Revenues from Contracts with Customers

Substantially all revenue-generating activities relate to sales of refined product and excess crude oil inventories sold at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to HEP logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties.

Disaggregated revenues are as follows:



	Three Months Ended March 31,
	2018		2017
	(In thousands)
Revenues by type
Refined product revenues
Transportation fuels⁽¹⁾	$	3,074,388	$	2,350,504
Specialty lubricant products ⁽²⁾	399,039		289,853
Asphalt, fuel oil and other products ⁽³⁾	207,757		147,492

Total refined product revenues	3,681,184		2,787,849
Excess crude oil revenues ⁽⁴⁾	396,716		258,741
Transportation and logistic services	27,457		16,609
Other revenues ⁽⁵⁾	23,070		17,284

Total sales and other revenues	$	4,128,427	$	3,080,483



	Three Months Ended March 31,
	2018		2017
	(In thousands)
Refined product revenues by market
North America
Mid-Continent	$	1,889,546	$	1,538,245
Southwest	846,478		563,879
Rocky Mountains	630,902		483,785
Northeast	82,857		52,717
Canada	180,422		117,959
Europe and Asia	50,979		31,264

Total refined product revenues	$	3,681,184	$	2,787,849


(1)	Transportation fuels consist of gasoline, diesel and jet fuel.


(2)	Specialty lubricant products consist of base oil, waxes, finished lubricants and other specialty fluids.


(3)	Asphalt, fuel oil and other products revenue consist of revenues attributable to our Refining and Lubricants and Specialty Products segments of $161,956 and $45,801, respectively, for the three months ended March 31, 2018 and $116,076 and $31,416, respectively, for the three months ended March 31, 2017.


(4)	Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries.


(5)	Other revenues consist of revenues attributable to our Refining and Corporate and Other segments of $22,807 and $263, respectively, for the three months ended March 31, 2018 and $17,284 and zero, respectively, for the three months ended March 31, 2017.

Revenue on refined product and excess crude oil sales are recognized when delivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported as cost of products sold. HEP recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered. Additionally, HEP has certain long-term transportation contracts that specify minimum volume requirements, whereby, HEP bills a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. A customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice.

Our consolidated balance sheet reflects contract liabilities related to unearned revenues attributable to future service obligations under HEP’s third-party transportation agreements. The following table presents changes to our contract liabilities during the three months ended March 31, 2018.



	January 1, 2018		Increase		Recognized as Revenue			March 31, 2018
	(In thousands)
Accrued liabilities	$	179	$	1,597	$	(179	)	$	1,597

As of March 31, 2018, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel, lubricants and specialty products to be sold ratably at market prices through 2020. Such volumes are typically nominated in the month preceding delivery and delivered ratably throughout the following month. Future prices are subject to market fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts under Accounting Standards Codification 606-10-50-14A. Aggregate minimum volumes expected to be sold (future performance obligations) under our long-term product sales contracts with customers are as follows:



	Remainder of 2018	2019	2020	Thereafter	Total
	(In thousands)
Refined product sales volumes (barrels)	21,966	19,767	531	—	42,264

Additionally, HEP has long-term contracts with third-party customers that specify minimum volumes of product to be transported through its pipelines and terminals that result in fixed-minimum annual of revenues through 2022. Annual minimum revenues attributable to HEP’s third-party contracts as of March 31, 2018 are presented below:



	Remainder of 2018		2019		2020		Thereafter		Total
	(In thousands)
HEP contractual minimum revenues	$	32,037	$	41,369	$	17,600	$	12,839	$	103,845