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

DALLAS, April 29 /PRNewswire-FirstCall/ -- Holly Energy Partners, L.P. ("HEP")
(NYSE: HEP) today reported its financial results for the first quarter of
2009. For the quarter, distributable cash flow was $14.4 million, up $0.6
million or 5% from the same period last year. Net income attributable to HEP
partners was $5.4 million ($0.25 per basic and diluted limited partner unit)
compared to $7.8 million ($0.43 per basic and diluted limited partner unit)
for the same period of 2008. Under new accounting guidance effective January
1, 2009, we were required to expense certain acquisition costs of $2.5 million
associated with our joint venture agreement with Plains All American Pipeline,
L.P. ("Plains") that closed in March 2009. Under guidance effective until
December 31, 2008, we would have been required to capitalize these costs as
part of our investment. The agreement gives us a 25% interest in a new
95-mile intrastate pipeline system that delivers crude oil into the Salt Lake
City area (the "SLC Pipeline").

Commenting on the first quarter results for 2009, Matt Clifton, Chairman of
the Board and Chief Executive Officer stated, "In light of the effects of
downtime from a major maintenance turnaround at Holly Corporation's ("Holly")
Navajo refinery during the quarter, HEP delivered solid financial results. Our
first quarter EBITDA was $17.2 million, an increase of $1.3 million or 8% over
the same period of 2008. Comparing our 2009 first quarter to the same period
in 2008, our earnings benefited from revenues attributable to a full three
month period of crude oil pipeline operations as well as an increase in
third-party refined product pipeline shipments. Additionally, $3.1 million of
shortfall billings from the first quarter of 2008 expired without recapture
and were recognized as revenues during the quarter, resulting in a $1.7
million increase in previously deferred revenue realized. During the quarter,
Holly completed its planned major maintenance turnaround at its Navajo
refinery that was timed with the completion of its 85,000 bpd to 100,000 bpd
capacity expansion upgrade. Although reduced production during this period
resulted in reduced volumes of affiliate shipments, the effects of these
reduced volumes on our distributable cash flow were mitigated through the
contractual minimum commitments that we have in place with our shippers.
Looking forward, Holly's recent Navajo expansion will provide another great
revenue growth opportunity as we anticipate increased movements on our refined
product, intermediate and crude pipeline systems as a result of increased
refining capacity following this expansion. Additionally, the SLC Pipeline
commenced operations in March 2009 which will further contribute to our
profitability. Furthermore, I am pleased to announce an increase to our 2009
first quarter distribution to $0.775 per unit, representing our eighteenth
consecutive quarterly increase and a 5% increase over our distribution for the
first quarter of 2008."

Total revenues for the first quarter of 2009 were $32.1 million, a $4.8
million increase compared to the three months ended March 31, 2008. This
increase was due to increased revenues attributable to our crude pipeline
assets acquired in the first quarter of 2008, an increase in third-party
refined product pipeline shipments, the effect of the annual tariff increase
on affiliate refined product and crude pipeline shipments and an increase in
previously deferred revenue realized. These increases were partially offset
by a decrease in affiliate volume shipments on our pipeline systems as Holly
completed a planned major maintenance turnaround at its Navajo refinery.
Reduced production during this period resulted in a decrease in affiliate
pipeline shipments during the first quarter of 2009. Additionally during last
year's first quarter, third-party refined product shipments were down as a
result of an explosion and fire at Alon's Big Spring refinery in February 2008
that resulted in the temporary shutdown of production at the refinery.
-- Revenues from our refined product pipelines were $19.8 million, an
increase of $2.4 million compared to the first quarter of 2008. This
increase was due to an increase in third-party shipments on our
refined
product pipeline system, the effect of the annual tariff increase on
affiliate refined product shipments and a $2.1 million increase in
previously deferred revenue realized. These increases were partially
offset by the effects of a 26% decline in affiliate refined product
pipeline shipments as a result of the first quarter turnaround at the
Holly's Navajo refinery. Shipments on our refined product pipeline
system decreased to an average of 128.6 thousand barrels per day
("mbpd") compared to 130.1 mbpd for the same period last year.
-- Revenues from our intermediate pipelines were $1.8 million, a decrease
of $1.8 million compared to the first quarter of 2008. This decrease
was due to the effects of a 49% decline in volumes shipped as a result
of the first quarter turnaround at the Holly's Navajo refinery and
a $0.4 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 34.3
mbpd compared to 67.6 mbpd for the same period last year.
-- Revenues from our crude pipelines were $6.9 million, an increase of
$4.7
million compared to the first quarter of 2008. This increase was due
to
the realization of revenues from crude oil shipments for a full
three-month period during the first quarter of 2009 compared to one
month of shipments during the same period last year. For the first
quarter of 2008, crude pipeline revenues reflect crude oil shipments
for
the period from March 1 through March 31, 2008 due to the commencement
of our crude pipeline operations effective March 1, 2008. This was
partially offset by the effects of a decrease in average crude oil
shipments during the quarter compared to March 2008 as a result of
reduced production arising from planned downtime at Holly's Navajo
refinery. Shipments on our crude pipeline system decreased to an
average of 122.2 mbpd during the quarter compared to 139.1 mbpd during
the month of March 2008.

-- Revenues from terminal, tankage and truck loading rack fees were $3.6
million, a decrease of $0.4 million compared to the first quarter of
2008.

Operating costs and expenses were $18.4 million for the three months ended
March 31, 2009, an increase of $3.1 million compared to same period of 2008.
This increase was due to additional costs attributable to the crude pipelines
acquired in 2008 and higher depreciation. Also, under new accounting guidance
effective January 1, 2009, we were required to expense rather than capitalize
certain acquisition costs of $2.5 million associated with our joint venture
agreement with Plains All American Pipeline, L.P. ("Plains") that closed in
March 2009. Additionally, interest expense for the three months ended March
31, 2009 increased $1.6 million over the same period of 2008. This increase
is due primarily to interest attributable to advances from our revolving
credit agreement that were used to finance our crude pipeline asset purchase
on February 29, 2008.

We have scheduled a conference call today at 4:00 PM Eastern Time to discuss
financial results. Listeners may access this call by dialing (888) 548-4639.
The ID# for this call is #94667218. For those who would like to listen to
this call via the internet, you may access the call at:
http://www.videonewswire.com/event.asp?id=57732.

Additionally, listeners may replay this call approximately two hours after the
call concludes by dialing (800) 642-1687. This audio archive will be
available through May 13, 2009.

Holly Energy Partners, L.P., headquartered in Dallas, Texas, provides
petroleum product and crude oil transportation, tankage and terminal services
to the petroleum industry, including Holly Corporation subsidiaries. The
Partnership owns and operates petroleum product and crude gathering pipelines,
tankage and terminals in Texas, New Mexico, Arizona, Washington, Idaho,
Oklahoma and Utah. In addition, the Partnership owns a 70% interest in Rio
Grande Pipeline Company, a transporter of LPGs from West Texas to Northern
Mexico.

Holly Corporation operates through its subsidiaries an 100,000
barrels-per-stream-day ("bpsd") refinery located in Artesia, New Mexico and a
31,000 bpsd refinery in Woods Cross, Utah. A Holly Corporation subsidiary
owns a 46% interest (including the general partner interest) in the
Partnership.

The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: The statements in this press release relating
to matters that are not historical facts are "forward-looking statements"
within the meaning of the federal securities laws. These statements are based
on management's beliefs and assumptions using currently available information
and expectations as of the date hereof, are not guarantees of future
performance and involve certain risks and uncertainties. Although we believe
that the expectations reflected in these forward-looking statements are
reasonable, we cannot assure you that our expectations will prove correct.
Therefore, actual outcomes and results could differ materially from what is
expressed, implied or forecast in these statements. Any differences could be
caused by a number of factors, including, but not limited to:

-- Risks and uncertainties with respect to the actual quantities of
petroleum products and crude oil shipped on our pipelines and/or
terminalled in our terminals;
-- The economic viability of Holly Corporation, Alon USA, Inc. and our
other customers;
-- The demand for refined petroleum products and crude oil in markets we
serve;
-- Our ability to successfully purchase and integrate additional
operations
in the future;
-- Our ability to complete previously announced pending or contemplated
acquisitions;
-- The availability and cost of additional debt and equity financing;
-- The possibility of reductions in production or shutdowns at refineries
utilizing our pipeline and terminal facilities;
-- The effects of current and future government regulations and policies;
-- Our operational efficiency in carrying out routine operations and
capital construction projects;
-- The possibility of terrorist attacks and the consequences of any such
attacks;
-- General economic conditions; and

-- Other financial, operations and legal risks and uncertainties detailed
from time to time in our Securities and Exchange Commission 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, 2009 and 2008.

Three Months Ended
March 31, Change from
------------------ 2008
2009 2008 -----------
---- ----
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates - refined
product pipelines $7,553 $9,568 $(2,015)
Affiliates - intermediate
pipelines 1,766 3,593 (1,827)
Affiliates - crude
pipelines 6,901 2,195 4,706
----- ----- -----

16,220 15,356 864
Third parties - refined
product pipelines 12,267 7,835 4,432
------ ----- -----

28,487 23,191 5,296

Terminals, refinery tankage
and truck loading racks:
Affiliates 2,103 2,971 (868)
Third parties 1,534 1,114 420
----- ----- ---
3,637 4,085 (448)
----- ----- -----

Total revenues 32,124 27,276 4,848

Operating costs and
expenses:
Operations 10,796 9,727 1,069
Depreciation and
amortization 6,256 4,313 1,943
General and administrative 1,324 1,286 38
----- ----- --
18,376 15,326 3,050
------ ------ -----

Operating income 13,748 11,950 1,798

Other income (expense):
Equity in earnings of SLC
Pipeline 175 - 175
SLC Pipeline acquisition
costs (2,500) - (2,500)
Interest income 6 93 (87)
Interest expense, including
amortization (5,403) (3,807) (1,596)
Gain on sale of assets - 36 (36)
-- -- ----

Income before income taxes 6,026 8,272 (2,246)

State income tax (92) (68) (24)
---- ---- ----

Net income(8) 5,934 8,204 (2,270)

Less noncontrolling
interest in net income(8) 495 406 89
--- --- --

Net Income attributable
to HEP(8) 5,439 7,798 (2,359)

Less general partner interest in
net income attributable to HEP,
including incentive
distributions (1) 1,293 880 413
----- --- ---

Limited partners' interest
in net income attributable
to HEP $4,146 $6,918 $(2,772)
=========== ========== =============
Limited partners` per
unit interest in net
income attributable to HEP
- basic and diluted(1)(9) $0.25 $0.43 $(0.18)
========== ========== ===========
Weighted average limited
partners' units
outstanding 16,328 16,181 147
====== ====== ===
EBITDA(2) $17,184 $15,893 $1,291
======= ======= ======
Distributable cash flow(3) $14,356 $13,708 $648
============ ========== ============

Volumes - barrels per day ("bpd")(4)
Pipelines:
Affiliates - refined
product pipelines 62,338 84,560 (22,222)
Affiliates -
intermediate pipelines 34,296 67,611 (33,315)
Affiliates - crude
Pipelines 122,207 47,398 74,809
------- ------ ------
218,841 199,569 19,272
Third parties - refined
product pipelines 66,298 45,510 20,788
------ ------ ------
285,139 245,079 40,060
Terminals and truck
loading racks:
Affiliates 82,836 127,436 (44,600)
Third parties 43,406 37,242 6,164
------ ------ -----
126,242 164,678 (38,436)
------- ------- --------
Total for pipelines and
terminal assets (bpd) 411,381 409,757 1,624
======= ======= =====

(1) Net income attributable to HEP is allocated between limited partners
and the general partner interest in accordance with the provisions of
the partnership agreement. HEP net income allocated to the general
partner includes incentive distributions declared subsequent to
quarter end. General partner incentive distributions for the three
months ended March 31, 2009 and 2008 were $1.2 million and $0.7
million, respectively. HEP net income attributable to the limited
partners is divided by the weighted average limited partner units
outstanding in computing the limited partners' per unit interest in
HEP net income.

(2) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is calculated as net income plus (i) interest expense, net
of interest income, (ii) state income tax and (iii) depreciation and
amortization. EBITDA is not a calculation based upon U.S. generally
accepted accounting principles ("U.S. GAAP"). However, the amounts
included in the EBITDA calculation are derived from amounts included
in our consolidated financial statements. EBITDA should not be
considered as an alternative to net income or operating income, as an
indication of our operating performance or as an alternative to
operating cash flow as a measure of liquidity. EBITDA is not
necessarily comparable to similarly titled measures of other
companies. EBITDA is presented here because it is a widely accepted
financial indicator used by investors and analysts to measure
performance. EBITDA is 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

Three Months Ended
March 31,
---------
2009 2008
---- ----
(In thousands)

Net income attributable to HEP $5,439 $7,798

Add interest expense 5,227 3,584
Add net amortization of discount and
deferred debt issuance costs 176 223
Subtract interest income (6) (93)
Add state income tax 92 68
Add depreciation and amortization 6,256 4,313
----- -----

EBITDA $17,184 $15,893
======= =======

(3) Distributable cash flow is not a calculation based upon U.S. GAAP.
However, the amounts included in the calculation are derived from
amounts separately presented in our consolidated financial
statements, with the exception of maintenance capital expenditures.
Distributable cash flow should not be considered in isolation or as
an alternative to net income 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. 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,
---------
2009 2008
---- ----
(In thousands)

Net income attributable to HEP $5,439 $7,798

Add depreciation and amortization 6,256 4,313
Add net amortization of discount and
deferred debt issuance costs 176 223
Add increase in interest expense -
change in fair value of interest rate
swaps 216 -
Subtract equity in earnings of SLC
Pipeline (175) -
Add increase in deferred revenue 362 1,851
Add SLC Pipeline acquisition costs* 2,500 -
Subtract maintenance capital
expenditures** (418) (477)
----- -----

Distributable cash flow $14,356 $13,708
======= =======

* Under new accounting guidance Statement of Financial Accounting
Standards ("SFAS") No. 141 (revised 2007) effective January 1, 2009,
we were required to expense rather than capitalize certain acquisition
costs of $2.5 million associated with our joint venture agreement with
Plains that closed in March 2009. As these costs directly relate to
our interest in the new joint venture pipeline and are similar to
expansion capital expenditures, we have added back these costs to
arrive at distributable cash flow.

** 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.

(4) The amounts reported for the three months ended March 31, 2008 include
volumes transported on the crude pipelines for the period from March
1, 2008 through March 31, 2008 only. Volumes shipped during March
2008 averaged 139.1 mbpd. For the three months ended March 31, 2008,
crude pipeline volumes are based on March volumes, averaged over the
91 days in the first quarter of 2008. Under the pipelines and tankage
agreement with Holly, fees are based on volumes transported on each
pipeline component comprising the crude pipeline system (the crude oil
gathering pipelines and the crude oil trunk lines). Accordingly,
volumes transported on the crude pipelines represent the sum of
volumes transported on both pipeline components. In cases where
volumes are transported over both components of the crude pipeline
system, such volumes are reflected twice in the total crude oil
pipeline volumes.

March 31, December 31,
2009 2008
---- ----
Balance Sheet Data (In thousands)

Cash and cash equivalents $4,321 $5,269
Working capital(5) $(6,989) $(37,832)
Total assets(6) $469,545 $439,688
Long-term debt(7) $424,802 $355,793
Total equity (deficit)(6)(8) $(582) $8,120

(5) Reflects $29.0 million of credit agreement advances that were
classified as short-term borrowings at December 31, 2008.

(6) As a master limited partnership, we distribute our available cash,
which historically has exceeded our net income because depreciation
and amortization expense represents a non-cash charge against
income. The result is a decline in equity since our regular
quarterly distributions have exceeded our quarterly net income.
Additionally, if the assets transferred to us upon our initial
public offering in 2004 and the intermediate pipelines purchased
from Holly in 2005 had been acquired from third parties, our
acquisition cost in excess of Holly's basis in the transferred
assets of $157.3 million would have been recorded as increases to
our properties, plants and equipment and intangible assets instead
of reductions to equity.

(7) Includes $69.0 million of credit agreement advances that were
classified as long-term debt at March 31, 2009.

(8) During the first quarter of 2009, we adopted SFAS No. 160,
"Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51." As a result, net income attributable to
the non-controlling interest in our Rio Grande subsidiary is now
presented as an adjustment to net income to arrive at "Net income
attributable to Holly Energy Partners, L.P." in our Consolidated
Statements of Income. Prior to our adoption of this standard, this
amount was presented as "Minority interest in Rio Grande," a non-
operating expense item before "Income before income taxes."
Additionally, equity attributable to noncontrolling interests in
our Rio Grande subsidiary is now presented as a separate component
of total equity in our Consolidated Financial Statements. We have
adopted this standard on a retroactive basis. While this
presentation differs from previous GAAP requirements, this standard
did not affect our net income and equity attributable to HEP
partners.

(9) During the quarter, we also adopted Emerging Issues Task Force
("EITF") No. 07-4, "Application of the Two-Class Method under SFAS
No. 128 to Master Limited Partnerships" which prescribes the
application of the two-class method in computing earnings per unit
to reflect a master limited partnership's contractual obligation to
make distributions to the general partner, limited partners and
incentive distribution rights holder. We adopted this standard
effective January 1, 2009. As a result, our quarterly earnings
allocations to the general partner now include incentive
distributions that were declared subsequent to quarter end. Prior
to our adoption of this standard, our general partner earnings
allocations included incentive distributions that were declared
during each quarter. We have adopted this standard on a
retroactive basis. Although this standard resulted in a decrease in
our limited partners' interest in net income attributable to HEP
for the first quarter of 2008, it did not affect last year's first
quarter earnings of $0.43 per limited partner unit.

SOURCE Holly Energy Partners, L.P.

Bruce R. Shaw, Senior Vice President and Chief Financial Officer, or M. Neale
Hickerson, Vice President, Investor Relations, both of Holly Energy Partners,
L.P., +1-214-871-3555