Delek Logistics Partners, LP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Surface-Level Operations:
  • Completed major turnaround at KSR in Q4 2024, refinery showing improved operational performance, expected strong contribution in 2025.
  • Improved reliability at Big Spring in 2024, consistently running over 70,000 barrels per day, no major turnarounds planned in 2025.
• Sum of the Parts Strategy:
  • Sold retail asset for $1.49 billion in September 2024.
  • Executed economic swap of assets between DK and DKL, improving refinery profitability and DKL cash flow.
  • DKL making progress as independent midstream, announced accretive acquisitions, progressing capacity expansion in LiviGas processing complex, and FID on acid gas injection at Libya complex.
• Zero-Based Budget Initiative: Completed in Q2 2024, saving ~$100 million in costs ahead of original target.
• Enterprise Optimization Plan (EOP): Aims to improve DK cash flow by $80 - $120 million per year starting H2 2025. Made progress and now closer to top end of cash flow improvement guidance.
• Shareholder-Friendly Company: Paid $16 million in dividends and bought back $22 million of shares in the quarter, committed to disciplined capital allocation.
• Small Refinery Exemption: Court overturned EPA denial of small refinery exemption petition, petitions sent back to EPA for reconsideration; optimistic EPA will grant relief following court ruling.

Segment Performance

• Refining Segment:
  • Tyler: Q4 2024 total throughput ~66,000 barrels per day, production margin $6.66 per barrel, operating expenses $5.51 per barrel. First quarter 2025 estimated throughput 65,000 - 69,000 barrels per day.
  • El Dorado: Q4 2024 total throughput ~77,000 barrels per day, production margin $0.56 per barrel, operating expenses $4.78 per barrel. First quarter 2025 estimated throughput 73,000 - 76,000 barrels per day.
  • Big Spring: Q4 2024 total throughput ~73,000 barrels per day, production margin $5.04 per barrel, operating expenses $6.29 per barrel (including ~$0.50 per barrel winterization/maintenance). First quarter 2025 estimated throughput 57,000 - 61,000 barrels per day.
  • Cross Springs: Successfully completed major turnaround. Q4 2024 total throughput ~50,000 barrels per day, production margin $2.71 per barrel, operating expenses $5.27 per barrel. First quarter 2025 planned throughput 83,000 - 86,000 barrels per day. Implied system throughput target for first quarter 2025 278,000 - 292,000 barrels per day.
• Logistics Segment: Delivered $107 million in adjusted EBITDA in Q4 2024.

Guidance

• EOP: Expected to improve DK cash flow by $80 - $120 million per year starting H2 2025, now closer to top end of guidance.
• First Quarter 2025:
  • Operating expenses expected to be between $220 million and $235 million.
  • G&A expected to be between $55 million and $60 million.
  • Net interest expense expected to be between $78 million and $88 million.
• DKL: Provided strong guidance, with EBITDA expected to increase, driven by acquisitions, organic growth projects, and deconsolidation efforts.

Risks

• Refining Margin Environment: Challenging refining margin environment, which was around $6 below mid-cycle in Q4 2024.
• Small Refinery Exemption Process: Uncertainty in the small refinery exemption petition review process with the EPA.
• Market Conditions: Broader market conditions impacting recognized EBITDA results for the period.

Question and Answer

Q: Focus on El Dorado's competitiveness and how to make it a truly competitive asset.

A: Joseph mentioned EOP focus on product mix, process efficiency (liquid yield recovery in reformer FCC and Ascal Terriers), and logistics team optimization to ship products away from local market to optimize netbacks.

Q: DKL EBITDA growth and deconsolidation strategy.

A: Avigal and Mark discussed deconsolidation steps (ownership reduction, increased third-party EBITDA), accretive acquisitions (Gravity Midstream, H2O), organic growth projects in Permian Basin, and measured approach to deconsolidation to create value for both shareholders and unit holders.

Q: Supply and marketing dynamics in Q4 2024.

A: Pat Riley stated supply and marketing contributed a loss of $34.6 million in Q4, impacted by seasonal low demand trends, but DKTS made progress vs Q4 2023 and has a strategy for 2025 including streamlining operations and optimizing supply and trading.

Q: Bakersfield renewable diesel plant investment.

A: Avigal and Mohit said the option to invest is still available, with the team needing to show healthy operations for ~3 months before exercising the option.

Q: 1Q 2025 OpEx guide and DKL EBITDA guidance.

A: Mohit discussed factors influencing 1Q OpEx (consolidated Gravity Water Midstream, higher throughput, natural gas prices, planned maintenance at Big Spring), and Avigal discussed DKL EBITDA growth drivers including acquisitions, organic growth projects, and economic separation efforts.

Q: DKL repurchase program and supply line seasonality.

A: Avigal discussed the DKL repurchase program timeline (till 2026) and balanced capital allocation (dividends, buybacks), and commented on supply line seasonality but stated DK is focused on controlling what it can, like product and market movement.