Q3 2024 Delek Logistics Partners LP Earnings Call
The End
Thank you for standing by. I'm Emigiel and I will be your conference operator today. At this time, I would like to welcome everyone to the DKL's third quarter of early school. All lines have been placed on mute to prevent any background noise.
After the speakers, remarks there will be a question and an 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 simply press star one again. When I'll external conference over to Robert Wright, deputy chief financial officer, you may begin.
Robert Wright: Good morning and welcome to the Delic logistics partners third quarter earnings conference call. Participants joining me on today's call will include Abigal Soreq, President, Joseph Israel, EEPP Operations, Reuven Spiegel, EEPP and Chief Financial Officer, and O'Dellysa Kavzi, SEPD Delic logistics.
As a reminder, this conference call will contain forward-looking statements as the fine under the federal security laws, including statements regarding guidance and future business outlook.
Robert Wright: Any forward-looking statements made during today's call in Bolfress and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal.
Avigal: Thank you, Overt. The ElectroGestics Partner had another record record.
Avigal: We reported approximately $107 million in culturally adjusted EBDA. We are pleased with the characteristics, continuous storm performance.
Avigal: VKL is a premier fuel service, crude, natural gas, and water provider in the prolific Permian Basin, and our recent actions have significantly enhanced our position. In Q3 of 2024, we closed several important transactions.
Avigal: First, on August 5th, we amended and extended contracts between DKL and DK for a period of 7 years. Second, we completed the acquisition of DELEC's portion in the Wink2Webster pipeline.
Avigal: W2W is a premier crude oil pipeline backed by investment-grade counterparties. It increases the overall asset quality at DKL and enhance DKL payment position.
Avigal: Third, on September 11, we closed the acquisition of H2O Midstream. We are excited about our combined offering in the Midland Basin.
Avigal: While it's still early, this combination is already a more attractive option for our customers and is presenting several cross-sell opportunities.
Avigal: In the Delaware Basin, we are also making good progress on our processing plant expansion and still expect to complete the expansion on time and on budget in the first half of 2025.
Avigal: As discussed previously, the plant is highly subscribed and we are making progress on completion. We are already seeing additional opportunities around sour gas treatment.
Avigal: On October 29, the Board of Directors approved an increase in the quarterly distribution to $1.10 per unit. We are very excited about the prospect of DELEC logistics.
Avigal: DKL is seeing several organic and inorganic growth opportunities, and we are taking a prudent approach to growth.
Avigal: DKL has shown strong track record of delivering value to unit holders. We expect to continue on our value creation path moving forward and we will continue to grow our distribution in the future. I will now hand it over to Reuven.
Reuven Spiegel: Thank you. As Avigal mentioned, we are growing Dellec logistics with prudent management of liquidity and leverage.
Reuven: We have managed liquidity throughout the year by accessing debt and equity markets. We currently have approximately $780 million of liquidity post the recent equity offering.
Avigal: We are also managing our leverage as we get into core spending period on our new gas processing plant expansion.
Avigal: Moving on to our third quarter results. The third quarter adjusted EBITDA was approximately 107 million compared to 98.2 million in the same period of 23.
Avigal: Distributable cash flow as adjusted was 62 million and the DCF coverage ratio was approximately 1.1 times.
Avigal: We expect this ratio to steadily move back above our long-term objective of 1.3 times in the second half of 2025, as we realize the benefit of the various initiatives Avigal just spoke about.
Avigal: As for the gathering and processing segment, adjusted EBITDA for the quarter was $55 million compared to $52.9 million in the third quarter of 2023. The increase was primarily due to higher throughput from Delic Logistics, Perimian Base, and Assets,
Avigal: and Small Contribution from H2O post the transaction which was closed in mid-September.
Avigal: Wholesale marketing and terminaling adjusted EBITDA was $24.7 million compared with $28.1 million in prior year. The decrease was primarily due to lower wholesale margins.
Avigal: And lastly, the investment in pipeline joint venture segment contributed $15.6 million this quarter, compared with $9.3 million in the third quarter of 2023.
Avigal: Moving on to capital expenditures, the capital program for the third quarter was $65.2 million, of which $53.4 million was allocated to the new gas processing plant.
Avigal: The remainder of the spend in the quarter was the growth projects, namely advancing new connections in the Midland and Delaware gathering systems.
Avigal: Along with our previously announced capital budget for 2024, we expect to spend a total of $90 to $100 million in the second half of 2024 on the new gas processing plant. With that, we can 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. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute while asking your question.
Speaker Change: Your first question comes from the line of Doug Irwin of Citi. Your line is open.
Doug Irwin: Hey, thanks for the questions. I'm just trying to start with the processing point.
Doug Irwin: Looks like you've already spent over half of the expected capex there. Just wondering if you could talk about the progress and any updated expectations on timing. And then just curious if you could talk about the potential sour gas opportunities with this plant and DKAO's ability to potentially take advantage of the need for some more sour gas treating in the Delaware.
Speaker Change: Thank you, Doug, for the two great questions. So first of all, progress around the plant goes very well. We are very happy with the construction and the commercial side of that. So that's absolutely going the right way. Obviously, as you heard on my prepared remark,
Avigal: Very attractive, I would put it this way, and expect that we'll come back to you about that sooner than later.
Avigal: Do you want to be more specific about the progress of the gas plant? Yes, please, Avigal. Thank you and Doug, good morning, appreciate the question. So regarding the progression, as we mentioned before, everything is going very well both from schedule and also from a cost perspective. As we mentioned, we are looking to have the plant ready on the first half of 2025, which is still the projection. Everything is progressed very well from a construction standpoint. All stable work has already been started, major equipment is there, so we are really happy about the progress about it and also on the schedule and also on the cost.
Avigal: On the sour side, as Abigail mentioned, it's something that is really interesting and we're excited about it.
Avigal: and that's something that will come back to you sooner than later.
Doug Irwin: Great, thanks for that. And then my second question is just on Edwin's volumes.
Avigal: It took a little bit of a step lower this quarter. Could you maybe just talk about what trends you're seeing there? And then maybe if you could also provide some more details on the acreage dedication that was announced last month, just any sort of guideposts around.
Avigal: MVCs or volume expectations moving forward would be helpful.
Speaker Change: Thanks. Yeah, absolutely. So, Doug, we are really fortunate.
Speaker Change: to have the system, the DPG, on the location we have.
Speaker Change: We see a great value in the area. The acreage dedication deal that we did that we announced is extremely accretive for us and Odeli will give more color around it.
Avigal: in 2025. As mentioned, the 50,000 acreage that we just had in DPG is something that we're really excited about because of the fact that we're able to continue to grow the acreage that's dedicated to us in DPG in an area that like the Midland area where it's a very mature area from that standpoint.
Avigal: So from a volume standpoint, this is where we're going to see an incremental to go above the 200 and also getting even further beyond for 2026 as well.
Speaker Change: Got it. Thank you.
Speaker Change: Thank you, Doug. I appreciate you.
Speaker Change: Your next question comes from the line of Neil Dingman of Truth Security. Your line is open.
Speaker Change: Morning, all. My name is just...
Neil Dingman: on the H2O mystery, my really unique acquisition. I'm just wanting to again, you talked a little bit
Neil Dingman: On the integration, I'm just wondering, how do you envision this, you mentioned kind of the upside that it'll mean, I guess I have two questions here, how this will sort of
Neil Dingman: integrate with the three bear assets and you know thus how much quicker do you think you'll envision sort of call it incremental third-party cash flow as a result of having this combination?
Neil Dingman: Yeah
Speaker Change: So, H2O midstream is on the DPG side of the area and goes very well.
Speaker Change: Integration is pretty much...
Neil Dingman: Dan, we can say that the people of H2O are part of the DELWC Logistics team.
Avigal: They are part of our partnership, we are very pleased.
Avigal: with
Avigal: and we're really blessed to have them on our shop.
Avigal: on a more strategic basis.
Avigal: Obviously having the water and the crude in this area give us a bundling sale opportunity and take our discussion with our customer to the new level and we are very pleased about it. So that's a really good one.
Speaker Change: No, I can't wait to see that. And then second question, just on capital allocation, specifically, how do you all think about potential distribution growth versus, you know, debt payment or where you would like, you know, your leverage or distribution coverage to be?
Speaker Change: Yes, so we are very proud, Neal, about the fact that we increased...
Speaker Change: our distribution 47 times in a row. With that said, we will, I said it very clearly, that our goal is to continue with the increase of distribution and we're going
Avigal: Push that forward.
Avigal: The long-term leverage ratio that we are targeting is 3.5 times.
Avigal: Our job, our job is obviously to balance.
Speaker Change: between the growth opportunity, the liquidity, the leverage ratio and the coverage ratio, and that's what we are doing. We gave a lot of growth opportunities around our area, and Odeli, do you want to talk about that more? Yeah, absolutely. And as Avigal mentioned, we are in a growth mode in Deloitte Logistics and kind of managing all of that and make it in a very sustainable way as well. We did mention about the additional acreage that we got in DPG, also the implement of H2O and associated energy around that in the DPG area, along with also the gas plant or the new gas plant, along with a lot of need for infrastructure that we see in the Delaware, along with also Sauer. So all those opportunities.
Avigal: Transcripts provided by Transcription Outsourcing, Inc.
Speaker Change: makes sense. Thank you all.
Speaker Change: So I want to thank my friends around the table for the great progress we are doing with our partnership.
Speaker Change: to the Board of Directors that support the progress we are doing and to the investors that join our call and invest in our share and trusting in us and first and foremost to our great employees.
Speaker Change: that makes this company great to work for. Thank you and we'll talk again in the next quarter.
Speaker Change: This concludes today's conference call. You may now disconnect.