What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-05 · 149 added, 137 removed, 623 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except unit and per unit data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

9 unchanged sentences

Equity method investments 248,005 250,030

Operating lease right-of-use assets 25,309 20,933

Goodwill 22,818 12,203

Customer relationship intangible, net 203,966 —

Marketing contract intangible, net 111,169 116,577

Rights-of-way 55,230 37,280

Customer relationship intangible, net 208,492 —

Goodwill 26,609 12,203

Operating lease right-of-use assets 24,329 20,933

Other non-current assets 20,122 25,627

17 unchanged sentences

Common unitholders - public;

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

9,180,901 units issued and outstanding at September 30, 2022 ( 8,774,053 at December 31, 2021)

168,911 166,067

Common unitholders - Delek Holdings;

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

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

( 283,168 ) ( 270,059 )

6 unchanged sentences

(in thousands, except unit and per unit data)

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

12 unchanged sentences

Depreciation and amortization 473 490 1,421 1,469

Other operating expense (income), net — ( 136 ) 12 ( 219 )

Other operating (income) expense, net ( 132 ) 273 ( 120 ) 54

Total operating costs and expenses 235,008 139,044 619,295 369,871

4 unchanged sentences

Total non-operating expenses, net 13,956 7,153 30,916 17,854

Income before income tax expense 32,469 43,412 72,084 79,863

Income tax expense 305 166 406 350

Income before income tax expense (benefit) 45,061 43,430 117,145 123,293

Income tax expense (benefit) 387 ( 194 ) 793 156

Net income attributable to partners $ 44,674 $ 43,624 $ 116,352 $ 123,137

14 unchanged sentences

Common - Public Common - Delek Holdings Total

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

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

Cash distributions (1)

( 9,229 ) ( 33,797 ) ( 43,026 )

Net income attributable to partners

9,430 35,244 44,674

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

Balance at September 30, 2022 $ 168,911 $ ( 283,168 ) $ ( 114,257 )

Common - Public Common - Delek Holdings Total

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

Balance at June 30, 2021 $ 164,679 $ ( 272,525 ) $ ( 107,846 )

Cash distributions ( 8,237 ) ( 32,661 ) ( 40,898 )

1 unchanged sentence

8,745 34,879 43,624

( 86 ) 351 265

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

Balance at September 30, 2021 $ 165,281 $ ( 270,034 ) $ ( 104,753 )

Common - Public Common - Delek Holdings Total

5 unchanged sentences

Other ( 30 ) 1,443 1,413

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

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

Balance at September 30, 2022 $ 168,911 $ ( 283,168 ) $ ( 114,257 )

Common - Public Common - Delek Holdings Total

3 unchanged sentences

Other 147 663 810

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

Balance at September 30, 2021 $ 165,281 $ ( 270,034 ) $ ( 104,753 )

(1) Cash distributions include $ 0.2 million related to distribution equivalents on vested phantom units for the three and nine months ended September 30, 2022.

See accompanying notes to the condensed consolidated financial statements

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

33 unchanged sentences

Net cash provided by (used) in financing activities 418,258 ( 213,684 )

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

Net increase in cash and cash equivalents 10,653 621

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

5 unchanged sentences

Non-cash investing activities:

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

(Decrease) increase in accrued capital expenditures and other $ ( 1,019 ) $ 1,638

Non-cash financing activities:

7 unchanged sentences

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

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

The 3 Bear Acquisition was completed on June 1, 2022 (the "Acquisition Date").

See Note 2 for further information.

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Reclassifications

In the current period, we reassessed the classification of certain expenses and made certain reclassification adjustments to better represent the nature of those expenses.

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

Certain prior period amounts have been reclassified in order to conform to the current period presentation .

Accounting Pronouncements Not Yet Adopted

2 unchanged sentences

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

1 unchanged sentence

3 Bear Acquisition

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

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

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

The purchase price for the 3 Bear Acquisition was $ 628.1 million.

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

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

For the three and nine months ended September 30, 2022, we incurred $ 4.2 million and $ 10.6 million, respectively, in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees.

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

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

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

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

Our results of operations included revenue and net income of $ 60.9 million and $ 8.3 million, respectively, for the three months ended September 30, 2022 and $ 81.5 million and $ 9.8 million, respectively, for the nine months ended September 30, 2022.

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

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

Determination of Purchase Price

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

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

Base purchase price:

3 unchanged sentences

Cash paid to payoff 3 Bear credit agreement (as defined in the 3 Bear Purchase Agreement) 80,618

Preliminary purchase price $ 624,450

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

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

Purchase price $ 628,090

Notes to Condensed Consolidated Financial Statements (Unaudited)

23 unchanged sentences

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

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

We recognized amortization expense for the three and nine months ended September 30, 2022 is $ 4.5 million and $ 6.0 million, respectively.

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

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

• Rights-of-way intangible that is subject to amortization with a preliminary fair value of $ 13.5 million, which will be amortized over the weighted-average useful life of 25.4 years.

We recognized amortization expense for the three and nine months ended September 30, 2022 of $ 0.2 million.

The estimated amortization is $ 0.6 million for each of the five succeeding fiscal years.

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

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

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

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

17 unchanged sentences

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

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

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

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

27 unchanged sentences

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

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

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

We were reimbursed a nominal amount by Delek Holdings during the nine months ended September 30, 2022.

There were no reimbursements by Delek Holdings during the three months ended September 30, 2022, or three and nine months ended September 30, 2021.

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

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

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

These reimbursements are recorded as reductions to operating expense.

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

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

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

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

Other Transactions

4 unchanged sentences

The agreement extends through December 2022.

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

Total fees paid to the Partnership were $ 0.4 million and $ 1.2 million for the three and nine months ended September 30, 2022 and 2021, respectively, which are recorded in affiliate revenue in our condensed consolidated statements of income.

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

7 unchanged sentences

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

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

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

2022 2021 2022 2021

6 unchanged sentences

Quarterly Cash Distributions

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

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

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

In February, May and August 2022, we paid quarterly cash distributions of $ 42.4 million, $ 42.6 million and $ 42.8 million, respectively, of which $ 33.8 million, $ 33.6 million and $ 33.8 million, respectively, were paid to Delek Holdings.

In February, May and August 2021, we paid quarterly cash distributions of $ 39.5 million, $ 40.0 million and $ 40.8 million, respectively, of which $ 31.6 million, $ 32.0 million and $ 32.7 million, respectively, were paid to Delek Holdings.

On October 25, 2022, our board of directors declared a quarterly cash distribution totaling $ 43.1 million, based on the available cash as of the date of determination, for the end of the third quarter of 2022, payable on November 10, 2022, of which $ 34.0 million is expected to be paid to Delek Holdings.

Notes to Condensed Consolidated Financial Statements (Unaudited)

14 unchanged sentences

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

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

Of our $ 1,178.3 million net property, plant, and equipment balance as of September 30, 2022, $ 429.4 million is subject to operating leases under our commercial agreements.

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

10 unchanged sentences

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

6 unchanged sentences

Total Revenue $ 85,278 $ 147,865 $ 60,882 $ 294,025

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Pipelines and Transportation Wholesale Marketing and Terminalling Consolidated

6 unchanged sentences

Total Revenue $ 76,202 $ 113,425 $ 189,627

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

Six Months Ended June 30, 2022

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

Nine Months Ended September 30, 2022

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

6 unchanged sentences

Total Revenue $ 241,689 $ 444,181 $ 81,486 $ 767,356

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

Six Months Ended June 30, 2021

(1) Net of $ 5.4 million of amortization expense for the nine months ended September 30, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

Nine Months Ended September 30, 2021

Pipelines and Transportation Wholesale Marketing and Terminalling Consolidated

6 unchanged sentences

Total Revenue $ 211,612 $ 299,406 $ 511,018

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

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

(1) Net of $ 5.4 million of amortization expense for the nine months ended September 30, 2021, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment .

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

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

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

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

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

Remainder of 2022 $ 74,716

5 unchanged sentences

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

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

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

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

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

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

The expected date of distribution for the distributions earned during the period ended September 30, 2022 is November 10, 2022.

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

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

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

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

2022 2021 2022 2021

12 unchanged sentences

$ 1.03 $ 1.00 $ 2.67 $ 2.83

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

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

(1) Outstanding common units totaling 3,862 were excluded from the diluted earnings per unit calculation for the nine months ended September 30, 2022.

There were no outstanding common units excluded from the diluted earnings per unit calculation for the three and nine months ended September 30, 2021.

Note 6 - Inventory

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

Inventories consisted of $ 2.5 million and $ 2.4 million of refined petroleum products as of September 30, 2022 and December 31, 2021, respectively, each of which are net of lower of cost or net realizable value reserve of a nominal amount.

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

2 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Delek Logistics 2028 Notes (1)

5 unchanged sentences

$ 1,448,772 $ 898,970

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

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

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

(1) Net of deferred financing costs of $ 5.0 million and $ 5.7 million at September 30, 2022 and December 31, 2021, respectively.

(2) Net of deferred financing costs of $ 0.5 million at September 30, 2022.

(3) Net of deferred financing costs of $ 2.0 million and $ 2.5 million and debt discount of $ 0.6 million and $ 0.8 million at September 30, 2022 and December 31, 2021, respectively.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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In the event of a change of control, accompanied or followed by a ratings downgrade within a certain period of time, subject to certain conditions and limitations, the Issuers will be obligated to make an offer for the purchase of the 2028 Notes from holders at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest.

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

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

DKL Credit Facility

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

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

At September 30, 2022, the weighted average interest rate for our borrowings under the facility was approximately 5.64 %.

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

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

As of September 30, 2022, this fee was 0.50 % per year.

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

1 unchanged sentence

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

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

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

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

6 unchanged sentences

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

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

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

On October 13, 2022, the Partnership entered into a fourth amended and restated DKL Credit Facility (the "2022 DKL Credit Facility") with Fifth Third, as administrative agent and a syndicate of lenders.

The 2022 DKL Credit Facility, among other things, (i) increased total aggregate commitments to $ 1.2 billion, comprised of (A) senior secured revolving commitments of $ 900.0 million in aggregate (eliminating the Canadian dollar tranche), with sublimit of up to $ 115.0 million for letters of credit and $ 25.0 million for swing line loans (the “DKL Revolving Facility”) with an extended maturity date of October 13, 2027, and (B) a new senior secured term loan in the original principal amount of $ 300.0 million (the “DKL Term Facility”), (ii) reset the accordion feature under the DKL Revolving Facility, such that aggregate revolving commitments can be increased to up to $ 1.15 billion upon the agreement of the Partnership and one or more existing or new lenders and (ii) provided for the DKL Term Facility be drawn in full on October 13, 2022, with a maturity date of October 13, 2024 and with a prepayment requirement for the proceeds obtained from certain senior unsecured notes issuances.

The DKL Term Facility requires four quarterly amortization payments of $ 3.8 million in 2023 and three quarterly amortization payments of $ 7.5 million in 2024.

Borrowings under the DKL Revolving Facility bear interest at the election of the Partnership at either a U.S.

dollar prime rate, plus an applicable margin ranging from 1.00 % to 2.00 % depending on the Partnership’s Total Leverage Ratio (as defined in the DKL Credit Agreement), or a SOFR rate plus a credit spread adjustment of 0.10 % for one-month interest periods and 0.25 % for three-month interest periods plus an applicable margin ranging from 2.00 % to 3.00 % depending on the Partnership’s Total Leverage Ratio.

Unused revolving commitments under the DKL Revolving Facility incur a commitment fee that ranges from 0.30 % to 0.50 % depending on the Partnership’s Total Leverage Ratio.

Borrowings under the DKL Term Facility bear interest at the election of the Partnership at either a U.S.

dollar prime rate, plus an applicable margin of 2.50 % for the first year of the DKL Term Facility and 3.00 % for the second year of the DKL Term Facility, or a SOFR rate plus a credit spread adjustment of 0.10 % for one-month interest periods and 0.25 % for three-month interest periods plus an applicable margin of 3.50 % for the first year of the Term Facility and 4.00 % for the second year of the DKL Term Facility.

The 2022 DKL Credit Facility contains affirmative and negative covenants and events of default, which the Partnership considers customary and are similar to those in our predecessor DKL Credit Facility.

Under the financial covenants in the 2022 DKL Credit Facility, the Partnership cannot:

• permit, as of the last day of each fiscal quarter, the Total Leverage Ratio (as defined in the DKL Credit Facility) to be greater than 5.25 to 1.00;

provided, that during any Temporary Increase Period (as defined in the DKL Credit Facility, the Partnership cannot permit the foregoing ratio to be greater than 5.50 to 1.00 (a Temporary Increase Period with respect to the 3 Bear Acquisition (as defined in the DKL Credit Facility) is in effect through March 31, 2023);

• permit, as of the last day of each fiscal quarter, the Senior Leverage Ratio (as defined in the DKL Credit Facility) to be greater than 3.75 to 1.00;

• permit, as of the last day of each fiscal quarter, the interest coverage ratio to be equal to or less than 2.00 to 1.00.

The obligations under the 2022 DKL Credit Facility remain secured by a first priority lien on substantially all of the Partnership’s and its subsidiaries’ tangible and intangible assets.

As of September 30, 2022, the Partnership had $ 806.9 million of outstanding borrowings under the DKL Credit Facility, with no letters of credit in place.

Unused credit commitments under the DKL Credit Facility as of September 30, 2022 were $ 193.1 million.

6.750 % Senior Notes Due 2025

3 unchanged sentences

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

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

The 2025 Notes will mature on May 15, 2025, and in terest on the 2025 Notes is payable semi-annually in arrears on each May 15 and November 15.

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

1 unchanged sentence

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

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

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

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

Note 8 - Equity

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

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

We had 9,180,901 common limited partner units held by the public outstanding as of September 30, 2022.

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

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

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Equity Activity

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

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

Common - Public Common - Delek Holdings Total

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

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

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

Balance at September 30, 2022 9,180,901 34,311,278 43,492,179

(1) Unit-based compensation awards are presented net of 6,368 units withheld for taxes as of September 30, 2022.

Issuance of Additional Securities

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

Cash Distributions

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(in thousands) Date of Distribution Unitholders Record Date

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

September 30, 2021 $ 0.950 $ 41,286 November 10, 2021 November 5, 2021

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

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

August 4, 2022

June 30, 2022 $ 0.985 $ 42,832 August 11, 2022 August 4, 2022

September 30, 2022 $ 0.990 $ 43,057 November 10, 2022 (1)

November 4, 2022

(1) Expected date of distribution.

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

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

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

accompanying condensed consolidated statements of income and comprehensive income and is immaterial for the three and nine months ended September 30, 2022 and 2021.

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

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

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

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

During the nine months ended September 30, 2022, we made no capital contributions.

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

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current Assets $ 36,029 $ 28,735

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Current liabilities $ 10,169 $ 10,040

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

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

2022 2021 2022 2021

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Net income $ 15,509 $ 11,853 $ 44,386 $ 25,843

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets $ 19,561 $ 15,010

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Current liabilities $ 3,688 $ 1,492

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

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

2022 2021 2022 2021

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Net Income $ 6,306 $ 6,300 $ 16,501 $ 19,023

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Red River $ 143,729 $ 144,041

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Andeavor Logistics 42,815 44,319

Total Equity Method Investments 248,005 250,030

We do not consolidate any part of the assets or liabilities or operating results of our equity method investees.

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and (iv) investment in pipeline joint ventures.

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

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

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

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

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

Additionally, the Acquisition occurred on June 1, 2022, and integration efforts continue to be in process as of September 30, 2022.

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Cost of materials and other 20,004 15,170 58,272 42,595

Operating expenses (excluding depreciation and amortization) 13,539 10,858 26,497 21,030

Operating expenses (excluding depreciation and amortization presented below) 11,292 13,680 37,789 34,710

Segment contribution margin $ 53,982 $ 47,352 $ 145,628 $ 134,307

Depreciation and amortization $ 7,847 $ 8,056 $ 23,668 $ 24,918

Capital spending $ 21,151 $ 2,570 $ 50,793 $ 9,946

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Cost of materials and other 122,614 89,959 373,126 232,400

Operating expenses (excluding depreciation and amortization) 5,296 4,710 10,445 9,349

Operating expenses (excluding depreciation and amortization presented below) 6,952 3,908 17,397 13,317

Segment contribution margin $ 18,299 $ 19,558 $ 53,658 $ 53,689

Depreciation and amortization $ 2,640 $ 2,100 $ 7,641 $ 5,944

Capital spending $ 278 $ 1,566 $ 1,337 $ 4,580

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Cost of materials and other 35,122 — 48,897 —

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

Operating expenses (excluding depreciation and amortization presented below) 7,657 — 9,811 —

Segment contribution margin $ 18,103 $ — $ 22,778 $ —

Depreciation and amortization $ 9,053 $ — $ 11,988 $ —

Capital spending $ 10,531 $ — $ 15,642 $ —

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Depreciation and amortization 19,540 10,156 43,297 30,862

Other operating expense (income), net — ( 136 ) 12 ( 219 )

Other operating (income) expense, net ( 132 ) 273 ( 120 ) 54

Operating income $ 59,017 $ 50,583 $ 148,061 $ 141,147

Capital spending and capital contributions to equity method investments $ 31,960 $ 4,136 $ 67,772 $ 14,526

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

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

Assets by segment are not a measure used to assess the performance of the company by the chief operating decision maker and thus are not disclosed .

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2022 December 31, 2021

Pipelines and transportation $ 485,748 $ 452,690

Wholesale marketing and terminalling 192,105 211,723

3 Bear operations 647,531 —

Investments in pipeline joint ventures 248,675 250,030

35,236 20,628

Total assets 1,609,295 $ 935,071

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

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

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

Pipelines and Transportation Wholesale Marketing and Terminalling 3 Bear Operations Consolidated

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Property, plant and equipment, net $ 428,582 $ 54,279 $ 392,739 $ 875,600

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

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

Depreciation expense for the three months ended September 30, 2022 $ 7,847 $ 2,640 $ 4,284 $ 14,771

Depreciation expense for the nine months ended September 30, 2022 $ 23,668 $ 7,641 $ 6,277 $ 37,586

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

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

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

Note 12 - Income Taxes

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

may have assumed responsibility.

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

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While it is often difficult to quantify future environmental or safety related expenditures, we anticipate that continuing capital investments and changes in operating procedures will be required to comply with existing and new requirements, as well as evolving interpretations and enforcement of existing laws and regulations.

Releases of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, or is not a reimbursable event under the Omnibus Agreement, subject us to substantial expenses, including costs to respond to, contain and remediate a release, to comply with applicable laws and regulations and to resolve claims by governmental agencies or other persons for personal injury, property damage, response costs, or natural resources damages.

Notes to Condensed Consolidated Financial Statements (Unaudited)

remediate a release, to comply with applicable laws and regulations and to resolve claims by governmental agencies or other persons for personal injury, property damage, response costs, or natural resources damages.

Crude Oil and Other Releases

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

During the nine months ended September 30, 2022, there were no significant releases.

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

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

Cleanup operations, site maintenance and remediation on this release are currently on-going where such costs incurred as of September 30, 2022 totaled $ 4.0 million.

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

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two related actions were filed in November and December 2020 by and against the contractor's insurance company seeking judgments related to insurance coverage.

Those matters were settled during the three months ended September 30, 2022, for an amount of $ 3.7 million paid to the Partnership.

We have not received notification that any legal action with respect to fines and penalties will be pursued by the regulatory agencies.

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

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

As of September 30, 2022, we have accrued $ 0.3 million for remediation and other such matters related to these releases.

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

The majority of our releases have been subsequently reimbursed by Delek Holdings pursuant to the terms of the Omnibus Agreement, with the exception of the Sulphur Springs Release and the Greenville Dixon Release noted above as they are not covered under the Omnibus Agreement.

The majority of our releases have been subsequently reimbursed by Delek Holdings pursuant to the terms of the Omnibus Agreement, with the exception of the Greenville Dixon Release noted above as they are not covered under the Omnibus Agreement.

Reimbursements are recorded as a reduction to operating expense.

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

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

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

During the nine months ended September 30, 2022, we recorded $ 1.7 million of crude oil and other releases remediation expenses, net of reimbursable expenses.

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

Other Commitments

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

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

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

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 $ 25.3 million as of September 30, 2022, all of which is expected to be expended during 2022.

Note 14 - Leases

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Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

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

(in thousands) 2022 2021 2022 2021

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Leased assets obtained in exchange for new operating lease liabilities (1)

Six Months Ended June 30,

$ 1,120 $ 318 $ 9,553 $ 5,679

Nine Months Ended September 30,

Weighted-average remaining lease term (years) for operating leases 3.3 4.8

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Distribution Declaration

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

On October 25, 2022, our general partner's board of directors declared a quarterly cash distribution of $ 0.990 per common limited partner unit, payable on November 10, 2022, to unitholders of record on November 4, 2022.

Management's Discussion and Analysis

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

What changed 10-Q

Item 1. Financial Statements