HOLLY ENERGY PARTNERS LP - Annual Report: 2019 (Form 10-K)

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

•	the economic viability of HollyFrontier Corporation ("HFC") and our other customers;

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

•	our ability to purchase and integrate future acquired operations;

•	our ability to complete previously announced or contemplated acquisitions;

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

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

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

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

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

•	general economic conditions;

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

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

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(1)	Includes 15,000 bpd capacity on the Orla to El Paso segment of this pipeline, leased to Delek under capacity lease agreements.

(2)	The White Lakes Junction to Moriarty segment of our Artesia to Moriarty pipeline and the Moriarty to Bloomfield pipeline is leased from Mid-America under a long-term lease agreement.

(3)	Capacity for this pipeline is reflected in the information for the Artesia to Moriarty pipeline.

(4)	Tulsa gasoline and diesel fuel connections to Magellan’s pipeline are less than one mile.

(5)	The capacities of the three gas pipelines are 10 million standard cubic feet per day (“MMSCFD”), 22 MMSCFD and 10 MMSCFD, and the two liquid pipelines are 45,000 bpd and 60,000 bpd.

(6)	The capacity is in MMSCFD per day.

(7)	Pipeline is currently idled.

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•	distribution;

•	blending to achieve specified grades of gasoline and diesel, including the blending of butane, ethanol and biodiesel;

•	other ancillary services that include the injection of additives and filtering of jet fuel; and

•	storage and inventory management.

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(1)	Inactive

(2)	Handles only jet fuel.

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Item 1A.	Risk Factors

•	competition from other refineries and pipelines that may be able to supply the refinery's end-user markets on a more cost-effective basis;

•	operational problems such as catastrophic events at the refinery, terrorist or cyberattacks, domestic vandalism, labor difficulties, environmental proceedings or other litigation that cause a stoppage of all or a portion of the operations at the refinery;

•	planned maintenance or capital projects;

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increasingly stringent environmental laws and regulations, such as the U.S. Environmental Protection Agency's gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor gasoline and diesel fuel for both on-road and non-road usage as well as various state and federal emission requirements that may affect the refinery itself and potential future climate change regulations;

•	an inability to obtain crude oil for the refinery at competitive prices; or

•	a general reduction in demand for refined products in the area due to:

◦	a local or national recession or other adverse economic condition that results in lower spending by businesses and consumers on gasoline and diesel fuel;

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◦	higher gasoline prices due to higher crude oil costs, higher taxes or stricter environmental laws or regulations; or

◦	a shift by consumers to more fuel-efficient or alternative fuel vehicles or an increase in fuel economy, whether as a result of technological advances by manufacturers, legislation either mandating or encouraging higher fuel economy or the use of alternative fuel or otherwise.

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•	continue our business as currently structured and/or conducted;

•	meet our obligations as they come due;

•	execute our growth strategy;

•	complete future acquisitions or construction projects;

•	take advantage of other business opportunities; or

•	respond to competitive pressures.

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•	the accuracy of our assumptions about growth in the markets that we currently serve or have plans to serve in the Southwestern, Northwest and Mid-Continent regions of the United States;

•	HFC's willingness and ability to capture a share of additional demand in its existing markets; and

•	HFC's willingness and ability to identify and penetrate new markets in the Southwestern, Northwest and Mid-Continent regions of the United States.

•	certain pre-closing environmental liabilities discovered within specified time periods after the date of the applicable acquisition;

•	certain matters arising from the pre-closing ownership and operation of assets; and

•	ongoing remediation related to the assets.

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•	denial or delay in issuing requisite regulatory approvals and/or permits;

•	unplanned increases in the cost of construction materials or labor;

•	disruptions in transportation of modular components and/or construction materials;

•	severe adverse weather conditions, natural disasters, terror or cyberattacks, domestic vandalism other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors and suppliers;

•	shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;

•	market-related increases in a project's debt or equity financing costs; and/or

•	nonperformance by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved with a project.

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•	HFC, as a shipper on our pipelines, has an economic incentive not to cause us to seek higher tariff rates or terminalling fees, even if such higher rates or terminalling fees would reflect rates that could be obtained in arm's-length, third-party transactions;

•	neither our partnership agreement nor any other agreement requires HFC to pursue a business strategy that favors us or utilizes our assets, including whether to increase or decrease refinery production, whether to shut down or reconfigure a refinery, or what markets to pursue or grow;

•	HFC's directors and officers have a fiduciary duty to make business decisions in the best interests of the stockholders of HFC;

•	our general partner is allowed to take into account the interests of parties other than us, such as HFC, in resolving conflicts of interest;

•	our partnership agreement provides for modified or reduced fiduciary duties for our general partner, and also restricts the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;

•	our general partner determines which costs incurred by HFC and its affiliates are reimbursable by us;

•	our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

•	our general partner may, in some circumstances, cause us to borrow funds to make cash distributions, even where the purpose or effect of the borrowing benefits our general partner or affiliates;

•	our general partner determines the amount and timing of our asset purchases and sales, capital expenditures and borrowings, each of which can affect the amount of cash available to us; and

•	our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates, including the pipelines and terminals agreement with HFC.

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•	our unitholders' proportionate ownership interest in us will decrease;

•	the amount of cash available for distribution on each unit may decrease;

•	the relative voting strength of each previously outstanding unit may be diminished; and

•	the market price of the common units may decline.

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•	any business operated by HFC or any of its subsidiaries at the closing of our initial public offering;

•	any business or asset that HFC or any of its subsidiaries acquires or constructs that has a fair market value or construction cost of less than $5 million; and

•	any business or asset that HFC or any of its subsidiaries acquires or constructs that has a fair market value or construction cost of $5 million or more if we have been offered the opportunity to purchase the business or asset at fair market value, and we decline to do so.

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Item 1B.	Unresolved Staff Comments

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Item 3.	Legal Proceedings

Item 4.	Mine Safety Disclosures

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Item 5.	Market for the Registrant’s Common Units, Related Unitholder Matters and Issuer Purchases of Common Units

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Item 6.	Selected Financial Data

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(1)

Net income attributable to the partners is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner included incentive distributions that were declared subsequent to quarter end. After the amount of incentive distributions and other priority allocations are allocated to the general partner, the remaining net income attributable to the partners is allocated to the partners based on their weighted average ownership percentage during the period. As a result of the IDR Restructuring Transaction, no IDR or general partner distributions were made after October 31, 2017. See "Business and Properties - Overview."

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(2)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA minus (i) gain on sales-type leases and (ii) pipeline lease payments not included in operating costs and expenses plus (iii) loss on early extinguishment of debt and (iv) pipeline tariffs not included in revenues due to impacts from lease accounting. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. These pipeline tariffs were previously recorded as revenues prior to the renewal of the throughput agreement, 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 recoded 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.

(3)

Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exception 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.

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

(5)	Includes $965.5 million, $923 million, $1,012 million, $553 million and $712 million in Credit Agreement advances that were classified as long-term debt at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(6)

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

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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(1)

Net income attributable to the partners is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner included incentive distributions that were declared subsequent to quarter end. After the amount of incentive distributions and other priority allocations are allocated to the general partner, the remaining net income attributable to the partners is allocated to the partners based on their weighted average ownership percentage during the period. As a result of the IDR Restructuring Transaction, no IDR or general partner distributions were made after October 31, 2017. See "Business and Properties - Overview."

(2)

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA minus (i) gain on sales-type leases and (ii) pipeline lease payments not included in operating costs and expenses plus (iii) pipeline tariffs not included in revenues due to impacts from lease accounting. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. These pipeline tariffs were previously recorded as revenues prior to the renewal of the throughput agreement, 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 recoded 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. See our calculation of EBITDA under Item 6, “Selected Financial Data.”

(3)

Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exception 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. See our calculation of distributable cash flow under Item 6, “Selected Financial Data.”

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•	the customer receiving the future services provided by these billings,

•	the period in which the customer was contractually allowed to receive the services expired, or

•	our determination that we would not be required to provide services within the allowed period.

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Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

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Item 8.	Financial Statements and Supplementary Data

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Note 1:	Description of Business and Summary of Significant Accounting Policies

•	26 main pipeline segments

•	Crude gathering networks in Texas and New Mexico

•	10 refined product terminals

•	1 crude terminal

•	31,800 track feet of rail storage located at two facilities

•	7 locations with truck and/or rail racks

•	Tankage at all six of HFC's refining facility locations

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•	the customer receiving the future services provided by these billings,

•	the period in which the customer was contractually allowed to receive the services expired, or

•	our determination that we would not be required to provide services within the allowed period.

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Note 2:	Acquisitions

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(1)	To retrospectively reflect depreciation and amortization of intangible assets based on the preliminary fair value of the assets as if that fair value had been reflected January 1, 2017;

(2)	To eliminate HEP's equity income previously recorded on its equity method investments in SLC Pipeline and Frontier Aspen; and

(3)	To eliminate the remeasurement gain on preexisting equity interests in SLC Pipeline and Frontier Aspen.

Note 3:	Investment in Joint Venture

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Note 4:	Revenues

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Note 5:	Leases

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

Note 6:	Fair Value Measurements

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•	(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.

Note 7:	Properties and Equipment

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Note 8:	Intangible Assets

Note 9:	Employees, Retirement and Incentive Plans

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Note 10:	Debt

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Note 11:	Commitments and Contingencies

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Note 12:	Related Party Transactions

•	Revenues received from HFC were $411.8 million, $397.8 million and $377.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	HFC charged us general and administrative services under the Omnibus Agreement of $2.6 million for December 31, 2019 and $2.5 million for each of the years ended December 31, 2018 and 2017.

•	We reimbursed HFC for costs of employees supporting our operations of $55.1 million, $51.7 million and $46.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	HFC reimbursed us $13.9 million, $10.0 million and $7.2 million for the years ended December 31, 2019, 2018 and 2017, respectively, for expense and capital projects.

•	We distributed $150.0 million and $146.8 million, in the years ended December 31, 2019 and 2018, respectively, to HFC as regular distributions on its common units and $130.7 million in the year ended December 31, 2017 to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions.

•	Accounts receivable from HFC were $49.7 million and $46.8 million at December 31, 2019 and 2018, respectively.

•	Accounts payable to HFC were $16.7 million and $14.2 million at December 31, 2019 and 2018, respectively.

•	Revenues for the years ended December 31, 2019, 2018 and 2017 include $0.5 million, $3.1 million and $4.8 million, respectively, of shortfall payments billed to HFC in 2018, 2017 and 2016, respectively. Deferred revenue in the consolidated balance sheets at December 31, 2019 and 2018, includes $0.5 million and $1.7 million, respectively, relating to certain shortfall billings to HFC.

•	We received direct financing lease payments from HFC for use of our Artesia and Tulsa railyards of $2.1 million, $2.0 million and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	We recorded a gain on sales-type leases with HFC of $35.2 million during the year ended December 31, 2019, and we received sales-type lease payments of $4.8 million from HFC that were not included in revenues for the year ended December 31, 2019.

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On October 31, 2017, we closed on an equity restructuring transaction with HEP Logistics, a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. This waiver of limited partner cash distributions will expire after the cash distribution for the second quarter of 2020, which will be made during the third quarter of 2020.

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Note 13:	Partners’ Equity, Income Allocations and Cash Distributions

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Note 14:	Net Income Per Limited Partner Unit

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Note 15:	Environmental

Note 16:	Operating Segments

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Note 17:	Quarterly Financial Data (Unaudited)

(1)	Net income attributable to the partners for the third quarter of 2019 included a gain on sales-type leases of $35.2 million. See Note 5 for further discussion.

Note 18:	Supplemental Guarantor/Non-Guarantor Financial Information

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Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.	Controls and Procedures

Item 9B.	Other Information

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(1)	Mr. Jennings was appointed as Chief Executive Officer of HLS effective January 1, 2020.

(2)	Mr. Voliva was appointed as President of HLS effective January 1, 2020. During 2019, he served as Executive Vice President and Chief Financial Officer of HLS.

(3)	Mr. Harrison was appointed as Senior Vice President, Chief Financial Officer and Treasurer of HLS effective January 1, 2020.

(4)	Ms. Bhatia was appointed as Senior Vice President and General Counsel of HLS effective November 14, 2019. She was appointed as Chief Compliance Officer and Secretary of HLS effective August 13, 2019. She resigned as Chief Compliance Officer in January 2020.

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•	designating and calling meetings of the Board;

•	presiding at all Board meetings;

•	consulting with management on Board and committee meeting agendas;

•	facilitating teamwork and communication between the Board and management; and

•	acting as a liaison between management and the Board.

•	presiding at all executive sessions of the non-management directors of the Board;

•	consulting with management on Board and committee meeting agendas;

•	facilitating teamwork and communication between the non-management directors and management; and

•	acting as a liaison in appropriate instances between management and the non-management directors, including advising the Chairman of the Board and Chief Executive Officer on the efficiency of the Board meetings

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•	The Compensation Committee oversees the management of risks relating to HLS’s compensation plans and arrangements.

•	The Audit Committee oversees management of financial reporting and controls risks.

•	The Conflicts Committee oversees specific matters that it or the Board believes may involve conflicts of interest with HFC.

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Principal Occupation:	Chief Executive Officer of HLS and Chief Executive Officer and President of HFC

Business Experience:

Mr. Jennings has served as Chief Executive Officer of HLS since January 2020 and as the Chairman of the Board of HLS since November 2017. Mr. Jennings previously served as Chief Executive Officer of HLS from January 2014 to November 2016 and as President of HLS from October 2015 to February 2016. Mr. Jennings has served as Chief Executive Officer and President of HFC since January 2020. Mr. Jennings served as Executive Vice President of HFC from November 2019 to January 2020, as Executive Chairman of HFC from January 2016 until January 2017 and as the Chief Executive Officer and President of HFC from the merger of Holly Corporation and Frontier Oil Corporation in July 2011 until January 2016. Mr. Jennings previously served as the President and Chief Executive Officer of Frontier Oil Corporation from 2009 until the merger in July 2011 and as the Executive Vice President and Chief Financial Officer of Frontier Oil Corporation from 2005 until 2009.

Additional Directorships:	Mr. Jennings currently serves as a director of HFC and FTS International, Inc. Mr. Jennings served as Chairman of the Board of HFC from January 2017 to February 2019 and January 2013 to January

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Qualifications:	Mr. Jennings provides valuable and extensive industry knowledge and experience. His knowledge of the day-to-day operations of HFC provides a significant resource for the Board and facilitates discussions between the Board and HFC management.

Larry R. Baldwin	Director since May 2016. Age 67.

Principal Occupation:	Former Partner at Deloitte LLP.

Business Experience:	Mr. Baldwin was employed for 41 years as an auditor by Deloitte LLP and predecessor firms, including 31 years as a partner, prior to retiring from such position in May 2015. While he was a partner at Deloitte LLP, Mr. Baldwin held a number of practice management positions.

Qualifications:	Mr. Baldwin brings to the Board his audit, accounting and financial reporting expertise, which also qualify him as an audit committee financial expert. Due to his audit and practice management experience with Deloitte LLP, Mr. Baldwin possesses business, industry and management expertise that provide valuable insight to the Board and the management of the Company.

Principal Occupation:	Partner at Akin Gump Strauss Hauer & Feld LLP

Business Experience:	Ms. LaFollette has served as a partner at Akin Gump Strauss Hauer & Feld LLP since June 2004. Prior to that, Ms. LaFollette served as a partner at King & Spalding LLP from 1997 to June 2004, as a partner at Andrews & Kurth LLP from 1987 to 1997 and as an associate at Andrews & Kurth LLP from 1980 to 1987.

Qualifications:	Ms. LaFollette’s experience as a transactional and securities attorney provides her with valuable insight into corporate finance, global compliance, and governance matters. In addition, Ms. LaFollette brings to the Board a broad range of experiences and skills as a result of her involvement in numerous charitable, community and civic activities.

Principal Occupation:	Managing General Partner and Principal Owner of Lee, Hite & Wisda Ltd.

Business Experience:	Mr. Lee has served as the Managing General Partner of Lee, Hite & Wisda Ltd., a private company with investments in oil and gas working, royalty and mineral interests, since founding the firm in 1984.

Additional Directorships:	Mr. Lee currently serves as a director of HFC. He served as a director of Frontier Oil Corporation from 2000 until July 2011.

Qualifications:	Mr. Lee brings to the Board his extensive experience as a consultant and investor in the oil and gas industry, which provides him with significant insights into relevant industry issues.

Principal Occupation:	Former Executive Vice President, Finance of Select Energy Services, Inc.

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Business Experience:

Mr. Mattson served as Executive Vice President, Finance of Select Energy Services, Inc., a provider of total water solutions to the U.S. unconventional oil and gas industry, from November 2016 until his retirement in March 2018 and served as Executive Vice President and Chief Financial Officer of Select Energy Services, Inc. from November 2008 through January 2016. Prior to that, Mr. Mattson served as Senior Vice President and Chief Financial Officer of VeriCenter, Inc., a private provider of managed hosting services, from 2003 until its acquisition in August, 2007. Mr. Mattson worked as an independent consultant from November 2002 to October 2003. Mr. Mattson served as the Chief Financial Officer of Netrail, Inc., a private Internet backbone and broadband service provider, from September 1999 until November 2002. From July 1993 until May 1999, Mr. Mattson served as Senior Vice President and Chief Financial Officer of Baker Hughes Incorporated, a provider of products and services to the oil, gas and process industries. Mr. Mattson joined Baker International, Inc. in 1980, and served in a number of capacities, including Treasurer, prior to the merger of Baker International, Inc. and Hughes Tool Company in 1987, at which time he became Vice President and Treasurer of Baker Hughes, Inc., a position he held until 1993.

Additional Directorships:	Mr. Mattson has served as a director of National Oilwell Varco, Inc. since March 2005 (having served as a director of Varco (and its predecessor, Tuboscope Inc.) from January 1994 until its merger with National Oilwell Varco in March 2005). He served as a director of Rex Energy Corporation from April 2010 until November 2018.

Qualifications:	Mr. Mattson brings strong executive leadership skills and financial and risk management experience to the Board. His knowledge of the oil industry as well as the financial and capital markets enables him to provide critical insight to the Board.

•	an Audit Committee;

•	a Compensation Committee; and

•	a Conflicts Committee.

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(1) Mr. Damiris served on the Compensation Committee prior to his retirement from the Board on	December 31, 2019.

•	selecting, compensating, retaining and overseeing our independent registered public accounting firm and conducting an annual review of the independence and performance of that firm;

•	reviewing the scope and the planning of the annual audit performed by the independent registered public accounting firm;

•	overseeing matters related to the internal audit function;

•	reviewing the audit report issued by the independent registered public accounting firm;

•	reviewing HEP’s annual and quarterly financial statements with management and the independent registered public accounting firm;

•	discussing with management HEP’s significant financial risk exposures and the actions management has taken to monitor and control such exposures;

•	reviewing and, if appropriate, approving transactions involving conflicts of interest, including related party transactions, when required by HEP’s Code of Business Conduct and Ethics;

•	reviewing and discussing HEP’s internal controls over financial reporting with management and the independent registered public accounting firm;

•	establishing procedures for the receipt, retention and treatment of complaints received by HEP regarding accounting, internal accounting controls or accounting matters, potential violations of applicable laws, rules and regulations or of our codes, policies and procedures;

•	reviewing the type and extent of any non-audit work to be performed by the independent registered public accounting firm and its compatibility with their continued objectivity and independence, and to the extent consistent, pre-approving all non-audit services to be performed;

•	reviewing and approving the Audit Committee Report to be included in the Annual Report on Form 10-K; and

•	reviewing the adequacy of the Audit Committee charter on an annual basis.

•	reviewing and approving the goals and objectives of HLS and HEP relevant to the compensation of the officers of HLS for whom the Compensation Committee determines compensation;

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•	determining compensation for the officers of HLS for whom the Compensation Committee determines compensation;

•	reviewing director compensation and making recommendations to the Board regarding the same;

•	overseeing the preparation of the Compensation Discussion and Analysis to be included in the Annual Report and preparing the Compensation Committee Report to be included in the Annual Report;

•	reviewing the Company’s executive compensation plans with respect to behavioral, operational and other risks;

•	administering and making recommendations to the Board with respect to HEP’s equity plan and HLS’s annual incentive plan; and

•	reviewing the adequacy of the Compensation Committee charter on an annual basis.

•	reviewed and discussed Holly Energy Partners, L.P.’s quarterly unaudited consolidated financial statements and its audited annual consolidated financial statements for the year ended December 31, 2019 with management and Ernst & Young LLP, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of

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•	discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the PCAOB, the SEC and the New York Stock Exchange;

•	discussed with Ernst & Young LLP matters relating to its independence and received the written disclosures and letter from Ernst & Young LLP required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning the firm’s independence;

•

discussed with Holly Energy Partners, L.P.’s internal auditors and Ernst & Young LLP the overall scope and plans for their respective audits and met with the internal auditors and Ernst & Young LLP, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls and the overall quality of Holly Energy Partners, L.P.’s financial reporting; and

•	considered whether Ernst & Young LLP’s provision of non-audit services to Holly Energy Partners, L.P. is compatible with the auditor’s independence.

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(1)

Mr. Damiris is not included in this table because he received no additional compensation for his service on the Board since, during 2019, Mr. Damiris was an executive officer of HFC and HLS. The compensation paid by HFC to Mr. Damiris in 2019 will be shown in HFC’s 2020 Proxy Statement. A portion of the compensation paid to Mr. Damiris by HFC in 2019 is allocated to the services he performed for us in his capacity as an executive officer of HLS and is disclosed in the “Summary Compensation Table” below. Mr. Damiris retired as an officer and director of HLS and HFC effective December 31, 2019.

(2)

Reflects the aggregate grant date fair value of restricted units granted to non-employee directors, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), determined without regard to forfeitures. See Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2019, for a discussion of the assumptions used in determining the FASB ASC Topic 718 grant date fair value of these awards.

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(1)	Mr. Damiris retired as Chief Executive Officer and President of HLS effective December 31, 2019.

(2)	Mr. Voliva was appointed as President of HLS effective January 1, 2020.

(3)	Ms. Bhatia was appointed as Senior Vice President and General Counsel of HLS effective November 14, 2019. She was appointed as Chief Compliance Officer and Secretary of HLS effective August 13, 2019. She resigned as Chief Compliance Officer in January 2020.

•	Mr. Cunningham spent all of his professional time managing our business and affairs and did not provide any services to HFC.

•	Messrs. Damiris and Voliva and Ms. Bhatia, who we generally refer to as the “HFC Shared Officers,” also served as executive officers of HFC and devoted as much of their professional time as was necessary to oversee the management of our business and affairs. All compensation paid to such executive officers is paid and determined by HFC, without input from the Compensation Committee.

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Administrative Fee Covers HFC Shared Officers. Under the terms of the Omnibus Agreement we pay an annual administrative fee to HFC (currently $2.6 million) for the provision of general and administrative services for our benefit, which may be increased or decreased as permitted under the Omnibus Agreement. The administrative services covered by the Omnibus Agreement include, without limitation, the costs of corporate services provided to us by HFC such as accounting, tax, information technology, human resources, in-house legal support and office space, furnishings and equipment. None of the services covered by the administrative fee are assigned any particular value individually. Although the administrative fee covers the services provided to us by the Named Executive Officers who are HFC Shared Officers, no portion of the administrative fee is specifically allocated to services provided by those Named Executive Officers to us. Rather, the administrative fee generally covers services provided to us by HFC and, except as described below, there is no reimbursement by us for the specific costs of such services. See Item 13, “Certain Relationships and Related Transactions, and Director Independence” of this Annual Report on Form 10-K for additional discussion of our relationships and transactions with HFC.

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Reimbursements for Compensation of Dedicated HLS Officers. Under the Omnibus Agreement, we also reimburse HFC for certain expenses incurred on our behalf, such as for salaries and employee benefits for certain personnel employed by HFC who perform services for us on behalf of HLS, including the dedicated HLS officers, as described in greater detail below. The partnership agreement provides that our general partner will determine the expenses that are allocable to us. In 2019, we reimbursed HFC for 100% of the compensation expenses incurred by HFC for salary, bonus, retirement and other benefits provided to Mr. Cunningham. With respect to equity compensation paid by us to Mr. Cunningham, HLS purchases the units delivered pursuant to awards under our Long-Term Incentive Plan, and we reimburse HLS for the purchase price of the units.

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Generally. The Compensation Committee, pursuant to its charter, determines cash and bonus compensation only for HLS’s Chief Executive Officer, President or Chief Financial Officer if such officers are solely dedicated to HLS and are not HFC Shared Officers. During 2019, HLS’s Chief Executive Officer, President and Chief Financial Officer were HFC Shared Officers, and as a result, the Compensation Committee did not set cash and bonus compensation for any executive officer. For 2019, the Compensation Committee made compensation decisions for Mr. Cunningham only with respect to long-term equity incentive awards. All other compensation provided to Mr. Cunningham, other than with respect to

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•

Pension and Retirement Benefits. The Compensation Committee does not review or approve pension or retirement benefits for any of the Named Executive Officers. Rather, all pension and retirement benefits provided to the executives are the same pension and retirement benefits that are provided to employees of HFC generally, and such benefits are sponsored and administered entirely by HFC without input from HLS or the Compensation Committee. The pension and retirement benefits provided to Mr. Cunningham in 2019 are described below and were charged to us monthly in accordance with the Omnibus Agreement.

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Generally. HFC makes all decisions regarding the compensation paid to the HFC Shared Officers, which compensation is covered by the administrative fee under the Omnibus Agreement (and therefore not subject to reimbursement by us); however, in accordance with SEC rules, for purposes of these disclosures, a portion of the compensation paid by HFC to the HFC Shared Officers for 2019 is allocated to the services they performed for us during 2019. The allocation was made based on the assumption that each of Messrs. Damiris and Voliva and Ms. Bhatia spent, in the aggregate, the following percentage of his or her professional time on our business and affairs in 2019:

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•	base salary;

•	annual incentive cash bonus compensation;

•	long-term equity incentive compensation;

•	severance and change in control benefits;

•	health and retirement benefits; and

•	perquisites.

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(1)	The EHS metric is divided into the following four equally weighted measures:

•	Recordable Injury Rate, which is based on the number of employees out of 100 that have been involved in a recordable event.

•	Lost Time Injury, which is based on the number of injuries causing an employee to miss work.

•	Vehicle Incidents, which is based on the number of incidents generating greater than $5,000 of property damage per 1,000,000 miles driven by HEP employees.

•	Employee Based Environmental Releases, which is based on loss of containment caused by an employee that is reportable to either a state or federal agency.

(2)	The reliability metric is based on the weighted average Solomon Liquid Pipeline Availability.

(3)

Operating Expense includes all direct and controllable cash operating costs, which includes Selling, General and Administrative (SG&A) costs. Budgeted costs exclude asset write-downs, impairments, inventory valuation charges, unbudgeted litigation and legal settlement costs, environmental charges resulting from events which occurred prior to the beginning of the performance period, variable energy and utility costs, and unbudgeted bonus expenses and costs related to unbudgeted new capital assets brought online and acquisitions made during the period. The metric is based on the actual cash operating expense of each segment versus the budgeted cash operating expense for each segment.

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•	promoting our interests by providing equity incentive compensation awards to eligible individuals;

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•	enhancing our ability to attract and retain the services of individuals who are essential for our growth and profitability;

•	encouraging those individuals to devote their best efforts to advancing our business; and

•	aligning the interests of those individuals with the interests of our unitholders.

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•	“EBITDA,” which determines 50% of the shares earned at the end of the performance period, is defined as our earnings before interest, taxes, depreciation and amortization for each calendar year during the performance period. The Board believes EBITDA is an appropriate metric because it measures HEP’s profitability before the effects of items such as financings, capital expenditures and taxes.

•	“total unitholder return,” which determines 50% of the shares earned at the end of the performance period, is defined as (a) the appreciation in our unit price during the performance period (in dollars) plus cumulative distributions paid during the

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(1)	Represents the discretionary bonus amount, if any, paid pursuant to the individual performance metric under our Annual Incentive Plan prior to the 2019 year and any other bonus paid outside our Annual Incentive Plan. Other payments made under our Annual Incentive Plan are included in the “Non-Equity Incentive Plan Compensation” column.

(2)

Represents the aggregate grant date fair value of awards of restricted units or phantom units and performance units made in the year indicated computed in accordance with FASB ASC Topic 718, determined without regard to forfeitures, and does not reflect the actual value that may be recognized by the executive. See Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2019 for a discussion of the assumptions used in determining the FASB ASC Topic 718 grant date fair value of these awards.

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(3)	Represents the bonus amount, if any, paid under our Annual Incentive Plan. The 2019 bonus amounts under our Annual Incentive Plan are described above in greater detail under “Compensation Discussion and Analysis–Overview of 2019 Executive Compensation Components and Decisions–Annual Incentive Cash Bonus Compensation.”

(4)	For 2019, includes the compensation as described under “All Other Compensation” below.

(5)

During 2019, each of these officers split his professional time between HFC and us, and all compensation paid to him for 2019 was determined and paid by HFC. In accordance with SEC rules, for purposes of these disclosures, a portion of the total compensation paid by HFC to these officers for 2019 is allocated to the services he performed for us during 2019. The allocation was made based on the assumption that each officer spent, in the aggregate, approximately the following percentage of his professional time in 2019 on our business and affairs:

(6)

During 2019, Ms. Bhatia split her professional time between HFC and us, and all compensation paid to her for 2019 was determined and paid by HFC. In accordance with SEC rules, for purposes of these disclosures, a portion of the total compensation paid by HFC to her for 2019 is allocated to the services she performed for us during 2019. The allocation was made based on the assumption that she spent, in the aggregate, approximately 25% of her professional time in 2019 on our business and affairs.

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(1)	The value of the perquisites provided by us to our Named Executive Officers in 2019 did not exceed $10,000 in the aggregate, and therefore, in accordance with SEC rules, are not included in the table above or described in this footnote.

(2)	For Mr. Cunningham, represents tax payments made on the executive’s behalf with respect to imputed income for family travel on our aircraft when the executive was traveling for business purposes and the family travel was business related.

(1)

Represents the potential payouts for awards granted under our annual incentive cash compensation program, which were subject to achieving certain performance targets with respect to financial measures, operational measures and strategic and individual measures. Amounts reported (a) in the “Threshold” column reflect 50% of the named executive officer’s target award opportunity under the annual incentive cash compensation program, which, in accordance with SEC rules, is the minimum amount payable for a certain level of performance under the award, (b) in the “Target” column reflect 100% of the named executive officer’s target award opportunity under the annual incentive cash compensation program, which is the target amount payable under the award, and (c) in the “Maximum” column reflect 200% of the named executive officer’s target award opportunity under the annual incentive cash compensation program, which is the maximum amount payable under the award. If less than minimum levels of performance, as described in the “Threshold” column, are attained with respect to the financial measures, operational measures and strategic and individual measures under the annual incentive cash compensation program, then 0% of the named executive officer’s target award opportunity will be earned. The performance targets and target awards are described under “Compensation Discussion and Analysis–Overview of 2019 Executive Compensation Components and Decisions–Annual Incentive Cash Bonus Compensation.” Although these awards were granted in the fourth quarter of 2018, they represent the 2019 Annual Incentive Plan awards and any payouts with respect to these awards are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for 2019.

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(2)

Represents the potential number of performance units payable under the Long-Term Incentive Plan. Amounts reported (a) in the “Threshold” column reflect 50% of the target number of performance units awarded to the named executive officer, which, in accordance with SEC rules, is the minimum amount payable for a certain level of performance under the performance unit awards, (b) in the “Target” column reflect 100% of the target number of performance units awarded to the named executive officer, which is the target amount payable under the performance unit awards, and (c) in the “Maximum” column reflect 200% of the target number of performance units awarded to the named executive officer, which is the maximum amount payable under the performance unit awards. If less than minimum levels of performance, as described in the “Threshold” column, are attained with respect to the EBITDA and total unitholder return performance metrics applicable to the performance unit awards, then 0% of the target number of performance units awarded will be earned. The number of units paid at the end of the performance period may vary from the target amount, based on our achievement of specified performance measures. The terms of the performance unit awards granted in October 2019 for the 2020 fiscal year are described above under “Compensation Discussion and Analysis–2020 Compensation Decisions–Long-Term Equity Incentive Compensation–Performance Unit Awards.”

(3)	Represents awards of phantom units. The terms of the phantom unit awards granted in October 2019 for the 2020 fiscal year are described above under “Compensation Discussion and Analysis–2020 Compensation Decisions–Long-Term Equity Incentive Compensation–Phantom Unit Awards.”

(4)

Represents the grant date fair value determined pursuant to FASB ASC Topic 718, based on a closing price of our common units of $23.52 on October 23, 2019. The value of performance units granted on October 23, 2019 reflects a probable settlement percentage of 104.55%. See note 2 to the Summary Compensation Table for additional information regarding the aggregate probable settlement percentage calculation.

(1)	Includes the following phantom unit awards granted by us:

•	in November 2017 to Mr. Cunningham (3,861), of which one third vested on December 15, 2018, one third vested on December 1, 2019 and the remaining one third vests on December 1, 2020;

•	in November 2018 to Mr. Cunningham (5,220), of which one third vested on December 1, 2019, one third vests on December 1, 2020 and the remaining one third vests on December 1, 2021; and

•	in October 2019 to Mr. Cunningham (6,378), of which one third vests on December 1, 2020, one third vests on December 1, 2021 and the remaining one third vests on December 1, 2022.

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(2)	Includes the following performance unit awards granted by us (the amounts included in the parentheticals reflect the target number of performance units subject to each award):

•	in November 2017 to Mr. Cunningham (3,861), with a performance period that ends on December 31, 2020;

•	in November 2018 to Mr. Cunningham (5,220), with a performance period that ends on December 31, 2021; and

•	in October 2019 to Mr. Cunningham (6,378), with a performance period that ends on September 30, 2022 and a service period that ends on December 1, 2022 (or the first business day thereafter if such date is a Saturday or a Sunday).

(1)

Includes the following number of common units (shown in column (b) below) that became payable to the executive officer on February 5, 2020 following the Board’s certification that the applicable standards for the target performance units granted to the executive officer in October 2016 (shown in column (a) below), the performance period for which ended December 31, 2019, had been met (based on a performance percentage of 148%), which performance units are treated, in accordance with SEC rules, as vesting during 2019:

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(1)	The amounts reported were deferred at the election of the Named Executive Officer and are also included in the amounts reported in the “Salary,” “Bonus” and/or “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table for 2019.

(2)	These amounts are also included in the “All Other Compensation” column of the Summary Compensation Table for 2019.

(3)

The aggregate balance for Mr. Cunningham reflects the cumulative value, as of December 31, 2019, of his and employer-provided contributions to the NQDC Plan for his account, and any earnings on these amounts, since he began participating in the NQDC Plan in 2012. We reported executive and company contributions for Mr. Cunningham in the Summary Compensation Table in the following aggregate amounts:

•	an amount equal to his accrued and unpaid salary, unreimbursed expenses and accrued vacation pay; and

•	a lump sum amount equal to a designated multiplier times (i) the executive’s annual base salary as of the date of termination or the date immediately prior to the “Change in Control,” whichever is greater, and (ii) the executive’s annual bonus amount, calculated as the average annual bonus paid to him for the prior three years. The severance multiplier is 1.0 for Mr. Cunningham.

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•	a person or group of persons (other than HFC or any of its wholly-owned subsidiaries; HLS, HEP, HEP Logistics or any of their subsidiaries) becomes the beneficial owner of more than 50% of the combined voting power of the then outstanding securities of HFC, HLS, HEP or HEP Logistics or more than 50% of the outstanding common stock or membership interests, as applicable of HFC or HLS;

•	the individuals who as of the date of grant constituted a majority of HFC’s Board of Directors and individuals whose election by HFC’s Board of Directors, 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, cease for any reason to constitute a majority of HFC’s Board of Directors;

•

the consummation of a merger, consolidation or recapitalization of HFC, HLS, HEP or HEP Logistics resulting in the holders of voting securities of HFC, HLS, HEP or HEP Logistics, as applicable, prior to the merger or consolidation owning less than 50% of the combined voting power of the voting securities of HFC, HLS, HEP or HEP Logistics, as applicable, or a recapitalization of HFC, HLS, HEP or HEP Logistics in which a person or group becomes the beneficial owner of securities of HFC, HLS, HEP or HEP Logistics, as applicable, representing more than 50% of the combined voting power of the then outstanding securities of HFC, HLS, HEP or HEP Logistics, as applicable;

•	the holders of voting securities of HFC or HEP approve a plan of complete liquidation or dissolution of HFC or HEP, as applicable; or

•	the holders of voting securities of HFC or HEP approve the sale or disposition of all or substantially all of the assets of HFC or HEP, as applicable, other than to an entity holding at least 60% of the combined voting power of the voting securities immediately prior to such sale or disposition.

•	the engagement in any act of willful gross negligence or willful misconduct on a matter that is not inconsequential; or

•	conviction of a felony.

•	a material reduction in the executive’s (or his supervisor’s) authority, duties or responsibilities;

•	a material reduction in the executive’s base compensation; or

•	the relocation of the executive to an office or location more than 50 miles from the location at which the executive normally performed the executive’s services, except for travel reasonably required in the performance of the executive’s responsibilities.

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•	the executive’s employment is terminated, other than for “Cause,” or

•	the executive resigns within 90 days following an “Adverse Change.”

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Phantom Units: Upon death or disability, the executive will vest with respect to a pro rata number of units attributable to the period of service completed during the applicable vesting period and will forfeit any unvested units. Under the phantom units granted in November 2017 and November 2018, upon “Retirement,” the executive will fully vest in all phantom units. Under the phantom units granted in October 2019, upon “Retirement,” the executive will vest with respect to a pro rata number of units attributable to the period of service completed during the applicable vesting period and will forfeit any unvested units.

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Performance Units: Pursuant to the terms of the November 2017 and November 2018 performance unit award agreements, upon "Retirement" the award will remain outstanding and eligible to vest without proration subject to actual performance. Pursuant to the terms of the October 2019 performance unit award agreements, upon “Retirement,” the executive becomes vested in a number of performance units attributable to the period of service completed during the applicable vesting period multiplied by the target number of performance units awarded and will forfeit any unvested units. Upon death or disability, the executive will remain eligible to vest with respect to a pro-rata number of units attributable to the period of service completed during the applicable performance period (rounded up to include the month of termination) and will forfeit any unvested units. The Compensation Committee will determine the number of remaining performance units earned and the amount to be paid to the executive as soon as administratively possible after the end of the performance period based upon the performance actually attained for the entire performance period (provided that executives will earn and receive payment with respect to no less than 50% of the performance units awarded prior to 2018). The foregoing also applies if the executive separates from employment for any other reason other than a voluntary separation, Special Involuntary Separation or for “Cause.”

•	a person or group of persons (other than HFC or any of its wholly-owned subsidiaries or HLS, HEP, HEP Logistics or any of their subsidiaries) becomes the beneficial owner of more than 40% of the combined voting power of the then outstanding securities of HFC, HLS, HEP or HEP Logistics;

•	the individuals who as of the date of grant constituted a majority of HFC’s Board of Directors cease for any reason to constitute a majority of HFC’s Board of Directors;

•

the consummation of a merger, consolidation or recapitalization of HFC, HLS, HEP or HEP Logistics resulting in the holders of voting securities of HFC, HLS, HEP or HEP Logistics, as applicable, prior to the merger or consolidation owning less than 60% of the combined voting power of the voting securities of HFC, HLS, HEP or HEP Logistics, as applicable, or a recapitalization of HFC, HLS, HEP, or HEP Logistics in which a person or group becomes the beneficial owner of securities of HFC, HLS, HEP or HEP Logistics, as applicable, representing more than 40% of the combined voting power of the then outstanding securities of HFC, HLS, HEP or HEP Logistics, as applicable;

•	the holders of voting securities of HFC, HLS, HEP or HEP Logistics approve a plan of complete liquidation or dissolution of HFC, HLS, HEP or HEP Logistics, as applicable; or

•	the holders of voting securities of HFC, HLS, HEP or HEP Logistics approve the sale or disposition of all or substantially all of the assets of HFC, HLS, HEP or HEP Logistics, as applicable, other than to an entity holding at least 60% of the combined voting power of the voting securities immediately prior to such sale or disposition.

•	a change in the executive’s principal office of employment of more than 25 miles from the executive’s work address at the time of grant of the award;

•	a material increase (without adequate consideration) or material reduction in the duties to be performed by the executive; or

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•	a material reduction in the executive’s base compensation (other than bonuses and other discretionary items of compensation) that does not apply generally to employees.

•	an act of dishonesty constituting a felony or serious misdemeanor and resulting (or intended to result in) gain or personal enrichment to the executive at the expense of HLS;

•	gross or willful and wanton negligence in the performance of the executive’s material and substantial duties; or

•	conviction of a felony involving moral turpitude.

•	For purposes of determining amounts under the “Cash Payments” column, accrued and unpaid salary and unreimbursed expenses were assumed to equal zero.

•	Accrued vacation for a specific year is not allowed to be carried over to a subsequent year, so we assumed all accrued vacation for the 2019 year was taken prior to December 31, 2019. Because we accrue vacation in any given year for the following year, amounts reported as “Cash Payments” include vacation amounts for Mr. Cunningham of $38,481.60 accrued in 2019 for the 2020 year.

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For amounts payable to the Named Executive Officers with respect to performance units upon a termination due to death, disability, retirement or other separation (other than a voluntary separation, a for “Cause” separation or a Special Involuntary Termination), we assumed the performance units would settle at 100%. The number of units paid at the end of the performance period may vary from the amounts reflected in the following tables, based on our actual achievement compared to the performance targets.

•	With respect to the treatment of phantom unit awards upon termination due to death, disability or without Cause, we have reflected accelerated vesting based on the length of employment during the vesting period for each award.

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Mr. Cunningham was eligible for retirement as of December 31, 2019. Assuming that Mr. Cunningham had retired on December 31, 2019, his retirement benefits would have consisted of accelerated vesting of phantom units valued at $246,862 and accelerated vesting of performance units valued at $642,062. We assumed that Mr. Cunningham’s performance units granted in 2019 would vest according to the pro-rata formula within his award agreements, and performance units granted prior to 2019 would settle at 100%, therefore the number of units paid upon a retirement scenario could vary from the level presented below.

•	The amount shown for “Value of Welfare Benefits” represents amounts equal to the monthly premium payable pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for medical and dental premiums, multiplied by 12 months for Mr. Cunningham.

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In calculating whether any tax reimbursements were owed to the Named Executive Officers, we used the following assumptions: (a)  no amounts will be discounted as attributable to reasonable compensation, (b) all cash severance payments are contingent upon a change in control and (c) the presumption required under applicable regulations that the equity awards granted in 2019 were contingent upon a change in control could be rebutted. Based on these assumptions, none of the Named Executive Officers would receive any tax reimbursement or “gross-up” payments with respect to any amounts reported in the table below.

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•	No amounts potentially payable pursuant to the NQDC Plan are included in the table below since neither the form nor amount of any such benefits would be enhanced nor vesting or other provisions accelerated in connection with any of the triggering events disclosed below. Please refer to the section titled “Nonqualified Deferred Compensation” for additional information regarding these benefits.

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•	each person known to us to be a beneficial owner of 5% or more of the common units;

•	directors of HLS, the general partner of our general partner;

•	each Named Executive Officer of HLS; and

•	all directors and executive officers of HLS as a group.

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(1)

HollyFrontier Corporation directly holds 5,006 common units over which it has sole voting and dispositive power and 59,625,024 common units over which it has shared voting and dispositive power. HollyFrontier Corporation is the record holder of 140,000 common units as nominee for Navajo Pipeline Co., L.P. The 59,625,024 common units over which HollyFrontier Corporation has shared voting and dispositive power are held as follows: HEP Logistics Holdings, L.P. directly holds 37,250,000 common units; Holly Logistics Limited LLC directly holds 21,615,230 common units; HollyFrontier Holdings LLC directly holds 184,800 common units; Navajo Pipeline Co., L.P. directly holds 254,880 common units; and other wholly-owned subsidiaries of HollyFrontier Corporation directly own 180,114 common units. HollyFrontier Corporation is the ultimate parent company of each such entity and may therefore be deemed to beneficially own the units held by each such entity. HollyFrontier Corporation files information with, or furnishes information to, the Securities and Exchange Commission pursuant to the information requirements of the Exchange Act. The address of HollyFrontier Corporation is 2828 N. Harwood, Suite 1300, Dallas, Texas 75201-1507.

(2)

Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2020, Tortoise acts as an investment adviser to certain investment companies and managed accounts pursuant to either an investment advisory agreement or a managed account agreement with each client, as applicable. Pursuant to such agreements, Tortoise has shared voting power over 5,147,808 units and shared dispositive power over 6,665,703 units. Pursuant to its client agreements, Tortoise may be deemed to beneficially own the units held by its clients. The address of Tortoise is 5100 W 115th Place, Leawood, Kansas 66211.

(3)

Based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2020, Energy Income Partners, LLC, James J. Murchie, Eva Pao, John Tysseland and Saul Ballesteros. James J. Murchie, Eva Pao and John Tysseland are the Portfolio Managers with respect to the portfolios managed by Energy Income Partners, LLC.  Saul Ballesteros is a control person of Energy Income Partners, LLC. Each of the foregoing report shared voting and dispositive power over 6,412,130 units.  The address of each of the foregoing is 10 Wright Street, Westport, Connecticut 06880.

(4)	Based on a Schedule 13G/A filed with the Securities and Exchange Commission on January 25, 2019, Oppenheimer Funds, Inc. has shared voting power and shared dispositive power with respect to 6,267,063 units. The address of Oppenheimer Funds, Inc. is Two World Financial Center, 225 Liberty Street, New York, NY 10281.

(5)

The number reported includes 11,145 common units to be issued upon settlement of phantom units, some of which may vest and be settled within 60 days of February 14, 2020 under certain circumstances. The number reported also includes 982 common units to be issued to Mr. Cunningham upon settlement of performance units, which may vest and be settled within 60 days of February 14, 2020 under certain circumstances. Until settled, Mr. Cunningham has no voting or dispositive power over the common units underlying the phantom units or performance units.

(6)	Includes 4,465 restricted units for which the director has sole voting power but no dispositive power.

(7)	Messrs. Jennings, Damiris, Voliva and Lee and Ms. Bhatia each own common stock of HFC. Each of these individuals own common stock of HFC as set forth in the following table:

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(a)	Mr. Damiris retired as Chief Executive Officer, President and Director of HFC effective December 31, 2019. The amount reported is based on a Form 4 filed for Mr. Damiris on January 2, 2020.

(b)

The number reported includes shares of HFC common stock to be issued to the individual upon settlement of restricted stock units, which may vest and be settled within 60 days of February 14, 2020 under certain circumstances, as follows: Mr. Jennings (56,982 shares), Mr. Voliva (31,313 shares) and Ms. Bhatia (8,505 shares). Until settled, the individual has no voting or dispositive power over the restricted stock units. The number does not include unvested performance share units.

(c)	The number reported includes 4,303 restricted stock units held by Mr. Voliva’s wife for which Mr. Voliva disclaims beneficial ownership except to the extent of his pecuniary interest therein.

(d)	The number reported includes 2,663 shares of HFC common stock to be issued to Mr. Lee upon settlement of restricted stock units, which may vest and be settled within 60 days of February 14, 2020 under certain circumstances. Until settled, Mr. Lee has no voting or dispositive power over the common stock underlying the restricted stock units.

(8)	Includes 285 common units held by Mr. Lee’s wife. Mr. Lee’s wife has the right to receive distributions from, and the proceeds from the sale of, these common units. Mr. Lee disclaims beneficial ownership of the common units held by his wife except to the extent of his pecuniary interest therein.

(9)

The number reported includes 11,145 common units to be issued to Mr. Cunningham upon settlement of phantom units, some of which may vest and be settled within 60 days of February 14, 2020 under certain circumstances, 982 common units to be issued to Mr. Cunningham upon settlement of performance units, which may vest and be settled within 60 days of February 14, 2020 under certain circumstances and 17,860 restricted units held by non-employee directors for which they have sole voting power but no dispositive power. The number reported also includes 285 common units as to which Mr. Lee disclaims beneficial ownership, except to the extent of his pecuniary interest therein.

(1)	All stock-based compensation plans are described in Note 9 to our consolidated financial statements for the fiscal year ended December 31, 2019.

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(2)

On April 25, 2012, at a Special Meeting of the Unitholders of the Partnership, the unitholders approved the Long-Term Incentive Plan, which, among other things, provided for an increase in the maximum number of common units reserved for delivery with respect to awards under the Long-Term Incentive Plan to 2,500,000 common units (as adjusted to reflect the two-for-one common unit split that occurred on January 16, 2013). All securities reported as available for future issuances are available from the additional common units approved by unitholders under the Long-Term Incentive Plan. At the time the Long-Term Incentive Plan was originally adopted in 2004, it was not required to be approved by HEP’s unitholders.

(3)

Includes 78,182 units subject to performance units granted to key individuals under the Long-Term Incentive Plan assuming the maximum payout level. If the performance units are paid at the target payout level, 41,811 units would be issued upon the vesting of such performance units. Performance units granted in November 2016 with a performance period that ended on December 31, 2019 were not settled until certification by the Board in February 2020 that a performance percentage of 148% was attained for these performance units; however, such awards are not included in this column as outstanding since they are treated for purposes of the preceding executive compensation tables as vesting during 2019 in accordance with SEC rules.

Item 13.	Certain Relationships and Related Transactions, and Director Independence

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•	our obligation to pay HFC an annual administrative fee, in the amount of $2.6 million for 2019, for the provision by HFC of certain general and administrative services;

•	HFC’s and its affiliates’ agreement not to compete with us under certain circumstances and our right to notice of, and right of first offer to purchase, certain logistics assets constructed by HFC and acquired as part of an acquisition by HFC of refining assets;

•	an indemnity by HFC for certain potential environmental liabilities;

•	our obligation to indemnify HFC for environmental liabilities related to our assets existing on the date of our initial public offering to the extent HFC is not required to indemnify us; and

•	HFC’s right of first refusal to purchase our assets that serve HFC’s refineries.

•	any business operated by HFC or any of its affiliates at the time of the closing of our initial public offering;

•	any business conducted by HFC with the approval of our general partner;

•	any business or asset that HFC or any of its affiliates acquires or constructs that has a fair market value or construction cost of less than $5 million; and

•	any business or asset that HFC or any of its affiliates acquires or constructs that has a fair market value or construction cost of $5 million or more if we have been offered the opportunity to purchase the business or asset at fair market value, and we decline to do so.

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On October 31, 2017, we closed on an equity restructuring transaction with HEP Logistics, a wholly-owned subsidiary of HFC and the general partner of HEP, pursuant to which the incentive distribution rights held by HEP Logistics were canceled, and HEP Logistics' 2% general partner interest in HEP was converted into a non-economic general partner interest in HEP. In consideration, we issued 37,250,000 of our common units to HEP Logistics. In addition, HEP Logistics agreed to waive $2.5 million of limited partner cash distributions for each of twelve consecutive quarters beginning with the first quarter the units issued as consideration were eligible to receive distributions. This waiver of limited partner cash distributions will expire after the cash distribution for the second quarter of 2020, which will be made during the third quarter of 2020.

•	Revenues received from HFC were $411.8 million, $397.8 million and $377.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	HFC charged us general and administrative services under the Omnibus Agreement of $2.6 million for the year ended December 31, 2019, and $2.5 million for each of the years ended December 31, 2018 and 2017.

•	We reimbursed HFC for costs of employees supporting our operations of $55.1 million, $51.7 million and $46.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	HFC reimbursed us $13.9 million, $10.0 million and $7.2 million for the years ended December 31, 2019, 2018 and 2017, respectively, for expense and capital projects.

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•	We distributed $150.0 million, $146.8 million and $130.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, to HFC as regular distributions on its common units, subordinated units and general partner interest, including general partner incentive distributions.

•	We received direct financing lease payments from HFC for use of our Artesia and Tulsa railyards of $2.1 million, $2.0 million and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

•	We recorded a gain on sales-type leases of $35.2 million during the year ended December 31, 2019 and we received sales-type lease payments of $4.8 million that were not included in revenues for the year ended December 31, 2019.

Item 14.	Principal Accounting Fees and Services

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(1)	Represents fees for professional services provided in connection with the audit of our annual financial statements and internal controls over financial reporting, review of our quarterly financial statements, and procedures performed as part of our securities filings.

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Item 15.	Exhibits and Financial Statement Schedules

(a)	Documents filed as part of this report

(1)	Index to Consolidated Financial Statements

(2)	Index to Consolidated Financial Statement Schedules

(3)	Exhibits

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