##### 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 June 30, 2009
 OR
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 100 Crescent Court, Suite 1600
Dallas, Texas 75201-6915
 (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
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer  o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    3FORWARD-LOOKING STATEMENTS
    
    
    3Item 1. Financial Statements (Unaudited, except December 31, 2008 Balance Sheet)
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statement of Equity
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    44Item 4. Controls and Procedures
    
    
    44PART II. OTHER INFORMATION
    
    
    45Item 1. Legal Proceedings
    
    
    45Item 6. Exhibits
    
    
    45SIGNATURES
    
    
    46EX-4.1EX-4.2EX-4.3EX-12.1EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



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 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 additional debt and equity 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.
  - 3 -




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##### Table of Contents



Item 1. Financial Statements
 
 Holly Energy Partners, L.P.
Consolidated Balance Sheets
 June 30, 2009
    
    
    December 31,(Unaudited)
    
    
    2008(In thousands, except unit data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,195
    
    
    $
    5,269Accounts receivable:Trade
    
    
    4,804
    
    
    
    5,082Affiliates
    
    
    8,676
    
    
    
    9,39513,480
    
    
    
    14,477Prepaid and other current assets
    
    
    827
    
    
    
    593Total current assets
    
    
    18,502
    
    
    
    20,339Properties and equipment, net
    
    
    336,685
    
    
    
    290,284Transportation agreements, net
    
    
    118,909
    
    
    
    122,383Investment in SLC Pipeline
    
    
    26,098
    
    
    
    Other assets
    
    
    4,921
    
    
    
    6,682Total assets
    
    $
    505,115
    
    
    $
    439,688LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    7,074
    
    
    $
    5,816Accounts payable  affiliates
    
    
    2,046
    
    
    
    2,202Accrued interest
    
    
    2,871
    
    
    
    2,845Deferred revenue
    
    
    10,989
    
    
    
    15,658Accrued property taxes
    
    
    1,026
    
    
    
    1,145Other current liabilities
    
    
    1,058
    
    
    
    1,505Short-term borrowings under credit agreement
    
    
    
    
    
    
    29,000Total current liabilities
    
    
    25,064
    
    
    
    58,171Long-term debt
    
    
    402,810
    
    
    
    355,793Other long-term liabilities
    
    
    11,482
    
    
    
    17,604Equity:Holly Energy Partners, L.P. partners equity (deficit):Common unitholders (10,582,400 and 8,390,000 units issued and
outstanding at June 30, 2009 and December 31, 2008,
respectively)
    
    
    224,609
    
    
    
    169,126Subordinated unitholders (7,000,000 units issued and
outstanding at June 30, 2009 and December 31, 2008)
    
    
    (88,106
    )
    
    
    (85,059
    )Class B subordinated unitholders (937,500 units issued and
outstanding at June 30, 2009 and December 31, 2008)
    
    
    21,046
    
    
    
    21,455General partner interest (2% interest)
    
    
    (93,630
    )
    
    
    (94,653
    )Accumulated other comprehensive loss
    
    
    (8,700
    )
    
    
    (12,967
    )Total Holly Energy Partners, L.P. partners equity (deficit)
    
    
    55,219
    
    
    
    (2,098
    )Noncontrolling interest
    
    
    10,540
    
    
    
    10,218Total equity
    
    
    65,759
    
    
    
    8,120Total liabilities and equity
    
    $
    505,115
    
    
    $
    439,688
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##### Table of Contents



Holly Energy Partners, L.P.
Consolidated Statements of Income
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per unit data)Revenues:Affiliates
    
    $
    25,064
    
    
    $
    20,146
    
    
    $
    43,387
    
    
    $
    38,473Third parties
    
    
    15,538
    
    
    
    6,629
    
    
    
    29,339
    
    
    
    15,57840,602
    
    
    
    26,775
    
    
    
    72,726
    
    
    
    54,051Operating costs and expenses:Operations
    
    
    11,086
    
    
    
    9,985
    
    
    
    21,882
    
    
    
    19,712Depreciation and amortization
    
    
    6,853
    
    
    
    6,062
    
    
    
    13,109
    
    
    
    10,375General and administrative
    
    
    1,818
    
    
    
    1,359
    
    
    
    3,142
    
    
    
    2,64519,757
    
    
    
    17,406
    
    
    
    38,133
    
    
    
    32,732Operating income
    
    
    20,845
    
    
    
    9,369
    
    
    
    34,593
    
    
    
    21,319Other income (expense):Equity in earnings of SLC Pipeline
    
    
    423
    
    
    
    
    
    
    
    598
    
    
    
    SLC Pipeline acquisition costs
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    Interest income
    
    
    2
    
    
    
    28
    
    
    
    8
    
    
    
    121Interest expense
    
    
    (4,404
    )
    
    
    (5,233
    )
    
    
    (9,807
    )
    
    
    (9,040
    )Other
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    36(3,914
    )
    
    
    (5,205
    )
    
    
    (11,636
    )
    
    
    (8,883
    )Income before income taxes
    
    
    16,931
    
    
    
    4,164
    
    
    
    22,957
    
    
    
    12,436State income tax
    
    
    (112
    )
    
    
    (85
    )
    
    
    (204
    )
    
    
    (153
    )Net income
    
    
    16,819
    
    
    
    4,079
    
    
    
    22,753
    
    
    
    12,283Less noncontrolling interest in net income
    
    
    427
    
    
    
    264
    
    
    
    922
    
    
    
    670Net income attributable to Holly Energy
Partners, L.P.
    
    $
    16,392
    
    
    $
    3,815
    
    
    $
    21,831
    
    
    $
    11,613Less general partner interest in net income
attributable to Holly Energy Partners, L.P.
    
    
    1,849
    
    
    
    849
    
    
    
    3,142
    
    
    
    1,728Limited partners interest in net income
attributable to Holly Energy Partners, L.P.
    
    $
    14,543
    
    
    $
    2,966
    
    
    $
    18,689
    
    
    $
    9,885Limited partners per unit interest in net
income attributable to Holly Energy
Partners, L.P.  basic and diluted
    
    $
    0.82
    
    
    $
    0.18
    
    
    $
    1.10
    
    
    $
    0.61Weighted average limited partners units
outstanding
    
    
    17,789
    
    
    
    16,328
    
    
    
    17,058
    
    
    
    16,254
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Holly Energy Partners, L.P.
Consolidated Statements of Cash Flows
(Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008(In thousands)Cash flows from operating activitiesNet income
    
    $
    22,753
    
    
    $
    12,283Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    13,109
    
    
    
    10,375Equity in earnings of SLC Pipeline
    
    
    (598
    )
    
    
    Change in fair value  interest rate swaps
    
    
    (628
    )
    
    
    Amortization of restricted and performance units
    
    
    417
    
    
    
    548Gain on sale of assets
    
    
    
    
    
    
    (36
    )(Increase) decrease in current assets:Accounts receivable
    
    
    278
    
    
    
    (720
    )Accounts receivable  affiliates
    
    
    719
    
    
    
    (2,892
    )Prepaid and other current assets
    
    
    (234
    )
    
    
    (137
    )Increase (decrease) in current liabilities:Accounts payable
    
    
    1,258
    
    
    
    1,468Accounts payable  affiliates
    
    
    (156
    )
    
    
    (4,229
    )Accrued interest
    
    
    26
    
    
    
    (97
    )Deferred revenue
    
    
    (4,669
    )
    
    
    6,781Accrued property taxes
    
    
    (119
    )
    
    
    (427
    )Other current liabilities
    
    
    (447
    )
    
    
    216Other, net
    
    
    541
    
    
    
    288Net cash provided by operating activities
    
    
    32,250
    
    
    
    23,421Cash flows from investing activitiesAdditions to properties and equipment
    
    
    (21,826
    )
    
    
    (20,036
    )Acquisition of 16-inch intermediate pipeline
    
    
    (34,200
    )
    
    
    Investment in SLC Pipeline
    
    
    (25,500
    )
    
    
    Acquisition of crude pipelines and tankage assets
    
    
    
    
    
    
    (171,000
    )Proceeds from sale of assets
    
    
    
    
    
    
    36Net cash used for investing activities
    
    
    (81,526
    )
    
    
    (191,000
    )Cash flows from financing activitiesBorrowings under credit agreement
    
    
    99,000
    
    
    
    211,000Repayments under credit agreement
    
    
    (81,000
    )
    
    
    (20,000
    )Proceeds from issuance of common units
    
    
    58,355
    
    
    
    104Capital contribution from general partner
    
    
    1,191
    
    
    
    186Distributions to HEP unitholders
    
    
    (27,968
    )
    
    
    (25,656
    )Distributions to noncontrolling interest
    
    
    (600
    )
    
    
    (900
    )Cost of issuing common units
    
    
    (160
    )
    
    
    Purchase of units for restricted grants
    
    
    (616
    )
    
    
    (514
    )Deferred financing costs
    
    
    
    
    
    
    (591
    )Net cash provided by financing activities
    
    
    48,202
    
    
    
    163,629Cash and cash equivalentsDecrease for period
    
    
    (1,074
    )
    
    
    (3,950
    )Beginning of period
    
    
    5,269
    
    
    
    10,321End of period
    
    $
    4,195
    
    
    $
    6,371
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##### Table of Contents



Holly Energy Partners, L.P.
Consolidated Statement of Equity
(Unaudited)
 Holly Energy Partners, L.P. Partners Equity (Deficit):AccumulatedClass B
    
    
    General
    
    
    Other
    
    
    Non-Common
    
    
    Subordinated
    
    
    Subordinated
    
    
    Partner
    
    
    Comprehensive
    
    
    ControllingUnits
    
    
    Units
    
    
    Units
    
    
    Interest
    
    
    Loss
    
    
    Interest
    
    
    Total(In thousands)Balance December 31, 2008
    
    $
    169,126
    
    
    $
    (85,059
    )
    
    $
    21,455
    
    
    $
    (94,653
    )
    
    $
    (12,967
    )
    
    $
    10,218
    
    
    $
    8,120Issuance of common units
    
    
    58,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,355Cost of issuing common units
    
    
    (160
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160
    )Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191
    
    
    
    
    
    
    
    
    
    
    
    1,191Distributions  HEP
unitholders
    
    
    (12,931
    )
    
    
    (10,780
    )
    
    
    (1,444
    )
    
    
    (2,813
    )
    
    
    
    
    
    
    
    
    
    
    (27,968
    )Distributions  noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )
    
    
    (600
    )Purchase of units for
restricted grants
    
    
    (616
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (616
    )Amortization of restricted and
performance units
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Comprehensive income:Net income
    
    
    10,418
    
    
    
    7,733
    
    
    
    1,035
    
    
    
    2,645
    
    
    
    
    
    
    
    922
    
    
    
    22,753Change in fair value of
cash
flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,267
    
    
    
    
    
    
    
    4,267Comprehensive income
    
    
    10,418
    
    
    
    7,733
    
    
    
    1,035
    
    
    
    2,645
    
    
    
    4,267
    
    
    
    922
    
    
    
    27,020Balance June 30, 2009
    
    $
    224,609
    
    
    $
    (88,106
    )
    
    $
    21,046
    
    
    $
    (93,630
    )
    
    $
    (8,700
    )
    
    $
    10,540
    
    
    $
    65,759
  - 7 -




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1: Description of Business and Presentation of Financial Statements
          - 8 -




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##### Table of Contents



Recent Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 160 Noncontrolling Interests in
Consolidated Financial Statements  an Amendment of Accounting Research Bulletin (ARB) No. 51
  SFAS 141(R) Business Combinations
  SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS
No. 133
  (EITF) Issue No. 07-04 Application of the Two-Class Method under SFAS
Statement No. 128, Earnings per Share, to Master Limited Partnerships
  Financial Accounting Standards Board (FASB) Staff Position (FSP) No. EITF 03-6-1 Determining
Whether Instruments Granted in Share-Based Transactions Are Participating Securities
  SFAS No. 165 Subsequent Events
  - 9 -




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FSP SFAS No. 107-1 and Accounting Principles Board (APB) No. 28-1 Interim Disclosures about Fair
Value of Financial Instruments
  Note 2: Acquisitions
 Lovington-Artesia Pipeline Transaction
   SLC Pipeline Joint Venture Interest
   Crude Pipelines and Tankage Transaction
   - 10 -




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Note 3: Financial Instruments
   Fair Value Measurements
  
    
    (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.
  Note 4: Properties and Equipment
 June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Pipelines and terminals
    
    $
    345,582
    
    
    $
    308,056Land and right of way
    
    
    25,042
    
    
    
    24,991Other
    
    
    11,761
    
    
    
    11,498Construction in progress
    
    
    58,050
    
    
    
    38,589440,435
    
    
    
    383,134Less accumulated depreciation
    
    
    103,750
    
    
    
    92,850$
    336,685
    
    
    $
    290,284
  - 11 -




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##### Table of Contents



Note 5: Transportation Agreements
  
    
    The Alon pipelines and terminals agreement (the Alon PTA) represents a portion of the
total purchase price of the Alon assets that was allocated based on an estimated fair value
derived under an income approach. This asset is being amortized over 30 years ending 2035,
the 15-year initial term of the Alon PTA 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 using a fair
value based on the agreements expected contribution to our future earnings under an income
approach. This asset is being amortized over 15 years ending 2023, the 15-year term of the
Holly CPTA.
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Alon transportation agreement
    
    $
    59,933
    
    
    $
    59,933Holly crude pipelines and
tankage agreement
    
    
    74,231
    
    
    
    74,231134,164
    
    
    
    134,164Less accumulated amortization
    
    
    15,255
    
    
    
    11,781$
    118,909
    
    
    $
    122,383
  Note 6: Employees, Retirement and Incentive Plans
    - 12 -




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Restricted Units
   Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicGrant-Date
    
    
    Contractual
    
    
    ValueRestricted Units
    
    Grants
    
    
    Fair Value
    
    
    Term
    
    
    ($000)Outstanding January 1, 2009 (not vested)
    
    
    53,505
    
    
    $
    41.28Granted
    
    
    26,562
    
    
    
    23.30Forfeited
    
    
    (2,152
    )
    
    
    42.53Vesting and transfer of full ownership to recipients
    
    
    (23,318
    )
    
    
    37.70Outstanding at June 30, 2009 (not vested)
    
    
    54,597
    
    
    $
    34.01
    
    
    1.0 year
    
    $
    1,733
   Performance Units
    PayablePerformance Units
    
    In UnitsOutstanding at January 1, 2009 (not vested)
    
    
    36,971Granted
    
    
    28,113Forfeited
    
    
    Vesting and transfer of common units to recipients
    
    
    (10,313
    )Outstanding at June 30, 2009 (not vested)
    
    
    54,771
 - 13 -




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Note 7: Debt
 Credit Agreement
       Senior Notes Due 2015
  - 14 -




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Credit Agreement
    
    $
    218,000
    
    
    $
    200,000Senior NotesPrincipal
    
    
    185,000
    
    
    
    185,000Unamortized discount
    
    
    (2,154
    )
    
    
    (2,344
    )Unamortized premium  dedesignated fair value hedge
    
    
    1,964
    
    
    
    2,137184,810
    
    
    
    184,793Total debt
    
    
    402,810
    
    
    
    384,793Less net short-term borrowings under credit agreement(1)
    
    
    
    
    
    
    29,000Total long-term debt(1)
    
    $
    402,810
    
    
    $
    355,793
 
 (1)
    
    We are currently classifying all borrowings under the Credit Agreement as long-term. At
December 31, 2008, we classified certain of our Credit Agreement borrowings as short-term. Interest Rate Risk Management
     - 15 -




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##### Table of Contents



Balance Sheet
    
    
    
    
    
    Location of Offsetting
    
    OffsettingInterest Rate Swaps
    
    Location
    
    Fair Value
    
    
    Balance
    
    Amount(In thousands)AssetFixed-to-variable interest rate swap
    
    Other assets
    
    $
    2,751
    
    
    Long-term debt
    
    $
    (1,964
    )- $60 million of 6.25% Senior Notes
    
    
    
    
    
    
    
    HEP partners equity
    
    
    (1,942
    )(1)Interest expense
    
    
    1,155
    (2)$
    2,751
    
    
    
    
    $
    (2,751
    )LiabilityCash flow hedge  $171 million LIBOR
    
    Other long-term
    
    
    
    
    
    Accumulated otherbased debt
    
    liabilities
    
    $
    (8,700
    )
    
    comprehensive loss
    
    $
    8,700Variable-to-fixed interest rate swap
    
    Other long-term
    
    
    
    
    
    HEP partners equity
    
    
    4,166
    (1)- $60 million
    
    liabilities
    
    
    (2,209
    )
    
    Interest expense
    
    
    (1,957
    )$
    (10,909
    )
    
    
    
    $
    10,909
 
 (1)
    
    Represents prior year charges to interest expense.(2)
    
    Net of amortization of premium attributable to dedesignated hedge. Interest Expense and Other Debt Information
  Six Months EndedJune 30,2009
    
    
    2008(In thousands)Interest on outstanding debt:Senior Notes, net of interest rate swaps
    
    $
    4,710
    
    
    $
    5,353Credit Agreement, net of interest rate swap
    
    
    5,260
    
    
    
    3,278Net amortization of discount and deferred debt issuance costs
    
    
    353
    
    
    
    480Commitment fees
    
    
    145
    
    
    
    149Total interest incurred
    
    
    10,468
    
    
    
    9,260Less capitalized interest
    
    
    661
    
    
    
    220Net interest expense
    
    $
    9,807
    
    
    $
    9,040Cash paid for interest(1)
    
    $
    11,836
    
    
    $
    6,200
 
 (1)
    
    Net of cash received under our interest rate swap agreements of $1.9 million and $2.1
million for the six months ended June 30, 2009 and 2008, respectively. - 16 -




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##### Table of Contents



Note 8: Significant Customers
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Holly
    
    
    62
    %
    
    
    75
    %
    
    
    60
    %
    
    
    71
    %Alon
    
    
    27
    %
    
    
    12
    %
    
    
    28
    %
    
    
    16
    %BP
    
    
    5
    %
    
    
    8
    %
    
    
    5
    %
    
    
    9
    %
 Note 9: Related Party Transactions
 Holly and Alon Agreements
       - 17 -




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##### Table of Contents




    
    Pipeline, terminal and tankage revenues received from Holly were $25.1 million and
$20.1 million for the three months ended June 30, 2009 and 2008, respectively, and $43.4
million and $38.5 million for the six months ended June 30, 2009 and 2008, 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
$0.6 million for the three months ended June 30, 2009 and 2008 and $1.2 million and $1.1
million for the six months ended June 30, 2009 and 2008, respectively.
 
    
    We reimbursed Holly for costs of employees supporting our operations of $4.0
million and $3.5 million for the three months ended June 30, 2009 and 2008, respectively, and
$8.6 million and $6.1 million for the six months ended June 30, 2009 and 2008, respectively.
 
    
    We distributed $7.1 million and $6.4 million during the three months ended June
30, 2009 and 2008, respectively, to Holly as regular distributions on its subordinated units,
common units and general partner interest. We distributed $14.0 million and $12.4 million
during the six months ended June 30, 2009 and 2008, respectively.
 
    
    Our accounts receivable from Holly was $8.7 million and $9.4 million at June 30,
2009 and December 31, 2008, respectively.
 
    
    Holly has failed to meet its minimum volume commitment for each of the sixteen
quarters since inception of the Holly IPA. Through June 30, 2009, we have charged Holly $9.3
million for these shortfalls to date, $0.5 million of which is included in affiliate accounts
receivable at June 30, 2009 and December 31, 2008.
 
    
    Our revenues for the three and six months ended June 30, 2009 include $0.9 million
and $1.1 million, respectively, of shortfalls billed under the Holly IPA in 2008 as Holly did
not exceed its minimum volume commitment in any of the subsequent four quarters. Deferred
revenue in the consolidated balance sheets at June 30, 2009 and December 31, 2008, includes
$3.5 million and $2.4 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 $3.5 million deferred at June 30, 2009.
 
    
    See Note 2 for information on our 16-inch intermediate pipeline and the Crude
Pipelines and Tankage Assets acquired from Holly in June 2009 and February 2008, respectively.
 
    
    We paid Holly a $2.5 million finders fee in the first quarter of 2009 in
consideration for its assistance in obtaining our joint venture interest in the SLC Pipeline.
  
    
    Pipeline and terminal revenues received from Alon were $9.2 million and $1.5
million for the three months ended June 30, 2009 and 2008, respectively, and $17.0 million and
$4.9 million for the six months ended June 30, 2009 and 2008, respectively, under the Alon
PTA. Additionally, pipeline revenues received under a pipeline capacity lease agreement with
Alon were $1.7 million and $1.8 million for the three months ended June 30, 2009 and 2008,
respectively, and $3.4 million and $3.6 million for the six months ended June 30, 2009 and
2008, respectively.
 
    
    We distributed $0.7 million during the three months ended June 30, 2009 and 2008
and $1.4 million during the six months ended June 30, 2009 and 2008, to Alon for distributions
on its Class B subordinated units.
 
    
    Included in our accounts receivable  trade were $3.5 million and $2.5 million at
June 30, 2009 and December 31, 2008, respectively, which represented receivable balances from
Alon.
 - 18 -




---



##### Table of Contents




    
    Our revenues for the three and six months ended June 30, 2009 include $4.8 million
and $7.7 million, respectively, of shortfalls billed under the Alon PTA in 2008 as Alon did
not exceed its minimum revenue obligation in any of the subsequent four quarters. Deferred
revenue in the consolidated balance sheets at June 30, 2009 and December 31, 2008 includes
$7.5 million and $13.3 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 $7.5 million deferred at June 30, 2009.
 BP
  
    
    BP is one of multiple shippers on the Rio Grande pipeline. We recorded revenues
from BP of $2.2 million for the three months ended June 30, 2009 and 2008 and $3.8 million and
$4.9 million for the six months ended June 30, 2009 and 2008, respectively.
 
    
    Included in our accounts receivable  trade at June 30, 2009 and December 31, 2008
were $1.1 million and $0.8 million, respectively, which represented the receivable balance of
Rio Grande from BP.
 Note 10: HEP Partners Equity, Income Allocations, Cash Distributions and Comprehensive Income
 Issuances of units
    Allocations of Net Income
  - 19 -




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per unit data)General partner interest in net income
    
    $
    304
    
    
    $
    61
    
    
    $
    392
    
    
    $
    202General partner incentive distribution
    
    
    1,545
    
    
    
    788
    
    
    
    2,750
    
    
    
    1,526Total general partner interest in net
income attributable to HEP
    
    $
    1,849
    
    
    $
    849
    
    
    $
    3,142
    
    
    $
    1,728
 Cash Distributions
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per unit data)General partner interest
    
    $
    328
    
    
    $
    264
    
    
    $
    611
    
    
    $
    524General partner incentive distribution
    
    
    1,545
    
    
    
    788
    
    
    
    2,750
    
    
    
    1,526Total general partner distribution
    
    
    1,873
    
    
    
    1,052
    
    
    
    3,361
    
    
    
    2,050Limited partner distribution
    
    
    14,538
    
    
    
    12,200
    
    
    
    27,200
    
    
    
    24,234Total regular quarterly cash distribution
    
    $
    16,411
    
    
    $
    13,252
    
    
    $
    30,561
    
    
    $
    26,284Cash distribution per unit applicable to
limited partners
    
    $
    0.785
    
    
    $
    0.745
    
    
    $
    1.560
    
    
    $
    1.480
  - 20 -




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##### Table of Contents



Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income
    
    $
    16,819
    
    
    $
    4,079
    
    
    $
    22,753
    
    
    $
    12,283Other comprehensive income:Change in fair value of cash flow hedge
    
    
    4,417
    
    
    
    6,797
    
    
    
    4,267
    
    
    
    2,448Comprehensive income
    
    
    21,236
    
    
    
    10,876
    
    
    
    27,020
    
    
    
    14,731Less noncontrolling interest in comprehensive income
    
    
    427
    
    
    
    264
    
    
    
    922
    
    
    
    670Comprehensive income attributable to HEP unitholders
    
    $
    20,809
    
    
    $
    10,612
    
    
    $
    26,098
    
    
    $
    14,061
 Note 11: Supplemental Guarantor/Non-Guarantor Financial Information
   - 21 -




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##### Table of Contents



Condensed Consolidating Balance Sheet
 Guarantor
    
    
    Non-June 30, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    1,304
    
    
    $
    2,889
    
    
    $
    
    
    
    $
    4,195Accounts receivable
    
    
    
    
    
    
    12,325
    
    
    
    1,155
    
    
    
    
    
    
    
    13,480Intercompany accounts receivable (payable)
    
    
    (169,661
    )
    
    
    169,846
    
    
    
    (185
    )
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    6
    
    
    
    821
    
    
    
    
    
    
    
    
    
    
    
    827Total current assets
    
    
    (169,653
    )
    
    
    184,296
    
    
    
    3,859
    
    
    
    
    
    
    
    18,502Properties and equipment, net
    
    
    
    
    
    
    304,904
    
    
    
    31,781
    
    
    
    
    
    
    
    336,685Investment in subsidiaries
    
    
    411,367
    
    
    
    24,594
    
    
    
    
    
    
    
    (435,961
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    118,909
    
    
    
    
    
    
    
    
    
    
    
    118,909Investment in SLC Pipeline
    
    
    
    
    
    
    26,098
    
    
    
    
    
    
    
    
    
    
    
    26,098Other assets
    
    
    3,799
    
    
    
    1,122
    
    
    
    
    
    
    
    
    
    
    
    4,921Total assets
    
    $
    245,513
    
    
    $
    659,923
    
    
    $
    35,640
    
    
    $
    (435,961
    )
    
    $
    505,115LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    8,992
    
    
    $
    128
    
    
    $
    
    
    
    $
    9,120Accrued interest
    
    
    (2,842
    )
    
    
    5,713
    
    
    
    
    
    
    
    
    
    
    
    2,871Deferred revenue
    
    
    
    
    
    
    10,989
    
    
    
    
    
    
    
    
    
    
    
    10,989Accrued property taxes
    
    
    
    
    
    
    934
    
    
    
    92
    
    
    
    
    
    
    
    1,026Other current liabilities
    
    
    6,117
    
    
    
    (5,345
    )
    
    
    286
    
    
    
    
    
    
    
    1,058Total current liabilities
    
    
    3,275
    
    
    
    21,283
    
    
    
    506
    
    
    
    
    
    
    
    25,064Long-term debt
    
    
    184,810
    
    
    
    218,000
    
    
    
    
    
    
    
    
    
    
    
    402,810Other long-term liabilities
    
    
    2.209
    
    
    
    9,273
    
    
    
    
    
    
    
    
    
    
    
    11,482Equity  HEP
    
    
    55,219
    
    
    
    411,367
    
    
    
    35,134
    
    
    
    (446,501
    )
    
    
    55,219Equity  noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,540
    
    
    
    10,540Total liabilities and equity
    
    $
    245,513
    
    
    $
    659,923
    
    
    $
    35,640
    
    
    $
    (435,961
    )
    
    $
    505,115
 Condensed Consolidating Balance Sheet
 Guarantor
    
    
    Non-December 31, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2
    
    
    $
    3,706
    
    
    $
    1,561
    
    
    $
    
    
    
    $
    5,269Accounts receivable
    
    
    
    
    
    
    13,332
    
    
    
    1,145
    
    
    
    
    
    
    
    14,477Intercompany accounts receivable (payable)
    
    
    (197,828
    )
    
    
    197,979
    
    
    
    (151
    )
    
    
    
    
    
    
    Prepaid and other current assets
    
    
    176
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    593Total current assets
    
    
    (197,650
    )
    
    
    215,434
    
    
    
    2,555
    
    
    
    
    
    
    
    20,339Properties and equipment, net
    
    
    
    
    
    
    257,886
    
    
    
    32,398
    
    
    
    
    
    
    
    290,284Investment in subsidiaries
    
    
    378,481
    
    
    
    23,842
    
    
    
    
    
    
    
    (402,323
    )
    
    
    Transportation agreements, net
    
    
    
    
    
    
    122,383
    
    
    
    
    
    
    
    
    
    
    
    122,383Other assets
    
    
    5,300
    
    
    
    1,382
    
    
    
    
    
    
    
    
    
    
    
    6,682Total assets
    
    $
    186,131
    
    
    $
    620,927
    
    
    $
    34,953
    
    
    $
    (402,323
    )
    
    $
    439,688LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    7,357
    
    
    $
    661
    
    
    $
    
    
    
    $
    8,018Accrued interest
    
    
    (27,778
    )
    
    
    30,623
    
    
    
    
    
    
    
    
    
    
    
    2,845Deferred revenue
    
    
    
    
    
    
    15,658
    
    
    
    
    
    
    
    
    
    
    
    15,658Accrued property taxes
    
    
    
    
    
    
    1,015
    
    
    
    130
    
    
    
    
    
    
    
    1,145Other current liabilities
    
    
    31,214
    
    
    
    (29,811
    )
    
    
    102
    
    
    
    
    
    
    
    1,505Short-term borrowings under credit agreement
    
    
    
    
    
    
    29,000
    
    
    
    
    
    
    
    
    
    
    
    29,000Total current liabilities
    
    
    3,436
    
    
    
    53,842
    
    
    
    893
    
    
    
    
    
    
    
    58,171Long-term debt
    
    
    184,793
    
    
    
    171,000
    
    
    
    
    
    
    
    
    
    
    
    355,793Other long-term liabilities
    
    
    
    
    
    
    17,604
    
    
    
    
    
    
    
    
    
    
    
    17,604Equity  HEP
    
    
    (2,098
    )
    
    
    378,481
    
    
    
    34,060
    
    
    
    (412,541
    )
    
    
    (2,098
    )Equity  noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,218
    
    
    
    10,218Total liabilities and equity
    
    $
    186,131
    
    
    $
    620,927
    
    
    $
    34,953
    
    
    $
    (402,323
    )
    
    $
    439,688
 - 22 -




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##### Table of Contents



Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Three months ended June 30, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    25,064
    
    
    $
    
    
    
    $
    
    
    
    $
    25,064Third parties
    
    
    
    
    
    
    13,286
    
    
    
    2,603
    
    
    
    (351
    )
    
    
    15,538
    
    
    
    38,350
    
    
    
    2,603
    
    
    
    (351
    )
    
    
    40,602Operating costs and expenses:Operations
    
    
    
    
    
    
    10,637
    
    
    
    800
    
    
    
    (351
    )
    
    
    11,086Depreciation and amortization
    
    
    
    
    
    
    6,512
    
    
    
    341
    
    
    
    
    
    
    
    6,853General and administrative
    
    
    590
    
    
    
    1,207
    
    
    
    21
    
    
    
    
    
    
    
    1,818590
    
    
    
    18,356
    
    
    
    1,162
    
    
    
    (351
    )
    
    
    19,757Operating income (loss)
    
    
    (590
    )
    
    
    19,994
    
    
    
    1,441
    
    
    
    
    
    
    
    20,845Other income (expense):Equity in earnings of subsidiaries
    
    
    15,930
    
    
    
    996
    
    
    
    
    
    
    
    (16,926
    )
    
    
    Equity in earnings of SLC Pipeline
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    
    
    
    
    423Interest income (expense)
    
    
    1,052
    
    
    
    (5,454
    )
    
    
    
    
    
    
    
    
    
    
    (4,402
    )Other
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    6516,982
    
    
    
    (3,970
    )
    
    
    
    
    
    
    (16,926
    )
    
    
    (3,914
    )Income (loss) before
income taxes
    
    
    16,392
    
    
    
    16,024
    
    
    
    1,441
    
    
    
    (16,926
    )
    
    
    16,931State income tax
    
    
    
    
    
    
    (94
    )
    
    
    (18
    )
    
    
    
    
    
    
    (112
    )Net income
    
    
    16,392
    
    
    
    15,930
    
    
    
    1,423
    
    
    
    (16,926
    )
    
    
    16,819Less noncontrolling interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    427
    
    
    
    427Net income attributable to HEP
    
    $
    16,392
    
    
    $
    15,930
    
    
    $
    1,423
    
    
    $
    (17,353
    )
    
    $
    16,392
 Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Three months ended June 30, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    20,146
    
    
    $
    
    
    
    $
    
    
    
    $
    20,146Third parties
    
    
    
    
    
    
    4,482
    
    
    
    2,171
    
    
    
    (324
    )
    
    
    6,629
    
    
    
    24,928
    
    
    
    2,171
    
    
    
    (324
    )
    
    
    26,775Operating costs and expenses:Operations
    
    
    
    
    
    
    9,342
    
    
    
    967
    
    
    
    (324
    )
    
    
    9,985Depreciation and amortization
    
    
    
    
    
    
    5,736
    
    
    
    326
    
    
    
    
    
    
    
    6,062General and administrative
    
    
    760
    
    
    
    603
    
    
    
    (4
    )
    
    
    
    
    
    
    1,359760
    
    
    
    15,681
    
    
    
    1,289
    
    
    
    (324
    )
    
    
    17,406Operating income (loss)
    
    
    (760
    )
    
    
    9,247
    
    
    
    882
    
    
    
    
    
    
    
    9,369Other income (expense):Equity in earnings of subsidiaries
    
    
    7,180
    
    
    
    615
    
    
    
    
    
    
    
    (7,795
    )
    
    
    Interest income (expense)
    
    
    (2,605
    )
    
    
    (2,613
    )
    
    
    13
    
    
    
    
    
    
    
    (5,205
    )4,575
    
    
    
    (1,998
    )
    
    
    13
    
    
    
    (7,795
    )
    
    
    (5,205
    )Income (loss) before income taxes
    
    
    3,815
    
    
    
    7,249
    
    
    
    895
    
    
    
    (7,795
    )
    
    
    4,164State income tax
    
    
    
    
    
    
    (69
    )
    
    
    (16
    )
    
    
    
    
    
    
    (85
    )Net income
    
    
    3,815
    
    
    
    7,180
    
    
    
    879
    
    
    
    (7,795
    )
    
    
    4,079Less noncontrolling interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    264Net income attributable to HEP
    
    $
    3,815
    
    
    $
    7,180
    
    
    $
    879
    
    
    $
    (8,059
    )
    
    $
    3,815
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##### Table of Contents



Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Six months ended June 30, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    43,387
    
    
    $
    
    
    
    $
    
    
    
    $
    43,387Third parties
    
    
    
    
    
    
    24,639
    
    
    
    5,395
    
    
    
    (695
    )
    
    
    29,339
    
    
    
    68,026
    
    
    
    5,395
    
    
    
    (695
    )
    
    
    72,726Operating costs and expenses:Operations
    
    
    
    
    
    
    20,986
    
    
    
    1,591
    
    
    
    (695
    )
    
    
    21,882Depreciation and amortization
    
    
    
    
    
    
    12,428
    
    
    
    681
    
    
    
    
    
    
    
    13,109General and administrative
    
    
    1,288
    
    
    
    1,843
    
    
    
    11
    
    
    
    
    
    
    
    3,1421,288
    
    
    
    35,257
    
    
    
    2,283
    
    
    
    (695
    )
    
    
    38,133Operating income (loss)
    
    
    (1,288
    )
    
    
    32,769
    
    
    
    3,112
    
    
    
    
    
    
    
    34,593Other income (expense):Equity in earnings of subsidiaries
    
    
    24,994
    
    
    
    2,152
    
    
    
    
    
    
    
    (27,146
    )
    
    
    Equity in earnings of SLC Pipeline
    
    
    
    
    
    
    598
    
    
    
    
    
    
    
    
    
    
    
    598SLC Pipeline acquisition costs
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Interest income (expense)
    
    
    (1,875
    )
    
    
    (7,924
    )
    
    
    
    
    
    
    
    
    
    
    (9,799
    )Other
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    6523,119
    
    
    
    (7,609
    )
    
    
    
    
    
    
    (27,146
    )
    
    
    (11,636
    )Income (loss) before
income taxes
    
    
    21,831
    
    
    
    25,160
    
    
    
    3,112
    
    
    
    (27,146
    )
    
    
    22,957State income tax
    
    
    
    
    
    
    (166
    )
    
    
    (38
    )
    
    
    
    
    
    
    (204
    )Net income
    
    
    21,831
    
    
    
    24,994
    
    
    
    3,074
    
    
    
    (27,146
    )
    
    
    22,753Less noncontrolling interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    922
    
    
    
    922Net income attributable to HEP
    
    $
    21,831
    
    
    $
    24,994
    
    
    $
    3,074
    
    
    $
    (28,068
    )
    
    $
    21,831
 Condensed Consolidating Statement of Income
 Guarantor
    
    
    Non-Six months ended June 30, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(In thousands)Revenues:Affiliates
    
    $
    
    
    
    $
    38,473
    
    
    $
    
    
    
    $
    
    
    
    $
    38,473Third parties
    
    
    
    
    
    
    11,298
    
    
    
    4,921
    
    
    
    (641
    )
    
    
    15,578
    
    
    
    49,771
    
    
    
    4,921
    
    
    
    (641
    )
    
    
    54,051Operating costs and expenses:Operations
    
    
    
    
    
    
    18,315
    
    
    
    2,038
    
    
    
    (641
    )
    
    
    19,712Depreciation and amortization
    
    
    
    
    
    
    9,724
    
    
    
    651
    
    
    
    
    
    
    
    10,375General and administrative
    
    
    1,502
    
    
    
    1,146
    
    
    
    (3
    )
    
    
    
    
    
    
    2,6451,502
    
    
    
    29,185
    
    
    
    2,686
    
    
    
    (641
    )
    
    
    32,732Operating income (loss)
    
    
    (1,502
    )
    
    
    20,586
    
    
    
    2,235
    
    
    
    
    
    
    
    21,319Other income (expense):Equity in earnings of subsidiaries
    
    
    18,734
    
    
    
    1,562
    
    
    
    
    
    
    
    (20,296
    )
    
    
    Interest income (expense)
    
    
    (5,619
    )
    
    
    (3,332
    )
    
    
    32
    
    
    
    
    
    
    
    (8,919
    )Gain on sale of assets
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    3613,115
    
    
    
    (1,734
    )
    
    
    32
    
    
    
    (20,296
    )
    
    
    (8,883
    )Income (loss) before income taxes
    
    
    11,613
    
    
    
    18,852
    
    
    
    2,267
    
    
    
    (20,296
    )
    
    
    12,436State income tax
    
    
    
    
    
    
    (118
    )
    
    
    (35
    )
    
    
    
    
    
    
    (153
    )Net income
    
    
    11,613
    
    
    
    18,734
    
    
    
    2,232
    
    
    
    (20,296
    )
    
    
    12,283Less noncontrolling interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    670
    
    
    
    670Net income attributable to HEP
    
    $
    11,613
    
    
    $
    18,734
    
    
    $
    2,232
    
    
    $
    (20,966
    )
    
    $
    11,613
 - 24 -




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##### Table of Contents



Condensed Consolidating Statement of
Cash Flows
 Guarantor
    
    
    Non-Six months ended June 30, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities
    
    $
    (31,418
    )
    
    $
    61,676
    
    
    $
    3,392
    
    
    $
    (1,400
    )
    
    $
    32,250Cash flows from investing activitiesInvestment in SLC Pipeline
    
    
    
    
    
    
    (25,500
    )
    
    
    
    
    
    
    
    
    
    
    (25,500
    )Additions to properties and equipment
    
    
    
    
    
    
    (55,962
    )
    
    
    (64
    )
    
    
    
    
    
    
    (56,026
    )
    
    
    
    (81,462
    )
    
    
    (64
    )
    
    
    
    
    
    
    (81,526
    )Cash flows from financing activitiesNet borrowings under credit agreement
    
    
    
    
    
    
    18,000
    
    
    
    
    
    
    
    
    
    
    
    18,000Proceeds from issuance of common units
    
    
    58,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,355Capital contribution from general partner
    
    
    1,191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191Distributions to HEP unitholders
    
    
    (27,968
    )
    
    
    
    
    
    
    (2,000
    )
    
    
    2,000
    
    
    
    (27,968
    )Distributions to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (600
    )
    
    
    (600
    )Other financing activities, net
    
    
    (160
    )
    
    
    (616
    )
    
    
    
    
    
    
    
    
    
    
    (776
    )31,418
    
    
    
    17,384
    
    
    
    (2,000
    )
    
    
    1,400
    
    
    
    48,202Cash and cash equivalentsIncrease (decrease) for the period
    
    
    
    
    
    
    (2,402
    )
    
    
    1,328
    
    
    
    
    
    
    
    (1,074
    )Beginning of period
    
    
    2
    
    
    
    3,706
    
    
    
    1,561
    
    
    
    
    
    
    
    5,269End of period
    
    $
    2
    
    
    $
    1,304
    
    
    $
    2,889
    
    
    $
    
    
    
    $
    4,195
 Condensed Consolidating Statement of
Cash Flows
 Guarantor
    
    
    Non-Six months ended June 30, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    Guarantor
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities
    
    $
    16,984
    
    
    $
    4,866
    
    
    $
    3,671
    
    
    $
    (2,100
    )
    
    $
    23,421Cash flows from investing activitiesAdditions to properties and equipment
    
    
    
    
    
    
    (19,567
    )
    
    
    (469
    )
    
    
    
    
    
    
    (20,036
    )Acquisition of
crude
pipelines and
tankage
assets
    
    
    
    
    
    
    (171,000
    )
    
    
    
    
    
    
    
    
    
    
    (171,000
    )Proceeds from sale of assets
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    (190,531
    )
    
    
    (469
    )
    
    
    
    
    
    
    (191,000
    )Cash flows from financing activitiesNet borrowings under credit agreement
    
    
    9,000
    
    
    
    182,000
    
    
    
    
    
    
    
    
    
    
    
    191,000Proceeds from issuance of common units
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    104Capital contribution from general
partner
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Distributions to HEP unitholders
    
    
    (25,656
    )
    
    
    
    
    
    
    (3,000
    )
    
    
    3,000
    
    
    
    (25,656
    )Distributions to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (900
    )
    
    
    (900
    )Other financing activities, net
    
    
    (514
    )
    
    
    (591
    )
    
    
    
    
    
    
    
    
    
    
    (1,105
    )(16,984
    )
    
    
    181,513
    
    
    
    (3,000
    )
    
    
    2,100
    
    
    
    163,629Cash and cash equivalentsIncrease (decrease) for the period
    
    
    
    
    
    
    (4,152
    )
    
    
    202
    
    
    
    
    
    
    
    (3,950
    )Beginning of period
    
    
    2
    
    
    
    8,060
    
    
    
    2,259
    
    
    
    
    
    
    
    10,321End of period
    
    $
    2
    
    
    $
    3,908
    
    
    $
    2,461
    
    
    $
    
    
    
    $
    6,371
 - 25 -




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##### Table of Contents



HOLLY ENERGY PARTNERS, L.P.
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  OVERVIEW
         - 26 -




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##### Table of Contents



Agreements with Holly Corporation and Alon
      Minimum AnnualizedCommitment
    
    
    Year ofAgreement
    
    (In millions)
    
    
    Maturity
    
    Contract TypeHolly PTA
    
    $
    43.7
    
    
    2019
    
    Minimum revenue commitmentHolly IPA*
    
    
    20.7
    
    
    2024
    
    Minimum revenue commitmentHolly CPTA
    
    
    28.4
    
    
    2023
    
    Minimum revenue commitmentAlon PTA
    
    
    21.7
    
    
    2020
    
    Minimum volume commitmentAlon capacity lease
    
    
    6.8
    
    
    Various
    
    Capacity leaseTotal
    
    $
    121.3
 
 *
    
    Reflects amended terms of the Holly IPA effective June 2009.   - 27 -




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##### Table of Contents



RESULTS OF OPERATIONS (Unaudited)
 Income, Distributable Cash Flow and Volumes
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per unit data)RevenuesPipelines:Affiliates  refined product pipelines
    
    $
    11,366
    
    
    $
    8,873
    
    
    $
    18,919
    
    
    $
    18,441Affiliates  intermediate pipelines
    
    
    4,302
    
    
    
    2,456
    
    
    
    6,068
    
    
    
    6,049Affiliates  crude pipelines
    
    
    6,751
    
    
    
    6,553
    
    
    
    13,652
    
    
    
    8,74822,419
    
    
    
    17,882
    
    
    
    38,639
    
    
    
    33,238Third parties  refined product pipelines
    
    
    13,701
    
    
    
    5,681
    
    
    
    25,968
    
    
    
    13,51636,120
    
    
    
    23,563
    
    
    
    64,607
    
    
    
    46,754Terminals, refinery tankage and truck loading racks:Affiliates
    
    
    2,645
    
    
    
    2,264
    
    
    
    4,748
    
    
    
    5,235Third parties
    
    
    1,837
    
    
    
    948
    
    
    
    3,371
    
    
    
    2,0624,482
    
    
    
    3,212
    
    
    
    8,119
    
    
    
    7,297Total revenues
    
    
    40,602
    
    
    
    26,775
    
    
    
    72,726
    
    
    
    54,051Operating costs and expenses:Operations
    
    
    11,086
    
    
    
    9,985
    
    
    
    21,882
    
    
    
    19,712Depreciation and amortization
    
    
    6,853
    
    
    
    6,062
    
    
    
    13,109
    
    
    
    10,375General and administrative
    
    
    1,818
    
    
    
    1,359
    
    
    
    3,142
    
    
    
    2,64519,757
    
    
    
    17,406
    
    
    
    38,133
    
    
    
    32,732Operating income
    
    
    20,845
    
    
    
    9,369
    
    
    
    34,593
    
    
    
    21,319Other income (expense):Equity in earnings of SLC Pipeline
    
    
    423
    
    
    
    
    
    
    
    598
    
    
    
    SLC Pipeline acquisition costs
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    Interest income
    
    
    2
    
    
    
    28
    
    
    
    8
    
    
    
    121Interest expense, including amortization
    
    
    (4,404
    )
    
    
    (5,233
    )
    
    
    (9,807
    )
    
    
    (9,040
    )Other
    
    
    65
    
    
    
    
    
    
    
    65
    
    
    
    36(3,914
    )
    
    
    (5,205
    )
    
    
    (11,636
    )
    
    
    (8,883
    )Income before income taxes
    
    
    16,931
    
    
    
    4,164
    
    
    
    22,957
    
    
    
    12,436State income tax
    
    
    (112
    )
    
    
    (85
    )
    
    
    (204
    )
    
    
    (153
    )Net income(8)
    
    
    16,819
    
    
    
    4,079
    
    
    
    22,753
    
    
    
    12,283Less noncontrolling interest in net income(8)
    
    
    427
    
    
    
    264
    
    
    
    922
    
    
    
    670Net income attributable to HEP(8)
    
    
    16,392
    
    
    
    3,815
    
    
    
    21,831
    
    
    
    11,613Less general partner interest in net income attributable to HEP,
including incentive distributions (1)
    
    
    1,849
    
    
    
    849
    
    
    
    3,142
    
    
    
    1,728Limited partners interest in net income attributable to HEP
    
    $
    14,543
    
    
    $
    2,966
    
    
    $
    18,689
    
    
    $
    9,885Limited partners per unit interest in net income attributable
to HEP  basic and diluted(1)(9)
    
    $
    0.82
    
    
    $
    0.18
    
    
    $
    1.10
    
    
    $
    0.61Weighted average limited partners units outstanding
    
    
    17,789
    
    
    
    16,328
    
    
    
    17,058
    
    
    
    16,254EBITDA(2)
    
    $
    27,759
    
    
    $
    15,167
    
    
    $
    44,943
    
    
    $
    31,060Distributable cash flow(3)
    
    $
    16,415
    
    
    $
    13,995
    
    
    $
    30,999
    
    
    $
    27,703Volumes  barrels per day (bpd)(4)Pipelines:Affiliates  refined product pipelines
    
    
    94,738
    
    
    
    75,812
    
    
    
    78,628
    
    
    
    80,186Affiliates  intermediate pipelines
    
    
    70,543
    
    
    
    51,886
    
    
    
    52,520
    
    
    
    59,748Affiliates  crude pipelines
    
    
    142,598
    
    
    
    130,559
    
    
    
    132,459
    
    
    
    88,979307,879
    
    
    
    258,257
    
    
    
    263,607
    
    
    
    228,913Third parties  refined product pipelines
    
    
    56,851
    
    
    
    24,423
    
    
    
    61,549
    
    
    
    34,966364,730
    
    
    
    282,680
    
    
    
    325,156
    
    
    
    263,879Terminals and truck loading racks:Affiliates
    
    
    115,221
    
    
    
    93,328
    
    
    
    99,118
    
    
    
    110,381Third parties
    
    
    40,742
    
    
    
    31,178
    
    
    
    42,067
    
    
    
    34,210155,963
    
    
    
    124,506
    
    
    
    141,185
    
    
    
    144,591Total for pipelines and terminal assets (bpd)
    
    
    520,693
    
    
    
    407,186
    
    
    
    466,341
    
    
    
    408,470
 - 28 -




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##### Table of Contents



(1)
    
    Net income attributable to HEP is allocated between limited partners and the general
partner interest in accordance with the provisions of the partnership agreement. HEP net
income allocated to the general partner includes incentive distributions declared
subsequent to quarter end. General partner incentive distributions for the three months
ended June 30, 2009 and 2008 were $1.5 million and $0.8 million, respectively, and for the
six months ended June 30, 2009 and 2008 were $2.8 million and $1.5 million, respectively.
HEP net income attributable to the limited partners is divided by the weighted average
limited partner units outstanding in computing the limited partners per unit interest in
HEP net income.(2)
    
    Earnings before interest, taxes, depreciation and amortization (EBITDA) is calculated
as net income attributable to HEP plus (i) interest expense net of interest income, (ii)
state income tax and (iii) 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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income attributable to HEP
    
    $
    16,392
    
    
    $
    3,815
    
    
    $
    21,831
    
    
    $
    11,613Add interest expense
    
    
    5,071
    
    
    
    4,976
    
    
    
    10,082
    
    
    
    8,560Add amortization of discount and
deferred debt issuance costs
    
    
    177
    
    
    
    257
    
    
    
    353
    
    
    
    480Add increase in interest expense 
change in fair value of interest rate
swaps
    
    
    (844
    )
    
    
    
    
    
    
    (628
    )
    
    
    Subtract interest income
    
    
    (2
    )
    
    
    (28
    )
    
    
    (8
    )
    
    
    (121
    )Add state income tax
    
    
    112
    
    
    
    85
    
    
    
    204
    
    
    
    153Add depreciation and amortization
    
    
    6,853
    
    
    
    6,062
    
    
    
    13,109
    
    
    
    10,375EBITDA
    
    $
    27,759
    
    
    $
    15,167
    
    
    $
    44,943
    
    
    $
    31,060
 
 (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. - 29 -




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Set forth below is our calculation of distributable cash flow. Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income attributable to HEP
    
    $
    16,392
    
    
    $
    3,815
    
    
    $
    21,831
    
    
    $
    11,613Add depreciation and amortization
    
    
    6,853
    
    
    
    6,062
    
    
    
    13,109
    
    
    
    10,375Add amortization of discount and
deferred debt issuance costs
    
    
    177
    
    
    
    257
    
    
    
    353
    
    
    
    480Subtract decrease in interest expense 
change in fair value of interest rate
swaps
    
    
    (844
    )
    
    
    
    
    
    
    (628
    )
    
    
    Add equity in excess cash flows over
earnings of SLC Pipeline
    
    
    167
    
    
    
    
    
    
    
    220
    
    
    
    Add (subtract) increase (decrease) in
deferred revenue
    
    
    (5,031
    )
    
    
    4,930
    
    
    
    (4,669
    )
    
    
    6,781Add SLC Pipeline acquisition costs*
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    Subtract maintenance capital
expenditures**
    
    
    (1,299
    )
    
    
    (1,069
    )
    
    
    (1,717
    )
    
    
    (1,546
    )Distributable cash flow
    
    $
    16,415
    
    
    $
    13,995
    
    
    $
    30,999
    
    
    $
    27,703
 
 *
    
    Under new accounting guidance, Statement of Financial Accounting Standards
(SFAS) No. 141(R) effective January 1, 2009, we were required to expense rather than
capitalize certain acquisition costs of $2.5 million associated with our joint venture
agreement with Plains that closed in March 2009. As these costs directly relate to our
interest in the new joint venture pipeline and are similar to expansion capital
expenditures, we have added back these costs to arrive at distributable cash flow.**
    
    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 amount reported for the six months ended June 30, 2008 include volumes transported
on the crude pipelines for the period from March 1, 2008 through June 30, 2008 only.
Volumes shipped during the months of March through June 2008 averaged 133.1 thousand
barrels per day (mbpd). For the six months ended June 30, 2008, crude pipeline volumes
are based on volumes for the months of March through June, averaged over the 182 days in
the first six months of 2008. 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. June 30,
    
    December 31,2009
    
    2008(In thousands)Balance Sheet DataCash and cash equivalents
    
    $
    4,195
    
    
    $
    5,269Working capital(5)
    
    $
    (6,562
    )
    
    $
    (37,832
    )Total assets(6)
    
    $
    505,115
    
    
    $
    439,688Long-term debt(7)
    
    $
    402,810
    
    
    $
    355,793Total equity(6)(8)
    
    $
    65,759
    
    
    $
    8,120
 
 (5)
    
    Working capital at December 31, 2008 reflects $29.0 million of credit agreement
advances that were classified as short-term borrowings.(6)
    
    As a master limited partnership, we distribute our available cash, which historically
has exceeded net income because depreciation and amortization expense represents a non-cash
charge against income. The result is a decline in equity since our regular quarterly
distributions have exceeded our quarterly net income. Additionally, if the assets
transferred to us upon our initial public offering in 2004 and the intermediate pipelines
purchased from Holly in 2005 had been acquired from third parties, our acquisition cost in
excess of Hollys basis in the transferred assets
of $157.3 million would have been recorded as increases to our properties and equipment and
intangible assets instead of reductions to equity. - 30 -




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(7)
    
    Includes $218.0 million of credit agreement advances that were classified long-term
debt at June 30, 2009.(8)
    
    On January 1, 2009, we adopted Statement of Financial Accounting Standard (SFAS) No.
160, Noncontrolling Interests in Consolidated Financial Statements  an amendment of
Accounting Research Bulletin (ARB) No. 51. As a result, net income attributable to the
noncontrolling interest in our Rio Grande subsidiary is now presented as an adjustment to
net income to arrive at Net income attributable to Holly Energy Partners, L.P. in our
Consolidated Statements of Income. Prior to our adoption of this standard, this amount was
presented as Minority interest in Rio Grande, a non-operating expense item before Income
before income taxes. Additionally, equity attributable to noncontrolling interests in our
Rio Grande subsidiary is now presented as a separate component of total equity in our
Consolidated Financial Statements. We have applied this standard on a retrospective basis.
While this presentation differs from previous GAAP requirements, this standard did not
affect our net income and equity attributable to HEP.(9)
    
    On January 1, 2009, we also adopted Emerging Issues Task Force (EITF) No. 07-4,
Application of the Two-Class Method under SFAS No. 128, Earnings per Share, to Master
Limited Partnerships, which prescribes the application of the two-class method in
computing earnings per unit to reflect a master limited partnerships contractual
obligation to make distributions to the general partner, limited partners and incentive
distribution rights holders. As a result, our quarterly earnings allocations to the
general partner now include incentive distributions that were declared subsequent to
quarter end. Prior to our adoption of this standard, our general partner earnings
allocations included incentive distributions that were declared during each quarter. We
have applied this standard on a retrospective basis. Although this standard resulted in a
decrease in our limited partners interest in net income attributable to Holly Energy
Partners, L.P. for the three and six month ended June 30, 2008, it did not affect earnings
of $0.18 and $0.61 per limited partner unit for the three and six months ended June 30,
2008, respectively. Results of Operations  Three Months Ended June 30, 2009 Compared with Three Months Ended June 30,
2008
 Summary
  Revenues
  - 31 -




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Operating Costs
  Depreciation and Amortization
  General and Administrative
  Equity in earnings of SLC Pipeline
  Interest Expense
  State Income Tax
  - 32 -




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Results of Operations  Six Months Ended June 30, 2009 Compared with Six Months Ended June 30,
2008
 Summary
   Revenues
     - 33 -




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Operating Costs
  Depreciation and Amortization
  General and Administrative
  Equity in earnings of SLC Pipeline
  SLC Pipeline Acquisition Costs
  Interest Expense
  State Income Tax
  - 34 -




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LIQUIDITY AND CAPITAL RESOURCES
 Overview
        Cash Flows  Operating Activities
  - 35 -




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Cash Flows  Investing Activities
  Cash Flows  Financing Activities
  Capital Requirements
   - 36 -




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- 37 -




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Credit Agreement
       Senior Notes Due 2015
   - 38 -




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Credit Agreement
    
    $
    218,000
    
    
    $
    200,000Senior NotesPrincipal
    
    
    185,000
    
    
    
    185,000Unamortized discount
    
    
    (2,154
    )
    
    
    (2,344
    )Unamortized premium  de-designated fair value hedge
    
    
    1,964
    
    
    
    2,137184,810
    
    
    
    184,793Total debt
    
    
    402,810
    
    
    
    384,793Less net short-term borrowings under credit agreement(1)
    
    
    
    
    
    
    29,000Total long-term debt(1)
    
    $
    402,810
    
    
    $
    355,793
 
 (1)
    
    We are currently classifying all borrowings under the Credit Agreement as long-term. At
December 31, 2008, we classified certain of our Credit Agreement borrowings as short-term.  Contractual Obligations
  Impact of Inflation
   Environmental Matters
   - 39 -




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CRITICAL ACCOUNTING POLICIES
   Recent Accounting Pronouncements
 SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB
No. 51
  SFAS 141(R) Business Combinations
  - 40 -




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SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities, an Amendment of SFAS
No. 133
  EITF Issue No. 07-04 Application of the Two-Class Method under SFAS No. 128, Earnings per Share,
to Master Limited Partnerships
  Financial Accounting Standards Board (FASB) Staff Position (FSP) No. EITF 03-6-1 Determining
Whether Instruments Granted in Share-Based Transactions Are Participating Securities
  SFAS No. 165 Subsequent Events
  FSP SFAS No. 107-1 and Accounting Principles Board (APB) No. 28-1 Interim Disclosures about Fair
Value of Financial Instruments
  RISK MANAGEMENT
    - 41 -




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Balance Sheet
    
    
    
    
    
    Location of Offsetting
    
    OffsettingInterest Rate Swaps
    
    Location
    
    Fair Value
    
    
    Balance
    
    Amount(In thousands)AssetFixed-to-variable interest rate swap
    
    Other assets
    
    $
    2,751
    
    
    Long-term debt
    
    $
    (1,964
    )- $60 million of 6.25% Senior Notes
    
    
    
    
    
    
    
    HEP partners equity
    
    
    (1,942
    )(1)Interest expense
    
    
    1,155
    (2)$
    2,751
    
    
    
    
    $
    (2,751
    )LiabilityCash flow hedge  $171 million LIBOR based debt
    
    Other long-term liabilities
    
    $
    (8,700
    )
    
    Accumulated other comprehensive loss
    
    $
    8,700Variable-to-fixed interest rate swap
    
    Other long-term
    
    
    
    
    
    HEP partners equity
    
    
    4,166
    (1)- $60 million
    
    liabilities
    
    
    (2,209
    )
    
    Interest expense
    
    
    (1,957
    )$
    (10,909
    )
    
    
    
    $
    10,909
 
 (1)
    
    Represents prior year charges to interest expense.(2)
    
    Net of amortization of premium attributable to dedesignated hedge.  - 42 -




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- 43 -




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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
  - 44 -




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##### Table of Contents



Item 1. Legal Proceedings
  
 Item 6. Exhibits
 4.1*
    
    Third Supplemental Indenture, dated June 11, 2009, among Lovington-Artesia, L.L.C.,
Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S.
Bank National Association.4.2*
    
    Fourth Supplemental Indenture, dated June 29, 2009, among HEP SLC, LLC, Holly Energy
Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National
Association.4.3*
    
    Fifth Supplemental Indenture, dated July 13, 2009, among HEP Tulsa LLC, Holly Energy
Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National
Association.10.1
    
    LLC Interest Purchase Agreement, dated as of June 1, 2009, by and among Holly
Corporation, Navajo Pipeline Co., L.P. and Holly Energy Partners  Operating, L.P.
(incorporated by reference to Exhibit 10.1 of Registrants Form 8-K Current Report dated
June 5, 2009, File No. 1-32225).10.2
    
    Amended and Restated Intermediate Pipelines Agreement, dated as of June 1, 2009, by and
among Holly Corporation, Navajo Refining Company, L.L.C., Holly Energy Partners, L.P.,
Holly Energy Partners  Operating, L.P., HEP Pipeline, L.L.C., Lovington-Artesia, L.L.C.,
HEP Logistics Holdings, L.P., Holly Logistic Services, L.L.C. and HEP Logistics GP, L.L.C.
(incorporated by reference to Exhibit 10.2 of Registrants Form 8-K Current Report dated
June 5, 2009, File No. 1-32225).10.3
    
    Amended and Restated Omnibus Agreement, dated as of June 1, 2009, by and among Holly
Corporation, 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 10.3 of Registrants Form
8-K Current Report dated June 5, 2009, File No. 1-32225).10.4
    
    Mortgage, Line of Credit Mortgage and Deed of Trust, dated June 1, 2009, by
Lovington-Artesia, 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 June 5, 2009, 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**
    
    Furnished herewith - 45 -




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SIGNATURES
  HOLLY ENERGY PARTNERS, L.P.
 
 
 Date:  July 31, 2009
    /s/ Bruce R. ShawBruce R. ShawSenior Vice President and
Chief Financial Officer
(Principal Financial Officer)/s/ Scott C. SurplusScott C. SurplusVice President and Controller
(Principal Accounting Officer) - 46 -