This Item 7, including but not limited to the sections on "Liquidity and Capital Resources," contains forward-looking statements. See "Forward-Looking Statements" at the beginning of Part I and Item 1A. "Risk Factors." In this document, the words "we," "our," "ours" and "us" refer to 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 HFC in the Mid-Continent, Southwest and Rocky Mountain regions of the United States. At December 31, 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's refinery in Big Spring, Texas. Additionally, we own a 75% interest in UNEV, the owner of a pipeline running from Utah to Las Vegas, Nevada and related products terminals and a 25% joint venture interest in 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.

On November 29, 2012, we announced a two-for-one unit split, payable in the form of a common unit distribution for each issued and outstanding common unit. The unit distribution was paid January 16, 2013 to all unitholders of record on January 7, 2013. All references to unit and per unit amounts in this document and related disclosures have been adjusted to reflect the effect of the unit split for all periods presented.

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 2,059,800 of our common units (adjusted to reflect the unit split). 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). Also under the terms of the transaction, we 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. We paid non-cash consideration consisting of promissory notes with an aggregate principal amount of $150 million and 7,615,230 of our common units. In connection with the transaction, we entered into 15-year throughput agreements with HFC containing minimum annual revenue commitments to us of $48.3 million.

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 PPI or FERC index. As of December 31, 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 December 31, 2012, these agreements with Alon will result in minimum annualized payments to us of $31.4 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 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 personnel employed by HLS who perform services for us 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

Income, Distributable Cash Flow and Volumes The following tables present income, distributable cash flow and volume information for the years ended December 31, 2012, 2011 and 2010.

                                                     Year Ended December 31,        Change from
                                                       2012           2011(1)           2011
                                                       (In thousands, except per unit data)
Revenues
Pipelines:
Affiliates-refined product pipelines              $     67,682      $   46,649     $     21,033
Affiliates-intermediate pipelines                       28,540          21,948            6,592
Affiliates-crude pipelines                              45,888          47,542           (1,654 )
                                                       142,110         116,139           25,971
Third parties-refined product pipelines                 37,521          38,216             (695 )
                                                       179,631         154,355           25,276
Terminals, tanks and loading racks:
Affiliates                                             103,472          52,122           51,350
Third parties                                            9,457           7,791            1,666
                                                       112,929          59,913           53,016
Total revenues                                         292,560         214,268           78,292
Operating costs and expenses
Operations (exclusive of depreciation and
amortization)                                           89,242          64,521           24,721
Depreciation and amortization                           57,461          36,958           20,503
General and administrative                               7,594           6,576            1,018
                                                       154,297         108,055           46,242
Operating income                                       138,263         106,213           32,050
Equity in earnings of SLC Pipeline                       3,364           2,552              812
Interest expense, including amortization               (47,182 )       (35,959 )        (11,223 )
Loss on early extinguishment of debt                    (2,979 )             -           (2,979 )
Other                                                       10              17               (7 )
                                                       (46,787 )       (33,390 )        (13,397 )
Income before income taxes                              91,476          72,823           18,653
State income tax                                          (371 )          (234 )           (137 )
Net income                                              91,105          72,589           18,516
Allocation of net loss attributable to
Predecessors                                             4,200           6,351           (2,151 )
Allocation of net loss (income) attributable to
noncontrolling interests                                (1,153 )           859           (2,012 )
Net income attributable to Holly Energy
Partners                                                94,152          79,799           14,353
General partner interest in net income,
including incentive distributions (2)                  (22,450 )       (16,806 )         (5,644 )
Limited partners' interest in net income          $     71,702      $   62,993     $      8,709
Limited partners' earnings per unit-basic and
diluted (2)                                       $       1.29      $     1.38     $      (0.09 )
Weighted average limited partners' units
outstanding                                             55,696          45,672           10,024
EBITDA (3)                                        $    194,242      $  149,766     $     44,476
Distributable cash flow (4)                       $    153,125      $  100,295     $     52,830

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines                   107,509          90,782           16,727
Affiliates-intermediate pipelines                      127,169          93,419           33,750
Affiliates-crude pipelines                             171,040         161,789            9,251
                                                       405,718         345,990           59,728
Third parties-refined product pipelines                 63,152          52,361           10,791
                                                       468,870         398,351           70,519
Terminals and loading racks:
Affiliates                                             271,549         193,645           77,904
Third parties                                           53,456          44,454            9,002
                                                       325,005         238,099           86,906
Total for pipelines and terminal assets (bpd)          793,875         636,450          157,425

Years Ended December 31, Change from 2011(1) 2010(1) 2010

Volumes (bpd)
Pipelines:
Affiliates-refined product pipelines 90,782 96,094 (5,312 ) Affiliates-intermediate pipelines 93,419 84,277 9,142 Affiliates-crude pipelines 161,789 144,011 17,778 345,990 324,382 21,608 Third parties-refined product pipelines 52,361 38,910 13,451 398,351 363,292 35,059 Terminals and loading racks:
Affiliates 193,645 178,903 14,742 Third parties 44,454 39,568 4,886 238,099 218,471 19,628 Total for pipelines and terminal assets (bpd) 636,450 581,763 54,687

(1) The amounts presented above have been restated from those we previously reported for the respective periods. See Note 2 in Notes to Consolidated Financial Statements included in Item 8 for a discussion of these revisions.

(2) Net income 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. 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 plus (i) interest expense, net of interest income, (ii) state income tax and (iii) depreciation and amortization. EBITDA is not a calculation based upon GAAP. However, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements, with the exception of EBITDA from discontinued operations. EBITDA should not be considered as an alternative to net income 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 is also used by our management for internal analysis and as a basis for compliance with financial covenants. See our calculation of EBITDA under Item 6, "Selected Financial Data."

(4) Distributable cash flow is not a calculation based upon GAAP. However, the amounts included in the calculation are derived from amounts presented in our consolidated financial statements, with the general exceptions of maintenance capital expenditures and distributable cash flow from discontinued operations. Distributable cash flow should not be considered in isolation or as an alternative to net income 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. See our calculation of distributable cash flow under Item 6, "Selected Financial Data."

Results of Operations - Year Ended December 31, 2012 Compared with Year Ended December 31, 2011

Summary
Net income attributable to HEP for the year ended December 31, 2012 was $94.2 million, a $14.4 million increase compared to the year ended December 31, 2011. This increase in earnings is due principally 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, higher interest expense and a loss on the early extinguishment of debt. Although net income attributable to HEP increased, limited partners' per unit interest in earnings decreased from $1.38 per unit in 2011 to $1.29 per unit in 2012. The principal factors causing the decrease in limited partners' per unit interest, relative to the overall net income attributable to HEP increase, were higher incentive distributions to the general partner and the UNEV acquisition not yet being accretive to earnings, although it was accretive to distributable cash flow.

Revenues for the year ended December 31, 2012 include the recognition of $4.0 million of prior shortfalls billed to shippers in 2011. Deficiency payments of $7.8 million associated with certain guaranteed shipping contracts were deferred during the year ended December 31, 2012. Such deferred revenue will be recognized in earnings either as payment for shipments in excess of guaranteed levels, if and to the extent the pipeline system will not have necessary capacity to provide for shipments in excess of guaranteed levels, or when shipping rights expire unused.

Revenues
Total revenues for the year ended December 31, 2012 were $292.6 million, a $78.3 million increase compared to the year ended December 31, 2011. This is due principally to increased pipeline shipments, revenues attributable to our recent acquisitions and the effect of annual tariff increases partially offset by a $4.6 million decrease in previously deferred revenue realized under our guaranteed shipping contracts. Overall pipeline volumes were up 18% compared to the year ended December 31, 2011.

Revenues from our refined product pipelines were $105.2 million, an increase of $20.3 million compared to the year ended December 31, 2011. This includes $15.0 million in revenues attributable to UNEV pipeline throughputs which commenced initial start-up activities in December 2011 partially offset by a $5.4 million decrease in previously deferred revenue realized under our guaranteed shipping contracts. Volumes shipped on our refined product pipelines averaged 170.7 thousand barrels per day ("mbpd") compared to 143.1 mbpd for 2011.

Revenues from our intermediate pipelines were $28.5 million, an increase of $6.6 million compared to the year ended December 31, 2011. This includes $3.4 million of increased revenues attributable to the Tulsa interconnect pipelines, which were placed in

service in September 2011, and a $0.8 million increase in previously deferred revenue realized under our guaranteed shipping contracts. Volumes shipped on our intermediate pipelines averaged 127.2 mbpd compared to 93.4 mbpd for 2011.

Revenues from our crude pipelines were $45.9 million, a decrease of $1.7 million compared to the year ended December 31, 2011. Revenues for the year ended December 31, 2011 included $5.5 million attributable to a crude pipeline revenue settlement with HFC. Volumes shipped on our crude pipelines increased to an average of 171.0 mbpd compared to 161.8 mbpd for 2011.

Revenues from terminal, tankage and loading rack fees were $112.9 million, an increase of $53.0 million compared to year ended December 31, 2011. This increase is due principally to $45.4 million of increased revenues attributable to our terminal, tankage and loading racks serving HFC's El Dorado and Cheyenne refineries. Refined products terminalled in our facilities increased to an average of 325.0 mbpd compared to 238.1 mbpd for 2011.

Operations Expense
Operations expense for the year ended December 31, 2012 increased by $24.7 million compared to the year ended December 31, 2011. This increase is due principally to increased operating costs of $9.6 million and $5.2 million attributable to our recently acquired UNEV pipeline and assets serving HFC's El Dorado and Cheyenne refineries, respectively, higher throughput levels as well as year-over-year increases in property taxes, maintenance service and payroll costs.

Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2012 increased by $20.5 million compared to the year ended December 31, 2011. This increase is due principally to depreciation attributable to our recent acquisitions from HFC and capital projects. Also contributing were increases in asset abandonment charges related to tankage no longer in service.

General and Administrative
General and administrative costs for the year ended December 31, 2012 increased by $1.0 million compared to the year ended December 31, 2011 due to timing of professional fees related to recent acquisitions.

Equity in Earnings of SLC Pipeline
Our equity in earnings of the SLC Pipeline was $3.4 million and $2.6 million for the years ended December 31, 2012 and 2011.

Interest Expense
Interest expense for the year ended December 31, 2012 totaled $47.2 million, an increase of $11.2 million compared to the year ended December 31, 2011. This increase reflects interest on a year-over-year increase in debt levels. Our aggregate effective interest rate was 6.5% and 6.7% for the years ended December 31, 2012 and 2011, respectively.

Loss on Early Extinguishment of Debt
We recognized a charge of $3.0 million upon the early extinguishment of our 6.25% senior notes for the year ended December 31, 2012. This charge relates to the premium paid to noteholders upon their tender of an aggregate principal amount of $185.0 million and related financing costs that were previously deferred.

State Income Tax
We recorded state income tax expense of $371,000 and $234,000 for the years ended December 31, 2012 and 2011 which is solely attributable to the Texas margin tax.

Results of Operations-Year Ended December 31, 2011 Compared with Year Ended December 31, 2010

Summary
Net income attributable to HEP for the year ended December 31, 2011 was $79.8 million, a $23.5 million increase compared to the year ended December 31, 2010. This increase in overall earnings is due principally to increased pipeline shipments, earnings attributable to our November 2011 asset acquisition and an increase in previously deferred revenue realized under our guaranteed shipping contracts. Also contributing to earnings was a settlement with HFC relating to a clarification of the appropriate charges for certain past deliveries into our crude pipeline system. These factors were offset partially by an overall increase in operating costs and expenses.

Revenues for the year ended December 31, 2011 include the recognition of $12.4 million of prior shortfalls billed to shippers in 2010. Deficiency payments of $4.0 million associated with certain guaranteed shipping contracts were deferred during the year ended December 31, 2011.

Revenues
Total revenues for the year ended December 31, 2011 were $214.3 million, a $32.1 million increase compared to the year ended December 31, 2010. This is due principally to an overall increase in pipeline shipments, revenues attributable to our November 2011 asset acquisitions, a $4 million increase in previously deferred revenue realized under our guaranteed shipping contracts, the effect of annual tariff increases and the HFC crude pipeline revenue settlement. Overall pipeline volumes were up 10% compared to the year ended December 31, 2010.

Certain related-party pipeline volumes were down during 2011 as a result of downtime at HFC's Navajo refinery following a plant-wide power outage in late January 2011 and the subsequent delay in restoring production to planned levels.

Revenues from our refined product pipelines were $84.9 million, an increase of $8.4 million compared to the year ended December 31, 2010. This is due to a $4.3 million increase in previously deferred revenue realized under our guaranteed shipping contracts and an increase in third-party refined product pipeline shipments. Volumes shipped on our refined product pipelines averaged 143.1 mbpd compared to 135.0 mbpd for the same period in 2010.

Revenues from our intermediate pipelines were $21.9 million, an increase of $1.0 million compared to the year ended December 31, 2010. This includes $0.8 million in revenues attributable to the Tulsa interconnect pipelines, and a $0.3 million decrease in previously deferred revenue realized under our guaranteed shipping contracts. Volumes shipped on our intermediate pipelines averaged 93.4 mbpd compared to 84.3 mbpd for the same period in 2010.

Revenues from our crude pipelines were $47.5 million, an increase of $8.6 million compared to the year ended December 31, 2010. This includes $5.5 million in revenues attributable to a crude pipeline revenue settlement with HFC. Volumes shipped on our crude pipelines increased to an average of 161.8 mbpd compared to 144.0 mbpd for the same period in 2010.

Revenues from terminal, tankage and loading rack fees were $59.9 million, an increase of $14.1 million compared to the year ended December 31, 2010. This increase is due principally to $7.1 million in revenues attributable to our terminal, tankage and loading racks serving HFC's El Dorado and Cheyenne refineries. Refined products terminalled in our facilities increased to an average of 238.1 mbpd compared to 218.5 mbpd for the same period last year.

Operations Expense . . .