Q3 2023 Delek US Holdings Inc Earnings Call
Good day and welcome to the Delek U S third quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Rosy quick Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to the Delek U S third quarter earnings Conference call.
Participants on today's call will include Abbott golf torque President and CEO.
Joseph Israel, EVP operations, Rubin, Spiegel, EVP and Chief Financial Officer.
Mark Hoppe EVP corporate development today.
Today's presentation material can be found on the Investor Relations section of the Delek U S website.
Slide two contains our safe harbor statement regarding forward looking statements.
We'll be making forward looking statements during today's call.
These statements involve risks and uncertainties that may cause actual results to differ materially from today's comments.
Factors that could cause actual results to differ are included here as well as in our SEC filings.
The company assumes no obligation to update any forward looking statements.
I will now turn the call over to avid golfer opening remarks. Thank you all.
Good morning, and thank you for joining US today, we delivered strong third quarter results all segments performed.
Well.
Our team remains focused and drove improvements across our businesses.
I, thank each member of our Delek team for their contribution.
From a macro perspective during the quarter, we saw a significant volatility in the markets.
But the linker weekend.
Diesel remains strong driven by inventory levels continued its five year lows.
Given our higher distillate production relative to oil spill, where the competitive advantage.
The refining segment and then well.
We achieved a record total throughput during the quarter.
Joseph will provide more details on our refinery operation in his remarks.
In logistics, we are investing in continued growth of our business we.
We benefited from our favorable perlman location, which led to another record quarter.
Given our strong portfolio performance, we are confident in <unk> ability to exceed $100 million in quarterly EBITDA run rate by the fourth quarter of this year.
Moving to slide four reflecting on my first theater to see of Delek.
We have much to be proud.
When I returned to Delek I outlined my focus areas.
Safe and reliable operations.
Being shareholder friendly and having a strong balance sheet.
I am looking to some of the value and improving the efficiency of our cost structure.
We are very focused on these objectives.
Our dedication to see each one of them to completion has not wavered.
We have made progress in all of them.
On the operations side, we enhanced our team with experienced talent.
Together, we streamlined the structure impulses dwell operation.
This is led to a strong safety results.
We achieved a total record throughput in our refining system.
Earlier in the year, we successfully completed the Tyler there now.
With zero recordable on time and on budget.
Posted on the around the refinery is performing at higher yield and most importantly record capture.
On financial and shareholder returns.
Over the past year, our logistics business achieved record EBITDA quarter.
In Q3 retail achieved its highest EBITDA since COVID-19.
We continue to be a shareholder friendly to October we repurchased $85 million of ships.
And including the latest increased the dividend five times in a row.
We improved our financial position by using our strong cash flow to reduce our net debt by $476 million.
Doing deep.
On a strategic point of view.
$100 million cost reduction effort.
Underway and we are seeing early results.
On unlocking value from some of the pulp we have a clear strategy and we are well on our way to meet our objectives.
As you can see we have been consistent.
This resulted in tangible progress.
Importantly, the achievements I, just outlined position us well for the mid cycle market environment, both from an operation and financial standpoint.
In closing we are pleased with our strong quarter.
We will continue to drive further improvements and unlock value from our business now I would like to turn the call over to Joseph will provide additional detail on our operation.
Thank you Rodrigo.
Moving to slide five in the third quarter Oh team process.
306000 barrels per day of total throughput.
Our focus on people processes and equipment helps us to build a solid organization to support safe and reliable operations.
In the third quarter, the combination of favorable market conditions and strong operations performance.
Led to $286 million of adjusted EBITDA contribution might be refining segment.
And Tyler total throughput in the third quarter was approximately 76000 barrels per day.
Production margin in the quarter was $23.66 per barrel.
<unk> improved the reliability you will do it.
Coverage and a strong capture rate of 73%.
Operating expenses were $4.74 per barrel, including elevated utility cost at approximately 50 cents per barrel due to high demand for electricity in the state of Texas.
This summer.
In the fourth quarter.
Tomato total throughput Tucano is in the 73 to 76000 barrels per day range.
And El Dorado total throughput in the quarter with approximately 84000 barrels per day.
Our production margin was $12.57 per barrel.
Operating expenses were 30.
<unk> 36 per barrel.
Estimated throughput for the quarter.
For the fourth quarter is in the 81 to 84000 barrels per day range.
In Big Spring total throughput for the quarter was approximately 65000 barrels per day.
Driven by maintenance work.
But still well within our guidance range.
Our production margin was $15 92 per barrel.
<unk>, an estimated unfavorable $3 50 per barrel impact from the maintenance activities.
Operating expenses in Big Spring, where it belongs and 37 cents per barrel, including approximately <unk> <unk> per barrel of the unplanned activities.
And then additional 70 cents per barrel.
Later to the elevated utility costs.
In October we completed a planned outage to replace reformer catalyst and a couple of week dose.
As a result, the estimated fourth quarter throughput can be spring is in the 61% to 64000 barrels per day range.
We are very excited.
With our progress in Big Spring refinery.
Have the right leadership team in place.
And we are pushing operational excellence to the next level.
In the third quarter, we already improved throughput capture in opex compared to the second quarter and going forward. We are planning for the following improvements at the controllable level.
Throughput up approximately 5000 barrels per day from our year to date 66, 5000 barrels per day performance lately.
Capture up 15% to 20% from all of you to date 52, 6% level.
We are expecting to realize 65% of the improvement in 2024, and the remaining 35% in 2025.
The Krotz Springs.
Throughput was approximately 81000 barrels per day.
Our production margin was $12.45 per barrel and operating expenses were $5 per barrel.
Planned throughput in the fourth quarter is in the 77 to 81000 barrels per day range.
In the third quarter.
Wholesale and asphalt marketing added about $35 million.
The refining segment earnings.
Compared with $80 million in the second quarter.
This will result.
Side of our reported margins.
Each of the refineries.
And their associated the capture rates.
Wholesale marketing contributed about $22 million down from approximately $60 million in the second quarter.
In asphalt marketing contributed approximately $15 million.
Compared with about $20 million in the second quarter.
Contribution of both businesses was impacted by rising oil price.
More importantly.
Allowed us to pull inventory, even with record high throughput.
Well our refining system.
The resilient demand in our niche markets.
And the access direct lending on our significant strengths of.
Integrated downstream business models.
With regards to the fourth quarter, our refining system planned throughput is in the 292 to 305000 barrels per day range.
Well positioned to capture strong distillate margin environment, with our 42% distillate yield capability.
As a reminder, no major turnaround as planned until the fourth quarter of 2024 and Krotz Springs.
And again the team delivered.
Good quarter on the operational excellence focus and growth.
I'll now turn the call over to rosy.
The financial variance.
Thanks, Jeff starting on slide six.
For the third quarter of 2023.
<unk> had a net income of $129 million or.
Or $1 97 per share adjusted net income was $132 million or $2 <unk> per share and adjusted EBITDA was $345 million.
Cash flow from operations was $433 million.
On slide seven we provide a waterfall of our adjusted EBITDA by segment for the second quarter third quarter at 2023.
The increase was primarily from improved results in refi driven by higher throughput and cracks in the third quarter.
Logistics had a record quarter at nearly $97 million.
And retail had another strong quarter with EBITDA of $16 million.
Corporate segment costs increased compared to last quarter, largely due to bonus accruals.
Moving to slide eight to discuss cash flow.
We built $80 million in cash during the quarter ending the third quarter with a balance of $902 million.
The $433 million in cash flow from operations reflects the strong performance of the quarter.
Included in this amount is $177 million.
And favorable working capital this was largely from improved inventory management.
Investing activities of $59 million is mainly for capital expenditures.
Financing activities at $294 million, primarily reflects pay down of debt and return to shareholders.
This includes a $176 million of debt repayment of $25 million in buybacks $15 million in dividend and $10 million and the ship in distribution payment.
On slide nine we show capital expenditure.
Year to date total company, we have spent $302 million.
We estimate the full year capex to be in the range of $380 million to $390 million before any reimbursement.
We expect to receive approximately $20 million of.
Of insurance proceeds.
Growth Capex, partially funded by producers as well as other reimbursements.
Including that net capital expenditures for the year is in the range of $360 million to $378 million.
Net debt is broken out between Delek and Delek logistics on slide 10.
During the quarter, we built $80 million of cash and paid down $176 million of debt ending the quarter with a net cash position.
Slide 11 covers outlook items for the fourth quarter at 2023.
In addition to the throughput guidance Josef provided we expect operating expenses to be between 210 $220 million.
G&A to be between 65, and $70 million D&A to be between 90, and $95 million and net interest expense to be between 80 and $85 million.
We will now open the line for questions.
Yeah.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from.
Manav Gupta with UBS. Please go ahead.
Hey, guys first of all congrats big improvement from both Tyler and El Dorado. So help us understand what were the factors, helping you out over there and then as it relates to Big Springs was adjusted turnaround and we shouldnt be worried that when you actually start running hard in <unk>. Some of the issues you saw would be behind us.
You could talk about those things.
Hey, My notes regardless, thank you for the question and yes, you're right, we see a big improvements both places.
And that we can address full fury.
It's a lot of work that's being done over the turnaround we see the photo fit.
Both on the product mix and the yield.
Yeah, obviously, we're very fortunate with the dialogue of the market over the you said the city growing and our ability to deploy product is it.
Right. So that's a very solid market and Eldorado.
To be honest is the leather is a great asset.
<unk> capabilities.
A hydrogen plant reform another great asset that we are just starting to tap into what we can make out of it.
We are very optimistic about that as well I think that the Joseph touch a little bit on big spring in his prepared remarks, but there was.
A loud Joseph to finish the outcome.
Yes. Thank you we are very excited with all the important so when you look at Tyler.
Our 45% distillate yield is a big plus personally and the third quarter, we're going to this quarter then.
The future curve.
Syed.
Obviously in the lower fuel price and the best margin.
Environment also supported our come true.
And Tyler and El Dorado.
With regards to big spring we own.
Very very happy with the progress we have the right management team, we feel that things are under control as we implement best practices and.
We are very confident to share with you our plans and big spring.
Right.
Greasing throughput and expecting.
Much higher capture rate and to answer your question, we are not worried about the tenant demand being about two years from now.
We feel really good about the mechanical integrity and our ability to operate it.
Hi, Omar so excited.
I'll take my quick follow up here is as it relates to supply and marketing and other which was formerly youre trading and supply.
A big swing quarter over quarter, I know behind the scenes rosy has been working very hard in trying to explain to the street what are the metrics that drive that performance, but if you could help us understand some of the.
Regions, there was such a big swing in this segment quarter over quarter, Yeah. Thanks, Manav and obviously in that the line that would be a bit more volatility than other lines and by Joseph in order to have a lot of passion around this by why don't you give the malaria why they'll do okay. So we provided information about the asphalt.
In the wholesale marketing results.
Asphalt made $15 million in wholesale marketing made $20 million with both probably lower than previous quarter results due to oil price increase and you know that lagging pricing.
Provide always.
Headwind.
For this type of businesses, but the other component in supply and marketing resorts is the inventory management and the derivative to really mitigate.
Any risk.
Thanks, guys congrats on a good quarter and good to see pay down of debt. Thank you.
Appreciate it.
Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Yeah, Thank you and I hope everybody's families doing.
Okay back home of account in particular, thank you I appreciate it thank you.
Awesome.
So again, a very good quarter, there at Tyler I would just.
Love your perspective on the markets right now we see this big dislocation in and cracks between gasoline and distillate and how does this play out as we move into 2024, how much of the weakness in gasoline is just seasonal.
Trading winter grade versus something more structural and then.
Do you see the <unk>.
Distillate side of the equation normalizing given the weakness in gasoline through yield switch. So just talk us through the product markets and how they evolve as we set up into 2020.
Yes, I would love to do that obviously <unk> D. As you can also see is in the five year low in terms of inventories that's determined the majority of the clock.
The way, we see it on the DS distillate, obviously, we don't really know what the winter in Europe going to yield, but that's another upside to go.
Their yield for a colder winter on the gasoline side, obviously, we have seen and we said that in the prepared remarks, we've seen a weakness some of that as you mentioned.
Is this seasonal.
Some of that I think most of it is seasonal we believe that the demand for gasoline is solid.
A little market are pretty much resilience for their full demand you can see another testimony that we were able to deploy our.
To reduce inventory.
While.
Other company that had the problem to deploy products. So thats another testimony to.
Our market resilience and this is more macro the macro but that's it.
Something to note.
Yeah.
The demand in the U S. As we see it is it's still a very solid and I think the market, they're going to collect itself I don't I think that we see more supply going off the market as I mentioned few times do incorporate versus the change in demand. So overall, we see.
Think it's the right place to be.
Thanks, guys. The follow up is just on.
How we're thinking about unlocking somewhat of the park's value.
You have to go spend a bunch of time talking about this as he stepped in.
Transfer or something.
The value that that Dk al.
<unk> to the Dk at the parent level.
Talk about the different strategies that you are approaching this with.
And what inning are you in in terms of actually up marking that sallie.
Yes, So maybe you know that I've said it many times and that's my our commitment.
Are we going to make it happen and we're going to make it the height I think had been for both shareholders and we did it change our mind or wins in the.
Although direction that that's going to happen I will start and then I know mark wants to have a lot of energy on that and wants to say a few words about this as well, but please remember that while we are still.
Walking on that very hard we came up with the cost reduction, which is a great thing for mid cycle. If it presents itself.
The safety and reliability initiatives yields and a higher throughput and we obviously.
Inventory reduction needed in order to enhance the balance sheet and I'm very proud of <unk> and his team being able to be at the net zero debt on the dk level.
Saying all of that some of the buyout.
Allowing the value to build the <unk> to build a data delek side is going to happen and maybe Mark you want to say a few order of it yes sure. Thanks, Avago and thanks, Neil for for the question as I've as I've mentioned on prior calls and discussions that we've had specifically.
We've evaluated a myriad of options and alternatives that are that are available to us.
And we have strong conviction around the actions we need to take in what we would like to achieve through some of the parts and as <unk> mentioned in his prepared remarks, where we.
Working very hard towards those objectives, I don't want to say anything specific and I would love to be more specific around around timing, but at this point in time, we don't have anything that we feel that.
We can can tell you other than our focus is on preserving our ability to perform well.
Through the cycle for all through all the steps that the that Avago and others on the call I have mentioned and the other thing that we're really focused on is and anything we do preserving significant amount of liquidity across our business. So that we can take advantage of accretive growth opportunities that that way.
Truly believe are in front of us going forward, but look I would just finish with just saying look we are committed to extracting value across our businesses, where we see opportunities to do so.
Alright, Thanks Mark.
Yes.
Our next question comes from Ryan Todd with Piper Sandler. Please go ahead.
Okay. Thanks.
Maybe a question on Capex for you as you look into 2024, I know that you had said.
From a maintenance point of view you don't have another major turnaround until until crops in the fourth quarter of next year can you maybe talk about how you would think that some of the moving pieces on capital as we look into 2024, and how we should think about a run rate.
They're in the next year.
Yeah.
Yes, Ryan Thanks for the question.
And we're very disciplined about capital deployment, we have demonstrated over and over both on the shareholder and that so that's the that's the puzzle we are working on that everyday all day.
Regarding 2020 full is specific to your question.
I don't want to be.
Ahead of myself, we are still finalizing our plans for 2022 for 2024.
But directionally, we are looking at on a lower number than that 2023.
Okay.
Perfect. Thanks, and then maybe.
Just a follow up on your comments, obviously youre in a.
You had a zero net debt.
Balance sheet position there at Delek.
On consolidated basis.
How should we think about your priorities here, you've been paying down debt you've been buying back some shares.
Is there further work on the balance sheet that you want to do or should we expect.
Shifts towards an increase in share.
Of cash flow directed towards shareholder returns so maybe.
High level, how are you thinking about that as we think about the coming quarters, yes.
Yes, absolutely Ryan and I will provide more kind of overview about the way, we think about capital allocation. So first of all we increased dividend five times in the whole as you can see in our hour.
Our intent is to be able to maintain dividend towards cycles. So that's pretty clear we said it many times regarding that.
And the return to shareholder we took a very balanced approach between the two obviously when we have opportunity to give back to invest all we will not shy we were aggressive with that and that is going to be the approach going forward.
We have a balanced approach and we still want to do that is.
Executing on and some of the parties, it's top priority, we're going to do that and Thats going to play a big role in that equation Swift so stay tuned.
Alright, thank you.
Our next question comes from Doug Leggate with Bank of America. Please go ahead.
Hi, guys. Thanks for having me on offer also offer my thoughts for you guys and what Neil said earlier.
I would I'd like to hit a housekeeping 0.1st if I may which is suffering tools. He mentioned the working capital move in the quarter.
She said better inventory management or worse about effect.
As Don will not reverse or are we now looking at our <unk>.
Permian permanent downward reset in AR and working capital.
Hey, Doug Good morning, I'll, let Holden talk.
Talking about working capital just a little bit.
Hi, Doug.
So the short answer is it will not revert itself.
The longer answer that we have been working on a zero based budget initiatives that included a few components. One of them was the cost reduction initiative and the other one was also changing our process about how we manage inventory that process.
Change was tested and Thats why we did not execute.
On it until this quarter, but after it was tested these what we executed on interest on the new process this quarter and that helped us to reduce inventory by roughly $2 5 million barrels now there will be some fluctuations going forward, but we're not going to revert back to the old levels of inventory.
Okay.
So we can we can treat that additional cash flow Dennis is permanent.
Most of it yes.
Okay. Thank you.
My follow up is really on the reliability improvements and I'm wondering I mean, obviously one of the key things. We think about is what the free cash flow capacity of the portfolio looks like up mid cycle and a key input to that is obviously operating costs and capital sustaining capital costs. So I'm wondering if you can just give us some <unk>.
<unk> on both of those things to achieve the higher reliability.
What does it mean for Opex, what does it mean for sustaining capital.
So Doug I'll start and I'll, let Joseph Jamie.
On an opex on the Opex side.
Remember that when the margin were at all time high pretty much we started the program.
Cost reduction.
In the beginning and no one really understood. What we are why we're doing what we're doing but we wanted to be to have a long runway in order to do it right. We didn't want to rush into that and that's obviously going to grow and improve our cost base. Both on the opex on the G&A on a relative basis versus what we stopped.
Obviously going to always going to have a fluctuation in opex and Jan Jan based upon performance and based upon electricity power and et cetera, like Joseph outline, but that over time make us or making us very much ready for the mid cycle that might present itself.
And that's on the agenda of any any you want to add on that I will only buy it in.
Remaining everyone that.
The previous earning call we discussed the $1 per barrel.
Additional opex in Big Spring just for the second half of this year. So it will include the <unk> to.
To really address.
Integrity reliability opportunities that are giving us those fruits, so not much more than that and really nothing on the capex side that we need to accomplish to get all the benefits that we discussed earlier.
So that gives you the kind of more of the view.
Doug on the P&L initiative. We started ahead of time, obviously the balance sheet. The solvency is the working capital and some of the bulk. So philosophy. We will ahead of ahead of the game preparing ourselves and not waited for the for the clock to them.
Great. So thanks, so much and Joseph look forward to seeing you next week.
Great.
Our next question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead.
Hey, Good morning, Joseph you outlined two big expected improvements in <unk>.
Big Spring refining margin capture could you talk a little bit about what's driving that does that involve any sort of commercial efforts to perhaps increase your exposure to Arizona or is this more on the refining side in terms of reliability and yield improvement.
Not at this point, it's really the fundamentals and this is a.
The low hanging fruits no rocket science. This is the beauty of it.
By putting the right leadership team out there and really implementing the best practice in the fundamentals.
The process side on the refining side will improve reliability and as you know better reliability comes in.
Capture in the Opex side.
What you own coking about is really my phase two and three when it goes to commercial and crude selection and logistics and <unk> opportunities.
It will really start to be strong.
Looking forward to it and then on the wholesale and asphalt contribution I believe it was $35 million in the third quarter versus 80 in the second quarter, what is it like a normalized either quarter.
Year for this business.
Yes, we provided the guidance I think in the previous quarter. When we opened up not in supply in the marketing line for you guys to model. So our focus isn't on as you know first and fourth quarter is about $5 million.
Contribution in average not including oil price changes and then in the second and third quarter.
Susan.
We're going to be more like $20 million per quarter.
<unk> is more stable going to be between $20 million to $40 million to another quarter.
Okay.
Okay.
Sounds good thank you thank.
Thank you. Thank you.
Our next question comes from Paul Cheng with Scotiabank. Please go ahead.
Hey, guys good morning.
Firstly, just wanted to earn money.
Best wishes for.
Everyone's that family.
Everyone is good and okay.
Thank you Paul I appreciate the.
Quick question.
That's a weapon in the third quarter, you're saying the meaningful impact.
The ban lifted off mark to market.
On the LBO due to the much lower grain prices.
No.
And that maybe this is for Joseph a.
In the fourth quarter, we have.
Yes, I mean, mark and we have.
Margin stamp on that.
All posing forces.
The butane branding and.
Renting economically extremely good on the other hand that that gas doesn't mean, Craig this is.
It's Paul.
When we combine that.
<unk> you.
In the fourth quarter versus the third quarter is going to look like historic Tony I think <unk>.
Poppy sea coupled with increased.
Sequentially, but that given the dynamic we see is that what your operating plan Cowen needs, suggesting.
So youre absolutely right. So the butane is growing our favor, but the Cox is going the other way also the RVO is.
Aylwin dialed in headwinds for us so.
Big picture gasoline cracks got spread still low versus what we've seen in the last deal, but it's not off the charts.
103, two basis Gulf coast versus historical at Q4, So we remain very optimistic about the future and I don't know Joseph if you have anything to add to that.
Just to wrap it up so other than Krotz springs, which is producing light product to the colonial pipeline really the rest of the system is rack sales based and this provides us the axis to blending and gives us the opportunity versus <unk>.
Average peer to participate in this opportunity. So we are definitely looking on different things in the fourth quarter on our butane blending like you say and then.
Sour heavy spreads.
Motivate us to look at the.
The lower cost grades on the <unk>.
<unk> side, as we were going into it and take.
The advantage from it.
Joseph do you expect the fourth quarter gasoline, you're going to be higher than the third quarter.
I don't think so we have a distillate mode, and we will probably be exclusives weekend to 42%.
Okay, so even with the.
More butane blending and not that you're not expecting that you're going to be higher I.
I agree that it's not going to be enough on this there is a significant change in <unk>.
Gasoline and distillate economics later in the quarter, which ought to believe.
Okay.
A final one for me.
Is that sort of fixed up.
Big spring, what's the longer term normal.
We find where you've run that we should expect.
On an annual basis for your system and also what is the cash.
Cash operating costs.
That's cool.
Fourth on a Henry hub.
Any kind of guidance that you can give us and what is the sustaining capex for the company going to look like.
Yes, I'll start with a big spring throughput so.
And our plan will basically doing back to big spring.
Was in the past, we're not trying to reinvent the wheel.
Unfortunately, most of it again is the low hanging fruit. So we gave very precise.
Estimates are we're looking at things, so 66 and a half is the year to date throughput, we spoke about adding 5000 barrels per day.
And I'm talking about condo type of throughput Im not talking about peak. So you were looking at 71 low seventies.
Really on the.
Ongoing as a new team and we're talking about starting really in 'twenty four 'twenty five so this is Noah.
Something for the long run.
It's really coming.
And.
We had 71 will still leaving a normal four 5% downtime.
Tension surprises right. So we're going to run at normal industry utilization rate.
Can you please repeat <unk> Henry hub.
Yes.
Looking at not even just on Spain, but your total system.
Yes.
Sorry.
That was yes, a normal.
<unk> page and <unk>, one way, we cannot see them and then also.
Understood that.
If we assume Henry hub wrong for smaller what will be a normal noise and Neil cash operating cost and Youll refining system and one is desktops thinking cap ex we cannot shame.
For your findings.
Oh quarter Opex was $5 48.
Cents per barrel from the system.
And this happened to it.
Still issues.
In Big Spring, we spoke about the several things that affected us.
<unk> 80.
For the unplanned maintenance 70 cents for the elevated utility pools tend to do low we gave fully reliability, what im trying to say big spring is probably more like 550 going forward than 837. So you are looking at overall opex for the system $105.
Darryl.
We think that this is a.
It will happen.
With the long term and rehab pricing for Nash.
Natural gas energy costs.
Okay.
But some sustaining capex.
So.
Obviously, it's a bigger question because there is we are standing around and sometimes without them at all in the states. The question is that the scope of the turnaround. So I don't think it's going to we are going to do a good service by just giving a number without context, so going back to all of my earlier comment about the capital my our commitment commitment is to be.
Very disciplined with capital deployment like with demonstrate and that's what we're going to do but it's very hard to say it will be into a number I hope to see.
Understood. Thank you.
Thank you Paul.
Our next question comes from Roger read with Wells Fargo. Please go ahead.
Okay.
Yeah. Thanks, good morning.
Apologies for joining a little late so if I am asking.
Question. That's been asked please let me know, but maybe digging a little deeper into big spring and juxtapose that with the performance of Tyler This quarter. Joseph I know you were brought in to kind of improve operations is there a takeaway from what we see at Tyler coming out of the turnaround versus what you'd like to do.
Do at Big spring in the.
Coming you know, let's call it months quarters years until its next scheduled turn around.
With your permission I'll start and then Josef will add some comments around it.
How long is the good way to see how good operation become after turnaround in terms of both the <unk> and TBS and the.
And also capture and Thats something that we obviously can take from one tenant to another and improve as long as the time goes by.
Joseph has a lot of energy at Big Spring and maybe you want to hit around it the biggest thing I think we spoke about it.
Yes.
In terms of I think the turnaround scope.
Excellent it was right beyond just maintenance the team improve the VAT.
Vacuum tower bottoms and allow the quantity of the geo growing to the FCC, providing us with embedded to the yields and catalyst replacement on the reformer was exactly what we needed and we see the results the rest for the system and mainly for big spring.
It's just all about the fundamentals and it's about the focus on the right things and it's come to the right people in the right place that we are leading in the processes and the procedures.
I have another costly type of investments but.
Therefore, bringing us foods, and allowing us to compete on a much better performance, especially in big spring going forward.
Okay and then.
Just as a follow up.
Curious with Krotz Springs in terms of its product yield I know historically, you had a little less of a clean diesel yield relative to its total distillate yield any changes there or anything youre seeing in terms of how that product is being able to move into the market.
Generally speaking cash salaries, a refinery that basically is on the colonial so thats the deployment that the.
<unk> channel we have.
<unk>.
Furthermore, we had some improvement we did but nothing that the dwarf the meaningful discussion. We're obviously seeing the fruits of our hard labor and the great commitment over there too.
<unk>.
We have a great operation and a great.
Safety Records and the great the year.
So we are very pleased with <unk> and.
And we see the improvement all the time so.
Yes, the one thing to remember about Krotz spring gives him do it.
High sulfur diesel oil spill in the Gulf Coast area, and you have plenty of customers.
See a lot of value in this product and different uses and the other thing <unk>.
<unk> unit configuration is really space or with almost 20000 barrels per day of jet fuel.
In the crude unit all in all distillate yield in Krotz Springs is in the high Thirty's.
Which will allow them to compete long term.
Yes.
Okay. Thank you.
Thank you Roger.
Our next question is from John Royall with Jpmorgan. Please go ahead.
Hi, good morning, Thanks for taking my question.
So my first wanted to follow up on the capital allocation question.
Sitting today yet.
Zero parent net debt.
Talking about which is a great spot to be in.
So I'm wondering how capital allocation could be impacted by lower crack environment.
And if you're willing to lever up a little from here should the environment deteriorate.
In the interest of keeping capital returns at a strong pace.
So.
John Thank you for the question, we're going to remain disciplined obviously there is.
Once we feel first of all we want to maintain dividend while the cycle. That's one thing we need to check the box.
If we believe that the allocation of capital to buyback, we will not be able to we will not be shy to do so like we did in the past we will do that again and we're obviously looking at the opportunity that presents itself.
Sales in the market. So we have all the toolbox.
To deploy on the right opportunity and the <unk>.
Keeping.
Good return to shareholder is a very high priority for us.
Great. Thanks, Avi gallon than last quarter.
You had mentioned just very broadly.
Some very high returning and presumably.
Relatively quick hit projects in refining that you may think about for next year.
Thank you touched on it again on this call and can you maybe just give us some color around what those projects are and just expand on those opportunities a little yes.
Yes. So we again, we don't want to get ahead of ourself and to give exactly because we didn't finish the planning process around it and improving them with our board of director.
But we definitely have some very encouraging a project on the table and we'll disclose them. Once once we can but again number one thing about capital discipline discipline and return to shareholders. So we maintain a very disciplined about the way, we deploy capital and want to be good stewards of our shareholders Joseph.
Yes, I would just say that they are all at low cycle return type of projects.
The fund themselves and less than 24.
Months now all about liquid yield recovery.
And this is the type of project you will expect us to.
So clearly closely.
Great. Thank you very much.
Joe.
Yeah.
Our next question comes from Jason <unk> with Cowen. Please go ahead.
Hey, good morning, just wanted to extend.
My thoughts and hope everyone's families.
Our safe.
I wanted to.
Yes.
First about the supply and marketing line item and I know you provided some incremental guidance around that new line item last quarter to help us forecast something that was perhaps more ratable.
It's been a bit volatile.
Last quarter, the linked quarter and not necessarily in line with what was forecast and I'm wondering how much of that is just around trading and it seems like.
<unk> was a stronger trading quarter in that line in <unk> was weaker so should we expect to see that in this new line item where.
The trading impacts kind of offset quarter to quarter on the underlying results trend in line with.
With what you've guided to I have a follow up thanks.
Thank you for the question and thank you for the warm Walt if at all.
We all understand that the Halsey change the the warlord of marketing and operating because of the reason we are looking at on that as a risk reduction.
Tool and not adding risk to the table, so we need to remember that.
Obviously when oil prices goes up there is a bit of a volatility to reduce risk and take risk off the table and as Joseph mentioned, a few times on the call.
Wholesale has the volatility and especially asphalt with the prices goes up. So we are looking on deadline, how to reduce risk and how to deploy product and how to get the longest a sustainable income as much as we possibly can is going to be more volatile than pure capture rate as you can imagine, but we are not.
It is growing just the huge.
Trading position into the market, we're going to see how we can reduce risk.
Okay and to be clear, it's not necessarily the derivative impacts in one quarter, we will tend to reverse in the subsequent quarter because thats, what it seemed to happen into Q3 Q.
Right so.
When we took the derivatives, we think about hedging what is outside of the natural inventory range right above wonder.
When we haven't been reliable like in the third quarter and Big Spring, we spoke about the outages and the fact that we own.
Fixing it.
The future will be much better in there what happens is when you build inventories and oil price is going up.
We are having very good.
The dynamics on the cost of good side, you're right, we are making money on the physical side. The hedging goes due to keep you on the crack of today. This is look we I'll ask to do by our investors and this is not the type of derivatives.
And will it make sense to you right.
Yes, alright, yes, that's really helpful color.
And my follow up is sorry, I'm going to go back to the strategic.
The unlock of value.
I look on your slide you say you have a clear strategy and on plan to meet our objectives.
Think about what your objectives were when you put the strategic unlock forward it was primarily around <unk>.
Consolidated DCF Tkl's debt is that still the objective as we said one year later.
And when you say you are on plan.
It's been a year since you laid out.
Kind of the plan and.
Just wondering.
It implies perhaps there is some timeline that you have in mind, so just I'm going to push again to see if you can elaborate on what youre thinking in terms of timeline. Thanks.
Yes so.
Youre absolutely correct. That's the goal we're going to achieve it I'm not going to commit to a time committing to a timely impact the deal and you don't want me to do it.
You want me to make the right deal on the right timing to bring value to shareholders. There is no. We're not just going to have a rational but we have a decisive so I'll state of mind has not wavered and we are going to make it we're going to make it and we're going to make it right.
Yes, okay understood I wasn't asking quite to commit to a time as much as it is.
As you are on plan, which implies there is some internal timeline that you have in mind.
And just I was wondering if that was a fair read but I'll leave it there. Thanks.
Thank you I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to Africa Zurich for any closing remarks.
Thank you for letting us today I want to thank.
My colleagues around the table here for a great call down.
Two our board of directors and full and for most of our employees and invest awful.
For being with US and will go back next quarter and report again. Thank you so much of a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.