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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(In thousands)
Revenues by type
Refined product revenues
Transportation fuels⁽¹⁾	$	3,598,815	$	2,839,543	$	10,193,218	$	7,910,289
Specialty lubricant products ⁽²⁾	422,760		369,822		1,237,002		1,054,161
Asphalt, fuel oil and other products ⁽³⁾	288,013		201,596		741,139		539,526
Total refined product revenues	4,309,588		3,410,961		12,171,359		9,503,976
Excess crude oil revenues ⁽⁴⁾	422,122		277,810		1,074,928		658,117
Transportation and logistic services	25,596		15,227		77,799		47,826
Other revenues ⁽⁵⁾	13,493		15,249		46,376		48,675
Total sales and other revenues	$	4,770,799	$	3,719,247	$	13,370,462	$	10,258,594



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(In thousands)
Refined product revenues by market
North America
Mid-Continent	$	2,337,689	$	1,748,044	$	6,458,935	$	5,111,301
Southwest	1,016,771		842,347		2,865,324		2,100,850
Rocky Mountains	627,542		528,380		1,869,414		1,489,203
Northeast	85,344		66,467		261,380		189,039
Canada	190,727		177,767		563,088		486,380
Europe and Asia	51,515		47,956		153,218		127,203
Total refined product revenues	$	4,309,588	$	3,410,961	$	12,171,359	$	9,503,976


(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 include revenues attributable to our Refining and Lubricants and Specialty Products segments of $234,887 and $53,126, respectively, for the three months ended September 30, 2018, $158,344 and $43,252, respectively, for the three months ended September 30, 2017, $589,726 and $151,413, respectively, for the nine months ended September 30, 2018, and $415,344 and $124,182, respectively, for the nine months ended September 30, 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 are principally attributable to our Refining segment.

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 nine months ended September 30, 2018.



	January 1, 2018		Increase		Recognized as Revenue			September 30, 2018
	(In thousands)
Accrued liabilities	$	179	$	5,269	$	(1,746	)	$	3,702

As of September 30, 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)	6,546	20,013	777	164	27,500

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 September 30, 2018 are presented below:



	Remainder of 2018		2019		2020		Thereafter		Total
	(In thousands)
HEP contractual minimum revenues	$	10,437	$	41,863	$	18,040	$	12,553	$	82,893