1283140--2/17/2009--HOLLY_ENERGY_PARTNERS

related topics

{tax, income, asset}

{debt, indebtedness, cash}

{operation, natural, condition}

{gas, price, oil}

{acquisition, growth, future}

{stock, price, operating}

{customer, product, revenue}

{investment, property, distribution}

{control, financial, internal}

{cost, contract, operation}

{capital, credit, financial}

{personnel, key, retain}

{cost, regulation, environmental}

{operation, international, foreign}

{regulation, change, law}

We depend on Alon and particularly its Big Spring Refinery for a substantial portion of our revenues; if those revenues were significantly reduced, there would be a material adverse effect on our results of operations. We are exposed to the credit risks of our key customers. Competition from other pipelines that may be able to supply our shippers customers with refined products at a lower price could cause us to reduce our rates or could reduce our revenues. A material decrease in the supply, or a material increase in the price, of crude oil available to Holly s and Alon s refineries and a corresponding decrease in demand for refined products in the markets served by our pipelines and terminals, could materially reduce our revenues. We may not be able to retain existing customers or acquire new customers. Our operations are subject to federal, state, and local laws and regulations relating to product quality specifications, environmental protection and operational safety that could require us to make substantial expenditures. Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured. Any reduction in the capacity of, or the allocations to, our shippers on interconnecting, third-party pipelines could cause a reduction of volumes transported in our pipelines and through our terminals. If our assumptions concerning population growth are inaccurate or if Holly s growth strategy is not successful, our ability to grow may be adversely affected. Growing our business by constructing new pipelines and terminals, or expanding existing ones, subjects us to construction risks. Rate regulation may not allow us to recover the full amount of increases in our costs. If our interstate or intrastate tariff rates are successfully challenged, we could be required to reduce our tariff rates, which would reduce our revenues. Potential changes to current petroleum pipeline rate-making methods and procedures may impact the federal and state regulations under which we will operate in the future. The fees we charge to third parties under transportation and storage agreements may not escalate sufficiently to cover increases in our costs, and the agreements may not be renewed or may be suspended in some circumstances. Terrorist attacks, and the threat of terrorist attacks or domestic vandalism, have resulted in increased costs to our business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact our results of operations. Our leverage may limit our ability to borrow additional funds, comply with the terms of our indebtedness or capitalize on business opportunities. We may not be able to obtain funding on acceptable terms or at all because of the deterioration of the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. We may not be able to fully execute our growth strategy if we encounter illiquid capital markets or increased competition for investment opportunities. Ongoing maintenance of effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could cause us to incur additional expenditures of time and financial resources. We may be unsuccessful in integrating the operations of any future acquisitions with our operations, and in realizing all or any part of the anticipated benefits of any such acquisitions. Due to our lack of asset diversification, adverse developments in our businesses could materially and adversely affect our financial condition, results of operations, or cash flows. We do not own all of the land on which our pipeline systems and facilities are located, which could disrupt our operations. Our business may suffer if any of our key senior executives or other key employees discontinues employment with us. Furthermore, a shortage of skilled labor or disruptions in our labor force may make it difficult for us to maintain labor productivity. In certain cases we have the right to be indemnified by third parties for environmental liabilities, and our results of operation and our ability to make distributions to our unitholders could be adversely affected if a third party fails to satisfy an indemnification obligation owed to us. Holly and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests. Cost reimbursements, which will be determined by our general partner, and fees due our general partner and its affiliates for services provided, are substantial. Even if unitholders are dissatisfied, they cannot remove our general partner without its consent. The control of our general partner may be transferred to a third party without unitholder consent. We may issue additional common units without unitholder approval, which would dilute an existing unitholder s ownership interests. In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to unitholders. Holly and its affiliates may engage in limited competition with us. Our general partner may cause us to borrow funds in order to make cash distributions, even where the purpose or effect of the borrowing benefits our general partner or its affiliates. Our general partner has a limited call right that may require a holder of units to sell its common units at an undesirable time or price. A unitholder may not have limited liability if a court finds that unitholder actions constitute control of our business. TAX RISKS TO COMMON UNITHOLDERS Our tax treatment depends on our status as a partnership for federal income tax purposes as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or we were to become subject to additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to unitholders would be substantially reduced. If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders. Unitholders will be required to pay taxes on their share of our income even if they do not receive any cash distributions from us. Tax gain or loss on the disposition of our common units could be more or less than expected. Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them. We treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units. We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders. A unitholder whose units are loaned to a short seller to cover a short sale of units may be considered as having disposed of those units. If so, it would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. We may adopt certain valuation methodologies that may result in a shift of income, gain, loss and deduction between the general partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units. The reporting of partnership tax information is complicated and subject to audits. There are limits on the deductibility of our losses that may adversely affect our unitholders. The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

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1283140--2/17/2009--HOLLY_ENERGY_PARTNERS_LP