10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

OR

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

For the transition period from                      to                     .

Commission File Number: 1-32225

HOLLY ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware	20-0833098
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

100 Crescent Court, Suite 1600
Dallas, Texas 75201-6915

(Address of principal executive offices)

(214) 871-3555

(Registrant’s telephone number, including area code)

None

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

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No o

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

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

The number of the registrant’s outstanding common units at July 23, 2010 was 22,078,509.

HOLLY ENERGY PARTNERS, L.P.
INDEX

PART I. FINANCIAL INFORMATION	3
FORWARD-LOOKING STATEMENTS	3
Item 1. Financial Statements (Unaudited, except December 31, 2009 Balance Sheet)	4
Consolidated Balance Sheets	4
Consolidated Statements of Income	5
Consolidated Statements of Cash Flows	6
Consolidated Statement of Partners’ Equity	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risks	44
Item 4. Controls and Procedures	44
PART II. OTHER INFORMATION	45
Item 1. Legal Proceedings	45
Item 6. Exhibits	45
SIGNATURES	46
Exhibit 4.1
Exhibit 4.2
Exhibit 4.3
Exhibit 4.4
Exhibit 10.1
Exhibit 10.2
Exhibit 12.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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PART I. FINANCIAL INFORMATION

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,” “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. Such 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 in our terminals;

• the economic viability of Holly Corporation, Alon USA, Inc. and our other customers;

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

• our ability to successfully purchase and integrate additional operations in the future;

• our ability to complete previously announced or contemplated acquisitions;

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

• the possibility of reductions in production or shutdowns at refineries utilizing our pipeline and terminal facilities;

• the effects of current and future government regulations and policies;

• our operational efficiency in carrying out routine operations and capital construction projects;

• the possibility of terrorist attacks and the consequences of any such attacks;

• general economic conditions; and

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

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. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2009 in “Risk Factors” and in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 1. Financial Statements

Holly Energy Partners, L.P.

Consolidated Balance Sheets

	June 30, 2010			December 31,
	(Unaudited)			2009
	(In thousands, except unit data)
ASSETS
Current assets:
Cash and cash equivalents	$	2,806		$	2,508
Accounts receivable:
Trade		6,389			4,693
Affiliates		16,699			14,074
		23,088			18,767
Prepaid and other current assets		939			739
Current assets of discontinued operations		—			2,195
Total current assets		26,833			24,209
Properties and equipment, net		430,250			398,044
Transportation agreements, net		111,963			115,436
Goodwill		49,109			49,109
Investment in SLC Pipeline		25,819			25,919
Other assets		1,842			4,128
Total assets	$	645,816		$	616,845
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	3,488		$	3,860
Affiliates		2,852			2,351
		6,340			6,211
Accrued interest		7,688			2,863
Deferred revenue		10,923			8,402
Accrued property taxes		990			1,072
Other current liabilities		601			1,257
Total current liabilities		26,542			19,805
Long-term debt		487,479			390,827
Other long-term liabilities		11,984			12,349
Partners’ equity:
Common unitholders (22,078,509 units and 21,141,009 units issued and outstanding at June 30, 2010 and December 31, 2009, respectively)		274,564			275,553
Class B subordinated unitholders (937,500 units issued and outstanding at December 31, 2009)		—			21,426
General partner interest (2% interest)		(143,631	)		(93,974	)
Accumulated other comprehensive loss		(11,122	)		(9,141	)
Total partners’ equity		119,811			193,864
Total liabilities and partners’ equity	$	645,816		$	616,845

See accompanying notes.

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Holly Energy Partners, L.P.

Consolidated Statements of Income

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands, except per unit data)
Revenues:
Affiliates	$	37,079		$	25,064		$	70,676		$	43,387
Third parties		8,404			12,935			15,503			23,944
		45,483			37,999			86,179			67,331
Operating costs and expenses:
Operations		13,495			10,631			26,555			20,973
Depreciation and amortization		7,591			6,613			14,801			12,629
General and administrative		1,913			1,797			4,476			3,131
		22,999			19,041			45,832			36,733
Operating income		22,484			18,958			40,347			30,598
Other income (expense):
Equity in earnings of SLC Pipeline		544			423			1,025			598
SLC Pipeline acquisition costs		—			—			—			(2,500	)
Interest income		2			2			5			8
Interest expense		(9,549	)		(4,404	)		(17,093	)		(9,807	)
Other		—			65			(7	)		65
		(9,003	)		(3,914	)		(16,070	)		(11,636	)
Income from continuing operations before income taxes		13,481			15,044			24,277			18,962
State income tax		(46	)		(93	)		(140	)		(166	)
Income from continuing operations		13,435			14,951			24,137			18,796
Income from discontinued operations, net of noncontrolling interest of $427 and $922, respectively		—			1,441			—			3,035
Net income		13,435			16,392			24,137			21,831
Less general partner interest in net income, Including incentive distributions		2,909			1,849			5,555			3,142
Limited partners’ interest in net income	$	10,526		$	14,543		$	18,582		$	18,689
Limited partners’ per unit interest in earnings — basic and diluted:
Income from continuing operations	$	0.48		$	0.74		$	0.84		$	0.92
Income from discontinued operations		—			0.08			—			0.18
Net income	$	0.48		$	0.82		$	0.84		$	1.10
Weighted average limited partners’ units outstanding		22,079			17,789			22,079			17,058

See accompanying notes.

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Holly Energy Partners, L.P.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2010			2009(1)
	(In thousands)
Cash flows from operating activities
Net income	$	24,137		$	21,831
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,801			13,109
Equity in earnings of SLC Pipeline, net of distributions		100			(598	)
Change in fair value — interest rate swaps		1,464			(628	)
Noncontrolling interest in earnings of Rio Grande Pipeline Company		—			922
Amortization of restricted and performance units		1,339			417
(Increase) decrease in current assets:
Accounts receivable — trade		(1,696	)		278
Accounts receivable — affiliates		(2,625	)		719
Prepaid and other current assets		(200	)		(234	)
Current assets of discontinued operations		2,195			—
Increase (decrease) in current liabilities:
Accounts payable — trade		(372	)		1,258
Accounts payable — affiliates		501			(156	)
Accrued interest		4,825			26
Deferred revenue		2,521			(4,669	)
Accrued property taxes		(82	)		(119	)
Other current liabilities		(656	)		(447	)
Other, net		(1,066	)		541
Net cash provided by operating activities		45,186			32,250
Cash flows from investing activities
Additions to properties and equipment		(4,487	)		(21,826	)
Acquisition of assets from Holly Corporation		(39,040	)		(34,200	)
Investment in SLC Pipeline		—			(25,500	)
Net cash used for investing activities		(43,527	)		(81,526	)
Cash flows from financing activities
Borrowings under credit agreement		39,000			99,000
Repayments of credit agreement borrowings		(90,000	)		(81,000	)
Proceeds from issuance of senior notes		147,540			—
Proceeds from issuance of common units		—			58,355
Contribution from general partner		—			1,191
Distributions to HEP unitholders		(41,312	)		(27,968	)
Distributions to noncontrolling interest		—			(600	)
Purchase price in excess of transferred basis in assets acquired from Holly Corporation		(53,960	)		—
Purchase of units for restricted grants		(2,276	)		(616	)
Deferred financing costs		(353	)		—
Cost of issuing common units		—			(160	)
Net cash provided by (used for) financing activities		(1,361	)		48,202
Cash and cash equivalents
Increase (decrease) for the period		298			(1,074	)
Beginning of period		2,508			5,269
End of period	$	2,806		$	4,195

(1) Includes cash flows attributable to discontinued operations.

See accompanying notes.

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Holly Energy Partners, L.P.

Consolidated Statement of Partners’ Equity

(Unaudited)

										Accumulated
				Class B			General			Other
	Common			Subordinated			Partner			Comprehensive
	Units			Units			Interest			Loss			Total
	(In thousands)
Balance December 31, 2009	$	275,553		$	21,426		$	(93,974	)	$	(9,141	)	$	193,864
Conversion of Class B subordinated units to common units		20,588			(20,588	)		—			—			—
Distributions to partners		(38,966	)		(1,519	)		(827	)		—			(41,312	)
Purchase price in excess of transferred basis in assets acquired from Holly Corporation		—			—			(53,960	)		—			(53,960	)
Purchase of units for restricted grants		(2,276	)		—			—			—			(2,276	)
Amortization of restricted and performance units		1,339			—			—			—			1,339
Comprehensive income:
Net income		18,326			681			5,130			—			24,137
Other comprehensive loss		—			—			—			(1,981	)		(1,981	)
Comprehensive income		18,326			681			5,130			(1,981	)		22,156
Balance June 30, 2010	$	274,564		$	—		$	(143,631	)	$	(11,122	)	$	119,811

See accompanying notes.

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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, currently 34% owned (including the 2% general partner interest) by Holly Corporation and its subsidiaries (collectively, “Holly”). 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.

We operate in one business segment — the operation of petroleum product and crude oil pipelines and terminals, tankage and loading rack facilities.

We own and operate petroleum product and crude oil pipeline and terminal, tankage and loading rack facilities that support Holly’s refining and marketing operations in west Texas, New Mexico, Utah, Oklahoma, Idaho and Arizona. We also own and operate refined product pipelines and terminals, located primarily in Texas, that service Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas. Additionally, we own a 25% joint venture interest in a 95-mile intrastate crude oil pipeline system (the “SLC Pipeline”) that serves refineries in the Salt Lake City area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling refined products and other hydrocarbons and storing and providing other services at our storage tanks and terminals. We do not take ownership of products that we transport, terminal or store, and therefore, we are not directly exposed 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 accounting principles generally accepted in the United States of America 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 Form 10-K for the year ended December 31, 2009. 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, 2010.

Note 2: Discontinued Operations

On December 1, 2009, we sold our 70% interest in Rio Grande Pipeline Company (“Rio Grande”) to a subsidiary of Enterprise Products Partners LP for $35 million. Accordingly, results of operations of Rio Grande are presented in discontinued operations.

In accounting for the sale, we recorded a gain of $14.5 million and a receivable of $2.2 million, representing our final distribution from Rio Grande. Our recorded net asset balance of Rio Grande at December 1, 2009, was $22.7 million, consisting of cash of $3.1 million, $29.9 million in properties and equipment, net and $10.3 million in equity, representing BP, Plc’s 30% noncontrolling interest.

Cash flows from continuing and discontinued operations have been combined for presentation purposes in the Consolidated Statements of Cash Flows. For the six months ended June 30, 2009, net cash flows from our discontinued Rio Grande operations were $4.1 million.

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Note 3: Acquisitions

2010 Acquisitions

Tulsa East / Lovington Storage Asset Transaction

On March 31, 2010, we acquired from Holly certain storage assets for $88.6 million consisting of hydrocarbon storage tanks having approximately 2 million barrels of storage capacity, a rail loading rack and a truck unloading rack located at Holly’s Tulsa refinery east facility.

In connection with this purchase, we amended our 15-year pipeline, tankage and loading rack throughput agreement with Holly (the “Holly PTTA”) that initially pertained to the logistics and storage assets acquired from an affiliate of Sinclair Oil Company (“Sinclair”) in December 2009. Under the amended Holly PTTA, Holly has agreed to transport, throughput and load volumes of product through our Tulsa east facility logistics and storage assets that will result in minimum annualized revenues to us of $27.2 million.

Also, as part of this same transaction, we acquired Holly’s asphalt loading rack facility located at its Navajo refinery facility in Lovington, New Mexico for $4.4 million and entered into a 15-year asphalt facility throughput agreement (the “Holly ATA”). Under the Holly ATA, Holly has agreed to throughput a minimum volume of products via our Lovington asphalt loading rack facility that will result in minimum annualized revenues to us of $0.5 million.

We are a controlled subsidiary of Holly. In accounting for these March 2010 acquisitions from Holly, we recorded total property and equipment at Holly’s cost basis of $39 million and the purchase price in excess of Holly’s basis in the assets of $54 million as a decrease to our partners’ equity.

2009 Acquisitions

Sinclair Logistics and Storage Assets Transaction

On December 1, 2009, we acquired from Sinclair storage tanks having approximately 1.4 million barrels of storage capacity and loading racks at its refinery located in Tulsa, Oklahoma for $79.2 million. The purchase price consisted of $25.7 million in cash, including $4.2 million in taxes and 1,373,609 of our common units having a fair value of $53.5 million. Separately, Holly, also a party to the transaction, acquired Sinclair’s Tulsa refinery.

With respect to this purchase, we recorded $30.2 million in properties and equipment, $49.1 million in goodwill and $0.2 million in other long-term liabilities. The value of the acquired assets, which does not include goodwill, is based on management’s fair value estimates using a cost approach methodology.

Roadrunner / Beeson Pipelines Transaction

Also on December 1, 2009, we acquired from Holly two newly constructed pipelines for $46.5 million, consisting of a 65-mile, 16-inch crude oil pipeline (the “Roadrunner Pipeline”) that connects the Navajo refinery Lovington facility to a terminus of Centurion Pipeline L.P.’s pipeline extending between west Texas and Cushing, Oklahoma and a 37-mile, 8-inch crude oil pipeline that connects our New Mexico crude oil gathering system to the Navajo refinery Lovington facility (the “Beeson Pipeline”).

Tulsa West Loading Racks Transaction

On August 1, 2009, we acquired from Holly certain truck and rail loading/unloading facilities located at Holly’s Tulsa refinery west facility for $17.5 million. The racks load refined products and lube oils produced at the Tulsa refinery onto rail cars and/or tanker trucks.

Lovington-Artesia Pipeline Transaction

On June 1, 2009, we acquired from Holly a newly constructed 16-inch intermediate pipeline for $34.2 million that runs 65 miles from the Navajo refinery’s crude oil distillation and vacuum facilities in Lovington, New Mexico to its petroleum refinery located in Artesia, New Mexico.

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The Roadrunner and Beeson Pipelines, loading rack facilities and 16-inch intermediate pipeline discussed above were recorded at $95.1 million, representing Holly’s cost basis in the transferred assets. The $3.1 million purchase price in excess of Holly’s basis in the assets was recorded as a decrease to our partners’ equity.

SLC Pipeline Joint Venture Interest

On March 1, 2009, we acquired a 25% joint venture interest in the SLC Pipeline, a new 95-mile intrastate pipeline system that we jointly own with Plains All American Pipeline, L.P. (“Plains”). The total cost of our investment in the SLC Pipeline was $28 million, consisting of the capitalized $25.5 million joint venture contribution and the $2.5 million finder’s fee paid to Holly that was expensed as acquisition costs.

Note 4: Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and an interest rate swap. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

Our debt consists of outstanding principal under our revolving credit agreement (the “Credit Agreement”), our 6.25% senior notes due 2015 (the “6.25% Senior Notes”) and our 8.25% senior notes due 2018 (the “8.25% Senior Notes”). The $155 million carrying amount of outstanding debt under our Credit Agreement at June 30, 2010, approximates fair value as interest rates are reset frequently using current rates. The estimated fair values of our 6.25% Senior Notes and 8.25% Senior Notes were $173.9 million and $148.5 million, respectively, at June 30, 2010. These fair value estimates are based on market quotes provided from a third-party bank. See Note 8 for additional information on these instruments.

Fair Value Measurements

Fair value measurements are derived using inputs, assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. U.S. generally accepted accounting principles (“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.

We have an interest rate swap that is measured at fair value on a recurring basis using Level 2 inputs that as of June 30, 2010 had a fair value of $11.1 million. With respect to this instrument, fair value is based on the net present value of expected future cash flows related to both variable and fixed rate legs of our interest rate swap agreement. Our measurement is computed using the forward London Interbank Offered Rate (“LIBOR”) yield curve, a market-based observable input. See Note 8 for additional information on our interest rate swap.

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Note 5: Properties and Equipment

	June 30,		December 31,
	2010		2009
	(In thousands)
Pipelines and terminals (1)	$	495,321	$	455,075
Land and right of way		25,247		25,230
Other		13,411		12,528
Construction in progress		12,775		10,484
		546,754		503,317
Less accumulated depreciation		116,504		105,273
	$	430,250	$	398,044

(1) We periodically evaluate estimated useful lives of our properties and equipment. Effective January 1, 2010, we have revised the estimated useful lives of our terminal assets to 16 to 25 years. This change in estimated useful lives resulted in a $1.5 million reduction in depreciation expense for the six months ended June 30, 2010.

We capitalized $0.2 million and $0.7 million in interest related to major construction projects during the six months ended June 30, 2010 and 2009, respectively.

Note 6: Transportation Agreements

Our transportation agreements consist of the following:

• The Alon pipelines and terminals agreement (the “Alon PTA”) represents a portion of the total purchase price of the Alon assets that was allocated based on an estimated fair value derived under an income approach. This asset is being amortized over 30 years ending 2035, the 15-year initial term of the Alon PTA plus the expected 15-year extension period.

• The Holly crude pipelines and tankage agreement (the “Holly CPTA”) represents a portion of the total purchase price of certain crude pipelines and tankage assets acquired from Holly in 2008 that was allocated using a fair value based on the agreement’s expected contribution to our future earnings under an income approach. This asset is being amortized over 15 years ending 2023, the 15-year term of the Holly CPTA.

The carrying amounts of our transportation agreements are as follows:

	June 30,		December 31,
	2010		2009
	(In thousands)
Alon transportation agreement	$	59,933	$	59,933
Holly crude pipelines and tankage agreement		74,231		74,231
		134,164		134,164
Less accumulated amortization		22,201		18,728
	$	111,963	$	115,436

We have additional transportation agreements with Holly that relate to pipeline, terminal and tankage assets contributed to us or acquired from Holly. These transfers occurred while under common control of Holly, therefore, our basis in these assets reflect Holly’s historical cost and does not reflect a step-up in basis to fair value. These agreements have a recorded value of zero.

In addition, we have an agreement to provide transportation and storage services to Holly via our Tulsa logistics and storage assets acquired from Sinclair. Since this agreement is with Holly and not between Sinclair and us, there is no cost attributable to this agreement.

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Note 7: Employees, Retirement and Incentive Plans

Employees who provide direct services to us are employed by Holly Logistic Services, L.L.C., a Holly subsidiary. 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 Holly. These employees participate in the retirement and benefit plans of Holly. Our share of retirement and benefit plan costs was $0.6 million for the three months ended June 30, 2010 and 2009, and $1.3 million and $1.2 million for the six months ended June 30, 2010 and 2009, respectively.

We have adopted an incentive plan (“Long-Term Incentive Plan”) for employees, consultants and non-employee directors who perform services for us. The Long-Term Incentive Plan consists of four components: restricted units, performance units, unit options and unit appreciation rights.

As of June 30, 2010, we have two types of equity-based compensation, which are described below. The compensation cost charged against income for these plans was $0.3 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively, and $1.3 million and $0.9 million for the six months ended June 30, 2010 and 2009, respectively. We currently purchase units in the open market instead of issuing new units for settlement of restricted unit grants. At June 30, 2010, 350,000 units were authorized to be granted under the equity-based compensation plans, of which 175,289 had not yet been granted.

Restricted Units

Under our Long-Term Incentive Plan, we grant restricted units to selected employees and directors who perform services for us, with vesting generally over a period of one to five years. Although full ownership of the units does not transfer to the recipients until the units vest, the recipients have distribution and voting rights on these units from the date of grant. The fair value of each restricted unit award is measured at the market price as of the date of grant and is amortized over the vesting period.

A summary of restricted unit activity and changes during the six months ended June 30, 2010 is presented below:

						Weighted-
				Weighted-		Average	Aggregate
				Average		Remaining	Intrinsic
				Grant-Date		Contractual	Value
Restricted Units	Grants			Fair Value		Term	($000)
Outstanding at January 1, 2010 (nonvested)		53,271		$	34.31
Granted		31,355			42.59
Vesting and transfer of full ownership to recipients		(34,645	)		38.94
Forfeited		(1,226	)		34.28
Outstanding at June 30, 2010 (nonvested)		48,755		$	36.35	0.9 year	$	2,136

The fair value of restricted units that were vested and transferred to recipients during the six months ended June 30, 2010 and 2009 were $1.5 million and $0.9 million, respectively. As of June 30, 2010, there was $0.6 million of total unrecognized compensation costs related to nonvested restricted unit grants. That cost is expected to be recognized over a weighted-average period of 0.9 year.

During the six months ended June 30, 2010, we paid $2.3 million for the purchase of 53,952 of our common units in the open market for the recipients of our restricted unit grants.

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected executives who perform services for us. Performance units granted in 2010 are payable based upon the growth in our distributable cash flow per common unit over the performance period, and vest over a period of three years. Performance units granted in 2009 and 2008 are payable based upon the growth in distributions on our common units during the requisite period, and vest over a period of three years. As of June 30, 2010, estimated share payouts for outstanding nonvested performance unit awards ranged from 110% to 120%.

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We granted 16,965 performance units to certain officers in March 2010. These units will vest over a three-year performance period ending December 31, 2012 and are payable in HEP common units. The number of units actually earned will be based on the growth of our distributable cash flow per common unit over the performance period, and can range from 50% to 150% of the number of performance units granted. The fair value of these performance units is based on the grant date closing unit price of $42.59 and will apply to the number of units ultimately awarded.

A summary of performance unit activity and changes during the six months ended June 30, 2010 is presented below:

	Payable
Performance Units	In Units
Outstanding at January 1, 2010 (nonvested)		54,771
Vesting and transfer of common units to recipients		(11,785	)
Granted		16,965
Forfeited		(536	)
Outstanding at June 30, 2010 (nonvested)		59,415

The fair value of performance units vested and transferred to recipients during the six months ended June 30, 2010 and 2009 was $0.5 million and $0.4 million, respectively. Based on the weighted average fair value at June 30, 2010 of $32.97, there was $1.1 million of total unrecognized compensation cost related to nonvested performance units. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Note 8: Debt

Credit Agreement

We have a $300 million senior secured revolving Credit Agreement expiring in August 2011. The Credit Agreement is available to fund capital expenditures, acquisitions, and working capital and for general partnership purposes. In addition, the Credit Agreement is available to fund letters of credit up to a $50 million sub-limit and to fund distributions to unitholders up to a $20 million sub-limit. Advances under the Credit Agreement that are designated for working capital are classified as short-term liabilities. Other advances under the Credit Agreement, including advances used for the financing of capital projects, are classified as long-term liabilities. During the six months ended June 30, 2010, we received advances totaling $39 million and repaid $90 million, resulting in the net repayment of $51 million in advances. As of June 30, 2010, we had $155 million outstanding under the Credit Agreement.

Our obligations under the Credit Agreement are collateralized by substantially all of our assets. Indebtedness under the Credit Agreement is recourse to HEP Logistics Holdings, L.P., our general partner, and guaranteed by our wholly-owned subsidiaries. Any recourse to HEP Logistics Holdings, L.P. would be limited to the extent of its assets, which other than its investment in us, are not significant.

We may prepay all loans at any time without penalty, except for payment of certain breakage and related costs. We are required to reduce all working capital borrowings under the Credit Agreement to zero for a period of at least 15 consecutive days in each twelve-month period prior to the maturity date of the agreement. As of June 30, 2010, we had no working capital borrowings.

Indebtedness under the Credit Agreement bears interest, at our option, at either (a) the reference rate as announced by the administrative agent plus an applicable margin (ranging from 0.25% to 1.50%) or (b) at a rate equal to LIBOR plus an applicable margin (ranging from 1.00% to 2.50%). In each case, the applicable margin is based upon the ratio of our funded debt (as defined in the Credit Agreement) to EBITDA (earnings before interest, taxes, depreciation and amortization, as defined in the Credit Agreement). At June 30, 2010, we were subject to an applicable margin of 1.75%. We incur a commitment fee on the unused portion of the Credit Agreement at a rate ranging from 0.20% to 0.50% based upon the ratio of our funded debt to EBITDA for the four most recently completed fiscal quarters. At June 30, 2010, we are subject to a .30% commitment fee on the $145 million unused portion of the Credit Agreement. The agreement expires in August 2011. At that time, the agreement will terminate and all outstanding amounts thereunder will become due and payable.

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The Credit Agreement imposes certain requirements on us, including: a prohibition against distribution to unitholders if, before or after the distribution, a potential default or an event of default as defined in the agreement would occur; limitations on our ability to incur debt, make loans, acquire other companies, change the nature of our business, enter a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio and debt to EBITDA ratio. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of the debt and exercise other rights and remedies.

Additionally, the Credit Agreement contains certain provisions whereby the lenders may accelerate payment of outstanding debt under certain circumstances.

Senior Notes

In March 2010, we issued $150 million in aggregate principal amount of 8.25% Senior Notes maturing March 15, 2018. A portion of the $147.5 million in net proceeds received was used to fund our $93 million purchase of the Tulsa and Lovington storage assets from Holly on March 31, 2010. Additionally, we used a portion to repay $42 million in outstanding Credit Agreement borrowings, with the remaining proceeds available for general partnership purposes, including working capital and capital expenditures.

Our 6.25% Senior Notes having an aggregate principal amount of $185 million mature March 1, 2015 and are registered with the SEC. The 6.25% Senior Notes and 8.25% Senior Notes (collectively, the “Senior Notes”) are unsecured and impose certain restrictive covenants, which we are subject to and currently in compliance with, 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. At any time when the 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 under the Senior Notes.

Indebtedness under the Senior Notes is recourse to HEP Logistics Holdings, L.P., our general partner, and guaranteed by our wholly-owned subsidiaries. However, any recourse to HEP Logistics Holdings, L.P. would be limited to the extent of its assets, which other than its investment in us, are not significant.

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

	June 30,			December 31,
	2010			2009
	(In thousands)
Credit Agreement	$	155,000		$	206,000
6.25% Senior Notes
Principal		185,000			185,000
Unamortized discount		(1,774	)		(1,964	)
Unamortized premium — dedesignated fair value hedge		1,617			1,791
		184,843			184,827
8.25% Senior Notes
Principal		150,000			—
Unamortized discount		(2,364	)		—
		147,636			—
Total long-term debt	$	487,479		$	390,827

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Interest Rate Risk Management

We use interest rate swaps (derivative instruments) to manage our exposure to interest rate risk.

As of June 30, 2010, we have an interest rate swap that hedges our exposure to the cash flow risk caused by the effects of LIBOR changes on a $155 million Credit Agreement advance. This interest rate swap effectively converts $155 million of LIBOR based debt to fixed rate debt having an interest rate of 3.74% plus an applicable margin, currently 1.75%, which equals an effective interest rate of 5.49% as of June 30, 2010. The maturity date of this swap contract is February 28, 2013.

We have designated this interest rate swap as a cash flow hedge. Based on our assessment of effectiveness using the change in variable cash flows method, we have determined that this interest rate swap is effective in offsetting the variability in interest payments on our $155 million variable rate debt resulting from changes in LIBOR. Under hedge accounting, we adjust our cash flow hedge on a quarterly basis to its fair value with the offsetting fair value adjustment to accumulated other comprehensive income. Also on a quarterly basis, we measure hedge effectiveness by comparing the present value of the cumulative change in the expected future interest to be paid or received on the variable leg of our swap against the expected future interest payments on our $155 million variable rate debt. Any ineffectiveness is reclassified from accumulated other comprehensive income to interest expense. To date, we have had no ineffectiveness on our cash flow hedge.

In May 2010, we repaid $16 million of our Credit Agreement debt and also settled a corresponding portion of our interest rate swap agreement having a notional amount of $16 million for $1.1 million. Upon payment, we reduced our swap liability and reclassified a $1.1 million charge from accumulated other comprehensive loss to interest expense, representing the application of hedge accounting prior to settlement.

Additional information on our interest rate swap as of June 30, 2010 is as follows:

	Balance Sheet			Location of Offsetting	Offsetting
Interest Rate Swap	Location	Fair Value		Balance	Amount
	(In thousands)
Liability
Cash flow hedge — $155 million LIBOR based debt	Other long-term liabilities	$	11,122	Accumulated other comprehensive loss	$	11,122

In the first quarter of 2010, we settled two interest rate swaps. We had an interest rate swap contract that effectively converted interest expense associated with $60 million of our 6.25% Senior Notes from fixed to variable rate debt (“Variable Rate Swap”). We had an additional interest rate swap contract that effectively unwound the effects of the Variable Rate Swap, converting $60 million of the previously hedged long-term debt back to fixed rate debt (“Fixed Rate Swap”), effectively fixing interest at a 4.75% rate. Upon settlement of the Variable Rate and Fixed Rate Swaps, we received $1.9 million and paid $3.6 million, respectively.

For the six months ended June 30, 2010, we recognized a $1.5 million charge to interest expense as a result of fair value adjustments to our interest rate swaps. For the six months ended June 30, 2009, fair value adjustments resulted in a $0.6 million decrease to interest expense.

We have a deferred hedge premium that relates to the application of hedge accounting to the Variable Rate Swap prior to its hedge dedesignation in 2008. This deferred hedge premium having a balance of $1.6 million at June 30, 2010, is being amortized as a reduction to interest expense over the remaining term of the 6.25% Senior Notes.

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Interest Expense and Other Debt Information

Interest expense consists of the following components:

	June 30,		June 30,
	2010		2009
	(In thousands)
Interest on outstanding debt:
Credit Agreement, net of interest on interest rate swap	$	4,726	$	5,260
6.25% Senior Notes, net of interest on interest rate swaps		5,623		5,338
8.25% Senior Notes		3,816		—
Partial settlement of interest rate swap — cash flow hedge		1,076		—
Net fair value adjustments to interest rate swaps		1,464		(628	)
Net amortization of discount and deferred debt issuance costs		458		353
Commitment fees		177		145
Total interest incurred		17,340		10,468
Less capitalized interest		247		661
Net interest expense	$	17,093	$	9,807
Cash paid for interest (1)	$	14,192	$	11,836

(1) Net of cash received under our interest rate swap agreements of $1.9 million for the six months ended June 30, 2010 and 2009.

Note 9: Significant Customers

All revenues are domestic revenues, of which ninety-six percent are currently generated from our two largest customers: Holly and Alon. The major concentration of our petroleum product and crude oil pipeline systems’ revenues is derived from activities conducted in the southwest United States.

The following table presents the percentage of total revenues from continuing operations generated by each of these customers:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Holly		82	%		66	%		82	%		64	%
Alon		14	%		29	%		14	%		30	%

Note 10: Related Party Transactions

Holly and Alon Agreements

We serve Holly’s refineries in New Mexico, Utah and Oklahoma under the following long-term pipeline and terminal, tankage and throughput agreements:

• Holly PTA (pipelines and terminals throughput agreement expiring in 2019 that relates to the pipelines and terminal assets contributed to us by Holly upon our initial public offering in 2004);

• Holly IPA (intermediate pipelines throughput agreement expiring in 2024 that relates to the intermediate pipelines acquired from Holly in 2005 and 2009);

• Holly CPTA (crude pipelines and tankage throughput agreement expiring in 2023 that relates to the crude pipelines and tankage assets acquired from Holly in 2008);

• Holly PTTA (pipeline, tankage and loading rack throughput agreement expiring in 2024 that relates to the Tulsa east storage tank and loading rack facilities acquired from Sinclair in 2009 and from Holly in March 2010);

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• Holly RPA (pipeline throughput agreement expiring in 2024 that relates to the Roadrunner Pipeline acquired from Holly in 2009);

• Holly ETA (equipment and throughput agreement expiring in 2024 that relates to the Tulsa west loading rack facilities acquired from Holly in 2009); and

• Holly ATA (loading rack throughput agreement expiring in 2025 that relates to the Lovington asphalt loading rack facility acquired from Holly in March 2010).

Under these agreements, Holly agreed to transport, store and throughput volumes of refined product and crude oil on our pipelines and terminal, tankage and loading rack facilities that result in minimum annual payments to us. These minimum annual payments or revenues will be adjusted each year at a percentage change based upon the change in the Producer Price Index (“PPI”) but will not decrease as a result of a decrease in the PPI. Under these agreements, the agreed upon tariff rates are adjusted each year on July 1 at a rate based upon the percentage change in the PPI or the Federal Energy Regulatory Commission (“FERC”) index, but with the exception of the Holly IPA, generally will not decrease as a result of a decrease in the PPI or FERC index. The FERC index is the change in the PPI plus a FERC adjustment factor that is reviewed periodically. Following the July 1, 2010 PPI adjustment, these agreements with Holly will result in minimum annualized payments to us of $132.4 million.

We also have a pipelines and terminals agreement with Alon expiring in 2020 under which Alon 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. The agreed upon tariff rates are increased or decreased annually at a rate equal to the percentage change in PPI, but not below the initial tariff rate. Following the March 1, 2010 PPI adjustment, Alon’s minimum annualized commitment to us is $22.7 million.

If Holly or Alon fails to meet their minimum volume commitments under the agreements in any quarter, it will be required to pay us in cash the amount of any shortfall by the last day of the month following the end of the quarter. A shortfall payment under the Holly PTA, Holly IPA and Alon PTA may be applied as a credit in the following four quarters after minimum obligations are met.

We entered into an omnibus agreement with Holly in 2004 that Holly and we have amended and restated several times in connection with our past acquisitions from Holly with the last amendment and restatement occurring on March 31, 2010 (the “Omnibus Agreement”). Under certain provisions of the Omnibus Agreement, we pay Holly an annual administrative fee, currently $2.3 million, for the provision by Holly or its affiliates of various general and administrative services to us. This fee does not include the salaries of pipeline and terminal personnel or the cost of their employee benefits, which are separately charged to us by Holly. Also, we reimburse Holly and its affiliates for direct expenses they incur on our behalf.

Related party transactions with Holly are as follows:

• Revenues received from Holly were $37.1 million and $25.1 million for the three months ended June 30, 2010 and 2009, respectively, and $70.7 million and $43.4 million for the six months ended June 30, 2010 and 2009, respectively.

• Holly charged general and administrative services under the Omnibus Agreement of $0.6 million for the three months ended June 30, 2010 and 2009 and $1.2 million for the six months ended June 30, 2010 and 2009.

• We reimbursed Holly for costs of employees supporting our operations of $4.6 million and $4 million for the three months ended June 30, 2010 and 2009, respectively, and $8.8 million and $8.6 million for the six months ended June 30, 2010 and 2009, respectively.

• We paid Holly a $2.5 million finder’s fee in connection the acquisition of our 25% joint venture interest in the SLC Pipeline in the first quarter of 2009.

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• We distributed $8.8 million and $7.1 million for the three months ended June 30, 2010 and 2009, respectively, to Holly as regular distributions on its common units, subordinated units and general partner interest, including general partner incentive distributions. We distributed $17.4 million and $14 million during the six months ended June 30, 2010 and 2009, respectively.

• Accounts receivable from Holly were $16.7 million and $14.1 million at June 30, 2010 and December 31, 2009, respectively.

• Accounts payable to Holly were $2.9 million and $2.4 million at June 30, 2010 and December 31, 2009, respectively.

• Holly failed to meet its minimum volume commitment for each of the twenty quarters since inception of the Holly IPA. Through June 30, 2010, we have charged Holly $12.4 million for these shortfalls of which $0.7 million is included in affiliate accounts receivable at June 30, 2010 and December 31, 2009.

• Revenues for the three and the six months ended June 30, 2010 include $0.5 million and $2.3 million of shortfalls billed under the Holly IPA in 2009 as Holly did not exceed its minimum volume commitment in any of the subsequent four quarters. Deferred revenue in the consolidated balance sheets at June 30, 2010 and December 31, 2009, includes $3.2 million and $3.6 million, respectively, relating to the Holly IPA. It is possible that Holly may not exceed its minimum obligations under the Holly IPA to allow Holly to receive credit for any of the $3.2 million deferred at June 30, 2010.

• We acquired the Tulsa east and Lovington storage assets, Roadrunner and Beeson Pipelines, Tulsa loading racks and a 16-inch intermediate pipeline from Holly in March 2010, December 2009, August 2009 and June 2009, respectively. See Note 3 for a description of these transactions.

Alon became a related party when it acquired all of our Class B subordinated units in connection with our acquisition of assets from them in February 2005. In May 2010, all of the conditions necessary to end the subordination period for the 937,500 Class B subordinated units originally issued to Alon were met and the units were converted into our common units on a one-for-one basis.

Related party transactions with Alon are as follows:

• Revenues received from Alon were $4.6 million and $9.2 million for the three months ended June 30, 2010 and 2009, respectively, and $8.5 million and $17 million for the six months ended June 30, 2010 and 2009, respectively under the Alon PTA. Additionally, revenues received under a pipeline capacity lease agreement with Alon were $1.6 million and $1.7 million for three months ended June 30, 2010 and 2009, respectively, and $3.2 million and $3.4 million for the six months ended June 30, 2010 and 2009, respectively.

• We distributed $0.7 million for the three months ended June 30, 2010 and 2009, and $1.5 million and $1.4 million for the six months ended June 30, 2010 and 2009, respectively, to Alon for distributions on its units.

• Accounts receivable — trade include receivable balances from Alon of $4.5 million at June 30, 2010 and $4 million at December 31, 2009.

• Revenues for the three and the six months ended June 30, 2010 include $1.1 million and $1.8 million, respectively, of shortfalls billed under the Alon PTA in 2010, as Alon did not exceed its minimum revenue obligation in any of the subsequent four quarters. Deferred revenue in the consolidated balance sheets at June 30, 2010 and December 31, 2009 includes $7.8 million and $4.8 million, respectively, relating to the Alon PTA. It is possible that Alon may not exceed its minimum obligations under the Alon PTA to allow Alon to receive credit for any of the $7.8 million deferred at June 30, 2010.

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Note 11: Partners’ Equity

Holly currently holds 7,290,000 of our common units and the 2% general partner interest, which together constitutes a 34% ownership interest in us.

Issuances of units

We issued 1,373,609 of our common units having a value of $53.5 million to Sinclair as partial consideration of our total $79.2 million purchase of Sinclair’s Tulsa logistics assets in December 2009.

We issued in a public offering 2,185,000 of our common units priced at $35.78 per unit in November 2009. Aggregate net proceeds of $74.9 million were used to fund the cash portion of our December 2009 asset acquisitions, to repay outstanding borrowings under the Credit Agreement and for general partnership purposes.

Additionally, we issued in a public offering 2,192,400 of our common units priced at $27.80 per unit in May 2009. Net proceeds of $58.4 million were used to repay outstanding borrowings under the Credit Agreement and for general partnership purposes.

We received aggregate capital contributions of $3.8 million from our general partner to maintain its 2% general partner interest concurrent with the 2009 common unit issuances described above.

Under our registration statement filed with the SEC using a “shelf” registration process, we currently have the ability to raise $860 million through security offerings, 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.

Allocations of Net Income

Net income attributable to Holly Energy Partners, L.P. is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions that are declared subsequent to quarter end. After the amount of incentive distributions is allocated to the general partner, the remaining net income attributable to HEP is generally allocated to the partners based on their weighted-average ownership percentage during the period.

The following table presents the allocation of the general partner interest in net income:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(In thousands, except per unit data)
General partner interest in net income	$	220	$	304	$	388	$	392
General partner incentive distribution		2,689		1,545		5,167		2,750
Total general partner interest in net income attributable to HEP	$	2,909	$	1,849	$	5,555	$	3,142

Cash Distributions

Our general partner, HEP Logistics Holdings, L.P., is entitled to incentive distributions if the amount we distribute with respect to any quarter exceeds specified target levels.

On July 23, 2010, we announced our cash distribution for the first quarter of 2010 of $0.825 per unit. The distribution is payable on all common, subordinated, and general partner units and will be paid August 13, 2010 to all unitholders of record on August 3, 2010.

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The following table presents the allocation of our regular quarterly cash distributions to the general and limited partners for the periods in which they apply. Our distributions are declared subsequent to quarter end; therefore, the amounts presented do not reflect distributions paid during the periods presented below.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(In thousands, except per unit data)
General partner interest	$	427	$	328	$	844	$	611
General partner incentive distribution		2,689		1,545		5,167		2,750
Total general partner distribution		3,116		1,873		6,011		3,361
Limited partner distribution		18,215		14,552		36,209		27,214
Total regular quarterly cash distribution	$	21,331	$	16,425	$	42,220	$	30,575
Cash distribution per unit applicable to limited partners	$	0.825	$	0.785	$	1.640	$	1.560

As a master limited partnership, we distribute our available cash, which has historically exceeded our net income because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our equity since our regular quarterly distributions have exceeded our quarterly net income. Additionally, if the assets transferred to us upon our initial public offering in 2004, the intermediate pipelines purchased from Holly in 2005 and the assets purchased from Holly in 2009 and March 2010 had been acquired from third parties, our acquisition cost in excess of Holly’s basis in the transferred assets of $214.4 million would have been recorded in our financial statements as increases to our properties and equipment and intangible assets instead of decreases to partners’ equity.

Comprehensive Income

We have other comprehensive income (losses) resulting from fair value adjustments to our cash flow hedge. Our comprehensive income is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands)
Net income	$	13,435		$	16,819		$	24,137		$	22,753
Other comprehensive income (loss):
Change in fair value of cash flow hedge		(1,696	)		4,417			(3,057	)		4,267
Reclassification adjustment to net income on partial settlement of cash flow hedge		1,076			—			1,076			—
Other comprehensive income (loss)		(620	)		4,417			(1,981	)		4,267
Comprehensive income		12,815			21,236			22,156			27,020
Less noncontrolling interest in comprehensive income		—			(427	)		—			(922	)
Comprehensive income attributable to HEP unitholders	$	12,815		$	20,809		$	22,156		$	26,098

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Note 12: Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of Holly Energy Partners, L.P. (“Parent”) under the 6.25% Senior Notes and 8.25% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect wholly-owned subsidiaries (“Guarantor Subsidiaries”). These guarantees are full and unconditional.

We sold our 70% interest in Rio Grande on December 1, 2009; therefore, Rio Grande is no longer a subsidiary of HEP. Rio Grande (“Non-Guarantor”) was the only subsidiary that did not guarantee these obligations. Amounts attributable to Rio Grande prior to our sale are presented in discontinued operations.

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

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Condensed Consolidating Balance Sheet

				Guarantor
June 30, 2010	Parent			Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2		$	2,804	$	—		$	2,806
Accounts receivable		—			23,088		—			23,088
Intercompany accounts receivable (payable)		(35,489	)		35,489		—			—
Prepaid and other current assets		62			877		—			939
Total current assets		(35,425	)		62,258		—			26,833
Properties and equipment, net		—			430,250		—			430,250
Investment in subsidiaries		494,717			—		(494,717	)		—
Transportation agreements, net		—			111,963		—			111,963
Goodwill		—			49,109		—			49,109
Investment in SLC Pipeline		—			25,819		—			25,819
Other assets		1,242			600		—			1,842
Total assets	$	460,534		$	679,999	$	(494,717	)	$	645,816
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—		$	6,340	$	—		$	6,340
Accrued interest		7,670			18		—			7,688
Deferred revenue		—			10,923		—			10,923
Accrued property taxes		—			990		—			990
Other current liabilities		574			27		—			601
Total current liabilities		8,244			18,298		—			26,542
Long-term debt		332,479			155,000		—			487,479
Other long-term liabilities		—			11,984		—			11,984
Partners’ equity		119,811			494,717		(494,717	)		119,811
Total liabilities and partners’ equity	$	460,534		$	679,999	$	(494,717	)	$	645,816

Condensed Consolidating Balance Sheet

				Guarantor
December 31, 2009	Parent			Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2		$	2,506	$	—		$	2,508
Accounts receivable		—			18,767		—			18,767
Intercompany accounts receivable (payable)		(76,855	)		76,855		—			—
Prepaid and other current assets		261			478		—			739
Current assets of discontinued operations		—			2,195		—			2,195
Total current assets		(76,592	)		100,801		—			24,209
Properties and equipment, net		—			398,044		—			398,044
Investment in subsidiaries		458,381			—		(458,381	)		—
Transportation agreements, net		—			115,436		—			115,436
Goodwill		—			49,109		—			49,109
Investment in SLC Pipeline		—			25,919		—			25,919
Other assets		3,267			861		—			4,128
Total assets	$	385,056		$	690,170	$	(458,381	)	$	616,845
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—		$	6,211	$	—		$	6,211
Accrued interest		2,849			14		—			2,863
Deferred revenue		—			8,402		—			8,402
Accrued property taxes		—			1,072		—			1,072
Other current liabilities		961			296		—			1,257
Total current liabilities		3,810			15,995		—			19,805
Long-term debt		184,827			206,000		—			390,827
Other long-term liabilities		2,555			9,794		—			12,349
Partners’ equity		193,864			458,381		(458,381	)		193,864
Total liabilities and partners’ equity	$	385,056		$	690,170	$	(458,381	)	$	616,845

- 22 -

Condensed Consolidating Statement of Income

				Guarantor
Three months ended June 30, 2010	Parent			Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	37,079		$	—		$	37,079
Third parties		—			8,404			—			8,404
		—			45,483			—			45,483
Operating costs and expenses:
Operations		—			13,495			—			13,495
Depreciation and amortization		—			7,591			—			7,591
General and administrative		1,281			632			—			1,913
		1,281			21,718			—			22,999
Operating income (loss)		(1,281	)		23,765			—			22,484
Equity in earnings of subsidiaries		20,833			—			(20,833	)		—
Equity in earnings of SLC Pipeline		—			544			—			544
Interest income (expense)		(6,117	)		(3,430	)		—			(9,547	)
Other		—			—			—			—
		14,716			(2,886	)		(20,833	)		(9,003	)
Income (loss) before income taxes		13,435			20,879			(20,833	)		13,481
State income tax		—			(46	)		—			(46	)
Net income	$	13,435		$	20,833		$	(20,833	)	$	13,435

Condensed Consolidating Statement of Income

				Guarantor			Non-
Three months ended June 30, 2009	Parent			Subsidiaries			Guarantor		Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	25,064		$	—	$	—		$	25,064
Third parties		—			12,935			—		—			12,935
		—			37,999			—		—			37,999
Operating costs and expenses:
Operations		—			10,631			—		—			10,631
Depreciation and amortization		—			6,613			—		—			6,613
General and administrative		1,287			510			—		—			1,797
		1,287			17,754			—		—			19,041
Operating income (loss)		(1,287	)		20,245			—		—			18,958
Equity in earnings of subsidiaries		19,554			996			—		(20,550	)		—
Equity in earnings of SLC Pipeline		—			423			—		—			423
Interest income (expense)		(1,875	)		(2,527	)		—		—			(4,402	)
Other		—			65			—		—			65
		17,679			(1,043	)		—		(20,550	)		(3,914	)
Income (loss) from continuing operations before income taxes		16,392			19,202			—		(20,550	)		15,044
State income tax		—			(93	)		—		—			(93	)
Income from continuing operations		16,392			19,109			—		(20,550	)		14,951
Income from discontinued operations		—			445			1,423		(427	)		1,441
Net income	$	16,392		$	19,554		$	1,423	$	(20,977	)	$	16,392

- 23 -

Condensed Consolidating Statement of Income

				Guarantor
Six months ended June 30, 2010	Parent			Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	70,676		$	—		$	70,676
Third parties		—			15,503			—			15,503
		—			86,179			—			86,179
Operating costs and expenses:
Operations		—			26,555			—			26,555
Depreciation and amortization		—			14,801			—			14,801
General and administrative		3,082			1,394			—			4,476
		3,082			42,750			—			45,832
Operating income (loss)		(3,082	)		43,429			—			40,347
Equity in earnings of subsidiaries		38,318			—			(38,318	)		—
Equity in earnings of SLC Pipeline		—			1,025			—			1,025
Interest income (expense)		(11,099	)		(5,989	)		—			(17,088	)
Other		—			(7	)		—			(7	)
		27,219			(4,971	)		(38,318	)		(16,070	)
Income (loss) before income taxes		24,137			38,458			(38,318	)		24,277
State income tax		—			(140	)		—			(140	)
Net income	$	24,137		$	38,318		$	(38,318	)	$	24,137

Condensed Consolidating Statement of Income

				Guarantor			Non-
Six months ended June 30, 2009	Parent			Subsidiaries			Guarantor		Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	43,387		$	—	$	—		$	43,387
Third parties		—			23,944			—		—			23,944
		—			67,331			—		—			67,331
Operating costs and expenses:
Operations		—			20,973			—		—			20,973
Depreciation and amortization		—			12,629			—		—			12,629
General and administrative		1,985			1,146			—		—			3,131
		1,985			34,748			—		—			36,733
Operating income (loss)		(1,985	)		32,583			—		—			30,598
Equity in earnings of subsidiaries		28,618			2,152			—		(30,770	)		—
Equity in earnings of SLC Pipeline		—			598			—		—			598
SLC Pipeline acquisition costs		—			(2,500	)		—		—			(2,500	)
Interest income (expense)		(4,802	)		(4,997	)		—		—			(9,799	)
Other		—			65			—		—			65
		23,816			(4,682	)		—		(30,770	)		(11,636	)
Income (loss) from continuing operations before income taxes		21,831			27,901			—		(30,770	)		18,962
State income tax		—			(166	)		—		—			(166	)
Income from continuing operations		21,831			27,735			—		(30,770	)		18,796
Income from discontinued operations		—			883			3,074		(922	)		3,035
Net income	$	21,831		$	28,618		$	3,074	$	(31,692	)	$	21,831

- 24 -

Condensed Consolidating Statement of Cash Flows

				Guarantor
Six months ended June 30, 2010	Parent			Subsidiaries			Eliminations		Consolidated
	(in thousands)
Cash flows from operating activities	$	(103,599	)	$	148,785		$	—	$	45,186
Cash flows from investing activities
Additions to properties and equipment		—			(4,487	)		—		(4,487	)
Acquisition of assets from Holly Corporation		—			(39,040	)		—		(39,040	)
		—			(43,527	)		—		(43,527	)
Cash flows from financing activities
Net repayments under credit agreement		—			(51,000	)		—		(51,000	)
Net proceeds from issuance of senior notes		147,540			—			—		147,540
Purchase price in excess of transferred basis in assets acquired from Holly Corporation		—			(53,960	)		—		(53,960	)
Distributions to HEP unitholders		(41,312	)		—			—		(41,312	)
Purchase of units for restricted grants		(2,276	)		—			—		(2,276	)
Deferred financing costs		(353	)		—			—		(353	)
		103,599			(104,960	)		—		(1,361	)
Cash and cash equivalents
Increase (decrease) for the period		—			298			—		298
Beginning of period		2			2,506			—		2,508
End of period	$	2		$	2,804		$	—	$	2,806

Condensed Consolidating Statement of Cash Flows

				Guarantor			Non-
Six months ended June 30, 2009	Parent			Subsidiaries			Guarantor			Eliminations			Consolidated
	(in thousands)
Cash flows from operating activities	$	(31,418	)	$	61,676		$	3,392		$	(1,400	)	$	32,250
Cash flows from investing activities
Additions to properties and equipment		—			(55,962	)		(64	)		—			(56,026	)
Investment in SLC Pipeline		—			(25,500	)		—			—			(25,500	)
		—			(81,462	)		(64	)		—			(81,526	)
Cash flows from financing activities
Net borrowings under credit agreement		—			18,000			—			—			18,000
Proceeds from issuance of common units		58,355			—			—			—			58,355
Capital contribution from general partner		1,191			—			—			—			1,191
Distributions to HEP unitholders		(27,968	)		—			(2,000	)		2,000			(27,968	)
Distributions to noncontrolling interest		—			—			—			(600	)		(600	)
Cost of issuing common units		(160	)		—			—						(160	)
Purchase of units for restricted grants		—			(616	)		—			—			(616	)
		31,418			17,384			(2,000	)		1,400			48,202
Cash and cash equivalents
Increase (decrease) for the period		—			(2,402	)		1,328			—			(1,074	)
Beginning of period		2			3,706			1,561			—			5,269
End of period	$	2		$	1,304		$	2,889		$	—		$	4,195

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HOLLY ENERGY PARTNERS, L.P.

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

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

OVERVIEW

Holly Energy Partners, L.P. is a Delaware limited partnership. We own and operate petroleum product and crude oil pipeline and terminal, tankage and loading rack facilities that support Holly Corporation’s (“Holly”) refining and marketing operations in west Texas, New Mexico, Utah, Oklahoma, Idaho and Arizona. Holly currently owns a 34% interest in us including the 2% general partner interest. We also own and operate refined product pipelines and terminals, located primarily in Texas, that service Alon’s (“Alon”) refinery in Big Spring, Texas. Additionally, we own a 25% joint venture interest in a 95-mile intrastate crude oil pipeline system (the “SLC Pipeline”) that serves refineries in the Salt Lake City area.

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

2010 Acquisitions

Tulsa East / Lovington Storage Asset Transaction

On March 31, 2010, we acquired from Holly certain storage assets for $93 million, consisting of hydrocarbon storage tanks having approximately 2 million barrels of storage capacity, a rail loading rack and a truck unloading rack located at Holly’s Tulsa refinery east facility and an asphalt loading rack facility located at Holly’s Navajo refinery facility in Lovington, New Mexico.

2009 Acquisitions

Sinclair Logistics and Storage Assets Transaction

On December 1, 2009, we acquired from an affiliate of Sinclair Oil Company (“Sinclair”) storage tanks having approximately 1.4 million barrels of storage capacity and loading racks at its refinery located in Tulsa, Oklahoma for $79.2 million.

Roadrunner / Beeson Pipelines Transaction

Also on December 1, 2009, we acquired from Holly two newly constructed pipelines for $46.5 million, consisting of a 65-mile, 16-inch crude oil pipeline (the “Roadrunner Pipeline”) that connects the Navajo refinery Lovington facility to a terminus of Centurion Pipeline L.P.’s pipeline extending between west Texas and Cushing, Oklahoma and a 37-mile, 8-inch crude oil pipeline that connects our New Mexico crude oil gathering system to the Navajo refinery Lovington facility (the “Beeson Pipeline”).

Tulsa Loading Racks Transaction

On August 1, 2009, we acquired from Holly certain truck and rail loading/unloading facilities located at Holly’s Tulsa refinery west facility for $17.5 million. The racks load refined products and lube oils produced at the Tulsa refinery onto rail cars and/or tanker trucks.

- 26 -

Lovington-Artesia Pipeline Transaction

On June 1, 2009, we acquired from Holly a newly constructed 16-inch intermediate pipeline for $34.2 million that runs 65 miles from the Navajo Refinery’s crude oil distillation and vacuum facilities in Lovington, New Mexico to its petroleum refinery located in Artesia, New Mexico.

SLC Pipeline Joint Venture Interest

On March 1, 2009, we acquired a 25% joint venture interest in the SLC Pipeline, a new 95-mile intrastate pipeline system that we jointly own with Plains All American Pipeline, L.P. (“Plains”). The total cost of our investment in the SLC Pipeline was $28 million, consisting of the capitalized $25.5 million joint venture contribution and the $2.5 million finder’s fee paid to Holly that was expensed as acquisition costs.

Holly Capacity Expansion

Also in March 2009 Holly, our largest customer, completed a 15,000 barrels per stream day (“bpsd”) capacity expansion of its Navajo refinery increasing refining capacity to 100,000 bpsd, or by 18%.

Rio Grande Pipeline Sale

On December 1, 2009, we sold our 70% interest in the Rio Grande Pipeline Company (“Rio Grande”) to a subsidiary of Enterprise Products Partners LP for $35 million. Accordingly, the results of operations of Rio Grande are presented in discontinued operations.

Agreements with Holly Corporation and Alon

We serve Holly’s refineries in New Mexico, Utah and Oklahoma under the following long-term pipeline and terminal, tankage and throughput agreements:

• Holly PTA (pipelines and terminals throughput agreement expiring in 2019 that relates to the pipelines and terminal assets contributed to us by Holly upon our initial public offering in 2004);

• Holly IPA (intermediate pipelines throughput agreement expiring in 2024 that relates to the intermediate pipelines acquired from Holly in 2005 and 2009);

• Holly CPTA (crude pipelines and tankage throughput agreement expiring in 2023 that relates to the crude pipelines and tankage assets acquired from Holly in 2008);

• Holly PTTA (pipeline, tankage and loading rack throughput agreement expiring in 2024 that relates to the Tulsa east storage tank and loading rack facilities acquired from Sinclair in 2009 and from Holly in March 2010);

• Holly RPA (pipeline throughput agreement expiring in 2024 that relates to the Roadrunner Pipeline acquired from Holly in 2009);

• Holly ETA (equipment and throughput agreement expiring in 2024 that relates to the Tulsa west loading rack facilities acquired from Holly in 2009); and

• Holly ATA (loading rack throughput agreement expiring in 2025 that relates to the Lovington asphalt loading rack facility acquired from Holly in March 2010).

Under these agreements, Holly agreed to transport, store and throughput volumes of refined product and crude oil on our pipelines and terminal, tankage and loading rack facilities that result in minimum annual payments to us. These minimum annual payments or revenues will be adjusted each year at a percentage change based upon the change in the Producer Price Index (“PPI”) but will not decrease as a result of a decrease in the PPI. Under these agreements, the agreed upon tariff rates are adjusted each year on July 1 at a rate based upon the percentage change in the PPI or Federal Energy Regulatory Commission (“FERC”) index, but with the exception of the Holly IPA, generally will not decrease as a result of a decrease in the PPI or FERC index. The FERC index is the change in the PPI plus a FERC adjustment factor that is reviewed periodically.

We also have a pipelines and terminals agreement with Alon expiring in 2020 under which Alon 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. The agreed upon tariff rates are increased or decreased annually at a rate equal to the percentage change in PPI, but not below the initial tariff rate.

- 27 -

At July 1, 2010, contractual minimums under our long-term service agreements are as follows:

	Minimum Annualized
	Commitment
Agreement	(In millions)		Year of Maturity	Contract Type
Holly PTA	$	43.7	2019	Minimum revenue commitment
Holly IPA		20.7	2024	Minimum revenue commitment
Holly CPTA		28.4	2023	Minimum revenue commitment
Holly PTTA		27.2	2024	Minimum revenue commitment
Holly RPA		9.2	2024	Minimum revenue commitment
Holly ETA		2.7	2024	Minimum revenue commitment
Holly ATA		0.5	2025	Minimum revenue commitment
Alon PTA		22.7	2020	Minimum volume commitment
Alon capacity lease		6.4	Various	Capacity lease
Total	$	161.5

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

We entered into an omnibus agreement with Holly in 2004 that Holly and we have amended and restated several times in connection with our past acquisitions from Holly with the last amendment and restatement occurring on March 31, 2010 (the “Omnibus Agreement”). Under certain provisions of the Omnibus Agreement, we pay Holly an annual administrative fee, currently $2.3 million, for the provision by Holly or its affiliates of various general and administrative services to us. This fee does not include the salaries of pipeline and terminal personnel or the cost of their employee benefits, which are separately charged to us by Holly. Also, we reimburse Holly and its affiliates for direct expenses they incur on our behalf.

- 28 -

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow and Volumes

The following tables present income, distributable cash flow and volume information for the three and the six months ended June 30, 2010 and 2009.

	Three Months Ended						Change
	June 30,						from
	2010			2009			2009
	(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates — refined product pipelines	$	12,067		$	11,366		$	701
Affiliates — intermediate pipelines		4,964			4,302			662
Affiliates — crude pipelines		9,728			6,751			2,977
		26,759			22,419			4,340
Third parties — refined product pipelines		6,455			11,098			(4,643	)
		33,214			33,517			(303	)
Terminals and loading racks:
Affiliates		10,320			2,645			7,675
Third parties		1,949			1,837			112
		12,269			4,482			7,787
Total revenues		45,483			37,999			7,484
Operating costs and expenses
Operations		13,495			10,631			2,864
Depreciation and amortization		7,591			6,613			978
General and administrative		1,913			1,797			116
		22,999			19,041			3,958
Operating income		22,484			18,958			3,526
Equity in earnings of SLC Pipeline		544			423			121
Interest income		2			2			—
Interest expense, including amortization		(9,549	)		(4,404	)		(5,145	)
Other		—			65			(65	)
		(9,003	)		(3,914	)		(5,089	)
Income from continuing operations before income taxes		13,481			15,044			(1,563	)
State income tax		(46	)		(93	)		47
Income from continuing operations		13,435			14,951			(1,516	)
Income from discontinued operations, net of noncontrolling interest of $427 (1)		—			1,441			(1,441	)
Net income		13,435			16,392			(2,957	)
Less general partner interest in net income, including incentive distributions (2)		2,909			1,849			1,060
Limited partners’ interest in net income	$	10,526		$	14,543		$	(4,017	)
Limited partners’ earnings per unit — basic and diluted (2)
Income from continuing operations	$	0.48		$	0.74		$	(0.26	)
Income from discontinued operations		—			0.08			(0.08	)
Net income	$	0.48		$	0.82		$	(0.34	)
Weighted average limited partners’ units outstanding		22,079			17,789			4,290
EBITDA (3)	$	30,619		$	27,759		$	2,860
Distributable cash flow (4)	$	22,673		$	16,415		$	6,258
Volumes from continuing operations (bpd) (1)
Pipelines:
Affiliates — refined product pipelines		98,464			94,738			3,726
Affiliates — intermediate pipelines		86,140			70,543			15,597
Affiliates — crude pipelines		141,263			142,598			(1,335	)
		325,867			307,879			17,988
Third parties — refined product pipelines		34,844			43,854			(9,010	)
		360,711			351,733			8,978
Terminals and loading racks:
Affiliates		186,515			115,221			71,294
Third parties		37,902			40,742			(2,840	)
		224,417			155,963			68,454
Total for pipelines and terminal assets (bpd)		585,128			507,696			77,432

- 29 -

	Six Months Ended						Change
	June 30,						from
	2010			2009			2009
	(In thousands, except per unit data)
Revenues
Pipelines:
Affiliates — refined product pipelines	$	23,547		$	18,919		$	4,628
Affiliates — intermediate pipelines		10,756			6,068			4,688
Affiliates — crude pipelines		19,133			13,652			5,481
		53,436			38,639			14,797
Third parties — refined product pipelines		11,859			20,573			(8,714	)
		65,295			59,212			6,083
Terminals and loading racks:
Affiliates		17,240			4,748			12,492
Third parties		3,644			3,371			273
		20,884			8,119			12,765
Total revenues		86,179			67,331			18,848
Operating costs and expenses
Operations		26,555			20,973			5,582
Depreciation and amortization		14,801			12,629			2,172
General and administrative		4,476			3,131			1,345
		45,832			36,733			9,099
Operating income		40,347			30,598			9,749
Equity in earnings of SLC Pipeline		1,025			598			427
SLC Pipeline acquisition costs		—			(2,500	)		2,500
Interest income		5			8			(3	)
Interest expense, including amortization		(17,093	)		(9,807	)		(7,286	)
Other		(7	)		65			(72	)
		(16,070	)		(11,636	)		(4,434	)
Income from continuing operations before income taxes		24,277			18,962			5,315
State income tax		(140	)		(166	)		26
Income from continuing operations		24,137			18,796			5,341
Income from discontinued operations, net of noncontrolling interest of $922 (1)		—			3,035			(3,035	)
Net income		24,137			21,831			2,306
Less general partner interest in net income, including incentive distributions (2)		5,555			3,142			2,413
Limited partners’ interest in net income	$	18,582		$	18,689		$	(107	)
Limited partners’ earnings per unit — basic and diluted (2)
Income from continuing operations	$	0.84		$	0.92		$	(0.08	)
Income from discontinued operations		—			0.18			(0.18	)
Net income	$	0.84		$	1.10		$	(0.26	)
Weighted average limited partners’ units outstanding		22,079			17,058			5,021
EBITDA (3)	$	56,166		$	44,943		$	11,223
Distributable cash flow (4)	$	42,831		$	30,999		$	11,832
Volumes from continuing operations (bpd) (1)
Pipelines:
Affiliates — refined product pipelines		95,937			78,628			17,309
Affiliates — intermediate pipelines		82,649			52,520			30,129
Affiliates — crude pipelines		138,094			132,459			5,635
		316,680			263,607			53,073
Third parties — refined product pipelines		32,850			46,557			(13,707	)
		349,530			310,164			39,366
Terminals and loading racks:
Affiliates		175,218			99,118			76,100
Third parties		36,381			42,067			(5,686	)
		211,599			141,185			70,414
Total for pipelines and terminal assets (bpd)		561,129			451,349			109,780

(1) On December 1, 2009, we sold our 70% interest in Rio Grande. Results of operations of Rio Grande are presented in discontinued operations. Pipeline volume information excludes volumes attributable to Rio Grande.

- 30 -

(2)	Net income is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes incentive distributions declared subsequent to quarter end. Net income attributable to the limited partners is divided by the weighted average limited partner units outstanding in computing the limited partners’ per unit interest in net income.
(3)	EBITDA is calculated as net income plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon GAAP. However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements, with the exception of EBITDA from discontinued operations. EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA also is used by our management for internal analysis and as a basis for compliance with financial covenants.
	Set forth below is our calculation of EBITDA.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands)
Income from continuing operations	$	13,435		$	14,951		$	24,137		$	18,796
Add (subtract):
Interest expense		8,209			5,071			14,095			10,082
Amortization of discount and deferred debt issuance costs		264			177			458			353
Increase in interest expense — change in fair value of interest rate swaps and swap settlement costs		1,076			(844	)		2,540			(628	)
Interest income		(2	)		(2	)		(5	)		(8	)
State income tax		46			93			140			166
Depreciation and amortization		7,591			6,613			14,801			12,629
EBITDA from discontinued operations		—			1,700			—			3,553
EBITDA	$	30,619		$	27,759		$	56,166		$	44,943

(4) Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts separately presented in our consolidated financial statements, with the exception of equity in excess cash flows over earnings of SLC Pipeline, maintenance capital expenditures and distributable cash flow from discontinued operations. Distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It also is used by management for internal analysis and 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.

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Set forth below is our calculation of distributable cash flow.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands)
Income from continuing operations	$	13,435		$	14,951		$	24,137		$	18,796
Add (subtract):
Depreciation and amortization		7,591			6,613			14,801			12,629
Amortization of discount and deferred debt issuance costs		264			177			458			353
Increase in interest expense — change in fair value of interest rate swaps and swap settlement costs		1,076			(844	)		2,540			(628	)
Equity in excess cash flows over earnings of SLC Pipeline		174			167			352			220
Increase (decrease) in deferred revenue		1,414			(5,031	)		2,521			(4,669	)
SLC Pipeline acquisition costs*		—			—			—			2,500
Maintenance capital expenditures**		(1,281	)		(1,299	)		(1,978	)		(1,717	)
Distributable cash flow from discontinued operations		—			1,681			—			3,515
Distributable cash flow	$	22,673		$	16,415		$	42,831		$	30,999

*	We expensed the $2.5 million finder’s fee associated with our joint venture agreement with Plains that closed in March 2009. These costs directly relate to our interest in the new joint venture pipeline and are similar to expansion capital expenditures; accordingly, we have added back these costs to arrive at distributable cash flow.
**	Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity, safety and to address environmental regulations.

	June 30,		December 31,
	2010		2009
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	2,806	$	2,508
Working capital	$	291	$	4,404
Total assets	$	645,816	$	616,845
Long-term debt (5)	$	487,479	$	390,827
Partners’ equity (6)	$	119,811	$	193,864

(5)

Includes $155 million and $206 million of credit agreement advances at June 30, 2010 and December 31, 2009, respectively.

(6)

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income 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. Additionally, if the assets transferred to us upon our initial public offering in 2004, the intermediate pipelines purchased from Holly in 2005, and the assets purchased from Holly in 2009 and March 2010 had been acquired from third parties, our acquisition cost in excess of Holly’s basis in the transferred assets of $214.4 million would have been recorded in our financial statements as increases to our properties and equipment and intangible assets instead of decreases to partners’ equity.

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Results of Operations — Three Months Ended June 30, 2010 Compared with Three Months Ended June 30, 2009

Summary

Income from continuing operations for the three months ended June 30, 2010 was $13.4 million, a $1.5 million decrease compared to the three months ended June 30, 2009. This decrease in overall earnings is due principally to a decrease in previously deferred revenue realized, a decrease in third-party shipments and increased interest expense.

Revenues for the three months ended June 30, 2010 include the recognition of $1.6 million of prior shortfalls billed to shippers in 2009 as they did not meet their minimum volume commitments in any of the subsequent four quarters. Revenues of $3.1 million relating to deficiency payments associated with certain guaranteed shipping contracts were deferred during the three months ended June 30, 2010. Such deferred revenue will be recognized in 2010 either as payment for shipments in excess of guaranteed levels or when shipping rights expire unused after a twelve-month period.

Revenues

Total revenues from continuing operations for the three months ended June 30, 2010 were $45.5 million, a $7.5 million increase compared to the three months ended June 30, 2009. This is due principally to revenues attributable to our 2009 and March 2010 asset acquisitions and higher tariff rates on affiliate shipments. These factors were partially offset by a $4 million decrease in previously deferred revenue realized and a decrease in third-party shipments.

Revenues from our refined product pipelines were $18.5 million, a decrease of $3.9 million compared to the three months ended June 30, 2009. This decrease is due principally to a $3.7 million decrease in previously deferred revenue realized combined with an overall decrease in refined product shipments. Volumes on our refined product pipelines averaged 133.3 thousand barrels per day (“mbpd”) compared to 138.6 mbpd for the same period last year, reflecting a decline in third-party shipments that was partially offset by an increase in affiliate shipments.

Revenues from our intermediate pipelines were $5 million, an increase of $0.7 million compared to the three months ended June 30, 2009. This increase is due principally to volumes shipped on our 16-inch intermediate pipeline acquired in June 2009 that was partially offset by a $0.4 million decrease in previously deferred revenue realized. Shipments on our intermediate product pipeline system increased to an average of 86.1 mbpd compared to 70.5 mbpd for the same period last year.

Revenues from our crude pipelines were $9.7 million, an increase of $3 million compared to the three months ended June 30, 2009. This increase is due principally to $2.3 million in revenues attributable to our Roadrunner Pipeline agreement entered into in December 2009. Volumes on our crude pipelines averaged 141.3 mbpd compared to 142.6 mbpd for the same period last year.

Revenues from terminal, tankage and loading rack fees were $12.3 million, an increase of $7.8 million compared to the three months ended June 30, 2009. This increase includes $7.5 million in revenues attributable to volumes transferred and stored at our Tulsa facilities. Refined products terminalled in our facilities increased to an average of 224.4 mbpd compared to 156 mbpd for the same period last year.

Operations Expense

Operations expense for the three months ended June 30, 2010 increased by $2.9 million compared to the three months ended June 30, 2009. This increase was due principally to costs attributable to overall higher throughput volumes, including those from our 2009 and March 2010 asset acquisitions, and higher maintenance and payroll expense.

Depreciation and Amortization

Depreciation and amortization for the three months ended June 30, 2010 increased by $1 million compared to the three months ended June 30, 2009. This was due to increased depreciation attributable to our 2009 and March 2010 asset acquisitions and capital projects. Additionally, effective January 1, 2010, we revised the estimated useful lives of our terminal assets to 16 to 25 years resulting in a $0.8 million reduction in depreciation expense for the three months ended June 30, 2010.

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General and Administrative

General and administrative costs for the three months ended June 30, 2010 increased by $0.1 million compared to the three months ended June 30, 2009.

Equity in Earnings of SLC Pipeline

Our equity in earnings of the SLC Pipeline were $0.5 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively.

Interest Expense

Interest expense for the three months ended June 30, 2010 totaled $9.5 million, an increase of $5.1 million compared to the three months ended June 30, 2009. This increase reflects interest on our 8.25% senior notes and costs of $1.1 million from a partial settlement of an interest rate swap. For the three months ended June 30, 2009, fair value adjustments to our interest rate swaps resulted in a $0.8 million reduction in interest expense. Excluding the effects of these fair value adjustments, our aggregate effective interest rate was 7.7% for the three months ended June 30, 2010 compared to 5.3% for 2009, reflecting interest on our 8.25% senior notes issued in March 2010.

State Income Tax

We recorded state income taxes of $46,000 and $93,000 for the three months ended June 30, 2010 and 2009, respectively, which are solely attributable to the Texas margin tax.

Discontinued Operations

We sold our interest in Rio Grande on December 1, 2009. Income from discontinued operations for the three months ended June 30, 2009 consists of earnings generated by Rio Grande of $1.4 million for the second quarter of 2009, presented net of earnings attributable to noncontrolling interest holders of $0.4 million.

Results of Operations — Six Months Ended June 30, 2010 Compared with Six Months Ended June 30, 2009

Summary

Income from continuing operations for the six months ended June 30, 2010 was $24.1 million, a $5.3 million increase compared to the six months ended June 30, 2009. This increase in overall earnings is due principally to overall increased shipments on our pipeline systems, earnings attributable to our 2009 and March 2010 asset acquisitions and higher tariff rates on affiliate shipments. These factors were partially offset by increased operating costs and expenses, and interest expense.

Revenues for the six months ended June 30, 2010 include the recognition of $4.1 million of prior shortfalls billed to shippers in 2009 as they did not meet their minimum volume commitments in any of the subsequent four quarters. Revenues of $6.6 million relating to deficiency payments associated with certain guaranteed shipping contracts were deferred during the six months ended June 30, 2010. Such deferred revenue will be recognized in 2010 either as payment for shipments in excess of guaranteed levels or when shipping rights expire unused after a twelve-month period.

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Revenues

Total revenues from continuing operations for the six months ended June 30, 2010 were $86.2 million, an $18.8 million increase compared to the six months ended June 30, 2009. This increase is due principally to our recent asset acquisitions and higher tariffs on affiliate shipments, partially offset by a $4.7 million decrease in previously deferred revenue realized. On a year-to-date basis, overall pipeline shipments were up 13%, reflecting increased affiliate volumes attributable to Holly’s first quarter of 2009 Navajo refinery expansion, including volumes shipped on our new 16-inch intermediate and Beeson pipelines, partially offset by a decrease in third-party shipments. Additionally, prior year affiliate shipments reflect lower volumes as a result of production downtime during a major maintenance turnaround of the Navajo refinery during the first quarter of 2009.

Revenues from our refined product pipelines were $35.4 million, a decrease of $4.1 million compared to the six months ended June 30, 2009. This decrease is due principally to a $5.9 million decrease in previously deferred revenue realized that was partially offset by a slight increase in refined product shipments. Volumes on our refined product pipeline system averaged 128.8 mbpd compared to 125.2 mbpd for the same period last year reflecting an increase in affiliate shipments, partially offset by a decline in third-party shipments.

Revenues from our intermediate pipelines were $10.8 million, an increase of $4.7 million compared to the six months ended June 30, 2009. This increase includes a $1.2 million increase in previously deferred revenue realized. Additionally, shipments on our intermediate product pipeline system increased to an average of 82.6 mbpd compared to 52.5 mbpd for the same period last year reflecting volumes shipped on our 16-inch intermediate pipeline acquired in June 2009.

Revenues from our crude pipelines were $19.1 million, an increase of $5.5 million compared to the six months ended June 30, 2009. This increase is due principally to $4.6 million in revenues attributable to our Roadrunner Pipeline agreement entered into in December 2009. Additionally, shipments on our crude pipeline system increased to an average of 138.1 mbpd during the six months ended June 30, 2010 compared to 132.5 mbpd for the same period last year reflecting increased affiliate shipments.

Revenues from terminal, tankage and loading rack fees were $20.9 million, an increase of $12.8 million compared to the six months ended June 30, 2009. This increase includes $11.9 million in revenues attributable to volumes transferred and stored at our Tulsa facilities acquired in 2009 and March 2010. Refined products terminalled in our facilities increased to an average of 211.6 mbpd compared to 141.2 mbpd for the same period last year.

Operations Expense

Operations expense for the six months ended June 30, 2010 increased by $5.6 million compared to the six months ended June 30, 2009. This increase was due principally to costs attributable to overall higher throughput volumes, including those from our recent asset acquisitions, and higher maintenance and payroll expense.

Depreciation and Amortization

Depreciation and amortization for the six months ended June 30, 2010 increased by $2.2 million compared to the six months ended June 30, 2009. This was due to increased depreciation attributable to our 2009 and March 2010 asset acquisitions and capital projects. Additionally, effective January 1, 2010, we revised the estimated useful lives of our terminal assets to 16 to 25 years resulting in a $1.5 million reduction in depreciation expense for the six months ended June 30, 2010.

General and Administrative

General and administrative costs for the six months ended June 30, 2010 increased by $1.3 million compared to the six months ended June 30, 2009, due principally to increased professional fees, including costs attributable to our March 2010 asset acquisitions.

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Equity in Earnings of SLC Pipeline

The SLC Pipeline commenced pipeline operations effective March 2009. Our equity in earnings of the SLC Pipeline was $1 million and $0.6 million for the six months ended June 30, 2010 and 2009, respectively.

SLC Pipeline Acquisition Costs

We incurred a $2.5 million finder’s fee in connection with the acquisition our SLC Pipeline joint venture interest in March 2009. As a result of accounting requirements, we were required to expense rather than capitalize these direct acquisition costs.

Interest Expense

Interest expense for the six months ended June 30, 2010 totaled $17.1 million, an increase of $7.3 million compared to the six months ended June 30, 2009. This increase reflects interest on our 8.25% senior notes and costs of $1.1 million from a partial settlement of an interest rate swap. Fair value adjustments to our interest rate swaps resulted in a $1.5 million non-cash charge to interest expense for the six months ended June 30, 2010 compared to a $0.6 million non-cash reduction for the six months ended June 30, 2009. Excluding the effects of these fair value adjustments, our aggregate effective interest rate was 6.8% for the six months ended June 30, 2010 compared to 5.3% for 2009 reflecting interest on our 8.25% senior notes issued in March 2010.

State Income Tax

We recorded state income taxes of $0.1 million and $0.2 million for the six months ended June 30, 2010 and 2009, respectively, which are solely attributable to the Texas margin tax.

Discontinued Operations

We sold our interest in Rio Grande on December 1, 2009. Income from discontinued operations for the six months ended June 30, 2009 consists of earnings generated by Rio Grande of $3 million for the first six months of 2009, presented net of earnings attributable to noncontrolling interest holders of $0.9 million.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We have a $300 million senior secured revolving credit agreement expiring in August 2011 (the “Credit Agreement”). The Credit Agreement is available to fund capital expenditures, acquisitions, and working capital and for general partnership purposes. In addition, the Credit Agreement is available to fund letters of credit up to a $50 million sub-limit and to fund distributions to unitholders up to a $20 million sub-limit. During the six months ended June 30, 2010, we received advances totaling $39 million and repaid $90 million, resulting in the net repayment of $51 million in advances. As of June 30, 2010, we had $155 million outstanding under the Credit Agreement.

In March 2010, we issued $150 million in aggregate principal amount of 8.25% senior notes maturing March 15, 2018 (the “8.25% Senior Notes”). A portion of the $147.5 million in net proceeds received was used to fund our $93 million purchase of the Tulsa and Lovington storage assets from Holly on March 31, 2010. Additionally, we used a portion to repay $42 million in outstanding Credit Agreement borrowings, with the remaining proceeds available for general partnership purposes, including working capital and capital expenditures. In addition, we have outstanding $185 million in aggregate principal amount of 6.25% senior notes maturing March 1, 2015 (the “6.25% Senior Notes”) that are registered with the SEC.

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Under our registration statement filed with the SEC using a “shelf” registration process, we currently have the ability to raise $860 million through security offerings, 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.

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 February and May 2010 we paid regular quarterly cash distributions of $0.805 and $0.815, on all units in an aggregate amount of $41.3 million. Included in these distributions were $4.7 million of payments to the general partner as an incentive distribution.

Cash flows from continuing and discontinued operations have been combined for presentation purposes in the Consolidated Statements of Cash Flows. For the six months ended June 30, 2009, net cash flows from our discontinued Rio Grande operations were $4.1 million.

Cash and cash equivalents increased by $0.3 million during the six months ended June 30, 2010. Cash flows provided by operating activities of $45.2 million exceeded the combined cash flows used for investing and financing activities of $43.5 million and $1.4 million, respectively. Working capital for the six months ended June 30, 2010 decreased by $4.1 million.

Cash Flows — Operating Activities

Cash flows from operating activities increased by $12.9 million from $32.3 million for the six months ended June 30, 2009 to $45.2 million for the six months ended June 30, 2010. This increase is due principally to $18 million in additional cash collections from our major customers, resulting principally from increased revenues, partially offset by year-over-year changes in payments attributable to costs of increased operations.

Our major shippers are obligated to make deficiency payments to us if they do not meet their minimum volume shipping obligations. Under certain agreements with these shippers, they have the right to recapture these amounts if future volumes exceed minimum levels. For the six months ended June 30, 2010, we received cash payments of $6.2 million under these commitments. We billed $4.1 million during the six months ended June 30, 2009 related to shortfalls that subsequently expired without recapture and were recognized as revenue during the six months ended June 30, 2010. Another $3.1 million is included in our accounts receivable at June 30, 2010 related to shortfalls that occurred during the second quarter of 2010.

Cash Flows — Investing Activities

Cash flows used for investing activities decreased by $38 million from $81.5 million for the six months ended June 30, 2009 to $43.5 million for the six months ended June 30, 2010. During the six months ended June 30, 2010, we acquired storage assets from Holly for $39 million and invested $4.5 million in additions to properties and equipment. For the six months ended June 30, 2009, we acquired Holly’s 16-inch intermediate pipeline and our SLC Pipeline joint venture interest costing $34.2 million and $25.5 million, respectively, and invested $21.8 million in additions to properties and equipment.

Cash Flows — Financing Activities

Cash flows used for financing activities was $1.4 million compared to cash provided by financing activities of $48.2 for the six months ended June 30, 2009, a decrease of $49.6 million. During the six months ended June 30, 2010, we received $39 million and repaid $90 million in advances under the Credit Agreement. Additionally, we received $147.5 million in net proceeds and incurred $0.4 million in financing costs upon the issuance of the 8.25% Senior Notes. During the six months ended June 30, 2010, we paid $41.3 million in regular quarterly cash distributions to our general and limited partners, paid $54 million in excess of Holly’s transferred basis in the storage assets acquired in March 2010 and paid $2.3 million for the purchase of common units for recipients of our restricted unit incentive grants. For the six months ended June 30, 2009, we received $99 million and repaid $81 million in advances under the Credit Agreement. We also received $58.4 million in proceeds and incurred $0.2 million in costs with respect to our May 2009 equity offering. Additionally, for the six months ended June 30, 2009 we paid aggregate cash distributions to all HEP unitholders, including the general partner interest, of $28 million. We also received a $1.2 million capital contribution from our general partner and paid $0.6 million during the six months ended June 30, 2009 for the purchase of common units for recipients of restricted grants.

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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 consist of maintenance capital expenditures and expansion capital expenditures. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred.

Each year the Holly Logistics Services, L.L.C. (“HLS”) board of directors 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, special 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. The 2010 capital budget is comprised of $5.3 million for maintenance capital expenditures and $6 million for expansion capital expenditures. In March 2010, the HLS board of directors approved our $93 million acquisition of the Tulsa east storage tank and loading rack assets and Lovington asphalt rack loading facility from Holly on March 31, 2010.

We are currently discussing a project with Holly in which we would build four to five interconnecting pipelines between Holly’s Tulsa east and west refining facilities. The project, which has not been finalized, would cost approximately $30 million to complete with construction expected to begin later this year.

We have an option agreement with Holly, granting us an option to purchase Holly’s 75% equity interests in the UNEV Pipeline, a joint venture pipeline currently under construction that will be capable of transporting refined petroleum products from Salt Lake City, Utah to Las Vegas, Nevada. Under this agreement, we have an option to purchase Holly’s equity interests in the UNEV Pipeline, effective for a 180-day period commencing when the UNEV Pipeline becomes operational, at a purchase price equal to Holly’s investment in the joint venture pipeline, plus interest at 7% per annum. The initial capacity of the pipeline will be 62,000 bpd, with the capacity for further expansion to 120,000 bpd. The current total cost of the pipeline project including terminals is expected to be approximately $290 million. This includes a project scope change that includes the construction of ethanol blending and storage facilities at the Cedar City terminal. Holly has announced the commencement of the final construction phase of the pipeline and expects the pipeline to be mechanically complete in the second quarter of 2011.

We expect that our currently planned sustaining and maintenance capital expenditures as well as expenditures for acquisitions and capital development projects such as the UNEV Pipeline described above, will be funded with existing cash generated by operations, the sale of additional limited partner common units, the issuance of debt securities and advances under our $300 million Credit Agreement, or a combination thereof. We are not obligated to purchase the UNEV Pipeline nor are we subject to any fees or penalties if HLS’ board of directors decides not to proceed with this opportunity.

Credit Agreement

Our obligations under the Credit Agreement are collateralized by substantially all of our assets. Indebtedness under the Credit Agreement is recourse to HEP Logistics Holdings, L.P., our general partner, and guaranteed by our wholly-owned subsidiaries. Any recourse to HEP Logistics Holdings, L.P. would be limited to the extent of its assets, which other than its investment in us, are not significant.

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We may prepay all loans at any time without penalty, except for payment of certain breakage and related costs. We are required to reduce all working capital borrowings under the Credit Agreement to zero for a period of at least 15 consecutive days in each twelve-month period prior to the maturity date of the agreement. As of June 30, 2010, we had no working capital borrowings.

Indebtedness under the Credit Agreement bears interest, at our option, at either (a) the reference rate as announced by the administrative agent plus an applicable margin (ranging from 0.25% to 1.50%) or (b) at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus an applicable margin (ranging from 1.00% to 2.50%). In each case, the applicable margin is based upon the ratio of our funded debt (as defined in the agreement) to EBITDA (earnings before interest, taxes, depreciation and amortization, as defined in the agreement). At June 30, 2010, we were subject to an applicable margin of 1.75%. We incur a commitment fee on the unused portion of the Credit Agreement at a rate ranging from 0.20% to 0.50% based upon the ratio of our funded debt to EBITDA for the four most recently completed fiscal quarters. At June 30, 2010, we are subject to a .30% commitment fee on the $145 million unused portion of the Credit Agreement. The agreement expires in August 2011. At that time, the agreement will terminate and all outstanding amounts thereunder will become due and payable.

The Credit Agreement imposes certain requirements on us, including: a prohibition against distribution to unitholders if, before or after the distribution, a potential default or an event of default as defined in the agreement would occur; limitations on our ability to incur debt, make loans, acquire other companies, change the nature of our business, enter a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio and debt to EBITDA ratio. If an event of default exists under the agreement, the lenders will be able to accelerate the maturity of the debt and exercise other rights and remedies.

Additionally, the Credit Agreement contains certain provisions whereby the lenders may accelerate payment of outstanding debt under certain circumstances.

Senior Notes

The 6.25% Senior Notes and 8.25% Senior Notes (collectively, the “Senior Notes”) are unsecured and impose certain restrictive covenants, which we are subject to and currently in compliance with, 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. At any time when the 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 under the Senior Notes.

Indebtedness under the Senior Notes is recourse to HEP Logistics Holdings, L.P., our general partner, and guaranteed by our wholly-owned subsidiaries. However, any recourse to HEP Logistics Holdings, L.P. would be limited to the extent of its assets, which other than its investment in us, are not significant.

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

	June 30,			December 31,
	2010			2009
	(In thousands)
Credit Agreement	$	155,000		$	206,000
6.25% Senior Notes
Principal		185,000			185,000
Unamortized discount		(1,774	)		(1,964	)
Unamortized premium — dedesignated fair value hedge		1,617			1,791
		184,843			184,827
8.25% Senior Notes
Principal		150,000			—
Unamortized discount		(2,364	)		—
		147,636			—
Total long-term debt	$	487,479		$	390,827

See “Risk Management” for a discussion of our interest rate swaps.

Contractual Obligations

During the six months ended June 30, 2010, we repaid net advances of $51 million resulting in $155 million of outstanding principal under the Credit Agreement at June 30, 2010.

In March 2010, we issued $150 million aggregate principal amount of 8.25% Senior Notes maturing March 15, 2018.

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

Impact of Inflation

Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the six months ended June 30, 2010 and 2009.

A substantial majority of our revenues are generated under long-term contracts that provide for increases in our rates and minimum revenue guarantees annually for increases in the PPI. Historically, the PPI has increased an average of 3.1% annually over the past 5 calendar years. This is no indication of PPI increases to be realized in the future. Furthermore, certain of our long-term contracts have provisions that limit the level of annual PPI percentage rate increases.

Environmental Matters

Our operation of pipelines, terminals, and associated facilities in connection with the storage and transportation 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 in that the operations of our competitors are similarly affected. We believe that our operations are in substantial compliance with applicable environmental laws and regulations. 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 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.

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Under the Omnibus Agreement, Holly agreed to indemnify us up to certain aggregate amounts for any environmental noncompliance and remediation liabilities associated with assets transferred to us and occurring or existing prior to the date of such transfers. The transfers that are covered by the agreement include the refined product pipelines, terminals and tanks transferred by Holly’s subsidiaries in connection with our initial public offering in July 2004, the intermediate pipelines acquired in July 2005, the crude pipelines and tankage assets acquired in 2008, and the asphalt loading rack facility acquired in March 2010. The Omnibus Agreement provides environmental indemnification of up to $15 million for the assets transferred to us, other than the crude pipelines and tankage assets, plus an additional $2.5 million for the intermediate pipelines acquired in July 2005. Except as described below, Holly’s indemnification obligations described above will remain in effect for an asset for ten years following the date it is transferred to us. The Omnibus Agreement also provides an additional $7.5 million of indemnification through 2023 for environmental noncompliance and remediation liabilities specific to the crude pipelines and tankage assets. Holly’s indemnification obligations described above do not apply to (i) the Tulsa west loading racks acquired in August 2009, (ii) the 16-inch intermediate pipeline acquired in June 2009, (iii) the Roadrunner Pipeline, (iv) the Beeson Pipeline, (v) the logistics and storage assets acquired from Sinclair in December 2009, or (vi) the Tulsa east storage tanks and loading racks acquired in March 2010.

Under provisions of the Holly ETA and Holly PTTA, Holly will indemnify us for environmental liabilities arising from our pre-ownership operations of the Tulsa west loading rack facilities acquired from Holly in August 2009, the Tulsa logistics and storage assets acquired from Sinclair in December 2009 and the Tulsa east storage tanks and loading racks acquired from Holly in March 2010. Additionally, Holly agreed to indemnify us for any liabilities arising from Holly’s operation of the loading racks under the Holly ETA.

We have an environmental agreement with Alon with respect to pre-closing environmental costs and liabilities relating to the pipelines and terminals acquired from Alon in 2005, under which Alon will indemnify us through 2015, subject to a $100,000 deductible and a $20 million maximum liability cap.

There are environmental remediation projects that are currently in progress that relate to certain assets acquired from Holly. Certain of these projects were underway prior to our purchase and represent liabilities of Holly Corporation as the obligation for future remediation activities was retained by Holly. As of June 30, 2010, we have an accrual of $0.4 million that relates to environmental clean-up projects. The remaining projects, including assessment and monitoring activities, are covered under the Holly environmental indemnification discussed above and represent liabilities of Holly Corporation.

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. We consider the following 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

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, 2009. 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 assessing contingent liabilities for probable losses. There have been no changes to these policies in 2010. 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.

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RISK MANAGEMENT

We use interest rate swaps (derivative instruments) to manage our exposure to interest rate risk.

As of June 30, 2010, we have an interest rate swap that hedges our exposure to the cash flow risk caused by the effects of LIBOR changes on a $155 million Credit Agreement advance. This interest rate swap effectively converts our $155 million LIBOR based debt to fixed rate debt having an interest rate of 3.74% plus an applicable margin, currently 1.75%, which equals an effective interest rate of 5.49% as of June 30, 2010. The maturity date of this swap contract is February 28, 2013.

We have designated this interest rate swap as a cash flow hedge. Based on our assessment of effectiveness using the change in variable cash flows method, we have determined that this interest rate swap is effective in offsetting the variability in interest payments on our $155 million variable rate debt resulting from changes in LIBOR. Under hedge accounting, we adjust our cash flow hedge on a quarterly basis to its fair value with the offsetting fair value adjustment to accumulated other comprehensive income. Also on a quarterly basis, we measure hedge effectiveness by comparing the present value of the cumulative change in the expected future interest to be paid or received on the variable leg of our swap against the expected future interest payments on our $155 million variable rate debt. Any ineffectiveness is reclassified from accumulated other comprehensive income to interest expense. To date, we have had no ineffectiveness on our cash flow hedge.

Additional information on our interest rate swap as of June 30, 2010 is as follows:

	Balance Sheet			Location of Offsetting	Offsetting
Interest Rate Swap	Location	Fair Value		Balance	Amount
	(In thousands)
Liability
Cash flow hedge — $155 million LIBOR based debt	Other long-term liabilities	$	11,122	Accumulated other comprehensive loss	$	11,122

We review publicly available information on our counterparty in order to review and monitor its financial stability and assess its ongoing ability to honor its commitment under the interest rate swap contract. This counterparty is a large financial institution. Furthermore, we have not experienced, nor do we expect to experience, any difficulty in the counterparty honoring its commitment.

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

At June 30, 2010, we had an outstanding principal balance on our 6.25% Senior Notes and 8.25% Senior Notes of $185 million and $150 million, respectively. A change in interest rates would generally affect the fair value of the Senior Notes, but not our earnings or cash flows. At June 30, 2010, the fair value of our 6.25% Senior Notes and 8.25% Senior Notes were $173.9 million and $148.5 million, respectively. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 6.25% Senior Notes and 8.25% Senior Notes at June 30, 2010 would result in a change of approximately $5.3 million and $6.9 million, respectively, in the fair value of the underlying notes.

For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At June 30, 2010, outstanding principal under the Credit Agreement was $155 million. By means of our cash flow hedge, we have effectively converted the variable rate on $155 million of outstanding principal to a fixed rate of 5.49%.

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At June 30, 2010, our cash and cash equivalents included highly liquid investments with a maturity of six months or less at the time of purchase. Due to the short-term nature of our cash and cash equivalents, a hypothetical 10% increase in interest rates would not have a material effect on the fair market value of our portfolio. Since we have the ability to liquidate this portfolio, we do not expect our operating results or cash flows to be materially affected by the effect of a sudden change in market interest rates on our investment portfolio.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risks

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 cash and cash equivalents and long-term debt. We utilize derivative instruments to hedge our interest rate exposure, also discussed under “Risk Management.”

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

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’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 June 30, 2010.

(b) Changes in internal control over financial reporting

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 6. Exhibits

4.1	+	Seventh Supplemental Indenture, dated as of April 14, 2010, among Holly Energy Storage- Tulsa LLC, Holly Energy Storage-Lovington LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National Association.
4.2	+	Eighth Supplemental Indenture, dated as of June 4, 2010, among HEP Operations LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National Association.
4.3	+	First Supplemental Indenture, dated as of April 14, 2010, among Holly Energy Storage-Tulsa LLC, Holly Energy Storage-Lovington LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National Association.
4.4	+	Second Supplemental Indenture, dated as of June 4, 2010, among HEP Operations LLC, Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors, and U.S. Bank National Association.
10.1	+	Amendment to First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement (Tulsa East), dated as of June 11, 2010, by and between Holly Refining & Marketing-Tulsa LLC, HEP Tulsa LLC and Holly Energy Storage-Tulsa LLC.
10.2	+*	Form of Holly Logistic Services, L.L.C. Performance Unit Agreement.
12.1	+	Computation of Ratio of Earnings to Fixed Charges.
31.1	+	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	+	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	++	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	++	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

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

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HOLLY ENERGY PARTNERS, L.P.

SIGNATURES

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

	HOLLY ENERGY PARTNERS, L.P.
	(Registrant)
	By: HEP LOGISTICS HOLDINGS, L.P.
	its General Partner
	By: HOLLY LOGISTIC SERVICES, L.L.C.
	its General Partner
Date: July 30, 2010	/s/ Bruce R. Shaw Bruce R. Shaw
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial Officer)
	/s/ Scott C. Surplus Scott C. Surplus
	Vice President and Controller
	(Principal Accounting Officer)

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EX-4.1

Exhibit 4.1

SEVENTH SUPPLEMENTAL INDENTURE

Seventh Supplemental Indenture (this “Seventh Supplemental Indenture”), dated as of April 14, 2010, among Holly Energy Storage-Tulsa LLC, a Delaware limited liability company (“HES Tulsa”) and Holly Energy Storage-Lovington LLC (“HES Lovington” and collectively with HES Tulsa, the “Guaranteeing Subsidiaries”), Holly Energy Partners, L.P., a Delaware limited partnership (“Holly Energy Partners”), and Holly Energy Finance Corp. (“Finance Corp.” and, together with Holly Energy Partners, the “Issuers”), the other Guarantors (as defined in the Indenture referred to below) and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of February 28, 2005 providing for the issuance of 6¹/4% Senior Notes due 2015 (the “Notes”), a First Supplemental Indenture, dated as of March 10, 2005, providing for the addition of HEP Fin-Tex/Trust-River, L.P., a Texas limited partnership, as a Guarantor under the Indenture, a Second Supplemental Indenture, dated as of April 27, 2005, providing for the correction of the redemption prices tables in the Indenture and the form of Note, a Third Supplemental Indenture, dated as of June 11, 2009, providing for the addition of Lovington-Artesia, L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture, a Fourth Supplemental Indenture, dated as of June 29, 2009, providing for the addition of HEP SLC, L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture, a Fifth Supplemental Indenture dated as of July 13, 2009, providing for the addition of HEP Tulsa LLC, a Delaware limited liability company, as a Guarantor under the Indenture, and a Sixth Supplemental Indenture dated as of December 15, 2009, providing for the addition of Roadrunner Pipeline L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture;

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Seventh Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

Seventh Supplemental Indenture

2. Agreement to Guarantee. The Guaranteeing Subsidiaries hereby agree to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiaries, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiaries under the Notes, any Note Guarantee, the Indenture or this Seventh Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

4. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SEVENTH SUPPLEMENTAL INDENTURE.

5. Counterparts. The parties may sign any number of copies of this Seventh Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Seventh Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Issuers.

[Remainder of Page Intentionally Left Blank]

Seventh Supplemental Indenture

IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARIES: HOLLY ENERGY STORAGE-TULSA LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-LOVINGTON LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer

Signature Page to Seventh Supplemental Indenture

S-1

ISSUERS:
HOLLY ENERGY PARTNERS, L.P.
By:	HEP
	Logistic Holdings, L.P.,
	Its General Partner
	By:	Holly Logistic Services, L.L.C.,
		Its General Partner
		By:	/s/ Bruce R. Shaw
			Name:	Bruce R. Shaw
			Title:	Senior Vice President and Chief Financial Officer
HOLLY ENERGY FINANCE CORP.
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer

Signature Page to Seventh Supplemental Indenture

S-2

OTHER GUARANTORS: HEP LOGISTICS GP, L.L.C., a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY PARTNERS-OPERATING, L.P., a Delaware limited partnership
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer

Signature Page to Seventh Supplemental Indenture

S-3

HEP PIPELINE GP, L.L.C., a Delaware limited liability company HEP PIPELINE, L.L.C., a Delaware limited liability company HEP MOUNTAIN HOME, L.L.C., a Delaware limited liability company HEP REFINING, L.L.C., a Delaware limited liability company HEP REFINING GP, L.L.C., a Delaware limited liability company HEP WOODS CROSS, L.L.C., a Delaware limited liability company HEP TULSA LLC, a Delaware limited liability company HEP SLC, LLC, a Delaware limited liability company LOVINGTON-ARTESIA, L.L.C., a Delaware limited liability company ROADRUNNER PIPELINE, L.L.C., a Delaware limited liability company
Each By:	Holly Energy Partners – Operating, L.P., a Delaware limited liability company and Its Sole Member
	By:	/s/ Bruce R. Shaw
		Name:	Bruce R. Shaw
		Title:	Vice President and Chief Financial Officer

Signature Page to Seventh Supplemental Indenture

S-4

HEP FIN-TEX/TRUST-RIVER, L.P., a Texas limited partnership HEP NAVAJO SOUTHERN, L.P., a Delaware limited partnership HEP PIPELINE ASSETS, LIMITED PARTNERSHIP, a Delaware limited partnership
Each by:	HEP Pipeline GP, L.L.C., a Delaware limited liability
	company, its General Partner
	By:	/s/ Bruce R. Shaw
		Name:	Bruce R. Shaw
		Title:	Vice President and Chief Financial Officer
HEP REFINING ASSETS, L.P., a Delaware limited partnership
By:	HEP Refining GP, L.L.C., a Delaware limited liability company, its General Partner
	By:	/s/ Bruce R. Shaw
		Name:	Bruce R. Shaw
		Title:	Vice President and Chief Financial Officer

Signature Page to Seventh Supplemental Indenture

S-5

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Steven A. Finklea
	Name:	Steven A. Finklea
	Title:	Vice President

Signature Page to Seventh Supplemental Indenture

S-6

EX-4.2

Exhibit 4.2

EIGHTH SUPPLEMENTAL INDENTURE

Eighth Supplemental Indenture (this “Eighth Supplemental Indenture”), dated as of June 4, 2010, among HEP Operations LLC, a Delaware limited liability company (the “Guaranteeing Subsidiary”), Holly Energy Partners, L.P., a Delaware limited partnership (“Holly Energy Partners”), and Holly Energy Finance Corp. (“Finance Corp.” and, together with Holly Energy Partners, the “Issuers”), the other Guarantors (as defined in the Indenture referred to below) and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an Indenture (the “Indenture”), dated as of February 28, 2005 providing for the issuance of 6¹/4% Senior Notes due 2015 (the “Notes”), a First Supplemental Indenture, dated as of March 10, 2005, providing for the addition of HEP Fin-Tex/Trust-River, L.P., a Texas limited partnership, as a Guarantor under the Indenture, a Second Supplemental Indenture, dated as of April 27, 2005, providing for the correction of the redemption prices tables in the Indenture and the form of Note, a Third Supplemental Indenture, dated as of June 11, 2009, providing for the addition of Lovington-Artesia, L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture, a Fourth Supplemental Indenture, dated as of June 29, 2009, providing for the addition of HEP SLC, L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture, a Fifth Supplemental Indenture dated as of July 13, 2009, providing for the addition of HEP Tulsa LLC, a Delaware limited liability company, as a Guarantor under the Indenture, a Sixth Supplemental Indenture dated as of December 15, 2009, providing for the addition of Roadrunner Pipeline L.L.C., a Delaware limited liability company, as a Guarantor under the Indenture, and a Seventh Supplemental Indenture dated as of April 14, 2010, providing for the addition of Holly Energy Storage-Tulsa LLC, a Delaware limited liability company and Holly Energy Storage-Lovington LLC, a Delaware limited liability company, as Guarantors under the Indenture;

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Eighth Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

Eighth Supplemental Indenture

2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note Guarantee, the Indenture or this Eighth Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

4. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS EIGHTH SUPPLEMENTAL INDENTURE.

5. Counterparts. The parties may sign any number of copies of this Eighth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Eighth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

[Remainder of Page Intentionally Left Blank]

Eighth Supplemental Indenture

IN WITNESS WHEREOF, the parties hereto have caused this Eighth Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARY:
HEP OPERATIONS LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name: Bruce R. Shaw
	Title:   Senior Vice President and Chief Financial Officer
ISSUERS:
HOLLY ENERGY PARTNERS, L.P.
By:	HEP Logistic Holdings, L.P., Its General Partner
	By:	Holly Logistic Services, L.L.C., Its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title:   Senior Vice President and Chief Financial Officer
HOLLY ENERGY FINANCE CORP.
By:	/s/ Bruce R. Shaw
	Name: Bruce R. Shaw
	Title:   Vice President and Chief Financial Officer

Signature Page to Eighth Supplemental Indenture

S-1

OTHER GUARANTORS: HEP LOGISTICS GP, L.L.C., a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY PARTNERS-OPERATING, L.P., a Delaware limited partnership
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-TULSA LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-LOVINGTON LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer

Signature Page to Eighth Supplemental Indenture

S-2

HEP PIPELINE GP, L.L.C., a Delaware limited liability company
HEP PIPELINE, L.L.C., a Delaware limited liability company
HEP MOUNTAIN HOME, L.L.C., a Delaware limited liability company
HEP REFINING, L.L.C., a Delaware limited liability company
HEP REFINING GP, L.L.C., a Delaware limited liability company
HEP WOODS CROSS, L.L.C., a Delaware limited liability company
HEP TULSA LLC, a Delaware limited liability company
HEP SLC, LLC, a Delaware limited liability company
LOVINGTON-ARTESIA, L.L.C., a Delaware limited liability company
ROADRUNNER PIPELINE, L.L.C., a Delaware limited liability company
Each By:	Holly Energy Partners – Operating, L.P., a Delaware limited liability company and Its Sole Member
	By:	/s/ Bruce R. Shaw
		Name: Bruce R. Shaw
		Title:   Vice President and Chief Financial Officer

Signature Page to Eighth Supplemental Indenture

S-3

HEP FIN-TEX/TRUST-RIVER, L.P., a Texas limited partnership
HEP NAVAJO SOUTHERN, L.P., a Delaware limited partnership
HEP PIPELINE ASSETS, LIMITED PARTNERSHIP, a Delaware limited partnership
Each by:	HEP Pipeline GP, L.L.C., a Delaware limited liability company, its General Partner
	By:	/s/ Bruce R. Shaw
		Name: Bruce R. Shaw
		Title:   Vice President and Chief Financial Officer
HEP REFINING ASSETS, L.P., a Delaware limited partnership
By:	HEP Refining GP, L.L.C., a Delaware limited liability company, its General Partner
	By:	/s/ Bruce R. Shaw
		Name: Bruce R. Shaw
		Title:   Vice President and Chief Financial Officer

Signature Page to Eighth Supplemental Indenture

S-4

TRUSTEE: U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Steven A. Finklea
	Name:	Steven A. Finklea
	Title:	Vice President

Signature Page to Eighth Supplemental Indenture

S-5

EX-4.3

Exhibit 4.3

FIRST SUPPLEMENTAL INDENTURE

First Supplemental Indenture (this “First Supplemental Indenture”), dated as of April 14, 2010, among Holly Energy Storage-Tulsa LLC, a Delaware limited liability company (“HES Tulsa”) and Holly Energy Storage-Lovington LLC (“HES Lovington” and collectively with HES Tulsa, the “Guaranteeing Subsidiaries”), Holly Energy Partners, L.P., a Delaware limited partnership (“Holly Energy Partners”), and Holly Energy Finance Corp. (“Finance Corp.” and, together with Holly Energy Partners, the “Issuers”), the other Guarantors (as defined in the Indenture referred to herein) and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of March 10, 2010 providing for the issuance of 8.25% Senior Notes due 2018 (the “Notes”);

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this First Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Guarantee. The Guaranteeing Subsidiaries hereby agree to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

4. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiaries, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiaries under the Notes, any Note Guarantee, the Indenture or this First Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

First Supplemental Indenture

5. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

6. Counterparts. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this First Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Issuers.

First Supplemental Indenture

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARIES: HOLLY ENERGY STORAGE-TULSA LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-LOVINGTON LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer

Signature Page to First Supplemental Indenture

S-1

ISSUERS:
HOLLY ENERGY PARTNERS, L.P.
By:	HEP Logistic Holdings, L.P., Its General Partner
	By:	Holly Logistic Services, L.L.C., Its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title: Senior Vice President and Chief Financial Officer
HOLLY ENERGY FINANCE CORP.
By:	/s/ Bruce R. Shaw
	Name: Bruce R. Shaw
	Title: Vice President and Chief Financial Officer

Signature Page to First Supplemental Indenture

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OTHER GUARANTORS: HEP LOGISTICS GP, L.L.C., a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY PARTNERS-OPERATING, L.P., a Delaware limited partnership
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer

Signature Page to First Supplemental Indenture

S-3

HEP PIPELINE GP, L.L.C., a Delaware limited liability company
HEP PIPELINE, L.L.C., a Delaware limited liability company
HEP MOUNTAIN HOME, L.L.C., a Delaware limited liability company
HEP REFINING, L.L.C., a Delaware limited liability company
HEP REFINING GP, L.L.C., a Delaware limited liability company
HEP WOODS CROSS, L.L.C., a Delaware limited liability company
HEP TULSA LLC, a Delaware limited liability company
HEP SLC, LLC, a Delaware limited liability company
LOVINGTON-ARTESIA, L.L.C., a Delaware limited liability company
ROADRUNNER PIPELINE, L.L.C., a Delaware limited liability company
Each By:	Holly Energy Partners – Operating, L.P., a Delaware limited liability company and Its Sole Member
	By:	/s/ Bruce R. Shaw Name: Bruce R. Shaw
		Title: Vice President and Chief Financial Officer

Signature Page to First Supplemental Indenture

S-4

HEP FIN-TEX/TRUST-RIVER, L.P., a Texas limited partnership
HEP NAVAJO SOUTHERN, L.P., a Delaware limited partnership
HEP PIPELINE ASSETS, LIMITED PARTNERSHIP, a Delaware limited partnership
Each by:		HEP Pipeline GP, L.L.C., a Delaware limited liability company, its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title: Vice President and Chief Financial Officer
HEP REFINING ASSETS, L.P., a Delaware limited partnership
By:	HEP Refining GP, L.L.C., a Delaware limited liability company, its General Partner
		By:	/s/ Bruce R. Shaw Name: Bruce R. Shaw
			Title: Vice President and Chief Financial Officer

Signature Page to First Supplemental Indenture

S-5

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Steven A. Finklea
	Name:	Steven A. Finklea
	Title:	Vice President

Signature Page to First Supplemental Indenture

S-6

EX-4.4

Exhibit 4.4

SECOND SUPPLEMENTAL INDENTURE

Second Supplemental Indenture (this “Second Supplemental Indenture”), dated as of June 4, 2010, among HEP Operations LLC, a Delaware limited liability company (the “Guaranteeing Subsidiary”), Holly Energy Partners, L.P., a Delaware limited partnership (“Holly Energy Partners”), and Holly Energy Finance Corp. (“Finance Corp.” and, together with Holly Energy Partners, the “Issuers”), the other Guarantors (as defined in the Indenture referred to herein) and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an Indenture (the “Indenture”), dated as of March 10, 2010 providing for the issuance of 8.25% Senior Notes due 2018 (the “Notes”), and a First Supplemental Indenture, dated as of April 14, 2010, providing for the addition of Holly Energy Storage-Tulsa LLC, a Delaware limited liability company and Holly Energy Storage-Lovington LLC, a Delaware limited liability company, as Guarantors under the Indenture;

WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Second Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

4. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note Guarantee, the Indenture or this Second Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

Second Supplemental Indenture

5. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SECOND SUPPLEMENTAL INDENTURE.

6. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

Second Supplemental Indenture

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARY:
HEP OPERATIONS LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name: Bruce R. Shaw
	Title: Senior Vice President and Chief Financial Officer
ISSUERS:
HOLLY ENERGY PARTNERS, L.P.
By:	HEP Logistic Holdings, L.P., Its General Partner
	By:	Holly Logistic Services, L.L.C., Its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title: Senior Vice President and Chief Financial Officer
HOLLY ENERGY FINANCE CORP.
By:	/s/ Bruce R. Shaw
	Name: Bruce R. Shaw
	Title: Vice President and Chief Financial Officer

Signature Page to Second Supplemental Indenture

S-1

OTHER GUARANTORS: HEP LOGISTICS GP, L.L.C., a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY PARTNERS-OPERATING, L.P., a Delaware limited partnership
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-TULSA LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer
HOLLY ENERGY STORAGE-LOVINGTON LLC, a Delaware limited liability company
By:	/s/ Bruce R. Shaw
	Name:	Bruce R. Shaw
	Title:	Senior Vice President and Chief Financial Officer

Signature Page to Second Supplemental Indenture

S-2

HEP PIPELINE GP, L.L.C., a Delaware limited liability company
HEP PIPELINE, L.L.C., a Delaware limited liability company
HEP MOUNTAIN HOME, L.L.C., a Delaware limited liability company
HEP REFINING, L.L.C., a Delaware limited liability company
HEP REFINING GP, L.L.C., a Delaware limited liability company
HEP WOODS CROSS, L.L.C., a Delaware limited liability company
HEP TULSA LLC, a Delaware limited liability company
HEP SLC, LLC, a Delaware limited liability company
LOVINGTON-ARTESIA, L.L.C., a Delaware limited liability company
ROADRUNNER PIPELINE, L.L.C., a Delaware limited liability company
Each By:	Holly Energy Partners – Operating, L.P., a Delaware limited liability company and Its Sole Member
	By:	/s/ Bruce R. Shaw
		Name: Bruce R. Shaw
		Title: Vice President and Chief Financial Officer

Signature Page to Second Supplemental Indenture

S-3

HEP FIN-TEX/TRUST-RIVER, L.P., a Texas limited partnership
HEP NAVAJO SOUTHERN, L.P., a Delaware limited partnership
HEP PIPELINE ASSETS, LIMITED PARTNERSHIP, a Delaware limited partnership
Each by:		HEP Pipeline GP, L.L.C., a Delaware limited liability company, its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title:   Vice President and Chief Financial Officer
HEP REFINING ASSETS, L.P., a Delaware limited partnership
By:	HEP Refining GP, L.L.C., a Delaware limited liability company, its General Partner
		By:	/s/ Bruce R. Shaw
			Name: Bruce R. Shaw
			Title:   Vice President and Chief Financial Officer

Signature Page to Second Supplemental Indenture

S-4

TRUSTEE: U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Steven A. Finklea
	Name:	Steven A. Finklea
	Title:	Vice President

Signature Page to Second Supplemental Indenture

S-5

EX-10.1

Exhibit 10.1

AMENDMENT TO
FIRST AMENDED AND RESTATED PIPELINES, TANKAGE AND LOADING RACK
THROUGHPUT AGREEMENT
(TULSA EAST)

This Amendment to First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement (this “Amendment”) is dated as of June 11, 2010 to be effective as of March 31, 2010 (the “Effective Date”), by and between Holly Refining & Marketing-Tulsa, LLC (“Holly Tulsa”), HEP Tulsa LLC (“HEP Tulsa”) and Holly Energy Storage-Tulsa LLC (“HEP Storage-Tulsa”), and is an amendment to the First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement by and between such parties dated March 31, 2010 (the “Original Throughput Agreement”). Each of Holly Tulsa, HEP Tulsa and HEP Storage-Tulsa are individually referred to herein as a “Party” and collectively as the “Parties.” Holly Corporation, a Delaware corporation (“Holly”), as well as Holly Energy Partners, L.P., a Delaware limited partnership (“HEP”), and Holly Energy Partners-Operating, L.P., a Delaware limited partnership (“HEP Operating”), are also executing this Amendment for the sole purpose of consenting to the Amendment as guarantors under the Original Throughput Agreement. Capitalized terms used herein but not otherwise defined herein shall have the meanings given to them in the Original Throughput Agreement.

RECITALS:

WHEREAS, the Parties desire to amend the Original Throughput Agreement to clarify the Parties understanding with regard to certain matters under the Original Throughput Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Parties hereby agree as follows:

1. The Original Throughput Agreement is hereby amended to add the following new Section 2(q), which shall read in its entirety as follows:

(q) Tank Inspection and Repairs. Holly Tulsa will reimburse HEP Tulsa for the cost of performing the first API 653 inspection on each of the respective tanks included in the Group 1 Tankage and Group 2 Tankage and any repairs or tests or consequential remediation that may be required to be made to such assets as a result of any discovery made during such inspection; provided, however, that if a tank is two (2) years old or less or has been inspected and repaired during the last twelve months prior to the Closing Date for such tank, then HEP Tulsa will bear the cost of any API 653 inspection and any required repair, testing or consequential remediation. In addition, HEP Tulsa will be responsible for the costs of painting any tanks included in the Group 1 Tankage and Group 2 Tankage that require it.

2. The Original Throughput Agreement is hereby amended to add the following new Section 2(r), which shall read in its entirety as follows:

(r) Removal of Tank from Service. The Parties agree that if they mutually determine to remove a tank included in the Group 1 Tankage or Group 2 Tankage from service, then neither HEP Tulsa nor HEP Storage-Tulsa, as applicable, will be required to utilize, operate or maintain such tank or provide the services required under this Agreement with respect to such tank (and there will be no adjustment to the Minimum Group 1 Tankage Revenue Commitment or Minimum Group 2 Tankage Revenue Commitment).

3. The Original Throughput Agreement is hereby amended to add the following new Section 2(s), which shall read in its entirety as follows:

(s) Notice of Violation under Clean Air Act Permits. The Parties agree that, because HEP Tulsa and HEP Storage-Tulsa are operating certain assets at the Refinery pursuant to permits issued to Holly Corporation or one of its Affiliates under the Clean Air Act or similar state statutes, in the event that Holly Corporation or one of such Affiliates receives a notice of violation or enforcement from the Environmental Protection Agency or a state agency alleging non-compliance with such permits, and it relates to the assets at the Refinery being operated by HEP Tulsa or HEP Storage-Tulsa, then HEP Tulsa or HEP Storage-Tulsa, as applicable (and not Holly Corporation or its Affiliates), will be responsible for responding to any such notice of violation or enforcement. The Parties acknowledge that any costs, penalties, fines or losses associated with such response may be the subject of indemnification under Section 10 of this Agreement (and nothing in this Section 2(s) shall be deemed to change, amend or expand the Parties’ obligations under such Section 10 other than with regard to the obligation to respond to such notice of violation or enforcement).

4. The Original Throughput Agreement is hereby amended to add the following new Section 2(t), which shall read in its entirety as follows:

(t) Tank Inspection and Maintenance Plan. At least annually, HEP Tulsa and HEP Storage-Tulsa shall prepare and submit to Holly Tulsa a tank inspection and maintenance plan (which shall include an inspection plan, a cleaning plan, a waste disposal plan, details regarding scheduling and a budget) for the Group 1 Tankage and Group 2 Tankage. If Holly Tulsa consents to the submitted plan (which consent shall not be unreasonably withheld or delayed), then HEP Tulsa and HEP Storage-Tulsa shall conduct tank maintenance in conformity with such approved tank maintenance plan (other than any deviations or changes from such plan to which Holly Tulsa consents). HEP Tulsa and HEP Storage-Tulsa, as applicable, will use their commercially reasonable efforts to schedule the activities under such maintenance plan to minimize disruptions to the operations of Holly Tulsa at the Refinery.

5. No Novation. This Amendment shall be considered an amendment of the Original Throughput Agreement, and the Original Throughput Agreement is hereby ratified, approved and confirmed in every respect, except as amended hereby. This Amendment is not intended to constitute a novation of the Original Throughput Agreement and all of the obligations owing by the Parties under the Original Throughput Agreement shall continue (from and after the date of this Amendment, as amended hereby).

[Remainder of page intentionally left blank. Signature pages follow.]

Amendment to First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement (Tulsa East)

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IN WITNESS WHEREOF, the undersigned Parties have executed this Amendment to be effective as of the Effective Date.

HEP TULSA: HEP TULSA LLC
By:	/s/ David G. Blair
	David G. Blair
	Senior Vice President
HEP STORAGE-TULSA: HOLLY ENERGY STORAGE-TULSA LLC
By:	/s/ David G. Blair
	David G. Blair
	President
HOLLY TULSA: HOLLY REFINING & MARKETING – TULSA LLC
By:	/s/ David L. Lamp
	David L. Lamp
	President

CONSENTED TO AND AGREED:
HOLLY CORPORATION
By:	/s/ David L. Lamp David L. Lamp
	President

Signature page to
Amendment to First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement (Tulsa East)

CONSENTED TO AND AGREED:
HOLLY ENERGY PARTNERS, L.P.
By:	HEP Logistics Holdings, L.P., its General Partner
By:	Holly Logistic Services, L.L.C., its General Partner
By:	/s/ David G. Blair David G. Blair
	President
HOLLY ENERGY PARTNERS-OPERATING, L.P.
By:	/s/ David G. Blair David G. Blair
	Senior Vice President

Signature page to
Amendment to First Amended and Restated Pipelines, Tankage and Loading Rack Throughput Agreement (Tulsa East)

EX-10.2

Exhibit 10.2

HOLLY LOGISTIC SERVICES, L.L.C.
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                                          (the “Employee”). This Agreement is entered into as of the 1st day of March, 2010 (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; and

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

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

1. Grant. The Company hereby grants to the Employee 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, the Employee may earn from fifty percent (50%) to one hundred fifty percent (150%) of the Performance Units, based on the increase in the Partnership’s distributable cash flow per Common Unit (“DCF/Unit”).

2. Distribution Equivalent Rights. As long as the Employee holds the Performance Units granted pursuant to this Agreement, the Employee shall 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 Common Units of the Partnership (“Common Units”) and, on the record date for such distribution, the Employee holds Performance Units that have not yet become earned and payable under this Agreement, the Company shall pay the Employee an amount in cash equal to the distribution amounts the Employee would have received if the Employee were the holder of record, as of such record date, of a number of Common Units equal to the number of such Performance Units 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).

3. Nature of Award. The Performance Units represent an Award for the “Performance Period” which begins on January 1, 2010 and ends on December 31, 2012. Following the completion of the Performance Period, the Employee shall be entitled to a payment of Common Units as determined under this Section 3 and/or Section 4, as applicable, and payable in Common Units at the time indicated in Section 5 or Section 4(b), as applicable.

(a) Performance Measure. The percentage of Performance Units earned for the Performance Period is determined on the basis of the total increase in the Partnership’s DCF/Unit during the Performance Period over a DCF/Unit of $12.492.

(b) Common Units Payable. The number of Common Units payable is equal to the result of multiplying Performance Units by the “Performance Percentage” set forth below:

3-Year Total Increase in	Performance Percentage (%) to be
DCF/Unit over $12.492	Multiplied by Performance Units
$0.000		50	%
$1.026		100	%
$2.107		150	%

The percentages above shall be interpolated between points. In its sole discretion, the Committee may make a payment to the Employee assuming a Performance Percentage of up to one hundred fifty percent (150%) of the Performance Units instead of the Performance Percentage as determined pursuant to this Section 3(b).

4. Early Termination. In the event Employee ceases to provide services to the Partnership and the Company prior to the end of the Performance Period 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) In the event that the Employee ceases to provide services to the Partnership and the Company:

(i) for any reason other than voluntary separation, Cause (as defined in Section 4(c)(vii)) or a Special Involuntary Separation (as defined in Section 4(c)(vi)),

(ii) due to the Employee’s death,

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

(iv) due to the Employee’s retirement on or after attaining normal retirement age of 62 or after attaining an earlier retirement age approved by the Committee in its sole discretion,

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the number of Performance Units that shall be earned by and paid to the Employee or his beneficiary, in accordance with and at the time specified in Section 5, shall be determined as follows: the Employee shall forfeit a percentage of the Performance Units earned equal to the percentage that the number of full months following the date of separation, death, disability or retirement to the end of the Performance Period bears to thirty-six (36). The Committee shall determine the number of Performance Units earned by the Employee or his beneficiary in accordance with Section 3 for the entire Performance Period as soon as administratively practicable after the end of the Performance Period. In its sole discretion, the Committee may make a payment to the Employee assuming a Performance Percentage of up to one hundred fifty percent (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, the Employee will have no right to any other Performance Units and those other Performance Units granted under this Agreement will be forfeited. If the Employee separates from employment prior to the end of the Performance Period due to voluntary separation or on account of Cause, all Performance Units hereunder will be forfeited.

(b) In the event of a Special Involuntary Termination, as defined in Section 4(c)(vi), before the end of the Performance Period, no Performance Units shall be forfeited, and payment with respect to one hundred fifty percent (150%) of the Performance Units shall be made as soon as administratively practicable following the Special Involuntary Termination, but in no event later than two and one-half months after the end of the calendar year in which the Special Involuntary Termination occurs. Payment pursuant to this Section 4(b) is in lieu of payment pursuant to Section 4(a) and if the Employee receives payment pursuant to this Section 4(b) the Employee will not be entitled to any payment pursuant to Section 4(a).

(c) Definitions. For purposes of this Section 4,

(i) “Change in Control” shall mean:

A. Any Person (as defined in Section 4(c)(ii) below), other than Holly Corporation (“Holly”) 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 Holly, the Partnership, the Company or any of their Affiliates (as defined in Section 4(c)(v) below), 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 Holly, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership in Holly, the Company,

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the General Partner or the Partnership, respectively, is or becomes the Beneficial Owner (as defined in Section 4(c)(iii) below), directly or indirectly, of securities of Holly, the Company, the General Partner or the Partnership (not including in the securities beneficially owned by such Person any securities acquired directly from Holly, the General Partner, the Partnership, the Company or their Affiliates) representing more than forty percent (40%) of the combined voting power of Holly’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 4(c)(i)(C)(1) below.

B. The individuals who as of the Date of Grant constitute the Board of Directors of Holly (the “Holly Board”) and any New Director (as defined in Section 4(c)(iv) below) cease for any reason to constitute a majority of the Holly Board.

C. There is consummated a merger or consolidation of Holly, 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 Holly, 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 sixty percent (60%) of the combined voting power of the voting securities of Holly, 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 Holly, 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 Holly, the Company, the General Partner or the Partnership or their Affiliates other than in connection with the acquisition by Holly, the Company, the General Partner or the Partnership or its Affiliates of a business) representing more than forty percent (40%) of the combined voting power of Holly’s, the Company’s the General Partner’s or the Partnership’s, as applicable, then outstanding securities.

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D. The holders of the voting securities of Holly, the Company, the General Partner or the Partnership approve a plan of complete liquidation or dissolution of Holly, 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 Holly, the Company, the General Partner or the Partnership of all or substantially all of Holly’s, the Company’s, the General Partner’s or the Partnership’s assets, as applicable, to an entity at least sixty percent (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 Holly, the Company, the General Partner or the Partnership in substantially the same proportions as their ownership of the voting securities of Holly, the Company, the General Partner or the Partnership, as applicable, immediately prior to such sale.

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

(iii) “Beneficial Owner” shall have the meaning provided in Rule 13d-3 under the 1934 Act.

(iv) “New Director” shall mean an individual whose election by Holly’s Board or nomination for election by holders of the voting securities of Holly 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 Holly.

(v) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under section 12 of the 1934 Act.

(vi) “Special Involuntary Termination” shall mean the occurrence of (1) or (2) within sixty (60) days prior to, or at any time after, a Change in Control (as defined in Section 4(c)(i)), where (1) is termination by the Company of the Employee’s (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 (as defined in Section 4(c)(vii)) and (2) is a resignation by the Employee from employment or service with the Company (including subsidiaries of the Company) within ninety (90) days after an Adverse Change (as defined in Section 4(c)(viii)) in the terms of the Employee’s employment.

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(vii) “Cause” shall mean:

A. An act or acts of dishonesty on the part of the Employee constituting a felony or serious misdemeanor and resulting or intended to result directly in gain or personal enrichment at the expense of the Company;

B. Gross or willful and wanton negligence in the performance of the Employee’s material and substantial duties of employment with the Company; or

C. Conviction of a felony involving moral turpitude.

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

(viii) “Adverse Change” shall mean, without the express written consent of the Employee, (A) a change in the Employee’s principal office to a location more than 25 miles from the Employee’s work address as of the Date of Grant, (B) a material increase (without adequate consideration) or a material reduction in duties of the type previously performed by the Employee, or (C) a material reduction in the Employee’s base compensation (other than bonuses and other discretionary items of compensation) that does not apply generally to employees of the Company or its successor. Employee shall 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 Employee’s assertion that an Adverse Change event has occurred within thirty (30) days from receipt of such notice.

5. Payment of Performance Units. The number of Common Units payable at the end of the Performance Period (or such earlier time as specified under Section 4(b)) shall be payable as soon as reasonably practicable following the close of the Performance Period, 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 the Employee and his beneficiary or estate.

6. Adjustment in Number of Performance Units. Except as provided below, in the event that the outstanding Common 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 Common 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 Common Units, there shall be substituted for the Common Units under the Performance Units subject to this Agreement the appropriate number and kind of Common Units or new or replacement securities as determined in the sole discretion of the Committee.

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7. Delivery of Common Units. No Common Units shall be delivered pursuant to this Agreement until the approval of any governmental authority required in connection with this Agreement, or the issuance of Common Units hereunder, has been received by the Company.

8. Securities Act. The Company shall have the right, but not the obligation, to cause the Common Units payable under this Agreement to be registered under the appropriate rules and regulations of the Securities and Exchange Commission. The Company shall not be required to deliver any Common Units hereunder if, in the opinion of counsel for the Company, such delivery would violate the Securities Act of 1933 or any other applicable federal or state securities laws or regulations.

9. Federal and State Taxes. The Employee may incur certain liabilities for Federal, state or local taxes and the Company may be required by law to withhold such taxes for payment to taxing authorities. Upon the determination by the Company of the amount of taxes required to be withheld, if any, the Employee shall either pay to the Company, in cash or by certified or cashier’s check, an amount equal to the taxes required to be withheld, or the Employee shall authorize the Company to withhold from the Common Units payable to the Employee an amount necessary to satisfy the Federal, state or local taxes required to be withheld. Authorization of the Employee to the Company to withhold taxes pursuant to this Section 9 shall be in form and content acceptable to the Committee. An authorization to withhold taxes pursuant to this provision shall be irrevocable unless and until the tax liability of the Employee has been fully paid. In the discretion of the Committee, the required taxes may be withheld in kind from Common Units payable under this Agreement. In the event that the Employee fails 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 Common Units payable to the Employee under this Agreement, the Company shall have the right to purchase at current market price as determined by the Committee and/or to sell to one or more third parties in either market or private transactions sufficient Common Units payable under this Agreement to provide the funds needed for the Company to make the required tax payment or payments.

10. Definitions; Copy of Plan. To the extent not specifically provided herein, all terms used in this Agreement shall have the same meanings ascribed to them in the Plan. By the execution of this Agreement, the Employee acknowledges receipt of a copy of the Plan. 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.

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11. 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 the Employee 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.

12. No Right to Continued Employment. This Agreement shall not be construed to confer upon the Employee any right to continue as an Employee of the Company and shall not limit the right of the Company, in its sole discretion, to terminate the service of the Employee at any time.

13. 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.

14. Amendments. This Agreement may be amended only by a written agreement executed by the Company and the Employee. Any such amendment shall be made only upon the mutual consent of the parties, which consent (of either party) may be withheld for any reason.

15. 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.

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

17. Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by the Employee during his life other than by will or pursuant to applicable laws of descent and distribution. Any rights and privileges of the Employee in connection herewith shall not be transferred, assigned, pledged or hypothecated by the Employee 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 Common 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.

18. 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.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has set his hand effective as of the date and year first above written.

HOLLY LOGISTIC SERVICES, L.L.C.
By:	Name
	Title
Employee

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EX-12.1

Exhibit 12.1

Holly Energy Partners, L.P.
Computation of Ratio of Earnings
To Fixed Charges
(In thousands)

	Six Months
	Ended
	June 30,		Years Ended December 31,
	2010		2009		2008		2007		2006		2005
Earnings:
Net income	$	24,137	$	66,014	$	25,367	$	39,271	$	28,223	$	27,556
Add total fixed charges (per below)		18,394		25,682		24,751		15,125		14,815		11,324
Total earnings	$	42,531	$	91,696	$	50,118	$	54,396	$	43,038	$	38,880
Fixed charges:
Interest expense	$	17,093	$	21,501	$	21,763	$	13,289	$	13,056	$	9,633
Capitalized interest		247		1,008		1,007		—		—		—
Estimate of interest within rental expense (1)		1,054		3,173		1,981		1,836		1,759		1,691
Total fixed charges	$	18,394	$	25,682	$	24,751	$	15,125	$	14,815	$	11,324
Ratio of earnings to fixed charges		2.31		3.57		2.02		3.60		2.91		3.43

(1) Represents 30% of the total operating lease rental expense which is that portion deemed to be interest.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Matthew P. Clifton, 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 we 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 period covered by this report on Form 10-Q 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: July 30, 2010	/s/ Matthew P. Clifton
	Matthew P. Clifton
	Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Bruce R. Shaw, 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 we 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 period covered by this report on Form 10-Q 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: July 30, 2010	/s/ Bruce R. Shaw
	Bruce R. Shaw
	Senior Vice President and Chief Financial Officer

EX-32.1

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 June 30, 2010 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew P. Clifton, 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: July 30, 2010	/s/ Matthew P. Clifton
	Matthew P. Clifton
	Chairman of the Board and Chief Executive Officer

EX-32.2

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 June 30, 2010 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bruce R. Shaw, 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) 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: July 30, 2010	/s/ Bruce R. Shaw
	Bruce R. Shaw
	Senior Vice President and Chief Financial Officer