Holly Energy Earnings Call Nuggets: Pipelines Outlook and EBITDA Estimates

Holly Energy (NYSE:HEP) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Pipelines Outlook

Edward Row – Raymond James: Given the interesting feedback and insight from E&P companies talking about the Niobrara and understanding the fact that it’s still tough to see customers wanting to commit to long haul pipelines to Cushing. But do you guys see some opportunities for shorter, gathering pipelines within the area given your asset footprint?

Bruce R. Shaw – President: What I can say on that is that certainly with the Cheyenne refinery from an HFC perspective we won’t comment on HFC’s take on that crude quality, but one thing we continually work with from an HEP perspective, work with HFC on is looking for areas where pipelines or logistics assets in addition to the current footprint would help that business. Right now HEP doesn’t own crude gathering assets in the Niobrara crude patch, but something that certainly logical would be continually evaluating.

Edward Row – Raymond James: With crude spreads significantly depressing, has this really changed your view on crude by rail projects within the Permian?

Bruce R. Shaw – President: Well, it certainly is something we need to factor in. And I defer also to any thoughts Matt or Doug may have on that one, but the bottom line is we recognize the crude spreads, if you think about WTI to Brent or WTI to LLS are going to be volatile. So, we don’t want to base any decisions just on kind of current market static spread, but it’s certainly something we factor into that, that decision process.

Edward Row – Raymond James: Final, last question. In regards to the product terminal enhancements at Las Vegas, given its relatively small capital costs and – am I right it’s expected to come on 2Q ’14 and once it comes online it should immediately drive incremental EBITDA for once it comes online that time?

Bruce R. Shaw – President: Well, the terminal enhancements themselves had a small surcharge that it would be related to throughput at the terminal. But the real upside for the UNEV pipeline and the terminal besides seasonal winter surges that we can see in volumes, just because the way the demand works in the Salt Lake City market really isn’t expected until the expansions, the refinery expansions are complete at the end of the 2014 or early 2015.

EBITDA Estimates

Theresa Chen – Barclays Capital: Just for the potential pipeline projects from Cushing to the Tulsa refinery and also the (indiscernible) Denver project. Have you given any ballpark estimate of costs or EBITDA contribution that they would bring and what are the next steps from here?

Bruce R. Shaw – President: No, we’ve not given any capital costs or EBITDA estimates namely because we’re still waiting to decide whether these projects are viable projects. So, we want to at first make sure we emphasize they are still just under evaluation and not get anything baked into the future for HEP on these projects. But we’ll update you on those as we have further information. I would say though that if they were to come to fruition we certainly don’t have no expectation that the ratio of capital expenditures to income that will be generated by those projects would fall outside of the normal range for HEP.

Theresa Chen – Barclays Capital: And also on UNEV once the refinery expansion is completed what kind of changes in volume do you anticipate?

Bruce R. Shaw – President: Well, consistent with since that’s been constructed in comments we’ve made historically, right now between HFC and Sinclair and their commitments, their minimum commitments on UNEV for about 23,000 barrels a day. And all we can say about potential future shipments is that if you look at the expansion volume in the refinery expansion in Salt Lake City, they are going to total 15,000 to 20,000 barrels a day between the project that HFC is working at Woods Cross and as we understand the project is to soil, there is no guarantee that all those volumes will flow in UNEV, but that gives you a potential increase range of there from current volumes to what those expansions could add.