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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, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________                    
Commission File Number: 1-32225
  _____________________________________________________________________________________
HOLLY ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________________
Delaware20-0833098
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2828 N. Harwood, Suite 1300
Dallas
Texas75201
(Address of principal executive offices) (Zip code)
(214) 871-3555
(Registrant’s telephone number, including area code)
________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Limited Partner UnitsHEPNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      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, 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 filerAccelerated 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 October 29, 2020, was 105,440,201.


Table of 19,
HOLLY ENERGY PARTNERS, L.P.
INDEX
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.
- 2 -

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,” “plan,” “goal,” “forecast,” “intend,” “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 extraordinary market environment and effects of the COVID-19 pandemic, including the continuation of a material decline in demand for refined petroleum products in markets we serve;
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 HollyFrontier Corporation (“HFC”), 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 and integrate future acquired operations;
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 or lower gross margins due to economic impact of the COVID-19 pandemic, and any potential asset impairments resulting 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;
delay by government authorities in issuing permits necessary for our business or our capital projects;
our and our joint venture partners’ ability to complete and maintain operational efficiency in carrying out routine operations and capital construction projects;
the possibility of terrorist or cyber attacks and the consequences of any such attacks;
general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
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 filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form
- 3 -

Table of 19,
10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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.
- 4 -

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, 2020December 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (Cushing Connect VIEs: $9,288 and $6,842, respectively)
$18,091 $13,287 
Accounts receivable:
Trade (Cushing Connect VIEs: $712 and $79, respectively)
13,857 18,731 
Affiliates46,504 49,716 
60,361 68,447 
Prepaid and other current assets6,282 7,629 
Total current assets84,734 89,363 
Properties and equipment, net (Cushing Connect VIEs: $32,092 and $2,916, respectively)
1,447,924 1,467,099 
Operating lease right-of-use assets, net3,164 3,255 
Net investment in leases167,238 134,886 
Intangible assets, net90,817 101,322 
Goodwill234,684 270,336 
Equity method investments (Cushing Connect VIEs: $39,658 and $37,084, respectively)
122,046 120,071 
Other assets11,278 12,900 
Total assets$2,161,885 $2,199,232 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade (Cushing Connect VIEs: $6,030 and $2,082, respectively)
$21,022 $17,818 
Affiliates6,922 16,737 
27,944 34,555 
Accrued interest4,691 13,206 
Deferred revenue11,020 10,390 
Accrued property taxes8,972 3,799 
Current operating lease liabilities1,199 1,126 
Current finance lease liabilities3,459 3,224 
Other current liabilities2,849 2,305 
Total current liabilities60,134 68,605 
Long-term debt 1,439,874 1,462,031 
Noncurrent operating lease liabilities2,333 2,482 
Noncurrent finance lease liabilities69,180 70,475 
Other long-term liabilities13,861 12,808 
Deferred revenue41,376 45,681 
Class B unit51,956 49,392 
Equity:
Partners’ equity:
Common unitholders (105,440 units issued and outstanding
    at September 30, 2020 and December 31, 2019)
364,821 381,103 
Noncontrolling interest118,350 106,655 
Total equity483,171 487,758 
Total liabilities and equity$2,161,885 $2,199,232 
See accompanying notes.

- 5 -

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,
2020201920202019
Revenues:
Affiliates$100,992 $106,027 $297,983 $311,755 
Third parties26,739 29,868 72,409 89,388 
127,731 135,895 370,392 401,143 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)40,003 44,924 109,721 123,045 
Depreciation and amortization26,190 24,121 75,202 72,192 
General and administrative2,332 2,714 7,569 7,322 
Goodwill impairment35,653  35,653  
104,178 71,759 228,145 202,559 
Operating income23,553 64,136 142,247 198,584 
Other income (expense):
Equity in earnings of equity method investments1,316 1,334 5,186 5,217 
Interest expense
(14,104)(18,807)(45,650)(57,059)
Interest income2,803 2,243 7,834 3,322 
Gain on sales-type leases 35,166 33,834 35,166 
Loss on early extinguishment of debt  (25,915) 
Other income (loss)7,465 142 8,439 (57)
(2,520)20,078 (16,272)(13,411)
Income before income taxes21,033 84,214 125,975 185,173 
State income tax expense(34)(30)(110)(36)
Net income20,999 84,184 125,865 185,137 
Allocation of net income attributable to noncontrolling interests
(3,186)(1,839)(6,721)(5,920)
Net income attributable to the partners
17,813 82,345 119,144 179,217 
Limited partners’ per unit interest in earnings—basic and diluted
$0.17 $0.78 $1.13 $1.70 
Weighted average limited partners’ units outstanding105,440 105,440 105,440 105,440 


See accompanying notes.

- 6 -

Table of 19,
HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended
September 30,
20202019
Cash flows from operating activities
Net income $125,865 $185,137 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization75,202 72,192 
(Gain) loss on sale of assets(887)(19)
Loss on early extinguishment of debt25,915  
Gain on sales-type leases(33,834)(35,166)
Goodwill impairment35,653  
Amortization of deferred charges2,479 2,307 
Equity-based compensation expense1,547 1,774 
Equity in earnings of equity method investments, net of distributions(238)263 
(Increase) decrease in operating assets:
Accounts receivable—trade4,874 (3,850)
Accounts receivable—affiliates3,212 11,016 
Prepaid and other current assets1,885 1,694 
Increase (decrease) in operating liabilities:
Accounts payable—trade(2,258)2,622 
Accounts payable—affiliates(9,815)(7,475)
Accrued interest(8,515)(7,418)
Deferred revenue(3,675)413 
Accrued property taxes5,173 7,487 
Other current liabilities544 400 
Other, net1,913 (3,160)
Net cash provided by operating activities225,040 228,217 
Cash flows from investing activities
Additions to properties and equipment(38,642)(23,828)
Investment in Cushing Connect JV Terminal(2,438) 
Proceeds from sale of assets961 265 
Distributions in excess of equity in earnings of equity investments701 693 
Net cash used for investing activities(39,418)(22,870)
Cash flows from financing activities
Borrowings under credit agreement219,500 269,500 
Repayments of credit agreement borrowings(237,000)(257,000)
Redemption of senior notes(522,500) 
Proceeds from issuance of debt500,000  
Contributions from general partner611 182 
Contributions from noncontrolling interest15,382  
Distributions to HEP unitholders(137,437)(204,701)
Distributions to noncontrolling interest(7,845)(7,750)
Payments on finance leases(2,666)(780)
Deferred financing costs(8,714) 
Purchase of units for incentive grants (255)
Units withheld for tax withholding obligations(149)(119)
Net cash used by financing activities
(180,818)(200,923)
Cash and cash equivalents
Increase for the period4,804 4,424 
Beginning of period13,287 3,045 
End of period$18,091 $7,469 
See accompanying notes.
- 7 -

Table of 19,
HOLLY ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
 
Common
Units
Noncontrolling InterestTotal Equity
 
Balance December 31, 2019$381,103 $106,655 $487,758 
Contributions from noncontrolling interest— 7,304 7,304 
Distributions to HEP unitholders(68,519)— (68,519)
Distributions to noncontrolling interest— (3,000)(3,000)
Equity-based compensation506 — 506 
Class B unit accretion(835)— (835)
   Other208 — 208 
Net income25,696 1,216 26,912 
Balance March 31, 2020$338,159 $112,175 $450,334 
Contributions from noncontrolling interest— 5,959 5,959 
Distributions to HEP unitholders(34,460)— (34,460)
Distributions to noncontrolling interest— (1,000)(1,000)
Equity-based compensation474 — 474 
Class B unit accretion(835)— (835)
   Other80 — 80 
Net income77,305 649 77,954 
Balance June 30, 2020$380,723 $117,783 $498,506 
Contributions from noncontrolling interest— 2,119 2,119 
Distributions to HEP unitholders(34,458)— (34,458)
Distributions to noncontrolling interest— (3,845)(3,845)
Equity-based compensation567 — 567 
Class B unit accretion(894)— (894)
Other177 — 177 
Net income18,706 2,293 20,999 
Balance September 30, 2020$364,821 $118,350 $483,171 

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Table of 19,
Common
Units
Noncontrolling InterestTotal Equity
 
Balance December 31, 2018$427,435 $88,126 $515,561 
Distributions to HEP unitholders(67,975)— (67,975)
Distributions to noncontrolling interest— (3,000)(3,000)
Equity-based compensation661 — 661 
Class B unit accretion(780)— (780)
Other814 — 814 
Net income51,962 1,832 53,794 
Balance March 31, 2019$412,117 $86,958 $499,075 
Distributions to HEP unitholders(68,232)— (68,232)
Distributions to noncontrolling interest— (2,250)(2,250)
Equity-based compensation585 — 585 
Class B unit accretion(781)— (781)
Other(138)— (138)
Net income46,471 688 47,159 
Balance June 30, 2019$390,022 $85,396 $475,418 
Distributions to HEP unitholders(68,493)— (68,493)
Distributions to noncontrolling interest— (2,500)(2,500)
Equity-based compensation528 — 528 
Class B unit accretion(835)— (835)
Other182 — 182 
Net income83,180 1,004 84,184 
Balance September 30, 2019$404,584 $83,900 $488,484 

See accompanying notes.


- 9 -

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. As of September 30, 2020, HollyFrontier Corporation (“HFC”) and its subsidiaries own a 57% limited partner interest and the non-economic general partner interest in HEP. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

On October 31, 2017, we closed on an equity restructuring transaction with HEP Logistics Holdings, L.P. (“HEP Logistics”), a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights ("IDRs") held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. As a result of this transaction, no distributions were made on the general partner interest after October 31, 2017. This waiver of limited partner cash distributions expired after the cash distribution for the second quarter of 2020, which was made during the third quarter of 2020.

We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support refining and marketing operations of HFC and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”), a 50% interest in Cheyenne Pipeline LLC, and a 50% interest in Cushing Connect Pipeline & Terminal LLC.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at its Cheyenne Refinery on August 3, 2020. As of September 30, 2020, our throughput agreement with HFC required minimum annualized payments to us of approximately $17.6 million related to our Cheyenne assets. The net book value of our Cheyenne assets as of June 30, 2020 was approximately $88.5 million, including $28.1 million of long-lived assets and $68.7 million of goodwill. No impairment of our Cheyenne long-lived assets was required.

Our annual goodwill impairment testing was performed during the third quarter of 2020. The estimated fair value of our reporting units were derived using a combination of both income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approach includes both the guideline public company and guideline transaction methods. Both market approach methods use 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 5 for further discussion of Level 3 inputs.

Our testing of goodwill did not identify any impairments other than our Cheyenne reporting unit, which reported a goodwill impairment charge of $35.7 million.

Subsequent to the third quarter of 2020, HEP and HFC reached an agreement in principle to terminate the existing minimum volume commitments for HEP's Cheyenne assets and enter into new agreements on 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 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 will pay a base tariff to HEP for available crude oil storage and HFC 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 15.

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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 by charging fees for processing hydrocarbon feedstocks through our refinery processing units. We do not take ownership of products that we transport, terminal, store or process, and therefore, we are not exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). 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, 2019. 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, 2020.

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.

Accounting Pronouncements Adopted During the Periods Presented

Goodwill Impairment Testing
In January 2017, Accounting Standard Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment,” was issued amending the testing for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, goodwill impairment is measured as the excess of the carrying amount of the reporting unit over the related fair value. We adopted this standard effective in the second quarter of 2019, and the adoption of this standard had no effect on our financial condition, results of operations or cash flows.

Leases
In February 2016, ASU No. 2016-02, “Leases” (“ASC 842”) was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. We adopted this standard effective January 1, 2019, and we elected to adopt using the modified retrospective transition method, whereby comparative prior period financial information will not be restated and will continue to be reported under the lease accounting standard in effect during those periods. We also elected practical expedients provided by the new standard, including the package of practical expedients and the short-term lease recognition practical expedient, which allow an entity to not recognize on the balance sheet leases with a term of 12 months or less. Upon adoption of this standard, we recognized $78.4 million of lease liabilities and corresponding right-of-use assets on our consolidated balance sheet. Adoption of this standard did not have a material impact on our results of operations or cash flows. See Notes 3 and 4 for additional information on our lease policies.

Credit Losses Measurement
In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted this standard effective January 1, 2020, and adoption of the standard did not have a material impact on our financial condition, results of operations or cash flows.


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Note 2:Investment in 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 will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HFC 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 was fully in service beginning in April 2020. The Cushing Connect Pipeline is expected to be in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect Joint Venture assets.

The Cushing Connect Joint Venture 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 be shared proportionately among the partners, and HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs will be approximately $65 million.

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


Note 3:Revenues

Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. The majority of our contracts with customers meet the definition of a lease since (1) performance of the contracts is dependent on specified property, plant, or equipment and (2) it is remote that one or more parties other than the customer will take more than a minor amount of the output associated with the specified property, plant, or equipment. Prior to the adoption of the new lease standard (see Note 1), 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 under certain conditions. The majority of our contracts meet these conditions, and we have made this election for those contracts. 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.
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
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shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize the service portion of 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 exercised by the customer. During the three and nine months ended September 30, 2020, we recognized $1.1 million and $13.8 million of these deficiency payments in revenue, of which $0.2 million and $0.7 million, respectively, related to deficiency payments billed in prior periods. As of September 30, 2020, deferred revenue reflected in our consolidated balance sheet related to shortfalls billed was $0.4 million.
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,
2020
December 31,
2019
 (In thousands)
Contract assets$6,187 $5,675 
Contract liabilities$(400)$(650)

The contract assets and liabilities include both lease and service components. We did not recognize any revenue during the three months ended September 30, 2020, that was previously included in contract liability as of December 31, 2019, and we recognized $0.7 million of revenue during the nine months ended September 30, 2020, that was previously included in contract liability as of December 31, 2019. We did not recognize any revenue during the three months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018, and we recognized $0.6 million of revenue during the nine months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018. During the three and the nine months ended September 30, 2020, we also recognized $0.1 million and $0.5 million, respectively, of revenue included in contract assets at September 30, 2020.

As of September 30, 2020, we expect to recognize $2.2 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in 2021 through 2036. 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,(In millions)
Remainder of 2020$92 
2021362 
2022332 
2023295 
2024255 
2025188 
Thereafter650 
Total$2,174 
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.
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Disaggregated revenues were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Pipelines$68,292 $73,163 $197,718 $220,526 
Terminals, tanks and loading racks39,036 42,454 112,814 119,121 
Refinery processing units20,403 20,278 59,860 61,496 
$127,731 $135,895 $370,392 $401,143 
During the three and nine months ended September 30, 2020, lease revenues amounted to $90.1 million and $269.9 million, respectively, and service revenues amounted to $37.7 million and $100.5 million, respectively. Both of these revenues were recorded within affiliates and third parties revenues on our consolidated statement of income.

Note 4: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 in Note 1.

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.

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. 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 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.

Our leases have remaining terms of less than 1 year to 24 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 $6.6 million and $7.0 million as of September 30, 2020 and December 31, 2019, respectively, with accumulated depreciation of $3.4 million and $4.5 million as of September 30, 2020 and December 31, 2019, 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.

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Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
- 15 -


Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 

Lessor Accounting
As discussed in Note 3, the majority of our contracts with customers meet the definition of a lease. See Note 3 for further discussion of the impact of adoption of this standard on our activities as a lessor.

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.

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 performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with Delek was renewed during the three months ending June 30, 2020. Certain components of this agreement 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 term to anyone other than Delek. 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, 2020 composed of the following:
- 16 -


(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 

This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. 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 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.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718  52,933  
Net investment in leases$154,324 $16,469 $121,390 $16,511 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.
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Note 5: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.

The carrying amounts and estimated fair values of our senior notes were as follows:
 September 30, 2020December 31, 2019
Financial InstrumentFair Value Input LevelCarrying
Value
Fair ValueCarrying
Value
Fair Value
(In thousands)
Liabilities:
6% Senior Notes
Level 2  496,531 522,045 
5% Senior Notes
Level 2491,874 490,155   

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 9 for additional information.

Non-Recurring Fair Value Measurements
For gains on sales-type leases recognized during the third quarter of 2020, 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 and related gain on sales-type leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

During the three months ended September 30, 2020, we recognized goodwill impairment based on fair value measurements utilized during our goodwill testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.


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Note 6:Properties and Equipment 

The carrying amounts of our properties and equipment are as follows:
September 30,
2020
December 31,
2019
 (In thousands)
Pipelines, terminals and tankage$1,609,453 $1,602,231 
Refinery assets349,030 348,093 
Land and right of way87,076 86,190 
Construction in progress40,734 10,930 
Other9,266 14,110 
2,095,559 2,061,554 
Less accumulated depreciation647,635 594,455 
$1,447,924 $1,467,099 

Depreciation expense was $64.3 million and $61.7 million for the nine months ended September 30, 2020 and 2019, respectively, and includes depreciation of assets acquired under capital leases.


Note 7: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 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.

The carrying amounts of our intangible assets are as follows:
Useful LifeSeptember 30,
2020
December 31,
2019
 (In thousands)
Delek transportation agreement
30 years
$59,933 $59,933 
HFC transportation agreement
10-15 years
75,131 75,131 
Customer relationships10 years69,683 69,683 
Other50 50 
204,797 204,797 
Less accumulated amortization113,980 103,475 
$90,817 $101,322 

Amortization expense was $10.5 million for both of the nine months ended September 30, 2020 and 2019. We estimate amortization expense to be $14.0 million for each of the next two years, $9.9 million in 2023, and $9.1 million in 2024 and 2025.

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


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Note 8:Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C. (“HLS”), an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.9 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively, and $5.7 million and $5.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Under HLS’s secondment agreement with HFC (the “Secondment Agreement”), certain employees of HFC are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFC for its prorated portion of the wages, benefits, and other costs related to these employees.
We have a Long-Term Incentive Plan for employees and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of four components: restricted or phantom units, performance units, unit options and unit appreciation rights. 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, 2020, we had two types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.6 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $1.8 million for the nine months ended September 30, 2020 and 2019, 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, 2020, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,122,230 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Restricted and Phantom Units
Under our Long-Term Incentive Plan, as of September 30, 2020, we granted restricted units to non-employee directors and phantom units to 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, and the recipients of the restricted units have voting rights on the restricted units from the date of grant.

The fair value of each restricted or 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 restricted and phantom unit activity and changes during the nine months ended September 30, 2020, is presented below:
Restricted and Phantom UnitsUnitsWeighted Average Grant-Date Fair Value
Outstanding at January 1, 2020 (nonvested)145,205 $26.22 
Vesting and transfer of full ownership to recipients(5,646)29.94 
Forfeited(8,578)25.47 
Outstanding at September 30, 2020 (nonvested)130,981 $26.11 

The grant date fair value of phantom units that vested and transferred to recipients during the nine months ended September 30, 2020 was $0.2 million. No restricted or phantom units vested and transferred to recipients during the nine months ended September 30, 2019. As of September 30, 2020, $0.9 million of total unrecognized compensation expense related to unvested restricted and phantom unit grants is expected to be recognized over a weighted-average period of 1.1 years.

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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 50% to 150% or 0% to 200%. As of September 30, 2020, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 120% of the target number of performance units granted.

We did not grant any performance units during the nine months ended September 30, 2020. 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 months ended September 30, 2020, is presented below:
Performance UnitsUnits
Outstanding at January 1, 2020 (nonvested)53,445 
Vesting and transfer of common units to recipients(11,634)
Outstanding at September 30, 2020 (nonvested)41,811 

The grant date fair value of performance units vested and transferred to recipients during the nine months ended September 30, 2020 and 2019 was $0.4 million and $0.3 million, respectively. Based on the weighted-average fair value of performance units outstanding at September 30, 2020, of $1.2 million, there was $0.4 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.3 years.

During the nine months ended September 30, 2020, we did not purchase any of our common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.


Note 9:Debt

Credit Agreement
We have a $1.4 billion senior secured revolving credit facility (the “Credit Agreement”) expiring in July 2022. 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 it contains an accordion feature giving us the ability to increase the size of the facility by up to $300 million with additional lender commitments.

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.

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 as of September 30, 2020.

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Senior Notes
As of December 31, 2019, we had $500 million aggregate principal amount of 6% senior unsecured notes due in 2024 (the "6% Senior Notes") outstanding. The 6% Senior Notes were unsecured and imposed 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.

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% senior unsecured notes due in 2028 (the "5% Senior Notes"). On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with net proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% 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 5% Senior Notes as of September 30, 2020. At any time when the 5% 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 5% Senior Notes.

Indebtedness under the 5% Senior Notes is guaranteed by all of our existing wholly-owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt
The carrying amounts of our long-term debt was as follows:
September 30,
2020
December 31,
2019
(In thousands)
Credit Agreement
Amount outstanding948,000 $965,500 
6% Senior Notes
Principal 500,000 
Unamortized premium and debt issuance costs (3,469)
 496,531 
5% Senior Notes
Principal500,000  
Unamortized premium and debt issuance costs(8,126) 
491,874  
Total long-term debt$1,439,874 $1,462,031 

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Note 10:Related Party Transactions

We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2021 to 2036, and revenues from these agreements accounted for 79% and 80% of our total revenues for the three months and nine months ended September 30, 2020, respectively. Under these agreements, HFC 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 subject to annual rate adjustments on July 1st each year generally based on increases or decreases in PPI or the FERC index. As of September 30, 2020, these agreements with HFC require minimum annualized payments to us of $351.1 million.

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

Under certain provisions of the Omnibus Agreement, we pay HFC an annual administrative fee (currently $2.6 million) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:
Revenues received from HFC were $101.0 million and $106.0 million for the three months ended September 30, 2020 and 2019, respectively, and $298.0 million and $311.8 million for the nine months ended September 30, 2020 and 2019, respectively.
HFC charged us general and administrative services under the Omnibus Agreement of $0.7 million for both of the three months ended September 30, 2020 and 2019, and $2.0 million and 1.9 million for the nine months ended September 30, 2020 and 2019, respectively.
We reimbursed HFC for costs of employees supporting our operations of $14.0 million and $13.7 million for the three months ended September 30, 2020 and 2019, respectively, and $41.3 million and $40.5 million for the nine months ended September 30, 2020 and 2019, respectively.
HFC reimbursed us $2.3 million and $4.6 million for the three months ended September 30, 2020 and 2019, respectively, for expense and capital projects, and $6.3 million and $10.4 million for the nine months ended September 30, 2020 and 2019, respectively.
We distributed $18.4 million and $37.6 million in the three months ended September 30, 2020 and 2019, respectively, and $74.3 million and $112.4 million for the nine months ended September 30, 2020 and 2019, respectively, to HFC as regular distributions on its common units.
Accounts receivable from HFC were $46.5 million and $49.7 million at September 30, 2020, and December 31, 2019, respectively.
Accounts payable to HFC were $6.9 million and $16.7 million at September 30, 2020, and December 31, 2019, respectively.
Deferred revenue in the consolidated balance sheets at September 30, 2020 and December 31, 2019, included $0.4 million and $0.5 million, respectively, relating to certain shortfall billings to HFC.
We received direct financing lease payments from HFC for use of our Artesia and Tulsa rail yards of $0.5 million for both of the three months ended September 30, 2020 and 2019, and $1.5 million for both of the nine months ended September 30, 2020 and 2019 .
We received sales-type lease payments of $2.4 million from HFC for both of the three months ended September 30, 2020 and 2019, respectively, and $7.1 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively.
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On October 31, 2017, we closed an equity restructuring transaction with HEP Logistics, a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. This waiver of limited partner cash distributions expired after the cash distribution for the second quarter of 2020, which was made during the third quarter of 2020.


Note 11: Partners’ Equity, Income Allocations and Cash Distributions

As of September 30, 2020, HFC held 59,630,030 of our common units, constituting a 57% 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, 2020, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

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 22, 2020, we announced our cash distribution for the third quarter of 2020 of $0.35 per unit. The distribution is payable on all common units and will be paid November 12, 2020, to all unitholders of record on November 2, 2020.

Our regular quarterly cash distribution to the limited partners will be $37.0 million for the three months ended September 30, 2020 and was $68.5 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the regular quarterly distribution to the limited partners will be $105.9 million and was $205.2 million for the nine months ended September 30, 2019. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.


Note 12: 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 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 restricted units, 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, after consideration of any priority allocations of earnings. 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,
2020201920202019
(In thousands, except per unit data)
Net income attributable to the partners$17,813 $82,345 $119,144 $179,217 
Weighted average limited partners' units outstanding105,440 105,440 105,440 105,440 
Limited partners' per unit interest in earnings - basic and diluted$0.17 $0.78 $1.13 $1.70 

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Note 13:Environmental

We expensed $1.0 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, for environmental remediation obligations, and we expensed $0.3 million for both of the three and nine months ended September 30, 2019. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $5.7 million and $5.5 million at September 30, 2020 and December 31, 2019, respectively, of which $3.5 million, was classified as other long-term liabilities for both periods. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. Our consolidated balance sheets included additional accrued environmental liabilities of $0.4 million and $0.5 million for HFC indemnified liabilities for the periods ending September 30, 2020 and December 31, 2019, respectively, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.


Note 14: 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 15: 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: pipelines and terminals, and refinery processing units. These operating segments adhere to the accounting polices used for our consolidated financial statements.

Pipelines and terminals have been aggregated as one reportable segment as both pipeline 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 reportable segment.
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Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Revenues:
Pipelines and terminals - affiliate$80,589 $85,749 $238,123 $250,259 
Pipelines and terminals - third-party26,739 29,868 72,409 89,388 
Refinery processing units - affiliate20,403 20,278 59,860 61,496 
Total segment revenues$127,731 $135,895 $370,392 $401,143 
Segment operating income:
Pipelines and terminals$15,912 $56,944 $120,445 $178,112 
Refinery processing units9,973 9,906 29,371 27,794 
Total segment operating income25,885 66,850 149,816 205,906 
Unallocated general and administrative expenses(2,332)(2,714)(7,569)(7,322)
Interest and financing costs, net(11,301)(16,564)(37,816)(53,737)
Loss on early extinguishment of debt  (25,915) 
Equity in earnings of equity method investments1,316 1,334 5,186 5,217 
Gain on sales-type leases 35,166 33,834 35,166 
Gain (loss) on sale of assets and other 7,465 142 8,439 (57)
Income before income taxes$21,033 $84,214 $125,975 $185,173 
Capital Expenditures:
  Pipelines and terminals$7,902 $5,320 $38,318 $23,072 
  Refinery processing units 756 324 756 
Total capital expenditures$7,902 $6,076 $38,642 $23,828 
September 30, 2020December 31, 2019
(In thousands)
Identifiable assets:
  Pipelines and terminals (1)
$1,712,033 $1,749,843 
  Refinery processing units305,999 305,897 
Other143,853 143,492 
Total identifiable assets$2,161,885 $2,199,232 

(1) Includes goodwill of $234.7 million as of September 30, 2020 and $270.3 million as of December 31, 2019.

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Note 16: Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the 5% 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 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 have been satisfied.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.
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Condensed Consolidating Balance Sheet
September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,000 $(1,113)$15,204 $ $18,091 
Accounts receivable 56,434 4,982 (1,055)60,361 
Prepaid and other current assets149 5,818 315 6,282 
Total current assets4,149 61,139 20,501 (1,055)84,734 
Properties and equipment, net 1,096,454 351,470  1,447,924 
Operating lease right-of-use assets 2,990 174  3,164 
Net investment in leases 167,238  167,238 
Investment in subsidiaries
1,800,621 280,277  (2,080,898) 
Intangible assets, net 90,817   90,817 
Goodwill 234,684   234,684 
Equity method investments 82,389 39,657  122,046 
Other assets4,879 6,399   11,278 
Total assets$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$ $20,494 $8,505 $(1,055)$27,944 
Accrued interest4,691    4,691 
Deferred revenue 10,620 400  11,020 
Accrued property taxes 5,377 3,595  8,972 
Current operating lease liabilities 1,130 69  1,199 
Current finance lease liabilities 3,459   3,459 
Other current liabilities3 2,748 98  2,849 
Total current liabilities4,694 43,828 12,667 (1,055)60,134 
Long-term debt1,439,874    1,439,874 
Noncurrent operating lease liabilities 2,333   2,333 
Noncurrent finance lease liabilities 69,180   69,180 
Other long-term liabilities260 13,093 508  13,861 
Deferred revenue 41,376   41,376 
Class B unit 51,956   51,956 
Equity - partners364,821 1,800,621 280,277 (2,080,898)364,821 
Equity - noncontrolling interest  118,350  118,350 
Total liabilities and equity$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
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Condensed Consolidating Balance Sheet
December 31, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,790 $(709)$9,206 $ $13,287 
Accounts receivable 60,229 8,549 (331)68,447 
Prepaid and other current assets282 6,710 637  7,629 
Total current assets5,072 66,230 18,392 (331)89,363 
Properties and equipment, net 1,133,534 333,565  1,467,099 
Operating lease right-of-use assets 3,243 12  3,255 
Net investment in leases 134,886   134,886 
Investment in subsidiaries1,844,812 275,279  (2,120,091) 
Intangible assets, net 101,322   101,322 
Goodwill 270,336   270,336 
Equity method investments 82,987 37,084  120,071 
Other assets6,722 6,178   12,900 
Total assets$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$ $29,895 $4,991 $(331)$34,555 
Accrued interest13,206    13,206 
Deferred revenue 9,740 650  10,390 
Accrued property taxes 2,737 1,062  3,799 
Current operating lease liabilities 1,114 12  1,126 
Current finance lease liabilities 3,224   3,224 
Other current liabilities6 2,293 6  2,305 
Total current liabilities13,212 49,003 6,721 (331)68,605 
Long-term debt1,462,031    1,462,031 
Noncurrent operating lease liabilities 2,482   2,482 
Noncurrent finance lease liabilities 70,475   70,475 
Other long-term liabilities260 12,150 398  12,808 
Deferred revenue 45,681   45,681 
Class B unit 49,392   49,392 
Equity - partners381,103 1,844,812 275,279 (2,120,091)381,103 
Equity - noncontrolling interest  106,655  106,655 
Total liabilities and equity$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 



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Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$ $94,595 $6,397 $ $100,992 
Third parties 21,550 5,189  26,739 
 116,145 11,586  127,731 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
 36,065 3,938  40,003 
Depreciation and amortization 21,997 4,193  26,190 
General and administrative649 1,683   2,332 
Goodwill impairment 35,653   35,653 
649 95,398 8,131  104,178 
Operating income (loss)(649)20,747 3,455  23,553 
Other income (expense):
Equity in earnings of subsidiaries31,461 6,589  (38,050) 
Equity in earnings of equity method investments 755 561  1,316 
Interest expense(13,072)(1,032)  (14,104)
Interest income 2,787 16  2,803 
Other income73 2,542 4,850  7,465 
18,462 11,641 5,427 (38,050)(2,520)
Income before income taxes17,813 32,388 8,882 (38,050)21,033 
State income tax expense (34)  (34)
Net income 17,813 32,354 8,882 (38,050)20,999 
Allocation of net income attributable to noncontrolling interests
 (893)(2,293) (3,186)
Net income attributable to the partners
$17,813 $31,461 $6,589 $(38,050)$17,813 

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Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$ $99,482 $6,545 $ $106,027 
Third parties 23,999 5,869  29,868 
 123,481 12,414  135,895 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
 40,866 4,058  44,924 
Depreciation and amortization19,757 4,364  24,121 
General and administrative569 2,145   2,714 
569 62,768 8,422  71,759 
Operating income (loss)(569)60,713 3,992  64,136 
Other income (expense):
Equity in earnings of subsidiaries101,638 3,013  (104,651) 
Equity in earnings of equity method investments 1,334   1,334 
Interest expense(18,945)138   (18,807)
Interest income 2,243   2,243 
Gain on sales-type lease 35,166   35,166 
Other income (loss)221 (104)25  142 
82,914 41,790 25 (104,651)20,078 
Income before income taxes82,345 102,503 4,017 (104,651)84,214 
State income tax expense (30)  (30)
Net income 82,345 102,473 4,017 (104,651)84,184 
Allocation of net income attributable to noncontrolling interests
 (835)(1,004) (1,839)
Net income attributable to the partners
$82,345 $101,638 $3,013 $(104,651)$82,345 

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Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$ $278,767 $19,216 $ $297,983 
Third parties 56,592 15,817  72,409 
 335,359 35,033  370,392 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
 98,176 11,545  109,721 
Depreciation and amortization 62,489 12,713  75,202 
General and administrative2,528 5,041   7,569 
Goodwill impairment 35,653   35,653 
2,528 201,359 24,258  228,145 
Operating income (loss)(2,528)134,000 10,775  — 142,247 
Other income (expense):
Equity in earnings of subsidiaries189,889 12,394  (202,283) 
Equity in earnings of equity method investments 4,292 894  5,186 
Interest expense(42,542)(3,108)  (45,650)
Interest income26 7,792 16  7,834 
Loss on early extinguishment of debt(25,915)   (25,915)
Gain on sales-type lease 33,834   33,834 
Gain on sale of assets and other214 3,358 4,867  8,439 
121,672 58,562 5,777 (202,283)(16,272)
Income before income taxes119,144 192,562 16,552 (202,283)125,975 
State income tax expense (110)  (110)
Net income 119,144 192,452 16,552 (202,283)125,865 
Allocation of net income attributable to noncontrolling interests
 (2,563)(4,158) (6,721)
Net income attributable to the partners
$119,144 $189,889 $12,394 $(202,283)$119,144 

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Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2019ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$ $293,096 $18,659 $ $311,755 
Third parties 69,764 19,624  89,388 
 362,860 38,283  401,143 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
 111,644 11,401  123,045 
Depreciation and amortization59,320 12,872  72,192 
General and administrative2,390 4,932   7,322 
2,390 175,896 24,273  202,559 
Operating income (loss)(2,390)186,964 14,010  198,584 
Other income (expense):
Equity in earnings of subsidiaries238,368 10,572  (248,940) 
Equity in earnings of equity method investments 5,217   5,217 
Interest expense(56,982)(77)  (57,059)
Interest income 3,322   3,322 
Gain on sales-type lease 35,166   35,166 
Gain on sale of assets and other221 (364)86  (57)
181,607 53,836 86 (248,940)(13,411)
Income before income taxes179,217 240,800 14,096 (248,940)185,173 
State income tax expense (36)  (36)
Net income 179,217 240,764 14,096 (248,940)185,137 
Allocation of net income attributable to noncontrolling interests
 (2,396)(3,524) (5,920)
Net income attributable to the partners
$179,217 $238,368 $10,572 $(248,940)$179,217 

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Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(49,182)$250,355 $36,261 $(12,394)$225,040 
Cash flows from investing activities
Additions to properties and equipment (10,675)(27,967) (38,642)
Investment in Cushing Connect
 (15,382)(2,438)15,382 (2,438)
Proceeds from sale of assets
 961   961 
Distributions in excess of equity in earnings of equity investments
 11,084  (10,383)701 
 (14,012)(30,405)4,999 (39,418)
Cash flows from financing activities
Net borrowings under credit agreement(17,500)   (17,500)
Net intercompany financing activities234,081 (234,081)   
Redemption of senior notes(522,500)   (522,500)
Proceeds from issuance of senior notes500,000    500,000 
Contribution from general partner611  15,382 (15,382)611 
Contribution from noncontrolling interest  15,382  15,382 
Distributions to HEP unitholders(137,437)   (137,437)
Distributions to noncontrolling interests  (30,622)22,777 (7,845)
Units withheld for tax withholding obligations(149)   (149)
Deferred financing costs(8,714)   (8,714)
Payments on finance leases (2,666)  (2,666)
48,392 (236,747)142 7,395 (180,818)
Cash and cash equivalents
Increase (decrease) for the period(790)(404)5,998  4,804 
Beginning of period4,790 (709)9,206  13,287 
End of period$4,000 $(1,113)$15,204 $ $18,091 

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Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(62,229)$271,657 $31,467 $(12,678)$228,217 
Cash flows from investing activities
Additions to properties and equipment (23,227)(601) (23,828)
Distributions from UNEV in excess of earnings
 10,572  (10,572) 
Proceeds from sale of assets
 265   265 
Distributions in excess of equity in earnings of equity investments
 693   693 
 (11,697)(601)(10,572)(22,870)
Cash flows from financing activities
Net borrowings under credit agreement12,500    12,500 
Net intercompany financing activities260,362 (260,362)   
Contributions from general partner182    182 
Distributions to HEP unitholders(204,701)   (204,701)
Distributions to noncontrolling interests  (31,000)23,250 (7,750)
Units withheld for tax withholding obligations(119)   (119)
Purchase units for incentive grants(255)  (255)
Payments on finance leases (780)  (780)
Other (139)139    
67,830 (261,003)(31,000)23,250 (200,923)
Cash and cash equivalents
Increase for the period5,601 (1,043)(134) 4,424 
Beginning of period2  3,043  3,045 
End of period$5,603 $(1,043)$2,909 $ $7,469 


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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.


OVERVIEW

HEP is a Delaware limited partnership. 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 HollyFrontier Corporation (“HFC”) 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 Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as refinery processing units in Utah and Kansas. HFC owned 57% of our outstanding common units and the non-economic general partnership interest, as of September 30, 2020.

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 growth of 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.

Impact of COVID-19 on Our Business
Our business depends in large part on the demand for the various petroleum products we transport, terminal and store in the markets we serve. The impact of the COVID-19 pandemic on the global macroeconomy has created unprecedented destruction of demand, as well as lack of forward visibility, for refined products and crude oil transportation, and for the terminalling and storage services that we provide. Over the course of the third quarter, demand for transportation fuels showed incremental improvement over the second quarter of 2020. We expect our customers will continue to adjust refinery production levels commensurate with market demand and ultimately expect demand to return to pre-COVID-19 levels.

In response to the COVID-19 pandemic, and with the health and safety of our employees as a top priority, we took several actions, including limiting onsite staff at all of our facilities, implementing a work-from-home policy for certain employees and restricting travel unless approved by senior leadership. We will continue to monitor COVID-19 developments and the dynamic environment to properly address these policies going forward.

In light of current circumstances and our expectations for the future, HEP reduced its quarterly distribution to $0.35 per unit beginning with the distribution for the first quarter of 2020, representative of a new distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and improving distributable cash flow coverage to 1.3x or greater with the goal of reducing leverage to 3.0-3.5x.

On March 27, 2020, the United States government passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an approximately $2 trillion stimulus package that included various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others. At this time, we have not sought relief in the form of loans or grants from the CARES Act; however, we have benefited from certain tax deferrals in the CARES Act and may benefit from other tax provisions if we meet the requirements to do so.

The extent to which HEP’s future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. However, we have
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long-term customer contracts with minimum volume commitments, which have expiration dates from 2021 to 2036. These minimum volume commitments accounted for approximately 70% of our total revenues in 2019. 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, other than with resect to the agreement in principle reached with HFC subsequent to the third quarter of 2020 with respect to HEP’s Cheyenne assets. In addition to these payments, we also expect to collect payments for services provided to uncommitted shippers. There have been no material changes to customer payment terms due to the COVID-19 pandemic.

The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. The COVID-19 pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

Investment in Joint Venture
On October 2, 2019, HEP Cushing (“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 will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HFC 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 into service during the second quarter of 2020, and the Cushing Connect Pipeline is expected to be in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect Joint Venture assets.

The Cushing Connect Joint Venture will contract 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 be shared proportionately among the partners, and HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs will be approximately $65 million.

Agreements with HFC
We serve HFC’s refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from 2021 to 2036. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminal, tankage, and loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year, based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission index. As of September 30, 2020, these agreements with HFC require minimum annualized payments to us of $351.1 million.

If HFC 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.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at its Cheyenne Refinery on August 3, 2020. As of September 30, 2020, our throughput agreement with HFC required minimum annualized payments to us of approximately $17.6 million related to our Cheyenne assets. The net book value of our Cheyenne related net assets as of June 30, 2020 was approximately $88.5 million, including $28.1 million of long-lived assets and $68.7 million of goodwill. No impairment of our Cheyenne long-lived assets was required.

Our annual goodwill impairment testing was performed during the third quarter of 2020. The estimated fair value of our reporting units were derived using a combination of both income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approach includes both the guideline public company and guideline transaction methods. Both market approach methods use pricing
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multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 5 for further discussion of Level 3 inputs.

Our testing of goodwill did not identify any impairments other than our Cheyenne reporting unit, which reported a goodwill impairment charge of $35.7 million.

Subsequent to the third quarter of 2020, HEP and HFC reached an agreement in principle to terminate the existing minimum volume commitments for HEP's Cheyenne assets and enter into new agreements on 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 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 will pay a base tariff to HEP for available crude oil storage and HFC 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 HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee, currently $2.6 million, for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC 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 HFC. We also reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Under HLS’s Secondment Agreement with HFC, certain employees of HFC are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFC 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 that has historically facilitated our growth. 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 - Impact of COVID-19 on Our Business” above, we also expect over the longer term to continue to work with HFC on logistic asset acquisitions in conjunction with HFC’s refinery acquisition strategies.

Furthermore, we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues.
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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 the nine months ended September 30, 2020 and 2019.
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 Three Months Ended September 30,Change from
 202020192019
 (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines$18,619 $19,401 $(782)
Affiliates—intermediate pipelines7,537 7,490 47 
Affiliates—crude pipelines20,218 21,675 (1,457)
46,374 48,566 (2,192)
Third parties—refined product pipelines9,812 13,270 (3,458)
Third parties—crude pipelines12,106 11,327 779 
68,292 73,163 (4,871)
Terminals, tanks and loading racks:
Affiliates34,215 37,183 (2,968)
Third parties4,821 5,271 (450)
39,036 42,454 (3,418)
Refinery processing units—Affiliates20,403 20,278 125 
Total revenues127,731 135,895 (8,164)
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)40,003 44,924 (4,921)
Depreciation and amortization26,190 24,121 2,069 
General and administrative2,332 2,714 (382)
Goodwill impairment35,653 — 35,653 
104,178 71,759 32,419 
Operating income23,553 64,136 (40,583)
Other income (expense):
Equity in earnings of equity method investments1,316 1,334 (18)
Interest expense, including amortization(14,104)(18,807)4,703 
Interest income2,803 2,243 560 
Gain on sales-type leases— 35,166 (35,166)
Gain on sale of assets and other7,465 142 7,323 
(2,520)20,078 (22,598)
Income before income taxes21,033 84,214 (63,181)
State income tax expense(34)(30)(4)
Net income20,999 84,184 (63,185)
Allocation of net income attributable to noncontrolling interests(3,186)(1,839)(1,347)
Net income attributable to the partners17,813 82,345 (64,532)
Limited partners’ earnings per unit—basic and diluted$0.17 $0.78 $(0.61)
Weighted average limited partners’ units outstanding105,440 105,440 — 
EBITDA (1)
$55,338 $123,060 $(67,722)
Adjusted EBITDA (1)
$86,435 $90,269 $(3,834)
Distributable cash flow (2)
$76,894 $68,838 $8,056 
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines119,403 129,681 (10,278)
Affiliates—intermediate pipelines142,817 153,547 (10,730)
Affiliates—crude pipelines270,840 358,867 (88,027)
533,060 642,095 (109,035)
Third parties—refined product pipelines60,203 67,440 (7,237)
Third parties—crude pipelines133,487 129,222 4,265 
726,750 838,757 (112,007)
Terminals and loading racks:
Affiliates401,904 482,291 (80,387)
Third parties57,355 59,307 (1,952)
459,259 541,598 (82,339)
Refinery processing units—Affiliates62,016 75,857 (13,841)
Total for pipelines and terminal and refinery processing unit assets (bpd)1,248,025 1,456,212 (208,187)
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 Nine Months Ended September 30,Change from
 202020192019
 (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines$55,004 $60,892 $(5,888)
Affiliates—intermediate pipelines22,486 22,068 418 
Affiliates—crude pipelines59,922 63,447 (3,525)
137,412 146,407 (8,995)
Third parties—refined product pipelines33,360 40,652 (7,292)
Third parties—crude pipelines26,946 33,467 (6,521)
197,718 220,526 (22,808)
Terminals, tanks and loading racks:
Affiliates100,711 103,852 (3,141)
Third parties12,103 15,269 (3,166)
112,814 119,121 (6,307)
Refinery processing units—Affiliates59,860 61,496 (1,636)
Total revenues370,392 401,143 (30,751)
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)109,721 123,045 (13,324)
Depreciation and amortization75,202 72,192 3,010 
General and administrative7,569 7,322 247 
Goodwill impairment35,653 — 35,653 
228,145 202,559 25,586 
Operating income142,247 198,584 (56,337)
Other income (expense):
Equity in earnings of equity method investments5,186 5,217 (31)
Interest expense, including amortization(45,650)(57,059)11,409 
Interest income7,834 3,322 4,512 
Loss on early extinguishment of debt(25,915)— (25,915)
Gain on sales-type leases33,834 35,166 (1,332)
Gain (loss) on sale of assets and other8,439 (57)8,496 
(16,272)(13,411)(2,861)
Income before income taxes125,975 185,173 (59,198)
State income tax expense(110)(36)(74)
Net income125,865 185,137 (59,272)
Allocation of net income attributable to noncontrolling interests(6,721)(5,920)(801)
Net income attributable to the partners119,144 179,217 (60,073)
Limited partners’ earnings per unit—basic and diluted$1.13 $1.70 $(0.57)
Weighted average limited partners’ units outstanding105,440 105,440 — 
EBITDA (1)
$232,272 $305,182 $(72,910)
Adjusted EBITDA (1)
$257,711 $272,391 $(14,680)
Distributable cash flow (2)
$213,058 $206,923 $6,135 
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines116,641 130,426 (13,785)
Affiliates—intermediate pipelines137,816 141,991 (4,175)
Affiliates—crude pipelines276,128 376,518 (100,390)
530,585 648,935 (118,350)
Third parties—refined product pipelines55,921 71,773 (15,852)
Third parties—crude pipelines103,955 132,101 (28,146)
690,461 852,809 (162,348)
Terminals and loading racks:
Affiliates401,245 429,660 (28,415)
Third parties49,753 62,437 (12,684)
450,998 492,097 (41,099)
Refinery processing units—Affiliates60,573 73,178 (12,605)
Total for pipelines and terminal and refinery processing unit assets (bpd)1,202,032 1,418,084 (216,052)
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(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to the partners plus (i) interest expense, net of interest income, (ii) state income tax expense and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill impairment and (iii) pipeline tariffs not included in revenues due to impacts from lease accounting for certain pipeline tariffs minus (iv) gain on sales-type leases, (v) HEP's pro-rata share of gain on business interruption insurance settlement and (vi) pipeline lease payments not included in operating costs and expenses. 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. These pipeline tariffs were previously recorded as revenues prior to the renewal of the throughput agreements, which triggered sales-type lease accounting. Similarly, certain pipeline lease payments were previously recorded as operating costs and expenses, but the underlying lease was reclassified from an operating lease to a financing lease, and these payments are now recorded as interest expense and reductions in the lease liability. EBITDA and Adjusted EBITDA are not calculations based upon generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA and Adjusted EBITDA calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income attributable to Holly Energy 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,
 2020201920202019
 (In thousands)
Net income attributable to the partners$17,813 $82,345 $119,144 $179,217 
Add (subtract):
Interest expense14,104 18,807 45,650 57,059 
Interest income(2,803)(2,243)(7,834)(3,322)
State income tax expense34 30 110 36 
Depreciation and amortization26,190 24,121 75,202 72,192 
EBITDA$55,338 $123,060 $232,272 $305,182 
Loss on early extinguishment of debt— — 25,915 — 
Gain on sales-type leases— (35,166)(33,834)(35,166)
Goodwill impairment35,653 — 35,653 — 
HEP's pro-rata share of gain on business interruption insurance settlement(6,079)— (6,079)— 
Pipeline tariffs not included in revenues3,129 2,375 8,603 2,375 
Lease payments not included in operating costs(1,606)— (4,819)— 
Adjusted EBITDA$86,435 $90,269 $257,711 $272,391 

(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 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,
 2020201920202019
 (In thousands)
Net income attributable to the partners$17,813 $82,345 $119,144 $179,217 
Add (subtract):
Depreciation and amortization26,190 24,121 75,202 72,192 
Amortization of discount and deferred debt issuance costs
838 771 2,479 2,307 
Loss on early extinguishment of debt
— — 25,915 — 
Revenue recognized greater than customer billings
(198)504 (699)(2,827)
Maintenance capital expenditures (3)
(1,565)(2,118)(5,192)(3,477)
Increase (decrease) in environmental liability29 91 187 (464)
Decrease in reimbursable deferred revenue(3,257)(1,964)(9,062)(5,604)
Gain on sales-type leases— (35,166)(33,834)(35,166)
Goodwill impairment35,653 — 35,653 — 
Other1,391 254 3,265 745 
Distributable cash flow$76,894 $68,838 $213,058 $206,923 

(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,
2020
December 31,
2019
(In thousands)
Balance Sheet Data
Cash and cash equivalents$18,091 $13,287 
Working capital$24,600 $20,758 
Total assets$2,161,885 $2,199,232 
Long-term debt$1,439,874 $1,462,031 
Partners’ equity$364,821 $381,103 


Results of Operations—Three Months Ended September 30, 2020 Compared with Three Months Ended September 30, 2019

Summary
Net income attributable to the partners for the third quarter was $17.8 million ($0.17 per basic and diluted limited partner unit) compared to $82.3 million ($0.78 per basic and diluted limited partner unit) for the third quarter of 2019. The third quarter of 2020 results reflect special items that collectively decreased net income attributable to HEP by a total of $29.6 million. These items include a goodwill impairment charge of $35.7 million related to our Cheyenne reporting unit and a $6.1 million gain related to HEP's pro-rata share of a business interruption insurance claim settlement resulting from a loss at HollyFrontier's Woods Cross Refinery. In addition, net income attributable to HEP for the third quarter of 2019 included a gain on sales-type leases of $35.2 million. Excluding these items, net income attributable to HEP for the third quarter of 2020 was $47.4 million ($0.45 per basic and diluted limited partner unit) compared to net income attributable to HEP for the third quarter of 2019 of $47.2 million ($0.45 per basis can diluted limited partner unit).

Revenues
Revenues for the third quarter were $127.7 million, a decrease of $8.2 million compared to the third quarter of 2019. The decrease was mainly attributable to a 13% reduction in overall crude and product pipeline volumes predominantly in our Southwest region.

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Revenues from our refined product pipelines were $28.4 million, a decrease of $4.2 million compared to the third quarter of 2019. Shipments averaged 179.6 thousand barrels per day (“mbpd”) compared to 197.1 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo Refinery and Delek's Big Spring refinery largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases.

Revenues from our intermediate pipelines were $7.5 million, consistent with the third quarter of 2019. Shipments averaged 142.8 mbpd for the third quarter of 2020 compared to 153.5 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HFC's Navajo refinery while revenue remained relatively constant mainly due to contractual minimum volume guarantees.

Revenues from our crude pipelines were $32.3 million, a decrease of $0.7 million compared to the third quarter of 2019, and shipments averaged 404.3 mbpd compared to 488.1 mbpd for the third quarter of 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas partially offset by increased volumes on our crude pipeline systems in Utah. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees.

Revenues from terminal, tankage and loading rack fees were $39.0 million, a decrease of $3.4 million compared to the third quarter of 2019. Refined products and crude oil terminalled in the facilities averaged 459.3 mbpd compared to 541.6 mbpd for the third quarter of 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities. Revenues did not decrease in proportion to the decrease in volumes mainly due to contractual minimum volume guarantees.

Revenues from refinery processing units were $20.4 million, an increase of $0.1 million compared to the third quarter of 2019, and throughputs averaged 62.0 mbpd compared to 75.9 mbpd for the third quarter of 2019. The decrease in volumes was mainly due to reduced throughput for our El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic while revenue remained relatively constant mainly due to contractual minimum volume guarantees.

Operations Expense
Operations (exclusive of depreciation and amortization) expense was $40.0 million for the three months ended September 30, 2020, a decrease of $4.9 million compared to the third quarter of 2019. The decrease was mainly due to lower rental expenses and maintenance costs for the three months ended September 30, 2020.

Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2020 increased by $2.1 million compared to the three months ended September 30, 2019. The increase was mainly due to the acceleration of depreciation on certain of our Cheyenne tanks.

General and Administrative
General and administrative costs for the three months ended September 30, 2020 decreased by $0.4 million compared to the three months ended September 30, 2019, mainly due to lower legal expenses for the three months ended September 30, 2020.

Equity in Earnings of Equity Method Investments
Three Months Ended September 30,
Equity Method Investment20202019
(in thousands)
Osage Pipe Line Company, LLC$219 $606 
Cheyenne Pipeline LLC533 728 
Cushing Terminal564 — 
Total$1,316 $1,334 

Equity in earnings of Osage Pipe Line Company, LLC decreased for the three months ended September 30, 2020, mainly due to lower throughput volumes.
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Interest Expense
Interest expense for the three months ended September 30, 2020, totaled $14.1 million, a decrease of $4.7 million compared to the three months ended September 30, 2019. The decrease was mainly due to market interest rate decreases under our senior secured revolving credit facility and refinancing our $500 million aggregate principal amount of 6% Senior Notes due 2024 (“6% Senior Notes”) with $500 million aggregate principal amount of 5% Senior Notes due 2028 (“5% Senior Notes”). Our aggregate effective interest rates were 3.6% and 5.2% for the three months ended September 30, 2020 and 2019, respectively.

State Income Tax
We recorded a state income tax expense of $34,000 and $30,000 for the three months ended September 30, 2020 and 2019, respectively. All tax expense is solely attributable to the Texas margin tax.


Results of Operations—Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

Summary
Net income attributable to the partners for the nine months ended September 30, 2020 was $119.1 million ($1.13 per basic and diluted limited partner unit) compared to $179.2 million ($1.70 per basic and diluted limited partner unit) for the third quarter of 2019. Results for the nine months ended September 30, 2020 reflect special items that collectively decreased net income attributable to HEP by a total of $21.7 million. These items include a goodwill impairment charge of $35.7 million related to our Cheyenne reporting unit, a charge of $25.9 million related to the early redemption of our previously outstanding $500 million aggregate principal amount of 6% Senior Notes, due in 2024, a gain on sales-type leases of $33.8 million and a $6.1 million gain related to HEP's pro-rata share of a business interruption insurance claim settlement resulting from a loss at HollyFrontier's Woods Cross Refinery. In addition, net income attributable to HEP for the nine months ended September 30, 2019 included a gain on sales-type leases of $35.2 million. Excluding these items, net income attributable to the partners for the nine months ended September 30, 2020 was $140.8 million ($1.34 per basic and diluted limited partner unit) compared to net income attributable to HEP for the nine months ended September 30, 2019 of $144.1 million ($1.37 per basis can diluted limited partner unit).

Revenues
Revenues for the nine months ended September 30, 2020, were $370.4 million, a decrease of $30.8 million compared to the nine months ended September 30, 2019. The decrease was mainly attributable to a 19% reduction in overall crude and product pipeline volumes predominantly in our Southwest and Rockies regions.

Revenues from our refined product pipelines were $88.4 million, a decrease of $13.2 million compared to the nine months ended September 30, 2019. Shipments averaged 172.6 mbpd compared to 202.2 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HFC's Navajo refinery, Delek's Big Spring refinery and our UNEV pipeline largely as a result of demand destruction associated with the COVID-19 pandemic as well as the recording of certain pipeline tariffs as interest income as the related throughput contract renewals were determined to be sales-type leases.

Revenues from our intermediate pipelines were $22.5 million, an increase of $0.4 million compared to the nine months ended September 30, 2019. Shipments averaged 137.8 mbpd compared to 142.0 mbpd for the nine months ended September 30, 2019.

Revenues from our crude pipelines were $86.9 million, a decrease of $10.0 million compared to the nine months ended September 30, 2019. Shipments averaged 380.1 mbpd compared to 508.6 mbpd for the nine months ended September 30, 2019. The decreases were mainly attributable to decreased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah largely as a result of demand destruction associated with the COVID-19 pandemic.

Revenues from terminal, tankage and loading rack fees were $112.8 million, a decrease of $6.3 million compared to the nine months ended September 30, 2019. Refined products and crude oil terminalled in the facilities averaged 451.0 mbpd compared to 492.1 mbpd for the nine months ended September 30, 2019. The volume and revenue decreases were mainly as a result of demand destruction associated with the COVID-19 pandemic across most of our facilities.
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Revenues from refinery processing units were $59.9 million, a decrease of $1.6 million compared to the nine months ended September 30, 2019. Throughputs averaged 60.6 mbpd compared to 73.2 mbpd for the nine months ended September 30, 2019. The decrease in volumes was mainly due to reduced throughput for both our Woods Cross and El Dorado processing units largely as a result of demand destruction associated with the COVID-19 pandemic. Revenues were higher in the nine months ended September 30, 2019 due to an adjustment in revenue recognition recorded during that period; otherwise, revenues for the two nine-month periods remained relatively constant due to contractual minimum volume guarantees.

Operations Expense
Operations expense (exclusive of depreciation and amortization) for the nine months ended September 30, 2020, decreased by $13.3 million compared to the nine months ended September 30, 2019. The decrease was mainly due to lower rental expenses, maintenance costs and variable costs such as electricity and chemicals associated with lower volumes.

Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2020, increased by $3.0 million compared to the nine months ended September 30, 2019. The increase was mainly due to the acceleration of depreciation on certain of our Cheyenne tanks.

General and Administrative
General and administrative costs for the nine months ended September 30, 2020, increased by $0.2 million compared to the nine months ended September 30, 2019 mainly due to higher legal expenses incurred in the nine months ended September 30, 2020.

Equity in Earnings of Equity Method Investments
Nine Months Ended September 30,
Equity Method Investment20202019
(in thousands)
Osage Pipe Line Company, LLC1,599 1,857 
Cheyenne Pipeline LLC2,693 3,360 
Cushing Terminal894 — 
Total$5,186 $5,217 

Equity in earnings of Cheyenne Pipeline LLC decreased for the nine months ended September 30, 2020, mainly due to lower throughput volumes.

Interest Expense
Interest expense for the nine months ended September 30, 2020, totaled $45.7 million, a decrease of $11.4 million compared to the nine months ended September 30, 2019. The decrease was mainly due to market interest rate decreases under our senior secured revolving credit facility and refinancing our $500 million 6% Senior Notes with $500 million 5% Senior Notes. Our aggregate effective interest rates were 3.8% and 5.3% for the nine months ended September 30, 2020 and 2019, respectively.

State Income Tax
We recorded a state income tax expense of $110,000 and $36,000 for the nine months ended September 30, 2020 and 2019, respectively. All tax expense is solely attributable to the Texas margin tax.


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LIQUIDITY AND CAPITAL RESOURCES

Overview
We have a $1.4 billion senior secured revolving credit facility (the “Credit Agreement”) expiring in July 2022. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit, and it contains an accordion feature giving us the ability to increase the size of the facility by up to $300 million with additional lender commitments.

During the nine months ended September 30, 2020, we received advances totaling $219.5 million and repaid $237.0 million, resulting in a net decrease of $17.5 million under the Credit Agreement and an outstanding balance of $948.0 million at September 30, 2020. As of September 30, 2020, we have no letters of credit outstanding under the Credit Agreement and the available capacity under the Credit Agreement was $452.0 million. Amounts repaid under the Credit Agreement may be reborrowed from time to time.
On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% Senior Notes due in 2028. On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.
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 three months ended September 30, 2020. As of September 30, 2020, 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 cash balances, future internally generated funds 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.

In August 2020, we paid a regular cash distribution of $0.35 on all units in an aggregate amount of $34.5 million after deducting HEP Logistics' waiver of $2.5 million of limited partner cash distributions.

Cash and cash equivalents increased by $4.8 million during the nine months ended September 30, 2020. The cash flows provided by operating activities of $225.0 million were more than the cash flows used for financing activities of $180.8 million and investing activities of $39.4 million. Working capital increased by $3.8 million to $24.6 million at September 30, 2020, from $20.8 million at December 31, 2019.

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Cash Flows—Operating Activities
Cash flows from operating activities decreased by $3.2 million from $228.2 million for the nine months ended September 30, 2019, to $225.0 million for the nine months ended September 30, 2020. The decrease was mainly due to lower cash receipts from customers partially offset by lower payments for operating expenses and interest expenses during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

Cash Flows—Investing Activities
Cash flows used for investing activities were $39.4 million for the nine months ended September 30, 2020, compared to $22.9 million for the nine months ended September 30, 2019, an increase of $16.5 million. During the nine months ended September 30, 2020 and 2019, we invested $38.6 million and $23.8 million, respectively, in additions to properties and equipment. During the nine months ended September 30, 2020, we invested $2.4 million in our equity method investment in Cushing Connect JV Terminal. We received $0.7 million in excess of equity in earnings during both the nine months ended September 30, 2020 and September 30, 2019.

Cash Flows—Financing Activities
Cash flows used for financing activities were $180.8 million for the nine months ended September 30, 2020, compared to $200.9 million for the nine months ended September 30, 2019, a decrease of $20.1 million. During the nine months ended September 30, 2020, we received $219.5 million and repaid $237.0 million in advances under the Credit Agreement. Additionally, we paid $137.4 million in regular quarterly cash distributions to our limited partners and $7.8 million to our noncontrolling interest. We received $15.4 million in contributions from noncontrolling interest during the nine months ended September 30, 2020. We also received net proceeds of $491.3 million from the issuance of our 5% Senior Notes and paid $522.5 million to retire our 6% Senior Notes. During the nine months ended September 30, 2019, we received $269.5 million and repaid $257.0 million in advances under the Credit Agreement. We paid $204.7 million in regular quarterly cash distributions to our limited partners, and distributed $7.8 million to our noncontrolling interest.

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. 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 2020 capital forecast is comprised of approximately $8 million to $12 million for maintenance capital expenditures, up to $1 million for refinery unit turnarounds and $35 million to $45 million for expansion capital expenditures and our share of Cushing Connect Joint Venture investments. We expect the majority of the 2020 expansion capital to be invested in our share of Cushing Connect Joint Venture investments. In addition to our capital budget, we may spend funds periodically to perform capital upgrades or additions to our assets where a customer reimburses us for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.
We expect that our currently planned sustaining and maintenance capital expenditures, as well as expenditures for acquisitions and capital development projects, will be funded with cash generated by operations.

Under the terms of the transaction to acquire HFC’s 75% interest in UNEV, we issued to HFC a Class B unit comprising a noncontrolling equity interest in a wholly-owned subsidiary subject to redemption to the extent that HFC is entitled to a 50%
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interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 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.

Credit Agreement
Our $1.4 billion Credit Agreement expires in July 2022. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit, and it contains an accordion feature giving us the ability to increase the size of the facility by up to $300 million with additional lender commitments.

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.

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 all covenants as of September 30, 2020.

Senior Notes
As of December 31, 2019, we had $500 million in aggregate principal amount of 6% Senior Notes due in 2024.

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% Senior Notes due in 2028. On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% 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 5% Senior Notes as of September 30, 2020. At any time when the 5% 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 5% Senior Notes.

Indebtedness under the 5% 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,
2020
December 31,
2019
 (In thousands)
Credit Agreement948,000 $965,500 
6% Senior Notes
Principal— 500,000 
Unamortized debt issuance costs— (3,469)
— 496,531 
5% Senior Notes
Principal500,000 
Unamortized debt issuance costs(8,126)
491,874 
Total long-term debt$1,439,874 $1,462,031 

Contractual Obligations
There were no significant changes to our long-term contractual obligations during the quarter ended September 30, 2020.

Impact of Inflation
Inflation in the United States has been relatively moderate in recent years and did not have a material impact on our results of operations for the nine months ended September 30, 2020 and 2019. PPI has increased an average of 0.6% annually over the past five calendar years, including increases of 0.8% and 3.1% in 2019 and 2018, respectively.

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. Certain of these contracts have provisions that limit the level of annual PPI percentage rate increases or decreases. 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.

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.

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

There are environmental remediation projects in progress that relate to certain assets acquired from HFC. Certain of these projects were underway prior to our purchase and represent liabilities retained by HFC. At September 30, 2020, we had an accrual of $5.7 million that related to environmental clean-up projects for which we have assumed liability or for which the indemnity provided for by HFC has expired or will expire. The remaining projects, including assessment and monitoring activities, are covered under the HFC environmental indemnification discussed above and represent liabilities of HFC.


CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. 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, 2019. 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 2020. We consider these policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows.

Accounting Pronouncements Adopted During the Periods Presented

Goodwill Impairment Testing
In January 2017, Accounting Standard Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment,” was issued amending the testing for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, goodwill impairment is measured as the excess of the carrying amount of the reporting unit over the related fair value. We adopted this standard effective in the second quarter of 2019, and the adoption of this standard had no effect on our financial condition, results of operations or cash flows.

Leases
In February 2016, ASU No. 2016-02, “Leases” (“ASC 842”) was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. We adopted this standard effective January 1, 2019, and we elected to adopt using the modified retrospective transition method, whereby comparative prior period financial information will not be restated and will continue to be reported under the lease accounting standard in effect during those periods. We also elected practical expedients provided by the new standard, including the package of practical expedients and the short-term lease recognition practical expedient, which allows an entity to not recognize on the balance sheet leases with a term of 12 months or less. Upon adoption of this standard, we recognized $78.4 million of lease liabilities and corresponding right-of-use assets on our consolidated balance sheet. Adoption of the standard did not have a material impact on our results of operations or cash flows. See Notes 3 and 4 of Notes to the Consolidated Financial Statements for additional information on our lease policies.

Credit Losses Measurement
In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This standard was effective January 1, 2020. Adoption of the standard did not have a material impact on our financial condition, results of operations or 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, 2020, we had an outstanding principal balance of $500 million on our 5% Senior Notes. A change in interest rates generally would affect the fair value of the 5% Senior Notes, but not our earnings or cash flows. At September 30, 2020, the fair value of our 5% Senior Notes was $490.2 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 5% Senior Notes at September 30, 2020 would result in a change of approximately $16 million in the fair value of the underlying 5% Senior Notes.

For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2020, borrowings outstanding under the Credit Agreement were $948.0 million. A hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.

Our operations are subject to normal hazards of operations, including but not limited to fire, explosion and weather-related perils. We maintain various insurance coverages, including property damage and business interruption 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, 2019.

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, 2020, at a reasonable level of assurance.

(b) Changes in internal control over financial reporting
During the three months ended September 30, 2020, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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 have been no material changes in our risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Part II, “Item 1A Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. In addition to the other information set forth in this quarterly report, you should consider carefully the information discussed in our 2019 Form 10-K and our first quarter 2020 Form 10-Q, which could materially affect our business, financial condition or future results. The risks described in our 2019 Form 10-K and our first quarter 2020 Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or future results.


Item 6.Exhibits

The Exhibit Index on page 54 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
3.2
3.3
3.4
3.5
3.6
10.1First Amendment to Fifth Amended and Restated Master Lease and Access Agreement dated as of August 4, 2020, effective as of January 23, 2020, by and among certain subsidiaries of Holly Energy Partners, L.P. and certain subsidiaries of HollyFrontier Corporation (incorporated by reference to Exhibit 1.5 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, File No. 1-03876).
10.2*+
10.3*+
10.4*+
10.5*+
10.6*+
31.1*
31.2*
32.1**
32.2**
101++The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statement of Partners’ Equity, and (vi) 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.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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

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HOLLY ENERGY PARTNERS, L.P.
SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the 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
Date: November 5, 2020/s/    John Harrison
John Harrison
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: November 5, 2020/s/    Kenneth P. Norwood
Kenneth P. Norwood
Vice President and Controller
(Principal Accounting Officer)
 

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Document

HOLLY ENERGY PARTNERS, L.P.
LONG-TERM INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT
This Performance Unit Agreement (the “Agreement”) is made and entered into by and between Holly Logistic Services, L.L.C., a Delaware limited liability company (the “Company”), and you. This Agreement is entered into as of the ___ day of _________, 2020 (the “Date of Grant”).
W I T N E S S E T H:
WHEREAS, the Company has adopted the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”) to attract, retain and motivate employees, executives, directors and consultants;
WHEREAS, the Company believes that a grant to you of performance units of Holly Energy Partners, L.P. (the “Partnership”) as part of your compensation for services provided to the Company and/or the Partnership is consistent with the stated purposes for which the Plan was adopted; and
WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Agreement (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein or on Appendix A attached hereto shall have the meanings set forth in the Plan.
NOW, THEREFORE, in consideration of the services rendered by you, it is agreed by and between the Company and you, as follows:
1.The Grant. The Company hereby grants to you as of the Date of Grant an Award of ______ performance units (the “Performance Units”), subject to the terms and conditions set forth in this Agreement. Depending on the performance of the Partnership, you may earn from 0% to 200% of the Performance Units, based on the terms set forth in Section 3.
2.Distribution Equivalent Rights. As long as you hold the Performance Units granted pursuant to this Agreement, you will be entitled to receive distribution equivalent rights (“DERs”) in accordance with this Section 2. In the event the Partnership makes a distribution in respect of outstanding Units and, on the record date for such distribution, you hold Performance Units that have not yet become earned and payable under this Agreement, the Company shall pay you an amount in cash equal to the distribution amounts you would have received if you were the holder of record, as of such record date, of a number of Units equal to the number of such Performance Units set forth in Section 1 that have not become earned and payable as of such record date, such payment to be made on or promptly following the date that the Partnership makes such distribution (however, in no event shall the DERs be paid later than 30 days following the date on which the Partnership makes such distribution to unitholders generally). Notwithstanding this Section 2, the Performance Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Units, including the right to vote, prior to the date Units are delivered to you in settlement of the Performance Units pursuant to Section 5.

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3.Terms of Award. The Performance Units represent an Award for the “Performance Period” which begins on October 1 of the calendar year of the Date of Grant (“Year One”) and ends on September 30 of the third calendar year following Year One (“Year Three”). If you are employed by the Partnership and the Company on December 1 of Year Three, you will be entitled to a payment of Units in the amount determined under this Section 3 and/or Section 4, as applicable, and payable at the time indicated in Section 4 and/or Section 5, as applicable. The period of time beginning on the Date of Grant and ending on December 1 of Year Three is referred to as the “Service Period.”
(a)    Performance Measure. The number of Performance Units earned for the Performance Period is determined by calculating the Partnership’s performance on the two measures listed below over the Performance Period. The two performance measures are EBITDA and Total Unitholder Return. Notwithstanding anything to the contrary in this Agreement, the Committee may make adjustments to the definitions of the performance measures or to the performance targets established with respect to the Award in its sole discretion as it determines to be appropriate or advisable to avoid rewarding or penalizing you for unexpected events that occur following the Date of Grant that were not taken into consideration in establishing the metrics and targets.
(b)    Units Payable. The number of Units payable is equal to the result of multiplying the total number of Performance Units set forth in Section 1 by the Performance Unit Payout Percentage. The number of Units payable will be rounded down to the nearest Unit. No fractional Units will be issued pursuant to this Agreement. In its sole discretion, the Committee may make a payment to you assuming a Performance Percentage of up to 200% of the Performance Units instead of the Performance Unit Payout Percentage as determined pursuant to this Section 3(b).
4.Early Termination. In the event you cease to provide services to the Partnership and the Company prior to December 1 of Year Three on account of an event described in this Section 4, the number of Performance Units with respect to which payment at the end of the Performance Period is based shall be determined as follows:
(a)    Termination Generally. Subject to subsections (b), (c) and (d) below, if your employment relationship with the Company and its subsidiaries is terminated for any reason (including if you voluntarily separate from employment (other than due to your Retirement) or are terminated by action of the Company (including termination for Cause but other than a Special Involuntary Termination)), then all Performance Units hereunder will be forfeited.
(b)    Termination Due to Death, Disability or Retirement. In the event that you cease to provide services to the Partnership and the Company prior to December 1 of Year Three due to your (i) death, (ii) total and permanent disability as determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) in its sole discretion, or (iii) Retirement, then you (or your beneficiary, if applicable) shall forfeit a number of the Performance Units equal to the number of Performance Units specified in Section 1 hereof times the percentage that (A) the number of days beginning on the day on which the date of Retirement occurs and ending on the last day of the Service Period, (B) bears to the total number of days in the Service Period. In the event
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of such forfeiture, the number of Units payable hereunder shall be equal to the result of multiplying the number of remaining Performance Share Units by the target Performance Unit Payout Percentage. In its sole discretion, the Committee may make a payment to you assuming a Performance Percentage of up to 200% of the Performance Units instead of the pro-rata number of Performance Units as determined pursuant to this Section 4(b). Payment with respect to the remaining Units shall be made as soon as administratively practicable following your Retirement, but in no event later than 90 days after the date your employment or service relationship terminates.
(c)    Special Involuntary Termination. In the event of a Special Involuntary Termination before December 1 of Year Three, the Performance Units will become immediately vested and nonforfeitable assuming a Performance Unit Payout Percentage of one hundred percent (100%) instead of the Performance Unit Payout Percentage that would otherwise be determined at the end of the Performance Period in accordance with Section 3. Payment shall be made as soon as administratively practicable following the Special Involuntary Termination, but in no event later than 90 days after the date your employment or service relationship terminates. Payment pursuant to this Section 4(c) is in lieu of payment pursuant to Section 4(b) and if you receive payment pursuant to this Section 4(c) you will not be entitled to any payment pursuant to Section 4(b).
(d)    Effect of Employment Agreement. Notwithstanding any provision herein to the contrary, in the event of any inconsistency between this Section 4 and any employment, change in control, or similar agreement entered into by and between you and the Company, the terms of the employment, change in control or similar agreement shall control.
(e)    Leave of Absence. With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company, provided that rights to the Restricted Units during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began.    
5.Payment of Performance Units.
(a)The number of Units payable hereunder shall be payable as soon as reasonably practicable following December 1 of Year Three (or such earlier time as specified under Section 4(b) or (c)), but in no event later than two and one-half months after the end of the calendar year in which the Performance Period closes (or such earlier time as specified under Section 4(b) or (c)), in the amount determined in accordance with Section 3, as adjusted by Section 4, if applicable. Such payment will be subject to withholding for taxes and other applicable payroll adjustments. The Committee’s determination of the amount payable shall be binding upon you and your beneficiary or estate. The number of Units payable will be rounded down to the nearest Unit. No fractional Units will be issued pursuant to this Agreement.
(b)    If you are a “specified employee” within the meaning of Treasury Regulation § 1.409A-1(i) as of the date of your “separation from service” (within the meaning of Treasury Regulation § 1.409A-1(h)), then you will not be entitled to receive
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Units in settlement of Performance Units until the earlier of (i) the date which is six (6) months after your “separation from service” for any reason other than death, or (ii) the date of your death. The provisions of this Section 5(b) shall only apply if and to the extent required to avoid the imputation of any tax, penalty, or interest pursuant to Section 409A of the Code.
6.Payment of Taxes. The Company may require you to pay to the Company (or an Affiliate of the Company if you are an employee of an Affiliate of the Company), an amount the Company deems necessary to satisfy its (or its Affiliate’s) current or future withholding with respect to federal, state or local income or other taxes that you incur as a result of the Award. With respect to any tax withholding (and to the extent permissible pursuant to Rule 16b-3 under the Exchange Act, if applicable), you may (a) direct the Company to withhold from the Units to be issued to you under this Agreement the number of Units necessary to satisfy the Company’s withholding of such taxes, which determination will be based on the Units’ Fair Market Value at the time such determination is made; (b) deliver to the Company Units sufficient to satisfy the Company’s tax withholding, based on the Units’ Fair Market Value at the time such determination is made; or (c) deliver cash to the Company sufficient to satisfy its tax withholding. If you desire to elect to use the Unit withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes and the maximum number of Units that may be so withheld or surrendered shall be a number of Units that have an aggregate Fair Market Value on the date of withholding or repurchase of up to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, foreign and/or local tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment with respect to the Award. The Committee, in its discretion, may deny your request to satisfy its tax withholding using a method described under subparagraph (a) or (b). In the event the Company determines that the aggregate Fair Market Value of the Units withheld as payment of any tax withholding is insufficient to discharge that tax withholding, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request. In the event that you fail to make arrangements that are acceptable to the Committee for providing to the Company, at the time or times required, the amounts of federal, state and local taxes required to be withheld with respect to the Performance Units granted to you under this Agreement, the Company shall have the right to purchase and/or to sell to one or more third parties in either market or private transactions sufficient Units otherwise paid or payable pursuant to this Award to provide the funds needed for the Company to make the required tax payment or payments.
7.Adjustment of Performance Units. The number of Performance Units granted to you pursuant to this Agreement shall be adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in the capital structure of the Partnership, all in accordance with the Plan. All provisions of this Agreement shall be applicable to such new or additional or different units or securities distributed or issued pursuant to the Plan to the same extent that such provisions are applicable to the units with respect to which they were distributed or issued. In the event that the outstanding Units of the Partnership are exchanged for a different number or kind of units or other securities, or if additional, new or different units are distributed with respect to the Units through merger, consolidation, or sale of all or substantially all of the assets of the Partnership, each remaining unit subject to this Agreement shall have substituted for it a like number and kind of units or shares of new or replacement securities as determined in the sole discretion of the Committee, subject to the terms and provisions of the Plan.
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8.Compliance with Securities and Other Applicable Laws. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Performance Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless (a) a registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or (b) in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.
9.Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Section 8 of this Agreement on all certificates representing Units issued with respect to this Award.
10.Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.
11.Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise to the extent allowed by applicable law.
12.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Performance Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 12 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.
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13.Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.
14.Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. All determinations with respect to the achievement of the applicable performance goals, including the calculation of and any adjustment to the applicable performance metrics, will be made by the Committee in its discretion which determination will be final and binding. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
15.No Right to Continued Employment. This Agreement shall not be construed to confer upon you any right to continue as an employee, officer or service provider of the Company and shall not limit the right of the Company, in its sole discretion, to terminate your service at any time.
16.Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, without giving any effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Units hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Units.
17.Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Performance Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.
18.Amendments. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.
19.No Liability for Good Faith Determinations. The General Partner, the Partnership, the Company, HFC and the members of the Committee, the Board and the HFC Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Performance Units granted hereunder.
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20.No Guarantee of Interests. None of the Board, the HFC Board, the General Partner, the Partnership, HFC nor the Company guarantee the Units from loss or depreciation.
21.Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by you during your life other than by will or pursuant to applicable laws of descent and distribution. Any of your rights and privileges in connection herewith shall not be transferred, assigned, pledged or hypothecated by you or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar process. In the event of any such occurrence, this Agreement shall automatically be terminated and shall thereafter be null and void. Notwithstanding the foregoing, all or some of the Units or rights under this Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court of competent jurisdiction.
22.Company Records. Records of the Company or its subsidiaries regarding your period of service, termination of service and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.
23.Notice. All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or, if earlier, the date it is sent via certified United States mail.
24.Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.
25.Certain Covenants.
(a)    Protection of Confidential Information. You acknowledge that in the course of your employment with the Company and the Partnership, you have obtained and will continue to obtain confidential, proprietary and/or trade secret information of the Company and the Partnership, relating to, among other things, (i) programs, strategies, information or materials related to the business, services, manner of operation and activities of the Company and the Partnership, (ii) customers or prospects of the Company and the Partnership, (iii) computer hardware or software used in the course of the Company and Partnership business, and (iv) marketing strategies or other activities of the Company and Partnership from or on behalf of any of its clients, (hereinafter collectively referred to as “Confidential Information”); provided, however, that, for purposes of this Agreement, the term Confidential Information shall not include any information that is known generally to the public or accessible to a third party on an unrestricted basis. You recognize that such Confidential Information has been developed by the Company and Partnership at great expense; is a valuable, special and unique asset of the Company and Partnership which it uses in its business to obtain competitive advantage over its competitors; is and shall be proprietary to the Company and Partnership; is and shall remain the exclusive property of the Company and Partnership; and, is not to be transmitted to any other person, entity or thing. Accordingly, as a
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material inducement to the Company to enter into this Agreement with you and in partial consideration for the granting of the Award, you hereby:
(i)    warrant and represent that you have not disclosed, copied, disseminated, shared or transmitted any Confidential Information to any person, firm, corporation or entity for any reason or purpose whatsoever, except in the course of carrying out your duties and responsibilities of employment with the Company and Partnership;
(ii)    agree not to so disclose, copy, disseminate, share or transmit any Confidential Information in the future;
(iii)    agree not to make use of any Confidential Information for your own purposes or for the benefit of any person, firm, corporation or other entity, except that, in the course of carrying out the duties and responsibilities of your employment, you may use Confidential Information for the benefit of any Affiliate of the Company or Partnership;
(iv)    warrant and represent that all Confidential Information in your possession, custody or control that is or was a property of the Company and Partnership has been or shall be returned to the Company or Partnership by or on the date of the your termination; and
(v)    agree that you will not reveal, or cause to be revealed, this Agreement or its terms to any third party (other than your attorney, tax advisor, or spouse on the condition that they also not reveal this Agreement or its terms to any other person), except as required by law.
Your covenants in this Section 25(a) are in addition to, and do not supersede, your obligations under any confidentiality, invention or trade secret agreements executed by you, or any laws protecting the Confidential Information.
(b)    Non-Solicitation. You agree that during the term of your employment with the Company, Partnership or their Affiliates and for a period of one year following your termination of employment with the Company, Partnership and their Affiliates, you will not, directly or indirectly, for your benefit or for the benefit of others, solicit any employee or service provider of the Company, Partnership or their Affiliates to terminate his or her employment or his, her or its service relationship with the Company, Partnership or their Affiliates; provided, however, that (y) after the termination of your employment for any reason, such employees and service providers shall only include such employees and service providers that you directly worked with in the twelve months preceding the date of termination of your employment, and (z) it will not constitute a violation of this Section 25(b) if an employee or service provider of the Company, Partnership or their Affiliates accepts employment or a service relationship with a Person not affiliated with the Company, Partnership or their Affiliates (i) pursuant to a general solicitation advertising the position, (ii) as a result of communications initiated by the employee or service provider of the Company, Partnership or their Affiliates (and not in response to any solicitation by you) or (iii) where the employment or service relationship
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with the Company, Partnership or their Affiliates with respect to such person was terminated more than six months prior to any action by you that would otherwise be a violation of this Section 25(b).
(c)    Extent of Restrictions. You acknowledge that the restrictions contained in this Section 25 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company and Partnership, and that any violation will cause substantial injury to the Company and Partnership. In the event of any such violation, the Company and Partnership shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. You waive, to the maximum extent permissible by law, any defenses or other objections to such remedies or the enforceability of this Section 25. To the maximum extent permissible by law, if any court having jurisdiction shall find that any part of the restrictions set forth this Section 25 are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that the restrictions set forth in this Section 25 shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.
(d)    Limitations. In the event any breach of the covenants set forth in this Section 25 comes to the attention of the Company or Partnership, this Award and the Performance Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However, nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 25 to the attorney of the individual and use such information in the court proceeding.
26.Clawback. This Agreement is subject to any written clawback policies that the Company, with the approval of the Board or the Committee, may adopt to the extent allowed by applicable law. Any such policy may subject your Award and amounts paid or realized with respect to the Award under this Agreement to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Company’s or Partnership’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy adopted by the Company or Partnership, including any policy to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company or the Partnership determines should apply to this Agreement.
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27.Compliance with Section 409A. This Agreement is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of Section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith. Termination from employment, separation from service and similar terms used in this Agreement shall mean a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h). Each payment under this Agreement is considered a separate payment for purposes of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, if you are a “specified employee” under Section 409A of the Code at the time of separation from service and if payment of any amount under this Agreement is required to be delayed for a period of six months after the separation from service pursuant to Section 409A of the Code, payment of such amount shall be delayed as required by Section 409A of the Code, and the accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of postponed amount, the accumulated postponed amount shall be paid to the personal representative of your estate within 60 days after the date of your death.
28.Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
29.Company Action. Any action required of the Company shall be by resolution of the Board or by a person or entity authorized to act by resolution of the Board.
30.Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
31.The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan.


HOLLY LOGISTIC SERVICES, L.L.C.


    
Michael C. Jennings
Chief Executive Officer
Appendix A
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Defined Terms
For purposes of the Agreement, the following terms shall have the meanings assigned below:

Adverse Change” means, without your express written consent, (i) a change in your principal office to a location more than 25 miles from your work address as of the Date of Grant, (ii) a material increase (without adequate consideration) or a material reduction in duties of the type previously performed by you, or (iii) a material reduction in your base compensation (other than bonuses and other discretionary items of compensation) that does not apply generally to employees of the Company or its successor. You must provide notice to the Company of the event alleged to constitute an Adverse Change within ninety (90) days of the occurrence of such event and the Company shall be given the opportunity to remedy the alleged Adverse Change and/or to contest your assertion that an Adverse Change event has occurred within thirty (30) days from receipt of such notice.

Affiliate” has the meaning provided in Rule 12b-2 under the Exchange Act.

Beneficial Owner” has the meaning provided in Rule 13d-3 under the Exchange Act.

Cause” means (i) an act or acts of dishonesty on your part constituting a felony or serious misdemeanor and resulting or intended to result directly in gain or personal enrichment at the expense of the Company; (ii) gross or willful and wanton negligence in the performance of the material and substantial duties of your employment with the Company or its subsidiaries; or (iii) conviction of a felony involving moral turpitude. The existence of Cause shall be determined by the Committee, in its sole and absolute discretion.
Change in Control” means, notwithstanding the definition of such term in the Plan:
(i)    Any Person, other than HFC or any of its wholly-owned subsidiaries, the General Partner, the Partnership, the Company, or any of their subsidiaries, a trustee or other fiduciary holding securities under an employee benefit plan of HFC, the Partnership, the Company or any of their Affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities, or any entity owned, directly or indirectly, by the holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in HFC, the Company, the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner, directly or indirectly, of securities of HFC, the Company, the General Partner or the Partnership (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the General Partner, the Partnership, the Company or their Affiliates) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (iii)(A) below.
(ii)    The individuals who as of the Date of Grant constitute the HFC Board and any New Director cease for any reason to constitute a majority of the HFC Board.
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(iii)    There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:
(A)    the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
(B)    the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly, or indirectly, of securities of HFC, the Company, the General Partner or the Partnership, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s, as applicable, then outstanding securities.
(iv)    The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by holders of the voting securities of HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct and indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.
EBITDA” is defined as the Partnership’s earnings before interest, taxes, depreciation and amortization of for each 12 month period during the Performance Period.
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EBITDA Performance Percentage” means the percentage set forth in the table below determined in accordance with the Partnership’s actual aggregate EBITDA achievement during the Performance Period compared with aggregate Target EBITDA during the Performance Period:

EBITDA Achievement Relative to Target EBITDA

EBITDA Performance Percentage
Target EBITDA plus 2.5%Maximum (200% of Target)
< Target EBITDA plus 2.5% but better than Target EBITDAInterpolate between 100% and 200%
Target EBITDATarget (100%)
<Target EBITDA but better than Target EBITDA minus 5%Interpolate between 50% and 100%
Target EBITDA minus 5%50% of Target (Minimum)
< Target EBITDA minus 5%Zero

Notwithstanding the table above, the Committee retains the ability to adjust the EBITDA Performance Percentage in its discretion regardless of the Partnership’s actual EBITDA or the Target EBITDA established with respect to any, or each, Oct. 1-Sept. 30 period within the Performance Period.

General Partner” means HEP Logistics Holdings, L.P.

HFC” means HollyFrontier Corporation.

HFC Board” means Board of Directors of HFC.

New Director” means an individual whose election by the HFC Board, or nomination for election by the holders of the voting securities of HFC, was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the Date of Grant or whose election or nomination for election was previously so approved or recommended. However, “New Director” shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of HFC.

Peer Group” means Archrock Partners, L.P., Crestwood Equity Partners LP, Delek Logistics Partners, LP, Enable Midstream Partners, LP., Enlink Midstream Partners, LP, MPLX LP, PBF Logistics LP, Philips 66 Partners LP, Shell Midstream Partners, L.P., Summit Midstream Partners, LP. and TC Pipelines, LP. If a member of the Peer Group ceases to be a public company during the Performance Period (whether by merger, consolidation, liquidation or otherwise) or it fails to file financial statements with the SEC in a timely manner, it shall be treated as if it had not been a Peer Group member for the entire Performance Period.

Performance Unit Payout Percentage” means the percentile obtained by dividing the sum of (i) the EBITDA Performance Percentage and (ii) the TUR Performance Percentage, by two.
Person” has the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) of the Exchange Act.
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Retirement” means your termination of employment other than for Cause on or after the date on which you: (i) have achieved ten years of continuous service with the Company, and (ii) are age sixty (60).

Special Involuntary Termination” means the occurrence of (i) or (ii) within 60 days prior to, or at any time after, a Change in Control, where (i) is termination by the Company of your (a) employment with the Company (including subsidiaries of the Company) or (b) provision of executive services to the Partnership and the Company, for any reason other than Cause and (ii) is a resignation by you from employment or service with the Company (including subsidiaries of the Company) within 90 days after an Adverse Change in the terms of your employment.
Target EBITDA” means the sum of the EBITDA targets established by the Committee for each Oct. 1-Sept. 30 period during the Performance Period. The target EBITDA will be communicated to you within the fourth quarter of each calendar year within the Performance Period.
Total Unitholder Return” or TUR, means (i) the sum of (A) unit price appreciation (calculated as the closing price of the Units for the last business day of the Performance Period less the closing price of the Units for the first business day of the Performance Period), plus (B) cumulative distributions during the Performance Period, plus (C) any additional value or compensation received by unitholders such as units received from spinoffs, divided by (ii) the closing price of the Units on the first business day of the Performance Period, adjusted to take into account any unit splits, changes in capitalization or other similar events. Such determinations and adjustments shall be made by the Committee in its discretion.
TUR Performance Percentage” means the percentage set forth in the table below determined in accordance with the percentile ranking of the Total Unitholder Return of the Partnership compared to the TUR of each entity in the Peer Group achieved during the Performance Period:

Ranking of the Partnership within Peer Group

TUR Performance Percentage
90th percentile or better
Maximum (200% of Target)
<90th percentile but better than 50th percentile
Interpolate between 100% and 200%
50th percentile
Target (100%)
<50th percentile but better than 25th percentile
Interpolate between 25% and 100%
25th percentile
25% of Target (Minimum)
<25th percentile
Zero





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Document

HOLLY ENERGY PARTNERS, L.P.
LONG-TERM INCENTIVE PLAN

PHANTOM UNIT AGREEMENT
(Employee)

This Agreement is made and entered into as of the Date of Grant set forth in the Notice of Grant of Phantom Units (“Notice of Grant”) by and between Holly Logistic Services, L.L.C. (the “Company”), and you.
WHEREAS, the Company, as part of your compensation for services to the Company and Holly Energy Partners, L.P. (the “Partnership”) and in order to induce you to materially contribute to the success of the Company and the Partnership, agrees to grant you this phantom unit award;
WHEREAS, the Company adopted the Holly Energy Partners, L.P. Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”) under which the Company is authorized to grant phantom unit awards to certain employees and service providers of the Company;
WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Phantom Unit Agreement (Employee) (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein shall have the meanings set forth in the Plan; and
WHEREAS, you desire to accept the phantom unit award made pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties hereto agree as follows:
1.The Grant. Subject to the conditions set forth below, the Company hereby grants you effective as of the Date of Grant set forth in the Notice of Grant, as a matter of separate inducement but not in lieu of any cash or other compensation for your services for the Company or the Partnership an award (the “Award”) consisting of Phantom Units (“Phantom Units”) covering the aggregate number of Units set forth in the Notice of Grant in accordance with the terms and conditions set forth herein and in the Plan, plus the additional rights to receive possible distribution equivalents, in accordance with the terms and conditions set forth herein. The period of time beginning on the Date of Grant and ending on December 1, 2023 is referred to herein as the “Service Period.”
2.No Unitholder Rights. The Phantom Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Units prior to the date Units, if any, are issued to you in settlement of the Award.
3.Distribution Equivalents. In the event that the Company declares and pays a distribution in respect of its outstanding Units on or after the Date of Grant and, on the record
1

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date for such distribution, you hold Phantom Units granted pursuant to this Agreement that have not been settled, the Company shall pay to you an amount in cash equal to the cash distributions you would have received if you were the holder of record as of such record date, of the number of Units related to the portion of your Phantom Units that have not been settled as of such record date, such payment (“Distribution Equivalents”) to be made on or promptly following the date that the Company pays such distribution (however, in no event shall the Distribution Equivalents be paid later than 30 days following the date on which the Company pays such distribution to its unitholders generally).
4.Restrictions; Forfeiture. The Phantom Units are restricted in that they cannot be sold, transferred or otherwise alienated or hypothecated until Units related to such Phantom Units are issued pursuant to Section 7 following the removal or expiration of the restrictions as contemplated in Section 5 (and Section 6, if applicable) of this Agreement and as described in the Notice of Grant. In the event you cease to be an employee of the Company and any of its subsidiaries, other than as provided in Section 6 below, the Phantom Units that are not vested on the date of such cessation of employment shall be immediately forfeited.
5.Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Phantom Units granted pursuant to this Agreement will expire and the Phantom Units will become nonforfeitable as set forth in the Notice of Grant, provided that you remain an employee of the Company and its subsidiaries until the applicable dates and times set forth therein. Phantom Units that have become vested and non-forfeitable as provided in this Agreement are referred to herein as “Vested.”
6.Termination of Employment.
(a)Termination Generally. Subject to subsections (b), (c), and (d) below, if your employment relationship with the Company and its subsidiaries is terminated for any reason (including if you voluntarily separate from employment (other than due to your Retirement) or are terminated by action of the Company (including termination for Cause but other than a Special Involuntary Termination)), then those Phantom Units that have not become Vested as of the date of termination shall become null and void and those Phantom Units shall be forfeited to the Company. The Phantom Units that are Vested as of the date of such termination shall not be forfeited to the Company and will be settled in accordance with Section 7.
(b)Death, Disability or Retirement. In the event of termination of your employment due to your (i) death, (ii) total and permanent disability, as determined by the Committee in its sole discretion, or (iii) Retirement, in either case, before all of the Phantom Units granted pursuant to this Agreement have become Vested, you will forfeit a number of Phantom Units equal to the number of Phantom Units specified in the Notice of Grant times the percentage that (A) the number of days beginning on the day on which the termination due to death, disability or Retirement occurs and ending on the last day of the Service Period, (B) bears to the total number of days in the Service Period, and any remaining Phantom Units that are not vested will become Vested; provided, however, that any fractional Phantom Units will become null and void and automatically forfeited. In its sole discretion, the Committee may decide to


US 7428678v.3


vest all of the Phantom Units in lieu of the prorated number of Phantom Units as provided in this Section 6(b).

(c)Special Involuntary Termination. In the event of a Special Involuntary Termination, all of the Phantom Units granted pursuant to this Agreement will become Vested.
(d)Effect of Employment Agreement. Notwithstanding any provision herein to the contrary, in the event of any inconsistency between this Section 6 and any employment, change in control, or similar agreement entered into by and between you and the Company (or any of its subsidiaries), the terms of the employment, change in control or similar agreement shall control, subject to compliance with Section 409A of the Code.
(e)Leave of Absence. With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company or any of its subsidiaries, provided that rights to the Phantom Units during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began
7.Issuance of Units. Units shall be issued to you in settlement of your Vested Phantom Units within 30 days following the date upon which such Phantom Units become Vested in accordance with the Agreement (or such longer period of days, not more than 65, specified in a release described in Section 14). At the time of settlement, the Company shall cause to be issued Units registered in your name in payment of the Award. The Company shall evidence the Units to be issued in payment of the Phantom Units in the manner it deems appropriate. The value of any fractional Phantom Unit shall be rounded down at the time Units, if any, are issued to you. No fractional Units, nor the cash value of any fractional Units, will be issuable or payable to you pursuant to this Agreement. The value of Units shall not bear any interest owing to the passage of time. Neither this Section 7 nor any action taken pursuant to or in accordance with this Section 7 shall be construed to create a trust or a funded or secured obligation of any kind.
8.Payment of Taxes. The Company may require you to pay to the Company (or an Affiliate of the Company if you are an employee of an Affiliate of the Company), an amount the Company deems necessary to satisfy its (or its Affiliate’s) current or future withholding with respect to federal, state or local income or other taxes that you incur as a result of the Award. With respect to any tax withholding (and to the extent permissible pursuant to Rule 16b-3 under the Exchange Act, if applicable), you may (a) direct the Company to withhold from the Units to be issued to you under this Agreement the number of Units necessary to satisfy the Company’s withholding of such taxes, which determination will be based on the Units’ Fair Market Value at the time such determination is made; (b) deliver to the Company Units sufficient to satisfy the Company’s tax withholding, based on the Units’ Fair Market Value at the time such determination is made; or (c) deliver cash to the Company sufficient to satisfy its tax withholding. If you desire to elect to use the Unit withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes and the


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maximum number of Units that may be so withheld or surrendered shall be a number of Units that have an aggregate Fair Market Value on the date of withholding or repurchase of up to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, foreign and/or local tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment with respect to the Award. The Committee, in its discretion, may deny your request to satisfy its tax withholding using a method described under subparagraph (a) or (b). In the event the Company determines that the aggregate Fair Market Value of the Units withheld as payment of any tax withholding is insufficient to discharge that tax withholding, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request. In the event that you fail to make arrangements that are acceptable to the Committee for providing to the Company, at the time or times required, the amounts of federal, state and local taxes required to be withheld with respect to the Phantom Units granted to you under this Agreement, the Company shall have the right to purchase and/or to sell to one or more third parties in either market or private transactions sufficient Units otherwise paid or payable pursuant to this Award to provide the funds needed for the Company to make the required tax payment or payments.
9.Adjustment of Phantom Units. The number of Phantom Units granted to you pursuant to this Agreement shall be adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in the capital structure of the Partnership, all in accordance with the Plan. All provisions of this Agreement shall be applicable to such new or additional or different units or securities distributed or issued pursuant to the Plan to the same extent that such provisions are applicable to the units with respect to which they were distributed or issued. In the event that the outstanding Units of the Partnership are exchanged for a different number or kind of units or other securities, or if additional, new or different units are distributed with respect to the Units through merger, consolidation, or sale of all or substantially all of the assets of the Partnership, each remaining unit subject to this Agreement shall have substituted for it a like number and kind of units or shares of new or replacement securities as determined in the sole discretion of the Committee, subject to the terms and provisions of the Plan.
10.Compliance with Securities and Other Applicable Laws. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Phantom Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless (a) a registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or (b) in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not


US 7428678v.3


been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.
11.Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Sections 4 and 10 of this Agreement on all certificates representing Units issued with respect to this Award.
12.Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.
13.Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise to the extent allowed by applicable law.
14.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Phantom Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 14 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.
15.Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.
16.Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.


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17.No Right to Continued Employment. This Agreement shall not be construed to confer upon you any right to continue as an employee, officer or service provider of the Company and shall not limit the right of the Company, in its sole discretion, to terminate your service at any time.
18.Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, without giving any effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Units hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Units.
19.Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Phantom Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.
20.Amendments. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.
21.No Liability for Good Faith Determinations. The General Partner, the Partnership, the Company, HFC and the members of the Committee, the Board and the HFC Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Phantom Units granted hereunder.
22.No Guarantee of Interests. None of the Board, the HFC Board, the General Partner, the Partnership, HFC nor the Company guarantee the Units from loss or depreciation.
23.Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by you during your life other than by will or pursuant to applicable laws of descent and distribution. Any of your rights and privileges in connection herewith shall not be transferred, assigned, pledged or hypothecated by you or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar process. In the event of any such occurrence, this Agreement shall automatically be terminated and shall thereafter be null and void. Notwithstanding the foregoing, all or some of the Units or rights under this Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court of competent jurisdiction.


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24.Company Records. Records of the Company or its subsidiaries regarding your period of service, termination of service and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.
25.Notice. All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or, if earlier, the date it is sent via certified United States mail.
26.Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.
27.Certain Covenants.
(a)Protection of Confidential Information. You acknowledge that in the course of your employment with the Company and the Partnership, you have obtained and will continue to obtain confidential, proprietary and/or trade secret information of the Company and the Partnership, relating to, among other things, (i) programs, strategies, information or materials related to the business, services, manner of operation and activities of the Company and the Partnership, (ii) customers or prospects of the Company and the Partnership, (iii) computer hardware or software used in the course of the Company and Partnership business, and (iv) marketing strategies or other activities of the Company and Partnership from or on behalf of any of its clients, (hereinafter collectively referred to as “Confidential Information”); provided, however, that, for purposes of this Agreement, the term Confidential Information shall not include any information that is known generally to the public or accessible to a third party on an unrestricted basis. You recognize that such Confidential Information has been developed by the Company and Partnership at great expense; is a valuable, special and unique asset of the Company and Partnership which it uses in its business to obtain competitive advantage over its competitors; is and shall be proprietary to the Company and Partnership; is and shall remain the exclusive property of the Company and Partnership; and, is not to be transmitted to any other person, entity or thing. Accordingly, as a material inducement to the Company to enter into this Agreement with you and in partial consideration for the granting of the Award, you hereby:
(i)warrant and represent that you have not disclosed, copied, disseminated, shared or transmitted any Confidential Information to any person, firm, corporation or entity for any reason or purpose whatsoever, except in the course of carrying out your duties and responsibilities of employment with the Company and Partnership;
(ii)agree not to so disclose, copy, disseminate, share or transmit any Confidential Information in the future;
(iii)agree not to make use of any Confidential Information for your own purposes or for the benefit of any person, firm, corporation or other entity, except that, in the course of carrying out the duties and responsibilities of your employment, you may


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use Confidential Information for the benefit of any Affiliate of the Company or Partnership;
(iv)warrant and represent that all Confidential Information in your possession, custody or control that is or was a property of the Company and Partnership has been or shall be returned to the Company or Partnership by or on the date of the your termination; and
(v)agree that you will not reveal, or cause to be revealed, this Agreement or its terms to any third party (other than your attorney, tax advisor, or spouse on the condition that they also not reveal this Agreement or its terms to any other person), except as required by law.
Your covenants in this Section 27(a) are in addition to, and do not supersede, your obligations under any confidentiality, invention or trade secret agreements executed by you, or any laws protecting the Confidential Information.

(b)Non-Solicitation. You agree that during the term of your employment with the Company, Partnership or their Affiliates and for a period of one year following your termination of employment with the Company, Partnership and their Affiliates, you will not, directly or indirectly, for your benefit or for the benefit of others, solicit any employee or service provider of the Company, Partnership or their Affiliates to terminate his or her employment or his, her or its service relationship with the Company, Partnership or their Affiliates; provided, however, that (y) after the termination of your employment for any reason, such employees and service providers shall only include such employees and service providers that you directly worked with in the twelve months preceding the date of termination of your employment, and (z) it will not constitute a violation of this Section 27(b) if an employee or service provider of the Company, Partnership or their Affiliates accepts employment or a service relationship with a Person not affiliated with the Company, Partnership or their Affiliates (i) pursuant to a general solicitation advertising the position, (ii) as a result of communications initiated by the employee or service provider of the Company, Partnership or their Affiliates (and not in response to any solicitation by you) or (iii) where the employment or service relationship with the Company, Partnership or their Affiliates with respect to such person was terminated more than six months prior to any action by you that would otherwise be a violation of this Section 27(b).
(c)Extent of Restrictions. You acknowledge that the restrictions contained in this Section 27 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company and Partnership, and that any violation will cause substantial injury to the Company and Partnership. In the event of any such violation, the Company and Partnership shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. You waive, to the maximum extent permissible by law, any defenses or other objections to such remedies or the enforceability of this Section 27. To the maximum extent permissible by law, if any court having jurisdiction shall find that any part of the restrictions set forth this Section 27 are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated,


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but that the restrictions set forth in this Section 27 shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.
(d)Limitations. In the event any breach of the covenants set forth in this Section 27 comes to the attention of the Company or Partnership, this Award and the Phantom Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However, nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 27 to the attorney of the individual and use such information in the court proceeding.
28.Clawback. This Agreement is subject to any written clawback policies that the Company, with the approval of the Board or the Committee, may adopt to the extent allowed by applicable law. Any such policy may subject your Award and amounts paid or realized with respect to the Award under this Agreement to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Company’s or Partnership’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy adopted by the Company or Partnership, including any policy to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company or the Partnership determines should apply to this Agreement.
29.Compliance with Section 409A. This Agreement is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of Section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith. Termination from employment, separation from service and similar terms used in this Agreement shall mean a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h). Each payment under this Agreement is considered a separate payment for purposes of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, if you are a “specified employee” under Section 409A of the Code at the time of separation from service and if payment of any amount under this Agreement is required to be delayed for a period of six months after the


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separation from service pursuant to Section 409A of the Code, payment of such amount shall be delayed as required by Section 409A of the Code, and the accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of postponed amount, the accumulated postponed amount shall be paid to the personal representative of your estate within 60 days after the date of your death.
30.Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
31.Company Action. Any action required of the Company shall be by resolution of the Board or by a person or entity authorized to act by resolution of the Board.
32.Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
33.The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan.
34.Defined Terms.
(a)Adverse Change” means, without your express written consent, (i) a change in your principal office to a location more than 25 miles from your work address as of the Date of Grant, (ii) a material increase (without adequate consideration) or a material reduction in duties of the type previously performed by you, or (iii) a material reduction in your base compensation (other than bonuses and other discretionary items of compensation) that does not apply generally to employees of the Company or its successor. You must provide notice to the Company of the event alleged to constitute an Adverse Change within ninety (90) days of the occurrence of such event and the Company shall be given the opportunity to remedy the alleged Adverse Change and/or to contest your assertion that an Adverse Change event has occurred within thirty (30) days from receipt of such notice.
(b)Affiliate” has the meaning provided in Rule 12b-2 under the Exchange Act.
(c)Beneficial Owner” has the meaning provided in Rule 13d-3 under the Exchange Act.
(d)Cause” means (i) an act or acts of dishonesty on your part constituting a felony or serious misdemeanor and resulting or intended to result directly in gain or personal enrichment at the expense of the Company; (ii) gross or willful and wanton negligence in the performance of the material and substantial duties of your employment with the Company or its subsidiaries; or (iii) conviction of a felony involving moral turpitude. The existence of Cause shall be determined by the Committee, in its sole and absolute discretion.


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(e)Change in Control” means, notwithstanding the definition of such term in the Plan:
a.Any Person, other than HFC or any of its wholly-owned subsidiaries, the General Partner, the Partnership, the Company, or any of their subsidiaries, a trustee or other fiduciary holding securities under an employee benefit plan of HFC, the Partnership, the Company or any of their Affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities, or any entity owned, directly or indirectly, by the holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in HFC, the Company, the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner, directly or indirectly, of securities of HFC, the Company, the General Partner or the Partnership (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the General Partner, the Partnership, the Company or their Affiliates) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (iii)(1) below.
b.The individuals who as of the Date of Grant constitute the HFC Board and any New Director cease for any reason to constitute a majority of the HFC Board.
c.There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:
i.the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
ii.the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly, or indirectly, of securities of HFC, the Company, the General Partner or the Partnership, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s, as applicable, then outstanding securities.


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d.The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by holders of the voting securities of HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct and indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.
1.General Partner” means HEP Logistics Holdings, L.P.
2.HFC” means HollyFrontier Corporation.
3.HFC Board” means the board of directors of HFC.
i.“New Director” means an individual whose election by the HFC Board, or nomination for election by the holders of the voting securities of HFC, was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the Date of Grant or whose election or nomination for election was previously so approved or recommended. However, “New Director” shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of HFC.
ii.“Person” has the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) of the Exchange Act.
iii.“Retirement” means your termination of employment other than for Cause on or after the date on which you: (i) have achieved ten years of continuous service with the Company, and (ii) are age sixty (60).
iv.“Service Period means the period of time beginning on the Date of Grant specified in the Notice of Grant and ending on the final vesting date specified in the Notice of Grant.
v.“Special Involuntary Termination” means the occurrence of (i) or (ii) within 60 days prior to, or at any time after, a Change in Control, where (i) is termination by the Company of your (a) employment with the Company (including subsidiaries of the Company) or (b) provision of executive services to the Partnership and the Company, for any reason other than Cause and (ii) is a resignation by you from employment or service with the Company (including subsidiaries of the Company) within 90 days after an Adverse Change in the terms of your employment.


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Document

HOLLY ENERGY PARTNERS, L.P.
LONG-TERM INCENTIVE PLAN
NOTICE OF GRANT OF PHANTOM UNITS
(Employee)
Pursuant to the terms and conditions of the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”), and the associated Phantom Unit Agreement (Employee) which has been made separately available to you (your “Agreement”), you are hereby issued Phantom Units, whereby each Phantom Unit represents the right to receive one Unit, plus rights to certain distribution equivalents described in Section 3 of the Agreement, subject to certain restrictions thereon and under the conditions set forth in this Notice of Grant of Phantom Units (the “Notice”), in the Agreement, and in the Plan (the “Phantom Units”). Capitalized terms used but not defined herein shall have the meanings set forth in the Plan or your Agreement. You may obtain a copy of the Plan and a copy of the prospectus related to the Units by following the instructions attached as Appendix A. Additionally, you may request a copy of the Plan or the prospectus by contacting Cara Whitesel at Cara.Whitesel@hollyfrontier.com or 214.954.6530.
Grantee:        ____________
Date of Grant:        _____________ __, 2020 (the “Date of Grant”)
Number of Units:    ____________
Vesting Schedule:
The restrictions on all of the Phantom Units granted pursuant to the Agreement will expire and the Phantom Units will vest according to the following schedule (or on the first business day thereafter if the date below falls on a weekend) (each such date, a “Regular Vesting Date”); provided, that (except as otherwise provided in Section 6 of your Agreement) you remain in the employ of the Company or its subsidiaries continuously from the Date of Grant through such Regular Vesting Dates (as determined under the Agreement).

On Each of the Following Regular Vesting DatesCumulative Portion of Phantom Units that will become Vested
December 1, 2021One-third
December 1, 2022One-third
December 1, 2023One-third

Except as otherwise provided in Section 6 of your Agreement, all Phantom Units that have not become vested and non-forfeitable pursuant to this Notice will be null and void and forfeited to the Company in the event of your termination by the Company or its subsidiaries for any reason.
The Units you receive upon settlement will be taxable to you in an amount equal to the closing price of the Units on the date of settlement. By receipt or acceptance of the Phantom Units you acknowledge and agree (a) that you are not relying on any written or oral statement or representation by the Company, its affiliates, Holly Energy Partners, L.P., or any of their respective employees, directors, officers, attorneys or agents (collectively, the “Company Parties”) regarding the tax effects associated with this Notice of Grant of Phantom Units and the Agreement and your receipt, holding and vesting of the Phantom Units, (b) that in accepting the Phantom Units you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted, (c) to comply with the terms and conditions of the
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Award and the Plan, including, but not limited to the covenants set forth in Section 27 of the Agreement and (d) that a copy of the Agreement and the Plan has been made available to you. In addition, you consent to receive documents from the Company and any plan administrator by means of electronic delivery, provided that such delivery complies with applicable law, including, without limitation, documents pursuant or relating to any equity award granted to you under the Plan or any other current or future equity or other benefit plan of the Company (the “Company’s Equity Plans”). This consent shall be effective for the entire time that you are a participant in a Company Equity Plan. By receiving or accepting the Phantom Units you hereby release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with this Notice of Grant of Phantom Units and the Agreement and your receipt, holding and the vesting of the Phantom Units.
Holly Logistic Services, L.L.C.



    
Michael C. Jennings, Chief Executive Officer

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Appendix A

    A-1
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Document

HOLLY ENERGY PARTNERS, L.P.
LONG-TERM INCENTIVE PLAN
PHANTOM UNIT AGREEMENT
(Non-Employee Director Award)
This Agreement is made and entered into as of the Date of Grant set forth in the Notice of Grant of Phantom Units (“Notice of Grant”) by and between Holly Logistic Services, L.L.C. (the “Company”), and you.
WHEREAS, the Company in order to induce you to enter into and to continue and dedicate service to the Company and Holly Energy Partners, L.P. (the “Partnership”) and to materially contribute to the success of the Company and the Partnership, agrees to grant you this phantom unit award;
WHEREAS, the Company adopted the Holly Energy Partners, L.P. Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”) under which the Company is authorized to grant phantom unit awards to certain employees and service providers of the Company;
WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Phantom Unit Agreement (Non-Employee Director Award) (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein shall have the meanings set forth in the Plan; and
WHEREAS, you desire to accept the phantom unit award made pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties agree as follows:
1.The Grant. Subject to the conditions set forth below, the Company hereby grants you effective as of the Date of Grant set forth in the Notice of Grant, as a matter of separate inducement but not in lieu of any cash or other compensation for your services for the Company, an award (the “Award”) consisting of Phantom Units (“Phantom Units”) covering the aggregate number of Units set forth in the Notice of Grant in accordance with the terms and conditions set forth herein and in the Plan, plus the additional rights to receive possible distribution equivalents, in accordance with the terms and conditions set forth herein.
2.No Unitholder Rights. The Phantom Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Units prior to the date Units, if any, are issued to you in settlement of the Award.
3.Distribution Equivalents. In the event that the Company declares and pays a distribution in respect of its outstanding Units on or after the Date of Grant and, on the record date for such distribution, you hold Phantom Units granted pursuant to this Agreement that have
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not been settled, the Company shall pay to you an amount in cash equal to the cash distributions you would have received if you were the holder of record as of such record date, of the number of Units related to the portion of your Phantom Units that have not been settled as of such record date, such payment (“Distribution Equivalents”) to be made on or promptly following the date that the Company pays such distribution (however, in no event shall the Distribution Equivalents be paid later than 30 days following the date on which the Company pays such distribution to its unitholders generally).
4.Restrictions; Forfeiture. The Phantom Units are restricted in that they cannot be sold, transferred or otherwise alienated or hypothecated until Units related to such Phantom Units are issued pursuant to Section 7 following the removal and expiration of the restrictions as contemplated in Section 5 of this Agreement and as described in the Notice of Grant. In the event you cease to be a member of the Board, other than as provided in Section 6 below, the Phantom Units that are not vested on the date of such cessation of service shall be immediately forfeited.
5.Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Phantom Units granted pursuant to this Agreement will expire and the Phantom Units will become nonforfeitable as set forth in the Notice of Grant, provided that you remain a member of the Board until the applicable dates and times set forth therein. Phantom Units that have become vested and non-forfeitable as provided in this Agreement are referred to herein as “Vested.”
6.Termination of Services.
(a)Termination Generally. Subject to subsections (b) and (c) below, if you cease to be a member of the Board for any reason, then those Phantom Units that have not become Vested as of the date services cease shall become null and void and those Phantom Units shall be forfeited to the Company. The Phantom Units that are Vested as of date such services cease shall not be forfeited to the Company and will be settled in accordance with Section 7.
(b)Termination Due to Death, Disability or Retirement. In the event of your (i) death, (ii) total and permanent disability, as determined by the Committee in its sole discretion, or (iii) retirement, as determined by the Committee in its sole discretion, before all of the Phantom Units granted pursuant to this Agreement have become Vested, you will forfeit a number of Phantom Units equal to the number of Phantom Units specified in the Notice of Grant times the percentage that the period of full months beginning on the first day of the calendar month following the date of death, disability or retirement, as applicable, and ending on December 1, 2021 bears to twelve (12) and any remaining Phantom Units that are not vested will become Vested; provided, however, that any fractional Phantom Units will become null and void and automatically forfeited. In its sole discretion, the Committee may decide to vest all of the Phantom Units in lieu of the prorated number of Phantom Units as provided in this Section 6(b).
(c)Change in Control. In the event of a Change in Control before lapse of all restrictions pursuant to Section 5 above, all restrictions described in Section 4 shall lapse and the Phantom Units will become Vested, and the Company shall deliver the Vested Phantom Units to the Director as soon as practicable thereafter.
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7.Issuance of Units. Units shall be issued to you in settlement of your Vested Phantom Units within 30 days following the date upon which such Phantom Units become Vested in accordance with the Agreement (or such longer period of days, not more than 65, specified in a release described in Section 13). At the time of settlement, the Company shall cause to be issued Units registered in your name in payment of the Award. The Company shall evidence the Units to be issued in payment of the Phantom Units in the manner it deems appropriate. The value of any fractional Phantom Unit shall be rounded down at the time Units, if any, are issued to you. No fractional Units, nor the cash value of any fractional Units, will be issuable or payable to you pursuant to this Agreement. The value of Units shall not bear any interest owing to the passage of time. Neither this Section 7 nor any action taken pursuant to or in accordance with this Section 7 shall be construed to create a trust or a funded or secured obligation of any kind.
8.Adjustment of Phantom Units. The number of Phantom Units granted to you pursuant to this Agreement shall be adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in the capital structure of the Partnership, all in accordance with the Plan. All provisions of this Agreement shall be applicable to such new or additional or different units or securities distributed or issued pursuant to the Plan to the same extent that such provisions are applicable to the units with respect to which they were distributed or issued. In the event that the outstanding Units of the Partnership are exchanged for a different number or kind of units or other securities, or if additional, new or different units are distributed with respect to the Units through merger, consolidation, or sale of all or substantially all of the assets of the Partnership, each remaining unit subject to this Agreement shall have substituted for it a like number and kind of units or shares of new or replacement securities as determined in the sole discretion of the Committee, subject to the terms and provisions of the Plan.
9.Compliance with Securities and Other Applicable Laws. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Phantom Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless  a registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate
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officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.
10.Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Sections 4 or 9 of this Agreement on all certificates representing Units issued with respect to this Award.
11.Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.
12.Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise to the extent allowed by applicable law.
13.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Phantom Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 13 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.
14.Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.
15.Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.
16.No Right to Continued Services. This Agreement shall not be construed to confer upon you any right to continue as a member of the Board.
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17.Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, without giving any effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Units hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Units.
18.Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Phantom Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.
19.Amendment. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.
20.No Liability for Good Faith Determinations. The General Partner, the Partnership, the Company, HFC and the members of the Committee, the Board and the HFC Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Phantom Units granted hereunder.
21.No Guarantee of Interests. None of the Board, the HFC Board, the General Partner, the Partnership, HFC nor the Company guarantee the Units from loss or depreciation.
22.Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by you during your life other than by will or pursuant to applicable laws of descent and distribution. Any of your rights and privileges in connection herewith shall not be transferred, assigned, pledged or hypothecated by you or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar process. In the event of any such occurrence, this Agreement shall automatically be terminated and shall thereafter be null and void. Notwithstanding the foregoing, all or some of the Units or rights under this Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court of competent jurisdiction.
23.Company Records. Records of the Company or its subsidiaries regarding your period of service, termination of service and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.
    5


24.Notice. All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or, if earlier, the date it is sent via certified United States mail.
25.Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.
26.Information Confidential. As partial consideration for the granting of the Award hereunder, you hereby agree to keep confidential all information and knowledge, except that which has been disclosed in any public filings required by law, that you have relating to the terms and conditions of this Agreement; provided, however, that such information may be disclosed as required by law and may be given in confidence to your spouse and tax and financial advisors. In the event any breach of this promise comes to the attention of the Company, it shall take into consideration that breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. Nothing in this Agreement will prevent you from: (a) making a good faith report of possible violations of applicable law to any governmental agency or entity or (b) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 26 to the attorney of the individual and use such information in the court proceeding.
27.Section 409A. This Agreement is not intended to constitute a deferral of compensation within the meaning of Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will be exempt from or, notwithstanding the preceding sentence, comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of Section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith.
28.Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.
29.Company Action. Any action required of the Company shall be by resolution of the Board or by a person or entity authorized to act by resolution of the Board.
30.Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.
    6


31.The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan.
32.Defined Terms.
(a)Affiliate” has the meaning provided in Rule 12b-2 under the Exchange Act.
(b)Beneficial Owner” has the meaning provided in Rule 13d-3 under the Exchange Act.
(c)Change in Control” means, notwithstanding the definition of such term in the Plan:
(i)Any Person, other than HFC or any of its wholly-owned subsidiaries, the General Partner, the Partnership, the Company, or any of their subsidiaries, a trustee or other fiduciary holding securities under an employee benefit plan of HFC, the Partnership, the Company or any of their Affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities, or any entity owned, directly or indirectly, by the holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in HFC, the Company, the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner, directly or indirectly, of securities of HFC, the Company, the General Partner or the Partnership (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the General Partner, the Partnership, the Company or their Affiliates) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (iii)(A) below.
(ii)The individuals who as of the Date of Grant constitute the HFC Board and any New Director cease for any reason to constitute a majority of the HFC Board.
(iii)There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:
1.the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
    7


2.the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly, or indirectly, of securities of HFC, the Company, the General Partner or the Partnership, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s, as applicable, then outstanding securities.
(iv)The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by holders of the voting securities of HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct and indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.
(d)General Partner” means HEP Logistics Holdings, L.P.
(e)HFC” means HollyFrontier Corporation.
(f)HFC Board” means the board of directors of HFC.
(g)New Director” means an individual whose election by the HFC Board, or nomination for election by holders of the voting securities of HFC, was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the Date of Grant or whose election or nomination for election was previously so approved or recommended. However, “New Director” shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of HFC.
(h)Person” has the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) of the Exchange Act.
    8
Document

HOLLY ENERGY PARTNERS, L.P.
LONG-TERM INCENTIVE PLAN
NOTICE OF GRANT OF PHANTOM UNITS
(Non-Employee Director Award)
Pursuant to the terms and conditions of the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”), and the associated Phantom Unit Agreement (Non-Employee Director Award) which has been made separately available to you (your “Agreement”), you are hereby issued Units subject to certain restrictions thereon and under the conditions set forth in this Notice of Grant of Phantom Units (the “Notice”), in the Agreement, and in the Plan (the “Phantom Units”). Capitalized terms used but not defined herein shall have the meanings set forth in the Plan or your Agreement. You may obtain a copy of the Plan and a copy of the prospectus related to the Units by following the instructions attached as Appendix A. Additionally, you may request a copy of the Plan or the prospectus by contacting Cara Whitesel at Cara.Whitesel@hollyfrontier.com or 214.954.6530.
Grantee:        ____________
Date of Grant:        ____________ __, 2020 (the “Date of Grant”)
Number of Units:    __________
Vesting Schedule:    The restrictions on all of the Phantom Units granted pursuant to the Agreement will expire and the Phantom Units will become transferable and non-forfeitable on December 1, 2021; provided, that you remain a member of the Board continuously from the Date of Grant through such date.
Except as otherwise provided in Section 6 of your Agreement, all Phantom Units that have not become vested and non-forfeitable pursuant to this Notice will be null and void and forfeited to Holly Logistic Services, L.L.C. (the “Company”) in the event you cease to be a member of the Board.
Vesting of the Units will be included in your income in an amount equal to the closing price of the Units on the date of vesting (or if such day is not a business day, the last preceding business day). By receipt of the Phantom Units you acknowledge and agree that (a) you are not relying upon any determination by the Company, its affiliates, Holly Energy Partners, L.P. or any of their respective employees, directors, officers, attorneys or agents (collectively, the “Company Parties”) of the Fair Market Value of the Units on the Date of Grant, (b) you are not relying upon any written or oral statement or representation of the Company Parties regarding the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Phantom Units, (c) in accepting the Phantom Units you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted and (d) a copy of the Agreement and the Plan has been made available to you. In addition, you consent to
    1



receive documents from the Company and any plan administrator by means of electronic delivery, provided that such delivery complies with applicable law, including, without limitation, documents pursuant or relating to any equity award granted to you under the Plan or any other current or future equity or other benefit plan of the Company (the “Company’s Equity Plans”). This consent shall be effective for the entire time that you are a participant in a Company Equity Plan. By accepting the Phantom Units you release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Phantom Units.
Holly Logistic Services, L.L.C.



    
Michael C. Jennings, Chief Executive Officer


    2



Appendix A

    A-1

Document

Exhibit 31.1
CERTIFICATION
I, Michael C. Jennings, certify that:
 
1.I have reviewed this quarterly report on Form 10-Q of Holly Energy Partners, L.P;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 
Date: November 5, 2020 /s/ Michael C. Jennings
 Michael C. Jennings
 Chief Executive Officer

Document

Exhibit 31.2
CERTIFICATION
I, John Harrison, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Holly Energy Partners, L.P;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 
Date: November 5, 2020 /s/ John Harrison
 John Harrison
 Senior Vice President, Chief Financial Officer
and Treasurer

Document

Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER OF HOLLY ENERGY PARTNERS, L.P.
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying report on Form 10-Q for the quarterly period ended September 30, 2020 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Jennings, Chief Executive Officer of Holly Logistic Services, L.L.C., the general partner of HEP Logistics Holdings, L.P., the general partner of Holly Energy Partners, L.P (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2020/s/ Michael C. Jennings
 Michael C. Jennings
 Chief Executive Officer

Document

Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL
OFFICER OF HOLLY ENERGY PARTNERS, L.P.
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying report on Form 10-Q for the quarterly period ended September 30, 2020 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Harrison, Senior Vice President, Chief Financial Officer and Treasurer of Holly Logistic Services, L.L.C., the general partner of HEP Logistics Holdings, L.P., the general partner of Holly Energy Partners, L.P (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: November 5, 2020 /s/ John Harrison
 John Harrison
 Senior Vice President, Chief Financial Officer
and Treasurer

v3.20.2
Document Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 29, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Entity File Number 1-32225  
Entity Registrant Name HOLLY ENERGY PARTNERS LP  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-0833098  
Entity Address, Address Line One 2828 N. Harwood, Suite 1300  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75201  
City Area Code 214  
Local Phone Number 871-3555  
Title of 12(b) Security Common Limited Partner Units  
Trading Symbol HEP  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   105,440,201
Entity Central Index Key 0001283140  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Capital Units, Value $ 364,821 $ 381,103
Current assets:    
Cash and cash equivalents (Cushing Connect VIEs: $9,288 and $6,842, respectively) 18,091 13,287
Accounts receivable:    
Trade (Cushing Connect VIEs: $712 and $79, respectively) 13,857 18,731
Affiliates 46,504 49,716
Total accounts receivable 60,361 68,447
Prepaid and other current assets 6,282 7,629
Total current assets 84,734 89,363
Properties and equipment, net (Cushing Connect VIEs: $32,092 and $2,916, respectively) 1,447,924 1,467,099
Operating lease right-of-use assets 3,164 3,255
Net Investment in Lease, Noncurrent 167,238 134,886
Intangible assets, net 90,817 101,322
Goodwill 234,684 270,336
Equity method investments (Cushing Connect VIEs: $39,658 and $37,084, respectively) 122,046 120,071
Other assets 11,278 12,900
Assets 2,161,885 2,199,232
Accounts payable:    
Trade (Cushing Connect VIEs: $6,421 and $2,082, respectively) 21,022 17,818
Affiliates 6,922 16,737
Total accounts payable 27,944 34,555
Accrued interest 4,691 13,206
Deferred revenue 11,020 10,390
Accrued property taxes 8,972 3,799
Current maturities of operating leases 1,199 1,126
Current maturities of finance leases 3,459 3,224
Other current liabilities 2,849 2,305
Total current liabilities 60,134 68,605
Long-term debt 1,439,874 1,462,031
Noncurrent operating lease liabilities 2,333 2,482
Noncurrent finance lease liabilities 69,180 70,475
Other long-term liabilities 13,861 12,808
Deferred revenue 41,376 45,681
Class B unit $ 51,956 $ 49,392
Partners’ equity:    
Common unitholders (105,440,201 units issued and outstanding at September 30, 2020 and December 31, 2019) 105,440,000 105,440,000
Noncontrolling interest $ 118,350 $ 106,655
Total Equity 483,171 487,758
Total liabilities and equity 2,161,885 2,199,232
Total partners’ equity 364,821 381,103
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents $ 18,091 $ 13,287
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Condensed Balance Sheet Statements, Captions [Line Items]    
Cash and cash equivalents (Cushing Connect VIEs: $9,288 and $6,842, respectively) $ 18,091 $ 13,287
Trade (Cushing Connect VIEs: $712 and $79, respectively) 13,857 18,731
Properties and equipment, net (Cushing Connect VIEs: $32,092 and $2,916, respectively) 1,447,924 1,467,099
Equity method investments (Cushing Connect VIEs: $39,658 and $37,084, respectively) 122,046 120,071
Trade (Cushing Connect VIEs: $6,030 and $2,082, respectively) $ 27,944 $ 34,555
Common Unit, Outstanding 105,440,000 105,440,000
Common Unit, Issued 105,440,000 105,440,000
Variable Interest Entity, Primary Beneficiary [Member]    
Condensed Balance Sheet Statements, Captions [Line Items]    
Cash and cash equivalents (Cushing Connect VIEs: $9,288 and $6,842, respectively) $ 9,288 $ 6,842
Trade (Cushing Connect VIEs: $712 and $79, respectively) 712 79
Properties and equipment, net (Cushing Connect VIEs: $32,092 and $2,916, respectively) 32,092 2,916
Equity method investments (Cushing Connect VIEs: $39,658 and $37,084, respectively) 39,658 37,084
Trade (Cushing Connect VIEs: $6,030 and $2,082, respectively) $ 6,030 $ 2,082
v3.20.2
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Feb. 05, 2020
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues:                  
Revenues   $ 127,731     $ 135,895     $ 370,392 $ 401,143
Operating costs and expenses:                  
Operations (exclusive of depreciation and amortization)   40,003     44,924     109,721 123,045
Depreciation and amortization   26,190     24,121     75,202 72,192
General and administrative   2,332     2,714     7,569 7,322
Goodwill, Impairment Loss   35,653     0     35,653 0
Total operating costs and expenses   104,178     71,759     228,145 202,559
Operating income   23,553     64,136     142,247 198,584
Other income (expense):                  
Equity in earnings of equity method investments   1,316     1,334     5,186 5,217
Interest expense   (14,104)     (18,807)     (45,650) (57,059)
Interest income   2,803     2,243     7,834 3,322
Gain on Sales-type Leases   0     35,166     33,834 35,166
Loss on early extinguishment of debt $ 25,900 0     0     (25,915) 0
Other income (loss)   7,465     142     8,439 (57)
Total other income (expense)   (2,520)     20,078     (16,272) (13,411)
Income before income taxes   21,033     84,214     125,975 185,173
State income tax benefit (expense)   (34)     (30)     (110) (36)
Net Income   20,999 $ 77,954 $ 26,912 84,184 $ 47,159 $ 53,794 125,865 185,137
Allocation of net income attributable to noncontrolling interests   (3,186)     (1,839)     (6,721) (5,920)
Net income attributable to the partners   $ 17,813     $ 82,345     $ 119,144 $ 179,217
Limited partners’ per unit interest in earnings—basic and diluted (in dollars per share)   $ 0.17     $ 0.78     $ 1.13 $ 1.70
Weighted average limited partners’ units outstanding (in shares)   105,440     105,440     105,440 105,440
Affiliates                  
Revenues:                  
Revenues   $ 100,992     $ 106,027     $ 297,983 $ 311,755
Third parties                  
Revenues:                  
Revenues   $ 26,739     $ 29,868     $ 72,409 $ 89,388
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash flows from operating activities    
Net income $ 125,865 $ 185,137
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 75,202 72,192
(Gain) loss on sale of assets 887 (19)
Gain (Loss) on Extinguishment of Debt (25,915) 0
Gain on Sales-type Leases (33,834) (35,166)
Goodwill, Impairment Loss 35,653 0
Amortization of deferred charges 2,479 2,307
Equity-based compensation expense 1,547 1,774
Equity in earnings of equity method investments, net of distributions (238) (263)
(Increase) decrease in operating assets:    
Accounts receivable – trade 4,874 (3,850)
Accounts receivable – affiliates (3,212) 11,016
Prepaid and other current assets (1,885) 1,694
Increase (decrease) in operating liabilities:    
Accounts payable – trade 2,258 2,622
Accounts payable – affiliates (9,815) (7,475)
Accrued interest 8,515 (7,418)
Deferred revenue (3,675) (413)
Accrued property taxes 5,173 7,487
Other current liabilities 544 400
Other, net 1,913 3,160
Net cash provided by operating activities 225,040 228,217
Cash flows from investing activities    
Additions to properties and equipment (38,642) (23,828)
Payments to Acquire Interest in Joint Venture (2,438) 0
Proceeds from sale of assets 961 265
Distributions in excess of equity in earnings of equity investments 701 693
Net cash used for investing activities 39,418 22,870
Cash flows from financing activities    
Borrowings under credit agreement 219,500 269,500
Repayments of credit agreement borrowings (237,000) (257,000)
Early Repayment of Senior Debt (522,500) 0
Proceeds from Issuance of Senior Long-term Debt 500,000 0
Contributions from general partner 611 182
Contribution from Joint Venture Partner 15,382 0
Distributions to HEP unitholders (137,437) (204,701)
Distributions to noncontrolling interests (7,845) (7,750)
Payments on finance leases (2,666) (780)
Payments of Debt Issuance Costs (8,714) 0
Payments for Repurchase of Other Equity 0 (255)
Units withheld for tax withholding obligations (149) (119)
Net cash used by financing activities (180,818) (200,923)
Cash and cash equivalents    
Increase (decrease) for the period 4,804 4,424
Beginning of period 13,287 3,045
End of period $ 18,091 $ 7,469
v3.20.2
Consolidated Statement of Equity - USD ($)
$ in Thousands
Total
Common Units
Noncontrolling Interest
Balance, Beginning of Period at Dec. 31, 2018 $ 515,561 $ 427,435 $ 88,126
Increase (Decrease) in Partners' Equity [Roll Forward]      
Distributions to HEP unitholders (67,975) (67,975)  
Distributions to noncontrolling interest (3,000)   (3,000)
Equity-based compensation 661 661  
Class B unit accretion (780) (780)  
Other 814 814  
Net income 53,794 51,962 1,832
Balance, End of Period at Mar. 31, 2019 499,075 412,117 86,958
Balance, Beginning of Period at Dec. 31, 2018 515,561 427,435 88,126
Increase (Decrease) in Partners' Equity [Roll Forward]      
Net income 185,137    
Balance, End of Period at Sep. 30, 2019 488,484 404,584 83,900
Balance, Beginning of Period at Mar. 31, 2019 499,075 412,117 86,958
Increase (Decrease) in Partners' Equity [Roll Forward]      
Distributions to HEP unitholders (68,232) (68,232)  
Distributions to noncontrolling interest (2,250)   (2,250)
Equity-based compensation 585 585  
Class B unit accretion (781) (781)  
Other (138) (138)  
Net income 47,159 46,471 688
Balance, End of Period at Jun. 30, 2019 475,418 390,022 85,396
Increase (Decrease) in Partners' Equity [Roll Forward]      
Distributions to HEP unitholders (68,493) (68,493)  
Distributions to noncontrolling interest (2,500)   (2,500)
Equity-based compensation 528 528  
Class B unit accretion (835) (835)  
Other 182 182  
Net income 84,184 83,180 1,004
Balance, End of Period at Sep. 30, 2019 488,484 404,584 83,900
Balance, Beginning of Period at Dec. 31, 2019 487,758 381,103 106,655
Increase (Decrease) in Partners' Equity [Roll Forward]      
Contribution from noncontrolling interest 7,304   7,304
Distributions to HEP unitholders (68,519) (68,519)  
Distributions to noncontrolling interest (3,000)   (3,000)
Equity-based compensation 506 506  
Class B unit accretion (835) (835)  
Other 208 208  
Net income 26,912 25,696 1,216
Balance, End of Period at Mar. 31, 2020 450,334 338,159 112,175
Balance, Beginning of Period at Dec. 31, 2019 487,758 381,103 106,655
Increase (Decrease) in Partners' Equity [Roll Forward]      
Net income 125,865    
Balance, End of Period at Sep. 30, 2020 483,171 364,821 118,350
Balance, Beginning of Period at Mar. 31, 2020 450,334 338,159 112,175
Increase (Decrease) in Partners' Equity [Roll Forward]      
Contribution from noncontrolling interest 5,959   5,959
Distributions to HEP unitholders (34,460) (34,460)  
Distributions to noncontrolling interest (1,000)   (1,000)
Equity-based compensation 474 474  
Class B unit accretion (835) (835)  
Other 80 80  
Net income 77,954 77,305 649
Balance, End of Period at Jun. 30, 2020 498,506 380,723 117,783
Increase (Decrease) in Partners' Equity [Roll Forward]      
Contribution from noncontrolling interest 2,119   2,119
Distributions to HEP unitholders (34,458) (34,458)  
Distributions to noncontrolling interest (3,845)   (3,845)
Equity-based compensation 567 567  
Class B unit accretion (894) (894)  
Other 177 177  
Net income 20,999 18,706 2,293
Balance, End of Period at Sep. 30, 2020 $ 483,171 $ 364,821 $ 118,350
v3.20.2
Description of Business and Presentation of Financial Statements
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Description of Business and Presentation of Financial Statements 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. As of September 30, 2020, HollyFrontier Corporation (“HFC”) and its subsidiaries own a 57% limited partner interest and the non-economic general partner interest in HEP. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

On October 31, 2017, we closed on an equity restructuring transaction with HEP Logistics Holdings, L.P. (“HEP Logistics”), a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights ("IDRs") held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. As a result of this transaction, no distributions were made on the general partner interest after October 31, 2017. This waiver of limited partner cash distributions expired after the cash distribution for the second quarter of 2020, which was made during the third quarter of 2020.

We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support refining and marketing operations of HFC and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”), a 50% interest in Cheyenne Pipeline LLC, and a 50% interest in Cushing Connect Pipeline & Terminal LLC.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at its Cheyenne Refinery on August 3, 2020. As of September 30, 2020, our throughput agreement with HFC required minimum annualized payments to us of approximately $17.6 million related to our Cheyenne assets. The net book value of our Cheyenne assets as of June 30, 2020 was approximately $88.5 million, including $28.1 million of long-lived assets and $68.7 million of goodwill. No impairment of our Cheyenne long-lived assets was required.

Our annual goodwill impairment testing was performed during the third quarter of 2020. The estimated fair value of our reporting units were derived using a combination of both income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approach includes both the guideline public company and guideline transaction methods. Both market approach methods use 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 5 for further discussion of Level 3 inputs.

Our testing of goodwill did not identify any impairments other than our Cheyenne reporting unit, which reported a goodwill impairment charge of $35.7 million.

Subsequent to the third quarter of 2020, HEP and HFC reached an agreement in principle to terminate the existing minimum volume commitments for HEP's Cheyenne assets and enter into new agreements on 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 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 will pay a base tariff to HEP for available crude oil storage and HFC 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 15.
We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, providing other services at our storage tanks and terminals and by charging fees for processing hydrocarbon feedstocks through our refinery processing units. We do not take ownership of products that we transport, terminal, store or process, and therefore, we are not exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). 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, 2019. 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, 2020.

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.

Accounting Pronouncements Adopted During the Periods Presented

Goodwill Impairment Testing
In January 2017, Accounting Standard Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment,” was issued amending the testing for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, goodwill impairment is measured as the excess of the carrying amount of the reporting unit over the related fair value. We adopted this standard effective in the second quarter of 2019, and the adoption of this standard had no effect on our financial condition, results of operations or cash flows.

Leases
In February 2016, ASU No. 2016-02, “Leases” (“ASC 842”) was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. We adopted this standard effective January 1, 2019, and we elected to adopt using the modified retrospective transition method, whereby comparative prior period financial information will not be restated and will continue to be reported under the lease accounting standard in effect during those periods. We also elected practical expedients provided by the new standard, including the package of practical expedients and the short-term lease recognition practical expedient, which allow an entity to not recognize on the balance sheet leases with a term of 12 months or less. Upon adoption of this standard, we recognized $78.4 million of lease liabilities and corresponding right-of-use assets on our consolidated balance sheet. Adoption of this standard did not have a material impact on our results of operations or cash flows. See Notes 3 and 4 for additional information on our lease policies.

Credit Losses Measurement
In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted this standard effective January 1, 2020, and adoption of the standard did not have a material impact on our financial condition, results of operations or cash flows.
v3.20.2
Investment in Joint Venture
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Investment in Joint Venture Investment in 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 will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HFC 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 was fully in service beginning in April 2020. The Cushing Connect Pipeline is expected to be in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Cushing Connect Joint Venture assets.

The Cushing Connect Joint Venture 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 be shared proportionately among the partners, and HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs will be approximately $65 million.

The Cushing Connect Joint Venture legal entities are variable interest entities ("VIEs") as defined under GAAP. A VIE is a legal entity if it has any one of the following characteristics: (i) the entity does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The Cushing Connect Joint Venture legal entities do not have sufficient equity at risk to finance their activities without additional financial support. Since HEP is constructing and will operate the Cushing Connect Pipeline, HEP has more ability to direct the activities that most significantly impact the financial performance of the Cushing Connect Joint Venture and Cushing Connect Pipeline legal entities. Therefore, HEP consolidates those legal entities. We do not have the ability to direct the activities that most significantly impact the Cushing Connect JV Terminal legal entity, and therefore, we account for our interest in the Cushing Connect JV Terminal legal entity using the equity method of accounting.
v3.20.2
Revenues
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenues Revenues
Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. The majority of our contracts with customers meet the definition of a lease since (1) performance of the contracts is dependent on specified property, plant, or equipment and (2) it is remote that one or more parties other than the customer will take more than a minor amount of the output associated with the specified property, plant, or equipment. Prior to the adoption of the new lease standard (see Note 1), 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 under certain conditions. The majority of our contracts meet these conditions, and we have made this election for those contracts. 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.
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 shortfall make-up period. We recognize the service portion of 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 exercised by the customer. During the three and nine months ended September 30, 2020, we recognized $1.1 million and $13.8 million of these deficiency payments in revenue, of which $0.2 million and $0.7 million, respectively, related to deficiency payments billed in prior periods. As of September 30, 2020, deferred revenue reflected in our consolidated balance sheet related to shortfalls billed was $0.4 million.
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,
2020
December 31,
2019
 (In thousands)
Contract assets$6,187 $5,675 
Contract liabilities$(400)$(650)

The contract assets and liabilities include both lease and service components. We did not recognize any revenue during the three months ended September 30, 2020, that was previously included in contract liability as of December 31, 2019, and we recognized $0.7 million of revenue during the nine months ended September 30, 2020, that was previously included in contract liability as of December 31, 2019. We did not recognize any revenue during the three months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018, and we recognized $0.6 million of revenue during the nine months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018. During the three and the nine months ended September 30, 2020, we also recognized $0.1 million and $0.5 million, respectively, of revenue included in contract assets at September 30, 2020.

As of September 30, 2020, we expect to recognize $2.2 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in 2021 through 2036. 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,(In millions)
Remainder of 2020$92 
2021362 
2022332 
2023295 
2024255 
2025188 
Thereafter650 
Total$2,174 
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.
Disaggregated revenues were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Pipelines$68,292 $73,163 $197,718 $220,526 
Terminals, tanks and loading racks39,036 42,454 112,814 119,121 
Refinery processing units20,403 20,278 59,860 61,496 
$127,731 $135,895 $370,392 $401,143 
During the three and nine months ended September 30, 2020, lease revenues amounted to $90.1 million and $269.9 million, respectively, and service revenues amounted to $37.7 million and $100.5 million, respectively. Both of these revenues were recorded within affiliates and third parties revenues on our consolidated statement of income.
v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Leases 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 in Note 1.

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.

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. 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 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.

Our leases have remaining terms of less than 1 year to 24 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 $6.6 million and $7.0 million as of September 30, 2020 and December 31, 2019, respectively, with accumulated depreciation of $3.4 million and $4.5 million as of September 30, 2020 and December 31, 2019, 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.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 

Lessor Accounting
As discussed in Note 3, the majority of our contracts with customers meet the definition of a lease. See Note 3 for further discussion of the impact of adoption of this standard on our activities as a lessor.

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.

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 performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with Delek was renewed during the three months ending June 30, 2020. Certain components of this agreement 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 term to anyone other than Delek. 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, 2020 composed of the following:
(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 

This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases— 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. 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 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.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718 — 52,933 — 
Net investment in leases$154,324 $16,469 $121,390 $16,511 

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

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.

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. 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 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.

Our leases have remaining terms of less than 1 year to 24 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 $6.6 million and $7.0 million as of September 30, 2020 and December 31, 2019, respectively, with accumulated depreciation of $3.4 million and $4.5 million as of September 30, 2020 and December 31, 2019, 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.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 

Lessor Accounting
As discussed in Note 3, the majority of our contracts with customers meet the definition of a lease. See Note 3 for further discussion of the impact of adoption of this standard on our activities as a lessor.

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.

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 performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with Delek was renewed during the three months ending June 30, 2020. Certain components of this agreement 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 term to anyone other than Delek. 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, 2020 composed of the following:
(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 

This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases— 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. 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 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.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718 — 52,933 — 
Net investment in leases$154,324 $16,469 $121,390 $16,511 

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

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.

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. 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 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.

Our leases have remaining terms of less than 1 year to 24 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 $6.6 million and $7.0 million as of September 30, 2020 and December 31, 2019, respectively, with accumulated depreciation of $3.4 million and $4.5 million as of September 30, 2020 and December 31, 2019, 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.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 

Lessor Accounting
As discussed in Note 3, the majority of our contracts with customers meet the definition of a lease. See Note 3 for further discussion of the impact of adoption of this standard on our activities as a lessor.

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.

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 performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with Delek was renewed during the three months ending June 30, 2020. Certain components of this agreement 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 term to anyone other than Delek. 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, 2020 composed of the following:
(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 

This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases— 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. 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 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.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718 — 52,933 — 
Net investment in leases$154,324 $16,469 $121,390 $16,511 

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

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.

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. 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 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.

Our leases have remaining terms of less than 1 year to 24 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 $6.6 million and $7.0 million as of September 30, 2020 and December 31, 2019, respectively, with accumulated depreciation of $3.4 million and $4.5 million as of September 30, 2020 and December 31, 2019, 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.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 

Lessor Accounting
As discussed in Note 3, the majority of our contracts with customers meet the definition of a lease. See Note 3 for further discussion of the impact of adoption of this standard on our activities as a lessor.

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.

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 performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with Delek was renewed during the three months ending June 30, 2020. Certain components of this agreement 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 term to anyone other than Delek. 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, 2020 composed of the following:
(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 

This sales-type lease transaction, including the related gain, was a non-cash transaction.

Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases— 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. 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 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.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718 — 52,933 — 
Net investment in leases$154,324 $16,469 $121,390 $16,511 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.
v3.20.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements 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.

The carrying amounts and estimated fair values of our senior notes were as follows:
 September 30, 2020December 31, 2019
Financial InstrumentFair Value Input LevelCarrying
Value
Fair ValueCarrying
Value
Fair Value
(In thousands)
Liabilities:
6% Senior Notes
Level 2— — 496,531 522,045 
5% Senior Notes
Level 2491,874 490,155 — — 

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 9 for additional information.

Non-Recurring Fair Value Measurements
For gains on sales-type leases recognized during the third quarter of 2020, 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 and related gain on sales-type leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

During the three months ended September 30, 2020, we recognized goodwill impairment based on fair value measurements utilized during our goodwill testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.
v3.20.2
Properties and Equipment
9 Months Ended
Sep. 30, 2020
Property, Plant and Equipment [Abstract]  
Properties and Equipment Properties and Equipment 
The carrying amounts of our properties and equipment are as follows:
September 30,
2020
December 31,
2019
 (In thousands)
Pipelines, terminals and tankage$1,609,453 $1,602,231 
Refinery assets349,030 348,093 
Land and right of way87,076 86,190 
Construction in progress40,734 10,930 
Other9,266 14,110 
2,095,559 2,061,554 
Less accumulated depreciation647,635 594,455 
$1,447,924 $1,467,099 
Depreciation expense was $64.3 million and $61.7 million for the nine months ended September 30, 2020 and 2019, respectively, and includes depreciation of assets acquired under capital leases.
v3.20.2
Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets 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 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.

The carrying amounts of our intangible assets are as follows:
Useful LifeSeptember 30,
2020
December 31,
2019
 (In thousands)
Delek transportation agreement
30 years
$59,933 $59,933 
HFC transportation agreement
10-15 years
75,131 75,131 
Customer relationships10 years69,683 69,683 
Other50 50 
204,797 204,797 
Less accumulated amortization113,980 103,475 
$90,817 $101,322 

Amortization expense was $10.5 million for both of the nine months ended September 30, 2020 and 2019. We estimate amortization expense to be $14.0 million for each of the next two years, $9.9 million in 2023, and $9.1 million in 2024 and 2025.

We have additional transportation agreements with HFC resulting from historical transactions consisting of pipeline, terminal and tankage assets contributed to us or acquired from HFC. These transactions occurred while we were a consolidated variable interest entity of HFC; therefore, our basis in these agreements is zero and does not reflect a step-up in basis to fair value.
v3.20.2
Employees, Retirement and Incentive Plans
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Employees, Retirement and Incentive Plans Employees, Retirement and Incentive Plans
Direct support for our operations is provided by Holly Logistic Services, L.L.C. (“HLS”), an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.9 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively, and $5.7 million and $5.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Under HLS’s secondment agreement with HFC (the “Secondment Agreement”), certain employees of HFC are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFC for its prorated portion of the wages, benefits, and other costs related to these employees.
We have a Long-Term Incentive Plan for employees and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of four components: restricted or phantom units, performance units, unit options and unit appreciation rights. 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, 2020, we had two types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.6 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $1.8 million for the nine months ended September 30, 2020 and 2019, 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, 2020, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,122,230 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Restricted and Phantom Units
Under our Long-Term Incentive Plan, as of September 30, 2020, we granted restricted units to non-employee directors and phantom units to 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, and the recipients of the restricted units have voting rights on the restricted units from the date of grant.

The fair value of each restricted or 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 restricted and phantom unit activity and changes during the nine months ended September 30, 2020, is presented below:
Restricted and Phantom UnitsUnitsWeighted Average Grant-Date Fair Value
Outstanding at January 1, 2020 (nonvested)145,205 $26.22 
Vesting and transfer of full ownership to recipients(5,646)29.94 
Forfeited(8,578)25.47 
Outstanding at September 30, 2020 (nonvested)130,981 $26.11 

The grant date fair value of phantom units that vested and transferred to recipients during the nine months ended September 30, 2020 was $0.2 million. No restricted or phantom units vested and transferred to recipients during the nine months ended September 30, 2019. As of September 30, 2020, $0.9 million of total unrecognized compensation expense related to unvested restricted and phantom unit grants is expected to be recognized over a weighted-average period of 1.1 years.
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 50% to 150% or 0% to 200%. As of September 30, 2020, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 120% of the target number of performance units granted.

We did not grant any performance units during the nine months ended September 30, 2020. 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 months ended September 30, 2020, is presented below:
Performance UnitsUnits
Outstanding at January 1, 2020 (nonvested)53,445 
Vesting and transfer of common units to recipients(11,634)
Outstanding at September 30, 2020 (nonvested)41,811 

The grant date fair value of performance units vested and transferred to recipients during the nine months ended September 30, 2020 and 2019 was $0.4 million and $0.3 million, respectively. Based on the weighted-average fair value of performance units outstanding at September 30, 2020, of $1.2 million, there was $0.4 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.3 years.

During the nine months ended September 30, 2020, we did not purchase any of our common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.
v3.20.2
Debt
9 Months Ended
Sep. 30, 2020
Debt Instruments [Abstract]  
Debt Debt
Credit Agreement
We have a $1.4 billion senior secured revolving credit facility (the “Credit Agreement”) expiring in July 2022. 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 it contains an accordion feature giving us the ability to increase the size of the facility by up to $300 million with additional lender commitments.

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.

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 as of September 30, 2020.
Senior Notes
As of December 31, 2019, we had $500 million aggregate principal amount of 6% senior unsecured notes due in 2024 (the "6% Senior Notes") outstanding. The 6% Senior Notes were unsecured and imposed 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.

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% senior unsecured notes due in 2028 (the "5% Senior Notes"). On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with net proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% 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 5% Senior Notes as of September 30, 2020. At any time when the 5% 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 5% Senior Notes.

Indebtedness under the 5% Senior Notes is guaranteed by all of our existing wholly-owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt
The carrying amounts of our long-term debt was as follows:
September 30,
2020
December 31,
2019
(In thousands)
Credit Agreement
Amount outstanding948,000 $965,500 
6% Senior Notes
Principal— 500,000 
Unamortized premium and debt issuance costs— (3,469)
— 496,531 
5% Senior Notes
Principal500,000 — 
Unamortized premium and debt issuance costs(8,126)— 
491,874 — 
Total long-term debt$1,439,874 $1,462,031 
v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions Related Party Transactions
We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2021 to 2036, and revenues from these agreements accounted for 79% and 80% of our total revenues for the three months and nine months ended September 30, 2020, respectively. Under these agreements, HFC 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 subject to annual rate adjustments on July 1st each year generally based on increases or decreases in PPI or the FERC index. As of September 30, 2020, these agreements with HFC require minimum annualized payments to us of $351.1 million.

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

Under certain provisions of the Omnibus Agreement, we pay HFC an annual administrative fee (currently $2.6 million) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:
Revenues received from HFC were $101.0 million and $106.0 million for the three months ended September 30, 2020 and 2019, respectively, and $298.0 million and $311.8 million for the nine months ended September 30, 2020 and 2019, respectively.
HFC charged us general and administrative services under the Omnibus Agreement of $0.7 million for both of the three months ended September 30, 2020 and 2019, and $2.0 million and 1.9 million for the nine months ended September 30, 2020 and 2019, respectively.
We reimbursed HFC for costs of employees supporting our operations of $14.0 million and $13.7 million for the three months ended September 30, 2020 and 2019, respectively, and $41.3 million and $40.5 million for the nine months ended September 30, 2020 and 2019, respectively.
HFC reimbursed us $2.3 million and $4.6 million for the three months ended September 30, 2020 and 2019, respectively, for expense and capital projects, and $6.3 million and $10.4 million for the nine months ended September 30, 2020 and 2019, respectively.
We distributed $18.4 million and $37.6 million in the three months ended September 30, 2020 and 2019, respectively, and $74.3 million and $112.4 million for the nine months ended September 30, 2020 and 2019, respectively, to HFC as regular distributions on its common units.
Accounts receivable from HFC were $46.5 million and $49.7 million at September 30, 2020, and December 31, 2019, respectively.
Accounts payable to HFC were $6.9 million and $16.7 million at September 30, 2020, and December 31, 2019, respectively.
Deferred revenue in the consolidated balance sheets at September 30, 2020 and December 31, 2019, included $0.4 million and $0.5 million, respectively, relating to certain shortfall billings to HFC.
We received direct financing lease payments from HFC for use of our Artesia and Tulsa rail yards of $0.5 million for both of the three months ended September 30, 2020 and 2019, and $1.5 million for both of the nine months ended September 30, 2020 and 2019 .
We received sales-type lease payments of $2.4 million from HFC for both of the three months ended September 30, 2020 and 2019, respectively, and $7.1 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively.
On October 31, 2017, we closed an equity restructuring transaction with HEP Logistics, a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. This waiver of limited partner cash distributions expired after the cash distribution for the second quarter of 2020, which was made during the third quarter of 2020.
v3.20.2
Partners' Equity, Income Allocations and Cash Distributions
9 Months Ended
Sep. 30, 2020
Partners' Capital [Abstract]  
Partners' Equity, Income Allocations and Cash Distributions Partners’ Equity, Income Allocations and Cash Distributions
As of September 30, 2020, HFC held 59,630,030 of our common units, constituting a 57% 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, 2020, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

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 22, 2020, we announced our cash distribution for the third quarter of 2020 of $0.35 per unit. The distribution is payable on all common units and will be paid November 12, 2020, to all unitholders of record on November 2, 2020.

Our regular quarterly cash distribution to the limited partners will be $37.0 million for the three months ended September 30, 2020 and was $68.5 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the regular quarterly distribution to the limited partners will be $105.9 million and was $205.2 million for the nine months ended September 30, 2019. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.
v3.20.2
Net Income per Limited Partner Unit
9 Months Ended
Sep. 30, 2020
Net Income per Limited Partner Unit [Abstract]  
Net Income Per Limited Partner Unit 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 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 restricted units, 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, after consideration of any priority allocations of earnings. 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,
2020201920202019
(In thousands, except per unit data)
Net income attributable to the partners$17,813 $82,345 $119,144 $179,217 
Weighted average limited partners' units outstanding105,440 105,440 105,440 105,440 
Limited partners' per unit interest in earnings - basic and diluted$0.17 $0.78 $1.13 $1.70 
v3.20.2
Environmental
9 Months Ended
Sep. 30, 2020
Accrual for Environmental Loss Contingencies [Abstract]  
Environmental Environmental
We expensed $1.0 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, for environmental remediation obligations, and we expensed $0.3 million for both of the three and nine months ended September 30, 2019. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $5.7 million and $5.5 million at September 30, 2020 and December 31, 2019, respectively, of which $3.5 million, was classified as other long-term liabilities for both periods. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. Our consolidated balance sheets included additional accrued environmental liabilities of $0.4 million and $0.5 million for HFC indemnified liabilities for the periods ending September 30, 2020 and December 31, 2019, respectively, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.
v3.20.2
Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Contingencies ContingenciesWe 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.
v3.20.2
Segment Information
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Information 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: pipelines and terminals, and refinery processing units. These operating segments adhere to the accounting polices used for our consolidated financial statements.

Pipelines and terminals have been aggregated as one reportable segment as both pipeline 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 reportable segment.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Revenues:
Pipelines and terminals - affiliate$80,589 $85,749 $238,123 $250,259 
Pipelines and terminals - third-party26,739 29,868 72,409 89,388 
Refinery processing units - affiliate20,403 20,278 59,860 61,496 
Total segment revenues$127,731 $135,895 $370,392 $401,143 
Segment operating income:
Pipelines and terminals$15,912 $56,944 $120,445 $178,112 
Refinery processing units9,973 9,906 29,371 27,794 
Total segment operating income25,885 66,850 149,816 205,906 
Unallocated general and administrative expenses(2,332)(2,714)(7,569)(7,322)
Interest and financing costs, net(11,301)(16,564)(37,816)(53,737)
Loss on early extinguishment of debt— — (25,915)— 
Equity in earnings of equity method investments1,316 1,334 5,186 5,217 
Gain on sales-type leases— 35,166 33,834 35,166 
Gain (loss) on sale of assets and other 7,465 142 8,439 (57)
Income before income taxes$21,033 $84,214 $125,975 $185,173 
Capital Expenditures:
  Pipelines and terminals$7,902 $5,320 $38,318 $23,072 
  Refinery processing units— 756 324 756 
Total capital expenditures$7,902 $6,076 $38,642 $23,828 
September 30, 2020December 31, 2019
(In thousands)
Identifiable assets:
  Pipelines and terminals (1)
$1,712,033 $1,749,843 
  Refinery processing units305,999 305,897 
Other143,853 143,492 
Total identifiable assets$2,161,885 $2,199,232 

(1) Includes goodwill of $234.7 million as of September 30, 2020 and $270.3 million as of December 31, 2019.
v3.20.2
Supplemental Guarantor / Non-Guarantor Financial Information
9 Months Ended
Sep. 30, 2020
Supplemental Guarantor / Non-Guarantor Financial Information [Abstract]  
Supplemental Guarantor / Non-Guarantor Financial Information Supplemental Guarantor/Non-Guarantor Financial Information
Obligations of HEP (“Parent”) under the 5% 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 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 have been satisfied.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.
Condensed Consolidating Balance Sheet
September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,000 $(1,113)$15,204 $— $18,091 
Accounts receivable— 56,434 4,982 (1,055)60,361 
Prepaid and other current assets149 5,818 315 6,282 
Total current assets4,149 61,139 20,501 (1,055)84,734 
Properties and equipment, net— 1,096,454 351,470 — 1,447,924 
Operating lease right-of-use assets— 2,990 174 — 3,164 
Net investment in leases— 167,238 — 167,238 
Investment in subsidiaries
1,800,621 280,277 — (2,080,898)— 
Intangible assets, net— 90,817 — — 90,817 
Goodwill— 234,684 — — 234,684 
Equity method investments— 82,389 39,657 — 122,046 
Other assets4,879 6,399 — — 11,278 
Total assets$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $20,494 $8,505 $(1,055)$27,944 
Accrued interest4,691 — — — 4,691 
Deferred revenue— 10,620 400 — 11,020 
Accrued property taxes— 5,377 3,595 — 8,972 
Current operating lease liabilities— 1,130 69 — 1,199 
Current finance lease liabilities— 3,459 — — 3,459 
Other current liabilities2,748 98 — 2,849 
Total current liabilities4,694 43,828 12,667 (1,055)60,134 
Long-term debt1,439,874 — — — 1,439,874 
Noncurrent operating lease liabilities— 2,333 — — 2,333 
Noncurrent finance lease liabilities— 69,180 — — 69,180 
Other long-term liabilities260 13,093 508 — 13,861 
Deferred revenue— 41,376 — — 41,376 
Class B unit— 51,956 — — 51,956 
Equity - partners364,821 1,800,621 280,277 (2,080,898)364,821 
Equity - noncontrolling interest— — 118,350 — 118,350 
Total liabilities and equity$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
Condensed Consolidating Balance Sheet
December 31, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,790 $(709)$9,206 $— $13,287 
Accounts receivable— 60,229 8,549 (331)68,447 
Prepaid and other current assets282 6,710 637 — 7,629 
Total current assets5,072 66,230 18,392 (331)89,363 
Properties and equipment, net— 1,133,534 333,565 — 1,467,099 
Operating lease right-of-use assets— 3,243 12 — 3,255 
Net investment in leases— 134,886 — — 134,886 
Investment in subsidiaries1,844,812 275,279 — (2,120,091)— 
Intangible assets, net— 101,322 — — 101,322 
Goodwill— 270,336 — — 270,336 
Equity method investments— 82,987 37,084 — 120,071 
Other assets6,722 6,178 — — 12,900 
Total assets$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $29,895 $4,991 $(331)$34,555 
Accrued interest13,206 — — — 13,206 
Deferred revenue— 9,740 650 — 10,390 
Accrued property taxes— 2,737 1,062 — 3,799 
Current operating lease liabilities— 1,114 12 — 1,126 
Current finance lease liabilities— 3,224 — — 3,224 
Other current liabilities2,293 — 2,305 
Total current liabilities13,212 49,003 6,721 (331)68,605 
Long-term debt1,462,031 — — — 1,462,031 
Noncurrent operating lease liabilities— 2,482 — — 2,482 
Noncurrent finance lease liabilities— 70,475 — — 70,475 
Other long-term liabilities260 12,150 398 — 12,808 
Deferred revenue— 45,681 — — 45,681 
Class B unit— 49,392 — — 49,392 
Equity - partners381,103 1,844,812 275,279 (2,120,091)381,103 
Equity - noncontrolling interest— — 106,655 — 106,655 
Total liabilities and equity$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 
Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $94,595 $6,397 $— $100,992 
Third parties— 21,550 5,189 — 26,739 
— 116,145 11,586 — 127,731 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 36,065 3,938 — 40,003 
Depreciation and amortization— 21,997 4,193 — 26,190 
General and administrative649 1,683 — — 2,332 
Goodwill impairment— 35,653 — — 35,653 
649 95,398 8,131 — 104,178 
Operating income (loss)(649)20,747 3,455 — 23,553 
Other income (expense):
Equity in earnings of subsidiaries31,461 6,589 — (38,050)— 
Equity in earnings of equity method investments— 755 561 — 1,316 
Interest expense(13,072)(1,032)— — (14,104)
Interest income— 2,787 16 — 2,803 
Other income73 2,542 4,850 — 7,465 
18,462 11,641 5,427 (38,050)(2,520)
Income before income taxes17,813 32,388 8,882 (38,050)21,033 
State income tax expense— (34)— — (34)
Net income 17,813 32,354 8,882 (38,050)20,999 
Allocation of net income attributable to noncontrolling interests
— (893)(2,293)— (3,186)
Net income attributable to the partners
$17,813 $31,461 $6,589 $(38,050)$17,813 
Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $99,482 $6,545 $— $106,027 
Third parties— 23,999 5,869 — 29,868 
— 123,481 12,414 — 135,895 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 40,866 4,058 — 44,924 
Depreciation and amortization19,757 4,364 — 24,121 
General and administrative569 2,145 — — 2,714 
569 62,768 8,422 — 71,759 
Operating income (loss)(569)60,713 3,992 — 64,136 
Other income (expense):
Equity in earnings of subsidiaries101,638 3,013 — (104,651)— 
Equity in earnings of equity method investments— 1,334 — — 1,334 
Interest expense(18,945)138 — — (18,807)
Interest income— 2,243 — — 2,243 
Gain on sales-type lease— 35,166 — — 35,166 
Other income (loss)221 (104)25 — 142 
82,914 41,790 25 (104,651)20,078 
Income before income taxes82,345 102,503 4,017 (104,651)84,214 
State income tax expense— (30)— — (30)
Net income 82,345 102,473 4,017 (104,651)84,184 
Allocation of net income attributable to noncontrolling interests
— (835)(1,004)— (1,839)
Net income attributable to the partners
$82,345 $101,638 $3,013 $(104,651)$82,345 
Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $278,767 $19,216 $— $297,983 
Third parties— 56,592 15,817 — 72,409 
— 335,359 35,033 — 370,392 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 98,176 11,545 — 109,721 
Depreciation and amortization— 62,489 12,713 — 75,202 
General and administrative2,528 5,041 — — 7,569 
Goodwill impairment— 35,653 — — 35,653 
2,528 201,359 24,258 — 228,145 
Operating income (loss)(2,528)134,000 10,775 — — 142,247 
Other income (expense):
Equity in earnings of subsidiaries189,889 12,394 — (202,283)— 
Equity in earnings of equity method investments— 4,292 894 — 5,186 
Interest expense(42,542)(3,108)— — (45,650)
Interest income26 7,792 16 — 7,834 
Loss on early extinguishment of debt(25,915)— — — (25,915)
Gain on sales-type lease— 33,834 — — 33,834 
Gain on sale of assets and other214 3,358 4,867 — 8,439 
121,672 58,562 5,777 (202,283)(16,272)
Income before income taxes119,144 192,562 16,552 (202,283)125,975 
State income tax expense— (110)— — (110)
Net income 119,144 192,452 16,552 (202,283)125,865 
Allocation of net income attributable to noncontrolling interests
— (2,563)(4,158)— (6,721)
Net income attributable to the partners
$119,144 $189,889 $12,394 $(202,283)$119,144 
Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2019ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $293,096 $18,659 $— $311,755 
Third parties— 69,764 19,624 — 89,388 
— 362,860 38,283 — 401,143 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 111,644 11,401 — 123,045 
Depreciation and amortization59,320 12,872 — 72,192 
General and administrative2,390 4,932 — — 7,322 
2,390 175,896 24,273 — 202,559 
Operating income (loss)(2,390)186,964 14,010 — 198,584 
Other income (expense):
Equity in earnings of subsidiaries238,368 10,572 — (248,940)— 
Equity in earnings of equity method investments— 5,217 — — 5,217 
Interest expense(56,982)(77)— — (57,059)
Interest income— 3,322 — — 3,322 
Gain on sales-type lease— 35,166 — — 35,166 
Gain on sale of assets and other221 (364)86 — (57)
181,607 53,836 86 (248,940)(13,411)
Income before income taxes179,217 240,800 14,096 (248,940)185,173 
State income tax expense— (36)— — (36)
Net income 179,217 240,764 14,096 (248,940)185,137 
Allocation of net income attributable to noncontrolling interests
— (2,396)(3,524)— (5,920)
Net income attributable to the partners
$179,217 $238,368 $10,572 $(248,940)$179,217 
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(49,182)$250,355 $36,261 $(12,394)$225,040 
Cash flows from investing activities
Additions to properties and equipment— (10,675)(27,967)— (38,642)
Investment in Cushing Connect
— (15,382)(2,438)15,382 (2,438)
Proceeds from sale of assets
— 961 — — 961 
Distributions in excess of equity in earnings of equity investments
— 11,084 — (10,383)701 
— (14,012)(30,405)4,999 (39,418)
Cash flows from financing activities
Net borrowings under credit agreement(17,500)— — — (17,500)
Net intercompany financing activities234,081 (234,081)— — — 
Redemption of senior notes(522,500)— — — (522,500)
Proceeds from issuance of senior notes500,000 — — — 500,000 
Contribution from general partner611 — 15,382 (15,382)611 
Contribution from noncontrolling interest— — 15,382 — 15,382 
Distributions to HEP unitholders(137,437)— — — (137,437)
Distributions to noncontrolling interests— — (30,622)22,777 (7,845)
Units withheld for tax withholding obligations(149)— — — (149)
Deferred financing costs(8,714)— — — (8,714)
Payments on finance leases— (2,666)— — (2,666)
48,392 (236,747)142 7,395 (180,818)
Cash and cash equivalents
Increase (decrease) for the period(790)(404)5,998 — 4,804 
Beginning of period4,790 (709)9,206 — 13,287 
End of period$4,000 $(1,113)$15,204 $— $18,091 
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(62,229)$271,657 $31,467 $(12,678)$228,217 
Cash flows from investing activities
Additions to properties and equipment— (23,227)(601)— (23,828)
Distributions from UNEV in excess of earnings
— 10,572 — (10,572)— 
Proceeds from sale of assets
— 265 — — 265 
Distributions in excess of equity in earnings of equity investments
— 693 — — 693 
— (11,697)(601)(10,572)(22,870)
Cash flows from financing activities
Net borrowings under credit agreement12,500 — — — 12,500 
Net intercompany financing activities260,362 (260,362)— — — 
Contributions from general partner182 — — — 182 
Distributions to HEP unitholders(204,701)— — — (204,701)
Distributions to noncontrolling interests— — (31,000)23,250 (7,750)
Units withheld for tax withholding obligations(119)— — — (119)
Purchase units for incentive grants(255)— — (255)
Payments on finance leases— (780)— — (780)
Other (139)139 — — — 
67,830 (261,003)(31,000)23,250 (200,923)
Cash and cash equivalents
Increase for the period5,601 (1,043)(134)— 4,424 
Beginning of period— 3,043 — 3,045 
End of period$5,603 $(1,043)$2,909 $— $7,469 
v3.20.2
Description of Business and Presentation of Financial Statements (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Credit Loss, Financial Instrument [Policy Text Block]
Credit Losses Measurement
In June 2016, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” was issued requiring measurement of all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We adopted this standard effective January 1, 2020, and adoption of the standard did not have a material impact on our financial condition, results of operations or cash flows.
Consolidation
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 Impairment Testing
Goodwill Impairment Testing
In January 2017, Accounting Standard Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment,” was issued amending the testing for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, goodwill impairment is measured as the excess of the carrying amount of the reporting unit over the related fair value. We adopted this standard effective in the second quarter of 2019, and the adoption of this standard had no effect on our financial condition, results of operations or cash flows.
Lessee, Leases
Leases
In February 2016, ASU No. 2016-02, “Leases” (“ASC 842”) was issued requiring leases to be measured and recognized as a lease liability, with a corresponding right-of-use asset on the balance sheet. We adopted this standard effective January 1, 2019, and we elected to adopt using the modified retrospective transition method, whereby comparative prior period financial information will not be restated and will continue to be reported under the lease accounting standard in effect during those periods. We also elected practical expedients provided by the new standard, including the package of practical expedients and the short-term lease recognition practical expedient, which allow an entity to not recognize on the balance sheet leases with a term of 12 months or less. Upon adoption of this standard, we recognized $78.4 million of lease liabilities and corresponding right-of-use assets on our consolidated balance sheet. Adoption of this standard did not have a material impact on our results of operations or cash flows. See Notes 3 and 4 for additional information on our lease policies.
v3.20.2
Revenues (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of Contract Asset and Contract Liability Balances Our consolidated balance sheets included the contract assets and liabilities in the table below:
September 30,
2020
December 31,
2019
 (In thousands)
Contract assets$6,187 $5,675 
Contract liabilities$(400)$(650)
Schedule of Future Performance Obligations 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,(In millions)
Remainder of 2020$92 
2021362 
2022332 
2023295 
2024255 
2025188 
Thereafter650 
Total$2,174 
Schedule of Disaggregated Revenue
Disaggregated revenues were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Pipelines$68,292 $73,163 $197,718 $220,526 
Terminals, tanks and loading racks39,036 42,454 112,814 119,121 
Refinery processing units20,403 20,278 59,860 61,496 
$127,731 $135,895 $370,392 $401,143 
v3.20.2
Leases (Tables)
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Schedule of Supplemental Balance Sheet Information
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30, 2020December 31, 2019
Operating leases:
   Operating lease right-of-use assets, net$3,164 $3,255 
   Current operating lease liabilities 1,199 1,126 
   Noncurrent operating lease liabilities2,333 2,482 
      Total operating lease liabilities$3,532 $3,608 
Finance leases:
   Properties and equipment$6,554 $6,968 
   Accumulated amortization(3,354)(4,547)
      Properties and equipment, net$3,200 $2,421 
   Current finance lease liabilities $3,459 $3,224 
   Noncurrent finance lease liabilities69,180 70,475 
      Total finance lease liabilities$72,639 $73,699 
Weighted average remaining lease term (in years)
   Operating leases6.06.5
   Finance leases16.217.0
Weighted average discount rate
   Operating leases4.8%5.0%
   Finance leases5.6%6.0%
Schedule of Supplemental Cash Flow Information and Components of Lease Expense
Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20202019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$773 $5,467 
Operating cash flows on finance leases$3,241 $75 
Financing cash flows on finance leases$2,666 $780 
The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease costs$242 $1,852 $745 $5,420 
Finance lease costs
   Amortization of assets251 213 766 711 
   Interest on lease liabilities1,032 24 3,108 75 
Variable lease cost64 41 159 112 
Total net lease cost$1,589 $2,130 $4,778 $6,318 
Schedule of Operating Lease Maturities
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 
Schedule of Finance Lease Maturities
Maturities of lease liabilities were as follows:
September 30, 2020
OperatingFinance
(In thousands)
2020$257 $1,931 
2021906 7,403 
2022627 7,277 
2023607 7,320 
2024494 6,856 
2025 and thereafter1,179 80,313 
   Total lease payments4,070 111,100 
Less: Imputed interest(538)(38,461)
   Total lease obligations3,532 72,639 
Less: Current lease liabilities(1,199)(3,459)
   Noncurrent lease liabilities$2,333 $69,180 
Sales-Type Lease, Gain Recognized Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2020 composed of the following:
(In thousands)
Net investment in leases$35,319 
Properties and equipment, net(1,485)
Gain on sales-type leases$33,834 
Schedule of Lease Income
Lease income recognized was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Operating lease revenues$87,125 $94,459 $262,518 $282,747 
Direct financing lease interest income525 539 1,572 1,558 
Gain on sales-type leases— 35,166 33,834 35,166 
Sales-type lease interest income2,278 1,675 6,218 1,675 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 2,952 3,075 7,413 3,075 
Schedule of Minimum Undiscounted Lease Payments
Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2020:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2020$77,568 $530 $3,114 
2021306,771 2,128 12,456 
2022304,315 2,145 12,456 
2023273,362 2,162 12,456 
2024235,280 2,179 12,456 
2025 and thereafter739,158 40,787 73,044 
Total$1,936,454 $49,931 $125,982 
Schedule of Net Investment in Leases
Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2020December 31, 2019
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$90,606 $16,469 $68,457 $16,511 
Unguaranteed residual assets63,718 — 52,933 — 
Net investment in leases$154,324 $16,469 $121,390 $16,511 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.
v3.20.2
Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Schedule of Fair Value, Financial Instruments Measured on Recurring Basis
The carrying amounts and estimated fair values of our senior notes were as follows:
 September 30, 2020December 31, 2019
Financial InstrumentFair Value Input LevelCarrying
Value
Fair ValueCarrying
Value
Fair Value
(In thousands)
Liabilities:
6% Senior Notes
Level 2— — 496,531 522,045 
5% Senior Notes
Level 2491,874 490,155 — — 
v3.20.2
Properties and Equipment (Tables)
9 Months Ended
Sep. 30, 2020
Property, Plant and Equipment [Abstract]  
Schedule of Properties and Equipment
The carrying amounts of our properties and equipment are as follows:
September 30,
2020
December 31,
2019
 (In thousands)
Pipelines, terminals and tankage$1,609,453 $1,602,231 
Refinery assets349,030 348,093 
Land and right of way87,076 86,190 
Construction in progress40,734 10,930 
Other9,266 14,110 
2,095,559 2,061,554 
Less accumulated depreciation647,635 594,455 
$1,447,924 $1,467,099 
v3.20.2
Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Finite-Lived Intangible Assets by Major Class
The carrying amounts of our intangible assets are as follows:
Useful LifeSeptember 30,
2020
December 31,
2019
 (In thousands)
Delek transportation agreement
30 years
$59,933 $59,933 
HFC transportation agreement
10-15 years
75,131 75,131 
Customer relationships10 years69,683 69,683 
Other50 50 
204,797 204,797 
Less accumulated amortization113,980 103,475 
$90,817 $101,322 
v3.20.2
Employees, Retirement and Incentive Plans (Tables)
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of Nonvested Restricted Stock Units Activity
A summary of restricted and phantom unit activity and changes during the nine months ended September 30, 2020, is presented below:
Restricted and Phantom UnitsUnitsWeighted Average Grant-Date Fair Value
Outstanding at January 1, 2020 (nonvested)145,205 $26.22 
Vesting and transfer of full ownership to recipients(5,646)29.94 
Forfeited(8,578)25.47 
Outstanding at September 30, 2020 (nonvested)130,981 $26.11 
Schedule of Nonvested Performance-based Units Activity
A summary of performance unit activity and changes for the nine months ended September 30, 2020, is presented below:
Performance UnitsUnits
Outstanding at January 1, 2020 (nonvested)53,445 
Vesting and transfer of common units to recipients(11,634)
Outstanding at September 30, 2020 (nonvested)41,811 
v3.20.2
Debt (Tables)
9 Months Ended
Sep. 30, 2020
Debt Instruments [Abstract]  
Schedule of Long-term Debt Instruments
The carrying amounts of our long-term debt was as follows:
September 30,
2020
December 31,
2019
(In thousands)
Credit Agreement
Amount outstanding948,000 $965,500 
6% Senior Notes
Principal— 500,000 
Unamortized premium and debt issuance costs— (3,469)
— 496,531 
5% Senior Notes
Principal500,000 — 
Unamortized premium and debt issuance costs(8,126)— 
491,874 — 
Total long-term debt$1,439,874 $1,462,031 
v3.20.2
Net Income per Limited Partner Unit (Tables)
9 Months Ended
Sep. 30, 2020
Net Income per Limited Partner Unit [Abstract]  
Schedule of Allocation to Limited Partner Interest in Net Income
Net income per limited partner unit is computed as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands, except per unit data)
Net income attributable to the partners$17,813 $82,345 $119,144 $179,217 
Weighted average limited partners' units outstanding105,440 105,440 105,440 105,440 
Limited partners' per unit interest in earnings - basic and diluted$0.17 $0.78 $1.13 $1.70 
v3.20.2
Segment Information (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(In thousands)
Revenues:
Pipelines and terminals - affiliate$80,589 $85,749 $238,123 $250,259 
Pipelines and terminals - third-party26,739 29,868 72,409 89,388 
Refinery processing units - affiliate20,403 20,278 59,860 61,496 
Total segment revenues$127,731 $135,895 $370,392 $401,143 
Segment operating income:
Pipelines and terminals$15,912 $56,944 $120,445 $178,112 
Refinery processing units9,973 9,906 29,371 27,794 
Total segment operating income25,885 66,850 149,816 205,906 
Unallocated general and administrative expenses(2,332)(2,714)(7,569)(7,322)
Interest and financing costs, net(11,301)(16,564)(37,816)(53,737)
Loss on early extinguishment of debt— — (25,915)— 
Equity in earnings of equity method investments1,316 1,334 5,186 5,217 
Gain on sales-type leases— 35,166 33,834 35,166 
Gain (loss) on sale of assets and other 7,465 142 8,439 (57)
Income before income taxes$21,033 $84,214 $125,975 $185,173 
Capital Expenditures:
  Pipelines and terminals$7,902 $5,320 $38,318 $23,072 
  Refinery processing units— 756 324 756 
Total capital expenditures$7,902 $6,076 $38,642 $23,828 
September 30, 2020December 31, 2019
(In thousands)
Identifiable assets:
  Pipelines and terminals (1)
$1,712,033 $1,749,843 
  Refinery processing units305,999 305,897 
Other143,853 143,492 
Total identifiable assets$2,161,885 $2,199,232 

(1) Includes goodwill of $234.7 million as of September 30, 2020 and $270.3 million as of December 31, 2019.
v3.20.2
Supplemental Guarantor / Non-Guarantor Financial Information (Tables)
9 Months Ended
Sep. 30, 2020
Supplemental Guarantor / Non-Guarantor Financial Information [Abstract]  
Condensed Consolidating Balance Sheet
Condensed Consolidating Balance Sheet
September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,000 $(1,113)$15,204 $— $18,091 
Accounts receivable— 56,434 4,982 (1,055)60,361 
Prepaid and other current assets149 5,818 315 6,282 
Total current assets4,149 61,139 20,501 (1,055)84,734 
Properties and equipment, net— 1,096,454 351,470 — 1,447,924 
Operating lease right-of-use assets— 2,990 174 — 3,164 
Net investment in leases— 167,238 — 167,238 
Investment in subsidiaries
1,800,621 280,277 — (2,080,898)— 
Intangible assets, net— 90,817 — — 90,817 
Goodwill— 234,684 — — 234,684 
Equity method investments— 82,389 39,657 — 122,046 
Other assets4,879 6,399 — — 11,278 
Total assets$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $20,494 $8,505 $(1,055)$27,944 
Accrued interest4,691 — — — 4,691 
Deferred revenue— 10,620 400 — 11,020 
Accrued property taxes— 5,377 3,595 — 8,972 
Current operating lease liabilities— 1,130 69 — 1,199 
Current finance lease liabilities— 3,459 — — 3,459 
Other current liabilities2,748 98 — 2,849 
Total current liabilities4,694 43,828 12,667 (1,055)60,134 
Long-term debt1,439,874 — — — 1,439,874 
Noncurrent operating lease liabilities— 2,333 — — 2,333 
Noncurrent finance lease liabilities— 69,180 — — 69,180 
Other long-term liabilities260 13,093 508 — 13,861 
Deferred revenue— 41,376 — — 41,376 
Class B unit— 51,956 — — 51,956 
Equity - partners364,821 1,800,621 280,277 (2,080,898)364,821 
Equity - noncontrolling interest— — 118,350 — 118,350 
Total liabilities and equity$1,809,649 $2,022,387 $411,802 $(2,081,953)$2,161,885 
Condensed Consolidating Balance Sheet
December 31, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$4,790 $(709)$9,206 $— $13,287 
Accounts receivable— 60,229 8,549 (331)68,447 
Prepaid and other current assets282 6,710 637 — 7,629 
Total current assets5,072 66,230 18,392 (331)89,363 
Properties and equipment, net— 1,133,534 333,565 — 1,467,099 
Operating lease right-of-use assets— 3,243 12 — 3,255 
Net investment in leases— 134,886 — — 134,886 
Investment in subsidiaries1,844,812 275,279 — (2,120,091)— 
Intangible assets, net— 101,322 — — 101,322 
Goodwill— 270,336 — — 270,336 
Equity method investments— 82,987 37,084 — 120,071 
Other assets6,722 6,178 — — 12,900 
Total assets$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$— $29,895 $4,991 $(331)$34,555 
Accrued interest13,206 — — — 13,206 
Deferred revenue— 9,740 650 — 10,390 
Accrued property taxes— 2,737 1,062 — 3,799 
Current operating lease liabilities— 1,114 12 — 1,126 
Current finance lease liabilities— 3,224 — — 3,224 
Other current liabilities2,293 — 2,305 
Total current liabilities13,212 49,003 6,721 (331)68,605 
Long-term debt1,462,031 — — — 1,462,031 
Noncurrent operating lease liabilities— 2,482 — — 2,482 
Noncurrent finance lease liabilities— 70,475 — — 70,475 
Other long-term liabilities260 12,150 398 — 12,808 
Deferred revenue— 45,681 — — 45,681 
Class B unit— 49,392 — — 49,392 
Equity - partners381,103 1,844,812 275,279 (2,120,091)381,103 
Equity - noncontrolling interest— — 106,655 — 106,655 
Total liabilities and equity$1,856,606 $2,073,995 $389,053 $(2,120,422)$2,199,232 
Condensed Consolidating Statement of Comprehensive Income
Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $94,595 $6,397 $— $100,992 
Third parties— 21,550 5,189 — 26,739 
— 116,145 11,586 — 127,731 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 36,065 3,938 — 40,003 
Depreciation and amortization— 21,997 4,193 — 26,190 
General and administrative649 1,683 — — 2,332 
Goodwill impairment— 35,653 — — 35,653 
649 95,398 8,131 — 104,178 
Operating income (loss)(649)20,747 3,455 — 23,553 
Other income (expense):
Equity in earnings of subsidiaries31,461 6,589 — (38,050)— 
Equity in earnings of equity method investments— 755 561 — 1,316 
Interest expense(13,072)(1,032)— — (14,104)
Interest income— 2,787 16 — 2,803 
Other income73 2,542 4,850 — 7,465 
18,462 11,641 5,427 (38,050)(2,520)
Income before income taxes17,813 32,388 8,882 (38,050)21,033 
State income tax expense— (34)— — (34)
Net income 17,813 32,354 8,882 (38,050)20,999 
Allocation of net income attributable to noncontrolling interests
— (893)(2,293)— (3,186)
Net income attributable to the partners
$17,813 $31,461 $6,589 $(38,050)$17,813 
Condensed Consolidating Statement of Comprehensive Income
Three Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $99,482 $6,545 $— $106,027 
Third parties— 23,999 5,869 — 29,868 
— 123,481 12,414 — 135,895 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 40,866 4,058 — 44,924 
Depreciation and amortization19,757 4,364 — 24,121 
General and administrative569 2,145 — — 2,714 
569 62,768 8,422 — 71,759 
Operating income (loss)(569)60,713 3,992 — 64,136 
Other income (expense):
Equity in earnings of subsidiaries101,638 3,013 — (104,651)— 
Equity in earnings of equity method investments— 1,334 — — 1,334 
Interest expense(18,945)138 — — (18,807)
Interest income— 2,243 — — 2,243 
Gain on sales-type lease— 35,166 — — 35,166 
Other income (loss)221 (104)25 — 142 
82,914 41,790 25 (104,651)20,078 
Income before income taxes82,345 102,503 4,017 (104,651)84,214 
State income tax expense— (30)— — (30)
Net income 82,345 102,473 4,017 (104,651)84,184 
Allocation of net income attributable to noncontrolling interests
— (835)(1,004)— (1,839)
Net income attributable to the partners
$82,345 $101,638 $3,013 $(104,651)$82,345 
Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2020ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $278,767 $19,216 $— $297,983 
Third parties— 56,592 15,817 — 72,409 
— 335,359 35,033 — 370,392 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 98,176 11,545 — 109,721 
Depreciation and amortization— 62,489 12,713 — 75,202 
General and administrative2,528 5,041 — — 7,569 
Goodwill impairment— 35,653 — — 35,653 
2,528 201,359 24,258 — 228,145 
Operating income (loss)(2,528)134,000 10,775 — — 142,247 
Other income (expense):
Equity in earnings of subsidiaries189,889 12,394 — (202,283)— 
Equity in earnings of equity method investments— 4,292 894 — 5,186 
Interest expense(42,542)(3,108)— — (45,650)
Interest income26 7,792 16 — 7,834 
Loss on early extinguishment of debt(25,915)— — — (25,915)
Gain on sales-type lease— 33,834 — — 33,834 
Gain on sale of assets and other214 3,358 4,867 — 8,439 
121,672 58,562 5,777 (202,283)(16,272)
Income before income taxes119,144 192,562 16,552 (202,283)125,975 
State income tax expense— (110)— — (110)
Net income 119,144 192,452 16,552 (202,283)125,865 
Allocation of net income attributable to noncontrolling interests
— (2,563)(4,158)— (6,721)
Net income attributable to the partners
$119,144 $189,889 $12,394 $(202,283)$119,144 
Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended September 30, 2019ParentGuarantor Restricted
Subsidiaries
Non-Guarantor Non-restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Revenues:
Affiliates$— $293,096 $18,659 $— $311,755 
Third parties— 69,764 19,624 — 89,388 
— 362,860 38,283 — 401,143 
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)
— 111,644 11,401 — 123,045 
Depreciation and amortization59,320 12,872 — 72,192 
General and administrative2,390 4,932 — — 7,322 
2,390 175,896 24,273 — 202,559 
Operating income (loss)(2,390)186,964 14,010 — 198,584 
Other income (expense):
Equity in earnings of subsidiaries238,368 10,572 — (248,940)— 
Equity in earnings of equity method investments— 5,217 — — 5,217 
Interest expense(56,982)(77)— — (57,059)
Interest income— 3,322 — — 3,322 
Gain on sales-type lease— 35,166 — — 35,166 
Gain on sale of assets and other221 (364)86 — (57)
181,607 53,836 86 (248,940)(13,411)
Income before income taxes179,217 240,800 14,096 (248,940)185,173 
State income tax expense— (36)— — (36)
Net income 179,217 240,764 14,096 (248,940)185,137 
Allocation of net income attributable to noncontrolling interests
— (2,396)(3,524)— (5,920)
Net income attributable to the partners
$179,217 $238,368 $10,572 $(248,940)$179,217 
Condensed Consolidating Statement of Cash Flows
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2020ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(49,182)$250,355 $36,261 $(12,394)$225,040 
Cash flows from investing activities
Additions to properties and equipment— (10,675)(27,967)— (38,642)
Investment in Cushing Connect
— (15,382)(2,438)15,382 (2,438)
Proceeds from sale of assets
— 961 — — 961 
Distributions in excess of equity in earnings of equity investments
— 11,084 — (10,383)701 
— (14,012)(30,405)4,999 (39,418)
Cash flows from financing activities
Net borrowings under credit agreement(17,500)— — — (17,500)
Net intercompany financing activities234,081 (234,081)— — — 
Redemption of senior notes(522,500)— — — (522,500)
Proceeds from issuance of senior notes500,000 — — — 500,000 
Contribution from general partner611 — 15,382 (15,382)611 
Contribution from noncontrolling interest— — 15,382 — 15,382 
Distributions to HEP unitholders(137,437)— — — (137,437)
Distributions to noncontrolling interests— — (30,622)22,777 (7,845)
Units withheld for tax withholding obligations(149)— — — (149)
Deferred financing costs(8,714)— — — (8,714)
Payments on finance leases— (2,666)— — (2,666)
48,392 (236,747)142 7,395 (180,818)
Cash and cash equivalents
Increase (decrease) for the period(790)(404)5,998 — 4,804 
Beginning of period4,790 (709)9,206 — 13,287 
End of period$4,000 $(1,113)$15,204 $— $18,091 
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2019ParentGuarantor
Restricted Subsidiaries
Non-Guarantor Non-Restricted SubsidiariesEliminationsConsolidated
 (In thousands)
Cash flows from operating activities$(62,229)$271,657 $31,467 $(12,678)$228,217 
Cash flows from investing activities
Additions to properties and equipment— (23,227)(601)— (23,828)
Distributions from UNEV in excess of earnings
— 10,572 — (10,572)— 
Proceeds from sale of assets
— 265 — — 265 
Distributions in excess of equity in earnings of equity investments
— 693 — — 693 
— (11,697)(601)(10,572)(22,870)
Cash flows from financing activities
Net borrowings under credit agreement12,500 — — — 12,500 
Net intercompany financing activities260,362 (260,362)— — — 
Contributions from general partner182 — — — 182 
Distributions to HEP unitholders(204,701)— — — (204,701)
Distributions to noncontrolling interests— — (31,000)23,250 (7,750)
Units withheld for tax withholding obligations(119)— — — (119)
Purchase units for incentive grants(255)— — (255)
Payments on finance leases— (780)— — (780)
Other (139)139 — — — 
67,830 (261,003)(31,000)23,250 (200,923)
Cash and cash equivalents
Increase for the period5,601 (1,043)(134)— 4,424 
Beginning of period— 3,043 — 3,045 
End of period$5,603 $(1,043)$2,909 $— $7,469 
v3.20.2
Description of Business and Presentation of Financial Statements - Narrative (Details)
3 Months Ended 6 Months Ended 9 Months Ended
Jan. 01, 2021
renewalOption
Sep. 30, 2020
USD ($)
renewalOption
shares
Jun. 30, 2020
USD ($)
Sep. 30, 2020
USD ($)
renewalOption
shares
Sep. 30, 2020
USD ($)
renewalOption
shares
Sep. 30, 2020
USD ($)
Components
renewalOption
shares
Sep. 30, 2020
USD ($)
segment
renewalOption
shares
Dec. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Jan. 01, 2019
USD ($)
Other Ownership Interests [Line Items]                    
Ownership percentage, controlling interest   57.00%   57.00% 57.00% 57.00% 57.00%      
Shares, Issued | shares   37,250,000   37,250,000 37,250,000 37,250,000 37,250,000      
Limited partner distribution         $ 2,500,000          
Revenue, Remaining Performance Obligation, Amount   $ 17,600,000                
Property, Plant, and Equipment, Salvage Value     $ 88,500,000              
Goodwill, Impaired, Accumulated Impairment Loss   35,700,000   $ 35,700,000 35,700,000 $ 35,700,000 $ 35,700,000      
Long-Lived Assets     28,100,000              
Goodwill   $ 234,684,000   $ 234,684,000 234,684,000 $ 234,684,000 $ 234,684,000   $ 270,336,000  
General Partners' Capital Account, Period Distribution Amount         $ 0          
Goodwill, Gross     68,700,000              
Impairment of Long-Lived Assets Held-for-use     $ 0              
Finance lease term   10 years   10 years 10 years 10 years 10 years      
Number of Renewal Option Periods | renewalOption   (1)   (1) (1) (1) (1)      
Number of Reportable Segments           2 2      
Operating Lease, Liability   $ 3,532,000   $ 3,532,000 $ 3,532,000 $ 3,532,000 $ 3,532,000   $ 3,608,000 $ 78,400,000
HEP [Member]                    
Other Ownership Interests [Line Items]                    
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest       2.00%            
Subsequent Event                    
Other Ownership Interests [Line Items]                    
Related Party Transaction, Due from (to) Related Party               $ 5,000,000    
Due from Related Parties               $ 10,000,000    
Lessor, Operating Lease, Renewal Term 5 years                  
Lessor, Operating Lease, Term of Contract 10 years                  
Number of Renewal Option Periods | renewalOption (2)                  
Subsequent Event | Forecast [Member]                    
Other Ownership Interests [Line Items]                    
Lessor, Operating Lease, Service Fee Arrangement, Period 5 years                  
UNEV Pipeline                    
Other Ownership Interests [Line Items]                    
Equity Method Investment, Ownership Percentage   75.00%   75.00% 75.00% 75.00% 75.00%      
Osage Pipeline [Member]                    
Other Ownership Interests [Line Items]                    
Equity Method Investment, Ownership Percentage   50.00%   50.00% 50.00% 50.00% 50.00%      
Cushing Connect Pipeline & Terminal [Member]                    
Other Ownership Interests [Line Items]                    
Equity Method Investment, Ownership Percentage   50.00%   50.00% 50.00% 50.00% 50.00%      
v3.20.2
Investment in Joint Venture Investment in Joint Venture (Details)
9 Months Ended
Sep. 30, 2020
bbl
Business Combinations [Abstract]  
Construction of Cushing Connect Pipeline 160,000
Cushing Connect Terminal 1,500,000
v3.20.2
Investment in Joint Venture (Details)
$ in Millions
3 Months Ended
Dec. 31, 2020
USD ($)
Subsequent Event  
Business Acquisition [Line Items]  
Payments to Acquire Interest in Joint Venture $ 65
v3.20.2
Revenues - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]          
Deferred revenue recognized $ 1,100   $ 13,800    
Deferred revenue recognized. billed prior period 200   700 $ 600  
Contract With Customer, Asset, Revenue Recognized 100   500    
Revenue from Contract with Customer, Excluding Assessed Tax 127,731 $ 135,895 370,392 $ 401,143  
Operating Lease, Lease Income 90,100   269,900    
Revenue, Remaining Performance Obligation, Amount 2,174,000   2,174,000    
Shortfall Payments          
New Accounting Pronouncements or Change in Accounting Principle [Line Items]          
Contract With Customer, Liability, Increase 400   400   $ 500
Deferred revenue shortfalls billed 400   400    
Service, Other          
New Accounting Pronouncements or Change in Accounting Principle [Line Items]          
Revenue from Contract with Customer, Excluding Assessed Tax $ 37,700   $ 100,500    
v3.20.2
Revenues - Narrative, Remaining Performance Obligation (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]        
Operating Lease, Lease Income $ 90,100   $ 269,900  
Contract with Customer, Liability, Revenue Recognized 1,100   13,800  
Revenue, Remaining Performance Obligation, Amount 2,174,000   2,174,000  
Contract With Customer, Liability, Revenue Recognized, Billed Prior Period 200   700 $ 600
Contract With Customer, Asset, Revenue Recognized 100   500  
Revenue from Contract with Customer, Excluding Assessed Tax 127,731 $ 135,895 370,392 $ 401,143
Shortfall Payments        
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]        
Contract with Customer, Liability 400   400  
Service, Other        
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]        
Revenue from Contract with Customer, Excluding Assessed Tax $ 37,700   $ 100,500  
v3.20.2
Revenues - Schedule of Future Performance Obligations (Details)
$ in Millions
Sep. 30, 2020
USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 2,174
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 92
Unfulfilled performance obligations, expected timing 3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 362
Unfulfilled performance obligations, expected timing 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 332
Unfulfilled performance obligations, expected timing 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 295
Unfulfilled performance obligations, expected timing 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 255
Unfulfilled performance obligations, expected timing 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 188
Unfulfilled performance obligations, expected timing 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-01-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, Remaining Performance Obligation, Amount $ 650
Unfulfilled performance obligations, expected timing
v3.20.2
Revenues - Schedule of Contract Asset and Liability Balances (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]        
Contract With Customer, Liability, Revenue Recognized, Billed Prior Period $ 200 $ 700 $ 600  
Contract assets 6,187 6,187   $ 5,675
Contract liabilities (400) (400)   $ (650)
Contract With Customer, Asset, Revenue Recognized $ 100 $ 500    
v3.20.2
Revenues - Schedule of Disaggregated Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Disaggregation of Revenue [Line Items]        
Disaggregated Revenue $ 127,731 $ 135,895 $ 370,392 $ 401,143
Pipelines        
Disaggregation of Revenue [Line Items]        
Disaggregated Revenue 68,292 73,163 197,718 220,526
Terminals, tanks and loading racks        
Disaggregation of Revenue [Line Items]        
Disaggregated Revenue 39,036 42,454 112,814 119,121
Refinery processing units        
Disaggregation of Revenue [Line Items]        
Disaggregated Revenue $ 20,403 $ 20,278 $ 59,860 $ 61,496
v3.20.2
Leases - Narrative (Details)
$ in Millions
Sep. 30, 2020
USD ($)
renewalOption
Dec. 31, 2019
USD ($)
Lessee, Lease, Description [Line Items]    
Finance lease term 10 years  
Operating lease renewal term 10 years  
Capital Leased Assets, Gross $ 6.6 $ 7.0
Capital Leases Accumulated Depreciation $ 3.4 $ 4.5
Lessee, Finance Lease, Renewal Term 10 years  
Number of Renewal Option Periods | renewalOption 1  
Minimum    
Lessee, Lease, Description [Line Items]    
Operating lease term 1 year  
Maximum    
Lessee, Lease, Description [Line Items]    
Operating lease term 24 years  
Vehicles | Minimum    
Lessee, Lease, Description [Line Items]    
Finance lease term 33 months  
Vehicles | Maximum    
Lessee, Lease, Description [Line Items]    
Finance lease term 48 months  
v3.20.2
Leases - Supplemental Balance Sheet (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Jan. 01, 2019
Operating leases:      
Operating lease right-of-use assets $ 3,164 $ 3,255  
Current operating lease liabilities 1,199 1,126  
Long-term lease obligations 2,333 2,482  
Operating Lease, Liability 3,532 3,608 $ 78,400
Finance leases:      
Properties, plants and equipment 6,554 6,968  
Accumulated amortization (3,354) (4,547)  
Properties, plants and equipment, net 3,200 2,421  
Current finance lease liabilities 3,459 3,224  
Noncurrent finance lease liabilities 69,180 70,475  
Total finance lease liabilities $ 72,639 $ 73,699  
Weighted average remaining lease term (in years)      
Operating leases 6 years 6 years 6 months  
Finance leases 16 years 2 months 12 days 17 years  
Weighted average discount rate      
Operating leases 4.80% 5.00%  
Finance leases 5.60% 6.00%  
v3.20.2
Leases - Supplemental Cash Flow Information (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows from operating lease $ 773 $ 5,467
Operating cash flows from finance leases 3,241 75
Financing cash flows from finance leases $ 2,666 $ 780
v3.20.2
Leases - Operating and Finance Lease Maturities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Jan. 01, 2019
Operating      
2020 $ 257    
2021 906    
2022 627    
2023 607    
2024 494    
2025 and thereafter 1,179    
Total lease payments 4,070    
Less: Imputed interest (538)    
Total operating lease liabilities 3,532 $ 3,608 $ 78,400
Less: Current obligations (1,199) (1,126)  
Long-term lease obligations 2,333 2,482  
Finance      
2020 1,931    
2021 7,403    
2022 7,277    
2023 7,320    
2024 6,856    
2025 and thereafter 80,313    
Total lease payments 111,100    
Less: Imputed interest (38,461)    
Total finance lease liabilities 72,639 73,699  
Less: Current obligations (3,459) (3,224)  
Long-term lease obligations $ 69,180 $ 70,475  
v3.20.2
Leases - Components of Lease Expense (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Leases [Abstract]        
Operating lease costs $ 242 $ 1,852 $ 745 $ 5,420
Amortization of assets 251 213 766 711
Interest on lease liabilities 1,032 24 3,108 75
Variable Lease, Cost 64 41 159 112
Total net lease cost $ 1,589 $ 2,130 $ 4,778 $ 6,318
v3.20.2
Leases - Gain on Sales-Type Leases (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Leases [Abstract]        
Net investment in leases $ 35,319   $ 35,319  
Properties and equipment, net     (1,485)  
Gain on Sales-type Leases $ 0 $ 35,166 $ 33,834 $ 35,166
v3.20.2
Leases - Schedule of Lease Income (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Leases [Abstract]        
Operating lease revenues $ 87,125 $ 94,459 $ 262,518 $ 282,747
Direct financing lease interest income 525 539 1,572 1,558
Sales-type lease interest income 2,278 1,675 6,218 1,675
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable $ 2,952 $ 3,075 $ 7,413 $ 3,075
v3.20.2
Leases - Schedule of Minimum Undiscounted Lease Payments (Details)
$ in Thousands
Sep. 30, 2020
USD ($)
Operating  
Remainder of 2020 $ 77,568
2021 306,771
2022 304,315
2023 273,362
2024 235,280
Thereafter 739,158
Total 1,936,454
Finance  
Sales-type and Direct Financing Leases, Lease Receivable, Fiscal Year Maturity [Abstract]  
Remainder of 2020 530
2021 2,128
2022 2,145
2023 2,162
2024 2,179
Thereafter 40,787
Total 49,931
Sales-type  
Sales-type and Direct Financing Leases, Lease Receivable, Fiscal Year Maturity [Abstract]  
Remainder of 2020 3,114
2021 12,456
2022 12,456
2023 12,456
2024 12,456
Thereafter 73,044
Total $ 125,982
v3.20.2
Leases - Net Investments in Leases (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Lessor, Lease, Description [Line Items]    
Net investment in leases $ 35,319  
Sales-type Leases    
Lessor, Lease, Description [Line Items]    
Lease receivables [1] 90,606 $ 68,457
Unguaranteed residual assets 63,718 52,933
Net investment in leases 154,324 121,390
Direct Financing Leases    
Lessor, Lease, Description [Line Items]    
Lease receivables [1] 16,469 16,511
Unguaranteed residual assets 0 0
Net investment in leases $ 16,469 $ 16,511
[1] Current portion of lease receivables included in prepaid and other current assets on the balance sheet.
v3.20.2
Fair Value Measurements - Narrative (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Feb. 04, 2020
Dec. 31, 2019
6% Senior notes      
Debt Instrument [Line Items]      
Debt Instrument, Interest Rate, Stated Percentage     6.00%
Five Percent Senior Notes Due Two Thousand Twenty Eight [Member]      
Debt Instrument [Line Items]      
Debt Instrument, Interest Rate, Stated Percentage   5.00% 5.00%
Carrying Value | 6% Senior notes | Fair value inputs, Level 2      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure $ 0   $ 496,531
Carrying Value | Five Percent Senior Notes Due Two Thousand Twenty Eight [Member] | Fair value inputs, Level 2      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure 491,874   0
Fair Value | 6% Senior notes | Fair value inputs, Level 2      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure 0   522,045
Fair Value | Five Percent Senior Notes Due Two Thousand Twenty Eight [Member] | Fair value inputs, Level 2      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure $ 490,155   $ 0
v3.20.2
Properties and Equipment - Schedule of Properties and Equipment (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross $ 2,095,559 $ 2,061,554
Less accumulated depreciation 647,635 594,455
Properties and equipment, net 1,447,924 1,467,099
Pipelines, terminals and tankage    
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross 1,609,453 1,602,231
Refinery assets    
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross 349,030 348,093
Land and right of way    
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross 87,076 86,190
Construction in progress    
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross 40,734 10,930
Other    
Property, Plant and Equipment [Line Items]    
Properties and equipment, gross $ 9,266 $ 14,110
v3.20.2
Properties and Equipment - Narrative (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 64.3 $ 61.7
v3.20.2
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets, Net [Abstract]    
Intangible assets, gross $ 204,797 $ 204,797
Less accumulated amortization 113,980 103,475
Intangible assets, net 90,817 101,322
Estimated amortization expense, year four 9,900  
Delek transportation agreement    
Finite-Lived Intangible Assets, Net [Abstract]    
Intangible assets, gross $ 59,933 59,933
Useful Life 30 years  
HFC transportation agreement    
Finite-Lived Intangible Assets, Net [Abstract]    
Intangible assets, gross $ 75,131 75,131
Customer relationships    
Finite-Lived Intangible Assets, Net [Abstract]    
Intangible assets, gross 69,683 69,683
Other    
Finite-Lived Intangible Assets, Net [Abstract]    
Intangible assets, gross $ 50 $ 50
Customer Relationships    
Finite-Lived Intangible Assets, Net [Abstract]    
Useful Life 10 years  
Minimum | HFC transportation agreement    
Finite-Lived Intangible Assets, Net [Abstract]    
Useful Life 10 years  
Maximum | HFC transportation agreement    
Finite-Lived Intangible Assets, Net [Abstract]    
Useful Life 15 years  
v3.20.2
Intangible Assets - Narrative (Details)
$ in Millions
9 Months Ended
Sep. 30, 2020
USD ($)
Finite-Lived Intangible Assets [Line Items]  
Estimated amortization expense, year two $ 14.0
Estimated amortization expense, year three 14.0
Estimated amortization expense, year four 9.9
Estimated amortization expense, year five 9.1
Estimated amortization expense, after year five 9.1
Amortization expense $ 10.5
v3.20.2
Employees, Retirement and Incentive Plans Retirement and Benefit Plan Costs (Details)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
shares
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
Components
shares
Sep. 30, 2019
USD ($)
Share-based Compensation Arrangements        
Employee benefits and share-based compensation | $ $ 1.9 $ 1.8 $ 5.7 $ 5.4
Long-term Incentive Plan, Components | Components     4  
Number of incentive-based award plans 2   2  
Compensation costs of incentive awards | $ $ 0.6 $ 0.5 $ 1.5 $ 1.8
Deferred Bonus        
Share-based Compensation Arrangements        
Units authorized under equity-based compensation plans (new) | shares 2,500,000   2,500,000  
Number of units available for grant | shares 1,122,230   1,122,230  
v3.20.2
Employees, Retirement and Incentive Plans Restricted Units (Details) - USD ($)
$ / shares in Units, $ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Share-based Compensation Arrangements      
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value $ 200,000    
Restricted and Phantom Units      
Share-based Compensation Arrangements      
Nonvested restricted units outstanding 130,981   145,205
Vesting and transfer of common units to recipients 5,646 0  
Vested in Period $ 29.94    
Weighted average grant date fair value $ 26.11   $ 26.22
Forfeitures 8,578    
Weighted Average Grant Date Fair Value - Forfeitures $ 25.47    
Total unrecognized compensation related to nonvested units $ 0.9    
Weighted average remaining contractual term (years) 1 year 1 month 6 days    
Performance Shares      
Share-based Compensation Arrangements      
Nonvested restricted units outstanding 41,811   53,445
Vesting and transfer of common units to recipients 11,634    
Total unrecognized compensation related to nonvested units $ 0.4    
Weighted average remaining contractual term (years) 1 year 3 months 18 days    
v3.20.2
Employees, Retirement and Incentive Plans Performance Units (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Share-based Compensation Arrangement Instruments [Roll Forward]    
Estimated Share Payouts Unit Awards Maximum 120.00%  
Estimated Share Payouts Unit Awards Minimum 100.00%  
Weighted Average Fair Value of Units Outstanding $ 1.2  
Performance Shares    
Share-based Compensation Arrangement Instruments [Roll Forward]    
Outstanding at January 1, 2020 (nonvested) 53,445  
Vesting and transfer of common units to recipients (11,634)  
Outstanding at September 30, 2020 (nonvested) 41,811  
Fair value of vested units transferred to recipients $ 0.4 $ 0.3
Total unrecognized compensation related to nonvested units $ 0.4  
Weighted average remaining contractual term (years) 1 year 3 months 18 days  
Restricted and Phantom Units    
Share-based Compensation Arrangement Instruments [Roll Forward]    
Outstanding at January 1, 2020 (nonvested) 145,205  
Vesting and transfer of common units to recipients (5,646) 0
Forfeitures (8,578)  
Outstanding at September 30, 2020 (nonvested) 130,981  
Total unrecognized compensation related to nonvested units $ 0.9  
Weighted average remaining contractual term (years) 1 year 1 month 6 days  
v3.20.2
Debt - Senior Notes (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Feb. 05, 2020
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Feb. 04, 2020
Dec. 31, 2019
Debt Instrument [Line Items]              
Line of Credit Facility, Maximum Borrowing Capacity   $ 1,400,000   $ 1,400,000      
Line of Credit Facility, Capacity Available for Trade Purchases   50,000   50,000      
Line of Credit Facility, Accordion Feature   300,000   300,000      
Gain (Loss) on Extinguishment of Debt $ 25,900 0 $ 0 (25,915) $ 0    
Debt Instrument, Unamortized Premium $ 22,500            
Debt Instrument, Unamortized Discount (Premium) and Debt Issuance Costs, Net           $ 3,400  
Senior Notes Aggregate Redemption Amount           522,500  
6% Senior notes              
Debt Instrument [Line Items]              
Principal   0   0   $ 500,000 $ 500,000
Stated interest rate, senior notes             6.00%
Five Percent Senior Notes Due Two Thousand Twenty Eight [Member]              
Debt Instrument [Line Items]              
Principal   $ 500,000   $ 500,000     $ 0
Stated interest rate, senior notes           5.00% 5.00%
v3.20.2
Debt Long-Term Debt (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Feb. 04, 2020
Dec. 31, 2019
Debt Instrument [Line Items]      
Credit Agreement $ 948,000   $ 965,500
Total long-term debt 1,439,874   1,462,031
6% Senior notes      
Debt Instrument [Line Items]      
Principal 0 $ 500,000 500,000
Unamortized discount 0   (3,469)
6% Senior notes | Fair value inputs, Level 2 | Carrying Value      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure 0   496,531
Five Percent Senior Notes Due Two Thousand Twenty Eight [Member]      
Debt Instrument [Line Items]      
Principal 500,000   0
Unamortized discount (8,126)   0
Five Percent Senior Notes Due Two Thousand Twenty Eight [Member] | Fair value inputs, Level 2 | Carrying Value      
Debt Instrument [Line Items]      
Financial Liabilities Fair Value Disclosure $ 491,874   $ 0
v3.20.2
Debt - Interest Rate Risk Management (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Line of credit facility, amount outstanding $ 948,000 $ 965,500
v3.20.2
Related Party Transactions - Narrative (Details)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
yr
shares
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
yr
shares
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Related Party Transaction [Line Items]          
Concentration Risk, Percentage 79.00%   80.00%    
Administrative fee, related party     $ 2.6    
Revenue from related parties $ 101.0 $ 106.0 298.0 $ 311.8  
Omnibus Agreement G & A expenses, related party 0.7   2.0 1.9  
Employee expenses reimbursed to related party 14.0 13.7 41.3 40.5  
Reimbursements received from related parties 2.3 4.6 6.3 10.4  
Accounts receivable due from HFC 46.5   46.5   $ 49.7
Due to Affiliate 6.9   6.9   16.7
Lease Income 0.5   1.5    
Sales-type Lease, Lease Income $ 2.4   $ 7.1 2.4  
Shares, Issued | shares 37,250,000   37,250,000    
Limited Partners' Capital Account, Distribution Amount     $ 2.5    
HEP [Member]          
Related Party Transaction [Line Items]          
Limited Liability Company (LLC) or Limited Partnership (LP), Managing Member or General Partner, Ownership Interest     2.00%    
Affiliated Entity          
Related Party Transaction [Line Items]          
Minimum annualized payments $ 351.1   $ 351.1    
Distributions to HEP unitholders 18.4 $ 37.6 74.3 $ 112.4  
Shortfall Payments          
Related Party Transaction [Line Items]          
Shortfall billings deferred revenue $ 0.4   $ 0.4   $ 0.5
Minimum          
Related Party Transaction [Line Items]          
Revenue service commitments expiration | yr 2,021   2,021    
Maximum          
Related Party Transaction [Line Items]          
Revenue service commitments expiration | yr 2,036   2,036    
v3.20.2
Partners' Equity, Income Allocations and Cash Distributions - Issuances (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Partners' Capital [Abstract]        
Limited Partners' Capital Account, Distribution Amount $ 37.0 $ 68.5 $ 105.9 $ 205.2
Common units held by HFC (in shares) 59,630,030   59,630,030  
Ownership percentage, controlling interest 57.00%   57.00%  
Common Unit Issuance Program     $ 200.0  
Partners' capital account, units, sale of units (in shares)     2,413,153  
Gross proceeds from issuance of common units     $ 82.3  
Dividends Payable, Amount Per Share $ 0.35   $ 0.35  
v3.20.2
Partners' Equity, Income Allocations and Cash Distributions - Cash Distributions (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Nov. 12, 2020
Nov. 02, 2020
Oct. 22, 2020
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Incentive Distribution Made to Managing Member or General Partner [Line Items]              
Partners' Capital Account, Units       59,630,030   59,630,030  
Ownership percentage, controlling interest       57.00%   57.00%  
Common Unit Issuance Program           $ 200.0  
Partners' capital account, units, sale of units (in shares)           2,413,153  
Limited partner distribution           $ 2.5  
Gross proceeds from issuance of common units           82.3  
Distributions declared       $ 37.0 $ 68.5 $ 105.9 $ 205.2
Subsequent Event              
Incentive Distribution Made to Managing Member or General Partner [Line Items]              
Dividends Payable, Date Declared     Oct. 22, 2020        
Dividends Payable, Date to be Paid Nov. 12, 2020            
Dividends Payable, Date of Record   Nov. 02, 2020          
v3.20.2
Net Income per Limited Partner Unit - Schedules of Computations (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Earnings per Unit by Type of Partner [Line Items]        
Net income attributable to the partners $ 17,813 $ 82,345 $ 119,144 $ 179,217
Weighted average limited partners’ units outstanding 105,440 105,440 105,440 105,440
Limited partners’ per unit interest in earnings—basic and diluted: $ 0.17 $ 0.78 $ 1.13 $ 1.70
Limited Partner        
Earnings per Unit by Type of Partner [Line Items]        
Net income attributable to partnership $ 17,813 $ 82,345 $ 119,144 $ 179,217
v3.20.2
Environmental Environmental (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Dec. 31, 2019
Loss Contingencies [Line Items]        
Environmental remediation expense $ 1,000 $ 300 $ 1,600  
Accrued environmental expense liability 5,700   5,700 $ 5,500
Accrued environmental expense, noncurrent liability 3,500   3,500  
Affiliated Entity        
Loss Contingencies [Line Items]        
Accrued environmental expense liability $ 400 $ 500 $ 400  
v3.20.2
Segment Information - Narrative (Details) - 9 months ended Sep. 30, 2020
Components
segment
Segment Reporting [Abstract]    
Number of Operating Segments   2
Number of Reportable Segments 2 2
v3.20.2
Segment Information - Schedule of Segment Information (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Feb. 05, 2020
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Feb. 04, 2020
Dec. 31, 2019
Segment Reporting Information [Line Items]              
Revenues   $ 127,731 $ 135,895 $ 370,392 $ 401,143    
Operating Income (Loss)   23,553 64,136 142,247 198,584    
Segment operating profit   25,885 66,850 149,816 205,906    
Unallocated general and administrative   (2,332) (2,714) (7,569) (7,322)    
Interest and financing costs, net   (11,301) (16,564) (37,816) (53,737)    
Gain (Loss) on Extinguishment of Debt $ 25,900 0 0 (25,915) 0    
Equity in earnings of unconsolidated affiliates   1,316 1,334 5,186 5,217    
Gain on Sales-type Leases   0 35,166 33,834 35,166    
Gain (loss) on sale of assets and other   7,465 142 8,439 (57)    
Income before income taxes   21,033 84,214 125,975 185,173    
Capital Expenditures   7,902 6,076 38,642 23,828    
Assets   2,161,885   2,161,885     $ 2,199,232
Goodwill   234,684   234,684     $ 270,336
Five Percent Senior Notes Due Two Thousand Twenty Eight [Member]              
Segment Reporting Information [Line Items]              
Debt Instrument, Interest Rate, Stated Percentage           5.00% 5.00%
6% Senior notes              
Segment Reporting Information [Line Items]              
Debt Instrument, Interest Rate, Stated Percentage             6.00%
Pipelines and terminal - affiliate              
Segment Reporting Information [Line Items]              
Revenues   80,589 85,749 238,123 250,259    
Pipelines and terminals - third party              
Segment Reporting Information [Line Items]              
Revenues   26,739 29,868 72,409 89,388    
Operating Income (Loss)   15,912 56,944 120,445 178,112    
Capital Expenditures   7,902 5,320 38,318 23,072    
Assets [1]   1,712,033   1,712,033     $ 1,749,843
Refinery processing units              
Segment Reporting Information [Line Items]              
Revenues   20,403 20,278 59,860 61,496    
Operating Income (Loss)   9,973 9,906 29,371 27,794    
Capital Expenditures   0 $ 756 324 $ 756    
Assets   305,999   305,999     305,897
Other              
Segment Reporting Information [Line Items]              
Assets   $ 143,853   $ 143,853     $ 143,492
[1] Includes goodwill of $234.7 million as of September 30, 2020 and $270.3 million as of December 31, 2019.
v3.20.2
Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidated Balance Sheet (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2019
Dec. 31, 2018
Current assets:        
Cash and cash equivalents $ 18,091 $ 13,287 $ 7,469 $ 3,045
Accounts receivable 60,361 68,447    
Prepaid and other current assets 6,282 7,629    
Total current assets 84,734 89,363    
Properties and equipment, net 1,447,924 1,467,099    
Operating lease right-of-use assets 3,164 3,255    
Net Investment in Lease 167,238 134,886    
Investment in subsidiaries 0 0    
Intangible assets, net 90,817 101,322    
Goodwill 234,684 270,336    
Equity method investments 122,046 120,071    
Other assets 11,278 12,900    
Assets 2,161,885 2,199,232    
Current liabilities:        
Accounts payable 27,944 34,555    
Due to Affiliate 6,900 16,700    
Accrued interest 4,691 13,206    
Deferred revenue 11,020 10,390    
Accrued property taxes 8,972 3,799    
Current maturities of operating leases 1,199 1,126    
Current maturities of finance leases 3,459 3,224    
Other current liabilities 2,849 2,305    
Total current liabilities 60,134 68,605    
Long-term debt 1,439,874 1,462,031    
Noncurrent operating lease liabilities 2,333 2,482    
Noncurrent finance lease liabilities 69,180 70,475    
Other long-term liabilities 13,861 12,808    
Deferred revenue 41,376 45,681    
Class B unit 51,956 49,392    
Equity - partners 364,821 381,103    
Equity - noncontrolling interest 118,350 106,655    
Total liabilities and equity 2,161,885 2,199,232    
Parent        
Current assets:        
Cash and cash equivalents 4,000 4,790 5,603 2
Accounts receivable 0 0    
Prepaid and other current assets 149 282    
Total current assets 4,149 5,072    
Properties and equipment, net 0 0    
Operating lease right-of-use assets 0 0    
Net Investment in Lease 0 0    
Investment in subsidiaries 1,800,621 1,844,812    
Intangible assets, net 0 0    
Goodwill 0 0    
Equity method investments 0 0    
Other assets 4,879 6,722    
Assets 1,809,649 1,856,606    
Current liabilities:        
Accounts payable 0 0    
Accrued interest 4,691 13,206    
Deferred revenue 0 0    
Accrued property taxes 0 0    
Current maturities of operating leases 0 0    
Current maturities of finance leases 0 0    
Other current liabilities 3 6    
Total current liabilities 4,694 13,212    
Long-term debt 1,439,874 1,462,031    
Noncurrent operating lease liabilities 0 0    
Noncurrent finance lease liabilities 0 0    
Other long-term liabilities 260 260    
Deferred revenue 0 0    
Class B unit 0 0    
Equity - partners 364,821 381,103    
Equity - noncontrolling interest 0 0    
Total liabilities and equity 1,809,649 1,856,606    
Guarantor Restricted Subsidiaries        
Current assets:        
Cash and cash equivalents (1,113) (709) (1,043) 0
Accounts receivable 56,434 60,229    
Prepaid and other current assets 5,818 6,710    
Total current assets 61,139 66,230    
Properties and equipment, net 1,096,454 1,133,534    
Operating lease right-of-use assets 2,990 3,243    
Net Investment in Lease 167,238 134,886    
Investment in subsidiaries 280,277 275,279    
Intangible assets, net 90,817 101,322    
Goodwill 234,684 270,336    
Equity method investments 82,389 82,987    
Other assets 6,399 6,178    
Assets 2,022,387 2,073,995    
Current liabilities:        
Accounts payable 20,494 29,895    
Accrued interest 0 0    
Deferred revenue 10,620 9,740    
Accrued property taxes 5,377 2,737    
Current maturities of operating leases 1,130 1,114    
Current maturities of finance leases 3,459 3,224    
Other current liabilities 2,748 2,293    
Total current liabilities 43,828 49,003    
Long-term debt 0 0    
Noncurrent operating lease liabilities 2,333 2,482    
Noncurrent finance lease liabilities 69,180 70,475    
Other long-term liabilities 13,093 12,150    
Deferred revenue 41,376 45,681    
Class B unit 51,956 49,392    
Equity - partners 1,800,621 1,844,812    
Equity - noncontrolling interest 0 0    
Total liabilities and equity 2,022,387 2,073,995    
Non-Guarantor Non-Restricted Subsidiaries        
Current assets:        
Cash and cash equivalents 15,204 9,206 2,909 3,043
Accounts receivable 4,982 8,549    
Prepaid and other current assets 315 637    
Total current assets 20,501 18,392    
Properties and equipment, net 351,470 333,565    
Operating lease right-of-use assets 174 12    
Net Investment in Lease 0    
Investment in subsidiaries 0 0    
Intangible assets, net 0 0    
Goodwill 0 0    
Equity method investments 39,657 37,084    
Other assets 0 0    
Assets 411,802 389,053    
Current liabilities:        
Accounts payable 8,505 4,991    
Accrued interest 0 0    
Deferred revenue 400 650    
Accrued property taxes 3,595 1,062    
Current maturities of operating leases 69 12    
Current maturities of finance leases 0 0    
Other current liabilities 98 6    
Total current liabilities 12,667 6,721    
Long-term debt 0 0    
Noncurrent operating lease liabilities 0 0    
Noncurrent finance lease liabilities 0 0    
Other long-term liabilities 508 398    
Deferred revenue 0 0    
Class B unit 0 0    
Equity - partners 280,277 275,279    
Equity - noncontrolling interest 118,350 106,655    
Total liabilities and equity 411,802 389,053    
Eliminations        
Current assets:        
Cash and cash equivalents 0 0 $ 0 $ 0
Accounts receivable (1,055) (331)    
Prepaid and other current assets 0    
Total current assets (1,055) (331)    
Properties and equipment, net 0 0    
Operating lease right-of-use assets 0 0    
Net Investment in Lease 0 0    
Investment in subsidiaries (2,080,898) (2,120,091)    
Intangible assets, net 0 0    
Goodwill 0 0    
Equity method investments 0 0    
Other assets 0 0    
Assets (2,081,953) (2,120,422)    
Current liabilities:        
Accounts payable (1,055) (331)    
Accrued interest 0 0    
Deferred revenue 0 0    
Accrued property taxes 0 0    
Current maturities of operating leases 0 0    
Current maturities of finance leases 0 0    
Other current liabilities 0 0    
Total current liabilities (1,055) (331)    
Long-term debt 0 0    
Noncurrent operating lease liabilities 0 0    
Noncurrent finance lease liabilities 0 0    
Other long-term liabilities 0 0    
Deferred revenue 0 0    
Class B unit 0 0    
Equity - partners (2,080,898) (2,120,091)    
Equity - noncontrolling interest 0 0    
Total liabilities and equity $ (2,081,953) $ (2,120,422)    
v3.20.2
Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidating Statement of Comprehensive Income (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Feb. 05, 2020
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues:                  
Revenues   $ 127,731     $ 135,895     $ 370,392 $ 401,143
Operating costs and expenses [Abstract]                  
Operations (exclusive of depreciation and amortization)   40,003     44,924     109,721 123,045
Depreciation and amortization   26,190     24,121     75,202 72,192
Goodwill, Impairment Loss   35,653     0     35,653 0
General and administrative   2,332     2,714     7,569 7,322
Total operating costs and expenses   104,178     71,759     228,145 202,559
Operating Income (Loss)   23,553     64,136     142,247 198,584
Equity in earnings of subsidiaries   0     0       0
Equity in earnings of equity method investments   1,316     1,334     5,186 5,217
Interest expense   (14,104)     (18,807)     (45,650) (57,059)
Interest income   2,803     2,243     7,834 3,322
Gain (Loss) on Extinguishment of Debt $ 25,900 0     0     (25,915) 0
Other Nonoperating Income (Expense)               8,439  
Gain on Sales-type Leases   0     35,166     33,834 35,166
Gain on sale of assets and other   7,465     142     8,439 (57)
Nonoperating Income (Expense)   (2,520)     20,078     (16,272) (13,411)
Income before income taxes   21,033     84,214     125,975 185,173
State income tax benefit (expense)   (34)     (30)     (110) (36)
Net income   20,999 $ 77,954 $ 26,912 84,184 $ 47,159 $ 53,794 125,865 185,137
Allocation of net income attributable to noncontrolling interests   (3,186)     (1,839)     (6,721) (5,920)
Net Income (Loss) Attributable to Parent   17,813     82,345     119,144 179,217
Other Comprehensive Income (Loss), Net of Tax               0  
Net income attributable to the partners   17,813     82,345     119,144 179,217
Parent                  
Revenues:                  
Revenues   0     0     0 0
Operating costs and expenses [Abstract]                  
Operations (exclusive of depreciation and amortization)   0     0     0 0
Depreciation and amortization   0         0  
Goodwill, Impairment Loss   0           0  
General and administrative   649     569     2,528 2,390
Total operating costs and expenses   649     569     2,528 2,390
Operating Income (Loss)   (649)     (569)     (2,528) (2,390)
Equity in earnings of subsidiaries   31,461     101,638       238,368
Equity in earnings of equity method investments   0     0     0 0
Interest expense   (13,072)     (18,945)     (42,542) (56,982)
Interest income   0     0     26 0
Gain (Loss) on Extinguishment of Debt               (25,915)  
Other Nonoperating Income (Expense)               214  
Gain on Sales-type Leases         0     0 0
Gain on sale of assets and other   73     221       221
Nonoperating Income (Expense)   18,462     82,914     121,672 181,607
Income before income taxes   17,813     82,345     119,144 179,217
State income tax benefit (expense)   0     0     0 0
Net income   17,813     82,345     119,144 179,217
Allocation of net income attributable to noncontrolling interests   0     0     0 0
Other Comprehensive Income (Loss), Net of Tax               189,889  
Net income attributable to the partners   17,813     82,345     119,144 179,217
Guarantor Restricted Subsidiaries                  
Revenues:                  
Revenues   116,145     123,481     335,359 362,860
Operating costs and expenses [Abstract]                  
Operations (exclusive of depreciation and amortization)   36,065     40,866     98,176 111,644
Depreciation and amortization   21,997     19,757     62,489 59,320
Goodwill, Impairment Loss   35,653           35,653  
General and administrative   1,683     2,145     5,041 4,932
Total operating costs and expenses   95,398     62,768     201,359 175,896
Operating Income (Loss)   20,747     60,713     134,000 186,964
Equity in earnings of subsidiaries   6,589     3,013       10,572
Equity in earnings of equity method investments   755     1,334     4,292 5,217
Interest expense   (1,032)     138     (3,108) (77)
Interest income   2,787     2,243     7,792 3,322
Gain (Loss) on Extinguishment of Debt               0  
Other Nonoperating Income (Expense)               3,358  
Gain on Sales-type Leases         35,166     33,834 35,166
Gain on sale of assets and other   2,542     (104)       (364)
Nonoperating Income (Expense)   11,641     41,790     58,562 53,836
Income before income taxes   32,388     102,503     192,562 240,800
State income tax benefit (expense)   (34)     (30)     (110) (36)
Net income   32,354     102,473     192,452 240,764
Allocation of net income attributable to noncontrolling interests   (893)     (835)     (2,563) (2,396)
Other Comprehensive Income (Loss), Net of Tax               12,394  
Net income attributable to the partners   31,461     101,638     189,889 238,368
Non-Guarantor Non-Restricted Subsidiaries                  
Revenues:                  
Revenues   11,586     12,414     35,033 38,283
Operating costs and expenses [Abstract]                  
Operations (exclusive of depreciation and amortization)   3,938     4,058     11,545 11,401
Depreciation and amortization   4,193     4,364     12,713 12,872
Goodwill, Impairment Loss   0           0  
General and administrative   0     0     0 0
Total operating costs and expenses   8,131     8,422     24,258 24,273
Operating Income (Loss)   3,455     3,992     10,775 14,010
Equity in earnings of subsidiaries   0     0       0
Equity in earnings of equity method investments   561     0     894 0
Interest expense   0     0     0 0
Interest income   16     0     16 0
Gain (Loss) on Extinguishment of Debt               0  
Other Nonoperating Income (Expense)               4,867  
Gain on Sales-type Leases         0     0 0
Gain on sale of assets and other   4,850     25       86
Nonoperating Income (Expense)   5,427     25     5,777 86
Income before income taxes   8,882     4,017     16,552 14,096
State income tax benefit (expense)   0     0     0 0
Net income   8,882     4,017     16,552 14,096
Allocation of net income attributable to noncontrolling interests   (2,293)     (1,004)     (4,158) (3,524)
Other Comprehensive Income (Loss), Net of Tax               0  
Net income attributable to the partners   6,589     3,013     12,394 10,572
Eliminations                  
Revenues:                  
Revenues   0     0     0 0
Operating costs and expenses [Abstract]                  
Operations (exclusive of depreciation and amortization)   0     0     0 0
Depreciation and amortization   0     0     0 0
Goodwill, Impairment Loss   0           0  
General and administrative   0     0     0 0
Total operating costs and expenses   0     0     0 0
Operating Income (Loss)   0     0     0 0
Equity in earnings of subsidiaries   (38,050)     (104,651)       (248,940)
Equity in earnings of equity method investments   0     0     0 0
Interest expense   0     0     0 0
Interest income   0     0     0 0
Gain (Loss) on Extinguishment of Debt               0  
Other Nonoperating Income (Expense)               0  
Gain on Sales-type Leases         0     0 0
Gain on sale of assets and other   0     0       0
Nonoperating Income (Expense)   (38,050)     (104,651)     (202,283) (248,940)
Income before income taxes   (38,050)     (104,651)     (202,283) (248,940)
State income tax benefit (expense)   0     0     0 0
Net income   (38,050)     (104,651)     (202,283) (248,940)
Allocation of net income attributable to noncontrolling interests   0     0     0 0
Other Comprehensive Income (Loss), Net of Tax               (202,283)  
Net income attributable to the partners   (38,050)     (104,651)     (202,283) (248,940)
Affiliates                  
Revenues:                  
Revenues   100,992     106,027     297,983 311,755
Affiliates | Parent                  
Revenues:                  
Revenues   0     0     0 0
Affiliates | Guarantor Restricted Subsidiaries                  
Revenues:                  
Revenues   94,595     99,482     278,767 293,096
Affiliates | Non-Guarantor Non-Restricted Subsidiaries                  
Revenues:                  
Revenues   6,397     6,545     19,216 18,659
Affiliates | Eliminations                  
Revenues:                  
Revenues   0     0     0 0
Third parties                  
Revenues:                  
Revenues   26,739     29,868     72,409 89,388
Third parties | Parent                  
Revenues:                  
Revenues   0     0     0 0
Third parties | Guarantor Restricted Subsidiaries                  
Revenues:                  
Revenues   21,550     23,999     56,592 69,764
Third parties | Non-Guarantor Non-Restricted Subsidiaries                  
Revenues:                  
Revenues   5,189     5,869     15,817 19,624
Third parties | Eliminations                  
Revenues:                  
Revenues   $ 0     $ 0     $ 0 $ 0
v3.20.2
Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidating Statement of Cash Flows (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Condensed Financial Statements, Captions [Line Items]    
Net cash provided by operating activities $ 225,040 $ 228,217
Cash flows from investing activities    
Additions to properties and equipment (38,642) (23,828)
Payments to Acquire Interest in Joint Venture (2,438) 0
Distributions from UNEV in excess of earnings   0
Proceeds from sale of assets 961 265
Distributions in excess of equity in earnings of equity investments 701 693
Net cash provided by (used for) investing activities (39,418) (22,870)
Cash flows from financing activities    
Net borrowings (repayments) under credit agreement (17,500) 12,500
Net intercompany financing activities 0 0
Early Repayment of Senior Debt (522,500) 0
Proceeds from Issuance of Senior Long-term Debt 500,000 0
Contributions from general partner 611 182
Contribution from Joint Venture Partner 15,382 0
Distributions to HEP unitholders (137,437) (204,701)
Distributions to noncontrolling interests (7,845) (7,750)
Units withheld for tax withholding obligations (149) (119)
Payments of Financing Costs   (255)
Payments of Debt Issuance Costs (8,714) 0
Payments on finance leases (2,666) (780)
Other financing activities   0
Net cash provided by (used by) financing activities (180,818) (200,923)
Increase (decrease) for the period 4,804 4,424
Beginning of period 13,287 3,045
End of period 18,091 7,469
Parent    
Condensed Financial Statements, Captions [Line Items]    
Net cash provided by operating activities (49,182) (62,229)
Cash flows from investing activities    
Additions to properties and equipment 0 0
Payments to Acquire Interest in Joint Venture 0  
Distributions from UNEV in excess of earnings   0
Proceeds from sale of assets 0 0
Distributions in excess of equity in earnings of equity investments 0 0
Net cash provided by (used for) investing activities 0 0
Cash flows from financing activities    
Net borrowings (repayments) under credit agreement (17,500) 12,500
Net intercompany financing activities 234,081 260,362
Early Repayment of Senior Debt (522,500)  
Proceeds from Issuance of Senior Long-term Debt 500,000  
Contributions from general partner 611 182
Contribution from Joint Venture Partner 0  
Distributions to HEP unitholders (137,437) (204,701)
Distributions to noncontrolling interests 0 0
Units withheld for tax withholding obligations (149) (119)
Payments of Financing Costs   (255)
Payments of Debt Issuance Costs (8,714)  
Payments on finance leases 0 0
Other financing activities   (139)
Net cash provided by (used by) financing activities 48,392 67,830
Increase (decrease) for the period (790) 5,601
Beginning of period 4,790 2
End of period 4,000 5,603
Guarantor Restricted Subsidiaries    
Condensed Financial Statements, Captions [Line Items]    
Net cash provided by operating activities 250,355 271,657
Cash flows from investing activities    
Additions to properties and equipment (10,675) (23,227)
Payments to Acquire Interest in Joint Venture (15,382)  
Distributions from UNEV in excess of earnings   (10,572)
Proceeds from sale of assets 961 265
Distributions in excess of equity in earnings of equity investments 11,084 693
Net cash provided by (used for) investing activities (14,012) (11,697)
Cash flows from financing activities    
Net borrowings (repayments) under credit agreement 0 0
Net intercompany financing activities (234,081) (260,362)
Early Repayment of Senior Debt 0  
Proceeds from Issuance of Senior Long-term Debt 0  
Contributions from general partner 0 0
Contribution from Joint Venture Partner 0  
Distributions to HEP unitholders 0 0
Distributions to noncontrolling interests 0 0
Units withheld for tax withholding obligations 0 0
Payments of Financing Costs  
Payments of Debt Issuance Costs 0  
Payments on finance leases (2,666) (780)
Other financing activities   139
Net cash provided by (used by) financing activities (236,747) (261,003)
Increase (decrease) for the period (404) (1,043)
Beginning of period (709) 0
End of period (1,113) (1,043)
Non-Guarantor Non-Restricted Subsidiaries    
Condensed Financial Statements, Captions [Line Items]    
Net cash provided by operating activities 36,261 31,467
Cash flows from investing activities    
Additions to properties and equipment (27,967) (601)
Payments to Acquire Interest in Joint Venture (2,438)  
Distributions from UNEV in excess of earnings   0
Proceeds from sale of assets 0 0
Distributions in excess of equity in earnings of equity investments 0 0
Net cash provided by (used for) investing activities (30,405) (601)
Cash flows from financing activities    
Net borrowings (repayments) under credit agreement 0 0
Net intercompany financing activities 0 0
Early Repayment of Senior Debt 0  
Proceeds from Issuance of Senior Long-term Debt 0  
Contributions from general partner 15,382 0
Contribution from Joint Venture Partner 15,382  
Distributions to HEP unitholders 0 0
Distributions to noncontrolling interests (30,622) (31,000)
Units withheld for tax withholding obligations 0 0
Payments of Financing Costs   0
Payments of Debt Issuance Costs 0  
Payments on finance leases 0 0
Other financing activities   0
Net cash provided by (used by) financing activities 142 (31,000)
Increase (decrease) for the period 5,998 (134)
Beginning of period 9,206 3,043
End of period 15,204 2,909
Eliminations    
Condensed Financial Statements, Captions [Line Items]    
Net cash provided by operating activities (12,394) (12,678)
Cash flows from investing activities    
Additions to properties and equipment 0 0
Payments to Acquire Interest in Joint Venture 15,382  
Distributions from UNEV in excess of earnings   (10,572)
Proceeds from sale of assets 0 0
Distributions in excess of equity in earnings of equity investments (10,383) 0
Net cash provided by (used for) investing activities 4,999 (10,572)
Cash flows from financing activities    
Net borrowings (repayments) under credit agreement 0 0
Net intercompany financing activities 0 0
Early Repayment of Senior Debt 0  
Proceeds from Issuance of Senior Long-term Debt 0  
Contributions from general partner (15,382) 0
Contribution from Joint Venture Partner 0  
Distributions to HEP unitholders 0 0
Distributions to noncontrolling interests 22,777 23,250
Units withheld for tax withholding obligations 0 0
Payments of Financing Costs   0
Payments of Debt Issuance Costs 0  
Payments on finance leases 0 0
Other financing activities   0
Net cash provided by (used by) financing activities 7,395 23,250
Increase (decrease) for the period 0 0
Beginning of period 0 0
End of period $ 0 $ 0