10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________

FORM 10-Q

______________________________________________________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2015

OR

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

For the transition period from ____________ to _____________                    

Commission File Number: 1-32225

______________________________________________________________________________________

HOLLY ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

______________________________________________________________________________________

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

(214) 871-3555

(Registrant’s telephone number, including area code)

________________________________________________________________

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

________________________________________________________________

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  ý    No  ¨

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   ý    No  ¨

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 ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

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

The number of the registrant’s outstanding common units at June 30, 2015 was 58,657,048.

Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

INDEX

	FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION			4
	Item 1.	Financial Statements (Unaudited)	4
		Consolidated Balance Sheets	4
		Consolidated Statements of Income	5
		Consolidated Statements of Comprehensive Income	6
		Consolidated Statements of Cash Flows	7
		Consolidated Statements of Partners’ Equity	8
		Notes to Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	37
PART II. OTHER INFORMATION			38
	Item 1.	Legal Proceedings	38
	Item 1A.	Risk Factors	38
	Item 6.	Exhibits	38
		SIGNATURES	39
		Index to Exhibits	40

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Table of Contentsril 19,

FORWARD-LOOKING STATEMENTS

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

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

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

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

• our ability to purchase and integrate future acquired operations;

• our ability to complete previously announced or contemplated acquisitions;

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

• the possibility of reductions in production or shutdowns at refineries utilizing our 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, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including without limitation, the forward-looking statements that are referred to above. When considering forward-looking statements, you should keep in mind the known material risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2014, in “Risk Factors” and in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in "Risk Factors." All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Table of Contentsril 19,

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

	June 30, 2015			December 31, 2014
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,424		$	2,830
Accounts receivable:
Trade	11,286			6,737
Affiliates	28,758			33,392
	40,044			40,129
Prepaid and other current assets	4,738			4,383
Total current assets	55,206			47,342
Properties and equipment, net	1,000,808			980,479
Transportation agreements, net	77,279			80,703
Goodwill	256,498			256,498
Investment in SLC Pipeline	24,280			24,478
Other assets	11,172			12,055
Total assets	$	1,425,243		$	1,401,555
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	8,317		$	12,642
Affiliates	7,811			5,239
	16,128			17,881
Accrued interest	6,783			6,615
Deferred revenue	9,940			12,432
Accrued property taxes	4,335			2,703
Other current liabilities	4,826			4,571
Total current liabilities	42,012			44,202
Long-term debt	900,905			867,579
Other long-term liabilities	21,132			18,145
Deferred revenue	35,484			29,392
Class B unit	30,305			26,793
Equity:
Partners’ equity:
Common unitholders (58,657,048 units issued and outstanding     at June 30, 2015 and December 31, 2014)	441,224			468,813
General partner interest (2% interest)	(139,711		)	(148,405		)
Accumulated other comprehensive loss	(573		)	(46		)
Total partners’ equity	300,940			320,362
Noncontrolling interest	94,465			95,082
Total equity	395,405			415,444
Total liabilities and equity	$	1,425,243		$	1,401,555

See accompanying notes.

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Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Affiliates	$	68,297		$	64,480		$	140,552		$	136,312
Third parties	15,182			10,518			32,683			25,690
	83,479			74,998			173,235			162,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	25,289			24,567			53,255			47,379
Depreciation and amortization	15,063			15,882			29,757			31,470
General and administrative	2,696			2,516			5,986			5,667
	43,048			42,965			88,998			84,516
Operating income	40,431			32,033			84,237			77,486
Other income (expense):
Equity in earnings of SLC Pipeline	631			748			1,365			1,270
Interest expense	(9,056		)	(8,329		)	(17,824		)	(18,783		)
Interest income	3			—			3			3
Loss on early extinguishment of debt	—			—			—			(7,677		)
Other income	71			26			230			34
	(8,351		)	(7,555		)	(16,226		)	(25,153		)
Income before income taxes	32,080			24,478			68,011			52,333
State income tax benefit (expense)	64			(28		)	(37		)	(103		)
Net income	32,144			24,450			67,974			52,230
Allocation of net income attributable to noncontrolling interests	(1,743		)	(1,416		)	(5,770		)	(5,053		)
Net income attributable to Holly Energy Partners	30,401			23,034			62,204			47,177
General partner interest in net income, including incentive distributions	(10,196		)	(8,393		)	(20,006		)	(16,394		)
Limited partners’ interest in net income	$	20,205		$	14,641		$	42,198		$	30,783
Limited partners’ per unit interest in earnings—basic and diluted	$	0.34		$	0.25		$	0.71		$	0.52
Weighted average limited partners’ units outstanding	58,657			58,657			58,657			58,657

See accompanying notes.

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HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	32,144		$	24,450		$	67,974		$	52,230
Other comprehensive income:
Change in fair value of cash flow hedging instruments	(306		)	(1,299		)	(1,586		)	(1,742		)
Reclassification adjustment to net income on partial settlement of cash flow hedge	528			553			1,059			1,091
Other comprehensive income (loss)	222			(746		)	(527		)	(651		)
Comprehensive income before noncontrolling interest	32,366			23,704			67,447			51,579
Allocation of comprehensive income to noncontrolling interests	(1,743		)	(1,416		)	(5,770		)	(5,053		)
Comprehensive income attributable to Holly Energy Partners	$	30,623		$	22,288		$	61,677		$	46,526

See accompanying notes.

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Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities
Net income	$	67,974		$	52,230
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,757			31,470
Gain on sale of assets	(209		)	—
Amortization of deferred charges	930			947
Amortization of restricted and performance units	1,762			1,658
Loss on early extinguishment of debt	—			7,677
(Increase) decrease in operating assets:
Accounts receivable—trade	(4,514		)	(1,446		)
Accounts receivable—affiliates	5,064			1,823
Prepaid and other current assets	(311		)	128
Increase (decrease) in operating liabilities:
Accounts payable—trade	(1,610		)	1,280
Accounts payable—affiliates	2,573			(4,495		)
Accrued interest	168			(3,552		)
Deferred revenue	3,600			2,315
Accrued property taxes	1,632			1,912
Other current liabilities	(242		)	1,153
Other, net	3,890			(737		)
Net cash provided by operating activities	110,464			92,363
Cash flows from investing activities
Additions to properties and equipment	(22,943		)	(38,574		)
Purchase of El Dorado crude tanks	(27,500		)	—
Proceeds from sale of assets	965			—
Distributions in excess of equity in earnings of SLC Pipeline	198			105
Net cash used for investing activities	(49,280		)	(38,469		)
Cash flows from financing activities
Borrowings under credit agreement	254,100			477,100
Repayments of credit agreement borrowings	(221,100		)	(297,100		)
Redemption of senior notes	—			(156,188		)
Distributions to HEP unitholders	(82,614		)	(75,577		)
Distributions to noncontrolling interest	(2,875		)	(2,000		)
Purchase of units for incentive grants	(247		)	(406		)
Other	(854		)	(9		)
Net cash used by financing activities	(53,590		)	(54,180		)
Cash and cash equivalents
Increase (decrease) for the period	7,594			(286		)
Beginning of period	2,830			6,352
End of period	$	10,424		$	6,066

See accompanying notes.

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Table of Contentsril 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY

(Unaudited)

(In thousands)

	Common Units			General Partner Interest			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Equity
Balance December 31, 2014	$	468,813		$	(148,405	)	$	(46	)	$	95,082		$	415,444
Distributions to HEP unitholders	(62,612		)	(20,002		)	—			—			(82,614		)
Distributions to noncontrolling interest	—			—			—			(2,875		)	(2,875		)
Purchase of units for incentive grants	(247		)	—			—			—			(247		)
Amortization of restricted and performance units	1,762			—			—			—			1,762
Class B unit accretion	(3,442		)	(70		)	—			—			(3,512		)
Net income	36,950			28,766			—			2,258			67,974
Other comprehensive loss	—			—			(527		)	—			(527		)
Balance June 30, 2015	$	441,224		$	(139,711	)	$	(573	)	$	94,465		$	395,405

See accompanying notes.

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Table of Contentsril 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Description of Business and Presentation of Financial Statements

Holly Energy Partners, L.P. (“HEP”), together with its consolidated subsidiaries, is a publicly held master limited partnership which is 39% owned (including the 2% general partner interest) by HollyFrontier Corporation (“HFC”) and its subsidiaries. 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 reportable segment which represents the aggregation of our petroleum product and crude pipelines business and terminals, tankage and loading rack facilities operation.

We own and operate petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities that support HFC’s refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), which owns a 427-mile, 12-inch refined products pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”), product terminals near Cedar City, Utah and Las Vegas, Nevada and related assets, and a 25% interest in SLC Pipeline LLC, which owns a 95-mile intrastate crude oil pipeline system (the “SLC Pipeline”) that serves refineries in the Salt Lake City, Utah area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, 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 exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2014. 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, 2015.

New Accounting Pronouncements

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018. We are evaluating the impact of this standard.

Debt Issuance Costs

In April 2015, an accounting standard update was issued requiring debt issuance costs to be presented as a direct deduction from the carrying amount of the debt liability. The amount of deferred debt issuance costs reported in Long-term assets was $4.7 million and $4.4 million as of June 30, 2015 and December 31, 2014, respectively. This standard will become effective beginning with our 2016 reporting year.

Note 2: Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and interest rate swaps. 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. Debt consists of outstanding principal under our revolving credit agreement (which approximates fair value as interest rates are reset frequently at current interest rates) and our fixed interest rate senior notes.

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

• (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.

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

		June 30, 2015				December 31, 2014
Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(In thousands)
Assets:
Interest rate swaps	Level 2	$	134	$	134	$	1,019	$	1,019
Liabilities:
6.5% Senior notes	Level 2	$	296,905	$	295,875	$	296,579	$	291,000
Interest rate swaps	Level 2	707		707		1,065		1,065
		$	297,612	$	296,582	$	297,644	$	292,065

Level 2 Financial Instruments

Our senior notes and interest rate swaps are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. The fair value of our interest rate swaps is based on the net present value of expected future cash flows related to both variable and fixed-rate legs of the swap agreement. This measurement is computed using the forward London Interbank Offered Rate (“LIBOR”) yield curve, a market-based observable input.

See Note 6 for additional information on these instruments.

Note 3: Properties and Equipment

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

	June 30, 2015		December 31, 2014
	(In thousands)
Pipelines, terminals and tankage	$	1,180,313	$	1,137,157
Land and right of way	65,025		64,458
Construction in progress	57,258		56,228
Other	22,646		22,636
	1,325,242		1,280,479
Less accumulated depreciation	324,434		300,000
	$	1,000,808	$	980,479

On March 6, 2015, we completed the acquisition of an existing crude tank farm adjacent to HFC's El Dorado Refinery from an unrelated third-party for $27.5 million in cash. We recorded the assets acquired and liabilities assumed at their fair values at the date of acquisition based on preliminary valuations. Substantially all of the purchase price was allocated to properties and equipment and no goodwill has been recorded. We expect to finalize the purchase price allocation during the third quarter of 2015. HFC is the main customer of this crude tank farm.

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

We capitalized $0.6 million and $0.9 million in interest attributable to construction projects during the six months ended June 30, 2015 and 2014, respectively.

Depreciation expense was $26.0 million and $27.8 million for the six months ended June 30, 2015 and 2014, respectively.

Note 4: Transportation Agreements

Our transportation agreements represent a portion of the total purchase price of certain assets acquired from Alon in 2005 and from HFC in 2008. The Alon agreement is being amortized over 30 years ending 2035 (the initial 15-year term of the agreement plus an expected 15-year extension period), and the HFC agreement is being amortized over 15 years ending 2023 (the term of the HFC agreement).

The carrying amounts of our transportation agreements are as follows:

	June 30, 2015		December 31, 2014
	(In thousands)
Alon transportation agreement	$	59,933	$	59,933
HFC transportation agreement	74,231		74,231
Other	50		—
	134,214		134,164
Less accumulated amortization	56,935		53,461
	$	77,279	$	80,703

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

Note 5: Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C., an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC. These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.7 million and $1.9 million for the three months ended June 30, 2015 and 2014, respectively, and $3.1 million and $3.6 million for the six months ended June 30, 2015 and 2014, respectively.

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

As of June 30, 2015, we have three types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.9 million and $0.8 million for the three months ended June 30, 2015 and 2014, respectively, and $1.6 million for each of the the six months ended June 30, 2015 and 2014. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of June 30, 2015, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,537,167 have not yet been granted, assuming no forfeitures of the unvested units and full achievement of goals for the performance units already granted.

Restricted and Phantom Units

Under our Long-Term Incentive Plan, we grant restricted units to non-employee directors and selected employees who perform services for us, with most awards vesting over a period of one to three 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.

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

In addition, we grant phantom units to certain employees, which vest over a period of one year. Vested units are paid in common units. Full ownership of the units does not transfer to the recipient until the units vest, and the recipients do not have voting or distribution rights on these units until they vest.

The fair value of each restricted unit and phantom 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 and phantom unit activity and changes during the six months ended June 30, 2015, is presented below:

Restricted and Phantom Units	Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2015 (nonvested)	126,077		$	33.43
Forfeited	(2,849	)	33.57
Outstanding at June 30, 2015 (nonvested)	123,228		$	33.42

As of June 30, 2015, there was $1.7 million of total unrecognized compensation expense related to nonvested restricted unit and phantom unit grants, which is expected to be recognized over a weighted-average period of 1.2 years.

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected executives who perform services for us. Performance units granted 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. As of June 30, 2015, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 140%.

No performance units were granted during the six months ended June 30, 2015. Performance units granted in 2014 vest over a three-year performance period ending December 31, 2017. These performance units granted 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 target number of performance units granted. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the common units from the date of grant.

A summary of performance unit activity and changes during the six months ended June 30, 2015, is presented below:

Performance Units	Units
Outstanding at January 1, 2015 (nonvested)	71,245
Vesting and transfer of common units to recipients	(11,436	)
Outstanding at June 30, 2015 (nonvested)	59,809

The grant-date fair value of performance units vested and transferred to recipients during the six months ended June 30, 2015, was $0.3 million. Based on the weighted average fair value of performance units outstanding at June 30, 2015, of $2.2 million, there was $0.8 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.2 years.

Note 6: Debt

Credit Agreement

In April 2015, we amended our senior secured revolving credit facility (the “Credit Agreement”) increasing the size of the Credit Agreement from $650 million to $850 million. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit.

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

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. (“HEP Logistics”), our general partner, and is guaranteed by our material, wholly-owned subsidiaries. Any recourse to HEP Logistics 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.

The Credit Agreement imposes certain requirements on us with which we are currently in compliance, 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 into a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio, total debt to EBITDA ratio and senior 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.

Senior Notes

We have $300 million in aggregate principal amount outstanding of 6.5% senior notes (the "6.5% Senior Notes") maturing March 2020. The 6.5% Senior Notes are unsecured and impose certain restrictive covenants, with which we are currently in compliance, 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 6.5% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6.5% Senior Notes.

In March 2014, we redeemed the $150 million aggregate principal amount of 8.25% Senior Notes maturing March 2018 at a redemption cost of $156.2 million, at which time we recognized a $7.7 million early extinguishment loss consisting of a $6.2 million debt redemption premium and unamortized discount and financing costs of $1.5 million. We funded the redemption with borrowings under our Credit Agreement.

Indebtedness under the 6.5% Senior Notes involves recourse to HEP Logistics, our general partner, and is guaranteed by our material, wholly-owned subsidiaries. However, any recourse to HEP Logistics would be limited to the extent of its assets, which, other than its investment in us, are not significant.

Long-term Debt

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

	June 30, 2015			December 31, 2014
	(In thousands)
Credit Agreement	$	604,000		$	571,000
6.5% Senior Notes
Principal	300,000			300,000
Unamortized discount	(3,095		)	(3,421		)
	296,905			296,579
Total long-term debt	$	900,905		$	867,579

Interest Rate Risk Management

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

As of June 30, 2015, we have three interest rate swaps that hedge our exposure to the cash flow risk caused by the effects of LIBOR changes on $305 million of Credit Agreement advances. Our first interest rate swap effectively converts $155 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.99%. This swap contract matures in February 2016. We have two additional interest rate swaps with identical terms which effectively convert $150 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.74% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.74%. Both of these swap contracts mature in July 2017.

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

We have designated these interest rate swaps as cash flow hedges. Based on our assessment of effectiveness using the change in variable cash flows method, we have determined that these interest rate swaps are effective in offsetting the variability in interest payments on $305 million of our variable rate debt resulting from changes in LIBOR. Under hedge accounting, we adjust our cash flow hedges on a quarterly basis to their fair values with the offsetting fair value adjustments to accumulated other comprehensive income (loss). 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 swaps against the expected future interest payments on $305 million of our variable rate debt. Any ineffectiveness is recorded directly to interest expense. As of June 30, 2015, we had no ineffectiveness on our cash flow hedges.

At June 30, 2015, we have accumulated other comprehensive loss of $0.6 million that relates to our current cash flow hedging instruments. Approximately $0.6 million will be transferred from accumulated other comprehensive loss into interest expense as interest is paid on the underlying swap agreement over the next twelve-month period, assuming interest rates remain unchanged.

Additional information on our interest rate swaps is as follows:

Derivative Instrument	Balance Sheet Location	Fair Value			Location of Offsetting Balance	Offsetting Amount
	(In thousands)
June 30, 2015
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other current   liabilities	$	(707	)	Accumulated other     comprehensive loss	$	(707	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	134			Accumulated other     comprehensive income	134
		$	(573	)		$	(573	)
December 31, 2014
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other long-term   liabilities	$	(1,065	)	Accumulated other     comprehensive loss	$	(1,065	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	1,019			Accumulated other     comprehensive income	1,019
		$	(46	)		$	(46	)

Interest Expense and Other Debt Information

Interest expense consists of the following components:

	Six Months Ended June 30,
	2015		2014
	(In thousands)
Interest on outstanding debt:
Credit Agreement, net of interest on interest rate swaps	$	7,488	$	6,165
6.5% Senior Notes	9,757		9,696
8.25% Senior Notes	—		2,544
Amortization of discount and deferred debt issuance costs	930		948
Commitment fees	261		293
Total interest incurred	18,436		19,646
Less capitalized interest	612		863
Net interest expense	$	17,824	$	18,783
Cash paid for interest	$	17,280	$	22,249

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Note 7: Significant Customers

All revenues are domestic revenues, of which 92% are currently generated from our two largest customers: HFC and Alon. The vast majority of our revenues are derived from activities conducted in the southwest United States.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
HFC	82	%	86	%	81	%	84	%
Alon	10	%	7	%	10	%	9	%

Note 8: Related Party Transactions

We serve HFC's refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 to 2026. Under these agreements, HFC agrees 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 are subject to annual tariff rate adjustments on July 1st each year based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of June 30, 2015, these agreements with HFC will result in minimum annual payments to us of $236.6 million.

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

Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee (currently $2.4 million) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:

• Revenues received from HFC were $68.3 million and $64.5 million for the three months ended June 30, 2015 and 2014, respectively, and $140.6 million and $136.3 million for the six months ended June 30, 2015 and 2014, respectively.

• HFC charged us general and administrative services under the Omnibus Agreement of $0.6 million for each of the three months ended June 30, 2015 and 2014, and $1.2 million for each of the six months ended June 30, 2015 and 2014.

• We reimbursed HFC for costs of employees supporting our operations of $7.5 million and $9.6 million for the three months ended June 30, 2015 and 2014, respectively, and $16.2 million and $18.8 million for the six months ended June 30, 2015 and 2014, respectively.

• HFC reimbursed us $4.4 million and $3.9 million for the three months ended June 30, 2015 and 2014, respectively, for certain reimbursable costs and capital projects and $7.0 million and $8.4 million for the six months ended June 30, 2015 and 2014, respectively.

• We distributed $22.3 million and $19.8 million for the three months ended June 30, 2015 and 2014, respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions. For the six months ended June 30, 2015 and 2014, we distributed $43.9 million and $39.0 million, respectively

• Accounts receivable from HFC were $28.8 million and $33.4 million at June 30, 2015, and December 31, 2014, respectively.

• Accounts payable to HFC were $7.8 million and $5.2 million at June 30, 2015, and December 31, 2014, respectively.

• Revenues for the six months ended June 30, 2015 and 2014, include $6.0 million and $7.6 million, respectively, of shortfall payments billed in 2014 and 2013, as HFC did not exceed its minimum volume commitment in any of the subsequent

- 15 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

four quarters. Deferred revenue in the consolidated balance sheets at June 30, 2015, and December 31, 2014, includes $5.4 million and $7.3 million, respectively, relating to certain shortfall billings. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $5.4 million deferred at June 30, 2015.

Note 9: Partners’ Equity

As of June 30, 2015, HFC held 22,380,030 of our common units and the 2% general partner interest, which together constituted a 39% ownership interest in us.

Allocations of Net Income

Net income attributable to HEP is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions 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 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 for the periods presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
General partner interest in net income	$	412	$	299	$	861	$	628
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner interest in net income	$	10,196	$	8,393	$	20,006	$	16,394

In addition to the allocation of net income as presented above, the consolidated statement of partners equity for the six months ended June 30, 2015, reflects a cumulative revision of net income allocations between the general partnership interest and common units of approximately $8.8 million for net income related to years ended 2014 and prior.  This revision had no impact on historical limited partners’ per unit interest in earnings.

Cash Distributions

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

On July 23, 2015, we announced our cash distribution for the second quarter of 2015 of $0.5450 per unit. The distribution is payable on all common and general partner units and will be paid August 14, 2015, to all unitholders of record on August 3, 2015.

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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands, except per unit data)
General partner interest in distribution	$	877	$	807	$	1,738	$	1,597
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner distribution	10,661		8,901		20,883		17,363
Limited partner distribution	31,968		30,209		63,496		59,977
Total regular quarterly cash distribution	$	42,629	$	39,110	$	84,379	$	77,340
Cash distribution per unit applicable to limited partners	$	0.5450	$	0.5150	$	1.0825	$	1.0225

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to HEP because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our

- 16 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to HEP. Additionally, if the asset contributions and acquisitions from HFC had occurred while we were not a consolidated variable interest entity of HFC, our acquisition cost in excess of HFC’s historical basis in the transferred assets would have been recorded in our financial statements at the time of acquisition as increases to our properties and equipment and intangible assets instead of decreases to our partners’ equity.

Note 10: Environmental

We incurred no environmental expense for the three months ended June 30, 2015, and $0.9 million for environmental remediation obligations for the three months ended June 30, 2014. For the six months ended June 30, 2015 and 2014, we incurred environmental expenses of $4.2 million and $0.7 million, respectively. During the six months ended June 30, 2015, we increased certain environmental cost accruals to reflect revisions to the cost estimates and the time frame for which the related environmental remediation and monitoring activities are expected to occur. The accrued environmental liability reflected in our consolidated balance sheets was $15.3 million and $12.0 million at June 30, 2015 and December 31, 2014, respectively, of which $12.3 million and $8.7 million, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. As of June 30, 2015, and December 31, 2014, our accrued environmental liability included $6.6 million and $6.8 million, respectively, for HFC indemnified liabilities. In addition, as of June 30, 2015, and December 31, 2014, $6.6 million and $6.8 million, respectively, was included in other assets representing amounts due from HFC related to indemnifications for environmental remediation liabilities.

Note 11: Contingencies

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

Note 12: Supplemental Guarantor/Non-Guarantor Financial Information

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

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

- 17 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Balance Sheet

June 30, 2015	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	7,350	$	3,074	$	—		$	10,424
Accounts receivable	2		35,771		4,442		(171		)	40,044
Prepaid and other current assets	82		3,395		1,261		—			4,738
Total current assets	84		46,516		8,777		(171		)	55,206
Properties and equipment, net	—		624,509		376,299		—			1,000,808
Investment in subsidiaries	603,118		283,393		—		(886,511		)	—
Transportation agreements, net	—		77,279		—		—			77,279
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,280		—		—			24,280
Other assets	1,344		9,828		—		—			11,172
Total assets	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,343	$	956	$	(171	)	$	16,128
Accrued interest	6,500		283		—		—			6,783
Deferred revenue	—		6,440		3,500		—			9,940
Accrued property taxes	—		1,739		2,596		—			4,335
Other current liabilities	24		4,801		1		—			4,826
Total current liabilities	6,524		28,606		7,053		(171		)	42,012
Long-term debt	296,905		604,000		—		—			900,905
Other long-term liabilities	177		20,790		165		—			21,132
Deferred revenue	—		35,484		—		—			35,484
Class B unit	—		30,305		—		—			30,305
Equity - partners	300,940		603,118		377,858		(980,976		)	300,940
Equity - noncontrolling interest	—		—		—		94,465			94,465
Total liabilities and partners’ equity	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243

- 18 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Balance Sheet

December 31, 2014	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	2,828	$	—	$	—		$	2,830
Accounts receivable	—		34,274		6,044		(189		)	40,129
Prepaid and other current assets	212		2,856		1,315		—			4,383
Total current assets	214		39,958		7,359		(189		)	47,342
Properties and equipment, net	—		596,988		383,491		—			980,479
Investment in subsidiaries	622,100		285,247		—		(907,347		)	—
Transportation agreements, net	—		80,703		—		—			80,703
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,478		—		—			24,478
Other assets	1,319		10,736		—		—			12,055
Total assets	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,495	$	2,575	$	(189	)	$	17,881
Accrued interest	6,500		115		—		—			6,615
Deferred revenue	—		5,672		6,760		—			12,432
Accrued property taxes	—		1,902		801		—			2,703
Other current liabilities	45		4,408		118		—			4,571
Total current liabilities	6,545		27,592		10,254		(189		)	44,202
Long-term debt	296,579		571,000		—		—			867,579
Other long-term liabilities	147		17,731		267		—			18,145
Deferred revenue	—		29,392		—		—			29,392
Class B unit	—		26,793		—		—			26,793
Equity - partners	320,362		622,100		380,329		(1,002,429		)	320,362
Equity - noncontrolling interest	—		—		—		95,082			95,082
Total liabilities and partners’ equity	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555

- 19 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	64,727		$	3,545		$	25		$	68,297
Third parties	—			11,895			3,287			—			15,182
	—			76,622			6,832			25			83,479
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,111			3,153			25			25,289
Depreciation and amortization				11,316			3,747			—			15,063
General and administrative	637			2,059			—			—			2,696
	637			35,486			6,900			25			43,048
Operating income (loss)	(637		)	41,136			(68		)	—			40,431
Equity in earnings (loss) of subsidiaries	36,111			(88		)	—			(36,023		)	—
Equity in earnings of SLC Pipeline	—			631			—			—			631
Interest expense	(5,073		)	(3,983		)	—			—			(9,056		)
Interest income	—			3			—			—			3
Other income (expense)	—			120			(49		)	—			71
	31,038			(3,317		)	(49		)	(36,023		)	(8,351		)
Income (loss) before income taxes	30,401			37,819			(117		)	(36,023		)	32,080
State income tax benefit	—			64			—			—			64
Net income (loss)	30,401			37,883			(117		)	(36,023		)	32,144
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,743		)	(1,743		)
Net income (loss) attributable to Holly Energy Partners	30,401			37,883			(117		)	(37,766		)	30,401
Other comprehensive income (loss)	222			222			—			(222		)	222
Comprehensive income (loss)	$	30,623		$	38,105		$	(117	)	$	(37,988	)	$	30,623

- 20 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	61,427		$	3,359		$	(306	)	$	64,480
Third parties	—			8,533			1,985			—			10,518
	—			69,960			5,344			(306		)	74,998
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,179			2,694			(306		)	24,567
Depreciation and amortization	—			12,288			3,594			—			15,882
General and administrative	585			1,931			—			—			2,516
	585			36,398			6,288			(306		)	42,965
Operating income (loss)	(585		)	33,562			(944		)	—			32,033
Equity in earnings (loss) of subsidiaries	28,631			(708		)	—			(27,923		)	—
Equity in earnings of SLC Pipeline	—			748			—			—			748
Interest expense	(5,012		)	(3,317		)	—			—			(8,329		)
Other income	—			26			—			—			26
	23,619			(3,251		)	—			(27,923		)	(7,555		)
Income (loss) before income taxes	23,034			30,311			(944		)	(27,923		)	24,478
State income tax expense	—			(28		)	—			—			(28		)
Net income (loss)	23,034			30,283			(944		)	(27,923		)	24,450
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,416		)	(1,416		)
Net income (loss) attributable to Holly Energy Partners	23,034			30,283			(944		)	(29,339		)	23,034
Other comprehensive income (loss)	(746		)	(746		)	—			746			(746		)
Comprehensive income (loss)	$	22,288		$	29,537		$	(944	)	$	(28,593	)	$	22,288

- 21 -

HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	127,783		$	12,769		$	—		$	140,552
Third parties	—			23,282			9,401			—			32,683
	—			151,065			22,170			—			173,235
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			47,642			5,613			—			53,255
Depreciation and amortization	—			22,278			7,479			—			29,757
General and administrative	1,700			4,286			—			—			5,986
	1,700			74,206			13,092			—			88,998
Operating income (loss)	(1,700		)	76,859			9,078			—			84,237
Equity in earnings (loss) of subsidiaries	74,044			6,772			—			(80,816		)	—
Equity in earnings of SLC Pipeline	—			1,365			—			—			1,365
Interest expense	(10,140		)	(7,684		)	—			—			(17,824		)
Interest income	—			3			—			—			3
Other income (expense)	—			279			(49		)	—			230
	63,904			735			(49		)	(80,816		)	(16,226		)
Income (loss) before income taxes	62,204			77,594			9,029			(80,816		)	68,011
State income tax expense	—			(37		)	—			—			(37		)
Net income (loss)	62,204			77,557			9,029			(80,816		)	67,974
Allocation of net income attributable to noncontrolling interests	—			—			—			(5,770		)	(5,770		)
Net income (loss) attributable to Holly Energy Partners	62,204			77,557			9,029			(86,586		)	62,204
Other comprehensive income (loss)	(527		)	(527		)	—			527			(527		)
Comprehensive income (loss)	$	61,677		$	77,030		$	9,029		$	(86,059	)	$	61,677

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	123,042		$	13,883	$	(613	)	$	136,312
Third parties	—			19,614			6,076		—			25,690
	—			142,656			19,959		(613		)	162,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			42,330			5,662		(613		)	47,379
Depreciation and amortization	—			24,281			7,189		—			31,470
General and administrative	1,643			4,024			—		—			5,667
	1,643			70,635			12,851		(613		)	84,516
Operating income (loss)	(1,643		)	72,021			7,108		—			77,486
Equity in earnings (loss) of subsidiaries	69,195			5,331			—		(74,526		)	—
Equity in earnings of SLC Pipeline	—			1,270			—		—			1,270
Interest expense	(12,698		)	(6,085		)	—		—			(18,783		)
Interest income	—			3			—		—			3
Loss on early extinguishment of debt	(7,677		)	—			—		—			(7,677		)
Other income	—			34			—		—			34
	48,820			553			—		(74,526		)	(25,153		)
Income (loss) before income taxes	47,177			72,574			7,108		(74,526		)	52,333
State income tax expense	—			(103		)	—		—			(103		)
Net income (loss)	47,177			72,471			7,108		(74,526		)	52,230
Allocation of net income attributable to noncontrolling interests	—			—			—		(5,053		)	(5,053		)
Net income (loss) attributable to Holly Energy Partners	47,177			72,471			7,108		(79,579		)	47,177
Other comprehensive income (loss)	(651		)	(651		)	—		651			(651		)
Comprehensive income (loss)	$	46,526		$	71,820		$	7,108	$	(78,928	)	$	46,526

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(9,639	)	$	111,517		$	15,358		$	(6,772	)	$	110,464
Cash flows from investing activities
Additions to properties and equipment	—			(22,159		)	(784		)	—			(22,943		)
Purchase of El Dorado crude tanks	—			(27,500		)	—			—			(27,500		)
Proceeds from sale of assets	—			965			—			—			965
Distributions from UNEV	—			1,853			—			(1,853		)	—
Distributions in excess of equity in earnings in SLC Pipeline	—			198			—			—			198
	—			(46,643		)	(784		)	(1,853		)	(49,280		)
Cash flows from financing activities
Net borrowings under credit agreement	—			33,000			—			—			33,000
Net intercompany financing activities	92,498			(92,498		)	—			—			—
Distributions to HEP unitholders	(82,614		)	—			—			—			(82,614		)
Distributions to noncontrolling interests	—			—			(11,500		)	8,625			(2,875		)
Purchase of units for incentive grants	(247		)	—			—			—			(247		)
Other	—			(854		)	—			—			(854		)
	9,637			(60,352		)	(11,500		)	8,625			(53,590		)
Cash and cash equivalents
Increase (decrease) for the period	(2		)	4,522			3,074			—			7,594
Beginning of period	2			2,828			—			—			2,830
End of period	$	—		$	7,350		$	3,074		$	—		$	10,424

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HOLLY ENERGY PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Continued

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(15,764	)	$	96,308		$	11,819		$	—		$	92,363
Cash flows from investing activities
Additions to properties and equipment	—			(33,831		)	(4,743		)	—			(38,574		)
Distributions from noncontrolling interest	—			6,000			—			(6,000		)	—
Distributions in excess of equity in earnings of SLC Pipeline	—			105			—			—			105
	—			(27,726		)	(4,743		)	(6,000		)	(38,469		)
Cash flows from financing activities
Net repayments under credit agreement	—			180,000			—			—			180,000
Net intercompany financing activities	247,935			(247,935		)	—			—			—
Redemption of senior notes	(156,188		)	—			—			—			(156,188		)
Distributions to HEP unitholders	(75,577		)	—			—			—			(75,577		)
Distributions to noncontrolling interests	—			—			(8,000		)	6,000			(2,000		)
Purchase of units for incentive grants	(406		)	—			—			—			(406		)
Other	—			(9		)	—			—			(9		)
	15,764			(67,944		)	(8,000		)	6,000			(54,180		)
Cash and cash equivalents
Increase (decrease) for the period	—			638			(924		)	—			(286		)
Beginning of period	2			1,447			4,903			—			6,352
End of period	$	2		$	2,085		$	3,979		$	—		$	6,066

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Table of Contentsril 19,

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

OVERVIEW

HEP is a Delaware limited partnership. We own and operate petroleum product and crude pipelines and terminal, tankage and loading rack facilities that support the refining and marketing operations of HollyFrontier Corporation (“HFC”) in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and Alon USA, Inc’s (“Alon”) refinery in Big Spring, Texas. HFC owns a 39% interest in us, including the 2% general partnership interest. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), the owner of a pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV

Pipeline”), product terminals and a 25% interest in SLC Pipeline, LLC, a 95-mile intrastate crude oil pipeline system (the “SLC Pipeline”), that serves refineries in the Salt Lake City, Utah area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons 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.

We have a long-term strategic relationship with HFC. Our current growth plan is to continue to pursue purchases of logistic and other assets at HFC's existing refining locations in New Mexico, Utah, Oklahoma, Kansas and Wyoming. We also expect to work with HFC on logistic asset acquisitions in conjunction with HFC’s refinery acquisition strategies. Furthermore, we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues.

Agreements with HFC and Alon

We serve HFC’s refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 to 2026. Under these agreements, HFC has 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 are subject to annual tariff rate adjustments on July 1st each year, based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of June 30, 2015, these agreements with HFC will result in minimum annual payments to us of $236.6 million.

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

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 that is also subject to annual tariff rate adjustments. We also have a capacity lease agreement under which we lease Alon space on our Orla to El Paso pipeline for the shipment of refined product. The terms under this agreement expire beginning in 2018 through 2022. As of June 30, 2015, these agreements with Alon will result in minimum annual payments to us of $33.3 million.

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

Under certain provisions of an omnibus agreement we have with HFC (“Omnibus Agreement”), we pay HFC an annual administrative fee, currently $2.4 million, for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are separately charged to us by HFC. We also reimburse HFC and its affiliates for direct expenses they incur on our behalf.

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Table of Contentsril 19,

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, 2015 and 2014.

	Three Months Ended June 30,						Change from
	2015			2014			2014
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	18,245		$	17,536		$	709
Affiliates—intermediate pipelines	7,172			6,683			489
Affiliates—crude pipelines	15,096			13,032			2,064
	40,513			37,251			3,262
Third parties—refined product pipelines	11,213			7,480			3,733
	51,726			44,731			6,995
Terminals, tanks and loading racks:
Affiliates	27,784			27,229			555
Third parties	3,969			3,038			931
	31,753			30,267			1,486
Total revenues	83,479			74,998			8,481
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	25,289			24,567			722
Depreciation and amortization	15,063			15,882			(819		)
General and administrative	2,696			2,516			180
	43,048			42,965			83
Operating income	40,431			32,033			8,398
Other income (expense):
Equity in earnings of SLC Pipeline	631			748			(117		)
Interest expense, including amortization	(9,056		)	(8,329		)	(727		)
Interest income	3			—			3
Other	71			26			45
	(8,351		)	(7,555		)	(796		)
Income before income taxes	32,080			24,478			7,602
State income tax benefit (expense)	64			(28		)	92
Net income	32,144			24,450			7,694
Allocation of net income attributable to noncontrolling interests	(1,743		)	(1,416		)	(327		)
Net income attributable to Holly Energy Partners	30,401			23,034			7,367
General partner interest in net income, including incentive distributions (1)	(10,196		)	(8,393		)	(1,803		)
Limited partners’ interest in net income	$	20,205		$	14,641		$	5,564
Limited partners’ earnings per unit—basic and diluted(1)	$	0.34		$	0.25		$	0.09
Weighted average limited partners’ units outstanding	58,657			58,657			—
EBITDA(2)	$	54,453		$	47,273		$	7,180
Distributable cash flow(3)	$	47,299		$	43,495		$	3,804
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	121,982			119,328			2,654
Affiliates—intermediate pipelines	143,140			143,396			(256		)
Affiliates—crude pipelines	295,793			178,564			117,229
	560,915			441,288			119,627
Third parties—refined product pipelines	73,659			43,858			29,801
	634,574			485,146			149,428
Terminals and loading racks:
Affiliates	281,318			269,260			12,058
Third parties	79,133			56,563			22,570
	360,451			325,823			34,628
Total for pipelines and terminal assets (bpd)	995,025			810,969			184,056

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Table of Contentsril 19,

	Six Months Ended June 30,						Change from
	2015			2014			2014
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	40,786		$	41,709		$	(923	)
Affiliates—intermediate pipelines	14,034			14,594			(560		)
Affiliates—crude pipelines	32,090			25,650			6,440
	86,910			81,953			4,957
Third parties—refined product pipelines	24,936			19,098			5,838
	111,846			101,051			10,795
Terminals, tanks and loading racks:
Affiliates	53,642			54,359			(717		)
Third parties	7,747			6,592			1,155
	61,389			60,951			438
Total revenues	173,235			162,002			11,233
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	53,255			47,379			5,876
Depreciation and amortization	29,757			31,470			(1,713		)
General and administrative	5,986			5,667			319
	88,998			84,516			4,482
Operating income	84,237			77,486			6,751
Other income (expense):
Equity in earnings of SLC Pipeline	1,365			1,270			95
Interest expense, including amortization	(17,824		)	(18,783		)	959
Interest income	3			3			—
Loss on early extinguishment of debt	—			(7,677		)	7,677
Other	230			34			196
	(16,226		)	(25,153		)	8,927
Income before income taxes	68,011			52,333			15,678
State income tax expense	(37		)	(103		)	66
Net income	67,974			52,230			15,744
Allocation of net income attributable to noncontrolling interests	(5,770		)	(5,053		)	(717		)
Net income attributable to Holly Energy Partners	62,204			47,177			15,027
General partner interest in net income, including incentive distributions (1)	(20,006		)	(16,394		)	(3,612		)
Limited partners’ interest in net income	$	42,198		$	30,783		$	11,415
Limited partners’ earnings per unit—basic and diluted(1)	$	0.71		$	0.52		$	0.19
Weighted average limited partners’ units outstanding	58,657			58,657			—
EBITDA(2)	$	109,819		$	105,207		$	4,612
Distributable cash flow(3)	$	93,189		$	85,303		$	7,886
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	118,724			121,239			(2,515		)
Affiliates—intermediate pipelines	140,620			141,015			(395		)
Affiliates—crude pipelines	289,285			177,763			111,522
	548,629			440,017			108,612
Third parties—refined product pipelines	72,546			55,014			17,532
	621,175			495,031			126,144
Terminals and loading racks:
Affiliates	276,823			265,966			10,857
Third parties	76,574			67,075			9,499
	353,397			333,041			20,356
Total for pipelines and terminal assets (bpd)	974,572			828,072			146,500

(1) Net income attributable to HEP is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions 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 allocated to the partners based on their weighted average ownership percentage during the period.

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(2) Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense and loss on early extinguishment of debt, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon generally accepted accounting principles (“GAAP”). However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements operations. EBITDA should not be considered as an alternative to net income attributable to Holly Energy Partners or operating income, as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for compliance with financial covenants. Set forth below is our calculation of EBITDA.

	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
	(In thousands)
Net income attributable to Holly Energy Partners	$	30,401		$	23,034	$	62,204		$	47,177
Add (subtract):
Interest expense	8,562			7,893		16,894			17,836
Interest income	(3		)	—		(3		)	(3		)
Amortization of discount and deferred debt issuance costs	494			436		930			947
Loss on early extinguishment of debt	—			—		—			7,677
State income tax (benefit) expense	(64		)	28		37			103
Depreciation and amortization	15,063			15,882		29,757			31,470
EBITDA	$	54,453		$	47,273	$	109,819		$	105,207

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(In thousands)
Net income attributable to Holly Energy Partners	$	30,401		$	23,034		$	62,204		$	47,177
Add (subtract):
Depreciation and amortization	15,063			15,882			29,757			31,470
Amortization of discount and deferred debt issuance costs	494			436			930			947
Loss on early extinguishment of debt	—			—			—			7,677
Increase (decrease) in deferred revenue related to minimum revenue commitments	1,355			4,760			(2,195		)	(1,138		)
Maintenance capital expenditures (4)	(1,870		)	(842		)	(3,519		)	(1,691		)
Increase (decrease) in environmental liability	(386		)	(3		)	3,471			361
Increase (decrease) in reimbursable deferred revenue	1,537			(629		)	992			(1,211		)
Other non-cash adjustments	705			857			1,549			1,711
Distributable cash flow	$	47,299		$	43,495		$	93,189		$	85,303

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(4) 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, 2015		December 31, 2014
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	10,424	$	2,830
Working capital	$	13,194	$	3,140
Total assets	$	1,425,243	$	1,401,555
Long-term debt	$	900,905	$	867,579
Partners’ equity (5)	$	300,940	$	320,362

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

Results of Operations—Three Months Ended June 30, 2015 Compared with Three Months Ended June 30, 2014

Summary

Net income attributable to Holly Energy Partners for the second quarter was $30.4 million ($0.34 per basic and diluted limited partner unit) compared to $23.0 million ($0.25 per basic and diluted limited partner unit) for the second quarter of 2014. The increase in earnings is primarily due to higher pipeline volumes and annual tariff increases.

Our major shippers are obligated to make deficiency payments to us if they do not meet their minimum volume shipping obligations. Revenues for the three months ended June 30, 2015, include the recognition of $0.5 million of prior shortfalls billed to shippers in 2014 compared to revenues at June 30, 2014, which included the recognition of $0.2 million of prior shortfalls billed to shippers in 2013. Additional shortfall billings of $2.3 million associated with certain guaranteed shipping contracts were deferred during the three months ended June 30, 2015. Such deferred revenue will be recognized in earnings either as (a) payment for shipments in excess of guaranteed levels, if and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels, or (b) when shipping rights expire unused over the contractual make-up period.

Revenues

Revenues for the quarter were $83.5 million, an $8.5 million increase compared to the second quarter of 2014 due to the effect of higher pipeline volumes and annual tariff increases. The volume increase resulted in overall pipeline volumes being up 31% compared to the three months ended June 30, 2014largely due to increased volumes from the New Mexico gathering system expansion as well as lower volumes in the second quarter of 2014 resulting from major maintenance performed at Alon's Big Spring refinery.

Revenues from our refined product pipelines were $29.5 million, an increase of $4.4 million compared to the second quarter of 2014, due to increased volumes and annual tariff increases. Shipments averaged 195.6 mbpd compared to 163.2 mbpd for the second quarter of 2014 largely due to lower volumes in the second quarter of 2014 resulting from major maintenance performed at Alon's Big Spring refinery.

Revenues from our intermediate pipelines were $7.2 million, an increase of $0.5 million, on shipments averaging 143.1 mbpd compared to 143.4 mbpd for the second quarter of 2014. Revenues increased mainly due to a $0.3 million increase in deferred revenue realized.

Revenues from our crude pipelines were $15.1 million, an increase of $2.1 million, on shipments averaging 295.8 mbpd compared to 178.6 mbpd for the second quarter of 2014. Revenues increased mainly due to a $2.1 million increase in revenue from the New Mexico gathering system expansion. The increase in volumes is due to increased crude production in the Artesia Basin as well as the reversal of the Roadrunner pipeline, which made it possible for HFC to purchase and HEP to transport crude volumes in excess of HFC refining capacity.

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Revenues from terminal, tankage and loading rack fees were $31.8 million, an increase of $1.5 million compared to the second quarter of 2014. Refined products terminalled in our facilities averaged 360.5 mbpd compared to 325.8 mbpd for the second quarter of 2014 largely due to lower volumes in the second quarter of 2014 resulting from major maintenance performed at Alon's Big Spring refinery. Revenues increased due to our first quarter 2015 acquisition of an existing crude tank farm adjacent to HFC's El Dorado refinery as well as increased volumes and annual tariff increases.

Operations Expense

Operations expense for the three months ended June 30, 2015, increased by $0.7 million compared to the three months ended June 30, 2014. This increase is mainly due to an increase in maintenance project expense offset by lower employee costs due to secondment of employees in El Dorado and Cheyenne.

Depreciation and Amortization

Depreciation and amortization for the three months ended June 30, 2015, decreased by $0.8 million compared to the three months ended June 30, 2014. The decrease is due principally to lower accelerated tank depreciation and tank write-downs.

General and Administrative

General and administrative costs for the three months ended June 30, 2015, increased by $0.2 million compared to the three months ended June 30, 2014.

Equity in Earnings of SLC Pipeline

Our equity in earnings of the SLC Pipeline was $0.6 million and $0.7 million for the three months ended June 30, 2015 and 2014, respectively.

Interest Expense

Interest expense for the three months ended June 30, 2015, totaled $9.1 million, an increase of $0.7 million compared to the three months ended June 30, 2014. The increase is primarily due to a higher carrying balance on the Credit Agreement. Our aggregate effective interest rates were 4.0% for each of the three months ended June 30, 2015 and 2014, respectively.

State Income Tax

We recorded a state income tax benefit of $64,000 and state income tax expense of $28,000 for the three months ended June 30, 2015 and 2014, respectively. All tax expense is solely attributable to the Texas margin tax.

Results of Operations—Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014

Summary

Net income attributable to Holly Energy Partners for the six months ended June 30, 2015, was $62.2 million compared to $47.2 million for the six months ended June 30, 2014. The increase in net income is due primarily to higher pipeline volumes, annual tariff increases and lower interest expense in addition to a charge of $7.7 million in the first quarter of 2014 related to the redemption of the $150 million aggregate principal amount of our 8.25% Senior Notes maturing March 2018 (the "8.25% Senior Notes").

Revenues for the six months ended June 30, 2015, include the recognition of $8.0 million of prior shortfalls billed to shippers in 2014 as they did not meet their minimum volume commitments within the contractual makeup period. Deficiency payments of $5.0 million associated with certain guaranteed shipping contracts were deferred during the six months ended June 30, 2015. Such deferred revenue will be recognized in earnings either as (a) payment for shipments in excess of guaranteed levels, if and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels, or (b) when shipping rights expire unused over the contractual make-up period.

Revenues

Revenues for the six months ended June 30, 2015, were $173.2 million, a $11.2 million increase compared to the six months ended June 30, 2014. This is due principally to the effect of annual tariff increases and increased pipeline shipments largely due to increased volumes from the New Mexico gathering system expansion. Overall pipeline volumes were up 25.5% for the six months ended June 30, 2015, as compared to the six months ended June 30, 2014.

Revenues from our refined product pipelines were $65.7 million, an increase of $4.9 million compared to the six months ended June 30, 2014, primarily due to increased volumes and due to increased volumes and annual tariff increases. Shipments averaged 191.3 mbpd compared to 176.3 mbpd for the six months ended June 30, 2014, largely due to lower volumes in the second quarter

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of 2014 resulting from major maintenance performed at Alon's Big Spring refinery as well as higher spot volumes on our UNEV pipeline.

Revenues from our intermediate pipelines were $14.0 million, a decrease of $0.6 million, on shipments averaging 140.6 mbpd compared to 141.0 mbpd for the six months ended June 30, 2014. Overall intermediate pipeline shipments were slightly down and revenues also decreased partially due to a $0.7 million decrease in deferred revenue realized.

Revenues from our crude pipelines were $32.1 million, an increase of $6.4 million, on shipments averaging 289.3 mbpd compared to 177.8 mbpd for the six months ended June 30, 2014. Revenues increased mainly due to $4.2 million in increased revenue from the New Mexico gathering system expansion, increased volumes from increased crude production in the Artesia Basin, and the reversal of the Roadrunner pipeline which made it possible for HFC to purchase and HEP to transport crude volumes in excess of HFC refining capacity.

Revenues from terminal, tankage and loading rack fees were $61.4 million, an increase of $0.4 million compared to the six months ended June 30, 2014. This increase is due principally to increased volumes and annual fee increases. Refined products terminalled in our facilities averaged 353.4 mbpd compared to 333.0 mbpd for the six months ended June 30, 2014, largely due to lower volumes in the second quarter of 2014 resulting from major maintenance performed at Alon's Big Spring refinery.

Operations Expense

Operations expense for the three months ended June 30, 2015, increased by $5.9 million compared to the six months ended June 30, 2014. The increase is due to a an increase in environmental remediation provisions of $3.5 million and higher project maintenance costs.

Depreciation and Amortization

Depreciation and amortization for the six months ended June 30, 2015, decreased by $1.7 million compared to the six months ended June 30, 2014. The decrease is due principally to lower accelerated tank depreciation and tank write-downs.

General and Administrative

General and administrative costs for the six months ended June 30, 2015, increased by $0.3 million compared to the six months ended June 30, 2014, due to increased professional fees.

Equity in Earnings of SLC Pipeline

Our equity in earnings of the SLC Pipeline was $1.4 million and $1.3 million for the six months ended June 30, 2015 and 2014, respectively.

Interest Expense

Interest expense for the six months ended June 30, 2015, totaled $17.8 million, a decrease of $1.0 million compared to the six months ended June 30, 2014. The decrease is primarily due to the early retirement of our 8.25% Senior Notes in March 2014 partially offset by higher interest on the amended credit agreement. Our aggregate effective interest rates were 4.0% and 4.5% for the six months ended June 30, 2015 and 2014, respectively.

Loss on Early Extinguishment of Debt

We recognized a charge of $7.7 million upon the early extinguishment of our 8.25% Senior Notes in March 2014. This charge represents the premium paid to noteholders upon their tender of an aggregate principal amount of $6.2 million and related financing costs of $1.5 million that were previously deferred.

State Income Tax

We recorded state income tax expense of $37,000 and $103,000 for the six months ended June 30, 2015 and 2014, respectively. All tax expense is solely attributable to the Texas margin tax.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We have an $850 million senior secured revolving credit facility expiring in November 2018 (the “Credit Agreement”), which is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit.

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During the six months ended June 30, 2015, we received advances totaling $254.1 million and repaid $221.1 million, resulting in a net increase of $33.0 million under the Credit Agreement and an outstanding balance of $604.0 million at June 30, 2015. We have no letters of credit outstanding under the Credit Agreement at June 30, 2015, and the available capacity under the Credit Agreement is $246.0 million at June 30, 2015.

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

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

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 2015, we paid regular quarterly cash distributions of $0.53 and $0.5375 on all units in an aggregate amount of $82.6 million including $18.3 million of incentive distribution payments to the general partner.

Contemporaneously with our UNEV Pipeline interest acquisition on July 12, 2012, HEP Logistics, our general partner, agreed to forego its right to incentive distributions of $1.25 million per quarter over twelve consecutive quarterly periods following the close of the transaction and up to an additional four quarters in certain circumstances.

Cash and cash equivalents increased by $7.6 million during the six months ended June 30, 2015. The cash flows provided by operating activities of $110.5 million were more than the sum of cash flows used for financing and investing activities of $53.6 million and $49.3 million, respectively. Working capital increased by $10.1 million to a positive $13.2 million at June 30, 2015, from $3.1 million at December 31, 2014.

Cash Flows—Operating Activities

Cash flows from operating activities increased by $18.1 million from $92.4 million for the six months ended June 30, 2014, to $110.5 million for the six months ended June 30, 2015. This increase is due principally to $15.8 million of greater cash receipts for services performed and lower interest payments of $4.7 million partially offset by increased operating expenses in the six months ended June 30, 2015, as compared to the prior year.

Cash Flows—Investing Activities

Cash flows used for investing activities were $49.3 million for the six months ended June 30, 2015, compared to $38.5 million for the six months ended June 30, 2014, an increase of $10.8 million. During the six months ended June 30, 2015 and 2014, we invested $22.9 million and $38.6 million in additions to properties and equipment, respectively. We also purchased El Dorado crude tank assets for $27.5 million in March 2015.

Cash Flows—Financing Activities

Cash flows used for financing activities were $53.6 million for the six months ended June 30, 2015, compared to $54.2 million for the six months ended June 30, 2014, a decrease of $0.6 million. During the six months ended June 30, 2015, we received $254.1 million and repaid $221.1 million in advances under the Credit Agreement. Additionally, we paid $82.6 million in regular quarterly cash distributions to our general and limited partners, $2.9 million to our noncontrolling interest and $0.2 million for the purchase of common units for recipients of our incentive grants. During the six months ended June 30, 2014, we received $477.1 million and repaid $297.1 million in advances under the Credit Agreement and paid $156.2 million to redeem the 8.25% Senior Notes. We paid $75.6 million in regular quarterly cash distributions to our general and limited partners, distributed $2.0 million to our noncontrolling interest, and paid $0.4 million for the purchase of common units for recipients of our incentive grants.

Capital Requirements

Our pipeline and terminalling operations are capital intensive, requiring investments to maintain, expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements have consisted of, and are expected to continue to consist of, maintenance capital expenditures and expansion capital expenditures. “Maintenance capital

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

Each year the board of directors of Holly Logistic Services, L.L.C., our ultimate general partner ("HLS"), approves our annual capital budget, which specifies capital projects that our management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, additional projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures approved for capital projects included in the current year's capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. The 2015 capital budget is comprised of $9.7 million for maintenance capital expenditures and $77.7 million for expansion capital expenditures. We expect the majority of the expansion capital budget to be invested in crude storage for HFC's El Dorado refinery, product distribution enhancements, new storage tanks, and an additional UNEV origin connection. In addition to our capital budget, we may spend funds periodically to perform capital upgrades or additions to our assets where a customer reimburses us for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.

On March 6, 2015, we completed the acquisition of an existing crude tank farm adjacent to HFC's El Dorado Refinery from an unrelated third-party for $27.5 million in cash. We recorded the assets acquired and liabilities assumed at their fair values at the date of acquisition based on preliminary valuations. Substantially all of the purchase price was allocated to properties and equipment, and no goodwill has been recorded. We expect to finalize the purchase price allocation during the third quarter of 2015. HFC is the main customer of this crude tank farm.

We have identified potential dropdown assets from HFC including the naphtha fractionation unit at HFC’s El Dorado Refinery and certain assets related to the initial phase of the expansion at HFC's Woods Cross Refinery.

We expect that our currently planned maintenance capital expenditures, as well as expenditures for acquisitions and capital development projects, will be funded with cash generated by operations, the sale of additional limited partner common units, the issuance of debt securities and advances under our Credit Agreement, or a combination thereof.

Under the terms of the transaction to acquire HFC's 75% interest in UNEV, we issued to HFC a Class B unit comprising a noncontrolling equity interest in a wholly-owned subsidiary subject to redemption to the extent that HFC is entitled to a 50% interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 million beginning July 1, 2016, and ending in June 2032, subject to certain limitations.

Credit Agreement

In April 2015, we amended our senior secured revolving credit facility (the “Credit Agreement”) increasing the size of the credit facility from $650 million to $850 million. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit.

Our obligations under the Credit Agreement are collateralized by substantially all of our assets. Indebtedness under the Credit Agreement involves recourse to HEP Logistics Holdings, L.P. (“HEP Logistics”), our general partner, and is guaranteed by our material wholly-owned subsidiaries. Any recourse to HEP Logistics 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.

The Credit Agreement imposes certain requirements on us which we are currently in compliance with, 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 into a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio, total debt to EBITDA ratio and senior 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.

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Senior Notes

We have $300.0 million in aggregate principal amount outstanding of 6.5% senior notes (the "6.5% Senior Notes") maturing March 2020. The 6.5% Senior Notes are unsecured and impose certain restrictive covenants, with which we are currently in compliance, 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 6.5% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6.5% Senior Notes.

Indebtedness under the 6.5% Senior Notes involves recourse to HEP Logistics, our general partner, and is guaranteed by our wholly-owned subsidiaries. However, any recourse to HEP Logistics would be limited to the extent of its assets, which other than its investment in us, are not significant.

Long-term Debt

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

	June 30, 2015			December 31, 2014
	(In thousands)
Credit Agreement	$	604,000		$	571,000
6.5% Senior Notes
Principal	300,000			300,000
Unamortized discount	(3,095		)	(3,421		)
	296,905			296,579
Total long-term debt	$	900,905		$	867,579

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

Contractual Obligations

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

Impact of Inflation

Inflation in the United States has been relatively moderate in recent years and did not have a material impact on our results of operations for the six months ended June 30, 2015 and 2014. Historically, the PPI has increased an average of 2.3% annually over the past five calendar years.

The 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. Certain of these contracts have provisions that limit the level of annual PPI percentage rate increases. Although the recent PPI increase may not be indicative of additional increases to be realized in the future, a significant and prolonged period of high inflation could adversely affect our cash flows and results of operations if costs increase at a rate greater than the fees we charge our shippers.

Environmental Matters

Our operation of pipelines, terminals, and associated facilities in connection with the transportation and storage of refined products and crude oil is subject to stringent and complex federal, state, and local laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment. As with the industry generally, compliance with existing and anticipated laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe that they do not affect our competitive position given that the operations of our competitors are similarly affected. We believe 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 major discharge of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expense, including both the cost to comply with applicable laws and regulations and claims made by employees, neighboring landowners and other third parties for personal injury and property damage.

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Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers.

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 subject to certain monetary and time limitations.

There are environmental remediation projects that are currently in progress that relate to certain assets acquired from HFC. Certain of these projects were underway prior to our purchase and represent liabilities of HFC as the obligation for future remediation activities was retained by HFC. At June 30, 2015, we have an accrual of $8.6 million that relates to environmental clean-up projects for which we have assumed liability or for which the indemnity provided for by HFC has expired or will expire. The remaining projects, including assessment and monitoring activities, are covered under the HFC environmental indemnification discussed above and represent liabilities of HFC.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2014. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include revenue recognition, assessing the possible impairment of certain long-lived assets and goodwill, and assessing contingent liabilities for probable losses. There have been no changes to these policies in 2015. 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.

New Accounting Pronouncements

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018. We are evaluating the impact of this standard.

Debt Issuance Costs

In April 2015, an accounting standard update was issued requiring debt issuance costs to be presented as a direct deduction from the carrying amount of the debt liability. The amount of deferred debt issuance costs reported in Long-term assets was $4.7 million and $4.4 million as of June 30, 2015 and December 31, 2014, respectively. This standard will become effective beginning with our 2016 reporting year.

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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, 2015, we have three interest rate swaps, designated as a cash flow hedge, that hedge our exposure to the cash flow risk caused by the effects of LIBOR changes on $305.0 million of Credit Agreement advances. Our first interest rate swap effectively converts $155.0 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.99%. This swap contract matures in February 2016. Also, we have two similar interest rate swaps with identical terms which effectively convert $150.0 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.74% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.74%. Both of these swap contracts mature in July 2017.

We review publicly available information on our counterparties in order to monitor their financial stability and assess their ongoing ability to honor their commitments under the interest rate swap contracts. These counterparties are large financial institutions.

Furthermore, we have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their respective commitments.

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, 2015, we had an outstanding principal balance on our 6.5% Senior Notes of $300 million. A change in interest rates generally would affect the fair value of the Senior Notes, but not our earnings or cash flows. At June 30, 2015, the fair value of our 6.5% Senior Notes was $295.9 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 6.5% Senior Notes at June 30, 2015, would result in a change of approximately $8.2 million 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, 2015, borrowings outstanding under the Credit Agreement were $604.0 million. By means of our cash flow hedges, we have effectively converted the variable rate on $305.0 million of outstanding borrowings to a fixed rate. For the remaining unhedged Credit Agreement borrowings of $299.0 million, a hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of market risk exposures that we have with respect to our long-term debt, which disclosure should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. We utilize derivative instruments to hedge our interest rate exposure, as discussed under “Risk Management.”

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

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, 2015, at a reasonable level of assurance.

(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, which we believe will not have a material adverse impact on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors as previously disclosed in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, except for the additional risk factor described below. In addition to the other information set forth in this quarterly report, you should consider carefully the factors discussed below and in our 2014 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this quarterly report and in our 2014 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or future results.

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

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, the Obama administration's budget proposal for fiscal year 2016 recommends that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider such substantive changes to the existing federal income tax laws that affect publicly traded partnerships. If successful, the Obama administration's proposal or other similar proposals could eliminate the qualifying income exception to the treatment of all publicly traded partnerships as corporations, upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.

In addition, the IRS, on May 5, 2015, issued proposed regulations concerning which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code. We do not believe the proposed regulations affect our ability to qualify as a publicly traded partnership. However, finalized regulations could modify the amount of our gross income that we are able to treat as qualifying income for the purposes of the qualifying income requirement.

Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.

Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal income tax purposes, the minimum quarterly distribution and the target distribution amounts may be adjusted to reflect the impact of that law on us.

Item 6. Exhibits

The Exhibit Index on page 40 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of the Quarterly Report on Form 10-Q.

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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: August 5, 2015		/s/    Douglas S. Aron
		Douglas S. Aron
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date: August 5, 2015		/s/    Kenneth P. Norwood
		Kenneth P. Norwood
		Vice President and Controller (Principal Accounting Officer)

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Exhibit Index

Exhibit Number	Description
3.1	First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P. (incorporated by reference to Exhibit 3.1 of Registrant's Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.2	Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated February 28, 2005 (incorporated by reference to Exhibit 3.1 of Registrant's Form 8-K Current Report dated February 28, 2005, File No. 1-32225).
3.3	Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., as amended, dated July 6, 2005 (incorporated by reference to Exhibit 3.1 of Registrant's Form 8-K Current Report dated July 6, 2005, File No. 1-32225).
3.4	Amendment No. 3 to First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated April 11, 2008 (incorporated by reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K dated April 15, 2008, File No. 1-32225).
3.5	Amendment No. 4 to First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated January 16, 2013 (incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K dated January 16, 2013, File No. 1-32225).
3.6	Limited Partial Waiver of Incentive Distribution Rights under the First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P., dated as of July 12, 2012 (incorporated by reference to Exhibit 3.1 of Registrant's Current Report on Form 8-K dated July 12, 2012, File No. 1-32225).
3.7	First Amended and Restated Agreement of Limited Partnership of Holly Energy Partners - Operating Company, L.P. (incorporated by reference to Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.8	First Amended and Restated Agreement of Limited Partnership of HEP Logistics Holdings, L.P. (incorporated by reference to Exhibit 3.4 of Registrant's Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.9	First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 3.5 of Registrant's Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.10	Amendment No. 1 to the First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C., dated April 27, 2011 (incorporated by reference to Exhibit 3.1 of Registrant's Form 8-K Current Report dated May 3, 2011, File No. 1-32225).
3.11	First Amended and Restated Limited Liability Company Agreement of HEP Logistics GP, L.L.C. (incorporated by reference to Exhibit 3.6 of Registrant's Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
10.1+	Mortgage, Line of Credit Mortgage and Deed of Trust (with Security Agreement and Financing Statement), dated May 29, 2015, by HEP Refining, L.L.C. for the benefit of HollyFrontier Corporation.
31.1+	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1++	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2++	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

101** The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statement of Partners’ Equity, and (vi) Notes to Consolidated Financial Statements.

+	Filed herewith.
++	Furnished herewith.
**	Filed electronically herewith.

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EX-10.1

EXHIBIT 10.1

MORTGAGE, LINE OF CREDIT MORTGAGE AND DEED OF TRUST(WITH SECURITY AGREEMENT AND FINANCING STATEMENT)

BY

HEP REFINING, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANYAS GRANTOR

TO

CHICAGO TITLE INSURANCE COMPANY,
AS TRUSTEE

FOR THE BENEFIT OF

HOLLYFRONTIER CORPORATION,
A DELAWARE CORPORATION
AS BENEFICIARY

DATED EFFECTIVE AS OF MAY 29, 2015

THIS INSTRUMENT COVERS GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN AND IS TO BE FILED FOR RECORD IN THE RECORDS WHERE MORTGAGES ON REAL ESTATE ARE RECORDED. ADDITIONALLY, THIS INSTRUMENT SHOULD BE APPROPRIATELY INDEXED, NOT ONLY AS A MORTGAGE, BUT ALSO AS A FINANCING STATEMENT COVERING GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THE MAILING ADDRESSES OF THE GRANTOR (DEBTOR) AND BENEFICIARY (SECURED PARTY) ARE SET FORTH IN THIS INSTRUMENT.

EXHIBIT 10.1

MORTGAGE, LINE OF CREDIT MORTGAGE AND DEED OF TRUST
(WITH SECURITY AGREEMENT AND FINANCING STATEMENT)

This MORTGAGE, LINE OF CREDIT MORTGAGE AND DEED OF TRUST (WITH SECURITY AGREEMENT AND FINANCING STATEMENT) (hereinafter referred to as this “Deed of Trust”), is entered into effective as of the 29th day of May, 2015, by HEP REFINING, L.L.C., a Delaware limited liability company (“Grantor”), having an address for notice at 2828 N. Harwood, Suite 1300, Dallas, Texas 75201, to Chicago Title Insurance Company, Trustee (hereinafter referred to in such capacity as “Trustee”), for the benefit of the herein below defined Beneficiary.

W I T N E S S E T H:

Article 1DEFINITIONS

1.1 Definitions. As used herein, the following terms shall have the following meanings:

(a)Asset Leases. All leases of real property now or hereafter entered into or acquired by Grantor on which all or a part of the Assets are located, including, without limitation, the leases described on Exhibit B, if any.

(b)Assets. The blending facility and other assets described on Exhibit A.

(c)Affiliate:With respect to a specified Person, any other Person controlling, controlled by or under common control with that first Person. As used in this definition, the term “control” includes (i) with respect to any Person having voting shares or the equivalent and elected directors, managers or Persons performing similar functions, the ownership of or power to vote, directly or indirectly, shares or the equivalent representing more than 50% of the power to vote in the election of directors, managers or Persons performing similar functions, (ii) ownership of more than 50% of the equity or equivalent interest in any Person and (iii) the ability to direct the business and affairs of any Person by acting as a general partner, manager or otherwise.

(d)Beneficiary: HollyFrontier Corporation, a Delaware corporation whose address for notice hereunder is 2828 N. Harwood, Suite 1300, Dallas, Texas 75201.

(e)Contracts: The contracts, agreements, leases and other legally binding rights and obligations of Grantor, to the extent such contracts, agreements, leases or other legally binding rights or obligations cover, include or relate to all or any portion of the Real Property or the Assets, if any, but excluding those contracts and agreements constituting Leases and Easements.

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(f)Deed of Trust: Shall have the meaning set forth in the introductory paragraph hereof.

(g)Easements: All easements, rights‑of‑way, property use agreements, line rights and real property licenses required to operate the Assets now or hereafter entered into or acquired by Grantor, including, without limitation, the easements, rights‑of‑way, property use agreements, line rights and real property licenses described on Exhibit B, if any.

(h)Equipment. To the extent same do not constitute Improvements, any and all fittings, cathodic protection ground beds, rectifiers, other cathodic or electric protection devices, tanks, machinery, engines, pipes, pipelines, valves, valve boxes, connections, gates, scraper trap extenders, telecommunication facilities and equipment (including microwave and other transmission towers), lines, wires, computer hardware, fixed or mobile machinery and equipment, vehicle refueling tanks, pumps, heating and non‑pipeline pumping stations, fittings, tools, furniture and metering equipment now owned or hereafter acquired by Grantor.

(i)Event of Default: Any happening or occurrence described in Article 7 of this Deed of Trust.

(j)Fee Land. All parcels of fee simple real property now or hereafter owned by Grantor on which any part of the Assets are located including, without limitation, the property held in fee by Grantor described on Exhibit B, if any

(k)Fixtures: All materials, supplies, equipment, apparatus and other items now or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with (temporarily or permanently) the Real Property or the Assets, together with all accessions, replacements, betterments and substitutions for any of the foregoing and the proceeds thereof.

(l)Governmental Entity: Any court, governmental department, commission, council, board, bureau, agency or other judicial, administrative, regulatory, legislative or other instrumentality of the United States of America or any foreign country, or any state, county, municipality or local governmental body or political subdivision or any such other foreign country.

(m)Grantor: The above defined Grantor, whether one or more, and any and all subsequent owners of the Mortgaged Property or any part thereof.

(n)HEP: Holly Energy Partners, L.P., a Delaware limited partnership.

(o)HEP Operating: Holly Energy Partners – Operating, L.P., a Delaware limited partnership.

(p)HEP Parties: Collectively, HEP Operating and Grantor.

(q)HFRM: HollyFrontier Refining & Marketing LLC, a Delaware limited liability company.

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(r)Impositions: All real estate and personal property taxes; water, gas, sewer, electricity and other utility rates and charges; charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property; and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be assessed, levied or imposed upon the Mortgaged Property or the ownership, use, occupancy or enjoyment thereof.

(s)Improvements: All structures, fixtures and appurtenances located on the Real Property, and now or hereafter owned by Grantor, including, without limitation, the Assets (to the extent the same constitute structures, fixtures or appurtenances located on the Real Property and are now or hereafter owned by Grantor).

(t)Leases: Any and all leases, subleases, licenses, concessions or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to use, the Mortgaged Property, and all other agreements, such as utility contracts, maintenance agreements and service contracts, which in any way relate to the use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property, save and except any and all Asset Leases and any other leases, subleases or other agreements pursuant to which Grantor is granted a possessory interest in the Real Property.

(u)Legal Requirements: (i) Any and all laws, statutes, codes, rules, regulations, ordinances, judgments, orders, writs, decrees, requirements or determinations of any Governmental Entity, and (ii) to the extent not covered by clause (i) immediately above, any and all requirements of permits, licenses, certificates, authorizations, concessions, franchises or other approvals granted by any Governmental Entity.

(v)Mortgaged Property: The Subject Property, together with:

(i)all rights, privileges, tenements, hereditaments, rights‑of‑way, easements, appendages and appurtenances in anywise appertaining thereto, and all right, title and interest of Grantor in and to any streets, ways, alleys, strips or gores of land adjoining the Real Property or any part thereof; and

(ii)all betterments, additions, alterations, appurtenances, substitutions, replacements and revisions thereof and thereto and all reversions and remainders therein; and

(iii)all other property and rights of Grantor of every kind and character to the extent specifically relating to and used or to be used solely in connection with the foregoing property, and all proceeds and products of any of the foregoing.

As used in this Deed of Trust, the term “Mortgaged Property” shall be expressly defined as meaning all or, where the context permits or requires, any portion of the above, and all or, where the context permits or requires, any interest therein. Notwithstanding anything to the contrary herein, in no event shall the term “Mortgaged Property” include any Product

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owned by third parties that may be shipped through or stored at or in any of the Mortgaged Property.

(w)Obligations: Shall have the meaning given such term in Section 2.1.

(x)Permits: All permits, licenses, certificates, authorizations, registrations, orders, waivers, variances and approvals now or hereafter granted by any Governmental Entity to Grantor or its predecessors in interest pertaining solely to the ownership or operation of the Assets, including, without limitation, right-of-way permits from railroads and road crossing permits or other right-of-way permits from Governmental Entities, in each case to the extent the same are assignable.

(y)Permitted Encumbrances: Any of the following matters:

(i)any (A) inchoate liens, security interests or similar charges constituting or securing the payment of expenses which were incurred incidental to the ownership and operation of the Assets (collectively, the “Operations”) or the operation, storage, transportation, shipment, handling, repair, construction, improvement or maintenance of the Mortgaged Property, and (B) materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’, warehousemen’s, barge or ship owner’s and carriers’ liens or other similar liens, security interests or charges for liquidated amounts arising in the ordinary course of business incidental to the conduct of the Operations or the ownership and operation of the Mortgaged Property, securing amounts the payment of which is not delinquent and that will be paid in the ordinary course of business or, if delinquent, that are being contested in good faith with any action or proceeding to foreclose or attach any of the Mortgaged Property on account thereof properly stayed; (ii) any liens or security interests for Taxes not yet delinquent or, if delinquent, that are being contested in good faith in the ordinary course of business with any action or proceeding to foreclose or attach any of the Mortgaged Property on account thereof properly stayed; (iii) any liens or security interests reserved in leases, rights of way or other real property interests for rental or for compliance with the terms of such leases, rights of way or other real property interests, provided payment of the debt secured is not delinquent or, if delinquent, is being contested in good faith in the ordinary course of business with any action or proceeding to foreclose or attach any of the Mortgaged Property on account thereof properly stayed; (iv) all prior reservations of minerals in and under or that may be produced from any of the lands constituting part of the Mortgaged Property or on which any part of the Mortgaged Property is located; (v) all liens (other than liens for borrowed money), security interests, charges, easements, restrictive covenants, encumbrances, contracts, instruments, obligations, discrepancies, conflicts, shortages in area or boundary lines, encroachments or protrusions, or overlapping of improvements, defects, irregularities and other matters affecting or encumbering title to the Mortgaged Property which individually or in the aggregate are not such as to unreasonably or materially interfere with or prevent any material operations conducted on the Mortgaged Property; (vi) rights reserved to or vested in any

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Governmental Entity to control or regulate any of the Mortgaged Property or the Operations and all Legal Requirements of such authorities, including any building or zoning ordinances and all environmental laws; (vii) all Post‑Closing Consents (as defined in any instrument securing the Senior Bank Liens); (viii) defects in the early chain of the title consisting of the mere failure to recite marital status in a document or omissions of successions of heirship proceedings, unless such failure or omission results in another Person’s superior claim of title to the Easements or relevant portion thereof; (ix) any assertion of a defect based on a lack of a survey with respect to the Assets; (x) any title defect affecting (or the termination or expiration of) any easement, right of way, leasehold interest or fee interest affecting all or any portion of the Real Property which has been replaced prior to the date of this Deed of Trust by an easement, right of way, leasehold interest or fee interest covering substantially the same land or the portion thereof used by Beneficiary or its Affiliates; and (xi) all Senior Liens.

(z)Person: An individual, a corporation, a partnership, a limited liability company, an association, a trust, or any other entity or organization, including, without limitation, any Governmental Entity.

(aa)Personalty: The Equipment and all other personal property (other than the Fixtures) and intangible assets of any kind or character as defined in and subject to the provisions of the Uniform Commercial Code Article 9 — Secured Transactions, as the same is codified and in effect in New Mexico, which are now or hereafter located or to be located upon, within or about the Real Property, or which are or may be used in or related to the planning, development, financing or operation of the Mortgaged Property, together with all accessories, replacements and substitutions thereto or therefor and the proceeds thereof.

(bb)Product: Crude oil, gas oil, diesel, kerosene, casinghead, naphtha, normal butane and isobutane transported through or stored in or at the Assets.

(cc)Real Property: Collectively, the Fee Land, the real property subject to the Asset Leases, the real property subject to the Easements, and any Improvements now or hereafter located on any of the foregoing.

(dd)Records: All records and documents now or hereafter acquired by Grantor relating solely to the ownership, condition or operation of the Subject Property.

(ee)Security Documents: This Deed of Trust and any and all other documents now or hereafter executed by Grantor or any other Person to evidence or secure the performance of the Obligations.

(ff)Senior Bank Liens: Collectively, (i) each lien and security interest in all or any portion of the Mortgaged Property heretofor or hereafter granted by Grantor or its Affiliates under the Senior Credit Agreement, and (ii) each lien and security interest in all or any portion of the Mortgaged Property hereafter granted by any Person who acquires an interest in all or any portion of the Mortgaged Property securing senior debt of such Person.

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(gg)Senior Credit Agreement: The Second Amended and Restated Credit Agreement dated as of February 14, 2011 (as heretofore or hereafter renewed, extended, amended, supplemented and/or restated from time-to-time) among HEP Operating, as borrower, the lenders party thereto from time to time (the “Lenders”), the Lenders issuing letters of credit thereunder from time to time (the “Issuing Banks”), and Wells Fargo Bank, N.A. as administrative agent for the Lenders and the Issuing Banks.

(hh)Senior Lien: Collectively, the Senior Bank Liens and each other lien and security interest as to which the lien and security interest granted pursuant to this Deed of Trust shall be subordinated thereto pursuant to the terms of a Subordination, Non‑Disturbance and Attornment Agreement in substantially the form of Attachment 1 hereto executed by the Beneficiary and the holder of such lien and security interest and recorded in the Official Public Records of Real Property of Lea County, New Mexico.

(ii)Service Agreement: Subject to Section 11.21, that certain Unloading and Blending Services Agreement (Artesia) dated as of March 12, 2015, by and between HFRM, HEP Operating and Grantor, as such agreement has been amended to date or may be amended, amended and restated, replaced or otherwise modified at any time in the future.

(jj)Subject Property: All of the following assets, properties and rights, whether real, personal or mixed, which are owned or held for use by Grantor solely in connection with the ownership or operation of the Assets:

(i)The Assets;

(ii)The Real Property;

(iii)The Asset Leases;

(iv)The Easements;

(v)The Equipment;

(vi)The Contracts;

(vii)Intellectual property rights and related computer software;

(viii)The Permits; and

(ix)The Records.

(kk)Taxes: Any and all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, leases, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, or assessments.

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(ll)UCC. The Uniform Commercial Code, as codified and in effect in the State of New Mexico.

ARTICLE 2GRANT

2.1 Grant To secure and enforce the prompt performance and compliance by the HEP Parties of all obligations set forth for such Persons in the Service Agreement, plus all claims (as such term is defined in the Bankruptcy Code) of or damages owed to the Beneficiary against the HEP Parties and/or the Mortgaged Property resulting from any rejection of the Service Agreement by any such Person in any bankruptcy or insolvency proceeding involving the HEP Parties, and any reasonable costs and expenses (including, but not limited to, attorneys’ and experts’ fees and court costs) incurred by Beneficiary in enforcing and exercising its rights hereunder (collectively, the “Obligations”), Grantor has GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does GRANT, BARGAIN, SELL and CONVEY, unto Trustee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property unto Trustee, forever, and Grantor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Trustee against every Person whomsoever lawfully claiming or to claim the same or any part thereof other than against any holder of any Senior Lien; provided, however, that this grant shall terminate upon the full performance and discharge of all of the Obligations and in accordance with the other terms set forth herein.

2.2 Maximum Secured Indebtedness. THE OUTSTANDING INDEBTEDNESS SECURED BY PROPERTY LOCATED IN NEW MEXICO SHALL NOT AT ANY ONE TIME EXCEED THE AGGREGATE MAXIMUM AMOUNT OF $4,400,000, WHICH SHALL CONSTITUTE THE MAXIMUM AMOUNT AT ANY TIME SECURED HEREBY.

ARTICLE 3WARRANTIES AND REPRESENTATIONS

Grantor hereby unconditionally warrants and represents to Beneficiary as follows:

3.1 Organization and Power. Grantor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, has complied with all conditions prerequisite to its doing business in the State of New Mexico, and has all requisite power and all governmental certificates of authority, licenses, permits, qualifications and documentation to own, lease and operate its properties and to carry on its business as now being, and as proposed to be, conducted.

3.2 Validity of Security Documents. The execution, delivery and performance by Grantor of the Security Documents (a) are within Grantor’s powers and have been duly authorized by Grantor’s general partner, sole member or other necessary parties, and all other requisite

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action for such authorization has been taken; (b) have received all (if any) requisite prior governmental approval in order to be legally binding and enforceable in accordance with the terms thereof; and (c) will not violate, be in conflict with, result in a breach of or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Grantor’s property or assets, except as contemplated by the provisions of the Security Documents. The Security Documents constitute the legal, valid and binding obligations of Grantor and others obligated under the terms of the Security Documents, in accordance with their respective terms.

3.3 Lien of this Instrument. Subject to the Senior Liens, this Deed of Trust constitutes a valid and subsisting mortgage and deed of trust lien on the Real Property and the Fixtures and a valid, subsisting security interest in and to, and a valid assignment of, the Personalty and Leases, all in accordance with the terms hereof.

3.4 Litigation. There are no actions, suits or proceedings pending, or to the knowledge of Grantor threatened, against or affecting the Grantor as a result of or in connection with Grantor’s entering into this Deed of Trust, or involving the validity or enforceability of this Deed of Trust or the priority of the liens and security interests created by the Security Documents, and no event has occurred (including specifically Grantor’s execution of the Security Documents) which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Grantor’s property other than the liens and security interests created by the Security Documents.

ARTICLE 4AFFIRMATIVE COVENANTS OF GRANTOR

Grantor hereby unconditionally covenants and agrees with Beneficiary that, except for the Permitted Encumbrances, Grantor will protect the lien and security interest status of this Deed of Trust and except for the Permitted Encumbrances, will not, without the prior written consent of Beneficiary, place, or permit to be placed, or otherwise mortgage, hypothecate or encumber the Mortgaged Property with, any other lien or security interest of any nature whatsoever (statutory, constitutional or contractual) regardless of whether same is allegedly or expressly inferior to the lien and security interest created by this Deed of Trust, and, if any such lien or security interest is asserted against the Mortgaged Property, Grantor will promptly, at its own cost and expense, (a) pay the underlying claim in full or take such other action so as to cause same to be released and (b) within five days from the date such lien or security interest is so asserted, give Beneficiary notice of such lien or security interest. Such notice shall specify who is asserting such lien or security interest and shall detail the origin and nature of the underlying claim giving rise to such asserted lien or security interest.

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ARTICLE 5NEGATIVE COVENANTS OF GRANTOR

Grantor hereby covenants and agrees with Beneficiary that, until the full performance and discharge of all of the Obligations, Grantor will not, without the prior written consent of Beneficiary, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge on, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Security Documents, with respect to, the Mortgaged Property, other than the Permitted Encumbrances.

ARTICLE 6AFFIRMATIVE COVENANTS OF BENEFICIARY

By its acceptance hereof, Beneficiary recognizes that (a) Grantor is obligated or may hereafter become obligated to any of the Credit Parties (as defined in the SNDA [defined below]) in connection with the Senior Credit Agreement, and (b) Grantor and any future owner of the Mortgaged Property may incur additional indebtedness or become otherwise obligated to one or more banks, insurance companies, investment banks or other financial institutions regularly engaged in commercial lending and/or bonds, debentures, notes and similar instruments evidencing obligations that may be secured by liens or security interests on some or all of Grantor’s property, including the Mortgaged Property (the holder of such liens or security interests being a “Secured Lender”). To the extent that any such Secured Lender notifies Beneficiary of Secured Lender’s desire to subordinate the lien and security interest held by Beneficiary pursuant to this Deed of Trust, Beneficiary, by its acceptance hereof, will agree to effect such subordination by promptly executing, in one or more counterparts, a Subordination, Non‑Disturbance and Attornment Agreement in substantially the form of Attachment 1 attached hereto (the “SNDA”). The subordination of this Deed of Trust shall (i) not be effective unless and until the SNDA has been executed by the Secured Lender, and (ii) be subject to compliance by the Secured Lender with its obligations under Section 3 and Section 4 of the SNDA. Any Secured Lender who is a party to an SNDA and who is in compliance with its obligations under Section 3 and Section 4 of such SNDA is hereinafter referred to as a “Lienholder.”

ARTICLE 7EVENTS OF DEFAULT

The term “Event of Default”, as used in the Security Documents, shall mean the occurrence or happening, at any time and from time to time, of any one or more of the following:

7.1 Breach of Deed of Trust. (a) Grantor shall (i) fail to perform or observe, in any material respect, any covenant, condition or agreement of this Deed of Trust to be performed or observed by Grantor, or (ii) breach any warranty or representation made by Grantor in this Deed of Trust, and such failure or breach shall continue unremedied for a period of thirty

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(30) days after receipt of written notice thereof to the Grantor from the Beneficiary; provided, however, that in the event such failure or breach cannot be reasonably cured within such thirty (30) day period and Grantor has diligently proceeded (and continues to proceed) to cure such breach, Grantor shall have an additional sixty (60) days to cure such failure or breach, or (b) the HEP Parties shall fail to perform all of the Obligations in full and on or before the dates same are to be performed (after giving effect to any applicable grace and cure periods).

7.2 Voluntary Bankruptcy. Grantor shall (a) voluntarily be adjudicated a bankrupt or insolvent, (b) procure, permit or suffer the voluntary or involuntary appointment of a receiver, trustee or liquidator for itself or for all or any substantial portion of its property, (c) file any petition seeking a discharge, rearrangement, or reorganization of its debts pursuant to the bankruptcy laws or any other debtor relief laws of the United States or any state or any other competent jurisdiction, or (d) make a general assignment for the benefit of its creditors.

7.3 Involuntary Bankruptcy. If (a) a petition is filed against Grantor seeking to rearrange, reorganize or extinguish its debts under the provisions of any bankruptcy or other debtor relief law of the United States or any state or other competent jurisdiction, and such petition is not dismissed or withdrawn within sixty (60) days after its filing, or (b) a court of competent jurisdiction enters an order, judgment or decree appointing, without the consent of Grantor a receiver or trustee for it, or for all or any part of its property, and such order, judgment, or decree is not dismissed, withdrawn or reversed within sixty (60) days after the date of entry of such order, judgment or decree.

7.4 Rejection of Service Agreement. A rejection, by or on behalf of the HEP Parties, of the Service Agreement in bankruptcy.

ARTICLE 8REMEDIES

8.1 Remedies. Subject, in each case, to the rights of any Lienholder arising under or pursuant to the Senior Liens, and the terms and provisions of the SNDA, and provided no material default byBeneficiaryhas occurred and is continuing, if an Event of Default shall occur and be continuing, Beneficiary may, at Beneficiary’s election and by or through Trustee or otherwise, exercise any or all of the following rights, remedies and recourses:

(a)Entry Upon Mortgaged Property. Enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records and accounts relating thereto. If Grantor remains in possession of all or any part of the Mortgaged Property after an Event of Default and without Beneficiary’s prior written consent thereto, Beneficiary may invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title and writ of restitution. Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after an Event of Default than would have existed in the absence of such sentence.

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(b)Operation of Mortgaged Property. Hold, lease, manage, operate or otherwise use or permit the use of the Mortgaged Property, either itself or by other Persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs, alterations, additions and improvements thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem necessary or desirable), and apply all amounts collected by Trustee or Beneficiary in connection therewith in accordance with the provisions of Section 8.8.

(c)Trustee or Receiver. Prior to, upon or at any time after, commencement of any legal proceedings hereunder, make application to a court of competent jurisdiction as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the satisfaction of the Obligations for appointment of a receiver of the Mortgaged Property, and Grantor does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court.

(d)Foreclosure and Sale. Foreclose the lien of this Deed of Trust by judicial or non-judicial proceedings, in either event to the extent permitted by and in accordance with applicable law. To the extent permitted by applicable law, in connection with any such judicial or non-judicial foreclosure and sale, (i) Beneficiary may sell or offer for sale the Mortgaged Property, in such portions, order and parcels as Beneficiary may determine, with or without having first taken possession of same, to the highest bidder, for cash, at public auction, (ii) if the Mortgaged Property is situated in more than one county, all required notices shall be given in each such county, and such notices shall designate the county in which the Mortgaged Property will be sold, (iii) the affidavit of any person having knowledge of the facts to the effect that notice was properly given shall be prima facie evidence of such fact, (iv) it shall not be necessary for Beneficiary to have been physically present, or to have constructive possession of, the Mortgaged Property (Grantor hereby covenanting and agreeing to deliver to Beneficiary any portion of the Mortgaged Property not actually or constructively possessed by Beneficiary immediately upon demand by Beneficiary), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to the purchaser at such sale, (v) each instrument of conveyance executed by Beneficiary shall contain a general warranty of title, binding upon Grantor, (vi) each and every recital contained in any instrument of conveyance made by Beneficiary shall be prima facie evidence of the truth and accuracy of the matters recited therein, including, without limitation, non-payment of the Obligations, advertisement and conduct of such sale in the manner provided therein and otherwise by law, (vii) any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed, (viii) the receipt of Beneficiary or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for his or their purchase money, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or non-application

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thereof, (ix) to the fullest extent permitted by law, Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the Mortgaged Property sold, and such sale shall be a perpetual bar, both at law and in equity, against Grantor and against any and all other persons claiming or to claim the Mortgaged Property sold or any part thereof, by, through or under Grantor, and (x) to the extent and under such circumstances as are permitted by law, Beneficiary and any entity related by ownership or control to Beneficiary may be a purchaser at any such sale.

(e)Other. Exercise any and all other rights, remedies and recourses granted under this Deed of Trust.

8.2 Remedies Cumulative, Concurrent and Nonexclusive. Beneficiary shall have all rights, remedies and recourses granted in the Service Agreement and, subject to the rights of any Lienholder arising under or pursuant to the Senior Liens, and the terms and provisions of the SNDA, the Deed of Trust and same (a) shall be cumulative and concurrent; (b) may be pursued separately, successively or concurrently against Grantor or others obligated under this Deed of Trust, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Beneficiary; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse; and (d) are intended to be, and shall be, nonexclusive.

8.3 Obligations. Neither the HEP Parties nor any other Person hereafter obligated for performance or fulfillment of all or any of the Obligations shall be relieved of such obligation by reason of (a) the failure of Trustee to comply with any request of Grantor or any other Person to enforce any provisions of this Deed of Trust; (b) the release, regardless of consideration, of the Mortgaged Property or the addition of any other property to the Mortgaged Property; (c) any agreement or stipulation between any subsequent owner of the Mortgaged Property and Beneficiary extending, renewing, rearranging or in any other way modifying the terms of the Security Documents without first having obtained the consent of, given notice to or paid any consideration to Grantor or such other Person, and in such event Grantor and all such other Persons shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged in writing by Beneficiary; or (d) by any other act or occurrence save and except the complete fulfillment of all of the Obligations.

8.4 Release of and Resort to Collateral. Beneficiary may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by this Deed of Trust or their stature as a lien and security interest in and to the Mortgaged Property.

8.5 Waiver of Redemption, Notice and Marshalling of Assets. To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor by virtue of any present or future law exempting the Mortgaged

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Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default or of Trustee’s election to exercise or his actual exercise of any right, remedy or recourse provided for under this Deed of Trust; and (c) any right to a marshalling of assets or a sale in inverse order of alienation.

8.6 Limitation on New Mexico Redemption. Pursuant to NMSA 1978, Section 39‑5‑19 (1965), the redemption period after foreclosure sale for any Mortgaged Property situated in or otherwise subject to the laws of the State of New Mexico shall be limited to one (1) month.

8.7 Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under this Deed of Trust and shall thereafter elect to discontinue or abandon same for any reason, Beneficiary shall have the unqualified right so to do and, in such an event, Grantor and Beneficiary shall be restored to their former positions with respect to the Obligations, the Security Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked.

8.8 Application of Proceeds. Subject, in each case, to applicable law and the rights of any Lienholder arising under or pursuant to the Senior Liens, and the terms and provisions of the SNDA (including, without limitation, the right to receive payments otherwise due to the HEP Parties under the terms of the Service Agreement), the proceeds and other amounts generated by the holding, operating or other use of, the Mortgaged Property shall be applied by Trustee or Beneficiary (or the receiver, if one is appointed) to the extent that funds are so available therefrom in the following orders of priority:

(a)first, to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing and improving the same, including without limitation (i) trustees’ and receivers’ fees, (ii) court costs, (iii) attorneys’ and accountants’ fees, and (iv) the payment of any and all Impositions, liens, security interests or other rights, titles or interests equal or superior to the lien and security interest of this Deed of Trust (except those to which the Mortgaged Property has been sold subject to and without in any way implying Beneficiary’s prior consent to the creation thereof);

(b)second, to the payment of all amounts which may be due to Beneficiary with respect to the Obligations;

(c)third, to the extent permitted by law, funds are available therefor out of the proceeds generated by the holding, operating or other use of the Mortgaged Property and known by Beneficiary, to the payment of any indebtedness or obligation secured by a subordinate deed of trust on or security interest in the Mortgaged Property; and

(d)fourth, to Grantor.

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8.9 INDEMNITY. IN CONNECTION WITH ANY ACTION TAKEN BY TRUSTEE AND/OR BENEFICIARY PURSUANT TO THIS DEED OF TRUST, TRUSTEE AND/OR BENEFICIARY AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS, REPRESENTATIVES, ATTORNEYS, ACCOUNTANTS AND EXPERTS (COLLECTIVELY THE “INDEMNIFIED PARTIES”) SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY GRANTOR RESULTING FROM (i) AN ASSERTION THAT TRUSTEE, BENEFICIARY OR INDEMNIFIED PARTY HAS RECEIVED FUNDS FROM THE OPERATIONS OF THE MORTGAGED PROPERTY CLAIMED BY THIRD PERSONS OR (ii) ANY ACT OR OMISSION OF TRUSTEE, BENEFICIARY OR INDEMNIFIED PARTY IN ADMINISTERING, MANAGING, OPERATING OR CONTROLLING THE MORTGAGED PROPERTY, INCLUDING IN EITHER CASE SUCH LOSS WHICH MAY RESULT FROM THE ORDINARY NEGLIGENCE OF TRUSTEE, BENEFICIARY OR AN INDEMNIFIED PARTY OR WHICH MAY RESULT FROM STRICT LIABILITY, WHETHER UNDER APPLICABLE LAW OR OTHERWISE, UNLESS SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BAD FAITH OF TRUSTEE, BENEFICIARY OR ANY INDEMNIFIED PARTY NOR SHALL TRUSTEE, BENEFICIARY AND/OR ANY INDEMNIFIED PARTY BE OBLIGATED TO PERFORM OR DISCHARGE ANY OBLIGATION, DUTY OR LIABILITY OF GRANTOR. GRANTOR SHALL AND DOES HEREBY AGREE TO INDEMNIFY TRUSTEE, BENEFICIARY AND EACH OF THEIR RESPECTIVE INDEMNIFIED PARTIES FOR, AND TO HOLD THEM HARMLESS FROM, ANY AND ALL LOSSES WHICH MAY OR MIGHT BE INCURRED BY TRUSTEE, BENEFICIARY OR INDEMNIFIED PARTY BY REASON OF THIS DEED OF TRUST OR THE EXERCISE OF RIGHTS OR REMEDIES HEREUNDER, INCLUDING SUCH LOSSES WHICH MAY RESULT FROM THE ORDINARY NEGLIGENCE OF TRUSTEE, BENEFICIARY OR AN INDEMNIFIED PARTY OR WHICH MAY RESULT FROM STRICT LIABILITY, WHETHER UNDER APPLICABLE LAW OR OTHERWISE, UNLESS SUCH LOSS IS CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR BAD FAITH OF TRUSTEE, BENEFICIARY OR INDEMNIFIED PARTY. SHOULD TRUSTEE, BENEFICIARY AND/OR ANY INDEMNIFIED PARTY MAKE ANY EXPENDITURE ON ACCOUNT OF ANY SUCH LOSSES, THE AMOUNT THEREOF, INCLUDING, WITHOUT LIMITATION, COSTS, EXPENSES AND REASONABLE ATTORNEYS’ FEES, SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION GRANTOR HEREBY EXPRESSLY PROMISES TO PAY) OWING BY GRANTOR TO TRUSTEE AND/OR BENEFICIARY AND SHALL BEAR INTEREST FROM THE DATE EXPENDED UNTIL PAID AT THE HIGHEST RATE ALLOWED BY LAW, SHALL BE A PART OF THE OBLIGATIONS AND SHALL BE SECURED BY THIS DEED OF TRUST. THE LIABILITIES OF GRANTOR AS SET FORTH IN THIS SECTION 8.9 SHALL SURVIVE THE TERMINATION OF THIS DEED OF TRUST.

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8.10 Limitations on Indemnifications.

(a)To the extent, if at all, but only to the extent, that NMSA 1978, Section 56‑7‑1 (1971), as amended from time to time, is applicable to this Deed of Trust or any indemnification agreements herein, any agreement to indemnify any indemnitee given in this Deed of Trust, regardless of whether such agreement to indemnify makes reference to this or any other limitation provision, will not extend to liability, claims, damages, losses or expenses, including attorneys’ fees, arising out of (i) the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs or specifications by such indemnitee, or the agents or employees of such indemnitee, or (ii) the giving of or the failure to give directions or instructions by such indemnitee, or the agents or employees of such indemnitee, where such giving or failure to give directions or instructions is the primary cause of bodily injury to persons or damage to property.

(b)To the extent, if at all, but only to the extent, that NMSA 1978, Section 56‑7‑2 (1999), as amended from time to time, is applicable to this Deed of Trust or any indemnification agreements herein, or agreement to indemnify any indemnitee given in this Deed of Trust, regardless of whether such undertaking or agreement to indemnify makes reference to this or any other limitation provision, this Deed of Trust does not purport to indemnify such indemnitee against loss or liability for damages arising from: (i) the sole or concurrent negligence of such indemnitee or the agents or employees of such indemnitee; (ii) the sole or concurrent negligence of an independent contractor who is directly responsible to such indemnitee; or (iii) an accident that occurs in operations carried on at the direction or under the supervision of such indemnitee, an employee or representative of such indemnitee or in accordance with methods and means specified by such indemnitee or the employees or representatives of such indemnitee.

ARTICLE 9SECURITY AGREEMENT

9.1 Security Interest. This Deed of Trust shall be construed as a deed of trust on real property and it shall (subject to the Senior Liens) also constitute and serve as a “Security Agreement” on personal property within the meaning of, and shall constitute a security interest under, the UCC with respect to the Personalty, Fixtures and Leases. To this end, Grantor has GRANTED, BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED, AND SET OVER, and by these presents does GRANT, BARGAIN, CONVEY, ASSIGN, TRANSFER AND SET OVER, unto Trustee and unto Beneficiary, a security interest in all of Grantor’s right, title and interest in, to and under the Personalty, Fixtures and Leases to secure the full and timely performance and discharge of the Obligations, subject only to the Permitted Encumbrances.

9.2 Financing Statements. Grantor hereby authorizes Beneficiary to file such “Financing Statements,” and Grantor hereby agrees to execute and deliver such further assurances as Beneficiary may, from time to time, consider reasonably necessary to create, perfect and preserve Beneficiary’s security interest herein granted and Beneficiary may cause such

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statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest.

9.3 Uniform Commercial Code Remedies. Subject, in each case, to the rights of any Lienholder under or pursuant to the Senior Liens, and the terms and provisions of the SNDA and this Deed of Trust, Beneficiary and/or Trustee shall have all the rights, remedies and recourses (other than auction and sale rights) with respect to the Personalty, Fixtures and Leases afforded to it by the aforesaid UCC in addition to, and not in limitation of, the other rights, remedies and recourses afforded by this Deed of Trust.

9.4 No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed or construed to constitute Trustee or Beneficiary as a trustee in possession of the Mortgaged Property, to obligate Trustee or Beneficiary to lease the Mortgaged Property or attempt to do same, or to take any action, incur any expense or perform or discharge any obligation, duty or liability whatsoever.

9.5 Fixture Filing. This Deed of Trust shall constitute a “fixture filing” for all purposes of Article 9 of the UCC. All or part of the Mortgaged Property are or are to become fixtures; information concerning the security interest herein granted may be obtained at the addresses set forth on the first page hereof. The address of the Secured Party (Beneficiary) is the address set forth in Section 1.1(d) and the address of the Debtor (Grantor) is the address set forth in the opening paragraph of this Deed of Trust.

9.6 Satisfaction and Release. If (a) all Obligations secured hereby shall be paid, performed and satisfied in full, (b) the Mortgaged Property (or any portion thereof, in which case the provisions of clauses (i) through (iv) below shall be applicable only to such portion) shall be sold, consigned, conveyed or transferred in accordance with the provisions of the Service Agreement, and/or (c) the Service Agreement shall be terminated, cancelled or otherwise expire, and the Obligations of the HEP Parties set forth in Section 3(c) of the Service Agreement shall no longer be applicable, and/or (d) at any time Grantor’s (or HEP’s, in the event Grantor does not have a stand‑alone credit rating) senior unsecured debt has an Investment Grade Rating (as hereinafter defined) from both Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) (or any successor to the rating business of either thereof), then (i) this Deed of Trust shall be null and void, (ii) the liens and security interests created by this Deed of Trust shall be released as promptly as practicable, (iii) the Mortgaged Property shall revert to Grantor (or the transferee in the case of clause (b) above) free and clear of the liens and security interests created by this Deed of Trust, and (iv) Beneficiary and Trustee (as applicable) shall execute and deliver, or cause to be executed and delivered, instruments of satisfaction and release that are reasonably requested by Grantor. Otherwise, this Deed of Trust shall remain and continue in full force and effect. As used in this Section 9.6, the term “Investment Grade Rating” shall mean a rating equal to or higher than Baa3 (or the equivalent) by Moody’s, or BBB‑ (or the equivalent) by S&P.

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ARTICLE 10CONCERNING THE TRUSTEE

10.1 No Required Action. Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in or defend any action, suit or other proceeding in connection therewith where in his opinion such action will be likely to involve him in expense or liability, unless requested so to do by a written instrument signed by Beneficiary and, if Trustee so requests, unless Trustee is tendered security and indemnity satisfactory to him against any and all costs, expense and liabilities arising therefrom. Trustee shall not be responsible for the execution, acknowledgment or validity of the Security Documents, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and makes no representation in respect thereof or in respect of the rights, remedies and recourses of Beneficiary.

10.2 Certain Rights. With the approval of Beneficiary, Trustee shall have the right to take any and all of the following actions: (a) to select, employ and advise with counsel (who may be, but need not be, counsel for Beneficiary) upon any matters arising hereunder, including the preparation, execution and interpretation of the Security Documents, and shall be fully protected in relying as to legal matters on the advice of counsel; (b) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his agents or attorneys; (c) to select and employ, in and about the execution of his duties hereunder, suitable accountants, engineers and other experts, agents and attorneys‑in‑fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default or misconduct of any such accountant, engineer or other expert, agent or attorney‑in‑fact, if selected with reasonable care, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee’s gross negligence or bad faith; and (d) to take any and all other lawful action as Beneficiary may instruct Trustee to take to protect or enforce Beneficiary’s rights hereunder. Trustee shall not be personally liable in case of entry by him, or anyone entering by virtue of the powers herein granted him, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by him in the performance of his duties hereunder and to reasonable compensation for such of his services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due to Trustee hereunder and reimburse Trustee for, and save him harmless against, any and all liability and expenses which may be incurred by him in the performance of his duties.

10.3 Retention of Moneys. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law) and Trustee shall be under no liability for interest on any moneys received by him hereunder.

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10.4 Successor Trustees. Trustee may resign by the giving of notice of such resignation in writing to Beneficiary. If Trustee shall die, resign or become disqualified from acting in the execution of this trust, or shall fail or refuse to execute the same when requested by Beneficiary so to do, or if, for any reason, Beneficiary shall prefer to appoint a substitute trustee to act instead of the aforenamed Trustee, Beneficiary shall have full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estates, properties, rights, powers and duties of the aforenamed Trustee. Such appointment may be executed by any authorized agent of Beneficiary, and if such Beneficiary be a corporation and such appointment be executed in its behalf by any officer of such corporation, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the Board of Directors or any superior officer of the corporation. Grantor hereby ratifies and confirms any and all acts which the aforenamed Trustee, or his successor or successors in this trust, shall do lawfully by virtue hereof.

10.5 Perfection of Appointment. Should any deed, conveyance or instrument of any nature be required from Grantor by any successor Trustee to more fully and certainly vest in and confirm to such new Trustee such estates, rights, powers and duties, then, upon request by such Trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged and delivered and shall be caused to be recorded and/or filed by Grantor.

10.6 Succession Instruments. Any new Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of its or his predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Beneficiary or of the successor Trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor Trustee, upon the trusts herein expressed, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the successor Trustee so appointed in its or his place.

10.7 No Representation by Trustee. By accepting or approving anything required to be observed, performed or fulfilled or to be given to Trustee or Beneficiary pursuant to the Security Documents, including but not limited to, any officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, neither Trustee nor Beneficiary shall be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty, consent or affirmation with respect thereto by Trustee or Beneficiary.

ARTICLE 11MISCELLANEOUS

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11.1 Performance at the HEP Parties’ Expense. The cost and expense of performing or complying with any and all of the Obligations shall be borne solely by the HEP Parties to the extent provided in the Service Agreement.

11.2 Survival of Obligations. Each and all of the Obligations shall survive the execution and delivery of the Security Documents and shall continue in full force and effect until the Obligations have been performed and discharged in full.

11.3 Further Assurances. Grantor, upon the request of Trustee or Beneficiary, will execute, acknowledge, deliver and record and/or file such further instruments and do such further acts as may be necessary, desirable or proper to carry out more effectively the purpose of the Security Documents and to subject to the liens and security interests thereof any property intended by the terms thereof to be covered thereby, including specifically but without limitation, any renewals, additions, substitutions, replacements, betterments or appurtenances to the then Mortgaged Property.

11.4 Recording and Filing. Grantor will cause the Security Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re‑recorded and refiled in such manner and in such places as Trustee or Beneficiary shall reasonably request, and will pay all such recording, filing, re‑recording and refiling taxes, fees and other charges.

11.5 Notices.

(e)Any notice or communication given under this Deed of Trust shall be in writing and shall be (i) delivered personally, (ii) sent by documented overnight delivery service, (iii) sent by email transmission, or (iv) sent by first class mail, postage prepaid (certified or registered mail, return receipt requested). Such notice shall be deemed to have been duly given (x) if received, on the date of delivery, with a receipt for delivery, (y) if refused, on the date of refused delivery, with a receipt for refusal, or (z) with respect to email transmissions, on the date the recipient confirms receipt. Notices or other communications shall be directed to the following addresses:

Grantor: HEP Refining, L.L.C.2828 N. Harwood, Suite 1300
Dallas, Texas 75201
Attn: President
Email address: president-HEP@hollyenergy.com

with a copy, which shall not constitute notice, but is required in order to give proper notice, to:

HEP Refining, L.L.C.2828 N. Harwood, Suite 1300
Dallas, Texas 75201
Attn: General Counsel
Email address: general.counsel@hollyenergy.com

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Beneficiary: HollyFrontier Corporation
2828 N. Harwood, Suite 1300Dallas, Texas 75201
Attn: President
Email address: president@hollyfrontier.com

with a copy, which shall not constitute notice, but is required in order to give proper notice, to:

HollyFrontier Corporation
2828 N. Harwood, Suite 1300Dallas, Texas 75201
Attn: General Counsel
Email address: generalcounsel@hollyfrontier.com

(f)Any party may at any time change its address for service by giving notice to the other parties in accordance with this Section 11.5.

11.6 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Grantor of any of the terms, provisions or conditions of the Security Documents shall not be deemed to be a waiver of same or of any other terms, provision or condition thereof and Trustee or Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all of such terms, provisions and conditions.

11.7 Beneficiary’s Right to Perform the Obligations. If Grantor shall fail, refuse or neglect to make any payment or perform any act required by the Security Documents (after giving effect to any applicable notice and cure period), then at any time thereafter, and without further notice to or demand upon Grantor and without waiving or releasing any other right, remedy or recourse Beneficiary may have because of same, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor, and shall have the right to enter upon or in the Real Property for such purpose and to take all such action thereon and with respect to the Mortgaged Property as it may deem necessary or appropriate but in any case subject to the rights of any Lienholder arising under or pursuant to the Senior Liens and the terms and provisions of the SNDA. If Beneficiary shall elect to pay any Imposition or other sums due with reference to the Mortgaged Property, Beneficiary may do so in reliance on any bill, statement or assessment procured from the appropriate Governmental Entity or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Security Documents, Beneficiary shall not be bound to inquire into the validity of any apparent or threatened adverse title, lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Grantor shall indemnify Beneficiary for all losses, expenses, damages, claims and causes of action, including reasonable attorneys’ fees, incurred or accruing by reason of any acts performed by Beneficiary pursuant to the provisions of this Section 11.7 or by reason of any other provision in the Security Documents. All sums paid by Beneficiary pursuant

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to this Section 11.7 and all other sums expended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the maximum rate allowed by law from the date of such payment or expenditure, shall be secured by the Security Documents and shall be paid by Grantor to Beneficiary upon demand.

11.8 Covenants Running with the Land. All Obligations contained in the Security Documents are intended by the parties to be, and shall be construed as, covenants running with the Mortgaged Property.

11.9 Successors and Assigns. All of the terms of the Security Documents shall apply to, be binding upon and inure to the benefit of the parties thereto, their successors and assigns, and all other Persons claiming by, through or under them.

11.10 Severability. The Security Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Security Documents or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable neither the remainder of the instrument in which such provision is contained nor the application of such provision to other Persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by law.

11.11 Entire Agreement and Modification. The Security Documents contain the entire agreements between the parties relating to the subject matter hereof and thereof and all prior agreements relative thereto which are not contained herein or therein are terminated. Notwithstanding anything herein to the contrary, Grantor and, by its acceptance hereof, Beneficiary hereby acknowledge and agree that in the event that any of the terms or provisions of this Deed of Trust conflict with any terms or provisions of the Service Agreement, the terms or provisions of the Service Agreement shall govern and control for all purposes. The Security Documents may not be amended, revised, waived, discharged, released or terminated orally but only by a written instrument or instruments (a) executed by the party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted, and (b) consented to by the Lienholders to the extent any such amendment, revision, waiver, discharge, release or termination would be materially adverse to the rights of any such Lienholder. Any alleged amendment, revision, waiver, discharge, release or termination which is not so documented shall not be effective as to any party.

11.12 Counterparts. This Deed of Trust may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute but one instrument.

11.13 Applicable Law. This Deed of Trust shall be construed and enforced in accordance with and governed by the laws of the State of New Mexico and the laws of the United States of America, except that to the extent that the law of the state in which a portion of the Mortgaged Property is located (or which is otherwise applicable to a portion of the Mortgaged Property) necessarily or appropriately governs with respect to procedural and substantive matters relating to the creation, perfection and enforcement of the liens, security interests and other

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rights and remedies of Trustee on behalf of Beneficiary or Beneficiary granted herein, the laws of such state shall apply as to that portion of the Mortgaged Property located in (or otherwise subject to the laws of) such state.

11.14 No Partnership. Nothing contained in the Security Documents is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association between Grantor, Trustee and Beneficiary, or in any way make Beneficiary or Trustee coprincipals with Grantor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated.

11.15 Headings. The Article, Section and Subsection entitlements hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections.

11.16 Waiver of Stay, Moratorium, and Similar Rights. Grantor agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any appraisement, valuation, stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Deed of Trust or the indebtedness secured hereby, or any agreement between Grantor and Beneficiary or any rights or remedies Beneficiary may have thereunder, hereunder or by law.

11.17 Transfer of Mortgaged Property. No sale, lease, exchange, assignment, conveyance or other transfer (each, a “Transfer”) of the Mortgaged Property will extinguish the lien or security interest created by this Deed of Trust, except to the extent provided in Section 9.6 of this Deed of Trust or in the Service Agreement. As a condition to any Transfer, Beneficiary may (a) require the express assumption of the Obligations by the transferee (with or without the release of Grantor from liability in respect thereof), and (b) require the execution of an assumption agreement, modification agreements, supplemental security documents and financing statements satisfactory in form and substance to Beneficiary.

11.18 Estoppel Certificates. Grantor and Beneficiary agree to execute and deliver from time to time, upon the request of the other party, a certificate regarding the status of the Service Agreement, consisting of statements, if true (or if not, specifying why not), (a) that the Service Agreement is in full force and effect, (b) the date through which payments have been paid, (c) the date of the commencement of the term of the Service Agreement, (d) the nature of any amendments or modifications of the Service Agreement, (e) to such party’s actual knowledge without investigation, no default, or state of facts which with the passage of time or notice (or both) would constitute a default, exists under the Service Agreement, (f) to such party’s actual knowledge without investigation, no setoffs, recoupments, estoppels, claims or counterclaims exist against the other party under the Service Agreement, and (g) such other factual matters as may be reasonably requested.

11.19 Final Agreement. Grantor acknowledges receipt of a copy of this instrument at the time of execution hereof. Grantor acknowledges that, except as incorporated in writing in this Deed of Trust, there are not, and were not, and no persons are or were authorized to make

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any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in this Deed of Trust. THE WRITTEN AGREEMENTS HEREIN REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

11.20 Other New Mexico Provisions.

(a)In addition to the requirements for giving notice set forth elsewhere in this instrument, all notices shall be sent by regular, first‑class United States mail, postage prepaid.

(b)Notwithstanding anything to the contrary contained in this instrument, the appointment of a receiver for the Mortgaged Property shall be in accordance with the New Mexico Receivership Act, §44‑8‑1, et seq., NMSA 1978.

(c)To the extent this instrument constitutes a deed of trust, it is subject to the New Mexico Deed of Trust Act, §48‑10‑1, et seq., NMSA 1978.

(d)To the extent this instrument constitutes a mortgage, the grant of the mortgage is made with mortgage covenants and upon the statutory mortgage condition, for the breach of which, except as otherwise provided herein, this instrument is subject to foreclosure as provided by law.

(e)For Security Agreement and Fixture Filing purposes, (i) the Debtor’s name is “HEP Refining, L.L.C.”, whose address is shown on the first page of this instrument; (ii) the Secured Party’s name is HollyFrontier Corporation, whose address is shown in Section 1.1(d) of this instrument; (iii) this instrument covers materials, supplies, equipment, apparatus and other items that are, or are to become, fixtures; and (iv) the real property to which such fixtures are related is attached to this instrument as Exhibit A.

11.21 Service Agreement. Notwithstanding the fact that Beneficiary is not a party to the Service Agreement in effect as of the date of this Deed of Trust, for purposes of this Deed of Trust, by accepting this Deed of Trust, Beneficiary agrees to be bound by the terms of the Service Agreement to which HFRM is bound. By accepting this Deed of Trust, Beneficiary acknowledges, that (i) HFRM is a wholly-owned subsidiary of Beneficiary, and (ii) the Service Agreement governs the operation of the Assets that constitute a portion of the collateral under this Deed of Trust, and, as a result, Beneficiary will receive substantial benefit in connection with the Service Agreement.

[SIGNATURE PAGE TO FOLLOW]

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WITNESS THE EXECUTION HEREOF as of the date first above written.

HEP REFINING, L.L.C.

By: Holly Energy Partners - Operating, L.P.,
a Delaware limited partnership,
its Sole Member

By: HEP Logistics GP, L.L.C.,
a Delaware limited liability company,
its General Partner

By: Holly Energy Partners, L.P.,
a Delaware limited partnership,
its Sole Member

By: HEP Logistics Holdings, L.P.,
a Delaware limited partnership,
its General Partner

By: Holly Logistic Services, L.L.C.,
a Delaware limited liability company,
its General Partner

By:     /s/ Stephen D. Wise

Stephen D. Wise,

Vice President and Treasurer

EMPLOYER IDENTIFICATION NUMBER OF GRANTOR:    71-0968299

ORGANIZATIONAL NUMBER OF GRANTOR:    3815183

Signature Page – Subordinated Mortgage    (Artesia – New Mexico)

THE STATE OF TEXAS    §

    §

COUNTY OF DALLAS    §

This instrument was acknowledged before me on July 6, 2015, by Stephen D. Wise, Vice President and Treasurer of Holly Logistic Services, L.L.C., a Delaware limited liability company, general partner of HEP Logistics Holdings, L.P., a Delaware limited partnership, general partner of Holly Energy Partners, L.P., a Delaware limited partnership, sole member of HEP Logistics GP, L.L.C., a Delaware limited liability company, general partner of Holly Energy Partners — Operating, L.P., a Delaware limited partnership, sole member of HEP Refining, L.L.C., a Delaware limited liability company, on behalf of said limited liability companies and limited partnerships.

/s/ Diane E. Pinkert    
Notary Public, State of Texas

My Commission Expires:

Acknowledgment Pages – Subordinated Mortgage    (Artesia – New Mexico)

Exhibit AASSETS

The Blending Facility located on the Real Property.

3429079v.4 HOL653/710031

EXHIBIT BREAL PROPERTY

A TRACT OF LAND LOCATED IN SECTION 9, TOWNSHIP 17 SOUTH, RANGE 26 EAST, N.M.P.M., EDDY COUNTY, NEW MEXICO, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT AN IRON ROD WITH CAP STAMPED PLS 16005 SET AT THE SOUTHWEST CORNER OF SAID TRACT LOCATED S 89°50’19” E, 825.50 FEET AND N 00°09’41” E, 1,103.89 FEET FROM A ONE INCH IRON PIPE ROD AT THE SOUTHWEST CORNER OF SAID SECTION 9;

THENCE, WITH SAID TRACT PERIMETER HEREIN DESCRIBED AS FOLLOWS: NORTH 05°28’27” WEST, 131.34 FEET TO AN ASPHALT NAIL SET AT THE NORTHWEST CORNER OF SAID TRACT HEREIN DESCRIBED; NORTH 85°03’18” EAST 193.87 FEET TO AN ASPHALT NAIL SET AT THE NORTHEAST CORNER OF SAID TRACT HEREIN DESCRIBED; SOUTH 05°06’07” EAST, 131.33 FEET TO AN IRON ROD WITH CAP STAMPED PLS 16005 SET AT THE SOUTHEAST CORNER OF SAID TRACT HEREIN DESCRIBED; SOUTH 85°03’18” WEST, 193.02 FEET TO THE POINT OF BEGINNING CONTAINING 0.583 ACRES OF LAND.

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3429079v.4 HOL653/71003

ATTACHMENT 1SUBORDINATION, NON-DISTURBANCEAND ATTORNMENT AGREEMENT

This Subordination, Non‑Disturbance and Attornment Agreement (this “Agreement”) is executed effective as of May ___, 2015, among Wells Fargo Bank, N.A., in its capacity as administrative agent (or any assignee of or successor to such administrative agent) under the Credit Agreement (as defined below) and on behalf of the Credit Parties (as defined below) (“Administrative Agent”), and HollyFrontier Corporation, a Delaware corporation (“Holly”).

RECITALS:

A.Holly Energy Partners — Operating, L.P., a Delaware limited partnership (“HEP Operating”), the financial institutions party thereto from time to time (individually, a “Financial Institution” and collectively, the “Financial Institutions”), the Financial Institutions issuing letters of credit thereunder from time to time, if any (individually, an “Issuing Bank” and collectively, the “Issuing Banks”), the Financial Institutions or any affiliate thereof that have entered into hedging arrangements with HEP Operating or any subsidiary thereof from time to time (individually, a “Swap Counterparty” and collectively, the “Swap Counterparties” and, together with Administrative Agent, the Financial Institutions and the Issuing Banks, being collectively referred to herein as the “Credit Parties”) are parties to that certain Second Amended and Restated Credit Agreement dated as of February 14, 2011 (as heretofore and hereafter renewed, extended, amended, supplemented, replaced, modified and/or restated from time to time, the “Credit Agreement”).

B.The Financial Institutions are the present owners and holders of certain promissory notes dated February 14, 2011, executed by HEP Operating and payable to the order of each such Financial Institution (as heretofore and hereafter renewed, extended, amended, supplemented, replaced, modified, and/or restated from time to time and together with any additional notes issued under or pursuant to the Credit Agreement, the “Notes”). Administrative Agent, for the ratable benefit of the Credit Parties, is the beneficiary of that certain Sixth Amendment to Line of Credit Leasehold Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture Filing and Financing Statement dated effective as of May ___, 2015 (as heretofore and hereafter renewed, extended, amended, supplemented, replaced, modified, and/or restated from time to time, collectively, the “Senior Mortgages”), and the secured party under certain other security agreements and documents entered into in connection with the Credit Agreement (as heretofore and hereafter renewed, extended, amended, supplemented, replaced, modified, and/or restated from time to time, the “Security Instruments” and, together with the Credit Agreement, the Notes, the Senior Mortgages and any other documents, instruments and agreements executed and/or delivered in connection with the Credit Agreement, collectively, the “Senior Loan Documents”).

C.Pursuant to the Senior Loan Documents and to secure the Notes and the other Secured Obligations (as defined in the Senior Mortgages), HEP Refining, L.L.C., a Delaware limited liability company (“Grantor”) granted a security interest and mortgage lien to or for the benefit of Administrative Agent, covering the Property (defined below), including the Realty Collateral (as

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defined in the Senior Mortgages) described on Exhibit A attached hereto. As used herein, “Property” shall mean the Mortgaged Property, as such term is defined in the Senior Mortgages.

D.Holly is the current owner of certain rights and interests under and pursuant to the provisions of that certain Unloading and Blending Services Agreement (Artesia) dated effective as of March 12, 2015 (the “Service Agreement”), by and between HFRM, HEP Operating and Grantor, as such agreement has been amended to date or may be amended, amended and restated, replaced or otherwise modified at any time in the future.

E.Holly is the current beneficiary of certain liens and security interests in a portion of the Property (the “Subordinated Liens”) under and pursuant to the provisions of that certain Mortgage, Line of Credit Mortgage and Deed of Trust (with Security Agreement and Financing Statement) (the “Holly Mortgage”) dated effective as of May ___, 2015 executed by Grantor to Chicago Title Insurance Company, Trustee, for the benefit of Holly, securing the Obligations (as defined in the Holly Mortgage and referred to herein as the “HEP Obligations”), such Holly Mortgage being recorded (or to be recorded) in Eddy County, New Mexico.

F.Holly has agreed to subordinate its Subordinated Lien under the Holly Mortgage (but not, pursuant to this Agreement, any of its rights and interests under the Service Agreement) to (i) the Senior Mortgages and the other Senior Loan Documents, and (ii) any other mortgage, deed of trust or security instrument granted by a Purchaser (as defined in Section 3 below) or any subsequent purchaser of any portion of the Mortgaged Property (as heretofore and hereafter renewed, extended, amended, supplemented, replaced, modified, and/or restated from time to time, a “Future Senior Mortgage”) that secures debt and obligations of, and other extensions of credit to, such Purchaser or purchaser (together with the Secured Obligations (as defined in the Senior Mortgages), referred to herein as the “Senior Secured Obligations”) and Administrative Agent has agreed that it and any such Purchaser at foreclosure of a Senior Mortgage shall recognize and not disturb or extinguish the Holly Mortgage, all on the terms and conditions hereinafter set forth.

AGREEMENTS:

NOW, THEREFORE, in consideration of Ten Dollars ($10) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Administrative Agent and Holly hereby covenant and agree as follows:

1.Subordination of Holly Mortgage.

(a)Subject to the provisions of Section 3 and Section 4 hereof, the Subordinated Liens of Holly under the Holly Mortgage and all of the terms, covenants and provisions of the Holly Mortgage, and all rights, remedies and options of Holly thereunder, are and shall at all times continue to be subject, subordinate and inferior in all respects to the Senior Loan Documents and any Future Senior Mortgage and to the liens and security interests thereof and to all amendments, modifications, and replacements thereof, with the same force and effect as if the Senior Loan Documents, or if applicable, the Future Senior Mortgage, had been executed, delivered and recorded prior to the execution, delivery and recordation of the Holly Mortgage. This Agreement is not intended, and shall not be construed, to (i) subordinate the rights and interests of Holly under the Service Agreement

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(including Holly’s right to quiet enjoyment under the Service Agreement or any claims, remedies or damages that may be due or available to, or become due or available to, Holly under the Service Agreement), or (ii) subordinate the Holly Mortgage to any mortgage, deed of trust, assignment, security agreement, financing statement or other security document, other than, with respect to clause (ii), the Senior Loan Documents and the Future Senior Mortgage. Nothing in this Agreement shall impair, as between the HEP Parties, on the one hand, and Holly, on the other hand, the obligations of the HEP Parties, which are absolute and unconditional, to perform the HEP Obligations in accordance with their terms.

(b)Notwithstanding anything herein or in the Holly Mortgage to the contrary, Holly hereby acknowledges and agrees, and Grantor by its consent to this Agreement acknowledges and agrees, that (i) in the event that any of the terms or provisions of this Agreement conflict with any terms or provisions of the Holly Mortgage, the terms or provisions of this Agreement shall govern and control for all purposes; and (ii) without the written prior consent of the Administrative Agent or the beneficiary of any Future Senior Mortgage (together with the Credit Parties, the “Senior Beneficiaries”), neither Holly nor Grantor (nor any future owner of the Mortgaged Property) will amend, revise, supplement, replace, restate, or otherwise modify the Holly Mortgage if such amendment, revision, supplement, replacement, restatement or other modification would be materially adverse to the rights of any Senior Beneficiary.

2.Relative Rights and Priorities. Subject to the provisions of Section 1, Section 3 and Section 4 hereof:

(a)Until the Senior Secured Obligations have been indefeasibly paid in full, all commitments to extend credit under the Credit Agreement (or if applicable, any agreement governing obligations secured by a Future Senior Mortgage) have terminated, and all letters of credit issued thereunder have been terminated and returned (the “Senior Obligations Payment Date”), Holly will not (i) commence any foreclosure (whether a judicial foreclosure or non‑judicial foreclosure) of the Holly Mortgage, (ii) accept a deed or assignment in lieu of foreclosure, (iii) otherwise exercise any of its rights or remedies under the Holly Mortgage, or (iv) take any Enforcement Action.

(b)Holly agrees that, until the Senior Obligations Payment Date has occurred:

(i)it will not take or cause to be taken any action, the purpose or effect of which is to make any Subordinated Lien pari passu with or senior to, or to give Holly any preference or priority relative to, the liens and security interests with respect to the Senior Secured Obligations;

(ii)it will not oppose, object to, interfere with, hinder or delay, in any manner, whether by judicial proceedings (including without limitation the filing of an Insolvency Proceeding (as herein defined)) or otherwise, any foreclosure, sale, lease, exchange, transfer or other disposition of the Mortgaged Property (as defined in the Holly Mortgage and with the same meaning herein as therein defined) by any of the Senior Beneficiaries or any other Enforcement Action taken by or on behalf of any of the Senior Beneficiaries;

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(iii)it has no right to (A) direct any of the Senior Beneficiaries to exercise any right, remedy or power with respect to the Mortgaged Property or pursuant to the Senior Loan Documents or any Future Senior Mortgage or (B) consent or object to the exercise by any of the Senior Beneficiaries of any right, remedy or power with respect to the Mortgaged Property or pursuant to the Senior Loan Documents or any Future Senior Mortgage or to the timing or manner in which any such right is exercised or not exercised (or, to the extent they may have any such right described in this clause (iii), whether as a junior lien creditor or otherwise, they hereby irrevocably waive such right);

(iv)it will not institute any suit or other proceeding or assert in any suit, Insolvency Proceeding or other proceeding any claim against any of the Senior Beneficiaries seeking damages from or other relief by way of specific performance, instructions or otherwise, with respect to, and none of the Senior Beneficiaries shall be liable for any action taken or omitted to be taken by any of the Senior Beneficiaries with respect to the Mortgaged Property or pursuant to the Senior Loan Documents or any Future Senior Mortgage; and

(v)the Senior Beneficiaries shall have the prior right to collect and receive any and all proceeds which may be paid or distributed in respect of the Mortgaged Property in any Insolvency Proceeding or otherwise arising from any sale or other disposition of the Mortgaged Property.

(c)Until the Senior Obligations Payment Date has occurred, Holly agrees that it shall not, in, or in connection with, any Insolvency Proceeding, file any pleadings or motions, take any position at any hearing or proceeding of any nature, or otherwise take any action whatsoever, in each case, that is inconsistent with the terms or spirit of, or intent of the parties with respect to, this Agreement, including, without limitation, with respect to the determination of any liens or claims held by any of the Senior Beneficiaries (including the validity and enforceability thereof) or the value of any claims of such parties under the United States Bankruptcy Code or otherwise; provided that Holly may file a proof of claim in an Insolvency Proceeding, subject to the limitations contained in this Agreement and only if consistent with the terms and the limitations imposed hereby; providedfurther, that if no proof of claim is filed in any Insolvency Proceeding with respect to the HEP Obligations by the 10th day prior to the bar date for such proof of claim, the Senior Beneficiaries may (but shall have no duty or obligation to), after notice to Holly, file such proof of claim, provided that the foregoing shall not confer to any Senior Beneficiary the right to vote on behalf of Holly in any insolvency proceeding.

(d)Until the Senior Obligations Payment Date has occurred, whether or not an Insolvency Proceeding has been commenced by or against the owner of the Mortgaged Property, any of the Senior Beneficiaries shall have the exclusive right to take and continue any Enforcement Action with respect to the Mortgaged Property, without any consultation with or consent of Holly. Upon the occurrence and during the continuance of a default or an event of default under the Senior Loan Documents or any Future Senior Mortgage, any of the Senior Beneficiaries may take and continue any Enforcement Action with respect to the Senior Secured Obligations and the Mortgaged Property in such order and manner as they may determine in their sole discretion.

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(e)To the extent required, Holly hereby consents to the liens and security interests created by the Senior Mortgages and any Future Senior Mortgage, and Holly shall not object to or contest, or support any other person or entity in contesting or objecting to, in any proceeding (including without limitation, any Insolvency Proceeding), the validity, extent, perfection, priority or enforceability of any lien or security interest in the Mortgaged Property granted in favor of any of the Senior Beneficiaries. Notwithstanding any failure by any of the Senior Beneficiaries or Holly or their respective representatives to perfect their liens in the Mortgaged Property or any avoidance, invalidation or subordination by any third party or court of competent jurisdiction of the liens in the Mortgaged Property granted in favor of any of the Senior Beneficiaries or Holly, the priority and rights as between any of the Senior Beneficiaries and Holly and its representatives with respect to the Mortgaged Property shall be as set forth herein.

As used in this Section 2, the following terms shall have the following meanings:

“Enforcement Action” means any demand for payment or acceleration thereof, the bringing of any lawsuit or other proceeding, the exercise of any rights and remedies, directly or indirectly, with respect to any Mortgaged Property, any enforcement or foreclosure of any lien or security interest, any sale in lieu of foreclosure, the taking of possession, exercise of any offset, repossession, garnishment, sequestration or execution, any collection of any Mortgaged Property, any notice to account debtors on any Mortgaged Property or the commencement or prosecution of enforcement of any of the rights and remedies under the Senior Loan Documents or applicable law, including without limitation the exercise of any rights of set‑off or recoupment, and the exercise of any rights or remedies of a secured creditor under the uniform commercial code of any applicable jurisdiction, under the United States Bankruptcy Code, as amended from time to time or otherwise; provided, that, neither the exercise or enforcement by Holly of its rights under the Service Agreement, nor the filing of a proof of claim in an Insolvency Proceeding, shall constitute an Enforcement Action.

“Insolvency Proceeding” means any proceeding in respect of bankruptcy, insolvency, winding up, receivership, dissolution or assignment for the benefit of creditors, in each of the foregoing events whether under the United States Bankruptcy Code, as amended from time to time or any similar federal, state or foreign bankruptcy, insolvency, reorganization, receivership or similar law.

3.Recognition and Non‑Disturbance of Holly Mortgage. If Administrative Agent, any other Credit Party or any other person (Administrative Agent, any other Credit Party or such other person being herein called a “Purchaser”) shall become the owner of any part of the Property by reason of the foreclosure (whether a judicial foreclosure or non‑judicial foreclosure) of a Senior Mortgage or the acceptance of a deed or assignment in lieu of foreclosure or otherwise (any of such being herein called a “Foreclosure Event”), then for so long as the Service Agreement is in effect, the Purchaser shall (i) recognize the Holly Mortgage, and the Holly Mortgage shall not be terminated or affected thereby, but shall continue in full force and effect upon all of the terms, covenants and conditions set forth in the Holly Mortgage, and (ii) be bound by and subject to all of the terms, provisions, covenants and conditions of the Holly Mortgage; provided, that, the Holly Mortgage shall be subordinated to any Future Senior Mortgage, regardless of whether such Future Senior Mortgage is a direct replacement of an existing Senior Mortgage or Security Instrument, and any

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such Future Senior Mortgage shall be considered a “Senior Mortgage” for purposes of this Agreement and the Holly Mortgage. Administrative Agent shall not claim, or seek adjudication, that the Holly Mortgage has been terminated or otherwise adversely affected by any Foreclosure Event.

4.Service Agreement. Administrative Agent recognizes and confirms that the Service Agreement, and the rights and interests of Holly thereunder, shall in no way be restricted, limited or otherwise affected by this Agreement, the Holly Mortgage, the Senior Mortgages, any Future Senior Mortgage, the Security Instruments or any liens or security interests thereof; provided, however, that, Holly agrees that nothing in the Service Agreement shall (a) prevent any Purchaser or subsequent purchaser from owning or operating the Mortgaged Property, so long as such Purchaser or subsequent purchaser shall have assumed, and be in compliance with, the HEP Parties’ obligations under the Service Agreement and shall have executed an “SNDA” as defined in, and in accordance with, Article 6 of the Holly Mortgage, or (b) be deemed to invalidate or require the release of any Senior Beneficiary’s liens in the Mortgaged Property in connection with the exercise by Holly of a purchase option under the Service Agreement or otherwise. Holly shall not amend, modify or supplement the Service Agreement without the prior written consent of the Majority Banks (as defined in the Credit Agreement); provided, that, such amendments, modifications or supplements may be made without the consent of the Majority Banks if such amendments, modifications or supplements (i) individually or in the aggregate, are not materially adverse to the rights of the Administrative Agent or the Financial Institutions, and (ii) individually or in the aggregate, do not materially decrease the economic benefit that the HEP Parties would have otherwise received pursuant to such agreement. Administrative Agent, both for itself and for any Purchaser, further agrees that upon any Foreclosure Event, the Service Agreement shall not be terminated or affected thereby, nor shall Holly’s right to ship or store petroleum products through the pipelines or in the terminals, respectively, constituting a portion of the Property in accordance with the provisions of the Service Agreement (or any other rights of Holly under the Service Agreement) be affected or disturbed because of the Foreclosure Event, but rather the Service Agreement shall continue in full force and effect as direct obligations between the Purchaser and Holly, upon all of the terms, covenants and conditions set forth in the Service Agreement. Neither Administrative Agent nor any Purchaser shall claim, or seek adjudication, that the Service Agreement has been terminated or otherwise adversely affected by any Foreclosure Event. Notwithstanding the foregoing, in the event that the Service Agreement is rejected in bankruptcy or is otherwise terminated, the Purchaser shall, promptly upon request by Holly, enter into a Service Agreement with Holly on substantially the same terms (and with tariffs and minimum volumes commensurate with those then applicable under the Service Agreement) and conditions as the rejected or terminated Service Agreement, but having a term commencing on the date on which Purchaser acquired title to any portion of the Property. The immediately preceding sentence shall be deemed to be a covenant running with the land and shall be binding on any person or entity that acquires title to all or party of the Property by, through or under a Senior Mortgage.

5.Attornment With Respect to the Service Agreement. Upon the occurrence of any Foreclosure Event, Holly shall attorn to the Purchaser, the Purchaser shall accept such attornment, and the Purchaser and Holly shall be bound to each other under all of the terms, provisions, covenants and conditions of the Service Agreement; provided, that, except for Holly’s express rights and

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remedies under the Service Agreement, in no event shall the Purchaser be liable for any act, omission, default, misrepresentation, or breach of warranty of the HEP Parties (or any owner of the Mortgaged Property prior to such Purchaser) or obligations accruing prior to Purchaser’s actual ownership of the Property. The provisions of this Agreement regarding attornment by Holly shall be self‑operative and effective without the necessity of execution of any new document on the part of any party hereto or the respective heirs, legal representatives, successors or assigns of any such party. Holly agrees, however, to execute and deliver upon the request of Purchaser, any instrument or certificate which in the reasonable judgment of Purchaser may be necessary or appropriate to evidence such attornment.

6.Estoppel Certificate. Holly agrees to execute and deliver from time to time, upon the request of any of the Senior Beneficiaries, a certificate regarding the status of the Service Agreement, consisting of statements, if true (or if not, specifying why not), (a) that the Service Agreement is in full force and effect, (b) the date through which payments have been paid, (c) the date of the commencement of the term of the Service Agreement, (d) the nature of any amendments or modifications of the Service Agreement, (e) to Holly’s actual knowledge without investigation, no default, or state of facts which with the passage of time or notice (or both) would constitute a default, exists under the Service Agreement, (f) to Holly’s actual knowledge without investigation, no setoffs, recoupments, estoppels, claims or counterclaims exist against the HEP Parties under the Service Agreement, and (g) such other factual matters as may be reasonably requested.

7.[Intentionally Omitted].

8.Reliance on Notices. Grantor agrees that Holly may rely upon any and all notices from Administrative Agent or any Purchaser, even if such conflict with notices from Grantor.

9.Notices. All notices, consents and other communications pursuant to the provisions of this Agreement shall be in writing and shall be sent by (a) registered or certified mail, postage prepaid, return receipt requested, (b) nationally recognized overnight delivery service, or (c) telecopier or email, addressed as follows:

If to Administrative Agent: Wells Fargo Bank, N.A.
1000 Louisiana Street, 9^th Floor,
Houston, Texas 77002
Attention: Betsy Jocher
Facsimile: 713.319.1925

If to Holly: HollyFrontier Corporation
2828 N. Harwood, Suite 1300
Dallas, Texas 75201
Attn: President
Email address: president@hollyfrontier.com

with a copy, which shall not constitute notice, but is required in order to give proper notice, to:

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HollyFrontier Corporation
2828 N. Harwood, Suite 1300Dallas, Texas 75201
Attn: General Counsel
Email address: generalcounsel@hollyfrontier.com

Notice sent by registered or certified mail, postage prepaid, return receipt requested, shall be deemed given and received on the third Business Day (hereinafter defined) after being deposited in the United States mail, notice sent by nationally recognized overnight delivery service shall be deemed given in conformity with this paragraph and received on the first Business Day after being deposited with such delivery service, and notice given by telecopier or email shall be deemed given and received upon actual receipt if received during the recipient’s normal business hours or at the beginning of the recipient’s next Business Day after receipt if not received during the recipient’s normal business hours. Each party may designate a change of address by notice to the other party. “Business Day” means a day upon which commercial banks are not authorized or required by law to close in Dallas, Texas.

10.Binding Effect. This Agreement shall be binding upon Administrative Agent, Holly and any Purchaser and inure to the benefit of the Senior Beneficiaries and Holly and their respective successors and assigns. Grantor has assigned to Administrative Agent its rights hereunder, and the HEP Parties have assigned to Administrative Agent their rights under the Service Agreement by way of a collateral assignment. The parties agree that any person that shall become the owner of any of the rights of Grantor hereunder, or any of the rights of the HEP Parties under the Service Agreement by reason of foreclosure (whether a judicial foreclosure or non‑judicial foreclosure and including, without limitation, Administrative Agent) or the acceptance of a deed or assignment in lieu of foreclosure or otherwise shall (a) have the same rights as Grantor hereunder, and the HEP Parties under the Service Agreement, including, without limitation, under this Section 10, and (b) be bound by and subject to all of the terms, provisions, covenants and conditions of this Agreement.

11.General Definitions. The term “Administrative Agent” as used herein shall include the successors and assigns of Administrative Agent. The term “HEP Parties” as used herein shall include the successors and assigns of HEP Operating and Grantor under the Service Agreement, but shall not mean or include Administrative Agent. The term “Property” as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Senior Mortgages. The term “Holly” as used herein shall include the successors and assigns of Holly hereunder and under the Service Agreement including, without limitation, any Holly Successor.

12.Modifications. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto.

13.Governing Law. This Agreement shall be governed by and construed under the laws of the State in which the Property is located.

14.Duplicate Originals; Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This

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Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of such together shall constitute a single Agreement.

15.Further Assurances. Without unreasonable delay and to the extent requested by HEP, subject to Section 4 hereof and Article 6 of the Holly Mortgage, Holly will enter into new Subordination, Non‑Disturbance and Attornment Agreements, if necessary or advisable, to facilitate the extension, amendment, supplement, restatement, replacement or refinancing of the indebtedness under the Credit Agreement.

16.Service Agreement. Notwithstanding the fact that Holly is not a party to the Service Agreement in effect as of the date of this Agreement, for the purpose of this Agreement, Holly agrees to be bound by the terms of the Service Agreement to which HFRM is bound. Holly acknowledges that (i) HFRM is a wholly-owned subsidiary of Holly, and (ii) the Service Agreement governs the operation of the assets that constitute a portion of the collateral under the Holly Mortgage, and, as a result, Holly will receive substantial benefit in connection with the Service Agreement.

[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

ADMINISTRATIVE AGENT: WELLS FARGO BANK, N.A., as Administrative Agent

By:

Name:

Title:

HOLLY: HOLLYFRONTIER CORPORATION, a Delaware corporation

By:
Name:
Title:

-10

GRANTOR’S CONSENT

The undersigned hereby consents to the foregoing Subordination, Non‑Disturbance and Attornment Agreement and, without limitation, agrees to the provisions of Section 1 thereof.

HEP REFINING, L.L.C., a Delaware limited liability company

By: Holly Energy Partners - Operating, L.P.,
a Delaware limited partnership,
its Sole Member

By: HEP Logistics GP, L.L.C.,
a Delaware limited liability company,
its General Partner

By: Holly Energy Partners, L.P.,
a Delaware limited partnership,
its Sole Member

By: HEP Logistics Holdings, L.P.,
a Delaware limited partnership,
its General Partner

By: Holly Logistic Services, L.L.C.,
a Delaware limited liability company,
its General Partner

By:     ____________________________________

Stephen D. Wise,

Vice President and Treasurer

-11

THE STATE OF _________    §

COUNTY OF ___________    §

THIS INSTRUMENT was acknowledged before me on May ____, 2015, by ______________________________, ____________________ of Wells Fargo Bank, N.A., a national banking association, as Administrative Agent, on behalf of such national banking association.

My Commission Expires

Notary Public in and for the State of ____________Printed Name of Notary

-12

THE STATE OF TEXAS    §

COUNTY OF DALLAS    §

THIS INSTRUMENT was acknowledged before me on July ____, 2015, by ____________, ____________________ of HollyFrontier Corporation, a Delaware corporation, on behalf of such corporation.

My Commission Expires

Notary Public in and for the State of TexasPrinted Name of Notary

-13

THE STATE OF TEXAS    §

COUNTY OF DALLAS    §

This instrument was acknowledged before me on July ____, 2015, by Stephen D. Wise, Vice President and Treasurer of Holly Logistic Services, L.L.C., a Delaware limited liability company, general partner of HEP Logistics Holdings, L.P., a Delaware limited partnership, general partner of Holly Energy Partners, L.P., a Delaware limited partnership, sole member of HEP Logistics GP, L.L.C., a Delaware limited liability company, general partner of Holly Energy Partners — Operating, L.P., a Delaware limited partnership, sole member of HEP Refining, L.L.C., a Delaware limited liability company, on behalf of said limited liability companies and limited partnerships.

My Commission Expires

Notary Public in and for the State of TexasPrinted Name of Notary

-14

EXHIBIT ADESCRIPTION OF REALTY COLLATERAL

A TRACT OF LAND LOCATED IN SECTION 9, TOWNSHIP 17 SOUTH, RANGE 26 EAST, N.M.P.M., EDDY COUNTY, NEW MEXICO, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT AN IRON ROD WITH CAP STAMPED PLS 16005 SET AT THE SOUTHWEST CORNER OF SAID TRACT LOCATED S 89°50’19” E, 825.50 FEET AND N 00°09’41” E, 1,103.89 FEET FROM A ONE INCH IRON PIPE ROD AT THE SOUTHWEST CORNER OF SAID SECTION 9;

THENCE, WITH SAID TRACT PERIMETER HEREIN DESCRIBED AS FOLLOWS: NORTH 05°28’27” WEST, 131.34 FEET TO AN ASPHALT NAIL SET AT THE NORTHWEST CORNER OF SAID TRACT HEREIN DESCRIBED; NORTH 85°03’18” EAST 193.87 FEET TO AN ASPHALT NAIL SET AT THE NORTHEAST CORNER OF SAID TRACT HEREIN DESCRIBED; SOUTH 05°06’07” EAST, 131.33 FEET TO AN IRON ROD WITH CAP STAMPED PLS 16005 SET AT THE SOUTHEAST CORNER OF SAID TRACT HEREIN DESCRIBED; SOUTH 85°03’18” WEST, 193.02 FEET TO THE POINT OF BEGINNING CONTAINING 0.583 ACRES OF LAND.

-15

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael C. Jennings, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: August 5, 2015	/s/ Michael C. Jennings
	Michael C. Jennings
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Douglas S. Aron, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: August 5, 2015	/s/ Douglas S. Aron
	Douglas S. Aron
	Executive 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, 2015 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Jennings, 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: August 5, 2015	/s/ Michael C. Jennings
	Michael C. Jennings
	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, 2015 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas S. Aron, Chief Financial Officer of Holly Logistic Services, L.L.C., the general partner of HEP Logistics Holdings, L.P., the general partner of Holly Energy Partners, L.P (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date:    August 5, 2015	/s/ Douglas S. Aron
	Douglas S. Aron
	Executive Vice President and Chief Financial Officer

XML

Debt Interest Rate Risk Management (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Line of credit facility, amount outstanding	$ 604,000	$ 604,000	$ 571,000
Accumulated Other Comprehensive Income (Loss), Net of Tax	(573)	(573)	(46)
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net		600
Interest Rate Swap [Member] | Cash Flow Hedging [Member]
Debt Instrument [Line Items]
Line of credit facility, amount outstanding	305,000	305,000
Accumulated Other Comprehensive Income (Loss), Net of Tax	600	600
Interest Rate Swap [Member] | Cash Flow Hedge $155 million [Member]
Debt Instrument [Line Items]
Line of credit facility, amount outstanding	$ 155,000	$ 155,000
Long-term debt, fixed interest rate	0.99%	0.99%
Debt instrument, basis spread on variable rate	2.00%
Debt instrument, effective interest rate	2.99%	2.99%
Interest Rate Swap [Member] | Cash Flow Hedge $150 million [Member]
Debt Instrument [Line Items]
Line of credit facility, amount outstanding	$ 150,000	$ 150,000
Long-term debt, fixed interest rate	0.74%	0.74%
Debt instrument, basis spread on variable rate	2.00%
Debt instrument, effective interest rate	2.74%	2.74%
Other Liabilities [Member] | Interest Rate Swap [Member] | Cash Flow Hedging [Member]
Debt Instrument [Line Items]
Derivative liabilities, fair value	$ 707	$ 707	1,065
Derivative Instruments and Hedges, Liabilities	573	573	46
Other Assets [Member] | Interest Rate Swap [Member] | Cash Flow Hedging [Member]
Debt Instrument [Line Items]
Derivative Asset	(134)	(134)	(1,019)
Accumulated Other Comprehensive Income (Loss) [Member] | Interest Rate Swap [Member] | Cash Flow Hedging [Member]
Debt Instrument [Line Items]
Derivative Instruments and Hedges, Assets	(573)	(573)
Derivative liabilities, fair value	(707)	(707)	(1,065)
Derivative Asset	$ 134	$ 134	1,019
Derivative Instruments and Hedges, Liabilities			$ (46)

XML

Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidating Statement of Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues [Abstract]
Affiliates	$ 68,297	$ 64,480	$ 140,552	$ 136,312
Third parties	15,182	10,518	32,683	25,690
Total revenues	83,479	74,998	173,235	162,002
Operating costs and expenses [Abstract]
Operations (exclusive of depreciation and amortization)	25,289	24,567	53,255	47,379
Depreciation and amortization	15,063	15,882	29,757	31,470
General and administrative	2,696	2,516	5,986	5,667
Total operating costs and expenses	43,048	42,965	88,998	84,516
Operating income (loss)	40,431	32,033	84,237	77,486
Equity in Earnings of Subsidiaries	0	0	0	0
Income (Loss) from Equity Method Investments	631	748	1,365	1,270
Interest expense	(9,056)	(8,329)	(17,824)	(18,783)
Loss on early extinguishment of debt	0	0	0	(7,677)
Interest income	3	0	3	3
Other income	71	26	230	34
Total other income (expense)	(8,351)	(7,555)	(16,226)	(25,153)
Income before income taxes	32,080	24,478	68,011	52,333
State income tax benefit (expense)	64	(28)	(37)	(103)
Net income	32,144	24,450	67,974	52,230
Allocation of Net Income Attributable to Noncontrolling Interest	(1,743)	(1,416)	(5,770)	(5,053)
Net income attributable to Holly Energy Partners	30,401	23,034	62,204	47,177
Other comprehensive income (loss)	222	(746)	(527)	(651)
Comprehensive income	30,623	22,288	61,677	46,526
SLC Pipeline [Member]
Operating costs and expenses [Abstract]
Income (Loss) from Equity Method Investments	631	748	1,365	1,270
Parent Company [Member]
Revenues [Abstract]
Affiliates	0	0	0	0
Third parties	0	0	0	0
Total revenues	0	0	0	0
Operating costs and expenses [Abstract]
Operations (exclusive of depreciation and amortization)	$ 0	0	0	0
Depreciation and amortization		0	0	0
General and administrative	$ 637	585	1,700	1,643
Total operating costs and expenses	637	585	1,700	1,643
Operating income (loss)	(637)	(585)	(1,700)	(1,643)
Equity in Earnings of Subsidiaries	36,111	28,631	74,044	69,195
Interest expense	(5,073)	(5,012)	(10,140)	(12,698)
Loss on early extinguishment of debt				(7,677)
Interest income	0		0	0
Other income	0	0	0	0
Total other income (expense)	31,038	23,619	63,904	48,820
Income before income taxes	30,401	23,034	62,204	47,177
State income tax benefit (expense)	0	0	0	0
Net income	30,401	23,034	62,204	47,177
Allocation of Net Income Attributable to Noncontrolling Interest	0	0	0	0
Net income attributable to Holly Energy Partners	30,401	23,034	62,204	47,177
Other comprehensive income (loss)	222	(746)	(527)	(651)
Comprehensive income	30,623	22,288	61,677	46,526
Parent Company [Member] | SLC Pipeline [Member]
Operating costs and expenses [Abstract]
Income (Loss) from Equity Method Investments	0	0	0	0
Guarantor Subsidiaries [Member]
Revenues [Abstract]
Affiliates	64,727	61,427	127,783	123,042
Third parties	11,895	8,533	23,282	19,614
Total revenues	76,622	69,960	151,065	142,656
Operating costs and expenses [Abstract]
Operations (exclusive of depreciation and amortization)	22,111	22,179	47,642	42,330
Depreciation and amortization	11,316	12,288	22,278	24,281
General and administrative	2,059	1,931	4,286	4,024
Total operating costs and expenses	35,486	36,398	74,206	70,635
Operating income (loss)	41,136	33,562	76,859	72,021
Equity in Earnings of Subsidiaries	(88)	(708)	6,772	5,331
Interest expense	(3,983)	(3,317)	(7,684)	(6,085)
Loss on early extinguishment of debt				0
Interest income	3		3	3
Other income	120	26	279	34
Total other income (expense)	(3,317)	(3,251)	735	553
Income before income taxes	37,819	30,311	77,594	72,574
State income tax benefit (expense)	64	(28)	(37)	(103)
Net income	37,883	30,283	77,557	72,471
Allocation of Net Income Attributable to Noncontrolling Interest	0	0	0	0
Net income attributable to Holly Energy Partners	37,883	30,283	77,557	72,471
Other comprehensive income (loss)	222	(746)	(527)	(651)
Comprehensive income	38,105	29,537	77,030	71,820
Guarantor Subsidiaries [Member] | SLC Pipeline [Member]
Operating costs and expenses [Abstract]
Income (Loss) from Equity Method Investments	631	748	1,365	1,270
Non-Guarantor Subsidiaries [Member]
Revenues [Abstract]
Affiliates	3,545	3,359	12,769	13,883
Third parties	3,287	1,985	9,401	6,076
Total revenues	6,832	5,344	22,170	19,959
Operating costs and expenses [Abstract]
Operations (exclusive of depreciation and amortization)	3,153	2,694	5,613	5,662
Depreciation and amortization	3,747	3,594	7,479	7,189
General and administrative	0	0	0	0
Total operating costs and expenses	6,900	6,288	13,092	12,851
Operating income (loss)	(68)	(944)	9,078	7,108
Equity in Earnings of Subsidiaries	0	0	0	0
Interest expense	0	0	0	0
Loss on early extinguishment of debt				0
Interest income	0		0	0
Other income	(49)	0	(49)	0
Total other income (expense)	(49)	0	(49)	0
Income before income taxes	(117)	(944)	9,029	7,108
State income tax benefit (expense)	0	0	0	0
Net income	(117)	(944)	9,029	7,108
Allocation of Net Income Attributable to Noncontrolling Interest	0	0	0	0
Net income attributable to Holly Energy Partners	(117)	(944)	9,029	7,108
Other comprehensive income (loss)	0	0	0	0
Comprehensive income	(117)	(944)	9,029	7,108
Non-Guarantor Subsidiaries [Member] | SLC Pipeline [Member]
Operating costs and expenses [Abstract]
Income (Loss) from Equity Method Investments	0	0	0	0
Eliminations [Member]
Revenues [Abstract]
Affiliates	25	(306)	0	(613)
Third parties	0	0	0	0
Total revenues	25	(306)	0	(613)
Operating costs and expenses [Abstract]
Operations (exclusive of depreciation and amortization)	25	(306)	0	(613)
Depreciation and amortization	0	0	0	0
General and administrative	0	0	0	0
Total operating costs and expenses	25	(306)	0	(613)
Operating income (loss)	0	0	0	0
Equity in Earnings of Subsidiaries	(36,023)	(27,923)	(80,816)	(74,526)
Interest expense	0	0	0	0
Loss on early extinguishment of debt				0
Interest income	0		0	0
Other income	0	0	0	0
Total other income (expense)	(36,023)	(27,923)	(80,816)	(74,526)
Income before income taxes	(36,023)	(27,923)	(80,816)	(74,526)
State income tax benefit (expense)	0	0	0	0
Net income	(36,023)	(27,923)	(80,816)	(74,526)
Allocation of Net Income Attributable to Noncontrolling Interest	(1,743)	(1,416)	(5,770)	(5,053)
Net income attributable to Holly Energy Partners	(37,766)	(29,339)	(86,586)	(79,579)
Other comprehensive income (loss)	(222)	746	527	651
Comprehensive income	(37,988)	(28,593)	(86,059)	(78,928)
Eliminations [Member] | SLC Pipeline [Member]
Operating costs and expenses [Abstract]
Income (Loss) from Equity Method Investments	$ 0	$ 0	$ 0	$ 0

XML

Environmental Loss Contingencies (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Loss Contingencies [Line Items]
Environmental Remediation Expense	$ 0.9	$ 4.2	$ 0.7
Accrued Environmental Expense		15.3		$ 12.0
Accrued Environmental Expense, Noncurrent		12.3		8.7
Affiliated Entity [Member]
Loss Contingencies [Line Items]
Accrued Environmental Expense		6.6		6.8
Environmental Recovery Receivable		$ 6.6		$ 6.8

XML

Employees, Retirement and Incentive Plans Retirement and Benefit Plan Costs (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) Types shares	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) Types Components shares	Jun. 30, 2014 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee benefits and share-based compensation	$ 1.7	$ 1.9	$ 3.1	$ 3.6
Long-term incentive plan, components | Components			4
Equity-based compensation, types | Types	3		3
Compensation costs of incentive awards	$ 0.9	$ 0.8	$ 1.6
Deferred Bonus [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units authorized under equity-based compensation plans (new) | shares	2,500,000		2,500,000
Number of units available for grant | shares	1,537,167		1,537,167

XML

Debt (Tables)

6 Months Ended

Jun. 30, 2015

Debt Instruments [Abstract]

Schedule of Long-term Debt Instruments

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

	June 30, 2015			December 31, 2014
	(In thousands)
Credit Agreement	$	604,000		$	571,000
6.5% Senior Notes
Principal	300,000			300,000
Unamortized discount	(3,095		)	(3,421		)
	296,905			296,579
Total long-term debt	$	900,905		$	867,579

Schedule of Derivative Instruments

Additional information on our interest rate swaps is as follows:

Derivative Instrument	Balance Sheet Location	Fair Value			Location of Offsetting Balance	Offsetting Amount
	(In thousands)
June 30, 2015
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other current   liabilities	$	(707	)	Accumulated other     comprehensive loss	$	(707	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	134			Accumulated other     comprehensive income	134
		$	(573	)		$	(573	)
December 31, 2014
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other long-term   liabilities	$	(1,065	)	Accumulated other     comprehensive loss	$	(1,065	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	1,019			Accumulated other     comprehensive income	1,019
		$	(46	)		$	(46	)

Schedule of Interest Expense and Other Debt Information

Interest expense consists of the following components:

	Six Months Ended June 30,
	2015		2014
	(In thousands)
Interest on outstanding debt:
Credit Agreement, net of interest on interest rate swaps	$	7,488	$	6,165
6.5% Senior Notes	9,757		9,696
8.25% Senior Notes	—		2,544
Amortization of discount and deferred debt issuance costs	930		948
Commitment fees	261		293
Total interest incurred	18,436		19,646
Less capitalized interest	612		863
Net interest expense	$	17,824	$	18,783
Cash paid for interest	$	17,280	$	22,249

XML

Related Party Transactions (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2015
Related Party Transaction [Line Items]
Related Party Transaction, Selling, General and Administrative Expenses from Transactions with Related Party	$ 600			$ 1,200		$ 2,400
Expenses resulting from agreement with related party	7,500		$ 9,600	16,200	$ 18,800
Revenue from related parties	68,297		64,480	140,552	136,312
Reimbursements paid to related parties	4,400		3,900	7,000	8,400
Distributions to HEP unitholders				(82,614)	(75,577)
Due from Affiliate, Current	28,800	$ 33,400		28,800
Due to Affiliate, Current	7,811	5,239		7,811
Affiliated Entity [Member]
Related Party Transaction [Line Items]
Other Commitments, Future Minimum Payments, Remainder of Fiscal Year	236,600			236,600
Distributions to HEP unitholders	(22,300)		(19,800)	(43,900)	$ (39,000)
Shortfall Payments [Member]
Related Party Transaction [Line Items]
Revenue from related parties	$ 6,000		$ 7,600
Deferred revenue, related parties		$ 7,300		$ 5,400

XML

Debt Senior Notes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Debt Instrument [Line Items]
Loss on early extinguishment of debt	$ 0	$ 0	$ 0	$ (7,677)
6.5% Senior Notes [Member]
Debt Instrument [Line Items]
Principal	$ 300,000		$ 300,000		$ 300,000
Stated interest rate, senior notes	6.50%		6.50%
Debt Instrument, Unamortized Discount	$ 3,095		$ 3,095		$ 3,421
6.5% Interest Rate [Member]
Debt Instrument [Line Items]
Principal	$ 300,000		$ 300,000
Stated interest rate, senior notes	6.50%	6.50%	6.50%	6.50%
Eight Point Two Five Percentage Senior Notes Due Two Thousand Eighteen Member
Debt Instrument [Line Items]
Principal		$ 150,000		$ 150,000
Stated interest rate, senior notes		8.25%		8.25%
Extinguishment of Debt, Amount				$ 156,200
Loss on early extinguishment of debt				7,700
Redemption Premium				6,200
Amortization of Financing Costs and Discounts				$ 1,500

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Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 10,424	$ 2,830	$ 6,066	$ 6,352
Accounts receivable	40,044	40,129
Prepaid and other current assets	4,738	4,383
Total current assets	55,206	47,342
Properties and equipment, net	1,000,808	980,479
Investments in subsidiaries	0	0
Transportation agreements, net	77,279	80,703
Goodwill	256,498	256,498
Investment in SLC Pipeline	24,280	24,478
Other assets	11,172	12,055
Total assets	1,425,243	1,401,555
Current liabilities:
Accounts payable	16,128	17,881
Accrued interest	6,783	6,615
Deferred revenue	9,940	12,432
Accrued property taxes	4,335	2,703
Other current liabilities	4,826	4,571
Total current liabilities	42,012	44,202
Long-term debt	900,905	867,579
Other long-term liabilities	21,132	18,145
Deferred revenue	35,484	29,392
Class B unit	30,305	26,793
Partners' Capital	300,940	320,362
Equity - noncontrolling interest	94,465	95,082
Total liabilities and equity	1,425,243	1,401,555
Parent Company [Member]
Current assets:
Cash and cash equivalents	0	2	2	2
Accounts receivable	2	0
Prepaid and other current assets	82	212
Total current assets	84	214
Properties and equipment, net	0	0
Investments in subsidiaries	603,118	622,100
Transportation agreements, net	0	0
Goodwill	0	0
Investment in SLC Pipeline	0	0
Other assets	1,344	1,319
Total assets	604,546	623,633
Current liabilities:
Accounts payable	0	0
Accrued interest	6,500	6,500
Deferred revenue	0	0
Accrued property taxes	0	0
Other current liabilities	24	45
Total current liabilities	6,524	6,545
Long-term debt	296,905	296,579
Other long-term liabilities	177	147
Deferred revenue	0	0
Class B unit	0	0
Partners' Capital	300,940	320,362
Equity - noncontrolling interest	0	0
Total liabilities and equity	604,546	623,633
Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	7,350	2,828	2,085	1,447
Accounts receivable	35,771	34,274
Prepaid and other current assets	3,395	2,856
Total current assets	46,516	39,958
Properties and equipment, net	624,509	596,988
Investments in subsidiaries	283,393	285,247
Transportation agreements, net	77,279	80,703
Goodwill	256,498	256,498
Investment in SLC Pipeline	24,280	24,478
Other assets	9,828	10,736
Total assets	1,322,303	1,294,608
Current liabilities:
Accounts payable	15,343	15,495
Accrued interest	283	115
Deferred revenue	6,440	5,672
Accrued property taxes	1,739	1,902
Other current liabilities	4,801	4,408
Total current liabilities	28,606	27,592
Long-term debt	604,000	571,000
Other long-term liabilities	20,790	17,731
Deferred revenue	35,484	29,392
Class B unit	30,305	26,793
Partners' Capital	603,118	622,100
Equity - noncontrolling interest	0	0
Total liabilities and equity	1,322,303	1,294,608
Non-Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	3,074	0	3,979	4,903
Accounts receivable	4,442	6,044
Prepaid and other current assets	1,261	1,315
Total current assets	8,777	7,359
Properties and equipment, net	376,299	383,491
Investments in subsidiaries	0	0
Transportation agreements, net	0	0
Goodwill	0	0
Investment in SLC Pipeline	0	0
Other assets	0	0
Total assets	385,076	390,850
Current liabilities:
Accounts payable	956	2,575
Accrued interest	0	0
Deferred revenue	3,500	6,760
Accrued property taxes	2,596	801
Other current liabilities	1	118
Total current liabilities	7,053	10,254
Long-term debt	0	0
Other long-term liabilities	165	267
Deferred revenue	0	0
Class B unit	0	0
Partners' Capital	377,858	380,329
Equity - noncontrolling interest	0	0
Total liabilities and equity	385,076	390,850
Eliminations [Member]
Current assets:
Cash and cash equivalents	0	0	$ 0	$ 0
Accounts receivable	(171)	(189)
Prepaid and other current assets	0	0
Total current assets	(171)	(189)
Properties and equipment, net	0	0
Investments in subsidiaries	(886,511)	(907,347)
Transportation agreements, net	0	0
Goodwill	0	0
Investment in SLC Pipeline	0	0
Other assets	0	0
Total assets	(886,682)	(907,536)
Current liabilities:
Accounts payable	(171)	(189)
Accrued interest	0	0
Deferred revenue	0	0
Accrued property taxes	0	0
Other current liabilities	0	0
Total current liabilities	(171)	(189)
Long-term debt	0	0
Other long-term liabilities	0	0
Deferred revenue	0	0
Class B unit	0	0
Partners' Capital	(980,976)	(1,002,429)
Equity - noncontrolling interest	94,465	95,082
Total liabilities and equity	$ (886,682)	$ (907,536)

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Financial Instruments

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Financial Instruments

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt and interest rate swaps. 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. Debt consists of outstanding principal under our revolving credit agreement (which approximates fair value as interest rates are reset frequently at current interest rates) and our fixed interest rate senior notes.

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability) including assumptions about risk. GAAP categorizes inputs used in fair value measurements into three broad levels as follows:

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

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

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

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

		June 30, 2015				December 31, 2014
Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(In thousands)
Assets:
Interest rate swaps	Level 2	$	134	$	134	$	1,019	$	1,019
Liabilities:
6.5% Senior notes	Level 2	$	296,905	$	295,875	$	296,579	$	291,000
Interest rate swaps	Level 2	707		707		1,065		1,065
		$	297,612	$	296,582	$	297,644	$	292,065

Level 2 Financial Instruments

Our senior notes and interest rate swaps are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. The fair value of our interest rate swaps is based on the net present value of expected future cash flows related to both variable and fixed-rate legs of the swap agreement. This measurement is computed using the forward London Interbank Offered Rate (“LIBOR”) yield curve, a market-based observable input.

See Note 6 for additional information on these instruments.

XML

Partners' Equity, Issuances (Details) - Jun. 30, 2015 - shares	Total
Partners' Capital [Abstract]
Partners' capital account, units held by controlling interest	22,380,030
General partner ownership interest	2.00%
Ownership percentage, controlling interest	39.00%

XML

Description of Business and Presentation of Financial Statements (Details) $ in Millions	6 Months Ended
	Jun. 30, 2015 USD ($) mi in	Dec. 31, 2014 USD ($)
Other Ownership Interests [Line Items]
Ownership percentage, controlling interest	39.00%
General partner interest	2.00%
Unamortized Debt Issuance Expense | $	$ 4.7	$ 4.4
SLC Pipeline [Member]
Other Ownership Interests [Line Items]
Equity Method Investment, Ownership Percentage	25.00%
Crude Oil Pipeline, Length	95
UNEV Pipeline [Member]
Other Ownership Interests [Line Items]
Equity Method Investment, Ownership Percentage	75.00%
Crude Oil Pipeline, Length	427
Description Of Pipeline Acquired | in	12

XML

Supplemental Guarantor / Non-Guarantor Financial Information (Tables)

6 Months Ended

Jun. 30, 2015

Supplemental Guarantor / Non-Guarantor Financial Information [Abstract]

Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet

June 30, 2015	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	7,350	$	3,074	$	—		$	10,424
Accounts receivable	2		35,771		4,442		(171		)	40,044
Prepaid and other current assets	82		3,395		1,261		—			4,738
Total current assets	84		46,516		8,777		(171		)	55,206
Properties and equipment, net	—		624,509		376,299		—			1,000,808
Investment in subsidiaries	603,118		283,393		—		(886,511		)	—
Transportation agreements, net	—		77,279		—		—			77,279
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,280		—		—			24,280
Other assets	1,344		9,828		—		—			11,172
Total assets	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,343	$	956	$	(171	)	$	16,128
Accrued interest	6,500		283		—		—			6,783
Deferred revenue	—		6,440		3,500		—			9,940
Accrued property taxes	—		1,739		2,596		—			4,335
Other current liabilities	24		4,801		1		—			4,826
Total current liabilities	6,524		28,606		7,053		(171		)	42,012
Long-term debt	296,905		604,000		—		—			900,905
Other long-term liabilities	177		20,790		165		—			21,132
Deferred revenue	—		35,484		—		—			35,484
Class B unit	—		30,305		—		—			30,305
Equity - partners	300,940		603,118		377,858		(980,976		)	300,940
Equity - noncontrolling interest	—		—		—		94,465			94,465
Total liabilities and partners’ equity	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243

Condensed Consolidating Balance Sheet

December 31, 2014	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	2,828	$	—	$	—		$	2,830
Accounts receivable	—		34,274		6,044		(189		)	40,129
Prepaid and other current assets	212		2,856		1,315		—			4,383
Total current assets	214		39,958		7,359		(189		)	47,342
Properties and equipment, net	—		596,988		383,491		—			980,479
Investment in subsidiaries	622,100		285,247		—		(907,347		)	—
Transportation agreements, net	—		80,703		—		—			80,703
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,478		—		—			24,478
Other assets	1,319		10,736		—		—			12,055
Total assets	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,495	$	2,575	$	(189	)	$	17,881
Accrued interest	6,500		115		—		—			6,615
Deferred revenue	—		5,672		6,760		—			12,432
Accrued property taxes	—		1,902		801		—			2,703
Other current liabilities	45		4,408		118		—			4,571
Total current liabilities	6,545		27,592		10,254		(189		)	44,202
Long-term debt	296,579		571,000		—		—			867,579
Other long-term liabilities	147		17,731		267		—			18,145
Deferred revenue	—		29,392		—		—			29,392
Class B unit	—		26,793		—		—			26,793
Equity - partners	320,362		622,100		380,329		(1,002,429		)	320,362
Equity - noncontrolling interest	—		—		—		95,082			95,082
Total liabilities and partners’ equity	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555

Condensed Consolidating Statement of Comprehensive Income

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	64,727		$	3,545		$	25		$	68,297
Third parties	—			11,895			3,287			—			15,182
	—			76,622			6,832			25			83,479
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,111			3,153			25			25,289
Depreciation and amortization				11,316			3,747			—			15,063
General and administrative	637			2,059			—			—			2,696
	637			35,486			6,900			25			43,048
Operating income (loss)	(637		)	41,136			(68		)	—			40,431
Equity in earnings (loss) of subsidiaries	36,111			(88		)	—			(36,023		)	—
Equity in earnings of SLC Pipeline	—			631			—			—			631
Interest expense	(5,073		)	(3,983		)	—			—			(9,056		)
Interest income	—			3			—			—			3
Other income (expense)	—			120			(49		)	—			71
	31,038			(3,317		)	(49		)	(36,023		)	(8,351		)
Income (loss) before income taxes	30,401			37,819			(117		)	(36,023		)	32,080
State income tax benefit	—			64			—			—			64
Net income (loss)	30,401			37,883			(117		)	(36,023		)	32,144
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,743		)	(1,743		)
Net income (loss) attributable to Holly Energy Partners	30,401			37,883			(117		)	(37,766		)	30,401
Other comprehensive income (loss)	222			222			—			(222		)	222
Comprehensive income (loss)	$	30,623		$	38,105		$	(117	)	$	(37,988	)	$	30,623

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	61,427		$	3,359		$	(306	)	$	64,480
Third parties	—			8,533			1,985			—			10,518
	—			69,960			5,344			(306		)	74,998
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,179			2,694			(306		)	24,567
Depreciation and amortization	—			12,288			3,594			—			15,882
General and administrative	585			1,931			—			—			2,516
	585			36,398			6,288			(306		)	42,965
Operating income (loss)	(585		)	33,562			(944		)	—			32,033
Equity in earnings (loss) of subsidiaries	28,631			(708		)	—			(27,923		)	—
Equity in earnings of SLC Pipeline	—			748			—			—			748
Interest expense	(5,012		)	(3,317		)	—			—			(8,329		)
Other income	—			26			—			—			26
	23,619			(3,251		)	—			(27,923		)	(7,555		)
Income (loss) before income taxes	23,034			30,311			(944		)	(27,923		)	24,478
State income tax expense	—			(28		)	—			—			(28		)
Net income (loss)	23,034			30,283			(944		)	(27,923		)	24,450
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,416		)	(1,416		)
Net income (loss) attributable to Holly Energy Partners	23,034			30,283			(944		)	(29,339		)	23,034
Other comprehensive income (loss)	(746		)	(746		)	—			746			(746		)
Comprehensive income (loss)	$	22,288		$	29,537		$	(944	)	$	(28,593	)	$	22,288

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	127,783		$	12,769		$	—		$	140,552
Third parties	—			23,282			9,401			—			32,683
	—			151,065			22,170			—			173,235
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			47,642			5,613			—			53,255
Depreciation and amortization	—			22,278			7,479			—			29,757
General and administrative	1,700			4,286			—			—			5,986
	1,700			74,206			13,092			—			88,998
Operating income (loss)	(1,700		)	76,859			9,078			—			84,237
Equity in earnings (loss) of subsidiaries	74,044			6,772			—			(80,816		)	—
Equity in earnings of SLC Pipeline	—			1,365			—			—			1,365
Interest expense	(10,140		)	(7,684		)	—			—			(17,824		)
Interest income	—			3			—			—			3
Other income (expense)	—			279			(49		)	—			230
	63,904			735			(49		)	(80,816		)	(16,226		)
Income (loss) before income taxes	62,204			77,594			9,029			(80,816		)	68,011
State income tax expense	—			(37		)	—			—			(37		)
Net income (loss)	62,204			77,557			9,029			(80,816		)	67,974
Allocation of net income attributable to noncontrolling interests	—			—			—			(5,770		)	(5,770		)
Net income (loss) attributable to Holly Energy Partners	62,204			77,557			9,029			(86,586		)	62,204
Other comprehensive income (loss)	(527		)	(527		)	—			527			(527		)
Comprehensive income (loss)	$	61,677		$	77,030		$	9,029		$	(86,059	)	$	61,677

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	123,042		$	13,883	$	(613	)	$	136,312
Third parties	—			19,614			6,076		—			25,690
	—			142,656			19,959		(613		)	162,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			42,330			5,662		(613		)	47,379
Depreciation and amortization	—			24,281			7,189		—			31,470
General and administrative	1,643			4,024			—		—			5,667
	1,643			70,635			12,851		(613		)	84,516
Operating income (loss)	(1,643		)	72,021			7,108		—			77,486
Equity in earnings (loss) of subsidiaries	69,195			5,331			—		(74,526		)	—
Equity in earnings of SLC Pipeline	—			1,270			—		—			1,270
Interest expense	(12,698		)	(6,085		)	—		—			(18,783		)
Interest income	—			3			—		—			3
Loss on early extinguishment of debt	(7,677		)	—			—		—			(7,677		)
Other income	—			34			—		—			34
	48,820			553			—		(74,526		)	(25,153		)
Income (loss) before income taxes	47,177			72,574			7,108		(74,526		)	52,333
State income tax expense	—			(103		)	—		—			(103		)
Net income (loss)	47,177			72,471			7,108		(74,526		)	52,230
Allocation of net income attributable to noncontrolling interests	—			—			—		(5,053		)	(5,053		)
Net income (loss) attributable to Holly Energy Partners	47,177			72,471			7,108		(79,579		)	47,177
Other comprehensive income (loss)	(651		)	(651		)	—		651			(651		)
Comprehensive income (loss)	$	46,526		$	71,820		$	7,108	$	(78,928	)	$	46,526

Condensed Consolidating Statement of Cash Flows

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(9,639	)	$	111,517		$	15,358		$	(6,772	)	$	110,464
Cash flows from investing activities
Additions to properties and equipment	—			(22,159		)	(784		)	—			(22,943		)
Purchase of El Dorado crude tanks	—			(27,500		)	—			—			(27,500		)
Proceeds from sale of assets	—			965			—			—			965
Distributions from UNEV	—			1,853			—			(1,853		)	—
Distributions in excess of equity in earnings in SLC Pipeline	—			198			—			—			198
	—			(46,643		)	(784		)	(1,853		)	(49,280		)
Cash flows from financing activities
Net borrowings under credit agreement	—			33,000			—			—			33,000
Net intercompany financing activities	92,498			(92,498		)	—			—			—
Distributions to HEP unitholders	(82,614		)	—			—			—			(82,614		)
Distributions to noncontrolling interests	—			—			(11,500		)	8,625			(2,875		)
Purchase of units for incentive grants	(247		)	—			—			—			(247		)
Other	—			(854		)	—			—			(854		)
	9,637			(60,352		)	(11,500		)	8,625			(53,590		)
Cash and cash equivalents
Increase (decrease) for the period	(2		)	4,522			3,074			—			7,594
Beginning of period	2			2,828			—			—			2,830
End of period	$	—		$	7,350		$	3,074		$	—		$	10,424

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(15,764	)	$	96,308		$	11,819		$	—		$	92,363
Cash flows from investing activities
Additions to properties and equipment	—			(33,831		)	(4,743		)	—			(38,574		)
Distributions from noncontrolling interest	—			6,000			—			(6,000		)	—
Distributions in excess of equity in earnings of SLC Pipeline	—			105			—			—			105
	—			(27,726		)	(4,743		)	(6,000		)	(38,469		)
Cash flows from financing activities
Net repayments under credit agreement	—			180,000			—			—			180,000
Net intercompany financing activities	247,935			(247,935		)	—			—			—
Redemption of senior notes	(156,188		)	—			—			—			(156,188		)
Distributions to HEP unitholders	(75,577		)	—			—			—			(75,577		)
Distributions to noncontrolling interests	—			—			(8,000		)	6,000			(2,000		)
Purchase of units for incentive grants	(406		)	—			—			—			(406		)
Other	—			(9		)	—			—			(9		)
	15,764			(67,944		)	(8,000		)	6,000			(54,180		)
Cash and cash equivalents
Increase (decrease) for the period	—			638			(924		)	—			(286		)
Beginning of period	2			1,447			4,903			—			6,352
End of period	$	2		$	2,085		$	3,979		$	—		$	6,066

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Partners' Equity, Allocations of Net Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Partners' Capital [Abstract]
General Partner Interest in Net Income	$ 412	$ 299	$ 861	$ 628
General partner incentive distribution	9,784	8,094	19,145	15,766
General partner interest in net income attributable to HEP	$ 10,196	$ 8,393	$ 20,006	$ 16,394

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Financial Instruments (Narrative) (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair value inputs, Level 2 [Member]
Debt Instrument [Line Items]
Financial Liabilities Fair Value Disclosure	$ 296,582	$ 292,065
Interest Rate Swap [Member] | Fair value inputs, Level 2 [Member]
Debt Instrument [Line Items]
Assets, Fair Value Disclosure	134	1,019
Financial Liabilities Fair Value Disclosure	707	1,065
6.5% Senior Notes [Member] | Fair value inputs, Level 2 [Member]
Debt Instrument [Line Items]
Financial Liabilities Fair Value Disclosure	295,875	291,000
Carrying Amount [Member]
Debt Instrument [Line Items]
Financial Liabilities Fair Value Disclosure	297,612	297,644
Carrying Amount [Member] | Interest Rate Swap [Member]
Debt Instrument [Line Items]
Assets, Fair Value Disclosure	134	1,019
Financial Liabilities Fair Value Disclosure	707	1,065
Carrying Amount [Member] | 6.5% Senior Notes [Member]
Debt Instrument [Line Items]
Financial Liabilities Fair Value Disclosure	$ 296,905	$ 296,579

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Properties and Equipment (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Properties and equipment, gross	$ 1,325,242		$ 1,280,479
Less accumulated depreciation	324,434		300,000
Properties and equipment, net	1,000,808		980,479
Purchase of equipment	27,500	$ 0
Interest costs, capitalized during period	(612)	(863)
Depreciation	26,000	$ 27,800
Pipelines and terminals [Member]
Property, Plant and Equipment [Line Items]
Properties and equipment, gross	1,180,313		1,137,157
Land and right of way [Member]
Property, Plant and Equipment [Line Items]
Properties and equipment, gross	65,025		64,458
Construction in progress [Member]
Property, Plant and Equipment [Line Items]
Properties and equipment, gross	57,258		56,228
Other Fixed Assets [Member]
Property, Plant and Equipment [Line Items]
Properties and equipment, gross	$ 22,646		$ 22,636

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Description of Business and Presentation of Financial Statements

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Description of Business and Presentation of Financial Statements

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 which is 39% owned (including the 2% general partner interest) by HollyFrontier Corporation (“HFC”) and its subsidiaries. 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 reportable segment which represents the aggregation of our petroleum product and crude pipelines business and terminals, tankage and loading rack facilities operation.

We own and operate petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities that support HFC’s refining and marketing operations in the Mid-Continent, Southwest and Rocky Mountain regions of the United States and Alon USA, Inc.’s (“Alon”) refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), which owns a 427-mile, 12-inch refined products pipeline running from Woods Cross, Utah to Las Vegas, Nevada (the “UNEV Pipeline”), product terminals near Cedar City, Utah and Las Vegas, Nevada and related assets, and a 25% interest in SLC Pipeline LLC, which owns a 95-mile intrastate crude oil pipeline system (the “SLC Pipeline”) that serves refineries in the Salt Lake City, Utah area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons, 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 exposed directly to changes in commodity prices.

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Form 10-K for the year ended December 31, 2014. 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, 2015.

New Accounting Pronouncements

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018. We are evaluating the impact of this standard.

Debt Issuance Costs

In April 2015, an accounting standard update was issued requiring debt issuance costs to be presented as a direct deduction from the carrying amount of the debt liability. The amount of deferred debt issuance costs reported in Long-term assets was $4.7 million and $4.4 million as of June 30, 2015 and December 31, 2014, respectively. This standard will become effective beginning with our 2016 reporting year.

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Transportation Agreements (Details) $ in Thousands	3 Months Ended
	Jun. 30, 2015 USD ($) yr	Dec. 31, 2014 USD ($)
Finite-Lived Intangible Assets, Net [Abstract]
Transportation agreements, gross	$ 134,214	$ 134,164
Less accumulated amortization	56,935	53,461
Transportation agreements, net	$ 77,279	80,703
Alon transportation agreement
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Useful Life (years)	30 years
Finite-Lived Intangible Assets, Useful Life, Initial Term (years) | yr	15
Finite-Lived Intangible Assets, Useful Life, Extension Period (years) | yr	15
Finite-Lived Intangible Assets, Net [Abstract]
Transportation agreements, gross	$ 59,933	59,933
HFC transportation agreement
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Useful Life (years)	15 years
Finite-Lived Intangible Assets, Net [Abstract]
Transportation agreements, gross	$ 74,231	74,231
El Dorado [Member]
Finite-Lived Intangible Assets, Net [Abstract]
Transportation agreements, gross	$ 50	$ 0

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Debt Interest Expense and Other Debt Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Debt Instrument [Line Items]
Interest expense, debt			$ 18,436	$ 19,646
Less capitalized interest			(612)	(863)
Interest expense	$ 9,056	$ 8,329	17,824	18,783
Cash paid for interest			17,280	22,249
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Interest expense, debt			7,488	6,165
Senior Notes [Member] | 6.5% Senior Notes [Member]
Debt Instrument [Line Items]
Interest expense, debt			9,757	9,696
Senior Notes [Member] | 8.25% Senior Notes [Member]
Debt Instrument [Line Items]
Interest expense, debt			0	2,544
Amortization discount and deferred debt issuance costs [Member]
Debt Instrument [Line Items]
Interest expense, debt			930	948
Loan Lending Commitment Arrangement Fees [Member]
Debt Instrument [Line Items]
Interest expense, debt			$ 261	$ 293

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 10,424	$ 2,830
Accounts receivable:
Trade	11,286	6,737
Affiliates	28,758	33,392
Total accounts receivable	40,044	40,129
Prepaid and other current assets	4,738	4,383
Total current assets	55,206	47,342
Properties and equipment, net	1,000,808	980,479
Transportation agreements, net	77,279	80,703
Goodwill	256,498	256,498
Investment in SLC Pipeline	24,280	24,478
Other assets	11,172	12,055
Total assets	1,425,243	1,401,555
Accounts payable:
Trade	8,317	12,642
Affiliates	7,811	5,239
Total accounts payable	16,128	17,881
Accrued interest	6,783	6,615
Deferred revenue	9,940	12,432
Accrued property taxes	4,335	2,703
Other current liabilities	4,826	4,571
Total current liabilities	42,012	44,202
Long-term debt	900,905	867,579
Other long-term liabilities	21,132	18,145
Deferred revenue	35,484	29,392
Class B unit	30,305	26,793
Partners’ equity:
Common unitholders (58,657,048 units issued and outstanding at June 30, 2015 and December 31, 2014	441,224	468,813
General partner interest (2% interest)	(139,711)	(148,405)
Accumulated other comprehensive loss	(573)	(46)
Total partners’ equity	300,940	320,362
Noncontrolling interest	94,465	95,082
Total Equity	395,405	415,444
Total liabilities and equity	$ 1,425,243	$ 1,401,555

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Partners' Equity, Cash Distributions (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Allocations of Quarterly Cash Distributions to General and Limited Partners
Partners' Capital, Distribution Amount Per Share	$ 0.5450		$ 0.5450
Partner Distributions
General partner interest	$ 877	$ 807	$ 1,738	$ 1,597
Incentive Distribution, Distribution	9,784	8,094	19,145	15,766
Total general partner distribution	10,661	8,901	20,883	17,363
Limited partner distribution	31,968	30,209	63,496	59,977
Total regular quarterly cash distribution	$ 42,629	$ 39,110	$ 84,379	$ 77,340
Cash distribution per unit applicable to limited partners	$ 0.5450	$ 0.5150	$ 1.0825	$ 1.0225

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities
Net income	$ 67,974	$ 52,230
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,757	31,470
Gain on sale of assets	(209)	0
Amortization of deferred charges	930	947
Amortization of restricted and performance units	1,762	1,658
Loss on early extinguishment of debt	0	7,677
(Increase) decrease in operating assets:
Accounts receivable – trade	(4,514)	(1,446)
Accounts receivable – affiliates	5,064	1,823
Prepaid and other current assets	(311)	128
Increase (decrease) in operating liabilities:
Accounts payable – trade	(1,610)	1,280
Accounts payable – affiliates	2,573	(4,495)
Accrued interest	168	(3,552)
Deferred revenue	3,600	2,315
Accrued property taxes	1,632	1,912
Other current liabilities	(242)	1,153
Other, net	3,890	(737)
Net cash provided by operating activities	110,464	92,363
Cash flows from investing activities
Additions to properties and equipment	(22,943)	(38,574)
Purchase of equipment	(27,500)	0
Proceeds from sale of assets	965	0
Distributions in excess of equity in earnings of SLC Pipeline	198	105
Net cash used for investing activities	(49,280)	(38,469)
Cash flows from financing activities
Borrowings under credit agreement	254,100	477,100
Repayments of credit agreement borrowings	(221,100)	(297,100)
Redemption of senior notes	0	(156,188)
Distributions to HEP unitholders	(82,614)	(75,577)
Distributions to noncontrolling interests	(2,875)	(2,000)
Purchase of units for incentive grants	(247)	(406)
Other	(854)	(9)
Net cash used for financing activities	(53,590)	(54,180)
Cash and cash equivalents
Increase (decrease) for the period	7,594	(286)
Beginning of period	2,830	6,352
End of period	$ 10,424	$ 6,066

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Employees, Retirement and Incentive Plans Performance Units (Details) - Jun. 30, 2015 - USD ($) $ in Millions	Total	Total
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	$ 2.2	$ 2.2
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Estimated Share Payouts, Outstanding Nonvested Performance Unit Awards Minimum	100.00%	100.00%
Estimated Share Payouts, Outstanding Nonvested Performance Unit Awards Maximum	140.00%	140.00%
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Outstanding at January 1, 2015 (nonvested)		71,245
Vesting and transfer of full ownership to recipients		(11,436)
Outstanding at June 30, 2105 (nonvested)	59,809	59,809
Fair value of vested units transferred to recipients		$ 0.3
Total unrecognized compensation related to nonvested units	$ 0.8	$ 0.8
Weighted average remaining contractual term (years)		1 year 2 months 13 days
Phantom Share Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year
Long-term Incentive Plan [Member] | Executive Officer [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Estimated Share Payouts, Outstanding Nonvested Performance Unit Awards Maximum	150.00%	150.00%
Range of performance units earned, based on performance units granted, minimum (percent)		50.00%
Maximum [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period		3 years

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Properties and Equipment (Tables)

6 Months Ended

Jun. 30, 2015

Property, Plant and Equipment [Abstract]

Properties and Equipment

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

	June 30, 2015		December 31, 2014
	(In thousands)
Pipelines, terminals and tankage	$	1,180,313	$	1,137,157
Land and right of way	65,025		64,458
Construction in progress	57,258		56,228
Other	22,646		22,636
	1,325,242		1,280,479
Less accumulated depreciation	324,434		300,000
	$	1,000,808	$	980,479

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Debt Credit Agreement (Details) - USD ($) $ in Millions	Jun. 30, 2015	Mar. 31, 2015
Debt Instrument [Line Items]
Credit agreement, maximum borrowing capacity	$ 850	$ 650
Credit Agreement [Member]
Debt Instrument [Line Items]
Credit agreement, maximum borrowing capacity	$ 50

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Employees, Retirement and Incentive Plans (Tables)

6 Months Ended

Jun. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Nonvested Restricted Stock Units Activity

A summary of restricted and phantom unit activity and changes during the six months ended June 30, 2015, is presented below:

Restricted and Phantom Units	Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2015 (nonvested)	126,077		$	33.43
Forfeited	(2,849	)	33.57
Outstanding at June 30, 2015 (nonvested)	123,228		$	33.42

Schedule of Nonvested Performance-based Units Activity

A summary of performance unit activity and changes during the six months ended June 30, 2015, is presented below:

Performance Units	Units
Outstanding at January 1, 2015 (nonvested)	71,245
Vesting and transfer of common units to recipients	(11,436	)
Outstanding at June 30, 2015 (nonvested)	59,809

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Consolidated Statement of Partners' Equity - 6 months ended Jun. 30, 2015 - USD ($) $ in Thousands	Total	Common Units	General Partner Interest	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interest
Balance December 31, 2014 at Dec. 31, 2014	$ 415,444	$ 468,813	$ (148,405)	$ (46)	$ 95,082
Increase (Decrease) in Partners' Equity [Roll Forward]
Distributions to HEP unitholders	(82,614)	(62,612)	(20,002)
Distributions to Noncontrolling Interest	(2,875)				(2,875)
Purchase of units for incentive grants	(247)	(247)
Amortization of restricted and performance units	1,762	1,762
Class B unit accretion	(3,512)	(3,442)	(70)
Net income	67,974	36,950	28,766		2,258
Other comprehensive income	(527)			(527)
Balance June 30, 2015 at Jun. 30, 2015	$ 395,405	$ 441,224	$ (139,711)	$ (573)	$ 94,465

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Consolidated Balance Sheets (Parenthetical) - shares	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Partners' Equity:
Common units issued	58,657,048	58,657,048
Common units outstanding	58,657,048	58,657,048
General partner interest	2.00%

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Environmental Loss Contingencies

6 Months Ended

Jun. 30, 2015

Accrual for Environmental Loss Contingencies [Abstract]

Environmental [Text Block]

Environmental

We incurred no environmental expense for the three months ended June 30, 2015, and $0.9 million for environmental remediation obligations for the three months ended June 30, 2014. For the six months ended June 30, 2015 and 2014, we incurred environmental expenses of $4.2 million and $0.7 million, respectively. During the six months ended June 30, 2015, we increased certain environmental cost accruals to reflect revisions to the cost estimates and the time frame for which the related environmental remediation and monitoring activities are expected to occur. The accrued environmental liability reflected in our consolidated balance sheets was $15.3 million and $12.0 million at June 30, 2015 and December 31, 2014, respectively, of which $12.3 million and $8.7 million, respectively, were classified as other long-term liabilities. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. As of June 30, 2015, and December 31, 2014, our accrued environmental liability included $6.6 million and $6.8 million, respectively, for HFC indemnified liabilities. In addition, as of June 30, 2015, and December 31, 2014, $6.6 million and $6.8 million, respectively, was included in other assets representing amounts due from HFC related to indemnifications for environmental remediation liabilities.

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Document Entity Information - Jun. 30, 2015 - shares	Total
Entity Information [Line Items]
Entity Registrant Name	HOLLY ENERGY PARTNERS LP
Entity Central Index Key	0001283140
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding	58,657,048

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Contingencies

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

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

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues:
Affiliates	$ 68,297	$ 64,480	$ 140,552	$ 136,312
Third parties	15,182	10,518	32,683	25,690
Total revenues	83,479	74,998	173,235	162,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	25,289	24,567	53,255	47,379
Depreciation and amortization	15,063	15,882	29,757	31,470
General and administrative	2,696	2,516	5,986	5,667
Total operating costs and expenses	43,048	42,965	88,998	84,516
Operating income	40,431	32,033	84,237	77,486
Other income (expense):
Equity in earnings of SLC Pipeline	631	748	1,365	1,270
Interest expense	(9,056)	(8,329)	(17,824)	(18,783)
Interest income	3	0	3	3
Loss on early extinguishment of debt	0	0	0	(7,677)
Other income	71	26	230	34
Total other income (expense)	(8,351)	(7,555)	(16,226)	(25,153)
Income before income taxes	32,080	24,478	68,011	52,333
State income tax expense (benefit)	64	(28)	(37)	(103)
Net Income	32,144	24,450	67,974	52,230
Allocation of Net Income Attributable to Noncontrolling Interest	(1,743)	(1,416)	(5,770)	(5,053)
Net income attributable to Holly Energy Partners	30,401	23,034	62,204	47,177
General partner interest in net income, including incentive distributions	(10,196)	(8,393)	(20,006)	(16,394)
Limited partners’ interest in net income	$ 20,205	$ 14,641	$ 42,198	$ 30,783
Limited partners’ per unit interest in earnings—basic and diluted:	$ 0.34	$ 0.25	$ 0.71	$ 0.52
Weighted average limited partners’ units outstanding	58,657	58,657	58,657	58,657

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Employees, Retirement and Incentive Plans

6 Months Ended

Jun. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employees, Retirement and Incentive Plans

Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C., an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC. These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $1.7 million and $1.9 million for the three months ended June 30, 2015 and 2014, respectively, and $3.1 million and $3.6 million for the six months ended June 30, 2015 and 2014, respectively.

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

As of June 30, 2015, we have three types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.9 million and $0.8 million for the three months ended June 30, 2015 and 2014, respectively, and $1.6 million for each of the the six months ended June 30, 2015 and 2014. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of June 30, 2015, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 1,537,167 have not yet been granted, assuming no forfeitures of the unvested units and full achievement of goals for the performance units already granted.

Restricted and Phantom Units

Under our Long-Term Incentive Plan, we grant restricted units to non-employee directors and selected employees who perform services for us, with most awards vesting over a period of one to three 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.

In addition, we grant phantom units to certain employees, which vest over a period of one year. Vested units are paid in common units. Full ownership of the units does not transfer to the recipient until the units vest, and the recipients do not have voting or distribution rights on these units until they vest.

The fair value of each restricted unit and phantom 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 and phantom unit activity and changes during the six months ended June 30, 2015, is presented below:

Restricted and Phantom Units	Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2015 (nonvested)	126,077		$	33.43
Forfeited	(2,849	)	33.57
Outstanding at June 30, 2015 (nonvested)	123,228		$	33.42

As of June 30, 2015, there was $1.7 million of total unrecognized compensation expense related to nonvested restricted unit and phantom unit grants, which is expected to be recognized over a weighted-average period of 1.2 years.

Performance Units

Under our Long-Term Incentive Plan, we grant performance units to selected executives who perform services for us. Performance units granted 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. As of June 30, 2015, estimated unit payouts for outstanding nonvested performance unit awards ranged between 100% and 140%.

No performance units were granted during the six months ended June 30, 2015. Performance units granted in 2014 vest over a three-year performance period ending December 31, 2017. These performance units granted 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 target number of performance units granted. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the common units from the date of grant.

A summary of performance unit activity and changes during the six months ended June 30, 2015, is presented below:

Performance Units	Units
Outstanding at January 1, 2015 (nonvested)	71,245
Vesting and transfer of common units to recipients	(11,436	)
Outstanding at June 30, 2015 (nonvested)	59,809

The grant-date fair value of performance units vested and transferred to recipients during the six months ended June 30, 2015, was $0.3 million. Based on the weighted average fair value of performance units outstanding at June 30, 2015, of $2.2 million, there was $0.8 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.2 years.

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Transportation Agreements

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Transportation Agreements

Transportation Agreements

Our transportation agreements represent a portion of the total purchase price of certain assets acquired from Alon in 2005 and from HFC in 2008. The Alon agreement is being amortized over 30 years ending 2035 (the initial 15-year term of the agreement plus an expected 15-year extension period), and the HFC agreement is being amortized over 15 years ending 2023 (the term of the HFC agreement).

The carrying amounts of our transportation agreements are as follows:

	June 30, 2015		December 31, 2014
	(In thousands)
Alon transportation agreement	$	59,933	$	59,933
HFC transportation agreement	74,231		74,231
Other	50		—
	134,214		134,164
Less accumulated amortization	56,935		53,461
	$	77,279	$	80,703

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

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Transportation Agreements (Tables)

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets by Major Class

The carrying amounts of our transportation agreements are as follows:

	June 30, 2015		December 31, 2014
	(In thousands)
Alon transportation agreement	$	59,933	$	59,933
HFC transportation agreement	74,231		74,231
Other	50		—
	134,214		134,164
Less accumulated amortization	56,935		53,461
	$	77,279	$	80,703

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Supplemental Guarantor / Non-Guarantor Financial Information

6 Months Ended

Jun. 30, 2015

Supplemental Guarantor / Non-Guarantor Financial Information [Abstract]

Supplemental Guarantor / Non-Guarantor Financial Information

Supplemental Guarantor/Non-Guarantor Financial Information

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

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

Condensed Consolidating Balance Sheet

June 30, 2015	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	7,350	$	3,074	$	—		$	10,424
Accounts receivable	2		35,771		4,442		(171		)	40,044
Prepaid and other current assets	82		3,395		1,261		—			4,738
Total current assets	84		46,516		8,777		(171		)	55,206
Properties and equipment, net	—		624,509		376,299		—			1,000,808
Investment in subsidiaries	603,118		283,393		—		(886,511		)	—
Transportation agreements, net	—		77,279		—		—			77,279
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,280		—		—			24,280
Other assets	1,344		9,828		—		—			11,172
Total assets	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,343	$	956	$	(171	)	$	16,128
Accrued interest	6,500		283		—		—			6,783
Deferred revenue	—		6,440		3,500		—			9,940
Accrued property taxes	—		1,739		2,596		—			4,335
Other current liabilities	24		4,801		1		—			4,826
Total current liabilities	6,524		28,606		7,053		(171		)	42,012
Long-term debt	296,905		604,000		—		—			900,905
Other long-term liabilities	177		20,790		165		—			21,132
Deferred revenue	—		35,484		—		—			35,484
Class B unit	—		30,305		—		—			30,305
Equity - partners	300,940		603,118		377,858		(980,976		)	300,940
Equity - noncontrolling interest	—		—		—		94,465			94,465
Total liabilities and partners’ equity	$	604,546	$	1,322,303	$	385,076	$	(886,682	)	$	1,425,243

Condensed Consolidating Balance Sheet

December 31, 2014	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	2	$	2,828	$	—	$	—		$	2,830
Accounts receivable	—		34,274		6,044		(189		)	40,129
Prepaid and other current assets	212		2,856		1,315		—			4,383
Total current assets	214		39,958		7,359		(189		)	47,342
Properties and equipment, net	—		596,988		383,491		—			980,479
Investment in subsidiaries	622,100		285,247		—		(907,347		)	—
Transportation agreements, net	—		80,703		—		—			80,703
Goodwill	—		256,498		—		—			256,498
Investment in SLC Pipeline	—		24,478		—		—			24,478
Other assets	1,319		10,736		—		—			12,055
Total assets	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555
LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	15,495	$	2,575	$	(189	)	$	17,881
Accrued interest	6,500		115		—		—			6,615
Deferred revenue	—		5,672		6,760		—			12,432
Accrued property taxes	—		1,902		801		—			2,703
Other current liabilities	45		4,408		118		—			4,571
Total current liabilities	6,545		27,592		10,254		(189		)	44,202
Long-term debt	296,579		571,000		—		—			867,579
Other long-term liabilities	147		17,731		267		—			18,145
Deferred revenue	—		29,392		—		—			29,392
Class B unit	—		26,793		—		—			26,793
Equity - partners	320,362		622,100		380,329		(1,002,429		)	320,362
Equity - noncontrolling interest	—		—		—		95,082			95,082
Total liabilities and partners’ equity	$	623,633	$	1,294,608	$	390,850	$	(907,536	)	$	1,401,555

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	64,727		$	3,545		$	25		$	68,297
Third parties	—			11,895			3,287			—			15,182
	—			76,622			6,832			25			83,479
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,111			3,153			25			25,289
Depreciation and amortization				11,316			3,747			—			15,063
General and administrative	637			2,059			—			—			2,696
	637			35,486			6,900			25			43,048
Operating income (loss)	(637		)	41,136			(68		)	—			40,431
Equity in earnings (loss) of subsidiaries	36,111			(88		)	—			(36,023		)	—
Equity in earnings of SLC Pipeline	—			631			—			—			631
Interest expense	(5,073		)	(3,983		)	—			—			(9,056		)
Interest income	—			3			—			—			3
Other income (expense)	—			120			(49		)	—			71
	31,038			(3,317		)	(49		)	(36,023		)	(8,351		)
Income (loss) before income taxes	30,401			37,819			(117		)	(36,023		)	32,080
State income tax benefit	—			64			—			—			64
Net income (loss)	30,401			37,883			(117		)	(36,023		)	32,144
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,743		)	(1,743		)
Net income (loss) attributable to Holly Energy Partners	30,401			37,883			(117		)	(37,766		)	30,401
Other comprehensive income (loss)	222			222			—			(222		)	222
Comprehensive income (loss)	$	30,623		$	38,105		$	(117	)	$	(37,988	)	$	30,623

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	61,427		$	3,359		$	(306	)	$	64,480
Third parties	—			8,533			1,985			—			10,518
	—			69,960			5,344			(306		)	74,998
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			22,179			2,694			(306		)	24,567
Depreciation and amortization	—			12,288			3,594			—			15,882
General and administrative	585			1,931			—			—			2,516
	585			36,398			6,288			(306		)	42,965
Operating income (loss)	(585		)	33,562			(944		)	—			32,033
Equity in earnings (loss) of subsidiaries	28,631			(708		)	—			(27,923		)	—
Equity in earnings of SLC Pipeline	—			748			—			—			748
Interest expense	(5,012		)	(3,317		)	—			—			(8,329		)
Other income	—			26			—			—			26
	23,619			(3,251		)	—			(27,923		)	(7,555		)
Income (loss) before income taxes	23,034			30,311			(944		)	(27,923		)	24,478
State income tax expense	—			(28		)	—			—			(28		)
Net income (loss)	23,034			30,283			(944		)	(27,923		)	24,450
Allocation of net income attributable to noncontrolling interests	—			—			—			(1,416		)	(1,416		)
Net income (loss) attributable to Holly Energy Partners	23,034			30,283			(944		)	(29,339		)	23,034
Other comprehensive income (loss)	(746		)	(746		)	—			746			(746		)
Comprehensive income (loss)	$	22,288		$	29,537		$	(944	)	$	(28,593	)	$	22,288

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	127,783		$	12,769		$	—		$	140,552
Third parties	—			23,282			9,401			—			32,683
	—			151,065			22,170			—			173,235
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			47,642			5,613			—			53,255
Depreciation and amortization	—			22,278			7,479			—			29,757
General and administrative	1,700			4,286			—			—			5,986
	1,700			74,206			13,092			—			88,998
Operating income (loss)	(1,700		)	76,859			9,078			—			84,237
Equity in earnings (loss) of subsidiaries	74,044			6,772			—			(80,816		)	—
Equity in earnings of SLC Pipeline	—			1,365			—			—			1,365
Interest expense	(10,140		)	(7,684		)	—			—			(17,824		)
Interest income	—			3			—			—			3
Other income (expense)	—			279			(49		)	—			230
	63,904			735			(49		)	(80,816		)	(16,226		)
Income (loss) before income taxes	62,204			77,594			9,029			(80,816		)	68,011
State income tax expense	—			(37		)	—			—			(37		)
Net income (loss)	62,204			77,557			9,029			(80,816		)	67,974
Allocation of net income attributable to noncontrolling interests	—			—			—			(5,770		)	(5,770		)
Net income (loss) attributable to Holly Energy Partners	62,204			77,557			9,029			(86,586		)	62,204
Other comprehensive income (loss)	(527		)	(527		)	—			527			(527		)
Comprehensive income (loss)	$	61,677		$	77,030		$	9,029		$	(86,059	)	$	61,677

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries		Eliminations			Consolidated
	(In thousands)
Revenues:
Affiliates	$	—		$	123,042		$	13,883	$	(613	)	$	136,312
Third parties	—			19,614			6,076		—			25,690
	—			142,656			19,959		(613		)	162,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—			42,330			5,662		(613		)	47,379
Depreciation and amortization	—			24,281			7,189		—			31,470
General and administrative	1,643			4,024			—		—			5,667
	1,643			70,635			12,851		(613		)	84,516
Operating income (loss)	(1,643		)	72,021			7,108		—			77,486
Equity in earnings (loss) of subsidiaries	69,195			5,331			—		(74,526		)	—
Equity in earnings of SLC Pipeline	—			1,270			—		—			1,270
Interest expense	(12,698		)	(6,085		)	—		—			(18,783		)
Interest income	—			3			—		—			3
Loss on early extinguishment of debt	(7,677		)	—			—		—			(7,677		)
Other income	—			34			—		—			34
	48,820			553			—		(74,526		)	(25,153		)
Income (loss) before income taxes	47,177			72,574			7,108		(74,526		)	52,333
State income tax expense	—			(103		)	—		—			(103		)
Net income (loss)	47,177			72,471			7,108		(74,526		)	52,230
Allocation of net income attributable to noncontrolling interests	—			—			—		(5,053		)	(5,053		)
Net income (loss) attributable to Holly Energy Partners	47,177			72,471			7,108		(79,579		)	47,177
Other comprehensive income (loss)	(651		)	(651		)	—		651			(651		)
Comprehensive income (loss)	$	46,526		$	71,820		$	7,108	$	(78,928	)	$	46,526

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2015	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(9,639	)	$	111,517		$	15,358		$	(6,772	)	$	110,464
Cash flows from investing activities
Additions to properties and equipment	—			(22,159		)	(784		)	—			(22,943		)
Purchase of El Dorado crude tanks	—			(27,500		)	—			—			(27,500		)
Proceeds from sale of assets	—			965			—			—			965
Distributions from UNEV	—			1,853			—			(1,853		)	—
Distributions in excess of equity in earnings in SLC Pipeline	—			198			—			—			198
	—			(46,643		)	(784		)	(1,853		)	(49,280		)
Cash flows from financing activities
Net borrowings under credit agreement	—			33,000			—			—			33,000
Net intercompany financing activities	92,498			(92,498		)	—			—			—
Distributions to HEP unitholders	(82,614		)	—			—			—			(82,614		)
Distributions to noncontrolling interests	—			—			(11,500		)	8,625			(2,875		)
Purchase of units for incentive grants	(247		)	—			—			—			(247		)
Other	—			(854		)	—			—			(854		)
	9,637			(60,352		)	(11,500		)	8,625			(53,590		)
Cash and cash equivalents
Increase (decrease) for the period	(2		)	4,522			3,074			—			7,594
Beginning of period	2			2,828			—			—			2,830
End of period	$	—		$	7,350		$	3,074		$	—		$	10,424

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2014	Parent			Guarantor Restricted Subsidiaries			Non-Guarantor Non-Restricted Subsidiaries			Eliminations			Consolidated
	(In thousands)
Cash flows from operating activities	$	(15,764	)	$	96,308		$	11,819		$	—		$	92,363
Cash flows from investing activities
Additions to properties and equipment	—			(33,831		)	(4,743		)	—			(38,574		)
Distributions from noncontrolling interest	—			6,000			—			(6,000		)	—
Distributions in excess of equity in earnings of SLC Pipeline	—			105			—			—			105
	—			(27,726		)	(4,743		)	(6,000		)	(38,469		)
Cash flows from financing activities
Net repayments under credit agreement	—			180,000			—			—			180,000
Net intercompany financing activities	247,935			(247,935		)	—			—			—
Redemption of senior notes	(156,188		)	—			—			—			(156,188		)
Distributions to HEP unitholders	(75,577		)	—			—			—			(75,577		)
Distributions to noncontrolling interests	—			—			(8,000		)	6,000			(2,000		)
Purchase of units for incentive grants	(406		)	—			—			—			(406		)
Other	—			(9		)	—			—			(9		)
	15,764			(67,944		)	(8,000		)	6,000			(54,180		)
Cash and cash equivalents
Increase (decrease) for the period	—			638			(924		)	—			(286		)
Beginning of period	2			1,447			4,903			—			6,352
End of period	$	2		$	2,085		$	3,979		$	—		$	6,066

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Related Party Transactions

6 Months Ended

Jun. 30, 2015

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

We serve HFC's refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 to 2026. Under these agreements, HFC agrees 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 are subject to annual tariff rate adjustments on July 1st each year based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of June 30, 2015, these agreements with HFC will result in minimum annual payments to us of $236.6 million.

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

Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee (currently $2.4 million) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:

• Revenues received from HFC were $68.3 million and $64.5 million for the three months ended June 30, 2015 and 2014, respectively, and $140.6 million and $136.3 million for the six months ended June 30, 2015 and 2014, respectively.

• HFC charged us general and administrative services under the Omnibus Agreement of $0.6 million for each of the three months ended June 30, 2015 and 2014, and $1.2 million for each of the six months ended June 30, 2015 and 2014.

• We reimbursed HFC for costs of employees supporting our operations of $7.5 million and $9.6 million for the three months ended June 30, 2015 and 2014, respectively, and $16.2 million and $18.8 million for the six months ended June 30, 2015 and 2014, respectively.

• HFC reimbursed us $4.4 million and $3.9 million for the three months ended June 30, 2015 and 2014, respectively, for certain reimbursable costs and capital projects and $7.0 million and $8.4 million for the six months ended June 30, 2015 and 2014, respectively.

• We distributed $22.3 million and $19.8 million for the three months ended June 30, 2015 and 2014, respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions. For the six months ended June 30, 2015 and 2014, we distributed $43.9 million and $39.0 million, respectively

• Accounts receivable from HFC were $28.8 million and $33.4 million at June 30, 2015, and December 31, 2014, respectively.

• Accounts payable to HFC were $7.8 million and $5.2 million at June 30, 2015, and December 31, 2014, respectively.

• Revenues for the six months ended June 30, 2015 and 2014, include $6.0 million and $7.6 million, respectively, of shortfall payments billed in 2014 and 2013, as HFC did not exceed its minimum volume commitment in any of the subsequent four quarters. Deferred revenue in the consolidated balance sheets at June 30, 2015, and December 31, 2014, includes $5.4 million and $7.3 million, respectively, relating to certain shortfall billings. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $5.4 million deferred at June 30, 2015.

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Debt

6 Months Ended

Jun. 30, 2015

Debt Instruments [Abstract]

Debt

Debt

Credit Agreement

In April 2015, we amended our senior secured revolving credit facility (the “Credit Agreement”) increasing the size of the Credit Agreement from $650 million to $850 million. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 million sub-limit.

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. (“HEP Logistics”), our general partner, and is guaranteed by our material, wholly-owned subsidiaries. Any recourse to HEP Logistics 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.

The Credit Agreement imposes certain requirements on us with which we are currently in compliance, 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 into a merger or consolidation, or sell assets; and covenants that require maintenance of a specified EBITDA to interest expense ratio, total debt to EBITDA ratio and senior 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.

Senior Notes

We have $300 million in aggregate principal amount outstanding of 6.5% senior notes (the "6.5% Senior Notes") maturing March 2020. The 6.5% Senior Notes are unsecured and impose certain restrictive covenants, with which we are currently in compliance, 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 6.5% Senior Notes are rated investment grade by both Moody’s and Standard & Poor’s and no default or event of default exists, we will not be subject to many of the foregoing covenants. Additionally, we have certain redemption rights at varying premiums over face value under the 6.5% Senior Notes.

In March 2014, we redeemed the $150 million aggregate principal amount of 8.25% Senior Notes maturing March 2018 at a redemption cost of $156.2 million, at which time we recognized a $7.7 million early extinguishment loss consisting of a $6.2 million debt redemption premium and unamortized discount and financing costs of $1.5 million. We funded the redemption with borrowings under our Credit Agreement.

Indebtedness under the 6.5% Senior Notes involves recourse to HEP Logistics, our general partner, and is guaranteed by our material, wholly-owned subsidiaries. However, any recourse to HEP Logistics would be limited to the extent of its assets, which, other than its investment in us, are not significant.

Long-term Debt

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

	June 30, 2015			December 31, 2014
	(In thousands)
Credit Agreement	$	604,000		$	571,000
6.5% Senior Notes
Principal	300,000			300,000
Unamortized discount	(3,095		)	(3,421		)
	296,905			296,579
Total long-term debt	$	900,905		$	867,579

Interest Rate Risk Management

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

As of June 30, 2015, we have three interest rate swaps that hedge our exposure to the cash flow risk caused by the effects of LIBOR changes on $305 million of Credit Agreement advances. Our first interest rate swap effectively converts $155 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.99%. This swap contract matures in February 2016. We have two additional interest rate swaps with identical terms which effectively convert $150 million of our LIBOR based debt to fixed rate debt having an interest rate of 0.74% plus an applicable margin of 2.00% as of June 30, 2015, which equaled an effective interest rate of 2.74%. Both of these swap contracts mature in July 2017.

We have designated these interest rate swaps as cash flow hedges. Based on our assessment of effectiveness using the change in variable cash flows method, we have determined that these interest rate swaps are effective in offsetting the variability in interest payments on $305 million of our variable rate debt resulting from changes in LIBOR. Under hedge accounting, we adjust our cash flow hedges on a quarterly basis to their fair values with the offsetting fair value adjustments to accumulated other comprehensive income (loss). 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 swaps against the expected future interest payments on $305 million of our variable rate debt. Any ineffectiveness is recorded directly to interest expense. As of June 30, 2015, we had no ineffectiveness on our cash flow hedges.

At June 30, 2015, we have accumulated other comprehensive loss of $0.6 million that relates to our current cash flow hedging instruments. Approximately $0.6 million will be transferred from accumulated other comprehensive loss into interest expense as interest is paid on the underlying swap agreement over the next twelve-month period, assuming interest rates remain unchanged.

Additional information on our interest rate swaps is as follows:

Derivative Instrument	Balance Sheet Location	Fair Value			Location of Offsetting Balance	Offsetting Amount
	(In thousands)
June 30, 2015
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other current   liabilities	$	(707	)	Accumulated other     comprehensive loss	$	(707	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	134			Accumulated other     comprehensive income	134
		$	(573	)		$	(573	)
December 31, 2014
Interest rate swaps designated as cash flow hedging instrument:
Variable-to-fixed interest rate swap contract ($155 million of LIBOR-based debt interest)	Other long-term   liabilities	$	(1,065	)	Accumulated other     comprehensive loss	$	(1,065	)
Variable-to-fixed interest rate swap contracts ($150 million of LIBOR-based debt interest)	Other long-term   assets	1,019			Accumulated other     comprehensive income	1,019
		$	(46	)		$	(46	)

Interest Expense and Other Debt Information

Interest expense consists of the following components:

	Six Months Ended June 30,
	2015		2014
	(In thousands)
Interest on outstanding debt:
Credit Agreement, net of interest on interest rate swaps	$	7,488	$	6,165
6.5% Senior Notes	9,757		9,696
8.25% Senior Notes	—		2,544
Amortization of discount and deferred debt issuance costs	930		948
Commitment fees	261		293
Total interest incurred	18,436		19,646
Less capitalized interest	612		863
Net interest expense	$	17,824	$	18,783
Cash paid for interest	$	17,280	$	22,249

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Significant Customers

6 Months Ended

Jun. 30, 2015

Risks and Uncertainties [Abstract]

Significant Customers

Significant Customers

All revenues are domestic revenues, of which 92% are currently generated from our two largest customers: HFC and Alon. The vast majority of our revenues are derived from activities conducted in the southwest United States.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
HFC	82	%	86	%	81	%	84	%
Alon	10	%	7	%	10	%	9	%

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Partners' Equity

6 Months Ended

Jun. 30, 2015

Partners' Capital [Abstract]

Partners' Equity

Partners’ Equity

As of June 30, 2015, HFC held 22,380,030 of our common units and the 2% general partner interest, which together constituted a 39% ownership interest in us.

Allocations of Net Income

Net income attributable to HEP is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions 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 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 for the periods presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
General partner interest in net income	$	412	$	299	$	861	$	628
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner interest in net income	$	10,196	$	8,393	$	20,006	$	16,394

In addition to the allocation of net income as presented above, the consolidated statement of partners equity for the six months ended June 30, 2015, reflects a cumulative revision of net income allocations between the general partnership interest and common units of approximately $8.8 million for net income related to years ended 2014 and prior.  This revision had no impact on historical limited partners’ per unit interest in earnings.

Cash Distributions

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

On July 23, 2015, we announced our cash distribution for the second quarter of 2015 of $0.5450 per unit. The distribution is payable on all common and general partner units and will be paid August 14, 2015, to all unitholders of record on August 3, 2015.

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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands, except per unit data)
General partner interest in distribution	$	877	$	807	$	1,738	$	1,597
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner distribution	10,661		8,901		20,883		17,363
Limited partner distribution	31,968		30,209		63,496		59,977
Total regular quarterly cash distribution	$	42,629	$	39,110	$	84,379	$	77,340
Cash distribution per unit applicable to limited partners	$	0.5450	$	0.5150	$	1.0825	$	1.0225

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

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Employees, Retirement and Incentive Plans Restricted Units (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year
Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years
Phantom Share Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 1.7	$ 1.7
Weighted average remaining contractual term (years)		1 year 2 months 13 days
Nonvested restricted units outstanding	123,228	123,228	126,077
Weighted average grant date fair value	$ 33.42	$ 33.42	$ 33.43
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Forfeitures		(2,849)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value		$ 33.57

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Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Financial Instruments Measured on Recurring Basis

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

		June 30, 2015				December 31, 2014
Financial Instrument	Fair Value Input Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(In thousands)
Assets:
Interest rate swaps	Level 2	$	134	$	134	$	1,019	$	1,019
Liabilities:
6.5% Senior notes	Level 2	$	296,905	$	295,875	$	296,579	$	291,000
Interest rate swaps	Level 2	707		707		1,065		1,065
		$	297,612	$	296,582	$	297,644	$	292,065

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Significant Customers (Tables)

6 Months Ended

Jun. 30, 2015

Risks and Uncertainties [Abstract]

Schedules of Concentration of Risk, by Risk Factor

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
HFC	82	%	86	%	81	%	84	%
Alon	10	%	7	%	10	%	9	%

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Supplemental Guarantor / Non-Guarantor Financial Information Condensed Consolidating Statement of Cash Flows (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Condensed Financial Statements, Captions [Line Items]
Net cash provided by operating activities	$ 110,464	$ 92,363
Cash flows from investing activities
Additions to properties and equipment	(22,943)	(38,574)
Purchase of equipment	27,500	0
Proceeds from sale of assets	965	0
Proceeds from Noncontrolling Interests	0	0
Distributions in excess of equity in earnings of SLC Pipeline	198	105
Net Cash Provided by (Used in) Investing Activities	(49,280)	(38,469)
Proceeds from (Repayments of) Lines of Credit	33,000	180,000
Cash flows from financing activities
Net Intercompany Financing Activities	0	0
Proceeds from issuance of common units		(156,188)
Redemption of senior notes	0	(156,188)
Distributions to HEP unitholders	(82,614)	(75,577)
Distributions to noncontrolling interests	(2,875)	(2,000)
Purchase of units for incentive grants	(247)	(406)
Other	(854)	(9)
Net cash used for financing activities	(53,590)	(54,180)
Increase (decrease) for the period	7,594	(286)
Beginning of period	2,830	6,352
End of period	10,424	6,066
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Net cash provided by operating activities	(9,639)	(15,764)
Cash flows from investing activities
Additions to properties and equipment	0	0
Purchase of equipment	0
Proceeds from sale of assets	0
Proceeds from Noncontrolling Interests	0	0
Distributions in excess of equity in earnings of SLC Pipeline	0	0
Net Cash Provided by (Used in) Investing Activities	0	0
Proceeds from (Repayments of) Lines of Credit	0	0
Cash flows from financing activities
Net Intercompany Financing Activities	92,498	247,935
Proceeds from issuance of common units		(156,188)
Distributions to HEP unitholders	(82,614)	(75,577)
Distributions to noncontrolling interests	0	0
Purchase of units for incentive grants	(247)	(406)
Other	0	0
Net cash used for financing activities	9,637	15,764
Increase (decrease) for the period	(2)	0
Beginning of period	2	2
End of period	0	2
Guarantor Subsidiaries [Member]
Condensed Financial Statements, Captions [Line Items]
Net cash provided by operating activities	111,517	96,308
Cash flows from investing activities
Additions to properties and equipment	(22,159)	(33,831)
Purchase of equipment	27,500
Proceeds from sale of assets	965
Proceeds from Noncontrolling Interests	1,853	6,000
Distributions in excess of equity in earnings of SLC Pipeline	198	105
Net Cash Provided by (Used in) Investing Activities	(46,643)	(27,726)
Proceeds from (Repayments of) Lines of Credit	33,000	180,000
Cash flows from financing activities
Net Intercompany Financing Activities	(92,498)	(247,935)
Proceeds from issuance of common units		0
Distributions to HEP unitholders	0	0
Distributions to noncontrolling interests	0	0
Purchase of units for incentive grants	0	0
Other	(854)	(9)
Net cash used for financing activities	(60,352)	(67,944)
Increase (decrease) for the period	4,522	638
Beginning of period	2,828	1,447
End of period	7,350	2,085
Non-Guarantor Subsidiaries [Member]
Condensed Financial Statements, Captions [Line Items]
Net cash provided by operating activities	15,358	11,819
Cash flows from investing activities
Additions to properties and equipment	(784)	(4,743)
Purchase of equipment	0
Proceeds from sale of assets	0
Proceeds from Noncontrolling Interests	0	0
Distributions in excess of equity in earnings of SLC Pipeline	0	0
Net Cash Provided by (Used in) Investing Activities	(784)	(4,743)
Proceeds from (Repayments of) Lines of Credit	0	0
Cash flows from financing activities
Net Intercompany Financing Activities	0	0
Proceeds from issuance of common units		0
Distributions to HEP unitholders	0	0
Distributions to noncontrolling interests	(11,500)	8,000
Purchase of units for incentive grants	0	0
Other	0	0
Net cash used for financing activities	(11,500)	(8,000)
Increase (decrease) for the period	3,074	(924)
Beginning of period	0	4,903
End of period	3,074	3,979
Eliminations [Member]
Condensed Financial Statements, Captions [Line Items]
Net cash provided by operating activities	(6,772)	0
Cash flows from investing activities
Additions to properties and equipment	0	0
Purchase of equipment	0
Proceeds from sale of assets	0
Proceeds from Noncontrolling Interests	(1,853)	(6,000)
Distributions in excess of equity in earnings of SLC Pipeline	0	0
Net Cash Provided by (Used in) Investing Activities	(1,853)	(6,000)
Proceeds from (Repayments of) Lines of Credit	0	0
Cash flows from financing activities
Net Intercompany Financing Activities	0	0
Proceeds from issuance of common units		0
Distributions to HEP unitholders	0	0
Distributions to noncontrolling interests	(8,625)	(6,000)
Purchase of units for incentive grants	0	0
Other	0	0
Net cash used for financing activities	8,625	6,000
Increase (decrease) for the period	0	0
Beginning of period	0	0
End of period	$ 0	$ 0

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Significant Customers (Details) - Customers	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
HFC [Member]
Revenue, Major Customer [Line Items]
Concentration risk, percentage	82.00%	86.00%	81.00%	84.00%
Alon [Member]
Revenue, Major Customer [Line Items]
Concentration risk, percentage	10.00%	7.00%	10.00%	9.00%
Sales Revenue, Net [Member]
Revenue, Major Customer [Line Items]
Concentration risk, percentage			92.10%
Concentration risk, number of significant customers			2

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Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Net income	$ 32,144	$ 24,450	$ 67,974	$ 52,230
Other comprehensive income:
Change in fair value of cash flow hedging instruments	(306)	(1,299)	(1,586)	(1,742)
Reclassification adjustment to net income on partial settlement of cash flow hedge	528	553	1,059	1,091
Other comprehensive income (loss)	222	(746)	(527)	(651)
Comprehensive income before noncontrolling interest	32,366	23,704	67,447	51,579
Allocation of comprehensive income to noncontrolling interests	(1,743)	(1,416)	(5,770)	(5,053)
Comprehensive income attributable to Holly Energy Partners	$ 30,623	$ 22,288	$ 61,677	$ 46,526

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Properties and Equipment

6 Months Ended

Jun. 30, 2015

Property, Plant and Equipment [Abstract]

Properties and Equipment

Properties and Equipment

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

	June 30, 2015		December 31, 2014
	(In thousands)
Pipelines, terminals and tankage	$	1,180,313	$	1,137,157
Land and right of way	65,025		64,458
Construction in progress	57,258		56,228
Other	22,646		22,636
	1,325,242		1,280,479
Less accumulated depreciation	324,434		300,000
	$	1,000,808	$	980,479

On March 6, 2015, we completed the acquisition of an existing crude tank farm adjacent to HFC's El Dorado Refinery from an unrelated third-party for $27.5 million in cash. We recorded the assets acquired and liabilities assumed at their fair values at the date of acquisition based on preliminary valuations. Substantially all of the purchase price was allocated to properties and equipment and no goodwill has been recorded. We expect to finalize the purchase price allocation during the third quarter of 2015. HFC is the main customer of this crude tank farm.

We capitalized $0.6 million and $0.9 million in interest attributable to construction projects during the six months ended June 30, 2015 and 2014, respectively.

Depreciation expense was $26.0 million and $27.8 million for the six months ended June 30, 2015 and 2014, respectively.

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Partners' Equity (Tables)

6 Months Ended

Jun. 30, 2015

Partners' Capital [Abstract]

Schedule of Allocation of General Partner Interest in Net Income

The following table presents the allocation of the general partner interest in net income for the periods presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands)
General partner interest in net income	$	412	$	299	$	861	$	628
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner interest in net income	$	10,196	$	8,393	$	20,006	$	16,394

Schedule of Distributions Made to Members or Limited Partners

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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(In thousands, except per unit data)
General partner interest in distribution	$	877	$	807	$	1,738	$	1,597
General partner incentive distribution	9,784		8,094		19,145		15,766
Total general partner distribution	10,661		8,901		20,883		17,363
Limited partner distribution	31,968		30,209		63,496		59,977
Total regular quarterly cash distribution	$	42,629	$	39,110	$	84,379	$	77,340
Cash distribution per unit applicable to limited partners	$	0.5450	$	0.5150	$	1.0825	$	1.0225

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Debt Long-Term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Credit Agreement	$ 604,000	$ 571,000
Total long-term debt	900,905	867,579
6.5% Senior Notes [Member]
Debt Instrument [Line Items]
Principal	300,000	300,000
Unamortized discount	(3,095)	(3,421)
Senior Notes	$ 296,905	$ 296,579

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Description of Business and Presentation of Financial Statements Accounting Policy Descriptions (Policies)

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements

Revenue Recognition

In May 2014, an accounting standard update was issued requiring revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the expected consideration for these goods or services. This standard has an effective date of January 1, 2018. We are evaluating the impact of this standard.

Debt Issuance Costs

In April 2015, an accounting standard update was issued requiring debt issuance costs to be presented as a direct deduction from the carrying amount of the debt liability. The amount of deferred debt issuance costs reported in Long-term assets was $4.7 million and $4.4 million as of June 30, 2015 and December 31, 2014, respectively. This standard will become effective beginning with our 2016 reporting year.