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 PPI or the FERC index. As of December 31, 2016, these agreements with HFC require minimum annualized payments to us of $321.0 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 from services to HFC were $333.1 million, $292.2 million and $275.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.


•	HFC charged us general and administrative services under the Omnibus Agreement of $2.5 million for the year ended December 31, 2016, $2.4 million for the year ended December 31, 2015, and $2.3 million for the year ended December 31, 2014.


•	We reimbursed HFC for costs of employees supporting our operations of $40.9 million, $34.5 million and $38.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.


•	HFC reimbursed us $14.0 million, $13.5 million and $16.8 million for the years ended December 31, 2016, 2015 and 2014, respectively, for expense and capital projects.


•	We distributed $105.2 million, $90.4 million and $80.5 million, for the years ended December 31, 2016, 2015 and 2014, respectively, to HFC as regular distributions on its common units and general partner interest, including general partner incentive distributions.


•	Accounts receivable from HFC were $42.6 million and $32.5 million at December 31, 2016 and 2015, respectively.


•	Accounts payable to HFC were $16.4 million and $11.6 million at December 31, 2016 and 2015, respectively.


•	Revenues for the years ended December 31, 2016, 2015 and 2014 include $6.1 million, $7.3 million and $10.1 million, respectively, of shortfall payments billed in 2015, 2014 and 2013, respectively. Deferred revenue in the consolidated balance sheets at December 31, 2016 and 2015, includes $5.6 million and $6.4 million, respectively, relating to certain shortfall billings.


•	In November 2015, we acquired from HFC all the outstanding membership interests in El Dorado Operating which owns the newly constructed naphtha fractionation and hydrogen generation units at HFC’s El Dorado refinery. See Note 2 for a description of this transaction.

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 2 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 2 for a description of this transaction.


•	Effective October 1, 2016, we acquired all the membership interests of Woods Cross Operating, a wholly owned subsidiary of HFC, which owns the newly constructed atmospheric distillation tower, fluid catalytic cracking unit, and polymerization unit located at HFC’s Woods Cross refinery, for cash consideration of $278 million. See Note 2 for a description of this transaction.