UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________

FORM 10-Q

______________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 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
(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

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 ☒

The number of the registrant’s outstanding common units at ~~November 4, 2022,~~May 1, 2023, was 126,440,201.

Table of 19,

HOLLY ENERGY PARTNERS, L.P.

INDEX

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Table of 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, statements regarding funding of capital expenditures and distributions, distributable cash flow coverage and leverage targets, 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 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. 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’s (“~~to acquire all of the outstanding common units of HEP not beneficially owned by HF ~~Sinclair”~~Sinclair or its affiliates in exchange for shares of common stock, par value $0.01 per share of HF Sinclair (the “Proposed HF Sinclair Transaction”) and ~~our~~the ability of HF Sinclair or HEP to ~~successfully integrate~~ enter into or consummate such agreement;

•the risk that the Proposed HF Sinclair ~~Oil Corporation (now known as Sinclair Oil LLC (“Sinclair Oil”)) and Sinclair Transportation Company LLC (“Sinclair Transportation”) businesses acquired~~Transaction does not occur;

•negative effects from ~~The Sinclair Companies (now known as REH Company), referred to herein as “Sinclair HoldCo”) with our existing operations and fully realize~~ the ~~expected synergies~~pendency of the Proposed HF Sinclair ~~Transactions (as defined herein) or~~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 ~~expected timeline;~~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 uncertainty regarding the effects of the continuing COVID-19 pandemic on future demand and 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 and refinery processing units;

•the economic viability of HF Sinclair Corporation (“HF Sinclair”), our other customers and our joint ventures’ other 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 pipelines, terminal facilities and refinery processing units, due to ~~reasons such as infection in the workforce, in response to~~ reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, infection in the workforce, weather 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 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 the COVID-19 pandemic, inflation and labor costs, and any potential asset

- 3 -

Table of 19,

impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions;

•the effects of current and future government regulations and policies, including the effects of current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic and increases in interest rates;

•delay by government authorities in issuing permits necessary for our business or our capital projects;

~~- 3 -~~

~~Table of~~ ~~19,~~

•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 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, including ~~uncertainty regarding the timing, pace and extent~~economic slowdowns caused by a local or national recession or other adverse economic condition, such as periods of ~~an economic recovery in the United States;~~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 risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and in this Quarterly Report on Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Table of 19,

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents (Cushing Connect VIEs: $2,671 and $8,881, respectively)		$	15,551	$	14,381
Cash and cash equivalents (Cushing Connect VIEs: $990 and $2,147, respectively)						Cash and cash equivalents (Cushing Connect VIEs: $990 and $2,147, respectively)	$	7,105	$	10,917
Accounts receivable:	Accounts receivable:					Accounts receivable:
Trade	Trade	14,828		12,745		Trade	15,435		16,344
Affiliates	Affiliates	72,796		56,154		Affiliates	71,295		63,459
		87,624		68,899			86,730		79,803
Prepaid and other current assets	Prepaid and other current assets	9,818		11,033		Prepaid and other current assets	11,934		12,397
Total current assets	Total current assets	112,993		94,313		Total current assets	105,769		103,117

Properties and equipment, net	Properties and equipment, net	1,417,198		1,329,028		Properties and equipment, net	1,385,960		1,388,888
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	2,457		2,275		Operating lease right-of-use assets, net	2,078		2,317
Net investment in leases (Cushing Connect VIEs: $101,485 and $100,042, respectively)		539,394		309,303
Net investment in leases (Cushing Connect VIEs: $101,954 and $101,871, respectively)						Net investment in leases (Cushing Connect VIEs: $101,954 and $101,871, respectively)	524,564		539,705
Intangible assets, net	Intangible assets, net	62,802		73,307		Intangible assets, net	56,211		59,300
Goodwill	Goodwill	322,007		223,650		Goodwill	342,762		342,762
Equity method investments (Cushing Connect VIEs: $35,737 and $37,505, respectively)		266,186		116,378
Equity method investments (Cushing Connect VIEs: $34,135 and $34,746 , respectively)						Equity method investments (Cushing Connect VIEs: $34,135 and $34,746 , respectively)	274,142		270,604
Deferred turnaround costs	Deferred turnaround costs	25,092		2,632		Deferred turnaround costs	23,363		24,154
Other assets	Other assets	16,842		14,981		Other assets	18,251		16,655
Total assets	Total assets	$	2,764,971	$	2,165,867	Total assets	$	2,733,100	$	2,747,502

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable:	Accounts payable:					Accounts payable:
Trade (Cushing Connect VIEs: $1,923 and $8,285, respectively)		$	26,735	$	28,577
Trade (Cushing Connect VIEs: $323 and $431, respectively)						Trade (Cushing Connect VIEs: $323 and $431, respectively)	$	18,156	$	26,753
Affiliates	Affiliates	17,546		11,703		Affiliates	9,948		15,756
		44,281		40,280			28,104		42,509

Accrued interest	Accrued interest	17,922		11,258		Accrued interest	17,567		17,992
Deferred revenue	Deferred revenue	11,923		14,585		Deferred revenue	15,316		12,087
Accrued property taxes	Accrued property taxes	10,603		4,542		Accrued property taxes	7,101		5,449
Current operating lease liabilities	Current operating lease liabilities	966		620		Current operating lease liabilities	886		968
Current finance lease liabilities	Current finance lease liabilities	4,177		3,786		Current finance lease liabilities	4,608		4,389
Other current liabilities	Other current liabilities	2,551		1,781		Other current liabilities	3,048		2,430
Total current liabilities	Total current liabilities	92,423		76,852		Total current liabilities	76,630		85,824

Long-term debt	Long-term debt	1,593,797		1,333,049		Long-term debt	1,540,385		1,556,334
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	1,949		2,030		Noncurrent operating lease liabilities	1,563		1,720
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	62,790		64,649		Noncurrent finance lease liabilities	61,645		62,513
Other long-term liabilities	Other long-term liabilities	23,230		12,527		Other long-term liabilities	29,733		29,111
Deferred revenue	Deferred revenue	26,752		29,662		Deferred revenue	21,963		24,613

Class B unit	Class B unit	59,484		56,549		Class B unit	61,531		60,507

Equity:	Equity:					Equity:
Partners’ equity:	Partners’ equity:					Partners’ equity:
Common unitholders (126,440,201 and 105,440,201 units issued and outstanding at September 30, 2022 and December 31, 2021, respectively)		835,178		443,017
Common unitholders (126,440,201 units issued and outstanding at both March 31, 2023 and December 31, 2022)						Common unitholders (126,440,201 units issued and outstanding at both March 31, 2023 and December 31, 2022)	870,694		857,126
Noncontrolling interests	Noncontrolling interests	69,368		147,532		Noncontrolling interests	68,956		69,754
Total equity	Total equity	904,546		590,549		Total equity	939,650		926,880
Total liabilities and equity	Total liabilities and equity	$	2,764,971	$	2,165,867	Total liabilities and equity	$	2,733,100	$	2,747,502

See accompanying notes.

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Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Revenues:	Revenues:									Revenues:
Affiliates	Affiliates	$	122,868	$	97,124	$	325,659	$	298,192	Affiliates		$	116,878	$	92,254
Third parties	Third parties	26,134		25,460		79,311		77,810		Third parties		26,416		27,944
		149,002		122,584		404,970		376,002				143,294		120,198
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	Operations (exclusive of depreciation and amortization)	60,470		42,793		156,994		126,226		Operations (exclusive of depreciation and amortization)		52,142		42,625
Depreciation and amortization	Depreciation and amortization	25,236		21,826		74,397		71,894		Depreciation and amortization		24,663		22,187
General and administrative	General and administrative	3,751		3,849		12,745		9,664		General and administrative		4,635		4,312
Goodwill impairment		—		—		—		11,034

		89,457		68,468		244,136		218,818				81,440		69,124
Operating income	Operating income	59,545		54,116		160,834		157,184		Operating income		61,854		51,074

Other income (expense):	Other income (expense):									Other income (expense):
Equity in earnings (loss) of equity method investments		(16,334)		3,689		(7,261)		8,875
Equity in earnings of equity method investments										Equity in earnings of equity method investments		3,882		3,626
Interest expense	Interest expense	(22,965)		(13,417)		(56,951)		(40,595)		Interest expense		(25,978)		(13,639)
Interest income	Interest income	24,234		6,835		61,212		19,997		Interest income		20,400		12,647
Gain on sales-type leases		—		—		—		24,677

Gain on sale of assets and other	Gain on sale of assets and other	494		77		640		5,994		Gain on sale of assets and other		173		101
		(14,571)		(2,816)		(2,360)		18,948				(1,523)		2,735
Income before income taxes	Income before income taxes	44,974		51,300		158,474		176,132		Income before income taxes		60,331		53,809
State income tax benefit (expense)		(38)		4		(83)		(60)
State income tax expense										State income tax expense		(34)		(31)
Net income	Net income	44,936		51,304		158,391		176,072		Net income		60,297		53,778
Allocation of net income attributable to noncontrolling interests	Allocation of net income attributable to noncontrolling interests	(2,985)		(2,144)		(10,089)		(6,770)		Allocation of net income attributable to noncontrolling interests		(2,775)		(4,219)
Net income attributable to the partners	Net income attributable to the partners	41,951		49,160		148,302		169,302		Net income attributable to the partners		57,522		49,559
Limited partners’ per unit interest in earnings—basic and diluted	Limited partners’ per unit interest in earnings—basic and diluted	$	0.33	$	0.46	$	1.22	$	1.60	Limited partners’ per unit interest in earnings—basic and diluted		$	0.45	$	0.45
Weighted average limited partners’ units outstanding	Weighted average limited partners’ units outstanding	126,440		105,440		120,902		105,440		Weighted average limited partners’ units outstanding		126,440		109,640

Net income and comprehensive income are the same in all periods presented.

See accompanying notes.

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Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	158,391	$	176,072	Net income	$	60,297	$	53,778
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	74,397		71,894		Depreciation and amortization	24,663		22,187
Gain on sale of assets	Gain on sale of assets	(29)		(5,567)		Gain on sale of assets	(79)		(25)

Gain on sales-type leases		—		(24,677)
Goodwill impairment		—		11,034

Amortization of deferred charges	Amortization of deferred charges	2,863		2,992		Amortization of deferred charges	1,071		342
Equity-based compensation expense	Equity-based compensation expense	1,493		1,856		Equity-based compensation expense	354		620
Equity in losses of equity method investments		22,084		—
Equity in earnings of equity method investments, net of distributions						Equity in earnings of equity method investments, net of distributions	(1,799)		(520)
(Increase) decrease in operating assets:	(Increase) decrease in operating assets:					(Increase) decrease in operating assets:
Accounts receivable—trade	Accounts receivable—trade	(174)		3,020		Accounts receivable—trade	909		(1,132)
Accounts receivable—affiliates	Accounts receivable—affiliates	(16,643)		6,465		Accounts receivable—affiliates	(7,836)		11,190
Prepaid and other current assets	Prepaid and other current assets	2,264		2,452		Prepaid and other current assets	518		222
Increase (decrease) in operating liabilities:	Increase (decrease) in operating liabilities:					Increase (decrease) in operating liabilities:
Accounts payable—trade	Accounts payable—trade	2,586		3,202		Accounts payable—trade	(5,322)		5,525
Accounts payable—affiliates	Accounts payable—affiliates	5,844		(3,515)		Accounts payable—affiliates	(5,809)		(994)
Accrued interest	Accrued interest	6,664		(6,288)		Accrued interest	(424)		(5,522)
Deferred revenue	Deferred revenue	(5,572)		(3,702)		Deferred revenue	579		118
Accrued property taxes	Accrued property taxes	5,089		4,885		Accrued property taxes	1,652		1,675
Other current liabilities	Other current liabilities	(20)		183		Other current liabilities	619		2,337
Turnaround expenditures	Turnaround expenditures	(24,728)		(1,251)		Turnaround expenditures	(359)		(17,523)
Other, net	Other, net	3,988		1,719		Other, net	780		(464)
Net cash provided by operating activities	Net cash provided by operating activities	238,497		240,774		Net cash provided by operating activities	69,814		71,814

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Additions to properties and equipment	Additions to properties and equipment	(31,194)		(78,592)		Additions to properties and equipment	(7,614)		(14,147)
Acquisition of Sinclair Transportation	Acquisition of Sinclair Transportation	(328,955)		—		Acquisition of Sinclair Transportation	—		(321,366)
Investment in Osage Pipe Line Company, LLC	Investment in Osage Pipe Line Company, LLC	(5,000)		—		Investment in Osage Pipe Line Company, LLC	(2,500)		—
Proceeds from sale of assets	Proceeds from sale of assets	37		7,365		Proceeds from sale of assets	92		33
Distributions in excess of equity in earnings of equity investments	Distributions in excess of equity in earnings of equity investments	4,724		3,517		Distributions in excess of equity in earnings of equity investments	760		1,704
Net cash used for investing activities	Net cash used for investing activities	(360,388)		(67,710)		Net cash used for investing activities	(9,262)		(333,776)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Borrowings under credit agreement	Borrowings under credit agreement	460,000		210,500		Borrowings under credit agreement	42,000		360,000
Repayments of credit agreement borrowings	Repayments of credit agreement borrowings	(594,000)		(283,500)		Repayments of credit agreement borrowings	(58,500)		(58,500)

Proceeds from issuance of debt		400,000		—

Contributions from noncontrolling interests		—		21,285

Distributions to HEP unitholders	Distributions to HEP unitholders	(125,669)		(112,384)		Distributions to HEP unitholders	(44,308)		(36,997)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(7,308)		(8,743)		Distributions to noncontrolling interests	(2,549)		(877)
Payments on finance leases	Payments on finance leases	(2,700)		(2,666)		Payments on finance leases	(1,012)		(881)
Deferred financing costs		(6,541)		(6,661)
Purchase of units for incentive grants		(334)		—

Units withheld for tax withholding obligations	Units withheld for tax withholding obligations	(217)		(69)		Units withheld for tax withholding obligations	—		(57)
Other	Other	(170)		—		Other	5		(91)
Net cash provided (used) by financing activities	Net cash provided (used) by financing activities	123,061		(182,238)		Net cash provided (used) by financing activities	(64,364)		262,597

Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Increase (decrease) for the period	Increase (decrease) for the period	1,170		(9,174)		Increase (decrease) for the period	(3,812)		635
Beginning of period	Beginning of period	14,381		21,990		Beginning of period	10,917		14,381
End of period	End of period	$	15,551	$	12,816	End of period	$	7,105	$	15,016

Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid during the period for interest	Cash paid during the period for interest	$47,941		$44,147		Cash paid during the period for interest	$	25,506	$	18,548

See accompanying notes.

- 7 -

Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)


		Common Units		Noncontrolling Interests		Total Equity			Common Units		Noncontrolling Interests		Total Equity

Balance December 31, 2021		$	443,017	$	147,532	$	590,549
Issuance of common units		349,020		—		349,020
Balance December 31, 2022								Balance December 31, 2022	$	857,126	$	69,754	$	926,880

Distributions to HEP unitholders	Distributions to HEP unitholders	(36,997)		—		(36,997)		Distributions to HEP unitholders	(44,308)		—		(44,308)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—		(877)		(877)		Distributions to noncontrolling interests	—		(2,549)		(2,549)
Acquisition of remaining UNEV interests		16,537		(78,187)		(61,650)

Amortization of restricted and performance units	Amortization of restricted and performance units	620		—		620		Amortization of restricted and performance units	354		—		354
Class B unit accretion	Class B unit accretion	(956)		—		(956)		Class B unit accretion	(1,024)		—		(1,024)
Other		(147)		—		(147)

Net income	Net income	50,515		3,263		53,778		Net income	58,546		1,751		60,297
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

Distributions to HEP unitholders		(44,336)		—		(44,336)
Distributions to noncontrolling interest		—		(2,000)		(2,000)
Purchase of units for incentive grants		(334)		—		(334)
Amortization of restricted and performance units		266		—		266
Class B unit accretion		(1,023)		—		(1,023)
Other		(153)		—		(153)
Net income		42,973		1,963		44,936
Balance September 30, 2022		$	835,178	$	69,368	$	904,546
Balance March 31, 2023								Balance March 31, 2023	$	870,694	$	68,956	$	939,650

~~- 8 -~~

~~Table of~~ ~~19,~~


		Common Units		Noncontrolling Interests		Total Equity			Common Units		Noncontrolling Interests		Total Equity

Balance December 31, 2020		$	379,292	$	126,066	$	505,358
Capital Contribution - Cushing Connect		—		9,746		9,746
Balance December 31, 2021								Balance December 31, 2021	$	443,017	$	147,532	$	590,549
Issuance of common units								Issuance of common units	349,020		—		349,020

Distributions to HEP unitholders	Distributions to HEP unitholders	(38,328)		—		(38,328)		Distributions to HEP unitholders	(36,997)		—		(36,997)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—		(3,819)		(3,819)		Distributions to noncontrolling interests	—		(877)		(877)
Acquisition of remaining UNEV interests								Acquisition of remaining UNEV interests	16,537		(78,187)		(61,650)
Amortization of restricted and performance units	Amortization of restricted and performance units	683		—		683		Amortization of restricted and performance units	620		—		620
Class B unit accretion	Class B unit accretion	(893)		—		(893)		Class B unit accretion	(956)		—		(956)
Other	Other	(68)		—		(68)		Other	(147)		—		(147)
Net income	Net income	65,290		1,647		66,937		Net income	50,515		3,263		53,778
Balance March 31, 2021		$	405,976	$	133,640	$	539,616
Contributions from noncontrolling interest		—		9,780		9,780
Distributions to HEP unitholders		(37,028)		—		(37,028)
Distributions to noncontrolling interest		—		(2,053)		(2,053)
Amortization of restricted and performance units		527		—		527
Class B unit accretion		(894)		—		(894)
Other		(2)		—		(2)
Net income		56,639		1,192		57,831
Balance June 30, 2021		$	425,218	$	142,559	$	567,777
Contributions from noncontrolling interest		—		2,358		2,358
Distributions to HEP unitholders		(37,028)		—		(37,028)
Distributions to noncontrolling interest		—		(2,871)		(2,871)
Amortization of restricted and performance units		646		—		646
Class B unit accretion		(956)		—		(956)
Other		1		—		1
Net income		50,117		1,187		51,304
Balance September 30, 2021		$	437,998	$	143,233	$	581,231
Balance March 31, 2022								Balance March 31, 2022	$	821,609	$	71,731	$	893,340

See accompanying notes.

- 98 -

Table of 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. We commenced operations on July 13, 2004, upon the completion of our initial public offering. On March 14, 2022 (the “Closing Date”), HollyFrontier Corporation (“HFC”) and HEP announced the establishment of HF Sinclair Corporation, a Delaware corporation (“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 Company LLC (“Sinclair Transportation”) from REH Company (formerly known as The Sinclair Companies, ~~(now known as REH Company~~ and referred to herein as ~~“Sinclair HoldCo”~~“REH Company”). On the Closing Date, pursuant to that certain Business Combination Agreement, dated as of August 2, 2021 (as amended on March 14, 2022, the “Business Combination Agreement”), by and among HFC, HF Sinclair, ~~(formerly known as Hippo Parent Corporation),~~ Hippo Merger Sub, Inc., a wholly owned subsidiary of HF Sinclair (“Parent Merger Sub”), ~~Sinclair HoldCo,~~REH Company, and Hippo Holding LLC (now known as Sinclair Holding LLC), a wholly owned subsidiary of ~~Sinclair HoldCo~~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 ~~Sinclair HoldCo~~REH Company contributed all of the equity interests of the Target Company to HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair (together with the HFC Merger, the “HFC Transactions”).

As of ~~September 30, 2022,~~March 31, 2023, HF Sinclair and its subsidiaries owned a 47% limited partner interest and the non-economic general partner interest in HEP.

In connection with the closing of the HFC Transactions, HF Sinclair issued 60,230,036 shares of HF Sinclair common stock to ~~Sinclair HoldCo,~~REH Company, representing ~~27.0%~~27% of 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 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 ~~Sinclair HoldCo,~~REH Company, Sinclair Transportation and HEP, HEP acquired all of the outstanding equity interests of Sinclair Transportation from ~~Sinclair HoldCo~~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 pursuant to the Contribution Agreement for an aggregate transaction 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 ~~are currently~~were originally held in escrow to secure ~~Sinclair HoldCo’s~~REH Company’s renewable identification numbers (“RINs”) credit obligations to HF Sinclair under Section 6.22 of the Business Combination Agreement. ~~HF Sinclair, and not~~The HEP ~~would be entitled to the HEP common~~ units held in escrow were released to REH Company in ~~the event~~April 2023 upon their satisfaction of ~~Sinclair HoldCo’s breach of its~~the RINs credit obligations ~~under the Business Combination Agreement.~~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 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 ~~Sinclair HoldCo~~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.

- 109 -

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 March 14, 2022 include the operations of the Acquired Sinclair Businesses.

Through our subsidiaries and joint ventures, we own and/or operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support refining and marketing operations of HF Sinclair and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. Additionally, we own (a) 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 UNEV Pipeline, LLC (“UNEV”) and as a result, UNEV ~~Pipeline, LLC~~ is our wholly owned subsidiary.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery (the “Cheyenne Refinery”) and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at the Cheyenne Refinery on August 3, 2020.

On February 8, 2021, HEP and HFC finalized and executed new agreements for HEP’s Cheyenne assets with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s (and now HF Sinclair’s) use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC (and now HF Sinclair) will pay a base tariff to HEP for available crude oil storage and HFC (and now HF Sinclair) and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

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 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 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 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, ~~2021.~~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, ~~2022.~~2023.

Principles of Consolidation and Common Control Transactions

The consolidated financial statements include our accounts 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 historical basis instead of our purchase price or fair value.

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 reporting unit below its carrying amount. Our goodwill

~~- 11 -~~

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.

~~Indicators of Goodwill and Long-lived Asset Impairment~~

During the first quarter of 2021, changes in our agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair value of our Cheyenne reporting unit was derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

~~Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.~~

We performed our annual goodwill impairment testing qualitatively as of July 1, 2022, and determined it was not more likely than not that the carrying amount of each reporting unit was greater than its fair value. Therefore, a quantitative test was not necessary, and no additional impairment of goodwill was recorded.

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.

- 10 -

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 ~~unlikely~~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. ~~Prior to the adoption of the new~~The lease standard (see below)~~, we bifurcated the consideration received between lease and service revenue. The new lease standard~~ 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. ~~The majority of our contracts meet these conditions, and we~~We have made this election for ~~those contracts.~~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 it relates specifically to rendering the 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 likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual

~~- 12 -~~

shortfall make-up period. We recognize these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights projected to be exercised by the customer. During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we recognized ~~$14.0~~$4.8 million and ~~$12.3~~$5.2 million, respectively, of these deficiency payments in revenue, of which ~~$3.9~~$0.9 million ~~and $0.5 million, respectively,~~of the deficiency payments recognized during the three months ended March 31, 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 January 1, 2019, and elected to adopt using the modified retrospective transition method and practical expedients, both of 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 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 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

- 11 -

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 underlying asset and residual value of the 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.

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 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 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, ~~Sinclair HoldCo~~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 ~~27.0%~~27% of the pro forma equity of HF Sinclair with a value of approximately

~~- 13 -~~

~~$2,149~~ $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 ~~Logistics~~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, ~~Sinclair HoldCo~~REH Company and the stockholders of ~~Sinclair HoldCo~~REH Company (each a “Unitholder” and collectively, the “Unitholders,” and along with ~~Sinclair HoldCo~~REH Company and each of their permitted transferees, the ~~“Sinclair~~“REH Parties”), which became effective on the Closing Date.

Pursuant to the Unitholders Agreement, the ~~Sinclair~~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 ~~Sinclair~~REH Parties beneficially own less than 10.5 million HEP Units or (y) the HEP Units beneficially owned by the ~~Sinclair~~REH Parties constitute less than 5% of all outstanding HEP Units. The Unitholders Agreement also subjects 15.75 million of the HEP Units issued to the ~~Sinclair~~REH Parties (the “Restricted Units”) to a “lock-up” period commencing on the Closing Date, during which the ~~Sinclair~~REH Parties ~~will be~~are 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 ~~will be~~were released from such restrictions on the first anniversary of the Closing Date, and the remainder will be released from such restrictions on the date that is 15 months from the Closing Date.

Under the terms of the Contribution Agreement, HEP acquired Sinclair Transportation, which together with its subsidiaries, owned ~~Sinclair HoldCo’s~~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 ~~Sinclair HoldCo~~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 ~~Pipeline~~Investments Corp. (49.995% non-operated interest); and UNEV ~~Pipeline~~ (the 25% non-operated interest not already owned by HEP, resulting in UNEV ~~Pipeline, LLC~~ becoming a wholly owned subsidiary of HEP).

- 12 -

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 ~~preliminary~~ purchase price allocation resulted in the recognition of ~~$98.4~~$119.1 million in goodwill.

The following tables present the purchase consideration and ~~preliminary~~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

~~- 14 -~~


	(In thousands)
Assets Acquired
Accounts receivable	$	~~1,910~~3,005
Prepaid and other current assets	59
Properties and equipment	~~357,819~~340,682
Operating lease right-of-use assets	105
Other assets	3,500
Goodwill	~~98,357~~119,112
Equity method investments	229,891
Total assets acquired	$	~~691,641~~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	~~10,271~~14,984
Total liabilities assumed	$	~~13,666~~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 measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.

- 13 -

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 their carrying values due to their short-term nature.

These fair value estimates are preliminary and, therefore, the final fair values of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all needed information has become available, and we finalize our valuations.

~~Our consolidated financial and operating results reflect the Sinclair Transportation operations beginning March 14, 2022. Our results of operations for~~For the three months ended September 30, 2022 included revenue, interest income from sales-type leases and net income of $11.6 million, $14.4 million and $19.3 million, respectively, and revenue, interest income from sales-type leases and net income of $23.7 million, $31.6 million and $41.1 million for the period from March ~~14, 2022 through September 30, 2022, respectively, related to these operations.~~

~~For the nine months ended September 30, 2022,~~31, 2023, we incurred ~~$2.1~~$0.5 million 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 statements of operations.

~~- 15 -~~

The following unaudited pro forma combined condensed financial data for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~and the three and nine months ended September 30, 2021~~ was derived from our historical financial statements giving effect to the HEP Transaction as if it had occurred on January 1, 2021. The below information reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including the depreciation of Sinclair Transportation’s fair-valued properties, plants and equipment.

Additionally, pro forma earnings include certain non-recurring charges, the substantial majority of which consist of transaction costs related to financial advisors, legal advisors, financial advisory and professional accounting services.

The pro forma results of operations do not include any contract adjustments to tariffs made after closing, cost savings or other synergies that may result from the HEP Transaction. The pro forma combined condensed financial data has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the HEP Transaction taken place on January 1, 2021 and is not intended to be a projection of future results.

Three Months Ended September 30, Nine Months Ended September 30,
2021 2022 2021
(In thousands)
Sales and other revenues $ 141,500 $ 419,732 $ 427,969
Net income attributable to the partners $ 56,006 $ 149,525 $ 189,170


		Three Months Ended March 31, 2022
	(In thousands)
Sales and other revenues		$	134,960
Net income attributable to the partners		$	50,782

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 HEP pursuant to the Contribution Agreement.

Note 3:~~Investment in~~Cushing Connect Joint Venture

On October 2, 2019, HEP Cushing LLC (“HEP Cushing”), a wholly owned subsidiary of HEP, and Plains Marketing, L.P. (“PMLP”), a wholly owned 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 (i) the development and construction of 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 HF Sinclair and (ii) the ownership and operation of 1.5 million barrels of 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 ~~construction and~~ operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect JV Terminal. The total Cushing Connect Joint Venture investment will generally be shared equally among the partners. However, we are solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $73 million, ~~including approximately $5 million of Cushing Connect Pipeline construction costs exceeding the budget by more than 10% borne solely by HEP.~~

The Cushing Connect Joint Venture legal entities are variable interest entities (“VIEs”) as defined under GAAP. A ~~VIE~~legal entity is a ~~legal entity~~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

- 14 -

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

~~- 16 -~~

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 its involvement with the Cushing Connect JV Terminal legal entity is not expected to be material due to the 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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)				(In thousands)					(In thousands)
Pipelines	Pipelines	$	77,147	$	67,354	$	210,246	$	202,180	Pipelines	$	70,582	$	64,780
Terminals, tanks and loading racks	Terminals, tanks and loading racks	44,432		33,317		126,005		108,386		Terminals, tanks and loading racks	46,187		37,015
Refinery processing units	Refinery processing units	27,423		21,913		68,719		65,436		Refinery processing units	26,525		18,403
		$	149,002	$	122,584	$	404,970	$	376,002		$	143,294	$	120,198

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)				(In thousands)					(In thousands)
Lease revenues	Lease revenues	$	92,697	$	84,074	$	247,137	$	258,877	Lease revenues	$	87,377	$	72,914
Service revenues	Service revenues	56,305		38,510		157,833		117,125		Service revenues	55,917		47,284
		$	149,002	$	122,584	$	404,970	$	376,002		$	143,294	$	120,198

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 in the table below:

September 30,
2022 December 31,
2021
(In thousands)
Contract assets $ 6,700 $ 6,637
Contract liabilities $ (256) $ (4,185)

- 15 -


	March 31, 2023		December 31, 2022
	(In thousands)
Contract assets	$	8,669	$	6,672
Contract liabilities	$	(3,274)	$	—

The contract assets and liabilities include both lease and service components. During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~and 2021,~~ we recognized ~~$3.9~~$0.9 million ~~and $0.5 million, respectively,~~ of revenue that was previously included in contract

~~- 17 -~~

liability as of December 31, ~~2021 and 2020, respectively.~~2021. During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we also recognized ~~$0.1~~$2.1 million and ~~$0.3 million,~~$45 thousand, respectively, of revenue included in contract assets.

As of ~~September 30, 2022,~~March 31, 2023, we expect to recognize ~~$1.6~~$2.4 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in ~~2023~~2024 through 2037. These agreements generally provide for changes in the minimum revenue guarantees annually for increases or decreases in the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that limit the level of the rate increases or decreases. We expect to recognize revenue for these unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and lease revenues):


Years Ending December 31,	Years Ending December 31,	(In millions)		Years Ending December 31,	(In millions)
Remainder of 2022		$	90
2023		301
Remainder of 2023				Remainder of 2023	$	295
2024	2024	266		2024	367
2025	2025	185		2025	284
2026	2026	170		2026	268
2027	2027	137		2027	236
2028				2028	235
Thereafter	Thereafter	408		Thereafter	690
Total	Total	$	1,557	Total	$	2,375

Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 10 to 30 days of the date of invoice.

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 terms of 33 to 48 months. The total cost of assets under finance leases was ~~$7.3~~$7.8 million and ~~$6.0~~$7.6 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, with accumulated depreciation of ~~$4.2~~$4.1 million and ~~$3.6~~$4.0 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 an additional 10 years.

- 1816 -

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Operating leases:	Operating leases:					Operating leases:
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	$	2,457	$	2,275	Operating lease right-of-use assets, net	$	2,078	$	2,317

Current operating lease liabilities	Current operating lease liabilities	966		620		Current operating lease liabilities	886		968
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	1,949		2,030		Noncurrent operating lease liabilities	1,563		1,720
Total operating lease liabilities	Total operating lease liabilities	$	2,915	$	2,650	Total operating lease liabilities	$	2,449	$	2,688

Finance leases:	Finance leases:					Finance leases:
Properties and equipment	Properties and equipment	$	7,312	$	6,031	Properties and equipment	$	7,823	$	7,649
Accumulated amortization	Accumulated amortization	(4,189)		(3,632)		Accumulated amortization	(4,107)		(3,979)
Properties and equipment, net	Properties and equipment, net	$	3,123	$	2,399	Properties and equipment, net	$	3,716	$	3,670

Current finance lease liabilities	Current finance lease liabilities	$	4,177	$	3,786	Current finance lease liabilities	$	4,608	$	4,389
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	62,790		64,649		Noncurrent finance lease liabilities	61,645		62,513
Total finance lease liabilities	Total finance lease liabilities	$	66,967	$	68,435	Total finance lease liabilities	$	66,253	$	66,902

Weighted average remaining lease term (in years):	Weighted average remaining lease term (in years):					Weighted average remaining lease term (in years):
Operating leases	Operating leases	4.7		5.8		Operating leases	4.6		4.6
Finance leases	Finance leases	14.2		15.0		Finance leases	13.6		13.9

Weighted average discount rate:	Weighted average discount rate:					Weighted average discount rate:
Operating leases	Operating leases	4.6%		4.8%		Operating leases	4.7%		4.6%
Finance leases	Finance leases	5.6%		5.6%		Finance leases	5.7%		5.7%

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


		Nine Months Ended September 30,						Three Months Ended March 31,
		2022		2021				2023		2022
		(In thousands)				(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:						Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	Operating cash flows on operating leases	$	766	$	855		Operating cash flows on operating leases	$	307	$	276
Operating cash flows on finance leases	Operating cash flows on finance leases	$	3,094	$	3,110		Operating cash flows on finance leases	$	1,160	$	981
Financing cash flows on finance leases	Financing cash flows on finance leases	$	2,700	$	2,666		Financing cash flows on finance leases	$	1,012	$	881

- 1917 -

Maturities of lease liabilities were as follows:


		September 30, 2022					March 31, 2023
		Operating		Finance			Operating		Finance
		(In thousands)					(In thousands)
2022		$	280	$	1,925
2023	2023	976		7,691		2023	$	684	$	6,032
2024	2024	565		7,247		2024	608		7,597
2025	2025	485		6,787		2025	491		7,138
2026	2026	330		6,823		2026	326		7,258
2027 and thereafter		525		67,463
2027						2027	205		6,511
2028 and thereafter						2028 and thereafter	318		61,038
Total lease payments	Total lease payments	3,161		97,936		Total lease payments	2,632		95,574
Less: Imputed interest	Less: Imputed interest	(246)		(30,969)		Less: Imputed interest	(183)		(29,321)
Total lease obligations	Total lease obligations	2,915		66,967		Total lease obligations	2,449		66,253
Less: Current lease liabilities	Less: Current lease liabilities	(966)		(4,177)		Less: Current lease liabilities	(886)		(4,608)
Noncurrent lease liabilities	Noncurrent lease liabilities	$	1,949	$	62,790	Noncurrent lease liabilities	$	1,563	$	61,645

The components of lease expense were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)									(In thousands)
Operating lease costs	Operating lease costs	$	248	$	260	$	752	$	807	Operating lease costs	$	301	$	262
Finance lease costs	Finance lease costs									Finance lease costs
Amortization of assets	Amortization of assets	213		195		594		607		Amortization of assets	299		192
Interest on lease liabilities	Interest on lease liabilities	938		983		2,843		2,983		Interest on lease liabilities	954		959
Variable lease cost	Variable lease cost	206		43		265		175		Variable lease cost	212		37
Total net lease cost	Total net lease cost	$	1,605	$	1,481	$	4,454	$	4,572	Total net lease cost	$	1,766	$	1,450

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy ~~for protecting the residual fair value of the underlying assets by~~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.

During the ~~nine~~three months ended ~~September 30,~~March 31, 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 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 no gain or loss is recognized.

During the three months ended March 31, 2022, we entered into new agreements and ~~amended~~modified other agreements with ~~HFC~~HF Sinclair related to our ~~newly~~ acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, 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 ~~nine~~three months ended ~~September 30,~~March 31, 2022. ~~The balance sheet impacts were composed of the following:~~



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

- 2018 -

During the nine months ended September 30, 2021, we entered into new agreements and modified other agreements with HF Sinclair related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks. These agreements met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HF Sinclair. Under sales-type lease accounting, 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. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021The balance sheet impacts were composed of the following:


	~~Nine~~Three Months Ended ~~September 30, 2021~~March 31, 2022
	(In thousands)

Net investment in leases	$	~~143,720~~235,620
Properties and equipment, net	~~(125,602)~~(235,620)
~~Deferred revenue~~	~~6,559~~
Gain on sales-type leases	$	~~24,677~~—

These sales-type lease transactions ~~including the related gain,~~ were non-cash transactions.

Lease income recognized was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)									(In thousands)
Operating lease revenues	Operating lease revenues	$	84,684	$	80,907	$	230,279	$	251,605	Operating lease revenues	$	82,798	$	69,975
Direct financing lease interest income	Direct financing lease interest income	538		521		1,578		1,568		Direct financing lease interest income	537		520
Gain on sales-type leases		—		—		—		24,677

Sales-type lease interest income	Sales-type lease interest income	23,695		6,313		59,633		18,429		Sales-type lease interest income	19,864		12,123
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	8,013		3,167		16,859		7,272		Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	4,579		2,939

For our sales-type leases, we bifurcate customer obligations between lease and service components. We included the lease portion of customer obligations related to minimum volume requirements in guaranteed minimum lease payments. ~~Portions~~The lease portions of our minimum guaranteed pipeline 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. We recognized the lease 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.

~~- 21 -~~

Annual minimum undiscounted lease payments under our leases were as follows as of ~~September 30, 2022:~~March 31, 2023:


		Operating		Finance		Sales-type			Operating		Finance		Sales-type
Years Ending December 31,	Years Ending December 31,	(In thousands)						Years Ending December 31,	(In thousands)
Remainder of 2022		$	75,674	$	542	$	25,072
2023		272,169		2,175		96,383
Remainder of 2023								Remainder of 2023	$	222,303	$	1,676	$	62,996
2024	2024	242,476		2,192		93,154		2024	270,998		2,226		82,478
2025	2025	166,290		2,209		89,727		2025	195,194		2,244		80,479
2026	2026	151,745		2,227		89,727		2026	181,204		2,262		80,479
2027 and thereafter		473,243		36,610		841,406
2027								2027	148,739		2,280		80,479
2028 and thereafter								2028 and thereafter	522,446		34,940		681,221
Total lease receipt payments	Total lease receipt payments	$	1,381,597	$	45,955	$	1,235,469	Total lease receipt payments	$	1,540,884	$	45,628	$	1,068,132
Less: Imputed interest	Less: Imputed interest			(29,661)		(1,108,517)		Less: Imputed interest			(29,394)		(944,047)
				16,294		126,952					16,234		124,085
Unguaranteed residual assets at end of leases	Unguaranteed residual assets at end of leases			—		402,092		Unguaranteed residual assets at end of leases			—		390,331
Net investment in leases	Net investment in leases			$	16,294	$	529,044	Net investment in leases			$	16,234	$	514,416

- 19 -

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


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases			Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
		(In thousands)				(In thousands)					(In thousands)				(In thousands)
Lease receivables (1)	Lease receivables (1)	$	420,407	$	16,294	$	207,768	$	16,371	Lease receivables (1)	$	411,077	$	16,234	$	418,989	$	16,264
Unguaranteed residual assets	Unguaranteed residual assets	108,637		—		90,097		—		Unguaranteed residual assets	103,339		—		110,466		—
Net investment in leases	Net investment in leases	$	529,044	$	16,294	$	297,865	$	16,371	Net investment in leases	$	514,416	$	16,234	$	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 includes valuation techniques that involve significant unobservable inputs.

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and 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.

~~- 22 -~~

The carrying amounts and estimated fair values of our senior notes were as follows:


			September 30, 2022				December 31, 2021						March 31, 2023				December 31, 2022
Financial Instrument	Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value		Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value
			(In thousands)										(In thousands)
Liabilities:	Liabilities:										Liabilities:

5% Senior Notes	5% Senior Notes	Level 2	$	493,793	$	441,120	$	493,049	$	502,705	5% Senior Notes	Level 2	$	494,305	$	468,380	$	494,047	$	458,090
6.375% Senior Notes	6.375% Senior Notes	Level 2	394,004		381,508		—		—		6.375% Senior Notes	Level 2	394,580		398,480		394,287		394,568
Total Liabilities	Total Liabilities		$	887,797	$	822,628	$	493,049	$	502,705	Total Liabilities		$	888,885	$	866,860	$	888,334	$	852,658

Level 2 Financial Instruments

Our senior notes 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.

- 20 -

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 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 ~~nine~~three months ended ~~September 30,~~March 31, 2022, the estimated fair value of the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term are used in determining the net investment in leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

Note 7:Properties and Equipment

The carrying amounts of our properties and equipment were as follows:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Pipelines, terminals and tankage	Pipelines, terminals and tankage	$	1,615,319	$	1,527,697	Pipelines, terminals and tankage	$	1,584,825	$	1,567,359
Refinery assets	Refinery assets	353,504		348,882		Refinery assets	353,998		353,998
Land and right of way	Land and right of way	125,074		98,837		Land and right of way	171,368		171,327
Construction in progress	Construction in progress	30,203		26,446		Construction in progress	21,917		23,027
Other	Other	70,224		48,203		Other	69,550		69,098
		2,194,324		2,050,065			2,201,658		2,184,809
Less accumulated depreciation	Less accumulated depreciation	(777,126)		(721,037)		Less accumulated depreciation	(815,698)		(795,921)
		$	1,417,198	$	1,329,028		$	1,385,960	$	1,388,888

Depreciation expense was ~~$61.1~~$20.2 million and ~~$60.9~~$18.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, and includes depreciation of assets acquired under capital leases.

Note 8:Intangible Assets

Intangible assets include transportation agreements and customer relationships that represent a portion of the total purchase price of certain assets acquired from Delek US Holdings, Inc. (“Delek”) in 2005, from HFC in 2008 prior to HEP becoming a consolidated VIE of HFC, from Plains in 2017, and from other minor acquisitions in 2018.

~~- 23 -~~

The carrying amounts of our intangible assets were as follows:


		Useful Life	September 30, 2022		December 31, 2021			Useful Life	March 31, 2023		December 31, 2022
			(In thousands)						(In thousands)
Delek transportation agreement	Delek transportation agreement	30 years	$	59,933	$	59,933	Delek transportation agreement	30 years	$	59,933	$	59,933
HF Sinclair transportation agreement	HF Sinclair transportation agreement	10-15 years	75,131		75,131		HF Sinclair transportation agreement	10-15 years	75,131		75,131
Customer relationships	Customer relationships	10 years	69,683		69,683		Customer relationships	10 years	69,683		69,683
Other	Other	20 years	50		50		Other	20 years	50		50
			204,797		204,797				204,797		204,797
Less accumulated amortization	Less accumulated amortization		(141,995)		(131,490)		Less accumulated amortization		(148,586)		(145,497)
			$	62,802	$	73,307			$	56,211	$	59,300

Amortization expense was ~~$10.5~~$3.1 million and $3.5 million for ~~each of~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021.~~respectively. We estimate amortization expense to be ~~$9.9 million for 2023, and~~ $9.1 million for 2024 through ~~2027.~~2027, and $9.0 million for 2028.

- 21 -

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

Note 9:Employees, Retirement and Incentive Plans

Direct support for our operations is provided by HLS, which utilizes personnel employed by 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 we have with HF Sinclair (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HF Sinclair. Our share of retirement and benefit plan costs was ~~$2.8~~$3.0 million and ~~$2.1~~$2.4 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $7.9 million and $6.2 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

Under HLS’s secondment agreement with HF Sinclair (the “Secondment Agreement”), certain employees of 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 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 five components: restricted or phantom units, performance units, unit options, unit appreciation rights and cash awards. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting (a significant proportion of our awards) is to expense the costs ratably over the vesting periods.

As of ~~September 30, 2022,~~March 31, 2023, we had two types of unit-based awards outstanding, which are described below. The compensation cost charged against income was ~~$0.3~~$0.4 million and $0.6 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $1.5 million and $1.9 million for the nine months ended September 30, 2022 and 2021,~~ 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 30, 2022,~~March 31, 2023, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which ~~848,570~~771,313 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Phantom Units

Under our Long-Term Incentive Plan, we grant 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 rights on these units from the date of grant.

~~- 24 -~~

The fair value of each 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.

A summary of phantom unit activity and changes during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, is presented below:


Phantom Units	Phantom Units	Units	Weighted Average Grant-Date Fair Value		Phantom Units	Units	Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2022 (nonvested)		203,263	$	14.85
Outstanding at January 1, 2023 (nonvested)					Outstanding at January 1, 2023 (nonvested)	115,809	$	16.66
Granted	Granted	19,269	18.15		Granted	1,479	18.49
Vesting and transfer of full ownership to recipients	Vesting and transfer of full ownership to recipients	(18,789)	17.78		Vesting and transfer of full ownership to recipients	(330)	11.92
Forfeited	Forfeited	(66,484)	13.27		Forfeited	(804)	11.92
Outstanding at September 30, 2022 (nonvested)		137,259	15.68
Outstanding at March 31, 2023 (nonvested)					Outstanding at March 31, 2023 (nonvested)	116,154	16.73

The grant date fair values of phantom units that were vested and transferred to recipients during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was $4 thousand and ~~2021 were $0.3 million and $13~~$39 thousand, respectively. ~~The grant date fair values of phantom units that were granted during the nine months ended September 30, 2022 were $0.4 million. No units were granted during the nine months ended September 30, 2021.~~ As of ~~September 30, 2022, $0.5~~March 31, 2023, $1.1 million of total unrecognized compensation expense related to unvested phantom unit grants is expected to be recognized over a weighted-average period of ~~0.8~~1.1 years.

- 22 -

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected 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 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 total unitholder return achieved by HEP compared to peer group companies. The number of units ultimately issued under these awards can range from 0% to 200%.

~~We did not grant any performance units during the nine months ended September 30, 2022.~~ Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the target number of performance units subject to the award from the date of grant at the same rate as distributions paid on our common units.

A summary of performance unit activity and changes for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, is presented below:


Performance Units						Units
Outstanding at January 1, ~~2022~~2023 (nonvested)						~~76,719~~42,852
Granted						513

~~Vesting and transfer of common units to recipients~~						~~(24,809)~~
~~Forfeited~~						~~(9,124)~~
Outstanding at ~~September 30, 2022~~March 31, 2023 (nonvested)						~~42,786~~43,365

The grant date fair value of performance units vested and transferred to recipients during ~~both~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~and 2021~~ was $0.6 ~~million and $0.4 million, respectively.~~million. Based on the weighted-average fair value of performance units outstanding at ~~September 30, 2022,~~March 31, 2023, of $0.7 million, there was ~~$0.4~~$0.5 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of ~~1.2~~1.4 years.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we ~~paid $0.3 million for the~~did not purchase ~~of our~~any common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.

~~- 25 -~~

Note 10:Debt

Credit Agreement

~~In April 2021, we amended our~~We have a $1.2 billion senior secured revolving credit facility (the “Credit Agreement”) ~~decreasing the size of the facility from $1.4 billion to $1.2 billion and extending the maturity date to~~that matures in July ~~27,~~ 2025. ~~In August 2022, the Credit Agreement was amended to, among other things, provide an alternative reference rate for LIBOR.~~ The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, 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 continues to provide for an accordion feature that allows us to increase commitments under the Credit Agreement up to 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 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 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 at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of ~~September 30, 2022.~~March 31, 2023.

- 23 -

Senior Notes

On April 8, 2022, we closed a private placement of $400 million in aggregate principal amount of 6.375% senior unsecured notes due in 2027 (the “6.375% Senior Notes”). The 6.375% Senior Notes were issued at par for net proceeds of approximately $393 million, 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 outstanding borrowings under the Credit Agreement, increasing our available liquidity.

As of ~~September 30, 2022,~~March 31, 2023, we had $500 million aggregate principal amount of 5% senior unsecured notes due in 2028 (the “5% Senior Notes,” and together with the 6.375% Senior Notes, the “Senior Notes”).

The 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 Senior Notes as of September 30, 2022.~~ At any time when the Senior Notes are rated investment grade by either Moody’s 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 Senior Notes.

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

~~- 26 -~~

Long-term Debt

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Credit Agreement	Credit Agreement					Credit Agreement
Amount outstanding	Amount outstanding	$	706,000	840,000		Amount outstanding	$	651,500	$	668,000

5% Senior Notes	5% Senior Notes					5% Senior Notes
Principal	Principal	500,000		500,000		Principal	500,000		500,000
Unamortized premium and debt issuance costs	Unamortized premium and debt issuance costs	(6,207)		(6,951)		Unamortized premium and debt issuance costs	(5,695)		(5,953)
		493,793		493,049			494,305		494,047

6.375% Senior Notes	6.375% Senior Notes					6.375% Senior Notes
Principal	Principal	400,000		—		Principal	400,000		400,000
Unamortized premium and debt issuance costs	Unamortized premium and debt issuance costs	(5,996)		—		Unamortized premium and debt issuance costs	(5,420)		(5,713)
		394,004		—			394,580		394,287

Total long-term debt	Total long-term debt	$	1,593,797	$	1,333,049	Total long-term debt	$	1,540,385	$	1,556,334

Note 11:Related Party Transactions

We serve many of HF Sinclair’s ~~refineries~~refinery and renewable diesel facilities under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from ~~2023~~2024 to 2037, and revenues from ~~HF Sinclair~~these agreements accounted for approximately 82% ~~and 80%~~ of our total revenues for the three ~~and nine~~ months ended ~~September 30, 2022, respectively.~~March 31, 2023. Under these agreements, 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 FERC index. As of ~~July 1, 2022,~~March 31, 2023, these agreements with HF Sinclair require minimum annualized payments to us of ~~$445.9~~$456.6 million.

If 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.

- 24 -

Under certain provisions of the Omnibus Agreement, we pay HF Sinclair an annual administrative fee (currently $5.0 million) for the provision by HF Sinclair or its affiliates of various general and administrative services to us. ~~In connection with the HEP Transaction, we pay HF Sinclair a temporary monthly~~This fee ~~of $62,500 relating to transition services to be provided to HEP by HF Sinclair. Neither the annual administrative fee nor the temporary monthly fee includes~~does not include the salaries of personnel employed by 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 HF Sinclair. Also, we reimburse HF Sinclair and its affiliates for direct expenses they incur on our behalf.

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

•Revenues received from HF Sinclair were ~~$122.9~~$116.9 million and ~~$97.1~~$92.3 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $325.7 million and $298.2 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

•HF Sinclair charged us general and administrative services under the Omnibus Agreement of $1.3 million and ~~$0.7~~$0.8 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $3.3 million and $2.0 million for the nine months ended September 30, 2022 and 2021,~~ respectively. ~~In addition, HF Sinclair charged~~ ~~us $0.4 million for the temporary administrative fee during the nine months ended September 30, 2022.~~

•We reimbursed HF Sinclair for costs of employees supporting our operations of ~~$21.0~~$20.6 million and ~~$15.6~~$16.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $57.1 million and $44.2 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

~~- 27 -~~

•HF Sinclair reimbursed us ~~$3.1~~$1.3 million and ~~$1.8~~$3.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ for expense and capital projects, ~~respectively, and $11.6 million and $6.1 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

•We distributed $20.9 million in both the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, and $62.6 million in both the nine months ended September 30, 2022 and 2021,~~ to HF Sinclair as regular distributions on its common units.

•Accounts receivable from HF Sinclair were ~~$72.8~~$71.3 million and ~~$56.2~~$63.5 million at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

•Accounts payable to HF Sinclair were ~~$17.5~~$9.9 million and ~~$11.7~~$15.8 million at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

•Deferred revenue in the consolidated balance sheets included at ~~September 30, 2022 and December~~March 31, ~~2021,~~2023 includes ~~$0.3~~$3.3 million ~~and $4.1 million, respectively,~~ relating to certain shortfall billings to HF Sinclair.

•We received direct financing lease payments from HF Sinclair for use of our Artesia and Tulsa rail yards of $0.6 million and $0.5 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively and $1.7 million and $1.6 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

•We ~~recorded a gain on sales-type leases with HF Sinclair of $24.7 million for the nine months ended September 30, 2021, and we~~ received sales-type lease payments of ~~$24.3~~$20.6 million and ~~$6.6~~$12.6 million from HF Sinclair for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $61.4 million and $19.1 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

•HEP and HFC reached an agreement to terminate the existing minimum volume commitments for HEP’s Cheyenne assets and enter into new agreements, which were finalized and executed on February 8, 2021, with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s (and now HF Sinclair’s) use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC (and now HF Sinclair) will pay a base tariff to HEP for available crude oil storage and HF Sinclair and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HF Sinclair to HEP for the termination of the existing minimum volume commitment.

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

As of ~~September 30, 2022,~~March 31, 2023, HF Sinclair held 59,630,030 of our common units, constituting a 47% limited partner interest in us, and held the non-economic general partner 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. As of ~~September 30, 2022,~~March 31, 2023, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross ~~proceeds.~~proceeds, but no units have been issued under this program during the periods presented.

Allocations of Net Income

Net income attributable to HEP is allocated to the partners based on their weighted-average ownership percentage during the period.

Cash Distributions

On ~~October~~April 20, ~~2022,~~2023, we announced our cash distribution for the ~~third~~first quarter of ~~2022~~2023 of $0.35 per unit. The distribution is payable on all common units and will be paid ~~November~~May 11, ~~2022,~~2023, to all unitholders of record on ~~October 31, 2022.~~May 1, 2023.

~~- 28 -~~

Our regular quarterly cash distribution to the limited partners will be $44.3 million for the three months ended ~~September 30, 2022~~March 31, 2023 and was ~~$37.0~~$44.3 million for the three months ended September 30, 2021. For the nine months ended September 30, 2022, the regular quarterly distribution to the limited partners will be $133.0 million and was $111.1 million for the nine months ended September 30, 2021.March 31, 2022. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.

- 25 -

Note 13: Net Income Per Limited Partner Unit

Basic net income per unit applicable to the limited partners is calculated as net income attributable to the 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 the net incremental units from phantom units and 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. Our dilutive securities are immaterial for all periods presented.

Net income per limited partner unit is computed as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands, except per unit data)									(In thousands, except per unit data)

Net income attributable to the partners	Net income attributable to the partners	$	41,951	$	49,160	$	148,302	$	169,302	Net income attributable to the partners	$	57,522	$	49,559
Less: Participating securities’ share in earnings	Less: Participating securities’ share in earnings	(75)		(165)		(288)		(579)		Less: Participating securities’ share in earnings	(73)		(111)
Net income attributable to common units	Net income attributable to common units	41,876		48,995		148,014		168,723		Net income attributable to common units	57,449		49,448
Weighted average limited partners' units outstanding		126,440		105,440		120,902		105,440
Limited partners' per unit interest in earnings - basic and diluted		$	0.33	$	0.46	$	1.22	$	1.60
Weighted average limited partners’ units outstanding										Weighted average limited partners’ units outstanding	126,440		109,640
Limited partners’ per unit interest in earnings - basic and diluted										Limited partners’ per unit interest in earnings - basic and diluted	$	0.45	$	0.45

Note 14:Environmental

We expensed ~~$49 thousand~~$0.4 million and $0.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and $0.3 million~~respectively, for ~~the nine months ended September 30, 2022, for~~ environmental remediation ~~obligations and we expensed $0.7 million and $1.3 million for the three and nine months ended September 30, 2021, respectively.~~ obligations. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was ~~$13.4~~$19.8 million and ~~$3.9~~$19.5 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, of which ~~$11.4~~$17.8 million and ~~$2.4~~$17.5 million was classified as other long-term liabilities for ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time. Accrued environmental liabilities assumed in the Sinclair acquisition have preliminarily been fair valued at $10 million. Estimated liabilities could increase in the future as the purchase price allocation for the Sinclair Transportation acquisition is finalized and when the results of ongoing investigations become known, are considered probable and can be reasonably estimated.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with 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 HF Sinclair and its subsidiaries and occurring or existing prior to the date of such transfers. ~~Our consolidated balance sheets included additional accrued environmental liabilities of $0.3 million for HF Sinclair indemnified liabilities as of both September 30, 2022~~and December 31, 2021, respectively, and other assets included equal and offsetting balances representing amounts due from HF Sinclair related to indemnifications for environmental remediation liabilities.

See Note 18 for a discussion of our share of incurred and accrued environmental remediation and recovery expenses associated with the release of crude oil on the Osage pipeline reflected in our equity in earnings ~~(loss)~~ of equity method investments.

~~- 29 -~~

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 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.

- 26 -

Our pipelines and terminals segment 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 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 segment.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)									(In thousands)
Revenues:	Revenues:									Revenues:
Pipelines and terminals - affiliate	Pipelines and terminals - affiliate	$	95,445	$	75,211	$	256,940	$	232,756	Pipelines and terminals - affiliate	$	90,353	$	73,851
Pipelines and terminals - third-party	Pipelines and terminals - third-party	26,134		25,460		79,311		77,810		Pipelines and terminals - third-party	26,416		27,944
Refinery processing units - affiliate	Refinery processing units - affiliate	27,423		21,913		68,719		65,436		Refinery processing units - affiliate	26,525		18,403
Total segment revenues	Total segment revenues	$	149,002	$	122,584	$	404,970	$	376,002	Total segment revenues	$	143,294	$	120,198

Segment operating income:	Segment operating income:									Segment operating income:
Pipelines and terminals ~~(1)~~	Pipelines and terminals ~~(1)~~	$	51,621	$	48,268	$	150,098	$	139,143	Pipelines and terminals ~~(1)~~	$	55,053	$	49,804
Refinery processing units	Refinery processing units	11,675		9,697		23,481		27,705		Refinery processing units	11,436		5,582
Total segment operating income	Total segment operating income	63,296		57,965		173,579		166,848		Total segment operating income	66,489		55,386
Unallocated general and administrative expenses	Unallocated general and administrative expenses	(3,751)		(3,849)		(12,745)		(9,664)		Unallocated general and administrative expenses	(4,635)		(4,312)
Interest expense	Interest expense	(22,965)		(13,417)		(56,951)		(40,595)		Interest expense	(25,978)		(13,639)
Interest income	Interest income	24,234		6,835		61,212		19,997		Interest income	20,400		12,647

Equity in earnings of equity method investments	Equity in earnings of equity method investments	(16,334)		3,689		(7,261)		8,875		Equity in earnings of equity method investments	3,882		3,626
Gain on sales-type leases		—		—		—		24,677
Gain (loss) on sale of assets and other		494		77		640		5,994

Gain on sale of assets and other										Gain on sale of assets and other	173		101
Income before income taxes	Income before income taxes	$	44,974	$	51,300	$	158,474	$	176,132	Income before income taxes	$	60,331	$	53,809

Capital Expenditures:	Capital Expenditures:									Capital Expenditures:
Pipelines and terminals	Pipelines and terminals	$	7,583	$	19,049	$	25,400	$	77,826	Pipelines and terminals	$	7,614	$	10,421
Refinery processing units	Refinery processing units	364		168		5,794		766		Refinery processing units	—		3,726
Total capital expenditures	Total capital expenditures	$	7,947	$	19,217	$	31,194	$	78,592	Total capital expenditures	$	7,614	$	14,147

- 3027 -


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Identifiable assets:	Identifiable assets:					Identifiable assets:
Pipelines and terminals ~~(2)~~(1)	Pipelines and terminals ~~(2)~~(1)	$	2,169,486	$	1,737,388	Pipelines and terminals ~~(2)~~(1)	$	2,134,453	$	2,152,159
Refinery processing units	Refinery processing units	307,908		294,452		Refinery processing units	302,280		304,332
Other	Other	287,577		134,027		Other	296,367		291,011
Total identifiable assets	Total identifiable assets	$	2,764,971	$	2,165,867	Total identifiable assets	$	2,733,100	$	2,747,502

(1) ~~Pipelines and terminals segment operating income included goodwill impairment charges of $11.0 million for the nine months ended September 30, 2021.~~

~~(2)~~ Included goodwill of ~~$322.0~~$342.8 million as of ~~September 30, 2022~~March 31, 2023 and ~~$223.7 million as of~~ December 31, ~~2021.~~2022, respectively.

~~- 31 -~~

Note 17: Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned ~~subsidiaries, other than Holly Energy Finance Corp., and certain immaterial~~ 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~~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 income,~~ and statements of ~~cash flows~~income of the Parent, the Guarantor Subsidiaries and the Non-Guarantor ~~Subsidiaries.~~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.

As a result of the HEP Transaction, UNEV ~~Pipeline, LLC~~ became a 100% owned subsidiary, and it was subsequently added as a guarantor of the obligations of HEP under the Senior Notes during the second quarter of 2022. UNEV ~~Pipeline, LLC~~ financial information has been included in the Guarantor Subsidiaries financial information for all periods presented.

- 3228 -

Condensed Consolidating Balance Sheet


September 30, 2022		Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
March 31, 2023												March 31, 2023	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
		(In thousands)											(In thousands)
ASSETS	ASSETS											ASSETS
Current assets:	Current assets:											Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	7,345	$	5,535	$	2,671	$	—	$	15,551	Cash and cash equivalents	$	7,245	$	(1,130)	$	990	$	—	$	7,105
Accounts receivable	Accounts receivable			87,579		1,356		(1,311)		87,624		Accounts receivable	—		86,658		1,414		(1,342)		86,730
Prepaid and other current assets	Prepaid and other current assets	155		9,663		342		(342)		9,818		Prepaid and other current assets	462		11,472		370		(370)		11,934
Total current assets	Total current assets	7,500		102,777		4,369		(1,653)		112,993		Total current assets	7,707		97,000		2,774		(1,712)		105,769

Properties and equipment, net	Properties and equipment, net	—		1,417,198		—		—		1,417,198		Properties and equipment, net	—		1,385,960		—		—		1,385,960
Operating lease right-of-use assets	Operating lease right-of-use assets	—		2,457		—		—		2,457		Operating lease right-of-use assets	—		2,078		—		—		2,078
Net investment in leases	Net investment in leases	—		539,394		101,508		(101,508)		539,394		Net investment in leases	—		524,564		101,954		(101,954)		524,564
Investment in subsidiaries	Investment in subsidiaries	2,443,931		69,368		—		(2,513,299)		—		Investment in subsidiaries	2,428,056		68,956		—		(2,497,012)		—
Intangible assets, net	Intangible assets, net	—		62,802		—		—		62,802		Intangible assets, net	—		56,211		—		—		56,211
Goodwill	Goodwill	—		322,007		—		—		322,007		Goodwill	—		342,762		—		—		342,762
Equity method investments	Equity method investments	—		230,448		35,738		—		266,186		Equity method investments	—		240,007		34,135		—		274,142
Deferred turnaround costs	Deferred turnaround costs	—		25,092		—		—		25,092		Deferred turnaround costs	—		23,363		—		—		23,363
Other assets	Other assets	6,304		10,538		—		—		16,842		Other assets	5,420		12,831		—		—		18,251
Total assets	Total assets	$	2,457,735	$	2,782,081	$	141,615	$	(2,616,460)	$	2,764,971	Total assets	$	2,441,183	$	2,753,732	$	138,863	$	(2,600,678)	$	2,733,100

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY											LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:											Current liabilities:
Accounts payable	Accounts payable	$	—	$	43,624	$	1,968	$	(1,311)	$	44,281	Accounts payable	$	—	$	29,050	$	396	$	(1,342)	$	28,104
Accrued interest	Accrued interest	17,922		—		—		—		17,922		Accrued interest	17,567		—		—		—		17,567
Deferred revenue	Deferred revenue	—		11,923		—		—		11,923		Deferred revenue	—		15,316		—		—		15,316
Accrued property taxes	Accrued property taxes	—		10,603		—		—		10,603		Accrued property taxes	—		7,101		—		—		7,101
Current operating lease liabilities	Current operating lease liabilities	—		966		—		—		966		Current operating lease liabilities	—		886		—		—		886
Current finance lease liabilities	Current finance lease liabilities	—		6,264		—		(2,087)		4,177		Current finance lease liabilities	—		6,867		—		(2,259)		4,608
Other current liabilities	Other current liabilities	87		1,553		911		—		2,551		Other current liabilities	439		2,054		555		—		3,048
Total current liabilities	Total current liabilities	18,009		74,933		2,879		(3,398)		92,423		Total current liabilities	18,006		61,274		951		(3,601)		76,630

Long-term debt	Long-term debt	1,593,797		—		—		—		1,593,797		Long-term debt	1,540,385		—		—		—		1,540,385
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	—		1,949		—		—		1,949		Noncurrent operating lease liabilities	—		1,563		—		—		1,563
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	—		152,147		—		(89,357)		62,790		Noncurrent finance lease liabilities	—		149,828		—		(88,183)		61,645
Other long-term liabilities	Other long-term liabilities	345		22,885		—		—		23,230		Other long-term liabilities	216		29,517		—		—		29,733
Deferred revenue	Deferred revenue	—		26,752		—		—		26,752		Deferred revenue	—		21,963		—		—		21,963
Class B unit	Class B unit	—		59,484		—		—		59,484		Class B unit	—		61,531		—		—		61,531
Equity - partners	Equity - partners	845,584		2,443,931		69,368		(2,523,705)		835,178		Equity - partners	882,576		2,428,056		68,956		(2,508,894)		870,694
Equity - noncontrolling interests	Equity - noncontrolling interests	—		—		69,368		—		69,368		Equity - noncontrolling interests	—		—		68,956		—		68,956
Total liabilities and equity	Total liabilities and equity	$	2,457,735	$	2,782,081	$	141,615	$	(2,616,460)	$	2,764,971	Total liabilities and equity	$	2,441,183	$	2,753,732	$	138,863	$	(2,600,678)	$	2,733,100

- 3329 -

Condensed Consolidating Balance Sheet


December 31, 2021		Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
December 31, 2022												December 31, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
		(In thousands)											(In thousands)
ASSETS	ASSETS											ASSETS
Current assets:	Current assets:											Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,273	$	4,227	$	8,881	$	—	$	14,381	Cash and cash equivalents	$	4,316	$	4,454	$	2,147	$	—	$	10,917
Accounts receivable	Accounts receivable	—		68,768		2,833		(2,702)		68,899		Accounts receivable	—		79,689		1,453		(1,339)		79,803
Prepaid and other current assets	Prepaid and other current assets	353		10,680		304		(304)		11,033		Prepaid and other current assets	256		12,141		356		(356)		12,397
Total current assets	Total current assets	1,626		83,675		12,018		(3,006)		94,313		Total current assets	4,572		96,284		3,956		(1,695)		103,117

Properties and equipment, net	Properties and equipment, net	—		1,329,028		—		—		1,329,028		Properties and equipment, net	—		1,388,888		—		—		1,388,888
Operating lease right-of-use assets	Operating lease right-of-use assets	—		2,275		—		—		2,275		Operating lease right-of-use assets	—		2,317		—		—		2,317
Net investment in leases	Net investment in leases	—		309,301		100,032		(100,030)		309,303		Net investment in leases	—		539,705		101,871		(101,871)		539,705
Investment in subsidiaries	Investment in subsidiaries	1,785,024		70,437		—		(1,855,461)		—		Investment in subsidiaries	2,432,767		69,754		—		(2,502,521)		—
Intangible assets, net	Intangible assets, net	—		73,307		—		—		73,307		Intangible assets, net	—		59,300		—		—		59,300
Goodwill	Goodwill	—		223,650		—		—		223,650		Goodwill	—		342,762		—		—		342,762
Equity method investments	Equity method investments	—		78,873		37,505		—		116,378		Equity method investments	—		235,858		34,746		—		270,604
Deferred turnaround costs	Deferred turnaround costs	—		2,632		—		—		2,632		Deferred turnaround costs	—		24,154		—		—		24,154
Other assets	Other assets	8,118		6,863		—		—		14,981		Other assets	5,865		10,790		—		—		16,655
Total assets	Total assets	$	1,794,768	$	2,180,041	$	149,555	$	(1,958,497)	$	2,165,867	Total assets	$	2,443,204	$	2,769,812	$	140,573	$	(2,606,087)	$	2,747,502

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY											LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:											Current liabilities:
Accounts payable	Accounts payable	$	—	$	34,566	$	8,416	$	(2,702)	$	40,280	Accounts payable	$	—	$	43,303	$	545	$	(1,339)	$	42,509
Accrued interest	Accrued interest	11,258		—		—		—		11,258		Accrued interest	17,992		—		—		—		17,992
Deferred revenue	Deferred revenue	—		14,585		—		—		14,585		Deferred revenue	—		12,087		—		—		12,087
Accrued property taxes	Accrued property taxes	—		4,542		—		—		4,542		Accrued property taxes	—		5,449		—		—		5,449
Current operating lease liabilities	Current operating lease liabilities	—		620		—		—		620		Current operating lease liabilities	—		968		—		—		968
Current finance lease liabilities	Current finance lease liabilities	—		5,566		—		(1,780)		3,786		Current finance lease liabilities	—		6,560		—		(2,171)		4,389
Other current liabilities	Other current liabilities	3		1,513		265		—		1,781		Other current liabilities	117		1,793		520		—		2,430
Total current liabilities	Total current liabilities	11,261		61,392		8,681		(4,482)		76,852		Total current liabilities	18,109		70,160		1,065		(3,510)		85,824

Long-term debt	Long-term debt	1,333,049		—		—		—		1,333,049		Long-term debt	1,556,334		—		—		—		1,556,334
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	—		2,030		—		—		2,030		Noncurrent operating lease liabilities	—		1,720		—		—		1,720
Noncurrent finance lease liabilities	Noncurrent finance lease liabilities	—		156,102		—		(91,453)		64,649		Noncurrent finance lease liabilities	—		150,935		—		(88,422)		62,513
Other long-term liabilities	Other long-term liabilities	340		12,187		—		—		12,527		Other long-term liabilities	—		29,111		—		—		29,111
Deferred revenue	Deferred revenue	—		29,662		—		—		29,662		Deferred revenue	—		24,613		—		—		24,613
Class B unit	Class B unit	—		56,549		—		—		56,549		Class B unit	—		60,507		—		—		60,507
Equity - partners	Equity - partners	450,118		1,785,024		70,437		(1,862,562)		443,017		Equity - partners	868,760		2,432,767		69,754		(2,514,155)		857,126
Equity - noncontrolling interests	Equity - noncontrolling interests	—		77,095		70,437		—		147,532		Equity - noncontrolling interests	—		—		69,754		—		69,754
Total liabilities and equity	Total liabilities and equity	$	1,794,768	$	2,180,041	$	149,555	$	(1,958,497)	$	2,165,867	Total liabilities and equity	$	2,443,203	$	2,769,813	$	140,573	$	(2,606,087)	$	2,747,502

- 3430 -

Condensed Consolidating Statement of Income


Three Months Ended September 30, 2022		Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
Three Months Ended March 31, 2023												Three Months Ended March 31, 2023	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
		(In thousands)											(In thousands)
Revenues:	Revenues:											Revenues:
Affiliates	Affiliates	$	—	$	122,868	$	—	$	—	$	122,868	Affiliates	$	—	$	116,878	$	—	$	—	$	116,878
Third parties	Third parties	—		26,134		—		—		26,134		Third parties	—		26,416		—		—		26,416
		—		149,002		—		—		149,002			—		143,294		—		—		143,294
Operating costs and expenses:	Operating costs and expenses:											Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	Operations (exclusive of depreciation and amortization)	—		59,493		977		—		60,470		Operations (exclusive of depreciation and amortization)	—		50,822		1,320		—		52,142
Depreciation and amortization	Depreciation and amortization	—		25,236		—		—		25,236		Depreciation and amortization	—		24,663		—		—		24,663
General and administrative	General and administrative	703		3,048		—		—		3,751		General and administrative	1,482		3,153		—		—		4,635

		703		87,777		977		—		89,457			1,482		78,638		1,320		—		81,440
Operating income (loss)	Operating income (loss)	(703)		61,225		(977)		—		59,545		Operating income (loss)	(1,482)		64,656		(1,320)		—		61,854

Other income (expense):	Other income (expense):											Other income (expense):
Equity in earnings of subsidiaries	Equity in earnings of subsidiaries	64,681		1,964		—		(66,645)		—		Equity in earnings of subsidiaries	84,028		1,752		—		(85,780)		—
Equity in earnings of equity method investments	Equity in earnings of equity method investments	—		(17,117)		783		—		(16,334)		Equity in earnings of equity method investments	—		3,173		709		—		3,882
Interest expense	Interest expense	(22,027)		(5,060)		—		4,122		(22,965)		Interest expense	(25,024)		(5,069)		—		4,115		(25,978)
Interest income	Interest income	—		24,234		4,122		(4,122)		24,234		Interest income	—		20,400		4,115		(4,115)		20,400

Gain on sale of assets and other	Gain on sale of assets and other	—		494		—		—		494		Gain on sale of assets and other	—		173		—		—		173
		42,654		4,515		4,905		(66,645)		(14,571)			59,004		20,429		4,824		(85,780)		(1,523)
Income before income taxes	Income before income taxes	41,951		65,740		3,928		(66,645)		44,974		Income before income taxes	57,522		85,085		3,504		(85,780)		60,331
State income tax (expense)		—		(38)		—		—		(38)
State income tax expense												State income tax expense	—		(34)		—		—		(34)
Net income	Net income	41,951		65,702		3,928		(66,645)		44,936		Net income	57,522		85,051		3,504		(85,780)		60,297
Allocation of net income attributable to noncontrolling interests	Allocation of net income attributable to noncontrolling interests	—		(1,021)		(1,964)		—		(2,985)		Allocation of net income attributable to noncontrolling interests	—		(1,023)		(1,752)		—		(2,775)

Net income attributable to the partners	Net income attributable to the partners	$	41,951	$	64,681	$	1,964	$	(66,645)	$	41,951	Net income attributable to the partners	$	57,522	$	84,028	$	1,752	$	(85,780)	$	57,522

- 3531 -

Condensed Consolidating Statement of Income
Three Months Ended September 30, 2021 Parent Guarantor
Restricted Subsidiaries Non-Guarantor Non-Restricted Subsidiaries Eliminations Consolidated
(In thousands)
Revenues:
Affiliates $ — $ 97,124 $ — $ — $ 97,124
Third parties — 25,460 — — 25,460
— 122,584 — — 122,584
Operating costs and expenses:
Operations (exclusive of depreciation and amortization) — 42,276 517 — 42,793
Depreciation and amortization — 21,826 — — 21,826
General and administrative 739 3,110 — — 3,849
739 67,212 517 — 68,468
Operating income (loss) (739) 55,372 (517) — 54,116
Other income (expense):
Equity in earnings of subsidiaries 69,553 260 — (69,813) —
Equity in earnings of equity method investments — 2,743 946 — 3,689
Interest expense (12,431) (1,077) — 91 (13,417)
Interest income — 6,835 91 (91) 6,835
Gain on sales-type lease — 7,223 — (7,223) —
Gain on sale of assets and other — 77 — — 77
57,122 16,061 1,037 (77,036) (2,816)
Income before income taxes 56,383 71,433 520 (77,036) 51,300
State income tax benefit — 4 — — 4
Net income 56,383 71,437 520 (77,036) 51,304
Allocation of net income attributable to noncontrolling interests — (1,884) (260) — (2,144)
Net income attributable to the partners $ 56,383 $ 69,553 $ 260 $ (77,036) $ 49,160


Three Months Ended March 31, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	92,254	$	—	$	—	$	92,254
Third parties	—		27,944		—		—		27,944
	—		120,198		—		—		120,198
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		41,934		691		—		42,625
Depreciation and amortization	—		22,187		—		—		22,187
General and administrative	1,088		3,224		—		—		4,312

	1,088		67,345		691		—		69,124
Operating income (loss)	(1,088)		52,853		(691)		—		51,074

Other income (expense):
Equity in earnings of subsidiaries	63,327		2,171		—		(65,498)		—
Equity in earnings of equity method investments	—		2,720		906		—		3,626
Interest expense	(12,680)		(5,086)		—		4,127		(13,639)
Interest income	—		12,647		4,127		(4,127)		12,647


Gain on sale of assets and other	—		101		—		—		101
	50,647		12,553		5,033		(65,498)		2,735
Income before income taxes	49,559		65,406		4,342		(65,498)		53,809
State income tax expense	—		(31)		—		—		(31)
Net income	49,559		65,375		4,342		(65,498)		53,778
Allocation of net income attributable to noncontrolling interests	—		(2,048)		(2,171)		—		(4,219)


Net income attributable to the partners	$	49,559	$	63,327	$	2,171	$	(65,498)	$	49,559

- ~~36 -~~

~~Condensed Consolidating Statement of Income~~

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

~~- 37 -~~

~~Condensed Consolidating Statement of Income~~

Nine Months Ended September 30, 2021 Parent Guarantor Restricted
Subsidiaries Non-Guarantor Non-restricted Subsidiaries Eliminations Consolidated
(In thousands)
Revenues:
Affiliates $ — $ 298,192 $ — $ — $ 298,192
Third parties — 77,810 — — 77,810
— 376,002 — — 376,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization) — 124,710 1,516 — 126,226
Depreciation and amortization — 71,894 — — 71,894
General and administrative 2,824 6,840 — — 9,664
Goodwill impairment — 11,034 — — 11,034
2,824 214,478 1,516 — 218,818
Operating income (loss) (2,824) 161,524 (1,516) — 157,184
Other income (expense):
Equity in earnings of subsidiaries 216,958 648 — (217,606) —
Equity in earnings of equity method investments — 6,154 2,721 — 8,875
Interest expense (37,609) (3,077) — 91 (40,595)
Interest income — 19,997 91 (91) 19,997
Gain on sales-type lease — 31,900 — (7,223) 24,677
Gain on sale of assets and other — 5,994 — — 5,994
179,349 61,616 2,812 (224,829) 18,948
Income before income taxes 176,525 223,140 1,296 (224,829) 176,132
State income tax (expense) — (60) — — (60)
Net income 176,525 223,080 1,296 (224,829) 176,072
Allocation of net income attributable to noncontrolling interests — (6,122) (648) — (6,770)
Net income attributable to the partners 176,525 216,958 648 (224,829) 169,302

~~- 38~~32 -

Note 18: 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 three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 by ~~$20.3~~$0.9 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 March 31, 2023, our equity in earnings of equity method investments was reduced by $18.5 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 $0.5~~is $3.0 million. ~~Additional~~Any additional insurance recoveries will be recorded as they are received. ~~Our~~If the Osage insurance policy pays out in full, our share of the remaining insurance coverage is ~~$12.5~~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 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 19: Subsequent Event

On May 3, 2023, we received a non-binding proposal from HF Sinclair to acquire all of the outstanding common units (“Common Units”) of HEP not beneficially owned by HF Sinclair or its affiliates in exchange for shares of common stock, par value $0.01 per share (“Common Stock”) of HF Sinclair. Under the proposal, HEP unitholders would receive newly issued shares of Common Stock at a fixed exchange ratio of 0.3714 per each publicly held Common Unit, which was derived using the 30-day volume weighted average prices for each security as of market close on May 3, 2023 (the “Proposed HF Sinclair Transaction”). The proposal has been made to the board of directors of our ultimate general partner (the “Board”). It is anticipated that the Board will authorize the Conflicts Committee of the Board (the “Conflicts Committee”), which is comprised of independent members of the Board, to 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.

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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. (“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 ~~Company LLC~~ or their respective consolidated subsidiaries (collectively, the ~~“Acquired~~“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 publicly held master limited partnership. On 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)~~LLC (“Sinclair Oil”)) and Sinclair Transportation ~~Company LLC (“Sinclair Transportation”)~~ from REH Company ~~(referred~~(formerly known as The Sinclair Companies, and referred to herein as ~~“Sinclair HoldCo”~~“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 ~~Sinclair HoldCo~~REH Company contributed all of the equity interests of Hippo Holding LLC (now known as Sinclair Holding LLC), the parent company of Sinclair Oil (the “Target Company”), to HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target Company becoming a direct wholly owned subsidiary of HF Sinclair (together with the HFC Merger, the “HFC Transactions”).

As of ~~September 30, 2022,~~March 31, 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 ~~Sinclair HoldCo~~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” and together with the HFC Transactions, the “Sinclair Transactions”). 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 ~~Sinclair HoldCo’s~~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 ~~Sinclair HoldCo~~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 ~~Pipeline~~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 ~~Pipeline, LLC~~ 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.

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Through our subsidiaries and joint ventures, we own 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 HF Sinclair and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. HEP, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Colorado, Idaho, Iowa, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas, Utah, Washington and Wyoming as well as refinery processing units in Utah and Kansas.

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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 process, and therefore, we are not directly exposed to changes in commodity prices.

We believe the long-term global refined product demand and U.S. crude production should support high utilization rates for the refineries we serve, which in turn should support volumes in our product pipelines, crude gathering systems and terminals.

HF Sinclair Proposal

Market Developments

Our results for the ~~third quarter and the nine~~three months ended ~~September 30, 2022~~March 31, 2023 were favorably impacted by global demand for transportation fuels, lubricants and transportation and terminal services having returned to pre-pandemic levels. We expect our customers will continue to adjust refinery production levels commensurate with market demand. The extent to which HEP’s future results are affected by 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 ~~2023~~2024 to 2037. These minimum volume commitments accounted for approximately ~~70%~~72% and 69% of our total tariffs and fees billed to customers for ~~both~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021.~~respectively. We are currently not aware of any reasons that would prevent such customers from making the minimum payments required under the contracts or potentially making payments in excess of the minimum payments. In addition to ~~these~~these payments, we also expect to collect payments for services provided to uncommitted shippers.

~~Investment in Joint Venture~~

On October 2, 2019, HEP Cushing LLC (“HEP Cushing”), a wholly owned subsidiary of HEP, and Plains Marketing, L.P., a wholly owned 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 (i) the development, construction, ownership and operation of a new 160,000 barrel per day common carrier crude oil pipeline (the “Cushing Connect Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HF Sinclair and (ii) the ownership and operation of 1.5 million barrels of 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 at the end of 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 construction and operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect JV Terminal. The total Cushing Connect Joint Venture investment will generally be shared equally among HEP and Plains. However, we are solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $73 million, ~~including approximately $5 million of Cushing Connect Pipeline construction costs exceeding the budget by more than 10% borne solely by HEP.~~

Agreements with HF Sinclair

We serve HF Sinclair’s refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from ~~2023~~2024 to 2037. Under these agreements, 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 PPI or the 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, 2022,~~March 31, 2023, these agreements with HF Sinclair require minimum annualized payments to us of ~~$446~~$457 million.

If 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.

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

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On February 8, 2021, HEP and HFC finalized and executed new agreements for HEP's Cheyenne assets with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s (and now HF Sinclair’s) use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC (and now HF Sinclair) will pay a base tariff to HEP for available crude oil storage and HFC (and now HF Sinclair) and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

Under certain provisions of an omnibus agreement we have with HF Sinclair (the “Omnibus Agreement”), we pay HF Sinclair an annual administrative fee, currently $5.0 million, for the provision by HF Sinclair or its affiliates of various general and administrative services to us. ~~In connection with the HEP Transaction, we pay HF Sinclair a temporary monthly~~This fee ~~of $62,500 relating to transition services to be provided to HEP by HF Sinclair. Neither the annual administrative fee nor the temporary monthly fee includes~~does not include the salaries of personnel employed by HF Sinclair who perform services 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 HF Sinclair. We also reimburse HF Sinclair and its affiliates for direct expenses they incur on our behalf.

Under HLS’s Secondment Agreement with HF Sinclair, certain employees of 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 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 (and now HF Sinclair) that has historically facilitated our growth. ~~Our~~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 plans include organic projects around our existing assets and select investments or acquisitions that enhance our service platform while creating accretion for our unitholders. While in the near term, any acquisitions would be subject to economic conditions discussed in “Overview - Market Developments” above, we also expect over the longer term to continue to work with HF Sinclair on logistic asset acquisitions in conjunction with HF Sinclair’s refinery acquisition strategies. See “Overview” above for a discussion of the Sinclair Transactions.

Furthermore, as demonstrated by our recent transaction with Sinclair HoldCo, we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues.

~~Indicators of Goodwill and Long-lived Asset Impairment~~

During the three months ended March 31, 2021, changes in our agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair values of our Cheyenne reporting unit were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

~~Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.~~

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RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow, Volumes and Balance Sheet Data

The following tables present income, distributable cash flow and volume information for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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		Three Months Ended September 30,				Change from			Three Months Ended March 31,				Change from
		2022		2021		2021			2023		2022		2022
		(In thousands, except per unit data)							(In thousands, except per unit data)
Revenues:	Revenues:							Revenues:
Pipelines:	Pipelines:							Pipelines:
Affiliates—refined product pipelines	Affiliates—refined product pipelines	$	24,731	$	18,702	$	6,029	Affiliates—refined product pipelines	$	18,931	$	16,860	$	2,071
Affiliates—intermediate pipelines	Affiliates—intermediate pipelines	7,988		7,537		451		Affiliates—intermediate pipelines	8,282		7,506		776
Affiliates—crude pipelines	Affiliates—crude pipelines	23,169		19,536		3,633		Affiliates—crude pipelines	24,667		18,277		6,390
		55,888		45,775		10,113			51,880		42,643		9,237
Third parties—refined product pipelines	Third parties—refined product pipelines	6,694		8,799		(2,105)		Third parties—refined product pipelines	6,268		9,260		(2,992)
Third parties—crude pipelines	Third parties—crude pipelines	14,565		12,780		1,785		Third parties—crude pipelines	12,434		12,877		(443)
		77,147		67,354		9,793			70,582		64,780		5,802
Terminals, tanks and loading racks:	Terminals, tanks and loading racks:							Terminals, tanks and loading racks:
Affiliates	Affiliates	39,557		29,436		10,121		Affiliates	38,473		31,208		7,265
Third parties	Third parties	4,875		3,881		994		Third parties	7,714		5,807		1,907
		44,432		33,317		11,115			46,187		37,015		9,172

Refinery processing units—Affiliates	Refinery processing units—Affiliates	27,423		21,913		5,510		Refinery processing units—Affiliates	26,525		18,403		8,122

Total revenues	Total revenues	149,002		122,584		26,418		Total revenues	143,294		120,198		23,096
Operating costs and expenses:	Operating costs and expenses:							Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	Operations (exclusive of depreciation and amortization)	60,470		42,793		17,677		Operations (exclusive of depreciation and amortization)	52,142		42,625		9,517
Depreciation and amortization	Depreciation and amortization	25,236		21,826		3,410		Depreciation and amortization	24,663		22,187		2,476
General and administrative	General and administrative	3,751		3,849		(98)		General and administrative	4,635		4,312		323

		89,457		68,468		20,989			81,440		69,124		12,316
Operating income	Operating income	59,545		54,116		5,429		Operating income	61,854		51,074		10,780
Other income (expense):	Other income (expense):							Other income (expense):
Equity in earnings of equity method investments	Equity in earnings of equity method investments	(16,334)		3,689		(20,023)		Equity in earnings of equity method investments	3,882		3,626		256
Interest expense, including amortization	Interest expense, including amortization	(22,965)		(13,417)		(9,548)		Interest expense, including amortization	(25,978)		(13,639)		(12,339)
Interest income	Interest income	24,234		6,835		17,399		Interest income	20,400		12,647		7,753

Gain on sale of assets and other	Gain on sale of assets and other	494		77		417		Gain on sale of assets and other	173		101		72
		(14,571)		(2,816)		(11,755)			(1,523)		2,735		(4,258)
Income before income taxes	Income before income taxes	44,974		51,300		(6,326)		Income before income taxes	60,331		53,809		6,522
State income tax benefit (expense)		(38)		4		(42)
State income tax expense								State income tax expense	(34)		(31)		(3)
Net income	Net income	44,936		51,304		(6,368)		Net income	60,297		53,778		6,519

Allocation of net income attributable to noncontrolling interests	Allocation of net income attributable to noncontrolling interests	(2,985)		(2,144)		(841)		Allocation of net income attributable to noncontrolling interests	(2,775)		(4,219)		1,444
Net income attributable to the partners	Net income attributable to the partners	41,951		49,160		(7,209)		Net income attributable to the partners	57,522		49,559		7,963

Limited partners’ earnings per unit—basic and diluted	Limited partners’ earnings per unit—basic and diluted	$	0.33	$	0.46	$	(0.13)	Limited partners’ earnings per unit—basic and diluted	$	0.45	$	0.45	$	—
Weighted average limited partners’ units outstanding	Weighted average limited partners’ units outstanding	126,440		105,440		21,000		Weighted average limited partners’ units outstanding	126,440		109,640		16,800
EBITDA (1)	EBITDA (1)	$	65,956	$	77,564	$	(11,608)	EBITDA (1)	$	87,797	$	72,769	$	15,028
Adjusted EBITDA (1)	Adjusted EBITDA (1)	$	110,092	$	83,270	$	26,822	Adjusted EBITDA (1)	$	108,357	$	85,338	$	23,019
Distributable cash flow (2)	Distributable cash flow (2)	$	78,731	$	66,810	$	11,921	Distributable cash flow (2)	$	83,911	$	64,455	$	19,456

Volumes (bpd)	Volumes (bpd)							Volumes (bpd)
Pipelines:	Pipelines:							Pipelines:
Affiliates—refined product pipelines	Affiliates—refined product pipelines	167,618		115,507		52,111		Affiliates—refined product pipelines	143,002		107,210		35,792
Affiliates—intermediate pipelines	Affiliates—intermediate pipelines	137,049		136,398		651		Affiliates—intermediate pipelines	114,326		117,802		(3,476)
Affiliates—crude pipelines	Affiliates—crude pipelines	507,419		271,717		235,702		Affiliates—crude pipelines	473,712		396,040		77,672
		812,086		523,622		288,464			731,040		621,052		109,988
Third parties—refined product pipelines	Third parties—refined product pipelines	38,040		46,834		(8,794)		Third parties—refined product pipelines	40,431		49,029		(8,598)
Third parties—crude pipelines	Third parties—crude pipelines	131,622		136,247		(4,625)		Third parties—crude pipelines	175,984		131,126		44,858
		981,748		706,703		275,045			947,455		801,207		146,248
Terminals and loading racks:	Terminals and loading racks:							Terminals and loading racks:
Affiliates	Affiliates	583,089		419,665		163,424		Affiliates	686,845		446,032		240,813
Third parties	Third parties	37,782		52,541		(14,759)		Third parties	42,462		48,354		(5,892)
		620,871		472,206		148,665			729,307		494,386		234,921
Refinery processing units—Affiliates	Refinery processing units—Affiliates	72,065		72,297		(232)		Refinery processing units—Affiliates	53,294		65,227		(11,933)
Total for pipelines and terminal and refinery processing unit assets (bpd)	Total for pipelines and terminal and refinery processing unit assets (bpd)	1,674,684		1,251,206		423,478		Total for pipelines and terminal and refinery processing unit assets (bpd)	1,730,056		1,360,820		369,236

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Nine Months Ended September 30, Change from
2022 2021 2021
(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines $ 62,511 $ 56,520 $ 5,991
Affiliates—intermediate pipelines 23,015 22,564 451
Affiliates—crude pipelines 62,417 58,241 4,176
147,943 137,325 10,618
Third parties—refined product pipelines 21,169 28,188 (7,019)
Third parties—crude pipelines 41,134 36,667 4,467
210,246 202,180 8,066
Terminals, tanks and loading racks:
Affiliates 108,997 95,431 13,566
Third parties 17,008 12,955 4,053
126,005 108,386 17,619
Refinery processing units—Affiliates 68,719 65,436 3,283
Total revenues 404,970 376,002 28,968
Operating costs and expenses:
Operations (exclusive of depreciation and amortization) 156,994 126,226 30,768
Depreciation and amortization 74,397 71,894 2,503
General and administrative 12,745 9,664 3,081
Goodwill impairment — 11,034 (11,034)
244,136 218,818 25,318
Operating income 160,834 157,184 3,650
Other income (expense):
Equity in earnings of equity method investments (7,261) 8,875 (16,136)
Interest expense, including amortization (56,951) (40,595) (16,356)
Interest income 61,212 19,997 41,215
Gain on sales-type leases — 24,677 (24,677)
Gain on sale of assets and other 640 5,994 (5,354)
(2,360) 18,948 (21,308)
Income before income taxes 158,474 176,132 (17,658)
State income tax (expense) (83) (60) (23)
Net income 158,391 176,072 (17,681)
Allocation of net income attributable to noncontrolling interests (10,089) (6,770) (3,319)
Net income attributable to the partners 148,302 169,302 (21,000)
Limited partners’ earnings per unit—basic and diluted $ 1.22 $ 1.60 $ (0.38)
Weighted average limited partners’ units outstanding 120,902 105,440 15,462
EBITDA (1)
$ 218,521 $ 261,854 $ (43,333)
Adjusted EBITDA (1)
$ 299,673 $ 259,466 $ 40,207
Distributable cash flow (2)
$ 221,643 $ 206,707 $ 14,936
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines 138,608 118,033 20,575
Affiliates—intermediate pipelines 126,550 131,873 (5,323)
Affiliates—crude pipelines 460,641 261,117 199,524
725,799 511,023 214,776
Third parties—refined product pipelines 41,646 47,805 (6,159)
Third parties—crude pipelines 133,598 131,842 1,756
901,043 690,670 210,373
Terminals and loading racks:
Affiliates 534,305 386,400 147,905
Third parties 40,923 50,542 (9,619)
575,228 436,942 138,286
Refinery processing units—Affiliates 69,903 69,904 (1)
Total for pipelines and terminal and refinery processing unit assets (bpd) 1,546,174 1,197,516 348,658

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~~Table o~~

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to the partners plus or minus (i) interest expense, ~~net of~~(ii) interest income, ~~(ii)~~(iii) state income tax expense and ~~(iii)~~(iv) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) ~~goodwill impairment, (ii) acquisition integration and regulatory costs, (iii)~~ our share of Osage environmental ~~expenses~~remediation costs included in equity in earnings of equity method investments, (ii) acquisition integration and ~~(iv)~~regulatory costs, (iii) tariffs and fees not included in revenues due to impacts from lease accounting for certain tariffs and fees minus ~~(v) gain on sales-type leases, (vi) gain on significant asset sales and (vii)~~(iv) pipeline lease payments not included in operating costs and expenses. Portions of our minimum guaranteed ~~pipeline and terminal~~ tariffs ~~and fees~~ 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"~~(“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 ~~HEP~~the partners or operating income, as indications of 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 internal analysis and as a basis for compliance with financial covenants. ~~Set forth below are our calculations of EBITDA and Adjusted EBITDA.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
(In thousands)
Net income attributable to the partners $ 41,951 $ 49,160 $ 148,302 $ 169,302
Add (subtract):
Interest expense 22,965 13,417 56,951 40,595
Interest income (24,234) (6,835) (61,212) (19,997)
State income tax expense (benefit) 38 (4) 83 60
Depreciation and amortization 25,236 21,826 74,397 71,894
EBITDA $ 65,956 $ 77,564 $ 218,521 $ 261,854
Gain on sales-type leases — — — (24,677)
Gain on significant asset sales — — — (5,263)
Goodwill impairment — — — 11,034
Share of Osage environmental remediation costs 20,297 — 20,297 —
Acquisition integration and regulatory costs 373 — 2,095 —
Tariffs and fees not included in revenues 25,072 7,312 63,579 21,337
Lease payments not included in operating costs (1,606) (1,606) (4,819) (4,819)
Adjusted EBITDA $ 110,092 $ 83,270 $ 299,673 $ 259,466


	Three Months Ended March 31,
	2023		2022
	(In thousands)
Net income attributable to the partners	$	57,522	$	49,559
Add (subtract):
Interest expense	25,978		13,639
Interest income	(20,400)		(12,647)
State income tax expense	34		31
Depreciation and amortization	24,663		22,187
EBITDA	$	87,797	$	72,769




Share of Osage environmental remediation costs	870		—
Acquisition integration and regulatory costs	—		836
Tariffs and fees not included in revenues	21,296		13,339
Lease payments not included in operating costs	(1,606)		(1,606)
Adjusted EBITDA	$	108,357	$	85,338

(2)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~~exception of maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It is also used by management for internal analysis and for 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,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In thousands)									(In thousands)
Net income attributable to the partners	Net income attributable to the partners	$	41,951	$	49,160	$	148,302	$	169,302	Net income attributable to the partners	$	57,522	$	49,559
Add (subtract):	Add (subtract):									Add (subtract):
Depreciation and amortization	Depreciation and amortization	25,236		21,826		74,397		71,894		Depreciation and amortization	24,663		22,187
Amortization of discount and deferred debt issuance costs	Amortization of discount and deferred debt issuance costs	1,060		763		2,863		2,992		Amortization of discount and deferred debt issuance costs	1,071		770

Customer billings greater than net income recognized	Customer billings greater than net income recognized	(587)		(122)		34		(301)		Customer billings greater than net income recognized	4,873		497
Maintenance capital expenditures (3)	Maintenance capital expenditures (3)	(4,679)		(3,351)		(15,262)		(8,834)		Maintenance capital expenditures (3)	(1,702)		(5,620)
Increase in environmental liability		5,364		271		5,120		36
Share of remaining Osage insurance coverage		12,500		—		12,500		—
Increase (decrease) in environmental liability										Increase (decrease) in environmental liability	(139)		(120)
Share of Osage insurance coverage										Share of Osage insurance coverage	500		—
Decrease in reimbursable deferred revenue	Decrease in reimbursable deferred revenue	(3,538)		(2,991)		(10,127)		(10,507)		Decrease in reimbursable deferred revenue	(5,405)		(3,234)
Gain on sales-type leases		—		—		—		(24,677)
Gain on significant asset sales		—		—		—		(5,263)
Goodwill impairment		—		—		—		11,034

Other	Other	1,424		1,254		3,816		1,031		Other	2,528		416
Distributable cash flow	Distributable cash flow	$	78,731	$	66,810	$	221,643	$	206,707	Distributable cash flow	$	83,911	$	64,455

(3)Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, safety and to address environmental regulations.


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Balance Sheet Data	Balance Sheet Data					Balance Sheet Data
Cash and cash equivalents	Cash and cash equivalents	$	15,551	$	14,381	Cash and cash equivalents	$	7,105	$	10,917
Working capital	Working capital	$	20,570	$	17,461	Working capital	$	29,139	$	17,293
Total assets	Total assets	$	2,764,971	$	2,165,867	Total assets	$	2,733,100	$	2,747,502
Long-term debt	Long-term debt	$	1,593,797	$	1,333,049	Long-term debt	$	1,540,385	$	1,556,334
Partners’ equity	Partners’ equity	$	835,178	$	443,017	Partners’ equity	$	870,694	$	857,126

Results of Operations—Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared with Three Months Ended ~~September 30, 2021~~March 31, 2022

Summary

Net income attributable to the partners for the ~~third~~first quarter of ~~2022~~2023 was ~~$42.0~~$57.5 million ($~~0.33~~0.45 per basic and diluted limited partner unit) compared to ~~$49.2~~$49.6 million ($~~0.46~~0.45 per basic and diluted limited partner unit) for the ~~third~~first quarter of 2021. Results for the third quarter of 2022 reflect the impact to our equity in earnings 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 $20.3 million. Excluding this impact, net income attributable to the partners for the third quarter of 2022 was $62.2 million ($0.49 per basic and diluted limited partner unit). 2022. The increase in net income ~~attributable to the partners~~ was mainly due to net income from Sinclair Transportation, which was acquired on March 14, 2022, as well as higher revenues from our Woods Cross refinery processing units, partially offset by higher interest ~~expense and higher operating costs and expenses.~~expense.

Revenues

Revenues for the ~~third~~first quarter were ~~$149.0~~$143.3 million, an increase of ~~$26.4~~$23.1 million compared to the ~~third~~first quarter of ~~2021.~~2022. The increase was mainly due to revenues ~~on our recently~~from the acquired Sinclair Transportation assets, higher revenues on our Woods Cross refinery processing units, which were down for a scheduled turnaround in March 2022, and rate increases that went into effect on July 1, ~~2022.~~2022, partially offset by lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery.

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Revenues from our refined product pipelines were ~~$31.4~~$25.2 million, ~~an increase~~a decrease of ~~$3.9~~$0.9 million compared to the ~~third~~first quarter of ~~2021.~~2022. Shipments averaged ~~205.7~~183.4 thousand barrels per day (“mbpd”) compared to ~~162.3~~156.2 mbpd for the ~~third~~first quarter of ~~2021.~~2022. The ~~revenue and~~ volume ~~increases were~~increase was mainly due to higher volumes on ~~our recently~~the acquired Sinclair Transportation product ~~pipelines, higher~~pipelines. The decrease in revenues was mainly due to lower volumes on our ~~UNEV pipeline and rate increases that went into effect on July 1, 2022.~~product pipelines serving HF Sinclair's Navajo refinery. Revenues ~~did not increase~~were lower in proportion to volumes due to our recognition of 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 ~~$8.0~~$8.3 million, an increase of ~~$0.5~~$0.8 million compared to the ~~third~~first quarter of ~~2021.~~2022. Shipments averaged ~~137.0~~114.3 mbpd for the ~~third~~first quarter of ~~2022~~2023 compared to ~~136.4~~117.8 mbpd for the ~~third~~first quarter of ~~2021.~~2022. The increase in revenue was mainly due to rate increases that went into effect on July 1, 2022.

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Revenues from our crude pipelines were ~~$37.7~~$37.1 million, an increase of ~~$5.4~~$5.9 million compared to the ~~third~~first quarter of ~~2021.~~2022. Shipments averaged ~~639.0~~649.7 mbpd compared to ~~408.0~~527.2 mbpd for the ~~third~~first quarter of ~~2021.~~2022. The increase in volumes was mainly attributable to ~~our Cushing Connect pipeline, which went into service in September 2021, volumes on our recently~~the acquired Sinclair Transportation crude pipelines and higher volumes on our crude pipeline systems in New Mexico and Texas. The increase in revenues was mainly due to ~~our recently~~the acquired Sinclair Transportation crude pipelines, higher volumes on our crude pipeline systems in New Mexico and Texas and rate increases that went into effect on July 1, 2022. Revenues did not increase in proportion to volumes due to our recognition of most of the Cushing Connect pipeline tariffs and a significant portion of Sinclair Transportation crude pipeline tariffs as interest income under sales-type lease accounting.

Revenues from terminal, tankage and loading rack fees were ~~$44.4~~$46.2 million, an increase of ~~$11.1~~$9.2 million compared to the ~~third~~first quarter of ~~2021.~~2022. Refined products and crude oil terminalled in the facilities averaged ~~620.9~~729.3 mbpd compared to ~~472.2~~494.4 mbpd for the ~~third~~first quarter of ~~2021.~~2022. The increase in volumes was mainly due to ~~our recently~~the acquired Sinclair Transportation assets. Revenues increased mainly due to revenues ~~on our recently~~from the acquired Sinclair Transportation assets and rate increases that went into effect on July 1, 2022.

Revenues from refinery processing units were ~~$27.4~~$26.5 million, an increase of ~~$5.5~~$8.1 million compared to the ~~third~~first quarter of ~~2021,~~2022, and throughputs averaged ~~72.1~~53.3 mbpd compared to ~~72.3~~65.2 mbpd for the ~~third~~first quarter of ~~2021.~~2022. Revenues increased mainly due to higher ~~natural gas cost recoveries in~~ revenues ~~higher throughput at~~from our Woods Cross refinery processing units, ~~and~~which were down for a scheduled turnaround in March 2022, as well as rate increases that went into effect on July 1, 2022. The decrease in volumes was due to maintenance at the El Dorado refinery.

Operations Expense

Operations (exclusive of depreciation and ~~amortization and goodwill impairment)~~amortization) expense was ~~$60.5~~$52.1 million for the three months ended ~~September 30, 2022,~~March 31, 2023, an increase of ~~$17.7~~$9.5 million compared to the ~~third~~first quarter of ~~2021.~~2022. The increase was mainly due to operations expenses associated with ~~our recently~~the acquired Sinclair Transportation assets as well as higher employee costs and higher natural gas costs ~~maintenance costs and materials and supplies costs, partially offset by lower rentals and leases~~ for the three months ended ~~September 30, 2022.~~March 31, 2023.

Depreciation and Amortization

Depreciation and amortization for the three months ended ~~September 30, 2022~~March 31, 2023 increased by ~~$3.4~~$2.5 million compared to the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was mainly due to depreciation on ~~our recently~~the acquired Sinclair Transportation assets and amortization of the Woods Cross refinery processing units turnaround.

General and Administrative

General and administrative costs for the three months ended ~~September 30, 2022 decreased~~March 31, 2023 increased by ~~$0.1~~$0.3 million compared to the three months ended ~~September 30, 2021,~~March 31, 2022, mainly due to higher external audit expenses and higher administrative fees charged by HF Sinclair under the Omnibus Agreement, partially offset by lower ~~legal~~acquisition integration and ~~professional expenses~~regulatory costs associated with the HEP Transaction.

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Equity in Earnings of Equity Method Investments


		Three Months Ended September 30,					Three Months Ended March 31,
Equity Method Investment	Equity Method Investment	2022		2021		Equity Method Investment	2023		2022
		(in thousands)					(in thousands)
Osage Pipe Line Company, LLC	Osage Pipe Line Company, LLC	(22,020)		1,090		Osage Pipe Line Company, LLC	(939)		643
Cheyenne Pipeline LLC	Cheyenne Pipeline LLC	1,576		1,654		Cheyenne Pipeline LLC	1,374		1,774
Cushing Connect Terminal Holdings LLC	Cushing Connect Terminal Holdings LLC	782		945		Cushing Connect Terminal Holdings LLC	709		906
Pioneer Investments Corp.	Pioneer Investments Corp.	3,708		—		Pioneer Investments Corp.	3,202		465
Saddle Butte Pipeline III, LLC	Saddle Butte Pipeline III, LLC	(380)		—		Saddle Butte Pipeline III, LLC	(464)		(162)
Total	Total	$	(16,334)	$	3,689	Total	$	3,882	$	3,626

Equity in earnings of Osage Pipe Line Company, LLC (“Osage”) decreased for the three months ended ~~September 30, 2022,~~March 31, 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. Additional insurance recoveries will be recorded as they are received. ~~Our~~If the Osage insurance pays out in full, our share of the remaining insurance coverage is expected to be $~~12.5~~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 2022 as part of the HEP Transaction.

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Interest Expense, including Amortization

Interest expense for the three months ended ~~September 30, 2022, totaled $23.0~~March 31, 2023, was $26.0 million, an increase of ~~$9.5~~$12.3 million compared to the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was mainly due to our April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior unsecured notes maturing in April 2027, ~~related~~the proceeds of which were used to partially repay outstanding borrowings under our senior secured credit facility following the funding of the cash portion of the Sinclair Transportation acquisition. In addition, market interest rates increased on our senior secured revolving credit facility. Our aggregate effective interest rates were ~~5.5%~~6.4% and ~~3.7%~~3.5% for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Interest Income

Interest income for the three months ended ~~September 30, 2022,~~March 31, 2023, totaled ~~$24.2~~$20.4 million, an increase of ~~$17.4~~$7.8 million compared to the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was mainly due to higher sales-type lease interest income from ~~our recently~~the acquired Sinclair Transportation pipelines and ~~terminals and our Cushing Connect Pipeline, which~~ ~~was placed into service at the end of the third quarter of 2021~~.

~~State Income Tax Expense~~

We recorded state income tax expense of $38,000 and a state income tax benefit of $4,000 for the three months ended September 30, 2022 and 2021, respectively. All tax expense is solely attributable to the Texas margin tax.terminals.

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~~Results of Operations—Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021~~

~~Summary~~

Net income attributable to the partners for the nine months ended September 30, 2022, was $148.3 million ($1.22 per basic and diluted limited partner unit) compared to $169.3 million ($1.60 per basic and diluted limited partner unit) for the nine months ended September 30, 2021. Results for the nine months ended September 30, 2022 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 $20.3 million. In addition, results for the nine months ended September 30, 2021, reflect special items that collectively increased net income attributable to the partners by a total of $18.9 million. These items included a gain on sales-type leases of $24.7 million, a gain on significant asset sales of $5.3 million and a goodwill impairment charge of $11.0 million related to our Cheyenne reporting unit. ~~Excluding these items, net income attributable to the partners for the nine months ended September 30, 2022 and 2021 were $168.6 million ($1.39 per basic and diluted limited partner unit) and~~ $150.4 million ($1.43 per basic and diluted limited partner unit), respectively. The increase in earnings was mainly due to net income from Sinclair Transportation, which was acquired on March 14, 2022, higher revenues on our UNEV pipeline and higher net income from our Cushing Connect Joint Venture as the Cushing Connect pipeline which went into service in September 2021; partially offset by higher interest expense and higher operating costs and expenses. In addition, the nine months ended September 30, 2021 included the recognition of the $10 million termination fee related to the termination of HF Sinclair's minimum volume commitment on our Cheyenne assets.

~~Revenues~~

~~Revenues for the nine months ended September 30, 2022, were $405.0 million, an increase of $29.0 million compared to the nine months ended September 30, 2021.~~ The increase was mainly attributable to revenues on our recently acquired Sinclair Transportation assets and increased revenues from our UNEV assets, partially offset by lower revenues on our Cheyenne assets as a result of the conversion of HF Sinclair’s Cheyenne refinery to renewable diesel production and lower revenues on our product pipelines servicing HF Sinclair's Navajo refinery. The nine months ended September 30, 2021 included the recognition of the $10 million termination fee related to the termination of HF Sinclair's minimum volume commitment on our Cheyenne assets.

~~Revenues from our~~ ~~refined product pipelines~~ ~~were $83.7 million, a decrease of $1.0 million compared to the nine months ended September 30, 2021. Shipments averaged 180.3 mbpd compared to 165.8 mbpd for the nine months ended September 30, 2021.~~ The volume increase was mainly due to volumes on our recently 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 $23.0 million, an increase of $0.5 million compared to the nine months ended September 30, 2021. Shipments averaged 126.6 mbpd compared to 131.9 mbpd for the nine months ended September 30, 2021.~~ ~~The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines~~ ~~servicing HF Sinclair's Navajo refinery while revenue increased due to contractual minimum volume guarantees and~~ ~~rate increases that went into effect on July 1, 2022~~.

~~Revenues from our~~ ~~crude pipelines~~ were $103.6 million, an increase of $8.6 million compared to the nine months ended September 30, 2021. Shipments averaged 594.2 mbpd compared to 393.0 mbpd for the nine months ended September 30, 2021. ~~The increase in volumes was mainly attributable to our Cushing Connect pipeline, which went into service in September 2021, volumes on our recently acquired Sinclair Transportation crude pipelines~~ ~~and higher volumes on our crude pipeline systems in New Mexico and Texas~~. The increase in revenues was mainly due to our recently acquired Sinclair Transportation crude pipelines and higher volumes on our crude pipelines in New Mexico and Texas. Revenues did not increase in proportion to volumes due to our recognition of most of the Cushing Connect pipeline tariffs and a significant portion of Sinclair Transportation crude pipeline tariffs as interest income under sales-type lease accounting.

~~Revenues from~~ ~~terminal, tankage and loading rack~~ fees were $126.0 million, an increase of $17.6 million compared to the nine months ended September 30, 2021. Refined products and crude oil terminalled in the facilities averaged 575.2 mbpd compared to 436.9 mbpd for the nine months ended September 30, 2021. ~~Volumes increased mainly due to volumes on our~~

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~~recently acquired Sinclair Transportation assets and~~ ~~higher throughputs at HF Sinclair's Tulsa refinery. Revenues increased mainly due to revenues on our recently acquired Sinclair Transportation~~ assets, higher butane blending revenues, and higher revenues on our Tulsa assets. In addition, the nine months ended September 30, 2021 included the recognition of the $10 million termination fee related to the termination of HF Sinclair's minimum volume commitment on our Cheyenne assets as a result of the conversion of the HF Sinclair Cheyenne refinery to renewable diesel production.

~~Revenues from~~ ~~refinery processing units~~ ~~were $68.7 million, an increase of $3.3 million compared to the nine months ended September 30, 2021. Throughputs averaged 69.9 mbpd for both the~~ ~~nine months ended September 30, 2022 and 2021.~~ ~~Revenues increased mainly due to higher natural gas cost recoveries in revenues as well as~~ ~~rate increases that went into effect on July 1, 2022~~.

~~Operations Expense~~

~~Operations expense (exclusive of depreciation and amortization) for the nine months ended September 30, 2022, increased by $30.8 million compared to the nine months ended September 30, 2021. The~~ increase was mainly due to operations expenses associated with our recently acquired Sinclair Transportation assets as well as higher employee costs, natural gas costs, maintenance costs and materials and supplies costs, partially offset by lower rentals and leases. ~~In addition, the nine months ended September 30, 2021 included a goodwill impairment charge of $11.0 million related to our Cheyenne reporting unit.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization for the nine months ended September 30, 2022, increased by $2.5 million compared to the nine months ended September 30, 2021.~~ The increase was mainly due to depreciation on our recently acquired Sinclair Transportation assets partially offset by the acceleration of depreciation on certain of our Cheyenne tanks in 2021 as well as retirement of assets due to sales-type lease accounting.

~~General and Administrative~~

~~General and administrative costs for the nine months ended September 30, 2022, increased by $3.1 million compared to the nine months ended September 30, 2021~~ ~~mainly due to higher legal and professional expenses incurred in the~~ ~~nine months ended September 30, 2022.~~

~~Equity in Earnings of Equity Method Investments~~

Nine Months Ended September 30,
Equity Method Investment 2022 2021
(in thousands)
Osage Pipe Line Company, LLC (20,771) 2,726
Cheyenne Pipeline LLC 4,936 3,428
Cushing Connect Terminal Holdings LLC 2,494 2,721
Pioneer Investments Corp. 7,393 —
Saddle Butte Pipeline III, LLC (1,313) —
Total $ (7,261) $ 8,875

~~Equity in earnings of Osage Pipe Line Company, LLC decreased for the nine months ended September 30, 2022, 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~~. ~~Additional insurance recoveries will be recorded as they are received. Our share of the remaining insurance coverage is~~ ~~$12.5 million~~. The pipeline resumed operations in the third quarter of 2022 and remediation efforts are underway. Equity in earnings of Cheyenne Pipeline LLC increased for the nine months ended September 30, 2022, mainly due to the recognition in revenue of prior contractual minimum commitment billings. ~~Pioneer Investments Corp. and Saddle Butte Pipeline III, LLC were acquired during the first quarter of 2022 as part of the HEP Transaction.~~

~~Interest Expense, including Amortization~~

~~Interest expense for the nine months ended September 30, 2022, totaled $57.0 million, an increase of $16.4 million compared to the nine months ended September 30, 2021. The increase~~ ~~was mainly due to o~~ur April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior unsecured notes maturing in April 2027 related to the funding of the cash portion of the Sinclair Transportation acquisition. In addition, market interest rates increased on our senior secured revolving credit

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~~facility~~. ~~Our aggregate effective interest rates were 4.6% and 3.7% for the~~ ~~nine months ended~~ ~~September 30, 2022 and 2021, respectively.~~

~~Interest Income~~

~~Interest income for the~~ ~~nine months ended September 30, 2022, totaled $61.2 million, an increase of $41.2 million compared to the~~ ~~nine months ended September 30, 2021. The increase was mainly due to higher sales-type lease interest income from our recently acquired Sinclair Transportation pipelines and terminals and our Cushing Connect Pipeline, which~~ ~~was placed into service at the end of the third quarter of 2021~~.

~~State Income Tax Expense~~

~~We recorded state income tax expense of $83,000 and $60,000 for the nine months ended September 30, 2022 and 2021, respectively. All tax expense is solely attributable to the Texas margin tax.~~

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LIQUIDITY AND CAPITAL RESOURCES

Overview

~~In April 2021, we amended our Credit Agreement decreasing the size of the facility from $1.4 billion to~~We have a $1.2 billion ~~and extending the maturity date to~~senior secured revolving credit facility (the “Credit Agreement”) that matures July ~~27,~~ 2025. ~~In August 2022, the Credit Agreement was amended to, among other things, provide an alternative reference rate for LIBOR.~~ 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 continues to provide for an accordion feature that allows us to increase commitments under the Credit Agreement up to a maximum amount of $1.7 billion.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we received advances totaling ~~$460.0~~$42.0 million and repaid ~~$594.0~~$58.5 million under the Credit Agreement, resulting in a net decrease of ~~$134.0~~$16.5 million and an outstanding balance of ~~$706.0~~$651.5 million at ~~September 30, 2022.~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, we have no letters of credit outstanding under the Credit Agreement and the available capacity under the Credit Agreement was ~~$494.0~~$548.5 million. Amounts repaid under the Credit Agreement may be reborrowed from time to time.

As of ~~September 30, 2022,~~March 31, 2023, we had $500 million in aggregate principal amount of 5% Senior Notes due in 2028 (the “5% Senior Notes”, and together with the 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. We did not issue any units under this program during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

Under our registration statement filed with the Securities and Exchange Commission (“SEC”) using a “shelf” registration process, we currently have the authority to raise up to $2.0 billion 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 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 ~~August 2022,~~February 2023, we paid a regular quarterly cash distribution of $0.35 on all units in an aggregate amount of $44.3 million.

On ~~October~~April 20, ~~2022,~~2023, we announced our cash distribution for the ~~third~~first quarter of ~~2022~~2023 of $0.35 per unit, or $1.40 on an annualized basis. ~~Looking forward,~~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 will continue as long as we remain ~~committed to our capital allocation strategy and expect to reach our short-term leverage target of 3.5x in the first half of 2023.~~a public company.

Cash and cash equivalents indecreased by ~~$1.2~~$3.8 million during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The cash flows used for investing activities of $9.3 million and financing activities of $64.4 million were more than the cash flows provided by operating activities of ~~$238.5 million and financing activities of $123.1 million were more than the cash flows used for investing activities of $360.4~~$69.8 million. Working capital increased by ~~$3.1~~$11.8 million to ~~$20.6~~$29.1 million at ~~September 30, 2022,~~March 31, 2023, from ~~$17.5~~$17.3 million at December 31, ~~2021.~~2022.

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Cash Flows—Operating Activities

Cash flows from operating activities decreased by ~~$2.3~~$2.0 million from ~~$240.8~~$71.8 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, to ~~$238.5~~$69.8 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The decrease was mainly due to higher payments for ~~turnaround~~operating expenses ~~at our Woods Cross refinery processing units~~ and ~~higher payments for operating~~interest expenses, partially offset by higher ~~cash~~customer receipts ~~from customers~~and lower payments for turnaround expenditures during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

Cash Flows—Investing Activities

Cash flows used for investing activities were ~~$360.4~~$9.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$67.7~~$333.8 million for the ~~nine~~three months ended ~~September 30, 2021, an~~March 31, 2022, a ~~increase~~decrease of ~~$292.7~~$324.5 million. During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, we paid the ~~$329.0~~$321.4 million cash portion of the purchase price consideration for our acquisition of Sinclair Transportation. During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we invested ~~$31.2~~$7.6 million and ~~$78.6~~$14.1 million, respectively, in additions to properties and equipment.

Cash Flows—Financing Activities

Cash flows used by financing activities were $64.4 million for the three months ended March 31, 2023, compared to cash flows provided by financing activities ~~were $123.1~~of $262.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, ~~compared to cash flows used by financing activities of $182.2 million for the nine months ended September 30, 2021, an~~ a de~~increase~~crease of ~~$305.3~~$327.0 million. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we received ~~$460.0~~$42.0 million and repaid ~~$594.0~~$58.5 million in advances under the Credit ~~Agreement, and we received net proceeds of $393.5 million related to the issuance of our 6.375% Senior Notes.~~Agreement. Additionally, we paid ~~$125.7~~$44.3 million in regular quarterly cash distributions to our limited partners and ~~$7.3~~$2.5 million to our noncontrolling interests. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we received ~~$210.5~~$360.0 million and repaid ~~$283.5~~$58.5 million in advances under the Credit Agreement. We paid ~~$112.4~~$37.0 million in regular quarterly cash distributions to our limited partners, and distributed ~~$8.7~~$0.9 million to our noncontrolling interests. ~~In addition, we received $21.3 million in contributions from noncontrolling interests during the nine months ended September 30, 2021.~~

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. Our current ~~2022~~2023 capital forecast ~~includes forecasted expenditures for our recently acquired Sinclair Transportation assets and~~ is comprised of approximately ~~$20~~$25 million to ~~$30~~$35 million for maintenance capital expenditures ~~$25~~and $5 million to ~~$30 million for refinery unit turnarounds and~~ $10 ~~million to $15~~ million for expansion capital expenditures and our share of 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 ~~planned~~ expenditures for ~~acquisitions and~~ capital development projects, will be funded with cash generated by operations. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets.

Under the terms of the transaction to acquire HFC’s 75% interest in UNEV, we issued to a subsidiary of HFC a Class B unit comprising a noncontrolling equity interest in a wholly owned subsidiary subject to redemption to the extent that HFC is

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entitled to a 50% interest in 75% of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $40 million beginning July 1, 2015, and ending in June 2032, subject to certain limitations. However, to the extent earnings thresholds are not achieved, no redemption payments are required. No redemption payments have been required to date.

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Credit Agreement

~~In April 2021, we amended our~~We have a $1.2 billion Credit Agreement ~~decreasing the commitments under the facility from $1.4 billion to $1.2 billion and extending the maturity date to~~that matures in July ~~27,~~ 2025. ~~In August 2022, the Credit Agreement was amended to, among other things, provide an alternative reference rate for LIBOR.~~ 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 continues to provide for an accordion feature that allows us to increase the commitments under the Credit Agreement up to 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 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

As of ~~September 30, 2022,~~March 31, 2023, we had $500 million in aggregate principal amount of 5% Senior Notes due in ~~2028.~~2028 (the “5% Senior Notes,” and together with the 6.375% Senior Notes, the “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 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 the offering of the 6.375% Senior Notes were used to partially repay outstanding borrowings under the Credit Agreement, increasing our available liquidity.

The 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 Senior Notes as of ~~September 30, 2022.~~March 31, 2023. At any time when the Senior Notes are rated investment grade by either Moody’s 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 Senior Notes.

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

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Long-term Debt

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


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In thousands)					(In thousands)
Credit Agreement	Credit Agreement					Credit Agreement
Amount outstanding	Amount outstanding	$	706,000	$	840,000	Amount outstanding	$	651,500	$	668,000

5% Senior Notes	5% Senior Notes					5% Senior Notes
Principal	Principal	500,000		500,000		Principal	500,000		500,000
Unamortized debt issuance costs	Unamortized debt issuance costs	(6,207)		(6,951)		Unamortized debt issuance costs	(5,695)		(5,953)
		493,793		493,049			494,305		494,047

6.375% Senior Notes	6.375% Senior Notes					6.375% Senior Notes
Principal	Principal	400,000		—		Principal	400,000		400,000
Unamortized debt issuance costs	Unamortized debt issuance costs	(5,996)		—		Unamortized debt issuance costs	(5,420)		(5,713)
		394,004		—			394,580		394,287

Total long-term debt	Total long-term debt	$	1,593,797	$	1,333,049	Total long-term debt	$	1,540,385	$	1,556,334

Contractual Obligations

There were no significant changes to our long-term contractual obligations during the quarter ended ~~September 30, 2022.~~March 31, 2023.

Impact of Inflation

After being relatively moderate in recent years, PPI in the United States increased significantly in 2023 and 2022. PPI has increased an average of ~~2.9%~~5% annually over the past five calendar years, including an increase of 13.5% in 2022 and 8.9% in ~~2021 and a decrease of 1.3% in 2020. PPI for the first nine months of 2022 increased by 14.7% over the first nine months of~~ 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, 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.

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, ~~for the nine months ended September 30, 2022,~~ the fees we charged our shippers increased at a rate greater than our inflationary cost ~~increase.~~increase for the year ended December 31, 2022.

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

We have an environmental agreement with Delek with respect to pre-closing environmental costs and liabilities relating to the pipelines and terminals acquired from Delek in 2005, under which Delek will indemnify us subject to certain monetary and time limitations.

At ~~September 30, 2022,~~March 31, 2023, we had an accrual of ~~$13.4~~$19.8 million related to environmental clean-up projects for which we have assumed liability, including accrued environmental liabilities assumed in the Sinclair Transportation acquisition that have ~~preliminarily~~ been fair valued at ~~$10~~$14.7 million as of the acquisition date, or for which the indemnity provided for by HF Sinclair has expired or will expire. There are environmental remediation projects in progress, including assessment and monitoring activities, that relate to certain assets acquired from HF Sinclair. Certain of these projects were underway prior to our purchase, are covered under the HF Sinclair environmental indemnification discussed above, and represent liabilities retained by HF Sinclair.

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 three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 by ~~$20.3~~$0.9 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 March 31, 2023, our equity in earnings of equity method investments was reduced by $18.5 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 ~~$0.5~~$3.0 million. ~~Additional~~Any additional insurance recoveries will be recorded as they are received. ~~Our~~If the Osage insurance policy pays out in full, our share of the remaining insurance coverage is ~~$12.5~~expected to be $10.0 million. The 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.

CRITICAL ACCOUNTING 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 could materially differ from these estimates under different assumptions or 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, ~~2021.~~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 ~~2022.~~2023. We consider these policies to be 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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RISK MANAGEMENT

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

At ~~September 30, 2022,~~March 31, 2023, we had an outstanding principal balance of $900 million on our Senior Notes. A change in interest rates generally would affect the fair value of the Senior Notes, but not our earnings or cash flows. At ~~September 30, 2022,~~March 31, 2023, the fair value of our Senior Notes was ~~$822.6~~$866.9 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the Senior Notes at ~~September 30, 2022~~March 31, 2023 would result in a change of approximately ~~$27.2~~$22.3 million in the fair value of the underlying Senior Notes.

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For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At ~~September 30, 2022,~~March 31, 2023, borrowings outstanding under the Credit Agreement were ~~$706.0~~$651.5 million. A hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.

Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and other events beyond our control. We maintain various insurance coverages, including general liability, property damage, business interruption and cyber insurance, subject to certain 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

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, ~~2021.~~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

(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 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 30, 2022,~~March 31, 2023, at a reasonable level of assurance.

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(b) Changes in internal control over financial reporting

We acquired Sinclair Transportation effective March 14, 2022, and have included the operating results and assets and liabilities of Sinclair Transportation in our consolidated financial statements as of September 30, 2022 and for the 201 days then ended. Other than our internal controls for Sinclair Transportation, thereThere have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and 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 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 materially adverse effect on our financial condition, results of operations or cash flows.

Item 1A.Risk Factors

~~There~~Except as described below, there have been no material changes in our risk factors as previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022. In addition to the other information set forth in this quarterly report, you should consider carefully the information discussed in our ~~2021~~2022 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our ~~2021~~2022 Form 10-K 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.

There can be no assurances that we will enter into a definitive agreement with HF Sinclair related to its proposal to acquire all of our common units that it or its affiliates do not already own, or that we will complete any transactions contemplated by such an agreement.

On May 3, 2023, we received a non-binding proposal from HF Sinclair to acquire all of the outstanding common units (“Common Units”) of HEP not beneficially owned by HF Sinclair or its affiliates in exchange for shares of common stock, par value $0.01 per share (“Common Stock”) of HF Sinclair. Under the proposal, HEP unitholders would receive newly issued shares of Common Stock at a fixed exchange ratio of 0.3714 per each publicly held Common Unit, which was derived using the 30-day volume weighted average prices for each security as of market close on May 3, 2023 (the “Proposed HF Sinclair Transaction”). The proposal has been made to the board of directors of our ultimate general partner (the “Board”). It is anticipated that the Board will authorize the Conflicts Committee of the Board, which is comprised of independent members of the Board, to 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.

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

The following table discloses purchases of our common units made by us or on our behalf during the ~~third~~first quarter of ~~2022:~~2023:

Period Total Number of Units Purchased Average Price Paid per Unit Total Number of Units Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs
July 2022 — $ — — —
August 2022 6,706 $ 17.86 — —
September 2022 20,806 $ 17.64 — —
Total for July to September 2022 27,512 — —


Period	Total Number of Units Purchased	Average Price Paid per Unit		Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs
January 2023	—	$	—	—	—
February 2023	—	$	—	—	—
March 2023	17	$	18.08	—	—
Total for January to March 2023	17			—	—

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The units reported represent (a) purchases of 18,497 common units in the open market for delivery to the recipients of our phantom unit and performance unit awards under our Long-Term Incentive Plan at the time of grant or settlement, as applicable; and (b) the delivery of ~~9,015~~17 common units (which units were previously issued to certain officers and other employees pursuant to phantom unit awards at the time of grant or settlement, as applicable) by such officers and employees to provide funds for the payment of payroll and income taxes due at vesting in the case of officers and employees who did not elect to satisfy such taxes by other means.

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Item 6.Exhibits

The Exhibit Index beginning on ~~page 60~~ page 52 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of this Quarterly Report on Form 10-Q.

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Exhibit Index


Exhibit Number						Description

3.1						Second Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P. (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on November 1, 2017, File No. 1-32225).
3.2						First Amended and Restated Agreement of Limited Partnership of HEP Operating Company, L.P. (incorporated by reference to Exhibit 3.2 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, File No. 1-32225).
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).
3.4						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).
3.5						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 C urrent Report on Form 8-K ~~Current Report~~ filed on May 3, 2011, File No. 1-32225).
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†						~~Indenture, dated April 8, 2022,~~Ninth Amended and Restated Master Throughput Agreement, by and ~~among~~between Holly Energy Partners - Operating, L.P.~~, Holly Energy Finance Corp., each~~ and HF Sinclair Refining & Marketing LLC, dated as of ~~the Guarantors party thereto and U.S. Bank Trust Company, National Association, relating to the offering of the Notes~~February 27, 2023 (incorporated by reference to Exhibit ~~4.1~~10.1 of Registrant’s Current Report on Form 8-K filed ~~April 8, 2022,~~on March 1, 2023, File No. 1-32225).
~~4.2~~10.2						~~First Supplemental Indenture, dated May 22, 2022, among~~Second Amended and Restated Transportation Services Agreement, by and between UNEV Pipeline, LLC ~~Holly Energy Partners, L.P.~~ and ~~Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association,~~HF Sinclair Refining & Marketing LLC, dated as ~~trustee, related to Holly Energy Partners, L.P.’s 6.375% Senior Notes due 2027~~of February 23, 2023 (incorporated by reference to Exhibit ~~4.9~~10.2 of ~~Registrant’s Registration Statement on Form S-3 filed May 23, 2022, File No. 333-265140).~~
~~4.3~~						~~Second Supplemental Indenture, dated as of May~~ 22, 2022, among UNEV Pipeline, LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.7 of Registrant’s Registration Statement on Form S-3 filed May 23, 2022, File No. 333-26514).
~~10.1*†~~						Amendment No. 2 to Third Amended and Restated Credit Agreement dated August 15, 2022, among Holly Energy Partners, L.P., as borrower, certain of its affiliates, as guarantors, Wells Fargo Bank, National Association, as administrative agent, an issuing bank and a lender, and certain other lenders party thereto.
~~10.2*+~~						Mutual Separation Agreement and Release of Claims by and among HF Sinclair Corporation, HollyFrontier Corporation, Holly Logistic Services, L.L.C., HollyFrontier Payroll Services, Inc., and Holly Energy Partners, L.P., on behalf of themselves and their respective parents, subsidiaries and affiliates and Richard Voliva, dated September 15, 2022.
~~10.3+~~						~~Holly Energy Partners, L.P. Severance Pay Plan and Summary Plan Description and Form of Participation Agreement (incorporated by reference to Exhibit 10.1 to~~ Registrant’s Current Report on Form 8-K filed on ~~October 31, 2022,~~March 1, 2023, File No. 1-32225).
10.410.3						~~First~~Third Amendment to ~~Eighth~~ Amended and Restated Master ~~Throughput~~Tolling Agreement (Operating Assets), by and ~~among HollyFrontier~~between HF Sinclair El Dorado Refining ~~& Marketing~~ LLC, HF Sinclair ~~Oil~~Woods Cross Refining LLC and Holly Energy Partners –- Operating L.P., dated ~~October 28, 2022.~~effective January 1, 2023.
22.1*						Subsidiary Guarantors and Issuers of Guaranteed Securities and Affiliates whose Securities Collateralize Securities of the ~~Registrant~~.Registrant.
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.

~~- 61 -~~

~~Table o~~


101++						The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2022~~March 31, 2023 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Partners’ Equity, and (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~~104++						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).


*			Filed herewith.
**			Furnished herewith.
+			Constitutes management contracts or compensatory plans or arrangements.
++			Filed electronically herewith.
†			Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.

- 52 -

Table o

HOLLY ENERGY PARTNERS, L.P.

SIGNATURES

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


	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

~~November 7, 2022~~May 5, 2023		/s/ John Harrison
		John Harrison
		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

~~November 7, 2022~~May 5, 2023		/s/ Kenneth P. Norwood
		Kenneth P. Norwood
		Vice President and Controller (Principal Accounting Officer)

- 6253 -




	FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION			5

	Item 1.	Financial Statements (Unaudited)	5

		Consolidated Balance Sheets	5

		Consolidated Statements of Income	6

		Consolidated Statements of Cash Flows	7

		Consolidated Statements of Equity	8

		Notes to Consolidated Financial Statements	109

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4034

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5848

	Item 4.	Controls and Procedures	5848

PART II. OTHER INFORMATION			5950

	Item 1.	Legal Proceedings	5950

	Item 1A.	Risk Factors	5950

	Item 6.	Exhibits	6051

		Index to Exhibits	6152

		SIGNATURES	6252


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021		2022		2021
	(In thousands)
Sales and other revenues	$	141,500	$	419,732	$	427,969
Net income attributable to the partners	$	56,006	$	149,525	$	189,170


Three Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	97,124	$	—	$	—	$	97,124
Third parties	—		25,460		—		—		25,460
	—		122,584		—		—		122,584
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		42,276		517		—		42,793
Depreciation and amortization	—		21,826		—		—		21,826
General and administrative	739		3,110		—		—		3,849

	739		67,212		517		—		68,468
Operating income (loss)	(739)		55,372		(517)		—		54,116

Other income (expense):
Equity in earnings of subsidiaries	69,553		260		—		(69,813)		—
Equity in earnings of equity method investments	—		2,743		946		—		3,689
Interest expense	(12,431)		(1,077)		—		91		(13,417)
Interest income	—		6,835		91		(91)		6,835

Gain on sales-type lease	—		7,223		—		(7,223)		—
Gain on sale of assets and other	—		77		—		—		77
	57,122		16,061		1,037		(77,036)		(2,816)
Income before income taxes	56,383		71,433		520		(77,036)		51,300
State income tax benefit	—		4		—		—		4
Net income	56,383		71,437		520		(77,036)		51,304
Allocation of net income attributable to noncontrolling interests	—		(1,884)		(260)		—		(2,144)


Net income attributable to the partners	$	56,383	$	69,553	$	260	$	(77,036)	$	49,160


Nine Months Ended September 30, 2022	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	325,659	$	—	$	—	$	325,659
Third parties	—		79,311		—		—		79,311
	—		404,970		—		—		404,970
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		154,250		2,744		—		156,994
Depreciation and amortization	—		74,397		—		—		74,397
General and administrative	2,703		10,042		—		—		12,745
	2,703		238,689		2,744		—		244,136
Operating income (loss)	(2,703)		166,281		(2,744)		—		160,834

Other income (expense):
Equity in earnings of subsidiaries	205,112		6,062		—		(211,174)		—
Equity in earnings of equity method investments	—		(9,756)		2,495		—		(7,261)
Interest expense	(54,107)		(15,217)		—		12,373		(56,951)
Interest income	—		61,212		12,373		(12,373)		61,212

Gain on sale of assets and other	—		640		—		—		640
	151,005		42,941		14,868		(211,174)		(2,360)
Income before income taxes	148,302		209,222		12,124		(211,174)		158,474
State income tax (expense)	—		(83)		—		—		(83)
Net income	148,302		209,139		12,124		(211,174)		158,391
Allocation of net income attributable to noncontrolling interests	—		(4,027)		(6,062)		—		(10,089)

Net income attributable to the partners	$	148,302	$	205,112	$	6,062	$	(211,174)	$	148,302


Nine Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	298,192	$	—	$	—	$	298,192
Third parties	—		77,810		—		—		77,810
	—		376,002		—		—		376,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		124,710		1,516		—		126,226
Depreciation and amortization	—		71,894		—		—		71,894
General and administrative	2,824		6,840		—		—		9,664
Goodwill impairment	—		11,034		—		—		11,034
	2,824		214,478		1,516		—		218,818
Operating income (loss)	(2,824)		161,524		(1,516)		—		157,184

Other income (expense):
Equity in earnings of subsidiaries	216,958		648		—		(217,606)		—
Equity in earnings of equity method investments	—		6,154		2,721		—		8,875
Interest expense	(37,609)		(3,077)		—		91		(40,595)
Interest income	—		19,997		91		(91)		19,997
Gain on sales-type lease	—		31,900		—		(7,223)		24,677
Gain on sale of assets and other	—		5,994		—		—		5,994
	179,349		61,616		2,812		(224,829)		18,948
Income before income taxes	176,525		223,140		1,296		(224,829)		176,132
State income tax (expense)	—		(60)		—		—		(60)
Net income	176,525		223,080		1,296		(224,829)		176,072
Allocation of net income attributable to noncontrolling interests	—		(6,122)		(648)		—		(6,770)

Net income attributable to the partners	176,525		216,958		648		(224,829)		169,302