What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-05 · 352 added, 203 removed, 404 unchanged (58% of the section changed)

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

See Note 14 for further information.

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 (@DelekUSLogistics).

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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 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.

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

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

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

• risks related to realizing the anticipated benefits of the 3 Bear Acquisition and how the failure to do so could adversely affect our business, financial results and operations;

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

• Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution;

Management's Discussion and Analysis

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

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• the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand;

Management's Discussion and Analysis

• the effects of the military conflict that began with the Russian invasion of Ukraine (the "Russia-Ukraine War"), including the impact of sanctions brought by the United States and other countries against Russia or its allies;

• the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business;

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• 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;

• changes in the price of renewable identification numbers ("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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• other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

Management's Discussion and Analysis

Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 Pandemic and any worsening of the global business and economic environment.

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.

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

Management's Discussion and Analysis

Business Overview

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We gather, transport, offload and store crude oil and intermediate products and market, distribute, transport and store refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings and third parties.

We recently acquired 100% of the interest in 3 Bear Delaware Holding – NM, LLC ("3 Bear"), which expands our third-party revenue and includes 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.

We are currently in the process of integrating these operations into our existing businesses and assessing the long-term impact to our reportable segments.

See “2022 Strategic Developments” and Note 2 for further information about this acquisition.

A substantial majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries.

The Partnership is not a taxable entity for federal income tax purposes or the income taxes of those states that follow the federal income tax treatment of partnerships.

Instead, for purposes of such income taxes, each partner of the Partnership is required to take into account its share of items of income, gain, loss and deduction in computing its federal and state income tax liabilities, regardless of whether cash distributions are made to such partner by the Partnership.

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

The economy continues to recover from the impact of the COVID-19 Pandemic, both globally and domestically.

Improved consumer demand resulting from stabilization in cases of COVID-19 and decreasing mortality rates during much of the period and across much of the country, and corresponding to the availability of vaccines, have contributed to improvements in domestic refining margins.

However, on February 24, 2022 Russia launched a military invasion on Ukraine (the "Russia-Ukraine war").

In response to the unprovoked invasion, among other sanctions imposed, many countries, including the US, have banned the import of Russian commodities, including oil and gas.

Russia is one of the world's top oil and gas suppliers, responsible for providing more than 40% of the natural gas supply to Europe and more than 8% of the world's oil supply.

To combat record high oil prices, the Biden administration recently announced the largest release of oil in U.S.

history from the nation’s strategic stockpiles, followed by a smaller, but still sizable, release from European countries.

While these events have contributed to additional uncertainty in the global market, it's impact on supply of crude oil and refined products has caused significant increases in demand for our customers' products which is expected to continue for much of 2022.

Management has actively responded to the continuing impact of these economic disruptions on our business.

To the extent warranted, we continue to monitor the impact and implement measures to mitigate the risk.

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

• Reviewing planned production throughputs at our refineries and planning for optimization of operations;

• Coordinating planned maintenance activities with possible downtime as a result of possible reductions in throughputs;

• Searching for additional storage capacity if needed to store potential builds in crude oil or refined product inventories;

• Finding additional suppliers for key or specialty items or securing inventory or priority status with existing vendors;

• Continued monitoring of capital expenditures;

• Suspending the share repurchase program and dividend distributions until our internal parameters are met for resuming such activities;

• Adopting modified remote working where possible and when immediate exposure risk warrants, and where on-site operations are required, taking appropriate safety precautions;

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

• Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and other employee related costs, and reducing or eliminating non-critical travel.

The combination of these efforts has served to mitigate other negative factors impacting our cash flows and operations, and has improved our liquidity positioning, operational flexibility and ability to respond to the continued economic impact of the COVID-19 Pandemic, the Russia-Ukraine War, and other events.

Management's Discussion and Analysis

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

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

Business and Economic Environment Overview

During the second quarter 2022, the domestic oil and gas industry benefited from unprecedented conditions, including continued post-Pandemic demand exacerbated by global supply constraints.

Crude oil supply constraints have persisted for a variety of reasons, including the continued effects from Pandemic-related refinery closures as well as the continuing impact of sanctions on Russian oil exports and transportation as a result of the ongoing Russia-Ukraine War.

At the same time, supply chain constraints continue across industries, attributable to labor and driver shortages as well as lingering international trade tensions.

These and other factors have triggered an inflationary environment, resulting in a 9.1% year-over-year increase in the Consumer Price Index for All Urban Consumers as of June 30, 2022, as well as significant increases across virtually every category (including food, utilities and motor fuel), with fuel oil and other fuels showing the largest twelve-month increase as of June 30, 2022 of 70.4% and motor fuel showing the second largest increase of 60.2%.

To combat the inflationary environment, the Federal Reserve has raised interest rates 225 bps since January 2022, representing a 900% increase over the 0.25% fed funds rate which held steady for all of 2021.

The stock market volatility is reflective of the stressed economic environment as well, with the S&P 500 and the Dow Industrial Average falling 11.9% and 10.3%.

respectively, as of June 30, 2022, compared to June 30, 2021.

For the broader market, debt and equity are generally expensive, while stock buy-backs may be at a bargain, while for the energy sector, there have been pockets of opportunity thanks to the strong energy-specific economics.

This environment provides unique opportunities for those midstream companies that have successfully weathered the Pandemic.

Record-setting or near-record crack spreads and continued supply-constrained demand should continue to prompt exploration and production as well as refining utilization.

Additionally, midstream companies, many of which have built-in recessionary protections as a result of minimum volume commitments on throughput and dedicated acreage agreements, are positioned to capitalize on increased gathering opportunities and run barrels through logistics assets at higher utilization than the minimums during this period.

Furthermore, because of this favorability, well-positioned midstream and downstream players can potentially take advantage of capital markets when the timing is right.

Likewise, strategic acquisitions in midstream can be particularly favorable, because of that built-in recessionary protection.

In June 2022, we successfully closed on an acquisition that expands our gathering footprint into the Delaware sub-basin of the Permian, and expands our product offering to include natural gas gathering and processing as well as wastewater processing and disposal.

This acquisition not only diversifies our logistics customer base to include significantly more third-party customers, it allows us to provide comprehensive logistics services in the Delaware Basin, while also serving as a funnel into our existing midstream Permian activities.

While the incremental contribution margin for the second quarter only included one month, we expect that the acquisition will be immediately accretive, delivering incremental contribution margin and cash flows attributable to existing long-term dedicated acreage agreements as well as some contracts with minimum volume commitments.

Additionally, the Delaware sub-basin is one of the most prolific drilling locations in the U.S., providing us significant opportunity for expanded gathering and processing as the producers ramp up production.

Our Reporting Segments and Assets

Our business consists of three reportable segments:

As of June 30, 2022, our business consists of the following four 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.

The operational 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.

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

The Partnership generates revenue in its pipelines and transportation segment by charging fees to customers, generally based on throughput or other relevant volumetric measures, for services associated with gathering, transporting, offloading and storing crude oil and refined

Management's Discussion and Analysis

Furthermore, a substantial majority of our pipelines and transportation segment revenues (and also contribution margin) is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives us a contractual revenue base that we believe enhances the stability of our cash flows.

As more fully described below, our commercial agreements with Delek Holdings typically include minimum volume or throughput commitments by Delek Holdings, which we believe will provide a stable revenue stream in the future.

The fees charged under our agreements with Delek Holdings and third parties are indexed to inflation-based indices.

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

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.

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

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

Our wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek’s refining operations and to independent third parties from whom we receive fees for marketing, transporting, storing and terminalling refined products and to whom we wholesale market refined products.

In providing certain of these services, we take ownership of the products and are therefore exposed to market risks related to the volatility of commodity and refined product prices in our West Texas operations, which depend on many factors, including demand and supply of refined products in the West Texas market, the timing of refined product deliveries and downtime at refineries in the surrounding area.

Effective March 1, 2018, this segment also includes certain wholesale marketing and terminalling assets acquired from Delek, primarily located at or adjacent to the Big Spring Refinery.

As of March 31, 2022, we generated revenue in our wholesale marketing and terminalling segment by (i) providing marketing services for the refined products output of the Tyler Refinery and the Big Spring Refinery, (ii) engaging in wholesale activity at our Abilene and San Angelo, Texas terminals, as well as at terminals owned by third parties, whereby we purchase light products for sale and exchange to third parties, and (iii) providing terminalling services to independent third parties and Delek.

3 Bear Operations

The operational assets in our 3 Bear operations segment, which we acquired in connection with the 3 Bear Acquisition, consist of approximately 485 miles of pipelines, 88 million cubic feet ("MMCf") per day ("MMCf/d") of cryogenic natural gas processing capacity, 140 thousand barrels ("MBbl") per day ("MBbl/d") of crude gathering capacity, 120 MBbl of crude storage capacity and 200 MBbl/d of water disposal capacity.

These assets support 3 Bear’s crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico.

Additionally, the combination of these services provides a comprehensive, integrated midstream service offering to producers.

With respect to our newly acquired 3 Bear operations segment, we generate two principal types of revenues:

• Product sales - 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 and processing services - comprised of fees charged for one or more of the following services under dedicated acreage and other long-term fee-based contracts:

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, and other hydrocarbon-based products.

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

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.

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 provide crude oil and refined product pipeline transportation to third parties and subsidiaries of Delek Holdings.

Because the 3 Bear Acquisition occurred in the last month of the quarter, integration efforts continue to be in process as of June 30, 2022.

In connection with those efforts, management is continuing to:

(1) review, refine and integrate operational and management reporting processes, controls, policies and procedures for the acquired operations;

(2) develop an operator-view understanding of the nature of the acquired operations and the similarity/dissimilarity compared to our legacy operating segments;

and (3) to evaluate the nature and level of discrete financial information on results of operations that will ultimately be used to manage the acquired operations on a long-term basis.

As a result, it is possible that segment presentation could change in the near term and that such changes could include the creation of new or different reportable segments or changes to the view of aggregation into existing reportable segments which are not yet determinable.

Management's Discussion and Analysis

2022 Strategic Developments

3 Bear Acquisition

On June 1, 2022, the Partnership, through its subsidiary DKL Delaware Gathering, LLC, acquired 100% of the limited liability company interests in 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, located in the Delaware Basin of New Mexico (the "3 Bear Acquisition").

The preliminary purchase price for 3 Bear was $624.5 million, subject to customary closing adjustments.

The 3 Bear Acquisition was financed through a combination of cash on hand and borrowings under the Partnership's existing credit agreement.

Through this strategic transaction, the Partnership expects to significantly increase its third party revenue and further diversify its customer and product mix, expand its footprint into the Delaware sub-basin of the Permian, and provide immediate accretion to Distributable Cash Flow.

Additionally, we believe the addition of 3 Bear may provide access to expanded carbon capture opportunities.

Amendments to DKL Credit Facility

In May 2022, we entered into Second and Third Amendments to our Third Amended and Restated Credit Agreement, which provided for the transition from a LIBOR benchmark to a term Secured Overnight Financing Rate benchmark (“Term SOFR”) and also amended certain financial covenant calculations in order to provide flexibility in connection with the timing of the 3 Bear Acquisition.

Additionally, on May 26, 2022, we entered into a Fourth Amendment to Third Amended and Restated Credit Agreement to (i) increase the U.S.

Revolving Credit Commitments (as defined in the Credit Agreement) by an amount equal to $150 million under an existing accordion feature, for an aggregate amount of commitments under our Existing Credit Agreement of $1 billion, (ii) increase the U.S.

L/C Sublimit (as defined in the Credit Agreement) to an aggregate amount equal to $90 million and (iii) increase the U.S.

Swing Line Sublimit (as defined in the Credit Agreement) to an aggregate amount equal to $18 million.

The exercise of the accordion feature gave us the flexibility to utilize borrowings under the Credit Agreement to help fund the acquisition of 3 Bear while continuing to maintain sufficient availability to continue to effectively manage our working capital needs and liquidity risk, and to evaluate longer term capitalization strategies.

Slurry Clarifying Services Agreement

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The initial term of the agreement is for a period of three years, and thereafter, will continue a year-to-year basis unless canceled by either party.

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.

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.

Expansion of connectors project

Connectors Expansion Project

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 to 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

Management's Discussion and Analysis

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.

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.

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 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.

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.

See Note 13 for additional information.

How We Generate Revenue

The Partnership generates revenue by charging fees to Delek Holdings and third parties for gathering, transporting, offloading and storing crude oil and for marketing, distributing, transporting, throughputting and storing intermediate and refined products.

We also wholesale market refined products primarily in the West Texas market.

A substantial majority of our contribution margin, which we define as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization, is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives us a contractual revenue base that we believe enhances the stability of our cash flows.

The fees charged under our agreements with Delek Holdings and third parties are indexed to inflation-based indices.

Inflation Adjustments

On July 1, 2022, 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 increased by approximately 8.7%, which was the amount of the change in the FERC oil pipeline index.

The tariff on FERC regulated system acquired from 3 Bear has historically been adjusted as of January 1 each year.

Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 7.1% and the fees that are subject to adjustments using the producer price index increased approximately 10.8%.

Management's Discussion and Analysis

Commercial Agreements with Delek Holdings

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See our Annual Report on Form 10-K filed with the SEC on February 25, 2022 for a discussion of our material commercial agreements with Delek Holdings.

Other Transactions

Other Transactions with Delek Holdings

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").

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

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.

These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets.

The amount of revenue we generate primarily depends on the volumes of crude oil, natural gas, natural gas liquids ("NGLs"), refined products, and produced water that we handle in our pipeline, transportation, terminalling, storage and marketing operations.

These volumes are primarily affected by the supply of and demand for crude oil, natural gas, NGLs, intermediate and refined products in the markets served directly or indirectly by our assets.

Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by:

• Delek Holdings' utilization of our assets in excess of its minimum volume commitments;

Management's Discussion and Analysis

• Utilization of our assets in excess of minimum volume commitments;

• our ability to identify and execute acquisitions and organic expansion projects, and capture incremental volume increases from Delek Holdings or third parties;

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• our ability to identify and serve new customers in our marketing and trucking operations;

• our ability to successfully integrate the 3 Bear business and to successfully realize the anticipated benefits of the financial and operating synergies of the 3 Bear Acquisition, including our ability to serve existing customers and to identify and serve new customers in those related lines of business and geographic location;

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

Management's Discussion and Analysis

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, except for the investments in pipeline joint ventures segment.

Because we do not allocate general and administrative expenses by segment, we measure the performance of our operating 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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(i) all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products;

(ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance;

(iii) the cost of pipeline capacity leased from any third parties;

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

The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of $0.98 per unit for the quarter ended March 31, 2022 ($3.92 per unit on an annualized basis).

(ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance;

(v) all costs of natural gas purchases and other direct cost of product sales in our 3 Bear operations segment, including costs associate with condensate and skim oil, and to the extent applicable, the related transportation of such products.

The Partnership has declared a cash distribution to its unitholders at a distribution rate of $0.985 per unit for the quarter ended June 30, 2022 ($3.94 per unit on an annualized basis).

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

As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our DKL Credit Facility and any potential future issuances of equity and debt securities.

See Note 7 to the accompanying condensed consolidated financial statements for a discussion of historic cash distributions.

See Note 8 to the accompanying condensed consolidated financial statements for further discussion.

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.

Management's Discussion and Analysis

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

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:

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It also has additional expansion optionality.

Management's Discussion and Analysis

Market Trends

Business Environment

Fluctuations in crude oil prices and the prices of related refined products impact our operations and the operations of other master limited partnerships in the midstream energy sector.

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

During the three months ended March 31, 2022, 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 ended March 31, 2021, crude oil prices during the three months ended March 31, 2022 were steadily increasing.

The price of oil (WTI Cushing) closed at $100.28 per barrel on March 31, 2022, $41.12 per barrel higher than on March 31, 2021.

The opening January 2022 price of oil (WTI Cushing) was $76.08 and reached the January 2022 high closing price of oil of $88.15 per barrel.

Due to the sustained increase in oil prices, during the three months ended March 31, 2022, 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 2021.

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

Overall demand for gathering and terminalling services in a particular area is generally driven by crude oil production in the area, which can be impacted by crude oil prices, refining economics and access to alternate delivery and transportation infrastructure.

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

As discussed above, the U.S.

economic activity continues to recover and demand for and prices of crude oil and related refined products continued on the rise during the three months ended March 31, 2022, 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 the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2021 and for the quarterly period in 2022.

Fluctuations in crude oil, natural gas and NGLs prices and the prices of related refined and other hydrocarbon products impact our operations and the operations of other master limited partnerships in the midstream energy sector.

For example, the prices of each of these 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.

Exploration and production activities have a direct impact on volumes transported through our gathering assets in the geologic basins in which we operate.

Additionally, the demand for hydrocarbon-based refined products and related crack spreads significantly impact production decisions of our refining customers and likewise throughputs on our pipelines and other logistics assets.

Finally, fluctuations in demand and commodity prices for refined products, as well as the value attributable to RINs, directly impacts our wholesale marketing operations, where we are subject to short-term commodity price fluctuations at the rack.

Most of the logistics services we provide (including pipelines and transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility.

However, sustained depressed demand/prices over the longer term could not only curb exploration and production expansion opportunities under our agreements, it could also impact our customers' willingness or ability to renew commercial agreements or result in liquidity or credit constraints that could impact our longer term relationship with them.

That said, our recent acquisition of 3 Bear improved both our customer and geographic diversification which lowers concentration risk in those areas, in addition to adding service offerings to our portfolio.

Furthermore, our dedicated acreage agreements provide significant growth opportunities in strong economic conditions (e.g., high demand/high commodity prices) without incremental customer acquisition cost.

Given all of these factors, we believe that we continue to be strategically positioned, even in tougher market conditions, to sustain positive operating results and cash flows and to continue developing profitable growth projects that are needed to support future distribution growth.

During the three and six months ended June 30, 2022, the U.S.

economic activity continued to recover resulting in increases in consumption and demand for crude oil, natural gas and refined products, although the on-going COVID-19 Pandemic and the pervasive inflationary environment (as well as the potential for additional regulatory response) continue to create uncertainty in the markets.

Compared to the three months ended June 30, 2021, we have a seen a steady increase in average quarterly crude oil prices.

The average price of crude oil (WTI Cushing) was $108.74 per barrel for the three months ended June 30, 2022, compared to $66.19 for the three months ended June 30, 2021.

Additionally, average gasoline prices increased to $3.40 for the three months ended June 30, 2022, compared to $1.99 for the three months ended June 30, 2021, and average diesel prices increased to $3.98 for the three months ended June 30, 2022, compared to $1.95 for the three months ended June 30, 2021.

As we continue our integration of the 3 Bear operations, we look forward to also benefiting from periods of strong demand for natural gas and NGLs, where average natural gas prices were $7.17 at Henry Hub and $6.23 at Waha during the three months ended June 30, 2021.

Market Outlook for the Remainder of 2022

As we look to the remainder of the year, commodity markets are predicting a decline in demand as consumer purchasing continues to be eroded by inflation combined with the expectation that the federal reserve may continue to raise interest rates in response.

Such conditions could spell the declaration of an official recession, which may upend markets in unexpected ways and make capital more difficult to come by.

However, due to years of global underinvestment in oil production and the possibility of continued sanctions on Russia, supply-constrained demand for oil and related commodity prices may continue to be strong, sitting at or near the higher end of the life-cycle.

That said, domestic regulatory intervention could put pressure on profits of oil companies and may have unanticipated effects on the commodities markets and capital markets, as well as on exploration and production activities.

For these reasons, we continue to position the Company to expand our third-party revenue diversification as well as our midstream footprint and product offerings to take advantage of favorable volume environments while working to ensure steady-stream minimum volume income streams and cash flows that will provide sustainability in periods of market disruption.

Additionally, we will continue to balance the cost of debt and cost of equity while continuing to exercise a longer term sustainable view of capital allocation.

From a geographic positioning perspective, absent government intervention, industry analysts expect the Brent, a global benchmark crude, to WTI differential to continue to be favorable for domestic exports throughout 2022, including the U.S.

Gulf Coast region.

Furthermore, while the likelihood of a favorable Midland-Cushing differential is constrained by overbuilt pipeline capacity, significant export developments and other factors could quickly shift differentials to be more favorable to our Permian-heavy gathering and logistics positioning.

The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas.

Management's Discussion and Analysis

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

See the charts below for the range of prices per gallon of gasoline and diesel for each of the quarterly periods in 2021 and for the quarterly period in 2022.

Management's Discussion and Analysis

Contractual Obligations

There have been no material changes to our contractual obligations and commercial commitments during the three months ended March 31, 2022 from those disclosed in our Annual Report on Form 10-K.

Critical Accounting Estimates

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Based on this definition and as further described in our Annual Report on Form 10-K, we believe our critical accounting estimates include estimates related to equity method investments impairment assessment.

Additionally, we have identified the following critical accounting policy that impacts the six months ended June 30, 2022:

Business Combinations

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date.

Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase.

The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate;

the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates;

and the market approach which uses market data and adjusts for entity-specific differences.

We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance.

The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain.

Accordingly, actual results may differ materially from the projected results used to determine fair value.

Non-GAAP Measures

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• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations.

EBITDA and distributable cash flow should not be considered alternatives to net income, operating

Management's Discussion and Analysis

income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S.

We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations and assists in evaluating our ongoing operating performance for current and comparative periods.

EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S.

EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities.

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

The following table and discussion present a summary of our consolidated results of operations for the three months ended March 31, 2022 and 2021, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

The following table and discussion present a summary of our consolidated results of operations for the three and six months ended June 30, 2022 and 2021, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Net revenues:

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Wholesale marketing and terminalling 165,540 98,043 296,316 185,981

3 Bear 20,604 — 20,604 —

Total 266,750 168,478 473,331 321,391

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

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

$ 64,506 $ 66,840 $ 130,509 $ 125,570

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

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

(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.

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Reconciliation of net income to EBITDA (in thousands)

Three Months Ended March 31,

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

2022 2021 2022 2021

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

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Depreciation and amortization 13,422 9,967 23,757 20,706

Amortization of customer contract intangible assets 1,803 1,803

Amortization of marketing contract intangible asset 1,803 1,803 3,606 3,606

Interest expense, net 16,812 11,658 31,062 21,395

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Net cash provided by operating activities $ 85,137 $ 85,792 $ 133,057 $ 147,524

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Maintenance and regulatory capital expenditures (1)

(Refund to) reimbursement from Delek Holdings for capital expenditures (2)

(233) (1,133) (1,040) (2,862)

Reimbursement from (refund to) Delek Holdings for capital expenditures (2)

1 4 (14) 1,577

Accretion of asset retirement obligations (123) (115) (247) (230)

Deferred income taxes — — — (65)

Other operating (expense) income, net (12) 83

Gain (loss) on sale of assets — 136 (12) 219

Distributable cash flow (3)

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

(2) For the three month periods ended March 31, 2022 and 2021, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 2 to our accompanying condensed consolidated financial statements).

(2) For the three and six month periods ended June 30, 2022 and 2021, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

(3) For a definition of distributable cash flow, please see "Non-GAAP Measures" above.

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Results of Operations

Consolidated Results of Operations — Comparison of the three months ended March 31, 2022 compared to the three months ended March 31, 2021

Consolidated Results of Operations — Comparison of the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021

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

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Net Revenues:

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

Net revenues increased by $53.7 million, or 35.1%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

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

Net revenues increased by $98.3 million, or 58.3%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increased revenues of $17.6 million as a result of the 3 Bear Acquisition, which was completed on June 1, 2022;

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

◦ the average sales prices per gallon of gasoline and diesel sold increased $1.33 per gallon and $2.05 per gallon, respectively;

◦ the volumes of gasoline sold increased by 2.2 million gallons, partially offset by a 0.4 million gallons decrease in the volumes of diesel sold.

• increases in pipeline throughputs, where the second quarter of 2021 was negatively impacted by the Pandemic as well as severe weather events occurring in the first quarter of 2021 impacting Delek Holdings.

Net revenues increased by $151.9 million, or 47.3%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increased revenues of $17.6 million as a result of the 3 Bear Acquisition, which was completed on June 1, 2022;

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

◦ the average sales prices per gallon of gasoline and diesel sold increased by $1.16 per gallon and $1.64 per gallon, respectively;

◦ the average volume of gasoline sold decreased by 3.4 million gallons and the average volume of diesel sold increased by 2.5 million gallons.

• increases in pipeline throughputs, where the first quarter of 2021 were negatively impacted by severe weather events.

◦ the average volume of gasoline sold decreased by 1.2 million gallons and the volume of diesel sold increased by 2.9 million gallons.

• increases in pipeline throughputs, where the first half of 2021 was negatively impacted by the Pandemic as well as severe weather events impacting Delek Holdings.

Management's Discussion and Analysis

Cost of Materials and Other

Cost of materials and other increased by $45.0 million, or 55.5%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

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

Cost of materials and other increased by $87.7 million, or 98.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increase in costs of materials and other totaling $13.8 million as a result of the 3 Bear Acquisition, which was completed on June 1, 2022;

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

◦ the average cost per gallon of gasoline and diesel sold increased $1.35 per gallon and $2.04 per gallon, respectively;

◦ the volumes of gasoline sold increased by 2.2 million gallons, partially offset by a 0.4 million gallons decrease in the volumes of diesel sold.

Cost of materials and other increased by $132.7 million, or 78.1%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increase in costs of materials and other totaling $13.8 million as a result of the 3 Bear Acquisition, which was completed on June 1, 2022;

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

◦ the average cost per gallon of gasoline and diesel sold increased by $1.18 per gallon and $1.64 per gallon, respectively;

◦ the average volume of gasoline sold decreased by 3.4 million gallons and the average volume of diesel sold increased by 2.5 million gallons.

Management's Discussion and Analysis

◦ the volume of gasoline sold decreased by 1.2 million gallons and the volume of diesel sold increased by 2.9 million gallons.

Operating Expenses

Operating expenses increased by $3.3 million, or 22.3%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Operating expenses increased by $5.4 million, or 34.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increase due to additional expenses associated with 3 Bear, which was acquired on June 1, 2022;

• increases in employee and outside service costs after cost cutting measures previously 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 utilities, maintenance and other variable expenses due to higher throughput.

Operating expenses increased by $8.7 million, or 28.7%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increase due to additional expenses associated with 3 Bear, which was acquired on June 1, 2022;

• increases in employee and outside service costs;

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General and Administrative Expenses

General and administrative expenses increased by $1.0 million, or 24.1%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

• increase in professional consulting fees;

• increase in employee and outside services costs.

General and administrative expenses increased by $7.8 million, or 129.9%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by an increase in outside services costs primarily associated with the 3 Bear Acquisition.

General and administrative expenses increased by $8.8 million, or 86.9%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by transaction costs incurred in connection with the 3 Bear Acquisition.

Management's Discussion and Analysis

Depreciation and Amortization

The changes in depreciation and amortization for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 were immaterial.

Depreciation and amortization increased by $3.5 million, or 34.7%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• the acquisition of property, plant and equipment and customer relationship intangible as part of the 3 Bear Acquisition.

Depreciation and amortization increased by $3.1 million, or 14.7%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• the acquisition of property, plant and equipment and customer relationship intangible as part of the 3 Bear Acquisition.

Interest Expense

During the three months ended March 31, 2022 we incurred $14.3 million of interest expense, compared to $9.7 million during the three months ended March 31, 2021, an increase of $4.6 million, or 47.4%.

During the second quarter of 2022 we incurred $16.8 million of interest expense, compared to $11.7 million during the second quarter of 2021, an increase of $5.2 million, or 44.2%.

This increase was primarily driven by the following:

• increased borrowings under the DKL Credit Facility to fund the 3 Bear Acquisition;

• higher fixed rate interest on the 2028 Notes during the second quarter of 2022 compared to our floating interest rates under the DKL Credit Facility.

During the six months ended June 30, 2022 we incurred $31.1 million of interest expense, compared to $21.4 million during the six months ended June 30, 2021, an increase of $9.7 million, or 45.2%.

This increase was primarily driven by the following:

• increased borrowings under the DKL Credit Facility to fund the 3 Bear Acquisition;

• higher fixed rate interest on the 2028 Notes compared to our floating interest rates under the DKL Credit Facility;

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Results from Equity Method Investments

During the three months ended March 31, 2022 we recognized income of $7.0 million from equity method investments, compared to $4.0 million for the three months ended March 31, 2021, an increase of $3.0 million, or 73.5%.

We recognized income of $7.1 million from equity method investments during the second quarter of 2022 compared to $6.6 million for the second quarter of 2021, an increase of $0.4 million, or 6.5%.

This increase was primarily driven by the following:

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

During the six months ended June 30, 2022 we recognized income of $14.1 million from equity method investments, compared to $10.7 million for the six months ended June 30, 2021, an increase of $3.4 million, or 31.9%.

This increase was primarily driven by the following:

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

• partially offset by decrease in income from Rio equity method investments.

• partially offset by decrease in income from Rio equity method investment.

Management's Discussion and Analysis

Operating Segments

We review operating results in two reportable segments:

Our business consists of four reportable segments:

(i) pipelines and transportation;

(ii) wholesale marketing and terminalling;

(iii) 3 Bear;

and (iv) investment in pipeline joint ventures.

We review operating results in the following two reportable segments on a disaggregated basis:

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

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.

The 3 Bear operations segment was added as a new reportable segment in the second quarter of 2022 in connection with the acquisition of this business on June 1, 2022 and includes the results of operations and cash flows of 3 Bear beginning on June 1, 2022.

The Partnership is in the process of identifying its long-term plan for integrating 3 Bear into its existing segments and as a result, the Partnership’s operating segments may change in the near future.

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

Segment reporting is discussed in more detail in Note 11 to our accompanying condensed consolidated financial statements.

Segment contribution margin = Net revenues - Cost of materials and other - Operating expenses, excluding depreciation and amortization

Pipelines and Transportation Segment

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• assets acquired in the Trucking Assets Acquisition

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

The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three months ended March 31, 2022 and 2021:

• 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties

The following tables and discussion present the results of operations and certain operating statistics of the pipelines and transportation segment for the three and six months ended June 30, 2022 and 2021:

Pipelines and Transportation

Three Months Ended March 31,

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

2022 2021 2022 2021

Net Revenues:

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Throughputs (average bpd)

Three Months Ended March 31,

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

2022 2021 2022 2021

El Dorado Assets:

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Management's Discussion and Analysis

Comparison of the three months ended March 31, 2022 compared to the three months ended March 31, 2021

Net revenues for the pipelines and transportation segment increased by $10.8 million, or 16.7%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Comparison of the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021

Net revenues for the pipelines and transportation segment increased by $10.2 million, or 14.4%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increases in throughputs, where the first quarter of 2021 was negatively impacted by the Pandemic as well as severe weather events impacting Delek Holdings.

Net revenues for the pipelines and transportation segment increased by $21.0 million, or 15.5%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increased revenues associated with the Slurry Clarifying Services Agreement, which was effective January 1, 2022;

• increases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate and increases in throughputs at the Paline Pipeline due to scheduled pipeline maintenance during three months ended March 31, 2021 compared to the three months ended March 31, 2022;

• increases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate and increases in throughputs at the Paline Pipeline due to scheduled pipeline maintenance during six months ended June 30, 2021 compared to the six months ended June 30, 2022;

• increased revenues at our BSR Crude Pipeline, as a result of Luther Station becoming operational in 2021.

Cost of Materials and Other

Cost of materials and other for the pipelines and transportation segment increased by $6.5 million, or 49.9%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Cost of materials and other for the pipelines and transportation segment increased by $4.3 million, or 30.1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

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

Cost of materials and other for the pipelines and transportation segment increased by $10.8 million, or 39.5%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• 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 increased by $2.8 million, or 27.4%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Operating expenses for the pipelines and transportation segment increased by $2.7 million, or 24.7%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increase in employee and outside service costs compared to same period prior year when cost cutting measures were implemented to respond to the COVID-19 Pandemic including delaying non-essential projects;

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

• increase in utilities and other variable expenses due to higher throughputs.

Operating expenses for the pipelines and transportation segment increased by $5.5 million, or 26.0%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in employee and outside service costs.

Management's Discussion and Analysis

Contribution Margin

Contribution margin for the pipelines and transportation segment increased by $1.5 million, or 3.6%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Contribution margin for the pipelines and transportation segment increased by $3.2 million, or 7.0%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increases in revenue due to higher throughput volumes as explained above;

• partially offset by increases in operating expenses.

Contribution margin for the pipelines and transportation segment increased by $4.7 million, or 5.4%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

• increases in revenue due to higher throughput volumes as explained above;

• partially offset by increases in operating expenses.

Management's Discussion and Analysis

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

The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three months ended March 31, 2022 and 2021 :

The tables and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and six months ended June 30, 2022 and 2021 :

Wholesale Marketing and Terminalling

Three Months Ended March 31,

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

2022 2021 2022 2021

Net Revenues:

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Operating Information

Three Months Ended March 31,

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

2022 2021 2022 2021

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

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

Comparison of the three months ended March 31, 2022 compared to the three months ended March 31, 2021

Net revenues for the wholesale marketing and terminalling segment increased by $42.8 million, or 48.7%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Comparison of the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021

Net revenues for the wholesale marketing and terminalling segment increased by $67.5 million, or 68.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

• increases in the average sales prices per gallon and 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 $1.33 per gallon and $2.05 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold increased by 2.2 million gallons and 0.4 million gallons, respectively.

Net revenues for the wholesale marketing and terminalling segment increased by $110.3 million, or 59.3%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

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

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Cost of Materials and Other

Cost of materials and other for our wholesale marketing and terminalling segment increased by $38.5 million, or 56.5%, in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by the following:

Cost of materials and other for our wholesale marketing and terminalling segment increased by $69.6 million, or 93.6%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased $1.35 per gallon and $2.04 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold increased by 2.2 million gallons and 0.4 million gallons, respectively.

Cost of materials and other for our wholesale marketing and terminalling segment increased by $108.1 million, or 75.9%, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily driven by the following:

◦ the average cost per gallon of gasoline and diesel sold increased by $1.18 per gallon and $1.64 per gallon, respectively;

Management's Discussion and Analysis

◦ the average volume of gasoline sold decreased by 1.2 million gallons and the average volume of diesel sold increased by 2.9 million gallons.

The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three months ended March 31, 2022 and 2021.

The following chart shows a summary of the average prices per gallon of gasoline and diesel sold in our West Texas operations for the three and six months ended June 30, 2022 and 2021.

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

Management's Discussion and Analysis

Operating Expenses

Changes in operating expenses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 were immaterial.

Changes in operating expenses for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 were immaterial.

Contribution Margin

The increase of $3.8 million, or 25.2%, in contribution margin for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was due to the following:

Contribution margin for the wholesale marketing and terminalling segment decreased by $2.7 million, or 14.0%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by an increase in cost of materials and other due to increases in average cost per gallon of diesel and gasoline sold as described above.

Such decreases were offset by an increase in revenue due to increases in average price per gallon of diesel and gasoline as described above.

The increase of $1.2 million, or 3.4%, in contribution margin for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due to the following:

• increases in revenue due to increases in average sales prices per gallon of diesel and gasoline sold;

• partially offset by increases in cost of materials and other due to increases in average cost per gallon of diesel and gasoline sold and increases in operating expenses.

Management's Discussion and Analysis

3 Bear Operations

Period from June 1 through June 30, 2022

Net Revenues:

Affiliates $ 2,962

Third-Party 17,642

Total net revenues 20,604

Cost of materials and other 13,774

Operating expenses (excluding depreciation and amortization presented below) 2,154

Segment contribution margin $ 4,676

Period from June 1 through June 30, 2022

Natural Gas Gathering and Processing (Mcfd (1) )

Crude Oil Gathering (bpd (2) )

Water Disposal and Recycling (bpd (2) )

(1) Mcfd - average thousand cubic feet per day.

(2) bpd - average barrels per day.

The 3 Bear operations segment includes the results of operations associated with crude oil and natural gas gathering, processing and transportation operations, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico, since the Acquisition Date, or June 1, 2022.

As a result, there is no comparative financial and operating data related to the three months and six months ended June 30, 2021, and the Partnership's consolidated results of operations for the three and six months ended June 30, 2022 only reflect one month of segment operations.

The revenues and contribution margin for the one-month period from the Acquisition Date through June 30, 2022 are largely driven by production volumes and gathering activities during the month, which are a function of both producer activities as well as our capacity, subject to the dedicated acreage agreements and the portions of acreage which have been developed, the extent to which connection points and interconnects have been brought on-line, and the extent to which maintenance or other planned or unplanned operational disruptions may occur.

While the strong demand for crude oil and associated products have led to strong levels of production, we performed certain turnaround activities on our Libby plant associated with the expansion project during the month ended June 30, 2022 which reduced volumes of gathered natural gas and related wastewater during the month, and likewise reduced related product sales volumes, though favorable prices on condensate and skim oil largely offset product sales volume decreases.

While periodic maintenance or other temporary disruptions may occur, the specific maintenance activities impacting these results were completed during June.

See Note 2 for information related to the acquisition and for pro forma financials for the three and six months ended June 30, 2022.

Refer to Consolidated Results of Operations above for details and discussion of the 3 Bear operations segment for the quarter ended June 30, 2022.

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.

The investments in pipeline joint ventures segment relates to investments in entities for which we share joint control that 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.

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Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 10 to our accompanying condensed consolidated financial statements.

Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the quarter ended March 31, 2022.

Management's Discussion and Analysis

Liquidity and Capital Resources

Source of Capital

Sources of Capital

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

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(iv) potential issuance of additional debt securities.

At March 31, 2022 our total liquidity amounted to $588.6 million, comprised of $585.9 million in unused credit commitments under the DKL Credit Facility and $2.7 million in cash and cash equivalents.

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

At June 30, 2022 our total liquidity amounted to $132.9 million, comprised of $119.1 million in unused credit commitments under the DKL Credit Facility and $13.8 million in cash and cash equivalents, which represented a decrease of $455.7 million from March 31, 2022, primarily as a result of the 3 Bear Acquisition.

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

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

Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future

Management's Discussion and Analysis

operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including the current COVID-19 Pandemic and crude oil prices, some of which are beyond our control.

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

If market conditions were to change, for instance due to the uncertainty created by the COVID-19 Pandemic or the Russia-Ukraine War, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be unfavorably impacted.

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

We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2022.

We believe we were in compliance with the covenants in all our debt facilities as of June 30, 2022.

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.

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Cash Distributions

On April 25, 2022, the board of directors of our general partner declared a distribution of $0.98 per common unit (the "Distribution"), which equates to approximately $42,604 per quarter, based on the number of common units expected to be outstanding as of May 5, 2022.

The Distribution is expected to be paid on May 12, 2022 to common unitholders of record on May 5, 2022 and represents a 6.5% increase over the first quarter 2021 distribution.

On July 25, 2022, the board of directors of our general partner declared a distribution of $0.985 per common unit (the "Distribution"), which equates to approximately $42.8 million per quarter, based on the number of common units expected to be outstanding as of August 4, 2022.

The Distribution is expected to be paid on August 11, 2022 to common unitholders of record on August 4, 2022 and represents a 4.8% increase over the second quarter 2021 distribution.

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

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

Management's Discussion and Analysis

The table below summarizes the quarterly distributions related to the periods indicated:

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December 31, 2021 $ 0.975 $ 3.900 $ 42,384 February 8, 2022 February 1, 2022

March 31, 2022 $ 0.980 $ 3.92 $ 42,604 May 12, 2022 (1)

March 31, 2022 $ 0.980 $ 3.920 $ 42,604 May 12, 2022 May 5, 2022

June 30, 2022 $ 0.985 $ 3.940 $ 42,832 August 11, 2022 (1)

August 4, 2022

(1) Expected date of distribution.

The following table sets forth a summary of our consolidated cash flows for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

The following table sets forth a summary of our consolidated cash flows for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended June 30,

Net cash provided by operating activities $ 133,057 $ 147,524

Net cash used in investing activities (659,327) (5,211)

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

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

Management's Discussion and Analysis

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

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

Operating Activities

Net cash provided by operating activities was $47.9 million for the three months ended March 31, 2022, compared to $61.7 million for the three months ended March 31, 2021, resulting in a $13.8 million decrease in net cash provided by operating activities.

Net cash provided by operating activities was $133.1 million for the six months ended June 30, 2022, compared to $147.5 million for the six months ended June 30, 2021, resulting in a $14.5 million decrease in net cash provided by operating activities.

The cash receipts from customer activities increased by $154.7 million and cash payments to suppliers and for allocations from Delek Holdings for salaries increased by $163.3 million.

In addition, cash dividends received from equity method investments increased by $2.9 million and cash paid for debt interest decreased by $2.8 million.

In addition, cash dividends received from equity method investments increased by $5.4 million and cash paid for debt interest increased by $11.2 million.

Investing Activities

Net cash used in investing activities increased by $8.5 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

There were additions to property, plant and equipment amounting to $10.6 million, purchases of intangible assets amounting to $2.4 million and distributions from equity method investments amounting $0.6 million during the three months ended March 31, 2022 compared to additions to property, plant and equipment amounting to $6.1 million, purchases of intangible assets amounting to $0.5 million and distributions from equity method investments amounting to $3.9 million during the three months ended March 31, 2021.

Additionally, there were no contributions to our equity method investments during the three months ended March 31, 2022 compared to $1.4 million during the three months ended March 31, 2021.

Net cash used in investing activities increased by $654.1 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The 3 Bear Acquisition, effective on June 1, 2022, was partially financed through borrowings under the DKL Credit Facility amounting to $621.8 million, which was recorded in investing activities.

There were no acquisitions during the six months ended June 30, 2021.

In addition, there were additions to property, plant and equipment amounting to $35.5 million, purchases of intangible assets amounting to $3.8 million and distributions from equity method investments amounting $1.7 million during the six months ended June 30, 2022 compared to additions to property, plant and equipment amounting to $8.8 million, purchases of intangible assets amounting to $0.7 million and distributions from equity method investments amounting to $5.4 million during the six months ended June 30, 2021.

Additionally, there were no contributions to our equity method investments during the six months ended June 30, 2022 compared to $1.4 million during the six months ended June 30, 2021.

Financing Activities

Net cash used in financing activities amounted to $37.0 million during the three months ended March 31, 2022 compared to $48.6 million net cash provided by financing activities during the three months ended March 31, 2021.

We borrowed $6.1 million under the revolving credit facility during the three months ended March 31, 2022, compared to repayments of $9.1 million under the revolving credit facility during the three months ended March 31, 2021.

We paid quarterly cash distributions totaling $42.4 million during the three months ended March 31, 2022, compared to quarterly cash distributions totaling $39.5 million during the three months ended March 31, 2021.

In addition, we made payments on finance lease liability in the amount of $0.7 million during the three months ended March 31, 2022 with no comparable activity during the three months ended March 31, 2021.

Net cash used in financing activities amounted to $535.8 million during the six months ended June 30, 2022 compared to $144.4 million net cash provided by financing activities during the six months ended June 30, 2021.

We borrowed $622.9 million under the revolving credit facility during the six months ended June 30, 2022, compared to repayments of $457.8 million under the revolving credit facility during the six months ended June 30, 2021.

We paid quarterly cash distributions totaling $85.0 million during the six months ended June 30, 2022, compared to quarterly cash distributions totaling $79.5 million during the six months ended June 30, 2021.

In addition, we made payments on finance lease liability in the amount of $1.4 million during the six months ended June 30, 2022, compared to payments on finance lease liability in the amount of $0.8 million during the six months ended June 30, 2021.

Management's Discussion and Analysis

Debt Overview

As of March 31, 2022, we had total indebtedness of $905.5 million comprised of $264.1 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility"), $246.9 million of 6.75% senior notes due 2025 (the “2025 Notes”), net of deferred financing costs and original issue discount, and $394.5 million of the 2028 Notes, net of deferred financing costs.

As of June 30, 2022, we had total indebtedness of $1,522.2 million comprised of $880.3 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility"), net of deferred financing costs, $247.2 million of 6.75% senior notes due 2025 (the “2025 Notes”), net of deferred financing costs and original issue discount, and $394.7 million of the 2028 Notes, net of deferred financing costs.

Deferred financing costs on the DKL Credit Facility amounted to $0.6 million.

Deferred financing costs and original issue discount on the 2025 Notes amounted to $2.2 million and $0.7 million, respectively.

Deferred financing costs on the 2028 Notes amounted to $5.3 million.

The increase of $6.1 million in our long-term debt balance compared to the balance at December 31, 2021 resulted primarily from the borrowings under the DKL Credit Facility during the three months ended March 31, 2022:

The increase of $623.2 million in our long-term debt balance compared to the balance at December 31, 2021 resulted primarily from the borrowings under the DKL Credit Facility during the six months ended June 30, 2022:

• An aggregate principal amount of $880.3 million under the DKL Credit Facility ("revolving credit facility"), due on September 28, 2023, with an average borrowing rate of 3.35%.

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• An aggregate principal amount of $394.7 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.40%.

We believe we were in compliance with the covenants in all of our debt facilities as of March 31, 2022.

We believe we were in compliance with the covenants in all of our debt facilities as of June 30, 2022.

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

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Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness, financial performance and credit ratings.

Management's Discussion and Analysis

Equity Units Overview

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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 three months ended March 31, 2022 and planned capital expenditures for the full year 2022 by segment and by major category (in thousands):

Full Year 2022 Forecast Three Months Ended March 31, 2022

A key component of our long-term strategy is our capital expenditure program, which includes strategic consideration and planning for the timing and extent of regulatory maintenance, sustaining maintenance, and discretionary capital projects.

These categories are described below:

• Regulatory maintenance projects in the pipelines and transportation segment are those expenditures expected to be spent on certain of our pipelines to maintain their operational integrity pursuant to applicable environmental and other regulatory requirements.

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 in order to maintain environmental and other regulatory compliance.

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

• Sustaining maintenance capital expenditures represent capitalizable 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 capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to maintain compliance with environmental laws and regulations.

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

When not provided for under reimbursement agreements, such activities are generally funded by cash generated from operations.

• Discretionary projects include those projects that do not fall into one of the two categories above, and could include committed expansion projects under contracts with customers as well as other incremental growth projects, but are generally expected to produce incremental cash flows in accordance with our internal return on invested capital policy.

Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities.

Management's Discussion and Analysis

The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the six months ended June 30, 2022 and planned capital expenditures for the full year 2022 by segment and by major category (in thousands):

Full Year 2022 Forecast Six Months Ended June 30, 2022

Pipelines and Transportation

Regulatory $ 3,407 $ 1,458

$ 5,265 $ 1,251

Maintenance 2,636 138

Discretionary projects (2)

Pipelines and transportation segment total (4)

Discretionary (1)

81,989 28,046

Pipelines and transportation segment total $ 88,032 $ 29,642

Wholesale Marketing and Terminalling

Regulatory $ 2,038 $ 909

$ 2,292 $ 792

Maintenance 40 —

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Wholesale marketing and terminalling segment total $ 2,236 $ 1,059

$ 2,732 $ 937

Regulatory $ — $ —

Maintenance — —

Discretionary (2)

3 Bear operations segment total $ 25,862 $ 5,111

Total capital spending (3)

$ 116,130 $ 35,812

(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.

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 2 to our accompanying condensed consolidated financial statements).

(2) The majority of the $5.3 million and $5.8 million budgeted for regulatory and maintenance projects in the pipelines and transportation segment is expected to be spent on certain of our pipelines to maintain their operational integrity and scheduled maintenance and improvements on our assets.

The majority of the $58.8 million for discretionary projects in the pipelines and transportation segment is expected to be spent on 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 $2.3 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 were no capital contributions to equity method investments for the three months ended March 31, 2022.

(1) The majority of the $82.0 million for discretionary projects in the pipelines and transportation segment relates to current and forecasted remaining current year spend on development of our DPG Connectors Expansion Project, as discussed in the 2022 Strategic Developments section of Management Discussion and Analysis.

Upon completion, these expenditures are expected to generate incremental cash flows under related dedicated acreage and throughput agreements.

The current year spend excludes approximately $7.7 million of capital expenditures that were prepaid in the fourth quarter 2021, but which assets were received and placed in service in 2022.

These capital expenditures are expected to be funded with cash from operations or borrowings under existing credit facilities and potential future issuances of equity and debt securities.

(2) The majority of the $25.9 million budgeted for discretionary projects in the 3 Bear operations segment is expected to be spent on expansions and connections of the assets acquired in the 3 Bear Acquisition.

Upon completion, these expenditures are expected to generate incremental cash flows.

These capital expenditures are expected to be funded with cash from operations or borrowings under existing credit facilities and potential future issuances of equity and debt securities.

(3) There were no capital contributions to equity method investments for the six months ended June 30, 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.

Long-term Cash Requirements

Information regarding our known contractual obligations of the types described below, as of June 30, 2022, is set forth in the following table (in thousands):

<1 Year 1-3 Years 3-5 Years >5 Years Total

Long term debt and notes payable

$ — $ 1,130,900 $ — $ 400,000 $ 1,530,900

75,257 98,118 65,438 42,750 281,563

Finance lease obligation 2,968 1,668 — — 4,636

Operating lease commitments (2)

8,697 11,556 1,540 1,218 23,011

Total $ 86,922 $ 1,242,242 $ 66,978 $ 443,968 $ 1,840,110

(1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 and 2028 Notes at June 30, 2022.

Floating interest rate debt is calculated using rates in effect on June 30, 2022.

(2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of June 30, 2022.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis