Related Party Transactions

We serve HFC’s refineries under long-term pipeline, terminal and tankage throughput agreements, and refinery processing unit tolling agreements expiring from 2019 to 2036. Under these agreements, HFC agrees to transport, store and process throughput volumes of refined product, crude oil and feedstocks on our pipelines, terminals, tankage, loading rack facilities and refinery processing units that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual rate adjustments on July 1st each year based on the Producer Price Index (“PPI”) or Federal Energy Regulatory Commission (“FERC”) index. As of June 30, 2016, these agreements with HFC require minimum annualized payments to us of $261.4 million.

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

Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee (currently $2.5 million) for the provision by HFC or its affiliates of various general and administrative services to us. This fee does not include the salaries of personnel employed by HFC who perform services for us on behalf of HLS or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:


•	Revenues received from HFC were $79.2 million and $68.3 million for the three months ended June 30, 2016 and 2015, respectively, and $162.0 million and $140.6 million for the six months ended June 30, 2016 and 2015, respectively.


•	HFC charged us general and administrative services under the Omnibus Agreement of $0.6 million for each of the three months ended June 30, 2016 and 2015 and $1.2 million for each of the six months ended June 30, 2016 and 2015.


•	We reimbursed HFC for costs of employees supporting our operations of $9.5 million and $7.5 million for the three months ended June 30, 2016 and 2015, respectively, and $19.4 million and $16.2 million for the six months ended June 30, 2016 and 2015, respectively.


•	HFC reimbursed us $5.0 million and $4.4 million for the three months ended June 30, 2016 and 2015, respectively, for reimbursable expense and capital projects and $6.7 million and $7.0 million for the six months ended June 30, 2016 and 2015, respectively.


•	We distributed $25.3 million and $22.3 million for the three months ended June 30, 2016 and 2015, respectively, and $49.8 million and $43.9 million for the six months ended June 30, 2016 and 2015, respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions.


•	Accounts receivable from HFC were $42.8 million and $32.5 million at June 30, 2016, and December 31, 2015, respectively.


•	Accounts payable to HFC were $9.2 million and $11.6 million at June 30, 2016, and December 31, 2015, respectively.

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Revenues for the six months ended June 30, 2016 and 2015, include $5.5 million and $6.0 million, respectively, of shortfall payments billed in 2015 and 2014, respectively. Deferred revenue in the consolidated balance sheets at June 30, 2016, and December 31, 2015, includes $3.2 million and $6.4 million, respectively, relating to certain shortfall billings. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $3.2 million deferred at June 30, 2016.

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On February 22, 2016, HFC obtained a 50% membership interest in Osage in a non-monetary exchange, whereby a subsidiary of Magellan will provide terminalling services for all HFC products originating in Artesia, New Mexico that require terminalling in or through El Paso, Texas. Concurrent with this transaction, we entered into a non-monetary exchange with HFC, whereby we received HFC’s interest in Osage in exchange for our El Paso terminal. See Note 1 for a description of this transaction.


•	On March 31, 2016, we acquired crude oil tanks located at HFC’s Tulsa refinery from an affiliate of Plains for $39.5 million. See Note 1 for a description of this transaction.