DKL

Organizational Updates

• There was a leadership transition: former CFO Mark Hobbs moved to an EVP lead role at Delic Logistics, and Chris Kendrick was hired as the new SVP of Commercials. Management is confident the new leadership team will deliver continued growth.
• The company achieved its 54th consecutive quarterly distribution increase, raising the quarterly distribution to $1.135 per unit, marking a significant milestone for consistent value creation for unitholders.

Operational Progress by Business Line

• Gas segment: The company is nearing completion of its integrated sour gas processing, treating, and handling solution at the Fleabee gas complex in the Delaware Basin. The first AGI well has been completed, and the company is currently building out sour gas gathering infrastructure including compressor stations. Gas volumes reached over 80 million cubic feet per day in Q2 2026, up from 64 million cubic feet per day in Q1 2026, with further volume growth expected as the sour gas solution comes online.
• Crude segment: Delaware Crude Gathering (DDG) delivered record volumes of over 157,000 barrels per day in Q2 2026, up from 129,000 barrels per day in Q1 2026. Combined crude and water offerings in the Permian Basin continue to yield strong results.
• Water segment: The business is performing well following successful integration of the H2O and Gravity acquisitions. Produced water volumes rose to over 687,000 barrels per day in Q2 2026, up from 557,000 barrels per day in Q1 2026. Management continues to explore new growth opportunities in this segment.

Financial Highlights

• The company delivered a quarterly record adjusted EBITDA of $144 million, with adjusted distributable cash flow of $81 million and a steady DCF coverage ratio of 1.33x.
• The leverage ratio at quarter-end was 4.23x, a modest uptick from Q1 that reflects ongoing growth capital investments. The company proactively refinanced its high yield debt structure, issuing a new $800 million 2034 senior note to fully retire 2028 notes and partially redeem 2029 notes, reducing annual interest costs and extending debt maturities.
• Liquidity remains robust at approximately $1.1 billion. Total capital spending in Q2 was $61 million, $51 million of which was growth capital focused primarily on the sour gas buildout and related infrastructure.

Strategic Positioning

• DKL is a unique three-stream (gas, crude, water) midstream service provider strategically positioned in the Permian Basin's Northern Delaware. Third-party business now makes up ~80% of pro forma 2026 run rate EBITDA, increasing economic separation from sponsor DK.
• Management maintains a disciplined approach to capital allocation, prioritizing leverage and coverage targets while pursuing accretive growth opportunities to create long-term value for stakeholders.

• Management reaffirmed full-year 2026 adjusted EBITDA guidance range of $520 million to $560 million, unchanged from prior guidance.
• Current Q2 results are above the run rate implied by the guidance range, and management noted there is potential for upside to existing guidance, with potential updates expected in the third quarter, consistent with prior practice of updating guidance when justified.
• The 2026 $180 million to $190 million growth capital program is expected to generate up to $75 million of incremental run rate EBITDA, with most incremental EBITDA expected to be realized in 2027.
• Management's long-term leverage target remains 3.5x, with leverage expected to trend down to around 4.0x as growth investments generate incremental EBITDA.

• Gathering and Processing: Adjusted EBITDA of $104 million in Q2 2026, up from $78 million in Q2 2025. This segment contributed approximately 72.2% of total Q2 2026 adjusted EBITDA. Growth was driven by higher utilization at the Libby Gas Complex and stronger realized margins in the Permian Basin crude business.
• Wholesale Marketing and Terminaling: Adjusted EBITDA of $13 million in Q2 2026, down from $23 million in Q2 2025. This segment contributed approximately 9.0% of total Q2 2026 adjusted EBITDA. The decline was largely due to the effects of the 2024 Amend and Extend Agreement with Delic.
• Storage and Transportation: Adjusted EBITDA of $16 million in Q2 2026, compared to $17 million in Q2 2025. This segment contributed approximately 11.1% of total Q2 2026 adjusted EBITDA. The modest decrease reflects a January 2026 related party transaction.
• Pipeline Joint Venture Investments: Adjusted EBITDA of $21 million in Q2 2026, up from $17 million in Q2 2025. This segment contributed approximately 14.6% of total Q2 2026 adjusted EBITDA. Growth was led by continued strong results from the Wink to Webster joint venture.

Total adjusted EBITDA for Q2 2026 was $144 million, compared to $127 million in Q2 2025.

Management noted that all forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations, with key risk factors detailed in the company's SEC filings. No additional major new operational risks or unanticipated operational failures were specifically discussed during the call.

Q: What drove the strong margins in the gathering and processing segment, and how durable is this strength? How do you view upside potential to guidance given Q2 outperformance and the coming Libby ramp? / A: The strong margin performance reflects record volume growth across all three core business lines, driven by the strategic position of DKL's assets in the active Northern Delaware basin, with volumes growing sequentially quarter-over-quarter. Management confirms that Q2 results imply potential upside to the current guidance range, consistent with last year's practice of updating guidance in Q3 if performance supports an upgrade, and declined to raise guidance early, advising investors to wait for the third quarter update. (512 characters)

Q: How have higher commodity and Waha prices impacted customer activity and volume expectations for 2026 and 2027, and are you seeing increased rig activity in your operating area? / A: Management reports that producer customers are increasingly optimistic, with total rig counts in the Permian up roughly 20 units year-to-date, and activity is growing in DKL's core acreage as well. Higher Waha prices have had a minor direct impact on financial results but a larger positive impact on volumes, with production and volume forecasts raised for both the second half of 2026 and full year 2027. (448 characters)

Q: What would need to occur to justify additional expansion of the Libby sour gas complex, and how is the company approaching long-term leverage targets? / A: Management notes a sustained industry trend of increasing sour gas production in the Northern Delaware, and the current sour gas buildout will deliver a step change in gas volumes and position DKL for future regional growth. The company's long-term leverage target remains 3.5x; current 4.23x leverage reflects high-return growth spending, and leverage is expected to decline as the new investments generate incremental EBITDA, with a strong balance sheet supporting continued growth. (496 characters)

Q: Is management still interested in inorganic acquisitions, or will future growth be focused on organic opportunities? / A: Management keeps an eye open for inorganic opportunities, but any deal must be accretive to leverage, coverage, and free cash flow to move forward, consistent with the company's disciplined capital allocation strategy. Management notes that past acquisitions were completed at 5-6x EBITDA, compared to recent comparable transactions trading at low-mid teens EBITDA, so the company has already created significant intrinsic value from prior inorganic activity, with 15% year-over-year growth and 54 straight distribution increases to date. (501 characters)