Q1 2024 Delek US Holdings Inc Earnings Call
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Neil Mehta with Goldman Sachs. Please go ahead.
Good morning, I have a golf team.
A couple of things.
Speaker Change: Good morning, Sir a couple for you on the guide. The first is just capital program to Rosie's point Q1 of $46 million versus the full year 330 or are you tracking inside of that 330 is capital efficiency like positively surprising recognizing you've got the crops turnaround and the related <unk>.
Speaker Change: To that is you've got a big turnaround of crops. This year later this year, how do you define success, because I think that'll be an important test for for that asset.
Speaker Change: Yes.
Speaker Change: And first of all thank you for the question.
Speaker Change: We are not changing our guidance.
Speaker Change: These boys.
Speaker Change: We are stupid pretty bad.
Speaker Change: Two we mentioned.
Speaker Change: And in terms of the success of the guests.
Speaker Change: I will now give the three elements first of all is safe safety.
Speaker Change: To make sure that they just based on around that everyone.
Speaker Change: <unk> the same way they come back they went back to work that's number one.
Speaker Change: Is the scope of the work we need to make sure that we are doing the scope right.
Speaker Change: And getting the uplift over $30 million, we said before and that obviously is the cost. So those are the three components, we demonstrate to ourselves during the pilot that we can achieve all the all of those trades and we aim.
Speaker Change: And to achieve those wanting this turnaround as well.
Speaker Change: Thanks, I have a go and then.
Speaker Change: You indicated you initiated a process to unlock the value of the retail business can.
Speaker Change: Can you talk about.
Speaker Change: How it came to the decision that it does make sense to potentially monetize them, where we are with the process and are there any dis synergies and your early look at that at this process yes.
Speaker Change: Yes, Thanks, Dave I will answer the question more wider about the deposit flows that we are obviously trying to do.
Speaker Change: So as you probably mentioned in the call.
Speaker Change: We created the <unk>.
Speaker Change: Third party value overtime.
Speaker Change: And that's obviously something that's something that is very important therefore to achieve.
Speaker Change: So we are committed to make sure that that value was achieved at all time and we demonstrate doing that culture is the financial strength of the detailed balance sheet is there in order to support that that's point number two the point number three that we want to make sure that the value is being created both for the dk shareholder.
Speaker Change: And the detailed unit holder.
Speaker Change: In both the units they show the the full value.
Speaker Change: We obviously as we mentioned we showed that we started a formal process. The process goes as planned and I don't know Mark maybe you want to wear.
Mark: Yeah, Yeah, sure sure Avago and I'll touch on the sum of the parts initiatives as well as the stress a few things here as <unk> mentioned earlier on the call. Our belief is that in order for us to highlight the hidden value that we have in the attractive midstream position that we built in particular in the Permian.
Speaker Change: Based on and we need to find the right ownership structure for those assets and I think as we've discussed clearly on prior calls we've evaluated all the options that are in front of us.
Speaker Change: The governance and tax implications of each of those and and we still want to stress that in any action that we take ultimately on the midstream side, we are focused and laser focused on ensuring that we make both delek and delek logistics.
Speaker Change: <unk> entities from a cash flow and leverage standpoint, so we don't want to.
Speaker Change: Move away from that that position and that's what we're focused on on the retail front as Abel mentioned, if you have mandated investment banks to work with us on evaluating those strategic options that are in front of us for that business and how things are progressing well on that front. We don't have anything specific that we want to want to say today, but.
Speaker Change: We will come back to you hopefully in the near future with some more color on that but you know to your point the way we were envisioning. This is that we don't see.
Speaker Change: Any any significant or particular dis synergies associated with anything that we do on that front.
Speaker Change: Thank you Mark.
Roger David Read: Your next question will come from the line of Roger read with Wells Fargo. Please go ahead.
Roger David Read: Yes. Thank you good morning.
Roger David Read: Good morning, I guess, maybe.
Roger David Read: And maybe a little bit I am going to kind of follow up on Neil's I mean, what is the right way to think about use of funds from retail disposition or anything else I mean I'm thinking.
Roger: Even wider you've got your ownership in Wink to Webster, that's held inside of decay relative to probably belongs more to midstream sort of operation. So.
Roger: A little more of your thoughts as you rearrange some of the pieces here to achieve that upside value for both Dk and Dk al.
Roger David Read: Where should we think about that working out.
Roger David Read: Yes.
Speaker Change: First of all thank you for joining us today.
Speaker Change: I'll start the answer.
Speaker Change: Let's talk about capital allocation.
Speaker Change: And.
Speaker Change: And then just at.
Speaker Change: As we demonstrated in the last few quarters.
Speaker Change: Do we have.
Speaker Change: <unk> delivered consistent and growing dividend over time, we've demonstrated this few hotels now.
Speaker Change: The second priority is.
Speaker Change: We've outlined this quarter very specifically is having a strong balance sheet by people who can appreciate.
Speaker Change: The major of improvement that we've seen that we have demonstrated on the detail.
Speaker Change: And then obviously the third point is the buyback I want to be clear.
Speaker Change: We see a lot of value in our share price today.
Speaker Change: But we elected not to do buybacks due to development in the strategic initiative forward.
Speaker Change: So this is where we have on capital on capital allocation. Obviously, you asked specifically about doubled to W. W. W always.
Speaker Change: In our toolbox.
Speaker Change: The asset develop.
Speaker Change: Very nicely in the last two years.
Speaker Change: And there probably are going to we see the value of the documents is going up and it's a very premier Vanessa.
Speaker Change: Okay.
Vanessa: Yes, no question about that.
Speaker Change: I guess, let me, let me pivot a little bit just to the operational front big spring than doing a lot of work there.
Speaker Change: Where are we in this process halfway through three quarters play through.
Speaker Change: It'll take a long time to do the last 10% of improvements there, but from a reliability and an opex standpoint, just how that show setting up.
Speaker Change: Yes, so we definitely see improvement, but Joseph who is very close to this so I will let him answer it.
Speaker Change: Yes.
Joseph: Executing our plans and big spring and as a result, we see the improvement in our ability that we expected which allows us to meet our targets.
Joseph: <unk> communicated in the past.
Joseph: One Ron around 70000 barrels per day on a more consistent basis, it's not the first quarter, but it's starting to be real here will be the guidance for the.
Speaker Change: The second quarter second is improvable captured towards the 70% really on mid cycle.
Speaker Change: And last is to improve our cost structure, we promised the $1 per barrel quarter reduction.
Speaker Change: Until we get to the mid $5 per barrel target range by the end of the U.
Speaker Change: Very happy and proud with the team and the progress we are making.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Your next question will come from the line of Manav Gupta with UBS. Please go ahead.
Manav Gupta: My question is more on the detail side as it relates to Dk and <unk> continues to be bigger and bigger part of the earnings in the last five years and as detailed looks at detail do you see the Permian <unk> moving in a direction, where the third party EBITDA will just continue to grow.
Manav Gupta: And increase versus you know dropdowns or in organic decay.
Speaker Change: Dilution to detail I mean, I'm just trying to understand from this point on should we expect the <unk> to continue to grow with more and more third party EBITDA in there.
Speaker Change: Yes.
Speaker Change: First of all a matter of thank you for joining us today. It's a great question. We are very proud of the progress we did our first priority that both.
Speaker Change: Unit holders and shareholders and the value that we are chasing when their findings into into those two.
Speaker Change: Yeah.
Speaker Change: The paper by yardstick for US obviously, we have demonstrated.
Speaker Change: First of all Seth and then to the market that we can manage those assets and can show up normally down on them and if the opportunity presents itself as long as it's accretive for both Dk and <unk> will take a good hard look into that and keep developing organically and inorganically.
Speaker Change: So the answer is to the bottom line is that if the opportunity.
Speaker Change: Presents itself and it's a good opportunity.
Speaker Change: Can be benefit for both the unit and shell so will that can hold up into this.
Speaker Change: Thank you and a quick question here is look quarter over quarter. All three refineries showed pretty good improvement across big Springs, and even in Orlando and I'm just trying to understand is that getting to a point, where you would like it to be obviously, there's a slope of improvement, but if we look between fourth quarter performance in the first quarter performance.
Speaker Change: What are some of the criteria, which allowed these three assets to deliver much better earnings in <unk> versus just the last quarter.
Speaker Change: Yeah, absolutely. So some of that is our doing some of that is obviously the market was better and thats, reflecting the capture rate, we all have to give a clear guidance.
Speaker Change: Towards the Opex.
Speaker Change: That shows better even in the Q in Q2 versus Q1, but Theyre Joseph why don't you chime in and give some more color into that.
Joseph: Consequently, mainly playing defense.
Joseph: In the first quarter, if you count the three and a half <unk> per barrel and LP Olympics premium.
Joseph: One and a half no LOE per barrel headwind on the Opex. This is $30 million that was left from the table related to the freeze of events right, but to answer your question as we have launched a less and less surprises and the headwind to deal with.
Joseph: More and more focused on transitioning to offense and optimize our business thinking more about process optimization selecting the right who is making the right product taking it to the right markets at the end of the day it will translate to a much better comp true and the market will be.
Joseph: Get a chance to see the true profitability.
Joseph: Option of this system.
Joseph: Yeah.
Speaker Change: Thanks, guys and congrats on a stronger quarter and keep up the work. Thank you.
Speaker Change: Thank you. Thank you manav. Thank you again.
Speaker Change: Your next question comes from the line of Paul Cheng with Scotiabank. Please go ahead.
Paul Cheng: Hi, good morning, guys.
Paul Cheng: Good morning <unk>.
Paul Cheng: Joseph just curious that I mean.
Paul Cheng: You get hit as you mentioned there any of that on day.
Paul Cheng: Winter Storm spring you estimate that is close to five ton of impact both in the profit margin. That's why am I still on the costs and then of course spring, yes, and not the same call you had $150 alright.
Paul Cheng: Maybe I thought his long but.
Paul Cheng: So with that.
Paul Cheng: At least <unk> 50 on the impact so what's the lesson that we learned from that is that something that you can do to prevent yet because the winter storm is actually well telegraphed a weight beforehand is there anything operationally that we can do in order to midnight minimize that that comp.
Paul Cheng: That's the first question.
Speaker Change: Yes, Thank you Paul.
Speaker Change: Question. So first I will correct, one thing to be $1 $5 per barrel in Krotz Springs was it related to a planned.
Speaker Change: Trace cleaning in the crude unit, so we knew about it coming into the quarter it.
Speaker Change: It hasn't been a long cycle and to make it all the way to the turnaround and get to the maximum throughput through the driving season, we executed the scope and the lower margin environment.
Speaker Change: I am very glad we did it in.
Speaker Change: In Big Spring It was really the typical challenges of freeze right I mean frozen lines instrumentation like our appeal is dealt with and what are we doing what are the lessons. It's all about risk mitigation. If you think about people process equipment and.
Speaker Change: Main job is to mitigate the risks kitchen is leading to better position the asset to deal with every possible challenge and whatever the market gives to us so really proud of the team.
Speaker Change: Looking at the second quarter.
Speaker Change: Ready to run and I think good things are coming our way.
Speaker Change: Mhm.
Speaker Change: Second question, then on the Pi and marketing you said that.
Speaker Change: Wholesale <unk> 60 million in the quarter and also on the mainland.
Speaker Change: I think in the past you.
Speaker Change: Yes.
Speaker Change: Giving you a.
Speaker Change: Any kind of guidance, saying that the wholesale would be doing roughly about 30 million in the quarter.
Speaker Change: And our spot will be lower in the first and the fourth quarter, maybe at five minutes and then in the second and third quarter, we'd be somewhere in the 15 minutes I'll go for a full year about 40 minutes.
Speaker Change: So.
Speaker Change: Based on what we've seen in the last several quarters, yes.
Speaker Change: Those guidance.
Speaker Change: A good one on that.
Speaker Change: And only if that you guys had built them somewhat differently.
Speaker Change: Yes, so I will start with the opposition in lung.
Speaker Change: Joe just to give some more color around that question. Great question. So first of all we need to stop that wholesale is the strategic key part of the downstream integrated business units. So we see the value in that we see our ability to place product in a different market conditions. So we need to remember that when we are looking at wholesale.
Speaker Change: That's the first part the second part.
Speaker Change: More tricky to model also because of the nature of dynamic of that business that business is changing every every day in the market a very dynamic so it'll be it's not as simple to model. It and that's the reason we are not giving always clear guidance about it but I know that Joseph put a lot of thinking into that.
Speaker Change: The topic so please.
Joseph: Hey, Paul to first to answer your question I think the real answer is no.
Joseph: No I mean that range is probably not a good place to be when you look at the full year 2023 supply and marketing still made the positives.
Joseph: $50 million right. So statistically we averaged slightly over 10 million positive.
Speaker Change: Positive contribution per.
Speaker Change: Quarter. However, it's a really hard number really to.
Speaker Change: To model My coffee said, it's really important to realize we have an integrated downstream company in the wholesale marketing is paying a strategic tool to connect between our refineries right to the customers.
Speaker Change: We move around 210000 barrels per day of light product through the Doctor ordered.
Speaker Change: In marketing, which is approximately $800 million.
Speaker Change: <unk> for the.
Speaker Change: Quarter.
Speaker Change: So hi, literally takes a negative $7.05 per gallon margin between the pricing differential in <unk> to get to $60 million.
Speaker Change: <unk> type of number and I'm sure you and others, who follow the screen remember the negative $30 35.
Speaker Change: One on back in January.
Speaker Change: Through the mid Con freeze.
Speaker Change: Hello.
Speaker Change: I think our team is doing great job in mitigating this risk going forward diversifying our.
Speaker Change: Pricing exposure and footprint.
Speaker Change: Hopefully.
Speaker Change: We can do better in this type of situations in the future.
Speaker Change: Alright, thank you.
Speaker Change: Your next question will come from Dubai.
Speaker Change: Your next question will come from the line of John Royall JP Morgan. Please go ahead.
John Macalister Royall: Hi, good morning, Thanks for taking my question.
John Macalister Royall: I just had a follow up on capital allocation I guess, it's a two parter one is.
John Macalister Royall: You've hit your dividend now I think seven quarters in a row up.
John Macalister Royall: About 25% over that time period should we expect that to continue with the more frequent but smaller hikes or when you get to the point, where you move to more of a once a year type cadence.
John Macalister Royall: The second part is just on the buyback.
John Macalister Royall: Would you talk about the reasoning for turning it off in one queue whats a reasonable expectation for when you might be back in the market for buybacks.
Speaker Change: So I will answer it.
Speaker Change: Both of those question more broadly and not be as specific as I said all along.
John Macalister Royall: Being a shareholder friendly.
John Macalister Royall: Company.
John Macalister Royall: He is a key priority for us along with maintaining a strong balance sheet. So we are definitely we maintain that.
John Macalister Royall: And as I said.
John Macalister Royall: Few times, having a consistent and growing dividend over time is something that we value and we believe our investable values sweat. So both of them are very key.
John Macalister Royall: Priorities for us.
John Macalister Royall: Around the the buyback.
John Macalister Royall: To make it points very clear.
John Macalister Royall: We see a lot of value in our share price, but we elected not to do it because of development into strategic initiatives and our focus if we just made around it.
John Macalister Royall: Okay.
Speaker Change: Alright, Thank you and then.
Speaker Change: Can you talk about the timing of separating retail and.
Speaker Change: I realize these processes don't just kicked off overnight, but it's a little bit of a tougher time fundamentally no at least over the short term.
Speaker Change: Fuel margin and also on merchandise sales do you think.
Speaker Change: The enthusiasm for this business and the asset sale market is maybe what it was six or 12 months ago or do you think buyer expectations.
Speaker Change: Adjusted at all.
Speaker Change: Yes, we obviously are not going to be specific on the process.
Speaker Change: Have a great assets.
Speaker Change: A unique market position.
Speaker Change: Nic markets so.
Speaker Change: And we're making good progress.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question will come from the line of Ryan Todd with Piper Sandler. Please go ahead.
Ryan Todd: Thank you.
Ryan Todd: Maybe if if we think about your refining EBITDA.
Ryan Todd: Over the last four quarters, I think you've generated around $580 million of EBITDA in an environment that was.
Ryan Todd: Generally above historical mid cycle margins as you think about your refining business going forward.
Ryan Todd: What do you believe is the.
Ryan Todd: The mid cycle EBITDA or earnings power of the of the business as currently constituted.
Ryan Todd: And how do you maybe think about the bridge of where it is versus where you want it to be whether in terms of cost reductions reliability improvements.
Ryan Todd: The ability to repatriate EBITDA out of detail back in the Dk like how do you want the market to think about how should we be thinking about the mid cycle earnings power of your refining business.
Ryan Todd: Yeah.
Speaker Change: Thank you for the great question.
Speaker Change: As we said in the past we believe that the.
Speaker Change: Our editing following the refining is improving as we speak we have seen.
Speaker Change: Better capture rates you have seen that in orderly finery and we've seen the debt, we demonstrate lower and lower LPR. That's a key part of this.
Speaker Change: Joseph put a lot of time into that so maybe just if you want to take this one yes, we think on a mid cycle basis or.
Speaker Change: <unk> EBITDA is between 750 <unk> eight.
Joseph: $810 million.
Joseph: Yeah.
Speaker Change: At the refinery level.
Speaker Change: This is for the entire <unk>.
Speaker Change: Company.
Speaker Change: And this is considering a stable refining segment with minimum surprises as we position it.
Speaker Change: Okay.
Speaker Change: Perfect. Thank you and maybe I.
Speaker Change: I guess, it probably seems to enter that some but.
Speaker Change: I can't I don't know, if I missed it earlier or not but.
Speaker Change: Can you update us as to like progress to date on the cost reduction target I know you talked about the $90 million to $100 million.
Speaker Change: Kind of run rate for 2024 are you there.
Speaker Change: Where are you seeing the greatest improvements so far what's worked well what still remains to be done maybe just.
Speaker Change: Just an update in terms of the process there.
Speaker Change: Absolutely. So we are focusing to be at around eight a 90 to 100 million exiting 2024.
Speaker Change: We have found additional opportunities.
Speaker Change: In the.
Speaker Change: Towards 2025, and that's goes very well with and his team is doing great amazing drove it all of it.
Speaker Change: When do you want to add anything.
Speaker Change: Hello.
Speaker Change: We have executed more most of the steps that we're planning to thus far we have.
Speaker Change: Two more steps in the second quarter and third quarter that will put us on track for the $90 million to $100 million. We've identified opportunities between 15 to 20 million that will be executed in a 25.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question will come from the line of Matthew Blair with P. P. H. Please go ahead.
Matthew Robert Lovseth Blair: Thank you and good morning, there were some reports the wink to Webster will be offline.
Matthew Robert Lovseth Blair: And in January for up to two weeks is that correct.
Matthew Robert Lovseth Blair: What kind of market impact would you anticipate.
Matthew Robert Lovseth Blair: If that did widen out Midland spreads do you think delek would be in a position to benefit there.
Speaker Change: Yes, so much and thank you for the question honestly I'm not going to comment about the Ww operation.
Speaker Change: We all know the open it over the line and we are not commenting on those kinds of fan will medical news.
Speaker Change: Regarding the spread I think that everyone can see that the longhorn spread the IEEE Midland MGH is widening pretty nicely and we see it in June widening all the way to <unk> 20 in the second half of the year.
Speaker Change: Q4, I think it's like 75 now.
Speaker Change: One station.
Speaker Change: The increase in production, we see the production the Midland.
Speaker Change: $65, six 6 million barrels per day, and we're probably going to go up this year.
Speaker Change: Additional 250 to 300.
Speaker Change: <unk> builds a day so that's good.
Speaker Change: Midland differentials going into the next valve, which is the base and I caution for beds going to wider differential just a little bit, but that's obviously a very good they're developing for us.
Speaker Change: Sounds good and then circling back to the commentary on supply and marketing.
Speaker Change: You mentioned youre seeing some seasonal demand improvement you are rolling off the line.
Speaker Change: Very negative values in January, but we also see rents 10% to 15% lower.
Speaker Change: And so putting that altogether do you think supply and marketing can be positive EBITDA contribution in Q2 after the $65 million loss in Q1.
Speaker Change: Yeah, Matthew So it's listen it's still early in the quarter and we believe in the business.
Speaker Change: But I'm not going to give guidance that we gave a lot of guidance to help you to model really well, it's really hard to predict the dynamic in the market at this 10 seconds, so I'm going to stay out of that guidance.
Speaker Change: Okay sounds good thanks.
Speaker Change: Thank you.
Speaker Change: Your next question will come from the line of Jason <unk> with PD Cowen. Please go ahead.
Jason: Hey, good morning, Thanks for taking my questions.
Jason: I wanted to go back.
Jason: Marketing business and just how you're evaluating unlocking value there I think when you started.
Jason: Value unlocked process, a little over a year ago.
Jason:
Jason: Marketing was considered a core part of the business and it wasn't something you were going to look to really try to monetize them and it sounds like Thats changed so just wondering over the past year why that's changed.
Speaker Change: Yeah, Jason. Thank you for the question, obviously, our commitment as I said many times is to make sure that our investors will see the value in there.
Speaker Change: Both the unit buys and the shelf by steel and so.
Speaker Change: So we are taking a good hard goods.
Speaker Change: A hard look at everything and Thats, something we decided that we.
Speaker Change: Need to look at the opportunities I think that's what they put into management needs to do and that's what we're doing.
Speaker Change:
Speaker Change: Okay. Thanks, Yeah, and just I guess.
Speaker Change: Yes.
Speaker Change: Supply and trading line.
Speaker Change: As we think about moving forward and I know you want to stay away from really providing.
Speaker Change: Concrete guidance, but I'm just wondering.
Speaker Change: If you see any headwinds when your assets aren't operating at 100% and you try to byproduct in the market tells himself contractual obligations.
Speaker Change: Was that an impact in <unk> and is that something we could think about maybe not recurring moving forward.
Speaker Change: So I don't want to get into too much into the weeds here obviously.
Speaker Change: Having a safe and reliable operation has a very.
Speaker Change: Of benefits. So there is there is a reason Jason that I'm very determined about the safe and reliable.
Speaker Change: Operation, that's actually priority and without getting too much technicalities about how each one of the entity walks, we saw though I would just add that this is a commitment and that's our priority and we are I think a lot of energy into that.
Speaker Change: Related to this.
Speaker Change: Okay.
Jason: Alright, thanks for the answers.
Speaker Change: Thank you.
Speaker Change: And there are no further questions at this time I will now hand, the call back to <unk> for any closing remarks.
Speaker Change: Yes. Thank you so I want to.
Speaker Change: Thank our employees for their hard commitment for the success of this company I want to say to thank you shareholders for trusting in us and the interest is still showing you on the business I want to thank to all our customers and I want to thanks to our board of directors for their support good advice and commitment and I'll, just say I want to thank the <unk>.
Speaker Change: My colleagues here on the table.
Speaker Change: Walking dead days and nights in order to make this company what it is thank you guys.
Speaker Change: Yeah.
Speaker Change: That will conclude today's conference. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.