HOLLY ENERGY PARTNERS LP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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.
References herein to HF Sinclair Corporation ("HF Sinclair") with respect to
time periods prior to March 14, 2022 refer to HollyFrontier Corporation ("HFC")
and its consolidated subsidiaries and do not include Hippo Holding LLC, the
parent company of Sinclair Oil LLC, Sinclair Transportation Company LLC or their
respective consolidated subsidiaries (collectively, the "Acquired Sinclair
Businesses"). References herein to HF Sinclair with respect to time periods from
and after March 14, 2022 refer to HF Sinclair and its consolidated subsidiaries,
which include the operations of the combined business operations of HFC and the
Acquired Sinclair Businesses.


OVERVIEW

HEP, together with its consolidated subsidiaries, is a publicly held master
limited partnership. On March 14, 2022 (the "Closing Date"), HFC and HEP
announced the establishment of HF Sinclair, as the new parent holding company of
HFC and HEP and their subsidiaries, and the completion of their respective
acquisitions of Sinclair Oil Corporation (now known as Sinclair Oil LLC
("Sinclair Oil")) and Sinclair Transportation Company LLC ("Sinclair
Transportation") from REH Company (formerly known as The Sinclair Companies,
referred to herein as "Sinclair HoldCo"). On the Closing Date, HF Sinclair
completed its acquisition of Sinclair Oil by effecting (a) a holding company
merger with HFC surviving such merger as a direct wholly owned subsidiary of HF
Sinclair (the "HFC Merger"), and (b) immediately following the HFC Merger, a
contribution whereby Sinclair HoldCo contributed all of the equity interests of
Hippo Holding LLC, the parent company of Sinclair Oil (the "Target Company"), to
HF Sinclair in exchange for shares of HF Sinclair, resulting in the Target
Company becoming a direct wholly owned subsidiary of HF Sinclair (together with
the HFC Merger, the "HFC Transactions").

From June 30, 2022HF Sinclair and its subsidiaries held a 47% limited partnership interest and the noneconomic general partner interest in HEP.

Additionally, on the Closing Date and immediately prior to consummation of the
HFC Transactions, HEP acquired all of the outstanding equity interests of
Sinclair Transportation from Sinclair HoldCo in exchange for 21 million newly
issued common limited partner units of HEP (the "HEP Units"), representing 16.6%
of the pro forma outstanding HEP Units with a value of approximately $349
million based on HEP's fully diluted common limited partner units outstanding
and closing unit price on March 11, 2022, and cash consideration equal to $321.4
million, inclusive of estimated working capital adjustments for an aggregate
transaction value of $670.4 million (the "HEP Transaction" and together with the
HFC Transactions, the "Sinclair Transactions"). The cash consideration was
funded through a draw under HEP's senior secured revolving credit facility. The
HEP Transaction was conditioned on the closing of the HFC Transactions, which
occurred immediately following the HEP Transaction.

Sinclair Transportation, together with its subsidiaries, owned Sinclair HoldCo's
integrated crude and refined products pipelines and terminal assets, including
approximately 1,200 miles of integrated crude and refined product pipeline
supporting the Sinclair HoldCo refineries and other third-party refineries,
eight product terminals and two crude terminals with approximately 4.5 million
barrels of operated storage. In addition, HEP acquired Sinclair Transportation's
interests in three pipeline joint ventures for crude gathering and product
offtake including: Saddle Butte Pipeline III, LLC (25.06% non-operated
interest); Pioneer Pipeline (49.995% non-operated interest); and UNEV Pipeline
(the 25% non-operated interest not already owned by HEP, resulting in UNEV
Pipeline, LLC becoming a wholly owned subsidiary of HEP).

See notes 1 and 2 of the notes to the consolidated financial statements included in “Item 1. Financial statements” for additional information regarding the acquisitions.

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 HF Sinclair 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 Colorado, Idaho, Iowa, Kansas, Missouri, Nevada, New Mexico,
Oklahoma, Texas, Utah, Washington and Wyoming as well as refinery processing
units in Utah and Kansas.

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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.

Market Developments
Our results for the second quarter and first six months of 2022 were favorably
impacted by continued strong global economic activity with global demand for
transportation fuels, lubricants and transportation and terminal services having
returned to pre-pandemic levels. We expect our customers will continue to adjust
refinery production levels commensurate with market demand. The extent to which
HEP's future results are affected by the COVID-19 pandemic or volatile regional
and global economic conditions will depend on various factors and consequences
beyond our control. However, we have long-term customer contracts with minimum
volume commitments, which have expiration dates from 2023 to 2037. These minimum
volume commitments accounted for approximately 64% and 66% of our total revenues
in the six months ended June 30, 2022 and June 30, 2021, 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.

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 HF Sinclair 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 $73 million, including approximately $5 million of Cushing Connect
Pipeline construction costs exceeding the budget by more than 10% borne solely
by HEP.

Agreements with HF Sinclair
We serve HF Sinclair's refineries under long-term pipeline, terminal, tankage
and refinery processing unit throughput agreements expiring from 2023 to 2037.
Under these agreements, HF Sinclair 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 were permitted to
adjust their indexed ceilings annually by Producer Price Index plus 0.78%. FERC
received requests for rehearing of its December 17, 2020 order, and on January
20, 2022, FERC revised the index level used to determine the annual changes to
interstate oil pipeline rate ceilings to Producer Price Index minus 0.21%. The
order required the recalculation of the July 1, 2021 index ceilings to be
effective as of March 1, 2022. As of July 1, 2022, these agreements with HF
Sinclair require minimum annualized payments to us of $446 million.

If HF Sinclair 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 material 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 (the "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
(and now HF Sinclair'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 (and
now HF Sinclair) will pay a base tariff to HEP for available crude oil storage
and HFC (and now HF Sinclair) 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 HF Sinclair (the
"Omnibus Agreement"), we pay HF Sinclair an annual administrative fee, currently
$5.0 million, for the provision by HF Sinclair or its affiliates of various
general and administrative services to us. In connection with the HEP
Transaction, we pay HF Sinclair a temporary monthly fee of $62,500 relating to
transition services to be provided to HEP by HF Sinclair. Neither the annual
administrative fee nor the temporary monthly fee includes the salaries of
personnel employed by HF Sinclair 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 HF Sinclair. We also reimburse HF Sinclair and
its affiliates for direct expenses they incur on our behalf.

Under HLS’ secondment agreement with HF Sinclair, certain HF Sinclair employees are seconded to HLS to provide operations and maintenance services for certain of our processing, refining, pipeline and storage, and HLS reimburses HF Sinclair for its prorated share of salaries, benefits, and other costs of such employees for our benefit.

We have a long-term strategic relationship with HFC (and now HF Sinclair) 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 - Market Developments" above, we also expect over the
longer term to continue to work with HF Sinclair on logistic asset acquisitions
in conjunction with HF Sinclair's refinery acquisition strategies. See
"Overview" above for a discussion of the Sinclair Transactions.

Additionally, as demonstrated by our recent transaction with Sinclair HoldCo, we plan to continue to seek third-party logistics asset acquisitions that are accretive to our unitholders and increase our revenue diversity.

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 test of our Cheyenne the reporting unit’s goodwill identified an impairment loss of $11.0 millionwhich has been recorded during 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)

Earnings, distributable cash flow, volumes and balance sheet data The following tables present information on earnings, distributable cash flow and volumes for the three and six months ended June 30, 2022 and 2021.

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                                                                              Three Months Ended June 30,               Change from
                                                                               2022                   2021                 2021
                                                                                    (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates-refined product pipelines                                    $   

20,920 $19,213 $1,707
Affiliate-Intermediary Pipelines

                                                 7,521                7,521                     -
Affiliates-crude pipelines                                                       20,971               19,251                 1,720
                                                                                 49,412               45,985                 3,427
Third parties-refined product pipelines                                           5,215                9,526                (4,311)
Third parties-crude pipelines                                                    13,692               12,811                   881
                                                                                 68,319               68,322                    (3)
Terminals, tanks and loading racks:
Affiliates                                                                       38,232               32,131                 6,101
Third parties                                                                     6,326                4,756                 1,570
                                                                                 44,558               36,887                 7,671

Refinery processing units-Affiliates                                             22,893               21,026                 1,867

Total revenues                                                                  135,770              126,235                 9,535
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)                          53,899               42,068                11,831
Depreciation and amortization                                                    26,974               25,003                 1,971
General and administrative                                                        4,682                2,847                 1,835

                                                                                 85,555               69,918                15,637
Operating income                                                                 50,215               56,317                (6,102)
Other income (expense):
Equity in earnings of equity method investments                                   5,447                3,423                 2,024
Interest expense, including amortization                                        (20,347)             (13,938)               (6,409)
Interest income                                                                  24,331                6,614                17,717

Gain on sales-type leases                                                             -                   27                   (27)
Gain on sale of assets and other                                                     45                5,415                (5,370)
                                                                                  9,476                1,541                 7,935
Income before income taxes                                                       59,691               57,858                 1,833
State income tax expense                                                            (14)                 (27)                   13
Net income                                                                       59,677               57,831                 1,846

Allocation of net income attributable to non-controlling interests

      (2,885)              (2,086)                 (799)
Net income attributable to the partners                                          56,792               55,745                 1,047

Limited partners' earnings per unit-basic and diluted                   $   

0.45 $0.53 $(0.08)
Weighted average limited partnership units outstanding

    126,440              105,440                21,000
EBITDA (1)                                                              $        79,796          $    88,099          $     (8,303)
Adjusted EBITDA (1)                                                     $  

104 244 $88,261 $15,983
Distributable cash (2)

                                             $   

78,458 $66,680 $11,778

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines                                            140,333              119,046                21,287
Affiliates-intermediate pipelines                                               124,588              143,762               (19,174)
Affiliates-crude pipelines                                                      477,241              260,756               216,485
                                                                                742,162              523,564               218,598
Third parties-refined product pipelines                                          37,989               52,126               (14,137)
Third parties-crude pipelines                                                   138,040              135,904                 2,136
                                                                                918,191              711,594               206,597
Terminals and loading racks:
Affiliates                                                                      572,289              413,441               158,848
Third parties                                                                    36,748               53,257               (16,509)
                                                                                609,037              466,698               142,339
Refinery processing units-Affiliates                                             72,342               76,589                (4,247)
Total for pipelines and terminal and refinery processing unit
assets (bpd)                                                                  1,599,570            1,254,881               344,689


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                                                                              Six Months Ended June 30,                Change from
                                                                              2022                   2021                 2021
                                                                                    (In thousands, except per unit data)
Revenues:
Pipelines:
Affiliates-refined product pipelines                                    $   

37,780 $37,819 $ (39)
Affiliate-Intermediary Pipelines

                                               15,027               15,027                     -
Affiliates-crude pipelines                                                      39,248               38,705                   543
                                                                                92,055               91,551                   504
Third parties-refined product pipelines                                         14,475               19,389                (4,914)
Third parties-crude pipelines                                                   26,569               23,887                 2,682
                                                                               133,099              134,827                (1,728)
Terminals, tanks and loading racks:
Affiliates                                                                      69,440               65,995                 3,445
Third parties                                                                   12,133                9,074                 3,059
                                                                                81,573               75,069                 6,504

Refinery processing units-Affiliates                                            41,296               43,522                (2,226)

Total revenues                                                                 255,968              253,418                 2,550
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)                         96,524               83,433                13,091
Depreciation and amortization                                                   49,161               50,068                  (907)
General and administrative                                                       8,994                5,815                 3,179
Goodwill impairment                                                                  -               11,034               (11,034)
                                                                               154,679              150,350                 4,329
Operating income                                                               101,289              103,068                (1,779)
Other income (expense):
Equity in earnings of equity method investments                                  9,073                5,186                 3,887
Interest expense, including amortization                                       (33,986)             (27,178)               (6,808)
Interest income                                                                 36,978               13,162                23,816

Gain on sales-type leases                                                            -               24,677               (24,677)
Gain on sale of assets and other                                                   146                5,917                (5,771)
                                                                                12,211               21,764                (9,553)
Income before income taxes                                                     113,500              124,832               (11,332)
State income tax expense                                                           (45)                 (64)                   19
Net income                                                                     113,455              124,768               (11,313)

Allocation of net income attributable to non-controlling interests

     (7,104)              (4,626)               (2,478)
Net income attributable to the partners                                        106,351              120,142               (13,791)

Limited partners' earnings per unit-basic and diluted                   $   

0.90 $1.14 $(0.24)
Weighted average limited partnership units outstanding

   118,087              105,440                12,647
EBITDA (1)                                                              $      152,565          $   184,290          $    (31,725)
Adjusted EBITDA (1)                                                     $  

189,581 $176,196 $13,385
Distributable cash (2)

                                             $   

142,912 $139,899 $3,013

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines                                           123,863              119,316                 4,547
Affiliates-intermediate pipelines                                              121,213              129,573                (8,360)
Affiliates-crude pipelines                                                     436,865              255,730               181,135
                                                                               681,941              504,619               177,322
Third parties-refined product pipelines                                         43,479               48,298                (4,819)
Third parties-crude pipelines                                                  134,602              129,603                 4,999
                                                                               860,022              682,520               177,502
Terminals and loading racks:
Affiliates                                                                     509,509              368,612               140,897
Third parties                                                                   42,519               49,526                (7,007)
                                                                               552,028              418,138               133,890
Refinery processing units-Affiliates                                            68,804               68,688                   116
Total for pipelines and terminal and refinery processing unit
assets (bpd)                                                                 1,480,854            1,169,346               311,508



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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) goodwill
impairment, (ii) acquisition integration and regulatory costs 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 HEP 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                     Six Months Ended
                                                               June 30,                              June 30,
                                                       2022                2021               2022               2021
                                                                               (In thousands)
Net income attributable to the partners            $   56,792          $  55,745          $ 106,351          $ 120,142
Add (subtract):
Interest expense                                       20,347             13,938             33,986             27,178
Interest income                                       (24,331)            (6,614)           (36,978)           (13,162)
State income tax expense                                   14                 27                 45                 64
Depreciation and amortization                          26,974             25,003             49,161             50,068
EBITDA                                             $   79,796          $  88,099          $ 152,565          $ 184,290

Gain on sales-type leases                                   -                (27)                 -            (24,677)
Gain on significant asset sales                             -             (5,263)                 -             (5,263)
Goodwill impairment                                         -                  -                  -             11,034
Acquisition integration and regulatory costs              886                  -              1,722                  -
Tariffs and fees not included in revenues              25,168              7,058             38,507             14,025
Lease payments not included in operating
costs                                                  (1,606)            (1,606)            (3,213)            (3,213)
Adjusted EBITDA                                    $  104,244          $  

88,261 $189,581 $176,196



(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                     Six Months Ended
                                                                June 30,                              June 30,
                                                        2022                2021               2022               2021
                                                                                (In thousands)
Net income attributable to the partners             $   56,792          $  55,745          $ 106,351          $ 120,142
Add (subtract):
Depreciation and amortization                           26,974             25,003             49,161             50,068
Amortization of discount and deferred debt               1,033              1,385              1,803              2,229

issuing costs

Customer billings greater than net income                  125             (3,573)               621               (179)

recognized

Maintenance capital expenditures (3)                    (4,963)            (4,111)           (10,583)            (5,482)
Increase in environmental liability                       (124)               (78)              (244)              (234)
Decrease in reimbursable deferred revenue               (3,356)            (3,502)            (6,590)            (7,516)
Gain on sales-type leases                                    -                (27)                 -            (24,677)
Gain on significant asset sales                              -             (5,263)                 -             (5,263)
Goodwill impairment                                          -                  -                  -             11,034
Other                                                    1,977              1,101              2,393               (223)
Distributable cash flow                             $   78,458          $  66,680          $ 142,912          $ 139,899



(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.

                                   June 30,        December 31,
                                     2022              2021
                                         (In thousands)
Balance Sheet Data
Cash and cash equivalents        $    14,884      $     14,381
Working capital                  $    15,259      $     17,461
Total assets                     $ 2,775,038      $  2,165,867
Long-term debt                   $ 1,608,460      $  1,333,049
Partners' equity                 $   837,785      $    443,017



Results of operations-Three months ended June 30, 2022 Compared to the three months ended June 30, 2021

Summary

Net income attributable to the partners for the second quarter of 2022 was $56.8
million ($0.45 per basic and diluted limited partner unit) compared to $55.7
million ($0.53 per basic and diluted limited partner unit) for the second
quarter of 2021. Results for the second quarter of 2021 reflect a gain of $5.3
million related to the sale of a refined product pipeline. Excluding this gain,
net income attributable to HEP for the second quarter of 2021 was $50. million
($0.48 per basic and diluted limited partner unit). The increase in net income
attributable to HEP was mainly due to net income from Sinclair Transportation,
which was acquired on March 14, 2022, partially offset by higher interest
expense and higher operating costs and expenses.

Revenue

Revenues for the second quarter were $135.8 million, an increase of $9.5 million
compared to the second quarter of 2021. The increase was mainly due to revenues
on our recently acquired Sinclair Transportation assets and higher revenues on
our UNEV pipeline, partially offset by lower revenues on our Cheyenne assets as
a result of the conversion of HF Sinclair's Cheyenne refinery to renewable
diesel production and lower volumes on our product pipelines servicing HF
Sinclair's Navajo refinery due to lower throughput at the refinery.

Revenues from our refined product pipelines were $26.1 million, a decrease of
$2.6 million compared to the second quarter of 2021. Shipments averaged 178.3
thousand barrels per day ("mbpd") compared to 171.2 mbpd for the second quarter
of 2021. The volume increase was mainly due to higher volumes on our recently
acquired Sinclair Transportation product
                                     - 46 -
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pipelines, partially offset by lower volumes on pipelines servicing HF
Sinclair's Navajo refinery. The revenue decrease was mainly due to lower volumes
on pipelines servicing HF Sinclair's Navajo refinery and lower revenues from
Delek US Holdings, Inc. ("Delek") due to the expiration of a capacity lease,
partially offset by revenues on our recently acquired Sinclair Transportation
product pipelines. Revenues did not increase in proportion to volumes due to our
recognition of a portion of the Sinclair Transportation refined product pipeline
tariffs as interest income under sales-type lease accounting.

Revenues from our intermediate pipelines were $7.5 million, consistent with the
second quarter of 2021. Shipments averaged 124.6 mbpd for the second quarter of
2022 compared to 143.8 mbpd for the second quarter of 2021. The decrease in
volumes was mainly due to lower throughputs on our intermediate pipelines
servicing HF Sinclair's Navajo refinery while revenue remained constant due to
contractual minimum volume guarantees.

Revenues from our crude pipelines were $34.7 million, an increase of $2.6
million compared to the second quarter of 2021. Shipments averaged 615.3 mbpd
compared to 396.7 mbpd for the second quarter of 2021. The increase in volumes
was mainly attributable to our Cushing Connect Pipeline, which went into service
in September 2021, as well as volumes on our recently acquired Sinclair
Transportation crude pipelines. The increase in revenues was mainly due to our
recently acquired Sinclair Transportation crude pipelines. Revenues did not
increase in proportion to volumes due to our recognition of most of the Cushing
Connect Pipeline and Sinclair Transportation crude pipeline tariffs as interest
income under sales-type lease accounting.

Revenues from terminal, tankage and loading rack fees were $44.6 million, an
increase of $7.7 million compared to the second quarter of 2021. Refined
products and crude oil terminalled in the facilities averaged 609.0 mbpd
compared to 466.7 mbpd for the second quarter of 2021. The increase in volumes
was mainly due to our recently acquired Sinclair Transportation assets. Revenues
increased mainly due to revenues on our recently acquired Sinclair
Transportation assets and higher butane blending revenues. In addition, the
second quarter of 2021 included the recognition of $3.4 million of the $10
million termination fee related to the termination of HF Sinclair's minimum
volume commitment on our Cheyenne assets as a result of the conversion of the HF
Sinclair Cheyenne refinery to renewable diesel production.

Revenues from refinery processing units were $22.9 million, an increase of $1.9
million compared to the second quarter of 2021, and throughputs averaged 72.3
mbpd compared to 76.6 mbpd for the second quarter of 2021. The decrease in
volumes was mainly due to decreased throughput at our El Dorado refinery
processing units. Revenues increased mainly due to the higher natural gas cost
recoveries in revenues. Revenues did not decrease in proportion to the decrease
in volumes mainly due to contractual minimum volume guarantees.

Operations Expense
Operations (exclusive of depreciation and amortization and goodwill impairment)
expense was $53.9 million for the three months ended June 30, 2022, an increase
of $11.8 million compared to the second quarter of 2021. The increase was mainly
due to operations expenses associated with our recently acquired Sinclair
Transportation assets as well as higher employee costs, natural gas costs,
maintenance costs and materials and supplies costs, partially offset by lower
rentals and leases for the three months ended June 30, 2022.

Depreciation and Amortization
Depreciation and amortization for the three months ended June 30, 2022 increased
by $2.0 million compared to the three months ended June 30, 2021. The increase
was mainly due to depreciation on our recently acquired Sinclair Transportation
assets and amortization of the Woods Cross refinery processing units turnaround.

General and Administrative
General and administrative costs for the three months ended June 30, 2022
increased by $1.8 million compared to the three months ended June 30, 2021,
mainly due to higher legal and professional expenses associated with the HEP
Transaction.

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Equity in Earnings of Equity Method Investments

                                                    Three Months Ended June 30,
   Equity Method Investment                              2022                   2021
                                                           (in thousands)
   Osage Pipe Line Company, LLC                         606                       914
   Cheyenne Pipeline LLC                              1,586                     1,879
   Cushing Connect Terminal Holdings LLC                805                       630
   Pioneer Investments Corp.                          3,221                         -
   Saddle Butte Pipeline III, LLC                      (771)                        -
   Total                                     $        5,447                   $ 3,423



Equity in earnings of Osage Pipe Line Company, LLC decreased for the three
months ended June 30, 2022, mainly due to higher maintenance costs. Equity in
earnings of Cheyenne Pipeline LLC decreased for the three months ended June 30,
2022, mainly due to the recognition in revenue of prior contractual minimum
commitment billings in the three months ended June 30, 2021. Equity in earnings
of Cushing Connect Terminal Holdings LLC increased for the three months ended
June 30, 2022, mainly due to lower property tax expense. Pioneer Investments
Corp. and Saddle Butte Pipeline III, LLC were acquired during the first quarter
of 2022 as part of the HEP Transaction.

Interest Expense, including Amortization
Interest expense for the three months ended June 30, 2022, totaled $20.3
million, an increase of $6.4 million compared to the three months ended June 30,
2021. The increase was mainly due to our April 2022 issuance of $400 million in
aggregate principal amount of 6.375% senior unsecured notes maturing in April
2027 and higher average borrowings outstanding under our senior secured
revolving credit facility related to the funding of the cash portion of the
Sinclair Transportation acquisition. In addition, market interest rates
increased on our senior secured revolving credit facility. Our aggregate
effective interest rates were 4.7% and 3.8% for the three months ended June 30,
2022 and 2021, respectively.

Interest Income
Interest income for the three months ended June 30, 2022, totaled $24.3 million,
an increase of $17.7 million compared to the three months ended June 30, 2021.
The increase was mainly due to higher sales-type lease interest income from our
newly acquired Sinclair Transportation pipelines and terminals and our Cushing
Connect Pipeline, which was placed into service at the end of the third quarter
of 2021.

State Income Tax Expense
We recorded state income tax expense of $14,000 and $27,000 for the three months
ended June 30, 2022 and 2021, respectively. All tax expense is solely
attributable to the Texas margin tax.


                                     - 48 -

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Results of operations – Half-year ended June 30, 2022 Compared to the half-years closed June 30, 2021

Summary

Net income attributable to the partners for the six months ended June 30, 2022,
was $106.4 million ($0.90 per basic and diluted limited partner unit) compared
to $120.1 million ($1.14 per basic and diluted limited partner unit) for the six
months ended June 30, 2021. Results for the six months ended June 30, 2021,
reflect special items that collectively increased net income attributable to the
partners by a total of $19.0 million. These items included 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 related to our Cheyenne reporting
unit. Excluding these items, net income attributable to the partners for the six
months ended June 30, 2021, was $101.1 million ($0.96 per basic and diluted
limited partner unit). The increase in earnings was mainly due to net income
from Sinclair Transportation, which was acquired on March 14, 2022, partially
offset by higher interest expense and higher operating costs and expenses. In
addition, the six months ended June 30, 2021 included the recognition of $9.9
million of the $10 million termination fee related to the termination of HF
Sinclair's minimum volume commitment on our Cheyenne assets.

Revenue

Revenues for the six months ended June 30, 2022, were $256.0 million, an
increase of $2.6 million compared to the six months ended June 30, 2021. The
increase was mainly attributable to revenues on our recently acquired Sinclair
Transportation assets and increased revenues from our UNEV assets, partially
offset by lower revenues on our Cheyenne assets as a result of the conversion of
HF Sinclair's Cheyenne refinery to renewable diesel production and lower
revenues on our product pipelines servicing HF Sinclair's Navajo refinery. The
six months ended June 30, 2021 included the recognition of the $10 million
termination fee related to the termination of HF Sinclair's minimum volume
commitment on our Cheyenne assets.

Revenues from our refined product pipelines were $52.3 million, a decrease of
$5.0 million compared to the six months ended June 30, 2021. Shipments averaged
167.3 mbpd compared to 167.6 mbpd for the six months ended June 30, 2021. The
volume and revenue decreases were mainly due to lower volumes on pipelines
servicing HF Sinclair's Navajo refinery, partially offset by volumes on our
recently acquired Sinclair Transportation assets and higher volumes on our UNEV
pipeline. We recognized a significant portion of the Sinclair Transportation
refined product pipeline tariffs as interest income under sales-type lease
accounting.

Revenues from our intermediate pipelines were $15.0 million, consistent with the
six months ended June 30, 2021. Shipments averaged 121.2 mbpd compared to 129.6
mbpd for the six months ended June 30, 2021. The decrease in volumes was mainly
due to lower throughputs on our intermediate pipelines servicing HF Sinclair's
Navajo refinery while revenue remained relatively constant due to contractual
minimum volume guarantees.

Revenues from our crude pipelines were $65.8 million, an increase of $3.2
million compared to the six months ended June 30, 2021. Shipments averaged 571.5
mbpd compared to 385.3 mbpd for the six months ended June 30, 2021. The increase
in volumes was mainly attributable to our Cushing Connect Pipeline, which went
into service in September 2021, as well as volumes on our recently acquired
Sinclair Transportation crude pipelines. The increase in revenues was mainly due
to our recently acquired Sinclair Transportation crude pipelines and higher
volumes revenues on our legacy crude pipelines in Wyoming and Utah. Revenues did
not increase in proportion to volumes due to our recognition of most of the
Cushing Connect Pipeline and Sinclair Transportation crude pipeline tariffs as
interest income under sales-type lease accounting.

Revenues from terminal, tankage and loading rack fees were $81.6 million, an
increase of $6.5 million compared to the six months ended June 30, 2021. Refined
products and crude oil terminalled in the facilities averaged 552.0 mbpd
compared to 418.1 mbpd for the six months ended June 30, 2021. Volumes increased
mainly due to volumes on our recently acquired Sinclair Transportation assets
and higher throughputs at HF Sinclair's Tulsa refinery. Revenues increased
mainly due to revenues on our recently acquired Sinclair Transportation assets
and higher butane blending revenues. In addition, the six months ended June 30,
2021 included the recognition of $9.9 million of the $10 million termination fee
related to the termination of HF Sinclair's minimum volume commitment on our
Cheyenne assets as a result of the conversion of the HF Sinclair Cheyenne
refinery to renewable diesel production.
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Revenues from refinery processing units were $41.3 million, a decrease of $2.2
million compared to the six months ended June 30, 2021. Throughputs averaged
68.8 mbpd compared to 68.7 mbpd for the six months ended June 30, 2021 with
increased throughputs at our El Dorado refinery processing units offset by lower
throughputs at our Woods Cross refinery processing units, which were down for a
scheduled turnaround in March 2022. Revenues decreased mainly due to the lower
throughput at our Woods Cross refinery processing units, partially offset by
higher natural gas cost recoveries in revenues.

Operations Expense
Operations expense (exclusive of depreciation and amortization) for the six
months ended June 30, 2022, increased by $13.1 million compared to the six
months ended June 30, 2021. The increase was mainly due to operations expenses
associated with our recently acquired Sinclair Transportation assets as well as
higher employee costs, natural gas costs, and materials and supplies costs,
partially offset by lower rentals and leases.

Depreciation and Amortization
Depreciation and amortization for the six months ended June 30, 2022, decreased
by $0.9 million compared to the six months ended June 30, 2021. The decrease was
mainly due to the acceleration of depreciation on certain of our Cheyenne tanks
in 2021 as well as retirement of assets due to sales-type lease accounting.

General and Administrative
General and administrative costs for the six months ended June 30, 2022,
increased by $3.2 million compared to the six months ended June 30, 2021 mainly
due to higher legal and professional expenses incurred in the six months ended
June 30, 2022.

Equity in earnings from investments under the equity method

                                                      Six Months Ended June 

30,

     Equity Method Investment                             2022             

2021

                                                           (in thousands)
     Osage Pipe Line Company, LLC                      1,249               

1,636

     Cheyenne Pipeline LLC                             3,360               

1,774

     Cushing Connect Terminal Holdings LLC             1,711               

1,776

     Pioneer Investments Corp.                         3,686                       -
     Saddle Butte Pipeline III, LLC                     (933)                      -
     Total                                     $       9,073                 $ 5,186



Equity in earnings of Osage Pipe Line Company, LLC decreased for the six months
ended June 30, 2022, mainly due to higher maintenance costs. Equity in earnings
of Cheyenne Pipeline LLC increased for the six months ended June 30, 2022,
mainly due to the recognition in revenue of prior contractual minimum commitment
billings. Pioneer Investments Corp. and Saddle Butte Pipeline III, LLC were
acquired during the first quarter of 2022 as part of the HEP Transaction.

Interest Expense, including Amortization
Interest expense for the six months ended June 30, 2022, totaled $34.0 million,
an increase of $6.8 million compared to the six months ended June 30, 2021. The
increase was mainly due to our April 2022 issuance of $400 million in aggregate
principal amount of 6.375% senior unsecured notes maturing in April 2027 and
higher average borrowings outstanding under our senior secured revolving credit
facility related to the funding of the cash portion of the Sinclair
Transportation acquisition. In addition, market interest rates increased on our
senior secured revolving credit facility. Our aggregate effective interest rates
were 4.2% and 3.6% for the six months ended June 30, 2022 and 2021,
respectively.

State Income Tax Expense
We recorded state income tax expense of $45,000 and $64,000 for the six months
ended June 30, 2022 and 2021, respectively. All tax expense is solely
attributable to the Texas margin tax.


                                     - 50 -
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LIQUIDITY AND CAPITAL RESOURCES

Insight

In April 2021, we amended our 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 six months ended June 30, 2022, we received advances totaling $410.0
million and repaid $529.0 million under the Credit Agreement, resulting in a net
decrease of $119.0 million and an outstanding balance of $721.0 million at
June 30, 2022. As of June 30, 2022, we have no letters of credit outstanding
under the Credit Agreement and the available capacity under the Credit Agreement
was $479.0 million. Amounts repaid under the Credit Agreement may be reborrowed
from time to time.

On April 8, 2022, we closed a private placement of $400 million in aggregate
principal amount of 6.375% senior unsecured notes due in 2027 (the "6.375%
Senior Notes"). The 6.375% Senior Notes were issued at par for net proceeds of
approximately $393 million, after deducting the initial purchasers' discounts
and commissions and estimated offering expenses. The total net proceeds from the
offering of the 6.375% Senior Notes were used to partially repay outstanding
borrowings under the Credit Agreement, increasing our available liquidity.

As of June 30, 2022, we had $500 million in aggregate principal amount of 5%
Senior Notes due in 2028 (the "5% Senior Notes", and together with the 6.375
Senior Notes, the "Senior Notes").

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 six months ended June 30, 2022. As of June 30, 2022, 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. Future securities issuances, if
any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors.

In the third quarter of 2022, HEP expects to hold the quarterly distribution
constant at $0.35 per unit, or $1.40 on an annualized basis. We are on track to
achieve our short-term leverage target of 3.5x by year-end. Consistent with our
disciplined capital allocation framework, we expect to increase unitholder
returns in 2023.

In May 2022we paid a regular quarterly cash distribution of $0.35 on all shares for a total amount of $44.3 million.

Cash and cash equivalents increased by $0.5 million during the six months ended
June 30, 2022. The cash flows provided by operating activities of $152.5 million
and financing activities of $186.0 million were more than the cash flows used
for investing activities of $338.0 million. Working capital decreased by $2.2
million to $15.3 million at June 30, 2022, from $17.5 million at December 31,
2021.

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Cash Flows-Operating Activities
Cash flows from operating activities decreased by $9.6 million from $162.1
million for the six months ended June 30, 2021, to $152.5 million for the six
months ended June 30, 2022. The decrease was mainly due to higher payments for
turnaround expenses at our Woods Cross refinery processing units and higher
payments for operating expenses, partially offset by higher cash receipts from
customers during the six months ended June 30, 2022, as compared to the six
months ended June 30, 2021.

Cash Flows-Investing Activities
Cash flows used for investing activities were $338.0 million for the six months
ended June 30, 2022, compared to $48.9 million for the six months ended June 30,
2021, an increase of $289.1 million. During the six months ended June 30, 2022,
we paid the $321.4 million cash portion of the purchase price consideration for
our acquisition of Sinclair Transportation. During the six months ended June 30,
2022 and 2021, we invested $23.2 million and $59.4 million, respectively, in
addition to properties and equipment.

Cash Flows-Financing Activities
Cash flows provided by financing activities were $186.0 million for the six
months ended June 30, 2022, compared to cash flows used by financing activities
of $115.6 million for the six months ended June 30, 2021, an increase of $301.6
million. During the six months ended June 30, 2022, we received $410.0 million
and repaid $529.0 million in advances under the Credit Agreement, and we
received net proceeds of $393.7 million related to the issuance of our 6.375%
Senior Notes. Additionally, we paid $81.3 million in regular quarterly cash
distributions to our limited partners and $5.3 million to our noncontrolling
interests. During the six months ended June 30, 2021, we received $141.0 million
and repaid $184.5 million in advances under the Credit Agreement. We paid $75.4
million in regular quarterly cash distributions to our limited partners, and
distributed $5.9 million to our noncontrolling interests. In addition, we
received $17.6 million in contributions from noncontrolling interests during the
six months ended June 30, 2021.

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 2022 capital forecast
includes forecasted expenditures for our recently acquired Sinclair
Transportation assets and is comprised of approximately $20 million to $30
million for maintenance capital expenditures, $25 million to $35 million for
refinery unit turnarounds and $5 million to $10 million for expansion capital
expenditures and 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 anticipate that our currently planned sustaining and maintenance capital expenditures, as well as planned expenditures for acquisitions and capital development projects, will be funded by cash flow generated from operations.

Under the terms of the transaction to acquire HFC's 75% interest in UNEV, we
issued to a subsidiary of HFC a Class B unit comprising a noncontrolling equity
interest in a wholly owned subsidiary subject to redemption to the extent that
HFC is entitled to a 50% interest in 75% of annual UNEV earnings before
interest, income taxes, depreciation, and amortization above
                                     - 52 -
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$40 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 June 30, 2022.

Senior Notes
As of June 30, 2022, we had $500 million in aggregate principal amount of 5%
Senior Notes due in 2028.

On April 8, 2022, we closed a private placement of $400 million in aggregate
principal amount of the 6.375% Senior Notes. The 6.375% Senior Notes were issued
at par for net proceeds of approximately $393 million, after deducting the
initial purchasers' discounts and commissions and offering expenses. The total
net proceeds from the offering of the 6.375% Senior Notes were used to partially
repay outstanding borrowings under the Credit Agreement, increasing our
available liquidity.

The 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 Senior Notes as of June 30, 2022. At any time
when the 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 Senior Notes.

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

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

                                       June 30,        December 31,
                                         2022              2021
                                             (In thousands)
Credit Agreement
Amount outstanding                       721,000           840,000

5% Senior Notes
Principal                                500,000           500,000
Unamortized debt issuance costs           (6,459)           (6,951)
                                         493,541           493,049

6.375% Senior Notes
Principal                                400,000            -
Unamortized debt issuance costs           (6,081)           -
                                         393,919                 -

Total long-term debt                 $ 1,608,460      $  1,333,049


Contractual obligations There were no material changes to our long-term contractual obligations during the quarter ended June 30, 2022.

Impact of Inflation
Inflation in the United States did not have a material impact on our results of
operations for the six months ended June 30, 2022 and 2021. PPI has increased an
average of 2.9% annually over the past five calendar years, including an
increase of 8.9% in 2021 and a decrease of 1.3% in 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 HF Sinclair, HF Sinclair 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 HF
Sinclair and occurring or existing prior to the date of such transfers.

                                     - 54 -

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Table o We have entered into an environmental agreement with Delek regarding pre-closing environmental costs and liabilities related to pipelines and terminals acquired from Delek in 2005, pursuant to which Delek will indemnify us subject to certain monetary and temporal limits.

At June 30, 2022, we had an accrual of $13.6 million related to environmental
clean-up projects for which we have assumed liability, including accrued
environmental liabilities assumed in the Sinclair Transportation acquisition
that have preliminarily been fair valued at $10.0 million as of the acquisition
date, or for which the indemnity provided for by HF Sinclair has expired or will
expire. There are environmental remediation projects in progress, including
assessment and monitoring activities, that relate to certain assets acquired
from HF Sinclair. Certain of these projects were underway prior to our purchase,
are covered under the HF Sinclair environmental indemnification discussed above,
and represent liabilities retained by HF Sinclair.

On July 8, 2022, the Osage pipeline, which carries crude oil from Cushing,
Oklahoma to El Dorado, Kansas, suffered a release of crude oil. The pipeline has
resumed operations and recovery operations are ongoing. We expect to accrue
amounts related to recovery and remediation in the third quarter of 2022, but
cannot estimate those amounts at this time. We do not expect the accrual will
have a material impact on our financial position.


CRITICAL ACCOUNTING ESTIMATES

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, 2021. Certain critical accounting policies that materially affect
the amounts recorded in our consolidated financial statements include revenue
recognition, assessing the possible impairment of certain long-lived assets and
goodwill, and assessing contingent liabilities for probable losses. There have
been no changes to these policies in 2022. 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.


RISK MANAGEMENT

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

At June 30, 2022, we had an outstanding principal balance of $900 million on our
Senior Notes. A change in interest rates generally would affect the fair value
of the Senior Notes, but not our earnings or cash flows. At June 30, 2022, the
fair value of our Senior Notes was $808.7 million. We estimate a hypothetical
10% change in the yield-to-maturity applicable to the Senior Notes at June 30,
2022 would result in a change of approximately $28.9 million in the fair value
of the underlying Senior Notes.

For the variable rate Credit Agreement, changes in interest rates would affect
cash flows, but not the fair value. At June 30, 2022, borrowings outstanding
under the Credit Agreement were $721.0 million. A hypothetical 10% change in
interest rates applicable to the Credit Agreement would not materially affect
our cash flows.

Our operations are subject to catastrophic losses, operational hazards and
unforeseen interruptions, including but not limited to fire, explosion, releases
or spills, cyberattacks, weather-related perils, vandalism, power failures,
mechanical failures and other events beyond our control. We maintain various
insurance coverages, including general liability, 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.

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

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