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~~June 30, ~~2017~~2023



¨ ☐			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)

______________________________________________________________________________________



Delaware		20-0833098
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2828 N. Harwood, Suite 1300 ~~Dallas, Texas~~	~~75201~~
Dallas
Texas		75201
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Limited Partner Units

HEP

New 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” company~~growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

ý☒

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~~July 31, ~~2017,~~2023, was ~~64,318,955.~~126,440,201.

Table of ~~Contentsril~~ 19,

HOLLY ENERGY PARTNERS, L.P.

INDEX

- 2 -

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, ~~those~~statements 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 negotiation and execution, and the terms and conditions, of a definitive agreement relating to the non-binding proposal we received from HF Sinclair Corporation (“HF Sinclair”) to acquire all of the outstanding common units of Holly Energy Partners, L.P. (“HEP”) not owned by HF Sinclair or its affiliates (the “Proposed HF Sinclair Transaction”) and the ability of HF Sinclair or HEP to enter into or consummate such agreement;

•the risk that the Proposed HF Sinclair Transaction does not occur;

•negative effects from the pendency of the Proposed HF Sinclair Transaction;

•failure to obtain the required approvals for the Proposed HF Sinclair Transaction;

•the time required to consummate the Proposed HF Sinclair Transaction;

•the focus of management time and attention on the Proposed HF Sinclair Transaction and other disruptions arising from the Proposed HF Sinclair 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 ~~future~~the 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 and~~pipelines, terminal facilities and refinery processing units, due to reductions in demand, accidents, unexpected leaks or ~~containing~~spills, 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 or lower gross margins due to the economic impact of inflation and labor costs, and any potential asset impairments

- 3 -

Table of 19,

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 ~~attacks~~or cyberattacks and the consequences of any such attacks;

•uncertainty regarding the effects and duration of global hostilities, including 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; and

•other 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.

- 4 -

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, 2016				June 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: $1,923 and $2,147, respectively)							Cash and cash equivalents (Cushing Connect VIEs: $1,923 and $2,147, respectively)	$	7,845	$	10,917
Accounts receivable:							Accounts receivable:
Trade	7,330			7,846			Trade	13,570		16,344
Affiliates	42,753			42,562			Affiliates	70,774		63,459
	50,083			50,408				84,344		79,803
Prepaid and other current assets	2,295			2,888			Prepaid and other current assets	11,930		12,397
Total current assets	59,854			56,953			Total current assets	104,119		103,117

Properties and equipment, net	1,307,093			1,328,395			Properties and equipment, net	1,374,667		1,388,888
Transportation agreements, net	61,644			66,856
Operating lease right-of-use assets, net							Operating lease right-of-use assets, net	1,847		2,317
Net investment in leases (Cushing Connect VIEs: $101,960 and $101,871, respectively)							Net investment in leases (Cushing Connect VIEs: $101,960 and $101,871, respectively)	522,812		539,705
Intangible assets, net							Intangible assets, net	53,946		59,300
Goodwill	256,498			256,498			Goodwill	342,762		342,762
Equity method investments	163,873			165,609
Equity method investments (Cushing Connect VIEs: $33,439 and $34,746 , respectively)							Equity method investments (Cushing Connect VIEs: $33,439 and $34,746 , respectively)	265,262		270,604
Deferred turnaround costs							Deferred turnaround costs	22,454		24,154
Other assets	16,880			9,926			Other assets	17,556		16,655
Total assets	$	1,865,842		$	1,884,237		Total assets	$	2,705,425	$	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: $668 and $431, respectively)							Trade (Cushing Connect VIEs: $668 and $431, respectively)	$	25,008	$	26,753
Affiliates	9,559			16,424			Affiliates	10,781		15,756
	23,143			26,942				35,789		42,509

Accrued interest	5,527			18,069			Accrued interest	17,650		17,992
Deferred revenue	14,827			11,102			Deferred revenue	20,028		12,087
Accrued property taxes	7,487			5,397			Accrued property taxes	7,736		5,449
Current operating lease liabilities							Current operating lease liabilities	777		968
Current finance lease liabilities							Current finance lease liabilities	4,803		4,389
Other current liabilities	3,492			3,225			Other current liabilities	3,466		2,430
Total current liabilities	54,476			64,735			Total current liabilities	90,249		85,824

Long-term debt	1,245,066			1,243,912			Long-term debt	1,495,442		1,556,334
Noncurrent operating lease liabilities							Noncurrent operating lease liabilities	1,439		1,720
Noncurrent finance lease liabilities							Noncurrent finance lease liabilities	61,034		62,513
Other long-term liabilities	15,477			16,445			Other long-term liabilities	29,512		29,111
Deferred revenue	46,405			47,035			Deferred revenue	19,581		24,613

Class B unit	42,412			40,319			Class B unit	62,554		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 June 30, 2023 and December 31, 2022)							Common unitholders (126,440,201 units issued and outstanding at both June 30, 2023 and December 31, 2022)	876,980		857,126
Noncontrolling interests							Noncontrolling interests	68,634		69,754
Total equity	462,006			471,791			Total equity	945,614		926,880
Total liabilities and equity	$	1,865,842		$	1,884,237		Total liabilities and equity	$	2,705,425	$	2,747,502

See accompanying notes.

- 5 -

Table of ~~Contentsril~~ 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Affiliates	$	109,922	$	110,537	$	226,800	$	202,791
Third parties	29,833		25,233		56,249		53,177
	139,755		135,770		283,049		255,968
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	53,142		53,899		105,284		96,524
Depreciation and amortization	25,897		26,974		50,560		49,161
General and administrative	5,512		4,682		10,147		8,994

	84,551		85,555		165,991		154,679
Operating income	55,204		50,215		117,058		101,289

Other income (expense):
Equity in earnings of equity method investments	3,545		5,447		7,427		9,073
Interest expense (including amortization)	(26,448)		(20,347)		(52,426)		(33,986)
Interest income	20,356		24,331		40,756		36,978


Gain on sale of assets and other	102		45		275		146
	(2,445)		9,476		(3,968)		12,211
Income before income taxes	52,759		59,691		113,090		113,500
State income tax benefit (expense)	32		(14)		(2)		(45)
Net income	52,791		59,677		113,088		113,455
Allocation of net income attributable to noncontrolling interests	(2,562)		(2,885)		(5,337)		(7,104)
Net income attributable to the partners	50,229		56,792		107,751		106,351
Limited partners’ per unit interest in earnings—basic and diluted	$	0.40	$	0.45	$	0.85	$	0.90
Weighted average limited partners’ units outstanding	126,440		126,440		126,440		118,087

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 described~~Net 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.~~


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income	$	113,088	$	113,455
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,560		49,161
Gain on sale of assets	(88)		(25)



Amortization of deferred charges	2,153		1,803
Equity-based compensation expense	721		1,227
Equity in earnings of equity method investments, net of distributions	3,054		933
(Increase) decrease in operating assets:
Accounts receivable—trade	2,774		1,071
Accounts receivable—affiliates	(7,316)		(2,815)
Prepaid and other current assets	690		60
Increase (decrease) in operating liabilities:
Accounts payable—trade	(334)		1,355
Accounts payable—affiliates	(4,975)		993
Accrued interest	(342)		6,705
Deferred revenue	2,909		(1,612)
Accrued property taxes	2,287		1,630
Other current liabilities	1,036		77
Turnaround expenditures	(618)		(24,158)
Other, net	2,115		2,626
Net cash provided by operating activities	167,714		152,486

Cash flows from investing activities
Additions to properties and equipment	(16,264)		(23,246)
Acquisition of Sinclair Transportation	—		(321,366)
Investment in Osage Pipe Line Company, LLC	(3,000)		—
Proceeds from sale of assets	243		33
Distributions in excess of equity in earnings of equity investments	5,288		6,589
Net cash used for investing activities	(13,733)		(337,990)

Cash flows from financing activities
Borrowings under credit agreement	55,000		410,000
Repayments of credit agreement borrowings	(117,000)		(529,000)

Proceeds from issuance of debt	—		400,000


Distributions to HEP unitholders	(88,617)		(81,333)
Distributions to noncontrolling interests	(4,410)		(5,308)
Payments on finance leases	(2,030)		(1,776)
Deferred financing costs	—		(6,343)

Units withheld for tax withholding obligations	(1)		(65)
Other	5		(168)
Net cash provided (used) by financing activities	(157,053)		186,007

Cash and cash equivalents
Increase (decrease) for the period	(3,072)		503
Beginning of period	10,917		14,381
End of period	$	7,845	$	14,884

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	50,968	$	25,814

See accompanying notes.

- 7 -

Table of ~~Contentsril~~ 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF EQUITY

(Unaudited)

(In thousands)


	Common Units		Noncontrolling Interests		Total 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 units	354		—		354
Class B unit accretion	(1,024)		—		(1,024)

Net income	58,546		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 units	367		—		367
Class B unit accretion	(1,024)		—		(1,024)

Net income	51,252		1,539		52,791
Balance June 30, 2023	$	876,980	$	68,634	$	945,614

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


	Common Units		Noncontrolling Interests		Total Equity

Balance December 31, 2021	$	443,017	$	147,532	$	590,549
Issuance of common units	349,020		—		349,020

Distributions to HEP unitholders	(36,997)		—		(36,997)
Distributions to noncontrolling interests	—		(877)		(877)
Acquisition of remaining UNEV interests	16,537		(78,187)		(61,650)
Amortization of restricted and performance units	620		—		620
Class B unit accretion	(956)		—		(956)
Other	(147)		—		(147)
Net income	50,515		3,263		53,778
Balance March 31, 2022	$	821,609	$	71,731	$	893,340

Distributions to HEP unitholders	(44,336)		—		(44,336)
Distributions to noncontrolling interest	—		(4,431)		(4,431)
Acquisition of remaining UNEV interests	3,198		177		3,375
Amortization of restricted and performance units	607		—		607
Class B unit accretion	(956)		—		(956)
Other	(86)		—		(86)
Net income	57,749		1,928		59,677
Balance June 30, 2022	$	837,785	$	69,405	$	907,190

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 unless~~establishment 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 subsidiary~~new parent holding company of HFC and HEP and their subsidiaries, and the ~~general partner~~completion 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 ~~which~~that 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% general~~among 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 June 30, 2023, HF Sinclair and its subsidiaries owned a 47% limited partner interest ~~in HEP is converted into a~~and 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 quarter~~closing of the ~~units~~HFC Transactions, HF Sinclair issued ~~as consideration are eligible~~60,230,036 shares of HF Sinclair common stock to ~~receive distributions. As~~REH 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 million~~and 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. As~~limited partner units of HEP (the “HEP Units”), representing 16.6% of the pro forma outstanding HEP Units with a ~~result~~value of ~~this~~approximately $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 made~~value 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 interest~~closing of the HFC Transactions, which occurred immediately following the HEP Transaction.

Sinclair Transportation, which together with its subsidiaries, owns 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 ~~and~~and/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 ~~owned~~own (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, (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 ~~SLC~~UNEV 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 through~~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 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's~~HFC’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 control~~reporting 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.

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 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.

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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 ~~though~~it relates specifically to rendering the ~~transfer occurred~~services 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 ~~beginning~~likelihood of ~~the period of transfer, and prior period financial statements and financial information are retrospectively adjusted~~a customer’s ability to ~~include the historical results and assets of the acquisitions from HFC for all periods presented~~utilize 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 six months ended June 30, 2023 and 2022, we recognized $10.1 million and $10.4 million, respectively, of these deficiency payments in revenue, of which $1.9 million of the deficiency payments recognized during the three months ended June 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 ~~dates~~January 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 ~~refer~~use 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 results~~lease 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.

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

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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 purchases~~underlying 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% membership~~Under 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, whereby~~UNEV, HEP UNEV Holdings issued to a subsidiary of ~~Magellan Midstream Partners (“Magellan”) will provide terminalling services for all~~ HFC ~~products originating~~a Class B unit comprised of a noncontrolling equity interest in ~~Artesia, New Mexico requiring terminalling in or through El Paso, Texas. Osage~~a 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, Oklahoma~~subject to ~~HFC’s El Dorado Refinery in Kansas and also connects~~annual redemption payments to the ~~Jayhawk pipeline serving the CHS Inc. refinery in McPherson, Kansas. The Osage Pipeline~~extent 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 agreed~~entitled 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, owner~~75% 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 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, is due 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 will be 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 ~~contribution~~value of ~~$42.6~~approximately $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.

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

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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, 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 issued	21,000
Closing price per unit of HEP common units(1)	$	16.62
Purchase consideration paid in HEP common units	349,020
Cash consideration paid by HEP	325,000
Working capital adjustment payment by HEP(2)	3,955
Total cash consideration	328,955
Total purchase consideration	$	677,975

(1) Based on the HEP closing unit price on March 11, 2022.

(2) Net of cash acquired

- 13 -


	(In thousands)
Assets Acquired
Accounts receivable	$	3,005
Prepaid and other current assets	59
Properties and equipment	340,682
Operating lease right-of-use assets	105
Other assets	3,500
Goodwill	119,112
Equity method investments	229,891
Total assets acquired	$	696,354

Liabilities Assumed
Accounts payable	1,528
Accrued property taxes	973
Other current liabilities	789
Operating lease liabilities	33
Noncurrent operating lease liabilities	72
Other long-term liabilities	14,984
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 continue~~measure 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 operated~~their carrying values due to their short-term nature.

We incurred $1.0 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively, and $1.5 million and $1.7 million for the six months ended June 30, 2023 and 2022, respectively, 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 owns~~HEP 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~~

- 14 -

Note 3:Cushing Connect Joint Venture

On October ~~1, 2016, we acquired all the membership interests of Woods Cross Operating~~2, 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 subsidiaries~~subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect Pipeline & Terminal LLC (the “Cushing Connect Joint Venture”), for ~~total consideration~~(i) the development and construction of ~~$250 million. As~~a 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 interests~~HF Sinclair and (ii) the ownership and operation of ~~25%~~1.5 million barrels of ~~SLC~~crude 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. As~~Plains 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 do not 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 stages~~its involvement with the ~~consideration allocated~~Cushing Connect JV Terminal legal entity is not expected to be material due to the ~~acquisition date fair value~~long-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

Disaggregated revenues were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)				(In thousands)
Pipelines	$	71,018	$	68,319	$	141,600	$	133,099
Terminals, tanks and loading racks	45,831		44,558		92,018		81,573
Refinery processing units	22,906		22,893		49,431		41,296
	$	139,755	$	135,770	$	283,049	$	255,968

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

- 15 -


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)				(In thousands)
Lease revenues	$	79,327	$	82,445	$	166,704	$	155,736
Service revenues	60,428		53,325		116,345		100,232
	$	139,755	$	135,770	$	283,049	$	255,968

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.~~ in the table below:


	June 30, 2023		December 31, 2022
	(In thousands)
Contract assets	$	8,502	$	6,672
Contract liabilities	$	6,495	$	—

The ~~preexisting equity interests~~contract assets and liabilities include both lease and service components. During the six months ended June 30, 2022, we recognized $1.9 million of revenue that was previously included in ~~SLC Pipeline~~contract liabilities as of December 31, 2021. During the six months ended June 30, 2023 and ~~Frontier Aspen will be remeasured at acquisition date fair value since~~2022, we ~~will have a controlling interest,~~also recognized $2.1 million and $0.1 million, respectively, of revenue included in contract assets.

As of June 30, 2023, we expect to recognize ~~a gain on~~$2.6 billion in revenue related to our unfulfilled performance obligations under the ~~remeasurement~~terms of our long-term throughput agreements and leases expiring in 2024 through 2037. These agreements generally provide for changes in the ~~fourth quarter of 2017.~~

~~SLC Pipeline is~~minimum revenue guarantees annually for increases or decreases in the ~~owner of a 95-mile crude pipeline~~Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that ~~transports crude oil into~~limit the ~~Salt Lake City area from the Utah terminal~~level of the ~~Frontier Pipeline and from Wahsatch Station. Frontier Aspen is the owner of a 289-mile crude pipeline from Casper, Wyoming~~rate increases or decreases. We expect to ~~Frontier Station, Utah that supplies Canadian and Rocky Mountain crudes to Salt Lake City area refiners through a connection to the SLC Pipeline.~~

~~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~~recognize revenue for ~~periods before the date of a dropdown of net assets accounted for~~these unfulfilled performance obligations 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. 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 accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classificationshown in the ~~statement of cash flows. We adopted this standard effective January 1, 2017,~~table below (amounts shown in table include both service and lease revenues):


Years Ending December 31,	(In millions)
Remainder of 2023	$	217
2024	407
2025	319
2026	302
2027	269
2028	268
Thereafter	826
Total	$	2,608

Payment terms under our contracts with ~~no impact~~customers are consistent with industry norms and are typically payable within 10 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~~

- 16 -

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 22 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 preparation~~terms of 33 to 48 months. The total cost of assets under finance leases was $8.4 million and $7.6 million as of June 30, 2023 and December 31, 2022, respectively, with accumulated depreciation of $4.4 million and $4.0 million as of June 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 ~~adoption~~an additional 10 years.

Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):


	June 30, 2023		December 31, 2022

Operating leases:
Operating lease right-of-use assets, net	$	1,847	$	2,317

Current operating lease liabilities	777		968
Noncurrent operating lease liabilities	1,439		1,720
Total operating lease liabilities	$	2,216	$	2,688

Finance leases:
Properties and equipment	$	8,395	$	7,649
Accumulated amortization	(4,396)		(3,979)
Properties and equipment, net	$	3,999	$	3,670

Current finance lease liabilities	$	4,803	$	4,389
Noncurrent finance lease liabilities	61,034		62,513
Total finance lease liabilities	$	65,837	$	66,902

Weighted average remaining lease term (in years):
Operating leases	4.6		4.6
Finance leases	13.3		13.9

Weighted average discount rate:
Operating leases	4.8%		4.6%
Finance leases	5.7%		5.7%

- 17 -

Supplemental cash flow and other information related to leases were as follows:


	Six Months Ended June 30,
	2023		2022
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	543	$	518
Operating cash flows on finance leases	$	2,310	$	1,950
Financing cash flows on finance leases	$	2,030	$	1,776

Maturities of ~~this standard is~~lease liabilities were as follows:


	June 30, 2023
	Operating		Finance
	(In thousands)
2023	$	499	$	4,138
2024	608		7,750
2025	491		7,291
2026	326		7,411
2027	205		6,663
2028 and thereafter	318		61,038
Total lease payments	2,447		94,291
Less: Imputed interest	(231)		(28,454)
Total lease obligations	2,216		65,837
Less: Current lease liabilities	(777)		(4,803)
Noncurrent lease liabilities	$	1,439	$	61,034

The components of lease expense were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Operating lease costs	$	236	$	242	$	537	$	504
Finance lease costs
Amortization of assets	314		189		613		381
Interest on lease liabilities	944		946		1,898		1,905
Variable lease cost	206		23		418		59
Total net lease cost	$	1,700	$	1,400	$	3,466	$	2,849

Lessor Accounting

As discussed in ~~progress, and we are currently evaluating terms, conditions and our performance obligations~~Note 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 on~~customers meet the definition of a ~~business in relation to accounting for identifiable intangible~~lease.

Substantially all of the assets ~~in business combinations. This standard has an effective date~~supporting 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 Assets~~During the six months ended June 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 leases. The

- 18 -

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 ~~Liabilities~~no gain or loss is recognized.

~~In January 2016, an~~

During the six months ended June 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 changes~~at 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 six months ended June 30, 2022.

The balance sheet impacts were composed of the following:


	Six Months Ended June 30, 2022
	(In thousands)

Net investment in leases	$	235,620
Properties and equipment, net	(235,620)

Gain on sales-type leases	$	—

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

Lease income recognized was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Operating lease revenues	$	75,292	$	76,538	$	158,090	$	146,891
Direct financing lease interest income	536		520		1,073		1,040

Sales-type lease interest income	19,811		23,814		39,674		35,938
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	4,035		5,906		8,614		8,846

For our sales-type leases, we bifurcate customer obligations between lease and ~~disclosures~~service 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 beginning~~assets 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 recognized~~remaining amounts recorded as a reduction in net investment in leases. We recognized the lease ~~liability, with a corresponding right-of-use asset~~portion 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.

- 19 -

Annual minimum undiscounted lease payments under our leases were as follows as of June 30, 2023:


	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2023	$	157,930	$	1,196	$	42,744
2024	289,895		2,331		84,059
2025	210,177		2,279		82,060
2026	195,710		2,297		82,060
2027	162,208		2,316		82,060
2028 and thereafter	552,648		35,525		688,896
Total lease receipt payments	$	1,568,568	$	45,944	$	1,061,879
Less: Imputed interest			(29,742)		(939,191)
			16,202		122,688
Unguaranteed residual assets at end of leases			—		390,159
Net investment in leases			$	16,202	$	512,847

Net investments in leases recorded on our balance sheet were composed of the following:


	June 30, 2023				December 31, 2022
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	380,762	$	16,202	$	418,989	$	16,264
Unguaranteed residual assets	132,085		—		110,466		—
Net investment in leases	$	512,847	$	16,202	$	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.~~- 20 -

(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:


		June 30, 2023				December 31, 2022
Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(In thousands)
Liabilities:

5% Senior Notes	Level 2	$	494,565	$	464,275	$	494,047	$	458,090
6.375% Senior Notes	Level 2	394,877		395,392		394,287		394,568
Total Liabilities		$	889,442	$	859,667	$	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 is~~measurements 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 six months ended June 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 legs~~the estimated unguaranteed residual asset at the end of the ~~swap agreement. This measurement is computed using~~lease 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 ~~are~~were as follows:


	June 30, 2023		December 31, 2022
	(In thousands)
Pipelines, terminals and tankage	$	1,592,935	$	1,567,359
Refinery assets	353,998		353,998
Land and right of way	171,443		171,327
Construction in progress	20,532		23,027
Other	72,950		69,098
	2,211,858		2,184,809
Less accumulated depreciation	(837,191)		(795,921)
	$	1,374,667	$	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 $0.3 million and $0.2 million during the three months ended September 30, 2017 and 2016, respectively and $0.7 million and $0.5 million during the nine months ended September 30, 2017 and 2016, respectively, in interest attributable to construction projects.

Depreciation expense was ~~$52.1~~$42.5 million and ~~$45.5~~$40.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~,2022, respectively, and includes depreciation of assets acquired under capital leases.


~~Note 4:~~	~~Transportation Agreements~~

~~Our~~Note 8:Intangible Assets

Intangible assets include transportation agreements ~~are intangible assets~~and customer relationships that represent a portion of the total purchase price of certain assets acquired from ~~Alon~~Delek 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.

- 21 -

The carrying amounts of our ~~transportation agreements are~~intangible assets were as follows:


	Useful Life	June 30, 2023		December 31, 2022
		(In thousands)
Delek transportation agreement	30 years	$	59,933	$	59,933
HF Sinclair transportation agreement	10-15 years	75,131		75,131
Customer relationships	10 years	69,683		69,683
Other	20 years	50		50
		204,797		204,797
Less accumulated amortization		(150,851)		(145,497)
		$	53,946	$	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~~$5.4 million and $7.0 million for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 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 ~~HFC~~subsidiaries 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 ~~HFC~~HF 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~~$3.0 million and ~~$1.4~~$2.7 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$4.5~~$6.0 million and ~~$4.3~~$5.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016.~~2022, respectively.

Under HLS’s secondment agreement with ~~HFC~~HF Sinclair (the “Secondment Agreement”), certain employees of ~~HFC~~HF Sinclair are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses ~~HFC~~HF 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 ~~four~~five 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~~June 30, ~~2017~~,2023, we had two types of ~~incentive-based~~unit-based awards outstanding, which are described below. The compensation cost charged against income was ~~$0.7~~$0.4 million and $0.6 million for ~~each of~~ the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, and $1.6 million and $1.9 million for the nine months ended September 30, 2017 and 2016,~~2022, respectively. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of ~~September~~June 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 been~~756,529 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

~~Restricted~~Phantom Units

Under our Long-Term Incentive Plan, we grant ~~restricted~~phantom 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.

The fair value of each ~~restricted~~phantom 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.

- 22 -

A summary of ~~restricted~~phantom unit activity and changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, is presented below:


Phantom Units	Units	Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2023 (nonvested)	115,809	$	16.66
Granted	1,479	18.49
Vesting and transfer of full ownership to recipients	(330)	11.92
Forfeited	(1,084)	11.92
Outstanding at June 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 six months ended June 30, 2023 and 2022 was $4 thousand and $60 thousand, respectively. As of ~~September~~June 30, ~~2017, there was $1.1~~2023, $0.8 million of total unrecognized compensation expense related to ~~nonvested restricted~~unvested phantom unit grants ~~which~~ is expected to be recognized over a weighted-average period of 0.9 ~~year.~~years.

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected ~~executives~~officers 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. As~~period 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,~~

~~and~~ultimately 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 ~~common~~target 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 ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2023, is presented below:



Performance Units	Units
Outstanding at January 1, ~~2017~~2023 (nonvested)	~~49,520~~42,852
~~Vesting and transfer of common units to recipients~~Granted	~~(2,262~~513	)
~~Forfeited~~	~~(21,228~~		)

Outstanding at ~~September~~June 30, ~~2017~~2023 (nonvested)	~~26,030~~43,365

The ~~grant-date~~grant date fair value of performance units vested and transferred to recipients during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2022 was ~~$0.1~~$0.4 million. Based on the ~~weighted average~~weighted-average fair value of performance units outstanding at ~~September~~June 30, ~~2017,~~2023, of ~~$0.9~~$0.7 million, there was ~~$0.5~~$0.4 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of ~~1.8~~1.2 years.

During the six months ended June 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~~

- 23 -

Note 10:Debt

Credit Agreement

We have a ~~$1.4~~$1.2 billion senior secured revolving credit facility (the “Credit Agreement”) ~~expiring~~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 contains~~continues to provide for an accordion feature ~~giving~~that allows us ~~the ability~~ to increase commitments under the ~~size of the facility by~~Credit 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-owned~~wholly 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~~maturity 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~~June 30, ~~2017.~~2023.

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 ~~2024~~2027 (the ~~“ 6%~~“6.375% Senior Notes”). ~~On September 22, 2017, we closed a private placement~~The 6.375% Senior Notes were issued at par for net proceeds of ~~an additional $100~~approximately $393 million, ~~in aggregate~~after 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 combined~~were used to partially repay outstanding borrowings under the Credit Agreement, increasing our available liquidity.

As of June 30, 2023, we had $500 million aggregate principal amount ~~outstanding~~ of ~~$500 million maturing~~5% 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 were in compliance with the restrictive covenants for the 6% Senior Notes as of September 30, 2017.~~ At any time when the 6% Senior Notes are rated investment grade by ~~both~~either Moody’s ~~and~~or 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.

- 24 -

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:


	June 30, 2023		December 31, 2022
	(In thousands)
Credit Agreement
Amount outstanding	$	606,000	$	668,000

5% Senior Notes
Principal	500,000		500,000
Unamortized premium and debt issuance costs	(5,435)		(5,953)
	494,565		494,047

6.375% Senior Notes
Principal	400,000		400,000
Unamortized premium and debt issuance costs	(5,123)		(5,713)
	394,877		394,287

Total long-term debt	$	1,495,442	$	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 Expense and Other Debt Information~~

~~Interest expense consists of the following components:~~

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 presents the percentage of total revenues generated by each of these customers:~~

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 refineries~~many 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 ~~2019~~2024 to ~~2036.~~2037, and revenues from these agreements accounted for approximately 79% and 80% of our total revenues for the three and six months ended June 30, 2023, respectively. Under these agreements, ~~HFC~~HF 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,~~July 1, 2023, these agreements with ~~HFC~~HF Sinclair require minimum annualized payments to us of ~~$321.3~~$496.5 million.

If ~~HFC~~HF 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.

Under certain provisions of ~~an omnibus agreement we have with HFC (the “Omnibus Agreement”),~~the Omnibus Agreement, we pay ~~HFC~~HF Sinclair an annual administrative fee (currently ~~$2.5 million~~)$5.7 million) for the provision by ~~HFC~~HF Sinclair or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by ~~HFC~~HF 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 ~~HFC~~HF Sinclair and its affiliates for direct expenses they incur on our behalf.

Related party transactions with ~~HFC are~~HF Sinclair and its subsidiaries were as follows:

•Revenues received from ~~HFC~~HF Sinclair were ~~$95.1~~$109.9 million and ~~$77.4~~$110.5 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~,2022, respectively, and ~~$277.3~~$226.8 million and ~~$239.4~~$202.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~HFC~~•HF Sinclair charged us general and administrative services under the Omnibus Agreement of ~~$0.6~~$1.3 million for ~~each of~~both the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$1.8~~$2.5 million and $2.0 million for ~~each~~the six months ended June 30, 2023 and 2022, respectively. In addition, HF Sinclair charged us $0.2 million for a prorated portion of the ~~nine~~temporary administrative fee during the six months ended ~~September~~June 30, ~~2017 and 2016.~~2022.

•We reimbursed ~~HFC~~HF Sinclair for costs of employees supporting our operations of ~~$11.7~~$20.3 million and ~~$10.0~~$19.9 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$34.5~~$41.0 million and ~~$29.4~~$36.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~HFC~~

- 25 -

•HF Sinclair reimbursed us ~~$1.9~~$3.0 million and ~~$4.5~~$4.2 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, respectively, and $4.7 million and $11.2 million for the nine months ended September 30, 2017 and 2016, respectively,~~2022, for expense and capital ~~projects.~~projects, respectively, and $4.3 million and $8.6 million for the six months ended June 30, 2023 and 2022, respectively.

•We distributed ~~$32.8~~$20.9 million ~~and~~ ~~$26.2 million~~ ~~for~~in both the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, respectively,~~2022, and ~~$94.8~~$41.7 million ~~and $76.0 million for~~in both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, respectively,~~2022, to ~~HFC~~HF Sinclair as regular distributions on its common ~~units and general partner interest, including general partner incentive distributions.~~

units.

•Accounts receivable from ~~HFC~~HF Sinclair were ~~$42.8~~$70.8 million and ~~$42.6~~$63.5 million at ~~September~~June 30, ~~2017~~,2023, and December 31, ~~2016~~,2022, respectively.

•Accounts payable to ~~HFC~~HF Sinclair were ~~$9.6~~$10.8 million and ~~$16.4~~$15.8 million at ~~September~~June 30, ~~2017~~,2023, and December 31, ~~2016~~,2022, respectively.

~~Revenues for the nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, include $3.5 million and $5.7 million, respectively, of shortfall payments billed to HFC in 2016 and 2015, respectively.~~ •Deferred revenue in the consolidated balance sheets at ~~September~~as of June 30, ~~2017~~ ~~and~~ ~~December 31, 2016~~,2023 includes ~~$5.8~~$6.3 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~~HF Sinclair.

•We received direct financing lease payments from HF Sinclair for ~~any~~use of our Artesia and Tulsa rail yards of $0.6 million and $0.5 million for the ~~$5.8~~three months ended June 30, 2023 and 2022, respectively, and $1.1 million ~~deferred at September~~and $1.0 million for the six months ended June 30, ~~2017.~~

2023 and 2022, respectively.

•We received sales-type lease payments of $21.0 million and $24.4 million from HF Sinclair for the three months ended June 30, 2023 and 2022, respectively, and $41.5 million and $37.0 million for the six months ended June 30, 2023 and 2022, respectively.


~~Note 9:~~	~~Partners’ Equity~~

Note 12: Partners’ Equity, Income Allocations and Cash Distributions

As of ~~September~~June 30, ~~2017, HFC~~2023, HF Sinclair held ~~22,380,030~~59,630,030 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 ended September~~As of June 30, ~~2017,~~2023, HEP has issued ~~1,538,452~~2,413,153 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 has~~gross 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.

~~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,~~July 20, 2023, we announced our cash distribution for the ~~third~~second quarter of ~~2017~~2023 of ~~$0.6450~~ $0.35 per unit. The distribution is payable on all common units and will be paid ~~November 14, 2017,~~August 11, 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.~~July 31, 2023.

~~The following table presents the allocation of our~~Our regular quarterly cash ~~distributions~~distribution to the ~~general and~~ limited partners will be $44.3 million for the ~~periods in which they apply.~~three months ended June 30, 2023 and was $44.3 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, the regular quarterly distribution to the limited partners will be $88.6 million and was $88.7 million for the six months ended June 30, 2022. Our distributions are declared subsequent to quarter end; therefore, ~~the~~these 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 using~~calculated as net income attributable to the ~~two-class method because we have more than one class~~partners, 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 common~~the net incremental units ~~general partner~~from 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. The~~period. 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.- 26 -

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, net~~Net income per limited partner unit is computed as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except per unit data)



Net income attributable to the partners	$	50,229	$	56,792	$	107,751	$	106,351
Less: Participating securities’ share in earnings	(63)		(107)		(136)		(222)
Net income attributable to common units	50,166		56,685		107,615		106,129
Weighted average limited partners’ units outstanding	126,440		126,440		126,440		118,087
Limited partners’ per unit interest in earnings - basic and diluted	$	0.40	$	0.45	$	0.85	$	0.90

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 for~~have 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 are either known or considered probable and can 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 $0.2 million for ~~the three and nine months ended September 30, 2017, as well as~~both the three months ended ~~September~~June 30, ~~2016. For~~2023 and 2022, for environmental remediation obligations and we expensed $0.6 million and $0.2 million for the ~~nine~~six months ended ~~September~~June 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~~$19.5 million at ~~September~~both June 30, ~~2017,~~2023 and December 31, ~~2016, respectively,~~2022, of which ~~$4.7~~$17.4 million and ~~$5.4~~$17.5 million ~~respectively, were~~was classified as other long-term ~~liabilities.~~liabilities for June 30, 2023 and December 31, 2022, respectively. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with ~~HFC, HFC~~HF 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 ~~HFC~~HF 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 ~~liabilities~~remediation 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.

~~The~~

- 27 -

Our pipelines and terminals segment ~~has~~includes 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 ~~pipeline~~pipelines 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 ~~operating~~reportable 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.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Revenues:
Pipelines and terminals - affiliate	$	87,016	$	87,644	$	177,369	$	161,495
Pipelines and terminals - third-party	29,833		25,233		56,249		53,177
Refinery processing units - affiliate	22,906		22,893		49,431		41,296
Total segment revenues	$	139,755	$	135,770	$	283,049	$	255,968

Segment operating income:
Pipelines and terminals	$	49,742	$	48,673	$	104,795	$	98,477
Refinery processing units	10,974		6,224		22,410		11,806
Total segment operating income	60,716		54,897		127,205		110,283
Unallocated general and administrative expenses	(5,512)		(4,682)		(10,147)		(8,994)
Interest expense	(26,448)		(20,347)		(52,426)		(33,986)
Interest income	20,356		24,331		40,756		36,978

Equity in earnings of equity method investments	3,545		5,447		7,427		9,073

Gain on sale of assets and other	102		45		275		146
Income before income taxes	$	52,759	$	59,691	$	113,090	$	113,500

Capital Expenditures:
Pipelines and terminals	$	8,650	$	7,397	$	16,264	$	17,817
Refinery processing units	—		1,703		—		5,429
Total capital expenditures	$	8,650	$	9,100	$	16,264	$	23,246

- 28 -

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Revenues:
Pipelines and terminals - affiliate $ 74,547
$ 73,210
$ 219,806
$ 226,553
Pipelines and terminals - third-party 15,226
15,212
47,826
50,094
Refinery processing units - affiliate 20,591
4,188
57,510
12,870
Total segment revenues $ 110,364
$ 92,610
$ 325,142
$ 289,517

Segment operating income:
Pipelines and terminals $ 44,896
$ 48,928
$ 140,546
$ 155,657
Refinery processing units 10,463
(7,339 ) 24,283
(6,491 )
Total segment operating income 55,359
41,589
164,829
149,166
Unallocated general and administrative expenses (3,623 ) (2,664 ) (8,872 ) (8,618 )
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
Gain on sale of assets and other 155
112
317
104
Income before income taxes $ 42,992
$ 28,465
$ 113,961
$ 114,881

Capital Expenditures:
Pipelines and terminals $ 10,151
$ 15,557
$ 30,437
$ 47,200
Refinery processing units —
5,173
238
48,915
Total capital expenditures $ 10,151
$ 20,730
$ 30,675
$ 96,115


	June 30, 2023		December 31, 2022
	(In thousands)
Identifiable assets:
Pipelines and terminals (1)	$	2,119,446	$	2,152,159
Refinery processing units	299,204		304,332
Other	286,775		291,011
Total identifiable assets	$	2,705,425	$	2,747,502

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

- 29 -

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

On July 8, 2022, the Osage 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 six months ended June 30, 2023 by $1.2 million for our 50% share of incurred and estimated environmental remediation and recovery expenses associated with the release. From the date of the release through June 30, 2023, our equity in earnings of equity method investments was reduced by $18.8 million for our 50% share of incurred and estimated environmental remediation and recovery expenses 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 expected 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 statement of income as a reduction in equity in earnings (loss) of equity method investments.

The ~~refinery processing~~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 Proposal

On May 3, 2023, we received a non-binding proposal from HF Sinclair to acquire all of the outstanding common units ~~operating segment loss for the three and nine months ended September 30, 2016, is due~~of HEP not owned by HF Sinclair or its affiliates (the “Proposed HF Sinclair Transaction”). The proposal was made to the ~~net loss attributable~~board of directors of our ultimate general partner (the “Board”). The Board authorized the Conflicts Committee of the Board (the “Conflicts Committee”), which is comprised of independent members of the Board, to ~~Predecessor.~~review, evaluate and negotiate the Proposed HF Sinclair Transaction. The Proposed HF Sinclair Transaction is subject to the negotiation and execution of a definitive agreement. There can be no assurance that a definitive agreement will be executed or that any transaction will be approved or consummated.


~~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 notes~~Senior Notes have been satisfied.

The following financial information presents condensed consolidating balance sheets ~~statements of comprehensive income,~~ and statements of ~~cash flows~~income of the Parent, the Guarantor Subsidiaries and the Non-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-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.

~~In conjunction with~~As a result of the ~~preparation~~HEP Transaction, UNEV became a 100% owned subsidiary, and it was subsequently added as a guarantor of ~~our Condensed Consolidating Balance Sheet and Statements~~the obligations of ~~Comprehensive Income~~HEP 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 prior~~Guarantor Subsidiaries financial information for all periods ~~to reflect such balances and activity within the respective guarantor and non-guarantor subsidiaries columns.~~presented.

- 30 -

Condensed Consolidating Balance Sheet


June 30, 2023	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	6,728	$	(806)	$	1,923	$	—	$	7,845
Accounts receivable	—		84,296		1,380		(1,332)		84,344
Prepaid and other current assets	338		11,592		384		(384)		11,930
Total current assets	7,066		95,082		3,687		(1,716)		104,119

Properties and equipment, net	—		1,374,667		—		—		1,374,667
Operating lease right-of-use assets	—		1,847		—		—		1,847
Net investment in leases	—		522,812		101,962		(101,962)		522,812
Investment in subsidiaries	2,391,253		68,634		—		(2,459,887)		—
Intangible assets, net	—		53,946		—		—		53,946
Goodwill	—		342,762		—		—		342,762
Equity method investments	—		231,824		33,438		—		265,262
Deferred turnaround costs	—		22,454		—		—		22,454
Other assets	4,895		12,661		—		—		17,556
Total assets	$	2,403,214	$	2,726,689	$	139,087	$	(2,563,565)	$	2,705,425

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	36,405	$	716	$	(1,332)	$	35,789
Accrued interest	17,650		—		—		—		17,650
Deferred revenue	—		20,028		—		—		20,028
Accrued property taxes	—		7,736		—		—		7,736
Current operating lease liabilities	—		777		—		—		777
Current finance lease liabilities	—		7,154		—		(2,351)		4,803
Other current liabilities	551		1,812		1,103		—		3,466
Total current liabilities	18,201		73,912		1,819		(3,683)		90,249

Long-term debt	1,495,442		—		—		—		1,495,442
Noncurrent operating lease liabilities	—		1,439		—		—		1,439
Noncurrent finance lease liabilities	—		148,593		—		(87,559)		61,034
Other long-term liabilities	155		29,357		—		—		29,512
Deferred revenue	—		19,581		—		—		19,581
Class B Unit	—		62,554		—		—		62,554
Equity - partners	889,416		2,391,253		68,634		(2,472,323)		876,980
Equity - noncontrolling interests			—		68,634				68,634
Total liabilities and equity	$	2,403,214	$	2,726,689	$	139,087	$	(2,563,565)	$	2,705,425

- 31 -

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, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(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 assets	256		12,141		356		(356)		12,397
Total current assets	4,572		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 subsidiaries	2,432,767		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 assets	5,865		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 interest	17,992		—		—		—		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 liabilities	117		1,793		520		—		2,430
Total current liabilities	18,109		70,160		1,065		(3,510)		85,824

Long-term debt	1,556,334		—		—		—		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 - partners	868,760		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

- 32 -

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 June 30, 2023	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	109,922	$	—	$	—	$	109,922
Third parties	—		29,833		—		—		29,833
	—		139,755		—		—		139,755
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		51,307		1,835		—		53,142
Depreciation and amortization	—		25,897		—		—		25,897
General and administrative	1,608		3,904		—		—		5,512

	1,608		81,108		1,835		—		84,551
Operating income (loss)	(1,608)		58,647		(1,835)		—		55,204

Other income (expense):
Equity in earnings of subsidiaries	77,341		1,540		—		(78,881)		—
Equity in earnings of equity method investments	—		2,751		794		—		3,545
Interest expense	(25,504)		(5,064)		—		4,120		(26,448)
Interest income	—		20,356		4,120		(4,120)		20,356

Gain on sale of assets and other	—		102				—		102
	51,837		19,685		4,914		(78,881)		(2,445)
Income before income taxes	50,229		78,332		3,079		(78,881)		52,759
State income tax benefit	—		32		—		—		32
Net income	50,229		78,364		3,079		(78,881)		52,791
Allocation of net income attributable to noncontrolling interests	—		(1,023)		(1,539)		—		(2,562)

Net income attributable to the partners	$	50,229	$	77,341	$	1,540	$	(78,881)	$	50,229

- 33 -

Condensed Consolidating Statement of ~~Comprehensive~~ Income


Six Months Ended June 30, 2023	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	226,800	$	—	$	—	$	226,800
Third parties	—		56,249		—		—		56,249
	—		283,049		—		—		283,049
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		102,129		3,155		—		105,284
Depreciation and amortization	—		50,560		—		—		50,560
General and administrative	3,090		7,057		—		—		10,147

	3,090		159,746		3,155		—		165,991
Operating income (loss)	(3,090)		123,303		(3,155)		—		117,058

Other income (expense):
Equity in earnings of subsidiaries	161,369		3,292		—		(164,661)		—
Equity in earnings of equity method investments	—		5,924		1,503		—		7,427
Interest expense	(50,528)		(10,133)		—		8,235		(52,426)
Interest income	—		40,756		8,235		(8,235)		40,756

Gain on sale of assets and other	—		275		—		—		275
	110,841		40,114		9,738		(164,661)		(3,968)
Income before income taxes	107,751		163,417		6,583		(164,661)		113,090
State income tax expense	—		(2)		—		—		(2)
Net income	107,751		163,415		6,583		(164,661)		113,088
Allocation of net income attributable to noncontrolling interests	—		(2,046)		(3,291)		—		(5,337)

Net income attributable to the partners	$	107,751	$	161,369	$	3,292	$	(164,661)	$	107,751

- 34 -

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 June 30, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	110,537	$	—	$	—	$	110,537
Third parties	—		25,233		—		—		25,233
	—		135,770		—		—		135,770
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		52,823		1,076		—		53,899
Depreciation and amortization	—		26,974		—		—		26,974
General and administrative	912		3,770		—		—		4,682

	912		83,567		1,076		—		85,555
Operating income (loss)	(912)		52,203		(1,076)		—		50,215

Other income (expense):
Equity in earnings of subsidiaries	77,104		1,927		—		(79,031)		—
Equity in earnings of equity method investments	—		4,641		806		—		5,447
Interest expense	(19,400)		(5,071)		—		4,124		(20,347)
Interest income	—		24,331		4,124		(4,124)		24,331


Gain on sale of assets and other	—		45		—		—		45
	57,704		25,873		4,930		(79,031)		9,476
Income before income taxes	56,792		78,076		3,854		(79,031)		59,691
State income tax expense	—		(14)		—		—		(14)
Net income	56,792		78,062		3,854		(79,031)		59,677
Allocation of net income attributable to noncontrolling interests	—		(958)		(1,927)		—		(2,885)


Net income attributable to the partners	$	56,792	$	77,104	$	1,927	$	(79,031)	$	56,792

- 35 -

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


Six Months Ended June 30, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	—		202,791		—		—		202,791
Third parties	—		53,177		—		—		53,177
	—		255,968		—		—		255,968
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		94,757		1,767		—		96,524
Depreciation and amortization	—		49,161		—		—		49,161
General and administrative	2,000		6,994		—		—		8,994

	2,000		150,912		1,767		—		154,679
Operating income (loss)	(2,000)		105,056		(1,767)		—		101,289

Other income (expense):
Equity in earnings of subsidiaries	140,431		4,098		—		(144,529)		—
Equity in earnings of equity method investments	—		7,361		1,712		—		9,073
Interest expense	(32,080)		(10,157)		—		8,251		(33,986)
Interest income	—		36,978		8,251		(8,251)		36,978


Gain on sale of assets and other	—		146		—		—		146
	108,351		38,426		9,963		(144,529)		12,211
Income before income taxes	106,351		143,482		8,196		(144,529)		113,500
State income tax expense	—		(45)		—		—		(45)
Net income	106,351		143,437		8,196		(144,529)		113,455
Allocation of net income attributable to noncontrolling interests	—		(3,006)		(4,098)				(7,104)


Net income attributable to the partners	$	106,351	$	140,431	$	4,098	$	(144,529)	$	106,351

- 36 -

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~~

Ta e 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 ~~Delaware~~publicly 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 June 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 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 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 ~~and~~and/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

- 37 -

Ta e 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 ~~will~~should support volumes in our product pipelines, crude gathering ~~system~~systems and terminals.

~~Acquisitions~~

HF Sinclair Proposal

On ~~February 22, 2016, HFC obtained~~May 3, 2023, we received a 50% membership interest in Osage Pipe Line Company, LLC (“Osage”) in a non-monetary exchange for a 20-year terminalling services agreement, whereby a subsidiary of Magellan Midstream Partners (“Magellan”) will provide terminalling services fornon-binding proposal from HF Sinclair to acquire 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, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to HFC’s El Dorado Refinery in Kansas and also has a connection~~outstanding common units of HEP not owned by HF Sinclair or its affiliates (the “Proposed HF Sinclair Transaction”). The proposal was made to the ~~Jayhawk pipeline that services~~board of directors of our ultimate general partner (the “Board”). The Board authorized 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 operatorConflicts Committee of the ~~Osage Pipeline~~Board (the “Conflicts Committee”), which is comprised of independent members of the Board, to review, evaluate and ~~transitioned into~~negotiate the Proposed HF Sinclair Transaction. The Proposed HF Sinclair Transaction is subject to the negotiation and execution of a definitive agreement. There can be no assurance that ~~role.~~a definitive agreement will be executed or that any transaction will be approved or consummated.

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 accountedMarket Developments

Our results for the ~~transaction as a financing arrangement. Accordingly, the tanks remained on HFC’s balance sheet~~six months ended June 30, 2023 were favorably impacted by global demand for transportation fuels, lubricants 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~~transportation and terminal services having returned to ~~Cheyenne Pipeline LLC. Cheyenne Pipeline LLC~~pre-pandemic levels. We expect our customers will continue to ~~be operated~~adjust refinery production levels commensurate with market demand. The extent to which HEP’s future results are affected by ~~an affiliate~~the COVID-19 pandemic or 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, which have expiration dates from 2024 to 2037. These minimum volume commitments accounted for approximately 73% and 64% of ~~Plains, which owns~~our total tariffs and fees billed to customers for the ~~remaining 50% interest. The 87-mile crude oil pipeline runs from Fort Laramie to Cheyenne, Wyoming~~six months ended June 30, 2023 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, which owns the newly constructed atmospheric distillation tower, fluid catalytic cracking unit, and polymerization unit located at HFC’s Woods Cross Refinery, 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 of SeptemberJune 30, ~~2017, these commitments provide minimum annualized revenues of $57.3 million.~~

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 ~~acquisitions~~minimum 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 Alon~~HF Sinclair

We serve ~~HFC’s~~HF Sinclair’s refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from ~~2019~~2024 to ~~2036.~~2037. Under these agreements, ~~HFC~~HF 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,~~July 1, 2023, these agreements with ~~HFC~~HF Sinclair require minimum annualized payments to us of ~~$321.3~~$496 million.

If ~~HFC~~HF 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.~~

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 (“Omnibus~~HF Sinclair (the “Omnibus Agreement”), we pay ~~HFC~~HF Sinclair an annual administrative fee, currently ~~$2.5~~$5.7 million, for the provision by ~~HFC~~HF Sinclair or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by ~~HFC~~HF Sinclair who perform services

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for us on behalf of Holly Logistic Services, L.L.C. (“HLS”), or the cost of their employee benefits, which are separately charged to us by ~~HFC.~~HF Sinclair. We also reimburse ~~HFC~~HF Sinclair and its affiliates for direct expenses they incur on our behalf.

~~Table of Contentsril 19,~~

Under HLS’s Secondment Agreement with ~~HFC,~~HF Sinclair, certain employees of ~~HFC~~HF Sinclair are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses ~~HFC~~HF 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 current~~HFC (and now HF Sinclair) that has historically facilitated our growth. Subject to the final negotiated terms of a definitive agreement with HF Sinclair on the Proposed HF Sinclair Transaction and the discretion of our Board, our future growth ~~plan is to continue to pursue purchases of logistic~~plans 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 to~~enhance our ~~unitholders and increase the diversity of~~service platform while creating accretion for our ~~revenues.~~unitholders.

~~Table of Contentsril 19,~~

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RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow, Volumes and ~~Volumes~~Balance Sheet Data

The following tables present income, distributable cash flow and volume information for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016. These results have been adjusted~~2022.

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	Three Months Ended June 30,				Change from
	2023		2022		2022
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	19,189	$	20,920	$	(1,731)
Affiliates—intermediate pipelines	8,318		7,521		797
Affiliates—crude pipelines	20,665		20,971		(306)
	48,172		49,412		(1,240)
Third parties—refined product pipelines	9,380		5,215		4,165
Third parties—crude pipelines	13,466		13,692		(226)
	71,018		68,319		2,699
Terminals, tanks and loading racks:
Affiliates	38,844		38,232		612
Third parties	6,987		6,326		661
	45,831		44,558		1,273

Refinery processing units—Affiliates	22,906		22,893		13

Total revenues	139,755		135,770		3,985
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	53,142		53,899		(757)
Depreciation and amortization	25,897		26,974		(1,077)
General and administrative	5,512		4,682		830

	84,551		85,555		(1,004)
Operating income	55,204		50,215		4,989
Other income (expense):
Equity in earnings of equity method investments	3,545		5,447		(1,902)
Interest expense, including amortization	(26,448)		(20,347)		(6,101)
Interest income	20,356		24,331		(3,975)


Gain on sale of assets and other	102		45		57
	(2,445)		9,476		(11,921)
Income before income taxes	52,759		59,691		(6,932)
State income tax benefit (expense)	32		(14)		46
Net income	52,791		59,677		(6,886)

Allocation of net income attributable to noncontrolling interests	(2,562)		(2,885)		323
Net income attributable to the partners	50,229		56,792		(6,563)


Limited partners’ earnings per unit—basic and diluted	$	0.40	$	0.45	$	(0.05)
Weighted average limited partners’ units outstanding	126,440		126,440		—
EBITDA (1)	$	82,186	$	79,796	$	2,390
Adjusted EBITDA (1)	$	103,202	$	104,244	$	(1,042)
Distributable cash flow (2)	$	73,272	$	78,458	$	(5,186)

Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	136,598		140,333		(3,735)
Affiliates—intermediate pipelines	104,472		124,588		(20,116)
Affiliates—crude pipelines	390,285		477,241		(86,956)
	631,355		742,162		(110,807)
Third parties—refined product pipelines	42,202		37,989		4,213
Third parties—crude pipelines	208,384		138,040		70,344
	881,941		918,191		(36,250)
Terminals and loading racks:
Affiliates	683,089		572,289		110,800
Third parties	49,909		36,748		13,161
	732,998		609,037		123,961
Refinery processing units—Affiliates	59,754		72,342		(12,588)
Total for pipelines and terminal and refinery processing unit assets (bpd)	1,674,693		1,599,570		75,123

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	Six Months Ended June 30,				Change from
	2023		2022		2022
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	38,120	$	37,780	$	340
Affiliates—intermediate pipelines	16,600		15,027		1,573
Affiliates—crude pipelines	45,332		39,248		6,084
	100,052		92,055		7,997
Third parties—refined product pipelines	15,648		14,475		1,173
Third parties—crude pipelines	25,900		26,569		(669)
	141,600		133,099		8,501
Terminals, tanks and loading racks:
Affiliates	77,317		69,440		7,877
Third parties	14,701		12,133		2,568
	92,018		81,573		10,445

Refinery processing units—Affiliates	49,431		41,296		8,135

Total revenues	283,049		255,968		27,081
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	105,284		96,524		8,760
Depreciation and amortization	50,560		49,161		1,399
General and administrative	10,147		8,994		1,153

	165,991		154,679		11,312
Operating income	117,058		101,289		15,769
Other income (expense):
Equity in earnings of equity method investments	7,427		9,073		(1,646)
Interest expense, including amortization	(52,426)		(33,986)		(18,440)
Interest income	40,756		36,978		3,778


Gain on sale of assets and other	275		146		129
	(3,968)		12,211		(16,179)
Income before income taxes	113,090		113,500		(410)
State income tax benefit (expense)	(2)		(45)		43
Net income	113,088		113,455		(367)

Allocation of net income attributable to noncontrolling interests	(5,337)		(7,104)		1,767
Net income attributable to the partners	107,751		106,351		1,400


Limited partners’ earnings per unit—basic and diluted	$	0.85	$	0.90	$	(0.05)
Weighted average limited partners’ units outstanding	126,440		118,087		8,353
EBITDA (1)	$	169,983	$	152,565	$	17,418
Adjusted EBITDA (1)	$	212,077	$	189,581	$	22,496
Distributable cash flow (2)	$	157,183	$	142,912	$	14,271

Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	139,782		123,863		15,919
Affiliates—intermediate pipelines	109,372		121,213		(11,841)
Affiliates—crude pipelines	431,768		436,865		(5,097)
	680,922		681,941		(1,019)
Third parties—refined product pipelines	41,321		43,479		(2,158)
Third parties—crude pipelines	192,273		134,602		57,671
	914,516		860,022		54,494
Terminals and loading racks:
Affiliates	684,956		509,509		175,447
Third parties	46,206		42,519		3,687
	731,162		552,028		179,134
Refinery processing units—Affiliates	56,542		68,804		(12,262)
Total for pipelines and terminal and refinery processing unit assets (bpd)	1,702,220		1,480,854		221,366

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(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to ~~include~~ the ~~combined results~~partners plus or minus (i) interest expense, (ii) interest income, (iii) state income tax expense and (iv) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (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 1~~minimum guaranteed tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. Similarly, certain pipeline lease payments were previously recorded as operating costs and expenses, but the underlying lease was reclassified from an operating lease to a financing lease, and these payments are now recorded as interest expense and reductions in the lease liability. EBITDA and Adjusted EBITDA are not calculations based upon generally accepted accounting principles (“GAAP”). However, the amounts included in the EBITDA and Adjusted EBITDA calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income attributable to the ~~Consolidated Financial Statements~~partners or operating income, as indications of ~~HEP~~our operating performance or as alternatives to operating cash flow as a measure of liquidity. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA are presented here because they are widely used financial indicators used by investors and analysts to measure performance. EBITDA and Adjusted EBITDA are also used by our management for ~~discussion of~~internal analysis and as a basis for compliance with financial covenants.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Net income attributable to the partners	$	50,229	$	56,792	$	107,751	$	106,351
Add (subtract):
Interest expense	26,448		20,347		52,426		33,986
Interest income	(20,356)		(24,331)		(40,756)		(36,978)
State income tax benefit (expense)	(32)		14		2		45
Depreciation and amortization	25,897		26,974		50,560		49,161
EBITDA	$	82,186	$	79,796	$	169,983	$	152,565




Share of Osage environmental remediation costs	350		—		1,220		—
Acquisition integration and regulatory costs	954		886		1,472		1,722
Tariffs and fees not included in revenues	21,319		25,168		42,615		38,507
Lease payments not included in operating costs	(1,607)		(1,606)		(3,213)		(3,213)
Adjusted EBITDA	$	103,202	$	104,244	$	212,077	$	189,581

(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

~~Table of Contentsril 19,~~

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

~~Table of Contentsril 19,~~

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 forth~~amounts included in the ~~definitive agreement~~calculation 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 ~~partner~~exception of ~~HEP, pursuant~~maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to ~~which the incentive distribution rights held~~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 ~~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

~~Table of Contentsril 19,~~

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Net income attributable to the partners	$	50,229	$	56,792	$	107,751	$	106,351
Add (subtract):
Depreciation and amortization	25,897		26,974		50,560		49,161
Amortization of discount and deferred debt issuance costs	1,082		1,033		2,153		1,803

Customer billings greater than net income recognized	4,897		125		9,770		621
Maintenance capital expenditures (3)	(6,036)		(4,963)		(7,738)		(10,583)
Increase (decrease) in environmental liability	(864)		(124)		(1,003)		(244)
Share of Osage insurance coverage	—		—		500		—
Reimbursable deferred revenue	(3,509)		(3,356)		(8,914)		(6,590)



Other	1,576		1,977		4,104		2,393
Distributable cash flow	$	73,272	$	78,458	$	157,183	$	142,912


~~(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.


	June 30, 2023		December 31, 2022
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	7,845	$	10,917
Working capital	$	13,870	$	17,293
Total assets	$	2,705,425	$	2,747,502
Long-term debt	$	1,495,442	$	1,556,334
Partners’ equity	$	876,980	$	857,126

Results of Operations—Three Months Ended ~~September~~June 30, ~~2017~~2023 Compared with Three Months Ended ~~September~~June 30, ~~2016~~2022

Summary

Net income attributable to the partners for the ~~third~~second quarter of 2023 was ~~$42.1~~$50.2 million ($~~0.66~~0.40 per basic and diluted limited partner unit) compared to ~~$34.8~~$56.8 million ($~~0.33~~0.45 per basic and diluted limited partner unit) for the ~~third~~second quarter of ~~2016.~~ 2022. The ~~increase~~decrease in ~~earnings is primarily~~net income attributable to HEP was mainly 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.~~higher interest expense associated with higher interest rates.

~~Our major shippers are obligated to make deficiency payments to us if they do not exceed their minimum volume shipping obligations.~~ Revenues

Revenues for the ~~three months ended September 30, 2017, include the recognition~~second quarter of $0.7 million of prior shortfalls billed to shippers in 2016 compared to 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 contracts2023 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, 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 quarter were $110.4~~$139.8 million, an increase of ~~$17.8~~$4.0 million compared to the ~~third~~second quarter of ~~2016 primarily~~2022. The increase was mainly due to higher revenues ~~of $16.6 million~~ from the ~~Woods Cross~~Sinclair Transportation assets we acquired, our UNEV product pipeline and product pipelines servicing Delek US Holdings, Inc.'s (“Delek”) Big Spring, Texas 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~~as well as rate increases that went into effect on July 1, 2022, partially offset by lower revenues on our product ~~and intermediate pipeline shipments associated with higher production at HFC’s~~pipelines servicing HF Sinclair's Navajo refinery.

~~Table of Contentsril 19,~~

Revenues from our refined product pipelines were ~~$32.2~~$28.6 million, an increase of ~~$1.7~~$2.4 million compared to the ~~third~~second quarter of ~~2016, and shipments~~2022. Shipments averaged ~~217.3 mbpd~~178.8 thousand barrels per day (“mbpd”) compared to ~~201.5~~178.3 mbpd for the ~~third~~second quarter of ~~2016. Revenues and~~2022. The increase in revenues was mainly due to higher volumes ~~both increased primarily due to higher shipments~~ on our ~~New Mexico refined~~UNEV product pipeline and product pipelines ~~in line with increased production at HFC's~~servicing Delek's Big Spring, Texas refinery, rate increases that went into effect on July 1, 2022 and more pipeline tariffs recognized as revenue rather than interest income under sales-type lease accounting, partially offset by lower volumes on product pipelines serving HF Sinclair's Navajo refinery.

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Ta e o

Revenues from our intermediate pipelines were ~~$7.8~~$8.3 million, an increase of ~~$1.2~~$0.8 million ~~on shipments averaging 151.6 mbpd~~ compared to ~~142.4~~the second quarter of 2022. Shipments averaged 104.5 mbpd for the ~~third~~second quarter of ~~2016. These volume increases were principally~~2023 compared to 124.6 mbpd for the second quarter of 2022. The decrease in volumes was mainly due to ~~increased shipments~~lower throughputs on our ~~New Mexico~~ intermediate pipelines ~~in line with~~servicing HF Sinclair's Navajo refinery while revenues increased ~~production at HFC's Navajo refinery.~~due to tariff increases on contractual minimum volume guarantees as well as higher revenues on our Sinclair Transportation intermediate pipelines.

Revenues from our crude pipelines were ~~$14.1~~$34.1 million, a decrease of ~~$2.9~~$0.5 million ~~on shipments averaging 267.9~~compared to the second quarter of 2022. Shipments averaged 598.7 mbpd compared to ~~271.3~~615.3 mbpd for the ~~third~~second quarter of ~~2016. This revenue~~2022. The decrease isin volumes and revenues was mainly attributable to ~~a $2.9 million one-time reduction in revenue associated with our~~lower volumes on the New Mexico and Texas crude ~~gathering~~pipelines and the Sinclair Transportation crude pipelines. ~~This adjustment will have no material impact on revenues going forward.~~

Revenues from terminal, tankage and loading rack fees were ~~$35.7~~$45.8 million, an increase of $1.3 million compared to the ~~third~~second quarter of ~~2016.~~2022. Refined products and crude oil terminalled in the facilities averaged ~~495.5~~733.0 mbpd compared to ~~505.8~~609.0 mbpd for the ~~third~~second quarter of ~~2016.~~2022. The ~~revenue increases are~~increase in volumes was mainly due to higher volumes on the Sinclair Transportation assets and certain crude tanks. Revenues increased ~~reimbursable revenue for projects managed by HEP~~mainly due to higher revenues on the Sinclair Transportation and ~~reimbursed by HFC.~~Tulsa assets as well as rate increases that went into effect on July 1, 2022.

Revenues fromrefinery processing units were ~~$20.6~~$22.9 million, ~~an increase~~consistent with the second quarter of ~~$16.4 million on~~2022, and throughputs ~~averaging 61.5~~averaged 59.8 mbpd compared to ~~46.5~~72.3 mbpd for the ~~third~~second quarter of ~~2016. This increase~~2022. The decrease in ~~revenue and volume is primarily~~volumes was due to ~~the Woods Cross~~decreased throughput at our El Dorado refinery processing units ~~acquired~~due to a turnaround at that refinery. Revenues did not decrease in proportion to the ~~fourth quarter of 2016.~~decrease in volumes mainly due to contractual minimum volume guarantees and rate increases.

Operations Expense

Operations (exclusive of depreciation and amortization) expense was $53.1 million for the three months ended ~~September~~June 30, ~~2017,~~ ~~increased~~ ~~by $3.9~~2023, a decrease of $0.8 million compared to the ~~three months ended September 30, 2016.~~second quarter of 2022. The ~~increase is~~ decrease was mainly due to ~~an increase in~~lower natural gas costs, partially offset by increased maintenance ~~project~~ costs.

Depreciation and Amortization

Depreciation and amortization for the three months ended ~~September~~June 30, ~~2017, increased~~2023 decreased by ~~$0.1~~$1.1 million compared to the three months ended ~~September~~ June 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~~June 30, ~~2017,~~2023 increased by ~~$1.0~~$0.8 million compared to the three months ended ~~September~~June 30, ~~2016,~~2022, mainly due to higher ~~legal and consulting costs associated with our agreement, pursuant to which~~professional service fees incurred in 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.~~three months ended June 30, 2023.

Equity in Earnings of Equity Method Investments


	Three Months Ended June 30,
Equity Method Investment	2023		2022
	(in thousands)
Osage Pipe Line Company, LLC	(1,370)		606
Cheyenne Pipeline LLC	1,401		1,586
Cushing Connect Terminal Holdings LLC	793		805
Pioneer Investments Corp.	3,001		3,221
Saddle Butte Pipeline III, LLC	(280)		(771)
Total	$	3,545	$	5,447

Equity in earnings of Osage Pipe Line Company, LLC (“Osage”) decreased for the three months ended June 30, 2023, mainly due to our 50% share of environmental remediation and recovery expenses associated with the release of crude oil on the Osage pipeline, and expenses associated with pipeline inspections. 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 pipeline resumed operations in the third quarter of 2022 and remediation efforts are underway.

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Three Months Ended September 30,
Equity Method Investment 2017 2016
(in thousands)
SLC Pipeline LLC $ 1,030
$ 1,283
Frontier Aspen LLC 1,662
586
Osage Pipe Line Company, LLC 1,119
975
Cheyenne Pipeline LLC 1,261
923
Total $ 5,072
$ 3,767

Ta e o

Interest Expense, including Amortization

Interest expense for the three months ended ~~September~~June 30, ~~2017, totaled $14.1~~2023 was $26.4 million, ~~a decrease~~an increase of ~~$0.4~~$6.1 million compared to the three months ended ~~September~~June 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%~~6.7% and ~~5.3%~~4.7% for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~,2022, respectively.

~~State~~Interest Income ~~Tax~~

~~We recorded state~~Interest income ~~tax benefit of~~ ~~$69,000~~ ~~and expense of $61,000~~ for the three months ended ~~September~~June 30, ~~2017 and 2016, respectively. All tax expense is solely attributable~~2023, totaled $20.4 million, a decrease of $4.0 million compared to the ~~Texas margin tax.~~three months ended June 30, 2022. The decrease was mainly due to lower sales-type lease interest income.

~~Table of Contentsril 19,~~

Results of Operations—~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2022

Summary

Net income attributable to ~~Holly Energy Partners~~the partners for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 was ~~$109.0~~$107.8 million ($0.85 per basic and diluted limited partner unit) compared to $106.4 million ($0.90 per basic and diluted limited partner unit) for the six months ended June 30, 2022. Results for the six months ended June 30, 2023 reflect the impact to our equity in earnings (loss) of equity method investments of HEP’s 50% share of incurred and estimated environmental remediation and recovery expenses, net of insurance proceeds received to date, associated with a release of crude oil on the Osage pipeline of $1.2 million. The increase in earnings was mainly due to net income from Sinclair Transportation, which was acquired on March 14, 2022 and higher revenues on our UNEV pipeline, partially offset by higher interest expense and higher operating costs and expenses.

Revenues

Revenues for the six months ended June 30, 2023, were $283.0 million, an increase of $27.1 million compared to ~~$116.9 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022. The ~~decrease in earnings is primarily due~~increase was mainly attributable to ~~(a) a charge of $12.2 million related to the early redemption of~~revenues from our ~~previously outstanding $300 million, 6.5% Senior Notes (the “6.5% Senior Notes”), due in 2020, (b)~~Sinclair Transportation assets, higher ~~interest expense of $5.1 million, and (c) lower refined product pipeline~~ revenues ~~of $7.7 million offset by (d) earnings from~~on our Woods Cross refinery processing units, ~~acquired~~which were down for a scheduled turnaround in ~~the fourth quarter~~March 2022, and rate increases that went into effect on July 1, 2022, partially offset by lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery.

Revenues from our refined product pipelines were $53.8 million, an increase of ~~2016.~~

~~Revenues for the nine months ended September 30, 2017, include the recognition of $3.5~~$1.5 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 contracts 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~~six months ended ~~September~~June 30, ~~2016.~~ 2022. Shipments averaged 181.1 mbpd compared to 167.3 mbpd for the six months ended June 30, 2022. The volume and revenue increases were mainly due to volumes on the acquired Sinclair Transportation assets and higher volumes on our UNEV pipeline, partially offset by lower volumes on our product pipelines servicing HF Sinclair's Navajo refinery due to lower throughput at the refinery. We recognized a significant portion of the Sinclair Transportation refined product pipeline tariffs as interest income under sales-type lease accounting.

Revenues from our intermediate pipelines were $16.6 million, an increase ~~is primarily attributable~~of $1.6 million compared to the ~~$44.1 million of revenue recorded~~six months ended June 30, 2022. Shipments averaged 109.4 mbpd compared to 121.2 mbpd for the ~~Woods Cross refinery processing units acquired in the fourth quarter of 2016, offset by a $9.8 million~~six months ended June 30, 2022. The decrease in ~~revenues around assets serving HFC's~~volumes was mainly due to lower throughputs on our intermediate pipelines servicing HF Sinclair's Navajo refinery ~~primarily~~while revenues increased due to the ~~substantial turnaround at the Navajo refinery during the first quarter~~acquired Sinclair Transportation intermediate pipelines as well as contractual minimum volume guarantees and rate increases that went into effect on July 1, 2022.

Revenues from our crude pipelines were $71.2 million, an increase of ~~2017. Overall pipeline volumes were down 1.8%~~$5.4 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Revenues from our~~ ~~refined product pipelines~~ ~~were $93.5 million, a decrease of $7.7 million, on shipments averaging 205.3~~2022. Shipments averaged 624.0 mbpd compared to ~~204.1~~571.5 mbpd for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022. The ~~decrease~~increase in volumes was mainly attributable to volumes on the acquired Sinclair Transportation crude pipelines. The increase in revenues ~~is primarily due to lower volumes on product pipelines~~was mainly due to the ~~turnaround at HFC's Navajo refinery~~acquired Sinclair Transportation crude pipelines, higher revenues on our crude pipeline systems 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.~~New Mexico and Texas and rate increases that went into effect on July 1, 2022.

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~~$92.0 million, an increase of ~~$4.3~~$10.4 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. Refined products and crude oil terminalled in the facilities averaged ~~489.9~~731.2 mbpd compared to ~~478.0~~552.0 mbpd for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The volume and revenue increases are~~ 2022. Volumes increased mainly due to ~~our Tulsa crude tanks acquired~~volumes on the ~~last day of~~acquired Sinclair Transportation assets. Revenues increased mainly due to revenues on the ~~first quarter of 2016 offset by 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, 2022.

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Ta e o

Revenues fromrefinery processing units were ~~$57.5~~$49.4 million, an increase of ~~$44.6~~$8.1 million ~~on throughputs averaging 63.9~~compared to the six months ended June 30, 2022. Throughputs averaged 56.5 mbpd compared to ~~46.4~~68.8 mbpd for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The increases in revenue and volume is primarily~~2022. Revenues increased mainly due to ~~the~~higher revenues from our Woods Cross refinery processing units, ~~acquired~~which were down for a scheduled turnaround in March 2022, as well as rate increases. The decrease in volumes was 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~~six months ended ~~September~~June 30, ~~2017,~~2023 increased by ~~$13.4~~$8.8 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The increase ~~is primarily~~ was mainly due to operating costs and expenses ~~for our newly~~associated with the acquired ~~Woods Cross refinery processing units.~~Sinclair Transportation assets as well as higher employee costs, partially offset by lower natural gas costs.

~~Table of Contentsril 19,~~

Depreciation and Amortization

Depreciation and amortization for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 increased by ~~$6.5~~$1.4 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022. The increase iswas mainly due to depreciation ~~from~~on the acquired Sinclair Transportation assets and amortization of the Woods Cross refinery processing units ~~acquired in~~turnaround, partially offset by lower amortization of certain intangible assets that were fully amortized during the ~~fourth~~first quarter of ~~2016.~~2023.

General and Administrative

General and administrative costs for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 increased ~~$0.3~~by $1.2 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~ 2022 mainly due to higher legal and ~~consulting costs offset by decreased employee compensation.~~professional expenses incurred in the six months ended June 30, 2023.

Equity in Earnings of Equity Method Investments


	Six Months Ended June 30,
Equity Method Investment	2023		2022
	(in thousands)
Osage Pipe Line Company, LLC	(2,309)		1,249
Cheyenne Pipeline LLC	2,775		3,360
Cushing Connect Terminal Holdings LLC	1,503		1,711
Pioneer Investments Corp.	6,202		3,686
Saddle Butte Pipeline III, LLC	(744)		(933)
Total	$	7,427	$	9,073

Equity in earnings of Osage decreased for the six months ended June 30, 2023, mainly due to our 50% share of environmental remediation and recovery expenses, net of insurance recoveries to date, associated with the release of crude oil on the Osage pipeline, and expenses associated with pipeline inspections. 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. 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 Investments 2017 2016
(in thousands)
SLC Pipeline LLC $ 2,053
$ 3,397
Frontier Aspen, LLC 3,813
3,049
Osage Pipe Line Company, LLC 1,889
2,423
Cheyenne Pipeline LLC 3,210
1,286
Total $ 10,965
$ 10,155

Interest Expense, including Amortization

Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, totaled ~~$41.4~~$52.4 million, an increase of ~~$5.1~~$18.4 million compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The increase ~~is primarily~~ was mainly due to ~~the~~higher interest rates on our long-term debt due to market interest rate increases on our senior secured revolving credit facility and our April 2022 issuance of $400 million 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 balance~~Notes”), 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%~~6.6% and ~~4.6%~~4.2% for the ~~nine~~six months ended ~~September~~ June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~Loss on Early Extinguishment~~Interest Income

Interest income for the six months ended June 30, 2023, totaled $40.8 million, an increase of ~~Debt~~

~~A loss on early extinguishment of debt of $12.2~~$3.8 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 related~~compared 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~~six months ended ~~September~~June 30, ~~2017~~2022. The increase was mainly due to higher sales-type lease interest income from the acquired Sinclair Transportation pipelines and ~~2016, respectively. All tax expense is solely attributable to the Texas margin tax.~~terminals.

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Ta e o

LIQUIDITY AND CAPITAL RESOURCES

Overview

We have a ~~$1.4~~$1.2 billion senior secured revolving credit facility (the “Credit Agreement”) ~~expiring in~~that 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 contains~~continues to provide for an accordion feature ~~giving~~that allows us ~~the ability~~ to increase commitments under the ~~size of the facility by~~Credit Agreement up to ~~$300 million with additional lender commitments.~~a maximum amount of $1.7 billion.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we received advances totaling ~~$628~~$55.0 million and repaid ~~$431 million, resulting in a net increase of $197~~$117.0 million under the Credit Agreement, resulting in a net decrease of $62.0 million and an outstanding balance of ~~$750~~$606.0 million at ~~September~~June 30, ~~2017. We~~2023. As of June 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 $594.0 million. Amounts repaid under ~~our credit facility~~the 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

~~Table of Contentsril 19,~~

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 notes~~the 6.375% Senior Notes. The 6.375% Senior Notes were issued at par for ~~a combined aggregate principal amount outstanding~~net proceeds of ~~$500~~approximately $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 June 30, 2023, we ~~redeemed the $300~~had $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 premium~~due in 2028 (the “5% Senior Notes”, and ~~unamortized discount and financing costs of $2.4 million. We funded~~together 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. ~~For~~We did not issue any units under this program during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023. As of June 30, 2023, HEP has issued ~~1,538,452~~2,413,153 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 ~~SEC~~Securities 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 ~~would~~are 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 ~~distributions~~distribution 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 July 20, 2023, we announced our cash distribution for the second quarter of ~~incentive~~2023 of $0.35 per unit, or $1.40 on an annualized basis. Subject to the final negotiated terms of a definitive agreement with HF Sinclair on the Proposed HF Sinclair Transaction and the discretion of our Board, 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 ~~increased~~decreased by ~~$3.8~~$3.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~.2023. The cash flows used for investing activities of $13.7 million and financing activities of $157.1 million were more 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~~$167.7 million. Working capital ~~increased~~decreased by ~~$13.2~~$3.4 million to ~~$5.4~~$13.9 million at ~~September~~June 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~~$15.2 million from ~~$178.0~~$152.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, to ~~$177.5~~$167.7 million for the ~~nine~~six months ended ~~September~~June 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 six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

Cash Flows—Investing Activities

Cash flows used for investing activities were ~~$28.7~~$13.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, compared to ~~$137.1~~$338.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, a decrease of ~~$108.5~~$324.3 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, we paid the $321.4 million cash portion of the purchase price consideration for our acquisition of Sinclair Transportation. During the six months ended June 30, 2023 and ~~2016,~~2022, we invested ~~$30.7~~$16.3 million and ~~$48.2~~$23.2 million, respectively, in additions to properties and equipment, respectively. During the nine months ended September 30, 2017 and 2016, we also received $1.2 million and $1.7 million for distributions 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, 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 units and $42.6 million for the purchase of a 50% interest in the Cheyenne Pipeline during the nine months ended September 30, 2016.equipment.

~~Table of Contentsril 19,~~

Cash Flows—Financing Activities

Cash flows used ~~for~~by financing activities were ~~$145.0~~$157.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, compared to ~~$48.7~~cash flows provided by financing activities of $186.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, an increase~~2022, a decrease of ~~$96.3~~$343.1 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we received ~~$628.0~~$55.0 million and repaid ~~$431.0~~$117.0 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~~$88.6 million in regular quarterly cash distributions to our ~~general and~~ limited partners and ~~$5.0~~$4.4 million to our noncontrolling ~~interest.~~interests. During the ~~nine~~six months ended ~~September~~June 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~~$410.0 million and repaid ~~$642.5~~$529.0 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~~$81.3 million in regular quarterly cash distributions to our ~~general and~~ limited partners, and distributed ~~$3.8~~$5.3 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 forecasting~~Our 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 majority~~and 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 of~~extent necessary, we can raise additional ~~limited partner common units, the issuance of~~funds from time to time through equity or debt ~~securities and advances under our Credit Agreement, or a combination thereof. With volatility and uncertainty at times~~financings in the ~~credit~~public 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 ~~acquire~~which, 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 ~~comprising~~comprised of a noncontrolling equity interest in a ~~wholly-owned~~wholly 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 share~~75% of annual UNEV earnings before interest, income taxes, depreciation, and amortization ~~above $30~~exceeding $40 million beginning July 1, 2015, and ending in June ~~2032, subject to certain limitations.~~2032. However, ~~to the extent~~if 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, is due in August 2023.

~~Table of Contentsril 19,~~

Credit Agreement

We have a ~~$1.4~~$1.2 billion ~~senior secured revolving credit facility (the “Credit Agreement”) expiring~~Credit 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 ~~contains~~continues to provide for an accordion feature ~~giving~~that allows us ~~the ability~~ to increase the ~~size of~~commitments under the ~~facility by~~Credit 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-owned~~wholly 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.

Senior Notes

~~On January 4, 2017,~~As of June 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 have~~had $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 used~~were 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 offerings~~the offering of the 6%6.375% Senior Notes were used to partially repay ~~indebtedness~~outstanding 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. We were in compliance with the restrictive covenants for the 6% Senior Notes as of ~~September~~June 30, ~~2017.~~2023. At any time when the 6% Senior Notes are rated investment grade by ~~both~~either Moody’s ~~and~~or 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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Long-term Debt

The carrying amounts of our long-term debt are as follows:


	September 30, 2017			December 31, 2016				June 30, 2023		December 31, 2022
	(In thousands)							(In thousands)
Credit Agreement	$	750,000		$	553,000		Credit Agreement
Amount outstanding							Amount outstanding	$	606,000	$	668,000

6% Senior Notes
5% Senior Notes							5% Senior Notes
Principal	500,000			400,000			Principal	500,000		500,000
Unamortized debt issuance costs	(4,934		)	(6,607		)	Unamortized debt issuance costs	(5,435)		(5,953)
	495,066			393,393				494,565		494,047
6.5% Senior Notes

6.375% Senior Notes							6.375% Senior Notes
Principal	—			300,000			Principal	400,000		400,000
Unamortized discount and debt issuance costs	—			(2,481		)
Unamortized debt issuance costs							Unamortized debt issuance costs	(5,123)		(5,713)
	—			297,519				394,877		394,287

Total long-term debt	$	1,245,066		$	1,243,912		Total long-term debt	$	1,495,442	$	1,556,334

~~See “Risk Management” for a discussion of our interest rate swaps.~~

~~Table of Contentsril 19,~~

Contractual Obligations

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

Impact of Inflation

~~Inflation in the United States has been~~After being relatively moderate in recent years, ~~and did not have a material impact on our results of operations for~~PPI in the ~~nine~~ ~~months ended September 30, 2017 and 2016. Historically, the~~United States increased significantly. PPI has increased an average of ~~0.2%~~5% annually over the past five calendar years, including ~~a decrease~~an 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 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 six months ended June 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.

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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, HFC~~HF 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 ~~HFC~~HF Sinclair and occurring or existing prior to the date of such transfers.

We have an environmental agreement with ~~Alon~~Delek with respect to pre-closing environmental costs and liabilities relating to the pipelines and terminals acquired from ~~Alon~~Delek in 2005, under which ~~Alon~~Delek 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~~June 30, ~~2017,~~2023, we ~~have~~had an accrual of ~~$6.4~~$19.5 million ~~that relates~~related to environmental clean-up projects for which we have assumed liability, including accrued environmental liabilities assumed in the Sinclair Transportation acquisition that have been fair valued at $14.7 million as of the acquisition date, or for which the indemnity provided for by ~~HFC~~HF 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 six months ended June 30, 2023 by $1.2 million for our 50% share of incurred and estimated environmental remediation and recovery expenses associated with the release. From the date of the release through June 30, 2023, our equity in earnings of equity method investments was reduced by $18.8 million for our 50% share of incurred and estimated environmental remediation and recovery expenses 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 expected to be $10.0 million. The ~~remaining projects, including assessment~~pipeline resumed operations in the third quarter of 2022 and ~~monitoring activities,~~remediation efforts are ~~covered under~~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 ~~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 ~~POLICIES~~ESTIMATES

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 ~~may~~could 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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~~Table of Contents~~Ta~~ril 19,~~e o

~~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.

~~Table of Contentsril 19,~~

At ~~September~~June 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~~June 30, ~~2017~~,2023, the fair value of our 6% Senior Notes was ~~$524.4~~$859.7 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 6% Senior Notes at ~~September~~June 30, ~~2017~~,2023 would result in a change of approximately ~~$15~~$21.8 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~~June 30, ~~2017~~,2023, borrowings outstanding under the Credit Agreement were ~~$750~~$606.0 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 ~~normal~~catastrophic 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.


~~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’s~~SEC’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~~June 30, ~~2017~~,2023, at a reasonable level of assurance.

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(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.

~~Table of Contentsril 19,~~

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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 ~~regulatory~~other 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 believe~~and 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 ~~material~~materially adverse ~~impact~~effect on our financial condition, results of operations or cash flows.


~~Item 1A.~~	~~Risk Factors~~

Item 1A.Risk Factors

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 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 ~~factors~~information discussed in our ~~2016~~2022 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 ~~2016~~2022 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.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 5.Other Information

None


~~Item 6.~~	~~Exhibits~~

Item 6.Exhibits

The Exhibit Index beginning on ~~page 49~~ page 56 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of ~~the~~this Quarterly Report on Form 10-Q.

~~Table of Contentsril 19,~~

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Exhibit Index


Exhibit Number			Description

~~Exhibit~~ ~~Number~~ 3.1			~~Description~~

~~2.1~~	Membership Interest Purchase Agreement between Plains Pipeline, L.P. and HEP Casper SLC LLC, dated as of August 7, 2017 (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K dated August 10, 2017, File No. 1-3225).
~~2.2~~	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~~	~~First~~Second 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).
~~3.5~~3.2			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 ~~its~~the quarterly period ended June 30, 2004, File No. 1-32225).
~~3.9~~3.3			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).
~~3.10~~3.4			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).
~~3.11~~3.5			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 dated~~filed on May 3, 2011, File No. 1-32225).
~~3.12~~3.6			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).
~~4.1~~10.1			~~Second Supplemental Indenture, dated July 26, 2017,~~Third Amendment to Amended and Restated Master Tolling Agreement (Operating Assets), by and ~~among~~between HF Sinclair El Dorado Refining LLC, HF Sinclair Woods Cross Refining LLC and Holly Energy ~~Holdings LLC, HEP Cheyenne Shortline LLC, the Registrant, Holly Energy Finance Corp.~~Partners - Operating L.P., ~~the other guarantors therein and U.S. Bank, National Association, as trustee. (Incorporated~~dated effective January 1, 2023 (incorporated by reference to Exhibit ~~4.1~~10.3 of ~~the~~ Registrant’s Quarterly Report on Form 10-Q for ~~the fiscal quarter~~its quarterly period ended ~~June 30, 2017,~~March 31, 2023, File No. ~~1-3225)~~1-32225).
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,~~


22.1*
~~10.2~~	~~Third Amended~~Subsidiary Guarantors and ~~Restated Credit Agreement, dated July 26, 2017, by~~Issuers of Guaranteed Securities 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~~Affiliates whose Securities Collateralize Securities of the ~~Registrants’ Current Report on Form 8-K, dated July 31, 2017,File no. 1-32225).~~Registrant.
~~10.3~~31.1*		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~~June 30, ~~2017,~~2023 formatted in ~~XBRL (Extensible~~iXBRL (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.~~

HOLLY ENERGY PARTNERS, L.P.

SIGNATURES

Pursuant to the requirements of the Securities ~~and~~ Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

- 56 -

Ta e o


			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, 2017~~August 3, 2023				/s/ ~~Richard L. Voliva III~~John Harrison
				~~Richard L. Voliva III~~John Harrison
				~~Executive~~Senior Vice President, ~~and~~ Chief Financial Officer and Treasurer (Principal Financial Officer)

~~Date: November 2, 2017~~August 3, 2023				/s/ Kenneth P. Norwood
				Kenneth P. Norwood
				Vice President and Controller (Principal Accounting Officer)

- 4957 -





	FORWARD-LOOKING STATEMENTS				3

PART I. FINANCIAL INFORMATION						45

			Item 1.	Financial Statements (Unaudited)		45

				Consolidated Balance Sheets		45

				Consolidated Statements of Income		56

				~~Consolidated Statements of Comprehensive Income~~		6

		Consolidated Statements of Cash Flows	7

				Consolidated ~~Statement~~Statements of Equity		8

				Notes to Consolidated Financial Statements		9

			Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		3137

			Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4653

			Item 4.	Controls and Procedures		4653

PART II. OTHER INFORMATION						4755

			Item 1.	Legal Proceedings		4755

			Item 1A.	Risk Factors		4755

			Item 6.	Exhibits		4755

				Index to Exhibits		4856

				SIGNATURES		4956



	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



	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



	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



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



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



	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



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



	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



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