##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended March 31, 2008
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 For the transition period from 
to .
 Commission
File Number: 1-32225
 HOLLY ENERGY PARTNERS, L.P.
  Delaware
    
    20-0833098(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 (Address of principal executive offices)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    3FORWARD-LOOKING STATEMENTS
    
    
    3Item 1. Financial Statements (Unaudited, except December 31, 2007 Balance Sheet)
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statement of Partners Equity (Deficit) and Comprehensive Income
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    40Item 4. Controls and Procedures
    
    
    40PART II. OTHER INFORMATION
    
    
    41Item 1. Legal Proceedings
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    41SIGNATURES
    
    
    43Computation of Ratio of Earnings to Fixed ChargesCertification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
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FORWARD-LOOKING STATEMENTS
  
    
    Risks and uncertainties with respect to the actual quantities of petroleum products and
crude oil shipped on our pipelines and/or terminalled in our terminals;
    
    The economic viability of Holly Corporation, Alon USA, Inc. and our other customers;
    
    The demand for refined petroleum products and crude oil in markets we serve;
    
    Our ability to successfully purchase and integrate additional operations in the future;
    
    Our ability to complete previously announced pending or contemplated acquisitions;
    
    The availability and cost of our financing;
    
    The possibility of reductions in production or shutdowns at refineries utilizing our
pipeline and terminal facilities;
    
    The effects of current and future government regulations and policies;
    
    Our operational efficiency in carrying out routine operations and capital construction
projects;
    
    The possibility of terrorist attacks and the consequences of any such attacks;
    
    General economic conditions; and
    
    Other financial, operations and legal risks and uncertainties detailed from time to time
in our Securities and Exchange Commission filings.
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##### Table of Contents



Item 1. Financial Statements
 Holly Energy Partners, L.P.
 
 Consolidated Balance Sheets
 March 31, 2008
    
    
    December 31,(Unaudited)
    
    
    2007(In thousands, except unit data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,237
    
    
    $
    10,321Accounts receivable:Trade
    
    
    5,184
    
    
    
    6,611Affiliates
    
    
    7,773
    
    
    
    5,70012,957
    
    
    
    12,311Prepaid and other current assets
    
    
    342
    
    
    
    546Total current assets
    
    
    21,536
    
    
    
    23,178Properties and equipment, net
    
    
    274,187
    
    
    
    158,600Transportation agreements, net
    
    
    125,374
    
    
    
    54,273Other assets
    
    
    6,209
    
    
    
    2,853Total assets
    
    $
    427,306
    
    
    $
    238,904LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,773
    
    
    $
    3,011Accounts payable  affiliates
    
    
    5,068
    
    
    
    6,021Accrued interest
    
    
    1,027
    
    
    
    2,996Deferred revenue
    
    
    5,551
    
    
    
    3,700Accrued property taxes
    
    
    626
    
    
    
    1,177Other current liabilities
    
    
    651
    
    
    
    827Short-term borrowings under credit agreement
    
    
    10,000
    
    
    
    Total current liabilities
    
    
    27,696
    
    
    
    17,732Commitments and contingencies
    
    
    
    
    
    
    Long-term debt
    
    
    356,330
    
    
    
    181,435Other long-term liabilities
    
    
    4,695
    
    
    
    1,181Minority interest
    
    
    11,145
    
    
    
    10,740Partners equity (deficit):Common unitholders (8,390,000 and 8,170,000 units issued and
outstanding at March 31, 2008 and December 31, 2007, respectively)
    
    
    179,034
    
    
    
    172,807Subordinated unitholders (7,000,000 units issued and outstanding)
    
    
    (75,779
    )
    
    
    (73,725
    )Class B subordinated unitholders (937,500 units issued and
outstanding)
    
    
    22,697
    
    
    
    22,973General partner interest (2% interest)
    
    
    (94,163
    )
    
    
    (94,239
    )Accumulated other comprehensive loss
    
    
    (4,349
    )
    
    
    Total partners equity
    
    
    27,440
    
    
    
    27,816Total liabilities and partners equity
    
    $
    427,306
    
    
    $
    238,904
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Holly Energy Partners, L.P.
 
 Consolidated Statements of Income
 (Unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007(In thousands, except per unit data)Revenues:Affiliates
    
    $
    18,318
    
    
    $
    13,790Third parties
    
    
    8,958
    
    
    
    10,08227,276
    
    
    
    23,872Operating costs and expenses:Operations
    
    
    9,727
    
    
    
    7,733Depreciation and amortization
    
    
    4,313
    
    
    
    4,071General and administrative
    
    
    1,286
    
    
    
    1,27215,326
    
    
    
    13,076Operating income
    
    
    11,950
    
    
    
    10,796Other income (expense):Interest income
    
    
    93
    
    
    
    185Interest expense
    
    
    (3,807
    )
    
    
    (3,358
    )Gain on sale of assets
    
    
    36
    
    
    
    297Minority interest in Rio Grande Pipeline Company
    
    
    (406
    )
    
    
    (427
    )(4,084
    )
    
    
    (3,303
    )Income before income taxes
    
    
    7,866
    
    
    
    7,493State income tax
    
    
    (68
    )
    
    
    (59
    )Net income
    
    
    7,798
    
    
    
    7,434Less general partner interest in net income
    
    
    821
    
    
    
    580Limited partners interest in net income
    
    $
    6,977
    
    
    $
    6,854Net income per limited partner unit -
basic and diluted
    
    $
    0.43
    
    
    $
    0.43Weighted average limited partners units outstanding
    
    
    16,181
    
    
    
    16,108
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Holly Energy Partners, L.P.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007(In thousands)Cash flows from operating activitiesNet income
    
    $
    7,798
    
    
    $
    7,434Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    4,313
    
    
    
    4,071Minority interest in Rio Grande Pipeline Company
    
    
    405
    
    
    
    427Amortization of restricted and performance units
    
    
    94
    
    
    
    302Gain on sale of assets
    
    
    (36
    )
    
    
    (297
    )(Increase) decrease in current assets:Accounts receivable
    
    
    1,427
    
    
    
    1,768Accounts receivable  affiliates
    
    
    (2,073
    )
    
    
    1,652Prepaid and other current assets
    
    
    204
    
    
    
    391Increase (decrease) in current liabilities:Accounts payable
    
    
    1,762
    
    
    
    (1,664
    )Accounts payable  affiliates
    
    
    (953
    )Accrued interest
    
    
    (1,969
    )
    
    
    (1,953
    )Deferred revenue
    
    
    1,851
    
    
    
    906Accrued property tax
    
    
    (551
    )
    
    
    (360
    )Other current liabilities
    
    
    (177
    )
    
    
    (368
    )Other, net
    
    
    309
    
    
    
    284Net cash provided by operating activities
    
    
    12,404
    
    
    
    12,593Cash flows from investing activitiesAdditions to properties and equipment
    
    
    (11,086
    )
    
    
    (912
    )Acquisition of crude pipelines and tankage assets
    
    
    (171,000
    )
    
    
    Proceeds from sale of assets
    
    
    36
    
    
    
    325Net cash used for investing activities
    
    
    (182,050
    )
    
    
    (587
    )Cash flows from financing activitiesBorrowings under credit agreement
    
    
    181,000
    
    
    
    Proceeds from issuance of common units
    
    
    104
    
    
    
    Distributions to partners
    
    
    (12,623
    )
    
    
    (11,538
    )Cash contribution from general partner
    
    
    186
    
    
    
    Purchase of units for restricted grants
    
    
    (514
    )
    
    
    (908
    )Deferred financing costs
    
    
    (591
    )
    
    
    Other
    
    
    
    
    
    
    (15
    )Net cash provided by (used for) financing activities
    
    
    167,562
    
    
    
    (12,461
    )Cash and cash equivalentsDecrease for period
    
    
    (2,084
    )
    
    
    (455
    )Beginning of period
    
    
    10,321
    
    
    
    11,555End of period
    
    $
    8,237
    
    
    $
    11,100
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Holly Energy Partners, L.P.
 
 Consolidated Statement of Partners Equity (Deficit) and Comprehensive Income
 (Unaudited)
 AccumulatedClass B
    
    
    General
    
    
    OtherCommon
    
    
    Subordinated

    
    
    Subordinated
    
    
    Partner
    
    
    ComprehensiveUnits
    
    
    Units
    
    
    Units
    
    
    Interest
    
    
    Loss
    
    
    Total(In thousands)Balance December 31, 2007
    
    $
    172,807
    
    
    $
    (73,725
    )
    
    $
    22,973
    
    
    $
    (94,239
    )
    
    $
    
    
    
    $
    27,816Net income
    
    
    3,552
    
    
    
    3,021
    
    
    
    404
    
    
    
    821
    
    
    
    
    
    
    
    7,798Change in fair value of cash
flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,349
    )
    
    
    (4,349
    )Comprehensive income
    
    
    3,552
    
    
    
    3,021
    
    
    
    404
    
    
    
    821
    
    
    
    (4,349
    )
    
    
    3,449Distributions to partners
    
    
    (5,938
    )
    
    
    (5,075
    )
    
    
    (680
    )
    
    
    (931
    )
    
    
    
    
    
    
    (12,624
    )Issuance of common units
    
    
    9,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,104Cost of issuing common units
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    186Purchase of units for
restricted grants
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514
    )Amortization of restricted
and
performance units
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Balance March 31, 2008
    
    $
    179,034
    
    
    $
    (75,779
    )
    
    $
    22,697
    
    
    $
    (94,163
    )
    
    $
    (4,349
    )
    
    $
    27,440
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1: Description of Business and Presentation of Financial Statements
         - 8 -




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Recent Accounting Pronouncements
 Statement
of Financial Accounting Standards (SFAS) No. 157 Fair Value Measurements
   SFAS No. 133 Implementation Issue No. E23 Issues Involving the Application of the Shortcut Method
under Paragraph 68
  Note 2: Acquisition
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Note 3: Properties and Equipment
 March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Pipelines and terminals
    
    $
    305,088
    
    
    $
    196,800Land and right of way
    
    
    23,977
    
    
    
    22,825Other
    
    
    6,394
    
    
    
    5,706Construction in progress
    
    
    18,061
    
    
    
    9,103353,520
    
    
    
    234,434Less accumulated depreciation
    
    
    79,333
    
    
    
    75,834$
    274,187
    
    
    $
    158,600
  Note 4: Transportation Agreements
  
    
    The transportation agreement with Alon USA, Inc (Alon) represents a portion of the
total purchase price of assets purchased from Alon in 2005 that was allocated based on an
estimated fair value derived under the income approach. This asset is being amortized over
30 years ending 2035, the 15-year initial term of the pipelines and terminals agreement
with Alon plus the expected 15-year extension period.
    
    The Holly crude pipelines and tankage agreement represents a portion of the total
purchase price of the Crude Pipelines and Tankage Assets that was allocated based on
managements preliminary estimate of its fair value. This asset is being amortized over 15
years ending 2023, the 15-year term of the Holly CPTA.
  March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Alon transportation agreement
    
    $
    59,933
    
    
    $
    59,933Holly crude pipelines and tankage agreement
    
    
    72,000
    
    
    
    131,933
    
    
    
    59,933Less accumulated amortization
    
    
    6,559
    
    
    
    5,660$
    125,374
    
    
    $
    54,273
 Note 5: Debt
 Credit Agreement
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Senior Notes Due 2015
  - 11 -




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March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Credit Agreement
    
    $
    181,000
    
    
    $
    Senior NotesPrincipal
    
    
    185,000
    
    
    
    185,000Unamortized discount
    
    
    (2,629
    )
    
    
    (2,724
    )Fair value hedge  interest rate swap
    
    
    2,959
    
    
    
    (841
    )185,330
    
    
    
    181,435Total Debt
    
    
    366,330
    
    
    
    181,435Less short-term borrowing under credit agreement
    
    
    10,000
    
    
    
    Total long-term debt
    
    $
    356,330
    
    
    $
    181,435
 Interest Rate Risk Management
       - 12 -




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Fair Value
    
    Location of OffsettingInterest Rate Swaps
    
    Balance Sheet Location
    
    (In thousands)
    
    BalanceCash flow hedge -
$171 million LIBOR
based debt
    
    Other long-term liabilities
    
    $
    4,349
    
    
    Accumulated other
comprehensive lossFair value hedge -
$60 million of
6.25% Senior Notes
    
    Other assets
    
    $
    2,959
    
    
    Long-term debt
 Other Debt Information
 Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Interest on outstanding debt:Senior Notes, net of interest rate swap
    
    $
    2,710
    
    
    $
    2,932Credit Agreement, net of interest rate swap
    
    
    803
    
    
    
    Amortization of discount and deferred issuance costs
    
    
    223
    
    
    
    303Commitment fees
    
    
    71
    
    
    
    123Net interest expense
    
    $
    3,807
    
    
    $
    3,358Cash paid for interest(1)
    
    $
    5,013
    
    
    $
    5,135
 
 (1)
    
    Net of cash received under our interest rate swap agreement of $1.9 million for the
three months ended March 31, 2008 and 2007.  Note 6: Employees, Retirement and Benefit Plans
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Restricted Units
   Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicGrant-Date
    
    
    Contractual
    
    
    ValueRestricted Units
    
    Grants
    
    
    Fair Value
    
    
    Term
    
    
    ($000)Outstanding January 1, 2008 (not vested)
    
    
    44,711
    
    
    $
    44.77Granted
    
    
    15,902
    
    
    
    40.54Forfeited
    
    
    (303
    )
    
    
    44.62Vesting and transfer of full ownership to recipients
    
    
    (11,486
    )
    
    
    43.53Outstanding at March 31, 2008 (not vested)
    
    
    48,824
    
    
    $
    43.69
    
    
    
    1.5
    
    
    $
    1,874
  Performance Units
   - 14 -




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##### Table of Contents



PayablePerformance Units
    
    In UnitsOutstanding at January 1, 2008 (not vested)
    
    
    24,148Granted
    
    
    14,337Forfeited
    
    
    Vesting and transfer of full ownership to recipients
    
    
    (1,514
    )Outstanding at March 31, 2008 (not vested)
    
    
    36,971
  Note 7: Significant Customers
  Three Months EndedMarch 31,2008
    
    2007Holly
    
    
    67
    %
    
    
    58
    %Alon
    
    
    19
    %
    
    
    26
    %BP
    
    
    10
    %
    
    
    13
    %
 Note 8: Related Party Transactions
 Holly
    - 15 -




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
    
    Pipeline, terminal and tankage revenues received from Holly were $18.3 million and $13.8
million for the three months ended March 31, 2008 and 2007, respectively. These amounts
include the revenues received under the Holly PTA, Holly IPA and Holly CPTA.
    
    Holly charged general and administrative services under the Omnibus Agreement of $0.5
million for the three months ended March 31, 2008 and 2007.
    
    We reimbursed Holly for costs of employees supporting our operations of $2.6 million and
$2.3 million for the three months ended March 30, 2008 and 2007, respectively.
    
    Holly reimbursed us zero and $74,000 for the three months ended March 31, 2008 and 2007,
respectively, for certain costs paid on their behalf.
    
    We distributed $6.1 million and $5.4 million for the three months ended March 31, 2008 and
2007, respectively, to Holly as regular distributions on its subordinated units, common units
and general partner interest.
    
    Our accounts receivable from Holly were $7.8 million and $5.7 million at March 31, 2008 and
December 31, 2007, respectively.
    
    Holly failed to meet its minimum volume commitment for each of the eleven quarters since
inception of the Holly IPA. We have charged Holly $4.8 million for these shortfalls to date,
$0.2 million and zero of which is included in affiliate accounts receivable at March 31, 2008
and December 31, 2007, respectively.
 - 16 -




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
    
    For the three months ended March 31, 2008, our revenues from Holly included $0.6 million of
shortfalls billed under the Holly IPA in 2007 as Holly did not exceed its minimum volume
commitment in any of the subsequent four quarters. Deferred revenue in the consolidated
balance sheets at March 30, 2008 and December 31, 2007, includes $0.8 million and $1.1
million, respectively, relating to the Holly IPA. It is possible that Holly may not exceed
its minimum obligations under the Holly IPA to allow Holly to receive credit for any of the
$0.8 million deferred at March 31, 2008.
 BP
  
    
    BPs agreement to ship on the Rio Grande pipeline expired on March 31, 2008. Rio Grande is
currently serving multiple shippers on the pipeline. We recorded revenues from them of $2.7
million and $3.0 million for the three months ended March 31, 2008 and 2007, respectively.
    
    Rio Grande did not pay any distributions for the three months ended March 31, 2008 and
2007.
    
    Included in our accounts receivable  trade at March 31, 2008 and December 31, 2007 were
$0.6 million and $1.5 million, respectively, which represented the receivable balance of Rio
Grande from BP.
 Alon
   
    
    We recognized $3.4 million and $4.4 million of revenues for pipeline transportation and
terminalling services under the Alon PTA and $1.8 million under a pipeline capacity lease for
the three months ended March 31, 2008 and 2007. The pipeline lease agreement with Alon was
amended effective August 31, 2007 to extend two capacity leases for 10 years to August 31,
2018 and July 31, 2020, respectively, to reduce the total leased capacity from 20,000 to
17,500 barrels per day (bpd) effective September 1, 2008, and to allow Alon an option,
effective from September 1, 2008, to increase the leased capacity by 2,500 bpd for a term of
10 years.
    
    We paid $0.7 million and $0.6 million to Alon for distributions on our Class B subordinated
units for the three months ended March 31, 2008 and 2007, respectively.
    
    Included in our accounts receivable  trade at March 31, 2008 and December 31, 2007 were
$4.0 million and $3.5 million, respectively, which represented the receivable balance from
Alon.
    
    For the three months ended March 31, 2008, our revenues from Alon included $0.8 million of
shortfalls billed under the Alon PTA in 2007 as Alon did not exceed its minimum revenue
obligation in any of the subsequent four quarters. Deferred revenue in the consolidated
balance sheets at March 31, 2008 and December 31, 2007 includes $4.7 million and $2.6
million, respectively, relating to the Alon PTA. It is possible that Alon may not exceed its
minimum obligations under the Alon PTA to allow Alon to receive credit for any of the $4.7
million deferred at March 31, 2008.
 
 - 17 -




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Note 9: Partners Equity, Allocations and Cash Distributions
 Issuances of units
     Allocations of Net Income
  Cash Distributions
  - 18 -




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Marginal Percentage Interest inTotal Quarterly Distribution
    
    DistributionsTarget Amount
    
    Unitholders
    
    General PartnerMinimum Quarterly Distribution
    
    $
    0.50
    
    
    
    98
    %
    
    
    2
    %First Target Distribution
    
    Up to $0.55
    
    
    98
    %
    
    
    2
    %Second Target Distribution
    
    above $0.55 up to $0.625
    
    
    85
    %
    
    
    15
    %Third Target distribution
    
    above $0.625 up to $0.75
    
    
    75
    %
    
    
    25
    %Thereafter
    
    Above $0.75
    
    
    50
    %
    
    
    50
    %
  Three Months EndedMarch 31,2008
    
    
    2007(In thousands, except per unit data)General partner interest
    
    $
    252
    
    
    $
    222General partner incentive distribution
    
    
    679
    
    
    
    440Total general partner distribution
    
    
    931
    
    
    
    662Limited partner distribution
    
    
    11,678
    
    
    
    10,876Total regular quarterly cash distribution
    
    $
    12,609
    
    
    $
    11,538Cash distribution per unit applicable to limited partners
    
    $
    0.725
    
    
    $
    0.675
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Note 10: Supplemental Guarantor/Non-Guarantor Financial Information
   - 20 -




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Condensed Consolidating Balance Sheet
 Guarantor
    
    
    Non-March 31, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    3,679
    
    
    $
    4,556
    
    
    $
    
    
    
    $
    8,237Accounts receivable
    
    
    
    
    
    
    12,337
    
    
    
    620
    
    
    
    
    
    
    
    12,957Intercompany accounts receivable (payable)
    
    
    (150,588
    )
    
    
    150,994
    
    
    
    (406
    )
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    94
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    342Total current assets
    
    
    (150,492
    )
    
    
    167,258
    
    
    
    4,770
    
    
    
    
    
    
    
    21,536Properties and equipment, net
    
    
    
    
    
    
    241,251
    
    
    
    32,936
    
    
    
    
    
    
    
    274,187Investment in subsidiaries
    
    
    360,440
    
    
    
    26,006
    
    
    
    
    
    
    
    (386,446
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    125,374
    
    
    
    
    
    
    
    
    
    
    
    125,374Other assets
    
    
    4,212
    
    
    
    1,997
    
    
    
    
    
    
    
    
    
    
    
    6,209Total assets
    
    $
    214,160
    
    
    $
    561,886
    
    
    $
    37,706
    
    
    $
    (386,446
    )
    
    $
    427,306LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    9,453
    
    
    $
    388
    
    
    $
    
    
    
    $
    9,841Accrued interest
    
    
    (955
    )
    
    
    1,982
    
    
    
    
    
    
    
    
    
    
    
    1,027Deferred revenue
    
    
    
    
    
    
    5,551
    
    
    
    
    
    
    
    
    
    
    
    5,551Accrued property taxes
    
    
    
    
    
    
    580
    
    
    
    46
    
    
    
    
    
    
    
    626Other current liabilities
    
    
    2,345
    
    
    
    (1,815
    )
    
    
    121
    
    
    
    
    
    
    
    651Short-term
borrowings under credit agreement
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000Total current liabilities
    
    
    1,390
    
    
    
    25,751
    
    
    
    555
    
    
    
    
    
    
    
    27,696Long-term debt
    
    
    185,330
    
    
    
    171,000
    
    
    
    
    
    
    
    
    
    
    
    356,330Other long-term liabilities
    
    
    
    
    
    
    4,695
    
    
    
    
    
    
    
    
    
    
    
    4,695Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,145
    
    
    
    11,145Partners equity
    
    
    27,440
    
    
    
    360,440
    
    
    
    37,151
    
    
    
    (397,591
    )
    
    
    27,440Total liabilities and partners equity
    
    $
    214,160
    
    
    $
    561,886
    
    
    $
    37,706
    
    
    $
    (386,446
    )
    
    $
    427,306
 Condensed Consolidating Balance Sheet
 Guarantor
    
    
    Non-December 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    8,060
    
    
    $
    2,259
    
    
    $
    
    
    
    $
    10,321Accounts receivable
    
    
    
    
    
    
    10,820
    
    
    
    1,491
    
    
    
    
    
    
    
    12,311Intercompany accounts receivable (payable)
    
    
    (141,175
    )
    
    
    141,553
    
    
    
    (378
    )
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    183
    
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    546Total current assets
    
    
    (140,990
    )
    
    
    160,796
    
    
    
    3,372
    
    
    
    
    
    
    
    23,178Properties and equipment, net
    
    
    
    
    
    
    125,383
    
    
    
    33,217
    
    
    
    
    
    
    
    158,600Investment in subsidiaries
    
    
    353,235
    
    
    
    25,059
    
    
    
    
    
    
    
    (378,294
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    54,273
    
    
    
    
    
    
    
    
    
    
    
    54,273Other assets
    
    
    1,302
    
    
    
    1,551
    
    
    
    
    
    
    
    
    
    
    
    2,853Total assets
    
    $
    213,547
    
    
    $
    367,062
    
    
    $
    36,589
    
    
    $
    (378,294
    )
    
    $
    238,904LIABILITIES AND PARTNERS EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    8,499
    
    
    $
    533
    
    
    $
    
    
    
    $
    9,032Accrued interest
    
    
    (2,932
    )
    
    
    5,928
    
    
    
    
    
    
    
    
    
    
    
    2,996Deferred revenue
    
    
    
    
    
    
    3,700
    
    
    
    
    
    
    
    
    
    
    
    3,700Accrued property taxes
    
    
    
    
    
    
    1,021
    
    
    
    156
    
    
    
    
    
    
    
    1,177Other current liabilities
    
    
    6,387
    
    
    
    (5,661
    )
    
    
    101
    
    
    
    
    
    
    
    827Total current liabilities
    
    
    3,455
    
    
    
    13,487
    
    
    
    790
    
    
    
    
    
    
    
    17,732Long-term debt
    
    
    181,435
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,435Other long-term liabilities
    
    
    841
    
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    1,181Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,740
    
    
    
    10,740Partners equity
    
    
    27,816
    
    
    
    353,235
    
    
    
    35,799
    
    
    
    (389,034
    )
    
    
    27,816Total liabilities and partners equity
    
    $
    213,547
    
    
    $
    367,062
    
    
    $
    36,589
    
    
    $
    (378,294
    )
    
    $
    238,904
 - 21 -




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##### Table of Contents



Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Three months ended March 31, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    18,327
    
    
    $
    
    
    
    $
    
    
    
    $
    18,327Third parties
    
    
    
    
    
    
    6,516
    
    
    
    2,750
    
    
    
    (317
    )
    
    
    8,949
    
    
    
    24,843
    
    
    
    2,750
    
    
    
    (317
    )
    
    
    27,276Operating costs and expenses:Operations
    
    
    
    
    
    
    8,973
    
    
    
    1,071
    
    
    
    (317
    )
    
    
    9,727Depreciation and amortization
    
    
    
    
    
    
    3,988
    
    
    
    325
    
    
    
    
    
    
    
    4,313General and administrative
    
    
    742
    
    
    
    543
    
    
    
    1
    
    
    
    
    
    
    
    1,286742
    
    
    
    13,504
    
    
    
    1,397
    
    
    
    (317
    )
    
    
    15,326Operating income (loss)
    
    
    (742
    )
    
    
    11,339
    
    
    
    1,353
    
    
    
    
    
    
    
    11,950Equity in earnings of subsidiaries
    
    
    11,554
    
    
    
    947
    
    
    
    
    
    
    
    (12,501
    )
    
    
    Interest income (expense)
    
    
    (3,014
    )
    
    
    (719
    )
    
    
    19
    
    
    
    
    
    
    
    (3,714
    )Gain on sale of assets
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (406
    )
    
    
    (406
    )8,540
    
    
    
    264
    
    
    
    19
    
    
    
    (12,907
    )
    
    
    (4,084
    )Income before income taxes
    
    
    7,798
    
    
    
    11,603
    
    
    
    1,372
    
    
    
    (12,907
    )
    
    
    7,866State income tax
    
    
    
    
    
    
    (49
    )
    
    
    (19
    )
    
    
    
    
    
    
    (68
    )Net income
    
    $
    7,798
    
    
    $
    11,554
    
    
    $
    1,353
    
    
    $
    (12,907
    )
    
    $
    7,798
 Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Three months ended March 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    13,790
    
    
    $
    
    
    
    $
    
    
    
    $
    13,790Third parties
    
    
    
    
    
    
    7,349
    
    
    
    3,026
    
    
    
    (293
    )
    
    
    10,082
    
    
    
    21,139
    
    
    
    3,026
    
    
    
    (293
    )
    
    
    23,872Operating costs and expenses:Operations
    
    
    
    
    
    
    7,233
    
    
    
    793
    
    
    
    (293
    )
    
    
    7,733Depreciation and amortization
    
    
    
    
    
    
    3,223
    
    
    
    848
    
    
    
    
    
    
    
    4,071General and administrative
    
    
    766
    
    
    
    505
    
    
    
    1
    
    
    
    
    
    
    
    1,272766
    
    
    
    10,961
    
    
    
    1,642
    
    
    
    (293
    )
    
    
    13,076Operating income (loss)
    
    
    (766
    )
    
    
    10,178
    
    
    
    1,384
    
    
    
    
    
    
    
    10,796Equity in earnings of subsidiaries
    
    
    11,264
    
    
    
    997
    
    
    
    
    
    
    
    (12,261
    )
    
    
    Interest income (expense)
    
    
    (3,064
    )
    
    
    (149
    )
    
    
    40
    
    
    
    
    
    
    
    (3,173
    )Gain on sale of assets
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    297Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427
    )
    
    
    (427
    )8,200
    
    
    
    1,145
    
    
    
    40
    
    
    
    (12,688
    )
    
    
    (3,303
    )Income before income taxes
    
    
    7,434
    
    
    
    11,323
    
    
    
    1,424
    
    
    
    (12,688
    )
    
    
    7,493State income tax
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Net income
    
    $
    7,434
    
    
    $
    11,264
    
    
    $
    1,424
    
    
    $
    (12,688
    )
    
    $
    7,434
 - 22 -




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##### Table of Contents



Condensed Consolidating Statement of
Cash Flows
 Guarantor
    
    
    Non-Three months ended March 31, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities
    
    $
    3,908
    
    
    $
    6,154
    
    
    $
    2,342
    
    
    $
    
    
    
    $
    12,404Cash flows from investing activitiesAdditions to properties and equipment
    
    
    
    
    
    
    (11,041
    )
    
    
    (45
    )
    
    
    
    
    
    
    (11,086
    )Acquisition of
crude
pipelines and
tankage
assets
    
    
    
    
    
    
    (171,000
    )
    
    
    
    
    
    
    
    
    
    
    (171,000
    )Proceeds from sale of assets
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    (182,005
    )
    
    
    (45
    )
    
    
    
    
    
    
    (182,050
    )Cash flows from financing activitiesBorrowings under credit agreement
    
    
    
    
    
    
    181,000
    
    
    
    
    
    
    
    
    
    
    
    181,000Proceeds from issuance of common units
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    104Distributions to partners
    
    
    (12,437
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,437
    )Cash distribution to minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of units for restricted grants
    
    
    (514
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514
    )Deferred financing costs
    
    
    
    
    
    
    (591
    )
    
    
    
    
    
    
    
    
    
    
    (591
    )(12,951
    )
    
    
    180,513
    
    
    
    
    
    
    
    
    
    
    
    167,562Cash and cash equivalentsIncrease (decrease) for the period
    
    
    (9,043
    )
    
    
    4,662
    
    
    
    2,297
    
    
    
    
    
    
    
    (2,084
    )Beginning of period
    
    
    2
    
    
    
    8,060
    
    
    
    2,259
    
    
    
    
    
    
    
    10,321End of period
    
    $
    (9,041
    )
    
    $
    12,722
    
    
    $
    4,556
    
    
    $
    
    
    
    $
    8,237
 Condensed Consolidating Statement of
Cash Flows
 Guarantor
    
    
    Non-Three months ended March 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities
    
    $
    12,446
    
    
    $
    (2,934
    )
    
    $
    3,081
    
    
    $
    
    
    
    $
    12,593Cash flows from investing activitiesAdditions to properties and equipment
    
    
    
    
    
    
    (908
    )
    
    
    (4
    )
    
    
    
    
    
    
    (912
    )Proceeds from sale of assets
    
    
    
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    325
    
    
    
    (583
    )
    
    
    (4
    )
    
    
    
    
    
    
    (587
    )Cash flows from financing activitiesDistributions to partners
    
    
    (11,538
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,538
    )Purchase of units for restricted grants
    
    
    (908
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )Other
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )(12,446
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (12,461
    )Cash and cash equivalentsIncrease (decrease) for the period
    
    
    
    
    
    
    (3,532
    )
    
    
    3,077
    
    
    
    
    
    
    
    (455
    )Beginning of period
    
    
    2
    
    
    
    9,819
    
    
    
    1,734
    
    
    
    
    
    
    
    11,555End of period
    
    $
    2
    
    
    $
    6,287
    
    
    $
    4,811
    
    
    $
    
    
    
    $
    11,100
 - 23 -




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##### Table of Contents



Note 11: Proposed Joint Ventures
   - 24 -




---



##### Table of Contents



HOLLY ENERGY PARTNERS, L.P.
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  OVERVIEW
     Agreements with Holly Corporation
    - 25 -




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##### Table of Contents



- 26 -




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##### Table of Contents



RESULTS OF OPERATIONS (Unaudited)
 Income, Distributable Cash Flow and Volumes
  Three Months EndedMarch 31,
    
    
    Change from2008
    
    
    2007
    
    
    2007(In thousands, except per unit data)RevenuesPipelines:Affiliates  refined product pipelines
    
    $
    9,568
    
    
    $
    8,239
    
    
    $
    1,329Affiliates  intermediate pipelines
    
    
    3,593
    
    
    
    3,009
    
    
    
    584Affiliates  crude pipelines
    
    
    2,195
    
    
    
    
    
    
    
    2,19515,356
    
    
    
    11,248
    
    
    
    4,108Third parties  refined product pipelines
    
    
    7,835
    
    
    
    8,790
    
    
    
    (955
    )23,191
    
    
    
    20,038
    
    
    
    3,153Terminals, refinery tankage and truck loading racks:Affiliates
    
    
    2,971
    
    
    
    2,542
    
    
    
    429Third parties
    
    
    1,114
    
    
    
    1,292
    
    
    
    (178
    )4,085
    
    
    
    3,834
    
    
    
    251Total revenues
    
    
    27,276
    
    
    
    23,872
    
    
    
    3,404Operating costs and expensesOperations
    
    
    9,727
    
    
    
    7,733
    
    
    
    1,994Depreciation and amortization
    
    
    4,313
    
    
    
    4,071
    
    
    
    242General and administrative
    
    
    1,286
    
    
    
    1,272
    
    
    
    1415,326
    
    
    
    13,076
    
    
    
    2,250Operating income
    
    
    11,950
    
    
    
    10,796
    
    
    
    1,154Interest income
    
    
    93
    
    
    
    185
    
    
    
    (92
    )Interest expense, including amortization
    
    
    (3,807
    )
    
    
    (3,358
    )
    
    
    (449
    )Gain on sale of assets
    
    
    36
    
    
    
    297
    
    
    
    (261
    )Minority interest in Rio Grande
    
    
    (406
    )
    
    
    (427
    )
    
    
    21(4,084
    )
    
    
    (3,303
    )
    
    
    (781
    )Income before income taxes
    
    
    7,866
    
    
    
    7,493
    
    
    
    373State income tax
    
    
    (68
    )
    
    
    (59
    )
    
    
    (9
    )Net income
    
    
    7,798
    
    
    
    7,434
    
    
    
    364Less general partner interest in net income, including incentive
distributions (1)
    
    
    821
    
    
    
    580
    
    
    
    241Limited partners interest in net income
    
    $
    6,977
    
    
    $
    6,854
    
    
    $
    123Net income per limited partner unit  basic and diluted(1)
    
    $
    0.43
    
    
    $
    0.43
    
    
    $
    Weighted average limited partners units outstanding
    
    
    16,181
    
    
    
    16,108
    
    
    
    73EBITDA(2)
    
    $
    15,893
    
    
    $
    14,737
    
    
    $
    1,156Distributable cash flow(3)
    
    $
    13,708
    
    
    $
    12,594
    
    
    $
    1,114Volumes  barrels per day (bpd)(4)Pipelines:Affiliates  refined product pipelines
    
    
    84,560
    
    
    
    72,361
    
    
    
    12,199Affiliates  intermediate pipelines
    
    
    67,611
    
    
    
    59,474
    
    
    
    8,137Affiliates  crude pipelines
    
    
    47,398
    
    
    
    
    
    
    
    47,398199,569
    
    
    
    131,835
    
    
    
    67,734Third parties  refined product pipelines
    
    
    45,510
    
    
    
    65,187
    
    
    
    (19,677
    )245,079
    
    
    
    197,022
    
    
    
    48,057Terminals and truck loading racks:Affiliates
    
    
    127,436
    
    
    
    120,186
    
    
    
    7,250Third parties
    
    
    37,242
    
    
    
    46,846
    
    
    
    (9,604
    )164,678
    
    
    
    167,032
    
    
    
    (2,354
    )Total for petroleum pipelines and terminal assets (bpd)
    
    
    409,757
    
    
    
    364,054
    
    
    
    45,703
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##### Table of Contents



(1)
    
    Net income is allocated between limited partners and the general partner interest in
accordance with the provisions of the partnership agreement. Net income allocated to the
general partner includes any incentive distributions declared in the period. Incentive
distributions of $0.7 million and $0.4 million were declared during the three months ended
March 31, 2008 and 2007, respectively. The net income applicable to the limited partners
is divided by the weighted average limited partner units outstanding in computing the net
income per unit applicable to limited partners.(2)
    
    Earnings before interest, taxes, depreciation and amortization (EBITDA) is calculated
as net income plus (i) interest expense, net of interest income and (ii) depreciation and
amortization. EBITDA is not a calculation based upon U.S. generally accepted accounting
principles (U.S. GAAP). However, the amounts included in the EBITDA calculation are
derived from amounts included in our consolidated financial statements. EBITDA should not
be considered as an alternative to net income or operating income, as an indication of our
operating performance or as an alternative to operating cash flow as a measure of
liquidity. EBITDA is not necessarily comparable to similarly titled measures of other
companies. EBITDA is presented here because it is a widely used financial indicator used
by investors and analysts to measure performance. EBITDA is also used by our management
for internal analysis and as a basis for compliance with financial covenants.Set forth below is our calculation of EBITDA. Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Net income
    
    $
    7,798
    
    
    $
    7,434Add interest expense
    
    
    3,584
    
    
    
    3,055Add amortization of discount and
deferred debt issuance costs
    
    
    223
    
    
    
    303Subtract interest income
    
    
    (93
    )
    
    
    (185
    )Add state income tax
    
    
    68
    
    
    
    59Add depreciation and amortization
    
    
    4,313
    
    
    
    4,071EBITDA
    
    $
    15,893
    
    
    $
    14,737
 
 (3)
    
    Distributable cash flow is not a calculation based upon U.S. GAAP. However, the
amounts included in the calculation are derived from amounts separately presented in our
consolidated financial statements, with the exception of maintenance capital expenditures.
Distributable cash flow should not be considered in isolation or as an alternative to net
income or operating income as an indication of our operating performance or as an
alternative to operating cash flow as a measure of liquidity. Distributable cash flow is
not necessarily comparable to similarly titled measures of other companies. Distributable
cash flow is presented here because it is a widely accepted financial indicator used by
investors to compare partnership performance. We believe that this measure provides
investors an enhanced perspective of the operating performance of our assets and the cash
our business is generating. - 28 -




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##### Table of Contents



Set forth below is our calculation of distributable cash flow. Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Net income
    
    $
    7,798
    
    
    $
    7,434Add depreciation and amortization
    
    
    4,313
    
    
    
    4,071Add amortization of discount and deferred debt issuance costs
    
    
    223
    
    
    
    303Add increase in deferred revenue
    
    
    1,851
    
    
    
    906Subtract maintenance capital expenditures*
    
    
    (477
    )
    
    
    (120
    )Distributable cash flow
    
    $
    13,708
    
    
    $
    12,594
 
 *
    
    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.(4)
    
    The amounts reported for the three months ended March 31, 2008 include volumes
transported on the crude pipelines for the month of March only. Volumes shipped during
March 2008 averaged 139.1 thousand barrels per day (mbpd). For the three months ended
March 31, 2008, crude pipeline volumes are based on March volumes, averaged over the 91
days in the first quarter. Under the Holly CPTA, fees are based on volumes transported on
each pipeline component comprising the crude pipeline system (the crude oil gathering
pipelines and the crude oil trunk lines). Accordingly, volumes transported on the crude
pipelines represent the sum of volumes transported on both pipeline components. In cases
where volumes are transported over both components of the crude pipeline system, such
volumes are reflected twice in the total crude oil pipeline volumes. March 31,
    
    December 31,2008
    
    2007(In thousands)Balance
Sheet DataCash and cash equivalents
    
    $
    8,237
    
    
    $
    10,321Working capital
    
    $
    (6,160
    )
    
    $
    5,446Total assets
    
    $
    427,306
    
    
    $
    238,904Long-term debt
    
    $
    356,330
    
    
    $
    181,435Partners equity
    
    $
    27,440
    
    
    $
    27,816
  - 29 -




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##### Table of Contents



Results of Operations  Three Months Ended March 31, 2008 Compared with Three Months Ended March
31, 2007
 Summary
   Revenues
     - 30 -




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##### Table of Contents



Operating Costs
  Depreciation and Amortization
  General and Administrative
  Interest Expense
  Minority Interest in Earnings of Rio Grande
  State Income Tax
  LIQUIDITY AND CAPITAL RESOURCES
 Overview
  - 31 -




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##### Table of Contents



Cash Flows  Operating Activities
   Cash Flows  Investing Activities
  - 32 -




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##### Table of Contents



Cash Flows  Financing Activities
  Capital Requirements
     - 33 -




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##### Table of Contents



Credit Agreement
      - 34 -




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##### Table of Contents



Senior Notes Due 2015
   March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Credit Agreement
    
    $
    181,000
    
    
    $
    Senior NotesPrincipal
    
    
    185,000
    
    
    
    185,000Unamortized discount
    
    
    (2,629
    )
    
    
    (2,724
    )Fair value
hedgeinterest rate swap
    
    
    2,959
    
    
    
    (841
    )185,330
    
    
    
    181,435Total Debt
    
    
    366,330
    
    
    
    181,435Less short-term borrowing under credit agreement
    
    
    10,000
    
    
    
    Total long-term debt
    
    $
    356,330
    
    
    $
    181,435
  Holly Crude Pipelines and Tankage Transaction
   - 35 -




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##### Table of Contents



Impact of Inflation
   Environmental Matters
    - 36 -




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Recent Accounting Pronouncements
 Statement
of Financial Accounting Standards (SFAS) No. 157 Fair Value Measurements
   - 37 -




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##### Table of Contents



SFAS No. 133 Implementation Issue No. E23 Issues Involving the Application of the Shortcut Method
under Paragraph 68
 RISK MANAGEMENT
       - 38 -




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##### Table of Contents



Fair Value
    
    Location of OffsettingInterest Rate Swaps
    
    Balance Sheet Location
    
    (In thousands)
    
    BalanceCash flow hedge  $171 million LIBOR
based debt
    
    Other long-term liabilities
    
    $
    4,349
    
    
    Accumulated other
comprehensive lossFair value hedge  $60 million of 6.25%
Senior Notes
    
    Other assets
    
    $
    2,959
    
    
    Long-term debt
      - 39 -




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risks
   
 Item 4. Controls and Procedures
 (a) Evaluation of disclosure controls and procedures
  (b) Changes in internal control over financial reporting
  - 40 -




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##### Table of Contents



Item 1. Legal proceedings
  
 Item 2. Unregistered Sales of Securities and Use of Proceeds
 (c) Common unit repurchases made in the quarter
  Maximum NumberTotal Number of
    
    of Units that MayUnits Purchased as
    
    Yet Be PurchasedPart of Publicly
    
    Under a PubliclyTotal Number of
    
    Average Price
    
    Announced Plan or
    
    Announced Plan orPeriod
    
    Units Purchased
    
    Paid Per Unit
    
    Program
    
    ProgramJanuary 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    February 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    March 2008
    
    
    13,273
    
    
    $
    38.74
    
    
    
    
    
    
    
    Total
    
    
    13,273
    
    
    $
    38.74
    
    
    
    
 
 Item 6. Exhibits
 2.1
    
    Purchase and Sale Agreement, dated February 25, 2008 between Holly Corporation, Navajo
Pipeline Co., L.P., Navajo Refining Company, L.L.C., Woods Cross Refining Company, L.L.C.,
Holly Energy Partners, L.P., Holly Energy Partners  Operating, L.P., HEP Pipeline, L.L.C.,
and HEP Woods Cross, L.L.C. (incorporated by reference to Exhibit 2.1 of Registrants Form
8-K Current Report dated February 27, 2008, File No. 1-32225).10.1
    
    Option Agreement, dated January 31, 2008, by and among Holly Corporation, Holly UNEV
Pipeline Company, Navajo Pipeline Co., L.P., Holly Logistic Services, L.L.C., HEP Logistics
Holdings, L.P., Holly Energy Partners, L.P., HEP Logistics GP, L.L.C. and Holly Energy
Partners  Operating, L.P. (incorporated by reference to Exhibit 10.1 of Registrants Form
8-K Current Report dated February 5, 2008, File No. 1-32225).10.2
    
    Agreement and Amendment No. 1 to Amended and Restated Credit Agreement, dated February
25, 2008, between Holly Energy Partners  Operating, L.P., Union Bank of California, N.A.,
as administrative agent, issuing bank and sole lead arranger and certain other lenders
(incorporated by reference to Exhibit 10.1 of Registrants Form 8-K Current Report dated
February 27, 2008, File No. 1-32225).10.3
    
    Pipelines and Tankage Agreement, dated February 29, 2008, between Holly Corporation,
Navajo Pipeline Co., L.P., Navajo Refining Company, L.L.C., Woods Cross Refining Company,
L.L.C., Holly Energy Partners, L.P., Holly Energy Partners  Operating, L.P., HEP Pipeline,
L.L.C., and HEP Woods Cross, L.L.C. (incorporated by reference to Exhibit 10.1 of
Registrants Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.4
    
    Mortgage, Line of Credit Mortgage and Deed of Trust, dated February 29, 2008, by HEP
Pipeline, L.L.C. for the benefit of Holly Corporation (incorporated by reference to Exhibit
10.2 of Registrants Form 8-K Current Report dated March 6, 2008, File No. 1-32225).
 - 41 -




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##### Table of Contents



10.5
    
    Mortgage, Line of Credit Mortgage and Deed of Trust, dated February 29, 2008, by HEP
Pipeline, L.L.C. for the benefit of Holly Corporation (incorporated by reference to Exhibit
10.3 of Registrants Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.6
    
    Mortgage, Line of Credit Mortgage and Deed of Trust, dated February 29, 2008, by HEP
Pipeline, L.L.C. for the benefit of Holly Corporation (incorporated by reference to Exhibit
10.4 of Registrants Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.7
    
    Mortgage and Deed of Trust, dated February 29, 2008, by HEP Pipeline, L.L.C. for the
benefit of Holly Corporation (incorporated by reference to Exhibit 10.5 of Registrants
Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.8
    
    Mortgage and Deed of Trust, dated February 29, 2008, by HEP Pipeline, L.L.C. for the
benefit of Holly Corporation (incorporated by reference to Exhibit 10.6 of Registrants
Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.9
    
    Fee and Leasehold Deed of Trust, dated February 29, 2008, by HEP Woods Cross, L.L.C.
for the benefit of Holly Corporation (incorporated by reference to Exhibit 10.7 of
Registrants Form 8-K Current Report dated March 6, 2008, File No. 1-32225).10.10+
    
    Holly Energy Partners, L.P. Employee Form of Change in Control Agreement (incorporated by
reference to Exhibit 10.3 of Registrants Form 8-K Current Report dated February 20, 2008,
File No. 1-32225).12.1*
    
    Computation of Ratio of Earnings to Fixed Charges.31.1*
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith+
    
    Constitutes management contracts or compensatory plans or arrangements. - 42 -




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##### Table of Contents



SIGNATURES
  HOLLY ENERGY PARTNERS, L.P.

(Registrant)By: HEP LOGISTICS HOLDINGS, L.P.its General PartnerBy: HOLLY LOGISTIC SERVICES, L.L.C.its General Partner
 Date: May 2, 2008
    
    /s/ Bruce R. Shaw

Bruce R. ShawSenior Vice President andChief Financial Officer(Principal Financial Officer and 

Principal Accounting Officer)
 - 43 -