Q1 2025 Delek Logistics Partners LP Earnings Call
JL: Thank you for standing by. My name is Jail and I will be a conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners first quarter 2025 earnings call.
JL: All lines have been placed on you to prevent any background noise. 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, simply press star one again.
JL: I would now like to turn the conference over to Robert Wright, Senior EVP and Chief Financial Officer. You may begin.
Speaker Change: Good morning and welcome to the Delek Logistics Partners first quarter-earning conference call.
Speaker Change: Participants joining me on today's call will include Avigal Soreq, President, and Reuven Spiegel, EVP.
Speaker Change: As a reminder, this conference call will contain forward-looking statements as defined under the federal security laws, including statements regarding guidance and future of business outlook.
Speaker Change: Any forward-looking information shared during today's call will 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 in our SEC filing.
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? Thank you, Robert. Delek Logistics Partners had another record called them.
Avigal: We reported approximately $170 million in quarterly adjusted EBDA, facing DKL on track to deliver on its full year EBDA guidance of $480 to $520 million.
Speaker Change: After transformation at 2024, Delek Logistics continues to make substantial progress in improving its position as a premier full-service crew, natural gas and water provider in the most policy area of the Perman Basin.
Speaker Change: As we have communicated in the past, we are in a process of increasing our economic separation from decay.
Speaker Change: This week, we announced Intercompany Transaction, which further increased this economic separation, bringing third-party contribution to our cash flow from 70% to around 80% on
Speaker Change: This intercompany transaction along with our acquisition of H2O and gravity significantly enhance our competitive position in the midland basin.
Speaker Change: In the Delaware Basin, we are in the commissioning phase of the newly planned expansion and we expect to fill the plant to capacity in the second half of 2025.
We expect to start spotting our AGI gas well shortly.
Speaker Change: AGI Wells and Soreq Gas Treating Capabilities enhance our competitive position in the Darau Basin and will provide good runway of growth for Delek Logistics in the future.
Speaker Change: Despite the near-term volatility in good prices, we like our competitive position in the Darwal Basin, which we believe will continue to go.
Speaker Change: As the Delaware Basin grows, we will continue to grow the partnership to put in management of leverage and coverage.
Speaker Change: I am also pleased to announce that the Board of Directors has approved a 49 consecutive increase in the culturally distribution to $1.11 per unit.
Speaker Change: To conclude, we are very excited about the prospects of Delek Logistics.
Speaker Change: We expect to continue our value creation path moving forward and we will continue to grow our distribution in the future.
Reuven: I will now hand it over to Ruben who will provide more details on our operations.
Reuven: Thank you Avigal. As Avigal mentioned, we are excited about the future for Delek Logistics and continue to work diligently to strengthen our advantage Permian position.
Reuven: A time frame that is less than seven months following the commencement of construction.
Reuven: We are very proud of our team for this outstanding accomplishment.
Reuven: As a reminder, at Libby 2 we are adding 100 to 120 million hundred cubic feet per day of incremental capacity which we expect to realize through the course of the year.
Reuven: Our Plan CapEx for Libby 2 does include investments that will allow us to utilize for future expansion of the Libby Complex.
Reuven: As Avigal mentioned, we're also adding sourguest, treating, and gathering capabilities.
Reuven: We are in the process of activating the first of two AGI wheels which will allow us to sequester
Reuven: We believe we have differentiated ourselves in the market because of our unique offering of expanded gas processing in addition to our sour gas handling capabilities.
Reuven: Additionally, since we are one of a few companies which can handle crude, gas, and water in the Delaware, our natural gas GNP expansions are opening opportunities for us on crude and water gathering.
Furthermore, our two recent water acquisitions are exceeding our expectations.
Reuven: We encourage me in the process of integrating the two water gathering system from H2O and gravity, and this integration has helped us enhance our combined crude and water offering in the Howard, Martin and Glasgow counties in the Midland Basin.
Reuven: Finally, we continue to look for opportunities to make our operations more efficient, with the target to improve margins across our operations. With that, I will pass it on to Robert.
Robert Wright: Thank you, Reuven. To both Avigal and Reuven have mentioned, we are continuing the growth and deconsolidation story of Delek Logistics, while maintaining focus on a healthy management of liquidity and leverage.
Robert Wright: As previously announced, DKL has authorized us to buy back common units of up to $150 million from DK through 2026.
Robert Wright: During the first quarter, DKL repurchased a total of $10 million worth of units under this authorization.
Robert Wright: Close the closing of our acquisition of gravity and the significant progress we have made on the Libby 2 construction, we currently have approximately $450 million of available liquidity.
Robert Wright: As Avigal mentioned, we close the acquisition of gravity on January 2nd.
Robert Wright: This acquisition was made through a combination of cash and units, which gravity sponsors have subsequently liquidated in the market as of the end of April . These additional units in market helped to improve DKL's overall trading liquidity.
Robert Wright: Moving on to our first quarter results, the first quarter of just the EBITDA was $117 million compared to $102 million in the same period of 2024.
Robert Wright: Digital Cash Flow as adjusted with $75.9 and the VCF coverage ratio was approximately 1.27 times which we expect to continue to rise throughout the remainder of this year.
Robert Wright: For the Gathering and Processing Segment, adjusted EBITDA for the quarter with $81 million compared to $50 million in the first quarter of 2024. The increase was primarily due to the acquisitions of H2O and gravity midstream.
Robert Wright: While still marketing and termiling adjusted EBITDA, was $18 million compared to $25 million in the prior year.
Robert Wright: The decrease was primarily due to the seasonal weather impacts driving lower wholesale margins.
Robert Wright: George and Transportation, Justin Ibiza, and the quarter was $14 million, compared with $18 million in the first quarter of 2024 The decrease was primarily due to the amend and extend renegotiations we completed last summer
Robert Wright: At my athletes, the investments in Pipeline Joint Ventura segment contributed $10 million this quarter compared with $8 million in the first quarter of 2024. The increase was primarily due to the contribution from the Winkle Webster drop down in August of last year.
Robert Wright: Moving on to capital expenditures, the capital program for the first quarter was approximately $72 million, of which $52 million was due to the significant progress made in the construction of the LIV-2 gas processing plant.
Robert Wright: This amount includes $15 million for future potential expansion opportunities at the Libby site. The Libby 2 gas plant remains on track from a timing and cost perspective.
Robert Wright: The remainder of the capital spend for the period was growth projects, namely advancing new connections in the Midland and Delaware gathering systems.
Robert Wright: As to our outlook for the balance of the year, we continue to remain on track for the EBITDA guidance we laid out for the full year of $480 to $520 million.
With that, we can open the call for questions.
Thank you. The floor is now open for questions.
Robert Wright: 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 withdraw your question, simply press star one again. 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 Doug Irwin of City. Your line is open.
Thank you. Thanks for the question.
Doug Irwin: I was hoping to start by just getting a little more detail on the enter company agreements that you announced. Did this actually involve assets changing hands or was it more driven by re-contracting?
Avigal: Hey, Dag, it's Avigal Good Morning. Thank you for joining us today and thank you for your support.
Robert, our partnership C4 to...
Pick up on this, please hold it. Yeah, thanks, Avigal
Avigal: What we announced today was another important milestone in our journey to be an independent company.
Avigal: The Related Party Transaction enabled us to clean up some of our contracts between DK and DKL. The effort helped to advance our deconsolidation efforts as we were able to move some of the refining related activities from DKL back to DK, and importantly to DKL we also moved some midstream related activities from DK to DKL.
Avigal: It's important to note that as a result of this transaction, there was no net material impact to our EBITDA of either entity.
Avigal: One of the other important benefits of this transaction was it helped increase DKL's third-party evita to approximately 80% on a pro-forma basis which should help further drive the mutual goal of economic separation with DK.
Speaker Change: Okay, understood that's helpful. And then maybe a follow up more on the macro side. You're obviously more dependent on third party producer activity today, and you've been in the past.
Avigal: Just wondering if you could talk about what you're hearing from customers on your acreage given the current macro environment and then just any detail you're willing to share around for overall contract and mix particularly for the water assets you acquired over the last year would be helpful.
Avigal: Yeah, absolutely. I will take that question. So if you are looking on list, or listically on our activity, we look at the midland, I will start with the midland base, right?
Avigal: customer-based produce over there, we see stable volume and we are happy with what we see. And as you know, we just finished two very timely acquisitions that allow us to have a combined offer.
Avigal: And why is that so important? Because we see, as we speak, water volume goes up, not down. And that gives us the compelling offering that we are giving is a very, very good for us in that basin.
Avigal: In the Delaware, it's probably the lowest, especially in our area, the lowest breakeven for Shelling the Internation. You have seen, I think we provide a slide that shows that most of our acreage in this area is still, it was not drilled.
Avigal: So that's a very good positive as well and when we had gas that we didn't really able to drink because of the size that we are moving into the plant we just finishing on the order of 20 to 30 million half a day.
Avigal: The combined offer in this area of free streams gives us the definitive competitive advantage and a lot of other opportunities. So, we're in a good spot, we're happy about the offering we have.
Speaker Change: Direct Commodity Exposure with strong counterparties in the Midland Basin. We actually forecast that even in some volatility,
The produced water volumes to increase.
Speaker Change: As far as our capex, it was heavy, 24, and first off had 25.
Speaker Change: We don't have material investment for the second half so that should give us a lower run rate as far as the topics and expenses and the gas plant ramp up was actually...
Speaker Change: Suffice, and the second one is Dedicated Anchorage Groves, which Avigal just...
and in addition to all that, we're bringing-
Speaker Change: One more component to the formula, which is the sour and water handling capabilities. So all that together makes us feel very comfortable about where we are. Daga, I want to emphasize the sour capability we have. The long time on debt on New Mexico is very long.
Speaker Change: And we are very fortunate about that and that's a very good competitive advantage that most of the plant in there doesn't just doesn't have and probably will not have.
Understood the fall, really helpful detail. Appreciate the time.
Thank you, Doug. Thank you.
Speaker Change: With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal Soreq for our closing remarks.
Avigal Soreq: Absolutely, so I would like to thank management here around the table, our board of directors, our investors that like the story and investing our in our unit and most importantly to our great employees that make our partnership so good, thank you.
This concludes today's conference call. You may now disconnect.