What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-03-01 · 308 added, 319 removed, 428 unchanged (59% of the section changed)

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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 2.0% 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 4 to the accompanying consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K 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 3 to the accompanying consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.

Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary DKL Permian Gathering, LLC, acquired from Delek Holdings a crude oil gathering system located in Howard, Borden and Martin Counties, Texas (the "Big Spring Gathering Assets"), and certain related assets, such transaction the "Big Spring Gathering Assets Acquisition." See Note 3 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.

Effective March 1, 2018, the Partnership acquired from Delek Holdings certain logistics assets primarily located at or adjacent to Delek Holdings' Big Spring, Texas refinery (the "Big Spring Refinery").

See Note 3 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information on the acquisition.

Effective December 20, 2021, Delek Holdings announced a program to sell certain common limited partner units representing limited partner interests in the Partnership.

See Note 12 to our consolidated financial statements Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information.

On May 24, 2021, the Partnership and its wholly owned subsidiary Delek Logistics Finance Corp.

("Finance Corp." and together with the Partnership, the "Issuers") issued $400.0 million in aggregate principal amount of the Issuers’ 7.125% Senior Notes due 2028 (the “2028 Notes”), along with the related guarantees of the 2028 Notes.

See Note 11 to our consolidated financial statements Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information.

In May 2021, we executed an exclusive supply and strategic relationship agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker").

See "2021 Developments" for further details.

The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its Twitter account (@DelekLogistics).

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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.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.

Forward-looking information is based on information

Management's Discussion and Analysis

available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

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

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• industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity;

Management's Discussion and Analysis

• the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures;

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• our reliance on information technology systems in our day-to-day operations;

• changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic;

• changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic or future pandemics;

• the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic;

• competitive conditions in our industry;

• significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions;

• competitive conditions in our industry including capacity overbuild in areas where we operate;

• actions taken by our customers and competitors;

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• our ability to successfully integrate acquired businesses;

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

• disruptions due to acts of God, natural disasters, casualty losses, severe weather patterns, such as freezing conditions, cyber or other attacks on our electronic systems, and other matters beyond our control which 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;

• the effects of future litigation;

• the effects of future litigation or environmental liabilities that are not covered by insurance;

• other factors discussed elsewhere in this Annual Report on Form 10-K.

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In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them.

In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends.

We can give no assurances

In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance,

Management's Discussion and Analysis

that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.

and you should not use our historical performance to anticipate results or future period trends.

We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.

All forward-looking statements included in this report are based on information available to us on the date of this report.

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Business and Properties—Company Overview" for further details.

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.

economic activity was on a recovery trend during the year ended December 31, 2021.

The spike in number of new cases due to new COVID-19 variants, with most recent cases related to the Omicron variant, dampened the expectations of some economists regarding economic recovery and increasing demand for oil.

For example, due to travel restrictions put in place as a result of Omicron, the global oil demand forecast for 2022 was originally revised down by analysts.

However, the wave of infections related to the Omicron variant appears to be less severe and potentially of shorter duration than prior waves.

Consequently, tailwinds in the midstream industry remained intact, with most industry players providing solid performance in 2021 supported by a macro recovery in the oil and gas industry and positive company-level developments.

oil production, crucial to midstream industry performance, has been steadily rising amid higher crude oil prices and positive general economic sentiments.

However, we remain subject to heightened levels of uncertainty and increased risks related to the on-going impact of the COVID-19 Pandemic, with possible increase in new infection rates and the spread of new variants of the virus, which could have a negative impact oil demand and production.

Most of the COVID-19 Pandemic related restrictions imposed in the prior year have been eased, major airlines have resumed their flights, motor vehicle use continues to increase and government vaccination campaigns continue.

The economic recovery has in turn resulted in increased demand and market prices for crude oil and other products, particularly refined petroleum products that we receive revenue for transporting and storing.

It has also resulted in an increase in demand and sales volumes in our wholesale marketing business.

Although we expect the direct effects from the Pandemic on U.S.

oil consumption to continue to decrease, some consumption patterns may be more lasting, including increased working from home and changes in travel behavior, which could limit growth in gasoline and jet fuel consumption.

Furthermore, as of December 31, 2021, the COVID-19 Pandemic and the spread of new variants of the virus, continues 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 year ended December 31, 2020 in the United States and globally.

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

In October 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 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 subsequently experienced a marked increase in the spread of COVID-19 and many governmental authorities in such areas 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.

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 year ended December 31, 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.

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 the 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;

Therefore, 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 corporate employees seconded by Delek Holdings to work for the Partnership are personally affected by the illness, both through direct infection and quarantine procedures.

Increasingly unstable environmental conditions and spontaneous extreme weather events are making it costlier and more difficult for oil and gas companies to operate in certain environments.

Consequently, climate-change, and related current and proposed regulations, is directly and indirectly hitting industry bottom lines globally and in specific geographic areas where we operate.

Current and proposed climate-change and environmental regulations, laws and government policies affect where and how companies invest, conduct their operations and formulate their products and, in some cases, limit their profits directly.

We remain committed to complying with all regulations, laws and government policies designed to curb the growing climate-change crisis.

The current and future impact of climate-change and compliance initiatives to our logistic operations remain uncertain.

During the year ended December 31, 2021, our West Texas wholesale marketing business, many of our pipeline and transportation customers, and customers of our joint venture entities, 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.

Our pipelines and transportation revenue streams and revenue streams of our joint venture entities 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 and climate-change 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 consolidated financial statements for the year ended December 31, 2021, which are included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Management's Discussion and Analysis

• 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 assets, including goodwill, or have other financial statement impacts that cannot currently be anticipated;

• 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 consolidated financial statements as of and for the year ended December 31, 2020.

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

Such efforts include (but are not limited to) the following:

• Reducing planned capital expenditures for 2021;

• Identifying alternative financing solutions to enhance our access to sources of liquidity;

• Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and reducing or eliminating non-critical travel which serves the dual purpose of also complying with recommendations made by the state and federal governments because of the COVID-19 Pandemic;

• Implementing regular site cleaning and disinfecting procedures;

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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;

• Working with our corporate employees seconded by Delek Holdings to work for the Partnership to implement other site-specific precautionary measures to reduce the risk of exposure.

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 COVID-19 Pandemic;

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

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

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

of this Annual Report on Form 10-K for further discussion of risks associated with the COVID-19 Pandemic and climate-change.

Our Reporting Segments and Assets

Our business consists of two reportable segments:

(i) Pipelines and Transportation

Our business consists of three reportable segments:

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 and Big Spring, Texas.

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

In providing these services, we do not take ownership of the products or crude oil that we transport or store.

In providing these services, we typically do not take ownership of the products or crude oil that we transport or store.

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.

Management's Discussion and Analysis

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.

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.

Investments in Pipeline Joint Ventures

The Partnership owns a portion of three joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets, which serve third parties and subsidiaries of Delek Holdings.

2021 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 the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

In August 2020, we filed a shelf registration statement with the U.S.

Securities and Exchange Commission, which subsequently became effective, 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

In August 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 from 150,000 bpd to 235,000 bpd.

The expansion project commenced operations on October 1, 2020.

Sale of Common Units by Delek Holdings

On December 22, 2021, Delek Holdings issued a press release regarding a program to sell up to 434,590 of its common limited partner units, representing limited partner interests in the Partnership, over the next three months in open market transactions.

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

See Note 4 to our accompanying consolidated financial statements for additional details.

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 adjustment using the FERC indexing increased by approximately 2%, which was the amount of the change in the FERC oil pipeline index.

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

On July 1, 2021, the tariffs on certain of 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 FERC indexing decreased by approximately 0.6%, which was the amount of the change in the FERC oil pipeline index.

On January 20, 2022 the FERC reduced the index by approximately 1%

Management's Discussion and Analysis

and ordered affected operators to file new tariffs consistent with the reduction to be effective from and after March 1, 2022.

Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 4.4% and the fees that are subject to adjustments using the producer price index increased approximately 2.3%.

See "Part 1—Items 1 and 2.

Business and Properties—Company Overview—2021 Developments" for further details.

Trucking Assets Acquisition

See Note 2 to the consolidated financial statements in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K 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 consolidated financial statements, in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K 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 limited partner 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 reduced 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.

See Note 3 to our accompanying consolidated financial statements, in Item 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information.

High Yield Debt - 7.125% Senior Notes due 2028

On May 24, 2021, the Partnership and its wholly owned subsidiary Delek Logistics Finance Corp.

We used the net proceeds from the sale of the 2028 Notes to repay a portion of the outstanding borrowings under our revolving credit facility.

See Note 11 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information.

Exclusive Supply Agreement

In May 2021, we executed an exclusive supply and strategic relationship agreement with Baker Petrolite LLC (an affiliate of Baker Hughes Company) ("Baker").

The agreement provides that, under certain circumstances, Baker will supply certain chemicals exclusively to us within a defined territory.

Those chemicals allow us, through blending competencies utilizing proprietary intellectual property, to clarify slurry which can then be used in International Maritime Organization-compliant products.

The agreement has a 5-year initial term and a 5-year extension option.

Business Strategies

Our objectives are to maintain stable cash flows and to grow the quarterly distributions paid to our unitholders over time.

We are focused on growing our asset base within our geographic area through acquisitions, project development, joint ventures and enhancing our existing systems.

We are focused on growing our asset base within our geographic area through acquisitions, project development, joint ventures, enhancing our existing systems and lowering our carbon footprint.

While we will continue to evaluate ways to provide Delek Holdings with logistics services, our emphasis will be to increase the logistics services that we offer to third parties.

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In new service contracts, we will endeavor to include minimum volume throughput or other commitments, similar to those included in our current commercial agreements with Delek Holdings.

Management's Discussion and Analysis

• Focus on Growing Our Business.

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We also expect to further diversify our customer base by increasing third-party throughput volumes running through certain of our existing systems and expanding our existing asset portfolio to service more third-party customers.

Management's Discussion and Analysis

• Lowering Our Carbon Footprint.

We seek to grow our business whilst staying conscious of and minimizing the negative environmental impact.

We will continue investing in cutting edge technologies that will reduce our carbon emissions as we achieve our growth objectives and sustainably improve unitholder returns.

We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns.

Commercial Agreements with Delek Holdings

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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 "Delek Permian Gathering Project").

As of December 31, 2020, approximately 178 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 manages long-term capital projects on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of gathering systems in the Permian Basin (the "Delek Permian Gathering Project").

The majority of the gathering systems has been constructed, however, additional costs pertaining to a pipeline connection that was not acquired by 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 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information on the DPG Management Agreement.

Management's Discussion and Analysis

How We Evaluate Our Operations

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These metrics are significant factors in assessing our operating results and profitability and include:

(i) volumes (including pipeline throughput and terminal volumes);

(ii) contribution margin per barrel;

(iii) operating and maintenance expenses;

(iv) cost of materials and other;

(v) EBITDA and distributable cash flow (as such terms are defined below).

■ volumes (including pipeline throughput and terminal volumes)

■ contribution margin per barrel

■ operating and maintenance expenses

■ cost of materials and other

■ EBITDA and distributable cash flow (as such terms are defined below)

■ net income of joint ventures

The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations.

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Contribution Margin per Barrel

Because we do not allocate general and administrative expenses by segment, we measure the performance of our segments by the amount of contribution margin as generated in operations.

Because we do not allocate general and administrative expenses by segment, we measure the performance of our segments by the amount of contribution margin as generated in operations, except for the investments in pipeline joint ventures segment.

Contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization.

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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").

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.

Historically, the profitability of our wholesale

Management's Discussion and Analysis

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.

Commodity price volatility may also impact our wholesale marketing operations when the selling price of refined products does not adjust as quickly as the purchase price.

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We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow.

Management's Discussion and Analysis

Cost of Materials and Other

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See Note 12 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions.

How We Evaluate Our Investments in Pipeline Joint Ventures

We make strategic investments in pipeline joint ventures generally when it provides an economic benefit in terms of pipeline access we can use for our existing or future customers and when we expect a rate of return that meets our internal investment criteria.

Our existing investments in pipeline joint ventures all provide a combination of strategic benefit and return on investment.

The strategic benefit for each is described below:

• The RIO Pipeline is positioned in the Delaware basin and benefits from drilling activity in the area, while also offering producers and shippers connections to Midland, Texas takeaway pipelines;

• The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area;

• The Red River Pipeline provides crude oil transportation and optionality from Cushing, Oklahoma to Longview, Texas area and connectivity to our Caddo JV along with DKL Paline pipeline for access to Gulf Coast markets.

It also has additional expansion optionality.

Market Trends

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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.

Throughout the majority of 2018, the prices of crude oil and related refined products remained relatively consistent.

Nevertheless, during the fourth quarter of 2018 the prices of crude oil and related refined products decreased significantly due to seasonal impacts.

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 year ended December 31, 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 and closed at $39.27 per barrel on June 30, 2020.

The WTI Cushing oil price recovered slightly to close at $40.22 per barrel on September 30, 2020 and at $48.40 on December 31, 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 a 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 second half of the year, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the first half 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 and for the Partnership.

During the three months and year ended December 31, 2021, the U.S.

economic activity continued its recovery path resulting in increases in consumption and demand for crude oil and refined products, although heightened uncertainty still remains due to the on-going COVID-19 Pandemic and the spread of new variants of the virus.

Compared to the three months and year ended December 31, 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 three months and year ended December 31, 2021 were steadily increasing.

Management's Discussion and Analysis

The price of oil (WTI Cushing) closed at $76.99 per barrel on December 31, 2021, $28.47 per barrel higher than on December 31, 2020.

The opening January 2021 price of oil (WTI Cushing) was $47.62, increased to $61.45 beginning April 2021 and reached a high of $84.65 per barrel on October 26, 2021.

Due to the sustained increase in oil prices, during the three months and year ended December 31, 2021, we experienced improved margins in the West Texas area, and better throughput for our assets with improved gross margins, when compared to the same period in 2020.

We remain positively cautious about the recovery in demand and price of crude oil as it is not without volatility.

The COVID-19 Pandemic, future OPEC+ decisions, global geopolitical and economic uncertainty continue to contribute to volatility in the financial and commodity markets.

Our exposure to crude oil production, demand and commodity price fluctuations in our pipelines and transportation segment and our joint venture entities was limited due to minimum volume commitments under existing throughput contracts with customers, 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 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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Additionally, volatility in crude oil, intermediate and refined products prices in the West Texas area and the value attributable to RINs can affect the results of our West Texas operations.

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 of 2020.

However, during the third quarter and fourth quarter of 2020, demand and sales of the refined products began to rebound from the second quarter lows.

Management's Discussion and Analysis

For example, demand for refined products from our West Texas operations to industries that support crude oil exploration and production was subdued during the year ended December 31, 2021 due to the impact of the COVID-19 Pandemic leading to lower demand and sales of refined products and remained largely depressed during most of 2020.

As discussed above, the U.S.

economic activity is recovering and demand for and prices of crude oil and related refined products increased during the year ended December 31, 2021 as consumption of oil increased spurred by easing of COVID-19 related restrictions.

Although we expect the direct effects from the Pandemic on U.S.

oil consumption to decrease, some consumption patterns may be more lasting, including increased working from home and changes in travel behavior, which could limit growth in gasoline and jet fuel consumption.

See chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods during the years ended December 31, 2021 and 2020.

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Management's Discussion and Analysis

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

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Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S.

These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• 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 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.

These financial and operational non-GAAP measures include:

• 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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Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility.

For a reconciliation of EBITDA and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with U.S.

GAAP, please refer to "Results of Operations" below.

Management's Discussion and Analysis

Results of Operations

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.

See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable U.S.

GAAP financial measures.

Non-GAAP Reconciliations

The following table provides a reconciliation of EBITDA and distributable cash flow to the most directly comparable U.S.

The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable U.S.

GAAP measure, or net income and net cash from operating activities, respectively.

Reconciliation of net income to EBITDA (in thousands)

Year Ended December 31,

Reconciliation of net income to EBITDA (in thousands) Year Ended December 31,

Net income $ 164,822 $ 159,256

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Interest expense, net 50,221 42,874

$ 245,295 $ 178,956

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

Year Ended December 31,

EBITDA $ 265,177 $ 245,295

Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31,

Net cash provided by operating activities $ 275,162 $ 193,016

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Distributable cash flow $ 215,781 $ 207,664

$ 207,664 $ 127,002

For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures" above.

Maintenance and regulatory 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.

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.

(1) Maintenance and regulatory capital expenditures represent cash expenditures (including 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.

Examples include 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.

(2) For the years ended December 31, 2021 and 2020, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements).

Management's Discussion and Analysis

Critical Accounting Policies and Estimates

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities.

We prepare our consolidated financial statements in conformity with GAAP, and in the process of applying these principles, we must make judgments, assumptions and estimates based on the best available information at the time.

To aid a reader's understanding, management has identified our critical accounting policies.

These policies are considered critical because they are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments.

Often they require judgments and estimation about matters which are inherently uncertain and involve measuring at a specific point in time, events which are continuous in nature.

Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which we may have little or no control.

Property, Plant and Equipment and Definite-lived Intangibles Impairment

Property, plant and equipment and definite-lived intangibles are evaluated for impairment whenever indicators of impairment exist.

An indicator exists when events or conditions indicate that it is more likely than not that the future cash flows associated with an asset group will be insufficient to recover the carrying value.

Accounting standards require that if an impairment indicator is present, we must assess whether the carrying amount of the asset is unrecoverable by estimating the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges.

We derive the required undiscounted cash flow estimates, including salvage values (when applicable), from our historical experience and our internal business plans, which requires judgment.

We use quoted market prices when available and our internal cash flow estimates discounted at an appropriate interest rate to determine fair value, as appropriate.

If the carrying amount is more than the estimated recoverable amount, an impairment charge must be recognized based on the fair value of the asset.

In late 2018, we began the process of decommissioning certain common carrier pipelines on the El Dorado Gathering System.

The decommissioning entailed taking certain pipelines out of service in an effort to improve the safety and integrity of the El Dorado Gathering System.

The project was completed in August 2019.

The pipelines that were decommissioned remained physically in place, and the decommissioning did not have a material effect on our financial results.

We performed an impairment analysis of our rights-of-ways ("ROWs") associated with the decommissioning project.

As a result of the analysis, we determined that certain of the ROWs were impaired.

This impairment, however, did not have a material effect on our 2019 financial results.

We have identified the COVID-19 Pandemic as a significant event during the year ended December 31, 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, where such conditions may impact our cash flows either directly through our West Texas wholesale operations or indirectly because those prices and supply/demand may impact our customers' needs for our logistics assets/services.

Additionally, the Pandemic has given rise to other identified uncertainties, as discussed in the 'Business Overview' section of Management's Discussion and Analysis.

For these reasons, we have considered the uncertainties and the related risks in our consideration of the recoverability of Property, plant and equipment and definite-lived intangibles.

Factors impacting our evaluation include the favorable factor that many of our assets were acquired from entities under common control, and therefore were recorded at their original amortized book value instead of their higher fair value on acquisition, as well as the presence of minimum volume commitments in our Commercial Agreements with customers.

Judgment is required to assess the credit worthiness of our customers as well as contractual risk which may not always be visible (depending on the customer).

Because approximately 90% of our throughput Commercial Agreements are with Delek Holdings, a related party, we believe we had adequate information to reasonably assess these risks.

Based on these factors and our judgments about their impact, we concluded that we did not have an indicator of impairment with respect to our property, plant and equipment and definite-lived intangibles.

In response to the identified significant event relating to the COVID-19 Pandemic, we assessed whether the carrying amount of our Property, plant and equipment and definite-lived intangibles were recoverable by comparing the expected future cash flows to our carrying amount.

Based on our analyses, we determined that the Property, plant and equipment of $464.8 million and definite-lived intangibles of $123.8 million were not impaired as of December 31, 2020.

Goodwill and Indefinite-lived Intangible Assets Potential Impairment

Goodwill in an acquisition represents the excess of the aggregate purchase price over the fair value of the identifiable net assets.

Goodwill is reviewed at least annually for impairment, or more frequently if indicators of impairment exist, such as disruptions in our business, unexpected significant declines in operating results or a sustained market capitalization decline.

Goodwill is evaluated for impairment by comparing the carrying amount of the reporting unit to its estimated fair value.

Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other , provides that companies may first apply an optional qualitative approach to test indefinite-lived intangible assets for impairment.

The qualitative assessment permits companies to assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount.

If a company concludes that, based on the qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company is required to perform the quantitative impairment test.

Alternatively, if a company concludes based on the qualitative assessment that it is not more

Management's Discussion and Analysis

likely than not that the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and does not need to perform the quantitative impairment test.

We perform our annual goodwill impairment assessment during the fourth quarter.

When applying the quantitative approach to assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit.

We may consider inputs such as a market participant weighted average cost of capital ("WACC"), estimated growth rates for revenue, barrels per day sold/throughput, rates including FERC regulated rates, contribution margin, capital expenditures, and long-term growth rate based on history and our best estimate of future forecasts, all of which are subject to significant judgment and estimates.

We may also corroborate the fair values of the reporting units using a multiple of expected future cash flows, such as those used by third-party analysts.

If these estimates and assumptions change in the future, due to factors such as a decline in general economic conditions, sustained decrease in rates, competitive pressures on sales and margins and other economic and industry factors beyond management's control, an impairment charge may be required.

The most significant risks to our valuation and the potential future impairment of goodwill are the WACC and the throughput and rates, which are mostly driven by the minimum throughput on our commercial agreements with Delek.

Because of the significant historical cushion by which the fair value of our reporting units exceeded our carrying value and the relative insignificance of our total goodwill balance ($12.2 million as of December 31, 2020 and 2019) to our balance sheet as a whole, we elected to perform a qualitative assessment for purposes of our annual goodwill impairment test during the fourth quarter in 2020, 2019 and 2018.

Our assessment was performed based on the events that had occurred through our annual assessment date, and included certain analyses on the most significant inputs in our most recent 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, 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.

Additionally, our 2020 assessment included consideration of the effects of the COVID-19 Pandemic, including its effect on the prices of crude oil and refined products as well as supply and demand for crude oil and refined products, where such conditions may impact our cash flows either directly through our West Texas wholesale operations or indirectly because those prices and supply/demand may impact our customers' needs for our logistics assets/services (see further discussion of the Pandemic and related uncertainties as discussed in the 'Business Overview' section of Management's Discussion and Analysis).

Factors impacting our evaluation include the favorable factor that many of our indefinite-lived intangible assets were acquired from entities under common control, and therefore were recorded at their original carrying amount instead of a higher fair value at acquisition, as well as the presence of minimum value commitments in our Commercial Agreements with customers.

Judgment is required to assess the credit worthiness of our customers as well as contractual risk which may not always be visible (depending on the customer).

Because approximately 90% of our throughput Commercial Agreements are with Delek, a related party, we believe we had adequate information to reasonably assess these risks.

Based on our annual assessment which involved these qualitative analyses, we determined that there was no indicator that fair value was more likely than not to have declined below carrying value of our reporting units as of our annual assessment dates during each of the years ended December 31, 2020, 2019 or 2018.

Therefore, the quantitative approach was not required.

Accordingly, our annual assessment of goodwill and indefinite-lived intangible assets did not result in an impairment charge during the years ended December 31, 2020, 2019 or 2018.

December 31, 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.

New Accounting Pronouncements

See Note 2 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of new accounting pronouncements applicable to us.

Management's Discussion and Analysis

Results of Operations

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

Consolidated Results of Operations - Comparison of the Year Ended December 31, 2021 versus the Year Ended December 31, 2020

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The discussion of the year-over-year changes immediately following presents the consolidated results of operations for the year ended December 31, 2021.

A detailed discussion of the fiscal 2019 year-over-year changes can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K filed on February 28, 2020.

A detailed discussion of the fiscal 2020 year-over-year changes can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Annual Report on Form 10-K filed on March 1, 2021.

Year Ended December 31,

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Income from equity method investments (24,575) (22,693)

Other expense, net 133 600

Other (income) expense, net (119) 133

Total non-operating expenses, net 25,527 20,314

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Net income attributable to partners $ 164,822 $ 159,256

Net revenues decreased by $20.6 million, or 3.5%, in the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease was primarily driven by the following:

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

◦ the volume of gasoline sold increased 12.6 million gallons, partially offset by a 8.1 million decrease of diesel gallons sold.

◦ the average sales prices per gallon of gasoline and diesel sold decreased $0.49 per gallon and $0.71 per gallon, respectively.

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;

• increased revenues at our El Dorado Gathering System and Magnolia Pipeline as result of increased throughput during the year ended December 31, 2020 when compared to the year ended December 31, 2019.

Net revenues increased by $137.5 million, or 24.4%, in the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase was primarily driven by the following:

• increased revenues associated with agreements executed in connection with the Permian Gathering Assets (formerly referred to as the Big Spring Gathering Assets Acquisition) and the Trucking Assets acquisitions, which were effective March 31, 2020 and May 1, 2020, respectively.

See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information;

• increased revenues at our BSR Crude Pipeline, as a result of new contracts executed in the second quarter of 2020;

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

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.78 per gallon and $0.83 per gallon, respectively;

◦ the volume of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.

Such increases were partially offset by the following:

• 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 year ended December 31, 2021 when compared to the year ended December 31, 2020;

Management's Discussion and Analysis

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

Cost of Materials and Other

Cost of materials and other decreased by $67.4 million, or 20.0%, in the year ended December 31, 2020 compared to the year ended December 31, 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 12.6 million gallons, partially offset by a 8.1 million decrease of diesel gallons sold.

◦ the average cost per gallon of gasoline and diesel sold decreased $0.43 per gallon and $0.66 per gallon, respectively.

Cost of materials and other increased by $115.3 million, or 42.9%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.

Operating Expenses

Operating expenses decreased by $17.9 million, or 24.1%, in the year ended December 31, 2020 compared to the year ended December 31, 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;

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

Operating expenses increased by $4.5 million, or 7.9%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• increases in employee and outside service costs after cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended;

• increase in energy costs due to higher natural gas prices;

• increases in variable expenses such as maintenance and materials costs due to higher throughput.

General and Administrative Expenses

General and administrative expenses increased by $1.8 million, or 8.5%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily driven by the following:

• increases in allocated employee headcount in various operational groups as the Partnership continues to experience growth due to the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition;

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

The changes in general and administrative expenses for the year ended December 31, 2021 compared to the year ended December 31, 2020 were immaterial.

Depreciation and Amortization

Depreciation and amortization increased by $7.0 million, or 19.7%, in the year ended December 31, 2021 compared to the year ended December 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.

• addition of assets to our asset base as a result of the Trucking Assets Acquisition and the Permian Gathering Assets Acquisition;

• higher asset additions in the current year compared to prior year as some projects which had been temporarily suspended when COVID-19 induced liquidity conservation were commenced.

Interest Expense

Interest expense decreased by $4.5 million, or 9.4%, in the year ended December 31, 2020 compared to the year ended December 31, 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 IDR Restructuring Transaction.

Interest expense increased by $7.3 million, or 17.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• higher fixed rate interest on the new 2028 Notes issued during second quarter of 2021 compared to our floating interest rates under the DKL Credit Facility;

• increased borrowings under the DKL Credit Facility as a result of our Permian Gathering Assets Acquisition, the Trucking Assets Acquisition and the IDR Restructuring Transaction;

• partially offset by a decrease in floating interest rates applicable to the DKL Credit Facility.

Results from Equity Method Investments

Income from equity method investments increased by $1.9 million, or 8.3%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• an increase in income from our investments in Andeavor Logistics, Red River and CP LLC (as defined in Note 14 of the accompanying consolidated financial statements in Item 15, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K), which operate the RIO Pipeline, Red River Pipeline and the Caddo Pipeline System, respectively, as a result of increased revenues for both pipeline systems.

• increase in income from our Red River equity method investment due to higher throughput volumes and resulting revenue increases;

• partially offset by decrease in income from Caddo and Rio equity method investments and lower income from our equity method investments in the first quarter of 2021 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.

The Rio equity method investment income was also impacted by a major customer contract termination during the third quarter of 2021, resulting in lower revenues for the year.

Management's Discussion and Analysis

Operating Segments

We review operating results in two reportable segments:

(i) pipelines and transportation and (ii) wholesale marketing and terminalling.

We review operating results in three reportable segments:

(i) pipelines and transportation;

(ii) wholesale marketing and terminalling;

and (iii) investments in pipeline joint ventures.

Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation.

Management measures the operating performance of each reportable segment based on the segment contribution margin.

Management measures the operating performance of each reportable segment based on the segment contribution margin, except for the investments in pipeline joint ventures segment, which is measured based on net income.

Segment reporting is discussed in more detail in Note 15 to our accompanying consolidated financial statements.

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• pipelines and storage assets acquired in the Big Spring Logistics Assets Acquisition

• assets acquired in the Big Spring Gathering Assets Acquisition

• assets acquired in the Permian Gathering Assets Acquisition

• assets acquired in the Trucking Assets Acquisition

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The following table and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the years ended December 31, 2021 and 2020.

A detailed discussion of the fiscal 2019 year-over-year changes can be found in Item 7, Managements' Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-K filed on February 28, 2020.

A detailed discussion of the fiscal 2020 year-over-year changes can be found in Item 7, Managements' Discussion and Analysis of Financial Condition and Results of Operations, of the Annual Report on Form 10-K filed on March 1, 2021.

Pipelines and Transportation

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Segment contribution margin $ 184,006 $ 163,268

Management's Discussion and Analysis

Throughputs (average bpd)

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East Texas Crude Logistics System 22,647 15,960

Big Spring Gathering System (1)

Permian Gathering System (1)

80,285 82,817

Plains Connection System (1)

(1) Throughputs for the Big Spring Gathering System and the Plains Connection System are for approximately 275 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

124,025 104,770

(1) Throughputs for the Permian Gathering System (formerly known as the Big Spring Gathering System) and the Plains Connection System are for approximately 275 days we owned the assets following the Permian Gathering Assets Acquisition effective March 31, 2020.

Management's Discussion and Analysis

Operational Comparison of the Year Ended December 31, 2021 versus the Year Ended December 31, 2020

Net revenues for the pipelines and transportation segment increased by $36.2 million, or 14.4%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily 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;

• increased revenues at our El Dorado Assets and Magnolia Pipeline as result of increased throughput during the year ended December 31, 2020 when compared to the year ended December 31, 2019.

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

See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information;

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

Cost of Materials and Other

Cost of materials and other for the pipelines and transportation segment increased by $13.9 million, or 30.2%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily 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.

• increases in transportation costs related to our Trucking Assets due to the Trucking Assets 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 $12.6 million, or 22.9%, in the year ended December 31, 2020 compared to the year ended December 31, 2019, 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.

Operating expenses for the pipelines and transportation segment increased by $1.6 million, or 3.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• increase in energy costs due to higher natural gas prices;

• increases in employee and outside service costs after cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended.

Contribution Margin

Contribution margin for the pipelines and transportation segment increased by $20.7 million, or 12.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, 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;

• decreases in operating expenses.

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

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

Management's Discussion and Analysis

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The table and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the years ended December 31, 2021 and 2020.

Wholesale Marketing and Terminalling

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Operational Comparison of the Year Ended December 31, 2021 versus the Year Ended December 31, 2020

Net revenues for the wholesale marketing and terminalling segment decreased by $93.7 million, or 23.1%, in the year ended December 31, 2020 compared to the year ended December 31, 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 of gasoline sold in our West Texas marketing operations.

◦ the volume of gasoline sold increased 12.6 million gallons partially offset by a decrease of 8.1 million gallons in diesel sold;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.71 per gallon, respectively.

Net revenues for the wholesale marketing and terminalling segment increased by $101.3 million, or 32.5%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.78 per gallon and $0.83 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.

The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the years ended December 31, 2021 and 2020.

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Cost of Materials and Other

Cost of materials and other for the wholesale marketing and terminalling segment decreased by $90.5 million, or 28.8% , in the year ended December 31, 2020 compared to the year ended December 31, 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 12.6 million gallons partially offset by a decrease of 8.1 million gallons in diesel sold;

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.43 per gallon and $0.66 per gallon, respectively.

Cost of materials and other for the wholesale marketing and terminalling segment increased by $101.4 million, or 45.5% , in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.

The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2021 and 2020.

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Operating Expenses

Operating expenses decreased by $5.3 million, or 27.5%, in the year ended December 31, 2020 compared to the year ended December 31, 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 $2.9 million, or 20.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• increases in variable expenses such as utilities, maintenance and material costs;

• this increase was 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 $2.1 million, or 2.9%, in the year ended December 31, 2020 compared to the year ended December 31, 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 partially offset by:

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

Contribution margin for the wholesale marketing and terminalling segment decreased by $3.0 million, or 4.0%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by the following:

• increases in cost of materials and other due to increases in average cost per gallon of diesel and gasoline sold;

• increases in operating expenses;

• partially offset by increases in revenue due to increases in average sales price per gallon of diesel and gasoline sold.

Management's Discussion and Analysis

Investments in Pipeline Joint Ventures Segment

The Investments in Pipeline Joint Venture segment relates to equity method accounted strategic Joint Venture investments which support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system.

As a result, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity as recently experienced due to the impact of COVID-19 Pandemic and impact of the extreme weather events.

The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities.

Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 14 to our accompanying consolidated financial statements.

Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the year ended December 31, 2021.

Liquidity and Capital Resources

Sources of Capital

We consider the following when assessing our liquidity and capital resources:

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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 underperfoming assets, suspension of its stock repurchases and dividends, and exploring other potential financing opportunities.

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.

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Management continues to actively respond to the impact of the COVID-19 Pandemic to enhance our liquidity position.

Such actions include reducing planned capital expenditures for 2021, seeking alternative financing solutions and enacting cost reduction measures.

Such actions include seeking alternative financing solutions and enacting cost reduction measures.

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 December 31, 2021.

After considering the current and potential effect of a 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.

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

See Note 11 to our consolidated financial statements for a complete discussion of our third-party indebtedness.

Management's Discussion and Analysis

Cash Distributions

On January 22, 2021, we announced that the board of directors had declared a distribution of $0.910 per common unit (the "Distribution"), which equates to approximately $40 million per quarter, or $158.1 million per year, based on the number of common units outstanding as of February 2, 2021.

On January 21, 2022, the board of directors of our general partner declared a distribution of $0.975 per common unit (the "Distribution"), which equates to approximately $42 million per quarter, or approximately $170 million per year, based on the number of common units outstanding as of February 1, 2022.

The Distribution was paid on February 8, 2022 to common unitholders of record on February 1, 2022 and represents a 7.1% increase over the fourth quarter 2020 distribution.

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

We have set a distribution growth guidance of 5% for the full year 2022.

This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term.

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 2021 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

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

March 31, 2021 $0.920 $3.68 $39,968 May 14, 2021 May 10, 2021

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Net cash used in investing activities (16,360) (123,138)

Net cash (used in) provided by financing activities (71,180) 18,040

Net (decrease) increase in cash and cash equivalents $ (1,302) $ 1,023

Net cash used in by financing activities (258,753) (71,180)

Net increase (decrease) in cash and cash equivalents $ 49 $ (1,302)

Operating Activities

Net cash provided by operating activities increased by $82.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase in cash provided by operations was primarily due to lower cash paid out to suppliers for inventory (as opposed to cash received from customers) during the year ended December 31, 2020 compared to the year ended December 31, 2019 as a result of a decrease in volumes sold for the marketing operations.

In addition there were decreases in operational expense payments and increase in cash dividends from the Equity Method Investments.

These cash flow increases were offset by the decrease in net cash receipts from customers.

The increase in cash provided by operations was primarily due to higher net cash receipts from customers and cash dividends from the Equity Method Investments during the year ended December 31, 2021 compared to the year ended December 31, 2020 driven by the increase in revenue for the operations.

These cash flow increases were offset by higher cash paid out to suppliers for inventory during the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of a increase in cost per barrel for the marketing operations and increases in operational expenses.

Investing Activities

Net cash used in investing activities decreased by $106.8 million during the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease in cash used in investing activities was primarily due to lower contributions to equity method investments during the year ended December 31, 2020 compared to the year ended December 31, 2019, partially offset by the acquisition of the Big Spring Gathering Assets and Trucking Assets during the year ended December 31, 2020.

There were no asset acquisitions during the year ended December 31, 2021 compared to the acquisition of the Permian Gathering Assets and Trucking Assets during the year ended December 31, 2020.

Additionally, there were lower contributions to equity method investments during the year ended December 31, 2021 compared to the year ended December 31, 2020.

The Permian 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 Holdings and general partner unitholders pursuant to the asset acquisitions under common control guidance.

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

We disbursed $1.4 million in additional contributions to our equity method investments during the year ended December 31, 2021 compared to $12.2 million during the year ended December 31, 2020.

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 Holdings and general partner 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 year ended December 31, 2019.

In addition there were additions to property, plant and equipment amounting to $13.3 million and distributions from equity method investments amounting $2.7 million during the year ended December 31, 2020 compared to additions to property, plant and equipment amounting to $9.1 million and distributions from equity method investments amounting to $0.8 million during the year ended December 31, 2019.

These decreases were offset by additions to property, plant and equipment amounting to $24.0 million and distributions from equity method investments amounting $8.8 million during the year ended December 31, 2021 compared to additions to property, plant and equipment amounting to $13.3 million and distributions from equity method investments amounting to $2.7 million during the year ended December 31, 2020.

Financing Activities

Net cash provided by financing activities decreased by $89.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease 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 Holdings and general partner unitholders pursuant to the asset acquisitions under common control guidance and $45.0 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 14.0 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 $158.2 million under the revolving credit facility during the year ended December 31, 2020, compared to net proceeds of $131.7 million under the revolving credit facility during the year ended December 31, 2019.

In addition, we

Net cash used in financing activities increased by $187.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

We repaid $488.6 million under the revolving credit facility during the year ended December 31, 2021, compared to net proceeds of $158.2 million under the revolving credit facility during the year ended December 31, 2020.

In addition, we paid quarterly cash distributions

Management's Discussion and Analysis

paid quarterly cash distributions totaling $136.8 million during the year ended December 31, 2020, compared to quarterly cash distributions totaling $113.7 million during the year ended December 31, 2019.

The sources of cash to finance the asset acquisitions from Delek Holdings during the year ended December 31, 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, Inc.

totaling $161.7 million during the year ended December 31, 2021, compared to quarterly cash distributions totaling $136.8 million during the year ended December 31, 2020.

On May 24, 2021, the Partnership and our wholly owned subsidiary Delek Logistics Finance Corp.

("Finance Corp." and together with the Partnership, the "Issuers") issued $400.0 million in aggregate principal amount of 7.125% senior notes due 2028 (the "2028 Notes").

Proceeds of $400.0 millions were received and deferred financing costs amounting to $(6.2) millions were paid.

The Partnership used the net proceeds received from the sale of the 2028 Notes to repay portion of the outstanding borrowings under the revolving credit facility.

During the year ended December 31, 2020, payments to Delek Holdings unitholders related to Trucking Assets Acquisition amounting to $47.6 million and payments to our general partner for conversion of its interest and elimination of IDR amounting to $45.0 million were recorded in financing activities, whilst there were no such payments during the year ended December 31, 2021.

The sources of cash to finance the asset acquisitions from Delek Holdings during the year ended December 31, 2020 primarily consisted of the $100.0 million drawdown under the DKL Credit Facility to part-finance the Permian Gathering Assets Acquisition and $48.0 million drawdown to finance the Trucking Asset Acquisition.

The Permian 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 US Holdings, Inc.).

Debt Overview

As of December 31, 2020, we had total indebtedness of $992.3 million comprised of $746.6 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $245.7 million of 6.75% senior notes due 2025 (the “2025 Notes”), the latter net of deferred financing costs and original issue discount.

As of December 31, 2021, we had total indebtedness of $899.0 million comprised of $394.3 million of 7.125% senior notes due 2028 (the "2028 Notes"), net of deferred financing costs, $258.0 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility") and $246.7 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 amounted to $5.7 million on the 2028 Notes.

Deferred financing costs and original issue discount on the 2025 Notes amounted to $2.5 million and $0.8 million, respectively.

The increase of $159.2 million in our long-term debt balance compared to the balance at December 31, 2019 resulted from the borrowings under the DKL Credit Facility in 2020, primarily driven by 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.

The decrease of $93.3 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 year ended December 31, 2021, partially offset by the amortization of the deferred financing costs and original issuance discount under our 2025 and 2028 Notes.

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

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• An aggregate principal amount of $246.7 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.20%.

In September 2018 the DKL Credit Facility was amended to, among other changes, increase the lender commitments from $700 million to $850 million.

The obligations under the DKL Credit Facility remain secured by first priority liens on substantially all of the Partnership's and its subsidiaries' tangible and intangible assets.

Additionally, Delek Marketing, a subsidiary of Delek Holdings, had provided a limited guaranty of the Partnership's obligations under the DKL Credit Facility.

Delek Marketing's guaranty was (i) limited to an amount equal to the principal amount, plus unpaid and accrued interest, of a promissory note made by Delek Holdings in favor of Delek Marketing (the "Holdings Note") and (ii) secured by Delek Marketing's pledge of the Holdings Note to the lenders under the DKL Credit Facility.

Effective March 30, 2020, Delek Marketing's limited guaranty and pledge of the Holdings Note was terminated pursuant to a guaranty and pledge release approved by the required lenders under the DKL Credit Facility.

In connection with the IDR Restructuring Transaction, the Partnership entered into a First Amendment to the DKL Credit Facility (the "First Amendment") which, among other things, permitted the exchange of the IDRs and the general partner interest in the Partnership for the noneconomic general partner interest, the newly issued limited partner interests in the Partnership, plus $45.0 million in cash.

The First Amendment also modified the total leverage and senior leverage ratios (as defined in the DKL Credit Facility) calculations to reduce the total funded debt (as defined in the DKL Credit Facility) component thereof by the total amount of unrestricted consolidated cash and cash equivalents on the balance sheet of the Partnership and its subsidiaries up to $20.0 million.

The DKL Credit Facility has a maturity date of September 28, 2023.

Borrowings denominated in U.S.

dollars bear interest at either a U.S.

dollar prime rate, plus an applicable margin, or the London Interbank Offered Rate ("LIBOR"), plus an applicable margin, at the election of the borrowers.

Borrowings denominated in Canadian dollars bear interest at either a Canadian dollar prime rate, plus an applicable margin, or the Canadian Dealer Offered Rate, plus an applicable margin, at the election of the borrowers.

At December 31, 2020, the weighted average interest rate for our borrowings under the facility was approximately 2.44%.

Additionally, the DKL Credit Facility requires us to pay a leverage ratio dependent quarterly fee on the average unused revolving commitment.

As of December 31, 2020, this fee was 0.35% per year.

On May 23, 2017, the Partnership and Delek Logistics Finance Corp., a Delaware corporation and a wholly owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), issued the 2025 Notes at a discount.

The 2025 Notes are general unsecured senior obligations of the Issuers and rank equal in right of payme nt with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers.

Interest on the 2025 Notes is payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 2017.

Beginning on May 15, 2020, th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 105.063% of the redeemed principal for the twelve-month period beginning on May 15, 2020, 103.375% for the twelve-month period beginning on May 15, 2021, 101.688% for the twelve-month period beginning on May 15, 2022 and 100.00% beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if any.

In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2025 Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

On April 25, 2018, we made an offer to exchange the 2025 Notes and the related guarantees that were validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable, as required under the terms of the original indenture.

Management's Discussion and Analysis

The terms of the exchange notes that were issued in May 2018 as a result of the exchange (also referred to as the "2025 Notes") are substantially identical to the terms of the original 2025 Notes.

• An aggregate principal amount of $394.3 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.41%.

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

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Equity Units Overview

On December 20, 2021, Delek Holdings announced a program to sell up to 434,590 common limited partner units over the next three months in open market transactions.

See Note 4 to our accompanying consolidated financial statements for additional details.

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

To effect this transaction, our Partnership Agreement was amended and updated.

To effect this transaction, our Partnership Agreement was amended and restated.

See Note 4 to our accompanying consolidated financial statements for additional details.

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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.

On March 31, 2020, we issued 5.0 million common limited partner units to Delek Holdings as part of the consideration for the Big Spring Gathering Assets Acquisition.

On March 31, 2020, we issued 5.0 million common limited partner units to Delek Holdings as part of the consideration for the Permian Gathering Assets Acquisition.

In connection with the issuance of these units and in accordance with the Partnership Agreement, we issued additional general partner units in an amount necessary to maintain the 2% general partner interest as defined in the Partnership Agreement.

Management's Discussion and Analysis

Contemporaneous with the above issuance, the Board of the general partner waived distributions in respect of the IDRs associated with the 5.0 million Additional Units for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver").

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See Note 4 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional details.

Management's Discussion and Analysis

Capital Spending

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

The following table summarizes our actual capital expenditures for the year ended December 31, 2020 and planned capital expenditures for the full year 2021 by segment and by major category (in thousands):

Full Year 2021 Forecast Year Ended December 31, 2020

The following table summarizes our actual capital expenditures for the year ended December 31, 2021 and planned capital expenditures for the full year 2022 by segment and by major category:

(in thousands) Full Year 2022 Forecast Year Ended December 31, 2021

Pipelines and Transportation

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Discretionary (2)

58,739 16,814

Pipelines and Transportation Segment Total (4)

$ 68,196 $ 22,342

Wholesale Marketing and Terminalling

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Wholesale Marketing and Terminalling Segment Total (4)

$ 2,599 $ 5,109

Total Capital Spending (4)

$ 70,795 $ 27,451

(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 4 to our accompanying consolidated financial statements).

(2) The majority of the $58.7 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 Permian Gathering Assets.

The $5.9 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 $6.9 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 $2.2 million budgeted for regulatory and maintenance 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.

(3) The majority of the $2.1 million budgeted for regulatory 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.

(4) There is no spending budgeted for discretionary projects in the wholesale marketing and terminalling segment due to the fact that the budget is focused on pursuing projects that are higher priority in the regulatory and maintenance category.

(4) Capital spending for the year ended December 31, 2021 excludes contributions to equity method investments amounting to $1.4 million.

There are no scheduled contributions to equity method investments for 2022.

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.

Contractual Obligations and Commitments

Long-term Cash Requirements

Information regarding our known contractual obligations of the types described below, as of December 31, 2021, is set forth in the following table (in thousands):

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Total $ 62,555 $ 368,639 $ 318,246 $ 443,175 $ 1,192,615

(1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 Notes at December 31, 2020.

(1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 and 2028 Notes at December 31, 2021.

Floating interest rate debt is calculated using rates in effect on December 31, 2021.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2021.

Management's Discussion and Analysis

We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations.

With the exception of amounts classified as current, there is uncertainty as to the timing of future cash flows related to these obligations.

As such, we have excluded the future cash flows from the contractual commitments table above.

As such, we have excluded the future

Management's Discussion and Analysis

cash flows from the contractual commitments table above.

See additional information on asset retirement obligations and environmental liabilities in Notes 2 and 17, respectively, to our consolidated financial statements in Item 8.

Other Cash Requirements

Our other cash requirements consisted of operating activities, cash distributions to unitholders, contributions to investments in joint ventures and capital expenditures.

Operating activities included cash outflows related to payments to suppliers for crude and other materials and payments for services.

Refer to the Cash Flow section for our operating activities spend in 2021.

While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity.

Refer to Cash Distributions section for cash distributions made in 2021 and planned distributions for 2022.

Refer to the capital spending section for our capital expenditures for 2021 and our planned capital expenditures for 2022.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements through the date of the filing of this Annual Report on Form 10-K.

Management's Discussion and Analysis

Critical Accounting Estimates

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities.

To aid a reader's understanding, management has identified our critical accounting estimates.

These estimates are considered critical because they are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments.

Often they require judgments and estimation about matters which are inherently uncertain and involve measuring at a specific point in time, events which are continuous in nature.

Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which we may have little or no control.

Equity Method Investments and Impairment

Equity investments for which we determine we have significant influence are accounted for as equity method investments.

Amounts recognized for equity method investments are included in our consolidated balance sheets and adjusted for our share of the net earnings and losses of the investee, dividends received and cash distributions from the investee, which are separately stated in our consolidated statements of income and comprehensive income and our consolidated statements of cash flows.

The carrying value of each equity method investment is evaluated for impairment when conditions exist that indicate it is more likely than not that an impairment may have occurred, which may include the loss of a key contract, lack of sustained earnings or a deterioration of market conditions, among others.

In such circumstances, we are required to determine the fair value of the investment and compare it to the carrying value.

When the fair value is less than carrying value and when such condition is deemed to be other than temporary, the carrying value of the investment is considered to be impaired and is adjusted to its fair value, and the amount of the impairment is included in net income.

In making the determination as to whether a decline is other than temporary, the Partnership considers such factors as the duration and extent of the decline, the investee’s financial performance, and our ability and intention to retain the investment for a period that will be sufficient to allow for any anticipated recovery in the investment’s market value.

The new cost basis of the investment is not changed for subsequent recoveries in fair value.

During the year ended December 31, 2021, we identified the non-renewal of a significant revenue contract which expired on August 31, 2021 by a customer and major shareholder of Andeavor Logistics RIO Pipeline LLC ("Andeavor Logistics") and lower competitor tariff rates compared to FERC approved tariff rates as indicator requiring that we perform an impairment assessment on our equity method investment.

No indicators were identified on our equity method investments in Red River and Caddo.

The fair value of our Andeavor Logistics equity method investment was estimated using the income approach and the market approach.

The income approach utilizes a discounted cash flow model incorporating management’s expectations of the investee’s future revenue (including the throughput barrel per day sold and related reduced tariff rates), operating expenses and earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate (“EBITDA”) and the estimated long term growth rate.

The related cash flow forecasts are discounted using an estimated weighted average cost of capital (“WACC”) at the date of valuation.

For the market approach, we utilized the estimated 2022 EBITDA multiples for guideline comparable companies applied to Andeavor Logistics' estimated 2022 EBITDA to estimate the fair value.

We performed certain analyses on the most significant inputs in our valuation model to evaluate the impact of the judgments made on the fair value of the investee.

This included sensitivity analysis and stress testing on certain of our inputs to our valuation model, including the estimated revenue (including the throughput barrel per day and tariff rates), EBITDA margin and WACC.

Based on our analyses, we determined that there was no other than temporary impairment on our equity method investment as of December 31, 2021.

We performed a sensitivity analysis on our impairment test as of December 31, 2021, noting the following:

Equity Method Investment Balance at December 31, 2021 Stress Testing Range of Estimated Fair Values % Estimated Fair Value exceeds Carrying Value (1)

Increase in WACC that could cause impairment (2)

Percentage decrease in tariff rates that could cause impairment (2)

Andeavor Logistics $44,319 $44,224 - $71,556 > 20% 6.5% (30.0)%

(1) Carrying Value compared to our selected Fair Value Point Estimate

(2) Assumes no other changes in any of the key assumptions related to the selected Point Estimate.

Qualitative matters that may impact our estimates of the fair value of our equity method investment include assumptions regarding the timing of another throughput contract and ramp up of throughput volumes, timing of competitor tariff rates recovery compared to FERC tariff rates, the pipeline location and resultant impact on possible customers capacity utilization, the Delaware Permian Basin takeaway and production levels, regulatory impacts, competitors entering the location by building competing pipelines, and other operational issues which might affect Andeavor Logistics’ ability to scale up throughput capacity.

The Partnership bases its assumptions on projected financial information that the Partnership believes is reasonable, but those assumptions require judgment and are forward looking in nature.

However, actual results may differ materially from those projections.

If actual results were subsequently materially lower than expected, if significant adverse changes were to occur in its operating environment, if a significant increase in the discount rate were to be needed, and/or if changes in other assumptions were to happen, the Partnership’s estimate of the fair value of its equity investment could change materially.

Management's Discussion and Analysis

New Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis