
Sinclair owns and operates refineries located in Kansas, Oklahoma,
New Mexico, Washington, 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. HF Sinclair supplies high-quality fuels to more than
1,500 branded stations and licenses the use of the Sinclair brand
at more than 300 additional locations throughout the country. In
addition, subsidiaries of HF Sinclair produce and market base oils
and other specialized lubricants in the U.S., Canada and the
Netherlands, and exports products to more than 80 countries.
Through its subsidiaries, HF Sinclair produces renewable diesel at
two of its facilities in Wyoming and also at its facility in
Artesia, New Mexico. HF Sinclair also owns a 47% limited partner
interest and a non-economic general partner interest in HEP.
The statements in this press release contain various
"forward-looking statements" within the meaning of the federal
securities laws, including statements about our expectations for
future operating results and our capital allocation strategy. These
forward-looking statements are identified as any statement that
does not relate strictly to historical or current facts. When used
in this press release, words such as “anticipate,” “project,”
“expect,” “will,” “plan,” “goal,” “forecast,” “strategy,” “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 forward-looking 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, including those contained in our
filings with the Securities and Exchange Commission (the “SEC”).
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. All statements concerning
our expectations for future results of operations are based on
forecasts for our existing operations and do not include the
potential impact of any future acquisitions. Our forward-looking
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:
- the negotiation and execution, and the terms and conditions, of
a definitive agreement relating to the non-binding proposal we
received from HF Sinclair to acquire all of the outstanding common
units of HEP not beneficially owned by HF Sinclair or its
affiliates in exchange for shares of common stock, par value $0.01
per share of HF Sinclair (the “Proposed HF Sinclair Transaction”)
and the ability of HF Sinclair or HEP to enter into or consummate
such agreement;
- the risk that the Proposed HF Sinclair Transaction does not
occur;
- negative effects from the pendency of the Proposed HF Sinclair
Transaction;
- failure to obtain the required approvals for the Proposed HF
Sinclair Transaction;
- the time required to consummate the Proposed HF Sinclair
Transaction;
- the focus of management time and attention on the Proposed HF
Sinclair Transaction and other disruptions arising from the
Proposed HF Sinclair Transaction;
- the demand for and supply of crude oil and refined products,
including uncertainty regarding the effects of the continuing
COVID-19 pandemic on future demand and increasing societal
expectations that companies address climate change;
- risks and uncertainties with respect to the actual quantities
of petroleum products and crude oil shipped on our pipelines and/or
terminalled, stored or throughput in our terminals and refinery
processing units;
- the economic viability of HF Sinclair, 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 the markets we
serve;
- our ability to purchase operations and integrate the operations
we have acquired or may acquire, including the acquired Sinclair
Transportation business;
- 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
reductions in demand, accidents, unexpected leaks or spills,
unscheduled shutdowns, infection in the workforce, weather events,
civil unrest, expropriation of assets, and other economic,
diplomatic, legislative, or political events or developments,
terrorism, cyberattacks, or other catastrophes or disruptions
affecting our operations, terminal facilities, machinery, pipelines
and other logistics assets, equipment, or information systems, or
any of the foregoing of our suppliers, customers, or third-party
providers or lower gross margins due to the economic impact of the
COVID-19 pandemic, inflation and labor costs, and any potential
asset impairments resulting from, or the failure to have adequate
insurance coverage for or receive insurance recoveries 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 and increases in interest rates;
- delay by government authorities in issuing permits necessary
for our business or our capital projects;
- our and our joint venture partners' ability to complete and
maintain operational efficiency in carrying out routine operations
and capital construction projects;
- the possibility of terrorist or cyberattacks and the
consequences of any such attacks;
- uncertainty regarding the effects and duration of global
hostilities, including the Russia-Ukraine war, and any associated
military campaigns which may disrupt crude oil supplies and markets
for refined products and create instability in the financial
markets that could restrict our ability to raise capital;
- general economic conditions, including economic slowdowns
caused by a local or national recession or other adverse economic
condition, such as periods of increased or prolonged
inflation;
- the impact of recent or proposed changes in the 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 SEC 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, 2023 and 2022.
Three Months Ended March
31,
Change from
2023
2022
2022
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
18,931
$
16,860
$
2,071
Affiliates – intermediate pipelines
8,282
7,506
776
Affiliates – crude pipelines
24,667
18,277
6,390
51,880
42,643
9,237
Third parties – refined product
pipelines
6,268
9,260
(2,992
)
Third parties – crude pipelines
12,434
12,877
(443
)
70,582
64,780
5,802
Terminals, tanks and loading racks:
Affiliates
38,473
31,208
7,265
Third parties
7,714
5,807
1,907
46,187
37,015
9,172
Refinery processing units - Affiliates
26,525
18,403
8,122
Total revenues
143,294
120,198
23,096
Operating costs and expenses
Operations
52,142
42,625
9,517
Depreciation and amortization
24,663
22,187
2,476
General and administrative
4,635
4,312
323
81,440
69,124
12,316
Operating income
61,854
51,074
10,780
Equity in earnings of equity method
investments
3,882
3,626
256
Interest expense, including
amortization
(25,978
)
(13,639
)
(12,339
)
Interest income
20,400
12,647
7,753
Gain on sale of assets and other
173
101
72
(1,523
)
2,735
(4,258
)
Income before income taxes
60,331
53,809
6,522
State income tax expense
(34
)
(31
)
(3
)
Net income
60,297
53,778
6,519
Allocation of net income attributable to
noncontrolling interests
(2,775
)
(4,219
)
1,444
Net income attributable to Holly Energy
Partners
$
57,522
$
49,559
$
7,963
Limited partners’ earnings per unit –
basic and diluted
$
0.45
$
0.45
$
—
Weighted average limited partners’
units outstanding
126,440
109,640
16,800
EBITDA(1)
$
87,797
$
72,769
$
15,028
Adjusted EBITDA(1)
$
108,357
$
85,338
$
23,019
Distributable cash flow(2)
$
83,911
$
64,455
$
19,456
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
143,002
107,210
35,792
Affiliates – intermediate pipelines
114,326
117,802
(3,476
)
Affiliates – crude pipelines
473,712
396,040
77,672
731,040
621,052
109,988
Third parties – refined product
pipelines
40,431
49,029
(8,598
)
Third parties – crude pipelines
175,984
131,126
44,858
947,455
801,207
146,248
Terminals and loading racks:
Affiliates
686,845
446,032
240,813
Third parties
42,462
48,354
(5,892
)
729,307
494,386
234,921
Refinery processing units - Affiliates
53,294
65,227
(11,933
)
Total for pipelines and terminal assets
(bpd)
1,730,056
1,360,820
369,236
(1)
Earnings before interest, taxes,
depreciation and amortization (“EBITDA”) is calculated as net
income attributable to Holly Energy Partners plus or minus (i)
interest expense, (ii) interest income, (iii) state income tax
expense and (iv) depreciation and amortization. Adjusted EBITDA is
calculated as EBITDA plus or minus (i) our share of Osage
environmental remediation costs included in equity in earnings of
equity method investments, (ii) acquisition integration and
regulatory costs, (iii) tariffs and fees not included in revenues
due to impacts from lease accounting for certain tariffs and fees
and (iv) pipeline lease payments not included in operating costs
and expenses. Portions of our minimum guaranteed 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. 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 March
31,
2023
2022
(In thousands)
Net income attributable to Holly Energy
Partners
$
57,522
$
49,559
Add (subtract):
Interest expense
25,978
13,639
Interest income
(20,400
)
(12,647
)
State income tax expense
34
31
Depreciation and amortization
24,663
22,187
EBITDA
87,797
72,769
Share of Osage environmental remediation
costs
870
—
Acquisition integration and regulatory
costs
—
836
Tariffs and fees not included in
revenues
21,296
13,339
Lease payments not included in operating
costs
(1,606
)
(1,606
)
Adjusted EBITDA
$
108,357
$
85,338
(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 March
31,
2023
2022
(In thousands)
Net income attributable to Holly Energy
Partners
$
57,522
$
49,559
Add (subtract):
Depreciation and amortization
24,663
22,187
Amortization of discount and deferred debt
charges
1,071
770
Customer billings greater than net income
recognized
4,873
497
Maintenance capital expenditures(3)
(1,702
)
(5,620
)
Increase (decrease) in environmental
liability
(139
)
(120
)
Share of Osage insurance coverage
500
—
Decrease in reimbursable deferred
revenue
(5,405
)
(3,234
)
Other
2,528
416
Distributable cash flow
$
83,911
$
64,455
(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.
March 31,
December 31,
2023
2022
(In thousands)
Balance Sheet Data
Cash and cash equivalents
$
7,105
$
10,917
Working capital
$
29,139
$
17,293
Total assets
$
2,733,100
$
2,747,502
Long-term debt
$
1,540,385
$
1,556,334
Partners' equity
$
870,694
$
857,126
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230504005464/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
Holly Energy Partners (NYSE:HEP)
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