Holly Energy Partners, L.P. Reports Fourth Quarter Earnings31 January 2006
Holly Energy Partners, L.P. (NYSE: HEP) today reported fourth quarter net income of $7.2 million ($0.43 per basic and diluted limited partner unit) for the three months ended December 31, 2005, as compared to $6.5 million ($0.46 per basic and diluted limited partner unit) for the three months ended December 31, 2004. For the year ended December 31, 2005, our first full calendar year of operations subsequent of our initial public offering, net income was $26.8 million ($1.70 per basic and diluted limited partner unit).
Results of operations for the three months and year ended December 31, 2005 include the operations from the assets acquired from Alon USA, Inc. subsequent to the acquisition date of February 28, 2005, including four refined products pipelines aggregating approximately 500 miles, an associated tank farm and two refined products terminals with aggregate storage capacity of approximately 347,000 barrels. Additionally, included in the results of operations for the three months and year ended December 31, 2005 are the two 65-mile parallel intermediate feedstock pipelines which were acquired on July 8, 2005 from Holly Corporation (NYSE: HOC), the owner of our general partner, and which connect Holly's Lovington, NM and Artesia, NM refining facilities. Results of operations for the year ended December 31, 2004 reflect the results of operations of Navajo Pipeline Co., L.P., the predecessor to Holly Energy Partners, L.P. until July 12, 2004, at which time Holly Energy Partners, L.P. commenced operations. Historically, Holly Corporation did not allocate general and administrative costs to the predecessor entity. In addition, the results of operations of the predecessor entity include results of operations from certain crude oil and intermediate product pipelines that were not contributed to Holly Energy Partners, L.P. at inception (as discussed above, the intermediate product pipelines were acquired by the Partnership on July 8, 2005). As a result of these items, operating results for the year ended December 31, 2005 are not comparable to the results for the year ended December 31, 2004.
Revenues of $22.6 million for the three months ended December 31, 2005 were $6.6 million greater than the $16.0 million in the comparable period of 2004, principally due to $5.4 million of revenues from the pipeline and terminal assets acquired from Alon on February 28, 2005 and $2.4 million of revenues from the intermediate pipeline assets acquired from Holly on July 8, 2005, partially offset by a reduction in revenues from the Rio Grande Pipeline of $1.3 million. Shipments on the Partnership's refined product pipelines averaged 145.4 thousand barrels per day ("mbpd") for the three months ended December 31, 2005 as compared to 102.1 mbpd for the three months ended December 31, 2004, principally due to the incremental volumes from the pipelines acquired from Alon. Shipments on the Partnership's intermediate product pipelines averaged 58.4 mbpd for the three months ended December 31, 2005. As previously disclosed, during the first quarter of 2005 BP Plc ("BP") ceased being required to pay the border crossing fee pursuant to its contract with the Rio Grande Pipeline. For the three months ended December 31, 2004, the border crossing fee was $1.3 million. Refined products terminalled in our facilities for the comparable quarters rose to 162.4 mbpd in the 2005 fourth quarter from 136.3 mbpd in the 2004 fourth quarter, principally due to the incremental volumes from the terminals acquired from Alon. Net income was $7.2 million for the three months ended December 31, 2005, an increase of $0.7 million from $6.5 million for the three months ended December 31, 2004. The increase in overall net income was principally due to income generated from the assets acquired from Alon and the intermediate pipelines acquired from Holly, partially offset by increased interest expense principally related to the senior notes issued in connection with the Alon and intermediate pipelines transactions. Additionally impacting income for the current year's fourth quarter was a reduction in revenues from the Rio Grande Pipeline.
Revenues of $80.1 million for the year ended December 31, 2005 were $12.3 million greater than the $67.8 million in the comparable period of 2004, principally due to $17.6 million of revenues from the pipeline and terminal assets acquired from Alon on February 28, 2005 and $4.6 million of revenues from the intermediate pipeline assets acquired from Holly on July 8, 2005, partially offset by revenues of $7.9 million in the year ended December 31, 2004 from assets not originally contributed to the Partnership. Also, we had additional revenues from our existing pipelines and terminals of $1.7 million and reduced revenues from the Rio Grande Pipeline of $3.7 million. Shipments on the Partnership's refined product pipelines averaged 131.3 mbpd for the year ended December 31, 2005 as compared to 95.5 mbpd for the year ended December 31, 2004, principally due to the incremental March to December 2005 volumes from the pipelines acquired from Alon. The incremental July to December 2005 volumes from the Partnership's intermediate product pipelines acquired from Holly averaged 28.3 mbpd for the year ended December 31, 2005. As stated above, BP is no longer required to pay the border crossing fee pursuant to its contract. For the years ended December 31, 2005 and 2004, the border crossing fee was $0.8 million and $4.5 million, respectively. Refined products terminalled in our facilities rose to 163.1 mbpd in the year December 31, 2005 from 139.8 mbpd in the year ended December 31, 2004, principally due to the incremental March to December 2005 volumes from the terminals acquired from Alon. Net income was $26.8 million for the year ended December 31, 2005, a decrease of $5.7 million from $32.5 million for the year ended December 31, 2004. The decrease in income was principally due to the inclusion in earnings of $5.2 million for the prior year of the crude oil and intermediate product pipelines that were not contributed to the Partnership, reduced revenues from the Rio Grande Pipeline in 2005, general and administrative charges currently being incurred by the Partnership that were not allocated prior to the initial public offering, and interest expense principally related to the senior notes issued in connection with the Alon and intermediate pipelines transactions, partially offset by the additional income generated from the assets acquired from Alon and the intermediate pipelines acquired from Holly and additional revenues from our existing pipelines and terminals.
"We are pleased with our operations and the results for the fourth quarter and the full year," said Matt Clifton, Chairman of the Board and Chief Executive Officer. "During 2005, we successfully acquired and integrated the pipeline and terminal assets serving Alon's Big Spring refinery and the intermediate pipelines serving Holly's Navajo Refinery. With the combination of those acquisitions, along with increased volumes from most of our existing assets during 2005, our EBITDA for our first full completed calendar year was $50 million, including the fourth quarter at $14.1 million, an increase of 64% from the amount reported for the 2004 fourth quarter. During the 2005 fourth quarter, following a November 2005 volume reduction due to unanticipated repairs made at Holly's Navajo Refinery, our volumes from the Navajo Refinery bounced back nicely in December to expected levels. In 2006, we will continue to strive to operate our assets safely and efficiently while looking at organic and third-party growth opportunities for the Partnership."
"On January 27, 2006, we announced our cash distribution for the fourth quarter of 2005 of $0.625 per unit, an increase of 4.2% over the amount of $0.60 distributed per unit for the third quarter of 2005. Our EBITDA for the fourth quarter was $14.1 million, and after subtracting net interest expense of $2.7 million and maintenance capital expenditures of $140,000, distributable cash flow for the quarter was $11.3 million. The aggregate distribution declared for the quarter amounts to $10.5 million."
The Partnership has scheduled a conference call today at 10:00 AM EST to discuss financial results. Listeners may access this call by dialing (800) 858-5936. The ID# for this call is #4383132. Additionally, listeners may access the call via the internet at: http://audioevent.mshow.com/285522 .
Holly Energy Partners, L.P., headquartered in Dallas, Texas, provides petroleum product transportation and terminal services to the petroleum industry, including Holly Corporation, which owns a 45% interest (including the general partner interest) in the Partnership. The Partnership owns and operates petroleum product pipelines and terminals primarily in Texas, New Mexico, Oklahoma, Arizona, Washington, Idaho 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 a 75,000 barrels-per- day ("bpd") refinery located in Artesia, New Mexico, a 26,000 bpd refinery in Woods Cross, Utah, and an 8,000 bpd refinery in Great Falls, Montana.
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
refined petroleum products 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 in markets we serve;
* Our ability to successfully purchase and integrate any future acquired
operations;
* The availability and cost of our financing;
* The possibility of reductions in production or shutdowns at refineries
utilizing our pipeline and terminal facilities;
* The effects of current or 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 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 and year ended December 31, 2005 and 2004.
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates -
refined product pipelines $ 7,440 $ 7,487 $ 29,288 $ 28,533
Affiliates - intermediate
pipelines 2,419 --- 4,643 ---
Third parties 9,076 5,400 31,447 18,952
18,935 12,887 65,378 47,485
Terminals & truck loading racks:
Affiliates 2,447 2,425 10,253 9,194
Third parties 1,187 680 4,489 3,179
3,634 3,105 14,742 12,373
Other --- --- --- 15
Total for pipelines
and terminal assets 22,569 15,992 80,120 59,873
Crude system and intermediate
pipelines not contributed
to HEP at inception (A):
Lovington crude
oil pipelines --- --- --- 3,325
Intermediate pipelines --- --- --- 4,568
Total for crude system and
intermediate pipeline assets
not contributed to HEP
at inception --- --- --- 7,893
Total revenues 22,569 15,992 80,120 67,766
Operating costs and expenses
Costs related to refined product
pipeline and terminal assets:
Operations 7,163 5,736 25,332 21,361
Depreciation and amortization 4,065 1,738 14,201 6,791
General and administrative 1,005 972 4,047 1,860
12,233 8,446 43,580 30,012
Crude system and intermediate
pipelines not contributed
to HEP at inception (A):
Operations --- --- --- 2,280
Depreciation
and amortization --- --- --- 433
--- --- --- 2,713
Total operating costs
and expenses 12,233 8,446 43,580 32,725
Operating income 10,336 7,546 36,540 35,041
Interest income 215 56 649 144
Interest expense,
including amortization (3,112) (396) (9,633) (697)
Minority interest in Rio Grande (282) (675) (740) (1,994)
Net income 7,157 6,531 26,816 32,494
Less:
Net income applicable
to predecessor --- --- --- 21,104
General partner interest
in net income, including
incentive distributions (B) 266 131 721 228
Limited partners' interest
in net income $ 6,891 $ 6,400 $ 26,095 $ 11,162
Net income per unit applicable
to limited partners (B) $ 0.43 $ 0.46 $ 1.70 $ 0.80
Weighted average limited
partners' units outstanding 16,108 14,000 15,356 14,000
EBITDA subsequent
to formation (C) $14,119 $ 8,609 $50,001 $ 15,263
Distributable cash flow (D) $11,324 $ 8,218 $41,438 $ 14,492
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Volumes (bpd) (E)
Pipelines:
Affiliates - refined
product pipelines 65,324 69,513 66,206 65,525
Affiliates - intermediate
pipelines 58,421 --- 28,267 ---
Third parties 80,027 32,619 65,053 29,967
203,772 102,132 159,526 95,492
Terminals & truck loading racks:
Affiliates 115,854 115,971 120,795 114,991
Third parties 46,557 20,317 42,334 24,821
162,411 136,288 163,129 139,812
Total for petroleum pipelines
and terminal assets (bpd) 366,183 238,420 322,655 235,304
(A) Revenue and expense items generated by the crude system and
intermediate pipeline assets that were not contributed to HEP at
inception in July 2004. Historically, these items were included in
the income of Navajo Pipeline Co. as predecessor, but are not
included in the income of HEP beginning July 13, 2004. The
intermediate pipelines were later purchased by HEP on July 8, 2005.
(B) Net income is allocated between limited partners and the general
partner interest in accordance with the provisions of the
partnership agreement. Net income allocated to the general partner
includes any incentive distributions made in the period. As of
December 31, 2005, $188,000 of incentive distributions had been
made. Limited partners' interest in net income is divided by the
weighted average limited partner units outstanding in computing the
net income per unit applicable to limited partners.
(C) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is calculated as net income plus (i) interest expense net
of interest income and (ii) 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 used
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 Year Ended
December 31, December 31,
2005 2004 2005 2004
(In thousands)
Net income $ 7,157 $ 6,531 $ 26,816 $ 32,494
Subtract income attributable
to predecessor --- --- --- (21,104)
Add interest expense subsequent
to formation 2,870 294 8,848 531
Add amortization of discount
and deferred debt issuance
costs subsequent to formation 242 102 785 166
Subtract interest income subsequent
to formation (215) (56) (649) (65)
Add depreciation and amortization
subsequent to formation 4,065 1,738 14,201 3,241
EBITDA subsequent to formation
on July 13, 2004 $ 14,119 $ 8,609 $ 50,001 $ 15,263
(D) 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
attributable to partners subsequent to the formation on
July 13, 2004.
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
(In thousands)
Net income $ 7,157 $ 6,531 $ 26,816 $ 32,494
Subtract income attributable
to predecessor --- --- --- (21,104)
Add depreciation and amortization
subsequent to formation 4,065 1,738 14,201 3,241
Add amortization of discount
and deferred debt issuance
costs subsequent to formation 242 102 785 166
Subtract maintenance capital
expenditures subsequent
to formation* (140) (153) (364) (305)
Distributable cash flow of
partnership subsequent to
formation on July 13, 2004 $ 11,324 $ 8,218 $ 41,438 $ 14,492
* 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.
(E) The amounts reported represent volumes from the initial assets
contributed to HEP at inception in July 2004 and additional volumes
from the assets acquired from Alon starting in March 2005 and the
intermediate pipelines acquired from Holly starting in July 2005.
The amounts reported in the 2005 periods include volumes on the
acquired assets from their respective acquisition dates averaged
over the full reported periods.
Balance Sheet Data
December 31, December 31,
2005 2004
(Dollars in thousands)
Cash and cash equivalents $ 20,583 $ 19,104
Working capital $ 19,454 $ 19,120
Total assets $ 254,775 $ 103,758
Long-term debt $ 180,737 $ 25,000
Partners' equity $ 52,060 $ 61,528
Source: prnewswire
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