Q3 2024 Delek US Holdings Inc Earnings Call
Thank you for standing by. My name is Jail and I'll be your conference operator today. At this time I would like to welcome everyone to the DK-3rd Quarter earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
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Oh, now I'll let you turn the conference over to Robert Wright, Deputy Chief Financial Officer, you may begin.
Robert Wright: Good morning and welcome to the Delic U.S. third quarter earnings conference call.
Speaker Change: Participant joining me on today's call will include Apigal Soreq, President and CEO, Joseph Israel, EVP Operations, Reuben Siegel, EVP and Chief Financial Officer, and Mark Hubs, EVP Corporate Development.
Today's presentation material can be found on the Investual Relations section of the Dellic US website. Fly to, contains our state-farver statement regarding forward-looking comments.
Robert Wright: Any forward-looking statements made during today's call involved risks and uncertainties that may cause actual results to differ materially from today's comments.
Robert Wright: factors that could cause actual results to differ are included here as well as in our S2C filings.
Robert Wright: The company assumes no obligation to update any forward-looking statements.
Speaker Change: I will now turn the call over to Avigal for opening remarks.
Avigal: Avigal? Thank you, Robert. Good morning, and thank you for joining us today. During the third quarter, our adjusted EBITDA was approximately $71 million.
Avigal: The current refining margin environment is $5 to $6 below mid-cycle. As refining margins remain below mid-cycle, we expect more refinery capacity to shut down. Refining product inventory remains low, and oil demand continues to rise.
Avigal: This factor will help digest the recent additions in the global supply and balance the market over the next 6 to 12 months.
In the meantime, we are making good progress on the things we can control. First, lowering our cost structure. Second, executing on KSR turnaround. And third, prioritizing our balance sheet and opportunistic buyback to support our shares.
Robert Wright: Now, turning to our strategic priorities.
Robert Wright: As I've outlined in our previous calls, the key focus areas are, first, safe and reliable operations, second, unlocking the sum of the part value, and third, being a shareholder friendly and having a strong balance sheet.
Robert Wright: I will now discuss each of these key priorities in detail. We have another strong operational quota.
Robert Wright: I am proud of the progress the team is making in Big Spring. The Coach Spring's turnaround is progressing well. In El Dorado, we are actively working to fulfill the refinery potential.
Joseph will provide more details on all of this. Next, I would like to talk about the progress we have made on our sum-of-the-part efforts.
Speaker Change: On the second quarter earnings call, we announced a series of transactions related to our sum-of-the-part efforts.
Robert Wright: I am pleased to announce that we have closed all of these transactions.
Robert Wright: We close the drop-down of Wink to Webster and other intercompany transactions between DK and DKL.
Robert Wright: on August 5th. This transaction makes both DK and DKL stronger, and we are happy with the result.
Robert Wright: We closed the sale of our retail asset to FEMSA on September 30th. We are pleased with the outcome and timing which allow us to maintain a strong balance sheet as refining margins have turned below mid-cycle.
Robert Wright: Direct Logistics closed its acquisition of H2O Midstream on September 11.
Robert Wright: The next step in our sum-of-the-part journey is to keep improving DKL while actively continuing deconsolidation. We are making good progress on increasing the economic separation between DK and DKL.
Robert Wright: Recent Amend and Extend contracts will bring an additional $60 million on annual cash flow back to DK in exchange for the contract extensions which benefit DKL.
Robert Wright: D.K. is taking significant steps.
Robert Wright: toward deconsolidation by lowering its ownership interest in DQL.
Robert Wright: from 79% to 66% while maintaining its relative EBITDA. DK is also getting more cash flow from DKL to rising DKL distributions.
Robert Wright: VKL continues to improve its permanent basin position by increasing third-party cash flow, seizing attractive growth opportunities, and increasing scale.
Robert Wright: We will complete the DKAL deconsolidation in a methodical manner and create value for both DKA shareholders and DKAL unit holders. Next, I would like to highlight our new Cost Reduction and Margin Improvement Plan.
Robert Wright: Our new plan expects to achieve a run rate of at least $100 million, an incremental annual cost savings,
Robert Wright: and Marjorie Crist.
Robert Wright: by the second half of 2025, which is above and beyond the $60 million we expect to come back to decay through intercompany transactions.
Robert Wright: The plan currently has 30 to 40 million dollars in GNA and cost efficiencies, along with 50 million dollars to 80 million dollars of margin improvement through commercial optimization and process improvement.
Robert Wright: Over the last three years, we have been investing in systems which will allow us to further tighten our DNA and run efficient companies.
Robert Wright: We recently started the execution phase on our market optionality plan.
Robert Wright: This strategy will allow us to produce and sell the right product from our refineries in the right markets in order to maximize value.
Robert Wright: These commercial efforts, along with incremental cost efficiencies, will increase our bottom line by at least $100 million per year. Our aim through these efforts is to ensure we can generate significant free cash flow in a mid-cycle condition.
Robert Wright: The final piece of our strategy is our commitment to shareholder return and maintaining strong balance sheet.
Robert Wright: During the quarter, we paid $16 million in dividend and bought back $20 million of our shares.
Robert Wright: will remain committed to a disciplined and balanced approach to capital allocation. In closing, I would like to thank our entire team for their hard work and dedication.
Speaker Change: Now, I will turn the call over to Joseph, who will provide additional color on our operation.
Joseph Israel: Thank you, Avigal. We operated well in a low-margin environment and remain focused on our strategic initiatives to support future capture and cash flow generation across our system.
Joseph: In Tyler, total throughput in the third quarter was approximately 75,000 barrels per day. Production margin in the quarter was $7.48 per barrel, and operating expenses were $4.61 per barrel.
Robert Wright: For the fourth quarter, the estimated total throughput in Tyler is in the 67,000 to 69,000 barrels per day range.
Joseph: In El Dorado, total throughput in the quarter was approximately 78,000 barrels per day.
Joseph: Our production margin was
Joseph: $0.66 per barrel, including an unfavorable estimated $0.65 per barrel impact.
Joseph: from outages in the FCC and PENIX units. Operating expenses were $5.01 per barrel, including approximately $0.35 per barrel of unfavorable impact related to those outages.
Joseph: Estimated throughput for the fourth quarter is in the 77 to 80 thousand barrels per day range.
Robert Wright: On a strategic level, the Eldorado Refinery is well positioned
Robert Wright: from a configuration standpoint to compete. And operationally, the team has demonstrated safe and reliable operations on a consistent basis.
Speaker Change: As Avigal mentioned, the $100 million dollar run rate benefits generated by the self-help initiatives include $50 to $80 million dollars contribution in the refining segment.
Robert Wright: These initiatives are mostly around process optimization.
Robert Wright: Products Offering, as well as expanding your market footprint.
Robert Wright: All related upgrades are planned with minimal capital outlay, approximately $50 million of the expected benefits.
Robert Wright: are in the Eldorado system, with an estimated $20 million in the refinery gross marginalism, leaving approximately $30 million for the products and commercial optimization.
Robert Wright: and incremental to dollar per barrel of net margin will support El Dorado cash flow generation through the cycles.
Speaker Change: Signing, as Avigal mentioned, we are expecting the improvements to be in place by mid-next year.
Robert Wright: In Big Spring, total throughput for the quarter was approximately 73,000 barrels per day. Our production margin was $6.82 per barrel, and operating expenses were $6.08 per barrel.
Robert Wright: We are proud with our progress in Big Spring as we achieve our goals and as importantly build this improvement in a sustainable manner.
Robert Wright: Estimated throughput for the fourth quarter is in the 71,000 to 74,000 barrels per day range.
Robert Wright: In Cross Springs, total throughput was approximately 82,000 barrels per day.
Robert Wright: Our production margin was $4.80 per barrel and operating expenses in the quarter.
Robert Wright: for $4.82 per barrel.
Robert Wright: We are executing our turnaround per plan, and all units are scheduled to get back to normal operations by the end of the month. As a result, plan throughput for the fourth quarter is in the 50,000 to 53,000 barrels per day range.
Robert Wright: Our implied system throughput target for the fourth quarter is in the 265,000 to 276,000 barrels per day range.
Robert Wright: Moving on to the commercial front. In the third quarter, supply and marketing's contribution was 11 million dollars.
Robert Wright: Of that, approximately $13 million was generated by wholesale marketing, partially offset by asphalt.
Robert Wright: with a $2 million loss.
Robert Wright: In summary, we continue to execute well on the fundamentals of our business. After successfully addressing reliability gaps, our teams continue to focus on operational excellence and commercial optimization initiatives for each one of our sites.
Speaker Change: I will now turn the call over to Robert for the financial variants.
Robert Wright: Thank you, Joseph. I'll start by referring to slide 13. For the second quarter, DELWC had a net loss of $77 million, or negative $1.20 per share.
Robert Wright: Adjusted net loss was $93 million.
Speaker Change: or negative $1.45 per share.
Speaker Change: and adjusted EBITDA with $71 million.
Robert Wright: Slide 14 shows a comparison of adjusted EBITDA in the third quarter of 2024 to the second quarter of 2024. The primary variance between the quarters was a $32 million decrease in refining, which is primarily due to a lower margin environment.
Robert Wright: As for the logistics segment, we had another strong quarter, delivering $106 million in adjusted EBITDA. Moving to slide 15 to discuss cash flow. Cash from operations was a use of $22 million.
Robert Wright: Investing activities of $78 million includes the proceeds from the sale of retail, partially offset by the addition of capital expenditures for the period of $119 million, and the acquisition of H2O.
Robert Wright: Financing activities of $323 million reflects the 2029 DKL-TACON offering and timing of accruals. This also includes $20 million in share repurchases, $16 million in dividend payments, and $14 million in distribution payments.
Robert Wright: On slide 16, we have the actual results of the 2024 capital program and full year 2024 forecast. Third quarter capital expenditures were $78 million. Approximately half of this spend was in refining, primarily addressing sustaining and regulatory projects, including the KSR turnaround that commenced in the fourth quarter.
Robert Wright: For 2024, the original capital plan continues to track on plan at $330 million, excluding the Libby 2 gas plant construction, which was announced earlier this year after our current year's capital outlook was set. Our net cash position is broken out between Dellec and Dellec Logistics on slide 17.
Robert Wright: During the year, we built $215 million of cash primarily due to the sale of retail, which occurred on September 30th, consolidated long-term debt increased during the year by $190 million, most of which was at the BKL level and was used to finance the H2O acquisition, which closed on September 11th.
Robert Wright: Moving now to slide 18, where we cover Outlook items.
Robert Wright: In addition to the guidance Joseph provided, for the 4th quarter of 2024, we expect operating expenses to be between $177 and $188 million, G&A to be between $53 and $58 million,
Robert Wright: E&A is expected to be between $95 and $105 million, and net interest expense to be between $75 and $80 million. We will now open the call for questions.
Speaker Change: Thank you. The floor is now open for questions.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Neil Mehta of Goldman Sachs. Your line is open.
Neil Mehta: Yeah, good morning team, and thanks for the rundown here. So the first question is really on Eldorado, and as you indicated, the margins did come in a little bit softer than expected. Is there anything more one-timey in nature, and can you talk, spend more time talking about how you see this progressing from
Speaker Change: here, and the path for improvement.
Speaker Change: Yeah, Aneel, good morning. How are you?
Robert Wright: Hmm.
Speaker Change: I've been around that asset for a long time, and this is the best I've ever seen it run from an operational standpoint, and Joseph will provide more details about the exact
Robert Wright: specific action we are doing to improve that over time. Please, Joseph. Yeah, thank you. Like Avigal mentioned, the Eldorado Refinery is well-positioned from...
Joseph Israel: asset configuration.
Robert Wright: and also Operations Excellence 10.2 complete.
Robert Wright: So having these two, we feel now is the perfect time to address the market access gaps.
Robert Wright: and take profitability really up to its potential. We have discussed those gaps.
Robert Wright: in the past, and more importantly, took our time to plan and design solutions which we are already in full execution mode.
Robert Wright: As mentioned in our remarks, by mid-next year, we will have in place new and robust process, logistics, and marketing tools in our kit to support future cash flow contributions.
Robert Wright: with an incremental $2 per barrel of net margins. And I want to be a little bit more specific, so on the refinery level, we will connect to existing tines in our good unit to draw approximately 3,000 barrels per day of jet fuel.
Robert Wright: to utilize the new logistics capabilities and move our products to additional markets for better netbacks. I hope it helps.
Speaker Change: That's a great color. The follow-up is you guys have made a lot of progress.
Speaker Change: Since the last call in terms of getting cash in the door the 390 million dollars
Speaker Change: And so the question we get a lot is the pace of the share repurchase program and how aggressive can you guys be?
Speaker Change: especially if you believe the slide in here, I think it's slide 8, that talks about the discount that you trade at relative to what your illustrative value. So let's talk about how you think about the pacing of the buyback.
Speaker Change: Are you well positioned to take advantage of this dislocation and what are some of the factors that could slow down that pace? relative to some of the upside scenarios
Speaker Change: Yeah, absolutely Neeraj, we'll take it.
Speaker Change: With your permission, I will answer the question more broadly about capital allocation. First, our priority is to maintain strong dividends throughout the cycle. We are committed to that. We have demonstrated that. We will keep demonstrating that. That is something we are committed to. We feel very comfortable with that. We are very pleased, Neil, with the results.
Speaker Change: The third point I would like you to make come across is the EOP.
Speaker Change: which will bring us the $100 million with a combination of a relatively strong market condition, right? We see the inventory low, we see demand relatively strong, get us to a point that we are comfortable where we are.
Speaker Change: As I said in the past, we have a balanced approach between balance sheet and buyback, and we're going to stick to the balanced approach around buyback.
Speaker Change: We see a tremendous amount of value in our equity, just to make it very clear. We did buyback in Q3, and we are actively doing buyback in Q4. And I will leave it to that.
Speaker Change: All right. Well, thanks, team. Appreciate it.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Manav Gupta of UBS. Your line is open.
Speaker Change: Thank you. Bye bye.
Manav Gupta: Hi guys, help us understand a little better. You are looking for, you know, multiple growth projects in the midstream space. So as we look at DKL, in your opinion, I'm not asking for exact guidance, but how should we look at, you know, exit rate EBITDA, maybe year 2025 for something like a DKL?
Manav Gupta: Thank you.
Speaker Change: So, hey Manav, how are you?
Speaker Change: So we didn't give guidance on DKL for 2025, we obviously have an exciting time, we think we can have a good traction around the market, but we are not going to give guidance for the end of 2025, we are in a comfortable and great situation and Mojito can give more color around it.
Mojito: Hey Manav, how are you? So what we have said in the past if you remember on our last earnings call
Speaker Change: that, you know, based upon the investments that we are making, a net addition of $70 million.
Mojito: in midstream EBITDA. And I think that should give you some color on you know how based upon our EBITDA is today and that net addition of 70 million dollars in EBITDA where that will take DKL to you. But as Avigal mentioned, DKL has not provided a 2025 guidance just yet.
Manav Gupta: My follow-up is on slide seven. Obviously, this 100 million target looks pretty good. And I'm just trying to understand, like, let's say the margins remain depressed for some time using this 100 million benefits.
Speaker Change: Would you be very close to cash breakeven even if margins are below mid-cycle because you are pushing through all these initiators?
Speaker Change: That's absolutely right. And I can give you some more color around what we call here EOP, the Enterprise Optimization Plan, Manav. So let me be very clear, the EOP plan is not related to market condition.
Speaker Change: It's self-help.
Speaker Change: It's an area that we feel that we can do better.
Speaker Change: and it's a...
Speaker Change: We have a few front lines with that project. One on the GNA side, the team was doing a great job over the last three years in order to build systems and processes around it.
Speaker Change: That and that now we're basically taking that to the next level and bringing that to a to the bottom line That's 30 to 40 million dollar of efficiencies. We're going to create around all of those processes
Speaker Change: Thank you very much.
Speaker Change: We can move from defense to offense and to plan accordingly and to sell the right product on the right market. We believe that all of that will bring us at least...
Speaker Change: $100 million on a combined basis, and all of that is going to go to the free cash flow. On the top of that, we reduce our CapEx guidance, as you probably see, for next year versus this year, by around $80 to $100 million. That's a huge number.
Speaker Change: Thank you.
Speaker Change: Thank you, guys.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Matthew Blair of TPH. Your line is open.
Matthew Blair: Thank you and good morning. Maybe we could stick on the CapEx cut for 2025. Could you talk about what's rolling off relative to this year? And then that mid-point 160, should we think of that as your minimum level going forward or would you expect to have some catch-up in 2026?
Speaker Change: No, so we are not going to change our overall guidance for the year. Obviously, we are putting management that we see a low-margin environment and we have opportunity to have a low CAPEX zero on the refining side.
Matthew Blair: And that's what we are doing on a sustainable basis. The way I think about this, Matt, is that we are seeing around $25 million.
Speaker Change: in each one of our refineries in a year that we don't have turnaround. Turnaround costs around $100 million, and we are doing that on our four assets every five years. So that's a good way to look about the long-term capex of refining.
Speaker Change: Thank you for watching. I'll see you next time.
Speaker Change: Thank you.
Speaker Change: Sounds good. And then... Okay.
Speaker Change: I wanted to touch on the improvement in supply and marketing in the third quarter relative to the second quarter.
Speaker Change: It looks like a lot of this came from the wholesale marketing. You mentioned it was up $13 million in Q3. I believe it was down $17 million in Q2. What exactly changed there? Was that just a function of falling crude prices, or was there some regional product basis differentials that helped you out? And also, what's the outlook for supply and marketing into the fourth quarter? Thanks.
Speaker Change: Absolutely. So first of all, I'm pleased with the progress we are making with the commercial team. We saw the benefit in Q3 in some of our actions.
Speaker Change: We also had some seasonal benefits over the quarter, and what we saw in Q3 is a good combination of those two. I expect to see more progress in the future, and I'm going to let Joseph give some more comments around that.
Joseph Israel: Yeah, thank you, Avigal.
Joseph Israel: Thank you, Matt. We have shifted gears with new strategies to enhance our commercial business and leverage some new tools in our kit, right? So the improved reliability from refining will help to eliminate...
Joseph Israel: Some of the noise
Speaker Change: The new logistics optionality is helping us accessing brand new markets, mainly from El Dorado and Tyler, with improved netbacks.
Speaker Change: and then products offering.
Speaker Change: We now have a jet fuel in Eldorado to work with, and we have some great ideas around the high octane products, mainly in Big Spring and Tyler, that we can work with.
Speaker Change: So we believe this strong momentum and improved positioning will help us to reduce volatility and improve future netbacks through the cycles and seasonal trends.
Speaker Change: We also think it's sustainable. We can't control, obviously, the market impact, but we are confident the controllable piece of our improvement will remain there.
Speaker Change: Great, thanks for the color.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Joe Leitch of Morgan Stanley. Your line is open.
Joe Leitch: Hey, good morning team and thanks for taking my questions
Joe Leitch: So I wanted to ask on slide eight, which is the mid-cycle EBITDA slide, can you just unpack the path to achieving that around $550 million of mid-cycle refining EBITDA number? Cracks are, of course, a driver, and it looks like a piece of that is also running better. I'm getting an implied throughput of around 315,000 barrels a day. So if you could just touch on some of the steps to realize that uplift, that would be great. Thank you.
Speaker Change: Yeah, absolutely Joe. Thank you for joining us today and so obviously
Speaker Change: A key part of understanding that slide is that we are wanting to demonstrate the cash flow generated on DK Solo and to show the combination between Delek Solo and DKL and enhance our great position.
Speaker Change: EOP is going to be a key part of that, we gave some color around EOP. EOP is a combination of what we can control, which is market agnostic.
Speaker Change: We got the team behind this idea and we are well in the execution phase and we are very optimistic about that. Around exactly modeling and etc. I would like maybe you have a post call with Mohit and go over the details that you can model all of that to your benefit.
Speaker Change: But that's the essence of that slide.
Speaker Change: Great, thank you. And then I just wanted to ask on Big Spring. So it looked like it ran well during the quarter from a throughput margin and OPEX standpoint. Could you just remind us what's left to execute on to reach that $5.50 per barrel OPEX target, recognizing that it's close to being achieved here. Thank you.
Speaker Change: Thank you, Joe, and I'm very pleased with Joseph and his team of the program they are doing there. And maybe Joseph, you want to give some more color around it? Yeah, we told you last year it's going to be a journey, and the recovery is going very well. We have done what we said.
Speaker Change: in the past year, and the results have been very consistent with the guidance.
Joseph Israel: Operating expenses are trending down toward the $5.50 per barrel target in the fourth quarter with improved reliability and throughput.
Speaker Change: consistently in our guidance range, really, all year long.
Joe Leitch: The focus now is ensuring sustainability of the improved positioning and optimize from here profitability.
Joe Leitch: Thank you very much.
Speaker Change: Great, thanks for the time.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Doug Legate of Wolf Research. Your line is open.
Doug Legate: Thanks, guys. I've got two, if I may. One, I'm sorry to beat up on the slide eight, but I have some clarification questions around this just to make sure we understand what's going on. So, the 100 million EOP
Doug Legate: Looks like that's the entirety of the standalone mid-cycle free cash flow. In other words, without the EOP, there is no free cash flow.
Doug Legate: I just want to make sure that we're interpreting that correctly, because ultimately, if we look at the equity value, you're putting a four to five times EBITDA multiple, $100 million of free cash flow at a 10% annuity discount rate is a billion dollars. So I'm curious how you get the...
Joe Leitch: You know the valuation that you're showing on this slide for a hundred million dollars of free cash flow. That's my first question my second question is At least on our numbers the entirety of large part of your value is your interest in Dalek logistics
Joe Leitch: And as you know, there's been some transactions, particularly around sour gas injection wells, amongst other things. It seems there's a lot of embedded value potentially in DTL that could be released, and I'm just curious.
Joe Leitch: Strategically I think you've talked about it as the bazooka option. What are your options to release value from DKL? So two questions please.
Speaker Change: Yes, so I will start with the first one, then Mohit will give some more color around that page, and then Mark and I will give you some...
Joe Leitch: More understanding of the market.
Speaker Change: So, we see a lot of value in our assets. You can see the capture rate that we have demonstrated relative to our peers is improving on a relative basis, and we are very optimistic around that. EOP is a key part of what we are doing, and EOP is going to happen, just to make it very clear. On the GNA side, we are well into the execution phase and also in the OPEX, in the commercial, so the EOP plan is going to execute.
Speaker Change: And you probably saw that, Doug, that the $100 million is at least. I expect to see a higher number than that. So you can expect to see a higher free cash flow than that while we are on the execution phase. So more to come. And some of that is already coming in place very quickly.
Speaker Change: So we are optimistic around our action and we are confident around the market, so we are very optimistic about the ability of DK Solo to generate significant free cash flow on a mid-cycle basis.
Speaker Change: Regarding the question of the midstream, we obviously are very encouraged by the transaction we've seen around us. It's put a very high mark on our asset. I know that Mark is very close to that, so I will have Mark maybe give you some more color. Yeah, sure.
Mark Hubs: Thanks, Doug, for the question. We spoke about deconsolidation quite a bit over the past year-plus, and that remains our top strategic priority, and we are actively pursuing that as a key component of our sum-of-the-parts efforts.
Doug Legate: You mentioned, appropriately so, the recent transactions and the acquisitions on the midstream side, specifically targeting the Permian Basin.
Doug Legate: Look, we see that as well, and those have been going for, in our estimation...
Doug Legate: very attractive and premium valuations. And as you know, at Dell Equal Logistics, over the years, we've built a strong third-party midstream business.
Doug Legate: in both the Midland Basin via DPG and our recent H2O transaction, as well as in the Delaware Basin where we continue to see attractive growth opportunities given significant activity of our upstream customers.
Doug Legate: And so, we are in a good position. We think that we've built a very attractive and valuable midstream business, as you duly noted, through Dell Logistics.
Speaker Change: And we think this market backdrop really supports the value that we've built.
Speaker Change: And as we pursue deconsolidation efforts, on slide five, you know, we put a list of what we see those options potentially available to us and available to us in the market.
Doug Legate: You know, we believe that this market backdrop really positions us well to maximize value for really all our stakeholders. And what I would say about the actual actions that we might take and look at, all options are on the table, and we continue to evaluate all those options.
Speaker Change: Great stuff. Thank you, fellas. I appreciate the time.
Speaker Change: Your next question comes from the line of Roger Reed of Wells Fargo. Your line is open.
Roger Reed: Yeah, thank you. Good morning.
Roger Reed: Can we come back to the 100 million of the EOP? Like, how did you come up with that number? And what I'm curious is,
Roger Reed: Was it top down, bottom up, combination of the two? You've talked obviously about some additional flexibility in it. So if you were to think of a
Doug Legate: you know, low level of, hey, this would be successful at, you know, 80 million over the next, you know, 18 to 24 months, or it could be 140 million.
Doug Legate: Should we think about it as a percentage of total costs is, you know, one of the ways to think about success here. I'm just curious, kind of, you know, in the end, 100 million is a nice round number, but how do we know it's a solid number based on, you know, a real solid foundation?
Speaker Change: Yeah, so thank you, Roger, for the question. Obviously, the EOP is a bottom-up project. It's not something that, obviously, we rounded. It didn't end up 100 exactly, just to be clear. And as I said in my prepared remark, the number is saying at least.
Doug Legate: So that gave you the comfort level around that. EOP is market agnostic. As I said in the previous one of the questions, the GNA is $30 to $40 million of that. It's based upon systems that we already did in the past.
Doug Legate: And the other $50-$80 million is a combination of OPEX and commercial optimization.
Doug Legate: The basic idea of EOP is free cash flow and how to generate more free cash flow and agnostic to market condition. That's the essence of that. And obviously, if you need some more help about modeling that, I'm sure that Mohit would love to help you on that, but we have a combination of those two.
Speaker Change: The benefits that we got from other initiatives, like there are net initiatives, operation initiatives, GNA initiatives, and they do not include other benefits like intercompany transactions.
Speaker Change: Thank you for your question, William. Well, could I ask a quick clarification on that?
Speaker Change: One is the retail
Speaker Change: Retail just closed, right? Is any part of this 100 million related to retail? And then as we think about the commercial synergy part, is there a CapEx component or is that all pretty much with just using the existing system better?
Speaker Change: So, two easy questions, retail is not related to that, we are not trying to do a left pocket, right pocket exercise, we are trying to make our company better and free cash flow, and the second question, there is no capital intensive project here, everything is in the numbers.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jason Gabelman of TD Ketlin. Your line is open.
Jason Gabelman: Thank you.
Jason Gabelman: Morning. Thanks for taking my questions.
Jason Gabelman: My first one is on the balance sheet. I just wanted to get an updated view of what your target net debt and cash balances are at the parent following the divestment of the retail sale and all the other recent transactions that you've done.
Speaker Change: Yeah, so, Jason, thank you for the question.
Speaker Change: Again, our capital strategy is very simple. We want to maintain a strong dividend throughout the cycle. We want to make sure that we have a balanced approach.
Speaker Change: between buyback and improving the balance sheet. We have mentioned in previous calls that our target is around $600 million, if memory serves me right, but that's the longer-term view, and we're going to stick to the capital allocation program that we outlined.
Speaker Change: Okay, so, I mean, I guess the heart of the question is, I would think you'd want to have higher cash balances moving forward than prior target if you got rid of the steady retail earning stream, but it doesn't seem like there's much of a change.
Speaker Change: Yeah, so Jason, the EBITDA of the retail over the quarter was around $8 million. I don't think it's moved the retail significantly, and we are sticking to, over time, on a long-term basis, to what we had.
Speaker Change: Okay.
Speaker Change: And then my other question, on slide 16 where you provided an update on CapEx, you've excluded capital spending
Speaker Change: related to the gas processing plant so is that
Speaker Change: 3.30 for full year 24 really supposed to be...
Speaker Change: Closer to 430
Speaker Change: No, we have not finished spending the capital on the gas plant. The gas plant was something that was done over the years, as Robert said in his prepared remarks.
Speaker Change: The gas plant is an extremely good project.
Speaker Change: and we're starting to look at the DKL CapEx and the DK CapEx separately. That's the reason we gave guidance on the DK CapEx now and we'll give more guidance about the DKL CapEx in Q4 earnings call.
Speaker Change: Okay, but so is that gas processing plant, CAPEX, that's not necessarily all spent in 2024?
Speaker Change: So Jason, hi, this is Mohit. So you are right. So our 330 does not include the $9,200 million of spending on the gas processing plant for 2024.
Jason Gabelman: Okay, all right, thanks for those answers.
Jason Gabelman: You bet.
Speaker Change: This concludes our Q&A session. I will now turn the conference back over to President and CEO, Avigal Soreq, for closing remarks.
Avigal Soreq: Thank you to my colleagues around the room for a great quarter. Thank you for the execution of our strategy, the deconsolidation, the EOP, the return to shareholders. Thank you to the investors that joined the call, our board of directors, and mostly our employees that make our company what it is.
Speaker Change: We'll see you again in the next quarter. Thank you.
Speaker Change: This concludes today's conference call. You may now disconnect.