This Item 2, including but not limited to the sections on "Results of Operations" and "Liquidity and Capital Resources," contains forward-looking statements. See "Forward-Looking Statements" at the beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words "we," "our," "ours" and "us" refer to Holly Energy Partners, L.P. ("HEP") and its consolidated subsidiaries or to HEP or an individual subsidiary and not to any other person.

OVERVIEW
HEP is a Delaware limited partnership. We own and operate petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities that support the refining and marketing operations of HollyFrontier Corporation ("HFC") in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. At September 30, 2012, HFC owned a 44% interest in us including the 2% general partnership interest. We also own and operate refined product pipelines and terminals, located primarily in Texas, that service Alon USA, Inc's ("Alon") refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV Pipeline, L.L.C, the owner of a HEP operated refined product pipeline running from Utah to Las Vegas, Nevada and related products terminals and a 25% joint venture interest in the SLC Pipeline (the "SLC Pipeline"), a 95-mile intrastate crude oil pipeline system that serves refineries in the Salt Lake City area.

We generate revenues by charging tariffs for transporting petroleum products and crude oil through our pipelines, by charging fees for terminalling and storing refined products and other hydrocarbons and providing other services at our storage tanks and terminals. We do not take ownership of products that we transport, terminal or store, and therefore we are not directly exposed to changes in commodity prices.

UNEV Pipeline Interest Acquisition
On July 12, 2012, we acquired HFC's 75% interest in UNEV. We paid consideration consisting of $260.9 million in cash and 1,029,900 of our common units. As a result of the common units issued to HFC, HFC's ownership interest in us increased from 42% to 44% (including the 2% general partner interest). Under the terms of the transaction, we also issued to HFC a Class B unit comprising an equity interest in a wholly-owned subsidiary that entitles HFC to an interest in our share of annual UNEV earnings before interest, income taxes, depreciation, and amortization above $30 million beginning July 1, 2016 and ending in June 2032, subject to certain limitations. Contemporaneously with this transaction, HFC (our general partner) agreed to forego its right to incentive distributions of up to $1.25 million per quarter over the next twelve consecutive quarterly periods and up to an additional four quarters in certain circumstances.

Legacy Frontier Pipeline and Tankage Asset Transaction On November 9, 2011, we acquired from HFC certain tankage, loading rack and crude receiving assets located at HFC's El Dorado and Cheyenne refineries.

See Note 2 "Acquisitions" in the consolidated financial statements for additional information on these acquisitions.

Agreements with HFC and Alon
We serve HFC's refineries under long-term pipeline and terminal, tankage and throughput agreements expiring from 2019 to 2026. Under these agreements, HFC agreed to transport, store and throughput volumes of refined product and crude oil on our pipelines and terminal, tankage and loading rack facilities that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual tariff rate adjustments on July 1, based on the Producer Price Index ("PPI") or Federal Energy Regulatory Commission ("FERC") index. As of September 30, 2012, these agreements with HFC will result in minimum annualized payments to us of $217.2 million.

If HFC fails to meet its minimum volume commitments under the agreements in any quarter, it will be required to pay us in cash the amount of any shortfall by the last day of the month following the end of the quarter. Under certain of the agreements, a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met.

We also have a pipelines and terminals agreement with Alon expiring in 2020 under which Alon has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that also is subject to annual tariff rate adjustments. The terms under this agreement expire beginning in 2018 through 2022. We also have a capacity lease agreement under which we lease Alon space on our Orla to El Paso pipeline for the shipment of refined product. As of September 30, 2012, these agreements with Alon will result in minimum annualized payments to us of $31.3 million.

A significant reduction in revenues under these agreements could have a material adverse effect on our results of operations.

Under certain provisions of the Omnibus Agreement ("Omnibus Agreement") that we have with HFC, we pay HFC an annual administrative fee, currently $2.3 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 pipeline and terminal personnel or the cost of their employee benefits, which are separately charged to us by HFC. We also reimburse HFC and its affiliates for direct expenses they incur on our behalf.

RESULTS OF OPERATIONS (Unaudited)

Income, Distributable Cash Flow and Volumes
The following tables present income, distributable cash flow and volume
information for the three and the nine months ended September 30, 2012 and 2011.
                                                     Three Months Ended September 30,        Change from
                                                         2012                 2011               2011
                                                            (In thousands, except per unit data)
Revenues
Pipelines:
Affiliates-refined product pipelines              $        16,350       $        12,414     $      3,936
Affiliates-intermediate pipelines                           7,319                 5,935            1,384
Affiliates-crude pipelines                                 12,306                10,846            1,460
                                                           35,975                29,195            6,780
Third parties-refined product pipelines                     9,538                 6,525            3,013
                                                           45,513                35,720            9,793
Terminals, tanks and loading racks:
Affiliates                                                 24,601                11,519           13,082
Third parties                                               2,382                 1,797              585
                                                           26,983                13,316           13,667
Total revenues                                             72,496                49,036           23,460
Operating costs and expenses
Operations                                                 21,324                16,398            4,926
Depreciation and amortization                              13,044                 8,916            4,128
General and administrative                                  1,399                 2,012             (613 )
                                                           35,767                27,326            8,441
Operating income                                           36,729                21,710           15,019
Equity in earnings of SLC Pipeline                            877                   641              236
Interest expense, including amortization                  (12,540 )              (8,828 )         (3,712 )
Other                                                           -                    20              (20 )
                                                          (11,663 )              (8,167 )         (3,496 )
Income before income taxes                                 25,066                13,543           11,523
State income tax                                             (137 )                  77             (214 )
Net income                                                 24,929                13,620           11,309
Allocation of net loss attributable to
Predecessors (1)                                              146                 3,000           (2,854 )
Allocation of net loss (income) attributable to
noncontrolling interests                                     (582 )                 124             (706 )
Net income attributable to Holly Energy
Partners                                                   24,493                16,744            7,749
General partner interest in net income,
including incentive distributions (2)                      (5,299 )              (4,009 )         (1,290 )
Limited partners' interest in net income          $        19,194       $        12,735     $      6,459
Limited partners' earnings per unit-basic and
diluted (2)                                       $          0.68       $          0.58     $       0.10
Weighted average limited partners' units
outstanding                                                28,268                22,079            6,189
EBITDA (3)                                        $        49,770       $        33,228     $     16,542
Distributable cash flow (4)                       $        40,431       $        25,731     $     14,700

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines                      114,113                96,105           18,008
Affiliates-intermediate pipelines                         132,220                91,783           40,437
Affiliates-crude pipelines                                187,861               175,459           12,402
                                                          434,194               363,347           70,847
Third parties-refined product pipelines                    66,274                44,212           22,062
                                                          500,468               407,559           92,909
Terminals and loading racks:
Affiliates                                                267,638               183,987           83,651
Third parties                                              57,496                43,224           14,272
                                                          325,134               227,211           97,923
Total for pipelines and terminal assets (bpd)             825,602               634,770          190,832

Nine Months Ended September 30, Change from 2012 2011 2011

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines 104,444 88,172 16,272 Affiliates-intermediate pipelines 130,972 81,618 49,354 Affiliates-crude pipelines 169,922 157,598 12,324 405,338 327,388 77,950 Third parties-refined product pipelines 62,301 48,107 14,194 467,639 375,495 92,144 Terminals and loading racks:
Affiliates 265,958 174,866 91,092 Third parties 52,918 42,102 10,816 318,876 216,968 101,908 Total for pipelines and terminal assets (bpd) 786,515 592,463 194,052

(1) We are a consolidated variable interest entity and under common control of HFC. With respect to the July 2012 acquisition of HFC's 75% interest in UNEV, U.S. generally accepted accounting principles ("GAAP") require that our financial statements reflect the historical operations of the assets recognized by HFC, effectively as if the assets were already under

our ownership and control. Accordingly, we recognized additional revenues of $0.3 million and $8.1 million and net losses of $0.1 million and $4.2 million for the three and nine months ended September 30, 2012, respectively, that relate to the operations of UNEV prior to our acquisition date. We recognized net losses of $0.4 million and $0.9 million for the three and nine months ended September 30, 2011, respectively, that relate to the operations of UNEV. This retrospective adjustment did not have a significant impact on our operating results prior to 2012 as initial start-up activities of the pipeline commenced December 2011. Results of operations of UNEV prior to the acquisition on July 12, 2012 are herein referred to as the Predecessor's results. Additionally, volume information does not reflect volumes prior to our acquisition date.

(2) Net income attributable to Holly Energy Partners is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. Net income allocated to the general partner includes incentive distributions declared subsequent to quarter end. General partner incentive distributions were $4.9 million and $3.7 million for the three months ended September 30, 2012 and 2011, respectively, and $15.6 million and $10.6 million for the nine months ended September 30, 2012 and 2011, respectively. Net income attributable to the limited partners is divided by the weighted average limited partner units outstanding in computing the limited partners' per unit interest in net income.

(3) EBITDA is calculated as net income attributable to Holly Energy Partners plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization (excluding amounts related to Predecessor operations). EBITDA is not a calculation based upon U.S. generally accepted accounting principles ("GAAP"). However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income attributable to Holly Energy Partners or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA also is used by our management for internal analysis and as a basis for compliance with financial covenants. Set forth below is our calculation of EBITDA.

                                           Three Months Ended September 30,           Nine Months Ended September 30,
                                               2012                 2011                 2012                 2011
                                                                         (In thousands)
Net income attributable to Holly
Energy Partners                         $        24,493       $        16,744     $        69,634       $        50,926
Add:
Interest expense                                 10,738                 8,520              29,045                25,198
Amortization of discount and deferred
debt charges                                      1,802                   308               5,224                   903
Loss on early extinguishment of debt                  -                     -               2,979                     -
State income tax                                    137                   (77 )               287                   169
Depreciation and amortization                    13,044                 8,916              39,899                24,627
Predecessor depreciation and
amortization                                       (444 )              (1,183 )            (7,903 )              (1,541 )
EBITDA                                  $        49,770       $        33,228     $       139,165       $       100,282

(4) Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts separately presented in our consolidated financial statements, with the exception of a billed crude revenue settlement and maintenance capital expenditures. Distributable cash flow should not be considered in isolation or as an alternative to net income attributable to Holly Energy Partners or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. Distributable cash flow is not necessarily comparable to similarly titled measures of other companies. Distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance. It is also used by management for internal analysis and for our performance units. We believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating. Set forth below is our calculation of distributable cash flow.

Three Months Ended September 30, Nine Months Ended September 30, 2012 2011 2012 2011

(5) Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of our assets and to extend their useful lives. Maintenance capital expenditures include expenditures required to maintain equipment reliability, tankage and pipeline integrity and safety and to address environmental regulations.

                             September 30,
                                  2012          December 31, 2011 (7)
                                          (In thousands)
Balance Sheet Data
Cash and cash equivalents   $         1,993    $                 6,369
Working capital             $        18,520    $                 7,016
Total assets                $     1,379,773    $             1,393,561
Long-term debt              $       874,434    $               605,888
Partners' equity (6)        $       354,852    $               643,537

(6) As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to Holly Energy Partners because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in partners' equity since our regular quarterly distributions have exceeded our quarterly net income attributable to Holly Energy Partners. Additionally, if the assets contributed and acquired from HFC while under common control of HFC had been acquired from third parties, our acquisition cost in excess of HFC's basis in the transferred assets of $312.8 million, exclusive of depreciation and amortization that would have been recorded in our financial statements, as increases to our properties and equipment and intangible assets instead of decreases to partners' equity.

(7) Such amounts have been recast as if UNEV had been under our control at December 31, 2011. The impact on partners' equity from this recast was an increase of $314 million at December 31, 2011. Accounting rules for transactions between companies under common control require pre-acquisition periods to reflect HFC's historical basis in transferred assets and liabilities, notwithstanding how the transaction is ultimately financed. With the close of the UNEV acquisition in July 2012, we adjusted partners' equity to reflect the actual financing of the transaction. This included cash consideration of approximately $260.9 million which was financed through long-term borrowings. The reduction in partners' equity when comparing the reported periods is due principally to the recast accounting treatment.

Results of Operations-Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011

Summary
Net income attributable to Holly Energy Partners for the three months ended September 30, 2012 was $24.5 million, a $7.7 million increase compared to the three months ended September 30, 2011. This increase in earnings is principally due to increased pipeline

shipments, earnings attributable to our November 2011 acquisition and annual tariff increases. These factors were offset partially by increased operating costs and expenses and higher interest expense.

Revenues for the three months ended September 30, 2012 include the recognition of $0.7 million of prior shortfalls billed to shippers in 2011. Deficiency payments of $4.1 million associated with certain guaranteed shipping contracts were deferred during the three months ended September 30, 2012. Such deferred revenue will be recognized in earnings either as payment for shipments in excess of guaranteed levels, or when shipping rights expire unused.

Revenues
Total revenues for the three months ended September 30, 2012 were $72.5 million, a $23.5 million increase compared to the three months ended September 30, 2011. This is principally due to increased pipeline shipments, revenues attributable to our recent acquisitions and the effect of annual tariff increases. Overall pipeline volumes were up 23% compared to the three months ended September 30, 2011.

Revenues from our refined product pipelines were $25.9 million, an increase of $6.9 million compared to the three months ended September 30, 2011. This includes $3.0 million in revenues attributable to the UNEV pipeline which commenced initial start-up activities in December 2011. Volumes shipped on our refined product pipelines averaged 180.4 thousand barrels per day ("mbpd") compared to 140.3 mbpd for the same period last year.

Revenues from our intermediate pipelines were $7.3 million, an increase of $1.4 million compared to the three months ended September 30, 2011. This includes $1.3 million in revenues attributable to the Tulsa interconnect pipelines which were placed in service in September 2011. Volumes shipped on our intermediate pipelines averaged 132.2 mbpd compared to 91.8 mbpd for the same period last year.

Revenues from our crude pipelines were $12.3 million, an increase of $1.5 million compared to the three months ended September 30, 2011. Volumes shipped on our crude pipelines increased to an average of 187.9 mbpd compared to 175.5 mbpd for the same period last year.

Revenues from terminal, tankage and loading rack fees were $27.0 million, an increase of $13.7 million compared to the three months ended September 30, 2011. . . .