What changed in this filing

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Item 1. Financial Statements

2022-08-05 compared with 2022-05-05 · 291 added, 158 removed, 469 unchanged (49% of the section changed)

3 unchanged sentences

(in thousands, except unit and per unit data)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

13 unchanged sentences

Rights-of-way 54,717 37,280

Customer relationship intangible, net 208,492 —

Other non-current assets 18,810 25,627

17 unchanged sentences

Common unitholders - public;

9,162,504 units issued and outstanding at March 31, 2022 ( 8,774,053 at December 31, 2021)

9,173,369 units issued and outstanding at June 30, 2022 ( 8,774,053 at December 31, 2021)

168,611 166,067

Common unitholders - Delek Holdings;

34,311,278 units issued and outstanding at March 31, 2022 ( 34,696,800 at December 31, 2021)

34,311,278 units issued and outstanding at June 30, 2022 ( 34,696,800 at December 31, 2021)

( 285,070 ) ( 270,059 )

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(in thousands, except unit and per unit data)

Three months ended

Three months ended Six months ended

June 30, June 30,

2022 2021 2022 2021

Net revenues:

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Income from equity method investments ( 7,073 ) ( 6,642 ) ( 14,099 ) ( 10,691 )

Other (income) expense, net ( 1 ) 31

Other income, net ( 2 ) ( 34 ) ( 3 ) ( 3 )

Total non-operating expenses, net 9,737 4,982 16,960 10,701

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Net income per limited partner unit:

Common units - basic $ 0.91 $ 0.83

Common units - diluted $ 0.91 $ 0.83

Basic $ 0.74 $ 1.00 $ 1.65 $ 1.83

Diluted $ 0.74 $ 1.00 $ 1.65 $ 1.83

Weighted average limited partner units outstanding:

Common units - basic 43,471,536 43,443,336

Common units - diluted 43,481,572 43,449,059

Cash distributions per limited partner unit $ 0.98 $ 0.92

Basic 43,475,931 43,445,222 43,473,746 43,444,284

Diluted 43,502,983 43,460,366 43,491,796 43,453,806

Cash distributions per common limited partner unit $ 0.985 $ 0.940 $ 1.965 $ 1.860

(1) See Note 3 for a description of our material affiliate revenue transactions.

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Common - Public Common - Delek Holdings Total

Balance at March 31, 2022 $ 170,696 $ ( 277,218 ) $ ( 106,522 )

Cash distributions ( 8,980 ) ( 33,624 ) ( 42,604 )

Net income attributable to partners

6,785 25,379 32,164

Balance at June 30, 2022 $ 168,611 $ ( 285,070 ) $ ( 116,459 )

Common - Public Common - Delek Holdings Total

Balance at March 31, 2021 $ 164,100 $ ( 275,490 ) $ ( 111,390 )

Cash distributions ( 8,002 ) ( 31,966 ) ( 39,968 )

Net income attributable to partners

8,666 34,580 43,246

( 86 ) 351 265

Balance at June 30, 2021 $ 164,678 $ ( 272,525 ) $ ( 107,847 )

Common - Public Common - Delek Holdings Total

Balance at December 31, 2021 $ 166,067 $ ( 270,059 ) $ ( 103,992 )

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Other ( 129 ) 988 859

Balance at March 31, 2022 $ 170,696 $ ( 277,218 ) $ ( 106,522 )

(1) Cash distributions include a nominal amount related to distribution equivalents on vested phantom units for the three months ended March 31, 2022 .

Balance at June 30, 2022 $ 168,611 $ ( 285,070 ) $ ( 116,459 )

(1) Cash distributions include a nominal amount related to distribution equivalents on vested phantom units for the six months ended June 30, 2022 .

Common - Public Common - Delek Holdings Total

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Other 53 389 442

Balance at March 31, 2021 $ 164,100 $ ( 275,490 ) $ ( 111,390 )

Balance at June 30, 2021 $ 164,678 $ ( 272,525 ) $ ( 107,847 )

See accompanying notes to the condensed consolidated financial statements

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(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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Purchases of property, plant and equipment ( 35,506 ) ( 8,762 )

Business Combination, net of cash acquired ( 621,772 ) —

Proceeds from sales of property, plant and equipment 11 219

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Payments on revolving credit facility ( 244,600 ) ( 606,100 )

Proceeds from issuance of senior notes — 400,000

Deferred financing costs paid ( 701 ) ( 6,326 )

Payments on financing lease liabilities ( 1,407 ) ( 756 )

Net cash used in financing activities ( 37,010 ) ( 48,633 )

Net (decrease) increase in cash and cash equivalents ( 1,566 ) 9,134

Net cash provided by (used) in financing activities 535,788 ( 144,383 )

Net increase (decrease) in cash and cash equivalents 9,518 ( 2,070 )

Cash and cash equivalents at the beginning of the period 4,292 4,243

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Interest $ 28,275 $ 17,081

Income taxes $ 40 $ —

Non-cash investing activities:

Increase in accrued capital expenditures in accounts payable/receivable related parties $ — $ 3,119

Decrease in accrued capital expenditures and other $ ( 1,527 ) $ ( 1,439 )

Increase in accrued capital expenditures and other $ 306 $ 1,557

Non-cash financing activities:

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("Delek Holdings") and its subsidiary Delek Logistics GP, LLC, our general partner (our "general partner").

On April 8, 2022, DKL Delaware Gathering, LLC (the “Purchaser”), a subsidiary of the Partnership, entered into a Membership Interest Purchase Agreement with 3 Bear Energy – New Mexico LLC (the “Seller”) to purchase 100 % of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC (the “Purchased Interests”), related to Seller’s crude oil and gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin in New Mexico (the “Purchase Agreement”).

The Partnership also entered into a guaranty agreement with the Seller in order to guaranty the payment obligations of the Purchaser under the Purchase Agreement.

On April 8, 2022, DKL Delaware Gathering, LLC, a subsidiary of the Partnership, entered into a Membership Interest Purchase Agreement (the “3 Bear Purchase Agreement”) with 3 Bear Energy – New Mexico LLC (the “Seller”) to purchase 100 % of the limited liability company interests in 3 Bear Delaware Holding – NM, LLC (“3 Bear”), related to the Seller’s crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin of New Mexico (the “3 Bear Acquisition”).

This transaction was completed on June 1, 2022 (the "Acquisition Date").

See Note 2 for further information.

The Partnership provides gathering, pipeline and other transportation services primarily for crude oil and natural gas customers, storage, wholesale marketing and terminalling services primarily for intermediate and refined product customers, and water disposal and recycling services through its owned assets and joint ventures located primarily in the Permian Basin (including the Delaware sub-basin) and other select areas in the Gulf Coast region.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S.

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Accordingly, we have made reclassifications to the prior period in order to conform to this revised current period classification, which resulted in an immaterial decrease in the prior period general and administrative expenses and an increase in the prior period operating expenses.

Risks and Uncertainties Arising from the COVID-19 Pandemic

During the quarter ended March 31, 2022, the economic environment in which we operate continued to improve as a result of the widespread availability of vaccines and testing in the U.S.

over recent months which, in turn, has contributed to return to work, return to schools, and increased travel, with a corresponding increase in the demand for vehicle motor fuel and jet fuel.

While we continue to face uncertainties around the COVID-19 Pandemic in terms of new variants, these stabilization trends as well as other factors impacting demand for our products, such as the global supply constraints caused by the military conflict between Russia and the Ukraine have mitigated the risks that remaining Pandemic-related uncertainties could have a material adverse impact on our financial position or results of operations.

While these remaining uncertainties did not have a material impact on the preparation of our unaudited financial statements as of and for the three months ended March 31, 2022, to the extent these uncertainties were identified and were believed to have had a material impact on our prior year period results of operations or financial position based on the requirements for assessing such financial statement impact under GAAP, we have considered them in the preparation of our unaudited financial statements as of and for the three months ended March 31, 2022.

New Accounting Pronouncements Adopted During 2022

There were no new accounting pronouncements adopted during the three months ended March 31, 2022.

Accounting Pronouncements Not Yet Adopted

2021-05, Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments

In July 2021, the FASB issued an amendment which is intended to provide lease classification guidance for Lessors on how to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate.

The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and

Notes to Condensed Consolidated Financial Statements (Unaudited)

interim periods within fiscal years beginning after December 15, 2022, for all other entities.

The Partnership is evaluating the impact of this guidance but does not believe this new guidance will have a material impact on its condensed consolidated financial statements and related disclosures.

ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)

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This guidance is effective for all entities any time beginning on March 12, 2020 through December 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of the ASU.

The Partnership is evaluating the impact of this guidance but does not currently expect that adopting this new guidance will have a material impact on its condensed consolidated financial statements and related disclosures.

The adoption of this guidance does not have a material impact on the Partnership's condensed consolidated financial statements and related disclosures.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 2 - Acquisitions

3 Bear Acquisition

We completed the 3 Bear Acquisition on June 1, 2022 (the "Acquisition Date"), in which we acquired crude oil and natural gas gathering, processing, and transportation and storage operations, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico.

The base purchase price for the 3 Bear Acquisition was $ 624.7 million, subject to adjustments for net working capital and closing indebtedness, as defined in the 3 Bear Purchase Agreement.

The 3 Bear Acquisition was financed through a combination of cash on hand and borrowings under the DKL Credit Facility.

For the three and six months ended June 30, 2022, we incurred $ 6.2 million and $ 6.4 million, respectively, in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees.

Such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of income.

Our consolidated financial and operating results reflect the 3 Bear Acquisition operations beginning June 1, 2022.

Our results of operations included revenue and net income of $ 20.6 million and $ 1.5 million, respectively, for the period from June 1, 2022 through June 30, 2022 related to these operations.

The 3 Bear Acquisition was accounted for using the acquisition method of accounting, whereby the preliminary purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values.

The excess of the consideration paid over the fair value of the net assets acquired was recorded as goodwill.

Determination of Purchase Price

The table below presents the estimated purchase price (in thousands):

Base purchase price:

closing net working capital (as defined in the 3 Bear Purchase Agreement) (1)

closing indebtedness (as defined in the 3 Bear Purchase Agreement) (1)

Cash paid for the adjusted purchase price 544,042

Cash paid to payoff 3 Bear credit agreement (as defined in the 3 Bear Purchase Agreement) 80,408

Preliminary purchase price $ 624,450

(1) These amounts are based upon estimates at closing, but are subject to a subsequent review and revision period pursuant to the 3 Bear Purchase Agreement at which time final settlements for these components will be determined.

Such subsequent adjustments may result in changes to the preliminary purchase price.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Purchase Price Allocation

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed in the 3 Bear Acquisition as of June 1, 2022 (in thousands):

Assets acquired:

Cash and cash equivalents $ 2,678

Accounts receivables, net 28,859

Inventories 1,831

Other current assets 986

Property, plant and equipment 382,800

Operating lease right-of-use assets 7,427

Goodwill 10,615

Customer relationship intangible, net (1)

Rights-of-way (1)

Other non-current assets 500

Total assets acquired 659,336

Liabilities assumed:

Accounts payable 8,020

Accrued expenses and other current liabilities 22,145

Current portion of operating lease liabilities 1,029

Asset retirement obligations 2,261

Operating lease liabilities, net of current portion 1,431

Total liabilities assumed 34,886

Fair value of net assets acquired $ 624,450

(1) The acquired intangible assets amount includes the following identified intangibles:

• Customer relationship intangible that is subject to amortization with a preliminary fair value of $ 210.0 million, which will be amortized over an 11.6 -year useful life.

We recognized amortization expense for the three and six months ended June 30, 2022 of $ 1.5 million.

The estimated amortization is $ 18.0 million for each of the five succeeding fiscal years.

• Rights-of-way intangible valued at $ 13.6 million, which has an indefinite life.

These fair value estimates are preliminary and therefore, the final fair value of assets acquired and liabilities assumed and the resulting effect on our financial position may change once all necessary information has become available, the final working capital adjustment is complete, and we finalize our valuations.

To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of June 30, 2022.

We will continue to evaluate these items until they are satisfactorily resolved and adjust our purchase price allocation accordingly, within the allowable measurement period (not to exceed one year from the date of acquisition), as defined by Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805").

The fair value of property, plant and equipment was based on the combination of the cost and market approaches.

Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence.

We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.

The fair value of customer relationships was based on the income approach.

Key assumptions in the income approach include projected revenue attributable to customer relationships, attrition rate, operating margins and discount rates.

The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

The fair values of all other current assets and payables were equivalent to their carrying values due to their short-term nature.

The goodwill recognized in the 3 Bear Acquisition is primarily attributable to enhancing our third party revenues, further diversification of our customer and product mix, expanding our footprint into the Delaware basin and bolstering our Environmental, Social and Governance ("ESG") optionality through furthering carbon capture opportunities and greenhouse gas reduction projects currently underway.

This goodwill is deductible for income tax purposes.

Goodwill related to the 3 Bear Acquisition is included in the 3 Bear operations segment.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unaudited Pro Forma Financial Information

The following table summarizes the unaudited pro forma financial information of the Partnership assuming the 3 Bear Acquisition had occurred on January 1, 2021.

The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to the 3 Bear Acquisition based on available information and certain assumptions that management believes are factually supportable.

The most significant pro forma adjustments relate to (i) incremental interest expense and amortization of deferred financing costs associated with revolving credit facility borrowings incurred in connection with the 3 Bear Acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair value of the acquired customer relationship intangibles, (iv) accounting policy alignment and (v) transaction costs.

The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of the 3 Bear Acquisition.

The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the 3 Bear Acquisition been effective as of the date presented, nor is it indicative of future operating results of the combined company.

Actual results may differ significantly from the unaudited pro forma financial information.

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per unit data) 2022 2021 2022 2021

Net sales 314,909 199,199 571,849 383,026

Net income attributable to partners 38,396 37,290 72,613 55,305

Net income per limited partner unit:

Basic income per unit 0.88 0.86 1.67 1.27

Diluted income per unit 0.88 0.86 1.67 1.27

Note 3 - Related Party Transactions

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The Partnership entered into an omnibus agreement with Delek Holdings, Delek Logistics Operating, LLC, Lion Oil Company, LLC (formerly known as Lion Oil Company) and certain of the Partnership's and Delek Holdings' other subsidiaries on November 7, 2012, which has been amended from time to time in connection with acquisitions from Delek Holdings (collectively, as amended, the "Omnibus Agreement").

The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $ 4.6 million to Delek Holdings for its provision of centralized corporate services to the Partnership.

The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other

Notes to Condensed Consolidated Financial Statements (Unaudited)

matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $ 4.6 million to Delek Holdings for its provision of centralized corporate services to the Partnership.

Pursuant to the terms of the Omnibus Agreement, we are reimbursed by Delek Holdings for certain capital expenditures.

These amounts are recorded in other long-term liabilities and are amortized to revenue over the life of the underlying revenue agreement corresponding to the asset.

We were reimbursed a nominal amount by Delek Holdings during the three months ended March 31, 2022.

There were no reimbursements by Delek Holdings during the three months ended March 31, 2021.

Additionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreeme nt.

As of March 31, 2022, there was no receivable from related parties for these matters.

We were reimbursed a nominal amount by Delek Holdings during the three and six months ended June 30, 2022.

There were no reimbursements by Delek Holdings during the three and six months ended June 30, 2021.

Additionally, we are reimbursed or indemnified, as the case may be, for costs incurred in excess of certain amounts related to certain asset failures, pursuant to the terms of the Omnibus Agreement.

As of June 30, 2022, there was no receivable from related parties for these matters and a nominal receivable from related parties for these matters as of December 31, 2021.

These reimbursements are recorded as reductions to operating expense.

There were no reimbursements for these matters in each of the three month periods ended March 31, 2022 and 2021.

Notes to Condensed Consolidated Financial Statements (Unaudited)

There were no reimbursements for these matters in each of the three and six month periods ended June 30, 2022.

We were reimbursed a nominal amount for these matters in each of the three and six month periods ended June 30, 2021.

Other Transactions

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The agreement extends through December 2022.

Total fees paid to the Partnership were $ 0.4 million for both the three months ended March 31, 2022 and 2021, which are recorded in affiliate revenue in our condensed consolidated statements of income.

Total fees paid to the Partnership were $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2022 and 2021, respectively, which are recorded in affiliate revenue in our condensed consolidated statements of income.

Additionally, the Partnership incurs the costs in connection with the construction of the assets and is subsequently reimbursed by Delek Holdings.

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Summary of Transactions

Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, Renewable Identification Numbers ("RINs"), wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales.

Revenues from affiliates consist primarily of revenues from gathering, transportation, storage, offloading, wholesale marketing and products terminalling services provided primarily to Delek Holdings based on regulated tariff rates or contractually based fees and product sales.

Affiliate operating expenses are primarily comprised of amounts we reimburse Delek Holdings, or our general partner, as the case may be, for the services provided to us under the Partnership Agreement.

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A summary of revenue, purchases from affiliates and expense transactions with Delek Holdings and its affiliates are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Revenues $ 124,366 $ 88,722 $ 248,120 $ 184,916

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Quarterly Cash Distributions

In February 2022, we paid quarterly cash distributions of $ 42.4 million, of which $ 33.8 million were paid to Delek Holdings.

In February 2021, we paid quarterly cash distributions of $ 39.5 million, of which $ 31.6 million were paid to Delek Holdings and our general partner.

On April 25, 2022, our board of directors declared a quarterly cash distribution totaling $ 42.6 million, based on the available cash as of the date of determination, for the end of the first quarter of 2022, payable on May 12, 2022, of which $ 33.6 million is expected to be paid to Delek Holdings.

In February and May 2022, we paid quarterly cash distributions of $ 42.4 million and $ 42.6 million, respectively, of which $ 33.8 million and $ 33.6 million, respectively, were paid to Delek Holdings.

In February and May 2021, we paid quarterly cash distributions of $ 39.5 million and $ 40.0 million, respectively, of which $ 31.6 million and $ 32.0 million, respectively, were paid to Delek Holdings.

On July 25, 2022, our board of directors declared a quarterly cash distribution totaling $ 42.8 million, based on the available cash as of the date of determination, for the end of the second quarter of 2022, payable on August 11, 2022, of which $ 33.8 million is expected to be paid to Delek Holdings.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Revenues

We generate revenue by charging fees for gathering, transporting, offloading and storing crude oil;

Within our pipeline and transportation and wholesale marketing and terminalling segments, we generate revenue by charging fees for gathering, transporting, offloading and storing crude oil;

for storing intermediate products and feed stocks;

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Payment terms require customers to pay shortly after delivery and do not contain significant financing components.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The majority of our commercial agreements with Delek Holdings meet the definition of a lease because:

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Therefore, the combined component is accounted for under the applicable lease accounting guidance.

Of our $ 448.3 million net property, plant, and equipment balance as of March 31, 2022, $ 406.1 million is subject to operating leases under our commercial agreements.

Of our $ 853.8 million net property, plant, and equipment balance as of June 30, 2022, $ 428.5 million is subject to operating leases under our commercial agreements.

These agreements do not include options for the lessee to purchase our leasing equipment, nor do they include any material residual value guarantees or material restrictive covenants.

The following table represents a disaggregation of revenue for the pipeline and transportation and wholesale marketing and terminalling segments for the periods indicated (in thousands):

Three Months Ended March 31, 2022

As of the 3 Bear Acquisition, our revenue-generating activities include crude oil and natural gas gathering, processing and transportation operations, as well as water disposal and recycling operations, with third parties in the Delaware Basin of New Mexico.

For natural gas gathering and processing contracts in which we perform midstream services and also purchase the processed products, we determine if the economic control of the commodities has passed from the producer to us, before or after we perform our services (if at all), to determine whether we are principal or agent in the ultimate sale of the processed product.

As a result of these activities, we generate two principal types of revenues:

• Product sales revenue - comprised of residual products as a result of our gathering services where 3 Bear meets the definition of the principal rather than an agent, and where such revenue is recognized upon satisfaction of the performance obligation, which is generally upon delivery

• Gathering services revenue - comprised of fees charged for one or more of the following services:

gathering, processing and transportation of natural gas;

gathering, transportation and storage of NGLs;

gathering, recycling and disposal of wastewater;

and transportation, storage and distribution of crude oil, refined products and other hydrocarbon-based products.

The contractual fees are generally related to the volume of natural gas, NGLs, water, crude oil or refined products that are gathered, transported, stored or processed and therefore is not directly impacted by commodity prices.

The following tables represent a disaggregation of revenue for the pipeline and transportation and wholesale marketing and terminalling segments for the periods indicated (in thousands):

Three Months Ended June 30, 2022

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

Service Revenue - Third Party $ 5,312 $ — $ 4,600 $ 9,912

Service Revenue - Affiliate (1)

4,011 8,243 — 12,254

Product Revenue - Third Party — 119,429 13,042 132,471

Product Revenue - Affiliate — 26,843 2,962 29,805

Lease Revenue - Affiliate 71,283 11,025 — 82,308

Total Revenue $ 80,606 $ 165,540 $ 20,604 $ 266,750

(1) Net of $ 1.8 million of amortization expense for the three months ended June 30, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2021

Pipelines and Transportation Wholesale Marketing and Terminalling Consolidated

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Total Revenue $ 70,435 $ 98,043 $ 168,478

(1) Net of $ 1.8 million of amortization expense for the three months ended March 31, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

Three Months Ended March 31, 2021

(1) Net of $ 1.8 million of amortization expense for the three months ended June 30, 2021, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

Six Months Ended June 30, 2022

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

Service Revenue - Third Party $ 10,095 $ — $ 4,600 $ 14,695

Service Revenue - Affiliate (1)

8,015 16,788 — 24,803

Product Revenue - Third Party — 197,474 13,042 210,516

Product Revenue - Affiliate — 58,589 2,962 61,551

Lease Revenue - Affiliate 138,301 23,465 — 161,766

Total Revenue $ 156,411 $ 296,316 $ 20,604 $ 473,331

(1) Net of $ 3.6 million of amortization expense for the six months ended June 30, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

Six Months Ended June 30, 2021

Pipelines and Transportation Wholesale Marketing and Terminalling Consolidated

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Total Revenue $ 135,410 $ 185,981 $ 321,391

(1) Net of $ 1.8 million of amortization expense for the three months ended March 31, 2021, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment .

As of March 31, 2022, we expect to recognize $ 1.4 billion in future lease revenues, for periods up to financial year 2030, related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings.

(1) Net of $ 3.6 million of amortization expense for the six months ended June 30, 2021, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment .

As of June 30, 2022, we expect to recognize $ 1.4 billion in future lease revenues, for periods up to financial year 2030, related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings.

Most of these agreements have an initial term ranging from five to ten years , which may be extended for various renewal terms.

We disclose information about remaining performance obligations that have original expected durations of greater than one year .

Our unfulfilled performance obligations as of March 31, 2022 were as follows (in thousands):

Our unfulfilled performance obligations as of June 30, 2022 were as follows (in thousands):

Remainder of 2022 $ 147,181

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Diluted net income per unit applicable to common limited partners includes the effects of potentially dilutive units on our common units.

As of March 31, 2022, the only potentially dilutive units outstanding consist of unvested phantom units.

As of June 30, 2022, the only potentially dilutive units outstanding consist of unvested phantom units.

Our distributions earned with respect to a given period are declared subsequent to quarter end.

Therefore, the table below represents total cash distributions applicable to the period in which the distributions are earned.

The expected date of distribution for the distributions earned during the period ended March 31, 2022 is May 12, 2022.

The expected date of distribution for the distributions earned during the period ended June 30, 2022 is August 11, 2022.

Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.

The calculation of net income per unit is as follows (dollars in thousands, except units and per unit amounts):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net income attributable to partners $ 32,164 $ 43,246 $ 71,678 $ 79,513

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Weighted average limited partner units outstanding:

Common units - basic 43,471,536 43,443,336

Common units - diluted 43,481,572 43,449,059

Basic 43,475,931 43,445,222 43,473,746 43,444,284

Diluted 43,502,983 43,460,366 43,491,796 43,453,806

Net income per limited partner unit:

Common units - basic $ 0.91 $ 0.83

Common units - diluted (1)

Basic $ 0.74 $ 1.00 $ 1.65 $ 1.83

$ 0.74 $ 1.00 $ 1.65 $ 1.83

(1) There were no outstanding common units excluded from the diluted earnings per unit calculation for the three months ended March 31, 2022 and 2021.

(1) Outstanding common units totaling 2,153 and 1,083 were excluded from the diluted earnings per unit calculation for the three and six months ended June 30, 2022, respectively.

Outstanding common units totaling 3,662 and 1,841 were excluded from the diluted earnings per unit calculation for the three and six months ended June 30, 2021, respectively.

Note 6 - Inventory

Inventories consisted of $ 1.8 million and $ 2.4 million of refined petroleum products as of March 31, 2022 and December 31, 2021, respectively, each of which are net of lower of cost or net realizable value reserve of a nominal amount.

Inventories consisted of $ 3.7 million and $ 2.4 million of refined petroleum products as of June 30, 2022 and December 31, 2021, respectively, each of which are net of lower of cost or net realizable value reserve of a nominal amount.

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

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Note 7 - Long-Term Obligations

Outstanding borrowings, net of unamortized debt discounts and certain deferred financing costs, under the Partnership’s existing debt instruments are as follows (in thousands):

June 30, 2022 December 31, 2021

Delek Logistics 2028 Notes (1)

$ 394,746 $ 394,302

Delek Logistics Credit Facility (2)

880,281 258,000

Delek Logistics 2025 Notes (3)

247,156 246,668

$ 1,522,183 $ 898,970

(1) Net of deferred financing costs of $ 5.3 million and $ 5.7 million at June 30, 2022 and December 31, 2021, respectively.

(2) Net of deferred financing costs of $ 0.6 million at June 30, 2022.

(3) Net of deferred financing costs of $ 2.2 million and $ 2.5 million and debt discount of $ 0.7 million and $ 0.8 million at June 30, 2022 and December 31, 2021, respectively.

Notes to Condensed Consolidated Financial Statements (Unaudited)

7.125 % Senior Notes due 2028

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The 2028 Notes will mature on June 1, 2028, and interest on the 2028 Notes is payable semi-annually in arrears on each June 1 and December 1, commencing December 1, 2021.

At any time prior to June 1, 2024, the Issuers may redeem up to 35 % of the aggregate principal amount of the 2028 Notes with the net cash proceeds of one or more equity offerings by the Partnership at a redemption price of 107.125 % of the redeemed principal amount,

Notes to Condensed Consolidated Financial Statements (Unaudited)

plus accrued and unpaid interest, if any, subject to certain conditions and limitations.

Prior to June 1, 2024, the Issuers may also redeem all or part of the 2028 Notes at a redemption price of the principal amount plus accrued and unpaid interest, if any, plus a "make whole" premium, subject to certain conditions and limitations.

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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 2028 Notes from holders at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest.

As of March 31, 2022, we had $ 400.0 million in outstanding principal amount under the 2028 Notes, and the effective interest rate was 7.05 %.

Outstanding borrowings under the 2028 Notes include deferred financing costs amounting to $ 5.5 million as of March 31, 2022.

As of June 30, 2022, we had $ 400.0 million in outstanding principal amount under the 2028 Notes, and the effective interest rate was 7.40 %.

DKL Credit Facility

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dollars bear interest at either a U.S.

dollar prime rate , plus an applicable margin, or the LIBOR , plus an applicable margin, at the election of the borrowers.

dollar prime rate , plus an applicable margin, or Secured Overnight Financing Rate ("SOFR"), 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.

The applicable margin in each case and the fee payable for any unused revolving commitments vary based upon the Partnership's most recent total leverage ratio calculation delivered to the lenders, as called for and defined under the terms of the DKL Credit Facility.

At March 31, 2022, the weighted average interest rate for our borrowings under the facility was approximately 2.67 %.

At June 30, 2022, the weighted average interest rate for our borrowings under the facility was approximately 3.35 %.

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

As of March 31, 2022, this fee was 0.30 % per year.

As of March 31, 2022, we had $ 264.1 million of outstanding borrowings under the DKL Credit Facility, with no letters of credit in place.

Unused credit commitments under the DKL Credit Facility as of March 31, 2022 were $ 585.9 million.

As of June 30, 2022, this fee was 0.30 % per year.

In August 2020, the Partnership entered into a First Amendment to the DKL Credit Facility which, among other things, permitted the transfer of cash and equity consideration for the elimination of incentive distribution rights held by Delek Logistics GP, LLC, our general partner.

It also modified the total leverage ratio and the senior leverage ratio (each 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.

In May 2022, the Partnership entered into Second and Third Amendments to the DKL Credit Facility which, among other things, provided for the transition from a LIBOR benchmark to a term Secured Overnight Financing Rate benchmark (“Term SOFR”) with credit spread adjustments for 1-month and 3-month Term SOFR loans, and provided consent and flexibility related to the previously announced 3 Bear Acquisition with respect to certain covenants in the DKL Credit Facility.

We believe we were in compliance with all covenant requirements as of June 30, 2022.

Further, on May 26, 2022, the Partnership entered into a Fourth Amendment (the “Fourth Amendment”) to the DKL Credit Facility.

Among other things, the Fourth Amendment:

(i) increased the U.S.

Revolving Credit Commitments (as defined in the DKL Credit Facility) by an amount equal to $ 150.0 million, for an aggregate amount of $ 1,000.0 million, (ii) increased the U.S.

L/C Sublimit (as defined in the DKL

Notes to Condensed Consolidated Financial Statements (Unaudited)

Credit Facility) to an aggregate amount equal to $ 90.0 million and (iii) increased the U.S.

Swing Line Sublimit (as defined in the DKL Credit Facility) to an aggregate amount equal to $ 18.0 million.

As of June 30, 2022, the Partnership had $ 880.9 million of outstanding borrowings under the DKL Credit Facility, with no letters of credit in place.

Unused credit commitments under the DKL Credit Facility as of June 30, 2022 were $ 119.1 million.

6.750 % Senior Notes Due 2025

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

Th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 103.375 % of the redeemed principal during 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.

Th e Issuers may, subject to certain conditions and limitations, redeem all or part of the 2025 Notes at a redemption price of 101.688 % of the redeemed principal during 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.

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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.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2022, we had $ 250.0 million in outstanding principal amount of the 2025 Notes.

As of March 31, 2022, the effective interest rate related to the 2025 Notes was approximately 7.20 %.

Outstanding borrowings under the 2025 Notes include deferred financing costs and debt discount of $ 2.3 million and $ 0.7 million, respectively, as of March 31, 2022, and $ 2.5 million and $ 0.8 million, respectively, as of December 31, 2021.

As of June 30, 2022, we had $ 250.0 million in outstanding principal amount of the 2025 Notes.

As of June 30, 2022, the effective interest rate related to the 2025 Notes was approximately 7.19 %.

Note 8 - Equity

We had 9,162,504 common limited partner units held by the public outstanding as of March 31, 2022.

Additionally, as of March 31, 2022, Delek Holdings owned an 78.9 % limited partner interest in us, consisting of 34,311,278 common limited partner units.

On April 14, 2022, we filed a shelf registration statement with the SEC, which was declared on April 29, 2022, which provides the Partnership the ability to offer up to $ 200.0 million of our common limited partner units from time to time and through one or more methods of distribution, subject to market conditions and our capital needs.

We had 9,173,369 common limited partner units held by the public outstanding as of June 30, 2022.

Additionally, as of June 30, 2022, Delek Holdings owned an 78.9 % limited partner interest in us, consisting of 34,311,278 common limited partner units.

On April 14, 2022, we filed a shelf registration statement with the SEC, which was declared effective on April 29, 2022, which provides the Partnership the ability to offer up to $ 200.0 million of our common limited partner units from time to time and through one or more methods of distribution, subject to market conditions and our capital needs.

On December 22, 2021, Delek Holdings issued a press release regarding a program to sell up to 434,590 common limited partner units representing limited partner interests in the Partnership.

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.

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

Equity Activity

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2021 through March 31, 2022.

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2021 through June 30, 2022.

Common - Public Common - Delek Holdings Total

3 unchanged sentences

Delek Holdings resale of units 385,522 ( 385,522 ) —

Balance at March 31, 2022 9,162,504 34,311,278 43,473,782

(1) Unit-based compensation awards are presented net of 1,088 units withheld for taxes as of March 31, 2022.

Balance at June 30, 2022 9,173,369 34,311,278 43,484,647

(1) Unit-based compensation awards are presented net of 2,184 units withheld for taxes as of June 30, 2022 .

Issuance of Additional Securities

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Costs associated with the issuance of securities are allocated to all unitholders' capital accounts based on their ownership interest at the time of issuance.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Cash Distributions

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(in thousands) Date of Distribution Unitholders Record Date

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

June 30, 2021 $ 0.940 $ 40,846 August 11, 2021 August 5, 2021

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December 31, 2021 $ 0.975 $ 42,384 February 8, 2022 February 1, 2022

March 31, 2022 $ 0.980 $ 42,604 May 12, 2022 (1)

March 31, 2022 $ 0.980 $ 42,604 May 12, 2022 May 5, 2022

June 30, 2022 $ 0.985 $ 42,832 August 11, 2022 (1)

August 4, 2022

(1) Expected date of distribution.

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The LTIP is administered by the Conflicts Committee of the board of our general partner.

Equity-based compensation expense is included in general and administrative expenses in the

accompanying condensed consolidated statements of income and comprehensive income and is immaterial for the three months ended March 31, 2022 and 2021.

Equity-based compensation expense is included in general and administrative expenses in the accompanying condensed consolidated statements of income and comprehensive income and is immaterial for the three and six months ended June 30, 2022 and 2021.

On June 9, 2021, the LTIP was amended to increase the number of units representing limited partner interest in the Partnership (the "Common Units") authorized for issuance by 300,000 Common Units to 912,207 Common Units.

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Red River, which owns a crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, completed a planned expansion project to increase the pipeline capacity and commenced operations on the completed expansion project in 2020.

During the three months ended March 31, 2022, we made no capital contributions.

During the three months ended March 31, 2021, we made additional capital contributions totaling $ 1.4 million based on capital calls received.

During the six months ended June 30, 2022, we made no capital contributions.

During the six months ended June 30, 2021, we made additional capital contributions totaling $ 1.4 million based on capital calls received.

Summarized unaudited financial information for Red River on a 100% basis is shown below (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current Assets $ 32,290 $ 28,735

1 unchanged sentence

Current liabilities $ 7,776 $ 10,040

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Revenues $ 21,449 $ 17,744 $ 44,135 $ 26,787

2 unchanged sentences

Net income $ 13,481 $ 10,551 $ 28,877 $ 13,990

Notes to Condensed Consolidated Financial Statements (Unaudited)

We have two joint ventures that have constructed separate crude oil pipeline systems and related ancillary assets, which are serving third parties and subsidiaries of Delek Holdings.

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Combined summarized unaudited financial information for these two equity method investees on a 100% basis is shown below (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets $ 17,166 $ 15,010

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Current liabilities $ 2,735 $ 1,492

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Revenues $ 11,558 $ 13,600 $ 20,453 $ 23,226

2 unchanged sentences

Net Income $ 6,626 $ 8,544 $ 10,195 $ 12,723

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Partnership's investments in these three entities were financed through a combination of cash from operations and borrowings under the DKL Credit Facility.

The Partnership's investment balances in these joint ventures were as follows (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Red River $ 144,775 $ 144,041

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Note 11 - Segment Data

We aggregate our operating segments into three reportable segments:

We aggregate our operating segments into four reportable segments:

(i) pipelines and transportation;

(ii) wholesale marketing and terminalling;

and (iii) investment in pipeline joint ventures.

(iii) 3 Bear operations;

and (iv) investment in pipeline joint ventures.

Based on the manner in which the Partnership’s Chief Operating Decision Maker (“CODM”) is currently reviewing the financial and operating information and metrics of the business of and for the three months ended June 30, 2022, inclusive of the 3 Bear Acquisition, the acquisition of 3 Bear resulted in a new operating segment as of and for the one month from the Acquisition Date through June 30, 2022, which is deemed to be reportable based on our quantitative assessment.

While this new operating segment has certain common characteristics with our pipelines and transportation reportable segment, it also involves new operations (including natural gas gathering, processing and transportation as well as water disposal and recycling) and operates in new geographic location.

Additionally, the Acquisition occurred in the last month of the quarter, and integration efforts continue to be in process as of June 30, 2022.

For these reasons, the 3 Bear operating segment has been presented as a separate reportable segment as of and for the three months ended June 30, 2022.

As we continue to integrate the 3 Bear operations in the coming quarters and refine how we manage those operations in the context of our overall business, it is possible that segment presentation could change.

Our operating segments adhere to the accounting policies used for our consolidated financial statements.

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following is a summary of business segment operating performance as measured by contribution margin, with the exception of investments in pipeline joint ventures segment, which is measured based on net income, for the periods indicated (in thousands):

(in thousands) Three Months Ended March 31,

measures the operating performance of each of its reportable segments based on segment contribution margin, with the exception of investments in pipeline joint ventures segment, which is measured based on net income.

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

The following is a summary of business segment operating performance as measured by contribution margin, with the exception of investments in pipeline joint ventures segment, which is measured based on equity method income (loss), for the periods indicated (in thousands):

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Pipelines and Transportation

7 unchanged sentences

Capital spending $ 21,493 $ 1,531 $ 29,642 $ 7,376

$ 8,149 $ 5,845

Wholesale Marketing and Terminalling

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Affiliate $ 46,110 $ 23,058 $ 98,842 $ 56,204

$ 52,731 $ 33,146

Third party 119,430 74,985 197,474 129,777

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Capital spending $ 122 $ 1,060 $ 1,059 $ 3,014

$ 937 $ 1,954

3 Bear Operations

Net revenues:

Affiliate $ 2,962 $ — $ 2,962 $ —

Third party $ 17,642 $ — $ 17,642 $ —

Total 3 Bear 20,604 — 20,604 —

Cost of materials and other 13,774 — 13,774 —

Operating expenses (excluding depreciation and amortization) 2,154 — 2,154 —

Segment contribution margin $ 4,676 $ — $ 4,676 $ —

Capital spending $ 5,111 $ — $ 5,111 $ —

Investments in Pipeline Joint Ventures

12 unchanged sentences

Operating income 42,206 48,394 89,044 90,564

Interest expense, net 14,250 9,737

Income from equity method investments ( 7,026 ) ( 4,049 )

Other (income) expense, net ( 1 ) 31

Total non-operating expenses, net 7,223 5,719

Income before income tax expense 39,615 36,451

Income tax expense 101 184

Net income attributable to partners $ 39,514 $ 36,267

Capital spending (1)

$ 9,086 $ 7,799

(1) There were no capital contributions to equity method investments for the three months ended March 31, 2022.

Capital spending for the three months ended March 31, 2021 excludes contributions to equity method investments in the amount of $ 1.4 million.

(2) Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense related to a customer contract intangible asset.

See Note 3 for additional information.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the total assets for each segment as of March 31, 2022 and December 31, 2021 (in thousands).

Capital spending and capital contributions to equity method investments $ 26,726 $ 2,591 $ 35,812 $ 10,390

The following table summarizes the total assets for each segment as of June 30, 2022 and December 31, 2021 (in thousands).

Assets for each segment include property, plant and equipment, equity method investments, intangible assets and inventory.

March 31, 2022 December 31, 2021

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2022 December 31, 2021

Pipelines and transportation $ 485,748 $ 452,690

Wholesale marketing and terminalling 192,105 211,723

3 Bear operations 647,531 —

Investments in pipeline joint ventures 248,675 250,030

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(1) Other includes cash and cash equivalents and related party receivables and other assets which are recorded at the corporate level.

Property, plant and equipment, accumulated depreciation and depreciation expense for the pipelines and transportation and wholesale marketing and terminalling reportable segments as of and for the three months ended March 31, 2022 were as follows (in thousands):

Pipelines and Transportation Wholesale Marketing and Terminalling Consolidated

Property, plant and equipment, accumulated depreciation and depreciation expense for the Partnership's reportable segments, excluding the investment in pipeline joint ventures segment, as of and for the three and six months ended June 30, 2022 were as follows (in thousands):

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

Property, plant and equipment $ 633,165 $ 120,745 $ 387,912 $ 1,141,822

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Property, plant and equipment, net $ 411,704 $ 55,650 $ 386,485 $ 853,839

Depreciation expense for the three months ended March 31, 2022 $ 7,937 $ 2,398 $ 10,335

Depreciation expense for the three months ended June 30, 2022 $ 7,884 $ 2,603 $ 1,427 $ 11,914

Depreciation expense for the six months ended June 30, 2022 $ 15,821 $ 5,001 $ 1,427 $ 22,249

In accordance with ASC 360, Property, Plant & Equipment , we evaluate the realizability of property, plant and equipment as events occur that might indicate potential impairment.

There were no indicators of impairment of our property, plant and equipment as of March 31, 2022.

There were no indicators of impairment of our property, plant and equipment as of June 30, 2022.

Note 12 - Income Taxes

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Numerous permits or other authorizations are required under these laws and regulations for the operation of our terminals, pipelines, saltwells, trucks and related operations, and may be subject to revocation, modification and renewal.

These laws and permits raise potential exposure to future claims and lawsuits involving environmental and safety matters, which could include soil, surface water and groundwater contamination, air pollution, personal injury and property damage allegedly caused by substances which we may have handled, used, released or disposed of, transported, or that relate to pre-existing conditions for which we

Notes to Condensed Consolidated Financial Statements (Unaudited)

may have assumed responsibility.

We believe that our current operations are in substantial compliance with existing environmental and safety requirements.

3 unchanged sentences

Crude Oil and Other Releases

During the three months ended March 31, 2022, there were no significant releases.

During the six months ended June 30, 2022, there were no significant releases.

In August 2021, a release of finished product from our Greenville pipeline occurred near Dixon, Texas (the "Greenville Dixon Release").

Cleanup operations, site maintenance and remediation on this release are currently on-going where such costs incurred as of March 31, 2022 totaled $ 3.6 million.

Additionally, as of March 31, 2022 we have accrued $ 0.5 million for remediation and other such matters related to this release.

Cleanup operations, site maintenance and remediation on this release are currently on-going where such costs incurred as of June 30, 2022 totaled $ 3.9 million.

The affected area is currently being treated to bring it to acceptable residential levels protective of groundwater.

We believe additional costs associated with this release will be nominal.

On October 3, 2019, a release of diesel fuel involving one of our pipelines occurred near Sulphur Springs, Texas (the "Sulphur Springs Release").

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We may incur additional expenses as a result of further scrutiny by regulatory authorities and continued compliance with laws and regulations to which our assets are subject.

As of March 31, 2022, we have accrued $ 0.3 million for remediation and other such matters related to these releases.

As of June 30, 2022, we have accrued a nominal amount for remediation and other such matters related to these releases.

Expenses incurred for the remediation of these crude oil and other releases are included in operating expenses in our condensed consolidated statements of income and comprehensive income.

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We do not believe the total costs associated with these events, whether alone or in the aggregate, including any fines or penalties and net of available insurance, indemnification or reimbursement, will have a material adverse effect upon our business, financial condition or results of operations.

During the three months ended March 31, 2022, there were no crude oil and other releases remediation expenses, net of reimbursable expenses.

During the three months ended March 31, 2021, the crude oil and other releases remediation expenses, net of reimbursable costs, were immaterial.

During the three and six months ended June 30, 2022, we recorded $ 2.2 million of crude oil and other releases remediation expenses, net of reimbursable expenses.

During the three and six months ended June 30, 2021, the crude oil and other releases remediation expenses, net of reimbursable costs, were immaterial.

Other Commitments

In connection with the Permian Gathering System Acquisition (formerly known as the Big Spring Gathering Acquisition), we agreed to expend $ 33.8 million to construct additional Receipt Points on our gathering pipeline at the request of Delek Holdings producers with which we have dedicated acreage agreements, to be owned and operated by the Partnership.

In connection with the Permian Gathering System Acquisition (formerly known as the Big Spring Gathering Acquisition), we agreed to expend $ 33.8 million to construct additional Receipt Points (the "Receipt Points") on our gathering pipeline at the request of Delek Holdings producers with which we have dedicated acreage agreements, to be owned and operated by the Partnership.

Such Receipt Points, once completed, result in incremental pipeline revenues, subject to the minimum volume commitments and other terms of the throughput and deficiency commercial agreement with Delek Holdings, entered into in connection with this acquisition.

As of March 31, 2022 and March 31, 2021, the Partnership had $ 4.2 million and $ 28.4 million remaining commitments under the Receipt Point construction provision of the Permian Gathering System Acquisition agreement.

As of June 30, 2022, the Partnership had no remaining commitments under the Receipt Point construction provision of the Permian Gathering System Acquisition agreement.

Additionally, both Delek Holdings and the Partnership continue to identify and secure dedicated acreage and producer agreements that require construction of receipt points and also provide the opportunity for additional pipeline volumes, but that are not required under the original commitment.

Related to these incremental agreements, the Partnership has begun

Related to these incremental agreements, the Partnership has begun construction or otherwise separately committed to construct receipt points where the estimated remaining costs to complete totaled $ 53.0 million as of June 30, 2022, all of which is expected to be expended during 2022.

Notes to Condensed Consolidated Financial Statements (Unaudited)

construction or otherwise separately committed to construct receipt points where the estimated remaining costs to complete totaled $ 45.8 million as of March 31, 2022, all of which is expected to be expended during 2022.

Note 14 - Leases

We lease certain pipeline and transportation equipment.

We lease certain pipeline, transportation and compressor equipment.

Certain of our easements and rights-of-way are also subject to operating lease accounting.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

5 unchanged sentences

The following table presents additional information related to our operating leases in accordance ASC 842:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

8 unchanged sentences

Leased assets obtained in exchange for new operating lease liabilities $ 8,433 $ 5,359 $ 8,433 $ 5,359

Three Months Ended March 31,

Six Months Ended June 30,

Weighted-average remaining lease term (years) for operating leases 3.4 3.5

6 unchanged sentences

Distribution Declaration

On April 25, 2022, our general partner's board of directors declared a quarterly cash distribution of $ 0.98 per unit, payable on May 12, 2022, to unitholders of record on May 5, 2022.

Planned 3 Bear Energy - New Mexico, LLC Acquisition

The Partnership also entered into a guaranty agreement with the Seller in order to guaranty the payment obligations of the Purchaser under the Purchase Agreement.

The purchase price for the Purchased Interests is $ 624.7 million, subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness.

The Purchaser paid a deposit under the Purchase Agreement of approximately $ 31.2 million.

The deposit may be retained by the Seller upon certain termination events described in the Purchase Agreement.

At closing, the deposit will be applied to the purchase price to be paid under the Purchase Agreement.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The transactions contemplated by the Purchase Agreement are expected to close around mid-year 2022.

The closing is subject to customary closing conditions set forth in the Purchase Agreement, including regulatory approvals.

The Purchase Agreement also contains representations and warranties of the parties, indemnification obligations, termination rights, and other covenants and agreements.

Shelf Registration Statement

On July 25, 2022, our general partner's board of directors declared a quarterly cash distribution of $ 0.985 per common limited partner unit, payable on August 11, 2022, to unitholders of record on August 4, 2022.

Management's Discussion and Analysis

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

What changed 10-Q

Item 1. Financial Statements