This excerpt taken from the HEP 8-K filed Feb 4, 2005.
Our primary business objective is to increase distributable cash flow per unit by executing the following strategies:
Generate stable cash flows. We generate revenues from customers who pay us fees primarily based on the volume of refined products shipped in our pipelines or stored in or distributed from our terminals. We have no direct commodity price risk because we do not own any of the products transported on our pipelines or distributed from our terminals. In order to ensure stable cash flows, at the time of our initial public offering, we entered into a 15-year pipelines and terminals agreement pursuant to which Holly Corporation agreed to pay us a guaranteed minimum amount of revenues. In connection with the pending Alon transaction, we will enter into a 15-year pipelines and terminals agreement with Alon that provides for guaranteed minimum volumes to be transported or stored on
the pipelines and terminals to be acquired from Alon. We believe that the fee-based nature of our business and the long-term nature of our contracts will provide us with stable cash flows.
Increase our pipeline and terminal throughput. We have available capacity in many of our pipelines and terminals that can allow us to increase throughput without significant capital expenditures. In 2003, we averaged 50.9% capacity utilization on our three main refined products pipelines. The recent 15,000 bpd expansion of Holly Corporations Navajo Refinery and growth in demand for light refined products in the markets we serve have resulted in increased utilization of our pipelines and terminals. For example, for the nine months ended September 30, 2004, we averaged 59.8% capacity utilization on our three main refined product pipelines. As a result of our strategic position within Holly Corporations supply chain, substantially all of the new barrels produced as a result of the 2003 Navajo Refinery expansion are being transported on our pipelines. In addition, Holly Corporation is currently evaluating further expansion of the Navajo Refinery up to a capacity of 85,000 bpd, substantially all of which we believe would be shipped on our pipelines.
Undertake economic construction and expansion opportunities. We continually evaluate opportunities to expand our asset base. Since 1996, our management team has constructed or leased approximately 500 miles of additional pipelines and has constructed or expanded terminals providing approximately 482,000 barrels of additional storage capacity. These assets have provided shippers with access to new markets in northern Mexico, northern New Mexico, southern Colorado and southern Utah. We will continue to consider extending our existing refined product pipelines or constructing new refined product pipelines and terminals to meet rising demand in high growth areas in the southwestern United States, northern Mexico and the Rocky Mountain region in the United States.
Pursue strategic and accretive acquisitions that complement our existing asset base. We plan to pursue acquisitions from third parties of energy transportation and distribution assets that are complementary to those we currently own. At any time we may be in various stages of discussions or negotiations regarding possible acquisitions. We will pursue these acquisitions independently as well as jointly with Holly Corporation. For example, in 2003, we acquired terminals in Burley and Boise, Idaho, and Spokane, Washington, providing over 514,000 barrels of additional storage capacity and an additional 45% interest in Rio Grande Pipeline Company. In 2004, we acquired the remaining 50% interest in the Albuquerque, New Mexico terminal. Upon completion of the pending Alon transaction, we will own an additional 515 miles of pipeline, an associated tank farm and two terminals with 347,000 barrels of additional storage capacity. Future acquisition targets may include assets to be directly integrated into our existing refined product distribution chain, such as pipelines, terminals and qualified processing assets, or acquisitions of assets in related businesses in which we are not currently active. In addition, we currently have an option to purchase two intermediate product pipelines from Holly Corporation pursuant to our omnibus agreement with Holly Corporation and may have the opportunity to acquire other pipeline or terminal assets associated with Holly Corporations refineries in the future. Please read Certain relationships and related party transactions Omnibus Agreement for a description of the omnibus agreement.