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8-K - 8-K - HOLLY ENERGY PARTNERS LP | form8-kxheppresentationaug.htm |
Investor Presentation:
August 2016
Holly Energy Partners (NYSE: HEP) 2
Safe Harbor Disclosure Statement
Statements made during the course of this presentation that
are not historical facts are “forward looking statements”
within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. Forward-looking statements are
inherently uncertain and necessarily involve risks that may
affect the business prospects and performance of
HollyFrontier Corporation and/or Holly Energy Partners, L.P.,
and actual results may differ materially from those discussed
during the presentation. Such risks and uncertainties include
but are not limited to risks and uncertainties with respect to
the actions of actual or potential competitive suppliers and
transporters of refined petroleum products in HollyFrontier’s
and Holly Energy Partners’ markets, the demand for and
supply of crude oil and refined products, the spread between
market prices for refined products and market prices for
crude oil, the possibility of constraints on the transportation
of refined products, the possibility of inefficiencies or
shutdowns in refinery operations or pipelines, effects of
governmental regulations and policies, the availability and
cost of financing to HollyFrontier and Holly Energy Partners,
the effectiveness of HollyFrontier’s and Holly Energy Partners’
capital investments and marketing strategies, HollyFrontier's
and Holly Energy Partners’ efficiency in carrying out
construction projects, HollyFrontier's ability to acquire refined
product operations or pipeline and terminal operations on
acceptable terms and to integrate any existing or future
acquired operations, the possibility of terrorist attacks and the
consequences of any such attacks, and general economic
conditions.
Additional information on risks and uncertainties that
could affect the business prospects and performance of
HollyFrontier and Holly Energy Partners is provided in the
most recent reports of HollyFrontier and Holly Energy
Partners filed with the Securities and Exchange
Commission. All forward-looking statements included in
this presentation are expressly qualified in their entirety
by the foregoing cautionary statements. The forward-
looking statements speak only as of the date hereof and,
other than as required by law, HollyFrontier and Holly
Energy Partners undertake no obligation to publicly
update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Holly Energy Partners (NYSE: HEP) 3
Holly Energy Partners
Operate a system of petroleum product
and crude pipelines, storage tanks,
distribution terminals, loading racks and
processing units located at or near HFC’s
refining assets in high growth markets
Revenues are 100% fee-based with limited
commodity risk
Major refiner customers have entered into
long-term contracts
Contracts require minimum payment
obligations for volume and/or revenue
commitments
Over 80% of revenues tied to long term
contracts and minimum commitments
Earliest contract up for renewal in 2019
(approx. 17% of total commitments)
47 consecutive quarterly distribution
increases since IPO in 2004
$0
$20
$40
$60
$80
$100
$120
$140
$160
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
Q
4 200
4
Q
2 200
5
Q
4 200
5
Q
2 200
6
Q
4 200
6
Q
2 200
7
Q
4 200
7
Q
2 200
8
Q
4 200
8
Q
2 200
9
Q
4 200
9
Q
2 201
0
Q
4 201
0
Q
2 201
1
Q
4 201
1
Q
2 201
2
Q
4 201
2
Q
2 201
3
Q
4 201
3
Q
2 201
4
Q
4 201
4
Q
2 201
5
Q
4 201
5
WTI
P
ri
ce
D
ist
ri
b
u
tio
n
Consistent Distribution Growth Despite
Crude Price Volatility
DPU*
WTI
1Distributions are split adjusted reflecting HEP’s January 2013 two-for-one unit split.
Holly Energy Partners (NYSE: HEP) 4
Footprint of HollyFrontier and Holly Energy Partners
About the HollyFrontier
Companies
457,000 BPD Refining Capacity
12.2 Nelson Complexity
Approximately 3,400 Pipeline miles
75% UNEV ownership
50% Cheyenne Pipeline ownership
50% Frontier Pipeline ownership
50% Osage Pipeline ownership
25% SLC Pipeline ownership
14 million barrels of crude & product storage
7 Loading Racks and 8 Terminals
Holly Energy Partners (NYSE: HEP) 5
HollyFrontier Business Highlights
5 refineries with 457KBPD of refining capacity
High refining combined Nelson complexity of 12.2
Multiple sources of crude oil - all ‘WTI’ price-based
Geographic: Rockies, Southwest and Mid-Continent Plains states
Advantaged crude supply: Canadian, Bakken, Permian, Niobrara
Product mix: gasoline and diesel slate plus high margin specialty lubricants
Industry leading returns on capital employed
Best in class net income per barrel crude capacity
39% HEP ownership, including 2% GP interest and 37% of LP Units
Evaluate dropdown potential of planned HFC capital projects
Full Year 2015 HEP cash distributions to HFC of more than $90 million*
OPERATIONS
ATTRACTIVE MARKETS
FINANCIAL PERFORMANCE
UNLOCK MLP VALUE
* Q4 2014 through Q3 2015 quarterly LP and GP distributions announced and paid in 2015
Holly Energy Partners (NYSE: HEP) 6
Strategic Relationship with HollyFrontier
IDR: incentive distribution rights
Holly Energy Partners (NYSE: HEP) 7
Limited Partner Distributions Since Inception
Distribution has been increased every quarter since IPO – 47 consecutive quarters
$1.11
$1.29
$1.42
$1.50
$1.58
$1.66
$1.74
$1.84
$1.96
$2.08
$2.20
$-
$0.50
$1.00
$1.50
$2.00
$2.50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LP Distribution ($/Unit)1
1Distributions are split adjusted reflecting HEP’s January 2013 two-for-one unit split. Amounts based on
distributions earned during the period.
Holly Energy Partners (NYSE: HEP) 8
HEP Growth Since Inception
$80
$359
2005 2015
Revenue, 16% CAGR*
$50
$237
2005 2015
EBITDA, 17% CAGR*
$41
$197
2005 2015
DCF, 17% CAGR*
*See page 19 for definitions
Holly Energy Partners (NYSE: HEP) 9
HEP Growth: UNEV
HEP owns 75% of the UNEV pipeline, which
carries refined products from Salt Lake City
(SLC) to Las Vegas.
Connections to SLC refineries and Pioneer
Pipeline
Historic shipments driven primarily by
minimum volume commitments.
SLC refinery expansions will benefit UNEV:
• HFC’s Woods Cross expansion (+14,000 bpd)
completed in 2Q 2016
• Tesoro’s expansion (+4,000 bpd) completed in
2015
An additional 10,000 bpd of volume
throughput should generate approximately
$12 million* of annual pipeline revenue at
committed tariffs and $17 million* at spot
tariffs
* Revenue estimates are 100% of UNEV revenues, not a reflection of 75% interest allocable to HEP;
assumes shipment to N. Las Vegas terminal only, and does not include terminal revenues
Holly Energy Partners (NYSE: HEP) 10
HEP Growth: Organic
* Includes volumes from 2014 Southeastern New Mexico Malaga Expansion
Crude system expansion benefits both HEP and HFC
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2011 2012 2013 2014 2015
B
ar
re
ls Pe
r
D
ay
(
B
P
D
)
Crude Gathering Volume Trend (BPD)*
Holly Energy Partners (NYSE: HEP) 11
HEP Growth: Operational Improvements
Internal Initiatives $mm
Maintenance Management Savings $ 4.5
HEP has identified a set of internal initiatives that we believe should
produce approximately $ 14 million of annual incremental cashflow
beginning in
Project Management Improvements $ 3.0
Power Contracts & Pump Efficiency $ 1.5
Small Capital Projects $ 5.0
TOTAL $ 14.0
2016-17
Holly Energy Partners (NYSE: HEP) 12
HEP Growth: Cheyenne Pipeline Acquisition
Asset Description
87-mile, approximately 80,000
BPD capacity crude pipeline from
Ft. Laramie, WY to Cheyenne, WY
Provides HFC’s Cheyenne refinery
with Canadian crude
Pipeline has capacity beyond
HFC’s needs
Connection to Saddlehorn
Pipeline expected in late 2016
Deal Highlights
50% non-operating ownership
interest. Other 50% owned and
operated by an affiliate of Plains
All American Pipeline, LP
HEP’s estimated initial annual
EBITDA at $5-7mm
Effective June 6, 2016
Holly Energy Partners (NYSE: HEP) 13
HEP Growth: Tulsa Oil Tankage Acquisition
Asset Description
6-crude oil tanks at
HollyFrontier’s Tulsa West
refinery
Customer: HollyFrontier
Deal Highlights
Purchased from an affiliate of
Plains All American Pipeline, LP
10-year throughput agreement
containing minimum quarterly
volume commitments
Estimate $6.1 mm annual revenue
to HEP
Effective March 31, 2016
Holly Energy Partners (NYSE: HEP) 14
HEP Growth: El Dorado Dropdown
HEP purchased the newly constructed naphtha
fractionation and hydrogen generation units at
HFC’s El Dorado refinery for total cash
consideration of approximately $62.0 MM,
effective November 1, 2015
Naphtha fractionation unit has the capacity
to process up to 50K bpd of naphtha into
intermediates and blending components
Hydrogen generation unit has the capacity to
produce up to 17 mmscf/d of hydrogen
HEP and HFC entered into 15-year tolling
agreements for each respective unit
2016 EBITDA from these tolling agreements
expected to be at least $6.9 MM*
Both tolling agreements feature minimum volume
commitments
HFC will own all commodity inputs and outputs;
HEP will take no commodity risk
* For historical reconciliation, please see the Holly Energy Partners 2015 10-K
Holly Energy Partners (NYSE: HEP) 15
HEP Growth: Frontier Pipeline Acquisition
Asset Description
289-mile, 72,000 BPD capacity
crude pipeline from Casper, WY to
Frontier Station, UT
At Frontier Station, connects to
SLC Pipeline (PAA/HEP JV)
Sources to Frontier: Express, Big
Horn, local crude gathering
Ultimate customers: SLC refiners
Deal Highlights
50% non-operating ownership
interest purchase from Enbridge
Estimate $6-7 mm EBITDA to HEP
Effective August 31, 2015
Holly Energy Partners (NYSE: HEP)
HEP Growth: Financial Impact
16
Estimated EBITDA
Contribution vs 2014 ($mm)
2016E 2017E4
UNEV Growth1 4 15
Internal Initiatives2 7 14
WX Expansion Assets2 8 30
Cheyenne Pipeline Interest1 3 5
Tulsa Crude Tanks1 4 6
El Dorado Naphtha Dropdown1 7 7
Frontier Pipeline Interest1 6 7
El Dorado Crude Tanks1 4 4
SE NM Crude Expansion1 5 5
Contractual TARIFF Increases3 8 14
TOTAL 56 107
1) Investments already made
2) Prospective growth investments that will require board and/or committee approvals
3) Assumes -3% to +3% range in PPI Finished Goods Index
4) Potential upside to 2017 from expected HFC dropdowns
$400 TO $450 MM IN COMPLETED AND FUTURE PLANNED INVESTMENTS PROJECTED TO
ADD APPROXIMATELY $100 MILLION IN EBITDA BY 2017 – A ~50% INCREASE OVER 2014
Target 8% annual distribution growth rate
Holly Energy Partners (NYSE: HEP)
HEP Capital Budget
17
2016 Estimated Capex
$65-85mm
Reimbursable
$15-20mm
Maintenance
$10-15mm
Expansion
$40-50mm
Highlighted Expansion
Projects
Artesia-El Paso Product
Pipeline
Tulsa Rail Storage
Chevron/UNEV Tie-In
Holly Energy Partners (NYSE: HEP) 18
Appendix-HEP Assets
Holly Energy Partners owns and operates substantially all of the refined product pipeline and terminaling
assets that support HollyFrontier’s refining and marketing operations in the Mid-Continent, Southwest and
Rocky Mountain regions of the United States.
Approximately 3,400 miles of crude oil and petroleum product pipelines
14 million barrels of refined product and crude oil storage
8 terminals and 7 loading rack facilities in 10 western and mid-continent states
75% joint venture interest in UNEV Pipeline, LLC – the owner of a 400-mile refined
products pipeline system connecting Salt Lake area refiners to the Las Vegas
product market
50% joint venture interest in Cheyenne Pipeline LLC – the owner of an 87-mile
crude oil pipeline from Fort Laramie, Wyoming to Cheyenne, Wyoming.
50% joint venture interest in Frontier Aspen LLC– the owner of a 289-mile crude
oil pipeline running from Casper, Wyoming to Frontier Station, Utah
50% joint venture interest in Osage Pipe Line Company, LLC – the owner of a 135-
mile crude oil pipeline from Cushing, Oklahoma to El Dorado, Kansas
25% joint venture interest in SLC Pipeline LLC – the owner of a 95-mile crude oil
pipeline system that serves refineries in the Salt Lake City area
Holly Energy Partners (NYSE: HEP) 19
Definitions
BPD: Barrels per day
CAGR: The compound annual growth rate is calculated by dividing the ending value by the beginning value, raise the result to the power of one divided by the period length,
and subtract one from the subsequent result. CAGR is the mean annual growth rate of an investment over a specified period of time longer than one year.
DISTRIBUTABLE CASH FLOW: Distributable cash flow (DCF) is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts
separately presented in our consolidated financial statements, with the exception of excess cash flows over earnings of SLC Pipeline, maintenance capital expenditures and
distributable cash flow from discontinued operations. 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. Our historical distributable cash flow for the past five years is reconciled to net income in footnote 4 to the table in "Item 6. Selected Financial Data" of HEP's 2015
10-K.
DPU: Cash distribution per unit.
EBITDA: Earnings before interest, taxes, depreciation and amortization which 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. Our historical EBITDA for the past five years is reconciled to net
income in footnote 3 to the table in “Item 6. Selected Financial Data” of HEP’s 2015 10-K.
KBPD: Thousand barrels per day