Holly Corporation Reports Second Quarter Results

Holly Corporation reported second quarter net income of $11.5 million ($0.23 per basic and diluted share) compared to $158.6 million ($2.89 per basic and $2.84 per diluted share) for the same period of 2007. For the six months ended June 30, 2008, net income was $20.1 million ($0.40 per basic and $0.39 per diluted share) compared to $226.2 million ($4.11 per basic and $4.03 per diluted share) for the first six months of 2007.

Our refinery production levels decreased 15% and 4% for the three and six months ended June 30, 2008 as compared to the same periods in 2007, respectively, mainly as a result of reduced production at both our refineries during the second quarter of 2008. In May 2008, our Navajo Refinery experienced unplanned downtime for repairs to its fluid catalytic cracking unit (“FCC”) following an instrument control malfunction. This downtime not only lowered overall production levels in May but also reduced gross margins per barrel due to the substantial reduction in the yield of higher value products during the FCC outage. Additionally, our Woods Cross Refinery operated at reduced rates during the quarter primarily resulting from multiple power interruptions. We estimate that our refinery operating income for the second quarter was reduced by approximately $40.0 million, or $0.52 per share on a net tax basis as a result of downtime in the quarter.

Net income for both the second quarter and six months ended June 30, 2008 as compared to the prior year periods decreased due to reduced refined product margins combined with production declines, lower yields and higher operating expenses at our refineries. For the 2008 second quarter, overall refinery gross margins were $9.09 per produced barrel compared to $28.36 for the last year’s second quarter. For the first six months of 2008, our overall refinery gross margins were $8.35 per produced barrel compared to $22.35 for the first six months of 2007.

Sales and other revenues increased 43% for the three months ended June 30, 2008 and 50% for the six months ended June 30, 2008, as compared to the three and six months ended June 30, 2007, respectively, due principally to higher refined product sales prices. Cost of products sold increased 81% for the three months ended June 30, 2008 and 82% for the six months ended June 30, 2008, as compared to the three and six months ended June 30, 2007, respectively, due principally to higher crude oil acquisition costs. Operating expenses for both the three and six month periods increased primarily due to the inclusion of Holly Energy Partners, L.P. (NYSE: HEP – News; “HEP”) operating costs beginning March 1, 2008, higher utility costs and increased maintenance costs associated with unplanned downtime.

In February 2008, HEP acquired our crude pipelines and tankage assets. As a result of this transaction, we determined that our beneficial interest in HEP exceeds 50%, therefore, we reconsolidated HEP effective March 1, 2008. We no longer record our share of its earnings under the equity method of accounting. Accordingly, a significant increase in operating costs and expenses in the current year was due to the inclusion of $13.7 million of HEP’s operating expenses and $8.2 million of additional depreciation and amortization resulting from our consolidation of HEP. This press release includes key segment information that shows the impact of this reconsolidation on certain balance sheet and income statement amounts.

“To date, 2008 has been a challenging year. Although second quarter margins improved from first quarter levels, unplanned downtime prevented us from fully capitalizing on these higher margin levels. Despite the downtime, we remained profitable for the quarter, and we continue to have one of the strongest balance sheets among our peers,” said Matthew Clifton, Chairman of the Board and Chief Executive Officer of Holly. “Regarding our Woods Cross and Navajo expansion and crude flexibility capital projects, we continue to make substantial progress. In July, we announced a pipeline agreement with Centurion Pipeline L.P. to deliver heavy Canadian crude oil from Cushing, Oklahoma to a point located at Slaughter, Texas. We are proceeding with plans to construct a new 70 mile pipeline that will deliver this crude oil to our Navajo Refinery complex in New Mexico. Also, we expect to commence the start- up of the Woods Cross projects early in the fourth quarter and to be capable of operating at full capacity at year-end. These projects will ultimately help in improving our profitability at both refineries by reducing raw material costs. Additionally, we recently purchased a terminal and rail facility located near Cedar City, Utah that will serve as a key component of our UNEV joint venture pipeline project.”

The Company has scheduled a conference call for today, August 6, 2008 at 10:00AM EDT to discuss financial results. Listeners may access this call by dialing (888) 548-4639. The ID# for this call is 55825559. Listeners may access the call via the internet at: http://www.videonewswire.com/event.asp?id=49932. Additionally, listeners may replay this call approximately two hours after the call concludes by dialing (800) 642-1687. This audio archive will be available through August 20, 2008.

Holly Corporation, headquartered in Dallas, Texas, is an independent petroleum refiner and marketer that produces high value light products such as gasoline, diesel fuel and jet fuel. Holly operates through its subsidiaries an 85,000 BPSD refinery located in Artesia, New Mexico and a 26,000 BPSD refinery in Woods Cross, Utah. Also, a subsidiary of Holly owns a 46% interest (including the general partner interest) in Holly Energy Partners, L.P., which through subsidiaries owns or leases approximately 2,500 miles of petroleum product and crude oil gathering pipelines in Texas, New Mexico, Utah and Oklahoma, tankage and refined product terminals in several Southwest and Rocky Mountain states.