HOLLY ENERGY PARTNERS LP (Form: 10-Q, Received: 10/31/2019 15:12:06)

false--12-31Q320190001283140HOLLY ENERGY PARTNERS LPP15YP10YP30YP10Y140000001400000014000000P1Y105440201105440201105440201105440201P6MP1YP1YP1YP1Y 0001283140 2019-01-01 2019-09-30 0001283140 2019-10-25 0001283140 2018-12-31 0001283140 2019-09-30 0001283140 2018-01-01 2018-09-30 0001283140 2018-07-01 2018-09-30 0001283140 2019-07-01 2019-09-30 0001283140 2017-12-31 0001283140 2018-09-30 0001283140 srt:ParentCompanyMember 2019-01-01 2019-09-30 0001283140 us-gaap:CapitalUnitsMember 2018-01-01 2018-03-31 0001283140 2018-01-01 2018-03-31 0001283140 2018-04-01 2018-06-30 0001283140 us-gaap:CapitalUnitsMember 2018-07-01 2018-09-30 0001283140 us-gaap:CapitalUnitsMember 2018-04-01 2018-06-30 0001283140 us-gaap:NoncontrollingInterestMember 2017-12-31 0001283140 us-gaap:CapitalUnitsMember 2018-06-30 0001283140 us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0001283140 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-03-31 0001283140 us-gaap:CapitalUnitsMember 2018-03-31 0001283140 2018-03-31 0001283140 us-gaap:CapitalUnitsMember 2017-12-31 0001283140 us-gaap:NoncontrollingInterestMember 2018-04-01 2018-06-30 0001283140 us-gaap:NoncontrollingInterestMember 2018-09-30 0001283140 us-gaap:NoncontrollingInterestMember 2018-03-31 0001283140 us-gaap:NoncontrollingInterestMember 2018-06-30 0001283140 us-gaap:CapitalUnitsMember 2018-09-30 0001283140 2018-06-30 0001283140 us-gaap:CapitalUnitsMember 2019-09-30 0001283140 us-gaap:CapitalUnitsMember 2019-01-01 2019-03-31 0001283140 us-gaap:NoncontrollingInterestMember 2019-04-01 2019-06-30 0001283140 2019-03-31 0001283140 2019-01-01 2019-03-31 0001283140 us-gaap:CapitalUnitsMember 2019-07-01 2019-09-30 0001283140 us-gaap:CapitalUnitsMember 2019-06-30 0001283140 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001283140 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001283140 2019-04-01 2019-06-30 0001283140 us-gaap:CapitalUnitsMember 2018-12-31 0001283140 2019-06-30 0001283140 us-gaap:CapitalUnitsMember 2019-04-01 2019-06-30 0001283140 us-gaap:CapitalUnitsMember 2019-03-31 0001283140 us-gaap:NoncontrollingInterestMember 2019-03-31 0001283140 us-gaap:NoncontrollingInterestMember 2018-12-31 0001283140 us-gaap:NoncontrollingInterestMember 2019-09-30 0001283140 us-gaap:NoncontrollingInterestMember 2019-06-30 0001283140 hfc:FrontierPipelineMember 2019-09-30 0001283140 2019-01-01 0001283140 2018-01-25 2018-01-25 0001283140 2018-01-25 0001283140 hfc:UnevPipelineMember 2019-09-30 0001283140 2023-01-01 2019-09-30 0001283140 2019-09-30 0001283140 2021-01-01 2019-09-30 0001283140 2022-01-01 2019-09-30 0001283140 2024-01-01 2019-09-30 0001283140 2019-10-01 2019-09-30 0001283140 2020-01-01 2019-09-30 0001283140 us-gaap:ServiceOtherMember 2019-07-01 2019-09-30 0001283140 us-gaap:ServiceOtherMember 2019-01-01 2019-09-30 0001283140 hfc:ShortfallPaymentsMember 2019-09-30 0001283140 2018-01-01 0001283140 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 0001283140 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2017-12-31 0001283140 sic:Z2911 2018-01-01 2018-09-30 0001283140 sic:Z2911 2019-07-01 2019-09-30 0001283140 hfc:PipelinesAndTerminalsTerminalsMember 2018-07-01 2018-09-30 0001283140 hfc:PipelinesAndTerminalsPipelinesMember 2018-01-01 2018-09-30 0001283140 hfc:PipelinesAndTerminalsTerminalsMember 2019-01-01 2019-09-30 0001283140 hfc:PipelinesAndTerminalsPipelinesMember 2019-07-01 2019-09-30 0001283140 hfc:PipelinesAndTerminalsTerminalsMember 2019-07-01 2019-09-30 0001283140 hfc:PipelinesAndTerminalsTerminalsMember 2018-01-01 2018-09-30 0001283140 sic:Z2911 2018-07-01 2018-09-30 0001283140 hfc:PipelinesAndTerminalsPipelinesMember 2018-07-01 2018-09-30 0001283140 sic:Z2911 2019-01-01 2019-09-30 0001283140 hfc:PipelinesAndTerminalsPipelinesMember 2019-01-01 2019-09-30 0001283140 srt:MinimumMember 2019-09-30 0001283140 srt:MaximumMember 2019-09-30 0001283140 srt:MaximumMember us-gaap:VehiclesMember 2019-09-30 0001283140 srt:MinimumMember us-gaap:VehiclesMember 2019-09-30 0001283140 hfc:SalesTypeLeaseMember 2019-09-30 0001283140 hfc:DirectFinanceLeaseMember 2019-09-30 0001283140 hfc:SalesTypeLeaseMember 2018-12-31 0001283140 hfc:DirectFinanceLeaseMember 2018-12-31 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-09-30 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember 2019-09-30 0001283140 us-gaap:PipelinesMember 2018-12-31 0001283140 us-gaap:LandMember 2018-12-31 0001283140 us-gaap:LandMember 2019-09-30 0001283140 us-gaap:PropertyPlantAndEquipmentOtherTypesMember 2019-09-30 0001283140 naics:ZZ324110 2019-09-30 0001283140 us-gaap:ConstructionInProgressMember 2018-12-31 0001283140 naics:ZZ324110 2018-12-31 0001283140 us-gaap:PipelinesMember 2019-09-30 0001283140 us-gaap:PropertyPlantAndEquipmentOtherTypesMember 2018-12-31 0001283140 us-gaap:ConstructionInProgressMember 2019-09-30 0001283140 hfc:ElDoradoMember 2019-09-30 0001283140 hfc:ElDoradoMember 2018-12-31 0001283140 hfc:HfcMember 2019-09-30 0001283140 us-gaap:CustomerRelatedIntangibleAssetsMember 2019-09-30 0001283140 us-gaap:CustomerRelatedIntangibleAssetsMember 2018-12-31 0001283140 hfc:AlonMember 2019-09-30 0001283140 hfc:HfcMember 2018-12-31 0001283140 hfc:AlonMember 2018-12-31 0001283140 srt:MaximumMember hfc:HfcMember 2019-01-01 2019-09-30 0001283140 srt:MinimumMember hfc:HfcMember 2019-01-01 2019-09-30 0001283140 us-gaap:CustomerRelatedIntangibleAssetsMember 2019-01-01 2019-09-30 0001283140 hfc:AlonMember 2019-01-01 2019-09-30 0001283140 us-gaap:PerformanceSharesMember 2019-09-30 0001283140 us-gaap:PerformanceSharesMember 2019-01-01 2019-09-30 0001283140 us-gaap:PerformanceSharesMember 2018-12-31 0001283140 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001283140 us-gaap:RestrictedStockUnitsRSUMember 2019-09-30 0001283140 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001283140 us-gaap:DeferredBonusMember 2019-09-30 0001283140 us-gaap:PerformanceSharesMember 2018-01-01 2018-09-30 0001283140 us-gaap:RevolvingCreditFacilityMember 2018-01-01 2018-09-30 0001283140 hfc:CommitmentArrangementFeesMember 2018-01-01 2018-09-30 0001283140 hfc:NetAmortizationDiscountAndDeferredDebtIssuanceCostsMember 2018-01-01 2018-09-30 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:NotesPayableToBanksMember 2019-01-01 2019-09-30 0001283140 hfc:CommitmentArrangementFeesMember 2019-01-01 2019-09-30 0001283140 us-gaap:RevolvingCreditFacilityMember 2019-01-01 2019-09-30 0001283140 hfc:NetAmortizationDiscountAndDeferredDebtIssuanceCostsMember 2019-01-01 2019-09-30 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember us-gaap:NotesPayableToBanksMember 2018-01-01 2018-09-30 0001283140 hfc:SixPercentSeniorNotesDueTwoThousandTwentyFourMemberMember 2018-12-31 0001283140 srt:AffiliatedEntityMember 2019-09-30 0001283140 hfc:ShortfallPaymentsMember 2019-01-01 2019-09-30 0001283140 hfc:HfcMember us-gaap:SalesRevenueNetMember 2019-07-01 2019-09-30 0001283140 srt:AffiliatedEntityMember 2019-07-01 2019-09-30 0001283140 srt:AffiliatedEntityMember 2018-07-01 2018-09-30 0001283140 srt:AffiliatedEntityMember 2019-01-01 2019-09-30 0001283140 hfc:ShortfallPaymentsMember 2018-10-01 2018-12-31 0001283140 srt:AffiliatedEntityMember 2018-01-01 2018-09-30 0001283140 us-gaap:SubsequentEventMember 2019-10-17 0001283140 us-gaap:LimitedPartnerMember 2018-01-01 2018-09-30 0001283140 us-gaap:LimitedPartnerMember 2018-07-01 2018-09-30 0001283140 us-gaap:LimitedPartnerMember 2019-07-01 2019-09-30 0001283140 us-gaap:LimitedPartnerMember 2019-01-01 2019-09-30 0001283140 srt:AffiliatedEntityMember 2019-09-30 0001283140 us-gaap:PipelinesMember 2018-01-01 2018-09-30 0001283140 srt:AffiliatedEntityMember 2018-01-01 2018-09-30 0001283140 srt:AffiliatedEntityMember 2018-07-01 2018-09-30 0001283140 us-gaap:PipelinesMember 2018-07-01 2018-09-30 0001283140 srt:AffiliatedEntityMember 2019-01-01 2019-09-30 0001283140 us-gaap:PipelinesMember 2019-01-01 2019-09-30 0001283140 us-gaap:PipelinesMember 2019-07-01 2019-09-30 0001283140 srt:AffiliatedEntityMember 2019-07-01 2019-09-30 0001283140 sic:Z2911 2019-09-30 0001283140 hfc:OtherMember 2018-12-31 0001283140 us-gaap:PipelinesMember 2018-12-31 0001283140 us-gaap:PipelinesMember 2019-09-30 0001283140 sic:Z2911 2018-12-31 0001283140 hfc:OtherMember 2019-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2018-07-01 2018-09-30 0001283140 srt:GuarantorSubsidiariesMember 2018-07-01 2018-09-30 0001283140 srt:ConsolidationEliminationsMember 2018-07-01 2018-09-30 0001283140 srt:ParentCompanyMember 2018-07-01 2018-09-30 0001283140 srt:ConsolidationEliminationsMember 2019-09-30 0001283140 srt:GuarantorSubsidiariesMember 2019-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2019-09-30 0001283140 srt:ParentCompanyMember 2019-09-30 0001283140 srt:GuarantorSubsidiariesMember 2019-01-01 2019-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2019-01-01 2019-09-30 0001283140 srt:ConsolidationEliminationsMember 2019-01-01 2019-09-30 0001283140 srt:GuarantorSubsidiariesMember 2018-12-31 0001283140 srt:ConsolidationEliminationsMember 2018-12-31 0001283140 srt:NonGuarantorSubsidiariesMember 2018-12-31 0001283140 srt:ParentCompanyMember 2018-12-31 0001283140 srt:ParentCompanyMember 2018-01-01 2018-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2018-01-01 2018-09-30 0001283140 srt:GuarantorSubsidiariesMember 2018-01-01 2018-09-30 0001283140 srt:ConsolidationEliminationsMember 2017-12-31 0001283140 srt:ConsolidationEliminationsMember 2018-01-01 2018-09-30 0001283140 srt:ParentCompanyMember 2018-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2017-12-31 0001283140 srt:NonGuarantorSubsidiariesMember 2018-09-30 0001283140 srt:GuarantorSubsidiariesMember 2018-09-30 0001283140 srt:GuarantorSubsidiariesMember 2017-12-31 0001283140 srt:ParentCompanyMember 2017-12-31 0001283140 srt:ConsolidationEliminationsMember 2018-09-30 0001283140 srt:GuarantorSubsidiariesMember 2019-07-01 2019-09-30 0001283140 srt:NonGuarantorSubsidiariesMember 2019-07-01 2019-09-30 0001283140 srt:ConsolidationEliminationsMember 2019-07-01 2019-09-30 0001283140 srt:ParentCompanyMember 2019-07-01 2019-09-30 utreg:Y iso4217:USD xbrli:shares hfc:Components xbrli:pure xbrli:shares iso4217:USD

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________

FORM 10-Q

______________________________________________________________________________________

(Mark One)



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

For the quarterly period ended September 30, 2019



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

For the transition period from ____________ to _____________

Commission File Number: 1-32225

_____________________________________________________________________________________

HOLLY ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

______________________________________________________________________________________



Delaware		20-0833098
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2828 N. Harwood, Suite 1300
Dallas
Texas		75201
(Address of principal executive offices)		(Zip code)

(214) 871-3555

(Registrant’s telephone number, including area code)

________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)



Securities registered pursuant to 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Limited Partner Units	HEP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth” company in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of the registrant’s outstanding common units at October 25, 2019, was 105,440,201.

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

INDEX





	FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION			4

	Item 1.	Financial Statements (Unaudited)	4

		Consolidated Balance Sheets	4

		Consolidated Statements of Income	5

		Consolidated Statements of Cash Flows	6

		Consolidated Statements of Equity	7

		Notes to Consolidated Financial Statements	9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

	Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION			48

	Item 1.	Legal Proceedings	48

	Item 1A.	Risk Factors	48

	Item 6.	Exhibits	49

		Index to Exhibits	50

		SIGNATURES	51

- 2 -

Table of Contentsril 19,

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Form 10-Q, including, but not limited to, those under “Results of Operations” and “Liquidity and Capital Resources” in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on our beliefs and assumptions and those of our general partner using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. Although we and our general partner believe that such expectations reflected in such forward-looking statements are reasonable, neither we nor our general partner can give assurance that our expectations will prove to be correct. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Certain factors could cause actual results to differ materially from results anticipated in the forward-looking statements. These factors include, but are not limited to:


•	risks and uncertainties with respect to the actual quantities of petroleum products and crude oil shipped on our pipelines and/or terminalled, stored or throughput in our terminals and refinery processing units;


•	the economic viability of HollyFrontier Corporation (“HFC”), Delek US Holdings, Inc. (“Delek”) and our other customers;


•	the demand for refined petroleum products in markets we serve;


•	our ability to purchase and integrate future acquired operations;


•	our ability to complete previously announced or contemplated acquisitions;


•	the availability and cost of additional debt and equity financing;


•	the possibility of reductions in production or shutdowns at refineries utilizing our pipelines, terminal facilities and refinery processing units;


•	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 or cyber attacks and the consequences of any such attacks;


•	general economic conditions;


•	the impact of recent or proposed changes in the tax laws and regulations that affect master limited partnerships; and


•	other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2018, and in this Quarterly Report on Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Risk Factors.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

- 3 -

Table of Contentsril 19,

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)



	September 30, 2019		December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,469	$	3,045
Accounts receivable:
Trade	16,182		12,332
Affiliates	35,770		46,786
	51,952		59,118
Prepaid and other current assets	4,779		4,311
Total current assets	64,200		66,474

Properties and equipment, net	1,478,950		1,538,655
Operating lease right-of-use assets, net	3,454		—
Net investment in leases	136,394		16,488
Intangible assets, net	104,824		115,329
Goodwill	270,336		270,336
Equity method investments	82,884		83,840
Other assets	13,233		11,418
Total assets	$	2,154,275	$	2,102,540

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	12,608	$	16,435
Affiliates	6,747		14,222
	19,355		30,657

Accrued interest	5,884		13,302
Deferred revenue	9,774		8,697
Accrued property taxes	9,266		1,779
Current operating lease liabilities	807		—
Current finance lease liabilities	5,426		936
Other current liabilities	2,926		2,526
Total current liabilities	53,438		57,897

Long-term debt	1,431,869		1,418,900
Noncurrent operating lease liabilities	2,995		—
Noncurrent finance lease liabilities	69,168		867
Other long-term liabilities	12,902		14,440
Deferred revenue	46,862		48,714

Class B unit	48,557		46,161

Equity:
Partners’ equity:
Common unitholders (105,440,201 units issued and outstanding at September 30, 2019 and December 31, 2018)	404,584		427,435
Noncontrolling interest	83,900		88,126
Total equity	488,484		515,561
Total liabilities and equity	$	2,154,275	$	2,102,540

See accompanying notes.

- 4 -

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Affiliates	$	106,027		$	100,188		$	311,755		$	295,629
Third parties	29,868			25,596			89,388			77,799
	135,895			125,784			401,143			373,428
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	44,924			35,996			123,045			106,731
Depreciation and amortization	24,121			24,367			72,192			74,117
General and administrative	2,714			2,498			7,322			8,293
	71,759			62,861			202,559			189,141
Operating income	64,136			62,923			198,584			184,287

Other income (expense):
Equity in earnings of equity method investments	1,334			1,114			5,217			4,127
Interest expense	(18,807		)	(18,042		)	(57,059		)	(53,249		)
Interest income	2,243			540			3,322			1,581
Gain on sales-type leases	35,166			—			35,166			—
Gain (loss) on sale of assets and other	142			38			(57		)	71
	20,078			(16,350		)	(13,411		)	(47,470		)
Income before income taxes	84,214			46,573			185,173			136,817
State income tax expense	(30		)	(39		)	(36		)	(149		)
Net income	84,184			46,534			185,137			136,668
Allocation of net income attributable to noncontrolling interests	(1,839		)	(1,531		)	(5,920		)	(5,354		)
Net income attributable to the partners	82,345			45,003			179,217			131,314
Limited partners’ per unit interest in earnings—basic and diluted	$	0.78		$	0.43		$	1.70		$	1.25
Weighted average limited partners’ units outstanding	105,440			105,440			105,440			104,908

See accompanying notes.

- 5 -

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net income	$	185,137		$	136,668
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	72,192			74,117
Gain on sale of assets	(19		)	(196		)
Gain on sales-type leases	(35,166		)	—
Amortization of deferred charges	2,307			2,278
Equity-based compensation expense	1,774			2,259
Equity in earnings of equity method investments, net of distributions	263			—
(Increase) decrease in operating assets:
Accounts receivable—trade	(3,850		)	2,502
Accounts receivable—affiliates	11,016			4,392
Prepaid and other current assets	1,694			(402		)
Increase (decrease) in operating liabilities:
Accounts payable—trade	2,622			(1,209		)
Accounts payable—affiliates	(7,475		)	(1,311		)
Accrued interest	(7,418		)	(7,526		)
Deferred revenue	413			5,218
Accrued property taxes	7,487			2,746
Other current liabilities	400			(1,955		)
Other, net	(3,160		)	(169		)
Net cash provided by operating activities	228,217			217,412

Cash flows from investing activities
Additions to properties and equipment	(23,828		)	(34,270		)
Business and asset acquisitions	—			(6,841		)
Proceeds from sale of assets	265			210
Distributions in excess of equity in earnings of equity investments	693			1,368
Net cash used for investing activities	(22,870		)	(39,533		)

Cash flows from financing activities
Borrowings under credit agreement	269,500			256,000
Repayments of credit agreement borrowings	(257,000		)	(347,000		)
Proceeds from issuance of common units	—			114,887
Distributions to HEP unitholders	(204,701		)	(197,300		)
Distributions to noncontrolling interest	(7,750		)	(5,500		)
Payments on finance leases	(780		)	(929		)
Contributions from general partner	182			614
Purchase of units for incentive grants	(255		)	—
Units withheld for tax withholding obligations	(119		)	(58		)
Other	—			6
Net cash used by financing activities	(200,923		)	(179,280		)

Cash and cash equivalents
Increase for the period	4,424			(1,401		)
Beginning of period	3,045			7,776
End of period	$	7,469		$	6,375

See accompanying notes.

- 6 -

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)



	Common Units			Noncontrolling Interest			Total Equity

Balance December 31, 2018	$	427,435		$	88,126		$	515,561
Distributions to HEP unitholders	(67,975		)	—			(67,975		)
Distributions to noncontrolling interest	—			(3,000		)	(3,000		)
Amortization of restricted and performance units	661			—			661
Class B unit accretion	(780		)	—			(780		)
Other	814			—			814
Net income	51,962			1,832			53,794
Balance March 31, 2019	412,117			86,958			499,075
Distributions to HEP unitholders	(68,232		)	—			(68,232		)
Distributions to noncontrolling interest	—			(2,250		)	(2,250		)
Amortization of restricted and performance units	585			—			585
Class B unit accretion	(781		)	—			(781		)
Other	(138		)	—			(138		)
Net income	46,471			688			47,159
Balance June 30, 2019	390,022			85,396			475,418
Distributions to HEP unitholders	(68,493		)	—			(68,493		)
Distributions to noncontrolling interest	—			(2,500		)	(2,500		)
Amortization of restricted and performance units	528			—			528
Class B unit accretion	(835		)	—			(835		)
Other	182			—			182
Net income	83,180			1,004			84,184
Balance September 30, 2019	$	404,584		$	83,900		$	488,484

- 7 -

Table of Contentsril 19,



	Common Units			Noncontrolling Interest			Total Equity

Balance December 31, 2017	$	393,959		$	91,106		$	485,065
Issuance of common units	114,376			—			114,376
Distributions to HEP unitholders	(63,496		)	—			(63,496		)
Distributions to noncontrolling interest	—			(2,000		)	(2,000		)
Amortization of restricted and performance units	837			—			837
Class B unit accretion	(729		)	—			(729		)
Cumulative transition adjustment for adoption of revenue recognition standard	1,320			—			1,320
Other	240			—			240
Net income	46,897			1,738			48,635
Balance March 31, 2018	493,404			90,844			584,248
Issuance of common units	524			—			524
Distributions to HEP unitholders	(66,579		)	—			(66,579		)
Distributions to noncontrolling interest	—			(1,500		)	(1,500		)
Amortization of restricted and performance units	713			—			713
Class B unit accretion	(730		)	—			(730		)
Other	193			—			193
Net income	40,872			627			41,499
Balance June 30, 2018	468,397			89,971			558,368
Issuance of common units	(61		)	—			(61		)
Distributions to HEP unitholders	(67,225		)	—			(67,225		)
Distributions to noncontrolling interest	—			(2,000		)	(2,000		)
Amortization of restricted and performance units	709			—			709
Class B unit accretion	(780		)	—			(780		)
Other	122			—			122
Net income	45,784			750			46,534
Balance September 30, 2018	$	446,946		$	88,721		$	535,667

See accompanying notes.

- 8 -

Table of Contentsril 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Note 1:	Description of Business and Presentation of Financial Statements

Holly Energy Partners, L.P. (“HEP”), together with its consolidated subsidiaries, is a publicly held master limited partnership. As of September 30, 2019, HollyFrontier Corporation (“HFC”) and its subsidiaries own a 57% limited partner interest and the non-economic general partner interest in HEP. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

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

On January 25, 2018, we entered into a common unit purchase agreement in which certain purchasers agreed to purchase in a private placement 3,700,000 common units representing limited partner interests, at a price of $29.73 per common unit. The private placement closed on February 6, 2018, and we received proceeds of approximately $110 million, which were used to repay indebtedness under our revolving credit facility.

We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support HFC’s refining and marketing operations in the Mid-Continent, Southwest and Northwest regions of the United States and Delek US Holdings, Inc.’s (“Delek”) refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”) and a 50% interest in Cheyenne Pipeline LLC.

We operate in two reportable segments, a Pipelines and Terminals segment and a Refinery Processing Unit segment. Disclosures around these segments are discussed in Note 15.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, providing other services at our storage tanks and terminals and by charging fees for processing hydrocarbon feedstocks through our refinery processing units. We do not take ownership of products that we transport, terminal, store or process, and therefore, we are not exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Results of operations for interim periods are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.

Principles of Consolidation and Common Control Transactions

The consolidated financial statements include our accounts and those of subsidiaries and joint ventures that we control. All significant intercompany transactions and balances have been eliminated.

Most of our acquisitions from HFC occurred while we were a consolidated variable interest entity (“VIE”) of HFC. Therefore, as an entity under common control with HFC, we recorded these acquisitions on our balance sheets at HFC's historical basis instead of our purchase price or fair value.

- 9 -

Accounting Pronouncements Adopted During the Periods Presented

Goodwill Impairment Testing

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

Leases

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

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard had an effective date of January 1, 2018, and we accounted for the new guidance using the modified retrospective implementation method, whereby a cumulative effect adjustment was recorded to retained earnings as of the date of initial application. In preparing for adoption, we evaluated the terms, conditions and performance obligations under our existing contracts with customers. Furthermore, we implemented policies to comply with this new standard. See Note 2 for additional information on our revenue recognition policies.

Business Combinations

In December 2014, an accounting standard update was issued to provide new guidance on the definition of a business in relation to accounting for identifiable intangible assets in business combinations. This standard had an effective date of January 1, 2018 and had no effect on our financial condition, results of operations or cash flows.

Financial Assets and Liabilities

In January 2016, an accounting standard update was issued requiring changes in the accounting and disclosures for financial instruments. This standard was effective beginning with our 2018 reporting year and had no effect on our financial condition, results of operations or cash flows.

Accounting Pronouncements - Not Yet Adopted

Credit Losses Measurement

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


Note 2:	Investment in Joint Venture

On October 2, 2019, HEP Cushing LLC (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Plains Marketing, L.P. (“PMLP”), a wholly-owned subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect Pipeline & Terminal LLC (the “Joint Venture”), for (i) the development and construction of a new 160,000 barrel per day

- 10 -

common carrier crude oil pipeline (the “Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HFC and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “JV Terminal”). The JV Terminal is expected to be in service during the second quarter of 2020, and the Pipeline is expected to be in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Joint Venture assets.

The Joint Venture will contract with an affiliate of HEP to manage the construction and operation of the Pipeline and with an affiliate of Plains to manage the operation of the JV Terminal. The total Joint Venture investment will be shared proportionately among the partners, and HEP estimates its share of the cost of the JV Terminal contributed by Plains and Pipeline construction costs are approximately $65 million.


Note 3:	Revenues

Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. The majority of our contracts with customers meet the definition of a lease since (1) performance of the contracts is dependent on specified property, plant, or equipment and (2) it is remote that one or more parties other than the customer will take more than a minor amount of the output associated with the specified property, plant, or equipment. Prior to the adoption of the new lease standard (see Note 1), we bifurcated the consideration received between lease and service revenue. The new lease standard allows the election of a practical expedient whereby a lessor does not have to separate non-lease (service) components from lease components under certain conditions. The majority of our contracts meet these conditions, and we have made this election for those contracts. Under this practical expedient, we treat the combined components as a single performance obligation in accordance with Accounting Standards Codification (“ASC”) 606, which largely codified ASU 2014-09, if the non-lease (service) component is the dominant component. If the lease component is the dominant component, we treat the combined components as a lease in accordance with ASC 842, which largely codified ASU 2016-02.

We adopted the new revenue recognition standard (see Note 1) using the modified retrospective method, whereby the cumulative effect of applying the new standard was recorded as an adjustment to the opening balance of partners’ equity as well as the carrying amounts of assets and liabilities as of January 1, 2018, which had no impact on our cash flows. The following table reflects the cumulative effect of adoption as of January 1, 2018:



	Prior to Adoption		Increase (Decrease)			As Adjusted
	(In thousands)
Deferred revenue	$	9,598	$	(1,320	)	$	8,278
Partners’ equity: Common unitholders	$	393,959	$	1,320		$	395,279

Several of our contracts include incentive or reduced tariffs once a certain quarterly volume is met. Revenue from the variable element of these transactions is recognized based on the actual volumes shipped as it relates specifically to rendering the services during the applicable quarter.

The majority of our long-term transportation contracts specify minimum volume requirements, whereby, we bill a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, we will recognize these deficiency payments in revenue.

In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize the service portion of these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer. During the three and nine months ended September 30, 2019, we recognized $3.7 million and $10.4 million, respectively, of these deficiency payments in revenue, of which none and $0.6 million, respectively, related to deficiency payments billed in prior periods. As of September 30, 2019, deferred revenue reflected in our consolidated balance sheet related to shortfalls billed was $0.8 million.

A contract liability exists when an entity is obligated to perform future services to a customer for which the entity has received consideration. Since HEP may be required to perform future services for these deficiency payments received, the deferred revenues on our balance sheets were considered contract liabilities. A contract asset exists when an entity has a right to consideration in

- 11 -

exchange for goods or services transferred to a customer. Our consolidated balance sheets included the contract assets and liabilities in the table below:



	September 30, 2019			December 31, 2018
	(In thousands)
Contract assets	$	5,479		$	1,818
Contract liabilities	$	(810	)	$	(1,821	)

The contract assets and liabilities include both lease and service components. We did not recognize any revenue during the three months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018, and we recognized $0.6 million of revenue during the nine months ended September 30, 2019, that was previously included in contract liability as of December 31, 2018. During the three and the nine months ended September 30, 2018, we recognized $37 thousand and $2.6 million, respectively, that was previously included in contract liability as of January 1, 2018. During the three and the nine months ended September 30, 2019, we also recognized $0.2 million and $3.7 million, respectively, of revenue included in contract assets at September 30, 2019.

As of September 30, 2019, we expect to recognize $2.5 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and operating leases expiring in 2020 through 2036. These agreements generally provide for changes in the minimum revenue guarantees annually for increases or decreases in the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that limit the level of the rate increases or decreases. We expect to recognize revenue for these unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and lease revenues):



Years Ending December 31,	(In millions)
Remainder of 2019	$	96
2020	368
2021	358
2022	331
2023	295
Thereafter	1,082
Total	$	2,530

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

Disaggregated revenues were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In thousands)
Pipelines	$	73,163	$	69,735	$	220,526	$	207,443
Terminals, tanks and loading racks	42,454		36,469		119,121		109,036
Refinery processing units	20,278		19,580		61,496		56,949
	$	135,895	$	125,784	$	401,143	$	373,428

During the three and nine months ended September 30, 2019, lease revenues amounted to $97.5 million and $285.8 million, respectively, and service revenues amounted to $38.4 million and $115.3 million, respectively. Both of these revenues were recorded within affiliates and third parties revenues on our consolidated statement of income.

- 12 -


Note 4:	Leases

We adopted ASC 842 effective January 1, 2019, and elected to adopt using the modified retrospective transition method and practical expedients, both of which are provided as options by the standard and further defined in Note 1.

Lessee Accounting

At inception, we determine if an arrangement is or contains a lease. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our payment obligation under the leasing arrangement. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable.

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases. Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties and equipment, current finance lease liabilities and noncurrent finance lease liabilities on our consolidated balance sheet.

When renewal options are defined in a lease, our lease term includes an option to extend the lease when it is reasonably certain we will exercise that option. Leases with a term of 12 months or less are not recorded on our balance sheet, and lease expense is accounted for on a straight-line basis. In addition, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations.

Our leases have remaining terms of 1 to 26 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $6.7 million and $5.8 million as of September 30, 2019 and December 31, 2018, respectively, with accumulated depreciation of $4.9 million and $4.3 million as of September 30, 2019 and December 31, 2018, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years. The right of use asset associated with this obligation was derecognized as discussed under the lessor accounting disclosures below.

- 13 -

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



	September 30, 2019

Operating leases:
Operating lease right-of-use assets, net	$	3,454

Current operating lease liabilities	807
Noncurrent operating lease liabilities	2,995
Total operating lease liabilities	$	3,802

Finance leases:
Properties and equipment	$	6,741
Accumulated amortization	(4,858		)
Properties and equipment, net	$	1,883

Current finance lease liabilities	$	5,426
Noncurrent finance lease liabilities	69,168
Total finance lease liabilities	$	74,594

Weighted average remaining lease term (in years)
Operating leases	6.6
Finance leases	17.4

Weighted average discount rate
Operating leases	5%
Finance leases	6%

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



	Nine Months Ended September 30, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	5,467
Operating cash flows on finance leases	$	75
Financing cash flows on finance leases	$	780

- 14 -

Maturities of lease liabilities were as follows:



	September 30, 2019
	Operating			Finance
	(In thousands)
2019	$	237		$	1,856
2020	897			7,305
2021	853			6,856
2022	509			6,711
2023	423			6,755
2024 and thereafter	1,534			86,738
Total lease payments	4,453			116,221
Less: Imputed interest	(651		)	(41,627		)
Total lease obligations	3,802			74,594
Less: Current obligations	(807		)	(5,426		)
Long-term lease obligations	$	2,995		$	69,168

The components of lease expense were as follows:



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(In thousands)
Operating lease costs	$	1,852	$	5,420
Finance lease costs
Amortization of assets	213		711
Interest on lease liabilities	24		75
Variable lease cost	41		112
Total net lease cost	$	2,130	$	6,318

Lessor Accounting

As discussed in Note 2, the majority of our contracts with customers meet the definition of a lease. See Note 2 for further discussion of the impact of adoption of this standard on our activities as a lessor.

Customer contracts that contain leases are generally classified as either operating leases, direct finance leases or sales-type leases. We consider inputs such as the lease term, fair value of the underlying asset and residual value of the underlying assets when assessing the classification.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HFC generally has the option to purchase assets located within HFC refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

One of our throughput agreements with HFC was renewed during the three months ending September 30, 2019. Certain components of this agreement met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease term to anyone besides HFC. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the three months ending September 30, 2019 composed of the following:



	(In thousands)

Net investment in leases	$	122,800
Properties and equipment, net	(15,031		)
Operating lease right-of-use assets, net	(72,603		)
Gain on sales-type leases	$	35,166

- 15 -

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

Lease income recognized was as follows:



	Three Months Ended September 30, 2019				Nine Months Ended September 30,
	2019		2018		2019		2018
	(In thousands)
Operating lease revenues	$	94,459	$	71,297	$	282,747	$	209,850
Direct financing lease interest income	$	539	$	510	$	1,558	$	1,513
Gain on sales-type leases	$	35,166	$	—	$	35,166	$	—
Sales-type lease interest income	$	1,675	$	—	$	1,675	$	—
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	$	3,075	$	—	$	3,075	$	—

For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.

As discussed in Note 2, prior to the adoption of ASC 842, contract consideration was bifurcated between operating lease and service revenues.

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2019:



	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2019	$	81,025	$	526	$	2,375
2020	309,604		2,112		9,501
2021	304,857		2,128		9,501
2022	303,454		2,145		9,501
2023	272,954		2,162		9,501
Thereafter	963,783		42,966		52,255
Total	$	2,235,677	$	52,039	$	92,634

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



	September 30, 2019				December 31, 2018
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables⁽¹⁾	$	70,426	$	16,522	$	—	$	16,549
Unguaranteed residual assets	51,674		—		—		—
Net investment in leases	$	122,100	$	16,522	$	—	$	16,549


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

- 16 -


Note 5:	Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:


•	(Level 1) Quoted prices in active markets for identical assets or liabilities.


•	(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.


•	(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. Debt consists of outstanding principal under our revolving credit agreement (which approximates fair value as interest rates are reset frequently at current interest rates) and our fixed interest rate senior notes.

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

September 30, 2019

December 31, 2018

Financial Instrument

Fair Value Input Level

Carrying

Value

Fair Value

Carrying

Value

Fair Value

(In thousands)

Liabilities:

6% Senior Notes

Level 2

496,369

523,220

495,900

488,310

Level 2 Financial Instruments

Our senior notes are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. See Note 8 for additional information.

Non-Recurring Fair Value Measurements

For gains on sales-type leases recognized during the third quarter of 2019, the estimated fair value of the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term are used in determining the net investment in leases and related gain on sales-type leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

- 17 -


Note 6:	Properties and Equipment

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



	September 30, 2019			December 31, 2018
	(In thousands)
Pipelines, terminals and tankage	$	1,541,971		$	1,571,338
Refinery assets	347,338			347,338
Land and right of way	86,095			86,298
Construction in progress	36,901			23,482
Other	41,198			41,250
	2,053,503			2,069,706
Less accumulated depreciation	(574,553		)	(531,051		)
	$	1,478,950		$	1,538,655

We capitalized $24 thousand and $0.2 million during the nine months ended September 30, 2019 and 2018, respectively, in interest attributable to construction projects.

Depreciation expense was $61.7 million and $62.6 million for the nine months ended September 30, 2019 and 2018, respectively, and includes depreciation of assets acquired under capital leases.


Note 7:	Intangible Assets

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

The carrying amounts of our intangible assets are as follows:



	Useful Life	September 30, 2019			December 31, 2018
		(In thousands)
Delek transportation agreement	30 years	$	59,933		$	59,933
HFC transportation agreement	10-15 years	75,131			75,131
Customer relationships	10 years	69,683			69,683
Other		50			50
		204,797			204,797
Less accumulated amortization		(99,973		)	(89,468		)
		$	104,824		$	115,329

Amortization expense was $10.5 million and $11.0 million for the nine months ended September 30, 2019 and 2018, respectively. We estimate amortization expense to be $14.0 million for each of the next three years, $9.9 million in 2023, and $9.1 million in 2024.

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


Note 8:	Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C. (“HLS”), an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.8 million and $1.9 million for the three months ended September 30, 2019 and 2018, respectively, and $5.4 million and $5.3 million for the nine months ended September 30, 2019 and 2018, respectively.

Under HLS’s secondment agreement with HFC (the “Secondment Agreement”), certain employees of HFC are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFC for its prorated portion of the wages, benefits, and other costs related to these employees.

We have a Long-Term Incentive Plan for employees and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of four components: restricted or phantom units, performance units, unit options and unit appreciation rights. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting (a significant proportion of our awards) is to expense the costs ratably over the vesting periods.

As of September 30, 2019, we had two types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.5 million and $0.7 million for the three months ended September 30, 2019 and 2018,

- 18 -

respectively, and $1.8 million and $2.1 million for the nine months ended September 30, 2019 and 2018, respectively. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of September 30, 2019, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,236,095 have not yet been granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Restricted and Phantom Units

Under our Long-Term Incentive Plan, we grant restricted units to non-employee directors and phantom units to selected employees who perform services for us, with most awards vesting over a period of one to three years. We previously granted restricted units to selected employees who perform services for us, which vest over a period of three years. Although full ownership of the units does not transfer to the recipients until the units vest, the recipients have distribution rights on these units from the date of grant, and the recipients of the restricted units have voting rights on the restricted units from the date of grant.

The fair value of each restricted or phantom unit award is measured at the market price as of the date of grant and is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

A summary of restricted and phantom unit activity and changes during the nine months ended September 30, 2019, is presented below:



Restricted and Phantom Units	Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2019 (nonvested)	138,016		$	31.35
Forfeited	(18,008	)	31.22
Outstanding at September 30, 2019 (nonvested)	120,008		$	31.37

No restricted units were vested and transferred to recipients during the nine months ended September 30, 2019. As of September 30, 2019, there was $0.9 million of total unrecognized compensation expense related to unvested restricted and phantom unit grants, which is expected to be recognized over a weighted-average period of 1.1 years.

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected officers who perform services for us. Performance units granted are payable in common units at the end of a three-year performance period based upon meeting certain criteria over the performance period. Under the terms of our performance unit grants, some awards are subject to the growth in our distributable cash flow per common unit over the performance period while other awards are subject to "financial performance" and "market performance." Financial performance is based on meeting certain earnings before interest, taxes, depreciation and amortization ("EBITDA") targets, while market performance is based on the relative standing of total unitholder return achieved by HEP compared to peer group companies. The number of units ultimately issued under these awards can range from 50% to 150% or 0% to 200%. As of September 30, 2019, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 150% of the target number of performance units granted.

We did not grant any performance units during the nine months ended September 30, 2019. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the common units from the date of grant.

A summary of performance unit activity and changes for the nine months ended September 30, 2019, is presented below:



Performance Units	Units
Outstanding at January 1, 2019 (nonvested)	51,748
Vesting and transfer of common units to recipients	(10,113	)
Forfeited	(5,200	)
Outstanding at September 30, 2019 (nonvested)	36,435

The grant date fair value of performance units vested and transferred to recipients during the nine months ended September 30, 2019 and 2018 was $0.3 million and $0.1 million, respectively. Based on the weighted-average fair value of performance units

- 19 -

outstanding at September 30, 2019, of $1.2 million, there was $0.3 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.3 years.

During the nine months ended September 30, 2019, we paid $0.3 million for the purchase of our common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.


Note 9:	Debt

Credit Agreement

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

Our obligations under the Credit Agreement are collateralized by substantially all of our assets, and indebtedness under the Credit Agreement is guaranteed by our material, wholly-owned subsidiaries. The Credit Agreement requires us to maintain compliance with certain financial covenants consisting of total leverage, senior secured leverage, and interest coverage. It also limits or restricts our ability to engage in certain activities. If, at any time prior to the expiration of the Credit Agreement, HEP obtains two investment grade credit ratings, the Credit Agreement will become unsecured and many of the covenants, limitations, and restrictions will be eliminated.

We may prepay all loans at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants as of September 30, 2019.

Senior Notes

We have $500 million in aggregate principal amount of 6% senior unsecured notes due in 2024 (the “6% Senior Notes”). The 6% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates and enter into mergers. We were in compliance with the restrictive covenants for the 6% Senior Notes as of September 30, 2019. At any

- 20 -

time when the 6% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6% Senior Notes.

Indebtedness under the 6% Senior Notes is guaranteed by all of our existing wholly-owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt

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



	September 30, 2019			December 31, 2018
	(In thousands)
Credit Agreement
Amount outstanding	$	935,500		$	923,000

6% Senior Notes
Principal	500,000			500,000
Unamortized premium and debt issuance costs	(3,631		)	(4,100		)
	496,369			495,900

Total long-term debt	$	1,431,869		$	1,418,900

Interest Expense and Other Debt Information

Interest expense consists of the following components:



	Nine Months Ended September 30,
	2019		2018
	(In thousands)
Interest on outstanding debt:
Credit Agreement	$	30,959	$	27,233
6% Senior Notes	22,500		22,500
Amortization of discount and deferred debt issuance costs	2,307		2,277
Commitment fees and other	1,317		1,450
Total interest incurred	57,083		53,460
Less capitalized interest	24		211
Net interest expense	$	57,059	$	53,249
Cash paid for interest	$	62,195	$	58,697


Note 10:	Related Party Transactions

We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2021 to 2036, and revenues from these agreements accounted for 78% of our total revenues for the three and nine months ended September 30, 2019. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year generally based on increases or decreases in PPI or the FERC index. As of September 30, 2019, these agreements with HFC require minimum annualized payments to us of $349 million.

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

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

Related party transactions with HFC are as follows:


•	Revenues received from HFC were $106.0 million and $100.2 million for the three months ended September 30, 2019 and 2018, respectively, and $311.8 million and $295.6 million for the nine months ended September 30, 2019 and 2018, respectively.


•	HFC charged us general and administrative services under the Omnibus Agreement of $0.7 million and $0.6 million for the three months ended September 30, 2019 and 2018, respectively, and $1.9 million for each of the nine months ended September 30, 2019 and 2018.


•	We reimbursed HFC for costs of employees supporting our operations of $13.7 million and $13.1 million for the three months ended September 30, 2019 and 2018, respectively, and $40.5 million and $38.3 million for the nine months ended September 30, 2019 and 2018, respectively.


•	HFC reimbursed us $4.6 million and $2.8 million for the three months ended September 30, 2019 and 2018, respectively, for expense and capital projects, and $10.4 million and $6.9 million for the nine months ended September 30, 2019 and 2018, respectively.


•	We distributed $37.6 million and $36.9 million in the three months ended September 30, 2019 and 2018, respectively, and $112.4 million and $109.7 million for the nine months ended September 30, 2019 and 2018, respectively, to HFC as regular distributions on its common units.

- 21 -


•	Accounts receivable from HFC were $35.8 million and $46.8 million at September 30, 2019, and December 31, 2018, respectively.


•	Accounts payable to HFC were $6.7 million and $14.2 million at September 30, 2019, and December 31, 2018, respectively.


•	Deferred revenue in the consolidated balance sheets at September 30, 2019 and December 31, 2018, included $0.6 million and $1.7 million, respectively, relating to certain shortfall billings to HFC.


•	We received direct financing lease payments from HFC for use of our Artesia and Tulsa railyards of $0.5 million for each of the three months ended September 30, 2019 and 2018, and $1.5 million for each of the nine months ended September 30, 2019 and 2018.


•	We recorded a gain on sales-type leases of $35.2 million during the three months ended September 30, 2019, and we received sales-type lease payments of $2.4 million that were not included in revenues for the three and nine months ended September 30, 2019.


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

As of September 30, 2019, HFC held 59,630,030 of our common units, constituting a 57% limited partner interest in us, and held the non-economic general partner interest.

On January 25, 2018, we entered into a common unit purchase agreement in which certain purchasers agreed to purchase in a private placement 3,700,000 common units representing limited partnership interests, at a price of $29.73 per common unit. The private placement closed on February 6, 2018, and we received proceeds of approximately $110 million, which were used to repay indebtedness under our Credit Agreement.

Continuous Offering Program

We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. For the nine months ended September 30, 2019, HEP did not issue units under this program. As of September 30, 2019, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

We intend to use our net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. Amounts repaid under the Credit Agreement may be reborrowed from time to time.

- 22 -

Allocations of Net Income

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

Cash Distributions

On October 17, 2019, we announced our cash distribution for the third quarter of 2019 of $0.6725 per unit. The distribution is payable on all common units and will be paid November 12, 2019, to all unitholders of record on October 28, 2019. However, HEP Logistics waived $2.5 million in limited partner cash distributions due to them as discussed in Note 1.

Our regular quarterly cash distribution to the limited partners will be $68.5 million for the three months ended September 30, 2019 and was $67.7 million for the three months ended September 30, 2018. For the nine months ended September 30, 2019, the regular quarterly distribution to the limited partners will be $205.2 million and was $201.3 million for the nine months ended September 30, 2018. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to HEP because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to HEP. Additionally, if the asset contributions and acquisitions from HFC had occurred while we were not a consolidated VIE of HFC, our acquisition cost, in excess of HFC’s historical basis in the transferred assets, would have been recorded in our financial statements at the time of acquisition as increases to our properties and equipment and intangible assets instead of decreases to our partners’ equity.


Note 12:	Net Income Per Limited Partner Unit

Net income per unit applicable to the limited partners is computed using the two-class method, since we have more than one participating security (common units and restricted units).

To the extent net income attributable to the partners exceeds or is less than cash distributions, this difference is allocated to the partners based on their weighted-average ownership percentage during the period, after consideration of any priority allocations of earnings. Our dilutive securities, restricted units, are immaterial for all periods presented.

For purposes of applying the two-class method, including the allocation of cash distributions in excess of earnings, net income per limited partner unit is computed as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Net income attributable to the partners	$	82,345		$	45,003		$	179,217		$	131,314
Limited partner’s distribution declared on common units	(68,494		)	(67,669		)	(205,223		)	(201,310		)
Net income attributable to the partners in excess of (less than) distributions	$	13,851		$	(22,666	)	$	(26,006	)	$	(69,996	)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019			2018
	(In thousands, except per unit data)
Net income attributable to the partners:
Distributions declared	$	68,494	$	67,669		205,223			201,310
Net income attributable to the partners in excess of (less than) distributions	13,851		(22,666		)	(26,006		)	(69,996		)
Net income attributable to the partners	$	82,345	$	45,003		$	179,217		$	131,314
Weighted average limited partners' units outstanding	105,440		105,440			105,440			104,908
Limited partners' per unit interest in earnings - basic and diluted	$	0.78	$	0.43		$	1.70		$	1.25


Note 13:	Environmental

We expensed $0.3 million for the three and nine months ended September 30, 2019, for environmental remediation obligations, and we expensed $25 thousand and $0.4 million for the three and nine months ended September 30, 2018, respectively. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $5.8 million and $6.3 million at September 30, 2019 and December 31, 2018, respectively, of which $3.8 million and $4.3 million, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. Our consolidated balance sheets included additional accrued environmental liabilities of $0.5 million for HFC indemnified liabilities for both periods ending September 30, 2019 and December 31, 2018, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.


Note 14:	Contingencies

We are a party to various legal and regulatory proceedings, none of which we believe will have a material adverse impact on our financial condition, results of operations or cash flows.


Note 15:	Segment Information

Although financial information is reviewed by our chief operating decision makers from a variety of perspectives, they view the business in two reportable operating segments: pipelines and terminals, and refinery processing units. These operating segments adhere to the accounting polices used for our consolidated financial statements.

Pipelines and terminals have been aggregated as one reportable segment as both pipeline and terminals (1) have similar economic characteristics, (2) similarly provide logistics services of transportation and storage of petroleum products, (3) similarly support the petroleum refining business, including distribution of its products, (4) have principally the same customers and (5) are subject to similar regulatory requirements.

We evaluate the performance of each segment based on its respective operating income. Certain general and administrative expenses and interest and financing costs are excluded from segment operating income as they are not directly attributable to a specific reportable segment. Identifiable assets are those used by the segment, whereas other assets are principally equity method investments, cash, deposits and other assets that are not associated with a specific reportable reportable segment.

- 23 -



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Revenues:
Pipelines and terminals - affiliate	$	85,749		$	80,608		$	250,259		$	238,680
Pipelines and terminals - third-party	29,868			25,596			89,388			77,799
Refinery processing units - affiliate	20,278			19,580			61,496			56,949
Total segment revenues	$	135,895		$	125,784		$	401,143		$	373,428

Segment operating income:
Pipelines and terminals	$	56,944		$	56,531		$	178,112		$	167,748
Refinery processing units	9,906			8,890			27,794			24,832
Total segment operating income	66,850			65,421			205,906			192,580
Unallocated general and administrative expenses	(2,714		)	(2,498		)	(7,322		)	(8,293		)
Interest and financing costs, net	(16,564		)	(17,502		)	(53,737		)	(51,668		)
Equity in earnings of equity method investments	1,334			1,114			5,217			4,127
Gain on sales-type leases	35,166			—			35,166			—
Gain (loss) on sale of assets and other	142			38			(57		)	71
Income before income taxes	$	84,214		$	46,573		$	185,173		$	136,817

Capital Expenditures:
Pipelines and terminals	$	5,320		$	9,389		$	23,072		$	34,128
Refinery processing units	756			142			756			142
Total capital expenditures	$	6,076		$	9,531		$	23,828		$	34,270



	September 30, 2019		December 31, 2018
	(In thousands)
Identifiable assets:
Pipelines and terminals⁽¹⁾	$	1,747,930	$	1,694,101
Refinery processing units	308,311		312,888
Other	98,034		95,551
Total identifiable assets	$	2,154,275	$	2,102,540

(1) Includes goodwill of $270.3 million as of September 30, 2019 and December 31, 2018.


Note 16:	Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the 6% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional, subject to certain customary release provisions. These circumstances include (i) when a Guarantor Subsidiary is sold or sells all or substantially all of its assets, (ii) when a Guarantor Subsidiary is declared “unrestricted” for covenant purposes, (iii) when a Guarantor Subsidiary’s guarantee of other indebtedness is terminated or released and (iv) when the requirements for legal defeasance or covenant defeasance or to discharge the senior notes have been satisfied.

The following financial information presents condensed consolidating balance sheets, statements of comprehensive income, and statements of cash flows of the Parent, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. The information has been presented as if the Parent accounted for its ownership in the Guarantor Subsidiaries, and the Guarantor Restricted Subsidiaries accounted for the ownership of the Non-Guarantor Non-Restricted Subsidiaries, using the equity method of accounting.

- 24 -

Condensed Consolidating Balance Sheet



September 30, 2019		Parent		Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	5,603	$	(1,043	)	$	2,909	$	—		$	7,469
Accounts receivable		—		46,995			5,218		(261		)	51,952
Prepaid and other current assets		145		4,335			299					4,779
Total current assets		5,748		50,287			8,426		(261		)	64,200

Properties and equipment, net		—		1,144,873			334,077		—			1,478,950
Operating lease right-of-use assets	0	—		3,424			30		—			3,454
Net investment in leases		—		136,394			—		—			136,394
Investment in subsidiaries		1,829,611		251,700			—		(2,081,311		)	—
Intangible assets, net		—		104,824			—		—			104,824
Goodwill		—		270,336			—		—			270,336
Equity method investments		—		82,884			—		—			82,884
Other assets		7,334		5,899			—		—			13,233
Total assets		$	1,842,693	$	2,050,621		$	342,533	$	(2,081,572	)	$	2,154,275

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	—	$	18,055		$	1,561	$	(261	)	$	19,355
Accrued interest		5,884		—			—		—			5,884
Deferred revenue		—		8,964			810		—			9,774
Accrued property taxes		—		5,131			4,135		—			9,266
Current operating lease liabilities		—		777			30		—			807
Current finance lease liabilities		—		5,426			—		—			5,426
Other current liabilities		96		2,830			—		—			2,926
Total current liabilities		5,980		41,183			6,536		(261		)	53,438

Long-term debt		1,431,869		—			—		—			1,431,869
Noncurrent operating lease liabilities		—		2,995			—		—			2,995
Noncurrent finance lease liabilities		—		69,168			—		—			69,168
Other long-term liabilities		260		12,245			397		—			12,902
Deferred revenue		—		46,862			—		—			46,862
Class B unit		—		48,557			—		—			48,557
Equity - partners		404,584		1,829,611			251,700		(2,081,311		)	404,584
Equity - noncontrolling interest		—		—			83,900		—			83,900
Total liabilities and equity		$	1,842,693	$	2,050,621		$	342,533	$	(2,081,572	)	$	2,154,275

- 25 -

Condensed Consolidating Balance Sheet



December 31, 2018	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	—	$	3,043	$	—		$	3,045
Accounts receivable	—		53,376		5,994		(252		)	59,118
Prepaid and other current assets	217		3,542		552		—			4,311
Total current assets	219		56,918		9,589		(252		)	66,474

Properties and equipment, net	—		1,193,181		345,474		—			1,538,655
Net investment in leases	—		16,488		—		—			16,488
Investment in subsidiaries	1,850,416		264,378		—		(2,114,794		)	—
Intangible assets, net	—		115,329		—		—			115,329
Goodwill	—		270,336		—		—			270,336
Equity method investments	—		83,840		—		—			83,840
Other assets	9,291		2,127		—		—			11,418
Total assets	$	1,859,926	$	2,002,597	$	355,063	$	(2,115,046	)	$	2,102,540

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	30,325	$	584	$	(252	)	$	30,657
Accrued interest	13,302		—		—		—			13,302
Deferred revenue	—		8,065		632		—			8,697
Accrued property taxes	—		744		1,035		—			1,779
Current finance lease liabilities	—		936		—		—			936
Other current liabilities	29		2,493		4		—			2,526
Total current liabilities	13,331		42,563		2,255		(252		)	57,897

Long-term debt	1,418,900		—		—		—			1,418,900
Noncurrent finance lease liabilities	—		867		—		—			867
Other long-term liabilities	260		13,876		304		—			14,440
Deferred revenue	—		48,714		—		—			48,714
Class B unit	—		46,161		—		—			46,161
Equity - partners	427,435		1,850,416		264,378		(2,114,794		)	427,435
Equity - noncontrolling interest	—		—		88,126		—			88,126
Total liabilities and equity	$	1,859,926	$	2,002,597	$	355,063	$	(2,115,046	)	$	2,102,540

- 26 -

Condensed Consolidating Statement of Comprehensive Income



Three Months Ended September 30, 2019	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	99,482		$	6,545		$	—		$	106,027
Third parties	—			23,999			5,869			—			29,868
	—			123,481			12,414			—			135,895
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			40,866			4,058			—			44,924
Depreciation and amortization	—			19,757			4,364			—			24,121
General and administrative	569			2,145			—			—			2,714
	569			62,768			8,422			—			71,759
Operating income (loss)	(569		)	60,713			3,992			—			64,136

Other income (expense):
Equity in earnings of subsidiaries	101,638			3,013			—			(104,651		)	—
Equity in earnings of equity method investments	—			1,334			—			—			1,334
Interest expense	(18,945		)	138			—			—			(18,807		)
Interest income	—			2,243			—			—			2,243
Gain on sales-type lease	—			35,166			—			—			35,166
Gain on sale of assets and other	221			(104		)	25			—			142
	82,914			41,790			25			(104,651		)	20,078
Income before income taxes	82,345			102,503			4,017			(104,651		)	84,214
State income tax expense	—			(30		)	—			—			(30		)
Net income	82,345			102,473			4,017			(104,651		)	84,184
Allocation of net income attributable to noncontrolling interests	—			(835		)	(1,004		)	—			(1,839		)
Net income attributable to the partners	$	82,345		$	101,638		$	3,013		$	(104,651	)	$	82,345

- 27 -

Condensed Consolidating Statement of Comprehensive Income



Three Months Ended September 30, 2018	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	94,270		$	5,918		$	—		$	100,188
Third parties	—			21,277			4,319			—			25,596
	—			115,547			10,237			—			125,784
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			32,906			3,090			—			35,996
Depreciation and amortization	—			20,198			4,169			—			24,367
General and administrative	698			1,800			—			—			2,498
	698			54,904			7,259			—			62,861
Operating income (loss)	(698		)	60,643			2,978			—			62,923

Other income (expense):
Equity in earnings of subsidiaries	63,731			2,251			—			(65,982		)	—
Equity in earnings of equity method investments	—			1,114			—			—			1,114
Interest expense	(18,030		)	(12		)	—			—			(18,042		)
Interest income	—			540			—			—			540
Gain (loss) on sale of assets and other	—			14			24			—			38
	45,701			3,907			24			(65,982		)	(16,350		)
Income before income taxes	45,003			64,550			3,002			(65,982		)	46,573
State income tax expense	—			(39		)	—			—			(39		)
Net income	45,003			64,511			3,002			(65,982		)	46,534
Allocation of net income attributable to noncontrolling interests	—			(780		)	(751		)	—			(1,531		)
Net income attributable to the partners	$	45,003		$	63,731		$	2,251		$	(65,982	)	$	45,003

- 28 -

Condensed Consolidating Statement of Comprehensive Income



Nine Months Ended September 30, 2019	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	293,096		$	18,659		$	—		$	311,755
Third parties	—			69,764			19,624			—			89,388
	—			362,860			38,283			—			401,143
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			111,644			11,401			—			123,045
Depreciation and amortization	—			59,320			12,872			—			72,192
General and administrative	2,390			4,932			—			—			7,322
	2,390			175,896			24,273			—			202,559
Operating income (loss)	(2,390		)	186,964			14,010			—			198,584

Other income (expense):
Equity in earnings (loss) of subsidiaries	238,368			10,572			—			(248,940		)	—
Equity in earnings of equity method investments	—			5,217			—			—			5,217
Interest expense	(56,982		)	(77		)	—			—			(57,059		)
Interest income	—			3,322			—			—			3,322
Gain on sales-type lease	—			35,166			—			—			35,166
Gain (loss) on sale of assets	221			(364		)	86			—			(57		)
	181,607			53,836			86			(248,940		)	(13,411		)
Income (loss) before income taxes	179,217			240,800			14,096			(248,940		)	185,173
State income tax expense	—			(36		)	—			—			(36		)
Net income (loss)	179,217			240,764			14,096			(248,940		)	185,137
Allocation of net income attributable to noncontrolling interests	—			(2,396		)	(3,524		)	—			(5,920		)
Net income attributable to the partners	$	179,217		$	238,368		$	10,572		$	(248,940	)	$	179,217

- 29 -

Condensed Consolidating Statement of Comprehensive Income



Nine Months Ended September 30, 2018	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	278,083		$	17,546		$	—		$	295,629
Third parties	—			60,795			17,004			—			77,799
	—			338,878			34,550			—			373,428
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			97,064			9,667			—			106,731
Depreciation and amortization	—			61,630			12,487			—			74,117
General and administrative	2,739			5,554			—			—			8,293
	2,739			164,248			22,154			—			189,141
Operating income (loss)	(2,739		)	174,630			12,396			—			184,287

Other income (expense):
Equity in earnings (loss) of subsidiaries	187,349			9,344			—			(196,693		)	—
Equity in earnings of equity method investments	—			4,127			—			—			4,127
Interest expense	(53,341		)	92			—			—			(53,249		)
Interest income	—			1,581			—			—			1,581
Gain (loss) on sale of assets and other	45			(37		)	63			—			71
	134,053			15,107			63			(196,693		)	(47,470		)
Income (loss) before income taxes	131,314			189,737			12,459			(196,693		)	136,817
State income tax expense	—			(149		)	—			—			(149		)
Net income (loss)	131,314			189,588			12,459			(196,693		)	136,668
Allocation of net income attributable to noncontrolling interests	—			(2,239		)	(3,115		)	—			(5,354		)
Net income attributable to the partners	$	131,314		$	187,349		$	9,344		$	(196,693	)	$	131,314

- 30 -

Condensed Consolidating Statement of Cash Flows



Nine Months Ended September 30, 2019	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(62,229	)	$	271,657		$	31,467		$	(12,678	)	$	228,217

Cash flows from investing activities
Additions to properties and equipment	—			(23,227		)	(601		)	—			(23,828		)
Distributions from UNEV in excess of earnings	—			10,572			—			(10,572		)	—
Proceeds from sale of assets	—			265			—			—			265
Distributions in excess of equity in earnings of equity investments	—			693			—			—			693
	—			(11,697		)	(601		)	(10,572		)	(22,870		)

Cash flows from financing activities
Net borrowings under credit agreement	12,500			—			—			—			12,500
Net intercompany financing activities	260,362			(260,362		)	—			—			—
Contribution from general partner	182			—			—			—			182
Distributions to HEP unitholders	(204,701		)	—			—			—			(204,701		)
Distributions to noncontrolling interests	—			—			(31,000		)	23,250			(7,750		)
Units withheld for tax withholding obligations	(119		)	—			—			—			(119		)
Purchase units for incentive grants	(255		)	—			—			—			(255		)
Payments on finance leases	—			(780		)	—			—			(780		)
Other	(139		)	139			—			—			—
	67,830			(261,003		)	(31,000		)	23,250			(200,923		)

Cash and cash equivalents
Increase (decrease) for the period	5,601			(1,043		)	(134		)	—			4,424
Beginning of period	2			—			3,043			—			3,045
End of period	$	5,603		$	(1,043	)	$	2,909		$	—		$	7,469

- 31 -

Condensed Consolidating Statement of Cash Flows



Nine Months Ended September 30, 2018	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(58,326	)	$	259,360		$	25,722		$	(9,344	)	$	217,412

Cash flows from investing activities
Additions to properties and equipment	—			(28,057		)	(6,213		)	—			(34,270		)
Business and asset acquisitions	—			(6,803		)	(38		)	—			(6,841		)
Distributions from UNEV in excess of earnings	—			7,156			—			(7,156		)	—
Proceeds from sale of assets	—			210			—			—			210
Distributions in excess of equity in earnings of equity investments	—			1,368			—			—			1,368
	—			(26,126		)	(6,251		)	(7,156		)	(39,533		)

Cash flows from financing activities
Net repayments under credit agreement	(91,000		)	—			—			—			(91,000		)
Net intercompany financing activities	231,231			(231,231		)	—			—			—
Proceeds from issuance of common units	114,839			48			—			—			114,887
Distributions to HEP unitholders	(197,300		)	—			—			—			(197,300		)
Distributions to noncontrolling interests	—			—			(22,000		)	16,500			(5,500		)
Contributions from general partner	614			—			—			—			614
Units withheld for tax withholding obligations	(58		)	—			—			—			(58		)
Other	—			(923		)	—			—			(923		)
	58,326			(232,106		)	(22,000		)	16,500			(179,280		)

Cash and cash equivalents
Increase (decrease) for the period	—			1,128			(2,529		)	—			(1,401		)
Beginning of period	2			511			7,263			—			7,776
End of period	$	2		$	1,639		$	4,734		$	—		$	6,375

- 32 -

Table of Contentsril 19,


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

This Item 2, including but not limited to the sections under “Results of Operations” and “Liquidity and Capital Resources,” contains forward-looking statements. See “Forward-Looking Statements” at the beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words “we,” “our,” “ours” and “us” refer to Holly Energy Partners, L.P. (“HEP”) and its consolidated subsidiaries or to HEP or an individual subsidiary and not to any other person.

OVERVIEW

HEP is a Delaware limited partnership. We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support the refining and marketing operations of HollyFrontier Corporation (“HFC”) in the Mid-Continent, Southwest and Northwest regions of the United States and Delek US Holdings, Inc.’s (“Delek”) refinery in Big Spring, Texas. HEP, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as refinery processing units in Utah and Kansas. HFC owned 57% of our outstanding common units and the non-economic general partnership interest, as of September 30, 2019.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, providing other services at our storage tanks and terminals and charging a tolling fee per barrel or thousand standard cubic feet of feedstock throughput in our refinery processing units. We do not take ownership of products that we transport, terminal, store or process, and therefore, we are not directly exposed to changes in commodity prices.

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

Acquisitions

On October 2, 2019, HEP Cushing (“HEP Cushing”), a wholly-owned subsidiary of HEP, and Plains Marketing, L.P. (“PMLP”), a wholly-owned subsidiary of Plains All American Pipeline, L.P. (“Plains”), formed a 50/50 joint venture, Cushing Connect Pipeline & Terminal LLC (the “Joint Venture”), for (i) the development and construction of a new 160,000 barrel per day common carrier crude oil pipeline (the “Pipeline”) that will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HFC and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “JV Terminal”). The JV Terminal is expected to be in service during the second quarter of 2020, and the Pipeline is expected to be in service during the first quarter of 2021. Long-term commercial agreements have been entered into to support the Joint Venture assets.

Agreements with HFC and Delek

We serve HFC’s refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from 2021 to 2036. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminal, tankage, and loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year, based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission index. As of September 30, 2019, these agreements with HFC require minimum annualized payments to us of $349 million.

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

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

- 33 -

Table of Contentsril 19,

We have a pipelines and terminals agreement with Delek expiring in 2020 under which Delek has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments. On September 30, 2019, Delek exercised its first renewal option (the “Renewal”) under this agreement for an additional five year period beginning April 1, 2020, but only with respect to specific assets. For the refined product pipelines and refined product terminals that were not subject to the Renewal and which currently account for approximately half of HEP’s annual revenues and distributable cash flows from Delek, the agreement terminates as of March 31, 2020. In light of this development, we will explore other potential options with respect to the pipeline and terminal assets that were not subject to the Renewal.

We also have a capacity lease agreement under which we lease space to Delek on our Orla to El Paso pipeline for the shipment of refined product. The terms for a portion of the capacity under this lease agreement expired in 2018 and were not renewed, and the remaining portions of the capacity expire in 2020 and 2022. As of September 30, 2019, these agreements with Delek require minimum annualized payments to us of $32 million.

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

Under HLS’s Secondment Agreement with HFC, certain employees of HFC are seconded to HLS to provide operational and maintenance services for certain of our processing, refining, pipeline and tankage assets, and HLS reimburses HFC for its prorated portion of the wages, benefits, and other costs of these employees for our benefit.

We have a long-term strategic relationship with HFC. Our current growth plan is to continue to pursue purchases of logistic and other assets at HFC’s existing refining locations in New Mexico, Utah, Oklahoma, Kansas and Wyoming. We also expect to work with HFC on logistic asset acquisitions in conjunction with HFC’s refinery acquisition strategies.

Furthermore, we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues.

- 34 -

Table of Contentsril 19,

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow, Volumes and Balance Sheet Data The following tables present income, distributable cash flow and volume information for the three and the nine months ended September 30, 2019 and 2018.



	Three Months Ended September 30,						Change from
	2019			2018			2018
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	19,401		$	20,803		$	(1,402	)
Affiliates—intermediate pipelines	7,490			6,772			718
Affiliates—crude pipelines	21,675			20,461			1,214
	48,566			48,036			530
Third parties—refined product pipelines	13,270			11,194			2,076
Third parties—crude pipelines	11,327			10,505			822
	73,163			69,735			3,428
Terminals, tanks and loading racks:
Affiliates	37,183			32,572			4,611
Third parties	5,271			3,897			1,374
	42,454			36,469			5,985

Affiliates—refinery processing units	20,278			19,580			698

Total revenues	135,895			125,784			10,111
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	44,924			35,996			8,928
Depreciation and amortization	24,121			24,367			(246		)
General and administrative	2,714			2,498			216
	71,759			62,861			8,898
Operating income	64,136			62,923			1,213
Other income (expense):
Equity in earnings of equity method investments	1,334			1,114			220
Interest expense, including amortization	(18,807		)	(18,042		)	(765		)
Interest income	2,243			540			1,703
Gain on sales-type leases	35,166			—			35,166
Gain (loss) on sale of assets and other	142			38			104
	20,078			(16,350		)	36,428
Income before income taxes	84,214			46,573			37,641
State income tax benefit (expense)	(30		)	(39		)	9
Net income	84,184			46,534			37,650
Allocation of net income attributable to noncontrolling interests	(1,839		)	(1,531		)	(308		)
Net income attributable to the partners	82,345			45,003			37,342
Limited partners’ earnings per unit—basic and diluted	$	0.78		$	0.43		$	0.35
Weighted average limited partners’ units outstanding	105,440			105,440			—
EBITDA ⁽¹⁾	$	123,060		$	86,911		$	36,149
Adjusted EBITDA ⁽¹⁾	$	90,269		$	86,911		$	3,358
Distributable cash flow ⁽²⁾	$	68,838		$	66,598		$	2,240

Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	129,681			120,024			9,657
Affiliates—intermediate pipelines	153,547			148,347			5,200
Affiliates—crude pipelines	358,867			322,590			36,277
	642,095			590,961			51,134
Third parties—refined product pipelines	67,440			67,112			328
Third parties—crude pipelines	129,222			119,503			9,719
	838,757			777,576			61,181
Terminals and loading racks:
Affiliates	482,291			417,079			65,212
Third parties	59,307			57,990			1,317
	541,598			475,069			66,529

Affiliates—refinery processing units	75,857			65,640			10,217

Total for pipelines and terminal and refinery processing unit assets (bpd)	1,456,212			1,318,285			137,927

- 35 -

Table of Contentsril 19,



	Nine Months Ended September 30,						Change from
	2019			2018			2018
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	60,892		$	60,841		$	51
Affiliates—intermediate pipelines	22,068			22,496			(428		)
Affiliates—crude pipelines	63,447			58,737			4,710
	146,407			142,074			4,333
Third parties—refined product pipelines	40,652			37,124			3,528
Third parties—crude pipelines	33,467			28,245			5,222
	220,526			207,443			13,083
Terminals, tanks and loading racks:
Affiliates	103,852			96,606			7,246
Third parties	15,269			12,430			2,839
	119,121			109,036			10,085

Affiliates—refinery processing units	61,496			56,949			4,547

Total revenues	401,143			373,428			27,715
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	123,045			106,731			16,314
Depreciation and amortization	72,192			74,117			(1,925		)
General and administrative	7,322			8,293			(971		)
	202,559			189,141			13,418
Operating income	198,584			184,287			14,297
Other income (expense):
Equity in earnings of equity method investments	5,217			4,127			1,090
Interest expense, including amortization	(57,059		)	(53,249		)	(3,810		)
Interest income	3,322			1,581			1,741
Gain on sales-type leases	35,166			—			35,166
Gain (loss) on sale of assets and other	(57		)	71			(128		)
	(13,411		)	(47,470		)	34,059
Income before income taxes	185,173			136,817			48,356
State income tax expense	(36		)	(149		)	113
Net income	185,137			136,668			48,469
Allocation of net income attributable to noncontrolling interests	(5,920		)	(5,354		)	(566		)
Net income attributable to the partners	179,217			131,314			47,903
Limited partners’ earnings per unit—basic and diluted	$	1.70		$	1.25		$	0.45
Weighted average limited partners’ units outstanding	105,440			104,908			532
EBITDA ⁽¹⁾	$	305,182		$	257,248		$	47,934
Adjusted EBITDA ⁽¹⁾	$	272,391		$	257,248		$	15,143
Distributable cash flow ⁽²⁾	$	206,923		$	200,878		$	6,045

Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	130,426			125,642			4,784
Affiliates—intermediate pipelines	141,991			142,371			(380		)
Affiliates—crude pipelines	376,518			336,224			40,294
	648,935			604,237			44,698
Third parties—refined product pipelines	71,773			70,830			943
Third parties—crude pipelines	132,101			119,344			12,757
	852,809			794,411			58,398
Terminals and loading racks:
Affiliates	429,660			418,009			11,651
Third parties	62,437			59,776			2,661
	492,097			477,785			14,312

Affiliates—refinery processing units	73,178			67,873			5,305

Total for pipelines and terminal and refinery processing unit assets (bpd)	1,418,084			1,340,069			78,015

- 36 -

Table of Contentsril 19,

(1)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to the partners plus (i) interest expense, net of interest income, (ii) state income tax expense and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA minus gain on sales-type leases plus pipeline tariffs not included in revenues due to impacts from lease accounting for certain pipeline tariffs. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. These pipeline tariffs were previously recorded as revenues prior to the adoption of ASU No. 2016-02, "Leases". EBITDA and Adjusted EBITDA are not calculations based upon generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA and Adjusted EBITDA calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income attributable to Holly Energy Partners or operating income, as indications of our operating performance or as alternatives to operating cash flow as a measure of liquidity. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA are presented here because they are widely used financial indicators used by investors and analysts to measure performance. EBITDA and Adjusted EBITDA are also used by our management for internal analysis and as a basis for compliance with financial covenants. Set forth below are our calculations of EBITDA and Adjusted EBITDA.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Net income attributable to the partners	$	82,345		$	45,003		$	179,217		$	131,314
Add (subtract):
Interest expense	18,807			18,042			57,059			53,249
Interest income	(2,243		)	(540		)	(3,322		)	(1,581		)
State income tax expense	30			39			36			149
Depreciation and amortization	24,121			24,367			72,192			74,117
EBITDA	$	123,060		$	86,911		$	305,182		$	257,248
Gain on sales-type leases	(35,166		)	—			(35,166		)	—
Pipeline tariffs not included in revenues	2,375			—			2,375			—
Adjusted EBITDA	$	90,269		$	86,911		$	272,391		$	257,248

(2)

Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exceptions of maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It is also used by management for internal analysis and for our performance units. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating. Set forth below is our calculation of distributable cash flow.

- 37 -

Table of Contentsril 19,



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Net income attributable to the partners	$	82,345		$	45,003		$	179,217		$	131,314
Add (subtract):
Depreciation and amortization	24,121			24,367			72,192			74,117
Amortization of discount and deferred debt issuance costs	771			762			2,307			2,278
Revenue recognized (greater) less than customer billings	504			1,294			(2,827		)	2,994
Maintenance capital expenditures⁽³⁾	(2,118		)	(3,198		)	(3,477		)	(4,504		)
Increase (decrease) in environmental liability	91			(150		)	(464		)	(368		)
Decrease in reimbursable deferred revenue	(1,964		)	(1,517		)	(5,604		)	(3,937		)
Gain on sales-type leases	(35,166		)	—			(35,166		)	—
Other	254			37			745			(1,016		)
Distributable cash flow	$	68,838		$	66,598		$	206,923		$	200,878


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



	September 30, 2019		December 31, 2018
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	7,469	$	3,045
Working capital	$	10,762	$	8,577
Total assets	$	2,154,275	$	2,102,540
Long-term debt	$	1,431,869	$	1,418,900
Partners’ equity ⁽⁴⁾	$	404,584	$	427,435

(4)

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to the partners because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to the partners. Additionally, if the assets contributed and acquired from HFC while we were a consolidated variable interest entity of HFC had been acquired from third parties, our acquisition cost in excess of HFC’s basis in the transferred assets would have been recorded in our financial statements as increases to our properties and equipment and intangible assets at the time of acquisition instead of decreases to partners’ equity.

Results of Operations—Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018

Summary

Net income attributable to the partners for the third quarter was $82.3 million ($0.78 per basic and diluted limited partner unit) compared to $45.0 million ($0.43 per basic and diluted limited partner unit) for the third quarter of 2018. During the third quarter of 2019, HEP and HFC renewed the original throughput agreement on specific HEP assets. Portions of the new throughput agreement meet the definition of sales-type leases, which resulted in an accounting gain of $35.2 million upon the initial recognition of the sales-type leases during the third quarter. Excluding this gain, net income attributable to Holly Energy Partners for the quarter was $47.2 million ($0.45 per basic and diluted limited partner unit), an increase of $2.2 million compared to the same period of 2018. The increase in net income attributable to HEP was mainly due to strong third-party volumes on our UNEV pipeline, higher spot revenues on our crude oil pipeline systems in Wyoming and Utah and stronger terminal and tank volumes at El Dorado and Tulsa. These gains were partially offset by higher operating costs and interest expense.

- 38 -

Table of Contentsril 19,

Revenues

Revenues for the third quarter were $135.9 million, an increase of $10.1 million compared to the third quarter of 2018. The increase was mainly attributable to higher pipeline volumes on our UNEV pipeline and our crude pipeline systems in Wyoming and Utah, which contributed to an increase in overall pipeline volumes of 8%. Along with higher volumes through our refinery tankage and terminals, contractual tariff escalators across our assets also led to an increase in revenues year over year.

Revenues from our refined product pipelines were $32.7 million, an increase of $0.7 million compared to the third quarter of 2018, due to higher throughput and contractual tariff escalators. Shipments averaged 197.1 thousand barrels per day (“mbpd”) compared to 187.1 mbpd for the third quarter of 2018. The volume increase was mainly due to higher volumes on our UNEV pipeline and pipelines servicing HFC's Navajo refinery.

Revenues from our intermediate pipelines were $7.5 million, an increase of $0.7 million compared to the third quarter of 2018, due to higher throughput and contractual tariff escalators. Shipments averaged 153.5 mbpd for the third quarter of 2019 compared to 148.3 mbpd for the third quarter of 2018. The increase in volumes was mainly due to higher throughputs on our intermediate pipelines servicing HollyFrontier's Tulsa refinery.

Revenues from our crude pipelines were $33.0 million, an increase of $2.0 million compared to the third quarter of 2018, and shipments averaged 488.1 mbpd compared to 442.1 mbpd for the third quarter of 2018. The increases were mainly attributable to increased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah, as well as contractual tariff escalators.

Revenues from terminal, tankage and loading rack fees were $42.5 million, an increase of $6.0 million compared to the third quarter of 2018. Refined products and crude oil terminalled in the facilities averaged 541.6 mbpd compared to 475.1 mbpd for the third quarter of 2018. The revenue and volume increases were mainly due to higher volumes at HFC's Tulsa and El Dorado refineries, our new Orla diesel rack and our Catoosa, Las Vegas and Spokane terminals.

Revenues from refinery processing units were $20.3 million, an increase of $0.7 million compared to the third quarter of 2018, and throughputs averaged 75.9 mbpd compared to 65.6 mbpd for the third quarter of 2018. The increase in revenue was mainly due to contractual rate increases.

Operations Expense

Operations (exclusive of depreciation and amortization) expense was $44.9 million for the three months ended September 30, 2019, an increase of $8.9 million compared to the third quarter of 2018. The increase was mainly due to higher employee compensation expenses, maintenance costs and property taxes for the three months ended September 30, 2019.

Depreciation and Amortization

Depreciation and amortization for the three months ended September 30, 2019, decreased by $0.2 million compared to the three months ended September 30, 2018.

General and Administrative

General and administrative costs for the three months ended September 30, 2019, increased by $0.2 million compared to the three months ended September 30, 2018, mainly due to higher legal expenses for the three months ended September 30, 2019.

Equity in Earnings of Equity Method Investments



	Three Months Ended September 30,
Equity Method Investment	2019		2018
	(in thousands)
Osage Pipe Line Company, LLC	$	606	$	294
Cheyenne Pipeline LLC	728		820
Total	$	1,334	$	1,114

Equity in earnings of Osage Pipe Line Company, LLC increased for the three months ended September 30, 2019, mainly due to higher crude throughput volumes and lower maintenance project expenses.

Interest Expense

Interest expense for the three months ended September 30, 2019, totaled $18.8 million, an increase of $0.8 million compared to the three months ended September 30, 2018. The increase was primarily due to interest expense associated with higher average

- 39 -

Table of Contentsril 19,

balances outstanding under the Credit Agreement (as defined below) and market interest rate increases under that facility. Our aggregate effective interest rates were 5.2% and 5.1% for the three months ended September 30, 2019 and 2018, respectively.

State Income Tax

We recorded a state income tax expense of $30,000 and $39,000 for the three months ended September 30, 2019 and 2018, respectively. All tax expense is solely attributable to the Texas margin tax.

Results of Operations—Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018

Summary

Net income attributable to the partners for the nine months ended September 30, 2019, was $179.2 million compared to $131.3 million for the nine months ended September 30, 2018. The increase in earnings was primarily due to the gain on sales-type leases as well as higher crude oil pipeline volumes around the Permian Basin and our crude pipeline systems in Wyoming and Utah, higher revenues on our refinery processing units and contractual tariff escalators. These gains were partially offset by higher operating costs and interest expense.

Revenues

Revenues for the nine months ended September 30, 2019, were $401.1 million, an increase of $27.7 million compared to the nine months ended September 30, 2018. The increase was mainly attributable to higher crude oil pipeline volumes around the Permian Basin and our crude pipeline systems in Wyoming and Utah, higher revenues on our refinery processing units, and contractual tariff escalators.

Revenues from our refined product pipelines were $101.5 million, an increase of $3.6 million compared to the nine months ended September 30, 2018. Shipments averaged 202.2 mbpd compared to 196.5 mbpd for the nine months ended September 30, 2018. The volume and revenue increases were mainly due to higher Delek volumes, higher volumes on pipelines servicing HFC's Woods Cross refinery, which had lower throughput in 2018 due to operational issues, and contractual tariff escalators.

Revenues from our intermediate pipelines were $22.1 million, a decrease of $0.4 million compared to the nine months ended September 30, 2018. Shipments averaged 142.0 mbpd compared to 142.4 mbpd for the nine months ended September 30, 2018. The decrease in revenue was primarily attributable to a decrease in deferred revenue realized.

Revenues from our crude pipelines were $96.9 million, an increase of $9.9 million compared to the nine months ended September 30, 2018. Shipments averaged 508.6 mbpd compared to 455.6 mbpd for the nine months ended September 30, 2018. The increases were mainly attributable to increased volumes on our crude pipeline systems in New Mexico and Texas and on our crude pipeline systems in Wyoming and Utah as well as contractual tariff escalators.

Revenues from terminal, tankage and loading rack fees were $119.1 million, an increase of $10.1 million compared to the nine months ended September 30, 2018. Refined products and crude oil terminalled in the facilities averaged 492.1 mbpd compared to 477.8 mbpd for the nine months ended September 30, 2018. The revenue and volume increases were mainly due to volumes at our new Orla diesel rack and higher volumes at the Spokane and Catoosa terminals, partially offset by lower volumes at HFC's Tulsa refinery as a result of the planned turnaround in the first quarter and flooding in the second quarter.

Revenues from refinery processing units were $61.5 million, an increase of $4.5 million compared to the nine months ended September 30, 2018. Throughputs averaged 73.2 mbpd compared to 67.9 mbpd for the nine months ended September 30, 2018. The increase in revenue was mainly due to an adjustment in revenue recognition and contractual rate increases.

Operations Expense

Operations expense (exclusive of depreciation and amortization) for the nine months ended September 30, 2019, increased by $16.3 million compared to the nine months ended September 30, 2018. The increase was mainly due to higher employee compensation expenses, maintenance costs and property taxes.

Depreciation and Amortization

Depreciation and amortization for the nine months ended September 30, 2019, decreased by $1.9 million compared to the nine months ended September 30, 2018. The decrease was primarily due to lower amortization of intangible assets and asset retirement obligations.

- 40 -

Table of Contentsril 19,

General and Administrative

General and administrative costs for the nine months ended September 30, 2019, decreased $1.0 million compared to the nine months ended September 30, 2018, mainly due to lower employee compensation and consulting costs incurred in the nine months ended September 30, 2019.

Equity in Earnings of Equity Method Investments



	Nine Months Ended September 30,
Equity Method Investments	2019		2018
	(in thousands)
Osage Pipe Line Company, LLC	$	1,857	$	1,895
Cheyenne Pipeline LLC	3,360		2,232
Total	$	5,217	$	4,127

Equity in earnings of Cheyenne Pipeline LLC increased for the nine months ended September 30, 2019, mainly due to higher crude throughput volumes.

Interest Expense

Interest expense for the nine months ended September 30, 2019, totaled $57.1 million, an increase of $3.8 million compared to the nine months ended September 30, 2018. The increase is primarily due to higher average balances outstanding under our Credit Agreement, and market interest rate increases under that facility. Our aggregate effective interest rates were 5.3% and 5.0% for the nine months ended September 30, 2019 and 2018, respectively.

State Income Tax

We recorded state income tax expense of $36,000 and $149,000 for the nine months ended September 30, 2019 and 2018, respectively. All tax expense is solely attributable to the Texas margin tax.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During the nine months ended September 30, 2019, we received advances totaling $269.5 million and repaid $257.0 million, resulting in a net increase of $12.5 million under the Credit Agreement and an outstanding balance of $935.5 million at September 30, 2019. As of September 30, 2019, we have no letters of credit outstanding under the Credit Agreement and the available capacity under the Credit Agreement was $464.5 million. Amounts repaid under the Credit Agreement may be reborrowed from time to time.

If any particular lender under the Credit Agreement could not honor its commitment, we believe the unused capacity that would be available from the remaining lenders would be sufficient to meet our borrowing needs. Additionally, we review publicly available information on the lenders in order to monitor their financial stability and assess their ongoing ability to honor their commitments under the Credit Agreement. We do not expect to experience any difficulty in the lenders’ ability to honor their respective commitments, and if it were to become necessary, we believe there would be alternative lenders or options available.

On January 25, 2018, we entered into a common unit purchase agreement in which certain purchasers agreed to purchase in a private placement 3,700,000 common units representing limited partnership interests, at a price of $29.73 per common unit. The private placement closed on February 6, 2018, and we received proceeds of approximately $110 million, which were used to repay indebtedness under the Credit Agreement.

We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. We did not issue any units under this program during the nine months ended September 30, 2019. We intend to use the net proceeds for general partnership purposes, which may include funding working capital, repayment of debt, acquisitions and capital expenditures. As of September 30, 2019, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

- 41 -

Table of Contentsril 19,

Under our registration statement filed with the Securities and Exchange Commission (“SEC”) using a “shelf” registration process, we currently have the authority to raise up to $2.0 billion by offering securities, through one or more prospectus supplements that would describe, among other things, the specific amounts, prices and terms of any securities offered and how the proceeds would be used. Any proceeds from the sale of securities would be used for general business purposes, which may include, among other things, funding acquisitions of assets or businesses, working capital, capital expenditures, investments in subsidiaries, the retirement of existing debt and/or the repurchase of common units or other securities.

In March 2019, we repurchased 8,674 common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan, for an aggregate purchase price of $0.3 million.

We believe our current cash balances, future internally generated funds and funds available under the Credit Agreement will provide sufficient resources to meet our working capital liquidity needs for the foreseeable future.

In August 2019, we paid a regular cash distribution of $0.6725 on all units in an aggregate amount of $68.5 million after deducting HEP Logistics' waiver of $2.5 million of limited partner cash distributions.

Cash and cash equivalents increased by $4.4 million during the nine months ended September 30, 2019. The cash flows provided by operating activities of $228.2 million were more than the cash flows used for financing activities of $200.9 million and investing activities of $22.9 million. Working capital increased by $2.2 million to $10.8 million at September 30, 2019, from $8.6 million at December 31, 2018.

Cash Flows—Operating Activities

Cash flows from operating activities increased by $10.8 million from $217.4 million for the nine months ended September 30, 2018, to $228.2 million for the nine months ended September 30, 2019. The increase was mainly due to increased receipts from customers during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, partially offset by higher payments for operating and interest expenses.

Cash Flows—Investing Activities

Cash flows used for investing activities were $22.9 million for the nine months ended September 30, 2019, compared to $39.5 million for the nine months ended September 30, 2018, a decrease of $16.7 million. During the nine months ended September 30, 2019 and 2018, we invested $23.8 million and $34.3 million in additions to properties and equipment, respectively. During the nine months ended September 30, 2018, we had cash payments of $6.8 million for acquisitions. We also received $0.7 million and $1.4 million for distributions in excess of equity in earnings of equity investments during the nine months ended September 30, 2019 and 2018, respectively.

Cash Flows—Financing Activities

Cash flows used for financing activities were $200.9 million for the nine months ended September 30, 2019, compared to $179.3 million for the nine months ended September 30, 2018, an increase of $21.6 million. During the nine months ended September 30, 2019, we received $269.5 million and repaid $257.0 million in advances under the Credit Agreement. Additionally, we paid $204.7 million in regular quarterly cash distributions to our limited partners and $7.8 million to our noncontrolling interest. During the nine months ended September 30, 2018, we received $256.0 million and repaid $347.0 million in advances under the Credit Agreement. We paid $197.3 million in regular quarterly cash distributions to our limited partners, and distributed $5.5 million to our noncontrolling interest. We also received net proceeds of $114.9 million from the issuance of common units during the nine months ended September 30, 2018.

Capital Requirements

Our pipeline and terminalling operations are capital intensive, requiring investments to maintain, expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements have consisted of, and are expected to continue to consist of, maintenance capital expenditures and expansion capital expenditures. “Maintenance capital expenditures” represent capital expenditures to replace partially or fully depreciated assets to maintain the operating capacity of existing assets. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, safety and to address environmental regulations. “Expansion capital expenditures” represent capital expenditures to expand the operating capacity of existing or new assets, whether through construction or acquisition. Expansion capital expenditures include expenditures to acquire assets, to grow our business and to expand existing facilities, such as projects that increase throughput capacity on our pipelines and in our terminals. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred.

- 42 -

Table of Contentsril 19,

Each year the board of directors of HLS, our ultimate general partner, approves our annual capital budget, which specifies capital projects that our management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, additional projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures approved for capital projects included in the current year’s capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. We are forecasting to spend approximately $7-8 million for maintenance capital expenditures and approximately $35 million for expansion capital expenditures in 2019. We expect the majority of the expansion capital budget to be invested in refined product pipeline expansions, crude system enhancements, new storage tanks and enhanced blending capabilities at our racks. In addition to our capital budget, we may spend funds periodically to perform capital upgrades or additions to our assets where a customer reimburses us for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.

We expect that our currently planned sustaining and maintenance capital expenditures, as well as expenditures for acquisitions and capital development projects, will be funded with cash generated by operations, the sale of additional limited partner common units, the issuance of debt securities and advances under our Credit Agreement, or a combination thereof. With volatility and uncertainty at times in the credit and equity markets, there may be limits on our ability to issue new debt or equity financing. Additionally, due to pricing movements in the debt and equity markets, we may not be able to issue new debt and equity securities at acceptable pricing. Without additional capital beyond amounts available under the Credit Agreement, our ability to obtain funds for some of these capital projects may be limited.

Under the terms of the transaction to acquire HFC’s 75% interest in UNEV, we issued to HFC a Class B unit comprising a noncontrolling equity interest in a wholly-owned subsidiary subject to redemption to the extent that HFC is entitled to a 50% interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 million beginning July 1, 2015, and ending in June 2032, subject to certain limitations. However, to the extent earnings thresholds are not achieved, no redemption payments are required. No redemption payments have been required to date.

Credit Agreement

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

Senior Notes

We have $500 million in aggregate principal amount of 6% Senior Notes due in 2024 (the “ 6% Senior Notes”). We used the net proceeds from our offerings of the 6% Senior Notes to repay indebtedness under our Credit Agreement.

The 6% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. We were in compliance with the restrictive covenants for the 6% Senior Notes as of September 30, 2019. At any time when the 6% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6% Senior Notes.

Indebtedness under the 6% Senior Notes is guaranteed by all of our existing wholly-owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

- 43 -

Table of Contentsril 19,

Long-term Debt

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



	September 30, 2019			December 31, 2018
	(In thousands)
Credit Agreement	$	935,500		$	923,000

6% Senior Notes
Principal	500,000			500,000
Unamortized debt issuance costs	(3,631		)	(4,100		)
	496,369			495,900

Total long-term debt	$	1,431,869		$	1,418,900

Contractual Obligations

There were no significant changes to our long-term contractual obligations during this period.

Impact of Inflation

Inflation in the United States has been relatively moderate in recent years and did not have a material impact on our results of operations for the nine months ended September 30, 2019 and 2018. PPI has increased an average of 0.8% annually over the past five calendar years, including increases of 3.1% and 3.2% in 2018 and 2017, respectively.

The substantial majority of our revenues are generated under long-term contracts that provide for increases or decreases in our rates and minimum revenue guarantees annually for increases or decreases in the PPI. Certain of these contracts have provisions that limit the level of annual PPI percentage rate increases or decreases. A significant and prolonged period of high inflation or a significant and prolonged period of negative inflation could adversely affect our cash flows and results of operations if costs increase at a rate greater than the fees we charge our shippers.

Environmental Matters

Our operation of pipelines, terminals, and associated facilities in connection with the transportation and storage of refined products and crude oil is subject to stringent and complex federal, state, and local laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment. As with the industry generally, compliance with existing and anticipated laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe that they do not affect our competitive position given that the operations of our competitors are similarly affected. However, these laws and regulations, and the interpretation or enforcement thereof, are subject to frequent change by regulatory authorities, and we are unable to predict the ongoing cost to us of complying with these laws and regulations or the future impact of these laws and regulations on our operations. Violation of environmental laws, regulations, and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions, and construction bans or delays. A major discharge of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expense, including both the cost to comply with applicable laws and regulations and claims made by employees, neighboring landowners and other third parties for personal injury and property damage.

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

There are environmental remediation projects in progress that relate to certain assets acquired from HFC. Certain of these projects were underway prior to our purchase and represent liabilities retained by HFC. At September 30, 2019, we had an accrual of $5.8 million that related to environmental clean-up projects for which we have assumed liability or for which the indemnity provided for by HFC has expired or will expire. The remaining projects, including assessment and monitoring activities, are covered under the HFC environmental indemnification discussed above and represent liabilities of HFC.

- 44 -

Table of Contentsril 19,

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2018. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include revenue recognition, assessing the possible impairment of certain long-lived assets and goodwill, and assessing contingent liabilities for probable losses. With the exception of certain of our revenue recognition policies discussed in Note 3 of Notes to the Consolidated Financial Statements, there have been no changes to these policies in 2019. We consider these policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows.

Accounting Pronouncements Adopted During the Periods Presented

Goodwill Impairment Testing

Leases

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

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard had an effective date of January 1, 2018, and we accounted for the new guidance using the modified retrospective implementation method, whereby a cumulative effect adjustment was recorded to retained earnings as of the date of initial application. In preparing for adoption, we evaluated the terms, conditions and performance obligations under our existing contracts with customers. Furthermore, we implemented policies to comply with this new standard. See Note 3 of Notes to the Consolidated Financial Statements for additional information on our revenue recognition policies.

Business Combinations

In December 2014, an accounting standard update was issued to provide new guidance on the definition of a business in relation to accounting for identifiable intangible assets in business combinations. This standard had an effective date of January 1, 2018, and had no effect on our financial condition, results of operations or cash flows.

- 45 -

Table of Contentsril 19,

Financial Assets and Liabilities

Accounting Pronouncements - Not Yet Adopted

Credit Losses Measurement

RISK MANAGEMENT

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

At September 30, 2019, we had an outstanding principal balance of $500 million on our 6% Senior Notes. A change in interest rates generally would affect the fair value of the 6% Senior Notes, but not our earnings or cash flows. At September 30, 2019, the fair value of our 6% Senior Notes was $523.2 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 6% Senior Notes at September 30, 2019, would result in a change of approximately $11 million in the fair value of the underlying 6% Senior Notes.

For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2019, borrowings outstanding under the Credit Agreement were $935.5 million. A hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.

Our operations are subject to normal hazards of operations, including fire, explosion and weather-related perils. We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures.

We have a risk management oversight committee that is made up of members from our senior management. This committee monitors our risk environment and provides direction for activities to mitigate, to an acceptable level, identified risks that may adversely affect the achievement of our goals.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of market risk exposures that we have with respect to our long-term debt, which disclosure should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Since we do not own products shipped on our pipelines or terminalled at our terminal facilities, we do not have direct market risks associated with commodity prices.

- 46 -

Table of Contentsril 19,


Item 4.	Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019, at a reasonable level of assurance.

(b) Changes in internal control over financial reporting

During the three months ended September 30, 2019, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

- 47 -

Table of Contentsril 19,

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and other matters. Damages or penalties may be sought from us in some matters and certain matters may require years to resolve. While the outcome and impact of these proceedings and investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations, through settlement or adverse judgment, will not, either individually or in the aggregate, have a materially adverse effect on our financial condition, results of operations or cash flows.

Environmental Matters

We are reporting the following proceedings to comply with SEC regulations which require us to disclose proceedings arising under federal, state or local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings may result in monetary sanctions of $100,000 or more. Our respective subsidiaries have or will develop corrective action plans regarding the subject of these proceedings that will be implemented in consultation with the respective federal and state agencies. It is not possible to predict the ultimate outcome of these proceedings, although none are currently expected to have a material effect on our financial condition, results of operations or cash flows.

Written Safety Compliance Program

Holly Energy Partners - Operating, L.P. (“HEP Operating”) received a Notice of Probable Violation (NOPV) dated June 20, 2018 from the Pipeline and Hazardous Materials Safety Administration (“PHMSA”). The NOPV follows a routine inspection of HEP's facilities and records and is not in response to an incident. In the NOPV, PHMSA alleges certain regulatory violations involving HEP Operating’s written safety compliance program for its pipelines, terminals and tanks. On June 20, 2018, PHMSA proposed a civil penalty and a compliance order that would require HEP Operating to take certain remedial actions. HEP Operating submitted information to PHMSA to demonstrate compliance regarding several of the allegations. PHMSA issued a Final Order dated August 8, 2019 withdrawing a number of the violations and reducing the civil penalty to an amount less than $100,000. HEP has paid the reduced penalty, and PHMSA will close this matter after HEP completes the work required in the Final Order.

Other

We are a party to various other legal and regulatory proceedings, which we believe, based on the advice of counsel, will not either individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows.


Item 1A.	Risk Factors

Other than the risk factor set forth below, there have been no material changes in our risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. In addition to the other information set forth in this quarterly report, you should consider carefully the factors discussed in our 2018 Form 10-K, which could materially affect our business, financial condition or future results. The risks described below and in our 2018 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or future results.

The following risk factors, which were previously disclosed in Part 1, “Item 1A Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, is hereby amended and restated in its entirety as follows:

RISKS RELATED TO OUR BUSINESS

We may not be able to retain existing customers or acquire new customers.

The renewal or replacement of existing contracts with our customers at rates sufficient to maintain attractive revenues and cash flows depends on a number of factors outside our control, including competition from other pipelines and the demand for refined products in the markets that we serve. Our long-term pipeline and terminal, tankage and refinery processing unit throughput

- 48 -

Table of Contentsril 19,

agreements with HFC and Delek expire beginning in 2020 through 2036. On September 30, 2019, Delek exercised its first renewal option (the “Renewal”) under this agreement for an additional five year period beginning April 1, 2020, but only with respect to specific assets. For the refined product pipelines and refined product terminals that were not subject to the Renewal and which currently account for approximately half of HEP’s annual revenues and distributable cash flows from Delek, the agreement terminates as of March 31, 2020. In light of this development, we will explore other potential options with respect to the pipeline and terminal assets that were not subject to the Renewal. No assurances can be given that we will be able to find new customers or that the tariff rates we achieve on the assets not contractually renewed by Delek will be similar to the tariff rates we had with Delek.

TAX RISKS TO COMMON UNITHOLDERS

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes and differing interpretations at any time. From time to time, members of Congress propose and consider similar substantive changes to the existing federal income tax laws that would affect publicly traded partnerships, including elimination of partnership tax treatment for publicly traded partnerships. For example, the “Clean Energy for America Act”, which is similar to legislation that was commonly proposed during the Obama Administration, was introduced in the Senate on May 2, 2019. If enacted, this proposal would, among other things, repeal Section 7704(d)(1)(E) of the Code upon which we rely for our treatment as a partnership for federal income tax purposes.

In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. There can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department’s interpretation of the qualifying income rules in a manner that could impact our ability to qualify as a partnership in the future, which could negatively impact the value of an investment in our common units. Any modification to the federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the qualifying income requirement to be treated as a partnership for U.S. federal income tax purposes. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.


Item 6.	Exhibits

The Exhibit Index on page 51 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of this Quarterly Report on Form 10-Q.

- 49 -

Table of Contentsril 19,

Exhibit Index



Exhibit Number		Description

3.1		Second Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P. (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on November 1, 2017, File No. 1-32225).
3.2		First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners - Operating Company, L.P. (incorporated by reference to Exhibit 3.2 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, File No. 1-32225).
3.3		First Amended and Restated Agreement of Limited Partnership of HEP Logistics Holdings, L.P. (incorporated by reference to Exhibit 3.4 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.4		First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 3.5 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.5		Amendment No. 1 to the First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C., dated April 27, 2011 (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K Current Report filed on May 3, 2011, File No. 1-32225).
3.6		First Amended and Restated Limited Liability Company Agreement of HEP Logistics GP, L.L.C. (incorporated by reference to Exhibit 3.6 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
10.1*		Alon USA, LP Notice of Partial Renewal of Pipelines and Terminals Agreement, dated February 28, 2005, by and among Alon USA, LP and Holly Energy Partners, L.P., dated September 30, 2019.
10.2+		Form of Holly Energy Partners, L.P. Indemnification Agreement to be entered into with officers and directors of Holly Logistic Services, L.L.C. and its subsidiaries (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2019, filed August 1, 2019, File No. 1-32225).
10.3		Fifth Amended and Restated Master Throughput Agreement, dated as of July 1, 2019, by and between HollyFrontier Refining & Marketing LLC and Holly Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K Current Report filed July 2, 2019, File No. 1-32225).
10.4		Fifth Amendment to the Pipelines and Terminals Agreement, dated August 28, 2019, by and between Holly Energy Partners, L.P. and Alon USA, LP. (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K Current Report filed August 30, 2019, File No. 1-32225).
10.5		Sixth Amended and Restated Master Throughput Agreement, dated as of October 2, 2019, by and between HollyFrontier Refining & Marketing LLC and Holly Energy Partners - Operating, L.P. (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K Current Report filed October 3, 2019, File No. 1-32225).
10.6		Twentieth Amended and Restated Omnibus Agreement, dated as of October 2, 2019, by and between HollyFrontier Corporation, Holly Energy Partners, L.P. and certain of their respective subsidiaries (incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K Current Report filed October 3, 2019, File No. 1-32225).
10.7*+		Form of Performance Unit Agreement.
10.8*+		Form of Phantom Unit Agreement (Employee).
10.9*+		Form of Notice of Grant of Phantom Units.
10.10*		Form of Notice of Grant of Restricted Units (Non-Employee Director Award).
10.11*		Form of Restricted Unit Agreement (Non-Employee Director Award).
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.
101		The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statement of Partners’ Equity, and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

- 50 -

Table of Contentsril 19,



*	Filed herewith.
**	Furnished herewith.
+	Constitutes management contracts or compensatory plans or arrangements.

HOLLY ENERGY PARTNERS, L.P.

SIGNATURES

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



	HOLLY ENERGY PARTNERS, L.P.
	(Registrant)

		By: HEP LOGISTICS HOLDINGS, L.P. its General Partner

		By: HOLLY LOGISTIC SERVICES, L.L.C. its General Partner

Date: October 31, 2019		/s/ Richard L. Voliva III
		Richard L. Voliva III
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: October 31, 2019		/s/ Kenneth P. Norwood
		Kenneth P. Norwood
		Vice President and Controller (Principal Accounting Officer)

- 51 -

Delek US Holdings, Inc. 7102 Commerce Way

Brentwood, TN 37027 615-771-6701

September 30, 2019

Holly Energy Partners, L.P. 100 Crescent Court

Suite 1600

Dallas, Texas 75201

RE: Pipelines and Terminals Agreement by and among Alon USA, LP ("Alon") and Holly Energy Partners, L.P. ("HEP') dated February 28, 2005, as has been amended (collectively the "Agreement")

To Whom It May Concern:

Under Section 13(b) of the Agreement, Alon has the option renew the Agreement for three (3) additional five (5) year terms and such renewal options may apply to only such Refined Product Pipelines or Refined Product Terminals as Alon shall designate. Any terms not defined herein shall have the meaning ascribed to such terms in the Agreement.

This letter is to provide HEP notice of Alon's exercising of its option to renew the Agreement for an additional five (5) year period, but only for the Refined Product Pipelines and Refined Product Terminals as provided for below:

Refined Product Pipelines


1.	Big Spring, TX to Abilene, TX (6")


2.	Midland, TX to Orla, TX


3.	Abilene, TX to Dyess AFB

Refined Product Terminals


1.	Abilene, TX


2.	Orla, TX

Nothing herein is a waiver of any rights Alon may have under the Agreement. Please do not hesitate to contact Wesley Carter at (615) 207-0278 or wesley.carter@delekus.com if you have any questions.

Avigal Soreq

EVP Commercial

HOLLY ENERGY PARTNERS, L.P.

LONG-TERM INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT

This Performance Unit Agreement (the “Agreement”) is made and entered into by and between Holly Logistic Services, L.L.C., a Delaware limited liability company (the “Company”), and you. This Agreement is entered into as of the ___ day of _________, 2019 (the “Date of Grant”).

W I T N E S S E T H:

WHEREAS, the Company has adopted the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”) to attract, retain and motivate employees, executives, directors and consultants;

WHEREAS, the Company believes that a grant to you of performance units of Holly Energy Partners, L.P. (the “Partnership”) as part of your compensation for services provided to the Company and/or the Partnership is consistent with the stated purposes for which the Plan was adopted; and

WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Agreement (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein or on Appendix A attached hereto shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the services rendered by you, it is agreed by and between the Company and you, as follows:

1.Grant. The Company hereby grants to you as of the Date of Grant an Award of ______ performance units (the “Performance Units”), subject to the terms and conditions set forth in this Agreement. Depending on the performance of the Partnership, you may earn from 0% to 200% of the Performance Units, based on the terms set forth in Section 3.

2. Distribution Equivalent Rights. As long as you hold the Performance Units granted pursuant to this Agreement, you will be entitled to receive distribution equivalent rights (“DERs’) in accordance with this Section 2. In the event the Partnership makes a distribution in respect of outstanding Units and, on the record date for such distribution, you hold Performance Units that have not yet become earned and payable under this Agreement, the Company shall pay you an amount in cash equal to the distribution amounts you would have received if you were the holder of record, as of such record date, of a number of Units equal to the number of such Performance Units set forth in Section 1 that have not become earned and payable as of such record date, such payment to be made on or promptly following the date that the Partnership makes such distribution (however, in no event shall the DERs be paid later than 30 days following the date on which the Partnership makes such distribution to unitholders generally). Notwithstanding this Section 2, the Performance Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Units, including the right to vote, prior to the date Units are delivered to you in settlement of the Performance Units pursuant to Section 5.

3. Terms of Award. The Performance Units represent an Award for the “Performance Period” which begins on October 1 of the calendar year of the Date of Grant (“Year One”) and ends on September 30 of the third calendar year following Year One (“Year Three”). If you are employed by the Partnership and the Company on December 1 of Year Three, you will be entitled to a payment of Units in the amount determined under this Section 3 and/or Section 4, as applicable, and payable at the time indicated in Section 5 or Section 4(b), as applicable.

(a) Performance Measure. The number of Performance Units earned for the Performance Period is determined by calculating the Partnership’s performance on the two measures listed below over the Performance Period. The two performance measures are EBITDA and Total Unitholder Return. Notwithstanding anything to the contrary in this Agreement, the Committee may make adjustments to the definitions of the performance measures or to the performance targets established with respect to the Award in its sole discretion as it determines to be appropriate or advisable to avoid rewarding or penalizing you for unexpected events that occur following the Date of Grant that were not taken into consideration in establishing the metrics and targets.

(b) Units Payable. The number of Units payable is equal to the result of multiplying the total number of Performance Units set forth in Section 1 by the Performance Unit Payout Percentage. The number of Units payable will be rounded down to the nearest Unit. No fractional Units will be issued pursuant to this Agreement. In its sole discretion, the Committee may make a payment to you assuming a Performance Percentage of up to 200% of the Performance Units instead of the Performance Unit Payout Percentage as determined pursuant to this Section 3(b).

4. Early Termination. In the event you cease to provide services to the Partnership and the Company prior to December 1 of Year Three on account of an event described in this Section 4, the number of Performance Units with respect to which payment at the end of the Performance Period is based shall be determined as follows:

(a) Termination Other than Voluntary Separation or Cause or Due to Death or Disability. In the event that you cease to provide services to the Partnership and the Company:

(i) for any reason other than voluntary separation or Cause (unless otherwise provided in Section 4(b) and (c) below),

(ii) due to your death, or

(iii) due to your total and permanent disability as determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) in its sole discretion,

then you (or your beneficiary, if applicable) shall, following the end of the Performance Period and after December 1 of Year Three determined based on actual performance, forfeit a percentage of the total Performance Units earned (as calculated pursuant to Section 3) determined by dividing (x) the number of full months from the date of such termination until December 1 of Year Three by (y) thirty-eight (38); provided, that, notwithstanding the performance actually achieved, you will earn and receive payment with respect to no less than 50% of the Performance Units. The Committee will determine the number of

Performance Units earned by you or your beneficiary in accordance with Section 3 for the entire Performance Period as soon as administratively practicable after December 1 of Year Three. In its sole discretion, the Committee may make a payment to you assuming a Performance Percentage of up to 150% of the Performance Units instead of the pro-rata number of Performance Units as determined pursuant to this Section 4(a). Unless the Committee determines otherwise, you will have no right to any other Performance Units and those other Performance Units granted under this Agreement will be forfeited. If you separate from employment prior to December 1 of Year Three due to voluntary separation or on account of Cause, all Performance Units hereunder will be forfeited (except as provided in Section 4(b) or (c) below).

(b) Special Involuntary Termination. In the event of a Special Involuntary Termination before December 1 of Year Three, no Performance Units shall be forfeited, and payment with respect to 200% of the Performance Units shall be made as soon as administratively practicable following the Special Involuntary Termination, but in no event later than 90 days after the date your employment or service relationship terminates. Payment pursuant to this Section 4(b) is in lieu of payment pursuant to Section 4(a) and if you receive payment pursuant to this Section 4(b) you will not be entitled to any payment pursuant to Section 4(a).

(c) Retirement. In the event your employment with the Company (including subsidiaries of the Company) terminates due to your Retirement before December 1 of Year Three, you will remain eligible to receive full payment hereunder (i.e., you will be treated as remaining continuously employed through December 1 of Year Three for purposes of this Agreement), and the number of Units payable to you shall be that number determined pursuant to Section 3 hereof.

(d) Effect of Employment Agreement. Notwithstanding any provision herein to the contrary, in the event of any inconsistency between this Section 4 and any employment, change in control, or similar agreement entered into by and between you and the Company, the terms of the employment, change in control or similar agreement shall control.

(e) Leave of Absence. With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company, provided that rights to the Restricted Units during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began.

5. Payment of Performance Units.

(a) The number of Units payable hereunder shall be payable as soon as reasonably practicable following December 1 of Year Three (or such earlier time as specified under Section 4(b)), but in no event later than two and one-half months after the end of the calendar year in which the Performance Period closes (or such earlier time as specified under Section 4(b)), in the amount determined in accordance with Section 3, as adjusted by Section 4, if applicable. Such payment will be subject to withholding for taxes and other applicable payroll adjustments. The Committee’s determination of the amount payable shall be binding upon you and your beneficiary or estate. The number of Units payable will be

rounded down to the nearest Unit. No fractional Units will be issued pursuant to this Agreement.

(b) If you are a “specified employee” within the meaning of Treasury Regulation § 1.409A-1(i) as of the date of your “separation from service” (within the meaning of Treasury Regulation § 1.409A-1(h)), then you will not be entitled to receive Units in settlement of Performance Units until the earlier of (i) the date which is six (6) months after your “separation from service” for any reason other than death, or (ii) the date of your death. The provisions of this Section 5(b) shall only apply if and to the extent required to avoid the imputation of any tax, penalty, or interest pursuant to Section 409A of the Code.

6. Payment of Taxes. The Company may require you to pay to the Company (or an Affiliate of the Company if you are an employee of an Affiliate of the Company), an amount the Company deems necessary to satisfy its (or its Affiliate’s) current or future withholding with respect to federal, state or local income or other taxes that you incur as a result of the Award. With respect to any tax withholding and to the extent permissible pursuant to Rule 16b-3, you may (a) direct the Company to withhold from the Units to be issued to you under this Agreement the number of Units necessary to satisfy the Company’s withholding of such taxes; which determination will be based on the Units’ Fair Market Value at the time such determination is made; (b) deliver to the Company Units sufficient to satisfy the Company’s tax withholding, based on the Units’ Fair Market Value at the time such determination is made; or (c) deliver cash to the Company sufficient to satisfy its tax withholding. If you desire to elect to use the Unit withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes and the maximum number of Units that may be so withheld or surrendered shall be a number of Units that have an aggregate Fair Market Value on the date of withholding or repurchase of up to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, foreign and/or local tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment with respect to the Award. The Committee, in its discretion, may deny your request to satisfy its tax withholding using a method described under subparagraph (a) or (b). In the event the Company determines that the aggregate Fair Market Value of the Units withheld as payment of any tax withholding is insufficient to discharge that tax withholding, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request. In the event that you fail to make arrangements that are acceptable to the Committee for providing to the Company, at the time or times required, the amounts of federal, state and local taxes required to be withheld with respect to the Performance Units granted to you under this Agreement, the Company shall have the right to purchase and/or to sell to one or more third parties in either market or private transactions sufficient Units otherwise paid or payable pursuant to this Award to provide the funds needed for the Company to make the required tax payment or payments.

7. Adjustment in Number of Performance Units. Except as provided below, in the event that the outstanding Units are increased, decreased or exchanged for a different number or kind of units or other securities, or if additional, new or different units or securities are distributed with respect to the Units through merger, consolidation, sale of all or substantially all of the assets of the Partnership, reorganization, recapitalization, unit dividend, unit split, reverse unit split or other distribution with respect to such Units, there shall be substituted for the Units under the Performance Units subject to this Agreement the appropriate number and kind of Units or new or replacement securities as determined in the sole discretion of the Committee.

8. Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Performance Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless (a) a registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or (b) in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.

9. Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

10. Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise.

11. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 11 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.

12. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.

13. Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of the majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. All determinations with respect to the achievement of the applicable performance goals, including the calculation of and any adjustment to the applicable performance metrics, will be made by the Committee in its discretion which determination will be final and binding. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

14. No Right to Continued Employment. This Agreement shall not be construed to confer upon you any right to continue as an employee, officer or service provider of the Company and shall not limit the right of the Company, in its sole discretion, to terminate your service at any time.

15. Governing Law. This Agreement shall be interpreted and administered under the laws of the State of Texas, without giving effect to any conflict of laws provisions.

16. Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Restricted Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.

17. Amendments. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.

18. No Liability for Good Faith Determinations. The Company and the members of the Committee and the Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Performance Units granted hereunder.

19. No Guarantee of Interests. The Board and the Company do not guarantee the Units from loss or depreciation.

20. Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by you during your life other than by will or pursuant to applicable laws of descent and distribution. Any of your rights and privileges in connection herewith shall not be transferred, assigned, pledged or hypothecated by you or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar process. In the event of any such occurrence, this Agreement shall automatically be terminated and shall thereafter be null and void. Notwithstanding the foregoing, all or some of the Units or rights under this Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court of competent jurisdiction.

24. Company Records. Records of the Company or its subsidiaries regarding your period of service, termination of service and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

25. Certain Covenants.

(a) Protection of Confidential Information. You acknowledge that in the course of your employment with the Company and the Partnership, you have obtained and will continue to obtain confidential, proprietary and/or trade secret information of the Company and the Partnership, relating to, among other things, (i) programs, strategies, information or materials related to the business, services, manner of operation and activities of the Company and the Partnership, (ii) customers or prospects of the Company and the Partnership, (iii) computer hardware or software used in the course of the Company and Partnership business, and (iv) marketing strategies or other activities of the Company and Partnership from or on behalf of any of its clients, (hereinafter collectively referred to as “Confidential Information”); provided, however, that, for purposes of this Agreement, the term Confidential Information shall not include any information that is known generally to the public or accessible to a third party on an unrestricted basis. You recognize that such Confidential Information has been developed by the Company and Partnership at great expense; is a valuable, special and unique asset of the Company and Partnership which it uses in its business to obtain competitive advantage over its competitors; is and shall be proprietary to the Company and Partnership; is and shall remain the exclusive property of the Company and Partnership; and, is not to be transmitted to any other person, entity or thing. Accordingly, as a material inducement to the Company to enter into this Agreement with you and in partial consideration for the granting of the Award, you hereby:

(i) warrant and represent that you have not disclosed, copied, disseminated, shared or transmitted any Confidential Information to any person, firm, corporation or entity for any reason or purpose whatsoever, except in the course of carrying out your duties and responsibilities of employment with the Company and Partnership;

(ii) agree not to so disclose, copy, disseminate, share or transmit any Confidential Information in the future;

(iii) agree not to make use of any Confidential Information for your own purposes or for the benefit of any person, firm, corporation or other entity, except that, in the course of carrying out the duties and responsibilities of your employment, you may use Confidential Information for the benefit of any Affiliate of the Company or Partnership;

(iv) warrant and represent that all Confidential Information in your possession, custody or control that is or was a property of the Company and Partnership has been or shall be returned to the Company or Partnership by or on the date of the your termination; and

(v) agree that you will not reveal, or cause to be revealed, this Agreement or its terms to any third party (other than your attorney, tax advisor, or spouse on the condition that they also not reveal this Agreement or its terms to any other person), except as required by law.

Your covenants in this Section 25(a) are in addition to, and do not supercede, your obligations under any confidentiality, invention or trade secret agreements executed by you, or any laws protecting the Confidential Information.

(b) Non-Solicitation. You agree that during the term of your employment with the Company, Partnership or their Affiliates and for a period of one year following your termination of employment with the Company, Partnership and their Affiliates, you will not, directly or indirectly, for your benefit or for the benefit of others, solicit any employee or service provider of the Company, Partnership or their Affiliates to terminate his or her employment or his, her or its service relationship with the Company, Partnership or their Affiliates; provided, however, that (y) after the termination of your employment for any reason, such employees and service providers shall only include such employees and service providers that you directly worked with in the twelve months preceding the date of termination of your employment, and (z) it will not constitute a violation of this Section 25(b) if an employee or service provider of the Company, Partnership or their Affiliates accepts employment or a service relationship with a Person not affiliated with the Company, Partnership or their Affiliates (i) pursuant to a general solicitation advertising the position, (ii) as a result of communications initiated by the employee or service provider of the Company, Partnership or their Affiliates (and not in response to any solicitation by you) or (iii) where the employment or service relationship with the Company, Partnership or their Affiliates with respect to such person was terminated more than six months prior to any action by you that would otherwise be a violation of this Section 25(b).

(c) Extent of Restrictions. You acknowledge that the restrictions contained in this Section 25 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company and Partnership, and that any violation will cause substantial injury to the Company and Partnership. In the event of any such violation, the Company and Partnership shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. You waive, to the maximum extent permissible by law, any defenses or other objections to such remedies or the enforceability of this Section 25. To the maximum extent permissible by law, if any court having jurisdiction shall find that any part of the restrictions set forth this Section 25 are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that the restrictions set forth in this Section 25 shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.

(d) Limitations. In the event any breach of the covenants set forth in this Section 25 comes to the attention of the Company or Partnership, this Award and the Performance Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However,

nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 25 to the attorney of the individual and use such information in the court proceeding.

26. Clawback. This Agreement is subject to any written clawback policies that the Company, with the approval of the Board or the Committee, may adopt. Any such policy may subject your Award and amounts paid or realized with respect to Award under this Agreement to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Partnership’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company or the Partnership determines should apply to this Agreement.

27. Compliance with Section 409A of the Code. This Agreement is intended to comply and shall be administered in a manner that is intended to comply with section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith. Termination from employment, separation from service and similar terms used in this Agreement shall mean a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h).

HOLLY LOGISTIC SERVICES, L.L.C.

George J. Damiris

Chief Executive Officer and President

Appendix A

Defined Terms

For purposes of the Agreement, the following terms shall have the meanings assigned below:

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

“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under section 12 of the Exchange Act.

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

“Cause” shall mean:

(i) An act or acts of dishonesty by you constituting a felony or serious misdemeanor and resulting or intended to result directly in gain or personal enrichment at the expense of the Company;

(ii) Gross or willful and wanton negligence in the performance of the material and substantial duties of your employment or service relationship with the Company; or

(iii) Conviction of a felony involving moral turpitude.

The existence of Cause shall be determined by the Committee, in its sole and absolute discretion.

“Change in Control” shall mean, notwithstanding the definition of such term in the Plan:

(i) Any Person, other than HFC or any of its wholly-owned subsidiaries, the General Partner, the Partnership, the Company, or any of their subsidiaries, a trustee or other fiduciary holding securities under an employee benefit plan of HFC, the Partnership, the Company or any of their Affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities, or any entity owned, directly or indirectly, by the holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in HFC, the Company, the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner, directly or indirectly, of securities of HFC, the Company, the General Partner or the Partnership (not

including in the securities beneficially owned by such Person any securities acquired directly from HFC, the General Partner, the Partnership, the Company or their Affiliates) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (iii)(A) below.

(ii) The individuals who as of the Date of Grant constitute the HFC Board and any New Director cease for any reason to constitute a majority of the HFC Board.

(iii) There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:

(A) the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or

(B) the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly, or indirectly, of securities of, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s the General Partner’s or the Partnership’s, as applicable, then outstanding securities.

(iv) The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by holders of the voting securities of HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct and indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.

“EBITDA” is defined as the Partnership’s earnings before interest, taxes, depreciation and amortization of for each calendar year during the Performance Period.

“EBITDA Performance Percentage” means the percentage set forth in the table below determined in accordance with the Partnership’s actual aggregate EBITDA achievement during the Performance Period compared with aggregate Target EBITDA during the Performance Period:



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

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

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

“HFC” means HollyFrontier Corporation.

“HFC Board” means Board of Directors of HFC.

“New Director” shall mean an individual whose election by HFC’s Board or nomination for election by holders of the voting securities of HFC was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the Date of Grant or whose election or nomination for election was previously so approved or recommended. However, New Director shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the HFC.

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

“Performance Unit Payout Percentage” means the percentile obtained by dividing the sum of (i) the EBITDA Performance Percentage and (ii) the TUR Performance Percentage, by two.

“Person” shall have the meaning given in section 3(a)(9) of the Exchange Act as modified and used in sections 13(d) and 14(d) of the 1934 Act.

“Retirement” shall mean your termination of employment other than for Cause on or after the date on which you: (i) have achieved ten years of continuous service with the Company, and (ii) are age sixty (60).

“Special Involuntary Termination” shall mean the occurrence of (i) or (ii) within 60 days prior to, or at any time after, a Change in Control, where (i) is termination by the Company of your (a) employment with the Company (including subsidiaries of the Company) or (b) provision of executive services to the Partnership and the Company, for any reason other than Cause and (ii) is a resignation by you from employment or service with the Company (including subsidiaries of the Company) within 90 days after an Adverse Change in the terms of your employment.

“Target EBITDA” means the sum of the annual EBITDA targets established by the Committee for each calendar year during the Performance Period. Annual target EBITDA will be communicated to you within the first quarter of each calendar year within the Performance Period.

“Total Unitholder Return” or TUR, means (i) the sum of (A) unit price appreciation (calculated as the closing price of the Units for the last business day of the Performance Period less the closing price of the Units for the first business day of the Performance Period), plus (B) cumulative distributions during the Performance Period, plus (C) any additional value or compensation received by unitholders such as units received from spinoffs, divided by (ii) the closing price of the Units on the first business day of the Performance Period, adjusted to take into account any unit splits, changes in capitalization or other similar events. Such determinations and adjustments shall be made by the Committee in its discretion.

“TUR Performance Percentage” means the percentage set forth in the table below determined in accordance with the percentile ranking of the Total Unitholder Return of the Partnership compared to the TUR of each entity in the Peer Group achieved during the Performance Period:



Ranking of the Partnership within Peer Group	TUR Performance Percentage
90^th percentile or better	Maximum (200% of Target)
<90^th percentile but better than 50^th percentile	Interpolate between 100% and 200%
50^th percentile	Target (100%)
<50^th percentile but better than 25^th percentile	Interpolate between 25% and 100%
25^th percentile	25% of Target (Minimum)
<25^th percentile	Zero

Exhibit 10.8

HOLLY ENERGY PARTNERS, L.P.

PHANTOM UNIT AGREEMENT

(Employee)

This Agreement is made and entered into as of the Date of Grant set forth in the Notice of Grant of Phantom Units (“Notice of Grant”) by and between Holly Logistic Services, L.L.C. (the “Company”), and you.

WHEREAS, the Company, as part of your compensation for services to the Company and Holly Energy Partners, L.P. (the “Partnership”) and in order to induce you to materially contribute to the success of the Company and the Partnership, agrees to grant you this phantom unit award;

WHEREAS, the Company adopted the Holly Energy Partners, L.P. Long-Term Incentive Plan, as it may be amended from time to time (the “Plan”) under which the Company is authorized to grant phantom unit awards to certain employees and service providers of the Company;

WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this Phantom Unit Agreement (Employee) (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein shall have the meanings set forth in the Plan; and

WHEREAS, you desire to accept the phantom unit award made pursuant to this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties hereto agree as follows:

1.The Grant. Subject to the conditions set forth below, the Company hereby grants you effective as of the Date of Grant set forth in the Notice of Grant, as a matter of separate inducement but not in lieu of any cash or other compensation for your services for the Company or the Partnership an award (the “Award”) consisting of Phantom Units (“Phantom Units”) covering the aggregate number of Units set forth in the Notice of Grant in accordance with the terms and conditions set forth herein and in the Plan, plus the additional rights to receive possible distribution equivalents, in accordance with the terms and conditions set forth herein.

2. No Unitholder Rights. The Phantom Units granted pursuant to this Agreement do not and shall not entitle you to any rights of a holder of Units prior to the date Units, if any, are issued to you in settlement of the Award.

3. Distribution Equivalents. In the event that the Company declares and pays a distribution in respect of its outstanding Units on or after the Date of Grant and, on the record date for such distribution, you hold Phantom Units granted pursuant to this Agreement that have not been settled, the Company shall pay to you an amount in cash equal to the cash distributions you would have received if you were the holder of record as of such record date, of the number of Units related to the portion of your Phantom Units that have not been settled as of such record date, such payment (“Distribution Equivalents”) to be made on or promptly following the date that the Company pays such distribution (however, in no event shall the Distribution Equivalents be paid

later than 30 days following the date on which the Company pays such distribution to its unitholders generally).

4. Restrictions; Forfeiture. The Phantom Units are restricted in that they cannot be sold, transferred or otherwise alienated or hypothecated until Units related to such Phantom Units are issued pursuant to Section 8 following the removal or expiration of the restrictions as contemplated in Section 5 (and Section 6, if applicable) of this Agreement and as described in the Notice of Grant. In the event you cease to be an employee of the Company and any of its subsidiaries, other than as provided in Section 6 below, the Phantom Units that are not vested on the date of such cessation of employment shall be immediately forfeited.

5. Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Phantom Units granted pursuant to this Agreement will expire and the Phantom Units will become nonforfeitable as set forth in the Notice of Grant, provided that you remain an employee of the Company and its subsidiaries until the applicable dates and times set forth therein. Phantom Units that have become vested and non-forfeitable as provided in this Agreement are referred to herein as “Vested.”

6. Termination of Employment.

(a) Termination Generally. Subject to subsections (b), (c), (d) and (e) below, if your employment relationship with the Company and its subsidiaries is terminated for any reason (including if you voluntarily separate from employment (other than due to your Retirement) or are terminated by action of the Company (including termination for Cause but other than a Special Involuntary Termination)), then those Phantom Units that have not become Vested as of the date of termination shall become null and void and those Phantom Units shall be forfeited to the Company. The Phantom Units that are Vested as of the date of such termination shall not be forfeited to the Company and will be settled in accordance with Section 8.

(b) Death or Disability. In the event of termination of your employment due to your (i) death or (ii) total and permanent disability, as determined by the Committee in its sole discretion, in either case, before all of the Phantom Units granted pursuant to this Agreement have become Vested, you will forfeit a number of Phantom Units equal to the number of Phantom Units specified in the Notice of Grant times the percentage that (A) the number of days beginning on the day on which the termination due to death or disability occurs and ending on the last day of the Service Period, (B) bears to the total number of days in the Service Period, and any remaining Phantom Units that are not vested will become Vested; provided, however, that any fractional Phantom Units will become null and void and automatically forfeited. In its sole discretion, the Committee may decide to vest all of the Phantom Units in lieu of the prorated number of Phantom Units as provided in this Section 6(b).

(c) Retirement. In the event of termination of your employment with the Company and its subsidiaries due to your Retirement before all of the Phantom Units have become Vested, the Phantom Units granted pursuant to this Agreement that have not become Vested as of such date of termination shall become Vested on such date of termination.

(d) Special Involuntary Termination. In the event of a Special Involuntary Termination, all of the Phantom Units granted pursuant to this Agreement will become Vested.

(e) Effect of Employment Agreement. Notwithstanding any provision herein to the contrary, in the event of any inconsistency between this Section 6 and any employment, change in control, or similar agreement entered into by and between you and the Company (or any of its subsidiaries), the terms of the employment, change in control or similar agreement shall control, subject to compliance with Section 409A of the Code.

7. Leave of Absence. With respect to the Award, the Company may, in its sole discretion, determine that if you are on leave of absence for any reason you will be considered to still be in the employ of, or providing services for, the Company or any of its subsidiaries, provided that rights to the Phantom Units during a leave of absence will be limited to the extent to which those rights were earned or vested when the leave of absence began.

8. Issuance of Units. Units shall be issued to you in settlement of your Vested Phantom Units within 30 days following the date upon which such Phantom Units become Vested in accordance with the Agreement (or such longer period of days, not more than 65, specified in a release described in Section 15). At the time of settlement, the Company shall cause to be issued Units registered in your name in payment of the Award. The Company shall evidence the Units to be issued in payment of the Phantom Units in the manner it deems appropriate. The value of any fractional Phantom Unit shall be rounded down at the time Units, if any, are issued to you. No fractional Units, nor the cash value of any fractional Units, will be issuable or payable to you pursuant to this Agreement. The value of Units shall not bear any interest owing to the passage of time. Neither this Section 8 nor any action taken pursuant to or in accordance with this Section 8 shall be construed to create a trust or a funded or secured obligation of any kind.

9. Payment of Taxes. The Company may require you to pay to the Company (or an Affiliate of the Company if you are an employee of an Affiliate of the Company), an amount the Company deems necessary to satisfy its (or its Affiliate’s) current or future withholding with respect to federal, state or local income or other taxes that you incur as a result of the Award. With respect to any tax withholding (and to the extent permissible pursuant to Rule 16b-3 under the Exchange Act, if applicable), you may (a) direct the Company to withhold from the Units to be issued to you under this Agreement the number of Units necessary to satisfy the Company’s withholding of such taxes, which determination will be based on the Units’ Fair Market Value at the time such determination is made; (b) deliver to the Company Units sufficient to satisfy the Company’s tax withholding, based on the Units’ Fair Market Value at the time such determination is made; or (c) deliver cash to the Company sufficient to satisfy its tax withholding. If you desire to elect to use the unit withholding option described in subparagraph (a), you must make the election at the time and in the manner the Company prescribes and the maximum number of Units that may be so withheld or surrendered shall be a number of Units that have an aggregate Fair Market Value on the date of withholding or repurchase of up to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for you in your relevant federal, state, foreign and/or local tax jurisdiction, including payroll taxes, that may be utilized without creating adverse accounting treatment with respect to the Award. The Company, in its discretion, may deny your request to

satisfy its tax withholding using a method described under subparagraph (a) or (b). In the event the Company determines that the aggregate Fair Market Value of the Units withheld as payment of any tax withholding is insufficient to discharge that tax withholding, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request.

10. Adjustment of Phantom Units. The number of Phantom Units granted to you pursuant to this Agreement shall be adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in the capital structure of the Partnership, all in accordance with the Plan. All provisions of this Agreement shall be applicable to such new or additional or different units or securities distributed or issued pursuant to the Plan to the same extent that such provisions are applicable to the units with respect to which they were distributed or issued. In the event that the outstanding Units of the Partnership are exchanged for a different number or kind of units or other securities, or if additional, new or different units are distributed with respect to the Units through merger, consolidation, or sale of all or substantially all of the assets of the Partnership, each remaining unit subject to this Agreement shall have substituted for it a like number and kind of units or shares of new or replacement securities as determined in the sole discretion of the Committee, subject to the terms and provisions of the Plan.

11. Compliance with Securities and Other Applicable Laws. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless (a) registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or (b) in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.

12. Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Sections 4 and 11 of this Agreement on all certificates representing Units issued with respect to this Award.

13. Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

14. Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise to the extent allowed by applicable law.

15. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Phantom Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 15 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.

16. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced as if the illegal, invalid or unenforceable provision had never been included herein.

17. Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

18. Right of the Company and Subsidiaries to Terminate Services. Nothing in this Agreement confers upon you the right to continue in the employ of or performing services for the Partnership or the Company or any of its subsidiaries, or interfere in any way with the rights of the Partnership or the Company (or any of its subsidiaries) to terminate your employment or service relationship at any time.

19. Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, without giving any effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Units hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Units.

20. Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Phantom Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.

21. Amendment. This Agreement may be amended the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.

22. No Liability for Good Faith Determinations. The General Partner, the Partnership, the Company, HFC and the members of the Committee, the Board and the HFC Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Phantom Units granted hereunder.

23. No Guarantee of Interests. None of the Board, the HFC Board, the General Partner, the Partnership, HFC nor the Company guarantee the Units from loss or depreciation.

24. Company Records. Records of the Company or its subsidiaries regarding your period of employment or service, termination of service and/or employment and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

25. Notice. All notices required or permitted under this Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed or, if earlier, the date it is sent via certified United States mail.

26. Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.

27. Certain Covenants.

this Agreement, the term Confidential Information shall not include any information that is known generally to the public or accessible to a third party on an unrestricted basis. You recognize that such Confidential Information has been developed by the Company and Partnership at great expense; is a valuable, special and unique asset of the Company and Partnership which it uses in its business to obtain competitive advantage over its competitors; is and shall be proprietary to the Company and Partnership; is and shall remain the exclusive property of the Company and Partnership; and, is not to be transmitted to any other person, entity or thing. Accordingly, as a material inducement to the Company to enter into this Agreement with you and in partial consideration for the granting of the Award, you hereby:

(ii) agree not to so disclose, copy, disseminate, share or transmit any Confidential Information in the future;

Your covenants in this Section 27(a) are in addition to, and do not supercede, your obligations under any confidentiality, invention or trade secret agreements executed by you, or any laws protecting the Confidential Information.

27(b) if an employee or service provider of the Company, Partnership or their Affiliates accepts employment or a service relationship with a Person not affiliated with the Company, Partnership or their Affiliates (i) pursuant to a general solicitation advertising the position, (ii) as a result of communications initiated by the employee or service provider of the Company, Partnership or their Affiliates (and not in response to any solicitation by you) or (iii) where the employment or service relationship with the Company, Partnership or their Affiliates with respect to such person was terminated more than six months prior to any action by you that would otherwise be a violation of this Section 27(b).

(c) Extent of Restrictions. You acknowledge that the restrictions contained in this Section 27 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company and Partnership, and that any violation will cause substantial injury to the Company and Partnership. In the event of any such violation, the Company and Partnership shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. You waive, to the maximum extent permissible by law, any defenses or other objections to such remedies or the enforceability of this Section 27. To the maximum extent permissible by law, if any court having jurisdiction shall find that any part of the restrictions set forth this Section 27 are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that the restrictions set forth in this Section 27 shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.

(d) Limitations. In the event any breach of the covenants set forth in this Section 27 comes to the attention of the Company or Partnership, this Award and the Phantom Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However, nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 27 to the attorney of the individual and use such information in the court proceeding.

28. Clawback. This Agreement is subject to any written clawback policies that the Company, with the approval of the Board or the Committee, may adopt to the extent allowed by applicable law. Any such policy may subject your Award and amounts paid or realized with respect to the Award under this Agreement to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Company’s or Partnership’s material noncompliance with financial reporting regulations

or other events or wrongful conduct specified in any such clawback policy adopted by the Company or Partnership, including any policy to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company or the Partnership determines should apply to this Agreement.

29. Section 409A. It is intended that the Phantom Units awarded hereunder shall comply with the requirements of Section 409A of the Code (and any regulations and guidelines issued thereunder), and this Agreement shall be interpreted on a basis consistent with such intent. Payments shall only be made on an event and in a manner permitted by Section 409A of the Code. Each payment under this Agreement is considered a separate payment for purposes of Section 409A of the Code. This Agreement may be amended without your consent in any respect deemed by the Committee to be necessary in order to preserve compliance with Section 409A of the Code. All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under Section 409A of the Code. In no event may you, directly or indirectly, designate the calendar year of a payment. Notwithstanding anything in this Agreement to the contrary, if you are a “specified employee” under Section 409A of the Code at the time of separation from service and if payment of any amount under this Agreement is required to be delayed for a period of six months after the separation from service pursuant to Section 409A of the Code, payment of such amount shall be delayed as required by Section 409A of the Code, and the accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of postponed amount, the accumulated postponed amount shall be paid to the personal representative of your estate within 60 days after the date of your death.

30. Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

31. Company Action. Any action required of the Company shall be by resolution of the Board or by a person or entity authorized to act by resolution of the Board.

32. Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in construction of the provisions hereof.

33. The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan.

34. Defined Terms.

(a) “Adverse Change” shall mean (i) a change in the city in which you are required to work regularly, (ii) a substantial increase in travel requirements of your employment, (iii) a substantial reduction in duties of the type previously performed by you, or (iv) a significant reduction in your compensation or benefits (other than bonuses and other discretionary items of compensation) that does not apply generally to executives of the Company or its successor.

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

(d) “Cause” means (i) an act or acts of dishonesty on your part constituting a felony or serious misdemeanor and resulting or intended to result directly in gain or personal enrichment at the expense of the Company; (ii) gross or willful and wanton negligence in the performance of the material and substantial duties of your employment with the Company or its subsidiaries; or (iii) conviction of a felony involving moral turpitude. The existence of Cause shall be determined by the Committee, in its sole and absolute discretion.

(e) “Change in Control” means, notwithstanding the definition of such term in the Plan:

(i) Any Person, other than HFC or any of its wholly-owned subsidiaries, HEP Logistics Holdings, L.P. (the “General Partner”), the Partnership, the Company, or any of their subsidiaries, a trustee or other fiduciary holding securities under an employee benefit plan of HFC, the Partnership, the Company or any of their Affiliates, an underwriter temporarily holding securities pursuant to an offering of such securities, or an entity owned, directly or indirectly, by the holders of the voting securities of HFC, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in HFC, the Company, the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner, directly or indirectly, of securities of HFC, the Company, the General Partner or the Partnership (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the General Partner, the Partnership, the Company or their Affiliates) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in Section 34(e)(iii)(1) below.

(ii) The individuals who as of the Date of Grant constitute the HFC and any New Director cease for any reason to constitute a majority of the HFC Board.

(iii) There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:

(1) the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or

(2) the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly,

or indirectly, of securities of HFC, the Company, the General Partner or the Partnership, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s, as applicable, then outstanding securities.

(iv) The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership, as applicable, or an agreement for the sale or disposition by HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, other than a sale or disposition by HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s, or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct or indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, in substantially the same proportions as their ownership of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.

(a) “HFC” means HollyFrontier Corporation.

(b) “HFC Board” means the board of directors of HFC.

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

(d) “Person” has the meaning given in section 3(a)(9) of the Exchange Act as modified and used in sections 13(d) and 14(d) of the Exchange Act.

(e) “Retirement” means your termination of employment other than for Cause on or after the date on which you: (i) have achieved ten years of continuous service with the Company, and (ii) are age sixty (60).

(f) “Service Period” means the period of time beginning on the Date of Grant specified in the Notice of Grant and ending on the final vesting date specified in the Notice of Grant.

(g) “Special Involuntary Termination” means the occurrence of (1) or (2) below within 60 days prior to, or at any time after, a Change in Control, where (1) is termination of your

employment with the Company (including subsidiaries of the Company) for any reason other than Cause and (2) is your resignation from employment with the Company (including subsidiaries of the Company) within 90 days after an Adverse Change by the Company (including subsidiaries of the Company) in the terms of your employment.

[Remainder of page intentionally left blank]

Exhibit 10.9

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

NOTICE OF GRANT OF PHANTOM UNITS

Pursuant to the terms and conditions of the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”), and the associated Phantom Unit Agreement (Employee) which has been made separately available to you (your “Agreement”), you are hereby issued Phantom Units, whereby each Phantom Unit represents the right to receive one Unit, plus rights to certain distribution equivalents described in Section 3 of the Agreement, subject to certain restrictions thereon and under the conditions set forth in this Notice of Grant of Phantom Units (the “Notice”), in the Agreement, and in the Plan (the “Phantom Units”). Capitalized terms used but not defined herein shall have the meanings set forth in the Plan or your Agreement. You may obtain a copy of the Plan and a copy of the prospectus related to the Units by following the instructions attached as Appendix A. Additionally, you may request a copy of the Plan or the prospectus by contacting Cara Whitesel at Cara.Whitesel@hollyfrontier.com or 214.954.6530.

Grantee: ____________

Date of Grant: _____________ __, 2019 (the “Date of Grant”)

Number of Units: ____________



Vesting Schedule:	The restrictions on all of the Phantom Units granted pursuant to the Agreement will expire and the Phantom Units will vest according to the following schedule (or on the first business day thereafter if the date below falls on a weekend) (each such date, a “Regular Vesting Date”); provided, that (except as otherwise provided in Section 5 of your Agreement) you remain in the employ of the Company or its subsidiaries continuously from the Date of Grant through such Regular Vesting Dates (as determined under the Agreement).



On Each of the Following Regular Vesting Dates	Cumulative Portion of Phantom Units that will become Vested
December 1, 2020	One-third
December 1, 2021	One-third
December 1, 2022	One-third

Except as otherwise provided in Section 6 of your Agreement, all Phantom Units that have not become vested and non-forfeitable pursuant to this Notice will be null and void and forfeited to the Company in the event of your termination by the Company or its subsidiaries for any reason.

The Units you receive upon settlement will be taxable to you in an amount equal to the closing price of the Units on the date of settlement. By receipt or acceptance of the Phantom Units

Exhibit 10.9

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

Holly Logistic Services, L.L.C.

George J. Damiris, Chief Executive Officer and President

Appendix A

Exhibit 10.10

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

NOTICE OF GRANT OF RESTRICTED UNITS
(Non-Employee Director Award)

Pursuant to the terms and conditions of the Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”), and the associated Restricted Unit Agreement (Non-Employee Director Award) which has been made separately available to you (your “Agreement”), you are hereby issued Units subject to certain restrictions thereon and under the conditions set forth in this Notice of Grant of Restricted Units (the “Notice”), in the Agreement, and in the Plan (the “Restricted Units”). Capitalized terms used but not defined herein shall have the meanings set forth in the Plan or your Agreement. You may obtain a copy of the Plan and a copy of the prospectus related to the Units by following the instructions attached as Appendix A. Additionally, you may request a copy of the Plan or the prospectus by contacting Cara Whitesel at Cara.Whitesel@hollyfrontier.com or 214.954.6530.

Grantee: ____________

Date of Grant: ____________ __, 2019 (the “Date of Grant”)

Number of Units: __________


Vesting Schedule:	The restrictions on all of the Restricted Units granted pursuant to the Agreement will expire and the Restricted Units will become transferable and non-forfeitable on December 1, 2020; provided, that you remain a member of the Board continuously from the Date of Grant through such date.

Except as otherwise provided in Section 6 of your Agreement, all Restricted Units that have not become vested and non-forfeitable pursuant to this Notice will be null and void and forfeited to Holly Logistic Services, L.L.C. (the “Company”) in the event you cease to be a member of the Board.

Vesting of the Units will be included in your income in an amount equal to the closing price of the Units on the date of vesting (or if such day is not a business day, the last preceding business day). By receipt of the Restricted Units you acknowledge and agree that (a) you are not relying upon any determination by the Company, its affiliates, Holly Energy Partners, L.P. or any of their respective employees, directors, officers, attorneys or agents (collectively, the “Company Parties”) of the Fair Market Value of the Units on the Date of Grant, (b) you are not relying upon any written or oral statement or representation of the Company Parties regarding the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Restricted Units, (c) in accepting the Restricted Units you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted and (d) a copy of the Agreement and the Plan has been made available to you. In addition, you consent to receive documents from the Company and any plan administrator by means of electronic delivery, provided that such delivery complies with applicable law, including, without limitation, documents pursuant or relating to any

5906753_3 1

Exhibit 10.10

equity award granted to you under the Plan or any other current or future equity or other benefit plan of the Company (the “Company’s Equity Plans”). This consent shall be effective for the entire time that you are a participant in a Company Equity Plan. By receiving the Restricted Units you release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Restricted Units.

Furthermore, you understand and acknowledge that you should consult with your tax advisor regarding the advisability of filing with the Internal Revenue Service an election under section 83(b) of the Code with respect to the Restricted Units for which the restrictions have not lapsed. This election must be filed no later than 30 days after Date of Grant set forth in this Notice of Grant of Restricted Units. This time period cannot be extended. You acknowledge (a) that you have been advised to consult with a tax advisor regarding the tax consequences of the award of the Restricted Units and (b) that timely filing of a section 83(b) election is your sole responsibility, even if you request the Company or its representative to file such election on your behalf.

Holly Logistic Services, L.L.C.

George J. Damiris, Chief Executive Officer

5906753_3 2

Exhibit 10.10

Appendix A

A-1

Exhibit10.11

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

RESTRICTED UNIT AGREEMENT
(Non-Employee Director Award)

This Agreement is made and entered into as of the Date of Grant set forth in the Notice of Grant of Restricted Units (“Notice of Grant”) by and between Holly Logistic Services, L.L.C. (the “Company”), and you.

WHEREAS, the Company in order to induce you to enter into and to continue and dedicate service to the Company and Holly Energy Partners, L.P. (the “Partnership”) and to materially contribute to the success of the Company and the Partnership agrees to grant you this restricted unit award;

WHEREAS, the Company adopted the Holly Energy Partners, L.P. Long-Term Incentive Compensation Plan as it may be amended from time to time (the “Plan”) under which the Company is authorized to grant restricted unit awards to certain employees and service providers of the Company;

WHEREAS, a copy of the Plan has been furnished to you and shall be deemed a part of this restricted unit agreement (“Agreement”) as if fully set forth herein and the terms capitalized but not defined herein shall have the meanings set forth in the Plan; and

WHEREAS, you desire to accept the restricted unit award made pursuant to this Agreement.

NOW, THEREFORE, in consideration of and mutual covenants set forth herein and for other valuable consideration hereinafter set forth, the parties agree as follows:

1.Grant. Subject to the conditions set forth below, the Company hereby grants you effective as of the Date of Grant set forth in the Notice of Grant, as a matter of separate inducement but not in lieu of any other compensation for your services for the Company, an award (the “Award”) consisting of the aggregate number of Units set forth in the Notice of Grant in accordance with the terms and conditions set forth herein and in the Plan.

2. Restricted Units. The Company shall obtain the Units subject to this Agreement and cause such Units to be held for you in book entry form by the Partnership’s transfer agent with a notation that the Units are subject to restrictions. You hereby agree that the Restricted Units shall be held subject to restrictions as provided in the Agreement until the restrictions on such Restricted Units expire or the Restricted Units are forfeited as provided in Section 6 of this Agreement. You hereby agree that if part or all of the Restricted Units are forfeited pursuant to this Agreement, the Company shall have the right to direct the Partnership’s transfer agent to cancel such forfeited Restricted Units or, at the Company’s election, transfer such Restricted Units to the Company or to any designee of the Company.

3. Ownership of Restricted Units. Effective from the Date of Grant, you are a unitholder with respect to all of the Restricted Units granted to you pursuant to Section 1 and have all of the rights of a unitholder with respect to all such Restricted Units, including the right to receive all distributions paid with respect to such Restricted Units and any right to vote with respect to such Restricted Units subject, however, to the restrictions hereinafter described, including, without limitation, those described in Section 4; provided, however, that each distribution will be made no later than 30 days following the date the distributions are paid to the holders of Units generally.

4. Restrictions; Forfeiture. The Restricted Units are restricted in that they may not be sold, transferred or otherwise alienated or hypothecated until these restrictions are removed or expire as contemplated in Section 5 of this Agreement and as described in the Notice of Grant. The Restricted Units are also restricted in the sense that they may be forfeited to the Company. You hereby agree that if the Restricted Units are forfeited, as provided in Section 6, the Company shall have the right to deliver the Restricted Units to the Partnership’s transfer agent for, at the Company’s election, cancellation or transfer to the Company.

5. Expiration of Restrictions and Risk of Forfeiture. The restrictions on the Restricted Units granted pursuant to this Agreement will expire and the Restricted Units will become transferable, except to the extent provided in Section 9 of this Agreement, and nonforfeitable as set forth in the Notice of Grant and in Section 6 of this Agreement, provided that you remain a member of the Board until the applicable dates and times set forth therein. Restricted Units that become vested and non-forfeitable as provided in this Agreement are referred to herein as “Vested Units.”

6. Termination of Services.

(a) Termination Generally. Subject to subsections (b), (c) and (d), if you cease to be a member of the Board for any reason, then those Restricted Units for which the restrictions have not lapsed as of the date of separation from the Board shall become null and void and those Restricted Units shall be forfeited. The Restricted Units for which the restrictions have lapsed as of the date of such termination shall not be forfeited.

(b) Termination Due to Death, Disability or Retirement. In the event of your (i) death, (ii) total and permanent disability, as determined by the Committee in its sole discretion, or (iii) retirement, as determined by the Committee in its sole discretion, before all of the Restricted Units have become Vested Units, you will forfeit a number of Restricted Units equal to the number of Restricted Units specified in Notice of Grant times the percentage that the period of full months beginning on the first day of the calendar month following the date of death, disability or retirement, as applicable, and ending on December 1, 2019 bears to twelve (12) and any remaining Restricted Units that are not vested will become Vested Units; provided, however, that any fractional Units will become null and void and automatically forfeited. In its sole discretion, the Committee may decide to vest all of the Restricted Units in-lieu of the prorated number of Restricted Units as provided in this Section 6(b). Unless the Committee determines otherwise, in its sole discretion, you or your beneficiary or estate will have no right to any Restricted Units that remain subject to restrictions, and those Restricted Units will be forfeited.

(c) Change in Control. In the event of a Change in Control before lapse of all restrictions pursuant to Section 5 above, all restrictions described in Section 4 shall lapse and the Restricted Units will become Vested Units and the Company shall deliver the Vested Units to the Director as soon as practicable thereafter.

7. Delivery of Units. Promptly following the expiration of the restrictions on the Restricted Units as contemplated in Section 5 of this Agreement, the Company shall cause to be issued and delivered to you or your designee a certificate or other evidence of the number of Restricted Units as to which restrictions have lapsed, free of any restrictive legend relating to the lapsed restrictions. The value of such Restricted Units shall not bear any interest owing to the passage of time.

8. Adjustment of Restricted Units. The number of Restricted Units granted to you pursuant to this Agreement shall be adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in the capital structure of the Partnership, all in accordance with the Plan. All provisions of this Agreement shall be applicable to such new or additional or different units or securities distributed or issued pursuant to the Plan to the same extent that such provisions are applicable to the units with respect to which they were distributed or issued. In the event that the outstanding Units of the Partnership are exchanged for a different number or kind of units or other securities, or if additional, new or different units are distributed with respect to the Units through merger, consolidation, or sale of all or substantially all of the assets of the Partnership, each remaining unit subject to this Agreement shall have substituted for it a like number and kind of units or shares of new or replacement securities as determined in the sole discretion of the Committee, subject to the terms and provisions of the Plan.

9. Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Restricted Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law with respect to such securities and with the requirements of any stock exchange or market system upon which the Units may then be listed. No Units will be issued hereunder if such issuance would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Units may then be listed. In addition, Units will not be issued hereunder unless 1.%2. a registration statement under the Securities Act, is at the time of issuance in effect with respect to the Units issued or 2.%2. in the opinion of legal counsel to the Company, the Units issued may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Units subject to the Award will relieve the Company of any liability in respect of the failure to issue such Units as to which such requisite authority has not been obtained. As a condition to any issuance hereunder, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, the Board and appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required

documents with governmental authorities, stock exchanges, and other appropriate Persons to make Units available for issuance.

10. Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Sections 4 or 9 of this Agreement on all certificates representing Units issued with respect to this Award.

11. Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

12. Remedies. The Company shall be entitled to recover from you reasonable attorneys’ fees incurred in connection with the successful enforcement of the terms and provisions of this Agreement whether by an action to enforce specific performance or for damages for its breach or otherwise.

13. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine.

14. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any applicable law, then such provision will be deemed to be modified to the minimum extent necessary to render it legal, valid and enforceable; and if such provision cannot be so modified, then this Agreement will be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.

15. Administration. This Agreement shall at all times be subject to the terms and conditions of the Plan. The Committee shall have sole and complete discretion with respect to all matters reserved to it by the Plan and decisions of a majority of the Committee with respect thereto and this Agreement shall be final and binding upon you and the Company. In the event of any conflict between the terms and conditions of this Agreement and the Plan, the provisions of the Plan shall control.

16. No Right to Continued Services. This Agreement shall not be construed to confer upon you any right to continue as a member of the Board.

17. Governing Law. This Agreement shall be interpreted and administered under the laws of the State of Texas, without giving effect to any conflict of law provisions.

18. Consent to Texas Jurisdiction and Venue. You hereby consent and agree that state courts located in Dallas, Texas and the United States District Court for the Northern District of

Texas each shall have personal jurisdiction and proper venue with respect to any dispute between you and the Company arising in connection with the Restricted Units or this Agreement. In any dispute with the Company, you will not raise, and you hereby expressly waive, any objection or defense to any such jurisdiction as an inconvenient forum.

19. Amendment. This Agreement may be amended by the Board or by the Committee at any time (a) if the Board or the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in any federal or state, tax or securities law or other law or regulation, which change occurs after the Date of Grant and by its terms applies to the Award; or (b) other than in the circumstances described in clause (a) or provided in the Plan, with your consent.

20. No Liability for Good Faith Determinations. The General Partner, the Partnership, the Company, HFC and the members of the Committee, the Board and the HFC Board shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Units granted hereunder.

21. No Guarantee of Interests. The Board, the HFC Board, the General Partner, the Partnership, HFC and the Company do not guarantee the Units from loss or depreciation.

22. Company Records. Records of the Company or its subsidiaries regarding your period of service, termination of service and the reason(s) therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder, unless determined by the Company to be incorrect.

23. Information Confidential. As partial consideration for the granting of the Award hereunder, you hereby agree to keep confidential all information and knowledge, except that which has been disclosed in any public filings required by law, that you have relating to the terms and conditions of this Agreement; provided, however, that such information may be disclosed as required by law and may be given in confidence to your spouse and tax and financial advisors. In the event any breach of this promise comes to the attention of the Company, it shall take into consideration that breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. Nothing in this Agreement will prevent you from: (a) making a good faith report of possible violations of applicable law to any governmental agency or entity or (b) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 23 to the attorney of the individual and use such information in the court proceeding.

24. Defined Terms.

(a) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under section 12 of the Exchange Act.

(b) “Beneficial Owner” shall have the meaning provided in Rule 13d-3 under the Exchange Act.

(ii) The individuals who as of the Date of Grant constitute the HFC Board and any New Director cease for any reason to constitute a majority of the HFC Board.

(iii) There is consummated a merger or consolidation of HFC, the Company, the General Partner or the Partnership with any other entity, except if:

A. the merger or consolidation results in the voting securities of HFC, the Company, the General Partner or the Partnership outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or

B. the merger or consolidation is effected to implement a recapitalization of HFC, the Company, the General Partner or the Partnership (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly, or indirectly, of securities of HFC, the Company, the General Partner or the Partnership, as applicable, (not including in the securities beneficially owned by such Person any securities acquired directly from HFC, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the

acquisition by HFC, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than 40% of the combined voting power of HFC’s, the Company’s, the General Partner’s or the Partnership’s, as applicable, then outstanding securities.

(iv) The holders of the voting securities of HFC, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of HFC, the Company, the General Partner or the Partnership, as applicable, or an agreement for the sale or disposition by HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, other than a sale or disposition by HFC, the Company, the General Partner or the Partnership of all or substantially all of HFC’s, the Company’s, the General Partner’s, or the Partnership’s assets, as applicable, to an entity at least 60% of the combined voting power of the voting securities of which is owned by the direct or indirect holders of the voting securities of HFC, the Company, the General Partner or the Partnership, as applicable, in substantially the same proportions as their ownership of HFC, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.

(d) “HFC” means HollyFrontier Corporation.

(e) “HFC Board” means the board of directors of HFC.

(f) “New Director” shall mean an individual whose election by the HFC Board, or nomination for election by holders of the voting securities of HFC, was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the Date of Grant or whose election or nomination for election was previously so approved or recommended. However, “New Director” shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of HFC.

(g) “Person” shall have the meaning given in section 3(a)(9) of the Exchange Act as modified and used in sections 13(d) and 14(d) of the Exchange Act.

Exhibit 31.1

CERTIFICATION

I, George J. Damiris, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Holly Energy Partners, L.P;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: October 31, 2019		/s/ George J. Damiris
		George J. Damiris
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Richard L. Voliva III, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Holly Energy Partners, L.P;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: October 31, 2019		/s/ Richard L. Voliva III
		Richard L. Voliva III
		Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE

OFFICER OF HOLLY ENERGY PARTNERS, L.P.

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying report on Form 10-Q for the quarterly period ended September 30, 2019 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George J. Damiris, Chief Executive Officer of Holly Logistic Services, L.L.C., the general partner of HEP Logistics Holdings, L.P., the general partner of Holly Energy Partners, L.P (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: October 31, 2019		/s/ George J. Damiris
		George J. Damiris
		President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL

OFFICER OF HOLLY ENERGY PARTNERS, L.P.

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying report on Form 10-Q for the quarterly period ended September 30, 2019 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard L. Voliva III, Chief Financial Officer of Holly Logistic Services, L.L.C., the general partner of HEP Logistics Holdings, L.P., the general partner of Holly Energy Partners, L.P (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: October 31, 2019		/s/ Richard L. Voliva III
		Richard L. Voliva III
		Executive Vice President and Chief Financial Officer