What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-09 · 191 added, 307 removed, 417 unchanged (54% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance.

The MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 27, 2020 (the "Annual Report on Form 10-K").

Securities and Exchange Commission ("SEC") on March 1, 2021 (the "Annual Report on Form 10-K").

Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain.

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and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner.

Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the incentive distribution rights ("IDRs") held by the general partner and convert the 2% economic general partner interest into a non-economic general partner interest, all in exchange for 14.0 million newly issued common limited partner units and $45.0 million in cash ("IDR Restructuring Transaction").

Contemporaneously, Delek Holdings purchased a 5.2% ownership interest in our general partner from certain affiliates, who were also members of our general partner's management and board of directors.

See Note 3 of the accompanying condensed consolidated financial statements for further information.

Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the incentive distribution rights ("IDRs") held by the general partner, such transaction the "IDR Restructuring Transaction." See Note 3 of the accompanying condensed consolidated financial statements for further information.

Effective May 1, 2020, the Partnership, through its wholly-owned subsidiary DKL Transportation, LLC, acquired Delek Trucking, LLC consisting of certain leased and owned tractors and trailers and related assets (the "Trucking Assets") from Delek Holdings, such transaction the "Trucking Assets Acquisition." See Note 2 of the accompanying condensed consolidated financial statements for further information.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act.

These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities.

Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the COVID-19 Pandemic and the actions of members of OPEC+ with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts.

Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the COVID-19 Pandemic and the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "OPEC+") with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts.

Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements.

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Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to:

Management's Discussion and Analysis

• our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements;

Management's Discussion and Analysis

• our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all;

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• disruptions due to acts of God, including natural disasters, weather-related delays, casualty losses and other matters beyond our control;

• severe weather patterns, such as freezing conditions, might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through increased costs and/or loss of revenue;

• changes in the price of RINs could affect our results of operations;

• future decisions by OPEC+ regarding production and pricing and disputes between OPEC+ regarding such;

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• changes in tax status and regulations;

Management's Discussion and Analysis

• the effects of future litigation;

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We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Management's Discussion and Analysis

Business Overview

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The taxable income reportable to each partner takes into account differences between the tax basis and the fair market value of our assets and financial reporting bases of assets and liabilities, the acquisition price of the partner's units and the taxable income allocation requirements under the Partnership's Second Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement").

The COVID-19 outbreak and its development into a pandemic in March 2020 (the "COVID-19 Pandemic" or the "Pandemic") has resulted in significant economic disruption globally, including in the U.S.

The on-going impact of the COVID-19 Pandemic, the restrictions imposed to prevent its spread, the challenges with the vaccination rollout, and the spread of new variants of the virus, continue to cause significant economic disruption globally, including in the U.S.

and specific geographic areas where we operate.

Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through both voluntary and mandated social distancing, curfews, shutdowns and expanded safety measures, have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe.

This has in turn significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use, leading to a substantial decrease in consumer demand for gasoline and other hydrocarbons.

As a result, there has also been a decline in the demand for refined petroleum products and most notably gasoline and jet fuel.

There is continued uncertainty about the duration of the COVID-19 Pandemic which caused reduced consumer demand for gasoline and other hydrocarbons during the nine months to September 30, 2020 in the United States and globally.

Therefore, downward pressure on commodity prices has remained and could continue for the foreseeable future.

During the third quarter of 2020, governmental authorities in various states across the U.S., particularly those states in our Permian Basin and U.S.

Gulf Coast regions, lifted many of the restrictions created by actions taken to slow down the spread of COVID-19.

These actions have resulted in an increase in the level of individual movement and travel and, in turn, an increase in the demand and market prices for some of our products relative to late March 2020.

However, many of the states where such restrictions were lifted have recently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas have responded by re-imposing certain restrictions they had previously lifted.

In addition, certain countries globally recently re-imposed previously lifted restrictions due to worsening effects of the increased spread of COVID-19.

This response, as well as the increased infection rates, impacts regions that we serve and could significantly impact demand in ways that we cannot predict.

Compared to the prior year, the first quarter of 2021 has witnessed economic recovery trends including resumption of flights by major airlines and increased motor vehicle use, as the government continues to ramp up the vaccination rollout.

This has in turn resulted in increased demand for, thus also the market prices of, crude oil and certain products, particularly refined petroleum products that we receive revenue for the transportation and storage services we provide and an increase in demand and sales volumes in our wholesale marketing business.

As of March 31, 2021, there is continued uncertainty about the duration and future impact of the COVID-19 Pandemic.

Additionally, increased infection rates could impact our logistics operations, particularly in high-infection states, if our employees are personally affected by the illness, both through direct infection and quarantine procedures.

During the three and nine months ended September 30, 2020, both our West Texas wholesale marketing business and many of our pipeline and transportation customers have experienced the impact on demand and pricing of these unprecedented conditions.

Our pipelines and transportation revenue streams were largely protected by minimum commitments under existing throughput contracts with customers during the current period, but continued pressure on our customers could present risks to our existing and new business opportunities as well as on collectability on our receivables.

We continue to experience operational constraints as well, including COVID-19 infections at certain of our company locations that have resulted in re-imposed or expanded remote policies and quarantine protocols.

And we continue to be faced with risk from our suppliers and customers who are facing similar challenges.

We have identified the following uncertainties resulting from the COVID-19 Pandemic and other events, including the impact related to crude storage space shortages:

• Customers directly impacted by COVID-19 Pandemic and other events in terms of demand for refined product may reduce throughputs which could, likewise, impact the throughput demand for our pipelines, and may seek to renegotiate minimums under contractual force majeure provisions.

Such reductions could have a significant impact on our revenues, cost of sales, operating income and liquidity, as well to the carrying value of long-lived or indefinite-lived assets;

• Customers may experience financial difficulties which could interrupt the volumes ordered by those customers and/or could impact the credit worthiness of such customers and the collectability of their outstanding receivables;

• Equity method investees may be significantly impacted by the COVID-19 Pandemic and/or other events, which may increase the risk of impairment of those investments;

• The decline in demand and pricing on our wholesale marketing segment and a decline in demand for pipelines and transportation impacting current results and/or forecasts could result in impairments in certain of our long-lived or indefinite-lived

In February 2021, our operations and those of our customers were temporarily impacted by the severe freezing weather, which affected certain regions around the country including areas where we operate.

Our customers’ volumes were significantly impacted by the prolonged freezing conditions that occurred, resulting in lower throughput in our pipeline and transportation operations.

In addition, the freezing conditions led to significant increases to energy prices resulting in increases to the related expenses.

Severe weather patterns such as the freezing conditions might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through additional costs and/or loss of revenue.

During the three months ended March 31, 2021, both our West Texas wholesale marketing business and many of our pipeline and transportation customers experienced an increase in demand and pricing due to the resumption of some economic activities as discussed above.

The impact of this positive trend was netted by the reduced volumes during the severe freezing conditions experienced in February 2021 as discussed above.

Our pipelines and transportation revenue streams were largely protected by minimum volume commitments under existing throughput contracts with customers during the current and prior periods, but continued pressure on our customers could present risks to our existing and new business opportunities as well as on collectability on our receivables.

Our management continues to monitor the COVID-19 infections in the communities around our company locations, the impact on our operations and whether there is a need to update our remote policies and quarantine protocols.

We continue to be exposed to risk from our suppliers and customers who are facing similar challenges.

To the extent that uncertainties related to the COVID-19 Pandemic have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S.

generally accepted accounting principles, we have considered them in the preparation of our condensed consolidated financial statements as of and for the three months ended March 31, 2021, which are included in Item 1.

of this Quarterly Report on Form 10-Q.

Management's Discussion and Analysis

assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated (see also Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional discussion of specific financial statement risks);

• While our current liquidity needs are managed by existing credit facilities, sources of future liquidity needs may be impacted by the volatility in the debt market and the availability and pricing of such funds as a result of the COVID-19 Pandemic and other events;

Federal Government has enacted certain stimulus and relief measures and is continuing to consider additional relief legislation.

To the extent that the provisions do not directly impact the Partnership in the current period or are intended to stimulate or provide relief to the greater U.S.

economy and/or consumer, the impact and success of such efforts remains unknown.

Other uncertainties related to the impact of the COVID-19 Pandemic and other events may exist that have not been identified or that are not specifically listed above, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown.

Actions taken by OPEC+ in April and June 2020, including the agreement for management of crude oil supply in the hopes of contributing to market stabilization (the "Oil Production Cuts"), as well as the U.S.

Other uncertainties related to the impact of the COVID-19 Pandemic and other events may exist that have not been identified, and could impact our future results of operations and financial position, the nature of which and the extent to which are currently unknown.

Federal Government's passage and/or enactment of additional stimulus and relief measures, may impact the extent to which the risk underlying these uncertainties are realized.

To the extent these uncertainties have been identified and are believed to have an impact on our current period results of operations or financial position based on the requirements for assessing such financial statement impact under U.S.

generally accepted accounting principles, we have considered them in the preparation of our unaudited condensed consolidated financial statements as of and for the three months ended September 30, 2020, which are included in Item 1.

of this Quarterly Report on Form 10-Q.

In addition, management continues to actively respond to the impact of the COVID-19 Pandemic and other events on our business.

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• Adopting remote working where possible.

Where on-site operations are required, masks are mandatory and our employees have adopted social distancing;

Where on-site operations are required, appropriate safety precautions taken;

• Working with our employees to implement other site-specific precautionary measures to reduce the risk of exposure.

The extent to which our future results are affected by COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic;

The extent to which our future results are affected by the COVID-19 Pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the Pandemic;

additional actions by businesses and governments in response to the COVID-19 Pandemic;

and the speed and effectiveness of responses to combat the virus.

The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in this Form 10-Q.

The COVID-19 Pandemic, and the volatile regional and global economic conditions stemming from the Pandemic, could also exacerbate the risk factors identified in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.

The COVID-19 Pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.

See also 'Risk Factors' in Part II, Item 1A.

of this Quarterly Report on Form 10-Q for further discussion of risks associated with the COVID-19 Pandemic.

See also 'Risk Factors' in Part I, Item 1A.

of our Annual Report on Form 10-K for further discussion of risks associated with the COVID-19 Pandemic.

Our Reporting Segments and Assets

Our business consists of two reportable segments:

(i) Pipelines and Transportation

The assets and investments in our pipelines and transportation segment consist of pipelines, tanks, offloading facilities, trucks and ancillary assets, which provide crude oil gathering and crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas, Big Spring, Texas and the Big Spring Gathering Assets.

Pipelines and Transportation

Additionally, the assets in this segment provide crude oil transportation services to certain third parties.

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Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment.

(ii) Wholesale Marketing and Terminalling

Wholesale Marketing and Terminalling

The assets in our wholesale marketing and terminalling segment consist of refined products terminals and pipelines in Texas, Tennessee, Arkansas and Oklahoma.

We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for

Management's Discussion and Analysis

the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at our terminals in West Texas and at terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings.

2020 Developments

Restructuring Transaction

Effective August 13, 2020, the Partnership closed the transaction contemplated by a definitive exchange agreement with the general partner to eliminate all of the IDRs held by the general partner and convert the 2% economic general partner interest into a non-economic general partner interest, both in exchange for 14.0 million newly issued common limited partner units and $45.0 million in cash (the "IDR Restructuring Transaction").

See Note 3 to our accompanying condensed consolidated financial statements for additional information.

In August 2020, we filed a shelf registration statement, which subsequently became effective, with the U.S.

Securities and Exchange Commission for the proposed re-sale or other disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units representing limited partner interests in the Partnership.

We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings.

Red River Expansion project

During the third quarter ended September 30, 2020, Red River, a joint venture equity method investment which owns a crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, completed a planned expansion project to increase the pipeline capacity.

The expansion project commenced operations on October 1, 2020.

Inflation Adjustments

On July 1, 2020, the tariffs on our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustments using the FERC indexing increased approximately 2%, the amount of the change in the FERC oil pipeline index.

Under certain of our other agreements with Delek Holdings and third parties, the fees adjusted based on the consumer price index increased 1.6%, and the fees adjusted based on producer price index decreased approximately 1.2%.

Trucking Assets Acquisition

See Note 2 to our accompanying condensed consolidated financial statements for additional information.

Big Spring Gathering Assets Acquisition

Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired the Big Spring Gathering Assets from Delek Holdings, located in Howard, Borden and Martin Counties, Texas.

See Note 2 to our accompanying condensed consolidated financial statements for additional information.

On March 31, 2020, in connection with the completion of the Big Spring Gathering Assets Acquisition, the Board of the general partner waived distributions in respect of the Incentive Distribution Rights ("IDRs") associated with the 5.0 million newly issued common units ("Additional Units") for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver").

The IDR Waiver essentially reduces the distribution made to the holders of the IDRs during this period, as the holders would not receive a share of the distribution made on the Additional Units.

An additional waiver letter was signed that waived all of the distributions for the first quarter of 2020 on the Additional Units with respect to base distributions and the IDRs.

The Restructuring Transaction on August 13, 2020, permanently eliminated all of the IDRs.

We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at our terminals in West Texas and at terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and by providing terminalling services at our refined products terminals to independent third parties and Delek Holdings.

2021 Strategic Developments

Exclusivity Supply Agreement

In May 2021, we executed a strategic exclusivity supply agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker"), for the supply of chemicals to meet IMO regulations through blending competencies utilizing proprietary intellectual property.The agreement has a 5-year initial term and a 5-year extension option.

Terms of the agreement are intended to incentivize a cooperative arrangement relating to strategic blending activities to be operated by the Partnership, and provides an exciting growth opportunity.

See Note 15 to our accompanying condensed consolidated financial statements for additional information

Management's Discussion and Analysis

How We Generate Revenue

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In addition, the rates charged with respect to our assets that are subject to inflation indexing may increase or decrease, typically on July 1 of each year, by the amount of any change in various inflation-based indices, including FERC, provided that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement.

Management's Discussion and Analysis

Commercial Agreements with Delek Holdings

The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products.

The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering, crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products.

Generally, these agreements include minimum quarterly volume, revenue or throughput commitments and have tariffs or fees indexed to inflation-based indices, provided that the tariffs or fees will not be decreased below the initial amount.

See our Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a discussion of our material commercial agreements with Delek Holdings.

See our Annual Report on Form 10-K filed with the SEC on March 1, 2021 for a discussion of our material commercial agreements with Delek Holdings.

Other Transactions

Starting in 2018, the Partnership manages a long-term capital project on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of a 250-mile gathering system in the Permian Basin.

The majority of the gathering system has been constructed, however, additional costs pertaining to a pipeline connection that was not contributed to the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement.

The Partnership is also considered the operator for the project and is responsible for oversight of the project design, procurement and construction of project segments and for providing other related services.

As of March 31, 2021, approximately 183 miles of the gathering system were completed and operational, however, additional costs pertaining to a pipeline connection that was not contributed to the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement.

The Partnership is also considered the operator for the project and is responsible for the oversight of the project design, procurement and construction of project segments and for providing other related services.

See Note 3 to our accompanying condensed consolidated financial statements for additional information on the DPG Management Agreement.

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• our ability to make connections to third-party facilities and pipelines.

Management's Discussion and Analysis

Contribution Margin per Barrel

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Gross margin per barrel reflects the gross margin (net revenues less cost of materials and other) of the wholesale marketing operations divided by the number of barrels of refined products sold during the measurement period.

Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and Renewable Identification Numbers ("RINs").

Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and RINs.

Historically, the profitability of our wholesale marketing operations has been affected by commodity price volatility, (specifically as it relates to changes in the price of refined products between the time we purchase such products from our suppliers and the time we sell the products to our wholesale customers), and the fluctuation in the value of RINs.

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Our wholesale marketing gross margin may also be impacted by fixed price ethanol agreements that we enter into to fix the price we pay for ethanol.

Management's Discussion and Analysis

Operating and Maintenance Expenses

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(iv) gains and losses related to our commodity hedging activities.

The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.905 per unit for the quarter ended September 30, 2020 ($3.62 per unit on an annualized basis).

The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.920 per unit for the quarter ended March 31, 2021 ($3.680 per unit on an annualized basis).

Our Partnership Agreement requires that the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to its unitholders quarterly.

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In particular, crude oil prices and the prices of related refined products have the ability to influence drilling activity in many basins and the amounts of capital spending that crude oil exploration and production companies incur to support future growth.

During the first half of 2019, the prices of crude oil and related refined products increased but fell slightly in the third quarter of 2019.

During the first quarter of 2020, reduced demand for crude oil and refined products related to the COVID-19 Pandemic, combined with production increases from OPEC+, led to a significant reduction in crude oil prices.

While OPEC+ reached an agreement to cut oil production, the uncertainty about the duration of the COVID-19 Pandemic continues to slow down the recovery of demand for gasoline and other hydrocarbons.

Therefore, the downward pressure on commodity prices has remained and could continue for the foreseeable future.

Oil prices have been extremely volatile during the nine months ended September 30, 2020.

The January 2020 high closing price of oil (WTI Cushing) was $63.27 per barrel, which declined to close at $20.48 per barrel on March 31, 2020, reached a second quarter 2020 low of $10.01 per barrel on April 21, 2020, closed at $39.27 per barrel on June 30, 2020 and at $40.22 per barrel on September 30, 2020.

In response to the rapid decline in commodity prices, some companies in the Permian Basin acted swiftly to reduce drilling and completion activity starting late in the first quarter and continued into the second and third quarter of 2020.

The current market conditions have resulted in lower refinery utilization which in turn has impacted the throughput for our assets and operations.

This has impacted our operations leading to decrease in revenues albeit with at least an equivalent decrease in cost and expenses in some instances.

Due to the stabilization in oil prices, albeit at lower prices, during the third quarter ended September 30, 2020, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the second quarter ended June 30, 2020.

We believe we are strategically positioned, in these tougher market conditions, to continue developing profitable growth projects that are needed to support future distribution growth in the midstream energy sector and for the Partnership.

During the first quarter of 2021, although the on-going COVID-19 Pandemic continues to negatively affect economic trends, signs of economic recovery are starting to show resulting in increases in consumption and demand for crude oil and refined products.

Compared to the first quarter of 2020, where reduced demand for crude oil and refined products related to the COVID-19 Pandemic, combined with production increases from OPEC+, had led to a significant reduction in crude oil prices, crude oil prices during the first quarter of 2021 have been increasing.

Commodity prices are showing signs of recovery and are expected to continue recovering in 2021 as the U.S.

federal and state governments increase the rollout of vaccinations.

The opening January 2021 price of oil (WTI Cushing) was $47.62 and reached the January 2021 high closing price of oil of $53.57 per barrel, which further increased to close at $59.16 per barrel on March 31, 2021.

Oil prices reached a high of $66.09 on March 5, 2021.

Due to the stabilization in oil prices, during the first quarter of 2021, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the first quarter of 2020.

We believe we are strategically positioned, in these tougher market conditions to continue developing profitable growth projects that are needed to support future distribution growth in the midstream energy sector for the Partnership.

West Texas Marketing Operations

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For example, as discussed above, drilling activity and the prices of crude oil and related refined products increased in the first half of 2019 and in spite of a slight decrease in prices in the third quarter of 2019, demand for refined products from our West Texas operations to industries that support crude oil exploration and production began to rebound early in the first quarter of 2020.

However due to the impact of the COVID-19 Pandemic there was lower demand and sales of refined products during later part of the first quarter and remained down during the second quarter and third quarter of 2020.

See the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2019 and for the three quarterly periods in 2020.

Management's Discussion and Analysis

However due to the impact of the COVID-19 Pandemic there was lower demand and sales of refined products during the latter part of the first quarter of 2020 and remained largely depressed during most of 2020.

In the first quarter of 2021, demand for and prices of crude oil and related refined products increased as economic activity began to recover due to the increase in vaccinations.

See the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2020 and for the three months ended March 31, 2021.

The volatility of refined products prices may impact our margin in the West Texas operations when the selling price of refined products does not adjust as quickly as the purchase price.

See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2019 and for the three quarterly periods in 2020.

See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2020 and for the three months ended March 31, 2021.

Management's Discussion and Analysis

Our West Texas operations can benefit from RINs that are generated by ethanol blending activities.

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The RINs we generate are sold primarily to Delek Holdings at market prices.

We sold approximately $0.8 million and $2.3 million of RINs to Delek Holdings during the three and nine ended September 30, 2020, respectively.

Additionally, we sold approximately $0.3 million and $0.9 million of RINs to Delek Holdings during the three and nine ended September 30, 2019, respectively.

See below for the high, low and average prices of RINs for each of the quarterly periods in 2019 and in the three quarterly periods in 2020.

We sold approximately $2.4 million and $0.8 million of RINs to Delek Holdings during the three months ended March 31, 2021 and 2020, respectively.

See below for the high, low and average prices of RINs for each of the quarterly periods in 2020 and in the three months ended March 31, 2021.

Management's Discussion and Analysis

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Contractual Obligations

There have been no material changes to our contractual obligations and commercial commitments during the three and nine months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K.

There have been no material changes to our contractual obligations and commercial commitments during the three months ended March 31, 2021 from those disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies

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(i) evaluating impairment for property, plant and equipment and intangibles, and (ii) evaluating potential impairment of goodwill.

Additionally, due to the economic and industry impact of the COVID-19 Pandemic, we also modified the application of certain of our critical accounting policies during and as of the three and nine months ended September 30, 2020 as follows:

Goodwill and Potential Impairment

Our annual goodwill impairment analysis is performed during the fourth quarter of each year.

Under ASC 350, Intangibles - Goodwill and Other , goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We have identified the COVID-19 Pandemic as a significant event during the three months ended September 30, 2020 that adversely affected the global economy and the oil and gas industry.

The COVID-19 Pandemic has resulted in government-imposed temporary business closures and shelter-at-home directives.This has had the secondary effect of impacting prices of crude oil and refined products as well as supply and demand for crude oil and refined products, and triggered several identified uncertainties, as discussed in the 'Business Overview' section of Management's Discussion and Analysis.

Our assessment was performed based on the events that had occurred through September 30, 2020 and excluded developments that occurred in the subsequent period, including the impact of a resurgence of COVID-19 cases and re-enactment of temporary business closures.

In order to determine whether these events, including the developments around such events that had occurred through September 30, 2020 and our assumptions about future periods based on those events and related developments, would more likely than not reduce the fair value of a reporting unit below its carrying amount, we performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of these events on the fair value of our reporting units.

This included sensitivity analysis and stress testing on certain of our inputs to our valuation model, including the weighted-average cost of capital and the barrel per day ("BPD") sold/throughput, which is driven by demand for crude oil and refined products.

Except for West Texas, our throughput volume is primarily driven by the minimum throughput in our commercial agreements with Delek Holdings.

Based on our analyses (which, as noted above, were based on the conditions and events that had occurred as of September 30, 2020), we determined that there is not an indicator that fair value is more likely than not to have declined below carrying value of $12.2 million as of September 30, 2020.

Additionally, because conditions and events are rapidly changing, we continue to monitor developments with these events and their impact on our valuation.

However, there is uncertainty in and around the impact of the COVID-19 Pandemic and other events that have not yet occurred or for existing conditions and events that may have future ramifications that cannot yet be anticipated.

Continued or sustained adverse change to these factors may result in potential future impairment of some or all of our goodwill balance.

Other than as described above, for all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies or estimates since our most recently filed Annual Report on Form 10-K.

See Note 1 of the condensed consolidated financial statements in Item 1.

Financial Statements, for discussion of updates to our accounting policies.

Management's Discussion and Analysis

Non-GAAP Measures

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• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income.

• Distributable cash flow - calculated as net cash flow from

operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.

Delek Logistics believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

• Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.

The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.

EBITDA and distributable cash flow are non-U.S.

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Management's Discussion and Analysis

Results of Operations

Summary of Financial and Other Information

A discussion and analysis of the factors contributing to our results of operations is presented below.

The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.

The following table and discussion present a summary of our consolidated results of operations for the three and nine months ended September 30, 2020 and 2019, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

The following table and discussion present a summary of our consolidated results of operations for the three months ended March 31, 2021 and 2020, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

Statement of Operations Data (in thousands, except unit and per unit amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net revenues:

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Income from equity method investments (4,049) (5,553)

Other (income) expense, net 105 — 103 461

Other expense, net 31 —

Total non-operating costs and expenses 5,719 6,271

Income before income tax expense 36,451 28,771

Income tax (benefit) expense (168) 84 67 220

Income tax expense 184 975

Net income attributable to partners $ 36,267 $ 27,796

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Reconciliation of net income to EBITDA (in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net income $ 36,267 $ 27,796

Income tax (benefit) expense (168) 84 67 220

Income tax expense 184 975

Depreciation and amortization 10,739 6,299

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Reconciliation of net cash from operating activities to distributable cash flow (in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net cash provided by operating activities $ 61,732 $ 34,834

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Maintenance and regulatory capital expenditures (2)

(27) (3,728) (760) (5,515)

Reimbursement from Delek Holdings for capital expenditures (3)

26 1,223 81 2,607

Accretion of asset retirement obligations (115) (107)

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Examples of maintenance and regulatory capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations.

(3) For the three and nine month periods ended September 30, 2020 and 2019, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

(3) For the three month periods ended March 31, 2021 and 2020, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

Management's Discussion and Analysis

Consolidated Results of Operations — Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Results of Operations

Consolidated Results of Operations — Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020

The table below presents a summary of our consolidated results of operations.

The discussion immediately following presents the consolidated results of operations (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net Revenues:

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Operating income $ 42,170 $ 35,042

Net revenues increased by $4.7 million, or 3.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• increased revenues associated with agreements executed in connection with the Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively.

See Note 2 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information

Such increases were partially offset by the following:

• decreases in the average sales prices per gallon of gasoline and diesel, partially offset by increases in the average sales volume of diesel in our West Texas marketing operations.

◦ the volume of diesel sold increased 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold.

◦ the average sales prices per gallon of diesel and gasoline sold decreased $0.76 per gallon and $0.60 per gallon, respectively.

Net revenues decreased by $22.1 million, or 5.0%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decreases in the average sales prices per gallon and volumes of diesel gallon sold, partially offset by increases in the sales volume of gasoline in our West Texas marketing operations:

◦ the volume of gasoline sold increased 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold.

◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.51 per gallon and $0.71 per gallon, respectively.

Net revenues decreased by $10.5 million, or 6.4%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decreases in the average volumes of gasoline and diesel sold partially offset by increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations:

◦ the volume of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively.

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.24 per gallon and $0.12 per gallon, respectively.

• decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020.

• decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance.

Such decreases were partially offset by the following:

• increased revenues associated with agreements executed in connection with Big Spring Gathering System and Delek Trucking acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively.

See Note 2 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information.

• increased revenues at our El Dorado Gathering System and Magnolia Pipeline as result of increased throughput during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

Management's Discussion and Analysis

• increased revenues at our Big Spring Refinery Crude Pipeline (the "BSR Crude Pipeline"), as a result of new contracts executed in the second quarter of 2020, during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020.

Cost of Materials and Other

Cost of materials and other decreased by $11.9 million, or 16.4%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decreases in the average cost per gallon of gasoline and diesel sold partially offset by increases in the volume of diesel sold in our West Texas marketing operations:

◦ the volume of diesel sold increased by 1.8 million gallons, partially offset by a 0.1 million increase in gasoline gallons sold.

◦ the average cost per gallon of gasoline and diesel sold decreased $0.53 per gallon and $0.74 per gallon, respectively.

Cost of materials and other decreased by $56.8 million, or 21.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decreases in the average volumes of diesel sold and average cost per gallon of gasoline and diesel sold, partially offset by increases in the average volumes of gasoline sold in our West Texas marketing operations:

◦ the average volumes of gasoline sold increased 14.3 million gallons, partially offset by a 9.7 million decrease of diesel gallons sold.

◦ the average cost per gallon of gasoline and diesel sold decreased $0.44 per gallon and $0.66 per gallon, respectively.

Cost of materials and other decreased by $20.1 million, or 19.9%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline

Management's Discussion and Analysis

and diesel sold in our West Texas marketing operations:

◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively.

◦ the average cost per gallon of gasoline and diesel sold increased by $0.27 per gallon and $0.10 per gallon, respectively.

Operating Expenses

Operating expenses decreased by $4.2 million, or 22.8%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

• decrease in utilities and other variable expenses due to lower throughput.

Operating expenses decreased by $10.4 million, or 20.1%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

Operating expenses decreased by $0.7 million, or 4.7%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects;

• lower operating costs associated with allocated contract services pertaining to certain of our assets;

• decreases in variable expenses such as utilities, maintenance and materials costs due to lower throughput.

• decreases in variable expenses such as maintenance and materials costs due to lower throughput;

• partially offset by the increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate.

General and Administrative Expenses

General and administrative expenses increased by $0.8 million, or 15.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• increase in legal and professional consulting fees due to the IDR Simplification transaction partially offset by reduction in expenses related to travel, training and other expenses.

General and administrative expenses increased by $1.9 million, or 12.8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth;

• increases in legal and professional consulting fees due to various transactions undertaken by the Partnership.

Management's Discussion and Analysis

General and administrative expenses decreased by $1.3 million, or 20.7%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decrease in legal and professional consulting fees due to fewer transactions undertaken by the Partnership compared to prior year;

• decrease in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic.

Depreciation and Amortization

Depreciation and amortization increased by $2.9 million, or 43.6%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• addition of assets to our asset base as a result of the Trucking Assets Acquisition and Big Spring Gathering Assets Acquisition.

Depreciation and amortization increased by $4.7 million, or 23.5%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

Depreciation and amortization increased by $4.4 million, or 70.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• addition of assets to our asset base as a result of the Trucking Assets Acquisition and the Big Spring Gathering Assets Acquisition.

Interest Expense

Interest expense decreased by $2.1 million, or 17.2%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• lower floating interest rates applicable to the DKL Credit Facility;

• partially offset by increased borrowings under the DKL Credit Facility as a result of our Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the Restructuring Transaction.

Interest expense decreased by $2.3 million, or 6.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily driven by the following:

During the three months ended March 31, 2021 we incurred $9.7 million of interest expense, compared to $11.8 million during the three months ended March 31, 2020, a decrease of $2.1 million, or 17.7%.

This decrease was primarily driven by the following:

• lower floating interest rates applicable to the DKL Credit Facility;

• partially offset by increased borrowings under the DKL Credit Facility as a result of our Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the IDR Restructuring Transaction.

Results from Equity Method Investments

We recognized income of $4.9 million from equity method investments during the third quarter of 2020 compared to $8.4 million for the third quarter of 2019, a decrease of $3.5 million, or 42.1%.

During the three months ended March 31, 2021 we recognized income of $4.0 million from equity method investments, compared to $5.6 million for the three months ended March 31, 2020, a decrease of $1.5 million, or 27.1%.

This decrease was primarily driven by the following:

• there were lower volumes at the Red River Pipeline Joint Venture during the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019;

• there was lower demand by refineries at the Caddo Joint Venture during the quarter ended September 30, 2020 compared to September 30, 2019.

During the nine months ended September 30, 2020, we recognized income of $16.9 million from equity method investments, compared to $14.9 million for the nine months ended September 30, 2019, an increase of $2.0 million, or 13.6%.

This increase was primarily driven by the following:

• an increase in income from our investments in Andeavor Logistics and CP LLC (as defined in Note 10 of the accompanying condensed consolidated financial statements), which operate the Rio Pipeline and the Caddo Pipeline System, respectively, as a result of increased revenues for both pipeline systems;

• this increase was partially offset by a decrease in income from the Red River Pipeline Joint Venture due to lower volumes.

Management's Discussion and Analysis

• decrease in income from our equity method investments due to lower volumes as the impact of the February 2021 severe freezing conditions was pervasive across all of our equity method investments' pipeline systems;

• our equity method investments includes our investment in the Red River Pipeline Joint Venture and our investments in Andeavor Logistics and CP LLC (as defined in Note 10 of the accompanying condensed consolidated financial statements), which operate the Rio Pipeline and the Caddo Pipeline System, respectively.

Management's Discussion and Analysis

Operating Segments

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In addition to these operating systems, we own or lease 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties.

The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three and nine months ended September 30, 2020 and 2019:

The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three months ended March 31, 2021 and 2020:

Pipelines and Transportation

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net Revenues:

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Throughputs (average bpd)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

El Dorado Assets:

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East Texas Crude Logistics System 26,075 14,174

Big Spring Gathering Assets (1)

90,719 — 85,845 —

Big Spring Gathering System 73,724 —

Plains Connection System 108,361 —

(1) Throughputs for the Big Spring Gathering Assets are for approximately 180 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

Management's Discussion and Analysis

Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net revenues for the pipelines and transportation segment increased by $26.9 million, or 60.3%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• increased revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition, which were effective March 31, 2020 and May 1, 2020, respectively.

See Note 2 of the condensed consolidated financial statements in Item 1.

Financial Statements, for additional information.

Net revenues for the pipelines and transportation segment increased by $53.4 million, or 41.3%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020

Net revenues for the pipelines and transportation segment increased by $17.0 million, or 35.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

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Financial Statements, for additional information;

• increased revenues at our El Dorado Assets and Magnolia Pipeline as result of increased throughput during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

• increased revenues at our BSR Crude Pipeline, as a result of new contracts executed in the second quarter of 2020, during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020;

• partially offset by, decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments and decreases in throughputs at the Paline pipeline due to scheduled pipeline maintenance during the three months ended March 31, 2021 when compared to the three months ended March 31, 2020.

Cost of Materials and Other

Cost of materials and other for the pipelines and transportation segment increased $9.4 million, or 189.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expenses proportionate to increase in fees, insurance, supplies and maintenance expenses.

Cost of materials and other for the pipelines and transportation segment increased by $13.8 million, or 76.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• increases in transportation costs related to our trucking assets, including driver wages and benefits and fuel expense proportionate to increase in fees, insurance, supplies and maintenance expenses.

Cost of materials and other for the pipelines and transportation segment increased by $7.0 million, or 114.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• increases in transportation costs related to our Trucking Assets due to the Trucking Asset Acquisition which was effective May 1, 2020;

• increases in driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses.

Operating Expenses

Operating expenses for the pipelines and transportation segment decreased by $1.8 million, or 14.3%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

• decrease in utilities and other variable expenses due to lower throughputs.

Operating expenses for the pipelines and transportation segment decreased $4.2 million, or 11.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decrease in employee and outside services costs due to measures implemented to respond to COVID-19 including delaying non-essential projects;

• decrease in utilities and other variable expenses due to lower throughputs.

Management's Discussion and Analysis

Operating expenses for the pipelines and transportation segment decreased by $1.3 million, or 11.2%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decreases in employee and outside services costs due to measures implemented to respond to the COVID-19 Pandemic including delaying non-essential projects;

Contribution Margin

Contribution margin for the pipelines and transportation segment increased by $19.3 million, or 71.2%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition;

• decreases in operating expenses.

Contribution margin for the pipelines and transportation segment increased by $43.9 million, or 58.1%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition, Magnolia Pipeline, and El Dorado Assets;

Contribution margin for the pipelines and transportation segment increased by $11.3 million, or 37.2%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• increases in revenues associated with agreements executed in connection with the Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition and the BSR Crude Pipeline;

• decreases in operating expenses;

• partially offset by the increase in cost of materials and other in connection with the Trucking Assets Acquisition.

Management's Discussion and Analysis

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We use our wholesale marketing and terminalling assets to generate revenue by providing wholesale marketing and terminalling services to Delek Holdings' refining operations and to independent third parties.

The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and nine months ended September 30, 2020 and 2019 :

The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three months ended March 31, 2021 and 2020 :

Wholesale Marketing and Terminalling

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net Revenues:

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Operating Information

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

East Texas - Tyler Refinery sales volumes (average bpd) (1)

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Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas, El Dorado and North Little Rock, Arkansas and Memphis and Nashville, Tennessee terminals.

Comparison of the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net revenues for the wholesale marketing and terminalling segment decreased by $22.2 million, or 23.9%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decreases in the average sales prices per gallon of gasoline and diesel sold partially offset by increases in the volumes sold in our West Texas marketing operations.

◦ the volume of diesel sold increased by 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold;

◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.60 per gallon and $0.76 per gallon, respectively.

Net revenues for the wholesale marketing and terminalling segment decreased by $75.5 million, or 23.9%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decreases in the volume of diesel sold and in the average sales prices per gallon of gasoline and diesel, partially offset by increase in the volume gasoline sold in our West Texas marketing operations.

◦ the volume of gasoline sold increased 14.3 million gallons partially offset by decrease of 9.7 million gallons in diesel sold;

◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.51 per gallon and $0.71 per gallon, respectively.

Comparison of the three months ended March 31, 2021 compared to the three months ended March 31, 2020

Net revenues for the wholesale marketing and terminalling segment decreased by $27.5 million, or 23.8%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average sales prices per gallon of gasoline and diesel sold in our West Texas marketing operations:

◦ the volume of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively.

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.24 per gallon and $0.12 per gallon, respectively.

Management's Discussion and Analysis

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Cost of Materials and Other

Cost of materials and other for our wholesale marketing and terminalling segment decreased by $21.3 million, or 31.5%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decreases in the average cost per gallon of gasoline and diesel sold, partially offset by increases in the volumes sold in our West Texas marketing operations.

◦ the volume of diesel sold increased 1.8 million gallons, partially offset by a 0.1 million decrease of gasoline gallons sold;

◦ the average cost per gallon of gasoline and diesel sold decreased $0.53 per gallon and $0.74 per gallon, respectively.

Cost of materials and other for our wholesale marketing and terminalling segment decreased by $70.6 million, or 28.8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• decreases in the volume of diesel sold and in the average cost per gallon of gasoline and diesel sold partially offset by increase in the volume of gasoline sold in our West Texas marketing operations.

◦ the volume of gasoline sold increased 14.3 million gallons partially offset by decrease of 9.7 million gallons in diesel sold;

Management's Discussion and Analysis

◦ the average cost per gallon of gasoline and diesel sold decreased $0.44 per gallon and $0.66 per gallon, respectively.

The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three and nine months ended September 30, 2020 and 2019.

Cost of materials and other for our wholesale marketing and terminalling segment decreased by $27.1 million, or 28.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• decreases in the average volumes of gasoline and diesel sold, partially offset by increases in the average cost per gallon of gasoline and diesel sold in our West Texas marketing operations:

◦ the average volumes of gasoline and diesel sold decreased by 13.9 million gallons and 9.2 million gallons, respectively.

◦ the average cost per gallon of gasoline and diesel sold increased by $0.27 per gallon and $0.10 per gallon, respectively.

The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three months ended March 31, 2021 and 2020.

Refer to the Refined Products Volume chart above for a summary of volumes impacting our West Texas operations.

Management's Discussion and Analysis

Operating Expenses

Operating expenses decreased by $2.4 million, or 40.9%, in the in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• lower operating costs associated with allocated contract services pertaining to certain of our assets;

• decreases in variable expenses such as utilities, maintenance and material costs.

Operating expenses decreased by $6.2 million, or 39.6%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by the following:

• lower operating costs associated with allocated contract services pertaining to certain of our assets;

• decreases in variable expenses such as utilities, maintenance and materials costs.

Operating expenses increased by $0.6 million, or 18.1%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by the following:

• increase in utility costs as a result of significantly higher energy costs during the February 2021 severe freezing conditions that affected most of the regions where we operate;

• this increase partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets.

Contribution Margin

Contribution margin for the wholesale marketing and terminalling segment increased by $1.5 million, or 7.8%, in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by the following:

• decreases in cost of materials and other due to decreases in average cost per gallon of diesel and gasoline sold as described above.

Such decreases were offset by;

• decreases in revenue due to decreases in average price per gallon of diesel and gasoline as described above.

The increase of $1.3 million, or 2.3%, in contribution margin for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was due to decreases in cost of materials and other netted off with decreases in revenue as described above.

• The decrease of $1.0 million, or 5.8%, in contribution margin for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was due to decreases in revenue netted off with decreases in cost of materials and other and operating expenses as described above.

Management's Discussion and Analysis

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(iv) potential issuance of additional debt securities.

At September 30, 2020 our total liquidity amounted to $95.3 million comprised of $89.3 million in unused credit commitments under the DKL Credit Facility and $6.0 million in cash and cash equivalents.

At March 31, 2021 our total liquidity amounted to $125.9 million, comprised of $112.5 million in unused credit commitments under the DKL Credit Facility and $13.4 million in cash and cash equivalents.

We have the ability to increase the DKL Credit Facility to $1.0 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility.

Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay minimum quarterly cash distributions and operational capital expenditures, and we expect the same trend to continue in the foreseeable future.

Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash distributions and operational capital expenditures, and we expect the same to continue in the foreseeable future.

Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns.

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However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us.

We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, minimum quarterly cash distributions and capital expenditures.

We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures.

Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and crude oil prices, some of which are beyond our control.

Our largest customer is Delek Holdings, a related party, with whom we have various commercial agreements.

Delek Holdings has initiated several steps as part of a strategic plan to navigate the current volatile markets and preserve or enhance its liquidity, including re-negotiating and extending financing arrangements, temporary suspension of growth and non-essential projects, reductions in capital and operating expenditures, divesting of non-strategic and underperforming assets, suspension of its stock repurchases and dividends, and exploring other potential financing opportunities.

We believe such actions will allow Delek Holdings to continue to honor its commercial agreements with us.

In addition, we eliminated the IDRs which helped lower our cost of capital and preserve our liquidity.

We continuously review our liquidity and capital resources.

If market conditions were to change, for instance due to the significant decline in crude oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.

If market conditions were to change, for instance due to a significant decline in crude oil prices or uncertainty created by the COVID-19 Pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced.

Additionally, it could cause the rating agencies to lower our credit ratings.

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Refer to the Business Overview section of this MD&A for a complete discussion of the uncertainties identified by management and the actions taken to respond to the COVID-19 Pandemic.

We believe we were in compliance with the covenants in all our debt facilities as of September 30, 2020.

We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2021.

After considering the current and potential effect of the significant decline in oil prices and uncertainty created by the COVID-19 Pandemic on our operations, we currently expect to remain in compliance with our debt covenants.

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Cash Distributions

On October 27, 2020, we announced that the board of directors had declared a distribution of $0.905 per common unit (the "Distribution"), which equates to $39.3 million per quarter, based on the number of common units outstanding as of November 6, 2020.

The Distribution is expected to be paid on November 12, 2020 to common unitholders of record on November 6, 2020 and represents a 2.8% increase over the third quarter 2019 distribution.

On April 29, 2021, our board of directors declared a distribution of $0.920 per common unit (the "Distribution"), which equates to approximately $40.0 million per quarter, based on the number of common units expected to be outstanding as of May 10, 2021.

The Distribution is expected to be paid on May 14, 2021 to common unitholders of record on May 10, 2021 and represents a 3.4% increase over the first quarter 2020 distribution.

We have set a range for distribution growth guidance of $0.005 - $0.015 per unit each quarter for 2021.

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Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit.

Management's Discussion and Analysis

The table below summarizes the quarterly distributions related to our quarterly financial results:

Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Quarterly Distribution Per Limited Partner Unit, Annualized Total Cash Distribution, including general partner interest and IDRs (in thousands) Date of Distribution Unitholders Record Date

September 30, 2019 $ 0.880 $ 3.52 $ 30,379 November 12, 2019 November 4, 2019

December 31, 2019 $ 0.885 $ 3.54 $ 30,634 February 12, 2020 February 4, 2020

March 31, 2020 $ 0.890 $ 3.56 $ 30,878 May 12, 2020 May 5, 2020

June 30, 2020 $ 0.900 $ 3.60 $ 35,969 August 12, 2020 August 7, 2020

September 30, 2020 $ 0.905 $ 3.62 $ 39,308 November 12, 2020 (1)

November 6, 2020

September 30, 2020 $ 0.905 $ 3.62 $ 39,308 November 12, 2020 November 6, 2020

December 31, 2020 $ 0.910 $ 3.64 $ 39,533 February 9, 2021 February 2, 2021

March 31, 2021 $ 0.920 $ 3.68 $ 39,968 May 14, 2021 (1)

(1) Expected date of distribution.

Management's Discussion and Analysis

The following table sets forth a summary of our consolidated cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30,

The following table sets forth a summary of our consolidated cash flows for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Net cash provided by operating activities $ 61,732 $ 34,834

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Operating Activities

Net cash provided by operating activities was $134.7 million for the nine months ended September 30, 2020, compared to $86.9 million for the nine months ended September 30, 2019, resulting in a $47.8 million increase in net cash provided by operating activities.

Net cash provided by operating activities was $61.7 million for the three months ended March 31, 2021, compared to $34.8 million for the three months ended March 31, 2020, resulting in a $26.9 million increase in net cash provided by operating activities.

The cash receipts from customer activities decreased by $8.0 million and cash payments to suppliers and for allocations from Delek Holdings for salaries decreased by $34.1 million.

In addition, cash dividends received from equity method investments increased by $8.4 million and cash paid for debt interest decreased by $2.1 million.

In addition, cash dividends received from equity method investments decreased by $1.2 million and cash paid for debt interest decreased by $2.0 million.

Investing Activities

Net cash used in investing activities decreased by $25.0 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 partially offset by the acquisition of the Big Spring Gathering Assets and Trucking Assets during the nine months ended September 30, 2020.

We disbursed $11.8 million in additional contributions to our equity method investments during the nine months ended September 30, 2020 compared to $137.4 million during the nine months ended September 30, 2019.The Big Spring Gathering Assets Acquisition was partially financed with cash from drawdown of the DKL Credit Facility amounting to $100.0 million and the Trucking Assets Acquisition was financed with cash from drawdown of the DKL Credit Facility amounting to $48.0 million of which $0.5 million was recorded as investing activity with $47.6 million recorded in financing activities as a distribution to Delek and GP unitholders pursuant to the asset acquisitions under common control guidance.

Transaction costs paid amounting to $1.0 million were capitalized for the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition.

There was no asset acquisition during the nine months ended September 30, 2019.

In addition there were additions to property, plant and equipment amounting to $6.9 million and distributions from equity method investments amounting $2.7 million during the nine months ended September 30, 2020 compared to additions to property, plant and equipment amounting to $5.0 million and distributions from equity method investments amounting to $0.8 million during the nine months ended September 30, 2019.

Net cash used in investing activities decreased by $108.2 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments and no acquisitions during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

We disbursed $1.4 million in additional contributions to our equity method investments during the three months ended March 31, 2021 compared to $8.2 million during the three months ended March 31, 2020.The Big Spring Gathering Assets Acquisition, effective on March 31, 2020, was partially financed with cash from drawdown of the DKL Credit Facility amounting to $100.0 million which was recorded in investing activities.

Transaction costs paid amounting to $1.0 million were capitalized for the Big Spring Gathering Assets Acquisition.

There was no asset acquisition during the three months ended March 31, 2021.

In addition there were additions to property, plant and equipment amounting to $6.1 million and distributions from equity method investments amounting $3.9 million during the three months ended March 31, 2021 compared to additions to property, plant and equipment amounting to $4.2 million and distributions from equity method investments amounting to $0.1 million during the three months ended March 31, 2020.

Financing Activities

Net cash provided by financing activities decreased $74.1 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The decrease in cash provided by financing activities was primarily due to the $47.6 million excess of purchase consideration over the carrying amount of the assets acquired in the Trucking Assets Acquisition treated as a distribution to Delek and GP unitholders pursuant to the asset acquisitions under common control guidance and $45 million paid to the general partner in the IDR Restructuring Transaction to eliminate the general partners' IDRs, convert the general partners economic interest to non-economic interest and issue 14 million common limited units.

This was partially offset by the increase in net proceeds under the revolving credit facility (defined below).

We received net proceeds of $172.3 million under the revolving credit facility during the nine months ended September 30, 2020, compared to net proceeds of $139.6 million under the revolving credit facility during the nine months ended September 30, 2019.

In addition, we paid quarterly cash distributions totaling $97.5 million during the nine months ended September 30, 2020, compared to quarterly cash distributions totaling $83.3 million during the nine months ended September 30, 2019.

The sources of cash during the nine months ended September 30, 2020 primarily consisted of the $100.0 million drawdown under the DKL Credit Facility to part-finance the Big Spring Gathering Assets Acquisition and $48.0 million drawdown to finance the Trucking Asset Acquisition.

The Big Spring Gathering Assets Acquisition was also financed by the issuance of 5.0 million units to Delek US Energy (a wholly owned subsidiary of Delek US Holdings, Inc.).

Net cash provided by financing activities decreased $124.6 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The decrease in cash provided by financing activities was primarily due to the decrease in net proceeds under the revolving credit facility (defined below).

We repaid $9.1 million under the revolving credit facility during the three months ended March 31, 2021, compared to net proceeds of $106.6 million under the revolving credit facility during the three months ended March 31, 2020.

In addition, we paid quarterly cash distributions totaling $39.5 million during the three months ended March 31, 2021, compared to quarterly cash distributions totaling $30.6 million during the three months ended March 31, 2020.

Management's Discussion and Analysis

The sources of cash during the three months ended March 31, 2020 primarily consisted of the $100.0 million drawdown under the DKL Credit Facility to part-finance the Big Spring Gathering Assets Acquisition.

The Big Spring Gathering Assets Acquisition was also financed by the issuance of 5.0 million units to Delek US Energy, Inc.

(a wholly owned subsidiary of Delek Holdings).

Debt Overview

As of September 30, 2020, we had total indebtedness of $1,006.1 million comprised of $760.7 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.4 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount.

As of March 31, 2021, we had total indebtedness of $983.4 million comprised of $737.5 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.9 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount.

Deferred financing costs and original issue discount on the 2025 Notes amounted to $3.1 million and $1.0 million, respectively.

The increase of $173.0 million in our long-term debt balance compared to the balance at December 31, 2019 resulted from the borrowings under the DKL Credit Facility during the nine months ended September 30, 2020 to finance the Big Spring Gathering Assets Acquisition, the Trucking Assets Acquisition, the IDR restructuring and amortization of the deferred financing costs and original issuance discount under our 2025 Notes.

As of September 30, 2020, our total indebtedness consisted of:

• An aggregate principal amount of $760.7 million under the Delek Logistics Credit Facility ("revolving credit facility"), due on September 28, 2023, with average borrowing rate of 2.69%.

• An aggregate principal amount of $245.4 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with effective interest rate of 7.22%.

We believe we were in compliance with the covenants in all our debt facilities as of September 30, 2020.

The decrease of $8.9 million in our long-term debt balance compared to the balance at December 31, 2020 resulted from the payments under the DKL Credit Facility during the three months ended March 31, 2021 partially offset by amortization of the deferred financing costs and original issuance discount under our 2025 Notes.

As of March 31, 2021, our total indebtedness consisted of:

• An aggregate principal amount of $737.5 million under the DKL Credit Facility ("revolving credit facility"), due on September 28, 2023, with an average borrowing rate of 2.45%.

• An aggregate principal amount of $245.9 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.25%.

We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2021.

See Note 7 to our accompanying condensed consolidated financial statements for a complete discussion of our third-party indebtedness.

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Equity Units Overview

On August 13, 2020, we closed the IDR Restruction Transaction.

To effect this transaction, our partnership agreement was amended and updated.

On August 13, 2020, we closed the IDR Restructuring Transaction.

To effect this transaction, our partnership agreement was amended and restated.

See Note 3 to our accompanying condensed consolidated financial statements for additional details.

In August 2020, we filed a shelf registration statement, which subsequently became effective, with the U.S.

Securities and Exchange Commission for the proposed re-sale or disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units representing limited partner interests in the Partnership.

In August 2020, we filed a shelf registration statement, which subsequently became effective, with the SEC for the proposed re-sale or disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units representing limited partner interests in the Partnership.

We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings.

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A key component of our long-term strategy is our capital expenditure program.

The following table summarizes our actual capital expenditures for the nine months ended September 30, 2020 and planned capital expenditures for the full year 2020 by segment and by major category (in thousands):

Full Year 2020 Forecast Nine Months Ended September 30, 2020

The following table summarizes our actual capital expenditures for the three months ended March 31, 2021 and planned capital expenditures for the full year 2021 by segment and by major category (in thousands):

Full Year 2021 Forecast Three Months Ended March 31, 2021

Pipelines and Transportation

Regulatory (2)

$ 4,839 $ 443

Maintenance (1)

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Regulatory (3)

$ 1,311 $ 1,085

Maintenance (1)

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Total capital spending $ 27,795 $ 7,799

$ 21,051 $ 6,918

(1) Maintenance capital expenditures represent cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity.

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Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

(2) The majority of the $0.9 million and $11.1 million budgeted for maintenance and discretionary projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and pipelines and developments to the Big Spring Gathering Assets, respectively.

Effective March 31, 2020 and May 1, 2020, the pipelines and transportation segments includes the Big Spring Gathering Assets acquired in the Big Spring Gathering Assets Acquisition and Trucking Assets acquired in the Trucking Assets Acquisition, respectively.

See Note 2 to our accompanying condensed consolidated financial statements for further information.

(3) The majority of the $0.8 million and $5.4 million budgeted for maintenance and discretionary projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and and improvements to certain of our terminalling facilities and developments on the Big Spring Refinery to Magellan Pipeline, respectively.

(4) Capital spending excludes transaction costs capitalized in the amount of $0.3 million and $0.7 million that relate to the Trucking Assets Acquisition and the Big Spring Gathering Assets Acquisition, respectively.

(5) Excludes rights-of-way spending of a nominal amount.

(2) The majority of the $4.8 million budgeted for regulatory projects in the pipelines and transportation segment is expected to be spent on certain of our pipelines to maintain their operational integrity.

The majority of the $9.7 million for discretionary projects in the pipelines and transportation segment is expected to be spent on scheduled maintenance and improvements to certain of our tanks and development of our DPG assets.

These expenditures have historically been and will continue to be financed through cash generated from operations.

(3) The majority of the $3.6 million and $5.0 million budgeted for regulatory and discretionary projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals.

These expenditures have historically been and will continue to be financed through cash generated from operations.

The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects.

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Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections.

Projects that are not essential to maintaining the current operations have been suspended and are expected to resume in 2021.

We continue to evaluate the adverse effects of the COVID-19 Pandemic, and may further revise our forecast as a result of changing circumstances.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis