UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

______________________________________________________________________________________
FORM 10-Q
 


______________________________________________________________________________________
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172023
OR
¨

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________                    
Commission File Number: 1-32225
  

_____________________________________________________________________________________
HOLLY ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________________
Delaware20-0833098
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
2828 N. Harwood, Suite 1300
Dallas, Texas
75201
Dallas
Texas75201
(Address of principal executive offices) (Zip code)
(214) 871-3555
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Limited Partner UnitsHEPNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth” companygrowth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý☒Accelerated filer¨☐Non-accelerated filer¨☐Smaller reporting company
¨

☐
Emerging growth company
¨

☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ ☐No  ý

☒
The number of the registrant’s outstanding common units at October 31, 2017,2023, was 64,318,955.126,440,201.


Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.
INDEX
 
FORWARD-LOOKING STATEMENTS
3
45
Item 1.
45
45
56
6
Consolidated Statements of Cash Flows
7
8
910
Item 2.
3138
Item 3.
4656
Item 4.
4656
4757
Item 1.
4757
Item 1A.
4757
Item 6.
4759
4860
4960

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Table of Contentsril 19,



FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, thosestatements regarding funding of capital expenditures and distributions and statements under “Results of Operations” and “Liquidity and Capital Resources” in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “will,” “plan,” “goal,” “forecast,” “intend,” “strategy,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations.operations are intended to identify forward-looking statements. These 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. 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.statements or affect our unit price. These factors include, but are not limited to:

•the risk that the HF Sinclair Merger Transaction (as defined herein) is not consummated during the expected timeframe, or at all;
•failure to obtain the required approvals for the HF Sinclair Merger Transaction, including the ability to obtain the requisite approvals from HF Sinclair stockholders or our unitholders;
•the substantial transaction-related costs that may be incurred by HF Sinclair and us in connection with the HF Sinclair Merger Transaction;
•the possibility that financial projections by us may not prove to be reflective of actual future results;
•the focus of management time and attention on the HF Sinclair Merger Transaction and other disruptions arising from the HF Sinclair Merger Transaction, which may make it more difficult to maintain relationships with customers, employees or suppliers;
•legal proceedings that may be instituted against HF Sinclair or us in connection with the HF Sinclair Merger Transaction;
•the demand for and supply of crude oil and refined products, including the uncertainty regarding 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;terminals and refinery processing units;
•the economic viability of HollyFrontier Corporation, Alon USA, Inc.HF Sinclair, our other customers and our joint ventures’ other customers;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 operations and integrate futurethe operations we have acquired operations;or may acquire, including the acquired Sinclair Transportation Company LLC business;
•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 pipeline andpipelines, terminal facilities and refinery processing units, due to reductions in demand, accidents, unexpected leaks or containingspills, unscheduled shutdowns, infection in the workforce, weather events, global health events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our processing units;operations, terminal facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party providers

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Table of 19,
or lower gross margins due to the economic impact of inflation and labor costs, and any potential asset impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions;
•the effects of current and future government regulations and policies;policies, including increases in interest rates;
•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 attacksor cyberattacks and the consequences of any such attacks;
•uncertainty regarding the effects and duration of global hostilities, including the Israel-Gaza conflict, the Russia-Ukraine war, 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;conditions, including economic slowdowns caused by a local or national recession or other adverse economic condition, such as periods of increased or prolonged inflation;
•the impact of recent or proposed changes in the tax laws and regulations that affect master limited partnerships;
•the outcome of the Exchange Offers (as defined herein) and Consent Solicitations (as defined herein);
•the impact of the proposed amendments to the Credit Agreement (as defined herein); and
•other business, financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission (the “SEC”) filings.


Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, and in this Quarterly Report on Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Risk Factors.Operations.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. 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.


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Table of Contentsril 19,

PART I. FINANCIAL INFORMATION



Item 1.Financial Statements
Item 1.Financial Statements
HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
 September 30, 2017 December 31, 2016September 30,
2023		December 31, 2022
 (Unaudited)  (Unaudited)
ASSETS    ASSETS
Current assets:    Current assets:
Cash and cash equivalents $7,476
 $3,657
Cash and cash equivalents (Cushing Connect VIEs: $1,900 and $2,147, respectively)
Cash and cash equivalents (Cushing Connect VIEs: $1,900 and $2,147, respectively)
$11,223 $10,917 
Accounts receivable:    Accounts receivable:
Trade 7,330
 7,846
Trade17,460 16,344 
Affiliates 42,753
 42,562
Affiliates83,137 63,459 
 50,083
 50,408
100,597 79,803 
Prepaid and other current assets 2,295
 2,888
Prepaid and other current assets10,026 12,397 
Total current assets 59,854
 56,953
Total current assets121,846 103,117 
    
Properties and equipment, net 1,307,093
 1,328,395
Properties and equipment, net1,362,829 1,388,888 
Transportation agreements, net 61,644
 66,856
Operating lease right-of-use assets, netOperating lease right-of-use assets, net1,797 2,317 
Net investment in leases (Cushing Connect VIEs: $101,855 and $101,871, respectively)
Net investment in leases (Cushing Connect VIEs: $101,855 and $101,871, respectively)
521,099 539,705 
Intangible assets, netIntangible assets, net51,681 59,300 
Goodwill 256,498
 256,498
Goodwill342,762 342,762 
Equity method investments 163,873
 165,609
Equity method investments (Cushing Connect VIEs: $32,753 and $34,746, respectively)
Equity method investments (Cushing Connect VIEs: $32,753 and $34,746, respectively)
267,291 270,604 
Deferred turnaround costsDeferred turnaround costs21,279 24,154 
Other assets 16,880
 9,926
Other assets16,850 16,655 
Total assets $1,865,842
 $1,884,237
Total assets$2,707,434 $2,747,502 
    
LIABILITIES AND EQUITY    LIABILITIES AND EQUITY
Current liabilities:    Current liabilities:
Accounts payable:    Accounts payable:
Trade $13,584
 $10,518
Trade (Cushing Connect VIEs: $481 and $431, respectively)
Trade (Cushing Connect VIEs: $481 and $431, respectively)
$28,122 $26,753 
Affiliates 9,559
 16,424
Affiliates18,561 15,756 
 23,143
 26,942
46,683 42,509 
    
Accrued interest 5,527
 18,069
Accrued interest17,512 17,992 
Deferred revenue 14,827
 11,102
Deferred revenue21,066 12,087 
Accrued property taxes 7,487
 5,397
Accrued property taxes11,058 5,449 
Current operating lease liabilitiesCurrent operating lease liabilities793 968 
Current finance lease liabilitiesCurrent finance lease liabilities4,634 4,389 
Other current liabilities 3,492
 3,225
Other current liabilities4,506 2,430 
Total current liabilities 54,476
 64,735
Total current liabilities106,252 85,824 
    
Long-term debt 1,245,066
 1,243,912
Long-term debt1,468,505 1,556,334 
Noncurrent operating lease liabilitiesNoncurrent operating lease liabilities1,371 1,720 
Noncurrent finance lease liabilitiesNoncurrent finance lease liabilities60,474 62,513 
Other long-term liabilities 15,477
 16,445
Other long-term liabilities28,571 29,111 
Deferred revenue 46,405
 47,035
Deferred revenue16,878 24,613 
    
Class B unit 42,412
 40,319
Class B unit61,034 60,507 
    
Equity:    Equity:
Partners’ equity:    Partners’ equity:
Common unitholders (64,318,955 and 62,780,503 units issued and outstanding
at September 30, 2017 and December 31, 2016, respectively)
 520,709
 510,975
General partner interest (2% interest) (149,994) (132,832)
Accumulated other comprehensive income —
 91
Total partners’ equity 370,715
 378,234
Noncontrolling interest 91,291
 93,557
Common unitholders (126,440,201 units issued and outstanding
at both September 30, 2023 and December 31, 2022)
Common unitholders (126,440,201 units issued and outstanding
at both September 30, 2023 and December 31, 2022)
896,066 857,126 
Noncontrolling interestsNoncontrolling interests68,283 69,754 
Total equity 462,006
 471,791
Total equity964,349 926,880 
Total liabilities and equity $1,865,842
 $1,884,237
Total liabilities and equity$2,707,434 $2,747,502 
See accompanying notes.


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Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per unit data)

Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Revenues:
Affiliates$129,287 $122,868 $356,087 $325,659 
Third parties29,073 26,134 85,322 79,311 
158,360 149,002 441,409 404,970 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)58,422 60,470 163,706 156,994 
Depreciation and amortization24,362 25,236 74,922 74,397 
General and administrative7,947 3,751 18,094 12,745 
90,731 89,457 256,722 244,136 
Operating income67,629 59,545 184,687 160,834 
Other income (expense):
Equity in earnings of equity method investments3,581 (16,334)11,008 (7,261)
Interest expense (including amortization)(27,285)(22,965)(79,711)(56,951)
Interest income20,294 24,234 61,050 61,212 
Gain on sale of assets and other708 494 983 640 
(2,702)(14,571)(6,670)(2,360)
Income before income taxes64,927 44,974 178,017 158,474 
State income tax expense(16)(38)(18)(83)
Net income64,911 44,936 177,999 158,391 
Allocation of net income attributable to noncontrolling interests(1,886)(2,985)(7,223)(10,089)
Net income attributable to the partners63,025 41,951 170,776 148,302 
Limited partners’ per unit interest in earnings—basic and diluted$0.50 $0.33 $1.35 $1.22 
Weighted average limited partners’ units outstanding126,440 126,440 126,440 120,902 

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 
2016 (1)
 2017 
2016 (1)
Revenues:        
Affiliates $95,138
 $77,398
 $277,316
 $239,423
Third parties 15,226
 15,212
 47,826
 50,094
  110,364
 92,610
 325,142
 289,517
Operating costs and expenses:        
Operations (exclusive of depreciation and amortization) 35,998
 32,101
 102,584
 89,168
Depreciation and amortization 19,007
 18,920
 57,729
 51,183
General and administrative 3,623
 2,664
 8,872
 8,618
  58,628
 53,685
 169,185
 148,969
Operating income 51,736
 38,925
 155,957
 140,548
         
Other income (expense):        
Equity in earnings of equity method investments 5,072
 3,767
 10,965
 10,155
Interest expense (14,072) (14,447) (41,359) (36,258)
Interest income 101
 108
 306
 332
Loss on early extinguishment of debt —
 —
 (12,225) —
Gain on sale of assets and other 155
 112
 317
 104
  (8,744) (10,460) (41,996) (25,667)
Income before income taxes 42,992
 28,465
 113,961
 114,881
State income tax benefit (expense) 69
 (61) (164) (210)
Net income 43,061
 28,404
 113,797
 114,671
Allocation of net loss attributable to Predecessor —
 7,547
 —
 10,657
Allocation of net income attributable to noncontrolling interests (990) (1,166) (4,827) (8,448)
Net income attributable to the partners 42,071
 34,785
 108,970
 116,880
General partner interest in net income attributable to the partners 419
 (15,222) (35,047) (40,001)
Limited partners’ interest in net income $42,490
 $19,563
 $73,923
 $76,879
Limited partners’ per unit interest in earnings—basic and diluted $0.66
 $0.33
 $1.16
 $1.29
Weighted average limited partners’ units outstanding 64,319
 59,223
 63,845
 58,895


(1) Retrospectively adjusted as describedNet income and comprehensive income are the same in Note 1.

all periods presented.
See accompanying notes.


HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)



- 6 -

  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 
2016 (1)
 2017 
2016 (1)
Net income $43,061
 $28,404
 $113,797
 $114,671
         
Other comprehensive income:        
Change in fair value of cash flow hedging instruments 1
 201
 88
 (737)
Reclassification adjustment to net income on partial settlement of cash flow hedge (64) 95
 (179) 438
Other comprehensive income (loss) (63) 296
 (91) (299)
Comprehensive income before noncontrolling interest 42,998
 28,700
 113,706
 114,372
Allocation of net loss attributable to Predecessor —
 7,547
 —
 10,657
Allocation of comprehensive income to noncontrolling interests (990) (1,166) (4,827) (8,448)
Comprehensive income attributable to Holly Energy Partners $42,008
 $35,081
 $108,879
 $116,581

(1) Retrospectively adjusted as described in Note 1.
See accompanying notes.

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
  Nine Months Ended
September 30,
  2017 
2016 (1)
Cash flows from operating activities    
Net income $113,797
 $114,671
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 57,729
 51,183
(Gain) loss on sale of assets (269) (121)
Amortization of deferred charges 2,317
 2,294
Amortization of restricted and performance units 1,908
 1,865
Earnings distributions greater (less) than income from equity investments 513
 (1,370)
Loss on early extinguishment of debt 12,225
 —
(Increase) decrease in operating assets:    
Accounts receivable—trade 516
 1,521
Accounts receivable—affiliates (191) 2,971
Prepaid and other current assets 593
 814
Increase (decrease) in operating liabilities:    
Accounts payable—trade 3,393
 (5,757)
Accounts payable—affiliates (6,866) 1,589
Accrued interest (12,543) 441
Deferred revenue 3,096
 6,288
Accrued property taxes 2,090
 3,199
Other current liabilities (99) (1,020)
Other, net (750) (594)
Net cash provided by operating activities 177,459
 177,974
     
Cash flows from investing activities    
Additions to properties and equipment (30,675) (48,224)
Purchase of Woods Cross refinery processing units —
 (47,891)
Purchase of interest in Cheyenne Pipeline —
 (42,550)
Proceeds from sale of assets 794
 210
Distributions in excess of equity in earnings of equity investments 1,224
 1,685
Other —
 (351)
Net cash used for investing activities (28,657) (137,121)
     
Cash flows from financing activities    
Borrowings under credit agreement 628,000
 310,500
Repayments of credit agreement borrowings (431,000) (642,500)
Proceeds from issuance of Senior Notes 101,750
 394,000
Redemption of 6.5% Senior Notes (309,750) —
Proceeds from issuance of common units 52,285
 22,791
Distributions to HEP unitholders (171,560) (138,798)
Distributions to noncontrolling interest (5,000) (3,750)
Distribution to HFC for Tulsa tank acquisition —
 (39,500)
Distribution to HFC for Osage acquisition —
 (1,245)
Distribution to HFC for El Dorado tanks (103) —
Contributions from HFC for acquisitions —
 55,027
Contributions from general partner 1,072
 470
Purchase of units for incentive grants —
 (784)
Deferred financing costs (9,453) (3,930)
Other (1,224) (939)
Net cash used by financing activities (144,983) (48,658)
     
Cash and cash equivalents    
Increase (decrease) for the period 3,819
 (7,805)
Beginning of period 3,657
 15,013
End of period $7,476
 $7,208
(1) Retrospectively adjusted as described in Note 1.
Nine Months Ended
September 30,
20232022
Cash flows from operating activities
Net income$177,999 $158,391 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization74,922 74,397 
Gain on sale of assets(675)(29)
Amortization of deferred charges3,240 2,863 
Equity-based compensation expense1,092 1,493 
Equity in earnings of equity method investments, net of distributions6,073 22,084 
(Increase) decrease in operating assets:
Accounts receivable—trade(1,116)(174)
Accounts receivable—affiliates(19,678)(16,643)
Prepaid and other current assets2,635 2,264 
Increase (decrease) in operating liabilities:
Accounts payable—trade(516)2,586 
Accounts payable—affiliates2,805 5,844 
Accrued interest(480)6,664 
Deferred revenue1,244 (5,572)
Accrued property taxes5,609 5,089 
Other current liabilities2,076 (20)
Turnaround expenditures(618)(24,728)
Other, net3,911 3,988 
Net cash provided by operating activities258,523 238,497 
Cash flows from investing activities
Additions to properties and equipment(21,978)(31,194)
Acquisition of Sinclair Transportation— (328,955)
Investment in Osage Pipe Line Company, LLC(4,750)(5,000)
Proceeds from sale of assets1,417 37 
Distributions in excess of equity in earnings of equity investments1,993 4,724 
Net cash used for investing activities(23,318)(360,388)
Cash flows from financing activities
Borrowings under credit agreement60,000 460,000 
Repayments of credit agreement borrowings(149,500)(594,000)
Proceeds from issuance of debt— 400,000 
Payments on Class B Unit(2,569)— 
Distributions to HEP unitholders(132,925)(125,669)
Distributions to noncontrolling interests(6,648)(7,308)
Payments on finance leases(3,261)(2,700)
Deferred financing costs— (6,541)
Purchase of units for incentive grants— (334)
Units withheld for tax withholding obligations(1)(217)
Other5 (170)
Net cash provided (used) by financing activities(234,899)123,061 
Cash and cash equivalents
Increase for the period306 1,170 
Beginning of period10,917 14,381 
End of period$11,223 $15,551 
Supplemental disclosure of cash flow information
Cash paid during the period for interest$76,294 $47,941 
See accompanying notes.

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Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
(Unaudited)
(In thousands)
 
Common
Units		Noncontrolling InterestsTotal Equity
 
Balance December 31, 2022$857,126 $69,754 $926,880 
Distributions to HEP unitholders(44,308)— (44,308)
Distributions to noncontrolling interests— (2,549)(2,549)
Amortization of restricted and performance units354 — 354 
Class B unit accretion(1,024)— (1,024)
Net income58,546 1,751 60,297 
Balance March 31, 2023$870,694 $68,956 $939,650 
Distributions to HEP unitholders(44,309)— (44,309)
Distributions to noncontrolling interest— (1,861)(1,861)
Amortization of restricted and performance units367 — 367 
Class B unit accretion(1,024)— (1,024)
Net income51,252 1,539 52,791 
Balance June 30, 2023$876,980 $68,634 $945,614 
Distributions to HEP unitholders(44,308)— (44,308)
Distributions to noncontrolling interest— (2,238)(2,238)
Amortization of restricted and performance units371 — 371 
Other(2)1 (1)
Net income63,025 1,886 64,911 
Balance September 30, 2023$896,066 $68,283 $964,349 


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Table of 19,
Common
Units		Noncontrolling InterestsTotal Equity
Balance December 31, 2021Balance December 31, 2021$443,017 $147,532 $590,549 
Issuance of common unitsIssuance of common units349,020 — 349,020 
Distributions to HEP unitholdersDistributions to HEP unitholders(36,997)— (36,997)
Distributions to noncontrolling interestsDistributions to noncontrolling interests— (877)(877)
Acquisition of remaining UNEV interestsAcquisition of remaining UNEV interests16,537 (78,187)(61,650)
Amortization of restricted and performance unitsAmortization of restricted and performance units620 — 620 
Class B unit accretionClass B unit accretion(956)— (956)
OtherOther(147)— (147)
Net incomeNet income50,515 3,263 53,778 
Balance March 31, 2022Balance March 31, 2022$821,609 $71,731 $893,340 
Distributions to HEP unitholdersDistributions to HEP unitholders(44,336)— (44,336)
Distributions to noncontrolling interestDistributions to noncontrolling interest— (4,431)(4,431)
Acquisition of remaining UNEV interestsAcquisition of remaining UNEV interests3,198 177 3,375 
Amortization of restricted and performance unitsAmortization of restricted and performance units607 — 607 
Class B unit accretionClass B unit accretion(956)— (956)
OtherOther(86)— (86)
Net incomeNet income57,749 1,928 59,677 
Balance June 30, 2022Balance June 30, 2022$837,785 $69,405 $907,190 
Distributions to HEP unitholdersDistributions to HEP unitholders(44,336)— (44,336)
Distributions to noncontrolling interestDistributions to noncontrolling interest— (2,000)(2,000)
Purchase of units for incentive grantsPurchase of units for incentive grants(334)— (334)
Amortization of restricted and performance unitsAmortization of restricted and performance units266 — 266 
Class B unit accretionClass B unit accretion(1,023)— (1,023)
OtherOther(153)— (153)
Net incomeNet income42,973 1,963 44,936 
Balance September 30, 2022Balance September 30, 2022$835,178 $69,368 $904,546 
 
Common
Units
 
General
Partner
Interest
 
Accumulated
Other
Comprehensive
Income (Loss)
 Noncontrolling Interest Total Equity
  
Balance December 31, 2016 $510,975
 $(132,832) $91
 $93,557
 $471,791
Issuance of common units 52,285
 —
 —
 —
 52,285
Contribution from HFC —
 1,072
 —
 —
 1,072
Distribution to HFC for acquisition

 —
 (103) —
 —
 (103)
Distributions to HEP unitholders (118,424) (53,136) —
 —
 (171,560)
Distributions to noncontrolling interest —
 —
 —
 (5,000) (5,000)
Amortization of restricted and performance units 1,908
 —
 —
 —
 1,908
Class B unit accretion (2,051) (42) —
 —
 (2,093)
Net income 76,016
 35,047
 —
 2,734
 113,797
Other comprehensive income —
 —
 (91) —
 (91)
Balance September 30, 2017 $520,709
 $(149,994) $—
 $91,291
 $462,006


See accompanying notes.




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Table of Contentsril 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1:Description of Business and Presentation of Financial Statements

Note 1:Description of Business and Presentation of Financial Statements

Holly Energy Partners, L.P. (“HEP”), together with its consolidated subsidiaries, is a publicly held master limited partnership which is 36% owned (including the 2% general partner interest) by HollyFrontier Corporation (“HFC”) and its subsidiaries as of September 30, 2017.partnership. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements,On March 14, 2022 (the “Closing Date”), HollyFrontier Corporation (“HFC”) and HEP announced the words “we,” “our,” “ours” and “us” refer to HEP unlessestablishment of HF Sinclair Corporation, a Delaware corporation (“HF Sinclair”), as the context otherwise indicates.

On October 31, 2017, we closed the restructuring transaction set forth in the definitive agreement with HEP Logistics Holdings, L.P. (“HEP Logistics”), a wholly-owned subsidiarynew parent holding company of HFC and HEP and their subsidiaries, and the general partnercompletion of HEP,their respective acquisitions of Sinclair Oil Corporation (now known as Sinclair Oil LLC) and Sinclair Transportation Company LLC (“Sinclair Transportation”) from REH Company (formerly known as The Sinclair Companies, and referred to herein as “REH Company”). On the Closing Date, pursuant to whichthat certain Business Combination Agreement, dated as of August 2, 2021 (as amended on March 14, 2022, the incentive distribution rights held“Business Combination Agreement”), by HEP Logistics are canceled, and HEP Logistics' 2% generalamong HFC, HF Sinclair, Hippo Merger Sub, Inc., a wholly owned subsidiary of HF Sinclair (“Parent Merger Sub”), REH Company, and Hippo Holding LLC (now known as Sinclair Holding LLC), a wholly owned subsidiary of REH Company (the “Target Company”), HF Sinclair completed its acquisition of the Target Company by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HFC merged with and into Parent Merger Sub, with HFC surviving such merger as a direct wholly owned subsidiary of HF Sinclair (the “HFC Merger”), and (b) immediately following the HFC Merger, a contribution whereby REH Company contributed all of the equity interests of the Target Company to HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair (together with the HFC Merger, the “HFC Transactions”).

As of September 30, 2023, HF Sinclair and its subsidiaries owned a 47% limited partner interest in HEP is converted into aand the non-economic general partner interest in HEP.

In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HFC agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginningconnection with the first quarterclosing of the unitsHFC Transactions, HF Sinclair issued as consideration are eligible60,230,036 shares of HF Sinclair common stock to receive distributions. AsREH Company, representing 27% of October 31, 2017,the pro forma equity of HF Sinclair with a value of approximately $2,149 million based on HFC’s fully diluted shares of common stock outstanding and closing stock price on March 11, 2022. References herein to HF Sinclair with respect to time periods prior to March 14, 2022 refer to HFC held approximately 59.6 millionand its consolidated subsidiaries and do not include the Target Company, Sinclair Transportation or their respective consolidated subsidiaries. References herein to HF Sinclair with respect to time periods from and after March 14, 2022 refer to HF Sinclair and its consolidated subsidiaries, which includes the combined business operations of HFC, the Target Company, Sinclair Transportation and their respective consolidated subsidiaries.

Additionally, on the Closing Date, pursuant to that certain Contribution Agreement, dated August 2, 2021 (as amended on March 14, 2022, the “Contribution Agreement”), by and among REH Company, Sinclair Transportation and HEP, common units, representing approximately 59%HEP acquired all of the outstanding equity interests of Sinclair Transportation from REH Company in exchange for 21 million newly issued common units. Aslimited partner units of HEP (the “HEP Units”), representing 16.6% of the pro forma outstanding HEP Units with a resultvalue of thisapproximately $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 $329.0 million, inclusive of final working capital adjustments pursuant to the Contribution Agreement for an aggregate transaction no distributions will be madevalue of $678.0 million (the “HEP Transaction” and together with the HFC Transactions, the “Sinclair Transactions”). Of the 21 million HEP Units, 5.29 million units were originally held in escrow to secure REH Company’s renewable identification numbers (“RINs”) credit obligations to HF Sinclair under Section 6.22 of the Business Combination Agreement. The HEP Units held in escrow were released to REH Company in April 2023 upon their satisfaction of the RINs credit obligations relating thereto. The cash consideration was funded through a draw under HEP’s senior secured revolving credit facility. The HEP Transaction was conditioned on the general partner interestclosing of the HFC Transactions, which occurred immediately following the HEP Transaction.

Sinclair Transportation, together with its subsidiaries, owned integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Target Company refineries and other third party refineries, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage. In addition, HEP acquired Sinclair Transportation’s interests in three pipeline joint ventures for crude gathering and product offtake.


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References herein to HEP with respect to time periods prior to March 14, 2022, include HEP and its consolidated subsidiaries and do not include Sinclair Transportation and its consolidated subsidiaries (collectively, the “Acquired Sinclair Businesses”). References herein to HEP with respect to time periods from and after October 31, 2017.March 14, 2022 include the operations of the Acquired Sinclair Businesses.

WeThrough our subsidiaries and joint ventures, we own andand/or operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support HFC’s refining and marketing operations of HF Sinclair and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas. As of September 30, 2017,States. Additionally, we ownedown (a) a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Frontier Aspen LLC (“Frontier Aspen”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”), (b) a 50% interest in Cheyenne Pipeline LLC, (c) a 50% interest in Cushing Connect Pipeline & Terminal LLC (the “Cushing Connect Joint Venture”), (d) a 25.06% interest in Saddle Butte Pipeline III, LLC and (e) a 49.995% interest in Pioneer Investments Corp. Following the HEP Transaction, we now own the remaining 25% interest in SLCUNEV Pipeline, LLC (“SLC Pipeline”UNEV”). and as a result, UNEV is our wholly owned subsidiary.


We operate in two reportable segments, a Pipelines and Terminals segment and a Refinery Processing Unit segment. Disclosures around these segments are discussed in Note 13.16.


We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, providing other services at our storage tanks and terminals and by charging fees for processing hydrocarbon feedstocks througha tolling fee per barrel or thousand standard cubic feet of feedstock throughput in our refinery processing units. We do not take ownership of products that we transport, terminal, store or process, and therefore, we are not exposed directly to changes in commodity prices.


The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).SEC. The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016.2022. Results of operations for interim periods are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2017.2023.


Principles of Consolidation and Common Control Transactions
The consolidated financial statements include our accounts our Predecessor's (defined below) and those of subsidiaries and joint ventures that we control. All significant intercompany transactions and balances have been eliminated.


Most of our acquisitions from HFC occurred while we were a consolidated variable interest entity (“VIE”) of HFC. Therefore, as an entity under common control with HFC, we recorded these acquisitions on our balance sheets at HFC'sHFC’s historical basis instead of our purchase price or fair value. GAAP requires transfers

Goodwill and Long-lived Assets
Goodwill represents the excess of our cost of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a business between entities under common controlreporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

Our annual goodwill impairment testing for 2023 was performed on a quantitative basis during the third quarter of 2023, and we determined there was no impairment of goodwill attributable to our reporting units.

We evaluate long-lived assets, including finite-lived intangible assets, for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future

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undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value.

Revenue Recognition
Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. The majority of our contracts with customers meet the definition of a lease since (1) performance of the contracts is dependent on specified property, plant, or equipment and (2) it is remote that one or more parties other than the customer will take more than a minor amount of the output associated with the specified property, plant, or equipment. The lease standard (see below) allows the election of a practical expedient whereby a lessor does not have to separate non-lease (service) components from lease components for operating leases under certain conditions. We have made this election for contracts with operating leases. Under this practical expedient, we treat the combined components as a single performance obligation in accordance with Accounting Standards Codification (“ASC”) 606, which largely codified ASU 2014-09, if the non-lease (service) component is the dominant component. If the lease component is the dominant component, we treat the combined components as a lease in accordance with ASC 842, which largely codified ASU 2016-02. The practical expedient does not apply for sales-type leases. Therefore, we bifurcate the consideration received for those contracts between lease and service components. The service component is accounted for within the scope of ASC 606.
Several of our contracts include incentive or reduced tariffs once a certain quarterly volume is met. Revenue from the variable element of these transactions is recognized based on the actual volumes shipped as thoughit relates specifically to rendering the transfer occurredservices during the applicable quarter.
The majority of our long-term transportation contracts specify minimum volume requirements, whereby, we bill a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, we will recognize these deficiency payments in revenue.
In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the beginninglikelihood of the period of transfer, and prior period financial statements and financial information are retrospectively adjusteda customer’s ability to include the historical results and assets of the acquisitions from HFC for all periods presentedutilize such amounts prior to the end of the contractual shortfall make-up period. We recognize these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights projected to be exercised by the customer. During the nine months ended September 30, 2023 and 2022, we recognized $15.4 million and $14.0 million, respectively, of these deficiency payments in revenue, of which $3.9 million of the deficiency payments recognized during the nine months ended September 30, 2022, related to deficiency payments billed in prior periods.
We have other cost reimbursement provisions in our throughput / storage agreements providing that customers (including HF Sinclair) reimburse us for certain costs. Such reimbursements are recorded as revenue or deferred revenue depending on the nature of the cost. Deferred revenue is recognized over the remaining contractual term of the related throughput agreement.

Leases
We adopted ASC 842 effective datesJanuary 1, 2019, and elected to adopt using the modified retrospective transition method and practical expedients, both of each acquisition.which are provided as options by the standard and further defined below.

Lessee Accounting
At inception, we determine if an arrangement is or contains a lease. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our payment obligation under the leasing arrangement. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We referuse our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the historical resultslease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable.

Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties and equipment, current finance lease liabilities and noncurrent finance lease liabilities on our consolidated balance sheet.


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When renewal options are defined in a lease, our lease term includes an option to extend the lease when it is reasonably certain we will exercise that option. Leases with a term of 12 months or less are not recorded on our balance sheet, and lease expense is accounted for on a straight-line basis. In addition, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations.

Lessor Accounting
Customer contracts that contain leases are generally classified as either operating leases, direct finance leases or sales-type leases. We consider inputs such as the lease term, fair value of the acquisitions prior to their respective acquisition dates as those of our "Predecessor." Many of these transactions are cash purchasesunderlying asset and do not involve the issuance of equity; however, GAAP requires the retrospective adjustment of financial statements. Therefore, in such transactions, the prior year balance sheet includes as equity the amount of cost incurred by HFC to that date. See “Acquisitions” below for further discussion as well as effectsresidual value of the retrospective adjustments.underlying assets when assessing the classification.



Deferred Turnaround Costs

Our refinery processing units require regular major maintenance and repairs which are commonly referred to as “turnarounds.” The required frequency of the maintenance varies by unit, but generally is every four to five years. Turnaround costs are deferred and amortized over the period until the next scheduled turnaround.
Acquisitions

Class B Unit
Osage
On February 22, 2016, HFC obtained a 50% membershipUnder the terms of the 2012 transaction pursuant to which HEP UNEV Holdings LLC (“HEP UNEV Holdings”) acquired HFC’s initial 75% interest in Osage in a non-monetary exchange for a 20-year terminalling services agreement, wherebyUNEV, HEP UNEV Holdings issued to a subsidiary of Magellan Midstream Partners (“Magellan”) will provide terminalling services for all HFC products originatinga Class B unit comprised of a noncontrolling equity interest in Artesia, New Mexico requiring terminalling in or through El Paso, Texas. Osagea wholly owned subsidiary (the “Class B Unit”). Subject to certain limitations, the Class B Unit is the owner of the Osage Pipeline, a 135-mile pipeline that transports crude oil from Cushing, Oklahomasubject to HFC’s El Dorado Refinery in Kansas and also connectsannual redemption payments to the Jayhawk pipeline serving the CHS Inc. refinery in McPherson, Kansas. The Osage Pipelineextent that HFC is the primary pipeline supplying HFC’s El Dorado refinery with crude oil.

Concurrent with this transaction, we entered into a non-monetary exchange with HFC, whereby we received HFC’s interest in Osage in exchange for our El Paso terminal. Under this exchange, we agreedentitled to build two connections on our south products pipeline system that will permit HFC access to Magellan’s El Paso terminal. Effective upon the closing of this exchange, we became the named operator of the Osage Pipeline and transitioned into that role on September 1, 2016. Since we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis of its 50% membership interest in Osage of $44.5 million offset by our net carrying basis in the El Paso terminal of $12.1 million with the difference recorded as a contribution from HFC. However, since these transactions were concurrent, there was no impact on periods prior to February 22, 2016.

Tulsa Tanks
On March 31, 2016, we acquired crude oil tanks (the “Tulsa Tanks”) located at HFC’s Tulsa refinery from an affiliate of Plains All American Pipeline, L.P. (“Plains”) for cash consideration of $39.5 million. In 2009, HFC sold these tanks to Plains and leased them back, and due to HFC’s continuing interest in the tanks, HFC accounted for the transaction as a financing arrangement. Accordingly, the tanks had remained on HFC’s balance sheet and were being depreciated for accounting purposes.

As we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis in the net assets acquired. We have retrospectively adjusted our financial position and operating results as if these units were owned for all periods while we were under common control of HFC.

Cheyenne Pipeline
On June 3, 2016, we acquired a 50% interest in Cheyenne Pipeline LLC, owner75% of annual UNEV earnings before interest, income taxes, depreciation, and amortization exceeding $40 million, beginning July 1, 2015 and ending in June 2032. However, if the earnings thresholds are not achieved, no redemption payments are required.

UNEV earnings before interest, income taxes, depreciation, and amortization exceeded $40 million for the first time during the measurement period ending June 30, 2023 which required the Class B Unit to be reclassified from mezzanine equity to a long-term liability on the balance sheet as of June 30, 2023. A redemption payment of $2.6 million, calculated as described above, was paid in August 2023.

The Class B Unit liability will increase by a 7% factor compounded annually on the outstanding balance through its expiration date, and this increase is included in interest expense on our consolidated statements of income beginning July 1, 2023. Prior to classification of the Cheyenne Pipeline,Class B Unit as a liability, the 7% increase was included in allocation of net income attributable to noncontrolling interests on our consolidated statements of income.


Note 2:Sinclair Acquisition

HEP Transaction

On March 14, 2022, pursuant to the Contribution Agreement, HEP acquired all of the outstanding equity interests of Sinclair Transportation in exchange for 21 million newly issued HEP Units, representing 16.6% of the pro forma outstanding HEP Units with a contributionvalue of $42.6approximately $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 $329.0 million, inclusive of final working capital adjustments pursuant to the Contribution Agreement for an aggregate transaction value of $678.0 million. On the same date and immediately following the consummation of the HEP Transaction, pursuant to the Business Combination Agreement, REH Company contributed all of the equity interests of the Target Company to HF Sinclair in exchange for 60,230,036 shares of common stock in HF Sinclair,representing 27% of the pro forma equity of HF Sinclair with a value of approximately $2,149 million based on HF Sinclair’s fully diluted shares of common stock outstanding and closing stock price on March 11, 2022.

On August 2, 2021, in connection with the Contribution Agreement, HEP, Holly Logistic Services, L.L.C., the ultimate general partner of HEP (“HLS”) and Navajo Pipeline Co., L.P., the sole member of HLS (the “Sole Member”), entered into a unitholders agreement (the “Unitholders Agreement”) by and among HEP, HLS, the Sole Member, REH Company and the stockholders of REH Company (each a “Unitholder” and collectively, the “Unitholders,” and along with REH Company and each of their permitted transferees, the “REH Parties”), which became effective on the Closing Date.


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Pursuant to the Unitholders Agreement, the REH Parties have the right to nominate, and have nominated, one person to the board of directors of HLS until such time that (x) the REH Parties beneficially own less than 10.5 million HEP Units or (y) the HEP Units beneficially owned by the REH Parties constitute less than 5% of all outstanding HEP Units. The Unitholders Agreement also subjected 15.75 million of the HEP Units issued to the REH Parties (the “Restricted Units”) to a “lock-up” period commencing on the Closing Date, during which the REH Parties were prohibited from selling the Restricted Units, except for certain permitted transfers. One-third of such Restricted Units were released from such restrictions on the date that was six months after the Closing Date, one-third of the Restricted Units were released from such restrictions on the first anniversary of the Closing Date, and the remainder were released from such restrictions on June 14, 2023, the date that was 15 months from the Closing Date.

Under the terms of the Contribution Agreement, HEP acquired Sinclair Transportation, which together with its subsidiaries, owned REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipelines supporting the REH Company refineries and other third-party refineries, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage. In addition, HEP acquired Sinclair Transportation’s interests in three pipeline joint ventures for crude gathering and product offtake including: Saddle Butte Pipeline III, LLC (25.06% non-operated interest); Pioneer Investments Corp. (49.995% non-operated interest); and UNEV (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP).

The HEP Transaction was accounted for as a business combination using the acquisition method of accounting, with the assets acquired and liabilities assumed at their respective acquisition date fair values at the Closing Date, with the excess consideration recorded as goodwill. The purchase price allocation resulted in the recognition of $119.1 million in goodwill.

The following tables present the purchase consideration and final purchase price allocation to the assets acquired and liabilities assumed on March 14, 2022:

Purchase Consideration (in thousands except for per share amounts)
HEP common units issued21,000 
Closing price per unit of HEP common units(1)
$16.62 
Purchase consideration paid in HEP common units349,020 
Cash consideration paid by HEP325,000 
Working capital adjustment payment by HEP(2)
3,955 
Total cash consideration328,955 
Total purchase consideration$677,975 

(1) Based on the HEP closing unit price on March 11, 2022
(2) Net of cash acquired




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(In thousands)
Assets Acquired
Accounts receivable$3,005 
Prepaid and other current assets59 
Properties and equipment340,682 
Operating lease right-of-use assets105 
Other assets3,500 
Goodwill119,112 
Equity method investments229,891 
Total assets acquired$696,354 
Liabilities Assumed
Accounts payable1,528 
Accrued property taxes973 
Other current liabilities789 
Operating lease liabilities33 
Noncurrent operating lease liabilities72 
Other long-term liabilities14,984 
Total liabilities assumed$18,379 
Net assets acquired$677,975 


The fair value of properties, plants and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence. We used the market approach to Cheyenne Pipeline LLC. Cheyenne Pipeline LLC will continuemeasure the value of certain assets through an analysis of recent sales or offerings of comparable properties.

The fair value of the equity method investments were based on a combination of valuation methods including discounted cash flows and the guideline public company method.

The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements. See Note 6.

The fair values of all other current receivable and payables were equivalent to be operatedtheir carrying values due to their short-term nature.

We incurred $0.6 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $2.1 million for both the nine months ended September 30, 2023 and 2022, in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as general and administrative expenses in our consolidated statements of income.

Contemporaneous with the closing of the Sinclair Transactions, HEP and HFC amended certain intercompany agreements, including the master throughput agreement, to include within the scope of such agreements certain of the assets acquired by an affiliate of Plains, which ownsHEP pursuant to the remaining 50% interest. The 87-mile crude oil pipeline runs from Fort Laramie to Cheyenne, Wyoming and has an 80,000 barrel per day (“bpd”) capacity.Contribution Agreement.


Woods Cross Operating
Effective

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Note 3:Cushing Connect Joint Venture

On October 1, 2016, we acquired all the membership interests of Woods Cross Operating2, 2019, HEP Cushing LLC (“Woods Cross Operating”HEP Cushing”), a wholly owned subsidiary of HFC, which owns the newly constructed atmospheric distillation tower, fluid catalytic cracking unit,HEP, and polymerization unit located at HFC’s Woods Cross Refinery, for cash consideration of $278 million. The consideration was funded with $103 million in proceeds from the private placement of 3,420,000 common units with the balance funded with borrowings under our credit facility. In connection with this transaction, we entered into 15-year tolling agreements containing minimum quarterly throughput commitments from HFC. As of September 30, 2017, these commitments provide minimum annualized revenues of $57 million.

The Utah Division of Air Quality issued an air quality permit to HollyFrontier Woods Cross Refining LLC (“HFC Woods Cross Refining”) authorizing the expansion units at the Woods Cross Refinery. The appeal proceeding challenging the Utah Department of Environmental Quality’s decision to uphold the air quality permit was taken under advisement by the Utah Supreme Court in June 2017, and the court issuedPlains Marketing, L.P., a decision in favor of the state of Utah and HFC. As a result, the purchase agreement remedies we had against HFC in the event of an unfavorable ruling in the appeal proceeding are no longer applicable.

As we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis in the net assets acquired. We have retrospectively adjusted our financial position and operating results as if these units werewholly owned for all periods while we were under common control of HFC.

The following tables present lines in our previously reported income statement for the three and nine months ended September 30, 2016, that were impacted by Predecessor transactions, and retrospectively adjusts only the acquisition of Woods Cross Operating

as the Tulsa Tanks acquisition included Predecessor transactions in the previously reported income statement for the three and nine months ended September 30, 2016. However, the presentation of the Tulsa Tanks’ Predecessor transactions have been modified as shown in the table below.

  Three Months Ended September 30, 2016
  
Holly Energy Partners, L.P.(Previously reported)
 Tulsa Tanks Woods Cross Operating 
Holly Energy Partners, L.P. (Currently reported)
  (In Thousands)
Operating costs and expenses:        
       Operations (exclusive of depreciation and
       amortization)
 $27,954
 $—
 $4,147
 $32,101
        Depreciation and amortization 15,520
 —
 3,400
 18,920
Allocation of net loss attributable to predecessor —
 —
 7,547
 7,547

  Nine Months Ended September 30, 2016
  
Holly Energy Partners, L.P.(Previously reported)
 Tulsa Tanks Woods Cross Operating 
Holly Energy Partners, L.P. (Currently reported)
  (In Thousands)
Operating costs and expenses:        
       Operations (exclusive of depreciation and
       amortization)
 $82,131
 $—
 $7,037
 $89,168
        Depreciation and amortization 47,780
 —
 3,403
 51,183
Allocation of net loss attributable to predecessor —
 217
 10,440
 10,657


The following tables present lines in our previously reported cash flows for the nine months ended September 30, 2016, that were impacted by Predecessor transactions, and retrospectively adjusts only the acquisition of Woods Cross Operating as the Tulsa Tanks acquisition included Predecessor transactions in the previously reported cash flows for the nine months ended September 30, 2016.
  Nine Months Ended September 30, 2016
  
Holly Energy Partners, L.P.(Previously reported)
 Woods Cross Operating 
Holly Energy Partners, L.P.
(Currently reported)
Cash flows from operating activities (In Thousands)
Net income $125,111
 $(10,440) $114,671
Depreciation and amortization 47,780
 3,403
 51,183
Net cash provided (used) by operating activities $185,011
 $(7,037) $177,974
       
Cash flows from investing activities      
Purchase of Woods Cross refinery processing units $—
 $(47,891) $(47,891)
Net cash used for investing activities $(89,230) $(47,891) $(137,121)
       
Cash flows from financing activities      
Contributions from HFC for acquisitions $99
 $54,928
 $55,027
Net cash provided (used) by financing activities $(103,586) $54,928
 $(48,658)

SLC Pipeline and Frontier Aspen
On October 31, 2017, we acquired the remaining 75% interest in SLC Pipeline and the remaining 50% interest in Frontier Aspen from subsidiariessubsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, the Cushing Connect Joint Venture, for total consideration(i) the development and construction of $250 million. Asa new 160,000 barrel per day common carrier crude oil pipeline (the “Cushing Connect Pipeline”) that connected the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of September 30,

2017, we held noncontrolling interestsHF Sinclair and (ii) the ownership and operation of 25%1.5 million barrels of SLCcrude oil storage in Cushing, Oklahoma (the “Cushing Connect JV Terminal”). The Cushing Connect JV Terminal went in service during the second quarter of 2020, and the Cushing Connect Pipeline was placed into service during the third quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect Joint Venture assets. The Cushing Connect Joint Venture has contracted with an affiliate of HEP to manage the operation of the Cushing Connect Pipeline and 50%with an affiliate of Frontier Aspen. AsPlains to manage the operation of the Cushing Connect JV Terminal.

The Cushing Connect Joint Venture legal entities are VIEs as defined under GAAP. A legal entity is a VIE if it has any one of the following characteristics: (i) the entity does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The Cushing Connect Joint Venture legal entities did not originally have sufficient equity at risk to finance their activities without additional financial support. Since HEP constructed and is operating the Cushing Connect Pipeline, HEP has more ability to direct the activities that most significantly impact the financial performance of the Cushing Connect Joint Venture and Cushing Connect Pipeline legal entities. Therefore, HEP consolidates those legal entities. We do not have the ability to direct the activities that most significantly impact the Cushing Connect JV Terminal legal entity, and therefore, we account for our interest in the Cushing Connect JV Terminal legal entity using the equity method of accounting. HEP’s maximum exposure to loss as a result of the acquisitions, SLC Pipeline and Frontier Aspen are wholly-owned subsidiaries of HEP.

This acquisition will accounted for as a business combination achieved in stagesits involvement with the consideration allocatedCushing Connect JV Terminal legal entity is not expected to be material due to the acquisition date fair valuelong-term terminalling agreements in place to support its operations.

With the exception of the assets of HEP Cushing, creditors of the Cushing Connect Joint Venture legal entities have no recourse to our assets. Any recourse to HEP Cushing would be limited to the extent of HEP Cushing’s assets, which other than its investment in Cushing Connect Joint Venture, are not significant. Furthermore, our creditors have no recourse to the assets of the Cushing Connect Joint Venture legal entities.


Note 4:Revenues

Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. See Note 1 for further discussion of revenue recognition.

Disaggregated revenues were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(In thousands)(In thousands)
Pipelines$85,042 $77,147 $226,642 $210,246 
Terminals, tanks and loading racks48,324 44,432 140,342 126,005 
Refinery processing units24,994 27,423 74,425 68,719 
$158,360 $149,002 $441,409 $404,970 

Revenues on our consolidated statements of income were composed of the following lease and service revenues:

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Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(In thousands)(In thousands)
Lease revenues$93,063 $92,697 $259,829 $247,137 
Service revenues65,297 56,305 181,580 157,833 
$158,360 $149,002 $441,409 $404,970 

A contract liability exists when an entity is obligated to perform future services for a customer for which the entity has received consideration. Since HEP may be required to perform future services for these deficiency payments received, the deferred revenues on our balance sheets were considered contract liabilities. A contract asset exists when an entity has a right to consideration in exchange for goods or services transferred to a customer. Our consolidated balance sheets included the contract assets and liabilities acquired. The preexisting equity interests in SLC Pipeline and Frontier Aspen will be remeasured at acquisition date fair value since we will have a controlling interest, and we expect to recognize a gain on the remeasurement in the fourth quarter of 2017.table below:

September 30,
2023		December 31,
2022
 (In thousands)
Contract assets$8,258 $6,672 
Contract liabilities$6,747 $— 
SLC Pipeline is the owner of a 95-mile crude pipeline that transports crude oil into the Salt Lake City area from the Utah terminal of the Frontier Pipeline
The contract assets and from Wahsatch Station. Frontier Aspen is the owner of a 289-mile crude pipeline from Casper, Wyoming to Frontier Station, Utah that supplies Canadianliabilities include both lease and Rocky Mountain crudes to Salt Lake City area refiners through a connection to the SLC Pipeline.

Accounting Pronouncements Adoptedservice components. During the Periods Presented

Earnings Per Unit
In April 2015, an accounting standard update was issued requiring changes to the allocation of the earnings or losses of a transferred business for periods before the date of a dropdown of net assets accounted for as a common control transaction entirely to the general partner for purposes of calculating historical earnings per unit. We adopted this standard as of January 1, 2016. In connection with the dropdown of assets from HFC’s Tulsa refinery on March 31, 2016, and the purchase of HFC’s Woods Cross refinery units on October 1, 2016, we reduced net income by $7.5 million and $10.7 million for the three and nine months ended September 30, 2016.2022, we recognized $3.9 million of revenue that was previously included in contract liabilities as of December 31, 2021. During the nine months ended September 30, 2023 and 2022, we also recognized $2.1 million and $0.1 million, respectively, of revenue included in contract assets.

As of September 30, 2023, we expect to recognize $2.5 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in 2024 through 2037. These reductions had no impact on the historical earnings per limited partner unit as they were allocated to the general partner.

Share-Based Compensation
In March 2016, an accounting standard update was issued which simplifies the accountingagreements generally provide for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classificationchanges in the statementminimum revenue guarantees annually for increases or decreases in the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that limit the level of cash flows.the rate increases or decreases. We adopted this standard effective January 1, 2017, with no impactexpect to our financial condition, results of operations and cash flows. As permitted by the standard, we continue to account for forfeitures on an estimated basis.

Accounting Pronouncements Not Yet Adopted

Revenue Recognition
In May 2014, an accounting standard update was issued requiringrecognize revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018,unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and we intendlease revenues):
Years Ending December 31,(In millions)
Remainder of 2023$108 
2024407 
2025319 
2026302 
2027269 
2028268 
Thereafter827 
Total$2,500 
Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 10 to account for the new guidance using the modified retrospective implementation method, whereby a cumulative effect adjustment is recorded to retained earnings as30 days of the date of invoice.


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Note 5:Leases

See Note 1 for further discussion of lease accounting.

Lessee Accounting
As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 21 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations
We have finance lease obligations related to vehicle leases with initial application. Our preparationterms of 33 to 48 months. The total cost of assets under finance leases was $8.2 million and $7.6 million as of September 30, 2023 and December 31, 2022, respectively, with accumulated depreciation of $4.1 million and $4.0 million as of September 30, 2023 and December 31, 2022, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for adoptionan additional 10 years.

Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30,
2023		December 31, 2022
Operating leases:
   Operating lease right-of-use assets, net$1,797 $2,317 
   Current operating lease liabilities793 968 
   Noncurrent operating lease liabilities1,371 1,720 
      Total operating lease liabilities$2,164 $2,688 
Finance leases:
   Properties and equipment$8,158 $7,649 
   Accumulated amortization(4,088)(3,979)
      Properties and equipment, net$4,070 $3,670 
   Current finance lease liabilities$4,634 $4,389 
   Noncurrent finance lease liabilities60,474 62,513 
      Total finance lease liabilities$65,108 $66,902 
Weighted average remaining lease term (in years):
   Operating leases4.34.6
   Finance leases13.113.9
Weighted average discount rate:
   Operating leases4.9%4.6%
   Finance leases5.7%5.7%


- 18 -



Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20232022
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$813 $766 
Operating cash flows on finance leases$3,602 $3,094 
Financing cash flows on finance leases$3,261 $2,700 
Maturities of this standard islease liabilities were as follows:
September 30, 2023
OperatingFinance
(In thousands)
2023$294 $2,079 
2024740 7,883 
2025513 7,423 
2026326 7,544 
2027205 6,822 
2028 and thereafter318 61,038 
   Total lease payments2,396 92,789 
Less: Imputed interest(232)(27,681)
   Total lease obligations2,164 65,108 
Less: Current lease liabilities(793)(4,634)
   Noncurrent lease liabilities$1,371 $60,474 

The components of lease expense were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(In thousands)
Operating lease costs$270 $248 $806 $752 
Finance lease costs
   Amortization of assets335 213 948 594 
   Interest on lease liabilities942 938 2,840 2,843 
Variable lease cost350 206 768 265 
Total net lease cost$1,897 $1,605 $5,362 $4,454 

Lessor Accounting
As discussed in progress, and we are currently evaluating terms, conditions and our performance obligationsNote 1, the majority of our existing contracts with customers. We are evaluating the effect of this standard on our revenue recognition policies and whether it will have a material impact on our financial condition or results of operations.

Business Combinations
In December 2014, an accounting standard update was issued to provide new guidance oncustomers meet the definition of a business in relation to accounting for identifiable intangiblelease.

Substantially all of the assets in business combinations. This standard has an effective datesupporting contracts meeting the definition of January 1, 2018,a lease have long useful lives, and we are evaluating its impact.believe these assets will continue to have value when the current agreements expire due to our risk management strategy which includes performing ongoing maintenance during the lease term. HF Sinclair generally has the option to purchase assets located within HF Sinclair refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.


Financial AssetsDuring the nine months ended September 30, 2023, we amended agreements with HF Sinclair related to certain crude tank assets. The amended agreements were treated as lease modifications of previous agreements that met the criteria of sales-type

- 19 -


leases. The modified agreements still met the criteria of sales-type leases; therefore, the residual net investment in lease is carried over to the new sales-type lease, and Liabilitiesno gain or loss is recognized.
In January 2016, an
During the nine months ended September 30, 2022, we entered into new agreements and modified other agreements with HF Sinclair related to our acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, standard update was issued requiring changesat the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the nine months ended September 30, 2022.


The balance sheet impacts were composed of the following:

Nine Months Ended September 30, 2022
(In thousands)
Net investment in leases$233,456 
Properties and equipment, net(233,456)
Gain on sales-type leases$— 

These sales-type lease transactions were non-cash transactions.

Lease income recognized was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(In thousands)
Operating lease revenues$84,594 $84,684 $242,746 $230,279 
Direct financing lease interest income561 538 1,634 1,578 
Sales-type lease interest income19,729 23,695 59,403 59,633 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable8,469 8,013 17,083 16,859 
For our sales-type leases, we bifurcate customer obligations between lease and disclosuresservice components. We included the lease portion of customer obligations related to minimum volume requirements in guaranteed minimum lease payments. The lease portions of our minimum guaranteed pipeline tariffs for financial instruments. This standard will become effective beginningassets subject to sales-type lease accounting are recorded as interest income with our 2018 reporting year. We are evaluating the impact of this standard.


Leases
In February 2016, an accounting standard update was issued requiring leases to be measured and recognizedremaining amounts recorded as a reduction in net investment in leases. We recognized the lease liability, with a corresponding right-of-use assetportion of any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.


- 20 -


Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2023:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2023$78,965 $598 $21,372 
2024289,895 2,331 84,059 
2025210,177 2,279 82,060 
2026195,710 2,298 82,060 
2027162,207 2,316 82,060 
2028 and thereafter552,648 35,525 688,896 
Total lease receipt payments$1,489,602 $45,347 $1,040,507 
Less: Imputed interest(29,181)(919,460)
16,166 121,047 
Unguaranteed residual assets at end of leases— 390,159 
Net investment in leases$16,166 $511,206 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2023December 31, 2022
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$376,826 $16,166 $418,989 $16,264 
Unguaranteed residual assets134,380 — 110,466 — 
Net investment in leases$511,206 $16,166 $529,455 $16,264 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.


Note 6:Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:
•(Level 1) Quoted prices in active markets for identical assets or liabilities.
•(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
•(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This standard has an effective date of January 1, 2019, and we are evaluating the impact of this standard.includes valuation techniques that involve significant unobservable inputs.



Note 2:Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and interest rate swaps.debt. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. Debt consists of outstanding principal under our revolving credit agreement (which approximates fair value as interest rates are reset frequently at current interest rates) and our fixed interest rate senior notes.


Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:

(Level 1) Quoted prices in active markets for identical assets or liabilities.- 21 -
(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.


The carrying amounts and estimated fair values of our senior notes and interest rate swaps were as follows:
 September 30, 2023December 31, 2022
Financial InstrumentFair Value Input LevelCarrying
Value		Fair ValueCarrying
Value		Fair Value
(In thousands)
Liabilities:
5% Senior NotesLevel 2$494,830 $461,515 $494,047 $458,090 
6.375% Senior NotesLevel 2395,175 392,740 394,287 394,568 
   Total Liabilities$890,005 $854,255 $888,334 $852,658 
    September 30, 2017 December 31, 2016
Financial Instrument Fair Value Input Level 
Carrying
Value
 Fair Value 
Carrying
Value
 Fair Value
    (In thousands)
Assets:          
Interest rate swaps Level 2 $—
 $—
 $91
 $91
           
Liabilities:          
6.5% Senior notes Level 2 $—
 $—
 $297,519
 $308,250
6% Senior notes Level 2 495,066
 524,390
 393,393
 415,500
    $495,066
 $524,390
 $690,912
 $723,750


Level 2 Financial Instruments
Our senior notes and interest rate swaps are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. See Note 10 for additional information.

Non-Recurring Fair Value Measurements
The HEP Transaction was accounted for as a business combination using the acquisition method of accounting, with the assets acquired and liabilities assumed at their respective acquisition date fair values at the Closing Date. The fair value of our interest rate swaps ismeasurements were based on a combination of valuation methods including discounted cash flows, the guideline public company method, the market approach and obsolescence adjusted replacement costs, all of which are Level 3 inputs.

For the net investments in sales-type leases recognized during the nine months ended September 30, 2022, the estimated fair value of the underlying leased assets at contract inception and the present value of expected future cash flows related to both variable and fixed-rate legsthe estimated unguaranteed residual asset at the end of the swap agreement. This measurement is computed usinglease term are used in determining the forward London Interbank Offered Rate (“LIBOR”) yield curve,net investment in leases recorded. The asset valuation estimates include Level 3 inputs based on a market-based observable input.replacement cost valuation method.


See
Note 6 for additional information on these instruments.7:Properties and Equipment



Note 3:
Properties and Equipment


The carrying amounts of our properties and equipment arewere as follows:
September 30,
2023		December 31,
2022
 (In thousands)
Pipelines, terminals and tankage$1,602,638 $1,567,359 
Refinery assets353,998 353,998 
Land and right of way171,472 171,327 
Construction in progress19,292 23,027 
Other72,060 69,098 
2,219,460 2,184,809 
Less accumulated depreciation(856,631)(795,921)
$1,362,829 $1,388,888 
  September 30,
2017		 December 31,
2016
  (In thousands)
Pipelines, terminals and tankage $1,250,567
 $1,246,746
Refinery assets 347,312
 346,058
Land and right of way 65,337
 65,331
Construction in progress 51,297
 28,753
Other 27,708
 27,133
  1,742,221
 1,714,021
Less accumulated depreciation 435,128
 385,626
  $1,307,093
 $1,328,395


We capitalized $0.3Depreciation expense was $63.2 million and $0.2$61.1 million during the three months ended September 30, 2017 and 2016, respectively and $0.7 million and $0.5 million duringfor the nine months ended September 30, 20172023 and 2016, respectively, in interest attributable to construction projects.

Depreciation expense was $52.1 million and $45.5 million for the nine months ended September 30, 2017 and 2016,2022, respectively, and includes depreciation of assets acquired under capital leases.




Note 4:Transportation Agreements

OurNote 8:Intangible Assets

Intangible assets include transportation agreements are intangible assetsand customer relationships that represent a portion of the total purchase price of certain assets acquired from AlonDelek US Holdings, Inc. (“Delek”) in 2005, and from HFC in 2008 prior to HEP becoming a consolidated VIE of HFC. The Alon agreement is being amortized over 30 years ending 2035 (the initial 15-year term of the agreement plus an expected 15-year extension period),HFC, from Plains in 2017, and the HFC agreement is being amortized over 15 years ending 2023 (the term of the HFC agreement).from other minor acquisitions in 2018.



- 22 -


The carrying amounts of our transportation agreements areintangible assets were as follows:
Useful LifeSeptember 30,
2023		December 31,
2022
 (In thousands)
Delek transportation agreement30 years$59,933 $59,933 
HF Sinclair transportation agreement10-15 years900 75,131 
Customer relationships10 years69,683 69,683 
Other20 years50 50 
130,566 204,797 
Less accumulated amortization(78,885)(145,497)
$51,681 $59,300 
  September 30,
2017		 December 31,
2016
  (In thousands)
Alon transportation agreement $59,933
 $59,933
HFC transportation agreement 74,231
 74,231
Other 50
 50
  134,214
 134,214
Less accumulated amortization 72,570
 67,358
  $61,644
 $66,856


Amortization expense was $5.2$7.6 million and $10.5 million for each of the nine months ended September 30, 20172023 and 2016.2022, respectively. We estimate amortization expense to be $9.1 million for 2024 through 2026, $7.9 million for 2027 and $2.0 million for 2028.


We have additional transportation agreements with HFCsubsidiaries of HF Sinclair resulting from historical transactions consisting of pipeline, terminal and tankage assets contributed to us or acquired from HFC.subsidiaries of HF Sinclair. These transactions occurred while we were a consolidated VIE of HFC;HF Sinclair; therefore, our basis in these agreements is zero and does not reflect a step-up in basis to fair value.





Note 5:Employees, Retirement and Incentive Plans

Note 9:Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C. (“HLS”), an HFC subsidiary,HLS, which utilizes personnel employed by HFCHF Sinclair who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC.HF Sinclair (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC.HF Sinclair. Our share of retirement and benefit plan costs was $1.5$2.9 million and $1.4$2.8 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $4.5$8.9 million and $4.3$7.9 million for the nine months ended September 30, 20172023 and 2016.2022, respectively.


Under HLS’s secondment agreement with HFCHF Sinclair (the “Secondment Agreement”), certain employees of HFCHF Sinclair are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFCHF Sinclair for its prorated portion of the wages, benefits, and other costs related to these employees.
We have a Long-Term Incentive Plan for employees and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of fourfive components: restricted or phantom units, performance units, unit options, and unit appreciation rights.rights and cash awards. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting (a significant proportion of our awards) is to expense the costs ratably over the vesting periods.


As of September 30, 2017,2023, we had two types of incentive-basedunit-based awards outstanding, which are described below. The compensation cost charged against income was $0.7$0.4 million and $0.3 million for each of the three months ended September 30, 20172023 and 2016,2022, respectively, and $1.6$1.1 million and $1.9$1.5 million for the nine months ended September 30, 20172023 and 2016,2022, respectively. We currently purchasehave historically purchased units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan.Plan, although we may issue new units in the future. As of September 30, 2017, 2023, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,409,261 have not yet been771,593 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.


RestrictedPhantom Units
Under our Long-Term Incentive Plan, we grant restrictedphantom units to our non-employee directors and selected employees who perform services for us, with most awards vesting over a period of one to three years. Although full ownership of the units does not transfer to the recipients until the units vest, the recipients have distribution and voting rights on these units from the date of grant.



- 23 -


The fair value of each restrictedphantom unit award is measured at the market price as of the date of grant and is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award.


A summary of restrictedphantom unit activity and changes during the nine months ended September 30, 2017,2023, is presented below:
Phantom UnitsUnitsWeighted Average Grant-Date Fair Value
Outstanding at January 1, 2023 (nonvested)115,809 $16.66 
Granted1,479 18.49 
Vesting and transfer of full ownership to recipients(330)11.92 
Forfeited(1,084)11.92 
Outstanding at September 30, 2023 (nonvested)115,874 16.74 
Restricted Units Units Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017 (nonvested) 123,988
 $32.96
Granted 20,348
 36.01
Forfeited (20,106) 30.10
Outstanding at September 30, 2017 (nonvested) 124,230
 $33.92


The grant date fair values of phantom units that were vested and transferred to recipients during the nine months ended September 30, 2023 and 2022 was $4 thousand and $0.3 million, respectively. As of September 30, 2017, there was $1.12023, $0.5 million of total unrecognized compensation expense related to nonvested restrictedunvested phantom unit grants which is expected to be recognized over a weighted-average period of 0.9 year.0.7 years.


Performance Units
Under our Long-Term Incentive Plan, we grant performance units to selected executivesofficers who perform services for us. Performance units granted are payable in common units at the end of a three-year performance period based upon meeting certain criteria over the performance period. Under the terms of our performance unit grants, some awards are subject to the growth in our distributable cash flow per common unit over the performance period. Asperiod while other awards are subject to “financial performance” and “market performance.” Financial performance is based on meeting certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, while market performance is based on the relative standing of September 30, 2017, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 150% of the target number of performance units granted.

We did not grant any performance units during the nine months ended September 30, 2017. Performance units granted in 2016 vest over a three-year performance period ending December 31, 2019, and are payable intotal unitholder return achieved by HEP common units.compared to peer group companies. The number of units actually earned will be based on the growth of our distributable cash flow per common unit over the performance period,

andultimately issued under these awards can range from 50%0% to 150% of the target number of performance units granted. 200%.

Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the commontarget number of performance units subject to the award from the date of grant.grant at the same rate as distributions paid on our common units.


A summary of performance unit activity and changes duringfor the nine months ended September 30, 2017,2023, is presented below:
Performance UnitsUnits
Outstanding at January 1, 20172023 (nonvested)49,52042,852 
Vesting and transfer of common units to recipientsGranted(2,262513 )
Forfeited(21,228)
Outstanding at September 30, 20172023 (nonvested)26,03043,365 


The grant-dategrant date fair value of performance units vested and transferred to recipients during the nine months ended September 30, 2017,2022 was $0.1$0.6 million. Based on the weighted averageweighted-average fair value of performance units outstanding at September 30, 2017,2023 of $0.9$0.7 million, there was $0.5$0.3 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.80.9 years.



During the nine months ended September 30, 2023, we did not purchase any common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.

Note 6:Debt



- 24 -


Note 10:Debt

Credit Agreement
We have a $1.4$1.2 billion senior secured revolving credit facility (the “Credit Agreement”) expiringthat matures in July 2022.2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit and it containscontinues to provide for an accordion feature givingthat allows us the ability to increase commitments under the size of the facility byCredit Agreement up to $300 million with additional lender commitments.a maximum amount of $1.7 billion.


Our obligations under the Credit Agreement are collateralized by substantially all of our assets, and indebtedness under the Credit Agreement is guaranteed by our material, wholly-ownedwholly owned subsidiaries. The Credit Agreement requires us to maintain compliance with certain financial covenants consisting of total leverage, senior secured leverage, and interest coverage. It also limits or restricts our ability to engage in certain activities. If, at any time prior to the expirationmaturity of the Credit Agreement, HEP obtains two investment grade credit ratings, the Credit Agreement will become unsecured and many of the covenants, limitations, and restrictions will be eliminated.


We may prepay all loans outstanding at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of September 30, 2017.2023.


As of September 30, 2023, borrowings outstanding under the Credit Agreement were $578.5 million. In connection with the consummation of the HF Sinclair Merger Transaction (as defined herein), we expect to amend the Credit Agreement to, among other things, (a) provide a guaranty from HF Sinclair and terminate all guaranties from subsidiaries of HEP, (b) amend the definition of “Investment Grade Rating” (as defined in the Credit Agreement) to reference the credit rating of HF Sinclair’s senior unsecured indebtedness, (c) eliminate the requirement to deliver separate audited and unaudited financial statements for HEP and its subsidiaries and only provide certain segment-level reporting for HEP with any compliance certificate delivered in accordance with the Credit Agreement and (d) amend certain covenants to eliminate certain restrictions on (i) amendments to intercompany contracts, (ii) transactions with HF Sinclair and its subsidiaries and (iii) investments in and contributions, dividends, transfers and distributions to HF Sinclair and its subsidiaries. There can be no assurance that the administrative agent and the lenders party thereto will agree to amend the Credit Agreement in a timely manner, or on acceptable terms, if at all.

Senior Notes
On July 19, 2016,April 8, 2022, we closed a private placement of $400 million in aggregate principal amount of 6%6.375% senior unsecured notes due in 20242027 (the “ 6%“6.375% Senior Notes”). On September 22, 2017, we closed a private placementThe 6.375% Senior Notes were issued at par for net proceeds of an additional $100approximately $393 million, in aggregateafter deducting the initial purchasers’ discounts and commissions and estimated offering expenses. The total net proceeds from the offering of the 6%6.375% Senior Notes for a combinedwere used to partially repay outstanding borrowings under the Credit Agreement, increasing our available liquidity.

As of September 30, 2023, we had $500 million aggregate principal amount outstanding of $500 million maturing5% senior unsecured notes due in 2024.2028 (the “5% Senior Notes,” and together with the 6.375% Senior Notes, the “Senior Notes”).


The 6% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. We werecertain mergers, in each case subject to compliance with the restrictive covenants forterms of the 6% Senior Notes as of September 30, 2017.indentures. At any time when the 6% Senior Notes are rated investment grade by botheither Moody’s andor Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6% Senior Notes.


Indebtedness under the 6% Senior Notes is guaranteed by all of our wholly-owned subsidiaries.existing wholly owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).


On January 4, 2017, we redeemed the $300 million aggregate principal amount of 6.5% senior notes (the “6.5% Senior Notes”) at a redemption cost of $309.8 million at which time we recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premium and unamortized discount and financing costs of $2.4 million. We funded the redemption with borrowings under our Credit Agreement.


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Long-term Debt
The carrying amounts of our long-term debt are as follows:
  September 30,
2017		 December 31,
2016
  (In thousands)
Credit Agreement    
Amount outstanding $750,000
 $553,000
     
6% Senior Notes    
Principal 500,000
 400,000
Unamortized premium and debt issuance costs (4,934) (6,607)
  495,066
 393,393
6.5% Senior Notes    
Principal —
 300,000
Unamortized discount and debt issuance costs —
 (2,481)
  —
 297,519
     
Total long-term debt $1,245,066
 $1,243,912

Interest Rate Risk Management
The two interest rate swaps that hedged our exposure to the cash flow risk caused by the effects of LIBOR changes on $150 million of Credit Agreement advances matured on July 31, 2017, and were not renewed. The swaps had effectively converted $150 million of our LIBOR based debt to fixed rate debt.

Additional information on our interest rate swaps is as follows:
September 30,
2023		December 31,
2022
(In thousands)
Credit Agreement
Amount outstanding$578,500 $668,000 
5% Senior Notes
Principal500,000 500,000 
Unamortized premium and debt issuance costs(5,170)(5,953)
494,830 494,047 
6.375% Senior Notes
Principal400,000 400,000 
Unamortized premium and debt issuance costs(4,825)(5,713)
395,175 394,287 
Total long-term debt$1,468,505 $1,556,334 
Derivative Instrument Balance Sheet Location Fair Value Location of Offsetting Balance 
Offsetting
Amount
  (In thousands)
December 31, 2016        
Interest rate swaps designated as cash flow hedging instrument:      
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest) Other current  assets $91
 Accumulated other
    comprehensive income		 $91
    $91
   $91


Interest ExpenseOn October 30, 2023, we and Other Debt Information
Interest expense consistsHF Sinclair announced the commencement of private offers by HF Sinclair to all Eligible Holders (as defined in the Exchange Offer Memorandum) to exchange (the “Exchange Offers”) any and all outstanding 6.375% Senior Notes and 5% Senior Notes, for new notes to be issued by HF Sinclair, with registration rights, and cash, pursuant to the terms and subject to the conditions set forth in a confidential exchange offer memorandum and consent solicitation statement, dated October 30, 2023 (the “Exchange Offer Memorandum”). Concurrently with the Exchange Offers, HF Sinclair is soliciting consents (the “Consent Solicitations”) to adopt certain proposed amendments to the indentures governing the existing Senior Notes to, among other things, eliminate from each indenture, as it relates to each series of Senior Notes (i) substantially all of the following components:restrictive covenants, (ii) certain of the events which may lead to an “Event of Default”, (iii) the SEC reporting covenant and (iv) the requirement of HEP to offer to purchase the Senior Notes upon a change of control. The Exchange Offers and Consent Solicitations are subject to the consummation of the HF Sinclair Merger Transaction. The Exchange Offers and Consent Solicitations are being made only pursuant to the terms and subject to conditions set forth in the Exchange Offer Memorandum.
  Nine Months Ended September 30,
  2017 2016
  (In thousands)
Interest on outstanding debt:    
Credit Agreement, net of interest on interest rate swaps $20,338
 $13,600
6.5% Senior Notes 163
 14,632
6% Senior Notes 18,150
 4,811
Amortization of discount and deferred debt issuance costs 2,317
 2,294
Commitment fees and other 1,137
 1,419
Total interest incurred 42,105
 36,756
Less capitalized interest 746
 498
Net interest expense $41,359
 $36,258
Cash paid for interest $53,181
 $33,896

Capital Lease Obligations
Our capital lease obligations relate to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under capital leases was $5.2 million and $4.9 million as of September 30, 2017 and December 31, 2016, respectively, with accumulated

depreciation of $3.2 million and $2.4 million as of September 30, 2017 and December 31, 2016, respectively. We include depreciation of capital leases in depreciation and amortization in our consolidated statements of income.


Note 7:Significant Customers

All revenues are domestic revenues, of which 93% are currently generated from our two largest customers: HFC and Alon.


The following table presentsExchange Offer Memorandum and other documents relating to the percentageExchange Offers and Consent Solicitations will be distributed only to Eligible Holders (as defined in the Exchange Offer Memorandum) of total revenues generatedSenior Notes. The Exchange Offers and Consent Solicitations are not being made to holders of Senior Notes in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. The new notes to be issued by eachHF Sinclair have not been approved or disapproved by any regulatory authority, nor has any such authority passed upon the accuracy or adequacy of these customers:the Exchange Offer Memorandum. The complete terms and conditions of the Exchange Offers and Consent Solicitations are described in the Exchange Offer Memorandum.


  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
HFC 86% 84% 85% 83%
Alon 7% 8% 7% 8%


Note 8:Related Party Transactions

Note 11:Related Party Transactions

We serve HFC’s refineriesmany of HF Sinclair’s refinery and renewable diesel facilities under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 20192024 to 2036.2037, and revenues from these agreements accounted for approximately 82% and 81% of our total revenues for the three and nine months ended September 30, 2023, respectively. Under these agreements, HFCHF Sinclair agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are generally subject to annual rate adjustments on July 1st each year based on increases or decreases in PPI or the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”)FERC index. As of September 30, 2017,2023, these agreements with HFCHF Sinclair require minimum annualized payments to us of $321.3$496.5 million.


If HFCHF Sinclair fails to meet its minimum volume commitments under the agreements in any quarter, it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter. Under certain of these agreements, a shortfall payment may be applied as a credit in the following four quarters after its minimum obligations are met.


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Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”),the Omnibus Agreement, we pay HFCHF Sinclair an annual administrative fee (currently $2.5 million)$5.7 million) for the provision by HFCHF Sinclair or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFCHF Sinclair who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC.HF Sinclair. Also, we reimburse HFCHF Sinclair and its affiliates for direct expenses they incur on our behalf.


Related party transactions with HFC areHF Sinclair and its subsidiaries were as follows:
•Revenues received from HFCHF Sinclair were $95.1$129.3 million and $77.4$122.9 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $277.3$356.1 million and $239.4$325.7 million for the nine months ended September 30, 20172023 and 2016,2022, respectively.
HFC•HF Sinclair charged us general and administrative services under the Omnibus Agreement of $0.6$1.4 million and $1.3 million for each of the three months ended September 30, 20172023 and 2016,2022, respectively, and $1.8$3.9 million and $3.3 million for each of the nine months ended September 30, 20172023 and 2016.2022, respectively. In addition, HF Sinclair charged us $0.4 million for a prorated portion of the temporary administrative fee during the nine months ended September 30, 2022.
•We reimbursed HFCHF Sinclair for costs of employees supporting our operations of $11.7$23.7 million and $10.0$21.0 million for the three months ended September 30, 20172023 and 2016,2022, respectively, and $34.5$64.6 million and $29.4$57.1 million for the nine months ended September 30, 20172023 and 2016,2022, respectively.
HFC•HF Sinclair reimbursed us $1.9$2.5 million and $4.5$3.1 million for the three months ended September 30, 20172023 and 2016,2022, for expense and capital projects, respectively, and $4.7$6.9 million and $11.2$11.6 million for the nine months ended September 30, 20172023 and 2016, respectively, for expense and capital projects.2022, respectively.

•We distributed $32.8$20.9 million in both the three months ended September 30, 2023 and 2022, and $62.6 million in both the nine months ended September 30, 2023 and 2022, to HF Sinclair as regular distributions on its common units.
•Accounts receivable from HF Sinclair were $83.1 million and $26.2$63.5 million at September 30, 2023, and December 31, 2022, respectively.
•Accounts payable to HF Sinclair were $18.6 million and $15.8 million at September 30, 2023, and December 31, 2022, respectively.
•Deferred revenue in the consolidated balance sheets as of September 30, 2023 includes $6.4 million relating to certain shortfall billings to HF Sinclair.
•We received direct financing lease payments from HF Sinclair for use of our Artesia and Tulsa rail yards of $0.6 million for the three months ended September 30, 20172023 and 2016, respectively,2022, and $94.8 million and $76.0$1.7 million for the nine months ended September 30, 20172023 and 2016, respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions.
2022.
Accounts receivable from HFC were $42.8•We received sales-type lease payments of $20.8 million and $42.6$24.3 million at from HF Sinclair for the three months ended September 30, 2017,2023 and December 31, 2016, respectively.
Accounts payable to HFC were $9.62022, respectively, and $62.4 million and $16.4$61.4 million at September 30, 2017, and December 31, 2016, respectively.
Revenues for the nine months ended September 30, 20172023 and 2016, include $3.5 million2022, respectively.


Note 12: Partners’ Equity, Income Allocations and $5.7 million, respectively,Cash Distributions

As of shortfall payments billed to HFC in 2016 and 2015, respectively. Deferred revenue in the consolidated balance sheets at September 30, 2017 and December 31, 2016, includes $5.8 million and $5.6 million, respectively, relating to certain shortfall billings to HFC. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $5.8 million deferred at September 30, 2017.


Note 9:Partners’ Equity

As of September 30, 2017, HFC2023, HF Sinclair held 22,380,03059,630,030 of our common units, constituting a 47% limited partner interest in us, and held the 2%non-economic general partner interest, which together constituted a 36% ownership interest in us. Additionally, HFC owned all incentive distribution rights. See Note 1 for a description of the agreement reached with HEP Logistics, our general partner, subsequent to September 30, 2017, impacting its equity interest in HEP.interest.


Continuous Offering Program
We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. For the nine months endedAs of September 30, 2017,2023, HEP has issued 1,538,4522,413,153 units under this program, providing $52.3$82.3 million in net proceeds. In connection with this program and to maintain the 2% general partner interest, HFC made capital contributions totaling $1.1 million. As of September 30, 2017, HEP hasgross proceeds, but no units have been issued 2,241,907 units under this program providing $77.1 million in gross proceeds.during the periods presented.

We intend to use our net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under our credit facility may be reborrowed from time to time.


Allocations of Net Income
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 that are declared subsequent to quarter end. After incentive distributions and other priority allocations are allocated to the general partner, the remaining net income attributable to HEP is allocated to the partners based on their weighted-average ownership percentage during the period.


See Note 1 for a description of the financial restructuring of the general partner interest owned by HEP Logistics, our general partner, and its IDRs that occurred subsequent to September 30, 2017. After this restructuring, the general partner interest is no longer entitled to any distributions. Therefore, no distributions were declared for the general partner interest related to the three months ended September 30, 2017.- 27 -



The following table presents the allocation of the general partner interest in net income for the periods presented below:

  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands)
General partner interest in net income $(419) $399
 $919
 $1,569
General partner incentive distribution —
 14,823
 34,128
 38,432
Net loss attributable to Predecessor —
 (7,547) —
 (10,657)
Total general partner interest in net income $(419) $7,675
 $35,047
 $29,344


Cash Distributions
Prior to the financial restructuring of the general partner interest owned by HEP Logistics, our general partner, and its IDRs that occurred on October 31, 2017, our general partner, HEP Logistics, was entitled to incentive distributions if the amount we distributed with respect to any quarter exceeds specified target levels. After the restructuring of the general partner interest, the general partner interest is no longer entitled to any distributions.

On October 26, 2017,19, 2023, we announced our cash distribution for the third quarter of 20172023 of $0.6450 $0.35 per unit. The distribution is payable on all common units and will be paid November 14, 2017,10, 2023 to all unitholders of record on November 6, 2017. However, Holly Logistics will waive $2.5 million in limited partner cash distributions as discussed in Note 1.October 30, 2023.


The following table presents the allocation of ourOur regular quarterly cash distributionsdistribution to the general and limited partners will be $44.3 million for the periods in which they apply.three months ended September 30, 2023 and was $44.3 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the regular quarterly distribution to the limited partners will be $132.9 million and was $133.0 million for the nine months ended September 30, 2022. Our distributions are declared subsequent to quarter end; therefore, thethese amounts presented do not reflect distributions paid during the periods presented below.respective period.


  Three Months Ended September 30, Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands, except per unit data)
General partner interest in distribution $—
 $1,065
 $2,335
 $2,992
General partner incentive distribution —
 14,823
 34,128
 38,432
Total general partner distribution —
 15,888
 36,463
 41,424
Limited partner distribution 63,012
 37,354
 143,326
 105,657
Total regular quarterly cash distribution $63,012
 $53,242
 $179,789
 $147,081
Cash distribution per unit applicable to limited partners $0.6450
 $0.5950
 $1.8975
 $1.7550

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to HEP because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to HEP. Additionally, if the asset contributions and acquisitions from HFC had occurred while we were not a consolidated variable interest entity of HFC, our acquisition cost, in excess of HFC’s historical basis in the transferred assets, would have been recorded in our financial statements at the time of acquisition as increases to our properties and equipment and intangible assets instead of decreases to our partners’ equity.


Note 10:Net Income Per Limited Partner Unit

Note 13: Net Income Per Limited Partner Unit
Net
Basic net income per unit applicable to the limited partners is computed usingcalculated as net income attributable to the two-class method because we have more than one classpartners, adjusted for participating securities’ share in earnings, divided by the weighted average limited partners’ units outstanding. Diluted net income per unit assumes, when dilutive, the issuance of participating securities.  The classes of participating securities as of September 30, 2017, included commonthe net incremental units general partnerfrom phantom units and incentive distribution rights (“IDRs”).performance units. To the extent net income attributable to the partners exceeds or is less than cash distributions, this difference is allocated to the partners based on their weighted-average ownership percentage during the period after consideration of any priority allocations of earnings. Theperiod. Our dilutive securities are immaterial for all periods presented. See Note 1 for a description of the financial restructuring of the general partner interest owned by HEP Logistics, our general partner, and its IDRs that occurred subsequent to September 30, 2017. After this restructuring, the general partner interest is no

longer entitled to any distributions. Therefore, no distributions were declared for the general partner interest related to the three months ended September 30, 2017. In addition, HEP issued 37,250,000 of its common units to HEP Logistics on October 31, 2017 in association with this financial restructuring of the general partner interest.

When our financial statements are retrospectively adjusted after a dropdown transaction, the earnings of the acquired business, prior to the closing of the transaction, are allocated entirely to our general partner and presented as net income (loss) attributable to Predecessors. The earnings per unit of our limited partners prior to the close of the transaction do not change as a result of the dropdown. After the closing of a dropdown transaction, the earnings of the acquired business are allocated in accordance with our partnership agreement as previously described.

For purposes of applying the two-class method including the allocation of cash distributions in excess of earnings, netNet income per limited partner unit is computed as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
(In thousands, except per unit data)
Net income attributable to the partners$63,025 $41,951 $170,776 $148,302 
Less: Participating securities’ share in earnings(79)(75)(215)(288)
Net income attributable to common units62,946 41,876 170,561 148,014 
Weighted average limited partners’ units outstanding126,440 126,440 126,440 120,902 
Limited partners’ per unit interest in earnings - basic and diluted$0.50 $0.33 $1.35 $1.22 


Note 14:Environmental
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
  (In thousands)
Net income attributable to the partners $42,071
 $34,785
 $108,970
 $116,880
Less: General partner’s distribution declared (including IDRs) —
 (15,888) (36,463) (41,424)
Limited partner’s distribution declared on common units (63,012) (37,354) (143,326) (105,657)
Distributions in excess of net income attributable to the partners $(20,941) $(18,457) $(70,819) $(30,201)


  General Partner (including IDRs) Limited Partners’ Common Units Total
  (In thousands, except per unit data)
Three Months Ended September 30, 2017      
Net income attributable to the partners:      
Distributions declared $—
 $63,012
 $63,012
Distributions in excess of net income attributable to the partners (419) (20,522) (20,941)
Net income attributable to the partners $(419) $42,490
 $42,071
Weighted average limited partners' units outstanding   64,319
  
Limited partners' per unit interest in earnings - basic and diluted   $0.66
  
       
Three Months Ended September 30, 2016      
Net income attributable to the partners:      
Distributions declared $15,888
 $37,354
 $53,242
Distributions in excess of net income attributable to the partners (369) (18,088) (18,457)
Net income attributable to the partners $15,519
 $19,266
 $34,785
Weighted average limited partners' units outstanding   59,223
  
Limited partners' per unit interest in earnings - basic and diluted   $0.33
  


  General Partner (including IDRs) Limited Partners’ Common Units Total
  (In thousands, except per unit data)
Nine Months Ended September 30, 2017      
Net income attributable to partnership:      
Distributions declared $36,463
 $143,326
 $179,789
Distributions in excess of net income attributable to partnership (1,416) (69,403) (70,819)
Net income attributable to partnership $35,047
 $73,923
 $108,970
Weighted average limited partners' units outstanding   63,845
  
Limited partners' per unit interest in earnings - basic and diluted   $1.16
  
       
Nine Months Ended September 30, 2016      
Net income attributable to partnership:      
Distributions declared $41,424
 $105,657
 $147,081
Distributions in excess of net income attributable to partnership (604) (29,597) (30,201)
Net income attributable to partnership $40,820
 $76,060
 $116,880
Weighted average limited partners' units outstanding   58,895
  
Limited partners' per unit interest in earnings - basic and diluted   $1.29
  


Note 11:Environmental

Environmental costs are charged to operating expenses if they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. We incurred no expenses forhave ongoing investigations of environmental matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters. Liabilities are recorded when site restoration and environmental remediation, cleanup and other obligations for the threeare either known or considered probable and nine months ended September 30, 2017, as well ascan be reasonably estimated. Such estimates are undiscounted and require judgment with respect to costs, time frame and extent of required remedial and cleanup activities and are subject to periodic adjustments based on currently available information.

We expensed $0.1 million for the three months ended September 30, 2016. For2023 and $49 thousand for the three months ended September 30, 2022, for environmental remediation obligations and we expensed $0.7 million and $0.3 million for the nine months ended September 30, 2016, we incurred $0.2 million of expense.2023 and 2022, respectively. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $6.4 million and $7.1$18.3 million at September 30, 2017,2023 and $19.5 million at December 31, 2016, respectively,2022, of which $4.7$16.3 million and $5.4$17.5 million respectively, werewas classified as other long-term liabilities.liabilities for September 30, 2023 and December 31, 2022, respectively. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.


- 28 -



Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFCHF Sinclair and/or its subsidiaries, HF Sinclair has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFCHF Sinclair and its subsidiaries and occurring or existing prior to the date of such transfers. As

See Note 17 for a discussion of September 30, 2017,our share of incurred and December 31, 2016, our consolidated balance sheets included additional accrued environmental liabilitiesremediation and recovery expenses associated with the release of $0.8 million and $0.9 million, respectively, for HFC indemnified liabilities, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.crude oil on the Osage pipeline reflected in our equity in earnings of equity method investments.




Note 12:Contingencies

Note 15: Contingencies

We are a party to various legal and regulatory proceedings, none of which we believe will have a material adverse impact on our financial condition, results of operations or cash flows.




Note 13:Operating Segments

Note 16: Segment Information

Although financial information is reviewed by our chief operating decision makers from a variety of perspectives, they view the business in two reportable operating segments: (1) pipelines and terminals, and (2) refinery processing units. These operating segments adhere to the accounting polices used for our consolidated financial statements. For a discussion of these accounting policies and a summary of our derivation of revenue, see Note 1.


TheOur pipelines and terminals segment hasincludes our petroleum product and crude pipelines and terminal, tankage and loading rack facilities that support refining and marketing operations of HF Sinclair and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States.

Our refinery processing unit segment consists of five refinery processing units at two of HF Sinclair’s refining facility locations.

Pipelines and terminals have been aggregated as one reportable segment as both pipelinepipelines and terminals (1) have similar economic characteristics, (2) similarly provide logistics services of transportation and storage of petroleum products, (3) similarly support the petroleum

refining business, including distribution of its products, (4) have principally the same customers and (5) are subject to similar regulatory requirements.


We evaluate the performance of each segment based on its respective operating income. Certain general and administrative expenses and interest and financing costs are excluded from segment operating income as they are not directly attributable to a specific operatingreportable segment. Identifiable assets are those used by the segment, whereas other assets are principally equity method investments, cash, deposits and other assets that are not associated with a specific reportable operating segment.

- 29 -


 Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
 2017 2016 2017 20162023202220232022
      (In thousands)
Revenues:        Revenues:
Pipelines and terminals - affiliate $74,547
 $73,210
 $219,806
 $226,553
Pipelines and terminals - affiliate$104,293 $95,445 $281,662 $256,940 
Pipelines and terminals - third-party 15,226
 15,212
 47,826
 50,094
Pipelines and terminals - third-party29,073 26,134 85,322 79,311 
Refinery processing units - affiliate 20,591
 4,188
 57,510
 12,870
Refinery processing units - affiliate24,994 27,423 74,425 68,719 
Total segment revenues $110,364
 $92,610
 $325,142
 $289,517
Total segment revenues$158,360 $149,002 $441,409 $404,970 
        
Segment operating income:        Segment operating income:
Pipelines and terminals $44,896
 $48,928
 $140,546
 $155,657
Pipelines and terminals$63,158 $51,621 $167,953 $150,098 
Refinery processing units 10,463
 (7,339) 24,283
 (6,491)Refinery processing units12,418 11,675 34,828 23,481 
Total segment operating income 55,359
 41,589
 164,829
 149,166
Total segment operating income75,576 63,296 202,781 173,579 
Unallocated general and administrative expenses (3,623) (2,664) (8,872) (8,618)Unallocated general and administrative expenses(7,947)(3,751)(18,094)(12,745)
Interest and financing costs, net (13,971) (14,339) (53,278) (35,926)
Equity in earnings of unconsolidated affiliates 5,072
 3,767
 10,965
 10,155
Interest expenseInterest expense(27,285)(22,965)(79,711)(56,951)
Interest incomeInterest income20,294 24,234 61,050 61,212 
Equity in earnings of equity method investmentsEquity in earnings of equity method investments3,581 (16,334)11,008 (7,261)
Gain on sale of assets and other 155
 112
 317
 104
Gain on sale of assets and other708 494 983 640 
Income before income taxes $42,992
 $28,465
 $113,961
 $114,881
Income before income taxes$64,927 $44,974 $178,017 $158,474 
        
Capital Expenditures:        Capital Expenditures:
Pipelines and terminals $10,151
 $15,557
 $30,437
 $47,200
 Pipelines and terminals$5,672 $7,583 $21,936 $25,400 
Refinery processing units —
 5,173
 238
 48,915
 Refinery processing units42 364 42 5,794 
Total capital expenditures $10,151
 $20,730
 $30,675
 $96,115
Total capital expenditures$5,714 $7,947 $21,978 $31,194 


September 30,
2023		December 31, 2022
(In thousands)
Identifiable assets:
  Pipelines and terminals (1)
$2,123,140 $2,152,159 
  Refinery processing units294,125 304,332 
Other290,169 291,011 
Total identifiable assets$2,707,434 $2,747,502 


(1) Included goodwill of $342.8 million as of both September 30, 2023 and December 31, 2022.



- 30 -

  September 30, 2017 December 31, 2016
  (in thousands)
Identifiable assets:    
  Pipelines and terminals $1,353,585
 $1,369,756
  Refinery processing units 335,388
 342,506
Other 176,869
 171,975
Total identifiable assets $1,865,842
 $1,884,237


Note 17: Osage Pipeline
The refinery processing units operating segment loss for
On July 8, 2022, the threeOsage pipeline, which is owned by Osage (see Note 1) and carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil. Our equity in earnings of equity method investments was reduced in the nine months ended September 30, 2016,2023 by $5.5 million for our 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties associated with the release. From the date of the release through September 30, 2023, our equity in earnings of equity method investments was reduced by $23.1 million for our 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties associated with the release, net of our share of insurance proceeds received to date of $3.0 million. Any additional insurance recoveries will be recorded as they are received. If the Osage insurance policy pays out in full, our share of the remaining insurance coverage is dueexpected to be $10.0 million. As Osage is an equity method investment, its financial position and results are not consolidated into HEP financial statement line items. The financial impact of the Osage crude oil release is reflected on the consolidated balance sheets as a reduction in equity method investments and is reflected on the consolidated statements of income as a reduction in equity in earnings (loss) of equity method investments.

The Osage pipeline resumed operations in the third quarter of 2022 and remediation efforts are underway. It may be necessary for Osage to expend or accrue additional amounts for environmental remediation or other release-related expenses in future periods, but we cannot estimate those amounts at this time. Future costs and accruals could have a material impact on our results of operations and cash flows in the period recorded; however, we do not expect them to have a material impact on our financial position.


Note 18: HF Sinclair Merger Transaction

On August 15, 2023, HEP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with HF Sinclair, the Sole Member, Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of the Sole Member (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP, and HLS, pursuant to which Merger Sub will merge with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (such merger, together with the other transactions contemplated by the Merger Agreement, being referred to herein as the “HF Sinclair Merger Transaction”).

Under the terms of the Merger Agreement, each outstanding common unit of HEP, other than the HEP common units already owned by HF Sinclair and its subsidiaries, will be converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. Completion of the HF Sinclair Merger Transaction is subject to the net loss attributable to Predecessor.approval of HF Sinclair stockholders and HEP unitholders and the satisfaction of certain customary closing conditions.

Note 14:Supplemental Guarantor/Non-Guarantor Financial Information



Note 19: Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the 6% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional, subject to certain customary release provisions. These circumstances include (i) when a Guarantor Subsidiary is sold or sells all or substantially all of its assets, (ii) when a Guarantor Subsidiary is declared “unrestricted” for covenant purposes, (iii) when a Guarantor Subsidiary’s guarantee of other indebtedness is terminated or released and (iv) when the requirements for legal defeasance or covenant defeasance or to discharge the senior notesSenior Notes have been satisfied.


The following financial information presents condensed consolidating balance sheets statements of comprehensive income, and statements of cash flowsincome of the Parent, the Guarantor Subsidiaries and the Non-Guarantornon-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantornon-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.


In conjunction withAs a result of the preparationHEP Transaction, UNEV became a 100% owned subsidiary, and it was subsequently added as a guarantor of our Condensed Consolidating Balance Sheet and Statementsthe obligations of Comprehensive IncomeHEP under the Senior Notes during the second quarter of 2022. UNEV financial information has been included below, we identified and corrected the presentation of noncontrolling interests presented in the eliminations column in priorGuarantor Subsidiaries financial information for all periods to reflect such balances and activity within the respective guarantor and non-guarantor subsidiaries columns.presented.




- 31 -



































Condensed Consolidating Balance Sheet
September 30, 2023ParentGuarantor
Restricted Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$10,641 $(1,318)$1,900 $— $11,223 
Accounts receivable— 100,557 1,408 (1,368)100,597 
Prepaid and other current assets169 9,857 401 (401)10,026 
Total current assets10,810 109,096 3,709 (1,769)121,846 
Properties and equipment, net— 1,362,829 — — 1,362,829 
Operating lease right-of-use assets— 1,797 — — 1,797 
Net investment in leases— 521,099 101,908 (101,908)521,099 
Investment in subsidiaries
2,380,795 68,283 — (2,449,078)— 
Intangible assets, net— 51,681 — — 51,681 
Goodwill— 342,762 — — 342,762 
Equity method investments— 234,538 32,753 — 267,291 
Deferred turnaround costs— 21,279 — — 21,279 
Other assets4,371 12,479 — — 16,850 
Total assets$2,395,976 $2,725,843 $138,370 $(2,552,755)$2,707,434 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $47,530 $521 $(1,368)$46,683 
Accrued interest17,512 — — — 17,512 
Deferred revenue— 21,066 — — 21,066 
Accrued property taxes— 11,058 — — 11,058 
Current operating lease liabilities— 793 — — 793 
Current finance lease liabilities— 7,080 — (2,446)4,634 
Other current liabilities862 2,361 1,283 — 4,506 
Total current liabilities18,374 89,888 1,804 (3,814)106,252 
Long-term debt1,468,505 — — — 1,468,505 
Noncurrent operating lease liabilities— 1,371 — — 1,371 
Noncurrent finance lease liabilities— 147,385 — (86,911)60,474 
Other long-term liabilities79 28,492 — — 28,571 
Deferred revenue— 16,878 — — 16,878 
Class B Unit— 61,034 — — 61,034 
Equity - partners909,018 2,380,795 68,283 (2,462,030)896,066 
Equity - noncontrolling interests— — 68,283 — 68,283 
Total liabilities and equity$2,395,976 $2,725,843 $138,370 $(2,552,755)$2,707,434 

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September 30, 2017 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
ASSETS          
Current assets:          
Cash and cash equivalents $2
 $6
 $7,468
 $—
 $7,476
Accounts receivable —
 46,157
 4,096
 (170) 50,083
Prepaid and other current assets 52
 1,988
 255
 —
 2,295
Total current assets 54
 48,151
 11,819
 (170) 59,854
           
Properties and equipment, net —
 947,094
 359,999
 —
 1,307,093
Investment in subsidiaries

 1,608,736
 273,874
 —
 (1,882,610) —
Transportation agreements, net —
 61,644
 —
 —
 61,644
Goodwill —
 256,498
 —
 —
 256,498
Equity method investments —
 163,873
 —
 —
 163,873
Other assets 12,329
 4,551
 —
 —
 16,880
Total assets $1,621,119
 $1,755,685
 $371,818
 $(1,882,780) $1,865,842
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable $—
 $21,770
 $1,543
 $(170) $23,143
Accrued interest 5,000
 527
 —
 —
 5,527
Deferred revenue —
 13,326
 1,501
 —
 14,827
Accrued property taxes —
 4,073
 3,414
 —
 7,487
Other current liabilities 52
 3,440
 —
 —
 3,492
Total current liabilities 5,052
 43,136
 6,458
 (170) 54,476

          
Long-term debt 1,245,066
 —
 —
 —
 1,245,066
Other long-term liabilities 286
 14,996
 195
 —
 15,477
Deferred revenue —
 46,405
 —
 —
 46,405
Class B unit —
 42,412
 —
 —
 42,412
Equity - partners 370,715
 1,608,736
 273,874
 (1,882,610) 370,715
Equity - noncontrolling interest —
 —
 91,291
 —
 91,291
Total liabilities and equity $1,621,119
 $1,755,685
 $371,818
 $(1,882,780) $1,865,842




Condensed Consolidating Balance Sheet
December 31, 2022ParentGuarantor
Restricted Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,316 $4,454 $2,147 $— $10,917 
Accounts receivable— 79,689 1,453 (1,339)79,803 
Prepaid and other current assets256 12,141 356 (356)12,397 
Total current assets4,572 96,284 3,956 (1,695)103,117 
Properties and equipment, net— 1,388,888 — — 1,388,888 
Operating lease right-of-use assets— 2,317 — — 2,317 
Net investment in leases— 539,705 101,871 (101,871)539,705 
Investment in subsidiaries2,432,767 69,754 — (2,502,521)— 
Intangible assets, net— 59,300 — — 59,300 
Goodwill— 342,762 — — 342,762 
Equity method investments— 235,858 34,746 — 270,604 
Deferred turnaround costs— 24,154 — — 24,154 
Other assets5,865 10,790 — — 16,655 
Total assets$2,443,204 $2,769,812 $140,573 $(2,606,087)$2,747,502 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $43,303 $545 $(1,339)$42,509 
Accrued interest17,992 — — — 17,992 
Deferred revenue— 12,087 — — 12,087 
Accrued property taxes— 5,449 — — 5,449 
Current operating lease liabilities— 968 — — 968 
Current finance lease liabilities— 6,560 — (2,171)4,389 
Other current liabilities117 1,793 520 — 2,430 
Total current liabilities18,109 70,160 1,065 (3,510)85,824 
Long-term debt1,556,334 — — — 1,556,334 
Noncurrent operating lease liabilities— 1,720 — — 1,720 
Noncurrent finance lease liabilities— 150,935 — (88,422)62,513 
Other long-term liabilities— 29,111 — — 29,111 
Deferred revenue— 24,613 — — 24,613 
Class B unit— 60,507 — — 60,507 
Equity - partners868,760 2,432,767 69,754 (2,514,155)857,126 
Equity - noncontrolling interests— — 69,754 — 69,754 
Total liabilities and equity$2,443,203 $2,769,813 $140,573 $(2,606,087)$2,747,502 




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December 31, 2016 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
ASSETS          
Current assets:          
Cash and cash equivalents $2
 $301
 $3,354
 $—
 $3,657
Accounts receivable —
 45,056
 5,554
 (202) 50,408
Prepaid and other current assets 11
 2,633
 244
 —
 2,888
Total current assets 13
 47,990
 9,152
 (202) 56,953
           
Properties and equipment, net —
 957,045
 371,350
 —
 1,328,395
Investment in subsidiaries 1,086,008
 280,671
 —
 (1,366,679) —
Transportation agreements, net —
 66,856
 —
 —
 66,856
Goodwill —
 256,498
 —
 —
 256,498
Equity method investments —
 165,609
 —
 —
 165,609
Other assets 725
 9,201
 —
 —
 9,926
Total assets $1,086,746
 $1,783,870
 $380,502
 $(1,366,881) $1,884,237
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable $—
 $24,245
 $2,899
 $(202) $26,942
Accrued interest 17,300
 769
 —
 —
 18,069
Deferred revenue —
 8,797
 2,305
 —
 11,102
Accrued property taxes —
 4,514
 883
 —
 5,397
Other current liabilities 14
 3,208
 3
 —
 3,225
Total current liabilities 17,314
 41,533
 6,090
 (202) 64,735
           
Long-term debt 690,912
 553,000
 —
 —
 1,243,912
Other long-term liabilities 286
 15,975
 184
 —
 16,445
Deferred revenue —
 47,035
 —
 —
 47,035
Class B unit —
 40,319
 —
 —
 40,319
Equity - partners 378,234
 1,086,008
 280,671
 (1,366,679) 378,234
Equity - noncontrolling interest —
 —
 93,557
 —
 93,557
Total liabilities and equity $1,086,746
 $1,783,870
 $380,502
 $(1,366,881) $1,884,237


Condensed Consolidating Statement of Income
Three Months Ended September 30, 2023ParentGuarantor Restricted
Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $129,168 $119 $— $129,287 
Third parties— 29,073 — — 29,073 
— 158,241 119 — 158,360 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)— 57,154 1,268 — 58,422 
Depreciation and amortization— 24,362 — — 24,362 
General and administrative114 7,833 — — 7,947 
114 89,349 1,268 — 90,731 
Operating income (loss)(114)68,892 (1,149)— 67,629 
Other income (expense):
Equity in earnings of subsidiaries88,429 1,886 — (90,315)— 
Equity in earnings of equity method investments— 2,772 809 — 3,581 
Interest expense(25,290)(6,106)— 4,111 (27,285)
Interest income— 20,294 4,111 (4,111)20,294 
Gain on sale of assets and other— 708 — — 708 
63,139 19,554 4,920 (90,315)(2,702)
Income before income taxes63,025 88,446 3,771 (90,315)64,927 
State income tax expense— (16)— — (16)
Net income63,025 88,430 3,771 (90,315)64,911 
Allocation of net income attributable to noncontrolling interests— (1,886)— (1,886)
Net income attributable to the partners$63,025 $88,430 $1,885 $(90,315)$63,025 





- 34 -




































Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2023ParentGuarantor Restricted
Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $355,968 $119 $— $356,087 
Third parties— 85,322 — — 85,322 
— 441,290 119 — 441,409 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)— 159,283 4,423 — 163,706 
Depreciation and amortization— 74,922 — — 74,922 
General and administrative3,204 14,890 — — 18,094 
3,204 249,095 4,423 — 256,722 
Operating income (loss)(3,204)192,195 (4,304)— 184,687 
Other income (expense):
Equity in earnings of subsidiaries249,798 5,177 — (254,975)— 
Equity in earnings of equity method investments— 8,696 2,312 — 11,008 
Interest expense(75,818)(16,239)— 12,346 (79,711)
Interest income— 61,050 12,346 (12,346)61,050 
Gain on sale of assets and other— 983 — — 983 
173,980 59,667 14,658 (254,975)(6,670)
Income before income taxes170,776 251,862 10,354 (254,975)178,017 
State income tax expense— (18)— — (18)
Net income170,776 251,844 10,354 (254,975)177,999 
Allocation of net income attributable to noncontrolling interests— (2,046)(5,177)— (7,223)
Net income attributable to the partners$170,776 $249,798 $5,177 $(254,975)$170,776 

- 35 -


































Three Months Ended September 30, 2017 Parent 
Guarantor Restricted
Subsidiaries
 Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Revenues:          
Affiliates $—
 $89,772
 $5,366
 $—
 $95,138
Third parties —
 10,758
 4,468
 —
 15,226
  —
 100,530
 9,834
 —
 110,364
Operating costs and expenses:          
Operations (exclusive of depreciation and amortization) —
 31,360
 4,638
 —
 35,998
Depreciation and amortization 

 14,854
 4,153
 —
 19,007
General and administrative 1,050
 2,573
 —
 —
 3,623
  1,050
 48,787
 8,791
 —
 58,628
Operating income (loss) (1,050) 51,743
 1,043
 —
 51,736
           
Other income (expense):          
Equity in earnings of subsidiaries 57,193
 783
 —
 (57,976) —
Equity in earnings of equity method investments —
 5,072
 —
 —
 5,072
Interest expense (14,072) —
 —
 —
 (14,072)
Interest income —
 101
 —
 —
 101
Gain on sale of assets and other —
 154
 1
 —
 155
  43,121
 6,110
 1
 (57,976) (8,744)
Income (loss) before income taxes 42,071
 57,853
 1,044
 (57,976) 42,992
State income tax benefit —
 69
 —
 —
 69
Net income 42,071
 57,922
 1,044
 (57,976) 43,061
Allocation of net income attributable to noncontrolling interests —
 (729) (261) —
 (990)
Net income attributable to Holly Energy Partners 42,071
 57,193
 783
 (57,976) 42,071
Other comprehensive income (63) (63) —
 63
 (63)
Comprehensive income attributable to Holly Energy Partners $42,008
 $57,130
 $783
 $(57,913) $42,008



Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2022ParentGuarantor
Restricted Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $122,868 $— $— $122,868 
Third parties— 26,134 — — 26,134 
— 149,002 — — 149,002 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)— 59,493 977 — 60,470 
Depreciation and amortization— 25,236 — — 25,236 
General and administrative703 3,048 — — 3,751 
703 87,777 977 — 89,457 
Operating income (loss)(703)61,225 (977)— 59,545 
Other income (expense):
Equity in earnings of subsidiaries64,681 1,964 — (66,645)— 
Equity in earnings of equity method investments— (17,117)783 — (16,334)
Interest expense(22,027)(5,060)— 4,122 (22,965)
Interest income— 24,234 4,122 (4,122)24,234 
Gain on sale of assets and other— 494 — — 494 
42,654 4,515 4,905 (66,645)(14,571)
Income before income taxes41,951 65,740 3,928 (66,645)44,974 
State income tax expense— (38)— — (38)
Net income41,951 65,702 3,928 (66,645)44,936 
Allocation of net income attributable to noncontrolling interests— (1,021)(1,964)— (2,985)
Net income attributable to the partners$41,951 $64,681 $1,964 $(66,645)$41,951 


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Three Months Ended September 30, 2016 (1)
 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Revenues:          
Affiliates $—
 $72,389
 $5,009
 $—
 $77,398
Third parties —
 11,360
 3,852
 —
 15,212
  —
 83,749
 8,861
 —
 92,610
Operating costs and expenses:          
Operations (exclusive of depreciation and amortization) —
 29,023
 3,078
 —
 32,101
Depreciation and amortization —
 15,093
 3,827
 —
 18,920
General and administrative 813
 1,851
 —
 —
 2,664
  813
 45,967
 6,905
 —
 53,685
Operating income (loss) (813) 37,782
 1,956
 —
 38,925
           
Other income (expense):          
Equity in earnings of subsidiaries 44,359
 1,451
 —
 (45,810) —
Equity in earnings of equity method investments —
 3,767
 —
 —
 3,767
Interest expense (10,011) (4,436) —
 —
 (14,447)
Interest income —
 103
 5
 —
 108
Gain (loss) on sale of assets and other —
 138
 (26) —
 112
  34,348
 1,023
 (21) (45,810) (10,460)
Income before income taxes 33,535
 38,805
 1,935
 (45,810) 28,465
State income tax expense —
 (61) —
 —
 (61)
Net income 33,535
 38,744
 1,935
 (45,810) 28,404
Allocation of net loss to Predecessor —
 7,547
 —
 —
 7,547
Allocation of net income attributable to noncontrolling interests —
 (682) (484) —
 (1,166)
Net income attributable to Holly Energy Partners 33,535
 45,609
 1,451
 (45,810) 34,785
Other comprehensive (loss) 296
 296
 —
 (296) 296
Comprehensive income attributable to Holly Energy Partners $33,831
 $45,905
 $1,451
 $(46,106) $35,081

(1) Retrospectively adjusted as described in Note 1.




Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2022ParentGuarantor
Restricted Subsidiaries		Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $325,659 $— $— $325,659 
Third parties— 79,311 — — 79,311 
— 404,970 — — 404,970 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)— 154,250 2,744 — 156,994 
Depreciation and amortization— 74,397 — — 74,397 
General and administrative2,703 10,042 — — 12,745 
2,703 238,689 2,744 — 244,136 
Operating income (loss)(2,703)166,281 (2,744)— 160,834 
Other income (expense):
Equity in earnings of subsidiaries205,112 6,062 — (211,174)— 
Equity in earnings of equity method investments— (9,756)2,495 — (7,261)
Interest expense(54,107)(15,217)— 12,373 (56,951)
Interest income— 61,212 12,373 (12,373)61,212 
Gain on sale of assets and other— 640 — — 640 
151,005 42,941 14,868 (211,174)(2,360)
Income before income taxes148,302 209,222 12,124 (211,174)158,474 
State income tax expense— (83)— — (83)
Net income148,302 209,139 12,124 (211,174)158,391 
Allocation of net income attributable to noncontrolling interests— (4,027)(6,062)(10,089)
Net income attributable to the partners$148,302 $205,112 $6,062 $(211,174)$148,302 




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Nine Months Ended September 30, 2017 Parent 
Guarantor Restricted
Subsidiaries
 Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Revenues:          
Affiliates $—
 $258,571
 $18,745
 $—
 $277,316
Third parties —
 32,146
 15,680
 —
 47,826
  —
 290,717
 34,425
 —
 325,142
Operating costs and expenses:          
Operations (exclusive of depreciation and amortization) —
 91,323
 11,261
 —
 102,584
Depreciation and amortization —
 45,498
 12,231
 —
 57,729
General and administrative 3,070
 5,802
 —
 —
 8,872
  3,070
 142,623
 23,492
 —
 169,185
Operating income (loss) (3,070) 148,094
 10,933
 —
 155,957
           
Other income (expense):          
Equity in earnings (loss) of subsidiaries 165,624
 8,203
 —
 (173,827) —
Equity in earnings of equity method investments —
 10,965
 —
 —
 10,965
Interest expense (41,359) —
 —
 —
 (41,359)
Interest income —
 306
 —
 —
 306
Loss on early extinguishment of debt (12,225) —
 —
 —
 (12,225)
Gain (loss) on sale of assets and other —
 313
 4
 —
 317
  112,040
 19,787
 4
 (173,827) (41,996)
Income (loss) before income taxes 108,970
 167,881
 10,937
 (173,827) 113,961
State income tax expense —
 (164) —
 —
 (164)
Net income (loss) 108,970
 167,717
 10,937
 (173,827) 113,797
Allocation of net income attributable to noncontrolling interests —
 (2,093) (2,734) —
 (4,827)
Net income (loss) attributable to Holly Energy Partners 108,970
 165,624
 8,203
 (173,827) 108,970
Other comprehensive income (loss) (91) (91) —
 91
 (91)
Comprehensive income (loss) $108,879
 $165,533
 $8,203
 $(173,736) $108,879






Condensed Consolidating Statement of Comprehensive Income
Tae o
Nine Months Ended September 30, 2016 (1)
 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Revenues:          
Affiliates $—
 $219,428
 $19,995
 $—
 $239,423
Third parties —
 33,783
 16,311
 —
 50,094
  —
 253,211
 36,306
 —
 289,517
Operating costs and expenses:          
Operations (exclusive of depreciation and amortization) —
 80,248
 8,920
 —
 89,168
Depreciation and amortization —
 39,811
 11,372
 —
 51,183
General and administrative 2,949
 5,669
 —
 —
 8,618
  2,949
 125,728
 20,292
 —
 148,969
Operating income (loss) (2,949) 127,483
 16,014
 —
 140,548
           
Other income (expense):          
Equity in earnings (loss) of subsidiaries 138,513
 12,004
 —
 (150,517) —
Equity in earnings of equity method investments —
 10,155
 —
 —
 10,155
Interest expense (20,151) (16,107) —
 —
 (36,258)
Interest income —
 315
 17
 —
 332
Gain (loss) on sale of assets and other —
 129
 (25) —
 104
  118,362
 6,496
 (8) (150,517) (25,667)
Income (loss) before income taxes 115,413
 133,979
 16,006
 (150,517) 114,881
State income tax expense —
 (210) —
 —
 (210)
Net income (loss) 115,413
 133,769
 16,006
 (150,517) 114,671
Allocation of net loss to Predecessor 

 10,657
 —
 —
 10,657
Allocation of net income attributable to noncontrolling interests —
 (4,446) (4,002) —
 (8,448)
Net income (loss) attributable to Holly Energy Partners 115,413
 139,980
 12,004
 (150,517) 116,880
Other comprehensive income (loss) (299) (299) —
 299
 (299)
Comprehensive income (loss) $115,114
 $139,681
 $12,004
 $(150,218) $116,581



(1) Retrospectively adjusted as described in Note 1.




Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Cash flows from operating activities $(57,045) $215,643
 $27,064
 $(8,203) $177,459
           
Cash flows from investing activities          
Additions to properties and equipment —
 (27,725) (2,950) —
 (30,675)
Distributions from UNEV in excess of earnings —
 6,797
 —
 (6,797) —
Proceeds from sale of assets —
 794
 —
 —
 794
Distributions in excess of equity in earnings of equity investments —
 1,224
 —
 —
 1,224
  —
 (18,910) (2,950) (6,797) (28,657)
           
Cash flows from financing activities          
Net borrowings under credit agreement 750,000
 (553,000) —
 —
 197,000
Net intercompany financing activities (357,196) 357,196
 —
 —
 —
Proceeds from issuance of 6% Senior Notes 103,250
 (1,500) —
 —
 101,750
Proceeds from issuance of common units 52,285
 —
 —
 —
 52,285
Contribution from general partner 1,072
 —
 —
 —
 1,072
Redemption of senior notes (309,750) —
 —
 —
 (309,750)
Distributions to HEP unitholders (171,560) —
 —
 —
 (171,560)
Distribution to HFC for El Dorado tanks (103) —
 —
 —
 (103)
Distributions to noncontrolling interests —
 —
 (20,000) 15,000
 (5,000)
Deferred financing cost (10,953) 1,500
 —
 —
 (9,453)
Other —
 (1,224) —
 —
 (1,224)
  57,045
 (197,028) (20,000) 15,000
 (144,983)
           
Cash and cash equivalents          
Increase (decrease) for the period —
 (295) 4,114
 —
 3,819
Beginning of period 2
 301
 3,354
 —
 3,657
End of period $2
 $6
 $7,468
 $—
 $7,476



Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016 (1)
 Parent 
Guarantor
Restricted Subsidiaries
 Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
  (In thousands)
Cash flows from operating activities $(20,467) $181,967
 $27,724
 $(11,250)��$177,974
           
Cash flows from investing activities          
Additions to properties and equipment —
 (33,147) (15,077) —
 (48,224)
Purchase of Woods Cross refinery processing units —
 (47,891) —
 —
 (47,891)
Purchase of Cheyenne Pipeline —
 (42,550) —
 —
 (42,550)
Proceeds from sale of assets —
 210
 —
 —
 210
Distributions in excess of equity in earnings of equity investments —
 1,685
 —
 —
 1,685
Other —
 (351) —
 —
 (351)
  —
 (122,044) (15,077) —
 (137,121)
           
Cash flows from financing activities          
Net repayments under credit agreement —
 (332,000) —
 —
 (332,000)
Net intercompany financing activities (257,172) 257,172
 —
 —
 —
Proceeds from issuance of senior notes 394,000
 —
 —
 —
 394,000
Proceeds from issuance of common units 22,591
 200
 —
 —
 22,791
Distributions to HEP unitholders (138,798) —
 —
 —
 (138,798)
Distributions to noncontrolling interests —
 —
 (15,000) 11,250
 (3,750)
Contributions from general partner for Osage 31,285
 (31,285) —
 —
 —
Distributions to HFC for Tulsa Tank acquisition (30,378) (9,122) —
 —
 (39,500)
Distribution to HFC for Osage —
 (1,245) —
 —
 (1,245)
Contribution from HFC for acquisitions 99
 54,928
 —
 —
 55,027
Contributions from general partner 470
 —
 —
 —
 470
Purchase of units for incentive grants (784) —
 —
 —
 (784)
Deferred financing costs (846) (3,084) —
 —
 (3,930)
Other —
 (939) —
 —
 (939)
  20,467
 (65,375) (15,000) 11,250
 (48,658)
           
Cash and cash equivalents          
Decrease for the period —
 (5,452) (2,353) —
 (7,805)
Beginning of period 2
 5,452
 9,559
 —
 15,013
End of period $2
 $—
 $7,206
 $—
 $7,208

(1) Retrospectively adjusted as described in Note 1.

Table of Contentsril 19,



Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Item 2, including but not limited to the sections under “Results of Operations” and “Liquidity and Capital Resources,” contains forward-looking statements. See “Forward-Looking Statements” at the beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words “we,” “our,” “ours” and “us” refer to Holly Energy Partners, L. P.L.P. (“HEP”) and its consolidated subsidiaries or to HEP or an individual subsidiary and not to any other person.



References herein to HEP with respect to time periods prior to March 14, 2022, include HEP and its consolidated subsidiaries and do not include Sinclair Transportation Company LLC (“Sinclair Transportation”) and its consolidated subsidiaries (collectively, the “HEP Acquired Sinclair Businesses”). References herein to HEP with respect to time periods from and after March 14, 2022 include the operations of the HEP Acquired Sinclair Businesses.

References herein to HF Sinclair Corporation (“HF Sinclair”) with respect to time periods prior to March 14, 2022 refer to HollyFrontier Corporation (“HFC”) and its consolidated subsidiaries and do not include Hippo Holding LLC (now known as Sinclair Holding LLC), Sinclair Transportation or their respective consolidated subsidiaries (collectively, the “HFS Acquired Sinclair Businesses”). References herein to HF Sinclair with respect to time periods from and after March 14, 2022 refer to HF Sinclair and its consolidated subsidiaries, which include the operations of the combined business operations of HFC and the HFS Acquired Sinclair Businesses.


OVERVIEW


HEP, together with its consolidated subsidiaries, is a Delawarepublicly held master limited partnership. WeOn March 14, 2022 (the “Closing Date”), HFC and HEP announced the establishment of HF Sinclair, as the new parent holding company of HFC and HEP and their subsidiaries, and the completion of their respective acquisitions of Sinclair Oil Corporation (now known as Sinclair Oil LLC (“Sinclair Oil”)) and Sinclair Transportation from REH Company (formerly known as The Sinclair Companies, and referred to herein as “REH Company”). On the Closing Date, HF Sinclair completed its acquisition of Sinclair Oil by effecting (a) a holding company merger with HFC surviving such merger as a direct wholly owned subsidiary of HF Sinclair (the “HFC Merger”), and (b) immediately following the HFC Merger, a contribution whereby REH Company contributed all of the equity interests of Hippo Holding LLC (now known as Sinclair Holding LLC), the parent company of Sinclair Oil (the “Target Company”), to HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair (together with the HFC Merger, the “HFC Transactions”).

As of September 30, 2023, HF Sinclair and its subsidiaries owned a 47% limited partner interest and the non-economic general partner interest in HEP.

Additionally, on the Closing Date and immediately prior to consummation of the HFC Transactions, HEP acquired all of the outstanding equity interests of Sinclair Transportation from REH Company in exchange for 21 million newly issued common limited partner units of HEP (the “HEP Units”), representing 16.6% of the pro forma outstanding HEP Units with a value of approximately $349 million based on the HEP fully diluted common limited partner units outstanding and closing unit price on March 11, 2022, and cash consideration equal to $329.0 million, inclusive of final working capital adjustments for an aggregate transaction value of $678.0 million (the “HEP Transaction”). The cash consideration was funded through a draw under HEP’s senior secured revolving credit facility. The HEP Transaction was conditioned on the closing of the HFC Transactions, which occurred immediately following the HEP Transaction.

Sinclair Transportation, together with its subsidiaries, owned REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the REH Company refineries and other third-party refineries, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage. In addition, HEP acquired Sinclair Transportation’s interests in three pipeline joint ventures for crude gathering and product offtake including: Saddle Butte Pipeline III, LLC (25.06% non-operated interest); Pioneer Investments Corp. (49.995% non-operated interest); and UNEV Pipeline, LLC (“UNEV”) (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP).

See Notes 1 and 2 of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding the acquisitions.

Through our subsidiaries and joint ventures, we own andand/or operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support the refining and marketing operations of HollyFrontier Corporation (“HFC”)HF

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Tae o
Sinclair and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States and Alon USA, Inc’s (“Alon”) refinery in Big Spring, Texas.States. HEP, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude gathering pipelines, tankage and terminals in Texas,Colorado, Idaho, Iowa, Kansas, Missouri, Nevada, New Mexico, Arizona,Oklahoma, Texas, Utah, Washington Idaho, Oklahoma, Utah, Nevada,and Wyoming and Kansas as well as refinery processing units in Utah and Kansas. HFC owned a 36% interest in us, including the 2% general partnership interest, as of September 30, 2017.

On October 31, 2017, we closed the restructuring transaction set forth in the definitive agreement with HEP Logistics Holdings, L.P. (“HEP Logistics”), a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights held by HEP Logistics are canceled, and HEP Logistics' 2% general partner interest in HEP is converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HFC agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration are eligible to receive distributions. As of October 31, 2017, HFC held approximately 59.6 million HEP common units, representing approximately 59% of the outstanding common units. As a result of this transaction, no distributions will be made on the general partner interest after October 31, 2017.


We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, providing other services at our storage tanks and terminals and charging a tolling fee per barrel or thousand standard cubic feet of feedstock throughput in our refinery processing units. We do not take ownership of products that we transport, terminal, store or store,process, and therefore, we are not directly exposed to changes in commodity prices.


We believe the long-term growth of global refined product demand and USU.S. crude production should support high utilization rates for the refineries we serve, which in turn willshould support volumes in our product pipelines, crude gathering systemsystems and terminals.
Acquisitions
HF Sinclair Merger Transaction
On February 22, 2016, HFC obtainedAugust 15, 2023, HEP entered into an Agreement and Plan of Merger (the “Merger Agreement”) with HF Sinclair, Navajo Pipeline Co., L.P, a 50% membership interest in Osage Pipe Line Company, LLC (“Osage”) in a non-monetary exchange for a 20-year terminalling services agreement, whereby aDelaware limited partnership and an indirect wholly owned subsidiary of Magellan Midstream Partners (“Magellan”HF Sinclair (the “Sole Member”) will provide terminalling services for all HFC products originating in Artesia, New Mexico that require terminalling in or through El Paso, Texas. Osage is the owner of the Osage Pipeline,, Holly Apple Holdings LLC, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to HFC’s El Dorado Refinery in KansasDelaware limited liability company and also has a connection to the Jayhawk pipeline that services the CHS Inc. refinery in McPherson, Kansas. The Osage Pipeline is the primary pipeline that supplies HFC’s El Dorado Refinery with crude oil.

Concurrent with this transaction, we entered into a non-monetary exchange with HFC, whereby we received HFC’s interest in Osage in exchange for our El Paso terminal. Under this exchange, we also agreed to build two connections on our south products pipeline system that will permit HFC access to Magellan’s El Paso terminal. Effective upon the closing of this exchange, we became the named operator of the Osage Pipeline and transitioned into that role.

On March 31, 2016, we acquired crude oil tanks located at HFC’s Tulsa refinery from an affiliate of Plains All American Pipeline, L.P. (“Plains”) for $39.5 million. In 2009, HFC sold these tanks to Plains and leased them back, and due to HFC’s continuing interest in the tanks, HFC accounted for the transaction as a financing arrangement. Accordingly, the tanks remained on HFC’s balance sheet and were depreciated for accounting purposes. In connection with this transaction, we entered into a 10-year throughput agreement containing minimum quarterly throughput commitments from HFC. As of September 30, 2017, these commitments provide minimum annualized revenues of $5.7 million.

Table of Contentsril 19,

On June 3, 2016, we acquired a 50% interest in Cheyenne Pipeline LLC, owner of the Cheyenne Pipeline, in exchange for a contribution of $42.6 million in cash to Cheyenne Pipeline LLC. Cheyenne Pipeline LLC will continue to be operated by an affiliate of Plains, which owns the remaining 50% interest. The 87-mile crude oil pipeline runs from Fort Laramie to Cheyenne, Wyoming and has an 80,000 barrel per day (“bpd”) capacity.

Effective October 1, 2016, we acquired all the membership interests of Woods Cross Operating LLC (“Woods Cross Operating”), a wholly owned subsidiary of HFC,the Sole Member (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH (“HLS”), pursuant to which ownsMerger Sub will merge with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (such merger, together with the newly constructed atmospheric distillation tower, fluid catalytic crackingother transactions contemplated by the Merger Agreement, being referred to herein as the “HF Sinclair Merger Transaction”).

Under the terms of the Merger Agreement, each outstanding common unit of HEP, other than the HEP common units already owned by HF Sinclair and polymerization unit located at HFC’s Woods Cross Refinery,its subsidiaries, will be converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. Completion of the HF Sinclair Merger Transaction is subject to the approval of HF Sinclair stockholders and HEP unitholders and the satisfaction of certain customary closing conditions.

Market Developments
Our results for cash consideration of $278.0 million. In connection with this transaction, we entered into 15-year tolling agreements containing minimum quarterly throughput commitments from HFC. As ofthe nine months ended September 30, 2017, these2023 were favorably impacted by global demand for transportation fuels, lubricants and transportation and terminal services having returned to pre-pandemic levels. We expect our customers will continue to adjust refinery production levels commensurate with market demand. The extent to which HEP’s future results are affected by volatile regional and global economic conditions will depend on various factors and consequences beyond our control. However, we have long-term customer contracts with minimum volume commitments, providewhich have expiration dates from 2024 to 2037. These minimum annualized revenuesvolume commitments accounted for approximately 73% and 70% of $57.3 million.

our total tariffs and fees billed to customers for the nine months ended September 30, 2023 and September 30, 2022, respectively. We are a consolidated variable interest entity (“VIE”)currently not aware of HFC. Therefore,any reasons that would prevent such customers from making the acquisitionsminimum payments required under the contracts or potentially making payments in excess of the crude tanks at HFC's Tulsa refinery on March 31, 2016, and Woods Cross Operating on October 1, 2016, were accounted for as transfers between entities under common control. Accordingly, this financial data has been retrospectively adjustedminimum payments. In addition to include the historical results of these acquisitions for all periods presented prior to the effective dates of each acquisition. We refer to these historical results as those of our "Predecessor." See Note 1 for further discussion of these acquisitions and basis of presentation.

On October 31, 2017,these payments, we acquired the remaining 75% interest in SLC Pipeline and the remaining 50% interest in Frontier Aspen from subsidiaries of Plains All American Pipeline, L.P. (“Plains”), for total consideration of $250 million. As of September 30, 2017, we held noncontrolling interests of 25% of SLC Pipeline and 50% of Frontier Aspen. As a result of the acquisitions, SLC Pipeline and Frontier Aspen are wholly-owned subsidiaries of HEP.

This acquisition will accounted for as a business combination achieved in stages with the consideration allocated to the acquisition date fair value of assets and liabilities acquired. The preexisting equity interests in SLC Pipeline and Frontier Aspen will be remeasured at acquisition date fair value since we will have a controlling interest, and wealso expect to recognize a gain on the remeasurement in the fourth quarter of 2017.collect payments for services provided to uncommitted shippers.

SLC Pipeline is the owner of a 95-mile crude pipeline that transports crude oil into the Salt Lake City area from the Utah terminal of the Frontier Pipeline and from Wahsatch Station. Frontier Aspen is the owner of a 289-mile crude pipeline from Casper, Wyoming to Frontier Station, Utah that supplies Canadian and Rocky Mountain crudes to Salt Lake City area refiners through a connection to the SLC Pipeline.


Agreements with HFC and AlonHF Sinclair
We serve HFC’sHF Sinclair’s refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from 20192024 to 2036.2037. Under these agreements, HFCHF Sinclair agrees to transport, store, and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminal, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year based on the Producer Price Index (“PPI”) or the Federal Energy Regulatory Commission (“FERC”) index. On December 17, 2020, FERC established a new price index for the five-year period commencing July 1, 2021 and ending June 30, 2026, in which common carriers charging indexed rates were permitted to adjust their indexed ceilings annually by Producer Price Index plus 0.78%. FERC received requests for rehearing of its December 17, 2020 order, and on January 20, 2022, FERC revised the index level used to determine the annual changes to interstate oil pipeline rate ceilings to Producer Price Index minus 0.21%. The order required the recalculation of the July 1, 2021 index ceilings to be effective as of March 1, 2022. As of September 30, 2017,2023, these agreements with HFCHF Sinclair require minimum annualized payments to us of $321.3$496 million.


If HFCHF Sinclair fails to meet its minimum volume commitments under the agreements in any quarter, it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter. Under certain of the agreements, a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met.


We have a pipelines and terminals agreement with Alon expiring in 2020 under which Alon has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments. We also have a capacity lease agreement under which we lease Alon space on our Orla to El Paso pipeline for the shipment of refined product, which expires in 2022. As of September 30, 2017, these agreements with Alon require minimum annualized payments to us of $33.1 million.


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A significant reduction in revenues under these agreements could have a material adverse effect on our results of operations.


Under certain provisions of an omnibus agreement we have with HFC (“OmnibusHF Sinclair (the “Omnibus Agreement”), we pay HFCHF Sinclair an annual administrative fee, currently $2.5$5.7 million, for the provision by HFCHF Sinclair or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFCHF Sinclair who perform services for us on behalf of Holly Logistic Services, L.L.C. (“HLS”),HLS, or the cost of their employee benefits, which are separately charged to us by HFC.HF Sinclair. We also reimburse HFCHF Sinclair and its affiliates for direct expenses they incur on our behalf.

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Under HLS’s Secondment Agreement with HFC,HF Sinclair, certain employees of HFCHF Sinclair are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFCHF Sinclair for its prorated portion of the wages, benefits, and other costs of these employees for our benefit.


We have a long-term strategic relationship with HFC. Our currentHFC (and now HF Sinclair) that has historically facilitated our growth. Subject to the Merger Agreement and the discretion of the board of directors of HLS, our ultimate general partner, our future growth plan is to continue to pursue purchases of logisticplans include organic projects around our existing assets and other assets at HFC’s existing refining locations in New Mexico, Utah, Oklahoma, Kansas and Wyoming. We also expect to work with HFC on logistic asset acquisitions in conjunction with HFC’s refinery acquisition strategies. Furthermore, we plan to continue to pursue third-party logistic assetselect investments or acquisitions that are accretive toenhance our unitholders and increase the diversity ofservice platform while creating accretion for our revenues.unitholders.

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RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow, Volumes and VolumesBalance Sheet Data
The following tables present income, distributable cash flow and volume information for the three and nine months ended September 30, 20172023 and 2016. These results have been adjusted2022.

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 Three Months Ended September 30,Change from
 202320222022
 (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines$25,972 $24,731 $1,241 
Affiliates—intermediate pipelines9,059 7,988 1,071 
Affiliates—crude pipelines25,540 23,169 2,371 
60,571 55,888 4,683 
Third parties—refined product pipelines8,640 6,694 1,946 
Third parties—crude pipelines15,831 14,565 1,266 
85,042 77,147 7,895 
Terminals, tanks and loading racks:
Affiliates43,722 39,557 4,165 
Third parties4,602 4,875 (273)
48,324 44,432 3,892 
Refinery processing units—Affiliates24,994 27,423 (2,429)
Total revenues158,360 149,002 9,358 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)58,422 60,470 (2,048)
Depreciation and amortization24,362 25,236 (874)
General and administrative7,947 3,751 4,196 
90,731 89,457 1,274 
Operating income67,629 59,545 8,084 
Other income (expense):
Equity in earnings of equity method investments3,581 (16,334)19,915 
Interest expense, including amortization(27,285)(22,965)(4,320)
Interest income20,294 24,234 (3,940)
Gain on sale of assets and other708 494 214 
(2,702)(14,571)11,869 
Income before income taxes64,927 44,974 19,953 
State income tax expense(16)(38)22 
Net income64,911 44,936 19,975 
Allocation of net income attributable to noncontrolling interests(1,886)(2,985)1,099 
Net income attributable to the partners63,025 41,951 21,074 
Limited partners’ earnings per unit—basic and diluted$0.50 $0.33 $0.17 
Weighted average limited partners’ units outstanding126,440 126,440 — 
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 pipelines152,541 167,618 (15,077)
Affiliates—intermediate pipelines107,019 137,049 (30,030)
Affiliates—crude pipelines426,418 507,419 (81,001)
685,978 812,086 (126,108)
Third parties—refined product pipelines33,549 38,040 (4,491)
Third parties—crude pipelines204,970 131,622 73,348 
924,497 981,748 (57,251)
Terminals and loading racks:
Affiliates761,956 583,089 178,867 
Third parties40,440 37,782 2,658 
802,396 620,871 181,525 
Refinery processing units—Affiliates67,192 72,065 (4,873)
Total for pipelines and terminal and refinery processing unit assets (bpd)1,794,085 1,674,684 119,401 

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 Nine Months Ended September 30,Change from
 202320222022
 (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines$64,092 $62,511 $1,581 
Affiliates—intermediate pipelines25,659 23,015 2,644 
Affiliates—crude pipelines70,872 62,417 8,455 
160,623 147,943 12,680 
Third parties—refined product pipelines24,288 21,169 3,119 
Third parties—crude pipelines41,731 41,134 597 
226,642 210,246 16,396 
Terminals, tanks and loading racks:
Affiliates121,039 108,997 12,042 
Third parties19,303 17,008 2,295 
140,342 126,005 14,337 
Refinery processing units—Affiliates74,425 68,719 5,706 
Total revenues441,409 404,970 36,439 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)163,706 156,994 6,712 
Depreciation and amortization74,922 74,397 525 
General and administrative18,094 12,745 5,349 
256,722 244,136 12,586 
Operating income184,687 160,834 23,853 
Other income (expense):
Equity in earnings of equity method investments11,008 (7,261)18,269 
Interest expense, including amortization(79,711)(56,951)(22,760)
Interest income61,050 61,212 (162)
Gain on sale of assets and other983 640 343 
(6,670)(2,360)(4,310)
Income before income taxes178,017 158,474 19,543 
State income tax expense(18)(83)65 
Net income177,999 158,391 19,608 
Allocation of net income attributable to noncontrolling interests(7,223)(10,089)2,866 
Net income attributable to the partners170,776 148,302 22,474 
Limited partners’ earnings per unit—basic and diluted$1.35 $1.22 $0.13 
Weighted average limited partners’ units outstanding126,440 120,902 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 pipelines144,082 138,608 5,474 
Affiliates—intermediate pipelines108,579 126,550 (17,971)
Affiliates—crude pipelines429,965 460,641 (30,676)
682,626 725,799 (43,173)
Third parties—refined product pipelines38,702 41,646 (2,944)
Third parties—crude pipelines196,552 133,598 62,954 
917,880 901,043 16,837 
Terminals and loading racks:
Affiliates710,905 534,305 176,600 
Third parties44,263 40,923 3,340 
755,168 575,228 179,940 
Refinery processing units—Affiliates60,131 69,903 (9,772)
Total for pipelines and terminal and refinery processing unit assets (bpd)1,733,179 1,546,174 187,005 

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(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to include the combined resultspartners 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 (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 minus (iv) pipeline lease payments not included in operating costs and expenses. Portions of our Predecessor. See Note 1minimum 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 the Consolidated Financial Statementspartners or operating income, as indications of HEPour 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 discussion ofinternal analysis and as a basis for compliance with financial covenants.


 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
 (In thousands)
Net income attributable to the partners$63,025 $41,951 $170,776 $148,302 
Add (subtract):
Interest expense27,285 22,965 79,711 56,951 
Interest income(20,294)(24,234)(61,050)(61,212)
   State income tax expense16 38 18 83 
Depreciation and amortization24,362 25,236 74,922 74,397 
EBITDA$94,394 $65,956 $264,377 $218,521 
Share of Osage environmental remediation costs69 20,297 1,289 20,297 
Acquisition integration and regulatory costs4,285 373 5,757 2,095 
Tariffs and fees not included in revenues21,372 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 basis of this presentation
  Three Months Ended September 30, Change from
  2017 2016 2016
  (In thousands, except per unit data)
Revenues:      
Pipelines:      
Affiliates—refined product pipelines $20,801
 $19,227
 $1,574
Affiliates—intermediate pipelines 7,832
 6,628
 1,204
Affiliates—crude pipelines 14,089
 17,034
 (2,945)
  42,722
 42,889
 (167)
Third parties—refined product pipelines 11,350
 11,176
 174
  54,072
 54,065
 7
Terminals, tanks and loading racks:      
Affiliates 31,825
 30,322
 1,503
Third parties 3,876
 4,035
 (159)
  35,701
 34,357
 1,344
       
Affiliates—refinery processing units 20,591
 4,188
 16,403
       
Total revenues 110,364
 92,610
 17,754
Operating costs and expenses:      
Operations (exclusive of depreciation and amortization) 35,998
 32,101
 3,897
Depreciation and amortization 19,007
 18,920
 87
General and administrative 3,623
 2,664
 959
  58,628
 53,685
 4,943
Operating income 51,736
 38,925
 12,811
Other income (expense):      
Equity in earnings of equity method investments 5,072
 3,767
 1,305
Interest expense, including amortization (14,072) (14,447) 375
Interest income 101
 108
 (7)
Gain on sale of assets and other 155
 112
 43
  (8,744) (10,460) 1,716
Income before income taxes 42,992
 28,465
 14,527
State income tax expense 69
 (61) 130
Net income 43,061
 28,404
 14,657
Allocation of net loss to Predecessor —
 7,547
 (7,547)
Allocation of net income attributable to noncontrolling interests (990) (1,166) 176
Net income attributable to the partners 42,071
 34,785
 7,286
General partner interest in net income attributable to the partners (1)
 419
 (15,222) 15,641
Limited partners’ interest in net income $42,490
 $19,563
 $22,927
Limited partners’ earnings per unit—basic and diluted (1)
 $0.66
 $0.33
 $0.33
Weighted average limited partners’ units outstanding 64,319
 59,223
 5,096
EBITDA (2)
 $74,980
 $64,705
 $10,275
Distributable cash flow (3)
 $59,248
 $49,257
 $9,991
       
Volumes (bpd)      
Pipelines:      
Affiliates—refined product pipelines 142,624
 128,020
 14,604
Affiliates—intermediate pipelines 151,622
 142,417
 9,205
Affiliates—crude pipelines 267,911
 271,278
 (3,367)
  562,157
 541,715
 20,442
Third parties—refined product pipelines 74,703
 73,517
 1,186
  636,860
 615,232
 21,628
Terminals and loading racks:     
Affiliates 426,122
 437,560
 (11,438)
Third parties 69,405
 68,276
 1,129
  495,527
 505,836
 (10,309)
       
Affiliates—refinery processing units 61,453
 46,451
 15,002
       
Total for pipelines and terminal and refiney processing unit assets (bpd) 1,193,840
 1,167,519
 26,321
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  Nine Months Ended September 30, Change from
  2017 2016 2016
  (In thousands, except per unit data)
Revenues:      
Pipelines:      
Affiliates—refined product pipelines $57,977
 $63,801
 $(5,824)
Affiliates—intermediate pipelines 20,366
 20,821
 (455)
Affiliates—crude pipelines 47,890
 53,106
 (5,216)
  126,233
 137,728
 (11,495)
Third parties—refined product pipelines 35,535
 37,376
 (1,841)
  161,768
 175,104
 (13,336)
Terminals, tanks and loading racks:      
Affiliates 93,573
 88,825
 4,748
Third parties 12,291
 12,718
 (427)
  105,864
 101,543
 4,321
       
Affiliates—refinery processing units 57,510
 12,870
 44,640
       
Total revenues 325,142
 289,517
 35,625
Operating costs and expenses:      
Operations (exclusive of depreciation and amortization) 102,584
 89,168
 13,416
Depreciation and amortization 57,729
 51,183
 6,546
General and administrative 8,872
 8,618
 254
  169,185
 148,969
 20,216
Operating income 155,957
 140,548
 15,409
Other income (expense):      
Equity in earnings of equity method investments 10,965
 10,155
 810
Interest expense, including amortization (41,359) (36,258) (5,101)
Interest income 306
 332
 (26)
Loss on early extinguishment of debt (12,225) —
 (12,225)
Gain on sale of assets 317
 104
 213
  (41,996) (25,667) (16,329)
Income before income taxes 113,961
 114,881
 (920)
State income tax expense (164) (210) 46
Net income 113,797
 114,671
 (874)
Allocation of net loss to Predecessor —
 10,657
 (10,657)
Allocation of net income attributable to noncontrolling interests (4,827) (8,448) 3,621
Net income attributable to the partners 108,970
 116,880
 (7,910)
General partner interest in net income attributable to the partners (1)
 (35,047) (40,001) 4,954
Limited partners’ interest in net income $73,923
 $76,879
 $(2,956)
Limited partners’ earnings per unit—basic and diluted (1)
 $1.16
 $1.29
 $(0.13)
Weighted average limited partners’ units outstanding 63,845
 58,895
 4,950
EBITDA (2)
 $220,141
 $200,678
 $19,463
Distributable cash flow (3)
 $177,436
 $160,331
 $17,105
       
Volumes (bpd)      
Pipelines:      
Affiliates—refined product pipelines 128,212
 128,659
 (447)
Affiliates—intermediate pipelines 136,055
 138,346
 (2,291)
Affiliates—crude pipelines 268,736
 279,014
 (10,278)
  533,003
 546,019
 (13,016)
Third parties—refined product pipelines 77,114
 75,405
 1,709
  610,117
 621,424
 (11,307)
Terminals and loading racks:     
Affiliates 420,979
 404,393
 16,586
Third parties 68,902
 73,653
 (4,751)
  489,881
 478,046
 11,835
       
Affiliates—refinery processing units 63,858
 46,423
 17,435
       
Total for pipelines and terminal and refinery processing unit assets (bpd) 1,163,856
 1,145,893
 17,963

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  September 30,
2017		 December 31,
2016
  (In thousands)
Balance Sheet Data    
Cash and cash equivalents $7,476
 $3,657
Working capital (deficit) $5,378
 $(7,782)
Total assets $1,865,842
 $1,884,237
Long-term debt $1,245,066
 $1,243,912
Partners’ equity (5)
 $370,715
 $378,234

(1)Net income attributable to the partners 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 that are declared subsequent to quarter end. After the amount of incentive distributions and other priority allocations are allocated to the general partner, the remaining net income attributable to the partners is allocated to the partners based on their weighted average ownership percentage during the period.

On October 31, 2017, we closed the restructuring transaction set forthamounts included in the definitive agreementcalculation are derived from amounts presented in our consolidated financial statements, with HEP Logistics Holdings, L.P. (“HEP Logistics”), a wholly-owned subsidiary of HollyFrontier Corporation and the general partnerexception of HEP, pursuantmaintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to which the incentive distribution rights heldnet 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 HEP Logistics are canceled,investors to compare partnership performance. It is also used by management for internal analysis and HEP Logistics' 2% general partner interest in HEP is converted into a non-economic general partner interest in HEP. In consideration, HEP issued 37,250,000 of its common units to HEP Logistics. Since this transaction closed prior to the record date for distributions related to third quarter earnings, for purposes of distributions declared, we did not include any incentive or regular distributions on the general partner interest for the third quarter of 2017.

(2)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to the partners plus (i) interest expense and loss on early extinguishment of debt, net of interest income, (ii) state income tax and (iii) depreciation and amortization, excluding amounts related to the Predecessor. EBITDA is not a calculation based upon generally accepted accounting principles (“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 attributable to the partners 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 September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (In thousands)
Net income attributable to the partners $42,071
 $34,785
 $108,970
 $116,880
Add (subtract):        
Interest expense 13,291
 13,529
 39,042
 33,964
Interest income (101) (108) (306) (332)
Amortization of discount and deferred debt issuance costs 781
 918
 2,317
 2,294
Loss on early extinguishment of debt —
 —
 12,225
 —
State income tax expense (69) 61
 164
 210
Depreciation and amortization 19,007
 18,920
 57,729
 51,183
Predecessor depreciation and amortization —
 (3,400) —
 (3,521)
EBITDA $74,980
 $64,705
 $220,141
 $200,678

(3)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 exceptions 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. It is also used by management for internal analysis and for our performance units. We believe
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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.

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  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (In thousands)
Net income attributable to the partners $42,071
 $34,785
 $108,970
 $116,880
Add (subtract):        
Depreciation and amortization 19,007
 18,920
 57,729
 51,183
Amortization of discount and deferred debt issuance costs 781
 918
 2,317
 2,294
Loss on early extinguishment of debt —
 —
 12,225
 —
Increase (decrease) in deferred revenue related to minimum revenue commitments 1,134
 1,748
 3,835
 (179)
Maintenance capital expenditures (4)
 (3,240) (3,475) (6,308) (7,797)
Decrease in environmental liability (180) (277) (741) (719)
Decrease in reimbursable deferred revenue (917) (750) (2,765) (1,906)
Other non-cash adjustments 592
 788
 2,174
 4,096
Predecessor depreciation and amortization —
 (3,400) —
 (3,521)
Distributable cash flow $59,248
 $49,257
 $177,436
 $160,331
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2023202220232022
 (In thousands)
Net income attributable to the partners$63,025 $41,951 $170,776 $148,302 
Add (subtract):
Depreciation and amortization24,362 25,236 74,922 74,397 
Amortization of discount and deferred debt issuance costs1,088 1,060 3,241 2,863 
Customer billings greater than net income recognized2,138 (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 

(4)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.

(5)As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to the partners because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to the partners. Additionally, if the assets contributed and acquired from HFC while we were a consolidated VIE of HFC had been acquired from third parties, our acquisition cost in excess of HFC’s basis in the transferred assets would have been recorded in our financial statements as increases to our properties and equipment and intangible assets at the time of acquisition instead of decreases to partners’ equity.



(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.
September 30,
2023		December 31,
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 


Results of Operations—Three Months Ended September 30, 20172023 Compared with Three Months Ended September 30, 20162022


Summary
Net income attributable to the partners for the third quarter of 2023 was $42.1$63.0 million ($0.660.50 per basic and diluted limited partner unit) compared to $34.8$42.0 million ($0.33 per basic and diluted limited partner unit) for the third quarter of 2016. The increase2022. Results for the third quarters of 2023 and 2022 reflect reductions to our equity in earnings is primarily due to increased operating income from our Woods Cross refinery processing units of $8.9 million and increased earnings from our equity method investments of $1.3 million.

Our major shippers are obligated$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. Excluding these reductions, net income attributable to make deficiency payments to us if they do not exceed their minimum volume shipping obligations. RevenuesHEP for the three months ended September 30, 2017, includethird 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 recognitionthird quarter of $0.7 million of prior shortfalls billed2023 was mainly due to shippers in 2016 compared tohigher revenues for the three months ended September 30, 2016, which included the recognition of $0.2 million of prior shortfalls billed to shippers in 2015. Additional net shortfall billings of $2.0 million associated with certain guaranteed shipping contracts were deferred during the three months ended September 30, 2017. Such deferred revenue will be recognized in earnings either as (a) payment for shipments in excess of guaranteed levels, iftariff increases that went into effect on July 1, 2023, partially offset by higher interest expense and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels, or (b) when shipping rights expire unused over the contractual make-up period.higher general and administrative expenses.


Revenues
Revenues for the third quarter of 2023 were $110.4$158.4 million, an increase of $17.8$9.4 million compared to the third quarter of 2016 primarily2022. The increase was mainly due to revenues of $16.6 million from the Woods Cross refinery processing units acquired in the fourth quarter of 2016. Overall pipeline volumes were up 4% compared to the three months ended September 30, 2016, largely due to an increase in both refined product and intermediate pipeline shipments associated with higher production at HFC’s Navajo refinery.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.


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Revenues from our refined product pipelines were $32.2$34.6 million, an increase of $1.7$3.2 million compared to the third quarter of 2016, and shipments2022. Shipments averaged 217.3 mbpd186.1 thousand barrels per day (“mbpd”) compared to 201.5205.7 mbpd for the third quarter of 2016. Revenues and volumes both increased primarily2022. The volume decrease was mainly due to higher shipmentslower volumes on our New Mexico refined product pipelines in line with increased production at HFC'sserving HF Sinclair’s Navajo refinery. The increase in revenues 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.

Revenues from our intermediate pipelines were $7.8$9.1 million, an increase of $1.2 million, on shipments averaging 151.6 mbpd compared to 142.4 mbpd for the third quarter of 2016. These volume increases were principally due to increased shipments on our New Mexico intermediate pipelines in line with increased production at HFC's Navajo refinery.
Revenues from our crude pipelines were $14.1 million, a decrease of $2.9 million, on shipments averaging 267.9 mbpd compared to 271.3 mbpd for the third quarter of 2016. This revenue decrease is attributable to a $2.9 million one-time reduction in revenue associated with our crude gathering pipelines. This adjustment will have no material impact on revenues going forward.

Revenues from terminal, tankage and loading rack fees were $35.7 million, an increase of $1.3$1.1 million compared to the third quarter of 2016.2022. Shipments averaged 107.0 mbpd for the third quarter of 2023 compared to 137.0 mbpd for the third quarter of 2022. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HF Sinclair’s Navajo and Tulsa refineries while revenues increased due to tariff increases on contractual minimum volume guarantees.

Revenues from our crude pipelines were $41.4 million, an increase of $3.6 million compared to the third quarter of 2022. Shipments averaged 631.4 mbpd compared to 639.0 mbpd for the third quarter of 2022. The decrease in volumes was mainly attributable to lower volumes on our New Mexico and Texas crude pipelines as well as our crude pipeline servicing HF Sinclair’s Tulsa refinery while revenues increased due to tariff increases that went into effect on July 1, 2023.

Revenues from terminal, tankage and loading rack fees were $48.3 million, an increase of $3.9 million compared to the third quarter of 2022. Refined products and crude oil terminalled in the facilities averaged 495.5802.4 mbpd compared to 505.8620.9 mbpd for the third quarter of 2016.2022. The revenue increases areincrease in volumes was mainly due to higher volumes on the Sinclair Transportation assets we acquired and certain crude tanks. Revenues increased reimbursable revenue for projects managed by HEP and reimbursed by HFC.mainly due to higher revenues from the increased volumes on the acquired Sinclair Transportation assets as well as rate increases that went into effect on July 1, 2023.


Revenues fromrefinery processing units were $20.6$25.0 million, an increasea decrease of $16.4$2.4 million oncompared to the third quarter of 2022, and throughputs averaging 61.5averaged 67.2 mbpd compared to 46.572.1 mbpd for the third quarter of 2016. This increase2022. The decrease in revenue and volume is primarilyvolumes was due to thedecreased throughput at our El Dorado and Woods Cross refinery processing units acquired in the fourth quarter of 2016.units. Revenues decreased mainly due to lower natural gas cost recoveries partially offset by rate increases on contractual minimum volume guarantees.


Operations Expense
Operations (exclusive of depreciation and amortization) expense was $58.4 million for the three months ended September 30, 2017, increased by $3.92023, a decrease of $2.0 million compared to the three months ended September 30, 2016.third quarter of 2022. The increase is decrease was mainly due to an increase in maintenance projectlower natural gas costs, partially offset by increased employee costs.


Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2017, increased2023 decreased by $0.1$0.9 million compared to the three months ended September 30, 2016.2022. The decrease was mainly due to lower amortization of certain intangible assets that were fully amortized during the first quarter of 2023.


General and Administrative
General and administrative costs for the three months ended September 30, 2017,2023 increased by $1.0$4.2 million compared to the three months ended September 30, 2016,2022, mainly due to higher legal and consulting costsprofessional service fees incurred in the three months ended September 30, 2023 associated with our agreement, pursuant to which the incentive distribution rights held by HEP Logistics have been canceled and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP.HF Sinclair Merger Transaction.


Equity in Earnings of Equity Method Investments
Three Months Ended September 30,
Equity Method Investment20232022
(in thousands)
Osage Pipe Line Company, LLC$(5,267)$(22,020)
Cheyenne Pipeline LLC3,958 1,576 
Cushing Connect Terminal Holdings LLC809 782 
Pioneer Investments Corp.4,308 3,708 
Saddle Butte Pipeline III, LLC(227)(380)
Total$3,581 $(16,334)


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 Three Months Ended September 30,
Equity Method Investment2017 2016
 (in thousands)
SLC Pipeline LLC$1,030
 $1,283
Frontier Aspen LLC1,662
 586
Osage Pipe Line Company, LLC1,119
 975
Cheyenne Pipeline LLC1,261
 923
Total$5,072
 $3,767
Equity in earnings of Osage increased for the three months ended September 30, 2023, mainly due to our 50% share of environmental remediation and recovery expenses and estimated fines and penalties, net of insurance recoveries, associated with the release of crude oil on the Osage pipeline, and expenses associated with pipeline inspections being lower for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Additional insurance recoveries will be recorded as they are received. If the Osage insurance pays out in full, our share of the remaining insurance coverage is expected to be $10.0 million. The Osage pipeline resumed operations in the third quarter of 2022 and remediation efforts are underway.


Interest Expense, including Amortization
Interest expense for the three months ended September 30, 2017, totaled $14.12023 was $27.3 million, a decreasean increase of $0.4$4.3 million compared to the three months ended September 30, 2016.2022. The increase was mainly due to higher market interest rates on our senior secured revolving credit facility. Our aggregate effective interest rates were 4.5%6.2% and 5.3% for the three months ended September 30, 2017 and 2016, respectively.

State Income Tax
We recorded state income tax benefit of $69,000 and expense of $61,0005.5% for the three months ended September 30, 20172023 and 2016,2022, respectively. All tax expense is solely attributable

Interest Income
Interest income for the three months ended September 30, 2023, totaled $20.3 million, a decrease of $3.9 million compared to the Texas margin tax.three months ended September 30, 2022. The decrease was mainly due to more pipeline tariffs recognized as revenue rather than interest income under sales-type lease accounting.




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Results of Operations—Nine Months Ended September 30, 20172023 Compared with Nine Months Ended September 30, 20162022


Summary
Net income attributable to Holly Energy Partnersthe partners for the nine months ended September 30, 2017,2023 was $109.0$170.8 million ($1.35 per basic and diluted limited partner unit) compared to $116.9$148.3 million ($1.22 per basic and diluted limited partner unit) for the nine months ended September 30, 2016. The decrease2022. Results for the nine months ended September 30, 2023 and 2022 reflect reductions to our equity in earnings is primarilyof equity method investments of $5.5 million and $20.3 million, respectively, for HEP’s 50% share of incurred and accrued 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 pipeline. Excluding these reductions, net income attributable to HEP for the nine months ended September 30, 2023 and 2022 was $176.3 million ($1.39 per basic and diluted limited partner unit) and $168.6 million ($1.39 per basic and diluted limited partner unit), respectively. The increase in earnings was mainly due to (a) a charge of $12.2 million related to the early redemption ofnet income from our previously outstanding $300 million, 6.5% Senior Notes (the “6.5% Senior Notes”), due in 2020, (b)Sinclair Transportation assets, which were acquired on March 14, 2022, tariff increases that went into effect on July 1, 2023, and higher interest expense of $5.1 million, and (c) lower refined product pipeline revenues of $7.7 million offset by (d) earnings fromon our Woods Cross refinery processing units, acquired in the fourth quarter of 2016.partially offset by higher interest expense.


Revenues
Revenues for the nine months ended September 30, 2017, include the recognition of $3.5 million of prior shortfalls billed to shippers in 2016 as they did not exceed their minimum volume commitments within the contractual make-up period. Additional net shortfall billings of $7.1 million associated with certain guaranteed shipping contracts2023 were deferred during the nine months ended September 30, 2017. Such deferred revenue will be recognized in earnings either as (a) payment for shipments in excess of guaranteed levels, if and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels, or (b) when shipping rights expire unused over the contractual make-up period.

Revenues
Revenues for the nine months ended September 30, 2017, were $325.1 million, a $35.6 million increase compared to the nine months ended September 30, 2016. The increase is primarily attributable to the $44.1 million of revenue recorded for the Woods Cross refinery processing units acquired in the fourth quarter of 2016, offset by a $9.8 million decrease in revenues around assets serving HFC's Navajo refinery primarily due to the substantial turnaround at the Navajo refinery during the first quarter of 2017. Overall pipeline volumes were down 1.8% compared to the nine months ended September 30, 2016.

Revenues from our refined product pipelines were $93.5 million, a decrease of $7.7 million, on shipments averaging 205.3 mbpd compared to 204.1 mbpd for the nine months ended September 30, 2016. The decrease in revenues is primarily due to lower volumes on product pipelines due to the turnaround at HFC's Navajo refinery in the first quarter of 2017 as well as a higher amount of shortfalls recognized in revenue for the nine months ended September 30, 2016.

Revenues from our intermediate pipelines were $20.4 million, a decrease of $0.5 million, on shipments averaging 136.1 mbpd compared to 138.3 mbpd for the nine months ended September 30, 2016. These volume decreases were primarily due to the turnaround at HFC's Navajo refinery, which was partially offset by increases in production at the Navajo refinery after the turnaround.

Revenues from our crude pipelines were $47.9 million, a decrease of $5.2 million, on shipments averaging 268.7 mbpd compared to 279.0 mbpd for the nine months ended September 30, 2016. Revenues and volumes decreased principally due to HFC's Navajo refinery turnaround in the first quarter of 2017, a decrease in deferred revenue recognized and the one-time adjustment associated with our crude gathering lines made in the third quarter of 2017.

Revenues from terminal, tankage and loading rack fees were $105.9$441.4 million, an increase of $4.3$36.4 million compared to the nine months ended September 30, 2016.2022. 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.

Revenues from our refined product pipelines were $88.4 million, an increase of $4.7 million compared to the nine months ended September 30, 2022. Shipments averaged 182.8 mbpd compared to 180.3 mbpd for the nine months ended September 30, 2022. The volume and revenue increases were mainly due to volumes on the acquired Sinclair Transportation assets, partially offset by lower volumes on our product pipelines servicing HF Sinclair’s Navajo refinery due to lower throughput at the refinery.

Revenues from our intermediate pipelines were $25.7 million, an increase of $2.6 million compared to the nine months ended September 30, 2022. Shipments averaged 108.6 mbpd compared to 126.6 mbpd for the nine months ended September 30, 2022. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HF Sinclair’s Navajo refinery while revenues increased due to the acquired Sinclair Transportation intermediate pipelines as well as contractual minimum volume guarantees and rate increases that went into effect on July 1, 2023.


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Revenues from our crude pipelines were $112.6 million, an increase of $9.1 million compared to the nine months ended September 30, 2022. Shipments averaged 626.5 mbpd compared to 594.2 mbpd for the nine months ended September 30, 2022. The increase in volumes was mainly attributable to volumes on the acquired Sinclair Transportation crude pipelines. The increase in revenues was mainly due to the acquired Sinclair Transportation crude pipelines, higher revenues on our crude pipeline systems in New Mexico and Texas and rate increases that went into effect on July 1, 2023.

Revenues from terminal, tankage and loading rack fees were $140.3 million, an increase of $14.3 million compared to the nine months ended September 30, 2022. Refined products and crude oil terminalled in the facilities averaged 489.9755.2 mbpd compared to 478.0575.2 mbpd for the nine months ended September 30, 2016. The volume and revenue increases are 2022. Volumes increased mainly due to our Tulsa crude tanks acquiredvolumes on the last day ofacquired Sinclair Transportation assets and certain crude tanks. Revenues increased mainly due to revenues from the first quarter of 2016 offset byincreased volumes on the transfer of the El Paso terminal to HollyFrontier in the first quarter of 2016.acquired Sinclair Transportation assets, higher butane blending revenues, and rate increases that went into effect on July 1, 2023.


Revenues fromrefinery processing units were $57.5$74.4 million, an increase of $44.6$5.7 million on throughputs averaging 63.9 mbpd compared to 46.4 mbpd for the nine months ended September 30, 2016. The increases in revenue and volume is primarily2022. Throughputs averaged 60.1 mbpd compared to 69.9 mbpd for the nine months ended September 30, 2022. Revenues increased mainly due to thehigher revenues from our Woods Cross refinery processing units, acquiredwhich were down for a scheduled turnaround in March 2022, as well as rate increases. The decrease in volumes was primarily due to a turnaround at the fourth quarter of 2016.El Dorado refinery.


Operations Expense
Operations expense (exclusive of depreciation and amortization) for the nine months ended September 30, 2017,2023 increased by $13.4$6.7 million compared to the nine months ended September 30, 2016.2022. The increase is primarily was mainly due to operating costs and expenses for our newlyassociated with the acquired Woods Cross refinery processing units.Sinclair Transportation assets as well as higher employee costs, partially offset by lower natural gas costs.
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Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2017,2023 increased by $6.5$0.5 million compared to the nine months ended September 30, 2016. 2022. The increase iswas mainly due to depreciation fromon the acquired Sinclair Transportation assets and amortization of the Woods Cross refinery processing units acquired inturnaround, partially offset by lower amortization of certain intangible assets that were fully amortized during the fourthfirst quarter of 2016.2023.


General and Administrative
General and administrative costs for the nine months ended September 30, 2017,2023 increased $0.3by $5.3 million compared to the nine months ended September 30, 2016, mainly2022 primarily due to higher legal and consulting costs offset by decreased employee compensation.professional expenses incurred in the nine months ended September 30, 2023 associated with the HF Sinclair Merger Transaction.


Equity in Earnings of Equity Method Investments
In
Nine Months Ended September 30,
Equity Method Investment20232022
(in thousands)
Osage Pipe Line Company, LLC$(7,576)$(20,771)
Cheyenne Pipeline LLC6,733 4,936 
Cushing Connect Terminal Holdings LLC2,312 2,494 
Pioneer Investments Corp.10,510 7,393 
Saddle Butte Pipeline III, LLC(971)(1,313)
Total$11,008 $(7,261)

Equity in earnings of Osage increased for the nine months ended September 30, 2023, as our 50% share of environmental remediation and recovery expenses and estimated fines and penalties, net of insurance recoveries, associated with the release of crude oil on the Osage pipeline, and expenses associated with pipeline inspections was lower for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Additional insurance recoveries will be recorded as they are received. Our share of the remaining insurance coverage is $10.0 million. The pipeline resumed operations in the third quarter of 2022 and remediation efforts are underway.


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Pioneer Investments Corp. and Saddle Butte Pipeline III, LLC were acquired during the first quarter of 2017,2022 as part of the SLC Pipeline was proactively shut down for a period of 28 days due to land movement along the right-of-way at Mountain Green, Utah. This not only impacted shipments of crude on the SLC Pipeline, but also crude shipments on the connected Frontier Pipeline. This shutdown is primarily responsible for the decrease in SLC Pipeline LLC earnings.HEP Transaction.
 Nine Months Ended September 30,
Equity Method Investments2017 2016
 (in thousands)
SLC Pipeline LLC$2,053
 $3,397
Frontier Aspen, LLC3,813
 3,049
Osage Pipe Line Company, LLC1,889
 2,423
Cheyenne Pipeline LLC3,210
 1,286
Total$10,965
 $10,155


Interest Expense, including Amortization
Interest expense for the nine months ended September 30, 2017,2023 totaled $41.4$79.7 million, an increase of $5.1$22.8 million compared to the nine months ended September 30, 2016.2022. The increase is primarily was mainly due to thehigher 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 6%in aggregate principal amount of 6.375% senior unsecured notes maturing in April 2027 (the “6.375% Senior Notes issued July 19, 2016, and a higher average balanceNotes”), the proceeds of which were used to partially repay outstanding onborrowings under our senior secured credit facility following the Credit Agreement. funding of the cash portion of the Sinclair Transportation acquisition. Our aggregate effective interest rates were 4.4%6.1% and 4.6% for the nine months ended September 30, 2023 and 2022, respectively.

Interest Income
Interest income for the nine months ended September 30, 2017 and 2016, respectively.

Loss on Early Extinguishment2023 totaled $61.1 million, a decrease of Debt
A loss on early extinguishment of debt of $12.2$0.2 million was recognized upon redemption of our $300 million aggregate principal amount of 6.5% Senior Notes at a cost of $309.8 million on January 4, 2017. The loss relatedcompared to the premium paid to noteholders upon their tender of an aggregate principal amount of $300 million and related financing costs that were previously deferred.

State Income Tax
We recorded state income tax expense of $164,000 and $210,000 for the nine months ended September 30, 2017 and 2016, respectively. All tax expense is solely attributable2022. The decrease was mainly due to the Texas margin tax.more pipeline tariffs recognized as revenue rather than interest income under sales-type lease accounting.



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LIQUIDITY AND CAPITAL RESOURCES


Overview
We have a $1.4$1.2 billion senior secured revolving credit facility (the “Credit Agreement”) expiring inthat matures July 2022.2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit and it containscontinues to provide for an accordion feature givingthat allows us the ability to increase commitments under the size of the facility byCredit Agreement up to $300 million with additional lender commitments.a maximum amount of $1.7 billion.


During the nine months ended September 30, 2017,2023, we received advances totaling $628$60.0 million and repaid $431 million, resulting in a net increase of $197$149.5 million under the Credit Agreement, resulting in a net decrease of $89.5 million and an outstanding balance of $750$578.5 million at September 30, 2017. We2023. As of September 30, 2023, we have no letters of credit outstanding under the Credit Agreement at September 30, 2017, and the available capacity under the Credit Agreement is $650 million at September 30, 2017.was $621.5 million. Amounts repaid under our credit facilitythe Credit Agreement may be reborrowed from time to time.
If any particular lender under the Credit Agreement could not honor its commitment, we believe the unused capacity that would be available from the remaining lenders would be sufficient to meet our borrowing needs. Additionally, we review publicly available information on the lenders in order to monitor their financial stability and assess their ongoing ability to honor their
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commitments under the Credit Agreement. We do not expect to experience any difficulty in the lenders’ ability to honor their respective commitments, and if it were to become necessary, we believe there would be alternative lenders or options available.


On September 22, 2017,April 8, 2022, we closed a private placement of an additional $100$400 million in aggregate principal amount of our 6.0% senior notesthe 6.375% Senior Notes. The 6.375% Senior Notes were issued at par for a combined aggregate principal amount outstandingnet proceeds of $500approximately $393 million, maturing in 2024.after deducting the initial purchasers’ discounts and commissions and estimated offering expenses. The total net proceeds from the offering of the 6.375% Senior Notes were used to partially repay indebtedness outstanding borrowings under the Credit Agreement.Agreement, increasing our available liquidity.

On January 4, 2017,As of September 30, 2023, we redeemed the $300had $500 million in aggregate principal amount of 6.5%5% Senior Notes at a redemption cost of $309.8 million at which time we recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premiumdue in 2028 (the “5% Senior Notes”, and unamortized discount and financing costs of $2.4 million. We fundedtogether with the redemption with borrowings under our Credit Agreement.

6.375% Senior Notes, the “Senior Notes”).
We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. ForWe did not issue any units under this program during the nine months ended September 30, 2017,2023. As of September 30, 2023, HEP has issued 1,538,4522,413,153 units under this program, providing approximately $52.3 million in net proceeds. We intend to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. As of September 30, 2017, HEP has issued 2,241,907 units under this program, providing $77.1$82.3 million in gross proceeds.


Under our registration statement filed with the SECSecurities and Exchange Commission (“SEC”) using a “shelf” registration process, we currently have the authority to raise up to $2.0 billion less amounts issued under the $200 million continuous offering program, by offering securities, through one or more prospectus supplements that would describe, among other things, the specific amounts, prices and terms of any securities offered and how the proceeds would be used. Any proceeds from the sale of securities wouldare expected to be used for general business purposes, which may include, among other things, funding acquisitions of assets or businesses, working capital, capital expenditures, investments in subsidiaries, the retirement of existing debt and/or the repurchase of common units or other securities.


We believe our current sources of liquidity, including cash balances, future internally generated funds, any future issuances of debt or equity securities and funds available under the Credit Agreement will provide sufficient resources to meet our working capital liquidity, capital expenditure and quarterly distribution needs for the foreseeable future. Future securities issuances, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.


In February, May and August 2023, we paid a regular quarterly cash distributionsdistribution of $0.6075, $0.6200 and $0.6325, respectively,$0.35 on all units in an aggregate amount of $171.6 million including $49.7 million$44.3 million.

On October 19, 2023, we announced our cash distribution for the third quarter of incentive2023 of $0.35 per unit, or $1.40 on an annualized basis. Subject to the Merger Agreement and the discretion of the board of directors of HLS, our ultimate general partner, we expect our future cash distribution payments to our general partner.will continue as long as we remain a public company.


Cash and cash equivalents increasedincreased by $3.8$0.3 million during the nine months ended September 30, 2017.2023. The cash flows used for investing activities of $23.3 million and financing activities of $234.9 million were less than the cash flows provided by operating activities of $177.5 million were greater than the cash flows used for financing activities of $145.0 million and investing activities of $28.7$258.5 million. Working capital increaseddecreased by $13.2$1.7 million to $5.4$15.6 million at September 30, 2017,2023 from a negative $7.8$17.3 million at December 31, 2016.2022.



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Cash Flows—Operating Activities
Cash flows from operating activities decreased increased by $0.5$20.0 million from $178.0$238.5 million for the nine months ended September 30, 2016,2022, to $177.5$258.5 million for the nine months ended September 30, 2017.2023. The increase was mainly due to higher customer receipts and lower payments for turnaround expenditures, partially offset by higher payments for operating expenses and interest expenses during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.


Cash Flows—Investing Activities
Cash flows used for investing activities were $28.7$23.3 million for the nine months ended September 30, 2017,2023, compared to $137.1$360.4 million for the nine months ended September 30, 2016,2022, a decrease of $108.5$337.1 million. During the nine months ended September 30, 2017 and 2016,2022, we invested $30.7paid the $329.0 million and $48.2 million in additions to properties and equipment, respectively.cash portion of the purchase price consideration for our acquisition of Sinclair Transportation. During the nine months ended September 30, 20172023 and 2016,2022, we also received $1.2invested $22.0 million and $1.7$31.2 million, for distributionsrespectively, in excess of equity in earnings of equity investments, respectively. Additionally, we have retrospectively adjusted our historical financial results for the nine months ended September 30, 2016,additions to include the Woods Cross refinery processing units as we are under common control of HFC. Therefore, the cash flows from investing activities reflect outflows of $47.9 million for the Woods Cross refinery processing unitsproperties and $42.6 million for the purchase of a 50% interest in the Cheyenne Pipeline during the nine months ended September 30, 2016.equipment.
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Cash Flows—Financing Activities
Cash flows used forby financing activities were $145.0$234.9 million for the nine months ended September 30, 2017,2023, compared to $48.7cash flows provided by financing activities of $123.1 million for the nine months ended September 30, 2016, an increase2022, a decrease of $96.3$358.0 million. During the nine months ended September 30, 2017,2023, we received $628.0$60.0 million and repaid $431.0$149.5 million in advances under the Credit Agreement. We redeemed our 6.5% Senior Notes at a redemption cost of $309.8 million. We also received net proceeds of $101.8 million from the issuance of our additional 6% Senior Notes and $52.3 million from the issuance of common units under our continuous offering program. Additionally, we paid $171.6$132.9 million in regular quarterly cash distributions to our general and limited partners and $5.0$6.6 million to our noncontrolling interest.interests. During the nine months ended September 30, 2016,2022, we paid $39.5 million for the crude oil tanks located at HFC’s Tulsa refinery acquired in March 2016. We received $310.5$460.0 million and repaid $642.5$594.0 million in advances under the Credit Agreement.Agreement, and we received net proceeds of $393.7 million related to the issuance of our 6.375% Senior Notes. We paid $138.8$125.7 million in regular quarterly cash distributions to our general and limited partners, and distributed $3.8$7.3 million to our noncontrolling interest, and paid $3.9 million in deferred financing charges to amend our credit agreement. We also received net proceeds of $394 million from the issuance of our 6% Senior Notes and $22.8 million from the issuance of common units under our continuous offering program. In addition, we received $55.0 million for Woods Cross processing units expenditures from HFC.interests.


Capital Requirements
Our pipeline and terminalling operations are capital intensive, requiring investments to maintain, expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements have consisted of, and are expected to continue to consist of, maintenance capital expenditures and expansion capital expenditures. “Maintenance capital expenditures” represent capital expenditures to replace partially or fully depreciated assets to maintain the operating capacity of existing assets. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, safety and to address environmental regulations. “Expansion capital expenditures” represent capital expenditures to expand the operating capacity of existing or new assets, whether through construction or acquisition.but exclude acquisitions. Expansion capital expenditures include expenditures to acquire assets, to grow our business and to expand existing facilities, such as projects that increase throughput capacity on our pipelines and in our terminals. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred.


Each year the board of directors of HLS, our ultimate general partner, approves our annual capital budget, which specifies capital projects that our management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, additional projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures approved for capital projects included in the current year’s capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. We are forecastingOur current 2023 capital forecast is comprised of approximately $25 million to spend $9$30 million for maintenance capital expenditures and approximately $37$5 million to $10 million for expansion capital expenditures in 2017. We expect the majorityand our share of the expansion capital budget to be invested in refined product pipeline expansions, crude system enhancements, new storage tanks, and enhanced blending capabilities at our racks.Joint Venture investments. In addition to our capital budget, we may spend funds periodically to perform capital upgrades or additions to our assets where a customer reimburses us for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.
We expect that our currently planned sustaining and maintenance capital expenditures, as well as expenditures for acquisitions and capital development projects, will be funded with cash generated by operations,operations. We expect that, to the sale ofextent necessary, we can raise additional limited partner common units, the issuance offunds from time to time through equity or debt securities and advances under our Credit Agreement, or a combination thereof. With volatility and uncertainty at timesfinancings in the creditpublic and equity markets, there may be limits on our ability to issue new debt or equity financing. Additionally, due to pricing movements in the debt and equity markets, we may not be able to issue new debt and equity securities at acceptable pricing. Without additionalprivate capital beyond amounts available under the Credit Agreement, our ability to obtain funds for some of these capital projects may be limited.markets.



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Class B Unit Liability
Under the terms of the 2012 transaction pursuant to acquirewhich HEP UNEV Holdings LLC (“HEP UNEV Holdings”) acquired HFC’s initial 75% interest in UNEV, weHEP UNEV Holdings issued to a subsidiary of HFC a Class B unit comprisingcomprised of a noncontrolling equity interest in a wholly-ownedwholly owned subsidiary (the “Class B Unit”). Subject to certain limitations, the Class B Unit is subject to annual redemption payments to the extent that HFC is entitled to a 50% interest in our share75% of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30exceeding $40 million, beginning July 1, 2015 and ending in June 2032, subject to certain limitations.2032. However, to the extentif earnings thresholds are not achieved, no redemption payments are required. NoUNEV earnings before interest, income taxes, depreciation, and amortization exceeded $40 million for the first time during the measurement period ending June 30, 2023, which required the Class B Unit to be reclassified from mezzanine equity to a long-term liability on the balance sheet as of June 30, 2023. A redemption payments have been required to date.payment of $2.6 million, calculated as described above, was paid in August 2023.

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Credit Agreement
We have a $1.4$1.2 billion senior secured revolving credit facility (the “Credit Agreement”) expiringCredit Agreement that matures in July 2022.2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit, and it containscontinues to provide for an accordion feature givingthat allows us the ability to increase the size ofcommitments under the facility byCredit Agreement up to $300 million with additional lender commitments.a maximum amount of $1.7 billion.


Our obligations under the Credit Agreement are collateralized by substantially all of our assets, and indebtedness under the Credit Agreement is guaranteed by our material, wholly-ownedwholly owned subsidiaries. The Credit Agreement requires us to maintain compliance with certain financial covenants consisting of total leverage, senior secured leverage, and interest coverage. It also limits or restricts our ability to engage in certain activities. If, at any time prior to the expiration of the Credit Agreement, HEP obtains two investment grade credit ratings, the Credit Agreement will become unsecured and many of the covenants, limitations and restrictions will be eliminated.


We may prepay all loans outstanding at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of September 30, 2017.2023.


In connection with the consummation of the HF Sinclair Merger Transaction, we expect to amend the Credit Agreement to, among other things, (a) provide a guaranty from HF Sinclair and terminate all guaranties from subsidiaries of HEP, (b) amend the definition of “Investment Grade Rating” (as defined in the Credit Agreement) to reference the credit rating of HF Sinclair’s senior unsecured indebtedness, (c) eliminate the requirement to deliver separate audited and unaudited financial statements for HEP and its subsidiaries and only provide certain segment-level reporting for HEP with any compliance certificate delivered in accordance with the Credit Agreement and (d) amend certain covenants to eliminate certain restrictions on (i) amendments to intercompany contracts, (ii) transactions with HF Sinclair and its subsidiaries and (iii) investments in and contributions, dividends, transfers and distributions to HF Sinclair and its subsidiaries. There can be no assurance that the administrative agent and the lenders party thereto will agree to amend the Credit Agreement in a timely manner, or on acceptable terms, if at all.

Senior Notes
On January 4, 2017,As of September 30, 2023, we redeemed the $300 million aggregate principal amount of our 6.5% Senior Notes at a redemption cost of $309.8 million at which time we recognized a $12.2 million early extinguishment loss consisting of a $9.8 million debt redemption premium and unamortized discount and financing costs of $2.4 million. We funded the redemption with borrowings under our Credit Agreement.

We havehad $500 million in aggregate principal amount of 6%the 5% Senior Notes.

On April 8, 2022, we closed a private placement of $400 million in aggregate principal amount of the 6.375% Senior Notes. The 6.375% Senior Notes due in 2024. We usedwere issued at par for net proceeds of approximately $393 million, after deducting the initial purchasers’ discounts and commissions and offering expenses. The total net proceeds from our offeringsthe offering of the 6%6.375% Senior Notes were used to partially repay indebtednessoutstanding borrowings under the Credit Agreement, increasing our revolving credit agreement.available liquidity.


The 6% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers.certain mergers, in each case subject to compliance with the terms of the indentures. We were in compliance with the restrictive covenants for the 6% Senior Notes as of September 30, 2017.2023. At any time when the 6% Senior Notes are rated investment grade by botheither Moody’s andor Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6% Senior Notes.


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Indebtedness under the 6% Senior Notes is guaranteed by all of our wholly-owned subsidiaries.existing wholly owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).


Long-term Debt
The carrying amounts of our long-term debt are as follows:
 September 30,
2017		 December 31,
2016		September 30,
2023		December 31,
2022
 (In thousands) (In thousands)
Credit Agreement $750,000
 $553,000
Credit Agreement
Amount outstandingAmount outstanding$578,500 $668,000 
    
6% Senior Notes    
5% Senior Notes5% Senior Notes
Principal 500,000
 400,000
Principal500,000 500,000 
Unamortized debt issuance costs (4,934) (6,607)Unamortized debt issuance costs(5,170)(5,953)
 495,066
 393,393
494,830 494,047 
6.5% Senior Notes    
6.375% Senior Notes6.375% Senior Notes
Principal —
 300,000
Principal400,000 400,000 
Unamortized discount and debt issuance costs —
 (2,481)
Unamortized debt issuance costsUnamortized debt issuance costs(4,825)(5,713)
 —
 297,519
395,175 394,287 
    
Total long-term debt $1,245,066
 $1,243,912
Total long-term debt$1,468,505 $1,556,334 


See “Risk Management”On October 30, 2023, we and HF Sinclair announced the commencement of private offers by HF Sinclair to all Eligible Holders (as defined in the Exchange Offer Memorandum) to exchange (the “Exchange Offers”) any and all outstanding 6.375% Senior Notes and 5% Senior Notes, for new notes to be issued by HF Sinclair, with registration rights, and cash, pursuant to the terms and subject to the conditions set forth in a discussionconfidential exchange offer memorandum and consent solicitation statement, dated October 30, 2023 (the “Exchange Offer Memorandum”). Concurrently with the Exchange Offers, HF Sinclair is soliciting consents (the “Consent Solicitations”) to adopt certain proposed amendments to the indentures governing the existing Senior Notes to, among other things, eliminate from each indenture, as it relates to each series of our interest rate swaps.Senior Notes (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default”, (iii) the SEC reporting covenant and (iv) the requirement of HEP to offer to purchase the Senior Notes upon a change of control. The Exchange Offers and Consent Solicitations are subject to the consummation of the HF Sinclair Merger Transaction. The Exchange Offers and Consent Solicitations are being made only pursuant to the terms and subject to conditions set forth in the Exchange Offer Memorandum.


TableThe Exchange Offer Memorandum and other documents relating to the Exchange Offers and Consent Solicitations will be distributed only to Eligible Holders (as defined in the Exchange Offer Memorandum) of Contentsril 19,
Senior Notes. The Exchange Offers and Consent Solicitations are not being made to holders of Senior Notes in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. The new notes to be issued by HF Sinclair have not been approved or disapproved by any regulatory authority, nor has any such authority passed upon the accuracy or adequacy of the Exchange Offer Memorandum. The complete terms and conditions of the Exchange Offers and Consent Solicitations are described in the Exchange Offer Memorandum.


Contractual Obligations
There were no significant changes to our long-term contractual obligations during this period.the quarter ended September 30, 2023.


Impact of Inflation
Inflation in the United States has beenAfter being relatively moderate in recent years, and did not have a material impact on our results of operations forPPI in the nine months ended September 30, 2017 and 2016. Historically, theUnited States increased significantly. PPI has increased an average of 0.2%5% annually over the past five calendar years, including a decreasean increase of 1.0%13.5% in 2016.2022 and 8.9% in 2021.


The substantial majority of our revenues are generated under long-term contracts that provide for increases or decreases in our rates and minimum revenue guarantees annually for increases or decreases in the PPI. These annual rate adjustments generally occur on July 1st each year based on the PPI or the FERC index increase or decrease during the prior year. Certain of these

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contracts have provisions that limit the level of annual PPI percentage rate increases or decreases. decreases, and the majority of our rates do not decrease when PPI is negative. The substantial majority of our rates and minimum revenue guarantees used the 2021 PPI increase of 8.9% in the July 1, 2022 rate increase calculations, and the July 1, 2023 rate increase calculations used the 2022 PPI increase of 13.5%.

A significant and prolonged period of high inflation or a significant and prolonged period of negative inflation could adversely affect our cash flows and results of operations if costs increase at a rate greater than the fees we charge our shippers. However, the fees we charged our shippers increased at a rate greater than our inflationary cost increase for the year ended December 31, 2022 and the nine months ended September 30, 2023.


Environmental Matters
Our operation of pipelines, terminals, and associated facilities in connection with the transportation and storage of refined products and crude oil is subject to stringent and complex federal, state, and local laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment. As with the industry generally, compliance with existing and anticipated laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe that they do not affect our competitive position given that the operations of our competitors are similarly affected. We believe our operations are in substantial compliance with applicable environmental laws and regulations. However, these laws and regulations, and the interpretation or enforcement thereof, are subject to frequent change by regulatory authorities, and we are unable to predict the ongoing cost to us of complying with these laws and regulations or the future impact of these laws and regulations on our operations. Violation of environmental laws, regulations, and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions, and construction bans or delays. A major discharge of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expense, including both the cost to comply with applicable laws and regulations and claims made by employees, neighboring landowners and other third parties for personal injury and property damage.


Contamination resulting from spills of refined products and crude oil is not unusual within the petroleum pipeline industry. Historic spills along our existing pipelines and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Some environmental laws impose liability without regard to fault or the legality of the original act on certain classes of persons that contributed to the releases of hazardous substances or petroleum hydrocarbon substances into the environment. These persons include the owner or operator of the site or sites where the release occurred and companies that disposed of, or arranged for the disposal of, the hazardous substances found at the site. Such persons may be subject to strict, joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. Site conditions, including soils and groundwater, are being evaluated at a few of our properties where operations may have resulted in releases of hydrocarbons and other wastes.
There are environmental remediation projects in progress, including assessment and monitoring activities, that relate to certain assets acquired from HF Sinclair. Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFCHF Sinclair, HF Sinclair has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFCHF Sinclair and occurring or existing prior to the date of such transfers.
We have an environmental agreement with AlonDelek with respect to pre-closing environmental costs and liabilities relating to the pipelines and terminals acquired from AlonDelek in 2005, under which AlonDelek will indemnify us subject to certain monetary and time limitations.


There are environmental remediation projects in progress that relate to certain assets acquired from HFC. Certain of these projects were underway prior to our purchase and represent liabilities retained by HFC. At September 30, 2017,2023, we havehad an accrual of $6.4$18.3 million that relatesrelated to environmental clean-up projects for which we have assumed liability or for which the indemnity provided for by HFCHF Sinclair has expired or will expire.

On July 8, 2022, the Osage pipeline, which carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil. Our equity in earnings (loss) of equity method investments was reduced in the nine months ended September 30, 2023 by $5.5 million for our 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties associated with the release. From the date of the release through September 30, 2023, our equity in earnings of equity method investments was reduced by $23.1 million for our 50% share of incurred and estimated environmental remediation and recovery expenses and estimated fines and penalties associated with the release, net of our

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share of insurance proceeds received of $3.0 million. Any additional insurance recoveries will be recorded as they are received. If the Osage insurance policy pays out in full, our share of the remaining insurance coverage is expected to be $10.0 million. The remaining projects, including assessmentOsage pipeline resumed operations in the third quarter of 2022 and monitoring activities,remediation efforts are covered underunderway. It may be necessary for Osage to expend or accrue additional amounts for environmental remediation or other release-related expenses in future periods, but we cannot estimate those amounts at this time. Future costs and accruals could have a material impact on our results of operations and cash flows in the HFC environmental indemnification discussed above and represent liabilities of HFC.period recorded; however, we do not expect them to have a material impact on our financial position.




CRITICAL ACCOUNTING POLICIESESTIMATES


Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results maycould materially differ from these estimates under different assumptions or conditions.conditions and have an impact on our financial position, results of operations and cash flows. Our significant accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2016.2022. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include revenue recognition, assessing the possible impairment of certain long-lived assets and goodwill, and assessing contingent liabilities for probable losses. There have been no changes to these policies in 2017.2023. We consider these policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows.


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Accounting Pronouncements Adopted During the Periods Presented

Earnings Per Unit
In April 2015, an accounting standard update was issued requiring changes to the allocation of the earnings or losses of a transferred business for periods before the date of a dropdown of net assets accounted for as a common control transaction entirely to the general partner for purposes of calculating historical earnings per unit. We adopted this standard as of January 1, 2016. In connection with the dropdown of assets from HFC’s Tulsa refinery on March 31, 2016, and the purchase of HFC’s Woods Cross refinery units on October 1, 2016, we reduced net income by $7.5 million and $10.7 million for the three and nine months ended September 30, 2016, respectively. These reductions had no impact on the historical earnings per unit as they were allocated to the general partner.

Share-Based Compensation
In March 2016, an accounting standard update was issued which simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this standard effective January 1, 2017, with no impact to our financial condition, results of operations and cash flows. As permitted by the standard, we continue to account for forfeitures on an estimated basis.

Accounting Pronouncements Not Yet Adopted

Revenue Recognition
In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018, and we intend to account for the new guidance using the modified retrospective implementation method, whereby a cumulative effect adjustment is recorded to retained earnings as of the date of initial application. Our preparation for adoption of this standard is in progress, and we are currently evaluating terms, conditions and our performance obligations of our existing contracts with customers. We are evaluating the effect of this standard on our revenue recognition policies and whether it will have a material impact on our financial condition or results of operations.

Business Combinations
In December 2014, an accounting standard update was issued to provide new guidance on the definition of a business in relation to accounting for identifiable intangible assets in business combinations. This standard has an effective date of January 1, 2018, and we are evaluating its impact.

Financial Assets and Liabilities
In January 2016, an accounting standard update was issued requiring changes in the accounting and disclosures for financial instruments. This standard will become effective beginning with our 2018 reporting year. We are evaluating the impact of this standard.

Leases
In February 2016, an accounting standard update was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. This standard has an effective date of January 1, 2019, and we are evaluating the impact of this standard.


RISK MANAGEMENT

The two interest rate swaps that hedged our exposure to the cash flow risk caused by the effects of LIBOR changes on $150 million of Credit Agreement advances matured on July 31, 2017. The swaps had effectively converted $150 million of our LIBOR based debt to fixed rate debt.

We review publicly available information on our counterparties in order to monitor their financial stability and assess their ongoing ability to honor their commitments under the interest rate swap contracts. These counterparties are large financial institutions. Furthermore, we have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their respective commitments.


The market risk inherent in our debt positions is the potential change arising from increases or decreases in interest rates as discussed below.


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At September 30, 2017,2023, we had an outstanding principal balance of $500$900 million on our 6% Senior Notes. A change in interest rates generally would affect the fair value of the 6% Senior Notes, but not our earnings or cash flows. At September 30, 2017,2023, the fair value of our 6% Senior Notes was $524.4$854.3 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 6% Senior Notes at September 30, 2017,2023 would result in a change of approximately $15$21.3 million in the fair value of the underlying 6% Senior Notes.


For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2017,2023, borrowings outstanding under the Credit Agreement were $750$578.5 million. A hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.


Our operations are subject to normalcatastrophic losses, operational hazards of operations,and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and weather-related perils.other events beyond our control. We maintain various insurance coverages, including general liability, property damage, business interruption and cyber insurance, subject to certain deductibles.deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures.


We have a risk management oversight committee that is made up of members from our senior management. This committee monitors our risk environment and provides direction for activities to mitigate, to an acceptable level, identified risks that may adversely affect the achievement of our goals.





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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of market risk exposures that we have with respect to our long-term debt, which disclosure should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. We utilize derivative instruments to hedge our interest rate exposure, as discussed under “Risk Management.”2022.


Since we do not own products shipped on our pipelines or terminalled at our terminal facilities, we do not have direct market risks associated with commodity prices.




Item 4.Controls and Procedures

Item 4.Controls and Procedures

(a) Evaluation of disclosure controls and procedures
Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017,2023, at a reasonable level of assurance.


(b) Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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PART II. OTHER INFORMATION


Item 1.Legal Proceedings

Item 1.Legal Proceedings
We are a
In the ordinary course of business, we may become party to various legal, regulatory or administrative proceedings or governmental investigations, including environmental and regulatoryother matters. Damages or penalties may be sought from us in some matters and certain matters may require years to resolve. While the outcome and impact of these proceedings which we believeand investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations, through settlement or adverse judgment, will not, either individually or in the aggregate, have a materialmaterially adverse impacteffect on our financial condition, results of operations or cash flows.

The environmental proceedings are reported to comply with SEC regulations which require us to disclose proceedings arising under provisions regulating the discharge of materials into the environment or protecting the environment when a governmental authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe could exceed $300,000.


Environmental Matters

Osage Pipeline
On July 8, 2022, the Osage Pipeline, which is owned by Osage Pipe Line Company, LLC (“Osage”), a joint venture between El Dorado Osage Company LLC, a subsidiary of HEP, and CHS McPherson Refinery Inc., experienced a release of crude oil at a location approximately 3.5 miles north northeast of Cushing, Oklahoma.

Osage and Holly Energy Partners – Operating, L.P. (“HEP Operating”), the operator of the Osage Pipeline, are working with federal, state, tribal, and local governmental agencies, as well as the affected landowners. Discussions with the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration, United States Environmental Protection Agency (the “EPA”) and United States Department of Justice (the “DOJ”) regarding resolution of their potential claims relating to the incident are on-going. On September 13, 2023, Osage and HEP Operating received an offer for settlement from the EPA and DOJ. Osage and HEP Operating are currently in discussions with EPA and DOJ with respect to the offer. It is too early to predict the outcome of this matter.



Item 1A.Risk Factors

Item 1A.Risk Factors
There
Except as described below, there have been no material changes in our risk factors as previously disclosed in Part 1,I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022 (“2022 Form 10-K”) and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. In addition to the other information set forth in this quarterly report, you should consider carefully the factorsinformation discussed in our 20162022 Form 10-K and March 31, 2023 Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in our 20162022 Form 10-K and March 31, 2023 Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or future results.



The HF Sinclair Merger Transaction is subject to conditions, including some conditions that may not be satisfied on a timely basis, if at all. Failure to complete the HF Sinclair Merger Transaction, or significant delays in completing the HF Sinclair Merger Transaction, could negatively affect the trading prices of our common units.
The completion of the HF Sinclair Merger Transaction is not assured and is subject to certain risks, some of which are beyond our control, including the risk that certain conditions of the Merger Agreement are not satisfied or waived, which may prevent, delay or otherwise result in the HF Sinclair Merger Transaction not occurring. These conditions include, among other things, approval by our unitholders by the affirmative vote or consent of the holders of a majority of the outstanding HEP common units of the Merger Agreement, approval by a majority of the votes cast by HF Sinclair stockholders entitled to vote on such proposal of the issuance of shares of HF Sinclair common stock as part of the Merger Consideration (as defined herein) and the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”). The 30-day HSR Act waiting period

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expired on October 10, 2023, at 11:59 PM Eastern time. We and HF Sinclair cannot predict with certainty whether and when any of these conditions will be satisfied. Failure to complete, or significant delays in completing, the HF Sinclair Merger Transaction could negatively affect the trading prices of HF Sinclair common stock and our common units.
Because the exchange ratio under the Merger Agreement is fixed and because the market price of HF Sinclair common stock will fluctuate prior to the completion of the HF Sinclair Merger Transaction, our public unitholders cannot be sure of the market value of the HF Sinclair common stock they will receive as Merger Consideration relative to the value of our common units they exchange.
The market value of the consideration that our public unitholders will receive in the HF Sinclair Merger Transaction will depend, in part, on the trading price of HF Sinclair common stock at the closing of the HF Sinclair Merger Transaction. The exchange ratio that determines the number of shares of HF Sinclair common stock that our public unitholders will receive (in addition to $4.00 in cash, without interest) in the HF Sinclair Merger Transaction is fixed at 0.315 shares of HF Sinclair common stock for each HEP common unit (subject to adjustments in accordance with the terms of the Merger Agreement), which means that it will not change between now and the closing date, regardless of whether the market price of either HF Sinclair common stock or our common units changes. Stock or unit price changes may result from a variety of factors (many of which are beyond HF Sinclair’s and our control), including but not limited to:
•changes in our or HF Sinclair’s business, operations and prospects;
•changes in market assessments of our or HF Sinclair’s business, operations and prospects;
•changes in market assessments of the likelihood that the HF Sinclair Merger Transaction will be completed;
•interest rates, commodity prices, general market, industry and economic conditions and other factors generally affecting the price of HF Sinclair common stock or our common units; and
•federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and HF Sinclair operate.
If the price of HF Sinclair common stock at the closing of the HF Sinclair Merger Transaction is less than the price of HF Sinclair common stock on the date that the Merger Agreement was executed, then the aggregate of the market value of the shares of HF Sinclair common stock to be issued and cash to be paid to our public unitholders in the HF Sinclair Merger Transaction pursuant to the Merger Agreement (the “Merger Consideration”) will be less than contemplated at the time the Merger Agreement was executed.
We and HF Sinclair will each be subject to business uncertainties while the HF Sinclair Merger Transactionis pending, which could adversely affect their respective businesses.
Uncertainty about the effect of the HF Sinclair Merger Transaction on the business relationships or commercial arrangements for the companies that do business with HF Sinclair and us may have an adverse effect on HF Sinclair and our respective businesses. These uncertainties may impair the ability of both HF Sinclair and us to attract, retain and motivate key personnel until the HF Sinclair Merger Transaction is completed and for a period of time thereafter, and could cause those that transact with HF Sinclair and us to seek to change their existing business relationships.
If the HF Sinclair Merger Transaction is approved by our unitholders, the date that our public unitholders will receive the Merger Consideration is dependent on the completion date of the HF Sinclair Merger Transaction, which is uncertain.
As described in the joint proxy statement/prospectus, completing the HF Sinclair Merger Transaction is subject to several conditions, not all of which are controllable by HF Sinclair or us. Accordingly, if the HF Sinclair Merger Transaction is approved by our unitholders, the date that our public unitholders will receive the Merger Consideration depends on the completion date of the Merger, which is uncertain and subject to several other closing conditions.
We may incur substantial transaction-related costs in connection with the HF Sinclair Merger Transaction.
We expect to incur substantial nonrecurring expenses in connection with completing the HF Sinclair Merger Transaction, including fees paid to legal, financial and accounting advisors, filing fees, proxy solicitation costs and printing costs. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Pursuant to the Merger Agreement, all fees and expenses incurred in connection with the HF Sinclair Merger Transaction will be paid by the respective party incurring such fees and expenses except that expenses (other than the expenses of financial advisors or outside legal advisors) relating to the preparation, printing, filing and mailing of the joint proxy statement/prospectus and the related

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Schedule 13E-3 will be paid 50% by HF Sinclair and 50% by us and costs and fees of the exchange agent and all expenses associated with the exchange process will be paid by HF Sinclair.
We and HF Sinclair may in the future be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the closing of the HF Sinclair Merger Transaction.
Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements in an effort to enjoin the relevant merger or seek monetary relief. We and HF Sinclair may in the future be defendants in one or more lawsuits relating to or arising out of the Merger Agreement and the HF Sinclair Merger Transaction. We and HF Sinclair cannot predict the outcome of these lawsuits, or others, nor can either company predict the amount of time and expense that will be required to resolve such litigation. An unfavorable resolution of any such litigation surrounding the HF Sinclair Merger Transaction could delay or prevent its consummation. In addition, the costs of defending the litigation, even if resolved in HF Sinclair’s and our favor, could be substantial, and such litigation could divert management time and resources of HF Sinclair and HEP from pursuing the consummation of the HF Sinclair Merger Transaction and other potentially beneficial business opportunities.
Financial projections by HEP may not prove to be reflective of actual future results.
In connection with the HF Sinclair Merger Transaction, HLS’s management prepared and considered, among other things, internal financial forecasts for HEP. These forecasts speak only as of the date made and will not be updated. These financial projections were not provided with a view to public disclosure, are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. In addition, the failure of businesses to achieve projected results could have a material adverse effect on the share price of HF Sinclair common stock and on HF Sinclair’s financial position and ability to maintain or increase its dividends following the HF Sinclair Merger Transaction.



Item 2.Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

(c) Common Unit Repurchases Made in the Quarter    

None.


Item 5.Other Information

None.
Item 6.Exhibits

Item 6.Exhibits

The Exhibit Index beginning on page 49 page 60 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of thethis Quarterly Report on Form 10-Q.


Table of Contentsril 19,

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Exhibit Index
Exhibit
Number		Description
Exhibit
Number
2.1		Description
2.1
Membership Interest Purchase Agreement between Plainsand Plan of Merger, dated August 15, 2023, by and among HF Sinclair Corporation, Navajo Pipeline Co., L.P., Holly Apple Holdings LLC, Holly Energy Partners, L.P., HEP Logistics Holdings, L.P. and HEP Casper SLC LLC, dated as of August 7, 2017Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K datedfiled August 10, 2017,16, 2023, File No. 1-3225)1-41325)..

2.23.1
Membership Interest Purchase Agreement, dated as of August 7, 2017, between Rocky Mountain Pipeline System LLC and HEP SLC, LLC (incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K dated August 10, 2017, File No. 1-3225).
2.3*
Amendment to the Membership Interest Purchase Agreement, dated as of September 6, 2017, by and between Rocky Mountain Pipeline System LLC and HEP SLC LLC

2.4
Equity Restructuring Agreement, dated as of October 18, 2017, by and between HEP Logistics Holdings, L.P. and Holly Energy Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K dated October 19, 2017, File No. 1-3225).
3.1
FirstSecond Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P. (incorporated by reference to Exhibit 3.1 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.2
Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated February 28, 2005 (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K Current Report dated February 28, 2005, File No. 1-32225).
3.3
Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., as amended, dated July 6, 2005 (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K Current Report dated July 6, 2005, File No. 1-32225).
3.4
Amendment No. 3 to First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated April 11, 2008 (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K dated April 15, 2008,filed on November 1, 2017, File No. 1-32225).
3.53.2
Amendment No. 4 to First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated January 16, 2013 (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K dated January 16, 2013, File No. 1-32225).
3.6
Amendment No. 5 to First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated June 13, 2016 (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K dated June 15, 2016, File No. 1-32225).
3.7
Limited Partial Waiver of Incentive Distribution Rights under the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated as of August 7, 2017 (incorporated by reference to Exhibit 2.3 of the Registrant’s Current Report on Form 8-K dated August 10, 2017, File No. 1-3225).
3.8
First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners -HEP Operating Company, L.P. (incorporated by reference to Exhibit 3.2 of Registrant’s Quarterly Report on Form 10-Q for itsthe quarterly period ended June 30, 2004, File No. 1-32225).
3.93.3
First Amended and Restated Agreement of Limited Partnership of HEP Logistics Holdings, L.P. (incorporated by reference to Exhibit 3.4 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.103.4
First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 3.5 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.113.5
Amendment No. 1 to the First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C., dated April 27, 2011 (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K Current Report datedfiled on May 3, 2011, File No. 1-32225).
3.123.6
First Amended and Restated Limited Liability Company Agreement of HEP Logistics GP, L.L.C. (incorporated by reference to Exhibit 3.6 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
4.122.1*
Second Supplemental Indenture, dated July 26, 2017, bySubsidiary Guarantors and among Holly Energy Holdings LLC, HEP Cheyenne Shortline LLC, the Registrant, Holly Energy Finance Corp., the other guarantors thereinIssuers of Guaranteed Securities and U.S. Bank, National Association, as trustee. (Incorporated by reference to Exhibit 4.1Affiliates whose Securities Collateralize Securities of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2017, File No. 1-3225).Registrant.
10.1*
First Amendment to Fourth Amended and Restated Master Lease and Access Agreement, dated as of October 13, 2017 by and among certain subsidiaries of Holly Energy Partners, L.P. and certain subsidiaries of HollyFrontier Corporation.

Table of Contentsril 19,

31.1*
10.2
Third Amended and Restated Credit Agreement, dated July 26, 2017, by and among the Registrant, certain of its affiliates as guarantors, Wells Fargo Bank, National Association and certain other leaders party thereto (incorporated by reference to Exhibit 10.1 of the Registrants’ Current Report on Form 8-K, dated July 31, 2017,File no. 1-32225).

10.3
Amendment to Equity Distribution Agreement, dated as of July 28, 2017, by and among the Registrant, HEP Logistics Holdings, L.P., Holly Logistics Services, L.L.C. and Citigroup Global Markets Inc., Goldman, Sachs & Co., and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2017, File No. 1-3225).
10.4
Purchase Agreement, dated September 19, 2017, among the Registrant, Holly Energy Finance Corp., and each of the guarantors party thereto and Citigroup Global Markets Inc., as representative of the initial purchasers named therein (incorporated by reference to Exhibit 10.1 of the Registrants’ Current Report on Form 8-K, dated September 25, 2017, File no. 132225).

31.1*
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101++
101++The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2023 formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v)(iv) Consolidated Statement of Partners’ Equity, and (vi)(v) Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104++Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).



*Filed herewith.
 **Furnished herewith.
++Filed electronically herewith.
*Filed herewith.
 **Furnished herewith.
 ++Filed electronically herewith.







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HOLLY ENERGY PARTNERS, L.P.
SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HOLLY ENERGY PARTNERS, L.P.
(Registrant)
HOLLY ENERGY PARTNERS, L.P.
(Registrant)
By: HEP LOGISTICS HOLDINGS, L.P.

its General Partner
By: HOLLY LOGISTIC SERVICES, L.L.C.

its General Partner
Date: November 2, 20172023/s/    Richard L. Voliva IIIJohn Harrison
Richard L. Voliva IIIJohn Harrison
ExecutiveSenior Vice President, and

Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Date: November 2, 20172023/s/    Kenneth P. Norwood
Kenneth P. Norwood
Vice President and Controller

(Principal Accounting Officer)
 




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