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 generally based on increases or decreases in PPI or the FERC index. As of March 31, 2018, these agreements with HFC require minimum annualized payments to us of $332.7 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 $101.4 million and $89.0 million for the three months ended March 31, 2018 and 2017, respectively.


•	HFC charged us general and administrative services under the Omnibus Agreement of $0.6 million for each of the three months ended March 31, 2018 and 2017.


•	We reimbursed HFC for costs of employees supporting our operations of $12.7 million and $11.4 million for the three months ended March 31, 2018 and 2017, respectively.


•	HFC reimbursed us $1.2 million and $1.3 million for the three months ended March 31, 2018 and 2017, respectively, for expense and capital projects.


•	We distributed $36.3 million and $30.3 million in the three months ended March 31, 2018 and 2017, respectively, to HFC as regular distributions on its common units in the three months ended March 31, 2018 and on its common units and general partner interest, including general partner incentive distributions, in the three months ended March 31, 2017.


•	Accounts receivable from HFC were $41.6 million and $51.5 million at March 31, 2018, and December 31, 2017, respectively.


•	Accounts payable to HFC were $10.7 million and $7.7 million at March 31, 2018, and December 31, 2017, respectively.


•	Deferred revenue in the consolidated balance sheets at March 31, 2018 and December 31, 2017, includes $0.9 million and $4.4 million, respectively, relating to certain shortfall billings to HFC. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $0.9 million deferred at March 31, 2018.


•	We received operating lease payments from HFC for use of our Artesia and Tulsa railyards of $0.5 million and $0.1 million for the three months ended March 31, 2018 and 2017, respectively.

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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.