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Name | Symbol | Market | Type |
---|---|---|---|
Holly Energy Partners LP | NYSE:HEP | NYSE | Trust |
Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 20.45 | 0 | 01:00:00 |
Holly Energy Partners, L.P. ("HEP") (NYSE: HEP) today reported financial results for the third quarter of 2023. Net income attributable to HEP for the third quarter of 2023 was $63.0 million ($0.50 per basic and diluted limited partner unit), compared to $42.0 million ($0.33 per basic and diluted limited partner unit) for the third quarter of 2022.
Results for the third quarters of 2023 and 2022 reflect reductions to our equity in earnings of equity method investments of $4.3 million and $20.3 million, respectively, for HEP's 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties, net of insurance proceeds received, associated with a release of crude oil on the Osage Pipe Line Company, LLC ("Osage") pipeline that occurred on July 8, 2022. Excluding these reductions, net income attributable to HEP for the third quarters of 2023 and 2022 was $67.3 million ($0.53 per basic and diluted limited partner unit) and $62.2 million ($0.49 per basic and diluted limited partner unit), respectively. The increase in net income attributable to HEP in the third quarter of 2023 was mainly due to higher revenues associated with tariff increases that went into effect on July 1, 2023, partially offset by higher interest expense and higher general and administrative expenses.
Distributable cash flow was $78.5 million for the third quarter of 2023, a decrease of $0.3 million, or 0.3%, compared to the third quarter of 2022. HEP declared a quarterly cash distribution of $0.35 per unit on October 19, 2023.
Commenting on our 2023 third 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 across our transportation and storage systems. We also announced a quarterly distribution of $0.35 per unit to be paid on November 10, 2023 to unitholders of record on October 30, 2023.”
Third Quarter 2023 Revenue Highlights
Revenues for the third quarter of 2023 were $158.4 million, an increase of $9.4 million compared to the third quarter of 2022. The increase was mainly due to tariff increases that went into effect on July 1, 2023 as well as more customer billings recognized as revenue rather than interest income under sales-type lease accounting.
Nine Months Ended September 30, 2023 Revenue Highlights
Revenues for the nine months ended September 30, 2023 were $441.4 million, an increase of $36.4 million compared to the nine months ended September 30, 2022. The increase was mainly attributable to revenues from our Sinclair Transportation assets acquired on March 14, 2022, 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, 2023, partially offset by lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery.
Operating Costs and Expenses Highlights
Operating costs and expenses were $90.7 million and $256.7 million for the three and nine months ended September 30, 2023, respectively, representing increases of $1.3 million and $12.6 million from the three and nine months ended September 30, 2022, respectively. The nine-month increase was mainly due to operating costs and expenses associated with the acquired Sinclair Transportation assets as well as higher employee costs, partially offset by lower natural gas costs.
Interest Expense and Interest Income Highlights
Interest expense was $27.3 million and $79.7 million for the three and nine months ended September 30, 2023, respectively, representing increases of $4.3 million and $22.8 million from the three and nine months ended September 30, 2022, respectively. The increases were mainly due to higher interest rates on our long-term debt due to market interest rate increases on our senior secured revolving credit facility and our April 2022 issuance of $400 million in 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.
Interest income for the three and nine months ended September 30, 2023 totaled $20.3 million and $61.1 million, representing decreases of $3.9 million and $0.2 million compared to the three and nine months ended September 30, 2022, respectively. The decreases were mainly due to more pipeline tariffs recognized as revenue rather than interest income under sales-type lease accounting.
HEP and HF Sinclair have scheduled a joint webcast conference on November 2, 2023 at 9:30 a.m. Eastern time to discuss financial results.
This webcast may be accessed at:
https://events.q4inc.com/attendee/172908001
An audio archive of this webcast will be available using the above noted link through November 16, 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 ("HF Sinclair"). 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, 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 export 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. 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 or affect our unit price. These factors include, but are not limited to:
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 nine months ended September 30, 2023 and 2022.
Three Months Ended September 30,
Change from
2023
2022
2022
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
25,972
$
24,731
$
1,241
Affiliates – intermediate pipelines
9,059
7,988
1,071
Affiliates – crude pipelines
25,540
23,169
2,371
60,571
55,888
4,683
Third parties – refined product pipelines
8,640
6,694
1,946
Third parties – crude pipelines
15,831
14,565
1,266
85,042
77,147
7,895
Terminals, tanks and loading racks:
Affiliates
43,722
39,557
4,165
Third parties
4,602
4,875
(273
)
48,324
44,432
3,892
Refinery processing units - Affiliates
24,994
27,423
(2,429
)
Total revenues
158,360
149,002
9,358
Operating costs and expenses
Operations (exclusive of depreciation and amortization)
58,422
60,470
(2,048
)
Depreciation and amortization
24,362
25,236
(874
)
General and administrative
7,947
3,751
4,196
90,731
89,457
1,274
Operating income
67,629
59,545
8,084
Equity in earnings of equity method investments
3,581
(16,334
)
19,915
Interest expense, including amortization
(27,285
)
(22,965
)
(4,320
)
Interest income
20,294
24,234
(3,940
)
Gain on sale of assets and other
708
494
214
(2,702
)
(14,571
)
11,869
Income before income taxes
64,927
44,974
19,953
State income tax expense
(16
)
(38
)
22
Net income
64,911
44,936
19,975
Allocation of net income attributable to noncontrolling interests
(1,886
)
(2,985
)
1,099
Net income attributable to Holly Energy Partners
$
63,025
$
41,951
$
21,074
Limited partners’ earnings per unit – basic and diluted
$
0.50
$
0.33
$
0.17
Weighted average limited partners’ units outstanding
126,440
126,440
—
EBITDA(1)
$
94,394
$
65,956
$
28,438
Adjusted EBITDA(1)
$
118,514
$
110,092
$
8,422
Distributable cash flow(2)
$
78,465
$
78,731
$
(266
)
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
152,541
167,618
(15,077
)
Affiliates – intermediate pipelines
107,019
137,049
(30,030
)
Affiliates – crude pipelines
426,418
507,419
(81,001
)
685,978
812,086
(126,108
)
Third parties – refined product pipelines
33,549
38,040
(4,491
)
Third parties – crude pipelines
204,970
131,622
73,348
924,497
981,748
(57,251
)
Terminals and loading racks:
Affiliates
761,956
583,089
178,867
Third parties
40,440
37,782
2,658
802,396
620,871
181,525
Refinery processing units - Affiliates
67,192
72,065
(4,873
)
Total for pipelines and terminal assets (bpd)
1,794,085
1,674,684
119,401
Nine Months Ended September 30,
Change from
2023
2022
2022
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates – refined product pipelines
$
64,092
$
62,511
$
1,581
Affiliates – intermediate pipelines
25,659
23,015
2,644
Affiliates – crude pipelines
70,872
62,417
8,455
160,623
147,943
12,680
Third parties – refined product pipelines
24,288
21,169
3,119
Third parties – crude pipelines
41,731
41,134
597
226,642
210,246
16,396
Terminals, tanks and loading racks:
Affiliates
121,039
108,997
12,042
Third parties
19,303
17,008
2,295
140,342
126,005
14,337
Refinery processing units - Affiliates
74,425
68,719
5,706
Total revenues
441,409
404,970
36,439
Operating costs and expenses
Operations
163,706
156,994
6,712
Depreciation and amortization
74,922
74,397
525
General and administrative
18,094
12,745
5,349
256,722
244,136
12,586
Operating income
184,687
160,834
23,853
Equity in earnings of equity method investments
11,008
(7,261
)
18,269
Interest expense, including amortization
(79,711
)
(56,951
)
(22,760
)
Interest income
61,050
61,212
(162
)
Gain on sale of assets and other
983
640
343
(6,670
)
(2,360
)
(4,310
)
Income before income taxes
178,017
158,474
19,543
State income tax expense
(18
)
(83
)
65
Net income
177,999
158,391
19,608
Allocation of net income attributable to noncontrolling interests
(7,223
)
(10,089
)
2,866
Net income attributable to Holly Energy Partners
$
170,776
$
148,302
$
22,474
Limited partners’ earnings per unit—basic and diluted
$
1.35
$
1.22
$
0.13
Weighted average limited partners’ units outstanding
126,440
120,902
5,538
EBITDA(1)
$
264,377
$
218,521
$
45,856
Adjusted EBITDA(1)
$
330,591
$
299,673
$
30,918
Distributable cash flow(2)
$
235,648
$
221,643
$
14,005
Volumes (bpd)
Pipelines:
Affiliates – refined product pipelines
144,082
138,608
5,474
Affiliates – intermediate pipelines
108,579
126,550
(17,971
)
Affiliates – crude pipelines
429,965
460,641
(30,676
)
682,626
725,799
(43,173
)
Third parties – refined product pipelines
38,702
41,646
(2,944
)
Third parties – crude pipelines
196,552
133,598
62,954
917,880
901,043
16,837
Terminals and loading racks:
Affiliates
710,905
534,305
176,600
Third parties
44,263
40,923
3,340
755,168
575,228
179,940
Refinery processing units - Affiliates
60,131
69,903
(9,772
)
Total for pipelines and terminal assets (bpd)
1,733,179
1,546,174
187,005
(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 September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(In thousands)
Net income attributable to Holly Energy Partners
$
63,025
$
41,951
$
170,776
$
148,302
Add (subtract):
Interest expense
27,285
22,965
79,711
56,951
Interest income
(20,294
)
(24,234
)
(61,050
)
(61,212
)
State income tax expense
16
38
18
83
Depreciation and amortization
24,362
25,236
74,922
74,397
EBITDA
94,394
65,956
264,377
218,521
Share of Osage environmental remediation costs
69
20,297
1,289
20,297
Acquisition integration and regulatory costs
4,285
373
5,757
2,095
Tariffs and fees not included in revenues
21,372
25,072
63,987
63,579
Lease payments not included in operating costs
(1,606
)
(1,606
)
(4,819
)
(4,819
)
Adjusted EBITDA
$
118,514
$
110,092
$
330,591
$
299,673
(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 September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(In thousands)
Net income attributable to Holly Energy Partners
$
63,025
$
41,951
$
170,776
$
148,302
Add (subtract):
Depreciation and amortization
24,362
25,236
74,922
74,397
Amortization of discount and deferred debt charges
1,088
1,060
3,241
2,863
Customer billings greater than net income recognized
2,138
(587
)
11,908
34
Maintenance capital expenditures(3)
(5,859
)
(4,679
)
(13,597
)
(15,262
)
Increase (decrease) in environmental liability
(1,550
)
5,364
(2,553
)
5,120
Share of Osage insurance coverage
—
12,500
500
12,500
Reimbursable deferred revenue
(3,620
)
(3,538
)
(12,534
)
(10,127
)
Other
(1,119
)
1,424
2,985
3,816
Distributable cash flow
$
78,465
$
78,731
$
235,648
$
221,643
(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.
September 30,
December 31,
2023
2022
(In thousands)
Balance Sheet Data
Cash and cash equivalents
$
11,223
$
10,917
Working capital
$
15,594
$
17,293
Total assets
$
2,707,434
$
2,747,502
Long-term debt
$
1,468,505
$
1,556,334
Partners' equity
$
896,066
$
857,126
View source version on businesswire.com: https://www.businesswire.com/news/home/20231102867247/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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