DALLAS, July 29 /PRNewswire-FirstCall/ -- Holly Energy Partners, L.P.
(NYSE: HEP) today reported its financial results for the second quarter of
2008. Distributable cash flow for the second quarter was $14.0 million, up
$1.6 million or 12.9% from the same period last year. For the six months
ended June 30, 2008 distributable cash flow was $27.7 million, up $2.7 million
or 10.8% from the same period last year.
Net income for the second quarter of 2008 was $3.8 million ($0.18 per
basic and diluted limited partner unit) compared to $11.0 million ($0.64 per
basic and diluted limited partner unit) for the same period of 2007. For the
six months ended June 30, 2008, net income was $11.6 million ($0.61 per basic
and diluted limited partner unit) compared to $18.4 million ($1.06 per basic
and diluted limited partner unit) for the same period of 2007. The relative
strength of our distributable cash flow despite our lower net income when
comparing our 2008 results to the prior year is due principally to the
contractual minimum commitments that we have in place with our shippers.
Under certain transportation agreements, Alon and Holly have committed to a
level of product shipments that generally results in a minimum level of
revenue. Amounts billed for any shortfalls with respect to these contractual
commitments are recorded as deferred revenue and later included in revenue and
net income when earned and no longer subject to recapture. Increases in
deferred revenue as a result of such shortfalls are included in distributable
cash flow when the shortfall occurs.
We acquired crude oil and product pipeline and tankage assets from Holly
Corporation on February 29, 2008 that service Holly's Navajo Refinery in
southeast New Mexico and Woods Cross Refinery in Woods Cross, Utah. Our
revenues for the three and six months ended June 30, 2008 include $6.6 million
and $8.7 million, respectively, that are attributable to the operations of
these crude pipeline and tankage assets that commenced on March 1, 2008.
Total revenues for the second quarter of 2008 were $26.8 million, a $0.4
million decrease compared to the three months ended June 30, 2007. This
decrease was due principally to the effects of limited production at Alon's
Big Spring Refinery resulting from an explosion and fire in February,
production downtime at Holly's Navajo Refinery during the second quarter of
2008 and a decrease in previously deferred revenue realized. These decreases
were partially offset by revenues attributable to our crude pipeline assets
that were acquired in the first quarter of 2008. See discussion of Alon's Big
Spring Refinery and Holly's Navajo Refinery below.
-- Revenues from our refined product pipelines were $14.6 million, a
decrease of $4.2 million compared to the second quarter of 2007. This
decrease was due to a decline in refined product pipeline shipments by
refineries utilizing our refined product pipeline system during the
second quarter and a $0.9 million decrease in previously deferred
revenue realized. These decreases were partially offset by the effect
of the annual tariff increase on refined product shipments. Shipments
on our refined product pipeline system decreased to an average of 100.2
thousand barrels per day ('mbpd') compared to 147.1 mbpd for the same
period last year.
-- Revenues from our intermediate pipelines were $2.5 million, a decrease
of $1.6 million compared to the second quarter of 2007. This decrease
was due to a decline in volumes shipped on our intermediate pipelines
resulting from downtime at Holly's Navajo Refinery and a $1.0 million
decrease in previously deferred revenue realized. These decreases were
partially offset by the effect of the annual tariff increase on
intermediate pipeline shipments. Shipments on our intermediate product
pipeline system decreased to an average of 51.9 mbpd compared to 68.4
mbpd for the same period last year.
-- Revenues from our crude pipelines were $6.6 million; second quarter
shipments averaged 130.6 mbpd.
-- Revenues from terminal, tankage and truck loading rack fees were $3.2
million, a decrease of $1.1 million compared to the second quarter of
2007.
Total revenues for the six months ended June 30, 2008 were $54.1 million,
a $3.0 million increase compared to the six months ended June 30, 2007. This
increase was due principally to revenues attributable to our crude pipeline
assets acquired in the first quarter of 2008. This increase was partially
offset by a decrease in third party shipments, a decrease in shipments on our
intermediate pipeline system and a decrease in previously deferred revenue
realized.
-- Revenues from our refined product pipelines were $32.0 million, a
decrease of $3.9 million compared to the first six months of 2007.
This decrease was due to a decline in third party shipments as a result
of reduced production and downtime following an explosion at Alon's Big
Spring refinery during the first quarter. This decrease was offset
partially by a year-to-date increase in affiliate shipments and the
effect of the annual tariff increase on refined product shipments.
Overall shipments on our refined product pipeline system decreased to
an average of 115.2 mbpd compared to 142.3 mbpd for the same period
last year.
-- Revenues from our intermediate pipelines were $6.0, a decrease of $1.0
million compared to the first six months of 2007. This decrease was
due to the effects of downtime at Holly's Navajo Refinery during the
second quarter of 2008 and a $0.9 million decrease in previously
deferred revenue realized. These decreases were partially offset by
the effect of the annual tariff increase on intermediate pipeline
shipments. Shipments on our intermediate product pipeline system
decreased to an average of 59.7 mbpd compared to 64.0 mbpd for the same
period last year.
-- Revenues from our crude pipelines were $8.7 million; for the months of
March through June 2008 shipments averaged 133.1 mbpd.
-- Revenues from terminal, tankage and truck loading rack fees were $7.3
million, a decrease of $0.8 million compared to the first six months of
2007.
Operating costs and expenses were $17.4 million and $32.7 million for the
three and six months ended June 30, 2008, respectively, an increase of $4.7
million and $7.0 million compared to same periods of 2007, respectively. The
increase for the three and six months ended June 30, 2008 was due principally
to costs and expenses related to the operations of our crude pipelines
commencing March 1, 2008 and increased pipeline maintenance and payroll costs.
Additionally, interest expense for the three and six months ended June 30,
2008 increased $1.9 million and $2.3 million over the same periods of 2007,
respectively. This increase is due principally to interest attributable to
advances from our revolving credit agreement that were used to finance our
crude pipeline asset purchase in the first quarter as well as capital
projects.
On February 18, 2008, Alon experienced an explosion and fire at its Big
Spring refinery that resulted in the shutdown of production. In early April
Alon reopened its Big Spring refinery and has resumed production which is
currently running at about one-half of refinery capacity. Alon has announced
that it plans to complete repairs and be back at full capacity in the third
quarter of 2008. Lost production and reduced operations attributable to this
incident resulted in a decrease in third party shipments on our refined
product pipelines during the first six months of 2008.
Additionally, during the 2008 second quarter, Holly's Navajo Refinery
experienced approximately 10 days unplanned downtime as a result of unexpected
repairs that further contributed to reduced volume shipments on our pipeline
systems.
Commenting on the second quarter results for 2008, Matt Clifton, Chairman
of the Board and Chief Executive Officer stated, 'Although revenue for the
quarter was significantly reduced as a result of the shutdown of Alon's Big
Spring refinery and unplanned downtime at Holly's Navajo Refinery, the
contractually committed billings under our pipelines and terminals agreements
operated as intended.
