Q2 2024 Delek US Holdings Inc Earnings Call
Desiree: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek second quarter earnings call. All lines have been placed on mute to prevent any background noise.
Unknown Executive: Ladies and gentlemen, thank you for standing by.
Ladies and gentlemen, thank you for standing by my name statutory and I will be your conference operator today.
Desiree: My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Second Corner Erning School. All lines have been blazing mute to prevent any background noise.
Speaker Change: At this time I would like to welcome everyone to the Delek second quarter earnings call.
Speaker Change: All lines have been please on mute to prevent any background noise.
Desiree: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keybed. If you would like to withdraw a question, again, press the star one.
Speaker Change: After the Speakers' remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question again press the star one.
Robert Wright: I would now like to turn the conference over to Robert Wright, Deputy Feeville. Please go ahead.
Desiree: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. I would now like to turn the conference over to Robert Wright, Deputy CFO.
Speaker Change: I would now like to turn the conference over to Robert right Deputy CFO.
Robert: Please go ahead.
Avigal Soreq: Good morning, and welcome to the Delek US Second Corner Earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Mark Hobbs, EVP Corporate Development. Today's presentation will take place on the material that can be found on the Investor Relations section of the Delek US website.
Robert Wright: Good morning, and welcome to the Delek US second quarter earnings conference call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP, Operations; Reuven Spiegel, EVP and Chief Financial Officer; and Mark Hobbs, EVP, Corporate Development. Today's presentation material can be found in the investor relations section of the Delek US website. Slide 2 contains our Safe Harbor Statement regarding forward-looking... Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments.
Robert Wright: Good morning, and welcome to the Delek U S second quarter earnings Conference call participants joining me on today's call will include alcohol Toric, President and CEO Joseph Israel.
Robert: Operation.
Speaker Change: Spiegel, EVP and Chief Financial Officer, and Mark hub EVP corporate development today's.
Speaker Change: Today's presentation material can be found on the Investor Relations section of the Delek U S website.
Avigal Soreq: Slide two contains our State Harbor Statement regarding forward-looking statements. Any forward-looking statements made during today's call 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 SCC filings. The accompanying assumes no obligations to update any forward-looking statement.
Speaker Change: Slide two contains our safe harbor statement regarding forward looking statements.
Speaker Change: Any forward looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments.
Speaker Change: Factors that could cause actual results to differ are included here as well as in our SEC filings.
Speaker Change: The company assumes no obligation to update any forward looking statements I will now turn the call over to Albert <unk> for opening remarks Alberto.
Avigal Soreq: I will now turn the call over to Avigal for opening remarks. Avigal, thank you for all that.
Robert Wright: Factors that could cause actual results to differ are included here as well as in our SEC filings. The accompanying assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal.
Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. During the second quarter, our adjusted EBITDA was $108 million. Despite a challenging market environment, we ran our operation well. I'm proud of the ongoing progress our team is making. 10 Links to Our Strategic Priorities As I have outlined on our previous calls, Delek's key focus areas are, first, safe and reliable operations, second, unlocking the sum of the part value inherited in our system, and third, being shareholder-friendly and having a strong balance.
Avigal Soreq: Good morning, and thank you for joining us today. During the second quarter, our adjusted EBDA was $108 million. Despite a challenging market environment, we ran our operation well. I'm proud of the ongoing progress our team is making.
Albert: Good morning, and thank you for joining us today.
Speaker Change: During the second quarter, our adjusted EBITDA was $108 million, despite a challenging market environment, we are in our operation.
Speaker Change: I'm proud of the ongoing progress our team is making.
Avigal Soreq: Telling to our strategic priorities. As I have outlined on our previous calls, Delek keeps focus area R. First, safe and reliable operations; second, unlocking the sum of the part value inherent in our system; and third, being shareholder of friendly and having a strong partnership.
Speaker Change: Turning to our strategic priorities.
Delek Q: As outlined on our previous calls Delek Q focus area.
Delek Q: Safe and reliable operation second and looking into some of the pilot value inherent in our system and third being shareholder friendly and having a strong balance sheet.
Avigal Soreq: I will now focus on each one of these key priorities in detail. Safe and reliable operation is the core of everything we are trying to achieve. We have made further progress and achieved our highest throughput ever this quarter. Big Spring showed additional strong improvement, and it's on track to meet previously communicated throughput and OPEX guidance.
Delek Q: I will now focus on each one of these key priorities in the day.
Avigal Soreq: Safe and reliable operation is the core of everything we are trying to achieve. We have made further progress and achieved our highest throughput ever this quarter. Big Springs showed additional strong improvement, and it's on track to meet previously communicated throughput and OPEX guidance. Joseph and Robert will provide more details on the. Next, I would like to talk about the progress that we have made in our sum of the parts efforts. We have announced a series of transactions that will allow us to further improve our position as a safe, reliable, and efficient refinery.
Delek Q: Safe and reliable operation is the core of everything we are trying to achieve.
Delek Q: We have made further progress and achieved our highest throughput ever.
Delek Q: This quarter.
Delek Q: Because being showed additional strong improvement.
Delek Q: And it's on track to meet our previously communicated throughput and Opex guidance.
Avigal Soreq: Joseph and Robert will provide more details on this.
Speaker Change: Joseph and Robert will provide more details on this.
Avigal Soreq: Next, I would like to talk about the progress that we have made in our sum of the part efforts. We have announced a series of transactions that will allow us to further improve our position as a safe, reliable, and efficient refining. On August 1st, we announced the sale of our retail business for a total price of around $385 million. We are pleased with the transaction and the value it unlocked for DK shareholders. Our supply agreement with Tenza is for ten years. We are building a great relationship with the company and exploring additional strategic opportunities. We intend to use the deposit from the sale to improve our balance sheet and return cash to stakeholders.
Speaker Change: Next I would like to talk about the focus that we have made in our some of the efforts.
Speaker Change: We have announced a series of transactions that will allow us to further improve our position as a safe reliable and efficient refinance or.
Avigal Soreq: On August 1st, we announced the sale of our retail business for a total price of around $385 million. We are pleased with the transaction and the value it unlocked for DK shareholdings. Our supply agreement with PEMSA is for 10 years.
Speaker Change: On August 1st we announced the sale of our retail business for a total price of around $385 million.
Speaker Change: We are pleased with this transaction and the value it unlocks for Dk shareholders.
Speaker Change: Our supply agreements with FEMSA useful Danielle.
Avigal Soreq: We are building a great relationship with the company and exploring additional strategic opportunities. We intend to use deposits from the sale to improve our balance sheet and return cash to stakeholders. Now, I would like to cover the transaction between DK and DKF. We execute an amend and extend agreement. We've also decided to drop our interest in Wigged Webster into DKL. These agreements are win-win for stakeholders, both companies. The transaction is immediately accretive to DKF on an EBITDA and free cash flow basis. On July 31st, the board approved another 0.5% per share increase to regular dividends.
Speaker Change: We are building a great relationship with the company and exploring additional strategic opportunities.
Speaker Change: We intend to use the proceeds from the sale to improve our balance sheet and return cash to stakeholders.
Avigal Soreq: Now, I would like to cover the transaction between DK and DKL. We execute and amend and extend agreement. We've also decided to drop our interest in WIGT Webster into DKL. It allows DKL to acquire high quality assets without significant strain on its balance sheet.
Speaker Change: Now I would like to cover the transaction between Dk and <unk>.
Speaker Change: We execute an amend and extend the agreement we have also decided to drop our interest in linked with step into detail.
Speaker Change: These agreements are win win for our stakeholders.
Speaker Change: <unk> companies.
Speaker Change: From a dk perspective, it will bring value back to decay refineries.
detail: From a detail perspective, it allows detail acquire high quality assets without significant strain on its balance sheet.
Avigal Soreq: Today, we also announce a number of transactions for DKL. This transaction will enhance DKL positions as the full service could natural gas and water provider in the most prolific areas of the permanent base. DKL announced the FID of a new gas processing plant. The plant is synergetic, highly subscribed, and expected to exceed 20% cash from cash return. We expect the plant to come online during the first half of 2025. On the M&A front, DKL announced the acquisition of H2O Midstream for around $160 million of cash and $70 million of convertible preferred. The transaction is immediately accredited to DKL on an EBIDA and three cash flow basis.
detail: Today, we also announced a number of transactions for <unk>.
detail: This transaction will enhance <unk> position as a full service crude natural gas and water provider in the most prolific areas of the Permian basin.
detail: <unk> announced the S D.
detail: Of a new gas processing plants.
detail: The plant is.
detail: Synergetic highly subscribed and expected to exceed 20% cash on cash return.
detail: We expect the plant to come online during the first half of 2025.
detail: On the M&A front, <unk> announced the acquisition of <unk> midstream.
detail: Round $160 million of.
detail: Cash and $70 million of convertible preferred.
detail: This transaction is immediately accretive to <unk> on an EBITDA and free cash flow basis.
Avigal Soreq: For synergies, the transaction should be in the acquired multiple of around five times. This transaction puts us on a path to midstream independence and allows us to enhance the margin profile of our refineries and asset quality of our midstream businesses. The overall impact of the transaction announced by DKL and DKL is the cash infusion to DKL of over $500 million on a standard basis for little to no loss in EBIDA. For DKL, it says high quality third-party EBIDA of around $70 million, making DKL largely independent third-party midstream service provider. This transaction moves us closer along our path to midstream deconsolidation.
detail: Both synergies the transaction should be in the wild multi peril.
Speaker Change: Five times.
Speaker Change: This transaction put us on a best to midstream independence and allow us to enhance the margin profile of our refineries and the asset quality of our midstream businesses.
Speaker Change: The overall impact of the transaction announced by Dk and <unk> is a cash infusion to decay of over 500 million on a standalone basis for little to no loss in EBITDA.
Speaker Change: <unk> high quality third party EBITDA of around $70 million, making dks largely independent third party midstream service provider.
Speaker Change: This transaction move us closer along our path to midstream deconsolidation.
Avigal Soreq: We look forward to sharing with the market further steps we are taking on this road over the coming months.
Speaker Change: We look forward to sharing with the market further steps we are taking on the slope over the coming months.
Avigal Soreq: Next, I would like to highlight the progress we are making on our cost reduction efforts. When we announced our CBB effort, we added targets to reduce our cost by around $100 million. I am pleased to announce that we have completed this process ahead of time and are exceeding our regional estimates.
Next I would like to highlight the progress we're making on our cost reduction efforts.
Speaker Change: When we announced <unk>, we had the targets to reduce our cost by around $100 million.
Speaker Change: I am pleased to announce that we have completed this process ahead of time and are exceeding our internal estimates.
Avigal Soreq: Robert will provide more details around it. In addition, we are looking at ways to further increase the overall profitability of our company. The new project is not just about cost reduction, but it is about making DKL structurally linear and more profitable companies.
Speaker Change: <unk> will provide more details.
Speaker Change: Net.
Speaker Change: In addition, we are looking at ways to further increase the overall profitability of our company.
Speaker Change: The new projects is not just about cost reduction, but it's about making detail structurally leaner and more profitable company.
Avigal Soreq: We look forward to providing you with more details in the near future.
Speaker Change: We look forward, providing you with more details in the near future.
Avigal Soreq: Final piece of our strategy is our commitment to shareholder return and maintaining a strong balance sheet. During the quarter, we paid $16 million in dividends. On July 31, the board put another half a cent per share increase to regular dividend. Our quarterly dividend is now 25 and a half cents per share.
Speaker Change: The final piece of our strategy is our commitment to shareholder return and maintaining a strong balance sheet.
Speaker Change: During the quarter, we paid $60 million in dividends.
Speaker Change: Slide 35, the board approved another half a cent per share increase to regular dividend.
Speaker Change: Our quarterly dividend is now $25.05 per ship.
Avigal Soreq: Before closing, I also want to highlight that the DC Circuit over there and the EPA denial of the small refinery exemption petition under the RFF last week. Our petition has been sent back to the EPA for reconsideration. The case, along with the shape on difference, ruling, gives us important direction to the EPA as it reconsider our request. We believe the EPA should grant us the exemption we deserve under the RFF's rule.
Speaker Change: Before closing I also want to highlight that the DC circuit over the EPA denial of the small refinery exemption addition, under the RFS last week.
Speaker Change: Our petition has been sent back to the EPA for reconsideration.
Speaker Change: Case alone with the Chevron difference ruling gives us important direction to the EPA SC to reconsider our request we.
Speaker Change: We believe the EPA should grant us the exemption with Israel under the RFS.
Yeah.
Avigal Soreq: In closing, I would like to thank our entire team of over 3,500 employees, especially our decal retail employees. On a personal note, I started my journey in Delek, back in 2011, in the retail division. I have special appreciation for the hard work and dedication.
Speaker Change: In closing I would like to thank our entire team of over 3500 employees, especially our detailed retail employees.
Speaker Change: On a personal note I started my journey in Delek back in 2011 in the retail division and have special appreciation for their hard work and dedication now I would like to turn the call over to Joseph who will provide additional color on our operations.
Joseph Israel: Now, I would like to turn the call over to Joseph, who will provide the additional color on our operation. Thank you, Avigal.
Joseph: Thank you Ralph and good.
Joseph Israel: We have discussed operations excellence in the past seven quarters. Today, I am very proud to share with you operating data results, which clearly reinforce our progress as operators and demonstrate improved capabilities of our assets. Bottom line for our second quarter, safe, compliant and reliable operations led the way to a record high throughput of 316,000 barrels per day, and a favorable $5.2 cents per barrel cost rupture for low refining system. In Tyler, total throughput in the second quarter was approximately 76,000 barrels per day. Production margin in the quarter was $10.11 cents per barrel, and operating expenses were $4.83 cents per barrel.
Joseph: We haven't discussed operations excellence in the past.
Joseph: Orders and today I am very proud to share with you operating data results, which clearly reinforce our progress as operators and demonstrate improved capabilities of our assets.
Joseph: Bottom line for our second quarter safe compliant and reliable operations led the way to a record high throughput of 316000 barrels per day.
Joseph: Favorable $5 <unk> per barrel cost structure for our refining system.
Joseph: In Tyler.
Joseph: Throughput in the second quarter was approximately 76000 barrels per day.
The production margin in the quarter was $10 11 per barrel and operating expenses were $4.83 per barrel.
Joseph Israel: For the third quarter, the estimated total throughput in Tyler is in the 74 to 77,000 barrels per day range. In El Dorero, total throughput in the quarter was approximately 85,000 barrels per day. Our production margin was $2.7 cents per barrel, driven by low margin environment increased by cloudation and a relatively weak asphalt market. Operating expenses were $4.12 cents per barrel.
Joseph: For the third quarter.
Joseph: <unk> total throughput in Tyler is in the 74 to 77000 barrels per day range.
Joseph: And El Dorado total throughput in the quarter was approximately 85000 barrels per day.
Joseph: Our production margin was $2 79 per barrel driven by low margin environment increased coordination.
Joseph: In a relatively weaker fruit market.
Joseph: Operating expenses were $4 12 per barrel.
Joseph Israel: After successfully demonstrating our code oil flexibility in the first quarter, the team is pushing forward initiatives on the product side, including product diversification and logistics to support new market access optionally. Estimated throughput for the third quarter is in the 79 to 82,000 barrels per day range. In Big Spring, the successful execution of the recovery plan is well respected in our results. Total throughput for the quarter was approximately 74,000 barrels per day. Our production margin was $8.92 per barrel, and our operating expenses were $6.35 per barrel as we approach our $5.50 per barrel target range later this year.
Joseph: After successfully demonstrating our crude oil flexibility in the first quarter. The team is pushing forward initiatives on the product side, including product diversification and logistics to support new market access optionality.
Unknown Executive: Support, New Markets, Access, and Optionology after successfully addressing a liability gap.
Joseph: Estimated throughput for the first quarter is in the 79% to 82000 barrels per day range.
Joseph: In Big Spring.
Joseph: The successful execution of the recovery plan is well reflected in our results.
Joseph: Total throughput for the quarter was approximately 74000 barrels per day.
Joseph: Our production margin was $8 92 per barrel.
Joseph: And our operating expenses were six <unk> 35 per barrel.
Joseph: We approach our <unk>.
Joseph: $2 50 per barrel target range later this year.
Joseph Israel: We successfully completed a Benson's triple project at the Big Spring Refinery, which supports consent decree requirements related to Benson in wastewater, for the main focus on people, process, and equipment to ensure progress and operation stability. Estimated throughput for the third quarter is in the 69 to 73,000 barrels per day range. In Cross Springs, total throughput was approximately 82,000 barrels per day. Our production margin was $7.02 per barrel, and operating expenses in the quarter were $4.95 per barrel. Plan throughput for the third quarter is in the 79 to 83,000 barrels per day range.
Joseph: We successfully completed have been some stripping project at the Big Spring refinery, which supports consent decree requirements.
Joseph: <unk> and <unk>.
Joseph: In wastewater.
Joseph: We remain focused on people processes and equipment to ensure progress in operation stability.
Joseph: Okay.
Speaker Change: Estimated throughput for the third quarter is in the 69 to 73000 barrels per day range.
Speaker Change: In Krotz Springs total throughput was approximately 82000 barrels per day.
Speaker Change: Our production margin was seven two.
Speaker Change: <unk> per barrel and.
Speaker Change: And operating expenses in the quarter with $4 95 per barrel.
Speaker Change: Planned throughput for the third quarter is in the 79% to 83000 barrels per day range.
Joseph Israel: The team is in final stages of preparations for our fourth quarter turn out. Our implied system throughput target for the third quarter is in the 301 to 315,000 barrels per day range.
The team is in final stages of preparations for our fourth quarter Tommy.
Speaker Change: Our implied system throughput target for.
For the third quarter is in the 301 to 315000 barrels per day range.
Joseph Israel: Moving on to the commercial front, improved the challenge supplied man balances in the Midwest negatively impacted second quarter group differentials for products and asphalt netbacks. For the quarter, we reported a $34 million loss for supply and marketing. Of that, approximately $17 million loss was generated by Wholesome marketing. $5 million loss was contributed by asphalt, leaving approximately a negative $12 million contribution for supply.
Speaker Change: Moving on to the commercial front.
Speaker Change: Improved but challenged supply demand balances in the Midwest negatively impacted second quarter growth differentials.
Speaker Change: Product announcements net backs.
For the quarter, we reported $34 million loss.
Speaker Change: Supply and marketing.
Speaker Change: Of that approximately $17 million loss was generated by wholesale marketing.
Speaker Change: $5 million loss was contributed by asphalt.
Speaker Change: Leaving approximately a negative $12 million contribution for supply.
Joseph Israel: In summary, after successfully addressing the liability gaps, our teams continued to focus on operational excellence, and at the same time, advanced process logistics and commercial optimization initiatives for each one of our sites.
Speaker Change: Summary.
Speaker Change: After successfully addressing reliability gaps our teams continue to focus on operational excellence.
And at the same time advance process logistics and commercial optimization initiatives.
Speaker Change: Each one of our sites.
Robert Wright: I will now turn the call over to Robert for the financial variance. Thank you, Joseph.
Speaker Change: I'll now turn the call over to Robert for the financial volumes.
Robert Wright: Thank you Joseph I'll now move to slide 10 for the second quarter Delek had a net loss of $37 million.
Robert Wright: I will now move to slide 10. For the second quarter, Dellick had a net loss of $37 million for negative $0.58 per share. Adjusted net loss was $59 million for negative $0.92 per share, and adjusted EBITDA was $108 million.
Robert Wright: <unk> 58 per share adjusted.
Robert Wright: Adjusted net loss was $59 million or negative <unk> 92 per share and adjusted EBITDA was $108 million.
Robert Wright: On slide 11, the waterfall of adjusted EBITDA from the first quarter of 2024 to the second quarter of 2024 shows that the primary driver for the lower results was from replying to the first quarter of 2024. The $64 million decrease in refining is primarily attributable to a lower margin environment in the second quarter relative to the first quarter. Logistics had another strong quarter, delivering $101 million in EBITDA. Finally, the lower expenses in corporate are primarily due to our cost reduction efforts.
Robert Wright: On slide 11, the waterfall of adjusted EBITDA from the first quarter of 2024 to the second quarter of 2024 shows that the primary driver for lower results from refining.
Speaker Change: The $64 million decrease in refining is primarily attributable to a lower margin environment in the second quarter relative to the first quarter.
Speaker Change: Logistics had another strong quarter delivering $101 million in EBITDA.
Speaker Change: Finally, the lower expenses in corporate are primarily due to our cost reduction efforts.
Robert Wright: Moving to slide 12 to discuss cash flow. Cash flow from operations was negative $48 million. Within this amount is our net loss for the period, in addition to an outflow of $37 million related to working capital movements, including the inventory intermediation agreement. Investing activities of $63 million is largely for capital expenditures. Financing activities of $15 million reflects the 2029's detailed tax on offering in addition to timing of a cruel. This also includes $16 million in dividend payments and $14 million in distribution payments.
Speaker Change: Moving to slide 12 to discuss cash flow cash flow from operations was negative $48 million.
Speaker Change: Within this amount as our net loss for the period. In addition to an outflow of $37 million related to working capital movements, including the inventory intermediation agreement.
Speaker Change: Investing activities of $63 million is largely for capital expenditures.
Speaker Change: Financing activities of $15 million reflects the 2029 detailed tack on offering in addition to timing of accrual.
Speaker Change: This also includes $16 million in dividend payments and $14 million in distribution payments.
Robert Wright: On slide 13, we showed the actual results of the 2024 capital program and full-year 2024 forecast. Second quarter capital expenditures were $71 million. Half of this spend was in refining, primarily addressing sustaining and regulatory projects. As to the full year outlook for 2024, the original capital plan is on track at $330 million.
Speaker Change: On slide 13, we show the actual results of the 2024 capital program and full year 2024 forecast.
Speaker Change: Second quarter capital expenditures were $71 million.
Speaker Change: Half of the spend was in refining primarily addressing sustaining and regulatory projects.
Speaker Change: As for the full year outlook for 2020 for the original capital plan is on track at $330 million outside of the recent announcements.
Robert Wright: Outside of the recent gas plant announcement.
Robert Wright: Net debt is broken out between Delek and Delek Logistics on slide 14. During the quarter, we drew $96 million of cash and paid down $35 million of debt, ending the quarter with a net debt position of $243 million, including a cash balance of $658 million.
Speaker Change: Net debt is broken out between Delek and Delek logistics on slide 14.
Speaker Change: During the quarter, we drew $96 million of cash and paid down $35 million of debt ending the quarter with a net debt position of $243 million.
Speaker Change: Including a cash balance of $658 million.
Robert Wright: Slide 15 covers outlook items. In addition to the guidance Joseph provided for the third quarter of 2024, we expect operating expenses to be between $205 and $250 million. In GA to be between $60 and $65 million. Our third quarter outlook for operating expenses and GNA is around $272 million. As Abigail mentioned, this exceeds our original target of $100 million in savings through our cost reduction efforts on a run-rate basis. As to other guidance, DNA is expected to be between $90 and $95 million, and that ends with expense to view between $80 and $85 million.
Speaker Change: Slide 15 covers outlook items.
Speaker Change: In addition to the guidance Josef provided for the third quarter of 2024, we expect operating expenses to be between 205 and $215 million.
Speaker Change: And G&A to be between 60 and $65 million.
Speaker Change: Our third quarter outlook for operating expenses and G&A is around $272 million.
Speaker Change: As Albert mentioned this exceeds our original target of $100 million in savings through our cost reduction efforts on a run rate basis.
Speaker Change: As to other guidance DNA is expected to be between 90, and $95 million and net interest expense to be between 80% to $85 million.
Desiree: We will now open the client for questions. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to read your question, simply press star one again.
Speaker Change: We will now open the line for questions.
Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to read your question simply press Star one again.
Desiree: If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset to ensure that your phone is not unneeded when asking your question. Again, press star one to join the queue.
Speaker Change: If you are called upon to ask your question and our listening via Speaker phone device. Please pickup your handset to ensure that your phone is not on mute when asking a question again press star one to trying to queue.
Manav Gupta: Your first question comes from the line of Manav Gupta with UBS. Your line is open.
Your first question comes from the line of Manav Gupta with UBS. Your line is open.
Manav Gupta: I will start with 14 itself. Trying to understand, here is a big difference between delicate and consolidated depth.
Manav Gupta: Hey, guys. Since you just spoke about it I'm going to start with slide.
Manav Gupta: For 14 itself playing to understand here.
Speaker Change: Obviously, there's a big difference between delek depth and consolidated debt and so what more can be done.
Manav Gupta: What more can be done in this year? Eventually, you basically get to a situation where those two numbers start converging, and you are not holding on to this additional depth. Trying to understand what can be done more to be consolidated, then.
In this year and so eventually you basically get to a situation where those two numbers stock kind of converging.
Speaker Change: Converging and Youre not holding onto this initial in depth. So trying to understand working that model began to deconsolidation that depth here.
Avigal Soreq: Yeah, Manav, thank you for joining us today.
Speaker Change: Yeah Manav. Thank you for joining us today I will start with giving highlight the overview of what we're trying to do and how we get the executives to the points you just mentioned.
Avigal Soreq: I will start with giving highlight all of you what we're trying to do, and I will get exactly to the points you just mentioned. As you see in this quarter, we have an unwavering commitment to show an investor both the decay, decay, the value of some of the product and what we were driving to this target very aggressively. We are able to do in the same quarter to build by self and deal with the complex conflicted transaction between decay and decay, all of that on the same time.
Speaker Change: As Youll see in this quarter, we have an unwavering commitment.
Speaker Change: To ensure investable.
Speaker Change: Both the dk detail the value of some of the partners.
Speaker Change: And we were driving to this target very aggressively we are open to doing the same quarter to build by cents and deal with the complex conflicted the transaction between Dk and <unk> all of that on the same time, that's a huge a testimony of the.
Avigal Soreq: That's a huge testimony of our commitment to bring that value to stakeholders, along with the strong execution to do all of that at the same time. To be more specific, Manav, you remember I've said it over and over last quarter that the availability of over $800 million we created during March, March and April of March and April earlier this year will create us the ability to go to the next step. That's exactly what we did at this quarter. On the, from a decay standpoint, we improved cash balance. We have a minimal impact on EBITDA, and what we basically did on the third point on the decay, we did economical swap of asset.
Speaker Change: Our commitment.
Speaker Change: To bring that value to stakeholders and long.
Manav Gupta: With the strong execution to do all of that on the same time to be more specific here manav, you'll remember I've said it over and over the last quarter that the availability of over $800 million. We created during the March medicine editorial of.
Manav Gupta: Managing ethylene LLC will create us the ability to go to the next step that's exactly what we did this quarter on the phone.
Speaker Change: Dk standpoint, we improved cash balance we have a minimal impact on EBITDA and what we basically did on the third point on the <unk>. We did economical swap of assets basically moved one asset from one company to another company and vice versa economically and put everything.
Avigal Soreq: We basically moved one asset from one company and to another company and vice versa economically and put everything on the right bucket and making ourselves de-conciliate the consolidation ready.
Speaker Change: On the right bucket and making ourselves deconsolidation deconsolidation consolidation.
Avigal Soreq: That's huge. From a decay standpoint, we were able to do while doing all of that, we were able to go to EBITDA, increase their party income and have seven year and man to expand huge steps. In the future, you will see us taking additional steps towards the consolidation.
Speaker Change: Huge.
Speaker Change: From a D can standpoint, we were able to.
Speaker Change: While doing all of that we're able to good EBITDA in case their part the income and have seven year amend and extend huge steps.
Speaker Change: In the future you will see us taking additional steps.
Speaker Change: Towards the consolidation so that was a huge quarter for us in multiple countries.
Avigal Soreq: So that was a huge quarter for us, and more to come.
Manav Gupta: Perfect. So you kind of mentioned about putting the right assets in the right bucket, and one of the things that Delic is flagged out is like the EBITDA for barrel is less competitive versus some of your peers, so trying to understand based on the transactions you have done with D.K.L. So are some of those assets now going to sit within refining.
Speaker Change: Okay. So you kind of mentioned about putting the right assets in the right bucket and one of the things that Delek has flattened out as like the EBITA per bottle yourself competitive versus some of your peers. So trying to understand based on the transactions you have done with <unk>.
Speaker Change: Some of those assets now go to fit within refining so the capture of for the back half on a same crack environment.
Avigal Soreq: So the capture or for the battle, like for the same crack environment, would we should we expect a better EBITDA for barrel. Now the assets are in the right buckets. Yeah, man, have you got it exactly right. We were bringing back the value over time while going to D.K.L. and that's going to improve the decay capture rate in the refining. So that's exactly what I have to do, and you got it exactly right. So D.K.L. and D.K.L.
Speaker Change: Should we expect a better EBITDA per barrel now that the assets are in the right buckets.
Yeah, Manav, you've got it exactly right, we were bringing back their volume over time, while growing <unk>.
Speaker Change: And thats going to improve the decay encapsulating the refining so that's exactly what we'd like to do.
Randy: You got it exactly right, so dk and decay in going to be considered the deconsolidation Randy.
Avigal Soreq: are going to be a deconsolidation ready. You got it exactly right.
Speaker Change: You got it exactly right.
Unknown Executive: Okay.
Manav Gupta: Sorry for the last class, very quick one on SREs. Help us understand what your position is. Why you feel, you know, you should be given those SREs? And to be honest, like does it really, really matter if the real price is 50 cents a gallon.
Speaker Change: Okay, and sorry for the last Las Vegas Lake one on <unk> help us understand what our position is why you feel you should be given those <unk> and to be honest I think that's it really really matter if the RIN prices 50, a gallon.
Avigal Soreq: Yeah, so we were very pleased with the court ruling 10 days ago. It was on Friday. I think the court made the right decision, and that's something we need to get, and then I hope we will get.
Speaker Change: Yes. So we were very pleased with the court ruling.
Speaker Change: 10 days ago It was on Friday.
Mohit: I think the court made the right decision and that's something we need to get and hope we will get but there Mohit why don't you give some more color around that.
Avigal Soreq: Why don't you give some more color around that. Yeah, Manav, I think from our company standpoint, if you look at Friday's ruling from DC Circuit Courts, it was a very positive move from 2018 to 2020.
Mohit: Yes, Manav I think from a company standpoint, if you look at.
Mohit: Friday's ruling from DC circuit courts, and it was a very positive move.
Speaker Change: From 2018 to 2020, I'm, just going to give you some facts about how it has played out for us from 2018 to 2029 petitions for dinner.
Avigal Soreq: I'm just going to give you some facts about how it has played out for us. From 2018 to 2020, nine petitions were denied for us. And in order for us to meet the requirements under the RFF, we spent approximately $300 million during that time. We're still eligible after 2021 to apply for more SREs, but we have not done that. However, between 2018 and 2020, we spent $300 million to meet our obligations under the RFF's requirement.
Speaker Change: Denied for us and in order for us to meet the requirements under the RFS. We spent approximately $300 million during that time, we are still eligible after 2021 to apply for more srs, but we have not done that but between 2018 and 2020, we spent 300.
Speaker Change: To meet our obligations under the RFS requirement, we don't know whats going to happen from here.
Avigal Soreq: We don't know what's going to happen from here. EPA can appeal more, but we think this court ruling is extremely positive, and that's how we are viewing it so far.
Speaker Change: <unk> can appeal more but we think this court ruling is extremely positive and thats, how we are doing it so far.
Unknown Executive: So congrats on all the restructuring, and congratulations to Mohit on his new role. Thanks, guys. Yeah, we're excited about it. He's excited about it. You're excited about it. We're in good shape.
Speaker Change: Congrats on all the restructuring and congratulations to Mohit on his new role. Thanks, guys. Yeah. We're excited about that he is excited about the <unk> budget, we are in good shape.
Joe Lage: Our next question comes from the line of Joe Lage with Morgan Stanley. Your line is open.
Joseph Laetsch: Our next question comes from the line of Joe Laetsch with Morgan Stanley. Your line is open.
Our next question comes from the line of Joe <unk> with Morgan Stanley. Your line is open.
Joe Lage: Hey, thanks for taking my questions, and congrats on progressing some of the parts effort here. So I know you touched on it a bit in the prepared remarks, but I just hope I did dive into a little bit more on the use of proceeds from the transactions. Just I know you met you putting on the button towards the balance sheet.
Joe: Hey, Thanks for taking my questions and congrats on progressing the sum of the parts effort here.
Joe <unk>: So I know you touched on a bit in the prepared remarks, but I just was hoping to dive into a little bit more on the use of proceeds from the transactions.
Speaker Change: I know you mentioned, putting on apartments towards the balance sheet. How much is there to go on that front. Thank you, yes, absolutely I will touch on that globally, we have communicated in the past about our cash and cash allocation strategy just to remind everyone. The dividend maintain strong growing dividend through the cycle, we just increased our dividend again.
Joe Lage: How much is there to go on that front? Thank you.
Avigal Soreq: Yeah, absolutely.
Avigal Soreq: I will touch on that gladly. We have communicated in the past about our cash allocation strategy. Just to remind everyone that dividend maintained, strong, growing dividend throughout the cycle. We just increased our dividend again by 2% this last few days, so we are very proud of our ability to maintain, sustain, and grow our dividend. We have a balanced approach between improving the balance sheet and the buyback. We see a lot of value in our share price, and we'll give more details on that.
Speaker Change: And by 2% this last.
Speaker Change: Last we last few days. So we are very proud of our ability to maintain and sustain and grow.
Speaker Change: Our dividend, we have a balanced approach between improving the balance sheet and the buyback.
Speaker Change: We see a lot of value in our share price and we'll give more details on that one transaction or close the late Q3 early Q4. Thank you for the question.
Avigal Soreq: Once transactions are closed, they'll let you take you three.
Avigal Soreq: Thank you for the question. Thank you.
Speaker Change: Thank you just a quick follow up how should we think about the tax implications from the recent transactions.
Joe Lage: Just a quick follow up.
Joe Lage: How should we think about the tax implications from the recent transactions? Thank you.
Robert Wright: Yeah, absolutely.
Speaker Change: Yeah, absolutely so when you want to take that.
Robert Wright: So who do you want to take that? Sure. On the retail front, there will be some tax leakage. It's not material, but we are working on the structure to minimize that. As far as the related party to transaction, the taxes are residual.
Speaker Change: Sure on the <unk>.
Speaker Change: Retail front.
Speaker Change: There will be some tax leakage, it's not material, but we are working on the structure to minimize that as far as the related party transaction the taxes are residual.
Speaker Change: Yeah.
Joe Lage: Great. Thank you all.
Speaker Change: Great. Thank you all.
Speaker Change: Okay.
Mail Method: Next question comes from the line of mail method with Goldman Sachs. Your line is open.
Speaker Change: Next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open yes.
Mail Method: Yeah, good morning, team, and congrats on the announcements today. I guess the new corporate structure really does help to simplify things in a way that I think it could be easier to do larger scale M&A at the DKL level. I just be curious on does this get you one close step closer to deconsolidation? Yeah, absolutely. That's the all point of this deal. We are putting the right asset economically under the right ownership and right structure so that they make DKL, and we prepared a full deck for DKL. I think for the first time they chose the DKL by the second half of 2020. By the second quarter of 2025, going to be largely two third third party income.
Neil Mehta: Yes, good morning, good morning team and congrats on the announcements today I guess.
Speaker Change: The new corporate structure.
Neil Mehta: It really does help to simplify things in a way that I think it could be easier to do larger scale M&A at the dk level I'd just be curious on does this get you one close step closer to deconsolidation.
Speaker Change: Yes, absolutely new that store point of this deal.
Speaker Change: We are putting the right assets economically underwrite ownership structure, so that they make a decay in.
Speaker Change: <unk> prepared the fully index will detail I think for the first time that shows the detail by the second half of 2020 by the second quarter of 2025 going to be largely to third.
Speaker Change: Part of the income so thats, a huge step in making <unk>.
Mail Method: So that's a huge step in making a really full value for all those assets. So the answer is absolutely. That's our intention.
Speaker Change: Full value for those assets. So the answer is absolutely that's our intention.
Joseph Israel: We have an asset in a premier location in the permanent basin, and we are providing all products around that crude, water, and gas, and very proud of the clear strategy that we have for DKL, and that value in M&A will reflect itself over time.
Speaker Change: We have an asset and you put a mirror location in the Permian basin, and we are providing old product around it.
Speaker Change: Good.
Speaker Change: Water and guests and very proud of the clear.
Speaker Change: Strategy that we have for <unk> and that they value and M&A will reflect itself over time.
Joseph Israel: Thanks, Avigal, and the follow-up is on slide nine. It is helpful to see the margins by asset. There's a lot of dispersion here. I mean, Dorada seems like it had a little bit of a tougher quarter, and Tyler's big spring performed very well.
Speaker Change: Thanks have a gallon the follow up is on slide nine.
Speaker Change: It is helpful to see the margins by asset and there is a lot of dispersion here I mean, <unk> seems like it had a little bit of a tougher quarter and Tyler and Big spring performed very well. So when you look at that spread what stands out to you and how does that affect the way we should think about the go forward.
Joseph Israel: So, when you look at that spread, what stands out to you and how does that affect the way we should think about the go forward? Yeah, absolutely. There is extreme focus of El Dorado in terms of a commercial improvement because the asset is performing very well operationally, but the Joseph will give a more caliber on that. Yes, similar to our pills in the second quarter, we faced the following events. One was low margin, including the lower capture that comes with that; two is increased back rotation, which increased our acquisition price. Three is co-productive weakness, which for us in El Dorado is many asset.
Speaker Change: Absolutely there is extreme focus of <unk> in terms of <unk>.
Speaker Change: Commercial improvement because the asset is performing very well operationally, but that Joseph will give you more color around it.
Speaker Change: Similar to our peers in the second quarter, we faced the following headwinds one with low margin, including the lower capture that comes with <unk>.
Increased Mark Foundation, which increased our crude acquisition price threes co product.
Speaker Change: Weakness, which forcing them to win the reasons mainly asphalt.
Joseph Israel: Similar to Midwest refining pills, we faced an old supplied Midwest market with the under seasonal trends for a goodness. On a strategic level, I want to make it very clear, we're very happy with our configuration. We believe it's healthy upstream, and the downstream team is doing a great job operating and optimizing the plants on a consistent basis. Our opportunity is clearly around alternative market access when the goods are low. So, what we have done so far, we identified a strategic market destination, and we are now executing on the logistics and put up suffering aspect of that execution.
Speaker Change: Similar to Midwest refining peers, we've faced.
Speaker Change: And also on supply Midwest market will be under a seasonal trends.
Speaker Change: Today's call and a strategic.
Speaker Change: <unk>.
Speaker Change: Okay very clear.
Speaker Change: Really happy with our configuration, we believe it's healthy upstream and downstream team is doing great.
Speaker Change: Great job operating and optimizing the plants.
Speaker Change: Consistent basis, our opportunities clearly around and penalties market taxes, when the group piece.
Speaker Change: Hello.
Speaker Change: What we have done so far we identified and strategic market destinations.
Speaker Change: We are now executing on the logistics and product offering aspect.
Speaker Change: Execution.
Joseph Israel: I'm really, this is not rocket science, and I'm expecting in the next earning call, we will be able to demonstrate actual progress and talk about our path forward. And one last thing, I'll say the obvious: we have five weeks into the third quarter, and the Midwest balances have improved, and we definitely see the positive impact on both the refinery and the wholesale margins.
Speaker Change: I'm really this is mark rocket science.
Speaker Change: I'm expecting in the next earnings call, we will be able to demonstrate actually progress and talk about past four.
Speaker Change: Sure.
And one last thing.
Thanks <unk>.
Speaker Change: We have five weeks into the third quarter and the Midwest balances improved and.
Speaker Change: We definitely see the positive impact on both the refinery and the wholesale model.
Joseph Israel: I leave it there. Thanks, Joseph.
Speaker Change: I'll leave it there.
Joseph: Thanks Joseph.
Matthew Blair: Next question comes from the line of Matthew Blair with 50 pH; your line is open. Thank you, and good morning. I want to jump into the supply and marketing improvement in the second quarter, because you talked about what helped you out there, and then Joseph, I think you touched on a little bit. But it sounds like the outlook for key three is improving on the wholesale side. What about the asphalt side, the expecting tailwind from lower crude prices in key three. Yeah, thank you for the question. Matt, we do see an improvement by Joseph.
Speaker Change: Next question comes from the line of <unk>.
Speaker Change: Matthew Blair with BPH Your line is open.
Matthew Blair: Alright, Thank you and good morning, I wanted to jump into the decline in marketing improvement in the second quarter could you talk about.
Matthew Blair: I hope you're out there and then Josef you touched on a little bit it sounds like the outlook for Q3 is improving on the wholesale side what about the asphalt side do you expect any tailwind from lower crude prices in Q3.
Matthew Blair: Yeah.
Matthew Blair: Thank you for the question, we do see an improvement by Joseph <unk>.
Joseph Israel: We'll touch on that a bit more, please, Joseph. Yes, on the wholesale marketing again, it's when the Midwest market is not flooded with markets, we have better options on pricing and moving the product, and you will see our results improving on the asphalt side. We have a rust out of the asphalt season this year with wet weather conditions that made a roofing and paving challenging. We're expecting to go back to the normal rain. Sounds good.
Speaker Change: We'll touch on that a bit more please.
Speaker Change: Yes, so on the wholesale marketing again.
Speaker Change: <unk>.
Speaker Change: When the Midwest market is not flooded with markets.
Speaker Change: <unk>.
Speaker Change: Better options on pricing and moving the product and you will see the results improving on the Oxford side that we have.
Speaker Change: Russ.
Oxford: Oxford season this view.
Oxford: With winter conditions, the Canadian roofing painting challenging we are expecting to grow back to that.
Russ: Two the normal range.
Russ: Sounds good.
Joseph Israel: And then on the renewable beeful side, I think at one point, there was hope that that plant and baker's field would start up in the first half of the year. Has that happened yet? So it didn't happen yet, and maybe I will let the role built out that you see fall to answer that question is closer to that. Yeah, I think it's something we are monitoring. We have we have ongoing dollars. We are monitoring their publicly filed information, and today no decision has been made, and no decision has to be made until they meet some requirements of the plant coming up and running.
Speaker Change: And then on the renewable diesel side I think at one point there was hope that that client in Bakersfield with start up in the first half of the year.
Speaker Change: Has that happened yet.
Speaker Change: And so it didn't happen yet and maybe I will let the all built our CFO to answer that question is closer to that yes.
Unknown Executive: Yeah, I think it's something we are we are monitoring we have we have ongoing
Speaker Change: I think it's something we are we are monitoring we have ongoing dialogue with them. Obviously, we are monitoring there.
Speaker Change: Publicly filed information.
Speaker Change: Today's no decision has been made I noticed doesn't have to be made until they meet the requirements of the plants coming up and running.
Speaker Change: Yeah.
Joseph Israel: Great. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: Thank you thank you Matt.
John Royall: All right, the next question comes from the line of John Royall with JP Morgan.
Speaker Change: Our next question comes from the line of John Rajala with Jpmorgan. Your line is open.
John Royall: Their line is open. Hi, good morning.
John Rajala: Hi, Good morning, Thanks for taking my question and congrats on the transactions today.
John Royall: Thanks for taking my question, and congrats on the transactions today. I want to start with just a high level, some of the parts question. It's been a 40 of announcements with retail and several incremental items with this print. How close to complete do you think you are with just some of the parts effort after these deals are closed. You've mentioned more to do on the deconsolidation side at DKL and presumably also on the third party size to get that entity that's a fully third party. So you can talk about what ending you're in and anything else you can offer on the next steps.
John Rajala: I wanted to start with just a high level some of the parts question.
Speaker Change: It's been a flurry of announcements with with retail and several incremental items with this print.
Speaker Change: How close to complete do you think you are.
Speaker Change: With the sum of the parts separate after these deals are closed.
Speaker Change: Mentioned more to do on the deconsolidation side at Teekay.
Speaker Change: And presumably you're also on the third party side to get to that entity for a third party. So you can talk about what inning, you're in and anything else you can offer on the next steps.
Avigal Soreq: Absolutely. So in order to get all of those deals done and you know that you're close to that you're close to the story long enough, you need to make sure that right assets are on the right bucket and we are starting to make those separation as we speak. While doing that, we maintain and grow the DKL EBDA to make it the third party dominant and to make it ready for next steps. All of those steps were completed, and we are ready for deconsolidation when the opportunity presents itself.
Speaker Change: Yes, absolutely so.
Speaker Change: In order to get all of those deals done and you know that you're close to that you're close to the story long enough you need to make sure the right asset they own.
Speaker Change: The ice bucket and we are starting to make those separation as we speak.
Speaker Change: While doing that we maintain and grow the DKNY.
Speaker Change: EBITDA to make it the first part the dominant and to make it ready for our next steps all of those steps were completed and we are ready to deconsolidation window post the IPO.
Speaker Change: 20%. It is mark if you want to add anything on that Michael was very close to those deals and was able to buy.
Mark Hobbs: Mars, please, if you want to add anything around that Markov, he was very close to those deals and was able to build by sale and deal with all those intercompany transactions, all of that on the same time. Absolutely. Thanks, Abigail. Thanks for the question, John. I think you highlighted it and appreciate that, but the transactions that we've announced at DKL last week and today do mark significant progress on our some of the parts journey. You know, as you know, we've highlighted and are extracting the value of our retail operations, but I think importantly, which has already been cited on this call, is through the DKL related announcements will reducing that interdependence between DKL and DK.
Mark: Buy sell.
Mark: We'll resolve those intercompany transaction all of that on the same time, so they don't absolutely yeah. Thanks, Alvaro and thanks for the question John.
John Rajala: Thank you.
Speaker Change: You highlighted it and I appreciate that but the transactions that we've announced a decay in detail last week and today. They do mark significant progress on our some of the parts journey as you know we've highlighted in our extracting the value of our retail operations, but I think importantly, which has already been cited on this call is through the <unk>.
Speaker Change: K detail related announcements, we're reducing that interdependence between detail on decay and with Wink to Webster dropping the expansion of the gas processing capacity in the Delaware the purchase of H <unk> midstream combined they will add substantial third party business to detail and I think as we consider.
Mark Hobbs: And with went to Webster dropping the expansion of the gas processing capacity in the Delaware, the purchase of H2O mystery, you know, combined, they will add substantial third party business to DKL. I think as we consider deconsolidation, you know, kind of down the road in the pathway for that, we're in a much better position than we were prior to these announcements.
Speaker Change: <unk> deconsolidation.
Speaker Change: Down the road in the pathway for that.
Speaker Change: Better position than we were prior to these announcements.
Speaker Change: Yes.
John Royall: Great. Thank you.
Speaker Change: Great. Thank you and then my follow up is just on the cost side.
John Royall: And then my follow-up is just on the cost side. I think you've mentioned moving into kind of a phase two of taking out costs after completing the 100 million early.
Speaker Change: I think you've mentioned moving into kind of a phase two of taking out cost after completing the 100 million early.
Avigal Soreq: During a detail, you can give us on that second phase and what might be some of the components of those savings and anything in order of magnitude relative to the first 100 million. So we are taking that very seriously. It's going to impact more aspects of the business. We didn't give guidance around it, but everything is in motion and will be more specific around that very, very soon. So stay tight.
Speaker Change: Is there any detail you can give us on that second phase and what might be some of the components of those savings.
Speaker Change: And everything in order of magnitude relative to the first $100 million.
Speaker Change: Yeah.
Speaker Change: So we're taking that very seriously.
Speaker Change: It's going to impact.
Speaker Change: More aspects of the business, but we didnt give guidance around it but everything is in motion and will be more specific around that.
Unknown Executive: We didn't give guidance around it, but everything is in motion, and we'll be more specific about it very, very soon.
Speaker Change: And very very soon.
Speaker Change: So stay tight.
Roger Read: Thank you. Next question comes from the line of Roger Read with Wells Fargo.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Roger read with Wells Fargo. Your line is open.
Roger Read: Here line is open. Yeah, thank you.
Yes, Thank you and good morning Ann.
Roger Read: Good morning, and I have my congratulations on progressing some of the parts restructuring here. Here, maybe this question is for Joseph. You know, you've been working hard to get big springs up. You made the comments here earlier about, you know, some work around El Dorado, but as we think about bringing the support pieces back into, I believe, three of the four refineries. What's the right way for us to think about that in terms of enhancing the cash flow or EBITDA generation of these units?
Roger Read: I'll add my congratulations on progressing the sum of the parts restructuring here.
Speaker Change: Maybe this question is for Joseph.
Speaker Change: <unk> been working hard to get Big Springs, you made the comments here earlier about some work around El Dorado, but as we think about.
Speaker Change: Bringing the support pieces back into I believe three of the four refineries, what's the right way for us to think about that in terms of enhancing the cash flow or EBITDA generation of these units.
Joseph Israel: Are you asking about all refineries or where El Dorado and Big Spring specifically? Well, I was more citing the, I think the progress at Big Spring. You mentioned El Dorado, but I was just curious as we think about, you know, deconsolidating detail and bringing the assets back in. I'm presuming that's also going to be margin enhancing. So, you know the progress you've made, the other changes you want to make. And then what's the right way to think about margin enhancement from bringing the support assets back into DK?
Speaker Change: Are you asking about own refineries were.
Speaker Change: <unk> big screen specifically.
Speaker Change: Well I was more siding.
Speaker Change: The progress at Big Spring, you mentioned El Dorado, but I was just curious as we think about.
Speaker Change: <unk> consolidated decal and bringing assets back in I'm presuming, that's also going to be margin enhancing so.
Speaker Change: The progress you've made the other changes you want to make and then what's the right way to think about margin enhancement.
Speaker Change: From bringing the support assets back in two D K.
Joseph Israel: Yeah, Roger. So, you know, it is amazing when six reliability, not only in the throughput aspect in the calculation and the optics are more favorable in the contribution. It is amazing what we can do and what we are doing with our leadership teams. As far as handling all the optimization opportunities for which one of the sides, and this is what we basically switch to do. So, we have more octane capability, where we can drive more Azerbaijan from Big Spring to the right-air markets. We can sell more higher-octane products, including aviation fuel from Tyler. We can convert some of the diesel we make to jet fuel.
Speaker Change: Yes, Joe So it is amazing when chicks liability.
Speaker Change: Not only in the throughput task in the calculation and the Opex.
Speaker Change: A more favorable and the contribution it is amazing what we can do and what we are doing with our leadership teams.
As far as the hen.
Speaker Change: Handling on the optimization opportunities fully.
Speaker Change: One of the sites and this is what we basically.
Switch to do we have.
Speaker Change #100: We have more octane capability, where we can drive more as a bump from big spring to the right payer markets, we can sell more higher octane products, including aviation fuel.
Speaker Change #100: Tyler.
Speaker Change #100: We can.
Speaker Change #100: Convert some of the season, we make too to jet fuel and this is what the system is driving and displays this optimization.
Joseph Israel: And this is what the system is driving these days.
Mark Hobbs: This optimization, Mark, do you have more to that?
Speaker Change #100: Mark do you have more to add.
Mark Hobbs: Yeah, Roger. I guess to your question, and I know Avogall has stressed it a little bit earlier on the call, but the announcements between DK and DKL, you're exactly right. I mean, they're effectively an economic exchange of assets, sort of not a physical exchange of assets, but amending and extending the contracts, you know, accomplished a couple of things, right?
Mark: Yeah, Roger I guess due to your question.
Mark: No Avago is stressed it a little bit earlier on the call, but the announcements between dk and detail you're exactly right I mean there.
Speaker Change #101: Effectively an economic exchange of assets sort of not a physical exchange of assets, but amending and extending the contracts accomplished a couple of things right. The extension of the contracts for up to seven years.
Mark Hobbs: The extension of the contracts for up to seven years, you know, frankly, removes a pretty big overhang on the DKL units and the uncertainty that we know existed in the market with respect to those contracts. But importantly, it also means that we're through the amendment of the contracts that we're improving the overall, you know, DK refining profitability going forward and enhancing future capture rates, right? And to your point, that does touch specifically Big Spring, you know, El Dorado, and Tyler over time to the moves that we've announced today.
Speaker Change #101: Frankly removes a pretty big overhang on the detail units and the uncertainty that we know existed in the market with respect to those contracts, but importantly, it also means that we're through the amendment of the contracts that were improving the overall dk refining profitability going forward and enhancing future capture rates right.
Speaker Change #101: And to your point that does touch.
Speaker Change #101: Specifically big spring El Dorado, and Tyler overtime to the moves that we've announced today.
Unknown Executive: Okay, do we have any questions?
Speaker Change #102: Okay I understood your question.
Unknown Executive: Well, I think it's going to be something that evolves, but I'll take it offline with Moetness. I appreciate your clarity here.
Speaker Change #103: Well I think I think it's going to be something that evolves, but I'll take it offline.
Speaker Change #103: And.
Speaker Change #104: But I appreciate your clarity here. Thanks.
Unknown Executive: Thanks. Perfect.
Unknown Executive: Thank you.
Speaker Change #104: Perfect. Thank you.
Speaker Change #104: Yeah.
Paul Cheng: Next question comes from the line of Paul Cheng with Scotia Bank.
Speaker Change #104: Next question comes from the line of Paul Cheng with Scotiabank. Your line is open.
Paul Cheng: Your line is open. All right.
Paul Cheng: Good morning, guys. I have to first apologize.
Paul Cheng: Hi, good morning, guys.
Paul Cheng: I have two first I apologize I still want to go back into what the morning Jay.
Paul Cheng: I still want to go back into what moisture. Can you quantify for us or share with us the content extension? How much is the lower fee that the DK will pay to DKL on a career basis? And also that you I think maybe either I miss it or you didn't close. What's the price tag that you sell the wind and west, west pipeline down to DKL? We saw on your presentation you saying that DKDKL transaction net cash 130 million. So we assume that is the selling price, and what is the iftar associated with wind and west that you currently receiving?
Paul Cheng: Can you quantify for us what that share with us with the contract extension how much is.
Speaker Change #106: Lower the debt.
Speaker Change #107: The decay.
Speaker Change #108: Pedro TKL on a per year basis, and also with that did you I think maybe I misread it or you didn't disclose.
Speaker Change #107: Yes.
Speaker Change #107: Hi.
Speaker Change #107: Yeah.
Speaker Change #109: You sell a win in the west.
Tom: Hi, Tom.
Speaker Change #107: So.
Speaker Change #110: We saw in your presentation, you're saying the Dk TKO.
Speaker Change #112: Ken session net cash of 130 million should we assume that yesterday astounding price and what is the EBITDA associated with it.
Speaker Change #113: When the investment.
Speaker Change #114: That you're currently receiving.
Paul Cheng: Yeah.
Speaker Change #114: Yes.
Avigal Soreq: Paul, thank you for the detailed question. And you can also assume that W to W value is basically it's a one of series of transactions between DK and DKL, and we provide you guys the net the net number. So you can also assume that number. So the value of W to W is a market for that, and it's pretty straightforward about the valuation of that asset. You need to assume that we are reduced over time the contract between DK to DKL in order of it's going to be over time of order of negative of 60 million dollars that's going to come between DKL from DKL back to DKL while DKL is building the EBDA with the deal we announced.
Paul Cheng: Yes, Paul Thank you for the detailed question and you cannot assume that the W. W. W. A value is basically it's a one of a series of transaction between Dk and <unk> and we provide you guys. The net.
Paul Cheng: Net number so you cannot just assume that number so the value of Ww there is a market for that and it's a pretty.
Paul Cheng: The state for wallboard, the valuation of that asset you need to assume that we are reduced over.
Paul Cheng: Over time, the contact between Dk to detail in the order of it is going to be over time, a waldorf magnitude of $60 million, that's going to come between dk form detail back to decay, while <unk> is building the EBITDA.
Paul Cheng: With the deep with the deal we announced so all in all <unk> theyre going to grow the capture rate in dk going to look and be better because of devaluation of $60 million.
Joseph Israel: So all in all, DKL EBDA are going to grow. The capture rate in DK are going to look and be better because of the valuation of 60 million dollars that we have, and we still have like 20 percent of the contract to down the road to a deal between DK to DKL.
Paul Cheng: That we have and we still have like 20% of the contact to add down the road with Dnb.
Paul Cheng: Still between Dk to decay and that's the full picture.
Joseph Israel: That's the full picture.
Paul Cheng: Okay, so you're not going to disclose to us that what's the actual selling price or drop down price for Webster and also the contract extension, I suppose. Unfortunately, I can't.
Speaker Change #115: Okay, So youre not going to disclose to us that what's the actual selling fine dropdown price fall.
Speaker Change #115: Webster and also with the contract extension I suppose.
Speaker Change #116: Fortunately I am.
Speaker Change #115: Fortunately I cant okay.
Joseph Israel: Okay, the second question is for Joseph. Brick Spring that you've been working on the restructuring and improve optimization. As of now that there's all the effort you've done and other than say you're talking about how you may be still looking at same different products, different markets, other than that for a manufacturing standpoint is all the changes or all the improvement you're trying to make is already done by at this point. Yeah, so I think on the course structure we graded the market the 550 target, and the discord we have about 85 cents per barrel over that in Big Spring.
Unknown Executive: Okay, the second question is for Joseph. BrickSpring, you've been working on the restructuring and improved optimization. As of now, that is all the effort essentially done. And other than say, you're talking about how you may be still looking to send different products to a different market. Other than that, from a manufacturing standpoint, all the changes or all the improvement you're trying to make are already done at this point.
Speaker Change #116: The second question is on Joseph a.
Speaker Change #117: Break spring.
Speaker Change #117: <unk> been working on structuring and improve optimization as.
Speaker Change #117: As of now.
Speaker Change #118: All of the Athlon essentially done and other than say you were talking about how you may be still looking at span different products to different markets.
Speaker Change #119: And that from a manufacturing standpoint.
Speaker Change #119: Changes or the improvements you're trying to make is already done.
Speaker Change #119: At this point.
Speaker Change #120: Yes, so I think on the cost structure and we guided the market.
Speaker Change #121: Key target.
Speaker Change #122: This quarter, we have about 85 cents per barrel.
Speaker Change #122: In Big Spring. So the reason is we have.
Joseph Israel: So the reason is we have several special programs still going on for long term improvements. As they go away by year end, we will be at the 550 target, and we believe that will be sustainable. Now to my point I made before: when you stop playing defense, you can start working on your offense, and we have a lot of great ideas in Big Spring. It's a great asset, and we have a lot of room there on the octane side and the feedstock side that we will look very closely and move forward. All right, we do.
Speaker Change #122: Especially on programs still ongoing on fully longer term improvements as they go away by year end, we will be at the <unk> target and we believe that will be sustainable.
Speaker Change #122: The point I made before when you stop playing defense you can.
Speaker Change #122: Okay working on your offense and we have a lot of great ideas in big spring.
Speaker Change #122: Great asset and we have.
Speaker Change #122: A lot of room.
Speaker Change #122: Dave on the octane side and the feedstock side that we really look clearly closely and move forward.
Speaker Change #123: Alright, alright, thank you.
Unknown Executive: Thank you.
Speaker Change #123: Thank you.
Jason Gabelman: And we do have our last question. It comes from the line of Jason Gabelman with TD Cohen.
Speaker Change #124: And we do have our last question comes from the line of Jason <unk> with TD Cowen Your line is open.
Jason Gabelman: Your line is open. Yeah, hey, thanks for taking my questions.
Jason: Yeah, Hey, thanks for taking my questions.
Jason Gabelman: Apologies, I'm going to try this again on what Paul just asked in terms of some of the EBITDA contributions. And if I look at what you've disclosed for the DKL transactions, H2O is 45 million of EBITDA, the gas processing plant, call it 25, 30 million of EBITDA; that kind of gets you to that projected $70 million of EBITDA for DKL. And it implies that then wink to wax, Webster offsets the DK contract amendment extend.
Jason: Apologies I'm going to try this again on what Paul just asked in terms of some of the EBITDA contributions and if I look at what you disclosed for the Dk all transactions <unk> was 45 million of EBITDA the gas processing plant call. It 25 30 million.
Speaker Change #126: Dollars of EBITDA, so that kind of gets you to that projected $70 million of EBITDA for Dk al and it implies that then going to wax Webster offsets the Dk contract amendment extend does that.
Avigal Soreq: Is that the right math, or is there something off there? Yeah, so Jason, I think it's a good opportunity to do a follow-up with Mohit. We see more value in the gas plant, for example. And there is more EBITDA that comes back between a DKL back to DK. I said that to Paul; it's around $60 million over time. It's not all of that day one.
Speaker Change #127: The right math or is there something off there.
Speaker Change #128: Yes, so Jason I'll take a good.
Speaker Change #128: Opportunity to do a follow up with Mohit.
Speaker Change #130: See more value in the gas plant for example, and there is more we'd be that that comes back between Dk and <unk> to Dk I said to Paul It is around $60 million over time, not all of that they won.
Avigal Soreq: So we didn't give a specific numbers on each one of the transaction. And that's the reason we made sure that the strategy is clear to you and others, that we want to make sure that the right ownership is on the right place. And we are improving capture rate while growing DKL. That's the objective.
Speaker Change #131: We didn't give a specific numbers on each one of the transaction and Thats. The reason we made sure that the starts it is clear to you and others that we want to make sure that the right ownership is on the right place and we are improving capture rate while growing decay. That's still objective and if you look at that Holistically.
Avigal Soreq: And if you look at that holistically, we are trying, I think we achieved, for the most part, to achieve on the same quarter, deconsolidation ready while making a clear separation between companies. That's what we're after. That's a, in our mind, a very, very important step both for stakeholder and unit order. Okay.
Eddie: We have tried I think we achieved for the most part to achieve on the same quarter deconsolidation deconsolidation, let Eddie.
Eddie: While making a clear separation between companies that's what we're after.
Speaker Change #133: In our mind they are very very important step both for stakeholder and unit holder.
Speaker Change #134: Okay, and when you say $60 million of value.
Jason Gabelman: And when you say $60 million of value over time, how many, how many years do you expect that to take? We're not going to get into the details, but I encourage you to get with Mohit and get some more detailed questions. Okay.
Speaker Change #135: Over time, how many how many years do you expect that to take.
Mohit: We're not going to get into the details, but I encourage you to weigh I guess this is mohit then that gets a memo of a detail question.
Mohit: Okay and then my other question is just once again on use of proceeds.
Avigal Soreq: And then we have a question just once again on use of proceeds. You know, your interest expense is, it looks pretty high right now. And in terms of improving the cash flow of the parent company, it seems like that's a great place to attack.
Your interest expenses.
Speaker Change #136: It looks pretty high right now and in terms of improving the cash flow of the parent company.
Speaker Change #137: Company It seems like that's.
Speaker Change #137: A great place to attack so.
Avigal Soreq: So is that kind of priority one and why is there hesitant right now and just kind of talking through the use of proceeds? Thanks.
Speaker Change #139: Is that kind of priority, one and why they're hesitant right now and just kind of talking through the.
Speaker Change #139: Use of proceeds.
Avigal Soreq: So there is a passage is according to our strategy, and obviously, when we are looking on free cash flow, we always look at that on mid-cycle. So mid-cycle free cash looks, looks great to our expectation. We have ability to do everything we need and to have a good return to invest also. We are very confident in where we are and looking forward. Okay.
Speaker Change #140: So there is a positive according to our thought that the and obviously when we're looking on a free cash flow. We always look at that on mid cycle. So mid cycle free cash flow looks looks great. Our expectation we have ability to do everything we need and to have a good return to investors. So we are very confident then.
Speaker Change #139: We are in there looking forward.
Speaker Change #139: Okay.
Speaker Change #141: Okay. Thanks for thanks for the answers and I'll follow up offline.
Jason Gabelman: Thanks for, thanks for the answers, and I'll follow up offline. Thank you.
Thank you.
Speaker Change #139: Okay.
Robert Wright: That concludes the question-and-answer session.
<unk>: That concludes the question and answer session. Mr. <unk>, our CEO I turn the call back over to you.
Avigal Soreq: Mr. Avigal-Sorek, our CEO. I'd like to call it back over. Thank you for joining us today. Thank you for the management team around the table for the extreme focus and execution around here. Thank you for our employees, the both of the directors, you the investor and the special thank you for the retail employees for a long time being with us.
Mr. <unk>: So thank you for joining us today, thank you for the.
Mr. <unk>: The management team is on the table for the extreme focus and execution around do you think you for our employees and the board of directors directors do the investable and especially thank you for the retail employees for a long time being with us and welcome to date store theme that the joining.
Avigal Soreq: And welcome to the H2O team that is joining our family today. We'll talk again in the next quarter. Thank you.
Speaker Change #144: Our family today, we will talk again in the next quarter. Thank you.
Desiree: This concludes today's conference call. You may now disconnect.
Speaker Change #145: This concludes today's conference call you may now disconnect.
Speaker Change #145: Yeah.
Speaker Change #145: Okay.
Speaker Change #145: Yeah.
Speaker Change #145: Yeah.