Q4 2019 Earnings Call
[music].
Thank you free standing by and welcome to be telling you and 14 earnings call. At this time all participants are in listen only nowadays.
So to speak your presentation, there will be a question and answer session I.
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Thank you and good morning, I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US holdings fourth quarter 2019 financial result.
Joining me on today's call. It do you mean, I, chairman, President and CEO pocket Ginsburg, SVP and CFO.
And Louis Labella, Dvp, and president refining as well as other members of our management team.
Presentation materials used during today's call can be found in our Investor Relations section of the Delek us website.
As a reminder, this conference call may contain forward looking statements as a term as defined under federal Securities laws.
Please please see slide to the Safe Harbor statement.
In addition to reporting financial results in accordance with generally accepted accounting principles are gap. We report certain non-GAAP financial results investors are encouraged to review the reconciliation of these non-GAAP financial measures to the compare pure comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of our website.
Our prepared remarks are being made assuming that the earnings press release has been reviewed and we're covering less segment and market. Information then is incorporated into the fourth quarter press release on todays call lots. He will review financial performance Lewis will cover operations for the quarter Newsy will offer a few closing strategic comment with that I'll turn the call over time.
Assay and cubic.
Financial results were driven by the biodiesel tax credits, which was approved by Congress retroactively for 2018 and 20, making.
You can see on slide three on an adjusted basis for the fourth quarter twinning thinking.
Then the Qs reported in April 8th in has been dollars or 11 cents per share.
Compared to net income once $65.7 million or $2.03 per diluted share inappropriate.
Our adjusted EBITDA was $66 million in the fourth quarter putting into <unk>.
Compared to $287.4 million in the prior year period.
I would like to pulling out it's when do you think portion of the BDC is reflected in adjusted result, but when you can.
And just as a result this quarter included 31.1 million, though the benefit from the BDC.
Three quarters of 20, making.
However.
This was partially offset by $23.9 billion Optitex headwind.
These include environmental and employee expenses.
And operational factors, such an accelerated maintenance.
And the product inventory build alone would claims expense and weaker.
We expect many of these items to normalize in the future.
Finally, we had $39 million of hedging losses in the quarter.
Which approximately $17 million was unrealized.
On slide so we provide the cash the water flow.
In the fourth quarter 2018, we generated cash flow for approximately $127 million from continuing operation, which include and working capital detriment of $10 million.
Cash capital expenditures were $107 million, excluding a 51 point $500 contribution to into Webster.
In February we contribute 15%, we too have to investment totaling 145.61 of those two new JV with a week two after partner.
With the strength of our combined investment JV successfully secured project financing.
The new JV structural will benefit our financial position and result in an immediate $69 million cash distribution.
Previously invested capital.
With future expected linked to after capital requirements findings at 100%.
As a reminder, we expect total competently requirements for weeks Webster of $340 million to $80 million.
Slide five pilots our capitalization.
We ended the fourth quarter with $955 million of cash on a consolidated basis and $1.1 billion of net long term debt.
Excluding may day to day of consisting of $828 million, we had a net long term debt of approximately $284 million as of December 31st what an 18.
On slide six we provide first.
Quarter guidance it may be helpful in mobile in the company.
With that I would turn out to call over to discuss our operation.
Thanks assay during the fourth quarter, our total refining system crude oil throughput was approximately 272000 barrels per day.
Which reflects downtime at Krotz Springs, where we elected to accelerate maintenance on the reformer.
I would also point out at Big Spring sales volumes were reduced to build product inventory in advance of the turnaround in January.
As shown on slide six for the first quarter 2020, we expect crude throughput to average between 245000 and 255000 barrels per day.
This reflects a major turnaround at big spring refinery.
On slide seven I want to highlight our capital spending capital expenditures during the fourth quarter were 103 million compared to 106 million in the fourth quarter of 2018.
Our full year 2019 capital program was to 428 million.
This is expected to decline, 24% to approximately 325 million this year.
This amount excludes the wink to Webster connector, we're financing will be provided by the joint venture.
The 2020 capital program is broken down by segment has followed 205 million is our refining segment 23 million is our logistic segment 26 million is our retail segment and 72 million at the corporate level.
The Big Spring gathering system is included at the corporate level and when comp and will comprise approximately a 52 million this year.
As a reminder, capex excludes JV investments like Red River and weeks to Webster.
Finally.
I would like to highlight that we're increasing our EBITDA forecast for the big spring gathering system in 2022 by 5 million to a range of 45 to 55 million next I will turn the call over to easy for closing comments.
Thank you Louise Thanks, good morning, everybody.
Our company had strong financial performance in 2019, delivering $696 million of EBITDA.
$659 million of adjusted EBITDA in an environment, where Midland discount they've operated.
During the year in refining were brought all lined the alkylation unit at Krotz Springs, we performed the turnaround and completed vacuum tower walk at El Dorado.
This volatility that position to run higher utilization rate would improve distillate yield it has bear crude dr. optionality.
In retail we continue to high grade our portfolio through select asset sales, while adding new store to the market.
Renewable.
Renewables continues to be a growth area, where we acquired our third buyer of biodiesel plant in October.
Business tends to benefit from the recent passage of the biodiesel tax credits, which was extended through 2022.
Moving to our core focus the midstream growth projects, including week to Webster Red River expansion and Big spring gathering system.
Should enhance performance over the coming years.
While providing more stability to our earnings system.
I'm, sorry, earning stream.
Overtime, we feel this should be rewarded through a higher valuation multiple as we grow the midstream we're looking to simplify the cup the structural because along with potential asset dropdown opportunities from our this pasta decay.
As shown on slide eight.
Cash returned to shareholders remain a priority in 2019, we repurchased $178 million of our stock our share count has been reduced by 17% from the peak in the second quarter of 2018.
Our board of directors, there as as approved at 3.3% increase in our regular quarterly dividends from the third quarter 2019 level.
This marks our seven consecutive increase since the first book when 18.
Finally.
I'd like to be a little person here and I think my different oxy for serving the company for the last 15 years, obviously has been a huge asset to the company into myself I see has elected to move back to Israel to be we just family.
We all know they already in Israel.
And the company our couldn't be what it is without asking so I'd like to wish him well good luck with dot I'd like to open the call for questions.
As a reminder to ask a question you'll need to press star one on your telephone.
Question first apparently teachers standby will be compiled acuity roster.
Your first question comes from the line up fairly young Schelotto Mizuho.
Your line is open.
Hi, easy sorry, its full thank you give some disease.
But do you no for the first time I see you all the best and many thanks for everything you've done over the years there's the.
Can you talk a bit about the retail sector in the plans that you have there and you mentioned that you sold some stations and.
Added some but I think you noted in the current environment people are very interested by your exposure to resell could you talk a little bit more about the and where we go from here. Thanks.
Absolutely, yes, good morning for Uh Huh.
Obviously retail for US is something that we have done four years are the same time.
We are.
[noise] worn shy to extract value out of retail as we all know our EBITDA from retail is around $40 million and what we're doing is that we.
We divest some some stores here in Doug collecting cash and then take that cash and build a of the future stores. As we speak we are have we have two stores under construction and two more are coming later next year are playing out to convert the.
Both stores.
And divest them and make them.
And invest in India in the Big stores, which is obviously part of our our cash flow. So I wouldn't be surprised to see that EBITDA.
Continue to grow is oh, the stores that were building a showing a probably written that only few of them return of between 25% to 30%. So if we look at the history don't be surprised we've done over the next two three years, the but all of these oh.
The retail well will grow to 50 60 $70 million.
That's helpful. Thanks, Susan Secondly, you had some is well you have you had some hedging.
Losses in the quarter can you talk about the current market environment as you see it.
And everything everything that you might be thinking about in terms of hedging one way or the other thanks a lot.
Oh hedging obviously is as part of our.
Box too if you look at that we had a hedging loss last quarter.
The some of it will reverse itself in the first world that that's perfectly fine we'll look at it to on the on a regular basis. If you look at what happened last year second quarter, we had a big hedging gain.
And this time, we had a hedging loss because of different things that we did including inventory I want to be clear Paul.
I I read or many note.
The thing that Delek has a myth and and ER.
We headed up anywhere between 8.8 cents to 38 cents. However, the actual number the GAAP number of Delek during the fourth where it was 44 cents a positive.
And when you look at gap by the end of the date all reflect itself into cash and I. So couple of north asking about the cash situation well, we can call. It one time, we can call. It a nonrecurring we can called whatever we want.
But cash if cash and debt.
The 44 cents actual GAAP number.
In the fourth quarter reflect itself in the yeah in the cash situation, including the hedging.
Okay and anything finally from me on the market was well that was part of the question essentially but how do you see the market developing over the course 2020. Thanks.
Well.
I wasn't in the Cam well, we went into camp of I am all will be a a great benefit we I don't think that we don't think the IMO is are here to stay at the same time, we see a favorable.
Incidence in several refineries and gasoline market is pretty strong so far for the year. So it depends on how quickly these facilities that can come back.
To play and also if the video blending continues then we may have a good summer ahead of us in terms of gasoline.
Thank you.
Your next question comes from the line My down My now good. Thank you Sir your line is open.
He first phone congrats I see.
For all shipped all that you've done some delek my question relates to slide seven who's here and I see who really wants to address this your capex expenditure is showing gets Fourtwenty 18, 19, let's just say 25, even 2020, which is about 24% decline, but this doesn't include the JV spending can you give us the numbers there.
JV spending because of major portion of the decline will happen in the JV spending some time to understand apples to apples 19, but just 20 included the JV spending what are the numbers.
So if you look at day 29 in.
We have spent $428 billion.
In addition to debt.
Turning to websters, roughly $75 million in that period.
Okay.
When you look at twin Kuwait.
We have $325 million, but at this time, we will receive.
$50 million from Webster that 325 is actually going to be to 75, because we are receiving $50 million because we closed the project financing.
So from a cash purpose connective tissue is a much I will say lighter on money going out the door.
Perfect. So that's what I want to make sure I understand that point, the second point Aussie and it was easy more you talked about editorial last quarter. We understood then what the dumbing down slightly disappointed to see the gross margin this quarter and that it really is a much better asset Dennis sub par five so $5 gross margin can you help us.
Understand what happened at El Dorado in flight won't happen going ahead.
Yes, so in El Dorado, he was still ramp wrapping up phone.
During the fourth quarter.
And getting coming out of that work on the vacuum tower.
That is ER and running golf some excess inventories. So we're in shape the tower still performing well, where our diesel yoda still whereas expected in what we predicted and we're ready to run the barrels in 2020.
Hi, Thanks, guys. Thanks for taking my questions.
Thank you may now.
Your next question comes from the line up Brad Hussain of RBC. Your line is open.
Hi, Good morning, everyone I guess in the release and and the prepared comments you talked about simplifying the capital structure the MLP.
I I assume that means some sort of IDR conversion, but can you put any more color around that and then also talk about any timeline for the drops.
So as you know we've been building at Delek logistics.
During system that we feel that the is it mature the right place for that seems to me it needs to be it. The DKL later part of the became business model.
We want it to a achieved that together with the potential an idea simplification and then the idea was to do it throughout the 2020, we're looking at the markets in making sure that there will support the transaction and we're also preparing the decade balance sheet to do it so I would say to 2020.
In targeted.
Okay. Thank you and then I guess just on cash returns to shareholders. Obviously, you've increased the dividend I think seven out of a quarters now.
The yields at close to 5% <unk>. You know are you at the point, where you think it's competitive and you know the dividends in the right place or you know should we expect to continue increases and then I notice that you didn't give a guidance for repurchases in the first quarter. So is that program becoming more.
Less formalized at this point.
Well.
We obviously want to our continued to return excess cash flow to shareholders and a in the in the upcoming got a cores we have.
Big amount of cash coming between the BTC, a we found which is 80 something million dollars. The ER money that we already got that he's not on the balance sheets from the a a refinance of the Oh the project financing and also the tax.
Refund that is showing up so we'll see how the cash Shane shapes up but I don't see any reason why you dividend, we won't continue to be very competitive.
<unk>.
Thank you.
Your next question comes from the line up Benny Wong with Morgan Stanley. Your line is open.
Hey, good morning, guys. Thanks for taking my question like my first questions around Big Spring I'll. Just you guys took out the guidance there on your outlook and do you guys are saying about 50 million. There just just wondering how much more runway is there to grow that business and you know what are factors just thinking are balancing to regulate the potential for growth.
And faster there.
Well, it's just a matter of returns we have a a hurdle of around 20% or for the Oh for this type of business.
And there's.
If you look at a very if you look at the the stat.
From a rig standpoint, you see that Howard County in Martin County continue to grow. Despite the fact that others are the counties are declining and as you know we are in Howard County in Martin County, So.
If we meet the 20% threshold, which you will stuffing the benefit this quarter, but mainly next year. Then we would continue to look into that.
Our situation is that we continue to produce cash.
And we are despite a what market cause myth cash is coming in.
So oh for US is just meeting the hurdle of at least 20% in that area and also a balancing it with other needs.
Understood appreciate will start to the and my next question is a more for you.
If I may just wondering if if you able to share some thoughts in terms of you know your potential role with Delek going forward.
I understand it looks like your with your contract might be coming out later this year I think there's many of US in investment Committee that obviously don't want to see you go anywhere, but just curious in terms of how you're thinking about the future and if theres been any preliminary conversations understanding between your you in a company I'm not only parameter we are in.
In discussions I had the company has or the board has a I expect desire for me to stay obviously I'm still young and enjoy what they do so a I don't see any reason to believe that we want to extend that agreement. We usually do it for three you that I don't see any reason why what happened this time again.
That's great to hear thanks Uzi.
Thanks Ben.
Your next question comes from the line Neil Mehta of Goldman Sachs. Your line is open.
No matter what your line is open.
Hey, thanks. Thanks. So much appreciate you guys, taking the time I feel I guess the first question is for you left which is can you talk a little bit about that the CFO transition, we're going to miss yet ton here and or the decision behind that and then really as you think about backfilling the CFO role.
Oh.
And importantly tenant for you how do you think about the characteristics will want and let's see.
Sure. So as you know after 15 years or would there Nick.
I've made a decision it to go back and they'd be with my family in Israel is you know.
I tried it before but then there Oh is it was the always able to convince me to come here in support the company, but as they see my family grew up in them away from them.
Decided that they want to be close to home and this was the only driver for me a doing it.
And I will let it was you discussed the Uh huh.
What's the capabilities and what how did your would look like.
Well, obviously, a I see a as being with us for long time and.
It's it's painful for me on one hand, but I'm very happy for him.
He is he is joining his family I know, it's hard to commute and for me. It's something that is Oh, I'm coming said personally because I'm missing, but I'm glad for his decision.
Of the role and we all know we fear for the is a very important role we have several very very very good candidates.
That Ah we are.
I'm going to finalize it over Oh, hopefully over the next three four weeks.
And we'll or north probably the market.
About these candice some of them are very well known do you guys.
[noise] sprayed on what congratulations I see and looking forward to that updated as either the follow up question has just done on the macro and in particular Midland has traded decently above Debbie T. I now for sustained period of time and a and that's with Big spring currently down for turned around and I guess.
As if the concern would be as big spring comes up does that continue to create a further bed.
And then version of that Midland differential. So just could you talk through the crude flows and the different moving pieces of supply demand as we think about that Midland WTI differential and then if you want to layer onto that your views on your ability to access different types of crude given that the investments that you have made.
Projects like Red River to play different arbitrage is against each other.
That's that's a great question. It has several components I laid out the Gulf would deal with Dr. Jay to take any of the morning. How are you guys. Thank you. So we all see Midland barrels to W.P.I. and then.
All the time will find its hard to believe that it's also the bell going to be more expensive than the cleaning point.
So we believe that at some point something fundamental going to make the markets. Thanks.
What do we all we've all seen that's coming result announcement of the new pipe. It's no surprise to anyone. That's me, let me is being traded at a premium and we were ready for that we live in investment exactly to diversify our code.
So we.
All of that these wells well well known since we also go coming we also epic and old enough to W. And that's been was wed expect it and we have a line up in their alternative for the second half of 20 to 2020.
Neil just to remind you the expansion in the second half the years about 65000 barrels a day, so that'll be incremental access in the second half through Red River Grace.
Yes.
Your next question comes from the line of said after Chen of Barclays. Your line is open.
Good morning, and also like to offer my congratulations I see on your retirement on second time that round. Thank you for all of your effort.
Yes.
Maybe a follow up on Neal's question around the Midland differs so I believe.
This pressure has been a result of line fill on a great. Okay ethics and reported in the news how long do you think this is going to go on for it and when do you think we might see some are you seeing on in the interim just from that alone.
Well.
I guess.
Pinning down the exact timing I'm not sure I'm smart enough to to give you that however, a one I want to be clear, we feed got a buck them back 20, and we as a company already doing taking steps.
To change our crude slate. So if we are doing got I'm sure. Our does do the same thing, especially in light of the fact that there's a lot of Ah downloadable still flowing between Midland and Cushing on several pipelines. So while I don't know how long. This can stay I don't believe got.
The fourth of the bill can be more expensive.
Then the destination for an extended period of time, they're just not not economic something would what happened in somebody will do something different seven doing similar to what we are.
Talking about.
Converting or these.
Also some people will do what we basically did we cancelled or we had been a pipeline I'm going pipeline 35000, both we concept that dnbi, so more and more people well, we'll just don't ship what they used to shape. If this days for awhile.
Do if I need to get this is a few months a situation, but I'm not smart enough to up in pinned down at the exact die.
Got it and then switching gears a bit on touching on the earlier comments about the details drop down and booking at the markets to support the transaction trends transaction.
Just with the.
M.C. at 184 today, what are your financing options and assumptions Z and would you be opened to going to the private markets, perhaps for more economic financing.
Yeah first it will start by saying that a few days ago. It transaction looked much better for both companies and the changes in the MLP market last few days impacting some of the economics emissions action, we that being said.
The Delek logistics, a high yield bond is creating a very well above par.
In addition to that our revolver is still the unfunded my over to $50 million. So we have basically just for a drop we have the a the capacity on him to do it without utilizing the market and is there like we are always happy to accept Delek logistics dog is immunoassay fund.
Being especially when you look at the 20% deals that currently providing and we don't like those returns if the market would improve.
Yes, I see less likelihood I'm not going to the private market, but as I mentioned more they probably delinquent except those shares as independent immuno payment.
Got it and with the cash portion of the proceeds since it sounds like a portion or.
Oh this could be done with debt and what are the parents plans for that cash.
Well, we think that Oh, we want to maintain the cash level of our our company we feel comfortable.
I know that you guys need to look at the or are the stock price. The number on one thing for US is to continue to provide cash. So we can continue to a implement our strategic plan.
So we will take that cash and then look at different ways to invent that either through a or places to generate more EBITDA or I'll return cash to shareholders.
Thank you.
Your next question comes from the line of Phil Gresh of JP Morgan Your line is open.
Yes, hi, good morning, just a follow up to the previous question and thinking about the Kashi beginning from the drops how do you think about consolidated and.
Parents financial leverage.
And that was cracks where they are tighten Midland differentials and what level of.
At levels of 10 that leverage, especially on a consolidated basis you're comfortable.
So when a consolidated basis, we have roughly a $1.1 billion of forget as you know we finished the year with is $700 million of EBITDA. So it's a one didn't have times leverage.
I think and we saw that companies in the past the you know energy companies that even two two and a half times leverage if you look at the it's our bond is trading very very well and we think that at these levels.
022, and half times leverage the company is in a very good shape financially.
I would like to mention that the what do you remember one thing delek invested hundreds of millions of dollars.
In a week to Webster.
In gathering businesses over the last two and a half years.
All of the Dante's sitting on our books and none of the blade.
So when we think about daily capability to produce EBITDA.
When we look at 2021, we expect additional over $100 million of EBITDA coming from those assets. So I think right now where in the transition here. It's we are being penalized.
For making the investment, but we don't see de Vito.
In addition to that is Uzi mentioned.
During Q1, we received already back nearly $50 million from the project financing because we over invested.
In between Q1 in Q2, we expect BTC in tax refund of Additionally, $150 million.
Those three to get it will take Delek us.
It did so at the parent level to being a net cash position and that's the position we really like to be.
Oh, Thanks for all those details, especially that's my follow up question because JV.
Financing structure, how do we think about you've given very clear color on kind of the cash and cash out in 2020, but once just a project comes on stream.
Doug can you too detailed in the model used to just give us color about how that financing structure impacts what we actually see in the financial statement. Thanks.
So as you know we closed the project financing.
The interest on the project financing is extremely low it's at LIBOR plus one in the hands.
And then we have good opportunity to love the library in the treasuries at a very low level at this point, you're probably going to hedge 75% of it.
The way, it's going to show up on the financial you'll be exactly liquid river. So it wouldn't be net of the a dangerous caused the project level. So net net we expect to let's say, 20% return on the project, which is a $70 million, though you'd be down from the current project, we wouldn't have to pay roughly 10 million.
The year interest cost so the distribution will be around $60 million are you assuming a 20% return. So that's what's with the way the seat on the on the on the P. in there.
And then they didn't will not be on the balance sheet and the what you'll see as investment in equity made similar to relieve.
Okay, great. Thank you very much I would say one more thing we're not anticipating any amortization of debt in the first few years of the project. So all of the case will go to bed.
Okay, all right. Thanks.
Your next question comes from the line up Roger read of Wells Fargo. Your line is open.
Yeah. Thanks, good morning.
And Oh actually let me say a thanks for everything over the years congratulations to your for for moving on and all the best in a back in Israel.
Thanks.
A couple of questions. One just to follow up on what was a pretty major topic on the last call. The a the upgrades at El Dorado. Just curious now that you've had I guess, probably by this point a full quarter run it just not a calendar quarter. How that's performing is it in line whats your expectation is better than.
Yeah and are there some other opportunities we should be thinking about across the rest of the units where you might be able to tweak some things this year.
Yes, Roger so looking at the Union and you're you're exactly right look into unit it still producing.
As we expected.
Yeah, with the diesel or yield as well as making spec asphalt product right off the bottom of the tower a we look for all opportunities now have a variety of different crews are taught to optimize.
The unit to ER to make the to make the most money that we can going forward. So we've been working really strong with commercial and seeing what's out there available that surround us if we can bring into the refinery and capture that.
Roger I would just add I think <unk>, Louis mentioned earlier, but I'm in the fourth quarter in particular, the facility was ramping back up in October which is when crack spread for strongest during the quarter. So we weren't able to really capture the benefit of that and southern facility was really align contributing in November December when cracks have gotten week or so we would expect a better contribution into.
One Q2, Q et cetera.
Great Thanks for that.
And then coming back to some of the discussion earlier about you know switching a cruise you're running backing off a maybe a mispriced mid one barrel towards something cushing or even local.
We've heard previously that it's better to run a a pure cushing barrels and what sometimes called afraid getting barrel lot of [laughter] excuse me to bear a lot of mid one versus the Frankenberry a lot of Cushing. So just curious as you changed it creates in the units do we have to think about any sort of impacts on yields that.
Might be a little bit more on the negative side, another whereas we have to see and even wider shift in crude diffs to get a a major change in crude feedstock.
Depends on the Roger depends on the configuration of every a unit, but there is.
To what you say there is the I'm married and we need to every LP when we a change crude slate, we oh, we look at a the quality of the bare are the same time. However, just remember that we are we because of some or because of our organic.
Them in the way we are doing.
Our stuff, we can maintain some of the quality of the barrel. So it depends on on the Oh on the specific refinery and the specific situation not the time I'm going to tell you do that on their scenario for dollar <unk> dollar 20 days already incentive for us to change due.
Cushing barrels versus a meta though.
Yeah, that's what I would still would have expected one last follow up just because she mentioned it in the opening remarks on the renewables.
I know you all made some acquisitions as well some investments how do you see as you mentioned earlier about retail EBITDA growth in the coming years, how do you see renewables growth ex the tax credit because one never knows that's gonna get renewed it from from time to time, but just the sort of underlying part of that business I'd be volumes as wells.
EBITDA thought process.
Well first it was when you would until 2020 to digest.
The fat a second biodiesel is a an opening for us to look at other opportunities, we don't want to being a situation that we invest in returns of 10% what percent if you'll remember we as we are we're controlling alone our lawn D D a renewable diesel or not.
Biodiesel in California, and then we sold it so it depends on the market. It depends on the feedstock. This is an area that we need to a I looked Lucas I want to be organs, though.
We don't believe always end up a fourth base energy.
That's something that we are we just need to remember.
That's fair thank you.
Thanks Roger.
Your next question comes from the line up halting of Scotiabank. Your line is open.
Hey, guys good morning.
And one that thinking you see I see just want to say congratulations for your second retirement and wish you. The best of luck and that's fun use with thinkable to happen, but that yes.
Mitch.
Just a couple of quick question on the financings site, if I can get correctly that the west of the that's neat for what the Webster Oh, Jay it's all going to be pulled your financing right.
So you've seen that that's the successful years that you know going to see a neat that we payment when that that the principal we just got going to start to two people pay and went that you would be 40 pay off.
So as you mentioned first it going forward.
All of the investments will become from D.A. paid by the basically the JV.
Financing debt because we all would you put hundred pursuit of the equity needs. The way. They project work, we put the first 20% of the equity or do they need and then the banks put all the right.
The deal that we have is basically three use deal.
And usually after that you're doing a bond that is also very likely amortized mostly with the balloon. So as I mentioned this will turn eventually into a bond most likely investment grade bonds, and we will see very light amortization on it in the next few years.
Okay. So that if you don't Tanya into a bond Dan I'll take it come on stream. After three years that start to have stepped <unk> Ah that we payment, but you were talking into born most nightie about that.
Yeah, It's a project finance he doesn't it's not the you know it's not a permanent financing it's their Friday construction for another that's another two years and then after that.
Look at the shippers have this the pipeline excellent planes delek MPLX, so with liquidity shippers, we don't see any issue.
Turning it into a bond.
And that with the hedging to position can you tell us that or what.
<unk> and what warning that you have patchy and if those quota into second quarter.
Well I don't think gory doubling no Paul we have a lot of different positions that we really don't disclose a any the details around it. So we unfortunately, just not going to get into that level of detail on it.
Okay, that's fine.
And for the Big Spring I presume that the turned the wrong is a full pen talking about.
That's correct a will be completed sometime early March.
Okay.
And that's for the we knew what Bill D. So you see it is the point up being so all you can kind of funny.
I'm sorry.
It's the we knew what booties so that you guys.
Put dues or is it all being sold in California, Oh now I don't want to know nothing nothing is being sold in California.
So nothing.
Ah, yes that opportunity given that in California that doesn't know the low carbon tax credit.
Well, we're producing a biodiesel and not renewable diesel so what we're doing is where blending all these.
Got it comes into our into the different that we sell and that's the reason we have not bleeding. We don't split the most people split the dollar 50 50 will split it that's everything you see the full benefit of $80 million in the quarter.
Okay well. Thank you. Thank you.
Your next question comes from the line up Tayfun Geadelmann at Cowen Your line is open.
Hey, good morning, I just wanted to go back to the cash flow for a second I think you mentioned there was a 15 million dollar inflow to offset the equity.
Payments totaling to Webster, then there's going to be an additional.
Amount.
That comes in and then an additional call it $70 million from the blenders tax credit. So how much is at all to together are coming in in terms of Cashel outside of normal LOPT operations.
So between Q1 in Q2 net we would have received 50 billion five zero.
From doing two after financing.
We will receive $98 million.
BTC no.
And we will receive $48 million of tax refund.
When you combine them all it's $196 million. It we expect to receive between Q1 in Q2 most of the okay.
Most of it was in Q2.
All right.
Was there any other one time cash inflows in Fourq, you that you could call out.
You saw there were some tax benefits of over $30 million is there is also the fact that we put in service towards the end of the you it'd be part of the gathering system that we stopped producing cash so you'll see indicates flow and when you get it does I think $36 million affair it tax inflows in Q.
The deferred tax yeah.
Got it Okay and then just on this bio diesel.
Acquisition that you made is there is there any material earnings impact that you expect and one Q as a result.
Well the biodiesel in general.
We said that he was going to Oh, we did with the dollar now in place.
The three plans are going to be between around $10 million. If you will for the year.
Got it.
Alright, great. Thanks, a lot.
Ladies and gentlemen, we have come to the end if I timing I will turn it back to the management consulting in Mike's well. Thank you everybody for listening brought this morning I'd like to think on my friends around the table I'd like to think the board of directors.
For a there.
Supporting our.
Believe it off and also I'd like to a think all investor for your interest in us, but mainly I'd like to thank our employees, who make this company. What did you have a great then we'll talk too soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Thank you for standing by and welcome to tell you a fourq <unk> earnings call.
This time all participants are in listen only mode. After these pick your presentation, there will be a question and answer session <unk>.
The question. During this session you will need to buy star one on your telesales. These the advisor to these contracts is being recorded if you require any further with Stifel. Please press Star Zero has elected to conference I was curious speaker today they Chris.
Thank you. Please go ahead.
Thank you and good morning, I would like thank everyone for joining us on todays conference call and webcast to discuss Delek US holdings fourth quarter 2019 financial result.
Joining me on today's call. It do you mean, our chairman President and CEO pocket Ginsburg, SVP and CFO.
And Louis Labella, Dvp, and president refining as well as other members of our management team.
Britain patient material used during today's call can be found in our Investor Relations section of the Delek us website.
As a reminder, this conference call may contain forward looking statements as the term as defined under federal Securities laws.
Please see slide two for the Safe Harbor statement.
In addition to reported financial results in accordance with generally accepted accounting principles are gap, we report certain non-GAAP financial results.
Actors are encouraged to review the reconciliation of these non-GAAP financial measures to the compare pure comparable GAAP result, which can be found in the press release, which is posted on the Investor Relations section of our website. Our prepared remarks are being made assuming that the earnings press release has been reviewed and we're covering less segment and market information then is incorporated.
To the fourth quarter press release on today's call lots, who will review financial performance Lewis will cover operations for the quarter Newsy will offer a few closing strategic comment with that I'll turn the call over to Aussie. Thank you bake.
Financial results would have are divided up that's good that's was approved by Congress retroactively for 2018 and 20, making.
You can see on slide three on an adjusted basis for the fourth quarter, putting it in.
Then the Qs reported net loss eight and a half million dollars or 11 cents per share.
Compared to net income was $65.7 billion or $2.03 per diluted share in the probably opinion.
Our adjusted EBITDA was $66 million in the fourth quarter 20, making.
Their food to $87.4 million in the prior year period.
I would like to point out it's what do you see portion of the BDC is reflected in adjusted results for 2000.
Just as a result this quarter included $31.1 billion benefit from the BDC for the first three quarters of 20 that game.
However.
This was partially offset by $23.9 billion after FX headwind.
These include environmental anybody expenses.
Operational factor such an accelerated maintenance.
The product inventory build longwood, I'm glad to expense and LIBOR.
We expect many of these items globalizing the future.
Finally, we had $39 million of hedging losses in the quarter.
Reach approximately 70 million, though was on the left.
On slide four we provided the cash the waterfall.
In the fourth quarter 2018, we generated cash flow for approximately $1.7 million from continuing operation.
Which include and working capital detriment of $10 million.
[noise] cash capital expenditures were $107 million, excluding a 51.5 hundred dog contribution to into Webster.
In February we completed a 15% week to have two investments totaling $145.6 million two new JV with a week two after partner.
With the strength of our combined investment JV successfully secured project financing.
The new JV structure would benefit our financial position and result in an immediate $69 million cash distribution.
Previously invested capital.
With future expected linked to up to a capital requirements findings at how to person.
As a reminder, we expect total capital requirement for weeks Webster $340 million to $380 million.
Slide five highlights our capitalization.
We ended the fourth quarter with $955 million of cash on a consolidated basis.
$1.1 billion of net long term debt.
Excluding mandate that this logistics $828 million, we had a net long term debt of approximately $284 million as of December 31st what a 19.
On slide six we provide fourth.
Got it maybe hopefully modeling the company.
With that I would turn on the call over two to discuss operation.
Thanks assay during the fourth quarter, our total refining system crude oil throughput was approximately 272000 barrels per day.
Which reflects downtime at Krotz Springs, where we elected to accelerate maintenance on the reformer.
I would also point out that big spring sales volumes were reduced to build product inventory in advance of the turnaround in January.
As shown on slide six for the first quarter 2020, we expect crude throughput to average between 245000 and 255000 barrels per day.
This reflects the major turnaround at Big Spring refinery.
On slide seven I want to highlight our capital spending capital expenditures during the fourth quarter were 103 million compared to 106 million in the fourth quarter of 2018.
Our full year 2019 capital program was to 428 million.
This is expected to decline, 24% to approximately 325 million this year.
This amount excludes the wink to Webster connector, we're financing will be provided by the joint venture.
The 2020 capital program is broken down by segments has followed 205 million is our refining segment 23 million is our logistic segment 26 million is our retail segment and 72 million at the corporate level.
The Big Spring gathering system is included at the corporate level and when comp and will comprise approximately a 52 million this year.
As a reminder, capex excludes JV investments like Red River and weeks to Webster.
Finally.
I would like to highlight that we're increasing our EBITDA forecast for the big spring gathering system in 2022 by 5 million to a range of 45 to 55 million next I will turn the call over to Newsy for closing comments.
Thank you know anything good morning, everybody.
Our company had strong financial performance in 2019, delivering $696 million of EBITDA up.
$659 million of adjusted EBITDA.
And that were Midland discount they've operated.
During the year in refining were brought online calculation unit got Krotz Springs would perform the turnaround and completed vacuum tower Walcott El Dorado.
This pathetic is not sufficient to run higher utilization rate with improved distillate yield has bear crude dr. optionality.
In retail we continue to high grade our portfolio through select asset sale, while adding new store to the market.
Renewable.
Renewables continues to be a growth area, where we acquired our third buyer biodiesel plant in October.
The stands to benefit from the recent passage of the.
It's a tax credits, which was extended through 2022.
Moving to our core focus the midstream growth projects, including week to Webster Red River expansion and Big spring gathering system.
Sure that have performance over the coming years.
Well, what providing more stability to our operating system.
I'm, sorry, earning stream.
Overtime, we feel this should be rewarded through a higher valuation multiple as we grow the midstream we're looking to simplify the cup the structural ticket along with potential asset dropdown opportunities from other parts of the Kate.
As shown on slide eight.
Cash returned to shareholders remain a priority.
2019, we repurchased $178 million of our thought our shook out have been reduced by 17% from the peak in the second quarter of 2018.
Our board of director of as approved at 3.3% increase in our regular quarterly dividends from the third quarter 2019 level.
This marks our seven consecutive increase since the first 4.8 these.
Finally.
I'd like to be a little pressed on here and thank my different oxy for serving the company probably lost 15 years.
Has been a huge occupied the company into my fellow Rps elected to move back to as well so we didn't family.
As we all know they already knew quit.
And the company.
I wouldn't be what it is without asking so I'd like to fruition well good luck with dot I'd like to open the call for questions.
Okay.
As a reminder to ask a question you meet the press star one on your telephone.
Question first Uptown King please standby will be compiled the queuing thereafter.
Your first question comes from the line up fairly young Schelotto Mizuho. Your line is open.
Hi, easy sorry, its full thank you hear from Mizuho.
The Blue bid you no for the first time FC all the best and maybe thanks for everything you've done over the years is the.
Can you talk a bit about the retail sector in the plans that you have there on that you mentioned that you sold some stations and.
Added some.
Thank you and the current environment people very interested by your exposure to resell could you talk a little bit more about that and where we go from here. Thanks.
Absolutely, yes, good morning.
I'll, just obviously retail for us is.
Something that we have done for you are the same time.
We.
Warrant shy to.
Extract value out of retail as we all know our EBITDA from retailers around $40 million.
And what we're doing is that we.
We divest some some stores here in Derek collecting cash and then take that cash and build the future stores as we speak. We are ahead, we have two thoughts on the construction and two more are coming later next year or plan.
To convert the.
Sure.
And divest them and make them.
And investing in the into big stores, which is obviously part of our our cash flow. So I wouldn't be surprised to see that EBITDA.
Continued to grow as.
The thought that we're building a showing.
Probably return that only few of them return of between 25% to 30%. So if we look at the history.
I'd be surprised we've done over the next to you the but all of these oh.
The retail well will grow to 50 60 $70 million.
That's helpful. Thanks, Uzi Secondly, you had some as well.
I had some hedging.
Losses in the quarter can you talk about the current market environment as you see it.
And.
Everything everything that you might be thinking about in terms of hedging one way or the other thanks a lot.
Yes, Oh aging, obviously is as part of our.
Box too if you look at that we had hedging loss not core.
The some of it will reverse itself into first quarter that.
Perfectly fine, we'll look I think on there on a regular basis. If you look at what happened last year second quarter, we had a big hedging gain.
This time, we had a hedging loss because of a.
Ah different things like we did including inventory I want to be clear Paul.
I read.
Many note.
The thing that Delek has a myth and and.
As we head up anywhere between.
Eight cents due a 38 cents. However, the actual number the GAAP number of Delek. During the fourth was 44 cents a positive.
And.
When you look at gap by the end of the day, all reflect itself into cash and I feel a couple of north asking about the cash situation well Oh, we can call at one time, we can call. It nonrecurring we can called whatever we want.
But cash if cash.
And.
The 44 thin actual GAAP number.
In the fourth quarter reflect itself and dig into cash situation, including the hedging.
Well.
Okay and then the thing finally from me on the Mako as well that was part of the question essentially but how do you see the market developing.
For the cost 2020 thanks.
Okay.
Well.
Hi, I wasn't in the Cam well, we want them to camp of I am all will be great benefit. We I don't think that we don't think the IMO is.
Here to state are the same time, we see a favorable.
Incidentally in several refineries and gasoline market is pretty strong so far for the year. So it depends on how quickly do facilities that can come back.
To play and also if the video blending continue then we may have a good summer hydroprocessing done for gasoline.
Thank you.
Your next question comes from the line Monday.
Hi, good credit Sir your line is open.
First of all congrats Safi.
For obviously have to all that you've done for telecom My question relates to slide seven let's see on an assay, who really wants to address this.
Capex expenditure is showing a sport going be 18 19, let's just say 25, 2020, which is about 24% decline, but this doesn't include the JV spending can you give us the numbers the JV spending because a major portion on the decline that happened in the JV spending time. Thank you understand apples to apples 19 lets just wendy in.
The JV spending what are the numbers.
So if you look at 29.
We have spent $428 million.
In addition to that.
Turning to Webster roughly $75 million in that period.
Okay.
When you look at weighted Kuwait.
We have $325 million, but at this time, we will hit.
$50 million from Webster, but that's 325 is actually going to be to 75, because we are receiving $50 million because we closed the project financing.
So from a cash for perspective. This is a much I will say lighter on money going out the door.
Perfect. So thats, what I want to make sure I understand that point.
Second point, Aussie and losing losing more you talked about editorial last quarterly understood then well didn't go down.
I'd be disappointed casino gross margin this quarter is a much bigger asset Dennis so far.
So $5 gross margin can you help us understand what happened like everybody doing light won't happen going ahead.
Yes so.
In El Dorado angle still ramp ramping up following.
During the fourth quarter.
And getting coming out of that work on the vacuum tower.
That is.
Running golfs mix at the inventory. So we are in shape the tower still performing well, where our diesel yield is still whereas expected in what we predicted and we're ready to run the barrels in 2020.
Thanks, guys. Thanks for taking my questions.
Thank you may now.
Your next question comes from the line up Brad Heffern of RBC. Your line is open.
Hey, good morning, everyone.
Right I guess in the release and prepared comments you talked about simplifying the capital structure the MLP.
I assume that means some sort of IDR conversion that can you put any more color around that and then also talk about any timeline for the drops.
So as you know we've been building at Delek logistics.
Other in system that we feel that.
Mature.
Right place would that seems to me it needs to be DKL.
Out of the became business model.
We want it to.
Achieved that together with the potential IDR simplification.
And then the idea was to do it throughout 2020.
Looking at the markets and making sure that there will support the transaction.
We're also preparing the dedicated bonds you to do it so I would say to 2028.
Targeted.
Okay. Thank you.
And then I guess just on cash returns to shareholders, obviously, you've increased the dividend.
I think seven out of a quarters now.
The yields at close to 5%.
Are you at the point, where you think it's competitive and the dividends in the right place or.
Should we expect to continue increases and then I notice that you didn't give a guidance for repurchases in the first quarter. So is that program becoming more.
Less formalized at this point.
Well.
We obviously want to our continued to return excess cash flow.
To a shareholder and in the.
In the upcoming cores we have.
Big amount of cash coming between the.
BTC Refound, which is 80 something million downloads the.
Money that we already got that he is not on the balance sheet from the a refinance helped the or the project financing and also the tax.
Refund.
Is showing up so we'll see how the cash shade shapes up but I don't see any reason why you dividend, we won't continue to be very competitive.
Thank you.
Your next question comes from the line up Benny Wong with Morgan Stanley. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
My first questions around Big Spring obvious you guys took out the guidance there I'll be outlook.
And do you guys are saying well 50 million there just just wondering.
How much more runway is there to grow that business and what are the factors just thinking are balancing to regulate the potential for growing faster there.
Well, it's just a matter of returns we have a hurdle of around 20%.
For the for this type of business.
And does.
If you look at.
Maybe if you look at the.
Tax.
From a rig standpoint, you'll see that Howard County in Martin County continue to grow. Despite the fact that others are the counties are declining as you know we are in Howard County, and marketing Colombia. So.
If we meet the 20% threshold, which.
You will stuffing the benefit this quarter, but mainly next year, then we would continue to look into that.
Our situation is that we continue to produce cash.
And we despite a what market caused myth cash is coming in.
So.
We're off to just meaning the hurdle of at least 20% in that area and also.
Balancing it with other needs.
I understood appreciate will start Suzy and my next question is a more for you.
If I may just wondering if you able to share some thoughts in terms of your potential role with Delek going forward.
I understand it looks like your of your contract might be coming out later this year I think there's many of us in investment community that obviously don't want to see you go anywhere, but just curious in terms of how you're thinking about the future and.
Theres been any preliminary conversations understanding between your you in a company I'm not only Prem we are in.
In discussions.
The company has or the board has expressed a desire for me to stay obviously I'm still young and enjoy what they do so I don't see any reason to believe that we want to extend that agreement.
We usually do it for three you that I don't see any reason why what happened this time again.
That's great to hear thanks Uzi.
Thanks Manny.
Your next question comes from the line of Neil Mehta of Goldman Sachs. Your line is open.
Neil Mehta your line is open.
Hey, thanks. Thanks, so much appreciate you guys taking the time.
I guess the first question for you.
Just can you talk a little bit about that the CFO transition, we're going to miss yet ton here.
And the decision behind that and then really as you think about backfilling, the CFO role and.
And importantly tenant for you how do you think about the characteristics will want in that seat.
Sure. So after 15 years, we're delek.
I've made a decision to go back and then B with my family in Israel.
No.
I tried to before but then.
So is it was the always able to convince me to come here in support of the company but.
They see my family grew up in them away from them I decided that they want to be close to home and this was the only driver for me doing it.
And I will let the loosely discuss the.
Lets the capabilities and what how did your would look like.
Well, obviously oxy as being with us for long time and.
It's painful for me on one hand, but I'm very happy for heme.
He is he is joining you spend money I know, it's hard to commute and.
For me, it's something that is.
Coming fed personally because I'm missing, but I'm glad for his decision.
Of the role and we all know.
We feel for the is very important role we have several very very very good candidates.
That we are going to.
Finalized its over hopefully over the next three four weeks and will.
No it probably the market.
About these.
Okay and that some of them are very well known to you guys.
Great well, congratulations assay and looking forward to that up data as either the follow up question is just on on the macro and in particular Midland has traded decently.
That BTI now for sustained period of time.
And and that's with Big Spring currently down for turnaround and I guess as if the concern would be as big spring comes up does that continue to create a further bid.
And then version of that Midland differential. So just could you could talk through the crude lows and the different moving pieces of supply demand as we think about that Midland WTI differential and then if you want to layer on to that your views on your ability to access different types of crude.
Given that the investments that you have made in projects like Red River to play different arbitrage if against each other.
That's a great question. It has several components I laid out the Gulf would be without them today to take any of the morning. How are you guys. Thank you. So we obviously Midland is playing into that but at the high end.
All the time would find it possibly leave the result of the bell going to be more expensive than the clearing point.
So we believe that at some point something fundamental going to make the markets change.
Obviously, we all we've all seen thats coming we loaded announcement of the new pipe. It's no surprise to anyone thats millennials being threatened to premium and we will add a couple this with the relative investment executive divested pilot.
So we.
That is well well known since we also look I mean, we also ethic and alternative to W.
That being as wed expected and we have a line up.
Then identity.
For the second half of 2020.
Yes.
Neil just to remind you the expansion in the second half the years about 65000 barrels a day, so that will be incremental access in the second half through Red River great.
Your next question comes from the line of said after Chen of Barclays. Your line is open.
Good morning also like to offer my congratulations to assay retirement on second time that round. Thank you for all your effort.
There's.
Maybe a follow up on Neal's question around the Midland differs so I believe.
Some of this.
Sure. It has been a result of on line fill on.
Okay ethics and reported in the news how long do you think this is going to go on for and when do you think we might see some easing in the interim just from that alone.
Well.
I guess.
Pinning down the exact timing I'm not sure I'm smart enough to.
To give you that however, our one.
I want to be clear, we see dot dot bucked embarked when we as a company already doing taking steps.
To change our crude slate.
So if we are doing got I'm sure. Our does do the same thing, especially in light of the fact that there's a lot of.
Downloadable still flowing between Midland and Cushing on several pipeline.
So while I don't know how long this can stay I don't believe disposal of the bell can be more expensive.
Then the destination for an extended period of time, they're just not not economic something would what happened in somebody will do something different.
I would love to what we are.
Talking about.
Converting.
These.
Also.
Some people will do what we basically did we canceled.
We had done a pipeline I'm going to pipeline 35000, both we concept that dnbi.
So more and more people well, we'll just don't ship what they used to shape. If this dave for awhile.
If I need to get this is a few months a situation, but I'm not smart enough to up in being down exactly.
Got it and.
And then switching gears a bit on touching on the earlier comments about the details drop down and booking at the markets to support the transaction.
Transaction.
Just with the.
And at 184 today.
Your financing options and assumptions and would you be opened to going to the private markets perhaps for it.
More economic financing.
First it will start by saying that the few days ago.
Transaction look much better for both companies and the changes in the MLP market last few days impacting some of the economics in its exaction with that being said.
The Delek logistics, a high yield bond is creating a very well above par.
In addition to that our revolver is still an unfunded over to $50 million. So we have basically just for a drop we have the the capacity on hand to do it without utilizing the market and is Delek. We are always happy to accept Delek logistics stock is immunoassay fund.
Being especially when you look at the 20% yield that currently providing and we don't like those returns if the market will improve.
Okay.
I see less likelihood of I'm going to the private market, but as I mentioned more they probably delinquent except those share the same immuno payment.
Got it and with the cash portion of the proceeds since it sounds like.
Portion or.
All of this could be done with debt and what are the parents plans for that cash.
Well, we think that we want to maintain the cash level of our our company we feel comfortable.
I know that you guys need to look at the are the stock price the number on one thing for us is.
To continue to provide cash so we can continue to.
Implement our strategic plan so we.
We will take that cash and then look at different ways to invent that either through a.
Places to generate more EBITDA or I'll return cash to shareholders.
Thank you.
Your next question comes from the line of Phil Gresh of Jpmorgan. Your line is open.
[music].
Yes, hi, good morning, just a follow up to the previous question and thinking about the Kashi beginning from the drops how do you think about consolidated and.
Parents financial leverage.
Okay environment was cracks where they are.
Midland differentials and what level of.
What level of.
Net leverage, especially on a consolidated basis, you're comfortable less.
So in a consolidated basis, we have roughly a $1.1 billion of forget as you know and we finished the year with is $700 million of EBITDA. So, it's a one and half times leverage.
I think and we saw that accompanies in the past.
Energy companies that even two two and a half times leverage if you look at the.
Bonds trading very very well and we think that that these levels.
Due to enhanced on leverage at the company is in a very good shape financially.
I would like to mention that they will need to remember one thing delek invested hundreds of millions of dollars.
In the week to Webster.
And gathering businesses over the last two and half years.
All of that it is sitting on our books and none of the business.
So when we think about daily capability to produce EBITDA.
When you look at 2021, we expect addition of over $100 million of EBITDA coming from those assets. So I think right now where in the transition year.
We are being penalized.
For making the investment, but we don't see bbten.
In addition to that is already mentioned.
During Q1, we received already back nearly $50 million from the project financing because we over invested.
And between Q1 in Q2, we expect BTC in tax refund of Additionally, we want to $50 million.
Those three together, we'll pick Delek us.
It did sold at the parent level to be in a net cash position and that's the position we really like to be.
Thanks for all those details, especially Thats my follow up question because JV.
Financing structure, how do we think about.
Given very clear color on kind of the cash and cash out in 2020, but once this.
It comes on stream.
Without getting too detailed in the modeling maybe you could just give us color about how that financing structure impacts what we actually see in the financial statement. Thanks.
So as you know we closed the project financing.
The interest on the project financing is extremely low it's at LIBOR plus one of the half.
And then we have good opportunity to look at the library into treasuries at a very low level. These bonds, we probably going to hedge 75%.
The way, it's going to sharpen the financial there will be exactly like Red River. So it will be net of the dangerous caused the project level. So net net we expect let's say, 20% return on the project, which is a $70 million though.
EBITDA from the current project, we wouldn't have to pay roughly $10 million a year of interest costs. So the distribution will be around $60 million year, assuming a 20% return. So that's what we'll do we see from the on the lippi in there.
And then Dave will not be on the balance sheet and the what you'll see is investment in equity male female to release.
Okay, great. Thank you very much I would say one more thing we're not anticipating any amortization of debt in the first few years of the project. So all of the case. So we'll go to Delek.
Okay, all right. Thanks.
Your next question comes from the line Roger read of Wells Fargo. Your line is open.
Yes, thanks, good morning.
And actually let me say thanks for everything over the years congratulations to your for for moving on and all the best in a back in Israel.
Thanks.
A couple of questions. One just to follow up on what was a pretty major topic on the last call. The upgrades at El Dorados. Just curious now that you've had I guess, probably by this point a full quarter route it just not a calendar quarter.
Thats performing is in line whats your expectations better than and are there. Some other opportunities we should be thinking about across the rest of the units where you might go to tweak some things this year.
Yes, Roger so looking at the unit and you're you're exactly right looking at the unit is still producing.
As we expected.
Yeah with the diesel.
Well as well as making spec asphalt product right off the bottom of the tower a we look for all opportunities now have a variety of different crews Chicago optimized.
The unit to to make the to make the most money that we can going forward. So we've been working really strong with commercial and seeing what's out there available that's around us that we can bring into the refinery and capture that.
And Roger I would just add I think Louis mentioned earlier, but in the fourth quarter in particular the facility was ramping back up in October which was when crack spread for strongest during the quarter. So we weren't able to really capture the benefit of that and so their facility was really on line contributing in November December when cracks have gotten weaker so we would expect a better contribution into.
In Q2, Q et cetera.
Great Thanks for that.
And then coming back to some of the discussion earlier about switching crews that you're running backing off a stadium mispriced Midland barrel towards something Cushing or even local.
We've heard previously that it's better to run a a pure cushing barrels and what sometimes called a friend gun barrel lot of.
Excuse me feel better ought to Midland versus the Franken barrel at Cushing. So just curious as you changed it creates in the units do we have to think about any sort of impacts on yields that might be a little bit more on the negative side. Another whereas we have to see an even wider shift in crude diffs to get a major change in.
Crude feedstock.
Depends on the Roger depends on the configuration of every a unit but.
Dave.
So what you say there is married.
And we need to every LP when we change crude slate we.
We look at the quarter gives a bit ought to think died however, just remember that we are we go ahead of us some.
Because of our our gathering system in the way we are doing.
I'll stop we can maintain some of the quality of the barrel. So it depends on on the on the specific refinery and the specific situation not the time I'm going to tell you do that on the scenario for dollar dollarstwenty, they've already incentive for off to change due.
Cushing barrels versus a meta though.
Yeah, that's what I would still would have expected one last follow up just because you mentioned in the opening remarks on the renewables.
I know you all made some acquisitions as well some investments how do you see as you mentioned earlier about retail EBITDA growth in the coming years, how do you see renewables growth ex the tax credit because we'll never know if that's going to get renewed it from from time to time, but just the sort of underlying part of that business I'd be volumes as well as any.
EBITDA thought process.
Perfect with renewed until Twentyth when you do that just.
That.
Second.
Biodiesel is.
Opening for us to look at other opportunities, we don't want to being a situation that we invest in the returns of 10% what percent of you'll remember we.
As we were controlling alone our long DD, a renewable diesel not biodiesel in California, and then we sold it so it depends on the market depends on the feedstock. This is an area that we need to a I looked lookout I want to be honest Bill <unk>.
We don't believe always end up a fourth base energy. So that's something that we we just need to remember.
That's fair thank you.
Thanks Roger.
Your next question comes from the line up halting of Scotiabank Your line.
Hey, guys good morning.
And one that thinking of Juicy, obviously, just want to say congratulations for your second retirement and wish you. The best of luck in that fun, you Swiss thinkable to happen, but the yes.
Mitch.
Just a couple of quick question on the financings site.
If I can get correctly that the west off to.
The need for with the Webster.
Jay it's all going to be project financing right.
So you're saying that that so successful years that you know going to see a neat that we payment when that that the principal we just got going to start to get to be we pay and went that you would be 40 pay off.
So.
As you mentioned first.
Going forward.
All of the investments will become from the paid by the basically the JV.
Financing debt, because we already put 100% of the equity leads the way the project work, we put the first 20% of the equity over the of the needs and then the banks.
Good old arrays.
The deal that we have is basically three years deal.
And usually after that you're doing a bond that is also very likely amortized mostly loon so as I mentioned.
This will turn eventually into a bond most likely investment grade bonds, and we will see very like a multi position on it in the next few years.
I'd say, so that you don't Tanya into a bond Dan after you get come on stream. After three years that start to have to peak or do we payment, but you were talking into bond most 90 by that.
It's a project finance it doesn't it's not the you know it's not the permanent finance, it's their Friday construction for another tough another two years and then after that.
Looking to ship as of this pipeline Xone planes Delek MPLX, so with liquidity shippers, we don't see an issue of turning it into a bond.
And that with the hedging position can you tell us that or what.
Pull it out and what warned names that you have hatchi into first quarter into second quarter.
Well I don't think good doubling followed we have a lot of different positions that we really don't disclose any of the details around it. So we unfortunately, just not going to get into that level of detail on it.
Okay, that's fine and for the Big Spring I assumed that the turn the wrong is a full pen turned around.
That's correct I wouldn't be completed sometime early March.
Okay and that thought that we knew what bill do you. So you see it is to pull it up being so all in California.
I'm sorry.
It's the we knew what booties so that you guys.
Put views.
Said, all being sold in California, Oh, not knowing nothing nothing is being sold in California.
So nothing.
Ah, yes that opportunity given that in California that that's another low carbon tax quite that.
Well, we're producing biodiesel and not renewable diesel so what we're doing is where blending all these.
Got it comes into our into the decent that we felt and that's the reason we have not bleeding. We don't split the most people split the dollar 50 50 split it got everything you see the full benefit of $80 million in the quarter.
Okay. Thank you. Thank you.
Your next question comes from the line up Jason Geadelmann at Cowen Your line is open.
Hey, good morning.
Just wanted to go back to the cash flow for a second.
Thank you mentioned there was a 15 million dollar inflow.
To offset the equity.
Payments totaling to Webster, then there's going to be an additional.
Amounts.
That comes in and then an additional call it $70 million from the blenders tax credit so how much is that all together.
Coming in in terms of cash flow outside of normal up operations.
So between Q1 in Q2 net we would have received 50 million five zero.
From the week two after financing.
We will receive $98 million.
BTC not.
And we will receive $48 million of tax refund.
When you combine them all it's $196 million that we expect to receive between Q1 in Q2 most of it.
Most of it was in Q2.
All right.
Was there any other one time cash inflows in Fourq, you that you could call out.
You saw there was some tax benefits of over $30 million is there is also the fact that we put in service towards the end of the year beef part of the gathering system that we start producing cash so you'll see into cash flow and when you get it goes I think $36 million affair.
Next inflows in Q4 deferred tax.
Got it okay.
Okay, and then just on this bio diesel.
Acquisition that you made is there any material.
Earnings impact that you expect.
Thank you as a result.
Well the biodiesel in general.
We said that we were going to Oh, we did with the dollar now in place.
The three plants are going to be between around $10 million. If you will 40 year.
Got it.
All right great. Thanks, a lot.
Ladies and gentlemen, we have come to the end, if I time, and I'll turn it back to the management for closing remarks, well. Thank you everybody for listening to us This morning.
I think all my friends around the table I'd like to think the board of directors.
For our there.
Supporting our.
Believe it off also I'd like to.
Thank you all investor for your interest in us, but mainly I'd like to thank our employees will make this company. What did you have a great then we'll talk too soon.
This concludes today's conference call. Thank you for participating you may now disconnect.