Acquisitions

El Dorado Tank Farm

On March 6, 2015, we completed the acquisition of an existing crude tank farm adjacent to HFC's El Dorado Refinery from an unrelated third-party for $27.5 million in cash. Substantially all of the purchase price was allocated to properties and equipment and no goodwill was recorded. HFC is the main customer of this crude tank farm.

Frontier Pipeline

On August 31, 2015, we purchased a 50% interest in Frontier Aspen LLC (formerly known as Frontier Pipeline Company), which owns a 289-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah (the "Frontier Pipeline"), from an affiliate of Enbridge, Inc. for cash consideration of $54.6 million. Frontier Pipeline will continue to be operated by an affiliate of Plains All American Pipeline, L.P. ("Plains"), which owns the remaining 50% interest. The Frontier Pipeline has a 72,000 bpd capacity and supplies Canadian and Rocky Mountain crudes to Salt Lake City area refiners through a connection to the SLC Pipeline.

El Dorado Operating

On November 1, 2015, we acquired from a wholly owned subsidiary of HFC, all the outstanding membership interests in El Dorado Operating LLC (“El Dorado Operating”), which owns the newly constructed naphtha fractionation and hydrogen generation units at HFC’s El Dorado refinery, for cash consideration of $62.0 million. In connection with this transaction, we entered into 15-year tolling agreements containing minimum quarterly throughput commitments from HFC that provide minimum annualized revenues of $15 million.

As we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis in El Dorado Operating’s assets and liabilities. We retrospectively adjusted our historical financial results in 2015 for all periods to include El Dorado Operating for the periods we were under common control of HFC.

Osage

On February 22, 2016, HFC obtained a 50% membership interest in Osage in a non-monetary exchange for a 20-year terminalling services agreement, whereby a subsidiary of Magellan Midstream Partners (“Magellan”) will provide terminalling services for all HFC products originating in Artesia, New Mexico requiring terminalling in or through El Paso, Texas. Osage is the owner of the Osage Pipeline, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to HFC’s El Dorado Refinery in Kansas and also connects to the Jayhawk pipeline serving the CHS Inc. refinery in McPherson, Kansas. The Osage Pipeline is the primary pipeline supplying HFC’s El Dorado refinery with crude oil.

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. Under this exchange, we agreed to build two connections on our south products pipeline system that will permit HFC access to Magellan’s El Paso terminal. Effective upon the closing of this exchange, we are the named operator of the Osage Pipeline and transitioned into that role on September 1, 2016. Since we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis of its 50% membership interest in Osage of $44.5 million offset by our net carrying basis in the El Paso terminal of $12.1 million with the difference recorded as a contribution from HFC. However, since these transactions were concurrent, there was no impact on periods prior to February 22, 2016. The carrying value of our 50% membership interest in Osage of $44.5 million exceeds the amount of the underlying equity in net assets recorded by Osage by $33.1 million.

Tulsa Tanks

On March 31, 2016, we acquired crude oil tanks located at HFC’s Tulsa refinery from an affiliate of Plains for cash consideration of $39.5 million. In 2009, HFC sold these tanks to Plains and leased them back, and due to HFC’s continuing interest in the tanks, HFC accounted for the transaction as a financing arrangement. Accordingly, the tanks remained on HFC’s balance sheet and were depreciated for accounting purposes.

As we are a consolidated VIE of HFC, this transaction was recorded as a transfer between entities under common control and reflects HFC’s carrying basis in the net assets acquired. We have retrospectively adjusted our financial position and operating results as if these crude oil tanks were owned for all periods while we were under common control of HFC. The 2016 consolidated income statement was adjusted to reflect a $0.2 million increase in operating costs and expenses for the year ended December 31, 2016. Retrospective adjustments to our consolidated balance sheet, consolidated statements of income, and consolidated statements of cash flows from previous years are shown in the tables below.

Cheyenne Pipeline

On June 3, 2016, we acquired a 50% interest in Cheyenne Pipeline LLC, owner of the Cheyenne Pipeline, in exchange for a contribution of $42.6 million in cash to Cheyenne Pipeline LLC. Cheyenne Pipeline LLC will continue to be operated by an affiliate of Plains, which owns the remaining 50% interest. The 87-mile crude oil pipeline runs from Fort Laramie to Cheyenne, Wyoming and has an 80,000 barrel per day (“bpd”) capacity.

Woods Cross Operating

Effective October 1, 2016, we acquired all the membership interests of Woods Cross Operating LLC (“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. The consideration was funded with approximately $103 million in proceeds from a private placement of 3,420,000 common units representing limited partnership interests at a price of $30.18 per common unit with the balance funded with borrowings under our credit facility. In connection with this transaction, we entered into 15-year tolling agreements containing minimum quarterly throughput commitments from HFC that provide minimum annualized revenues of $56.7 million.

As we are a consolidated variable interest entity (“VIE”) of HFC, this transaction was recorded as a transfer between entities under common control and reflect HFC’s carrying basis in the net assets acquired. We have retrospectively adjusted our financial position and operating results as if these units were owned for all periods while we were under common control of HFC. The 2016 consolidated income statement was adjusted to reflect a $10.4 million increase in operating costs and expenses for the year ended December 31, 2016. Retrospective adjustments to our consolidated balance sheet, consolidated statements of income, and consolidated statements of cash flows from previous years are shown in the tables below.

The Utah Division of Air Quality issued an air quality permit to HollyFrontier Woods Cross Refining LLC (“HFC Woods Cross Refining”) authorizing the expansion units at the Woods Cross refinery. The appeal proceeding challenging the Utah Department of Environmental Quality’s decision to uphold the air quality permit is still pending. The purchase agreement provides us with the option to compel HFC Woods Cross Refining to repurchase the interests for the full purchase price paid if the assets are required to be idled for 90 or more days as a result of a final decision in the appeal proceedings. If we do not exercise the foregoing right and, by reason of the appeal proceedings, the assets must be modified, then HFC will be responsible for the costs of such modifications.

The following table presents lines in our previously reported balance sheet as of December 31, 2015, that were impacted by Predecessor transactions, and retrospectively adjusts for the acquisitions of the Tulsa Tanks and Woods Cross Operating. The assets and liabilities of El Dorado Operating are included in our previously reported balance sheet as of December 31, 2015.



	Balance at December 31, 2015
	Holly Energy Partners, L.P.(Previously reported)			Tulsa Tanks		Woods Cross Operating		Holly Energy Partners, L.P. (Currently reported)
	(In Thousands)
Properties and equipment, net	$	1,049,870		$	9,309	$	233,881	$	1,293,060
Other long-term liabilities	20,675			69		—		20,744
General partner interest (2% interest)	(139,537		)	9,240		233,881		103,584

The amounts of the general partner interest for the Tulsa Tanks and Woods Cross Operating included in the table above were part of the cash distribution of $317.5 million to HFC in 2016.

The following tables present lines in our previously reported income statement for the years ended December 31, 2015 and 2014, that were impacted by Predecessor transactions, and retrospectively adjusts for the acquisitions of the Tulsa Tanks and Woods Cross Operating.



	Year Ended December 31, 2015
	Holly Energy Partners, L.P.(Previously reported)		Tulsa Tanks		Woods Cross Operating		Holly Energy Partners, L.P. (Currently reported)
	(In Thousands)
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	$	103,308	$	411	$	1,837	$	105,556
Depreciation and amortization	62,852		454		—		63,306
Allocation of net loss attributable to predecessor	—		865		1,837		2,702



	Year Ended December 31, 2014
	Holly Energy Partners, L.P.(Previously reported)		Tulsa Tanks		Woods Cross Operating		Holly Energy Partners, L.P. (Currently reported)
	(In Thousands)
Operating costs and expenses:
Operations (exclusive of depreciation and amortization)	$	104,801	$	679	$	705	$	106,185
Depreciation and amortization	62,166		363		—		62,529
Allocation of net loss attributable to predecessor	—		1,042		705		1,747

The following tables present lines in our previously reported cash flows for the years ended December 31, 2015 and 2014, that were impacted by Predecessor transactions, and retrospectively adjusts for the acquisitions of the Tulsa Tanks and Woods Cross Operating. There was no change to the total previously reported cash flows for the years ended December 31, 2015 and 2014 for El Dorado Operating, although the presentation was changed as shown in the tables below.



	Year Ended December 31, 2015
	Holly Energy Partners, L.P.(Previously reported)			Reclassifications			Tulsa Tanks			Woods Cross Operating			Holly Energy Partners, L.P. (Currently reported)
Cash flows from operating activities	(In Thousands)
Net income	$	148,328		$	—		$	(865	)	$	(1,837	)	$	145,626
Depreciation and amortization	62,852			—			454			—			63,306
Net cash provided by operating activities	$	232,994		$	—		$	(411	)	$	(1,837	)	$	230,746

Cash flows from investing activities
Additions to properties and equipment	(67,016		)	27,623			—			—			(39,393		)
Acquisition of tanks and operating units	(27,500		)	(27,623		)	(513		)	(98,092		)	(153,728		)
Net cash used for investing activities	$	(148,075	)	$	—		$	(513	)	$	(98,092	)	$	(246,680	)

Cash flows from financing activities
Contributions from HFC for acquisitions	27,623			—			924			99,929			128,476
Net cash provided (used) by financing activities	$	(72,736	)	$	—		$	924		$	99,929		$	28,117



	Year Ended December 31, 2014
	Holly Energy Partners, L.P.(Previously reported)			Reclassifications			Tulsa Tanks			Woods Cross Operating			Holly Energy Partners, L.P. (Currently reported)
Cash flows from operating activities	(In Thousands)
Net Income	$	113,813		$	—		$	(1,042	)	$	(705	)	$	112,066
Depreciation and amortization	62,166			—			363			—			62,529
Net cash provided by operating activities	$	186,640		$	—		$	(679	)	$	(705	)	$	185,256

Cash flows from investing activities
Additions to properties and equipment	(109,693		)	29,734			—			—			(79,959		)
Acquisition of tanks and operating units	—			(29,734		)	(2,225		)	(86,768		)	(118,727		)
Net cash used for investing activities	$	(109,430	)	$	—		$	(2,225	)	$	(86,768	)	$	(198,423	)

Cash flows from financing activities
Contributions from HFC for acquisitions	29,734			—			2,904			87,473			120,111
Net cash provided (used) by financing activities	$	(80,732	)	$	—		$	2,904		$	87,473		$	9,645