- 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") (NYSE:
HEP) today 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.
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/607702822
An audio archive of this webcast will be available using the
above noted link through May 23, 2022.
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 HF Sinclair subsidiaries. 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 Utah and Kansas.
HF Sinclair 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. 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. In addition, subsidiaries of HF
Sinclair produce 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. HF Sinclair
also owns a 47% limited partner interest and a non-economic general
partner interest in Holly Energy Partners, L.P.
This press release contains various “forward-looking statements”
within the meaning of the federal securities laws. 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,” “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:
- HF Sinclair’s and the Partnership’s ability to successfully
integrate the Sinclair Oil Corporation and Sinclair Transportation
businesses acquired from REH Company (formerly known as The
Sinclair Companies, referred to herein as “Sinclair”)
(collectively, the “Sinclair Transactions”), with its existing
operations and fully realize the expected synergies of the Sinclair
Transactions or on the expected timeline;
- 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 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;
- 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 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 uncertainty regarding
the timing, pace and extent of an economic recovery in the United
States;
- 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, 2022 and 2021.
Three Months Ended March
31,
Change from
2022
2021
2021
(In thousands, except per unit
data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
16,860
$
18,606
$
(1,746
)
Affiliates – intermediate pipelines
7,506
7,506
—
Affiliates – crude pipelines
18,277
19,454
(1,177
)
42,643
45,566
(2,923
)
Third parties – refined product
pipelines
9,260
9,863
(603
)
Third parties – crude pipelines
12,877
11,076
1,801
64,780
66,505
(1,725
)
Terminals, tanks and loading racks:
Affiliates
31,208
33,864
(2,656
)
Third parties
5,807
4,318
1,489
37,015
38,182
(1,167
)
Refinery processing units - Affiliates
18,403
22,496
(4,093
)
Total revenues
120,198
127,183
(6,985
)
Operating costs and expenses
Operations
42,625
41,365
1,260
Depreciation and amortization
22,187
25,065
(2,878
)
General and administrative
4,312
2,968
1,344
Goodwill impairment
—
11,034
(11,034
)
69,124
80,432
(11,308
)
Operating income
51,074
46,751
4,323
Equity in earnings of equity method
investments
3,626
1,763
1,863
Interest expense, including
amortization
(13,639
)
(13,240
)
(399
)
Interest income
12,647
6,548
6,099
Gain on sales-type leases
—
24,650
(24,650
)
Gain on sale of assets and other
101
502
(401
)
2,735
20,223
(17,488
)
Income before income taxes
53,809
66,974
(13,165
)
State income tax benefit (expense)
(31
)
(37
)
6
Net income
53,778
66,937
(13,159
)
Allocation of net income attributable to
noncontrolling interests
(4,219
)
(2,540
)
(1,679
)
Net income attributable to Holly Energy
Partners
$
49,559
$
64,397
$
(14,838
)
Limited partners’ earnings per unit –
basic and diluted
$
0.45
$
0.61
$
(0.16
)
Weighted average limited partners’
units outstanding
109,640
105,440
4,200
EBITDA(1)
$
72,769
$
96,191
$
(23,422
)
Adjusted EBITDA(1)
$
85,338
$
87,936
$
(2,598
)
Distributable cash flow(2)
$
64,455
$
73,218
$
(8,763
)
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
107,210
119,590
(12,380
)
Affiliates – intermediate pipelines
117,802
115,225
2,577
Affiliates – crude pipelines
396,040
250,647
145,393
621,052
485,462
135,590
Third parties – refined product
pipelines
49,029
44,428
4,601
Third parties – crude pipelines
131,126
123,232
7,894
801,207
653,122
148,085
Terminals and loading racks:
Affiliates
446,032
323,286
122,746
Third parties
48,354
45,753
2,601
494,386
369,039
125,347
Refinery processing units - Affiliates
65,227
60,699
4,528
Total for pipelines and terminal assets
(bpd)
1,360,820
1,082,860
277,960
(1)
Earnings before interest, taxes,
depreciation and amortization (“EBITDA”) is calculated as net
income attributable to Holly Energy Partners, L.P. ("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) goodwill impairment, (ii)
acquisition integration and regulatory costs and (iii) tariffs and
fees not included in revenues due to impacts from lease accounting
for certain tariffs and fees minus (iv) gain on sales-type leases,
and (v) pipeline lease payments not included in operating costs and
expenses. Portions of our minimum guaranteed pipeline and terminal
tariffs and fees 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 tariffs and fees
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 March
31,
2022
2021
(In thousands)
Net income attributable to Holly Energy
Partners
$
49,559
$
64,397
Add (subtract):
Interest expense
13,639
13,240
Interest income
(12,647
)
(6,548
)
State income tax (benefit) expense
31
37
Depreciation and amortization
22,187
25,065
EBITDA
72,769
96,191
Gain on sales-type leases
—
(24,650
)
Goodwill impairment
—
11,034
Acquisition integration and regulatory
costs
836
—
Tariffs and fees not included in
revenues
13,339
6,967
Lease payments not included in operating
costs
(1,606
)
(1,606
)
Adjusted EBITDA
$
85,338
$
87,936
(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,
2022
2021
(In thousands)
Net income attributable to Holly Energy
Partners
$
49,559
$
64,397
Add (subtract):
Depreciation and amortization
22,187
25,065
Amortization of discount and deferred debt
charges
770
844
Customer billings greater than net income
recognized
497
4,336
Maintenance capital expenditures(3)
(5,620
)
(1,372
)
Increase (decrease) in environmental
liability
(120
)
(156
)
Decrease in reimbursable deferred
revenue
(3,234
)
(4,014
)
Gain on sales-type leases
—
(24,650
)
Goodwill impairment
—
11,034
Other
416
(2,266
)
Distributable cash flow
$
64,455
$
73,218
(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,
2022
2021
(In thousands)
Balance Sheet Data
Cash and cash equivalents
$
15,016
$
14,381
Working capital
$
8,866
$
17,461
Total assets
$
2,777,276
$
2,165,867
Long-term debt
$
1,634,367
$
1,333,049
Partners' equity
$
821,609
$
443,017
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220509005157/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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