10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ______________________________________________________________________________________

FORM 10-Q

 ______________________________________________________________________________________

(Mark One)

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

For the quarterly period ended September 30, 2021

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)

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

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

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

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

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

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

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

The number of the registrant’s outstanding common units at October 29, 2021, was 105,440,201.

Table of 19,

HOLLY ENERGY PARTNERS, L.P.

INDEX

	FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION			5
	Item 1.	Financial Statements (Unaudited)	5
		Consolidated Balance Sheets	5
		Consolidated Statements of Income	6
		Consolidated Statements of Cash Flows	7
		Consolidated Statements of Equity	8
		Notes to Consolidated Financial Statements	10
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
	Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION			52
	Item 1.	Legal Proceedings	52
	Item 1A.	Risk Factors	52
	Item 6.	Exhibits	53
		Index to Exhibits	54
		SIGNATURES	56

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Table of 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, statements regarding funding of capital expenditures and distributions, distributable cash flow coverage and leverage targets, and statements 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 are intended to identify forward-looking statements. 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:

•the demand for and supply of crude oil and refined products, including uncertainty regarding the effects of the continuing COVID-19 pandemic on future demand for refined petroleum products in markets we serve;

•(i) our ability to successfully close the Sinclair acquisition, which requires certain regulatory approvals (including clearance by antitrust authorities necessary to complete the Sinclair acquisition on the terms and timeline desired); (ii) disruption the Sinclair acquisition may cause to customers, vendors, business partners and our ongoing business; (iii) once closed, our ability to integrate the operations of Sinclair with our existing operations and fully realize the expected synergies of the Sinclair acquisition on the expected timeline; and (iv) the cost and potential for delay in closing as a result of litigation against us or HollyFrontier Corporation (“HFC”) challenging the Sinclair transactions;

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

•the economic viability of HFC, our other customers and our joint ventures’ other customers, including any refusal or inability of our or our joint ventures’ customers or counterparties to perform their obligations under their contracts;

•the demand for refined petroleum products in the 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 temporary or permanent reductions in production or shutdowns at refineries utilizing our pipelines, terminal facilities and refinery processing units, due to reasons such as infection in the workforce, in response to reductions in demand or lower gross margins due to the economic impact of the COVID-19 pandemic, and any potential asset impairments resulting from such actions;

•the effects of current and future government regulations and policies, including the effects of current and future restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

•delay by government authorities in issuing permits necessary for our business or our capital projects;

•our and our joint venture partners’ ability to complete and maintain operational efficiency in carrying out routine operations and capital construction projects;

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

•general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States;

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

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Table of 19,

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

Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Form 10-Q, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and in this Quarterly Report on Form 10-Q, and in connection with the discussion in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included in this Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Table of 19,

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (Cushing Connect VIEs: $7,472 and $18,259, respectively)	$	12,816	$	21,990
Accounts receivable:
Trade	12,121		14,543
Affiliates	41,507		47,972
	53,628		62,515
Prepaid and other current assets	8,174		9,487
Total current assets	74,618		93,992
Properties and equipment, net (Cushing Connect VIEs: $0 and $47,801, respectively)	1,335,042		1,450,685
Operating lease right-of-use assets, net	2,501		2,979
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	306,071		166,316
Intangible assets, net	76,809		87,315
Goodwill	223,650		234,684
Equity method investments (Cushing Connect VIEs: $37,691 and $39,456, respectively)	117,027		120,544
Other assets	16,858		11,050
Total assets	$	2,152,576	$	2,167,565
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade (Cushing Connect VIEs: $10,083 and $14,076, respectively)	$	25,472	$	28,280
Affiliates	14,605		18,120
	40,077		46,400
Accrued interest	4,604		10,892
Deferred revenue	10,768		11,368
Accrued property taxes	8,877		3,992
Current operating lease liabilities	706		875
Current finance lease liabilities	3,753		3,713
Other current liabilities	2,687		2,505
Total current liabilities	71,472		79,745
Long-term debt	1,333,309		1,405,603
Noncurrent operating lease liabilities	2,169		2,476
Noncurrent finance lease liabilities	65,565		68,047
Other long-term liabilities	12,317		12,905
Deferred revenue	30,920		40,581
Class B unit	55,593		52,850
Equity:
Partners’ equity:
Common unitholders (105,440 units issued and outstanding     at September 30, 2021 and December 31, 2020)	437,998		379,292
Noncontrolling interests	143,233		126,066
Total equity	581,231		505,358
Total liabilities and equity	$	2,152,576	$	2,167,565

See accompanying notes.

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Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Affiliates	$	97,124	$	100,992	$	298,192	$	297,983
Third parties	25,460		26,739		77,810		72,409
	122,584		127,731		376,002		370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	42,793		40,003		126,226		109,721
Depreciation and amortization	21,826		26,190		71,894		75,202
General and administrative	3,849		2,332		9,664		7,569
Goodwill impairment	—		35,653		11,034		35,653
	68,468		104,178		218,818		228,145
Operating income	54,116		23,553		157,184		142,247
Other income (expense):
Equity in earnings of equity method investments	3,689		1,316		8,875		5,186
Interest expense	(13,417)		(14,104)		(40,595)		(45,650)
Interest income	6,835		2,803		19,997		7,834
Gain on sales-type leases	—		—		24,677		33,834
Loss on early extinguishment of debt	—		—		—		(25,915)
Gain on sale of assets and other	77		7,465		5,994		8,439
	(2,816)		(2,520)		18,948		(16,272)
Income before income taxes	51,300		21,033		176,132		125,975
State income tax benefit (expense)	4		(34)		(60)		(110)
Net income	51,304		20,999		176,072		125,865
Allocation of net income attributable to noncontrolling interests	(2,144)		(3,186)		(6,770)		(6,721)
Net income attributable to the partners	49,160		17,813		169,302		119,144
Limited partners’ per unit interest in earnings—basic and diluted	$	0.46	$	0.17	$	1.60	$	1.13
Weighted average limited partners’ units outstanding	105,440		105,440		105,440		105,440

Net income and comprehensive income are the same in all periods presented.

See accompanying notes.

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Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	176,072	$	125,865
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	71,894		75,202
Gain on sale of assets	(5,567)		(887)
Loss on early extinguishment of debt	—		25,915
Gain on sales-type leases	(24,677)		(33,834)
Goodwill impairment	11,034		35,653
Amortization of deferred charges	2,992		2,479
Equity-based compensation expense	1,856		1,547
Equity in earnings of equity method investments, net of distributions	—		(238)
(Increase) decrease in operating assets:
Accounts receivable—trade	3,020		4,874
Accounts receivable—affiliates	6,465		3,212
Prepaid and other current assets	2,452		1,885
Increase (decrease) in operating liabilities:
Accounts payable—trade	3,202		(2,258)
Accounts payable—affiliates	(3,515)		(9,815)
Accrued interest	(6,288)		(8,515)
Deferred revenue	(3,702)		(3,675)
Accrued property taxes	4,885		5,173
Other current liabilities	183		544
Other, net	468		1,913
Net cash provided by operating activities	240,774		225,040
Cash flows from investing activities
Additions to properties and equipment	(78,592)		(38,642)
Investment in Cushing Connect JV Terminal	—		(2,438)
Proceeds from sale of assets	7,365		961
Distributions in excess of equity in earnings of equity investments	3,517		701
Net cash used for investing activities	(67,710)		(39,418)
Cash flows from financing activities
Borrowings under credit agreement	210,500		219,500
Repayments of credit agreement borrowings	(283,500)		(237,000)
Redemption of senior notes	—		(522,500)
Proceeds from issuance of debt	—		500,000
Contributions from general partner	—		611
Contributions from noncontrolling interests	21,285		15,382
Distributions to HEP unitholders	(112,384)		(137,437)
Distributions to noncontrolling interests	(8,743)		(7,845)
Payments on finance leases	(2,666)		(2,666)
Deferred financing costs	(6,661)		(8,714)
Units withheld for tax withholding obligations	(69)		(149)
Net cash used by financing activities	(182,238)		(180,818)
Cash and cash equivalents
Increase (decrease) for the period	(9,174)		4,804
Beginning of period	21,990		13,287
End of period	$	12,816	$	18,091
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$44,147		$51,375

See accompanying notes.

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Table of 19,

HOLLY ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

	Common Units		Noncontrolling Interests		Total Equity
Balance December 31, 2020	$	379,292	$	126,066	$	505,358
Contributions from noncontrolling interest	—		9,746		9,746
Distributions to HEP unitholders	(38,328)		—		(38,328)
Distributions to noncontrolling interests	—		(3,819)		(3,819)
Equity-based compensation	683		—		683
Class B unit accretion	(893)		—		(893)
Other	(68)		—		(68)
Net income	65,290		1,647		66,937
Balance March 31, 2021	$	405,976	$	133,640	$	539,616
Contributions from noncontrolling interest	—		9,780		9,780
Distributions to HEP unitholders	(37,028)		—		(37,028)
Distributions to noncontrolling interest	—		(2,053)		(2,053)
Equity-based compensation	527		—		527
Class B unit accretion	(894)		—		(894)
Other	(2)		—		(2)
Net income	56,639		1,192		57,831
Balance June 30, 2021	$	425,218	$	142,559	$	567,777
Contributions from noncontrolling interest	—		2,358		2,358
Distributions to HEP unitholders	(37,028)		—		(37,028)
Distributions to noncontrolling interest	—		(2,871)		(2,871)
Equity-based compensation	646		—		646
Class B unit accretion	(956)		—		(956)
Other	1		—		1
Net income	50,117		1,187		51,304
Balance September 30, 2021	$	437,998	$	143,233	$	581,231

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Table of 19,

	Common Units		Noncontrolling Interests		Total Equity
Balance December 31, 2019	$	381,103	$	106,655	$	487,758
Contributions from noncontrolling interest	—		7,304		7,304
Distributions to HEP unitholders	(68,519)		—		(68,519)
Distributions to noncontrolling interests	—		(3,000)		(3,000)
Equity-based compensation	506		—		506
Class B unit accretion	(835)		—		(835)
Other	208		—		208
Net income	25,696		1,216		26,912
Balance March 31, 2020	$	338,159	$	112,175	$	450,334
Contributions from noncontrolling interest	—		5,959		5,959
Distributions to HEP unitholders	(34,460)		—		(34,460)
Distributions to noncontrolling interest	—		(1,000)		(1,000)
Equity-based compensation	474		—		474
Class B unit accretion	(835)		—		(835)
Other	80		—		80
Net income	77,305		649		77,954
Balance June 30, 2020	$	380,723	$	117,783	$	498,506
Contributions from noncontrolling interest	—		2,119		2,119
Distributions to HEP unitholders	(34,458)		—		(34,458)
Distributions to noncontrolling interest	—		(3,845)		(3,845)
Equity-based compensation	567		—		567
Class B unit accretion	(894)		—		(894)
Other	177		—		177
Net income	18,706		2,293		20,999
Balance September 30, 2020	$	364,821	$	118,350	$	483,171

See accompanying notes.

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Table of 19,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1:Description of Business and Presentation of Financial Statements

Holly Energy Partners, L.P. (“HEP”), together with its consolidated subsidiaries, is a publicly held master limited partnership. As of September 30, 2021, HollyFrontier Corporation (“HFC”) and its subsidiaries own a 57% limited partner interest and the non-economic general partner interest in HEP. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support refining and marketing operations of HFC and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”), a 50% interest in Cheyenne Pipeline LLC, and a 50% interest in Cushing Connect Pipeline & Terminal LLC.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery (the “Cheyenne Refinery”) and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at the Cheyenne Refinery on August 3, 2020.

On February 8, 2021, HEP and HFC finalized and executed new agreements for HEP’s Cheyenne assets with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC will pay a base tariff to HEP for available crude oil storage and HFC and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

On April 1, 2021, we sold our 156-mile, 6-inch refined product pipeline that connected HFC’s Navajo Refinery to terminals in El Paso for gross proceeds of $7.0 million and recognized a gain on sale of $5.3 million.

We operate in two reportable segments, a Pipelines and Terminals segment and a Refinery Processing Unit segment. Disclosures around these segments are discussed in Note 16.

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

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. 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, 2021.

Principles of Consolidation and Common Control Transactions

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

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

Goodwill and Long-lived Assets

Goodwill represents the excess of our cost of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

Indicators of Goodwill and Long-lived Asset Impairment

The changes in our new agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair value of our Cheyenne reporting unit was derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.

We performed our annual goodwill impairment testing qualitatively as of July 1, 2021, and determined it was not more likely than not that the carrying amount of each reporting unit was greater than its fair value. Therefore, a quantitative test was not necessary, and no additional impairment of goodwill was recorded.

We evaluate long-lived assets, including finite-lived intangible assets, for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value.

Revenue Recognition

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

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

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

In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights projected to be exercised by the customer. During the nine months ended September 30, 2021 and 2020, we recognized $12.3 million and $13.8 million, respectively, of these deficiency payments in revenue, of which $0.5 million and $0.7 million, respectively, related to deficiency payments billed in prior periods.

We have other cost reimbursement provisions in our throughput / storage agreements providing that customers (including HFC) reimburse us for certain costs. Such reimbursements are recorded as revenue or deferred revenue depending on the nature of the cost. Deferred revenue is recognized over the remaining contractual term of the related throughput agreement.

Leases

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

Lessee Accounting

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

Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties and equipment, current finance lease liabilities and noncurrent finance lease liabilities on our consolidated balance sheet.

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

Lessor Accounting

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

Accounting Pronouncements Adopted During the Periods Presented

Credit Losses Measurement

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

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Note 2:Sinclair Acquisition

HEP Transactions

On August 2, 2021, HEP, The Sinclair Companies (“Sinclair”) and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a Contribution Agreement (the “Contribution Agreement”) pursuant to which HEP will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common units of HEP and cash consideration equal to $325 million (the “HEP Transactions”). On the same date, HFC, Sinclair and certain other parties entered into a Business Combination Agreement pursuant to which Sinclair will contribute all of the equity interests of Hippo Holding LLC, which owns Sinclair Oil Corporation, to a new HFC parent holding company that will be named “HF Sinclair Corporation” in exchange for 60,230,036 shares of common stock in HF Sinclair Corporation (the “HFC Transactions”, and together with the HEP Transactions, the “Sinclair Transactions”).

The cash consideration for the HEP Transactions is subject to customary adjustments at closing for working capital of STC. The number of HEP common units to be issued to Sinclair at closing is subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline, LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.

The Contribution Agreement contains customary representations, warranties and covenants of HEP, Sinclair, and STC. The HEP Transactions are expected to close in mid-2022, subject to the satisfaction or waiver of certain customary conditions, including, among others, the receipt of certain required regulatory consents and clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”), and the consummation of the HFC Transactions. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HFC and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review.

The Contribution Agreement automatically terminates if the HFC Transactions are terminated, and contains other customary termination rights, including a termination right for each of HEP and Sinclair if, under certain circumstances, the closing does not occur by May 2, 2022 (the “Outside Date”), except that the Outside Date can be extended by either party by up to two 90 day periods to obtain any required antitrust clearance.

Upon closing of the HEP Transactions, HEP’s existing senior management team will continue to operate HEP. Under the definitive agreements, Sinclair will be granted the right to nominate one director to the HEP board of directors at the closing. The Sinclair stockholders have also agreed to certain customary lock-up restrictions and registration rights for the HEP common units to be issued to the stockholders of Sinclair. HEP will continue to operate under the name Holly Energy Partners, L.P.

See Note 11 for a description of the Letter Agreement between HFC and HEP entered into in connection with the Contribution Agreement.

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Note 3:Investment in Joint Venture

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

The Cushing Connect Joint Venture contracted with an affiliate of HEP to manage the construction and operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect JV Terminal. The total Cushing Connect Joint Venture investment will generally be shared equally among the partners. However, we are solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs will be approximately $70 million to $75 million.

The Cushing Connect Joint Venture legal entities are variable interest entities ("VIEs") as defined under GAAP. A VIE is a legal entity if it has any one of the following characteristics: (i) the entity does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The Cushing Connect Joint Venture legal entities do not have sufficient equity at risk to finance their activities without additional financial support. Since HEP is constructing and will operate the Cushing Connect Pipeline, HEP has more ability to direct the activities that most significantly impact the financial performance of the Cushing Connect Joint Venture and Cushing Connect Pipeline legal entities. Therefore, HEP consolidates those legal entities. We do not have the ability to direct the activities that most significantly impact the Cushing Connect JV Terminal legal entity, and therefore, we account for our interest in the Cushing Connect JV Terminal legal entity using the equity method of accounting.

With the exception of the assets of HEP Cushing, creditors of the Cushing Connect Joint Venture legal entities have no recourse to our assets. Any recourse to HEP Cushing would be limited to the extent of HEP Cushing's assets, which other than its investment in Cushing Connect Joint Venture, are not significant. Furthermore, our creditors have no recourse to the assets of the Cushing Connect Joint Venture legal entities.

Note 4:Revenues

Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. See Note 1 for further discussion of revenue recognition.

Disaggregated revenues were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Pipelines	$	67,354	$	68,292	$	202,180	$	197,718
Terminals, tanks and loading racks	33,317		39,036		108,386		112,814
Refinery processing units	21,913		20,403		65,436		59,860
	$	122,584	$	127,731	$	376,002	$	370,392

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Revenues on our consolidated statements of income were composed of the following lease and service revenues:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Lease revenues	$	84,074	$	90,077	$	258,877	$	269,931
Service revenues	38,510		37,654		117,125		100,461
	$	122,584	$	127,731	$	376,002	$	370,392

A contract liability exists when an entity is obligated to perform future services for a customer for which the entity has received consideration. Since HEP may be required to perform future services for these deficiency payments received, the deferred revenues on our balance sheets were considered contract liabilities. A contract asset exists when an entity has a right to consideration in exchange for goods or services transferred to a customer. Our consolidated balance sheets included the contract assets and liabilities in the table below:

	September 30, 2021		December 31, 2020
	(In thousands)
Contract assets	$	6,593	$	6,306
Contract liabilities	$	(482)	$	(500)

The contract assets and liabilities include both lease and service components. During the nine months ended September 30, 2021, we recognized $0.5 million of revenue that was previously included in contract liability as of December 31, 2020. During the nine months ended September 30, 2021, we also recognized $0.3 million of revenue included in contract assets.

As of September 30, 2021, we expect to recognize $1.7 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in 2022 through 2036. These agreements generally provide for changes in the minimum revenue guarantees annually for increases or decreases in the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that limit the level of the rate increases or decreases. We expect to recognize revenue for these unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and lease revenues):

Years Ending December 31,	(In millions)
Remainder of 2021	$	84
2022	312
2023	276
2024	238
2025	172
2026	157
Thereafter	483
Total	$	1,722

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

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Note 5:Leases

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

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 23 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $6.0 million and $6.4 million as of September 30, 2021 and December 31, 2020, respectively, with accumulated depreciation of $3.4 million as of both September 30, 2021 and December 31, 2020. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

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

	September 30, 2021		December 31, 2020
Operating leases:
Operating lease right-of-use assets, net	$	2,501	$	2,979
Current operating lease liabilities	706		875
Noncurrent operating lease liabilities	2,169		2,476
Total operating lease liabilities	$	2,875	$	3,351
Finance leases:
Properties and equipment	$	6,031	$	6,410
Accumulated amortization	(3,437)		(3,390)
Properties and equipment, net	$	2,594	$	3,020
Current finance lease liabilities	$	3,753	$	3,713
Noncurrent finance lease liabilities	65,565		68,047
Total finance lease liabilities	$	69,318	$	71,760
Weighted average remaining lease term (in years):
Operating leases	5.8		5.9
Finance leases	15.2		15.9
Weighted average discount rate:
Operating leases	4.8%		4.8%
Finance leases	5.6%		5.6%

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

	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	855	$	773
Operating cash flows on finance leases	$	3,110	$	3,241
Financing cash flows on finance leases	$	2,666	$	2,666

Maturities of lease liabilities were as follows:

	September 30, 2021
	Operating		Finance
	(In thousands)
2021	$	262	$	1,832
2022	690		7,335
2023	603		7,374
2024	497		6,929
2025	429		6,470
2026 and thereafter	787		73,888
Total lease payments	3,268		103,828
Less: Imputed interest	(393)		(34,510)
Total lease obligations	2,875		69,318
Less: Current lease liabilities	(706)		(3,753)
Noncurrent lease liabilities	$	2,169	$	65,565

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease costs	$	260	$	242	$	807	$	745
Finance lease costs
Amortization of assets	195		251		607		766
Interest on lease liabilities	983		1,032		2,983		3,108
Variable lease cost	43		64		175		159
Total net lease cost	$	1,481	$	1,589	$	4,572	$	4,778

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

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

During the nine months ended September 30, 2021, we entered into new agreements, and amended other agreements, with HFC related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-

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type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HFC. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

	Nine Months Ended September 30, 2021
	(In thousands)
Net investment in leases	$	143,720
Properties and equipment, net	(125,602)
Deferred revenue	6,559
Gain on sales-type leases	$	24,677

During the nine months ended September 30, 2020, one of our throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed. A component of this agreement met the criteria of a sales-type lease since the underlying asset is not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at the commencement date of the lease, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2020 composed of the following:

	Nine Months Ended September 30, 2020
	(In thousands)
Net investment in lease	$	35,319
Properties and equipment, net	(1,485)
Gain on sales-type lease	$	33,834

These sales-type lease transactions, including the related gain, were non-cash transactions.

Lease income recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease revenues	$	80,907	$	87,125	$	251,605	$	262,518
Direct financing lease interest income	521		525		1,568		1,572
Gain on sales-type leases	—		—		24,677		33,834
Sales-type lease interest income	6,313		2,278		18,429		6,218
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	3,167		2,952		7,272		7,413

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

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Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2021:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2021	$	71,001	$	544	$	10,525
2022	283,916		2,171		42,102
2023	253,459		2,175		38,196
2024	217,355		2,192		34,967
2025	153,934		2,209		31,539
2026 and thereafter	558,415		38,837		279,406
Total lease receipt payments	$	1,538,080	$	48,128	$	436,735
Less: Imputed interest			(31,734)		(367,089)
			16,394		69,646
Unguaranteed residual assets at end of leases			—		224,779
Net investment in leases			$	16,394	$	294,425

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

	September 30, 2021				December 31, 2020
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	211,053	$	16,394	$	88,922	$	16,452
Unguaranteed residual assets	83,372		—		64,551		—
Net investment in leases	$	294,425	$	16,394	$	153,473	$	16,452

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

Note 6:Fair Value Measurements

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

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

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

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

Financial Instruments

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

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

		September 30, 2021		December 31, 2020
Financial Instrument	Fair Value Input Level	Carrying Value	Fair Value	Carrying Value	Fair Value
		(In thousands)
Liabilities:
5% Senior Notes	Level 2	492,809	506,770	492,103	506,540

Level 2 Financial Instruments

Our senior notes are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. See Note 10 for additional information.

Non-Recurring Fair Value Measurements

For gains on sales-type leases recognized during the nine months ended September 30, 2021, the estimated fair value of the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term are used in determining the net investment in leases and related gain on sales-type leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

At March 31, 2021, we recognized goodwill impairment based on fair value measurements utilized during our goodwill testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.

Note 7:Properties and Equipment 

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

	September 30, 2021		December 31, 2020
	(In thousands)
Pipelines, terminals and tankage(1)	$	1,545,545	$	1,575,815
Refinery assets	348,882		348,882
Land and right of way	86,781		87,076
Construction in progress	14,878		58,467
Other(1)	43,876		46,201
	2,039,962		2,116,441
Less accumulated depreciation	(704,920)		(665,756)
	$	1,335,042	$	1,450,685

(1)Prior period balances have been reclassified to be comparative to current period.

Depreciation expense was $60.9 million and $64.3 million for the nine months ended September 30, 2021 and 2020, respectively, and includes depreciation of assets acquired under capital leases.

Note 8:Intangible Assets

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

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The carrying amounts of our intangible assets were as follows:

	Useful Life	September 30, 2021		December 31, 2020
		(In thousands)
Delek transportation agreement	30 years	$	59,933	$	59,933
HFC transportation agreement	10-15 years	75,131		75,131
Customer relationships	10 years	69,683		69,683
Other	20 years	50		50
		204,797		204,797
Less accumulated amortization		(127,988)		(117,482)
		$	76,809	$	87,315

Amortization expense was $10.5 million for both the nine months ended September 30, 2021 and 2020. We estimate amortization expense to be $14.0 million for 2022, $9.9 million in 2023, and $9.1 million for 2024 through 2026.

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 9:Employees, Retirement and Incentive Plans

Direct support for our operations is provided by Holly Logistic Services, L.L.C. (“HLS”), an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $2.1 million and $1.9 million for the three months ended September 30, 2021 and 2020, respectively, and $6.2 million and $5.7 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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

As of September 30, 2021, we had two types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.6 million for both the three months ended September 30, 2021 and 2020, and $1.9 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of September 30, 2021, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 860,361 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Phantom Units

Under our Long-Term Incentive Plan, we grant phantom units to our 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 rights on these units from the date of grant.

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

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A summary of phantom unit activity and changes during the nine months ended September 30, 2021, is presented below:

Phantom Units	Units	Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2021 (nonvested)	295,992	$	14.48
Vesting and transfer of full ownership to recipients	(823)	16.24
Forfeited	(6,833)	15.54
Outstanding at September 30, 2021 (nonvested)	288,336	14.45

The grant date fair values of phantom units that were vested and transferred to recipients during the nine months ended September 30, 2021 and 2020 were $13 thousand and $0.2 million, respectively. As of September 30, 2021, $1.4 million of total unrecognized compensation expense related to unvested phantom unit grants 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 officers who perform services for us. Performance units granted are payable in common units at the end of a three-year performance period based upon meeting certain criteria over the performance period. Under the terms of our performance unit grants, some awards are subject to the growth in our distributable cash flow per common unit over the performance period while other awards are subject to "financial performance" and "market performance." Financial performance is based on meeting certain earnings before interest, taxes, depreciation and amortization ("EBITDA") targets, while market performance is based on the relative standing of total unitholder return achieved by HEP compared to peer group companies. The number of units ultimately issued under these awards can range from 0% to 200%.

We did not grant any performance units during the nine months ended September 30, 2021. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the target number of performance units subject to the award from the date of grant at the same rate as distributions paid on our common units.

A summary of performance unit activity and changes for the nine months ended September 30, 2021, is presented below:

Performance Units	Units
Outstanding at January 1, 2021 (nonvested)	77,472
Vesting and transfer of common units to recipients	(10,881)
Outstanding at September 30, 2021 (nonvested)	66,591

The grant date fair value of performance units vested and transferred to recipients during both of the nine months ended September 30, 2021 and 2020 was $0.4 million. Based on the weighted-average fair value of performance units outstanding at September 30, 2021, of $1.2 million, there was $0.4 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.5 years.

During the nine months ended September 30, 2021, we did not purchase any of our common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.

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Note 10:Debt

Credit Agreement

In April 2021, we amended our senior secured revolving credit facility (the “Credit Agreement”) decreasing the size of the facility from $1.4 billion to $1.2 billion and extending the maturity date to July 27, 2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit and continues to provide for an accordion feature that allows us to increase commitments under the Credit Agreement up to a maximum amount of $1.7 billion.

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

We may prepay all loans at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of September 30, 2021.

Senior Notes

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% senior unsecured notes due in 2028 (the "5% Senior Notes"). On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with net proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. We were in compliance with the restrictive covenants for the 5% Senior Notes as of September 30, 2021. At any time when the 5% Senior Notes are rated investment grade by either Moody’s or 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 5% Senior Notes.

Indebtedness under the 5% Senior Notes is guaranteed by all of our existing wholly owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt

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

	September 30, 2021		December 31, 2020
	(In thousands)
Credit Agreement
Amount outstanding	$	840,500	913,500
5% Senior Notes
Principal	500,000		500,000
Unamortized premium and debt issuance costs	(7,191)		(7,897)
	492,809		492,103
Total long-term debt	$	1,333,309	$	1,405,603

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Note 11:Related Party Transactions

We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2022 to 2036, and revenues from HFC accounted for 79% of our total revenues for both the three and nine months ended September 30, 2021. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year generally based on increases or decreases in PPI or the FERC index. As of September 30, 2021, these agreements with HFC require minimum annualized payments to us of $353 million.

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

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

Related party transactions with HFC were as follows:

•Revenues received from HFC were $97.1 million and $101.0 million for the three months ended September 30, 2021 and 2020, respectively, and $298.2 million and $298.0 million for the nine months ended September 30, 2021 and 2020, respectively.

•HFC charged us general and administrative services under the Omnibus Agreement of $0.7 million for both the three months ended September 30, 2021 and 2020, and $2.0 million for both the nine months ended September 30, 2021 and 2020.

•We reimbursed HFC for costs of employees supporting our operations of $15.6 million and $14.0 million for the three months ended September 30, 2021 and 2020, respectively, and $44.2 million and $41.3 million for the nine months ended September 30, 2021 and 2020, respectively.

•HFC reimbursed us $1.8 million and $2.3 million for the three months ended September 30, 2021 and 2020, respectively, and $6.1 million and $6.3 million for the nine months ended September 30, 2021 and 2020, respectively, for expense and capital projects.

•We distributed $20.9 million and $18.4 million in the three months ended September 30, 2021 and 2020, respectively, and $62.6 million and $74.3 million in the nine months ended September 30, 2021 and 2020, respectively, to HFC as regular distributions on its common units.

•Accounts receivable from HFC were $41.5 million and $48.0 million at September 30, 2021, and December 31, 2020, respectively.

•Accounts payable to HFC were $14.6 million and $18.1 million at September 30, 2021, and December 31, 2020, respectively.

•Deferred revenue in the consolidated balance sheets included $0.4 million for both September 30, 2021 and December 31, 2020, relating to certain shortfall billings to HFC.

•We received direct financing lease payments from HFC for use of our Artesia and Tulsa rail yards of $0.5 million for both of the three months ended September 30, 2021 and 2020, respectively, and $1.6 million for the nine months ended September 30, 2021 and $1.5 million for the nine months ended September 30, 2020.

•We recorded a gain on sales-type leases with HFC of $24.7 million for the nine months ended September 30, 2021, and we received sales-type lease payments of $6.6 million and $2.4 million from HFC for the three months ended September 30, 2021 and 2020, respectively, and $19.1 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively.

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•HEP and HFC reached an agreement to terminate the existing minimum volume commitments for HEP’s Cheyenne assets and enter into new agreements, which were finalized and executed on February 8, 2021, with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC will pay a base tariff to HEP for available crude oil storage and HFC and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

On August 2, 2021, in connection with the Sinclair Transactions (described in Note 2 above), HEP and HFC entered into a Letter Agreement (“Letter Agreement”) pursuant to which, among other things, HEP and HFC agreed, upon the consummation of the Sinclair Transactions, to enter into amendments to certain of the agreements by and among HEP and HFC, including the master throughput agreement, to include within the scope of such agreements the assets to be acquired by HEP pursuant to the Contribution Agreement (described in Note 2 above).

In addition, the Letter Agreement provides that if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HFC enters into a definitive agreement to divest its refinery in Davis County, Utah (the “Woods Cross Refinery”), then HEP would sell certain assets located at, or relating to, the Woods Cross Refinery to HFC in exchange for cash consideration equal to $232.5 million plus the certain accounts receivable of HEP in respect of such assets, with such sale to be effective immediately prior to the closing of the sale of the Woods Cross Refinery by HFC. The Letter Agreement also provides that HEP’s right to future revenues from HFC in respect of such Woods Cross Refinery assets will terminate at the closing of such sale.

Note 12: Partners’ Equity, Income Allocations and Cash Distributions

As of September 30, 2021, HFC held 59,630,030 of our common units, constituting a 57% limited partner interest in us, and held the non-economic general partner interest.

Continuous Offering Program

We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. As of September 30, 2021, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

Allocations of Net Income

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

Cash Distributions

On October 21, 2021, we announced our cash distribution for the third quarter of 2021 of $0.35 per unit. The distribution is payable on all common units and will be paid November 12, 2021, to all unitholders of record on November 1, 2021.

Our regular quarterly cash distribution to the limited partners will be $37.0 million for the three months ended September 30, 2021 and was $37.0 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the regular quarterly distribution to the limited partners will be $111.1 million and was $105.9 million for the nine months ended September 30, 2020. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.

Note 13: Net Income Per Limited Partner Unit

Basic net income per unit applicable to the limited partners is calculated as net income attributable to the partners divided by the weighted average limited partners’ units outstanding. Diluted net income per unit assumes, when dilutive, the issuance of the net incremental units from phantom units and performance units. To the extent net income attributable to the partners exceeds or is less than cash distributions, this difference is allocated to the partners based on their weighted-average ownership

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percentage during the period, after consideration of any priority allocations of earnings. Our dilutive securities are immaterial for all periods presented.

Net income per limited partner unit is computed as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands, except per unit data)
Net income attributable to the partners	$	49,160	$	17,813	$	169,302	$	119,144
Less: Participating securities’ share in earnings	(165)		—		(579)		—
Net income attributable to common units	48,995		17,813		168,723		119,144
Weighted average limited partners' units outstanding	105,440		105,440		105,440		105,440
Limited partners' per unit interest in earnings - basic and diluted	$	0.46	$	0.17	$	1.60	$	1.13

Note 14:Environmental

We expensed $0.7 million and $1.3 million for the three and nine months ended September 30, 2021, respectively, for environmental remediation obligations, and we expensed $1.0 million and $1.6 million for the three and nine months ended September 30, 2020, respectively. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $4.6 million and $4.5 million at September 30, 2021 and December 31, 2020, of which $2.5 million was classified as other long-term liabilities for both periods. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. Our consolidated balance sheets included additional accrued environmental liabilities of $0.4 million and $0.5 million for HFC indemnified liabilities as of September 30, 2021 and December 31, 2020, respectively, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.

Note 15: Contingencies

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

Note 16: Segment Information

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

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

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Revenues:
Pipelines and terminals - affiliate	$	75,211	$	80,589	$	232,756	$	238,123
Pipelines and terminals - third-party	25,460		26,739		77,810		72,409
Refinery processing units - affiliate	21,913		20,403		65,436		59,860
Total segment revenues	$	122,584	$	127,731	$	376,002	$	370,392
Segment operating income:
Pipelines and terminals (1)	$	48,268	$	15,912	$	139,143	$	120,445
Refinery processing units	9,697		9,973		27,705		29,371
Total segment operating income	57,965		25,885		166,848		149,816
Unallocated general and administrative expenses	(3,849)		(2,332)		(9,664)		(7,569)
Interest and financing costs, net	(6,582)		(11,301)		(20,598)		(37,816)
Loss on early extinguishment of debt	—		—		—		(25,915)
Equity in earnings of equity method investments	3,689		1,316		8,875		5,186
Gain on sales-type leases	—		—		24,677		33,834
Gain (loss) on sale of assets and other	77		7,465		5,994		8,439
Income before income taxes	$	51,300	$	21,033	$	176,132	$	125,975
Capital Expenditures:
Pipelines and terminals	$	19,049	$	7,902	$	77,826	$	38,318
Refinery processing units	168		—		766		324
Total capital expenditures	$	19,217	$	7,902	$	78,592	$	38,642

	September 30, 2021		December 31, 2020
	(In thousands)
Identifiable assets:
Pipelines and terminals (2)	$	1,728,983	$	1,729,547
Refinery processing units	291,838		305,090
Other	131,755		132,928
Total identifiable assets	$	2,152,576	$	2,167,565

(1) Pipelines and terminals segment operating income included goodwill impairment charges of $11.0 million for the nine months ended September 30, 2021 and $35.7 million for both the three and nine months ended September 30, 2020.

(2) Included goodwill of $223.7 million as of September 30, 2021 and $234.7 million as of December 31, 2020.

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Note 17: Supplemental Guarantor/Non-Guarantor Financial Information

Obligations of HEP (“Parent”) under the 5% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries, other than Holly Energy Finance Corp. and certain immaterial 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 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.

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Condensed Consolidating Balance Sheet

September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	350	$	(346)	$	12,812	$	—	$	12,816
Accounts receivable	—		47,696		5,968		(36)		53,628
Prepaid and other current assets	151		7,447		868		(292)		8,174
Total current assets	501		54,797		19,648		(328)		74,618
Properties and equipment, net	—		1,030,270		304,772		—		1,335,042
Operating lease right-of-use assets	—		2,397		104		—		2,501
Net investment in leases	—		306,069		95,458		(95,456)		306,071
Investment in subsidiaries	1,774,250		297,809		—		(2,072,059)		—
Intangible assets, net	—		76,809		—		—		76,809
Goodwill	—		223,650		—		—		223,650
Equity method investments	—		79,337		37,690		—		117,027
Other assets	8,643		8,215		—		—		16,858
Total assets	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	28,150	$	11,963	$	(36)	$	40,077
Accrued interest	4,604		—		—		—		4,604
Deferred revenue	—		10,287		481		—		10,768
Accrued property taxes	—		5,576		3,301		—		8,877
Current operating lease liabilities	—		632		74		—		706
Current finance lease liabilities	—		5,533		—		(1,780)		3,753
Other current liabilities	—		2,302		385		—		2,687
Total current liabilities	4,604		52,480		16,204		(1,816)		71,472
Long-term debt	1,333,309		—		—		—		1,333,309
Noncurrent operating lease liabilities	—		2,169		—		—		2,169
Noncurrent finance lease liabilities	—		152,310		—		(86,745)		65,565
Other long-term liabilities	260		11,631		426		—		12,317
Deferred revenue	—		30,920		—		—		30,920
Class B unit	—		55,593		—		—		55,593
Equity - partners	445,221		1,774,250		297,809		(2,079,282)		437,998
Equity - noncontrolling interests	—		—		143,233		—		143,233
Total liabilities and equity	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576

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Condensed Consolidating Balance Sheet

December 31, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,627	$	(987)	$	21,350	$	—	$	21,990
Accounts receivable	—		56,522		6,308		(315)		62,515
Prepaid and other current assets	349		8,366		772		—		9,487
Total current assets	1,976		63,901		28,430		(315)		93,992
Properties and equipment, net	—		1,087,184		363,501		—		1,450,685
Operating lease right-of-use assets	—		2,822		157		—		2,979
Net investment in leases	—		166,316		—		—		166,316
Investment in subsidiaries	1,789,808		286,883		—		(2,076,691)		—
Intangible assets, net	—		87,315		—		—		87,315
Goodwill	—		234,684		—		—		234,684
Equity method investments	—		81,089		39,455		—		120,544
Other assets	4,268		6,782		—		—		11,050
Total assets	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	30,252	$	16,463	$	(315)	$	46,400
Accrued interest	10,892		—		—		—		10,892
Deferred revenue	—		10,868		500		—		11,368
Accrued property taxes	—		2,915		1,077		—		3,992
Current operating lease liabilities	—		804		71		—		875
Current finance lease liabilities	—		3,713		—		—		3,713
Other current liabilities	5		2,491		9		—		2,505
Total current liabilities	10,897		51,043		18,120		(315)		79,745
Long-term debt	1,405,603		—		—		—		1,405,603
Noncurrent operating lease liabilities	—		2,476		—		—		2,476
Noncurrent finance lease liabilities	—		68,047		—		—		68,047
Other long-term liabilities	260		12,171		474		—		12,905
Deferred revenue	—		40,581		—		—		40,581
Class B unit	—		52,850		—		—		52,850
Equity - partners	379,292		1,789,808		286,883		(2,076,691)		379,292
Equity - noncontrolling interests	—		—		126,066		—		126,066
Total liabilities and equity	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565

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Condensed Consolidating Statement of Income

Three Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	90,980	$	6,144	$	—	$	97,124
Third parties	—		20,024		5,436		—		25,460
	—		111,004		11,580		—		122,584
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		38,676		4,117		—		42,793
Depreciation and amortization	—		17,558		4,268		—		21,826
General and administrative	739		3,110		—		—		3,849
	739		59,344		8,385		—		68,468
Operating income (loss)	(739)		51,660		3,195		—		54,116
Other income (expense):
Equity in earnings of subsidiaries	69,553		3,045		—		(72,598)		—
Equity in earnings of equity method investments	—		2,743		946		—		3,689
Interest expense	(12,431)		(1,077)		—		91		(13,417)
Interest income	—		6,835		91		(91)		6,835
Gain on sales-type lease	—		7,223		—		(7,223)		—
Gain on sale of assets and other	—		76		1		—		77
	57,122		18,845		1,038		(79,821)		(2,816)
Income before income taxes	56,383		70,505		4,233		(79,821)		51,300
State income tax benefit	—		4		—		—		4
Net income	56,383		70,509		4,233		(79,821)		51,304
Allocation of net income attributable to noncontrolling interests	—		(956)		(1,188)		—		(2,144)
Net income attributable to the partners	$	56,383	$	69,553	$	3,045	$	(79,821)	$	49,160

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Condensed Consolidating Statement of Income

Three Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	94,595	$	6,397	$	—	$	100,992
Third parties	—		21,550		5,189		—		26,739
	—		116,145		11,586		—		127,731
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		36,065		3,938		—		40,003
Depreciation and amortization	—		21,997		4,193		—		26,190
General and administrative	649		1,683		—		—		2,332
Goodwill impairment	—		35,653		—		—		35,653
	649		95,398		8,131		—		104,178
Operating income (loss)	(649)		20,747		3,455		—		23,553
Other income (expense):
Equity in earnings of subsidiaries	31,461		6,589		—		(38,050)		—
Equity in earnings of equity method investments	—		755		561		—		1,316
Interest expense	(13,072)		(1,032)		—		—		(14,104)
Interest income	—		2,787		16		—		2,803
Gain on sale of assets and other	73		2,542		4,850		—		7,465
	18,462		11,641		5,427		(38,050)		(2,520)
Income before income taxes	17,813		32,388		8,882		(38,050)		21,033
State income tax expense	—		(34)		—		—		(34)
Net income	17,813		32,354		8,882		(38,050)		20,999
Allocation of net income attributable to noncontrolling interests	—		(893)		(2,293)		—		(3,186)
Net income attributable to the partners	$	17,813	$	31,461	$	6,589	$	(38,050)	$	17,813

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Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	279,592	$	18,600	$	—	$	298,192
Third parties	—		59,554		18,256		—		77,810
	—		339,146		36,856		—		376,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		114,217		12,009		—		126,226
Depreciation and amortization	—		59,045		12,849		—		71,894
General and administrative	2,824		6,840		—		—		9,664
Goodwill impairment	—		11,034		—		—		11,034
	2,824		191,136		24,858		—		218,818
Operating income (loss)	(2,824)		148,010		11,998		—		157,184
Other income (expense):
Equity in earnings of subsidiaries	216,958		10,786		—		(227,744)		—
Equity in earnings of equity method investments	—		6,154		2,721		—		8,875
Interest expense	(37,609)		(3,077)		—		91		(40,595)
Interest income	—		19,997		91		(91)		19,997
Gain on sales-type lease	—		31,900		—		(7,223)		24,677
Gain on sale of assets and other	—		5,991		3		—		5,994
	179,349		71,751		2,815		(234,967)		18,948
Income before income taxes	176,525		219,761		14,813		(234,967)		176,132
State income tax expense	—		(60)		—		—		(60)
Net income	176,525		219,701		14,813		(234,967)		176,072
Allocation of net income attributable to noncontrolling interests	—		(2,743)		(4,027)		—		(6,770)
Net income attributable to the partners	$	176,525	$	216,958	$	10,786	$	(234,967)	$	169,302

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Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	278,767	$	19,216	$	—	$	297,983
Third parties	—		56,592		15,817		—		72,409
	—		335,359		35,033		—		370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		98,176		11,545		—		109,721
Depreciation and amortization	—		62,489		12,713		—		75,202
General and administrative	2,528		5,041		—		—		7,569
Goodwill impairment	—		35,653		—		—		35,653
	2,528		201,359		24,258		—		228,145
Operating income (loss)	(2,528)		134,000		10,775		—		142,247
Other income (expense):
Equity in earnings of subsidiaries	189,889		12,394		—		(202,283)		—
Equity in earnings of equity method investments	—		4,292		894		—		5,186
Interest expense	(42,542)		(3,108)		—		—		(45,650)
Interest income	26		7,792		16		—		7,834
Loss on early extinguishment of debt	(25,915)		—		—		—		(25,915)
Gain on sales-type lease	—		33,834		—		—		33,834
Gain on sale of assets and other	214		3,358		4,867		—		8,439
	121,672		58,562		5,777		(202,283)		(16,272)
Income before income taxes	119,144		192,562		16,552		(202,283)		125,975
State income tax expense	—		(110)		—		—		(110)
Net income	119,144		192,452		16,552		(202,283)		125,865
Allocation of net income attributable to noncontrolling interests	—		(2,563)		(4,158)		—		(6,721)
Net income attributable to the partners	$	119,144	$	189,889	$	12,394	$	(202,283)	$	119,144

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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. Through our subsidiaries and joint ventures, we own and/or operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support the refining and marketing operations of HollyFrontier Corporation (“HFC”) and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. HEP, through its subsidiaries and joint ventures, owns and/or operates petroleum product and crude pipelines, tankage and terminals in Texas, New Mexico, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming and Kansas as well as refinery processing units in Utah and Kansas. HFC owned 57% of our outstanding common units and the non-economic general partnership interest as of September 30, 2021.

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

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

On August 2, 2021, HEP, The Sinclair Companies (“Sinclair”), and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a Contribution Agreement (the “Contribution Agreement”) pursuant to which HEP will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common units of HEP and cash consideration equal to $325 million (the “HEP Transactions”), subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions (as defined below), HEP agrees to divest a portion of its equity interest in UNEV Pipeline, LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.

The Sinclair Transactions are expected to close in mid-2022, subject to customary closing conditions and regulatory clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”). On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HFC and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. In addition, the HEP Transactions are conditioned on the closing of the transactions contemplated by that certain Business Combination Agreement, dated as of August 2, 2021, by and among HollyFrontier, Sinclair and certain other parties, which will occur immediately following the HEP Transactions (the “HFC Transactions,” and together with the HEP Transactions, the “Sinclair Transactions”). See Note 2 of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information.

Impact of COVID-19 on Our Business

Our business depends in large part on the demand for the various petroleum products we transport, terminal and store in the markets we serve. The impact of the COVID-19 pandemic on the global macroeconomy created diminished demand, as well as lack of forward visibility, for refined products and crude oil transportation, and for the terminalling and storage services that we provide. Since the declines in demand at the beginning of the COVID-19 pandemic, we began to see improvement in demand for these products and services beginning late in the second quarter of 2020 that continued through the third quarter of 2021, with aggregate volumes approaching pre-pandemic levels. We expect our customers will continue to adjust refinery production

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levels commensurate with market demand, and with the increasing availability of vaccines, we believe there is a path to a fulsome recovery in demand.

With the increasing vaccination rates, most of our employees have returned to work at our locations, and we continue to follow Centers for Disease Control and local government guidance. We will continue to monitor developments in the COVID-19 pandemic and the dynamic environment it has created to properly address these policies going forward.

The extent to which HEP’s future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, the effects of any new variant strains of the underlying virus, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. However, we have long-term customer contracts with minimum volume commitments, which have expiration dates from 2022 to 2036. These minimum volume commitments accounted for approximately 67% and 76% of our total revenues in the nine months ended September 30, 2021 and the twelve months ended December 31, 2020, respectively. We are currently not aware of any reasons that would prevent such customers from making the minimum payments required under the contracts or potentially making payments in excess of the minimum payments. In addition to these payments, we also expect to collect payments for services provided to uncommitted shippers. There have been no material changes to customer payment terms due to the COVID-19 pandemic.

The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and in this Form 10-Q. The COVID-19 pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

Investment in Joint Venture

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

The Cushing Connect Joint Venture has contracted with an affiliate of HEP to manage the construction and operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect JV Terminal. The total Cushing Connect Joint Venture investment will generally be shared equally among HEP and Plains. However, we are solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs are approximately $70 million to $75 million.

Agreements with HFC

We serve HFC's refineries under long-term pipeline, terminal, tankage and refinery processing unit throughput agreements expiring from 2022 to 2036. Under these agreements, HFC agrees to transport, store, and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminal, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year based on the PPI or the FERC index. On December 17, 2020, FERC established a new price index for the five-year period commencing July 1, 2021 and ending June 30, 2026, in which common carriers charging indexed rates are permitted to adjust their indexed ceilings annually by Producer Price Index plus 0.78%. FERC has received requests for rehearing of its December 17, 2020 order, which remain pending in FERC Docket No. RM20-14-000. As of September 30, 2021, these agreements with HFC require minimum annualized payments to us of $353 million.

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

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

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On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at its Cheyenne Refinery on August 3, 2020.

On February 8, 2021, HEP and HFC finalized and executed new agreements for HEP's Cheyenne assets with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC will pay a base tariff to HEP for available crude oil storage and HFC and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

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

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

We have a long-term strategic relationship with HFC that has historically facilitated our growth. Our future growth plans include organic projects around our existing assets and select investments or acquisitions that enhance our service platform while creating accretion for our unitholders. While in the near term, any acquisitions would be subject to economic conditions discussed in “Overview - Impact of COVID-19 on Our Business” above, we also expect over the longer term to continue to work with HFC on logistic asset acquisitions in conjunction with HFC’s refinery acquisition strategies. See “Overview” above for a discussion of the Sinclair Transactions.

Furthermore, as demonstrated by our pending transaction with Sinclair, we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues.

Indicators of Goodwill and Long-lived Asset Impairment

During the three months ended March 31, 2021, changes in our agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair values of our Cheyenne reporting unit were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.

We performed our annual goodwill impairment testing qualitatively as of July 1, 2021, and determined it was not more likely than not that the carrying amount of each reporting unit was greater than its fair value. Therefore, a quantitative test was not necessary, and no additional impairment of goodwill was recorded.

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RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow, Volumes and Balance Sheet Data

The following tables present income, distributable cash flow and volume information for the three and nine months ended September 30, 2021 and 2020.

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	Three Months Ended September 30,				Change from
	2021		2020		2020
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	18,702	$	18,619	$	83
Affiliates—intermediate pipelines	7,537		7,537		—
Affiliates—crude pipelines	19,536		20,218		(682)
	45,775		46,374		(599)
Third parties—refined product pipelines	8,799		9,812		(1,013)
Third parties—crude pipelines	12,780		12,106		674
	67,354		68,292		(938)
Terminals, tanks and loading racks:
Affiliates	29,436		34,215		(4,779)
Third parties	3,881		4,821		(940)
	33,317		39,036		(5,719)
Refinery processing units—Affiliates	21,913		20,403		1,510
Total revenues	122,584		127,731		(5,147)
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	42,793		40,003		2,790
Depreciation and amortization	21,826		26,190		(4,364)
General and administrative	3,849		2,332		1,517
Goodwill impairment	—		35,653		(35,653)
	68,468		104,178		(35,710)
Operating income	54,116		23,553		30,563
Other income (expense):
Equity in earnings of equity method investments	3,689		1,316		2,373
Interest expense, including amortization	(13,417)		(14,104)		687
Interest income	6,835		2,803		4,032
Gain on sale of assets and other	77		7,465		(7,388)
	(2,816)		(2,520)		(296)
Income before income taxes	51,300		21,033		30,267
State income tax benefit (expense)	4		(34)		38
Net income	51,304		20,999		30,305
Allocation of net income attributable to noncontrolling interests	(2,144)		(3,186)		1,042
Net income attributable to the partners	49,160		17,813		31,347
Limited partners’ earnings per unit—basic and diluted	$	0.46	$	0.17	$	0.29
Weighted average limited partners’ units outstanding	105,440		105,440		—
EBITDA (1)	$	77,564	$	55,338	$	22,226
Adjusted EBITDA (1)	$	83,270	$	86,435	$	(3,165)
Distributable cash flow (2)	$	66,810	$	76,894	$	(10,084)
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	115,507		119,403		(3,896)
Affiliates—intermediate pipelines	136,398		142,817		(6,419)
Affiliates—crude pipelines	271,717		270,840		877
	523,622		533,060		(9,438)
Third parties—refined product pipelines	46,834		60,203		(13,369)
Third parties—crude pipelines	136,247		133,487		2,760
	706,703		726,750		(20,047)
Terminals and loading racks:
Affiliates	419,665		401,904		17,761
Third parties	52,541		57,355		(4,814)
	472,206		459,259		12,947
Refinery processing units—Affiliates	72,297		62,016		10,281
Total for pipelines and terminal and refinery processing unit assets (bpd)	1,251,206		1,248,025		3,181

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	Nine Months Ended September 30,				Change from
	2021		2020		2020
	(In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates—refined product pipelines	$	56,520	$	55,004	$	1,516
Affiliates—intermediate pipelines	22,564		22,486		78
Affiliates—crude pipelines	58,241		59,922		(1,681)
	137,325		137,412		(87)
Third parties—refined product pipelines	28,188		33,360		(5,172)
Third parties—crude pipelines	36,667		26,946		9,721
	202,180		197,718		4,462
Terminals, tanks and loading racks:
Affiliates	95,431		100,711		(5,280)
Third parties	12,955		12,103		852
	108,386		112,814		(4,428)
Refinery processing units—Affiliates	65,436		59,860		5,576
Total revenues	376,002		370,392		5,610
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	126,226		109,721		16,505
Depreciation and amortization	71,894		75,202		(3,308)
General and administrative	9,664		7,569		2,095
Goodwill impairment	11,034		35,653		(24,619)
	218,818		228,145		(9,327)
Operating income	157,184		142,247		14,937
Other income (expense):
Equity in earnings of equity method investments	8,875		5,186		3,689
Interest expense, including amortization	(40,595)		(45,650)		5,055
Interest income	19,997		7,834		12,163
Loss on early extinguishment of debt	—		(25,915)		25,915
Gain on sales-type leases	24,677		33,834		(9,157)
Gain on sale of assets and other	5,994		8,439		(2,445)
	18,948		(16,272)		35,220
Income before income taxes	176,132		125,975		50,157
State income tax expense	(60)		(110)		50
Net income	176,072		125,865		50,207
Allocation of net income attributable to noncontrolling interests	(6,770)		(6,721)		(49)
Net income attributable to the partners	169,302		119,144		50,158
Limited partners’ earnings per unit—basic and diluted	$	1.60	$	1.13	$	0.47
Weighted average limited partners’ units outstanding	105,440		105,440		—
EBITDA (1)	$	261,854	$	232,272	$	29,582
Adjusted EBITDA (1)	$	259,466	$	257,711	$	1,755
Distributable cash flow (2)	$	206,707	$	213,058	$	(6,351)
Volumes (bpd)
Pipelines:
Affiliates—refined product pipelines	118,033		116,641		1,392
Affiliates—intermediate pipelines	131,873		137,816		(5,943)
Affiliates—crude pipelines	261,117		276,128		(15,011)
	511,023		530,585		(19,562)
Third parties—refined product pipelines	47,805		55,921		(8,116)
Third parties—crude pipelines	131,842		103,955		27,887
	690,670		690,461		209
Terminals and loading racks:
Affiliates	386,400		401,245		(14,845)
Third parties	50,542		49,753		789
	436,942		450,998		(14,056)
Refinery processing units—Affiliates	69,904		60,573		9,331
Total for pipelines and terminal and refinery processing unit assets (bpd)	1,197,516		1,202,032		(4,516)

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(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to the partners plus (i) interest expense, net of interest income, (ii) state income tax expense and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA plus (i) loss on early extinguishment of debt, (ii) goodwill impairment and (iii) tariffs and fees not included in revenues due to impacts from lease accounting for certain tariffs and fees minus (iv) gain on sales-type leases, (v) gain on significant asset sales, and (vi) pipeline lease payments not included in operating costs and expenses. Portions of our minimum guaranteed pipeline and terminal tariffs and fees for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. These tariffs and fees were previously recorded as revenues prior to the renewal of the throughput agreements, which triggered sales-type lease accounting. Similarly, certain pipeline lease payments were previously recorded as operating costs and expenses, but the underlying lease was reclassified from an operating lease to a financing lease, and these payments are now recorded as interest expense and reductions in the lease liability. EBITDA and Adjusted EBITDA are not calculations based upon generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA and Adjusted EBITDA calculations are derived from amounts included in our consolidated financial statements. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income attributable to Holly Energy Partners or operating income, as indications of our operating performance or as alternatives to operating cash flow as a measure of liquidity. EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA are presented here because they are widely used financial indicators used by investors and analysts to measure performance. EBITDA and Adjusted EBITDA are also used by our management for internal analysis and as a basis for compliance with financial covenants. Set forth below are our calculations of EBITDA and Adjusted EBITDA.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Net income attributable to the partners	$	49,160	$	17,813	$	169,302	$	119,144
Add (subtract):
Interest expense	13,417		14,104		40,595		45,650
Interest income	(6,835)		(2,803)		(19,997)		(7,834)
State income tax (benefit) expense	(4)		34		60		110
Depreciation and amortization	21,826		26,190		71,894		75,202
EBITDA	$	77,564	$	55,338	$	261,854	$	232,272
Loss on early extinguishment of debt	—		—		—		25,915
Gain on sales-type leases	—		—		(24,677)		(33,834)
Gain on significant asset sales	—		—		(5,263)		—
Goodwill impairment	—		35,653		11,034		35,653
HEP's pro-rata share of gain on business interruption insurance settlement	—		(6,079)		—		(6,079)
Tariffs and fees not included in revenues	7,312		3,129		21,337		8,603
Lease payments not included in operating costs	(1,606)		(1,606)		(4,819)		(4,819)
Adjusted EBITDA	$	83,270	$	86,435	$	259,466	$	257,711

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Net income attributable to the partners	$	49,160	$	17,813	$	169,302	$	119,144
Add (subtract):
Depreciation and amortization	21,826		26,190		71,894		75,202
Amortization of discount and deferred debt issuance costs	763		838		2,992		2,479
Loss on early extinguishment of debt	—		—		—		25,915
Customer billings greater than revenue recognized	(122)		(198)		(301)		(699)
Maintenance capital expenditures (3)	(3,351)		(1,565)		(8,834)		(5,192)
Increase in environmental liability	271		29		36		187
Decrease in reimbursable deferred revenue	(2,991)		(3,257)		(10,507)		(9,062)
Gain on sales-type leases	—		—		(24,677)		(33,834)
Gain on significant asset sales	—		—		(5,263)		—
Goodwill impairment	—		35,653		11,034		35,653
Other	1,254		1,391		1,031		3,265
Distributable cash flow	$	66,810	$	76,894	$	206,707	$	213,058

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

	September 30, 2021		December 31, 2020
	(In thousands)
Balance Sheet Data
Cash and cash equivalents	$	12,816	$	21,990
Working capital	$	3,146	$	14,247
Total assets	$	2,152,576	$	2,167,565
Long-term debt	$	1,333,309	$	1,405,603
Partners’ equity	$	437,998	$	379,292

Results of Operations—Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Summary

Net income attributable to the partners for the third quarter of 2021 was $49.2 million ($0.46 per basic and diluted limited partner unit) compared to $17.8 million ($0.17 per basic and diluted limited partner unit) for the third quarter of 2020. Net income attributable to HEP for the third quarter of 2020 included a goodwill impairment charge of $35.7 million related to our Cheyenne reporting unit and a $6.1 million gain related to HEP's pro-rata share of a business interruption insurance claim settlement resulting from a loss at HollyFrontier's Woods Cross Refinery. Excluding these items, net income attributable to the partners for the third quarters of 2021 and 2020 were $49.2 million ($0.46 per basic and diluted limited partner unit) and $47.4 million ($0.45 per basic and diluted limited partner unit), respectively. The increase in earnings was mainly due to higher interest income associated with sales-type leases, higher equity in earnings from our joint ventures and lower depreciation expense partially offset by lower revenues and higher operating expenses.

Revenues

Revenues for the third quarter were $122.6 million, a decrease of $5.1 million compared to the third quarter of 2020. The decrease was mainly due to lower on-going revenues on our Cheyenne assets as a result of the conversion of the HollyFrontier

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Cheyenne Refinery to renewable diesel production, reclassifications of certain tariffs and fees from revenue to interest income under sales-type lease accounting and a 3% decrease in overall crude and product pipeline volumes.

Revenues from our refined product pipelines were $27.5 million, a decrease of $0.9 million compared to the third quarter of 2020. Shipments averaged 162.3 thousand barrels per day (“mbpd”) compared to 179.6 mbpd for the third quarter of 2020. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing HollyFrontier's Navajo refinery and our pipelines servicing Delek's Big Spring refinery.

Revenues from our intermediate pipelines were $7.5 million, consistent with the third quarter of 2020. Shipments averaged 136.4 mbpd for the third quarter of 2021 compared to 142.8 mbpd for the third quarter of 2020. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HollyFrontier's Navajo refinery while revenue remained constant mainly due to contractual minimum volume guarantees.

Revenues from our crude pipelines were $32.3 million, consistent with the third quarter of 2020. Shipments averaged 408.0 mbpd compared to 404.3 mbpd for the third quarter of 2020. The increased volume was mainly attributable to our crude pipeline systems in Wyoming and Utah.

Revenues from terminal, tankage and loading rack fees were $33.3 million, a decrease of $5.7 million compared to the third quarter of 2020. Refined products and crude oil terminalled in the facilities averaged 472.2 mbpd compared to 459.3 mbpd for the third quarter of 2020. The increase in volume was mainly the result of higher throughputs at HollyFrontier's El Dorado refinery. Revenues decreased mainly due to lower on-going revenues on our Cheyenne assets as a result of the conversion of the HollyFrontier Cheyenne Refinery to renewable diesel production and reclassifications of certain tariffs and fees from revenue to interest income under sales-type lease accounting.

Revenues from refinery processing units were $21.9 million, an increase of $1.5 million compared to the third quarter of 2020, and throughputs averaged 72.3 mbpd compared to 62.0 mbpd for the third quarter of 2020. The increase in volumes was mainly due to increased throughput for both our Woods Cross and El Dorado processing units. Revenues increased mainly due to higher natural gas recoveries in revenues. Revenues did not increase in proportion to the increase in volumes mainly due to contractual minimum volume guarantees.

Operations Expense

Operations (exclusive of depreciation and amortization and goodwill impairment) expense was $42.8 million for the three months ended September 30, 2021, an increase of $2.8 million compared to the third quarter of 2020. The increase was mainly due to higher natural gas costs and employee costs for the three months ended September 30, 2021.

Depreciation and Amortization

Depreciation and amortization for the three months ended September 30, 2021 decreased by $4.4 million compared to the three months ended September 30, 2020. The decrease was mainly due to the acceleration of depreciation on certain of our Cheyenne tanks in 2020.

General and Administrative

General and administrative costs for the three months ended September 30, 2021 increased by $1.5 million compared to the three months ended September 30, 2020, mainly due to higher legal and professional expenses associated with our Sinclair acquisition.

Equity in Earnings of Equity Method Investments

	Three Months Ended September 30,
Equity Method Investment	2021		2020
	(in thousands)
Osage Pipe Line Company, LLC	$	1,090	$	219
Cheyenne Pipeline LLC	1,654		533
Cushing Connect Terminal Holdings LLC	945		564
Total	$	3,689	$	1,316

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Equity in earnings of Osage Pipe Line Company, LLC increased for the three months ended September 30, 2021, mainly due to higher throughput volumes. Equity in earnings of Cheyenne Pipeline LLC increased for the three months ended September 30, 2021, mainly due to the recognition in revenue of prior contractual minimum commitment billings. Equity in earnings of Cushing Connect Terminal Holdings LLC increased for the three months ended September 30, 2021, mainly due to lower operating expenses.

Interest Expense, including Amortization

Interest expense for the three months ended September 30, 2021, totaled $13.4 million, a decrease of $0.7 million compared to the three months ended September 30, 2020. The decrease was mainly due to lower average borrowings outstanding under our senior secured revolving credit facility during the third quarter of 2021. Our aggregate effective interest rates were 3.7% and 3.6% for the three months ended September 30, 2021 and 2020, respectively.

State Income Tax Expense

We recorded state income tax benefit of $4,000 and a state income tax expense of $34,000 for the three months ended September 30, 2021 and 2020, respectively. All tax expense is solely attributable to the Texas margin tax.

Results of Operations—Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Summary

Net income attributable to the partners for the nine months ended September 30, 2021, was $169.3 million ($1.60 per basic and diluted limited partner unit) compared to $119.1 million ($1.13 per basic and diluted limited partner unit) for the nine months ended September 30, 2020. Results for the nine months ended September 30, 2021, include special items that collectively increased net income attributable to the partners by a total of $18.9 million. These items include a gain on sales-type leases of $24.7 million, a gain on significant asset sales of $5.3 million and a goodwill impairment charge of $11.0 million. In addition, the net income attributable to the partners for the nine months ended September 30, 2020, included a gain on sales-type leases of $33.8 million, a loss on early extinguishment of debt of $25.9 million, a goodwill impairment charge of $35.7 million related to our Cheyenne reporting unit and a $6.1 million gain related to HEP’s pro-rate share of a business interruption insurance claim resulting from a loss at HollyFrontier’s Woods Cross Refinery. Excluding these items, net income attributable to the partners for the nine months ended September 30, 2021 and 2020, were $150.4 million ($1.43 per basic and diluted limited partner unit) and $140.8 million ($1.34 per basic and diluted limited partner unit), respectively. The increase in earnings was mainly due to higher volumes across our crude pipelines, higher interest income associated with sales-type leases and lower interest expense, partially offset by higher operating expenses.

Revenues

Revenues for the nine months ended September 30, 2021, were $376.0 million, an increase of $5.6 million compared to the nine months ended September 30, 2020. The increase was mainly attributable to increased volumes on our crude pipeline systems in Wyoming and Utah, the recognition of the $10 million termination fee related to the termination of HollyFrontier's minimum volume commitment on our Cheyenne assets and higher revenues on our refinery processing units partially offset by lower on-going revenues on our Cheyenne assets and our pipelines servicing Delek's Big Spring refinery as well as reclassifications of certain tariffs and fees from revenue to interest income under sales-type lease accounting.

Revenues from our refined product pipelines were $84.7 million, a decrease of $3.7 million compared to the nine months ended September 30, 2020. Shipments averaged 165.8 mbpd compared to 172.6 mbpd for the nine months ended September 30, 2020. The volume and revenue decreases were mainly due to lower volumes on pipelines servicing Delek's Big Spring refinery.

Revenues from our intermediate pipelines were $22.6 million, an increase of $0.1 million compared to the nine months ended September 30, 2020. Shipments averaged 131.9 mbpd compared to 137.8 mbpd for the nine months ended September 30, 2020. The decrease in volumes was mainly due to lower throughputs on our intermediate pipelines servicing HollyFrontier's Tulsa refinery while revenue remained relatively constant mainly due to contractual minimum volume guarantees.

Revenues from our crude pipelines were $94.9 million, an increase of $8.0 million compared to the nine months ended September 30, 2020. Shipments averaged 393.0 mbpd compared to 380.1 mbpd for the nine months ended September 30, 2020. The increases were mainly attributable to increased volumes on our crude pipeline systems in Wyoming and Utah.

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Revenues from terminal, tankage and loading rack fees were $108.4 million, a decrease of $4.4 million compared to the nine months ended September 30, 2020. Refined products and crude oil terminalled in the facilities averaged 436.9 mbpd compared to 451.0 mbpd for the nine months ended September 30, 2020. Volumes decreased mainly as a result of lower throughputs at HollyFrontier's Tulsa refinery as well as the cessation of petroleum refinery operations at HollyFrontier's Cheyenne Refinery. Revenues decreased mainly as a result of reclassifications of certain tariffs and fees from revenue to interest income under sales-type lease accounting.

Revenues from refinery processing units were $65.4 million, an increase of $5.6 million compared to the nine months ended September 30, 2020. Throughputs averaged 69.9 mbpd compared to 60.6 mbpd for the nine months ended September 30, 2020. The increase in volumes was mainly due to increased throughput for both our Woods Cross and El Dorado processing units. Revenues increased mainly due to higher recovery of natural gas costs as well as higher throughputs.

Operations Expense

Operations expense (exclusive of depreciation and amortization) for the nine months ended September 30, 2021, increased by $16.5 million compared to the nine months ended September 30, 2020. The increase was mainly due to higher maintenance, natural gas, and pipeline rental costs, partially offset by lower materials and supplies and property taxes.

Depreciation and Amortization

Depreciation and amortization for the nine months ended September 30, 2021, decreased by $3.3 million compared to the nine months ended September 30, 2020. The decrease was mainly due to the acceleration of depreciation on certain of our Cheyenne tanks in 2020 as well as retirement of assets due to sales-type lease accounting.

General and Administrative

General and administrative costs for the nine months ended September 30, 2021, increased by $2.1 million compared to the nine months ended September 30, 2020 mainly due to higher legal and professional expenses incurred in the nine months ended September 30, 2021.

Equity in Earnings of Equity Method Investments

	Nine Months Ended September 30,
Equity Method Investment	2021		2020
	(in thousands)
Osage Pipe Line Company, LLC	2,726		1,599
Cheyenne Pipeline LLC	3,428		2,693
Cushing Connect Terminal Holdings LLC	2,721		894
Total	$	8,875	$	5,186

Equity in earnings of Osage Pipe Line Company, LLC increased for the nine months ended September 30, 2021, mainly due to higher throughput volumes. Equity in earnings of Cheyenne Pipeline LLC increased for the nine months ended September 30, 2021, mainly due to the recognition in revenue of prior contractual minimum commitment billings. Equity in earnings of Cushing Connect Terminal Holdings LLC increased for the nine months ended September 30, 2021 as the terminal started operations in the second quarter of 2020.

Interest Expense, including Amortization

Interest expense for the nine months ended September 30, 2021, totaled $40.6 million, a decrease of $5.1 million compared to the nine months ended September 30, 2020. The decrease was mainly due to lower average borrowings outstanding on our senior secured revolving credit facility and refinancing our $500 million aggregate principal amount of 6.0% senior notes due 2024, with $500 million aggregate principal amount of 5.0% senior notes due 2028. Our aggregate effective interest rates were 3.7% and 3.8% for the nine months ended September 30, 2021 and 2020, respectively.

State Income Tax Expense

We recorded state income tax expense of $60,000 and $110,000 for the nine months ended September 30, 2021 and 2020, respectively. All tax expense is solely attributable to the Texas margin tax.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

In April 2021, we amended our senior secured revolving credit facility (the “Credit Agreement”) decreasing the size of the facility from $1.4 billion to $1.2 billion and extending the maturity date to July 27, 2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit and continues to provide for an accordion feature that allows us to increase commitments under the Credit Agreement up to a maximum amount of $1.7 billion.

During the nine months ended September 30, 2021, we received advances totaling $210.5 million and repaid $283.5 million under the Credit Agreement, resulting in a net decrease of $73.0 million and an outstanding balance of $840.5 million at September 30, 2021 under the Credit Agreement. As of September 30, 2021, we have no letters of credit outstanding under the Credit Agreement and the available capacity under the Credit Agreement was $359.5 million. Amounts repaid under the Credit Agreement may be reborrowed from time to time.

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% Senior Notes due in 2028. On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. We did not issue any units under this program during the nine months ended September 30, 2021. As of September 30, 2021, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

Under our registration statement filed with the Securities and Exchange Commission (“SEC”) using a “shelf” registration process, we currently have the authority to raise up to $2.0 billion by offering securities, through one or more prospectus supplements that would describe, among other things, the specific amounts, prices and terms of any securities offered and how the proceeds would be used. Any proceeds from the sale of securities are expected to 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 sources of liquidity, including cash balances, future internally generated funds, any future issuances of debt or equity securities and funds available under the Credit Agreement will provide sufficient resources to meet our working capital liquidity, capital expenditure and quarterly distribution needs for the foreseeable future, including funding the cash portion of the HEP Transactions with Sinclair. Future securities issuances, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

We reduced our quarterly distribution to $0.35 per unit beginning with the distribution for the first quarter of 2020, representative of our new distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and improving distributable cash flow coverage to 1.3x or greater with the goal of reducing leverage to 3.0-3.5x.

In August 2021, we paid a regular quarterly cash distribution of $0.35 on all units in an aggregate amount of $37.0 million.

Cash and cash equivalents decreased by $9.2 million during the nine months ended September 30, 2021. The cash flows provided by operating activities of $240.8 million were less than the cash flows used for financing activities of $182.2 million and investing activities of $67.7 million. Working capital decreased by $11.1 million to $3.1 million at September 30, 2021, from $14.2 million at December 31, 2020.

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Cash Flows—Operating Activities

Cash flows from operating activities increased by $15.7 million from $225.0 million for the nine months ended September 30, 2020, to $240.8 million for the nine months ended September 30, 2021. The increase was mainly due to higher cash receipts from customers and lower payments for interest expenses partially offset by higher payments for operating costs and expenses during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

Cash Flows—Investing Activities

Cash flows used for investing activities were $67.7 million for the nine months ended September 30, 2021, compared to $39.4 million for the nine months ended September 30, 2020, an increase of $28.3 million. During the nine months ended September 30, 2021 and 2020, we invested $78.6 million and $38.6 million, respectively, in additions to properties and equipment. We received $3.5 million in excess of equity in earnings and $7.4 million in proceeds from the sale of assets during the nine months ended September 30, 2021.

Cash Flows—Financing Activities

Cash flows used for financing activities were $182.2 million for the nine months ended September 30, 2021, compared to $180.8 million for the nine months ended September 30, 2020, an increase of $1.4 million. During the nine months ended September 30, 2021, we received $210.5 million and repaid $283.5 million in advances under the Credit Agreement. Additionally, we paid $112.4 million in regular quarterly cash distributions to our limited partners and $8.7 million to our noncontrolling interests. We received $21.3 million in contributions from noncontrolling interests during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, we received $219.5 million and repaid $237.0 million in advances under the Credit Agreement. We paid $137.4 million in regular quarterly cash distributions to our limited partners, and distributed $7.8 million to our noncontrolling interests. We also received net proceeds of $491.3 million for issuance of our 5% Senior Notes and paid $522.5 million to retire our 6% Senior Notes. In addition, we received $15.4 million in contributions from noncontrolling interests during the nine months ended September 30, 2020.

Capital Requirements

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

Each year the board of directors of HLS, our ultimate general partner, approves our annual capital budget, which specifies capital projects that our management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, additional projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures approved for capital projects included in the current year’s capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. Our current 2021 capital forecast is comprised of approximately $15 million to $20 million for maintenance capital expenditures, $2 million to $4 million for refinery unit turnarounds and $40 million to $45 million for expansion capital expenditures and our share of Cushing Connect Joint Venture investments. We expect the majority of the 2021 expansion capital to be invested in our share of Cushing Connect Joint Venture investments. In addition to our capital budget, we may spend funds periodically to perform capital upgrades or additions to our assets where a customer reimburses us for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements.

We expect that our currently planned sustaining and maintenance capital expenditures, as well as planned expenditures for acquisitions and capital development projects, will be funded with cash generated by operations.

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%

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interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 million beginning July 1, 2015, and ending in June 2032, subject to certain limitations. However, to the extent earnings thresholds are not achieved, no redemption payments are required. No redemption payments have been required to date.

Credit Agreement

In April 2021, we amended our Credit Agreement decreasing the commitments under the facility from $1.4 billion to $1.2 billion and extending the maturity date to July 27, 2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments and working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit, and it continues to provide for an accordion feature that allows us to increase the commitments under the Credit Agreement up to a maximum amount of $1.7 billion.

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

We may prepay all loans at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of September 30, 2021.

Senior Notes

As of September 30, 2021, we had $500 million in aggregate principal amount of 5% Senior Notes due in 2028.

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% Senior Notes due in 2028. On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. We were in compliance with the restrictive covenants for the 5% Senior Notes as of September 30, 2021. At any time when the 5% Senior Notes are rated investment grade by either Moody’s or 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 5% Senior Notes.

Indebtedness under the 5% Senior Notes is guaranteed by all of our existing wholly owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt

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

	September 30, 2021		December 31, 2020
	(In thousands)
Credit Agreement	$	840,500	913,500
5% Senior Notes
Principal	500,000		500,000
Unamortized debt issuance costs	(7,191)		(7,897)
	492,809		492,103
Total long-term debt	$	1,333,309	$	1,405,603

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Contractual Obligations

There were no significant changes to our long-term contractual obligations during the quarter ended September 30, 2021.

Impact of Inflation

Inflation in the United States did not have a material impact on our results of operations for the nine months ended September 30, 2021 and 2020. PPI has increased an average of 0.9% annually over the past five calendar years, including a decrease of 1.4% in 2020 and an increase of 0.8% in 2019. PPI for the first nine months of 2021 increased by 7.6% over the first nine months of 2020.

The substantial majority of our revenues are generated under long-term contracts that provide for increases or decreases in our rates and minimum revenue guarantees annually for increases or decreases in the PPI. Certain of these contracts have provisions that limit the level of annual PPI percentage rate increases or decreases, and the majority of our rates do not decrease when PPI is negative. A significant and prolonged period of high inflation or a significant and prolonged period of negative inflation could adversely affect our cash flows and results of operations if costs increase at a rate greater than the fees we charge our shippers.

Environmental Matters

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

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

There are environmental remediation projects in progress that relate to certain assets acquired from HFC. Certain of these projects were underway prior to our purchase and represent liabilities retained by HFC. At September 30, 2021, we had an accrual of $4.6 million that related to environmental clean-up projects for which we have assumed liability or for which the indemnity provided for by HFC has expired or will expire. The remaining projects, including assessment and monitoring activities, are covered under the HFC environmental indemnification discussed above and represent liabilities of HFC.

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, 2020. Certain critical

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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 2021. We consider these policies to be critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows.

Accounting Pronouncements Adopted During the Periods Presented

Credit Losses Measurement

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

RISK MANAGEMENT

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

At September 30, 2021, we had an outstanding principal balance of $500 million on our 5% Senior Notes. A change in interest rates generally would affect the fair value of the 5% Senior Notes, but not our earnings or cash flows. At September 30, 2021, the fair value of our 5% Senior Notes was $506.8 million. We estimate a hypothetical 10% change in the yield-to-maturity applicable to the 5% Senior Notes at September 30, 2021 would result in a change of approximately $13.1 million in the fair value of the underlying 5% Senior Notes.

For the variable rate Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At September 30, 2021, borrowings outstanding under the Credit Agreement were $840.5 million. A hypothetical 10% change in interest rates applicable to the Credit Agreement would not materially affect our cash flows.

Our operations are subject to normal hazards of operations, including but not limited to fire, explosion, cyberattacks and weather-related perils. We maintain various insurance coverages, including property damage, business interruption and cyber insurance, subject to certain deductibles and insurance policy terms and conditions. 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, 2020.

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.

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Item 4.Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2021, at a reasonable level of assurance.

(b) Changes in internal control over financial reporting

During the three months ended September 30, 2021, 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

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

Item 1A.Risk Factors

Except for the risk factors below, there have been no material changes in our risk factors as previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in Part II, “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. In addition to the other information set forth in this quarterly report, you should consider carefully the information discussed in our 2020 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2020 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 pending HEP Transactions may not be consummated on a timely basis or at all. Failure to complete the acquisition within the expected timeframe or at all could adversely affect our common unit price and our future business and financial results.

On August 2, 2021, we entered into the Contribution Agreement with Sinclair and certain other parties thereto to acquire all of the issued and outstanding capital stock of STC. We expect the acquisition to close in mid-2022. The HEP Transactions are subject to closing conditions. If these conditions are not satisfied or waived, the acquisition will not be consummated. If the closing of the HEP Transactions is substantially delayed or does not occur at all, or if the terms of the acquisition are required to be modified substantially, we may not realize the anticipated benefits of the acquisition fully or at all, or they may take longer to realize than expected. The closing conditions include, among others, the absence of a law or order prohibiting the transactions contemplated by the business combination agreement and the termination or expiration of any waiting periods under the Hart-Scott Rodino Act, as amended (the “HSR Act”), with respect to the acquisition. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HFC and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review. We have incurred and will continue to incur substantial transaction costs whether or not the acquisition is completed. Any failure to complete the HEP Transactions could have a material adverse effect on our common unit price, our competitiveness and reputation in the marketplace, and our future business and financial results, including our ability to execute on our strategy to return capital to our unitholders.

The HEP Transactions will require management to devote significant attention and resources to integrating the Sinclair business with our business. Potential difficulties that may be encountered in the integration process include, among others:

•the inability to successfully integrate the Sinclair business into the HEP business in a manner that permits us to achieve the revenue and cost savings that we announced as anticipated from the acquisition;

•complexities associated with managing the larger, integrated business;

•potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the acquisition;

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•integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;

•loss of key employees;

•integrating relationships with customers, vendors and business partners;

•performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the acquisition and integrating Sinclair’s operations into HEP; and

•the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and common unit price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.

Litigation relating to the Sinclair acquisition could result in substantial costs to HEP or an injunction preventing the completion of the Sinclair acquisition.

Securities class action lawsuits, derivative and related lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert the time and resources of management. An adverse judgment could result in monetary damages, which could have a negative impact on HEP’s liquidity and financial condition.

Lawsuits that may be brought against us, have been or may be brought against HollyFrontier, and/or our or HollyFrontier’s directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the acquisition agreement already implemented, issue additional disclosures and to otherwise enjoin the parties from consummating the Sinclair acquisition. HollyFrontier and the members of HollyFrontier’s board of directors were named as defendants in a lawsuit filed in Harris County, Texas, brought by an alleged HollyFrontier shareholder challenging the Sinclair acquisition and seeking, among other things, injunctive relief to enjoin and/or rescind the acquisition agreement and make additional or corrective disclosures. An additional lawsuit filed by an alleged HollyFrontier shareholder in the United States District Court for the Southern District of New York asserts claims under Section 14(a) of the Exchange Act and SEC Rule 14a-9 and claims under Section 20(a) of the Exchange Act against HollyFrontier and the members of HollyFrontier’s board of directors, and seeks, among other things, to enjoin and/or rescind the acquisition agreement and require defendants to amend the related proxy statement, and, if they do not, to recover damages. Additional lawsuits in connection with the Sinclair acquisition may be filed in the future in federal or state courts.

The outcome of these lawsuits or any other lawsuit that may be filed challenging the Sinclair acquisition is uncertain. One of the conditions to the closing of the Sinclair acquisition is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case, that prohibits or makes illegal the closing of the Sinclair acquisition. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Sinclair acquisition or delaying the shareholder vote, that injunction may delay or prevent the Sinclair acquisition from being completed within the expected timeframe or at all, which could result in substantial costs to us and may adversely affect our business, financial position, results of operations and cash flows. Relatedly, the defense or settlement of any lawsuit or claim that remains unresolved at the time the Sinclair acquisition is completed may adversely affect our business, financial condition, results of operations and cash flows and result in substantial costs to us.

Item 6.Exhibits

The Exhibit Index beginning on page 54 of this Quarterly Report on Form 10-Q lists the exhibits that are filed or furnished, as applicable, as part of this Quarterly Report on Form 10-Q.

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Exhibit Index

Exhibit Number	Description
2.1†	Contribution Agreement, dated as of August 2, 2021, by and among Holly Energy Partners, L.P., The Sinclair Companies, and Sinclair Transportation Company (incorporated by reference to Exhibit 2.1 of Registrant’s Current Report on Form 8-K filed on August 3, 2021, File No. 1-32225).
3.1	Second Amended and Restated Agreement of Limited Partnership of Holly Energy Partners, L.P. (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on November 1, 2017, File No. 1-32225).
3.2	First Amended and Restated Agreement of Limited Partnership of HEP Operating Company, L.P. (incorporated by reference to Exhibit 3.2 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, File No. 1-32225).
3.3	First Amended and Restated Agreement of Limited Partnership of HEP Logistics Holdings, L.P. (incorporated by reference to Exhibit 3.4 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.4	First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 3.5 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
3.5	Amendment No. 1 to the First Amended and Restated Limited Liability Company Agreement of Holly Logistic Services, L.L.C., dated April 27, 2011 (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K Current Report filed on May 3, 2011, File No. 1-32225).
3.6	First Amended and Restated Limited Liability Company Agreement of HEP Logistics GP, L.L.C. (incorporated by reference to Exhibit 3.6 of Registrant’s Quarterly Report on Form 10-Q for its quarterly period ended June 30, 2004, File No. 1-32225).
10.1	Second Amendment to Seventh Amended and Restated Master Throughput Agreement, entered into as of July 27, 2021, effective as of May 1, 2021, by and between HollyFrontier Refining & Marketing LLC and Holly Energy Partners – Operating L.P. (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, File No. 1-32225).
10.2†	Unitholders Agreement, dated as of August 2, 2021, by and among Holly Energy Partners, L.P., Holly Logistic Services, L.L.C., Navajo Pipeline Co., L.P., The Sinclair Companies, and the unitholders set forth on Schedule I thereto, as may be amended from time to time (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on August 3, 2021, File No. 1-32225).
10.3	Letter Agreement, dated as of August 2, 2021, by and among HollyFrontier Corporation and Holly Energy Partners, L.P. (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on August 3, 2021, File No. 1-32225).
10.4*+	Second Amendment to the Holly Energy Partners, L.P. Long-Term Incentive Plan, effective October 27, 2021.
10.5*+	Form of Performance Unit Agreement (Executive).
10.6*+	Form of Phantom Unit Agreement (Employee).
10.7*+	Form of Notice of Grant of Phantom Units (Employee).
10.8*+	Form of Phantom Unit Agreement (Non-Employee Director Award).
10.9*+	Form of Notice of Grant of Phantom Unit Agreement (Non-Employee Director Award).
10.10+	Consulting Agreement between Holly Logistics Services, L.L.C. and Mark Cunningham, effective February 19, 2022 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on October 29, 2021, File No. I-32225).
31.1*	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101++	The following financial information from Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Partners’ Equity, and (v) Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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*	Filed herewith.
**	Furnished herewith.
+	Constitutes management contracts or compensatory plans or arrangements.
++	Filed electronically herewith.
†	Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request.

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HOLLY ENERGY PARTNERS, L.P.

SIGNATURES

Pursuant to the requirements of the Securities 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: November 3, 2021		/s/    John Harrison
		John Harrison
		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Date: November 3, 2021		/s/    Kenneth P. Norwood
		Kenneth P. Norwood
		Vice President and Controller (Principal Accounting Officer)

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EX-10.4

Exhibit 10.4

SECOND AMENDMENT TO THE

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

(As Amended and Restated Effective February 10, 2012)

    This SECOND AMENDMENT (this “Second Amendment”) to the Holly Energy Partners, L.P. Long-Term Incentive Plan (As Amended and Restated effective February 10, 2012, and first amended effective January 16, 2013, the “Plan”), is adopted as of October 27, 2021 (the “Effective Date”).

WHEREAS, the Plan was previously adopted to promote the interests of Holly Energy Partners, L.P., a Delaware limited partnership (the “Partnership”), by providing equity-based incentive awards to employees, consultants and directors of Holly Logistics Services, L.L.C., a Delaware limited liability company (the “Company”), and its affiliates, who perform services for or on behalf of the Partnership and its subsidiaries; and

WHEREAS, the Plan is administered by the Board of Directors of the Company (the “Board”) or a committee of the Board that is appointed to administer the Plan (referred to as the “Administrator”);

WHEREAS, the Plan does not currently contain cash-based incentive awards;

WHEREAS, the Administrator has determined that it is desirable to amend the Plan to include a cash-based incentive award that may be granted to certain eligible individuals (the “Cash Award”);

WHEREAS, the Administrator has determined that only individuals that are not “executive officers,” as determined by the Administrator at the time of the grant of the Cash Award (“Non-Executives”), will be deemed eligible to receive a Cash Award pursuant to the Plan.

NOW, THEREFORE, the Plan shall be amended as of the Effective Date as set forth below, and the Board has resolved other matters relating to the Plan as follows:

1.Amendments to the Plan

(a)Section 1, Purpose of the Plan. The first sentence of Section 1 of the Plan shall be amended and restated in its entirety as follows:

The Holly Energy Partners, L.P. Long-Term Incentive Plan (the “Plan”) has been adopted to promote the interests of Holly Energy Partners, L.P., a Delaware limited partnership (the “Partnership”), by providing to employees, consultants, and directors of Holly Logistic Services, L.L.C., a Delaware limited liability company (the “Company”), and its Affiliates who perform services for or on behalf of the Partnership and its subsidiaries incentive compensation awards for superior performance.

(b)Section 2, Definitions. The term “Award” shall be amended and restated in its entirety as follows:

“Award” means an Option, Restricted Unit, Phantom Unit, Unit Appreciation Right, Unit Award, Substitute Award, Performance Unit or Cash Award granted under the Plan, and shall include any tandem DERs granted with respect to a Phantom Unit.

(c)Section 2, Definitions. A new term “Cash Award” shall be added in alphabetical order to the list of definitions in Section 2 as follows:

“Cash Award” means an Award denominated in cash granted under Section 6(g).

(d)Section 6, Awards. A new Cash Award will be added to the list of available Awards as Section 6(g) as follows, with the current Section 6(g), General, to be moved to a new Section 6(h):

(g)    Cash Award. The Committee is authorized to grant Cash Awards, on a free-standing basis or as an element of, a supplement to, or in lieu of any other Award under the Plan to Eligible Persons in such amounts and subject to such other terms as the Committee in its discretion determines to be appropriate.

2.Grants of Cash Awards. The Board has resolved that, as of the Effective Date, only Non-Executive individuals will be deemed eligible to receive a grant of a Cash Award pursuant to the Plan.

3.Except as set forth above, the Plan shall continue to read in its current state.

[Signature Page Follows.]

2

IN WITNESS WHEREOF, this Second Amendment has been executed by a duly authorized officer, effective as of the Effective Date.

HOLLY ENERGY PARTNERS, L.P.

By:    HEP LOGISTICS HOLDINGS, L.P.,

     It’s General Partner

By:     HOLLY LOGISTICS SERVICES, L.L.C.,

     It’s General Partner

By:     /s/ Richard L. Voliva III    

Name:      Richard L. Voliva III

Title:     President

EX-10.5

Exhibit 10.5

HOLLY ENERGY PARTNERS, L.P.

LONG-TERM INCENTIVE PLAN

PERFORMANCE UNIT AGREEMENT

This Performance Unit Agreement (the “Agreement”) is made and entered into by and between Holly Logistic Services, L.L.C., a Delaware limited liability company (the “Company”), and you. This Agreement is entered into as of the ___ day of _________, 2021 (the “Date of Grant”).

W I T N E S S E T H:

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

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

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

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

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

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

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

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

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

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

(a)    Termination Generally. Subject to subsections (b), (c) and (d) below, if your employment relationship with the Company and its subsidiaries is terminated for any reason (including if you voluntarily separate from employment (other than due to your Retirement) or are terminated by action of the Company (including termination for Cause but other than a Special Involuntary Termination)), then all Performance Units hereunder will be forfeited.

(b)    Termination Due to Death, Disability or Retirement. In the event of your termination of employment with the Partnership and the Company prior to December 1 of Year Three due to your (i) death, (ii) total and permanent disability as determined by the Compensation Committee of the Company’s Board of Directors (the “Committee”) in its sole discretion, or (iii) Retirement, then you (or your beneficiary, if applicable) shall forfeit a number of the Performance Units equal to the number of Performance Units specified in Section 1 hereof times the percentage that (A) the number of days beginning on the day on which the date of Retirement occurs and ending on the last day of the Service Period, (B) bears to the total number of days in the Service Period. In the event of such forfeiture, the number of Units payable hereunder shall be equal to the result of

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US 8344952v.3

multiplying the number of remaining Performance Share Units by the target Performance Unit Payout Percentage. In its sole discretion, the Committee may make a payment to you assuming a Performance Percentage of up to 200% of the Performance Units instead of the pro-rata number of Performance Units as determined pursuant to this Section 4(b). Payment with respect to the remaining Units shall be made as soon as administratively practicable following your Retirement, but in no event later than 90 days after the date your employment terminates.

(c)    Special Involuntary Termination. In the event of a Special Involuntary Termination before December 1 of Year Three, the Performance Units will become immediately vested and nonforfeitable assuming a Performance Unit Payout Percentage of one hundred percent (100%) instead of the Performance Unit Payout Percentage that would otherwise be determined at the end of the Performance Period in accordance with Section 3. Payment shall be made as soon as administratively practicable following the Special Involuntary Termination, but in no event later than 90 days after the date your employment terminates. Payment pursuant to this Section 4(c) is in lieu of payment pursuant to Section 4(b) and if you receive payment pursuant to this Section 4(c) you will not be entitled to any payment pursuant to Section 4(b).

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

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

5.Payment of Performance Units.

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

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

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extent required to avoid the imputation of any tax, penalty, or interest pursuant to Section 409A of the Code.

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

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

8.Compliance with Securities and Other Applicable Laws. Notwithstanding any provision of this Agreement to the contrary, the issuance of Units (including Performance Units) will be subject to compliance with all applicable requirements of federal, state, or foreign law

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

9.Legends. The Company may at any time place legends referencing any restrictions imposed on the Units pursuant to Section 8 of this Agreement on all certificates representing Units issued with respect to this Award.

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

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

12.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Performance Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 12 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.

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

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held to be invalid, and the rights and obligations of the parties will be construed and enforced accordingly.

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

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

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

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

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

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

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

21.Nontransferability of Agreement. This Agreement and all rights under this Agreement shall not be transferable by you during your life other than by will or pursuant to applicable laws of descent and distribution. Any of your rights and privileges in connection

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herewith shall not be transferred, assigned, pledged or hypothecated by you or by any other person or persons, in any way, whether by operation of law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar process. In the event of any such occurrence, this Agreement shall automatically be terminated and shall thereafter be null and void. Notwithstanding the foregoing, all or some of the Units or rights under this Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court of competent jurisdiction.

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

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

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

25.Certain Covenants.

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

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

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

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

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

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

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

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

(c)    Extent of Restrictions. You acknowledge that the restrictions contained in this Section 25 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of the Company and Partnership, and that any violation will cause substantial injury to the Company and Partnership. In the event of any such violation, the Company and Partnership shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. You waive, to the maximum extent permissible by law, any defenses or

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other objections to such remedies or the enforceability of this Section 25. To the maximum extent permissible by law, if any court having jurisdiction shall find that any part of the restrictions set forth this Section 25 are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that the restrictions set forth in this Section 25 shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable.

(d)    Limitations. In the event any breach of the covenants set forth in this Section 25 comes to the attention of the Company or Partnership, this Award and the Performance Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However, nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 25 to the attorney of the individual and use such information in the court proceeding.

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

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

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contrary, if you are a “specified employee” under Section 409A of the Code at the time of separation from service and if payment of any amount under this Agreement is required to be delayed for a period of six months after the separation from service pursuant to Section 409A of the Code, payment of such amount shall be delayed as required by Section 409A of the Code, and the accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of postponed amount, the accumulated postponed amount shall be paid to the personal representative of your estate within 60 days after the date of your death.

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

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

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

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

HOLLY LOGISTIC SERVICES, L.L.C.

                 ___________________________________

Michael C. Jennings

Chief Executive Officer

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Appendix A

Defined Terms

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

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

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

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

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

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

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

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

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

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

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

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

“EBITDA” is defined as the Partnership’s earnings before interest, taxes, depreciation and amortization of for each 12 month period during the Performance Period.

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

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

Notwithstanding the table above, the Committee retains the ability to adjust the EBITDA Performance Percentage in its discretion regardless of the Partnership’s actual EBITDA or the Target EBITDA established with respect to any, or each, Oct. 1-Sept. 30 period within the Performance Period.

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

“HFC” means HollyFrontier Corporation.

“HFC Board” means Board of Directors of HFC.

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

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

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

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

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

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

“Target EBITDA” means the sum of the EBITDA targets established by the Committee for each Oct. 1-Sept. 30 period during the Performance Period. The target EBITDA will be communicated to you within the fourth quarter of each calendar year within the Performance Period.

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

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

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

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EX-10.6

Exhibit 10.6

HOLLY ENERGY PARTNERS, L.P.

LONG-TERM INCENTIVE PLAN

PHANTOM UNIT AGREEMENT

(Employee)

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

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

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

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

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

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

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

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

3.Distribution Equivalents. In the event that the Company declares and pays a distribution in respect of its outstanding Units on or after the Date of Grant and, on the record date for such distribution, you hold Phantom Units granted pursuant to this Agreement that have not been settled, the Company shall pay to you an amount in cash equal to the cash distributions

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you would have received if you were the holder of record as of such record date, of the number of Units related to the portion of your Phantom Units that have not been settled as of such record date, such payment (“Distribution Equivalents”) to be made on or promptly following the date that the Company pays such distribution (however, in no event shall the Distribution Equivalents be paid later than 30 days following the date on which the Company pays such distribution to its unitholders generally).

4.Restrictions; Forfeiture. The Phantom Units are restricted in that they cannot be sold, transferred or otherwise alienated or hypothecated until Units related to such Phantom Units are issued pursuant to Section 7 following the removal or expiration of the restrictions as contemplated in Section 5 (and Section 6, if applicable) of this Agreement and as described in the Notice of Grant. In the event you cease to be an employee of the Company and any of its subsidiaries, other than as provided in Section 6 below, the Phantom Units that are not vested on the date of such cessation of employment shall be immediately forfeited.

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

6.Termination of Employment.

(a)Termination Generally. Subject to subsections (b), (c), and (d) below, if your employment relationship with the Company and its subsidiaries is terminated for any reason (including if you voluntarily separate from employment (other than due to your Retirement) or are terminated by action of the Company (including termination for Cause but other than a Special Involuntary Termination)), then those Phantom Units that have not become Vested as of the date of termination shall become null and void and those Phantom Units shall be forfeited to the Company. The Phantom Units that are Vested as of the date of such termination shall not be forfeited to the Company and will be settled in accordance with Section 7.

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

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

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

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

7.Issuance of Units. Units shall be issued to you in settlement of your Vested Phantom Units within 30 days following the date upon which such Phantom Units become Vested in accordance with the Agreement (or such longer period of days, not more than 65, specified in a release described in Section 14). At the time of settlement, the Company shall cause to be issued Units registered in your name in payment of the Award. The Company shall evidence the Units to be issued in payment of the Phantom Units in the manner it deems appropriate. The value of any fractional Phantom Unit shall be rounded down at the time Units, if any, are issued to you. No fractional Units, nor the cash value of any fractional Units, will be issuable or payable to you pursuant to this Agreement. The value of Units shall not bear any interest owing to the passage of time. Neither this Section 7 nor any action taken pursuant to or in accordance with this Section 7 shall be construed to create a trust or a funded or secured obligation of any kind.

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

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subparagraph (a) or (b). In the event the Company determines that the aggregate Fair Market Value of the Units withheld as payment of any tax withholding is insufficient to discharge that tax withholding, then you must pay to the Company, in cash, the amount of that deficiency immediately upon the Company’s request. In the event that you fail to make arrangements that are acceptable to the Committee for providing to the Company, at the time or times required, the amounts of federal, state and local taxes required to be withheld with respect to the Phantom Units granted to you under this Agreement, the Company shall have the right to purchase and/or to sell to one or more third parties in either market or private transactions sufficient Units otherwise paid or payable pursuant to this Award to provide the funds needed for the Company to make the required tax payment or payments.

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

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

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

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

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

14.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Phantom Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 14 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.

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

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

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

18.Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, without giving any effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Units hereunder is

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subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Units.

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

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

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

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

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

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

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

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

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27.Certain Covenants.

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

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

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

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

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

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

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

(b)Non-Solicitation. You agree that during the term of your employment with the Company, Partnership or their Affiliates and for a period of one year following your termination of employment with the Company, Partnership and their Affiliates, you will not, directly or indirectly, for your benefit or for the benefit of others, solicit any employee or service provider of the Company, Partnership or their Affiliates to terminate his or her employment or his, her or its service relationship with the Company, Partnership or their Affiliates; provided, however, that (y) after the termination of your employment for any reason, such employees and service providers shall only include such employees and service providers that you directly worked with in the twelve months preceding the date of termination of your employment, and (z) it will not constitute a violation of this Section 27(b) if an employee or service provider of the Company, Partnership or their Affiliates accepts employment or a service relationship with a Person not affiliated with the Company, Partnership or their Affiliates (i) pursuant to a general solicitation advertising the position, (ii) as a result of communications initiated by the employee or service provider of the Company, Partnership or their Affiliates (and not in response to any solicitation by you) or (iii) where the employment or service relationship with the Company, Partnership or their Affiliates with respect to such person was terminated more than six months prior to any action by you that would otherwise be a violation of this Section 27(b).

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

(d)Limitations. In the event any breach of the covenants set forth in this Section 27 comes to the attention of the Company or Partnership, this Award and the Phantom Units granted hereunder that have not at such time been settled shall be immediately forfeited to the Company and the Company and Partnership shall take into consideration such breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. However, nothing in this Agreement will prevent you from: (i) making a good faith report of possible violations of applicable law to any governmental agency or entity or (ii) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint

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or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 27 to the attorney of the individual and use such information in the court proceeding.

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

29.Compliance with Section 409A. This Agreement is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of Section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith. Termination or separation from employment, separation from service and similar terms used in this Agreement shall mean a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h). Each payment under this Agreement is considered a separate payment for purposes of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, if you are a “specified employee” under Section 409A of the Code at the time of separation from service and if payment of any amount under this Agreement is required to be delayed for a period of six months after the separation from service pursuant to Section 409A of the Code, payment of such amount shall be delayed as required by Section 409A of the Code, and the accumulated postponed amount shall be paid in a lump sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of postponed amount, the accumulated postponed amount shall be paid to the personal representative of your estate within 60 days after the date of your death.

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

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

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

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

34.Defined Terms.

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

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

(c)“Beneficial Owner” has the meaning provided in Rule 13d-3 under the Exchange Act.

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

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

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

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

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

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

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

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

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

(g)“HFC” means HollyFrontier Corporation.

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

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

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

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

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

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

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EX-10.7

Exhibit 10.7

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

NOTICE OF GRANT OF PHANTOM UNITS

(Employee)

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

Grantee:        ____________

Date of Grant:        _____________ __, 2021 (the “Date of Grant”)

Number of Units:    ____________

Vesting Schedule: The restrictions on all of the Phantom Units granted pursuant to the Agreement will expire and the Phantom Units will vest according to the following schedule (or on the first business day thereafter if the date below falls on a weekend) (each such date, a “Regular Vesting Date”); provided, that (except as otherwise provided in Section 6 of your Agreement) you remain in the employ of the Company or its subsidiaries continuously from the Date of Grant through such Regular Vesting Dates (as determined under the Agreement). The period beginning on the Date of Grant and ending on the last Regular Vesting Date shall be referred to as your “Service Period.”

On Each of the Following Regular Vesting Dates	Cumulative Portion of Phantom Units that will become Vested
December 1, 2022	One-third
December 1, 2023	One-third
December 1, 2024	One-third

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Exhibit 10.7

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

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

Holly Logistic Services, L.L.C.

Michael C. Jennings, Chief Executive Officer

2

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Appendix A

A-1

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EX-10.8

Exhibit 10.8

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

PHANTOM UNIT AGREEMENT
(Non-Employee Director Award)

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

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

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

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

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

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

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

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

3.Distribution Equivalents. In the event that the Company declares and pays a distribution in respect of its outstanding Units on or after the Date of Grant and, on the record date for such distribution, you hold Phantom Units granted pursuant to this Agreement that have not been settled, the Company shall pay to you an amount in cash equal to the cash distributions you would have received if you were the holder of record as of such record date, of the number

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of Units related to the portion of your Phantom Units that have not been settled as of such record date, such payment (“Distribution Equivalents”) to be made on or promptly following the date that the Company pays such distribution (however, in no event shall the Distribution Equivalents be paid later than 30 days following the date on which the Company pays such distribution to its unitholders generally).

4.Restrictions; Forfeiture. The Phantom Units are restricted in that they cannot be sold, transferred or otherwise alienated or hypothecated until Units related to such Phantom Units are issued pursuant to Section 7 following the removal and expiration of the restrictions as contemplated in Section 5 of this Agreement and as described in the Notice of Grant. In the event you cease to be a member of the Board, other than as provided in Section 6 below, the Phantom Units that are not vested on the date of such cessation of service shall be immediately forfeited.

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

6.Termination of Services.

(a)Termination Generally. Subject to subsections (b) and (c) below, if you cease to be a member of the Board for any reason, then those Phantom Units that have not become Vested as of the date services cease shall become null and void and those Phantom Units shall be forfeited to the Company. The Phantom Units that are Vested as of date such services cease shall not be forfeited to the Company and will be settled in accordance with Section 7.

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

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

7.Issuance of Units. Units shall be issued to you in settlement of your Vested Phantom Units within 30 days following the date upon which such Phantom Units become

    2

Vested in accordance with the Agreement (or such longer period of days, not more than 65, specified in a release described in Section 13). At the time of settlement, the Company shall cause to be issued Units registered in your name in payment of the Award. The Company shall evidence the Units to be issued in payment of the Phantom Units in the manner it deems appropriate. The value of any fractional Phantom Unit shall be rounded down at the time Units, if any, are issued to you. No fractional Units, nor the cash value of any fractional Units, will be issuable or payable to you pursuant to this Agreement. The value of Units shall not bear any interest owing to the passage of time. Neither this Section 7 nor any action taken pursuant to or in accordance with this Section 7 shall be construed to create a trust or a funded or secured obligation of any kind.

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

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

    3

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

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

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

13.Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Phantom Units or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, will, to the extent thereof, be in full satisfaction of all claims of such Persons hereunder. In addition, the Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a general release of all claims in favor of the Company, the Partnership, any Affiliate and the employees, officers, stockholders or board members of the foregoing in such form as the Company may determine. In the event the period you are given to review, execute and revoke a release provided pursuant to this Section 13 spans two calendar years, any payment to you pursuant to this Agreement will be made in the second calendar year.

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

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

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

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

    4

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

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

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

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

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

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

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

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

26.Information Confidential. As partial consideration for the granting of the Award hereunder, you hereby agree to keep confidential all information and knowledge, except that

    5

which has been disclosed in any public filings required by law, that you have relating to the terms and conditions of this Agreement; provided, however, that such information may be disclosed as required by law and may be given in confidence to your spouse and tax and financial advisors. In the event any breach of this promise comes to the attention of the Company, it shall take into consideration that breach in determining whether to recommend the grant of any future similar award to you, as a factor weighing against the advisability of granting any such future award to you. Nothing in this Agreement will prevent you from: (a) making a good faith report of possible violations of applicable law to any governmental agency or entity or (b) making disclosures that are protected under the whistleblower provisions of applicable law. For the avoidance of doubt, nothing herein shall prevent you from making a disclosure that: (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Section 26 to the attorney of the individual and use such information in the court proceeding.

27.Section 409A. This Agreement is not intended to constitute a deferral of compensation within the meaning of Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will be exempt from or, notwithstanding the preceding sentence, comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. The applicable provisions of Section 409A of the Code are hereby incorporated by reference and shall control over any contrary provisions herein that conflict therewith.

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

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

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

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

32.Defined Terms.

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

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

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

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

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

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

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

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

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

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

(e)“HFC” means HollyFrontier Corporation.

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

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

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

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EX-10.9

Exhibit 10.9

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

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

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

Grantee:        ____________

Date of Grant:        ____________ __, 2021 (the “Date of Grant”)

Number of Units:    __________

Vesting Schedule:    The restrictions on all of the Phantom Units granted pursuant to the Agreement will expire and the Phantom Units will become transferable and non-forfeitable on December 1, 2022 (the “RegularVesting Date”); provided, that you remain a member of the Board continuously from the Date of Grant through such date. The period beginning on the Date of Grant and ending on the Regular Vesting Date shall be referred to as your “Service Period.”

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

Vesting of the Units will be included in your income in an amount equal to the closing price of the Units on the date of vesting (or if such day is not a business day, the last preceding business day). By receipt of the Phantom Units you acknowledge and agree that (a) you are not relying upon any determination by the Company, its affiliates, Holly Energy Partners, L.P. or any of their respective employees, directors, officers, attorneys or agents (collectively, the “Company Parties”) of the Fair Market Value of the Units on the Date of Grant, (b) you are not relying upon any written or oral statement or representation of the Company Parties regarding the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Phantom Units, (c) in accepting the Phantom Units you are relying on your own judgment and the judgment of the professionals of your choice with whom you have consulted and (d) a copy of the Agreement and the Plan has been made available to you. In addition, you consent to

    1

Exhibit 10.9

receive documents from the Company and any plan administrator by means of electronic delivery, provided that such delivery complies with applicable law, including, without limitation, documents pursuant or relating to any equity award granted to you under the Plan or any other current or future equity or other benefit plan of the Company (the “Company’s Equity Plans”). This consent shall be effective for the entire time that you are a participant in a Company Equity Plan. By accepting the Phantom Units you release, acquit and forever discharge the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with this Notice and the Agreement and your receipt, holding and vesting of the Phantom Units.

Holly Logistic Services, L.L.C.

____________________________________    

Michael C. Jennings, Chief Executive Officer

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Appendix A

    A-1

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: November 3, 2021	/s/ Michael C. Jennings
	Michael C. Jennings
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John Harrison, 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: November 3, 2021	/s/ John Harrison
	John Harrison
	Senior Vice President, Chief Financial Officer  and Treasurer

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 September 30, 2021 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 18 U.S.C. Section 1350, as adopted 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, as amended; 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: November 3, 2021	/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 September 30, 2021 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Harrison, Senior Vice President, Chief Financial Officer and Treasurer 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 18 U.S.C. Section 1350, as adopted 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: November 3, 2021	/s/ John Harrison
	John Harrison
	Senior Vice President, Chief Financial Officer  and Treasurer

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2021	Oct. 29, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	1-32225
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-0833098
Entity Address, Address Line One	2828 N. Harwood,
Entity Address, Address Line Two	Suite 1300
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75201
City Area Code	214
Local Phone Number	871-3555
Title of 12(b) Security	Common Limited Partner Units
Trading Symbol	HEP
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		105,440,201
Entity Registrant Name	HOLLY ENERGY PARTNERS LP
Entity Central Index Key	0001283140
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents (Cushing Connect VIEs: $7,472 and $18,259, respectively)	$ 12,816	$ 21,990
Accounts receivable:
Trade	12,121	14,543
Affiliates	41,507	47,972
Total accounts receivable	53,628	62,515
Prepaid and other current assets	8,174	9,487
Total current assets	74,618	93,992
Properties and equipment, net (Cushing Connect VIEs: $0 and $47,801, respectively)	1,335,042	1,450,685
Operating lease right-of-use assets, net	2,501	2,979
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	306,071	166,316
Intangible assets, net	76,809	87,315
Goodwill	223,650	234,684
Equity method investments (Cushing Connect VIEs: $37,691 and $39,456, respectively)	117,027	120,544
Other assets	16,858	11,050
Total assets	2,152,576	2,167,565
Accounts payable:
Trade (Cushing Connect VIEs: $10,083 and $14,076, respectively)	25,472	28,280
Affiliates	14,605	18,120
Total accounts payable	40,077	46,400
Accrued interest	4,604	10,892
Deferred revenue	10,768	11,368
Accrued property taxes	8,877	3,992
Current operating lease liabilities	706	875
Current finance lease liabilities	3,753	3,713
Other current liabilities	2,687	2,505
Total current liabilities	71,472	79,745
Long-term debt	1,333,309	1,405,603
Noncurrent operating lease liabilities	2,169	2,476
Noncurrent finance lease liabilities	65,565	68,047
Other long-term liabilities	12,317	12,905
Deferred revenue	30,920	40,581
Class B unit	55,593	52,850
Partners’ equity:
Common unitholders (105,440 units issued and outstanding at September 30, 2021 and December 31, 2020)	437,998	379,292
Noncontrolling interests	143,233	126,066
Total equity	581,231	505,358
Total liabilities and equity	$ 2,152,576	$ 2,167,565

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	$ 12,816	$ 21,990
Properties and equipment, net	1,335,042	1,450,685
Net investment in leases	306,071	166,316
Equity method investments	117,027	120,544
Trade payable	$ 25,472	$ 28,280
Common units outstanding (in shares)	105,440,000	105,440,000
Common unit issued (in shares)	105,440,000	105,440,000
VIEs
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	$ 7,472	$ 18,259
Properties and equipment, net	0	47,801
Net investment in leases	95,598	0
Equity method investments	37,691	39,456
Trade payable	$ 10,083	$ 14,076

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Revenues:
Revenues:	$ 122,584	$ 127,731	$ 376,002	$ 370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	42,793	40,003	126,226	109,721
Depreciation and amortization	21,826	26,190	71,894	75,202
General and administrative	3,849	2,332	9,664	7,569
Goodwill impairment	0	35,653	11,034	35,653
Total operating costs and expenses	68,468	104,178	218,818	228,145
Operating income	54,116	23,553	157,184	142,247
Other income (expense):
Equity in earnings of equity method investments	3,689	1,316	8,875	5,186
Interest expense	(13,417)	(14,104)	(40,595)	(45,650)
Interest income	6,835	2,803	19,997	7,834
Gain on sales-type leases	0	0	24,677	33,834
Loss on early extinguishment of debt	0	0	0	(25,915)
Gain on sale of assets and other	77	7,465	5,994	8,439
Total other income (expense)	(2,816)	(2,520)	18,948	(16,272)
Income before income taxes	51,300	21,033	176,132	125,975
State income tax benefit (expense)	4	(34)	(60)	(110)
Net income	51,304	20,999	176,072	125,865
Allocation of net income attributable to noncontrolling interests	(2,144)	(3,186)	(6,770)	(6,721)
Net income attributable to the partners	$ 49,160	$ 17,813	$ 169,302	$ 119,144
Limited partners’ per unit interest in earnings— basic (in USD per share)	$ 0.46	$ 0.17	$ 1.60	$ 1.13
Limited partners’ per unit interest in earnings— diluted (in USD per share)	$ 0.46	$ 0.17	$ 1.60	$ 1.13
Weighted average limited partners’ units outstanding, basic (in shares)	105,440	105,440	105,440	105,440
Weighted average limited partners’ units outstanding, diluted (in shares)	105,440	105,440	105,440	105,440
Affiliates
Revenues:
Revenues:	$ 97,124	$ 100,992	$ 298,192	$ 297,983
Third parties
Revenues:
Revenues:	$ 25,460	$ 26,739	$ 77,810	$ 72,409

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities
Net income	$ 176,072	$ 125,865
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	71,894	75,202
Gain on sale of assets	(5,567)	(887)
Loss on early extinguishment of debt	0	25,915
Gain on sales-type leases	(24,677)	(33,834)
Goodwill impairment	11,034	35,653
Amortization of deferred charges	2,992	2,479
Equity-based compensation expense	1,856	1,547
Equity in earnings of equity method investments, net of distributions	0	(238)
(Increase) decrease in operating assets:
Accounts receivable—trade	3,020	4,874
Accounts receivable—affiliates	6,465	3,212
Prepaid and other current assets	2,452	1,885
Increase (decrease) in operating liabilities:
Accounts payable—trade	3,202	(2,258)
Accounts payable—affiliates	(3,515)	(9,815)
Accrued interest	(6,288)	(8,515)
Deferred revenue	(3,702)	(3,675)
Accrued property taxes	4,885	5,173
Other current liabilities	183	544
Other, net	468	1,913
Net cash provided by operating activities	240,774	225,040
Cash flows from investing activities
Additions to properties and equipment	(78,592)	(38,642)
Investment in Cushing Connect JV Terminal	0	(2,438)
Proceeds from sale of assets	7,365	961
Distributions in excess of equity in earnings of equity investments	3,517	701
Net cash used for investing activities	(67,710)	(39,418)
Cash flows from financing activities
Borrowings under credit agreement	210,500	219,500
Repayments of credit agreement borrowings	(283,500)	(237,000)
Redemption of senior notes	0	(522,500)
Proceeds from issuance of debt	0	500,000
Contributions from general partner	0	611
Contributions from noncontrolling interests	21,285	15,382
Distributions to HEP unitholders	(112,384)	(137,437)
Distributions to noncontrolling interests	(8,743)	(7,845)
Payments on finance leases	(2,666)	(2,666)
Deferred financing costs	(6,661)	(8,714)
Units withheld for tax withholding obligations	(69)	(149)
Net cash used by financing activities	(182,238)	(180,818)
Cash and cash equivalents
Increase (decrease) for the period	(9,174)	4,804
Beginning of period	21,990	13,287
End of period	12,816	18,091
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$ 44,147	$ 51,375

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Consolidated Statements of Equity - USD ($) $ in Thousands	Total	Common Units	Noncontrolling Interests
Balance, beginning of period at Dec. 31, 2019	$ 487,758	$ 381,103	$ 106,655
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	7,304		7,304
Distributions to HEP unitholders	(68,519)	(68,519)
Distributions to noncontrolling interests	(3,000)		(3,000)
Equity-based compensation	506	506
Class B unit accretion	(835)	(835)
Other	208	208
Net income	26,912	25,696	1,216
Balance, end of period at Mar. 31, 2020	450,334	338,159	112,175
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	5,959		5,959
Distributions to HEP unitholders	(34,460)	(34,460)
Distributions to noncontrolling interests	(1,000)		(1,000)
Equity-based compensation	474	474
Class B unit accretion	(835)	(835)
Other	80	80
Net income	77,954	77,305	649
Balance, end of period at Jun. 30, 2020	498,506	380,723	117,783
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	2,119		2,119
Distributions to HEP unitholders	(34,458)	(34,458)
Distributions to noncontrolling interests	(3,845)		(3,845)
Equity-based compensation	567	567
Class B unit accretion	(894)	(894)
Other	177	177
Net income	20,999	18,706	2,293
Balance, end of period at Sep. 30, 2020	483,171	364,821	118,350
Balance, beginning of period at Dec. 31, 2020	505,358	379,292	126,066
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	9,746		9,746
Distributions to HEP unitholders	(38,328)	(38,328)
Distributions to noncontrolling interests	(3,819)		(3,819)
Equity-based compensation	683	683
Class B unit accretion	(893)	(893)
Other	(68)	(68)
Net income	66,937	65,290	1,647
Balance, end of period at Mar. 31, 2021	539,616	405,976	133,640
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	9,780		9,780
Distributions to HEP unitholders	(37,028)	(37,028)
Distributions to noncontrolling interests	(2,053)		(2,053)
Equity-based compensation	527	527
Class B unit accretion	(894)	(894)
Other	(2)	(2)
Net income	57,831	56,639	1,192
Balance, end of period at Jun. 30, 2021	567,777	425,218	142,559
Increase (Decrease) in Partners' Equity [Roll Forward]
Contributions from noncontrolling interest	2,358		2,358
Distributions to HEP unitholders	(37,028)	(37,028)
Distributions to noncontrolling interests	(2,871)		(2,871)
Equity-based compensation	646	646
Class B unit accretion	(956)	(956)
Other	1	1
Net income	51,304	50,117	1,187
Balance, end of period at Sep. 30, 2021	$ 581,231	$ 437,998	$ 143,233

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Description of Business and Presentation of Financial Statements

9 Months Ended

Sep. 30, 2021

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. As of September 30, 2021, HollyFrontier Corporation (“HFC”) and its subsidiaries own a 57% limited partner interest and the non-economic general partner interest in HEP. We commenced operations on July 13, 2004, upon the completion of our initial public offering. In these consolidated financial statements, the words “we,” “our,” “ours” and “us” refer to HEP unless the context otherwise indicates.

We own and operate petroleum product and crude oil pipelines, terminal, tankage and loading rack facilities and refinery processing units that support refining and marketing operations of HFC and other refineries in the Mid-Continent, Southwest and Northwest regions of the United States. Additionally, we own a 75% interest in UNEV Pipeline, LLC (“UNEV”), a 50% interest in Osage Pipe Line Company, LLC (“Osage”), a 50% interest in Cheyenne Pipeline LLC, and a 50% interest in Cushing Connect Pipeline & Terminal LLC.

On June 1, 2020, HFC announced plans to permanently cease petroleum refining operations at its Cheyenne Refinery (the “Cheyenne Refinery”) and to convert certain assets at that refinery to renewable diesel production. HFC subsequently began winding down petroleum refining operations at the Cheyenne Refinery on August 3, 2020.

On February 8, 2021, HEP and HFC finalized and executed new agreements for HEP’s Cheyenne assets with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC will pay a base tariff to HEP for available crude oil storage and HFC and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

On April 1, 2021, we sold our 156-mile, 6-inch refined product pipeline that connected HFC’s Navajo Refinery to terminals in El Paso for gross proceeds of $7.0 million and recognized a gain on sale of $5.3 million.

We operate in two reportable segments, a Pipelines and Terminals segment and a Refinery Processing Unit segment. Disclosures around these segments are discussed in Note 16.

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

The consolidated financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of our results for the interim periods. Such adjustments are considered to be of a normal recurring nature. Although certain notes and other information required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, we believe that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. 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, 2021.

Principles of Consolidation and Common Control Transactions

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

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

Goodwill and Long-lived Assets

Goodwill represents the excess of our cost of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

Indicators of Goodwill and Long-lived Asset Impairment

The changes in our new agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair value of our Cheyenne reporting unit was derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.

We performed our annual goodwill impairment testing qualitatively as of July 1, 2021, and determined it was not more likely than not that the carrying amount of each reporting unit was greater than its fair value. Therefore, a quantitative test was not necessary, and no additional impairment of goodwill was recorded.

We evaluate long-lived assets, including finite-lived intangible assets, for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value.

Revenue Recognition

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

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

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

In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights projected to be exercised by the customer. During the nine months ended September 30, 2021 and 2020, we recognized $12.3 million and $13.8 million, respectively, of these deficiency payments in revenue, of which $0.5 million and $0.7 million, respectively, related to deficiency payments billed in prior periods.

We have other cost reimbursement provisions in our throughput / storage agreements providing that customers (including HFC) reimburse us for certain costs. Such reimbursements are recorded as revenue or deferred revenue depending on the nature of the cost. Deferred revenue is recognized over the remaining contractual term of the related throughput agreement.

Leases

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

Lessee Accounting

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

Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties and equipment, current finance lease liabilities and noncurrent finance lease liabilities on our consolidated balance sheet.

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

Lessor Accounting

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

Accounting Pronouncements Adopted During the Periods Presented

Credit Losses Measurement

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

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Sinclair Acquisition

9 Months Ended

Sep. 30, 2021

Business Combinations [Abstract]

Sinclair Acquisition

Sinclair Acquisition

HEP Transactions

On August 2, 2021, HEP, The Sinclair Companies (“Sinclair”) and Sinclair Transportation Company, a wholly owned subsidiary of Sinclair (“STC”), entered into a Contribution Agreement (the “Contribution Agreement”) pursuant to which HEP will acquire all of the outstanding shares of STC in exchange for 21 million newly issued common units of HEP and cash consideration equal to $325 million (the “HEP Transactions”). On the same date, HFC, Sinclair and certain other parties entered into a Business Combination Agreement pursuant to which Sinclair will contribute all of the equity interests of Hippo Holding LLC, which owns Sinclair Oil Corporation, to a new HFC parent holding company that will be named “HF Sinclair Corporation” in exchange for 60,230,036 shares of common stock in HF Sinclair Corporation (the “HFC Transactions”, and together with the HEP Transactions, the “Sinclair Transactions”).

The cash consideration for the HEP Transactions is subject to customary adjustments at closing for working capital of STC. The number of HEP common units to be issued to Sinclair at closing is subject to downward adjustment if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HEP agrees to divest a portion of its equity interest in UNEV Pipeline, LLC and the sales price for such interests does not exceed the threshold provided in the Contribution Agreement.

The Contribution Agreement contains customary representations, warranties and covenants of HEP, Sinclair, and STC. The HEP Transactions are expected to close in mid-2022, subject to the satisfaction or waiver of certain customary conditions, including, among others, the receipt of certain required regulatory consents and clearance, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”), and the consummation of the HFC Transactions. On August 23, 2021, each of HollyFrontier and Sinclair filed its respective premerger notification and report regarding the Sinclair Transactions with the U.S. Department of Justice and the U.S. Federal Trade Commission (the “FTC”) under the HSR Act. On September 22, 2021, HFC and Sinclair each received a request for additional information and documentary material (“Second Request”) from the FTC in connection with the FTC’s review of the Sinclair Transactions. Issuance of the Second Request extends the waiting period under the HSR Act until 30 days after both HollyFrontier and Sinclair have substantially complied with the Second Request, unless the waiting period is terminated earlier by the FTC or the parties otherwise commit not to close the Sinclair Transactions for some additional period of time. HollyFrontier and Sinclair are cooperating with the FTC staff in its review.

The Contribution Agreement automatically terminates if the HFC Transactions are terminated, and contains other customary termination rights, including a termination right for each of HEP and Sinclair if, under certain circumstances, the closing does not occur by May 2, 2022 (the “Outside Date”), except that the Outside Date can be extended by either party by up to two 90 day periods to obtain any required antitrust clearance.

Upon closing of the HEP Transactions, HEP’s existing senior management team will continue to operate HEP. Under the definitive agreements, Sinclair will be granted the right to nominate one director to the HEP board of directors at the closing. The Sinclair stockholders have also agreed to certain customary lock-up restrictions and registration rights for the HEP common units to be issued to the stockholders of Sinclair. HEP will continue to operate under the name Holly Energy Partners, L.P.

See Note 11 for a description of the Letter Agreement between HFC and HEP entered into in connection with the Contribution Agreement.

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Investment in Joint Venture

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

Investment in Joint Venture

Investment in Joint Venture

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

The Cushing Connect Joint Venture contracted with an affiliate of HEP to manage the construction and operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect JV Terminal. The total Cushing Connect Joint Venture investment will generally be shared equally among the partners. However, we are solely responsible for any Cushing Connect Pipeline construction costs that exceed the budget by more than 10%. HEP estimates its share of the cost of the Cushing Connect JV Terminal contributed by Plains and Cushing Connect Pipeline construction costs will be approximately $70 million to $75 million.

The Cushing Connect Joint Venture legal entities are variable interest entities ("VIEs") as defined under GAAP. A VIE is a legal entity if it has any one of the following characteristics: (i) the entity does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The Cushing Connect Joint Venture legal entities do not have sufficient equity at risk to finance their activities without additional financial support. Since HEP is constructing and will operate the Cushing Connect Pipeline, HEP has more ability to direct the activities that most significantly impact the financial performance of the Cushing Connect Joint Venture and Cushing Connect Pipeline legal entities. Therefore, HEP consolidates those legal entities. We do not have the ability to direct the activities that most significantly impact the Cushing Connect JV Terminal legal entity, and therefore, we account for our interest in the Cushing Connect JV Terminal legal entity using the equity method of accounting.

With the exception of the assets of HEP Cushing, creditors of the Cushing Connect Joint Venture legal entities have no recourse to our assets. Any recourse to HEP Cushing would be limited to the extent of HEP Cushing's assets, which other than its investment in Cushing Connect Joint Venture, are not significant. Furthermore, our creditors have no recourse to the assets of the Cushing Connect Joint Venture legal entities.

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Revenues

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

Revenues are generally recognized as products are shipped through our pipelines and terminals, feedstocks are processed through our refinery processing units or other services are rendered. See Note 1 for further discussion of revenue recognition.

Disaggregated revenues were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Pipelines	$	67,354	$	68,292	$	202,180	$	197,718
Terminals, tanks and loading racks	33,317		39,036		108,386		112,814
Refinery processing units	21,913		20,403		65,436		59,860
	$	122,584	$	127,731	$	376,002	$	370,392

Revenues on our consolidated statements of income were composed of the following lease and service revenues:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Lease revenues	$	84,074	$	90,077	$	258,877	$	269,931
Service revenues	38,510		37,654		117,125		100,461
	$	122,584	$	127,731	$	376,002	$	370,392

A contract liability exists when an entity is obligated to perform future services for a customer for which the entity has received consideration. Since HEP may be required to perform future services for these deficiency payments received, the deferred revenues on our balance sheets were considered contract liabilities. A contract asset exists when an entity has a right to consideration in exchange for goods or services transferred to a customer. Our consolidated balance sheets included the contract assets and liabilities in the table below:

	September 30, 2021		December 31, 2020
	(In thousands)
Contract assets	$	6,593	$	6,306
Contract liabilities	$	(482)	$	(500)

The contract assets and liabilities include both lease and service components. During the nine months ended September 30, 2021, we recognized $0.5 million of revenue that was previously included in contract liability as of December 31, 2020. During the nine months ended September 30, 2021, we also recognized $0.3 million of revenue included in contract assets.

As of September 30, 2021, we expect to recognize $1.7 billion in revenue related to our unfulfilled performance obligations under the terms of our long-term throughput agreements and leases expiring in 2022 through 2036. These agreements generally provide for changes in the minimum revenue guarantees annually for increases or decreases in the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index, with certain contracts having provisions that limit the level of the rate increases or decreases. We expect to recognize revenue for these unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and lease revenues):

Years Ending December 31,	(In millions)
Remainder of 2021	$	84
2022	312
2023	276
2024	238
2025	172
2026	157
Thereafter	483
Total	$	1,722

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

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Leases

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Leases

Leases

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

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 23 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $6.0 million and $6.4 million as of September 30, 2021 and December 31, 2020, respectively, with accumulated depreciation of $3.4 million as of both September 30, 2021 and December 31, 2020. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

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

	September 30, 2021		December 31, 2020
Operating leases:
Operating lease right-of-use assets, net	$	2,501	$	2,979
Current operating lease liabilities	706		875
Noncurrent operating lease liabilities	2,169		2,476
Total operating lease liabilities	$	2,875	$	3,351
Finance leases:
Properties and equipment	$	6,031	$	6,410
Accumulated amortization	(3,437)		(3,390)
Properties and equipment, net	$	2,594	$	3,020
Current finance lease liabilities	$	3,753	$	3,713
Noncurrent finance lease liabilities	65,565		68,047
Total finance lease liabilities	$	69,318	$	71,760
Weighted average remaining lease term (in years):
Operating leases	5.8		5.9
Finance leases	15.2		15.9
Weighted average discount rate:
Operating leases	4.8%		4.8%
Finance leases	5.6%		5.6%

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

	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	855	$	773
Operating cash flows on finance leases	$	3,110	$	3,241
Financing cash flows on finance leases	$	2,666	$	2,666

Maturities of lease liabilities were as follows:

	September 30, 2021
	Operating		Finance
	(In thousands)
2021	$	262	$	1,832
2022	690		7,335
2023	603		7,374
2024	497		6,929
2025	429		6,470
2026 and thereafter	787		73,888
Total lease payments	3,268		103,828
Less: Imputed interest	(393)		(34,510)
Total lease obligations	2,875		69,318
Less: Current lease liabilities	(706)		(3,753)
Noncurrent lease liabilities	$	2,169	$	65,565

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease costs	$	260	$	242	$	807	$	745
Finance lease costs
Amortization of assets	195		251		607		766
Interest on lease liabilities	983		1,032		2,983		3,108
Variable lease cost	43		64		175		159
Total net lease cost	$	1,481	$	1,589	$	4,572	$	4,778

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

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

During the nine months ended September 30, 2021, we entered into new agreements, and amended other agreements, with HFC related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-

type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HFC. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

	Nine Months Ended September 30, 2021
	(In thousands)
Net investment in leases	$	143,720
Properties and equipment, net	(125,602)
Deferred revenue	6,559
Gain on sales-type leases	$	24,677

During the nine months ended September 30, 2020, one of our throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed. A component of this agreement met the criteria of a sales-type lease since the underlying asset is not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at the commencement date of the lease, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2020 composed of the following:

	Nine Months Ended September 30, 2020
	(In thousands)
Net investment in lease	$	35,319
Properties and equipment, net	(1,485)
Gain on sales-type lease	$	33,834

These sales-type lease transactions, including the related gain, were non-cash transactions.

Lease income recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease revenues	$	80,907	$	87,125	$	251,605	$	262,518
Direct financing lease interest income	521		525		1,568		1,572
Gain on sales-type leases	—		—		24,677		33,834
Sales-type lease interest income	6,313		2,278		18,429		6,218
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	3,167		2,952		7,272		7,413

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

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2021:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2021	$	71,001	$	544	$	10,525
2022	283,916		2,171		42,102
2023	253,459		2,175		38,196
2024	217,355		2,192		34,967
2025	153,934		2,209		31,539
2026 and thereafter	558,415		38,837		279,406
Total lease receipt payments	$	1,538,080	$	48,128	$	436,735
Less: Imputed interest			(31,734)		(367,089)
			16,394		69,646
Unguaranteed residual assets at end of leases			—		224,779
Net investment in leases			$	16,394	$	294,425

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

	September 30, 2021				December 31, 2020
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	211,053	$	16,394	$	88,922	$	16,452
Unguaranteed residual assets	83,372		—		64,551		—
Net investment in leases	$	294,425	$	16,394	$	153,473	$	16,452

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

Leases

Leases

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

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 23 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $6.0 million and $6.4 million as of September 30, 2021 and December 31, 2020, respectively, with accumulated depreciation of $3.4 million as of both September 30, 2021 and December 31, 2020. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

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

	September 30, 2021		December 31, 2020
Operating leases:
Operating lease right-of-use assets, net	$	2,501	$	2,979
Current operating lease liabilities	706		875
Noncurrent operating lease liabilities	2,169		2,476
Total operating lease liabilities	$	2,875	$	3,351
Finance leases:
Properties and equipment	$	6,031	$	6,410
Accumulated amortization	(3,437)		(3,390)
Properties and equipment, net	$	2,594	$	3,020
Current finance lease liabilities	$	3,753	$	3,713
Noncurrent finance lease liabilities	65,565		68,047
Total finance lease liabilities	$	69,318	$	71,760
Weighted average remaining lease term (in years):
Operating leases	5.8		5.9
Finance leases	15.2		15.9
Weighted average discount rate:
Operating leases	4.8%		4.8%
Finance leases	5.6%		5.6%

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

	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	855	$	773
Operating cash flows on finance leases	$	3,110	$	3,241
Financing cash flows on finance leases	$	2,666	$	2,666

Maturities of lease liabilities were as follows:

	September 30, 2021
	Operating		Finance
	(In thousands)
2021	$	262	$	1,832
2022	690		7,335
2023	603		7,374
2024	497		6,929
2025	429		6,470
2026 and thereafter	787		73,888
Total lease payments	3,268		103,828
Less: Imputed interest	(393)		(34,510)
Total lease obligations	2,875		69,318
Less: Current lease liabilities	(706)		(3,753)
Noncurrent lease liabilities	$	2,169	$	65,565

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease costs	$	260	$	242	$	807	$	745
Finance lease costs
Amortization of assets	195		251		607		766
Interest on lease liabilities	983		1,032		2,983		3,108
Variable lease cost	43		64		175		159
Total net lease cost	$	1,481	$	1,589	$	4,572	$	4,778

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

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

During the nine months ended September 30, 2021, we entered into new agreements, and amended other agreements, with HFC related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-

type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HFC. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

	Nine Months Ended September 30, 2021
	(In thousands)
Net investment in leases	$	143,720
Properties and equipment, net	(125,602)
Deferred revenue	6,559
Gain on sales-type leases	$	24,677

During the nine months ended September 30, 2020, one of our throughput agreements with Delek US Holdings, Inc. (“Delek”) was partially renewed. A component of this agreement met the criteria of a sales-type lease since the underlying asset is not expected to have an alternative use at the end of the lease term to anyone other than Delek. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at the commencement date of the lease, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2020 composed of the following:

	Nine Months Ended September 30, 2020
	(In thousands)
Net investment in lease	$	35,319
Properties and equipment, net	(1,485)
Gain on sales-type lease	$	33,834

These sales-type lease transactions, including the related gain, were non-cash transactions.

Lease income recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease revenues	$	80,907	$	87,125	$	251,605	$	262,518
Direct financing lease interest income	521		525		1,568		1,572
Gain on sales-type leases	—		—		24,677		33,834
Sales-type lease interest income	6,313		2,278		18,429		6,218
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	3,167		2,952		7,272		7,413

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

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2021:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2021	$	71,001	$	544	$	10,525
2022	283,916		2,171		42,102
2023	253,459		2,175		38,196
2024	217,355		2,192		34,967
2025	153,934		2,209		31,539
2026 and thereafter	558,415		38,837		279,406
Total lease receipt payments	$	1,538,080	$	48,128	$	436,735
Less: Imputed interest			(31,734)		(367,089)
			16,394		69,646
Unguaranteed residual assets at end of leases			—		224,779
Net investment in leases			$	16,394	$	294,425

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

	September 30, 2021				December 31, 2020
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	211,053	$	16,394	$	88,922	$	16,452
Unguaranteed residual assets	83,372		—		64,551		—
Net investment in leases	$	294,425	$	16,394	$	153,473	$	16,452

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

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Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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

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

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

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

Financial Instruments

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

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

		September 30, 2021		December 31, 2020
Financial Instrument	Fair Value Input Level	Carrying Value	Fair Value	Carrying Value	Fair Value
		(In thousands)
Liabilities:
5% Senior Notes	Level 2	492,809	506,770	492,103	506,540

Level 2 Financial Instruments

Our senior notes are measured at fair value using Level 2 inputs. The fair value of the senior notes is based on market values provided by a third-party bank, which were derived using market quotes for similar type debt instruments. See Note 10 for additional information.

Non-Recurring Fair Value Measurements

For gains on sales-type leases recognized during the nine months ended September 30, 2021, the estimated fair value of the underlying leased assets at contract inception and the present value of the estimated unguaranteed residual asset at the end of the lease term are used in determining the net investment in leases and related gain on sales-type leases recorded. The asset valuation estimates include Level 3 inputs based on a replacement cost valuation method.

At March 31, 2021, we recognized goodwill impairment based on fair value measurements utilized during our goodwill testing (see Note 1). The fair value measurements were based on a combination of valuation methods including discounted cash flows, the guideline public company and guideline transaction methods and obsolescence adjusted replacement costs, all of which are Level 3 inputs.

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Properties and Equipment

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Properties and Equipment

Properties and Equipment 

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

	September 30, 2021		December 31, 2020
	(In thousands)
Pipelines, terminals and tankage(1)	$	1,545,545	$	1,575,815
Refinery assets	348,882		348,882
Land and right of way	86,781		87,076
Construction in progress	14,878		58,467
Other(1)	43,876		46,201
	2,039,962		2,116,441
Less accumulated depreciation	(704,920)		(665,756)
	$	1,335,042	$	1,450,685

(1)Prior period balances have been reclassified to be comparative to current period.

Depreciation expense was $60.9 million and $64.3 million for the nine months ended September 30, 2021 and 2020, respectively, and includes depreciation of assets acquired under capital leases.

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Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

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

The carrying amounts of our intangible assets were as follows:

	Useful Life	September 30, 2021		December 31, 2020
		(In thousands)
Delek transportation agreement	30 years	$	59,933	$	59,933
HFC transportation agreement	10-15 years	75,131		75,131
Customer relationships	10 years	69,683		69,683
Other	20 years	50		50
		204,797		204,797
Less accumulated amortization		(127,988)		(117,482)
		$	76,809	$	87,315

Amortization expense was $10.5 million for both the nine months ended September 30, 2021 and 2020. We estimate amortization expense to be $14.0 million for 2022, $9.9 million in 2023, and $9.1 million for 2024 through 2026.

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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Employees, Retirement and Incentive Plans

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [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. (“HLS”), an HFC subsidiary, which utilizes personnel employed by HFC who are dedicated to performing services for us. Their costs, including salaries, bonuses, payroll taxes, benefits and other direct costs, are charged to us monthly in accordance with an omnibus agreement that we have with HFC (the “Omnibus Agreement”). These employees participate in the retirement and benefit plans of HFC. Our share of retirement and benefit plan costs was $2.1 million and $1.9 million for the three months ended September 30, 2021 and 2020, respectively, and $6.2 million and $5.7 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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

As of September 30, 2021, we had two types of incentive-based awards outstanding, which are described below. The compensation cost charged against income was $0.6 million for both the three months ended September 30, 2021 and 2020, and $1.9 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively. We currently purchase units in the open market instead of issuing new units for settlement of all unit awards under our Long-Term Incentive Plan. As of September 30, 2021, 2,500,000 units were authorized to be granted under our Long-Term Incentive Plan, of which 860,361 were available to be granted, assuming no forfeitures of the unvested units and full achievement of goals for the unvested performance units.

Phantom Units

Under our Long-Term Incentive Plan, we grant phantom units to our 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 rights on these units from the date of grant.

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

A summary of phantom unit activity and changes during the nine months ended September 30, 2021, is presented below:

Phantom Units	Units	Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2021 (nonvested)	295,992	$	14.48
Vesting and transfer of full ownership to recipients	(823)	16.24
Forfeited	(6,833)	15.54
Outstanding at September 30, 2021 (nonvested)	288,336	14.45

The grant date fair values of phantom units that were vested and transferred to recipients during the nine months ended September 30, 2021 and 2020 were $13 thousand and $0.2 million, respectively. As of September 30, 2021, $1.4 million of total unrecognized compensation expense related to unvested phantom unit grants 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 officers who perform services for us. Performance units granted are payable in common units at the end of a three-year performance period based upon meeting certain criteria over the performance period. Under the terms of our performance unit grants, some awards are subject to the growth in our distributable cash flow per common unit over the performance period while other awards are subject to "financial performance" and "market performance." Financial performance is based on meeting certain earnings before interest, taxes, depreciation and amortization ("EBITDA") targets, while market performance is based on the relative standing of total unitholder return achieved by HEP compared to peer group companies. The number of units ultimately issued under these awards can range from 0% to 200%.

We did not grant any performance units during the nine months ended September 30, 2021. Although common units are not transferred to the recipients until the performance units vest, the recipients have distribution rights with respect to the target number of performance units subject to the award from the date of grant at the same rate as distributions paid on our common units.

A summary of performance unit activity and changes for the nine months ended September 30, 2021, is presented below:

Performance Units	Units
Outstanding at January 1, 2021 (nonvested)	77,472
Vesting and transfer of common units to recipients	(10,881)
Outstanding at September 30, 2021 (nonvested)	66,591

The grant date fair value of performance units vested and transferred to recipients during both of the nine months ended September 30, 2021 and 2020 was $0.4 million. Based on the weighted-average fair value of performance units outstanding at September 30, 2021, of $1.2 million, there was $0.4 million of total unrecognized compensation expense related to nonvested performance units, which is expected to be recognized over a weighted-average period of 1.5 years.

During the nine months ended September 30, 2021, we did not purchase any of our common units in the open market for the issuance and settlement of unit awards under our Long-Term Incentive Plan.

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Debt

9 Months Ended

Sep. 30, 2021

Debt Instruments [Abstract]

Debt

Debt

Credit Agreement

In April 2021, we amended our senior secured revolving credit facility (the “Credit Agreement”) decreasing the size of the facility from $1.4 billion to $1.2 billion and extending the maturity date to July 27, 2025. The Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. The Credit Agreement is also available to fund letters of credit up to a $50 million sub-limit and continues to provide for an accordion feature that allows us to increase commitments under the Credit Agreement up to a maximum amount of $1.7 billion.

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

We may prepay all loans at any time without penalty, except for tranche breakage costs. If an event of default exists under the Credit Agreement, the lenders will be able to accelerate the maturity of all loans outstanding and exercise other rights and remedies. We were in compliance with the covenants under the Credit Agreement as of September 30, 2021.

Senior Notes

On February 4, 2020, we closed a private placement of $500 million in aggregate principal amount of 5% senior unsecured notes due in 2028 (the "5% Senior Notes"). On February 5, 2020, we redeemed the existing $500 million 6% Senior Notes at a redemption cost of $522.5 million, at which time we recognized a $25.9 million early extinguishment loss consisting of a $22.5 million debt redemption premium and unamortized financing costs of $3.4 million. We funded the $522.5 million redemption with net proceeds from the issuance of our 5% Senior Notes and borrowings under our Credit Agreement.

The 5% Senior Notes are unsecured and impose certain restrictive covenants, including limitations on our ability to incur additional indebtedness, make investments, sell assets, incur certain liens, pay distributions, enter into transactions with affiliates, and enter into mergers. We were in compliance with the restrictive covenants for the 5% Senior Notes as of September 30, 2021. At any time when the 5% Senior Notes are rated investment grade by either Moody’s or 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 5% Senior Notes.

Indebtedness under the 5% Senior Notes is guaranteed by all of our existing wholly owned subsidiaries (other than Holly Energy Finance Corp. and certain immaterial subsidiaries).

Long-term Debt

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

	September 30, 2021		December 31, 2020
	(In thousands)
Credit Agreement
Amount outstanding	$	840,500	913,500
5% Senior Notes
Principal	500,000		500,000
Unamortized premium and debt issuance costs	(7,191)		(7,897)
	492,809		492,103
Total long-term debt	$	1,333,309	$	1,405,603

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Related Party Transactions

9 Months Ended

Sep. 30, 2021

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2022 to 2036, and revenues from HFC accounted for 79% of our total revenues for both the three and nine months ended September 30, 2021. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year generally based on increases or decreases in PPI or the FERC index. As of September 30, 2021, these agreements with HFC require minimum annualized payments to us of $353 million.

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

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

Related party transactions with HFC were as follows:

•Revenues received from HFC were $97.1 million and $101.0 million for the three months ended September 30, 2021 and 2020, respectively, and $298.2 million and $298.0 million for the nine months ended September 30, 2021 and 2020, respectively.

•HFC charged us general and administrative services under the Omnibus Agreement of $0.7 million for both the three months ended September 30, 2021 and 2020, and $2.0 million for both the nine months ended September 30, 2021 and 2020.

•We reimbursed HFC for costs of employees supporting our operations of $15.6 million and $14.0 million for the three months ended September 30, 2021 and 2020, respectively, and $44.2 million and $41.3 million for the nine months ended September 30, 2021 and 2020, respectively.

•HFC reimbursed us $1.8 million and $2.3 million for the three months ended September 30, 2021 and 2020, respectively, and $6.1 million and $6.3 million for the nine months ended September 30, 2021 and 2020, respectively, for expense and capital projects.

•We distributed $20.9 million and $18.4 million in the three months ended September 30, 2021 and 2020, respectively, and $62.6 million and $74.3 million in the nine months ended September 30, 2021 and 2020, respectively, to HFC as regular distributions on its common units.

•Accounts receivable from HFC were $41.5 million and $48.0 million at September 30, 2021, and December 31, 2020, respectively.

•Accounts payable to HFC were $14.6 million and $18.1 million at September 30, 2021, and December 31, 2020, respectively.

•Deferred revenue in the consolidated balance sheets included $0.4 million for both September 30, 2021 and December 31, 2020, relating to certain shortfall billings to HFC.

•We received direct financing lease payments from HFC for use of our Artesia and Tulsa rail yards of $0.5 million for both of the three months ended September 30, 2021 and 2020, respectively, and $1.6 million for the nine months ended September 30, 2021 and $1.5 million for the nine months ended September 30, 2020.

•We recorded a gain on sales-type leases with HFC of $24.7 million for the nine months ended September 30, 2021, and we received sales-type lease payments of $6.6 million and $2.4 million from HFC for the three months ended September 30, 2021 and 2020, respectively, and $19.1 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively.

•HEP and HFC reached an agreement to terminate the existing minimum volume commitments for HEP’s Cheyenne assets and enter into new agreements, which were finalized and executed on February 8, 2021, with the following terms, in each case effective January 1, 2021: (1) a ten-year lease with two five-year renewal option periods for HFC’s use of certain HEP tank and rack assets in the Cheyenne Refinery to facilitate renewable diesel production with an annual lease payment of approximately $5 million, (2) a five-year contango service fee arrangement that will utilize HEP tank assets inside the Cheyenne Refinery where HFC will pay a base tariff to HEP for available crude oil storage and HFC and HEP will split any profits generated on crude oil contango opportunities and (3) a $10 million one-time cash payment from HFC to HEP for the termination of the existing minimum volume commitment.

On August 2, 2021, in connection with the Sinclair Transactions (described in Note 2 above), HEP and HFC entered into a Letter Agreement (“Letter Agreement”) pursuant to which, among other things, HEP and HFC agreed, upon the consummation of the Sinclair Transactions, to enter into amendments to certain of the agreements by and among HEP and HFC, including the master throughput agreement, to include within the scope of such agreements the assets to be acquired by HEP pursuant to the Contribution Agreement (described in Note 2 above).

In addition, the Letter Agreement provides that if, as a condition to obtaining antitrust clearance for the Sinclair Transactions, HFC enters into a definitive agreement to divest its refinery in Davis County, Utah (the “Woods Cross Refinery”), then HEP would sell certain assets located at, or relating to, the Woods Cross Refinery to HFC in exchange for cash consideration equal to $232.5 million plus the certain accounts receivable of HEP in respect of such assets, with such sale to be effective immediately prior to the closing of the sale of the Woods Cross Refinery by HFC. The Letter Agreement also provides that HEP’s right to future revenues from HFC in respect of such Woods Cross Refinery assets will terminate at the closing of such sale.

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Partners' Equity, Income Allocations and Cash Distributions

9 Months Ended

Sep. 30, 2021

Partners' Capital [Abstract]

Partners' Equity, Income Allocations and Cash Distributions

Partners’ Equity, Income Allocations and Cash Distributions

As of September 30, 2021, HFC held 59,630,030 of our common units, constituting a 57% limited partner interest in us, and held the non-economic general partner interest.

Continuous Offering Program

We have a continuous offering program under which we may issue and sell common units from time to time, representing limited partner interests, up to an aggregate gross sales amount of $200 million. As of September 30, 2021, HEP has issued 2,413,153 units under this program, providing $82.3 million in gross proceeds.

Allocations of Net Income

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

Cash Distributions

On October 21, 2021, we announced our cash distribution for the third quarter of 2021 of $0.35 per unit. The distribution is payable on all common units and will be paid November 12, 2021, to all unitholders of record on November 1, 2021.

Our regular quarterly cash distribution to the limited partners will be $37.0 million for the three months ended September 30, 2021 and was $37.0 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, the regular quarterly distribution to the limited partners will be $111.1 million and was $105.9 million for the nine months ended September 30, 2020. Our distributions are declared subsequent to quarter end; therefore, these amounts do not reflect distributions paid during the respective period.

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Net Income Per Limited Partner Unit

9 Months Ended

Sep. 30, 2021

Net Income per Limited Partner Unit [Abstract]

Net Income Per Limited Partner Unit

Net Income Per Limited Partner UnitBasic net income per unit applicable to the limited partners is calculated as net income attributable to the partners divided by the weighted average limited partners’ units outstanding. Diluted net income per unit assumes, when dilutive, the issuance of the net incremental units from phantom units and performance units. To the extent net income attributable to the partners exceeds or is less than cash distributions, this difference is allocated to the partners based on their weighted-average ownership

percentage during the period, after consideration of any priority allocations of earnings. Our dilutive securities are immaterial for all periods presented.

Net income per limited partner unit is computed as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands, except per unit data)
Net income attributable to the partners	$	49,160	$	17,813	$	169,302	$	119,144
Less: Participating securities’ share in earnings	(165)		—		(579)		—
Net income attributable to common units	48,995		17,813		168,723		119,144
Weighted average limited partners' units outstanding	105,440		105,440		105,440		105,440
Limited partners' per unit interest in earnings - basic and diluted	$	0.46	$	0.17	$	1.60	$	1.13

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Environmental

9 Months Ended

Sep. 30, 2021

Accrual for Environmental Loss Contingencies [Abstract]

Environmental

Environmental

We expensed $0.7 million and $1.3 million for the three and nine months ended September 30, 2021, respectively, for environmental remediation obligations, and we expensed $1.0 million and $1.6 million for the three and nine months ended September 30, 2020, respectively. The accrued environmental liability, net of expected recoveries from indemnifying parties, reflected in our consolidated balance sheets was $4.6 million and $4.5 million at September 30, 2021 and December 31, 2020, of which $2.5 million was classified as other long-term liabilities for both periods. These accruals include remediation and monitoring costs expected to be incurred over an extended period of time.

Under the Omnibus Agreement and certain transportation agreements and purchase agreements with HFC, HFC has agreed to indemnify us, subject to certain monetary and time limitations, for environmental noncompliance and remediation liabilities associated with certain assets transferred to us from HFC and occurring or existing prior to the date of such transfers. Our consolidated balance sheets included additional accrued environmental liabilities of $0.4 million and $0.5 million for HFC indemnified liabilities as of September 30, 2021 and December 31, 2020, respectively, and other assets included equal and offsetting balances representing amounts due from HFC related to indemnifications for environmental remediation liabilities.

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Contingencies	9 Months Ended
	Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Contingencies	ContingenciesWe are a party to various legal and regulatory proceedings, none of which we believe will have a material adverse impact on our financial condition, results of operations or cash flows.

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Segment Information

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Segment Information

Segment Information

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

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Revenues:
Pipelines and terminals - affiliate	$	75,211	$	80,589	$	232,756	$	238,123
Pipelines and terminals - third-party	25,460		26,739		77,810		72,409
Refinery processing units - affiliate	21,913		20,403		65,436		59,860
Total segment revenues	$	122,584	$	127,731	$	376,002	$	370,392
Segment operating income:
Pipelines and terminals (1)	$	48,268	$	15,912	$	139,143	$	120,445
Refinery processing units	9,697		9,973		27,705		29,371
Total segment operating income	57,965		25,885		166,848		149,816
Unallocated general and administrative expenses	(3,849)		(2,332)		(9,664)		(7,569)
Interest and financing costs, net	(6,582)		(11,301)		(20,598)		(37,816)
Loss on early extinguishment of debt	—		—		—		(25,915)
Equity in earnings of equity method investments	3,689		1,316		8,875		5,186
Gain on sales-type leases	—		—		24,677		33,834
Gain (loss) on sale of assets and other	77		7,465		5,994		8,439
Income before income taxes	$	51,300	$	21,033	$	176,132	$	125,975
Capital Expenditures:
Pipelines and terminals	$	19,049	$	7,902	$	77,826	$	38,318
Refinery processing units	168		—		766		324
Total capital expenditures	$	19,217	$	7,902	$	78,592	$	38,642

	September 30, 2021		December 31, 2020
	(In thousands)
Identifiable assets:
Pipelines and terminals (2)	$	1,728,983	$	1,729,547
Refinery processing units	291,838		305,090
Other	131,755		132,928
Total identifiable assets	$	2,152,576	$	2,167,565

(1) Pipelines and terminals segment operating income included goodwill impairment charges of $11.0 million for the nine months ended September 30, 2021 and $35.7 million for both the three and nine months ended September 30, 2020.

(2) Included goodwill of $223.7 million as of September 30, 2021 and $234.7 million as of December 31, 2020.

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Supplemental Guarantor / Non-Guarantor Financial Information

9 Months Ended

Sep. 30, 2021

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 5% Senior Notes have been jointly and severally guaranteed by each of its direct and indirect 100% owned subsidiaries, other than Holly Energy Finance Corp. and certain immaterial 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 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

September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	350	$	(346)	$	12,812	$	—	$	12,816
Accounts receivable	—		47,696		5,968		(36)		53,628
Prepaid and other current assets	151		7,447		868		(292)		8,174
Total current assets	501		54,797		19,648		(328)		74,618
Properties and equipment, net	—		1,030,270		304,772		—		1,335,042
Operating lease right-of-use assets	—		2,397		104		—		2,501
Net investment in leases	—		306,069		95,458		(95,456)		306,071
Investment in subsidiaries	1,774,250		297,809		—		(2,072,059)		—
Intangible assets, net	—		76,809		—		—		76,809
Goodwill	—		223,650		—		—		223,650
Equity method investments	—		79,337		37,690		—		117,027
Other assets	8,643		8,215		—		—		16,858
Total assets	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	28,150	$	11,963	$	(36)	$	40,077
Accrued interest	4,604		—		—		—		4,604
Deferred revenue	—		10,287		481		—		10,768
Accrued property taxes	—		5,576		3,301		—		8,877
Current operating lease liabilities	—		632		74		—		706
Current finance lease liabilities	—		5,533		—		(1,780)		3,753
Other current liabilities	—		2,302		385		—		2,687
Total current liabilities	4,604		52,480		16,204		(1,816)		71,472
Long-term debt	1,333,309		—		—		—		1,333,309
Noncurrent operating lease liabilities	—		2,169		—		—		2,169
Noncurrent finance lease liabilities	—		152,310		—		(86,745)		65,565
Other long-term liabilities	260		11,631		426		—		12,317
Deferred revenue	—		30,920		—		—		30,920
Class B unit	—		55,593		—		—		55,593
Equity - partners	445,221		1,774,250		297,809		(2,079,282)		437,998
Equity - noncontrolling interests	—		—		143,233		—		143,233
Total liabilities and equity	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576

Condensed Consolidating Balance Sheet

December 31, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,627	$	(987)	$	21,350	$	—	$	21,990
Accounts receivable	—		56,522		6,308		(315)		62,515
Prepaid and other current assets	349		8,366		772		—		9,487
Total current assets	1,976		63,901		28,430		(315)		93,992
Properties and equipment, net	—		1,087,184		363,501		—		1,450,685
Operating lease right-of-use assets	—		2,822		157		—		2,979
Net investment in leases	—		166,316		—		—		166,316
Investment in subsidiaries	1,789,808		286,883		—		(2,076,691)		—
Intangible assets, net	—		87,315		—		—		87,315
Goodwill	—		234,684		—		—		234,684
Equity method investments	—		81,089		39,455		—		120,544
Other assets	4,268		6,782		—		—		11,050
Total assets	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	30,252	$	16,463	$	(315)	$	46,400
Accrued interest	10,892		—		—		—		10,892
Deferred revenue	—		10,868		500		—		11,368
Accrued property taxes	—		2,915		1,077		—		3,992
Current operating lease liabilities	—		804		71		—		875
Current finance lease liabilities	—		3,713		—		—		3,713
Other current liabilities	5		2,491		9		—		2,505
Total current liabilities	10,897		51,043		18,120		(315)		79,745
Long-term debt	1,405,603		—		—		—		1,405,603
Noncurrent operating lease liabilities	—		2,476		—		—		2,476
Noncurrent finance lease liabilities	—		68,047		—		—		68,047
Other long-term liabilities	260		12,171		474		—		12,905
Deferred revenue	—		40,581		—		—		40,581
Class B unit	—		52,850		—		—		52,850
Equity - partners	379,292		1,789,808		286,883		(2,076,691)		379,292
Equity - noncontrolling interests	—		—		126,066		—		126,066
Total liabilities and equity	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	90,980	$	6,144	$	—	$	97,124
Third parties	—		20,024		5,436		—		25,460
	—		111,004		11,580		—		122,584
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		38,676		4,117		—		42,793
Depreciation and amortization	—		17,558		4,268		—		21,826
General and administrative	739		3,110		—		—		3,849
	739		59,344		8,385		—		68,468
Operating income (loss)	(739)		51,660		3,195		—		54,116
Other income (expense):
Equity in earnings of subsidiaries	69,553		3,045		—		(72,598)		—
Equity in earnings of equity method investments	—		2,743		946		—		3,689
Interest expense	(12,431)		(1,077)		—		91		(13,417)
Interest income	—		6,835		91		(91)		6,835
Gain on sales-type lease	—		7,223		—		(7,223)		—
Gain on sale of assets and other	—		76		1		—		77
	57,122		18,845		1,038		(79,821)		(2,816)
Income before income taxes	56,383		70,505		4,233		(79,821)		51,300
State income tax benefit	—		4		—		—		4
Net income	56,383		70,509		4,233		(79,821)		51,304
Allocation of net income attributable to noncontrolling interests	—		(956)		(1,188)		—		(2,144)
Net income attributable to the partners	$	56,383	$	69,553	$	3,045	$	(79,821)	$	49,160

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	94,595	$	6,397	$	—	$	100,992
Third parties	—		21,550		5,189		—		26,739
	—		116,145		11,586		—		127,731
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		36,065		3,938		—		40,003
Depreciation and amortization	—		21,997		4,193		—		26,190
General and administrative	649		1,683		—		—		2,332
Goodwill impairment	—		35,653		—		—		35,653
	649		95,398		8,131		—		104,178
Operating income (loss)	(649)		20,747		3,455		—		23,553
Other income (expense):
Equity in earnings of subsidiaries	31,461		6,589		—		(38,050)		—
Equity in earnings of equity method investments	—		755		561		—		1,316
Interest expense	(13,072)		(1,032)		—		—		(14,104)
Interest income	—		2,787		16		—		2,803
Gain on sale of assets and other	73		2,542		4,850		—		7,465
	18,462		11,641		5,427		(38,050)		(2,520)
Income before income taxes	17,813		32,388		8,882		(38,050)		21,033
State income tax expense	—		(34)		—		—		(34)
Net income	17,813		32,354		8,882		(38,050)		20,999
Allocation of net income attributable to noncontrolling interests	—		(893)		(2,293)		—		(3,186)
Net income attributable to the partners	$	17,813	$	31,461	$	6,589	$	(38,050)	$	17,813

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	279,592	$	18,600	$	—	$	298,192
Third parties	—		59,554		18,256		—		77,810
	—		339,146		36,856		—		376,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		114,217		12,009		—		126,226
Depreciation and amortization	—		59,045		12,849		—		71,894
General and administrative	2,824		6,840		—		—		9,664
Goodwill impairment	—		11,034		—		—		11,034
	2,824		191,136		24,858		—		218,818
Operating income (loss)	(2,824)		148,010		11,998		—		157,184
Other income (expense):
Equity in earnings of subsidiaries	216,958		10,786		—		(227,744)		—
Equity in earnings of equity method investments	—		6,154		2,721		—		8,875
Interest expense	(37,609)		(3,077)		—		91		(40,595)
Interest income	—		19,997		91		(91)		19,997
Gain on sales-type lease	—		31,900		—		(7,223)		24,677
Gain on sale of assets and other	—		5,991		3		—		5,994
	179,349		71,751		2,815		(234,967)		18,948
Income before income taxes	176,525		219,761		14,813		(234,967)		176,132
State income tax expense	—		(60)		—		—		(60)
Net income	176,525		219,701		14,813		(234,967)		176,072
Allocation of net income attributable to noncontrolling interests	—		(2,743)		(4,027)		—		(6,770)
Net income attributable to the partners	$	176,525	$	216,958	$	10,786	$	(234,967)	$	169,302

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	278,767	$	19,216	$	—	$	297,983
Third parties	—		56,592		15,817		—		72,409
	—		335,359		35,033		—		370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		98,176		11,545		—		109,721
Depreciation and amortization	—		62,489		12,713		—		75,202
General and administrative	2,528		5,041		—		—		7,569
Goodwill impairment	—		35,653		—		—		35,653
	2,528		201,359		24,258		—		228,145
Operating income (loss)	(2,528)		134,000		10,775		—		142,247
Other income (expense):
Equity in earnings of subsidiaries	189,889		12,394		—		(202,283)		—
Equity in earnings of equity method investments	—		4,292		894		—		5,186
Interest expense	(42,542)		(3,108)		—		—		(45,650)
Interest income	26		7,792		16		—		7,834
Loss on early extinguishment of debt	(25,915)		—		—		—		(25,915)
Gain on sales-type lease	—		33,834		—		—		33,834
Gain on sale of assets and other	214		3,358		4,867		—		8,439
	121,672		58,562		5,777		(202,283)		(16,272)
Income before income taxes	119,144		192,562		16,552		(202,283)		125,975
State income tax expense	—		(110)		—		—		(110)
Net income	119,144		192,452		16,552		(202,283)		125,865
Allocation of net income attributable to noncontrolling interests	—		(2,563)		(4,158)		—		(6,721)
Net income attributable to the partners	$	119,144	$	189,889	$	12,394	$	(202,283)	$	119,144

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Description of Business and Presentation of Financial Statements (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Principles of Consolidation and Common Control Transactions

Principles of Consolidation and Common Control Transactions

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

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

Goodwill and Long-lived Assets

Goodwill and Long-lived Assets

Goodwill represents the excess of our cost of an acquired business over the fair value of the assets acquired, less liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value.

Indicators of Goodwill and Long-lived Asset Impairment

The changes in our new agreements with HFC related to our Cheyenne assets resulted in an increase in the net book value of our Cheyenne reporting unit due to sales-type lease accounting, which led us to determine indicators of potential goodwill impairment for our Cheyenne reporting unit were present.

The estimated fair value of our Cheyenne reporting unit was derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). See Note 6 for further discussion of Level 3 inputs.

Our interim impairment testing of our Cheyenne reporting unit goodwill identified an impairment charge of $11.0 million, which was recorded in the three months ended March 31, 2021.

We performed our annual goodwill impairment testing qualitatively as of July 1, 2021, and determined it was not more likely than not that the carrying amount of each reporting unit was greater than its fair value. Therefore, a quantitative test was not necessary, and no additional impairment of goodwill was recorded.

We evaluate long-lived assets, including finite-lived intangible assets, for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value.

Revenue Recognition

Revenue Recognition

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

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

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

In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize these deficiency payments in revenue when we do not expect we will be required to satisfy these performance obligations in the future based on the pattern of rights projected to be exercised by the customer. During the nine months ended September 30, 2021 and 2020, we recognized $12.3 million and $13.8 million, respectively, of these deficiency payments in revenue, of which $0.5 million and $0.7 million, respectively, related to deficiency payments billed in prior periods.

We have other cost reimbursement provisions in our throughput / storage agreements providing that customers (including HFC) reimburse us for certain costs. Such reimbursements are recorded as revenue or deferred revenue depending on the nature of the cost. Deferred revenue is recognized over the remaining contractual term of the related throughput agreement.

Lessee Accounting

Lessee Accounting

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

Operating leases are recorded in operating lease right-of-use assets and current and noncurrent operating lease liabilities on our consolidated balance sheet. Finance leases are included in properties and equipment, current finance lease liabilities and noncurrent finance lease liabilities on our consolidated balance sheet.

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

Lessor Accounting

Lessor Accounting

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

Accounting Pronouncements Adopted During the Periods Presented

Accounting Pronouncements Adopted During the Periods Presented

Credit Losses Measurement

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

Fair Value Measurements

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

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

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

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

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Revenues (Tables)

9 Months Ended

Sep. 30, 2021

Revenue from Contract with Customer [Abstract]

Schedule of Disaggregated Revenue

Disaggregated revenues were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Pipelines	$	67,354	$	68,292	$	202,180	$	197,718
Terminals, tanks and loading racks	33,317		39,036		108,386		112,814
Refinery processing units	21,913		20,403		65,436		59,860
	$	122,584	$	127,731	$	376,002	$	370,392

Schedule of Revenues

Revenues on our consolidated statements of income were composed of the following lease and service revenues:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Lease revenues	$	84,074	$	90,077	$	258,877	$	269,931
Service revenues	38,510		37,654		117,125		100,461
	$	122,584	$	127,731	$	376,002	$	370,392

Schedule of Contract Asset and Contract Liability Balances

Our consolidated balance sheets included the contract assets and liabilities in the table below:

	September 30, 2021		December 31, 2020
	(In thousands)
Contract assets	$	6,593	$	6,306
Contract liabilities	$	(482)	$	(500)

Schedule of Future Performance Obligations

We expect to recognize revenue for these unfulfilled performance obligations as shown in the table below (amounts shown in table include both service and lease revenues):

Years Ending December 31,	(In millions)
Remainder of 2021	$	84
2022	312
2023	276
2024	238
2025	172
2026	157
Thereafter	483
Total	$	1,722

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Leases (Tables)

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Schedule of Supplemental Balance Sheet Information

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

	September 30, 2021		December 31, 2020
Operating leases:
Operating lease right-of-use assets, net	$	2,501	$	2,979
Current operating lease liabilities	706		875
Noncurrent operating lease liabilities	2,169		2,476
Total operating lease liabilities	$	2,875	$	3,351
Finance leases:
Properties and equipment	$	6,031	$	6,410
Accumulated amortization	(3,437)		(3,390)
Properties and equipment, net	$	2,594	$	3,020
Current finance lease liabilities	$	3,753	$	3,713
Noncurrent finance lease liabilities	65,565		68,047
Total finance lease liabilities	$	69,318	$	71,760
Weighted average remaining lease term (in years):
Operating leases	5.8		5.9
Finance leases	15.2		15.9
Weighted average discount rate:
Operating leases	4.8%		4.8%
Finance leases	5.6%		5.6%

Schedule of Supplemental Cash Flow Information and Components of Lease Expense

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

	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	855	$	773
Operating cash flows on finance leases	$	3,110	$	3,241
Financing cash flows on finance leases	$	2,666	$	2,666

The components of lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease costs	$	260	$	242	$	807	$	745
Finance lease costs
Amortization of assets	195		251		607		766
Interest on lease liabilities	983		1,032		2,983		3,108
Variable lease cost	43		64		175		159
Total net lease cost	$	1,481	$	1,589	$	4,572	$	4,778

Schedule of Operating and Finance Lease Maturities

Maturities of lease liabilities were as follows:

	September 30, 2021
	Operating		Finance
	(In thousands)
2021	$	262	$	1,832
2022	690		7,335
2023	603		7,374
2024	497		6,929
2025	429		6,470
2026 and thereafter	787		73,888
Total lease payments	3,268		103,828
Less: Imputed interest	(393)		(34,510)
Total lease obligations	2,875		69,318
Less: Current lease liabilities	(706)		(3,753)
Noncurrent lease liabilities	$	2,169	$	65,565

Sales-Type Lease, Gain Recognized

Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

	Nine Months Ended September 30, 2021
	(In thousands)
Net investment in leases	$	143,720
Properties and equipment, net	(125,602)
Deferred revenue	6,559
Gain on sales-type leases	$	24,677

Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2020 composed of the following:

	Nine Months Ended September 30, 2020
	(In thousands)
Net investment in lease	$	35,319
Properties and equipment, net	(1,485)
Gain on sales-type lease	$	33,834

Schedule of Lease Income

Lease income recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease revenues	$	80,907	$	87,125	$	251,605	$	262,518
Direct financing lease interest income	521		525		1,568		1,572
Gain on sales-type leases	—		—		24,677		33,834
Sales-type lease interest income	6,313		2,278		18,429		6,218
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	3,167		2,952		7,272		7,413

Schedule of Minimum Undiscounted Lease Payments

Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2021:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
Remainder of 2021	$	71,001	$	544	$	10,525
2022	283,916		2,171		42,102
2023	253,459		2,175		38,196
2024	217,355		2,192		34,967
2025	153,934		2,209		31,539
2026 and thereafter	558,415		38,837		279,406
Total lease receipt payments	$	1,538,080	$	48,128	$	436,735
Less: Imputed interest			(31,734)		(367,089)
			16,394		69,646
Unguaranteed residual assets at end of leases			—		224,779
Net investment in leases			$	16,394	$	294,425

Schedule of Net Investment in Leases

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

	September 30, 2021				December 31, 2020
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	211,053	$	16,394	$	88,922	$	16,452
Unguaranteed residual assets	83,372		—		64,551		—
Net investment in leases	$	294,425	$	16,394	$	153,473	$	16,452

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

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Schedule of Carrying Amounts of Estimated Fair Values of Senior Notes

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

		September 30, 2021		December 31, 2020
Financial Instrument	Fair Value Input Level	Carrying Value	Fair Value	Carrying Value	Fair Value
		(In thousands)
Liabilities:
5% Senior Notes	Level 2	492,809	506,770	492,103	506,540

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Properties and Equipment (Tables)

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Schedule of Properties and Equipment

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

	September 30, 2021		December 31, 2020
	(In thousands)
Pipelines, terminals and tankage(1)	$	1,545,545	$	1,575,815
Refinery assets	348,882		348,882
Land and right of way	86,781		87,076
Construction in progress	14,878		58,467
Other(1)	43,876		46,201
	2,039,962		2,116,441
Less accumulated depreciation	(704,920)		(665,756)
	$	1,335,042	$	1,450,685

(1)Prior period balances have been reclassified to be comparative to current period.

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets by Major Class

The carrying amounts of our intangible assets were as follows:

	Useful Life	September 30, 2021		December 31, 2020
		(In thousands)
Delek transportation agreement	30 years	$	59,933	$	59,933
HFC transportation agreement	10-15 years	75,131		75,131
Customer relationships	10 years	69,683		69,683
Other	20 years	50		50
		204,797		204,797
Less accumulated amortization		(127,988)		(117,482)
		$	76,809	$	87,315

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Employees, Retirement and Incentive Plans (Tables)

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

Schedule of Phantom Units

A summary of phantom unit activity and changes during the nine months ended September 30, 2021, is presented below:

Phantom Units	Units	Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2021 (nonvested)	295,992	$	14.48
Vesting and transfer of full ownership to recipients	(823)	16.24
Forfeited	(6,833)	15.54
Outstanding at September 30, 2021 (nonvested)	288,336	14.45

Schedule of Performance Units

A summary of performance unit activity and changes for the nine months ended September 30, 2021, is presented below:

Performance Units	Units
Outstanding at January 1, 2021 (nonvested)	77,472
Vesting and transfer of common units to recipients	(10,881)
Outstanding at September 30, 2021 (nonvested)	66,591

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Debt (Tables)

9 Months Ended

Sep. 30, 2021

Debt Instruments [Abstract]

Schedule of Long-term Debt Instruments

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

	September 30, 2021		December 31, 2020
	(In thousands)
Credit Agreement
Amount outstanding	$	840,500	913,500
5% Senior Notes
Principal	500,000		500,000
Unamortized premium and debt issuance costs	(7,191)		(7,897)
	492,809		492,103
Total long-term debt	$	1,333,309	$	1,405,603

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Net Income Per Limited Partner Unit (Tables)

9 Months Ended

Sep. 30, 2021

Net Income per Limited Partner Unit [Abstract]

Schedule of Net Income per Limited Partner Unit

Net income per limited partner unit is computed as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands, except per unit data)
Net income attributable to the partners	$	49,160	$	17,813	$	169,302	$	119,144
Less: Participating securities’ share in earnings	(165)		—		(579)		—
Net income attributable to common units	48,995		17,813		168,723		119,144
Weighted average limited partners' units outstanding	105,440		105,440		105,440		105,440
Limited partners' per unit interest in earnings - basic and diluted	$	0.46	$	0.17	$	1.60	$	1.13

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Revenues:
Pipelines and terminals - affiliate	$	75,211	$	80,589	$	232,756	$	238,123
Pipelines and terminals - third-party	25,460		26,739		77,810		72,409
Refinery processing units - affiliate	21,913		20,403		65,436		59,860
Total segment revenues	$	122,584	$	127,731	$	376,002	$	370,392
Segment operating income:
Pipelines and terminals (1)	$	48,268	$	15,912	$	139,143	$	120,445
Refinery processing units	9,697		9,973		27,705		29,371
Total segment operating income	57,965		25,885		166,848		149,816
Unallocated general and administrative expenses	(3,849)		(2,332)		(9,664)		(7,569)
Interest and financing costs, net	(6,582)		(11,301)		(20,598)		(37,816)
Loss on early extinguishment of debt	—		—		—		(25,915)
Equity in earnings of equity method investments	3,689		1,316		8,875		5,186
Gain on sales-type leases	—		—		24,677		33,834
Gain (loss) on sale of assets and other	77		7,465		5,994		8,439
Income before income taxes	$	51,300	$	21,033	$	176,132	$	125,975
Capital Expenditures:
Pipelines and terminals	$	19,049	$	7,902	$	77,826	$	38,318
Refinery processing units	168		—		766		324
Total capital expenditures	$	19,217	$	7,902	$	78,592	$	38,642

	September 30, 2021		December 31, 2020
	(In thousands)
Identifiable assets:
Pipelines and terminals (2)	$	1,728,983	$	1,729,547
Refinery processing units	291,838		305,090
Other	131,755		132,928
Total identifiable assets	$	2,152,576	$	2,167,565

(1) Pipelines and terminals segment operating income included goodwill impairment charges of $11.0 million for the nine months ended September 30, 2021 and $35.7 million for both the three and nine months ended September 30, 2020.

(2) Included goodwill of $223.7 million as of September 30, 2021 and $234.7 million as of December 31, 2020.

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Supplemental Guarantor / Non-Guarantor Financial Information (Tables)

9 Months Ended

Sep. 30, 2021

Supplemental Guarantor / Non-Guarantor Financial Information [Abstract]

Schedule of Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet

September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	350	$	(346)	$	12,812	$	—	$	12,816
Accounts receivable	—		47,696		5,968		(36)		53,628
Prepaid and other current assets	151		7,447		868		(292)		8,174
Total current assets	501		54,797		19,648		(328)		74,618
Properties and equipment, net	—		1,030,270		304,772		—		1,335,042
Operating lease right-of-use assets	—		2,397		104		—		2,501
Net investment in leases	—		306,069		95,458		(95,456)		306,071
Investment in subsidiaries	1,774,250		297,809		—		(2,072,059)		—
Intangible assets, net	—		76,809		—		—		76,809
Goodwill	—		223,650		—		—		223,650
Equity method investments	—		79,337		37,690		—		117,027
Other assets	8,643		8,215		—		—		16,858
Total assets	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	28,150	$	11,963	$	(36)	$	40,077
Accrued interest	4,604		—		—		—		4,604
Deferred revenue	—		10,287		481		—		10,768
Accrued property taxes	—		5,576		3,301		—		8,877
Current operating lease liabilities	—		632		74		—		706
Current finance lease liabilities	—		5,533		—		(1,780)		3,753
Other current liabilities	—		2,302		385		—		2,687
Total current liabilities	4,604		52,480		16,204		(1,816)		71,472
Long-term debt	1,333,309		—		—		—		1,333,309
Noncurrent operating lease liabilities	—		2,169		—		—		2,169
Noncurrent finance lease liabilities	—		152,310		—		(86,745)		65,565
Other long-term liabilities	260		11,631		426		—		12,317
Deferred revenue	—		30,920		—		—		30,920
Class B unit	—		55,593		—		—		55,593
Equity - partners	445,221		1,774,250		297,809		(2,079,282)		437,998
Equity - noncontrolling interests	—		—		143,233		—		143,233
Total liabilities and equity	$	1,783,394	$	2,079,353	$	457,672	$	(2,167,843)	$	2,152,576

Condensed Consolidating Balance Sheet

December 31, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,627	$	(987)	$	21,350	$	—	$	21,990
Accounts receivable	—		56,522		6,308		(315)		62,515
Prepaid and other current assets	349		8,366		772		—		9,487
Total current assets	1,976		63,901		28,430		(315)		93,992
Properties and equipment, net	—		1,087,184		363,501		—		1,450,685
Operating lease right-of-use assets	—		2,822		157		—		2,979
Net investment in leases	—		166,316		—		—		166,316
Investment in subsidiaries	1,789,808		286,883		—		(2,076,691)		—
Intangible assets, net	—		87,315		—		—		87,315
Goodwill	—		234,684		—		—		234,684
Equity method investments	—		81,089		39,455		—		120,544
Other assets	4,268		6,782		—		—		11,050
Total assets	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	30,252	$	16,463	$	(315)	$	46,400
Accrued interest	10,892		—		—		—		10,892
Deferred revenue	—		10,868		500		—		11,368
Accrued property taxes	—		2,915		1,077		—		3,992
Current operating lease liabilities	—		804		71		—		875
Current finance lease liabilities	—		3,713		—		—		3,713
Other current liabilities	5		2,491		9		—		2,505
Total current liabilities	10,897		51,043		18,120		(315)		79,745
Long-term debt	1,405,603		—		—		—		1,405,603
Noncurrent operating lease liabilities	—		2,476		—		—		2,476
Noncurrent finance lease liabilities	—		68,047		—		—		68,047
Other long-term liabilities	260		12,171		474		—		12,905
Deferred revenue	—		40,581		—		—		40,581
Class B unit	—		52,850		—		—		52,850
Equity - partners	379,292		1,789,808		286,883		(2,076,691)		379,292
Equity - noncontrolling interests	—		—		126,066		—		126,066
Total liabilities and equity	$	1,796,052	$	2,016,976	$	431,543	$	(2,077,006)	$	2,167,565

Schedule of Condensed Consolidating Statement of Income

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	90,980	$	6,144	$	—	$	97,124
Third parties	—		20,024		5,436		—		25,460
	—		111,004		11,580		—		122,584
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		38,676		4,117		—		42,793
Depreciation and amortization	—		17,558		4,268		—		21,826
General and administrative	739		3,110		—		—		3,849
	739		59,344		8,385		—		68,468
Operating income (loss)	(739)		51,660		3,195		—		54,116
Other income (expense):
Equity in earnings of subsidiaries	69,553		3,045		—		(72,598)		—
Equity in earnings of equity method investments	—		2,743		946		—		3,689
Interest expense	(12,431)		(1,077)		—		91		(13,417)
Interest income	—		6,835		91		(91)		6,835
Gain on sales-type lease	—		7,223		—		(7,223)		—
Gain on sale of assets and other	—		76		1		—		77
	57,122		18,845		1,038		(79,821)		(2,816)
Income before income taxes	56,383		70,505		4,233		(79,821)		51,300
State income tax benefit	—		4		—		—		4
Net income	56,383		70,509		4,233		(79,821)		51,304
Allocation of net income attributable to noncontrolling interests	—		(956)		(1,188)		—		(2,144)
Net income attributable to the partners	$	56,383	$	69,553	$	3,045	$	(79,821)	$	49,160

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	94,595	$	6,397	$	—	$	100,992
Third parties	—		21,550		5,189		—		26,739
	—		116,145		11,586		—		127,731
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		36,065		3,938		—		40,003
Depreciation and amortization	—		21,997		4,193		—		26,190
General and administrative	649		1,683		—		—		2,332
Goodwill impairment	—		35,653		—		—		35,653
	649		95,398		8,131		—		104,178
Operating income (loss)	(649)		20,747		3,455		—		23,553
Other income (expense):
Equity in earnings of subsidiaries	31,461		6,589		—		(38,050)		—
Equity in earnings of equity method investments	—		755		561		—		1,316
Interest expense	(13,072)		(1,032)		—		—		(14,104)
Interest income	—		2,787		16		—		2,803
Gain on sale of assets and other	73		2,542		4,850		—		7,465
	18,462		11,641		5,427		(38,050)		(2,520)
Income before income taxes	17,813		32,388		8,882		(38,050)		21,033
State income tax expense	—		(34)		—		—		(34)
Net income	17,813		32,354		8,882		(38,050)		20,999
Allocation of net income attributable to noncontrolling interests	—		(893)		(2,293)		—		(3,186)
Net income attributable to the partners	$	17,813	$	31,461	$	6,589	$	(38,050)	$	17,813

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2021	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	279,592	$	18,600	$	—	$	298,192
Third parties	—		59,554		18,256		—		77,810
	—		339,146		36,856		—		376,002
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		114,217		12,009		—		126,226
Depreciation and amortization	—		59,045		12,849		—		71,894
General and administrative	2,824		6,840		—		—		9,664
Goodwill impairment	—		11,034		—		—		11,034
	2,824		191,136		24,858		—		218,818
Operating income (loss)	(2,824)		148,010		11,998		—		157,184
Other income (expense):
Equity in earnings of subsidiaries	216,958		10,786		—		(227,744)		—
Equity in earnings of equity method investments	—		6,154		2,721		—		8,875
Interest expense	(37,609)		(3,077)		—		91		(40,595)
Interest income	—		19,997		91		(91)		19,997
Gain on sales-type lease	—		31,900		—		(7,223)		24,677
Gain on sale of assets and other	—		5,991		3		—		5,994
	179,349		71,751		2,815		(234,967)		18,948
Income before income taxes	176,525		219,761		14,813		(234,967)		176,132
State income tax expense	—		(60)		—		—		(60)
Net income	176,525		219,701		14,813		(234,967)		176,072
Allocation of net income attributable to noncontrolling interests	—		(2,743)		(4,027)		—		(6,770)
Net income attributable to the partners	$	176,525	$	216,958	$	10,786	$	(234,967)	$	169,302

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2020	Parent		Guarantor Restricted Subsidiaries		Non-Guarantor Non-Restricted Subsidiaries		Eliminations		Consolidated
	(In thousands)
Revenues:
Affiliates	$	—	$	278,767	$	19,216	$	—	$	297,983
Third parties	—		56,592		15,817		—		72,409
	—		335,359		35,033		—		370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	—		98,176		11,545		—		109,721
Depreciation and amortization	—		62,489		12,713		—		75,202
General and administrative	2,528		5,041		—		—		7,569
Goodwill impairment	—		35,653		—		—		35,653
	2,528		201,359		24,258		—		228,145
Operating income (loss)	(2,528)		134,000		10,775		—		142,247
Other income (expense):
Equity in earnings of subsidiaries	189,889		12,394		—		(202,283)		—
Equity in earnings of equity method investments	—		4,292		894		—		5,186
Interest expense	(42,542)		(3,108)		—		—		(45,650)
Interest income	26		7,792		16		—		7,834
Loss on early extinguishment of debt	(25,915)		—		—		—		(25,915)
Gain on sales-type lease	—		33,834		—		—		33,834
Gain on sale of assets and other	214		3,358		4,867		—		8,439
	121,672		58,562		5,777		(202,283)		(16,272)
Income before income taxes	119,144		192,562		16,552		(202,283)		125,975
State income tax expense	—		(110)		—		—		(110)
Net income	119,144		192,452		16,552		(202,283)		125,865
Allocation of net income attributable to noncontrolling interests	—		(2,563)		(4,158)		—		(6,721)
Net income attributable to the partners	$	119,144	$	189,889	$	12,394	$	(202,283)	$	119,144

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Description of Business and Presentation of Financial Statements (Details) $ in Thousands			3 Months Ended			9 Months Ended
	Apr. 01, 2021 USD ($)	Jan. 01, 2021 USD ($) renewalOption	Sep. 30, 2021 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) segment	Sep. 30, 2020 USD ($)
Other Ownership Interests [Line Items]
Ownership percentage, controlling interest			57.00%			57.00%
Lease term		10 years
Lease renewal period options | renewalOption		2
Lease renewal option period		5 years
Annual lease payment due		$ 5,000
Service fee arrangement period		5 years
Payment due for termination of commitment		$ 10,000
Proceeds from sale of assets						$ 7,365	$ 961
Gain on sale of assets						$ 5,567	887
Number of reportable segments | segment						2
Goodwill impairment			$ 0		$ 35,653	$ 11,034	35,653
Deferred revenue recognized						12,300	13,800
Deferred revenue recognized. billed prior period						$ 500	$ 700
156 Mile, 6 Inch Refined Product Pipeline
Other Ownership Interests [Line Items]
Proceeds from sale of assets	$ 7,000
Gain on sale of assets	$ 5,300
Cheyenne
Other Ownership Interests [Line Items]
Goodwill impairment				$ 11,000
UNEV Pipeline
Other Ownership Interests [Line Items]
Ownership percentage in equity method investment			75.00%			75.00%
Osage Pipeline
Other Ownership Interests [Line Items]
Ownership percentage in equity method investment			50.00%			50.00%
Cheyenne
Other Ownership Interests [Line Items]
Ownership percentage in equity method investment			50.00%			50.00%
Cushing Connect Pipeline & Terminal
Other Ownership Interests [Line Items]
Ownership percentage in equity method investment			50.00%			50.00%

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Sinclair Acquisition (Details) $ in Millions	Aug. 02, 2021 USD ($) nomination extensionOption shares
STC
Business Acquisition [Line Items]
Newly issued common units transferred in transaction (in shares)	21,000,000
Transaction cash considerations transferred | $	$ 325
Number of termination date extension periods in transaction | extensionOption	2
Transaction termination date extension period	90 days
Number of director nominations granted in transaction | nomination	1
Hippo Holding LLC | HF Sinclair Corporation | The Sinclair Companies | Common Stock
Business Acquisition [Line Items]
Newly issued common units transferred in transaction (in shares)	60,230,036

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Investment in Joint Venture (Details) bbl in Thousands, $ in Millions	Oct. 02, 2019 USD ($) bbl	Sep. 30, 2021
Schedule of Equity Method Investments [Line Items]
Pipeline volume (in barrels per day) | bbl	160
Cushing Connect Joint Venture
Schedule of Equity Method Investments [Line Items]
Terminal storage (in barrels) | bbl	1,500
Percent of budget which construction costs are payable by HEP		10.00%
Cushing Connect Joint Venture | Minimum
Schedule of Equity Method Investments [Line Items]
Payment to acquire joint venture | $	$ 70
Cushing Connect Joint Venture | Maximum
Schedule of Equity Method Investments [Line Items]
Payment to acquire joint venture | $	$ 75

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Revenues - Schedule of Disaggregated Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Disaggregation of Revenue [Line Items]
Disaggregated Revenue	$ 122,584	$ 127,731	$ 376,002	$ 370,392
Pipelines
Disaggregation of Revenue [Line Items]
Disaggregated Revenue	67,354	68,292	202,180	197,718
Terminals, tanks and loading racks
Disaggregation of Revenue [Line Items]
Disaggregated Revenue	33,317	39,036	108,386	112,814
Refinery processing units
Disaggregation of Revenue [Line Items]
Disaggregated Revenue	$ 21,913	$ 20,403	$ 65,436	$ 59,860

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Revenues - Schedule of Affiliate and Third Party Revenues (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Revenue from External Customer [Line Items]
Lease revenues	$ 84,074	$ 90,077	$ 258,877	$ 269,931
Revenues:	122,584	127,731	376,002	370,392
Service revenues
Revenue from External Customer [Line Items]
Revenues:	$ 38,510	$ 37,654	$ 117,125	$ 100,461

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Revenues - Schedule of Contract Asset and Liability Balances (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Revenue from Contract with Customer [Abstract]
Contract assets	$ 6,593	$ 6,306
Contract liabilities	$ (482)	$ (500)

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Revenues - Narrative (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Revenue from Contract with Customer [Abstract]
Deferred revenue recognized. billed prior period	$ 0.5	$ 0.7
Revenue included in contract assets	0.3
Performance obligation revenue	$ 1,722.0

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Revenues - Schedule of Future Performance Obligations (Details) $ in Millions	Sep. 30, 2021 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 1,722
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 84
Satisfaction period	3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 312
Satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 276
Satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 238
Satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 172
Satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 157
Satisfaction period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unfulfilled performance obligation revenue	$ 483
Satisfaction period	1 year

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Leases - Narrative (Details) $ in Thousands	Sep. 30, 2021 USD ($) renewalOption	Dec. 31, 2020 USD ($)
Lessee, Lease, Description [Line Items]
Finance lease term	10 years
Cost of asset under finance leases	$ 6,031	$ 6,410
Accumulated depreciation of assets under finance leases	$ 3,437	$ 3,390
Number of renewal options | renewalOption	1
Finance lease extension option term	10 years
Minimum
Lessee, Lease, Description [Line Items]
Operating lease term	1 year
Maximum
Lessee, Lease, Description [Line Items]
Operating lease term	23 years
Operating lease renewal term	10 years
Vehicles | Minimum
Lessee, Lease, Description [Line Items]
Finance lease term	33 months
Vehicles | Maximum
Lessee, Lease, Description [Line Items]
Finance lease term	48 months

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Leases - Supplemental Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Operating leases:
Operating lease right-of-use assets, net	$ 2,501	$ 2,979
Current operating lease liabilities	706	875
Noncurrent operating lease liabilities	2,169	2,476
Total operating lease liabilities	2,875	3,351
Finance leases:
Properties and equipment	6,031	6,410
Accumulated amortization	(3,437)	(3,390)
Properties and equipment, net	$ 2,594	$ 3,020
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration]	Properties and equipment, net (Cushing Connect VIEs: $0 and $47,801, respectively)	Properties and equipment, net (Cushing Connect VIEs: $0 and $47,801, respectively)
Current finance lease liabilities	$ 3,753	$ 3,713
Noncurrent finance lease liabilities	65,565	68,047
Total finance lease liabilities	$ 69,318	$ 71,760
Weighted average remaining lease term (in years):
Operating leases	5 years 9 months 18 days	5 years 10 months 24 days
Finance leases	15 years 2 months 12 days	15 years 10 months 24 days
Weighted average discount rate:
Operating leases	4.80%	4.80%
Finance leases	5.60%	5.60%

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Leases - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$ 855	$ 773
Operating cash flows on finance leases	3,110	3,241
Financing cash flows on finance leases	$ 2,666	$ 2,666

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Leases - Operating and Finance Lease Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Operating
2021	$ 262
2022	690
2023	603
2024	497
2025	429
2026 and thereafter	787
Total lease payments	3,268
Less: Imputed interest	(393)
Total operating lease liabilities	2,875	$ 3,351
Less: Current lease liabilities	(706)	(875)
Noncurrent operating lease liabilities	2,169	2,476
Finance
2021	1,832
2022	7,335
2023	7,374
2024	6,929
2025	6,470
2026 and thereafter	73,888
Total lease payments	103,828
Less: Imputed interest	(34,510)
Total finance lease liabilities	69,318	71,760
Less: Current lease liabilities	(3,753)	(3,713)
Noncurrent lease liabilities	$ 65,565	$ 68,047

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Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Leases [Abstract]
Operating lease costs	$ 260	$ 242	$ 807	$ 745
Amortization of assets	195	251	607	766
Interest on lease liabilities	983	1,032	2,983	3,108
Variable lease cost	43	64	175	159
Total net lease cost	$ 1,481	$ 1,589	$ 4,572	$ 4,778

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Leases - Gain on Sales-Type Leases (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Leases [Abstract]
Net investment in leases			$ 143,720	$ 35,319
Properties and equipment, net			(125,602)	(1,485)
Deferred revenue			6,559
Gain on sales-type leases	$ 0	$ 0	$ 24,677	$ 33,834

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Leases - Schedule of Lease Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Leases [Abstract]
Operating lease revenues	$ 80,907	$ 87,125	$ 251,605	$ 262,518
Direct financing lease interest income	521	525	1,568	1,572
Gain on sales-type leases	0	0	24,677	33,834
Sales-type lease interest income	6,313	2,278	18,429	6,218
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	$ 3,167	$ 2,952	$ 7,272	$ 7,413

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Leases - Schedule of Minimum Undiscounted Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Operating
Remainder of 2021	$ 71,001
2022	283,916
2023	253,459
2024	217,355
2025	153,934
2026 and thereafter	558,415
Total lease receipt payments	1,538,080
Finance
Finance and Sales-type
Remainder of 2021	544
2022	2,171
2023	2,175
2024	2,192
2025	2,209
2026 and thereafter	38,837
Total lease receipt payments	48,128
Less: Imputed interest	(31,734)
Lease receivables	16,394
Unguaranteed residual assets at end of leases	0
Net investment in leases	16,394	$ 16,452
Sales-type
Finance and Sales-type
Remainder of 2021	10,525
2022	42,102
2023	38,196
2024	34,967
2025	31,539
2026 and thereafter	279,406
Total lease receipt payments	436,735
Less: Imputed interest	(367,089)
Lease receivables	69,646
Unguaranteed residual assets at end of leases	224,779
Net investment in leases	$ 294,425	$ 153,473

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Leases - Net Investments in Leases (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Sales-type Leases
Lessor, Lease, Description [Line Items]
Lease receivable	$ 211,053	$ 88,922
Unguaranteed residual assets	83,372	64,551
Net investment in leases	294,425	153,473
Direct Financing Leases
Lessor, Lease, Description [Line Items]
Lease receivable	16,394	16,452
Unguaranteed residual assets	0	0
Net investment in leases	$ 16,394	$ 16,452

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Fair Value Measurements (Details) - 0.05 - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Stated interest rate, senior notes	5.00%
Carrying Value | Level 2
Debt Instrument [Line Items]
Senior notes	$ 492,809	$ 492,103
Fair Value | Level 2
Debt Instrument [Line Items]
Senior notes	$ 506,770	$ 506,540

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Properties and Equipment (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Properties and equipment	$ 2,039,962		$ 2,116,441
Less accumulated depreciation	(704,920)		(665,756)
Properties and equipment, net	1,335,042		1,450,685
Depreciation expense	60,900	$ 64,300
Pipelines, terminals and tankage
Property, Plant and Equipment [Line Items]
Properties and equipment	1,545,545		1,575,815
Refinery assets
Property, Plant and Equipment [Line Items]
Properties and equipment	348,882		348,882
Land and right of way
Property, Plant and Equipment [Line Items]
Properties and equipment	86,781		87,076
Construction in progress
Property, Plant and Equipment [Line Items]
Properties and equipment	14,878		58,467
Other
Property, Plant and Equipment [Line Items]
Properties and equipment	$ 43,876		$ 46,201

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Intangible Assets (Details) - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Finite-Lived Intangible Assets, Net [Abstract]
Intangible assets, gross	$ 204,797,000		$ 204,797,000
Less accumulated amortization	(127,988,000)		(117,482,000)
Intangible assets, net	76,809,000		87,315,000
Amortization expense	10,500,000	$ 10,500,000
Estimated amortization expense for 2022	14,000,000
Estimated amortization expense for 2023	9,900,000
Estimated amortization expense for 2024	9,100,000
Estimated amortization expense for 2025	9,100,000
Estimated amortization expense for 2026	9,100,000
Basis in transportation agreements	$ 0
Delek transportation agreement
Finite-Lived Intangible Assets, Net [Abstract]
Useful Life	30 years
Intangible assets, gross	$ 59,933,000		59,933,000
HFC transportation agreement
Finite-Lived Intangible Assets, Net [Abstract]
Intangible assets, gross	$ 75,131,000		75,131,000
Customer relationships
Finite-Lived Intangible Assets, Net [Abstract]
Useful Life	10 years
Intangible assets, gross	$ 69,683,000		69,683,000
Other
Finite-Lived Intangible Assets, Net [Abstract]
Useful Life	20 years
Intangible assets, gross	$ 50,000		$ 50,000
Minimum | HFC transportation agreement
Finite-Lived Intangible Assets, Net [Abstract]
Useful Life	10 years
Maximum | HFC transportation agreement
Finite-Lived Intangible Assets, Net [Abstract]
Useful Life	15 years

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Employees, Retirement and Incentive Plans - Retirement and Benefit Plan Costs (Details) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($) plan shares	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) component plan shares	Sep. 30, 2020 USD ($)
Share-based Compensation Arrangements
Retirement and benefit costs | $	$ 2.1	$ 1.9	$ 6.2	$ 5.7
Number of long-term incentive plan components | component			5
Number of incentive-based award plans | plan	2		2
Compensation costs | $	$ 0.6	$ 0.6	$ 1.9	$ 1.5
Long-term Incentive Plan
Share-based Compensation Arrangements
Units authorized to be granted (in shares) | shares	2,500,000		2,500,000
Units not yet granted (in shares) | shares	860,361		860,361

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Employees, Retirement and Incentive Plans - Phantom Units (Details) - Phantom Units - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Share-based Compensation Arrangement Instruments [Roll Forward]
Units outstanding at beginning of period (in shares)	295,992
Vesting and transfer of full ownership to recipients (in shares)	(823)
Forfeited (in shares)	(6,833)
Units outstanding at end of period (in shares)	288,336
Weighted Average Grant-Date Fair Value
Weighted-average grant-date fair value of units outstanding at beginning of period (in USD per share)	$ 14.48
Weighted-average grant-date fair value of units vesting and transfer of full ownership to recipients (in USD per share)	16.24
Weighted-average grant-date fair value of units forfeited (in USD per share)	15.54
Weighted-average grant-date fair value of units outstanding at end of period (in USD per share)	$ 14.45
Grant date fair value of vested units transferred to recipients	$ 13	$ 200
Unrecognized compensation related to nonvested units	$ 1,400
Weighted average recognition period	1 year 2 months 12 days
Minimum
Weighted Average Grant-Date Fair Value
Award vesting period	1 year
Maximum
Weighted Average Grant-Date Fair Value
Award vesting period	3 years

XML

Employees, Retirement and Incentive Plans - Performance Units (Details) - Performance Shares - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Share-based Compensation Arrangement, Nonvested [Roll Forward]
Units outstanding at beginning of period (in shares)	77,472
Vesting and transfer of full ownership to recipients (in shares)	(10,881)
Units outstanding at end of period (in shares)	66,591
Grant date fair value of vested units transferred to recipients	$ 0.4	$ 0.4
Value of performance units vested and expected to vest	1.2
Unrecognized compensation related to nonvested units	$ 0.4
Weighted average recognition period	1 year 6 months
Long-term Incentive Plan
Share-based Compensation Arrangements
Performance period	3 years
Long-term Incentive Plan | Certain Officers | Market Performance
Share-based Compensation Arrangements
Range of performance units earned, minimum	0.00%
Range of performance units earned, maximum	200.00%

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Debt - Credit Agreement (Details) - USD ($)	Apr. 30, 2021	Mar. 31, 2021
Debt Instrument [Line Items]
Maximum borrowing capacity under revolving credit agreement	$ 1,200,000,000	$ 1,400,000,000
Line of credit maximum accordion feature	1,700,000,000
Letter of Credit
Debt Instrument [Line Items]
Maximum borrowing capacity under revolving credit agreement	$ 50,000,000

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Debt - Senior Notes (Details) - USD ($)		3 Months Ended		9 Months Ended
	Feb. 05, 2020	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Feb. 04, 2020
Debt Instrument [Line Items]
Loss on early extinguishment of debt		$ 0	$ 0	$ 0	$ 25,915,000
0.05
Debt Instrument [Line Items]
Aggregate principal amount of senior note							$ 500,000,000
Stated interest rate, senior notes		5.00%		5.00%
Principal		$ 500,000,000		$ 500,000,000		$ 500,000,000
Unamortized discount		$ 7,191,000		$ 7,191,000		$ 7,897,000
6% Senior notes
Debt Instrument [Line Items]
Stated interest rate, senior notes		6.00%		6.00%
Principal							500,000,000
Redemption cost	$ 522,500,000
Loss on early extinguishment of debt	25,900,000
Debt redemption premium	$ 22,500,000
Unamortized discount							$ 3,400,000

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Debt - Long-Term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Amount outstanding	$ 840,500	$ 913,500
Total long-term debt	1,333,309	1,405,603
0.05
Debt Instrument [Line Items]
Principal	500,000	500,000
Unamortized premium and debt issuance costs	(7,191)	(7,897)
Senior Notes	$ 492,809	$ 492,103
Stated interest rate, senior notes	5.00%

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Related Party Transactions (Details) $ in Thousands			3 Months Ended		9 Months Ended
	Aug. 02, 2021 USD ($)	Jan. 01, 2021 USD ($) renewalOption	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Related Party Transaction [Line Items]
Revenues:			$ 122,584	$ 127,731	$ 376,002	$ 370,392
Accounts receivables due			41,507		41,507		$ 47,972
Accounts payable due			14,605		14,605		18,120
Lease income			500	500	1,600	1,500
Gain on sales-type leases			0	0	24,677	33,834
Sales-type lease payments received			6,600	2,400	19,100	7,100
Lease term		10 years
Lease renewal period options | renewalOption		2
Lease renewal option period		5 years
Annual lease payment due		$ 5,000
Service fee arrangement period		5 years
Payment due for termination of commitment		$ 10,000
HFC
Related Party Transaction [Line Items]
Minimum annualized payments received			353,000		353,000
Administrative fee			700	700	2,000	2,000
Revenues:			(97,100)	101,000	298,200	298,000
Reimbursements for expense and capital projects			1,800	2,300	6,100	6,300
Distributions on common units			20,900	18,400	62,600	74,300
Accounts receivables due			41,500		41,500		48,000
Accounts payable due			14,600		14,600		18,100
Deferred revenue			$ 400		$ 400		$ 400
HFC | Woods Cross Refinery
Related Party Transaction [Line Items]
Cash considerations receivable under agreement	$ 232,500
HFC | Revenue Benchmark | Revenue from Rights Concentration Risk
Related Party Transaction [Line Items]
Percentage of total revenue			79.00%		79.00%
Annual Administrative Fee | HFC
Related Party Transaction [Line Items]
Administrative fee					$ 2,600
Reimbursements Paid | HFC
Related Party Transaction [Line Items]
Expense of employees supporting operations			$ 15,600	$ 14,000	$ 44,200	$ 41,300

XML

Partners' Equity Income Allocations and Cash Distributions (Details) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended		9 Months Ended
	Oct. 21, 2021	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Class of Stock [Line Items]
Partners' capital units held by controlling interest (in shares)		59,630,030		59,630,030
Ownership percentage, controlling interest		57.00%		57.00%
Value of common units available to issue and sell under offering program				$ 200.0
Units issued under offering program (in shares)				2,413,153
Proceeds from issuance of equity				$ 82.3
Cash distributions		$ 37.0	$ 37.0	$ 111.1	$ 105.9
Subsequent Event
Class of Stock [Line Items]
Cash distribution declared (in USD per share)	$ 0.35

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Net Income Per Limited Partner Unit (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Net Income per Limited Partner Unit [Abstract]
Net income attributable to the partners	$ 49,160	$ 17,813	$ 169,302	$ 119,144
Less: Participating securities’ share in earnings	(165)	0	(579)	0
Net income attributable to common units	$ 48,995	$ 17,813	$ 168,723	$ 119,144
Weighted average limited partners’ units outstanding, basic (in shares)	105,440	105,440	105,440	105,440
Weighted average limited partners’ units outstanding, diluted (in shares)	105,440	105,440	105,440	105,440
Limited partners’ per unit interest in earnings— basic (in USD per share)	$ 0.46	$ 0.17	$ 1.60	$ 1.13
Limited partners’ per unit interest in earnings— diluted (in USD per share)	$ 0.46	$ 0.17	$ 1.60	$ 1.13

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Environmental (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Loss Contingencies [Line Items]
Environmental remediation expense	$ 0.7	$ 1.0	$ 1.3	$ 1.6
Accrued environmental liabilities	4.6		4.6		$ 4.5
Other Noncurrent Liabilities
Loss Contingencies [Line Items]
Accrued environmental liabilities	2.5		2.5		2.5
Affiliates
Loss Contingencies [Line Items]
Accrued environmental liabilities	$ 0.4		$ 0.4		$ 0.5

XML

Segments Information (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) segment	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments | segment			2
Revenues:	$ 122,584	$ 127,731	$ 376,002	$ 370,392
Operating income	54,116	23,553	157,184	142,247
Unallocated general and administrative expenses	(3,849)	(2,332)	(9,664)	(7,569)
Interest and financing costs, net	(6,582)	(11,301)	(20,598)	(37,816)
Loss on early extinguishment of debt	0	0	0	(25,915)
Equity in earnings of equity method investments	3,689	1,316	8,875	5,186
Gain on sales-type leases	0	0	24,677	33,834
Gain (loss) on sale of assets and other	77	7,465	5,994	8,439
Income before income taxes	51,300	21,033	176,132	125,975
Capital Expenditures:	19,217	7,902	78,592	38,642
Identifiable assets:	2,152,576		2,152,576		$ 2,167,565
Goodwill impairment	0	35,653	11,034	35,653
Goodwill	223,650		223,650		234,684
Affiliates
Segment Reporting Information [Line Items]
Revenues:	97,124	100,992	298,192	297,983
Third parties
Segment Reporting Information [Line Items]
Revenues:	25,460	26,739	77,810	72,409
Pipelines and terminals
Segment Reporting Information [Line Items]
Capital Expenditures:	19,049	7,902	77,826	38,318
Refinery processing units
Segment Reporting Information [Line Items]
Revenues:	21,913	20,403	65,436	59,860
Capital Expenditures:	168	0	766	324
Operating Segments
Segment Reporting Information [Line Items]
Revenues:	122,584	127,731	376,002	370,392
Operating income	57,965	25,885	166,848	149,816
Operating Segments | Pipelines and terminals
Segment Reporting Information [Line Items]
Operating income	48,268	15,912	139,143	120,445
Identifiable assets:	1,728,983		1,728,983		1,729,547
Goodwill	223,700		223,700		234,700
Operating Segments | Pipelines and terminals | Affiliates
Segment Reporting Information [Line Items]
Revenues:	75,211	80,589	232,756	238,123
Operating Segments | Pipelines and terminals | Third parties
Segment Reporting Information [Line Items]
Revenues:	25,460	26,739	77,810	72,409
Operating Segments | Refinery processing units
Segment Reporting Information [Line Items]
Revenues:	21,913	20,403	65,436	59,860
Operating income	9,697	$ 9,973	27,705	$ 29,371
Identifiable assets:	291,838		291,838		305,090
Other
Segment Reporting Information [Line Items]
Identifiable assets:	$ 131,755		$ 131,755		$ 132,928

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Supplemental Guarantor / Non-Guarantor Financial Information - Condensed Consolidating Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 12,816	$ 21,990
Accounts receivable	53,628	62,515
Prepaid and other current assets	8,174	9,487
Total current assets	74,618	93,992
Properties and equipment, net	1,335,042	1,450,685
Operating lease right-of-use assets, net	2,501	2,979
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	306,071	166,316
Investment in subsidiaries	0	0
Intangible assets, net	76,809	87,315
Goodwill	223,650	234,684
Equity method investments	117,027	120,544
Other assets	16,858	11,050
Total assets	2,152,576	2,167,565
Current liabilities:
Accounts payable	40,077	46,400
Accrued interest	4,604	10,892
Deferred revenue	10,768	11,368
Accrued property taxes	8,877	3,992
Current operating lease liabilities	706	875
Current finance lease liabilities	3,753	3,713
Other current liabilities	2,687	2,505
Total current liabilities	71,472	79,745
Long-term debt	1,333,309	1,405,603
Noncurrent operating lease liabilities	2,169	2,476
Noncurrent finance lease liabilities	65,565	68,047
Other long-term liabilities	12,317	12,905
Deferred revenue	30,920	40,581
Class B unit	55,593	52,850
Equity - partners	437,998	379,292
Equity - noncontrolling interests	143,233	126,066
Total liabilities and equity	2,152,576	2,167,565
Eliminations
Current assets:
Cash and cash equivalents	0	0
Accounts receivable	(36)	(315)
Prepaid and other current assets	(292)	0
Total current assets	(328)	(315)
Properties and equipment, net	0	0
Operating lease right-of-use assets, net	0	0
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	(95,456)	0
Investment in subsidiaries	(2,072,059)	(2,076,691)
Intangible assets, net	0	0
Goodwill	0	0
Equity method investments	0	0
Other assets	0	0
Total assets	(2,167,843)	(2,077,006)
Current liabilities:
Accounts payable	(36)	(315)
Accrued interest	0	0
Deferred revenue	0	0
Accrued property taxes	0	0
Current operating lease liabilities	0	0
Current finance lease liabilities	(1,780)	0
Other current liabilities	0	0
Total current liabilities	(1,816)	(315)
Long-term debt	0	0
Noncurrent operating lease liabilities	0	0
Noncurrent finance lease liabilities	(86,745)	0
Other long-term liabilities	0	0
Deferred revenue	0	0
Class B unit	0	0
Equity - partners	(2,079,282)	(2,076,691)
Equity - noncontrolling interests	0	0
Total liabilities and equity	(2,167,843)	(2,077,006)
Parent
Current assets:
Cash and cash equivalents	350	1,627
Accounts receivable	0	0
Prepaid and other current assets	151	349
Total current assets	501	1,976
Properties and equipment, net	0	0
Operating lease right-of-use assets, net	0	0
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	0	0
Investment in subsidiaries	1,774,250	1,789,808
Intangible assets, net	0	0
Goodwill	0	0
Equity method investments	0	0
Other assets	8,643	4,268
Total assets	1,783,394	1,796,052
Current liabilities:
Accounts payable	0	0
Accrued interest	4,604	10,892
Deferred revenue	0	0
Accrued property taxes	0	0
Current operating lease liabilities	0	0
Current finance lease liabilities	0	0
Other current liabilities	0	5
Total current liabilities	4,604	10,897
Long-term debt	1,333,309	1,405,603
Noncurrent operating lease liabilities	0	0
Noncurrent finance lease liabilities	0	0
Other long-term liabilities	260	260
Deferred revenue	0	0
Class B unit	0	0
Equity - partners	445,221	379,292
Equity - noncontrolling interests	0	0
Total liabilities and equity	1,783,394	1,796,052
Guarantor Restricted Subsidiaries
Current assets:
Cash and cash equivalents	(346)	(987)
Accounts receivable	47,696	56,522
Prepaid and other current assets	7,447	8,366
Total current assets	54,797	63,901
Properties and equipment, net	1,030,270	1,087,184
Operating lease right-of-use assets, net	2,397	2,822
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	306,069	166,316
Investment in subsidiaries	297,809	286,883
Intangible assets, net	76,809	87,315
Goodwill	223,650	234,684
Equity method investments	79,337	81,089
Other assets	8,215	6,782
Total assets	2,079,353	2,016,976
Current liabilities:
Accounts payable	28,150	30,252
Accrued interest	0	0
Deferred revenue	10,287	10,868
Accrued property taxes	5,576	2,915
Current operating lease liabilities	632	804
Current finance lease liabilities	5,533	3,713
Other current liabilities	2,302	2,491
Total current liabilities	52,480	51,043
Long-term debt	0	0
Noncurrent operating lease liabilities	2,169	2,476
Noncurrent finance lease liabilities	152,310	68,047
Other long-term liabilities	11,631	12,171
Deferred revenue	30,920	40,581
Class B unit	55,593	52,850
Equity - partners	1,774,250	1,789,808
Equity - noncontrolling interests	0	0
Total liabilities and equity	2,079,353	2,016,976
Non-Guarantor Non-Restricted Subsidiaries
Current assets:
Cash and cash equivalents	12,812	21,350
Accounts receivable	5,968	6,308
Prepaid and other current assets	868	772
Total current assets	19,648	28,430
Properties and equipment, net	304,772	363,501
Operating lease right-of-use assets, net	104	157
Net investment in leases (Cushing Connect VIEs: $95,598 and $0, respectively)	95,458	0
Investment in subsidiaries	0	0
Intangible assets, net	0	0
Goodwill	0	0
Equity method investments	37,690	39,455
Other assets	0	0
Total assets	457,672	431,543
Current liabilities:
Accounts payable	11,963	16,463
Accrued interest	0	0
Deferred revenue	481	500
Accrued property taxes	3,301	1,077
Current operating lease liabilities	74	71
Current finance lease liabilities	0	0
Other current liabilities	385	9
Total current liabilities	16,204	18,120
Long-term debt	0	0
Noncurrent operating lease liabilities	0	0
Noncurrent finance lease liabilities	0	0
Other long-term liabilities	426	474
Deferred revenue	0	0
Class B unit	0	0
Equity - partners	297,809	286,883
Equity - noncontrolling interests	143,233	126,066
Total liabilities and equity	$ 457,672	$ 431,543
0.05
Condensed Financial Statements, Captions [Line Items]
Stated interest rate, senior notes	5.00%

XML

Supplemental Guarantor / Non-Guarantor Financial Information - Condensed Consolidating Statement Of Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Revenues:
Revenues:	$ 122,584	$ 127,731	$ 376,002	$ 370,392
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	42,793	40,003	126,226	109,721
Depreciation and amortization	21,826	26,190	71,894	75,202
General and administrative	3,849	2,332	9,664	7,569
Goodwill impairment	0	35,653	11,034	35,653
Total operating costs and expenses	68,468	104,178	218,818	228,145
Operating income	54,116	23,553	157,184	142,247
Equity in earnings of subsidiaries	0	0	0	0
Equity in earnings of equity method investments	3,689	1,316	8,875	5,186
Interest expense	(13,417)	(14,104)	(40,595)	(45,650)
Interest income	6,835	2,803	19,997	7,834
Loss on early extinguishment of debt	0	0	0	(25,915)
Gain on sales-type leases	0	0	24,677	33,834
Gain on sale of assets and other	77	7,465	5,994	8,439
Total other income (expense)	(2,816)	(2,520)	18,948	(16,272)
Income before income taxes	51,300	21,033	176,132	125,975
State income tax benefit	4	(34)	(60)	(110)
Net income	51,304	20,999	176,072	125,865
Allocation of net income attributable to noncontrolling interests	(2,144)	(3,186)	(6,770)	(6,721)
Net income attributable to the partners	49,160	17,813	169,302	119,144
Parent
Revenues:
Revenues:	0	0	0	0
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	0	0	0	0
Depreciation and amortization	0	0	0	0
General and administrative	739	649	2,824	2,528
Goodwill impairment		0	0	0
Total operating costs and expenses	739	649	2,824	2,528
Operating income	(739)	(649)	(2,824)	(2,528)
Equity in earnings of subsidiaries	69,553	31,461	216,958	189,889
Equity in earnings of equity method investments	0	0	0	0
Interest expense	(12,431)	(13,072)	(37,609)	(42,542)
Interest income	0	0	0	26
Loss on early extinguishment of debt				(25,915)
Gain on sales-type leases	0		0	0
Gain on sale of assets and other	0	73	0	214
Total other income (expense)	57,122	18,462	179,349	121,672
Income before income taxes	56,383	17,813	176,525	119,144
State income tax benefit	0	0	0	0
Net income	56,383	17,813	176,525	119,144
Allocation of net income attributable to noncontrolling interests	0	0	0	0
Net income attributable to the partners	56,383	17,813	176,525	119,144
Guarantor Restricted Subsidiaries
Revenues:
Revenues:	111,004	116,145	339,146	335,359
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	38,676	36,065	114,217	98,176
Depreciation and amortization	17,558	21,997	59,045	62,489
General and administrative	3,110	1,683	6,840	5,041
Goodwill impairment		35,653	11,034	35,653
Total operating costs and expenses	59,344	95,398	191,136	201,359
Operating income	51,660	20,747	148,010	134,000
Equity in earnings of subsidiaries	3,045	6,589	10,786	12,394
Equity in earnings of equity method investments	2,743	755	6,154	4,292
Interest expense	(1,077)	(1,032)	(3,077)	(3,108)
Interest income	6,835	2,787	19,997	7,792
Loss on early extinguishment of debt				0
Gain on sales-type leases	7,223		31,900	33,834
Gain on sale of assets and other	76	2,542	5,991	3,358
Total other income (expense)	18,845	11,641	71,751	58,562
Income before income taxes	70,505	32,388	219,761	192,562
State income tax benefit	4	(34)	(60)	(110)
Net income	70,509	32,354	219,701	192,452
Allocation of net income attributable to noncontrolling interests	(956)	(893)	(2,743)	(2,563)
Net income attributable to the partners	69,553	31,461	216,958	189,889
Non-Guarantor Non-Restricted Subsidiaries
Revenues:
Revenues:	11,580	11,586	36,856	35,033
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	4,117	3,938	12,009	11,545
Depreciation and amortization	4,268	4,193	12,849	12,713
General and administrative	0	0	0	0
Goodwill impairment		0	0	0
Total operating costs and expenses	8,385	8,131	24,858	24,258
Operating income	3,195	3,455	11,998	10,775
Equity in earnings of subsidiaries	0	0	0	0
Equity in earnings of equity method investments	946	561	2,721	894
Interest expense	0	0	0	0
Interest income	91	16	91	16
Loss on early extinguishment of debt				0
Gain on sales-type leases	0		0	0
Gain on sale of assets and other	1	4,850	3	4,867
Total other income (expense)	1,038	5,427	2,815	5,777
Income before income taxes	4,233	8,882	14,813	16,552
State income tax benefit	0	0	0	0
Net income	4,233	8,882	14,813	16,552
Allocation of net income attributable to noncontrolling interests	(1,188)	(2,293)	(4,027)	(4,158)
Net income attributable to the partners	3,045	6,589	10,786	12,394
Eliminations
Revenues:
Revenues:	0	0	0	0
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	0	0	0	0
Depreciation and amortization	0	0	0	0
General and administrative	0	0	0	0
Goodwill impairment		0	0	0
Total operating costs and expenses	0	0	0	0
Operating income	0	0	0	0
Equity in earnings of subsidiaries	(72,598)	(38,050)	(227,744)	(202,283)
Equity in earnings of equity method investments	0	0	0	0
Interest expense	91	0	91	0
Interest income	(91)	0	(91)	0
Loss on early extinguishment of debt				0
Gain on sales-type leases	(7,223)		(7,223)	0
Gain on sale of assets and other	0	0	0	0
Total other income (expense)	(79,821)	(38,050)	(234,967)	(202,283)
Income before income taxes	(79,821)	(38,050)	(234,967)	(202,283)
State income tax benefit	0	0	0	0
Net income	(79,821)	(38,050)	(234,967)	(202,283)
Allocation of net income attributable to noncontrolling interests	0	0	0	0
Net income attributable to the partners	(79,821)	(38,050)	(234,967)	(202,283)
Affiliates
Revenues:
Revenues:	97,124	100,992	298,192	297,983
Affiliates | Parent
Revenues:
Revenues:	0	0	0	0
Affiliates | Guarantor Restricted Subsidiaries
Revenues:
Revenues:	90,980	94,595	279,592	278,767
Affiliates | Non-Guarantor Non-Restricted Subsidiaries
Revenues:
Revenues:	6,144	6,397	18,600	19,216
Affiliates | Eliminations
Revenues:
Revenues:	0	0	0	0
Third parties
Revenues:
Revenues:	25,460	26,739	77,810	72,409
Third parties | Parent
Revenues:
Revenues:	0	0	0	0
Third parties | Guarantor Restricted Subsidiaries
Revenues:
Revenues:	20,024	21,550	59,554	56,592
Third parties | Non-Guarantor Non-Restricted Subsidiaries
Revenues:
Revenues:	5,436	5,189	18,256	15,817
Third parties | Eliminations
Revenues:
Revenues:	$ 0	$ 0	$ 0	$ 0