Q2 2021 Delek US Holdings Inc Earnings Call
[music].
Good morning, and welcome to the Delek US Holdings incorporated second quarter 2021 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2 please.
Please note this event is being recorded.
I would now like to turn the conference over to Blake Fernandez Senior Vice President of Investor Relations. Please go ahead.
And good morning, I would like to thank everyone for joining us from today's conference call and webcast to discuss Delek US Holdings second quarter 2021 financial results. Joining me on today's call of duty you mean, our chairman President and CEO, Ruben Spiegel, EVP, and CFO and Louis Labella, EVP and president of refining as well as other members of.
Of our management team the pre.
Patient materials used during today's call can be found on the Investor Relations section of the Delek U S website. As a reminder of this conference call may contain forward looking statements as that term is defined under federal Securities laws. Please see slide 2 for the Safe Harbor statement. In addition to reporting financial results in accordance with generally accepted accounting principles.
<unk> or GAAP, we report certain non-GAAP financial results <unk>.
<unk> are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of the website are prepared remarks of being made assuming that the earnings release has been reviewed and we are covering less segment and market information that is incorporated into the second quarter relief of.
On today's call Ruben will review financial performance I will cover of capitalization and guidance. Louis will cover operations and Capex and then Uzi will offer a few closing strategic comments with that I'll turn the call over to Ruben.
Thank you Blake on an adjusted basis for the second quarter of 2021, Delek US reported the net loss of $65.2 million or a loss of 88 per share compared to a net loss of $121.7 million or a loss of $1.66 per share in the prior year period.
Our adjusted EBITDA was $2 million in the second quarter compared to a loss of $100 million in the prior year period.
The second progress of the press release highlights of $25 million of after tax tailwind or <unk> 34 per share of items included in adjusted results.
The end of the release provides a breakdown of inventory hedging impact in page 14 provides other inventory impacts in the quarter.
Separate from these items multiple factors impacted operation during the quarter.
Including the.
The residual effects of the first quarter of freeze on fire as well as the colonial pipeline shut down while.
While we cannot know what our EBITDA would have been these events caused us to experience operational disruptions and incur incremental costs related to property damage that significantly affected our results.
The incremental expenses combined with the second quarter related business interruption insurance claim preferred to date totaled roughly 40% to $45 million.
We're actively working with insurance carriers on both our appropriate the damage and business interruption claims recoveries, which will be recognized in the coming quarters.
On slide 4 we provide the cash flow waterfall in the second quarter of 2021, we had positive cash flow of approximately $169 million from continuing operations, which includes the working capital benefit of $227 million with that I will turn it over to Blake.
Thanks, Ruben slide 5 highlights of our capitalization, we ended the second quarter with $833 million of cash on a consolidated basis and $1.1.
The 141 billion of net debt, excluding net debt of Delek logistics of $927 million, we had net debt of approximately $485 million at June 32021, I would note during the third quarter. We received the full tax refund of approximately $156 million moving to slide 6 with cloud third quarter guidance.
For modeling third quarter operating costs are forecasted to be in the range of $145 million to $155 million.
With that I will turn the call over to Louis to discuss operations of Capex.
Thanks, Blake during the second quarter, our total refining system crude oil throughput was approximately 267000 barrels per day.
This was impacted by turnaround activities and the fire at El Dorado lingering phrase impacts hit Big Springs, Krotz Springs, and the El Dorado and the curtailment at Krotz Springs, due the conical colonial pipeline outage in.
In the third quarter of 2021, we expected crude oil throughput to average between 280000 to 290000 barrels per day or approximately 94% utilization at the midpoint. We are currently back to normal operations at all 4 of our refineries and have no major planned downtime for the remain.
They're of the year.
On slide 7 capital expenditures during the second quarter were $66 million, reflecting turnaround activities and fire related repairs at El Dorado the <unk>.
121 capital plan is expected to be $175 million to $185 million, including turnarounds and net of estimated insurance proceeds net our call the turn the call over to Uzi.
Thanks, Louis and good morning, everybody.
Multiple factors impacted operations in the first half of the year and between the insurance claims and tax refunds, we expect meaningful cash benefits over the coming quarters at.
At the same time, we are actively pursuing small refinery exemption. Our company has the longest of being granted SRU and this would go a long way in Portland and positively impacting the economics of the of our facilities.
Moving to operations, we are pleased to resume of growth in the retail segment with 2 new joins us with doors in the planning phase.
New stores to market will complement our existing branded portfolio, which have been resilient throughout the pandemic.
Finally logistics performance of recovered from depressed levels in the first quarter and we expect the business to remain stable for the balance of the year.
Dk continues its long history of distribution growth with 33 consecutive increases with the operator would you. Please open the call for questions.
We will now begin the question and answer session to.
To ask the question you May Press Star then 1 on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Manav Gupta with Credit Suisse. Please go ahead.
Hey, Hey, Uzi I had a question on the East if you look at the history you did get them put as many of 3 refineries I think 2 of your refineries definitely eligible day the Supreme Court ruling out supporting the SRU. So I'm just trying to understand how confident are you or your sort of opinion.
How strong is the legal case, you have that the crops and the other day should get the salaries.
And if you could help us quantify given where the current RIN prices. If you do end up getting it what's the benefit to you.
Yes, I'll, let the.
Good morning, Manav I'll, let Todd answer the.
The quantifying thing.
I'm just going to give you some color around what we think and the confidence level that we have here.
Over the last years of past years, we.
Applied 7 times.
For us.
Each 1 of the refinery.
Out of the 7 time crop got it fixed time Eldorado got 5 time and time of the guidance for time.
So.
And that was including.
Trump era and of course.
Obama era so.
We think that we are.
And due to the grant we are actively pursuing and have discussions with the administration around the situation here now you'll probably ask us of what the timeline is so I am going to give you a little color around that because it is very clear of what they need to do it unless they changed.
Hello.
The time to turn in the.
2019, the wins is by the end of November this year.
They need to make a decision over the next couple of months.
Unless they change the of the.
A ruling which are the.
We expect the dropping the time to turn in the 2020 range is January of next year I E..5 months from now and the time to turn 2021 is by the end of March.
2022, so over the next 6 to 7 months.
There is time to turn 3 years 2019, 2020 and 2021.
With that being said.
You have some <unk>.
Moving not the EPA, but companies went to 10 and what's the turn.
In terms of brands, which its technical and Theres no need for us to get into it right. Now now you asked about the.
The amount so remember we're talking about 3 years year, Todd will cover that but in general were talking about.
Hundreds of hundreds of millions of dollars.
In today's prices the Todd go ahead, yes sure. Many of if you go and you look at some of our public filings from the 2019 and 2020 and look under the production line item that we list for on road fuels.
And use that with the let's call it around the number of $1.50 of Ren.
You can come up with the number that's somewhere north of $300 million per year per.
Per year, and that's with 3 plants.
If that's okay.
And if you do the same for 2020, you'll get the same thing the only other thing I would point out I know in your question. You mentioned the fact that you believed we would only ever been granted 3 waivers in fact, there have been 3 years, what we've actually been granted waivers for all 3 of the plants. So I just wanted to point that out as well.
Okay, No that's fair.
It seems like a meaningful amount of pretty big just the.
The second question is during the quarter of.
A lot of 1 times fire of this and that and it looks like you're pursuing some insurance claims again, if you could give us some timeline on that your level of confidence what's going on the DS insurance claims, which could be an additional $40 million to $45 million.
Well first don't assume 40% to $45 million, we actually think that it's more than that because there was some damage in the first quarter, we didn't quantify it for the first quarter, but.
In our mind it should be.
Well, we think it is more than 45 of $40 million to $45 million. We're obviously.
Or in discussion with the.
The insurance companies I am going to tell you that some of the profit we're already.
We're already getting them as we speak in the third quarter. So the claims themselves are.
The process of being approved by the by the carrier the.
Fact that we got money, while we're getting money means that they approve these.
These claims.
Claims and we.
We expect this to happen over the next.
A couple of course, but some of the profit are in already in the third quarter. So I don't want you to think that the $40 million to $45 million you can probably see what happened and calculate the normality in the first quarter income to a number as well.
But it is a higher number than 40% to $45 million $40 to $45 million is the only.
The second quarter, and we feel confident that we will start or actually we already did.
The meeting proxy the wrong these claims.
Thank you and a very quick last question is it looks like you are still you want to grow the retail business you had new stores coming in I think in the posture of said this could.
Potentially double the earnings so I know there was an attempt for you to study the retail business and you've always said I am open to it but I won't do it in the hasty manner. When the right time is here. So I'm just wondering if anything has changed on that front.
Manav, you'll see the cash flow.
We ended the quarter with a $30 million.
<unk>, we are in active discussion with the with the.
Sure.
Administrative around getting.
Some of the exemptions.
The insurance proceeds are coming in so there's no need to do that unless it fits the business the more and at this point.
Having retail retail Bismol August the.
If an offer comes when it makes sense for the shareholders, we will sell it but at this point on the IFC I see.
Very low chances of.
Selling it just because of how comfortable we are with the cash position.
Okay. Thank you so much of the.
The next question is from Roger read with Wells Fargo. Please go ahead.
Yeah. Thanks, good morning.
Good morning, Roger.
I guess I'd like to maybe follow back up on the ASR of anything because there's a lot of moving pieces here.
The team.
The first off we don't have an RVO for 2021.
And secondly, when <unk> been granted we've typically seen the the price of of rent fall right. There is a supply demand.
Back to it so as you step back and look I know the timeline you gave for when the rents are due but the the whole program has been pretty mismanage almost from the get go what would be the right way to think about it from a I think you've given us the high but you know kind of really how you would sort of game plan this out over the.
Next say 6 to 9 months.
Roger.
We haven't built our company to manage here.
It doesn't mean that with all the all the reasons at this point so we didn't turn the rain just yet.
Do we have a liability on the books absolutely it's in the P&L, but we can maneuver with the with the.
The physical wins as I mentioned earlier to me now we can.
You have some rules that you can actually maneuver with us so I'm not going to.
Disclose the strategy here around the how to how we manage the program.
But you're absolutely correct on 1 side of that.
All of these waivers would be granted prices of range will come down.
I'm just going to remind you that we did not turn the range of just yet.
So the liabilities sitting on the book.
The price at the current price right now so the P&L will be impacted.
At the current price as it sits right now no cash flow.
We will see how to we are not going to disclose the to the cash flow will see us.
How we're going to move around the now do I think thats, a reasonable debt, but 50, no not really.
Are they going back to Tencent I don't think that the administration will grant us.
The.
Well grant 13th year of waivers I don't think that the majors will get them I think only small guys like us.
Good chance of getting them actually very good chance of getting them. So I don't expect range prices.
Prices to go back to <unk> do I think that they'll go down of.
About 50, absolutely now you mentioned the RVO.
RVO, it's unrelated to the time that you need to turn 2019.2020.
Youre talking about the only 2021 and if you remember during the pandemic day pushed the time to attend the 2019.2022 November and January unless they do it again, the deadline is coming regardless of the RVO.
And that was our little technical here, but I hope.
It was clear enough.
No I appreciate the clarity I'm, just trying to understand all of the implications.
Let's let's let's drop that 1 for now.
If you look operationally obviously the the <unk>.
History has had a tough last 4 to 6 quarters.
And we think about Delek and a lot of the the inland refiners its all about crude depths just curious.
With some of the pipelines that you're involved in the startup of Webster.
Using the Wink to Webster.
How youre seeing the gas situation and is there anything you've been able to do in terms of changing your crude streams such as to take advantage of any localized crude diff advantages.
Yes, Roger it's Todd.
You know over the last.
A couple of months, we've actually seen a bit of a deterioration in the crude differential situation Midland was previously trading.
It kind of $50.60 premium relative to Ti that's come off and is now trading negative relative to Ti.
Ll has also seen a relatively large move from up in the $2 range too.
Down around the 50 range, so I think.
Those things are positive at the same time, we're always constantly looking at optimizing our crude slate.
Looking at blending opportunities in Cushing.
We're looking at various other grades that might become available as.
The balance of shift around in the mid continent, and I think we are ideally positioned given our footprint and our partnership with DKNY to continue to do that.
And Roger I would just quickly add we know through our gathering business in the Permian the nominations should ramp up towards the fourth quarter certainly into the beginning of next year. So to the extent of the prevailing commodity prices is where it is I think theres the chance production could start to accelerate a bit and then maybe provide a little bit of a tailwind I don't think were going back to double digits by any means but that may help a little bit.
<unk>.
No I appreciate the clarification thanks guys.
The next question is from Ryan Todd with Simmons Energy. Please go ahead.
Okay. Thanks.
Maybe 1 on the on M&A.
There has been.
Pretty significant amount of of recent activity over the last 12 months, including about some of your peers within the refining space and just wanted to.
Get your view the on.
You know what the environment is in the market bid ask spreads your interest in adding scale and whether scale is likely to become.
And increasingly defining competitive trade amongst the group.
Yeah.
Good morning, Ryan.
Well, obviously, we all saw what.
The deal debt.
The HFC just cut with the.
Sinclair I.
I thought that it made sense.
I don't know much about the numbers, but according to.
Strategically it makes sense for this.
It's more companies.
To come together I do think that Delek.
As part of <unk>.
The group of small.
All of us.
All refiners that need to continue to think of how to get bigger I think that the.
Obviously.
Needs to be the right opportunity and we are very patient, especially in light of the fact that.
We expect the <unk>.
Some of the ASR is or to be.
Sure.
Granted.
Because we really think debt.
We are entitled to several of them. So.
The case in the situation of both El Dorado and crop is dramatically different compared to what it is today.
Just because of the fact that all 4 refineries will be.
In good position to.
To continue to operate.
And that.
For itself will help maybe looking at other opportunities.
I don't think that long term 5.710 years from now.
These small refineries or these more companies delek included.
Should be should continue to be a small scale is very important.
Yeah.
I'll leave it to that there's nothing imminent right now.
I want you to think that we are talking to debt.
There's anything imminent, but.
Jeff.
I think debt.
Like highly thought.
The 2 small and the made the right strategic move I think other companies will do the same thing.
Okay. Thanks, that's helpful and then maybe.
Okay.
Question on your throughput target for us.
For the third quarter.
The.
Pretty pretty high level of throughput, they're obviously.
Little little maintenance in the second half of the year.
For you guys, but I think it's the maybe.
Maybe the highest range that we've seen since 2018 from you.
The city of different refining of our operating environment than we see right. Now can you can you talk a little bit of how you're thinking about utilization.
The utilization rates versus margins right now as the industry is still kind of.
Walking that fine line.
On the on the recovery here.
Yeah, Ron Hey, this is Louis yes, we're looking at like 92% to 96% utilization going into Q3.
I'm happy to say that we're all back to normal after the freeze the turnaround of the fire event. So it is really stabilizing.
And showing what the refineries can do an optimized to be able to truly optimize you got to run and run stable. So that's our outlook going into Q3.
Alright and the.
The margin environment is I guess in your regional markets as supportive of those types of rates.
Yes, I am going to repeat what is the <unk>.
Adjusted.
Brian the doors open.
If our ease.
And we.
We need to think how to run the refinery assuming debt.
We get it or don't get Fsrus, and Thats, where the risk of.
When you think about and we wait on the daily basis on a weekly basis.
If you add back 15.
2 cros you need to run it wide open now.
Now obviously debt.
These are the things that we need to consider as part of our program.
Alright, thanks, guys.
The next question is from Theresa Chen with Barclays. Please go ahead.
Good morning, Thank you for taking my questions.
Maybe if we can just the basic the SRU situation and just put a bow around it.
Willing it all down when I think about your upward bound of the $300 million per year of using the $1.50 per of Britain price does that mean that you have roughly $200 million range between the crops El Dorado and Tyler between 2019 and 2020 when do you have on hand.
Can sell into the market the deadlines.
Deadline to turn the dose and have.
The bottom up.
The retail you asked.
Several questions.
Stick to the numbers because you have the number of of all of you just stick to the numbers and then I'll give an explanation about the.
How we go about it yes, absolutely true. So you are correct in roughly $200 million RIN number for that calculation that we're doing.
We want to be clear, it's not the $100 million, it's 200 million the wins.
Per year.
And between the 3 the 3 of them.
200 million range per year for 3 refineries.
Got it.
And.
Now you ask how you go about it.
Obviously, we own menu in because we didn't.
We didn't want to be exposed in case, the rest will bring the quote comes with something different but now that we know that they did.
According to the history, we had with the.
The SRU.
And some discussions we had with the administration we are looking at it.
Our whole program how to balance between.
Turning them in.
Or not holding them.
Obviously, the liabilities is sitting on the books the P&L is already.
Not assuming.
The P&L is not assuming any fsrus.
And it reflects the Buck 50 of about 60 day to day.
That's the P&L, that's what you see in terms of the EBITDA, but now we need to manage the cash around it and we need to manage the situation because the.
The theirs.
Some uncertainty about different things with that being said as I said.
The deadline is coming at us not.
3 years from today that somebody can make a decision.
And we turn to the 2019.
Applications 2 years ago.
And recently, we turn to the 2020 and in the near future will turn in 2021 application.
No.
And the deadline for turning the win as I said for 2019 is November 2020 is January of 2022 and.
And the 2021.
March of 2022.
The way as well.
So for me.
The type of deficiencies coming and that's what investors are trusting us to do to balance between us.
These applications of the wave of themselves.
I went to 10 range, how many reasons to keep.
And how.
How do you manage that risk of ret.
Of the D.
The reward I'll leave it to that because I don't want to get us.
To us.
The 2 technical here.
Got it and just thinking about the rationale for why crops and El Dorado were able to receive the SRU even during the last Democratic administration.
Can you talk about the drivers of that is it.
Lack of blending capability.
Any any puts and takes as to why you think that gets us pretty for sure.
Well actually almost 10 criteria of if you will and again I'll read the application of myself several times just.
I'll just go by.
By the different.
CAGR or the <unk>.
Multi 0.1.
Yes.
All of these refinery regarding small communities debt.
<unk>.
The impact on them.
It's pretty big second.
Quarter, we'll all know is the pipeline.
Our refinery and the El Dorado for the most part of the pipeline refinery.
So both of them.
Our of suffering.
No.
Operating income to blend.
For the most part of any any.
Sure.
And the gasoline.
The third part is debt.
<unk>.
The acceptance of our.
Ethanol in these areas.
According to the rules.
And probably some others that if you want you can go to the EPA website in the they say all of the Criterias.
And then the score it and we know already debt.
Some of it was some of them were scored in the past by the Dod.
So and especially.
In light of the 2019.
I'm sorry, the 20.
19 situation 2 years ago, and 2020 because of the pandemic and when he went on because of the pandemic then.
We think the situation got even worse, rather than what it used to be in the past.
Thank you.
The next question is from Phil Gresh with J P. Morgan. Please go ahead.
Mr. <unk>. Your line is open on the Orange, perhaps you had a muted on yours.
Sorry user error can you hear me.
Hey, Phil good morning.
I'll try that again renewable diesel.
I guess.
I know, it's not your project per Se I'm, just curious how you think about what mile markers would matter for you in terms of.
The investment opportunity how are you thinking about this is us 6 to 12 months.
Opportunity or is it still wait and see.
Bill, It's Blake I'll take it I mean really the reality is it's the 90 day free look once the facilities operational and going on the global clean energy timeline. It supposed to be in early 'twenty 2 type of time frame that we're dealing with and so.
Kind of.
The pattern wait and see at this point and once we have the opportunity to get in there and make a decision that's kind of when we would do it. So nothing has really changed on that front a lot, but that's kind of the timeline we're on.
Okay got it.
Second question.
Just around decal Uzi.
The value of your.
Ownership in Dk all.
Appears to exceed the value for Dk is trading at this point.
So I guess, how do you you've talked a lot about various cash opportunities.
And between SRT us tax refund business interruption proceeds of a lot of things coming of the door.
If you get some of that cash of the door is buying back in detail of the consideration are there too many tax ramifications do you think.
Areas of value unlock are now.
Well so.
The first bill you touched.
And Ruben mentioned that the Dodge the situation with the tax refund, we actually guided already during the third quarter. So it's in the books.
As we speak so.
As you said.
The planned growth or if it goes the our according to our plan there is a tremendous amount of cash coming our way.
That actually.
The doesn't change much.
The process about.
<unk>.
Because we continue to think the decade of an engine that we want to grow now we're not in the business of owning 80%, but we're not also in the business of paying 9% return. So at this point were just comfortable where we are.
The situation continues debt.
We will continue to.
Page, 9%, then we probably need to look at it.
Very carefully.
In the future.
To say.
Strategically what we want to do with it.
Regardless, 80% is not the right number either we need to bring in or.
To sell down some unit.
And we will see according to the.
Changes in the market over the next 2.3 quarters of what to do with it.
Got it and the terms of the gross potential I guess you'd be in the right environment, Hey, Mark day, Martin clients to grow and potentially do further dropdowns if the valuation.
Makes sense.
Let us correct.
Okay, alright, thanks Judy.
Phil.
The next question is from coal Sankey with Sankey resources. Please go ahead.
Okay.
Hello.
I would think the resources.
Is the I'm trying to make some sense of the.
The near term as the low great questions. So if we look at Q3, we've got the tax refund.
How are things going I mean, obviously there was the was very specific weather issues in Q2 and the rest.
Now the situation, where everything is running well and margins looking good which it.
It seems to be the case the stores margin is going us great. Thanks.
Well.
So as Louis mentioned.
First of all great to hear from you and again good luck with your new endeavor.
Thank you Tim.
Second.
As Louis mentioned, we're running pretty much wide open to $82.90000 barrel.
The 92% 90, 394% utilization.
It makes sense to run these barrels.
It would make sense even more.
When we get some answer is around the SRU.
And but.
For the most part we're running as normal.
So essentially the children's thing that's holding you back kind of how much you are running just to avoid the incremental costs from if you could continue.
I might be way out of date here, but I always remember crops for the jet fuel type of refinery, but are you more or less.
<unk> exposure to the weakness in general of the lack of demand, but we still see oil is that improving too.
Just go to the underlying story right.
Yes, Paul it's Todd.
We've really done a great job in conjunction with the folks that Louis has of the plant in optimizing the product make.
Around the downturn in jet fuel. So we've really minimized what we have we have enough that we can turn pretty much instantaneously to get back in the jet business and in fact, we are seeing demand come back in that localized market. Our contracts are not as exposed as you might believe 2 assuming the.
What you're referring to is just the outright Gulf coast, if so where.
We're actively watching that and we will continue to optimize the system and as jet demand returns will continue to increase that if it makes economic sense.
Understood and then if we could do the strategic 1 of the <unk>.
Yeah.
The big part of us would be honest Phil but.
It's very striking the Greek government debt yields of negative index is very cheap and you've mentioned.
Take care of for example of pretty high cost of equity.
And the world is kind of confusing with rates falling when we thought they would be rising et cetera et cetera.
The kind of guy that can actually take quite rapid advantage of.
Shifts that we see in the compute take abuse, perhaps against consensus on where things are heading so I just wanted an update on how you see this crazy world.
Of that affects your view the best way forward for Delek. Thank you.
Well I am not sure. Thanks for the complement the I'm not sure I'm smart enough to.
How the world will behave.
I do think debt.
The world is the.
Oil tired of.
The pandemic.
In.
People will find the reason why to go back to some kind of normality is this the case, then we will see inflation going up.
And then rates will go up with it.
I think that the we just took advantage of locking in.
Of note a decade until 2028.
And I do think that there is the risk of inflation of risk of high rise.
Rising interest rates.
<unk>.
Of course, the printing continues.
The usual everywhere and the amount of money that is chasing return.
As of just.
Just crazy when eventually that will catch up with us the amount of money that is the.
Being moved around.
The 1 person's opinion.
I mean, basically strategically you've taken advantage of the rates, but essentially everything you're trying to do remains more or less.
For example, the historically you've run us middle of debt as possible I just wanted to maybe it would be an idea to run the.
In this environment, while you can take advantage of it.
I think Paul.
Is it the big.
The portion of the strategy here.
I think that the market the underestimate.
What the amount of cash that the SRU.
To accompany like Delek and if this is the case then.
The situation of our cash situation, which we have now a $30 million and that's before the.
The tax refund in the insurance and of course the SRU.
The.
The strategy May change rapidly for Delek over the next.
1 of the 2 cores.
With the potential of cash coming in.
And does that imply that you think it will be a resolution on that I mean, I know, it's just impossible.
But do you think there'll be a resolution to this nonsense.
Within any kind of a reasonable timeframe of what would you say.
I don't know much about the policy because I think this us.
<unk>.
At the highest level within the white house, but I think that the.
Sorry situation in the.
The fact that Supreme Court said, specifically debt company.
Companies.
All of us down to get so.
I think.
The administration.
We'll grant some waivers.
People get my guess.
And I think that we are of very much Todd.
Of the line over there and getting these.
Authorities.
Great. Thank you that's the great to hear.
Therefore.
The next question is from Matthew Blair with Tudor Pickering Holt. Please go ahead.
Hey, good morning, everyone, the $40 million to $45 million from the operational disruptions in the fire in the threes could you talk about exactly where that flow through your financial statements.
Hey, Matthew it's Blake, it's kind of spread throughout all of the refineries, we haven't quantified specifically, but I will tell you.
Of that about $10 million us operating cost related.
And the rest of the business interruption, which I guess you could argue through margin.
And throughput so $10 million of it in the operating cost and just as an aside while you're on the topic, we outlined in the second paragraph of wholesale contract fee, which was about $8 million debt in the operating cost of the corporate and other segment.
Encased that's helpful to you as well.
Thanks, Blake and then Uzi on your modeling, our El Dorado and crops cash flow positive in the mid cycle environment, if they do not get authorities.
Can you repeat the question.
Matt.
Sure do you think the El Dorado, and Krotz Springs are cash flow positive.
If they do not get <unk> or are they dependent on the SRU is to be cash flow positive tier 1 of the from here.
I understand the question well it depends on the day, obviously it brings a buck 70 then.
It went down by 64 right now.
Our marginally cash flowing but they are not in.
The or not.
Rocking and rolling.
Rents would go back to 2030.
Even with today's the crap.
I'm sorry.
Congrats on a very very good if they go to 2030, then you are talking about hundreds of millions of dollars.
EBITDA with all of the SRU. So these 2 refineries.
And that's the reason they were granted.
These waivers in the past because the program was initiated and designed to deal with the.
The refinery is like.
El Dorado and Croc.
I didn't run the LP.
In the last 2.3 days, but the fact that we're running them 280 to 90 means that we are in the green here.
Great. Thank you.
The next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Good morning is the hope youre doing well.
Hey, good morning, how would your family by the way.
We're doing great. Thank you so much for asking us and so.
So just 2 quick questions from me first on Wink to Webster.
Can you just talk about where we stand from a construction standpoint and the related question around that is just talk about how you see the pipeline situation of the Permian and we were clearly in a position of pipeline under supply in 2018.2019.
We've seen a wall of the big pipes coming on line, that's eating away at the differential.
How do you work through that excess pipeline capacity beyond just production growth.
The Permian will rationalize supply pipeline.
To enable better utilization.
Okay, So I'm going to refresh your memory.
I know that you remember that are better than I do but I would say just because I enjoy talking to the listening to myself.
So wink to Webster.
It's supposed to come online the fourth quarter.
I think there is a delay of 2 or 3 week, but in general.
We are in line with this coming online.
Before the end of the year this year.
Obviously, as we said the fully subscribed the pie.
The flight I think 95% with the walk up shippers of.
Another 5%.
Obviously, we'll bring the situation in the Permian.
Overbuild of pipeline.
The company that are not fully subscribed and run.
Sure.
Uh huh.
Half empty, if you will pipeline will start thinking.
What to do with the pipeline, especially in light of the fact that natural gas is in shortage of.
Around the Permian.
Natural gas pipelines at the in shortage.
I think there will be with Russia and utilization.
Of <unk>.
And the.
The market always the.
Always think that the market doesn't have.
A way out and finally, we of where supply.
By the end of the day, we're surprised with how the market react to different things.
Do I think the differentiator will go back to -5 anytime soon no, but probably we are.
Over the next 2 or 3 years something would happen.
Of all of these pipelines.
And we'll get back to normalized differentials.
And then.
Remind us what do you think the incremental EBIT associated with the Wink to Webster is for Delek and how good should we feel about the economics or are they locked in or is there any variability in the way we should think about that.
Neil as Blake I'll take it so from the last part of your question I mean, its take or pay right. So there shouldnt be a tremendous amount of variability.
We haven't disclosed specific EBITDA, but I think I can help you do some arithmetic. If you just kind of think about our net investments somewhere in the $360 million range in order to sanction the project in the midstream we need of 15% rate of return. So you can apply that math and the only other piece of the equation I should mention to you. We've said publicly is we did do project financing.
In the interest expense associated with that as roughly 10 million bucks or so per year. So whatever math you come up with on the EBITDA you technically may want to take $10 million offer interest expense. So.
Thanks Blake.
Yes.
The next question is from Doug Leggate with Bank of America. Please go ahead.
Thank you and good morning, everybody.
Yeah.
You see us walk through a lot of the.
The moving parts on what could happen I am just curious we.
We obviously of the new administration, they havent been rushing to.
<unk>, despite the Supreme Court ruling.
I'm just curious have you given any consideration to the possibility of the wins or the fsrus are not granted.
In which case what are the major capital requirements.
Of course, the system the from a more strategic decision.
To us insert into the equation as it relates to the potential closing 1 of them more of these smaller assets.
Doug Good morning.
Happy to have you back really mid Q4.
Thanks for joining the call.
You asked a great question, what if you don't get the authority. So obviously the liabilities and the Rins are on our books right now so it's not that we are.
Sitting here.
Not doing anything we have taken care of by the end of the day companies like us need to manage more and more.
Mostly our cash debt, that's what you see on the balance sheet, we are managing our cash very carefully we got all of that cash coming in.
Virtually the market will change.
And the demand will come back.
I said it all along I think you and I spoke about even when I said that 'twenty, 1 wont be a great deal I think 'twenty 2 is going to be an awesome year and we just.
Look at it and the work.
Walk through through the situation shutting down any of these refineries at this point is not on the on the <unk>.
Table I think the SRU is.
You mentioned that the debt like David deadline to that.
For 2019, it has been on the desk for 2 years.
And Doug if I could just chime in I think maybe.
To your specific question as you well know turnaround activity typically has a capital event that drives a lot of these closures and we.
We have just finished turnarounds at both cross and El Dorado. So.
Net behind Us at this point.
Okay. So you go from running it.
That's what I was looking for thank you very much of it I think <unk> on the most of you.
So.
Anyway might flow.
As you as your point on the.
The return to maybe a better year in 2022.
To kind of cut through all the moving parts of the Wink to Webster on what's going on the DJ Allen.
1 of the strategic you've talked to the.
What would you 3 formulas from ops on your view of the mid cycle EBITDA capacity of the.
Of the portfolio you have the date just so we can kind of benchmark, what we think fair volume of our portfolio could look like and so on the mid cycle conditions. However, you define what are you seeing the mid cycle earnings from cash flow power of the pool as of today under there. Thanks.
I'll, let Blake do that because he does the modeling the.
They all day.
Above my pay grade zone.
The good Doug I'll try to piecemeal it together for you.
And maybe at the end of the day you can you can apply some sensitivities on your end, but think about logistics at a pretty ratable business, let's just be conservative call. It $250 million of year of EBITDA. The retail business has proven very resilient even through the pandemic. We say, it's about 50 million Bucks. So collectively there you've got $300 million of EBITDA, that's from very stable.
Businesses, and then that takes you to the refining piece of it which is you know us very volatile and it's been a drag on the overall portfolio. We've said publicly we think 9 or $10 Gulf Coast 532 crack.
Assuming a normalized rate environment, not not where we are now it would be about a breakeven level. So for every dollar per barrel, it's about $75 million of annual EBITDA and if you look historically that mid cycle than 15 of 16 Bucks. So technically speaking if we can move from a net written <unk>.
<unk> today of about 9% or 10 bucks up towards 15.
Looking at 4 of 500 million Bucks from from refining so that on top of 300, I mean, you get to some lofty numbers, but obviously that's not the environment. We're in with the rent environment, where we are today. So hopefully that's helpful.
It's really helpful. Neither of you expect this to continue adjusted for <unk>.
Quantity of Blake what are you assuming as the the Ti Brent spread of anymore.
Well that's us.
That's the WTO based crack.
So at the end of the day.
It's just kind of of normalized call. It we're not we're not looking for a big expansion of the spread so call. It 2.3 block.
Okay, great. Thanks, guys I appreciate the color. Thanks.
The next question is from Paul Cheng with Scotiabank. Please go ahead.
Hey, guys good morning.
With the change we Couldnt wait there for you to show up.
[laughter].
Simple questions.
Kent can you remind me in the past when you received the as I'll get to you get the pool.
All Union all of the plan or some of them just possibly I thought of it.
No.
When you get away very supportive of our waiver.
So you got the full weight that because that means that in some cases, some refinery that the.
They've got maybe a quarter of.
Yes, the albea.
And some get a sense of like just 1 I just don't remember whether you get on your percentage of the opportunity.
We did.
Okay great.
And for the 40.45 minutes, they think that that's not being who any of the property damage.
Hi.
Paul There is an element in there of both.
<unk>.
So the.
Do you have that you have that breakdown.
The <unk> and the property damage.
Again. This is just the <unk> component, but $30 million by $10 million us property damage.
Now Paul remember, we mentioned that earlier and.
I'm sure you heard it but we'll say it again.
That's the only.
The Q2 Theres some damage for Q1 that is not in the 40% to $45 million.
No I understand we just trying to understand on the going forward basis, if we use the second quartile assets.
Yes.
Does the <unk> theory that once you fix it and it should come back right so with the.
The same market conditions, what we should add back at the base line.
Yes, just to us that I understand the for the last 2 quarters.
Yes, the windows palm oil that the colonial pipeline outage.
Nothing you can do.
So we liabilities that suffer on that but the in journal.
What when you're looking at your portfolio I mean, the excluding those 2 of the incident, you're happy with your overall when I believe the operation.
And if not what the initiative that you guys are taking.
Well you know the.
Sure.
The bad Guy used to be El Dorado, and the ortho is now off the turnaround and after fixing.
A lot of units in El Dorado, So El Dorado knock on wood is running.
Very well.
Over the last of.
A couple of months, we have over there a new plant manager that is doing tremendous work.
We'll see we don't want to.
The Claire.
Victory, just yet but.
We're hoping to see in the oil continue to perform the way it is.
August the reasons about 60 of our Wayne.
On both El Dorado and costs, but we believe that but 50 is not sustainable regardless of the administration will go about it.
We'll see how it was going to be.
The Delta.
Mhm.
And.
Just curious that the do you thought of sympathy and the.
Solomon Survey and yet you do.
And with the right, though and corresponding how they rang.
On the unit profit per ATM because of the liability.
The day in the middle of the pack in the.
The second quartile in the fourth quarter and the kind of number you can share on the inside.
We usually don't share of Sullivan of study we are we do get that.
For each of refinery actually if you remember some of them 1 is.
The doing it every 2 years every other year, we're actually doing it with them every year, because we get we want to get.
Bear.
Youre going to tell you that you can look at the utilization at the El Dorado over the last 2 years before the 10, the wrong and it wasn't great. So the results were in Great Cross actually is.
The performing.
Operationally pretty good.
Yeah.
The Q final question 1.
Just curious that gets us any insight you can share of Boe.
On the southwest market demand and also debt you guys have a big gathering system. What do you hear from your customer of the operating plan, particularly on the private operator.
The GAAP.
Yes on the bad debt the acute.
The T lab on the is going to move.
Moving off the last of the higher oil that gets more gradual pace. So that first and then the final question I think in the in the <unk>.
The 6 to 12 months you start to talking you may not want to make any further acquisition in the refining side do you think debt at the settlement that may be just the 1.
The more focusing on and but the.
The answer of the or the day of questions. You're also talking about how to improve the economy of scale.
The best endpoint the SSP.
Moving to where you're finding us potenza.
And so and we're of acquisition all of that.
The refining its not something that you want to expand further.
Okay, Let me take each 1 of the first of all E&P as you know us steel discipline the product demand in our areas. It is down.
Margins are very strong but the.
Guidance, especially of diesel.
The.
Southwestern region it is down.
And you know as you know.
We gather from a lot of producers so for the most part it is flat we.
We don't see the growth.
Yes, you know what you're hearing from.
Every E&P company that there would be discipline and they want to be.
Free cash flowing so for me the adjusted evidence on that we do see other companies coming in we signed several new producers to the gathering over the last couple of quarters I felt the Todd and his team did.
Outstanding job in getting that done in terms of the M&A and.
I said it in the past.
We want to make sure that.
The energy transformation.
Got it.
We want to understand what energy transformation means before we.
Move on any of our aspect.
So thats the reason we thought that.
We should probably sit on the sidelines and wait to see where things are going with that being said, regardless of where energy transformation is I think.
Companies by the size of Delek should be a bigger not in the near future. There's nothing imminent right now but.
Going forward I thought that was.
HFC did.
Both the acquisition was outstanding to get bigger and I think there was more to come.
From the market and I'm not being specific about Delek us with very clear the there's nothing that I'm aware of debt is imminent.
Alright, but thats, the including refining right. So in other words, when you say getting Victoria's, including also getting picked up in refining.
If refining is the.
Part of the.
Part of energy future.
Yeah.
Okay great.
Thank you.
The next question is from Jason <unk> with Cowen. Please go ahead.
Yeah, Hey, guys.
I wanted to ask first on Opex and SG&A costs I know last year, you were talking about I think an $80 million reduction.
2020 levels, if I look at 2020, it was about $800 million Opex and SG&A.
Where the annualized run rate is.
Guided too for <unk>. So could you just discuss of what's going on there in terms of those reductions do you still expect those to come through.
Hey, Jason This is Blake I'll take it so theres been a lot of moving pieces. Since we gave of original guidance part of which is operational in terms of.
Fire freeze et cetera, keep in mind too when we gave the guidance for 'twenty 1 the original guidance contemplated the crop was not running and that has since restarted so.
I think the last public commentary, we gave us that we thought on the underlying quarterly run rate it would be about $139 million to $140 million and what I would just tell you you can see the <unk> guidance is a bit above that somewhere about $150 million. There's 2 things to point out of there..1 we have some onetime work that's going to occur in the third quarter some unplanned.
Sorry, not unplanned, but its some work ksr Krotz springs.
Full of repair at Big Spring, So that's $5 million that will come off into <unk>. So I think without giving hard guidance on <unk> I think $1.45, it should be the range and the only other thing to point out that in there thats, leading to some upward pressure as natural gas prices and the sensitivity on that annualized about $20 million per dollar.
<unk> per Mcf, so we have seen upward pressure in natural gas and that's adding about 5 million to the the <unk> guidance.
A lot of on or is that hopefully that answers. Your question. Yes, that's really helpful and just 2 other quick ones from me Firstly can you just discuss.
The puts and takes on working capital.
Being a benefit and the <unk> and if thats going to reverse and then lastly, just on the global clean energy fuels project I know you'd eliminate in what you can say, but as I understand there's.
Some of <unk>.
Priority given the creditors in terms of cash flow.
Before delek would receive.
And the material cash from that project. So I guess the question is.
If you do invest in that project when do you expect that to be.
The material cash contributor to Delek. Thanks.
Jason This is Blake I'll take the second part of the question and then Ruben can answer your working capital question. So.
So we haven't disclosed an outlook obviously, we're not in the project, but conceptually I think you're describing of correct. We said all along that there are multiple layers of interest expense mezzanine financing whatever.
Arrangements global clean energy has the way I would characterize it as debt we have an option to participate in 33% of the projects free cash flow. So in other words once all of those obligations are satisfied we would take our share of the free cash flow. So I think that answers your question.
Yeah, and let me complete the part about the working capital.
Question. So the increased crude prices caused a corresponding increase in accounts payable and inventory and the supply and offtake. However.
We still need to settle.
Some expenses related to the.
The El Dorado turnaround and other expenses along with the sum.
The range of obligations. So it will unwind in the third quarter.
Some of the positive working capital this was in the second.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to <unk> for any closing remarks.
Yes that was the long 1 of I've done there are many of these calls.
Probably 1 of the longest oil I appreciate everybody's interest on the call I appreciate the confidence that the risk of having us I'd like to thank my colleagues around the table I'd like to thank all of our board of directors for the.
Continuing support.
Trust in us.
But mainly I'd like to thank each 1 of the.
The employees of this great company.
And that couldnt be what it is without them. Thank you and we'll talk to you soon have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yes.