What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-05 · 182 added, 171 removed, 585 unchanged (38% of the section changed)

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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.

An elevated hydrocarbon pricing environment has resulted in a strong demand for hydrocarbons and presented an opportunity for the Partnership to leverage its extensive network of logistics assets, resulting in increased throughputs and higher utilization during the third quarter 2022 as compared to the prior year.

Our successful integration of 3 Bear further 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.

As producers continue to ramp up production within the Permian, the Partnership is well positioned to continue to add value through our gathering and processing services as a result of integrating our 3 Bear operations which complement our existing Permian Gathering System assets.

Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets.

Through our joint venture projects, we have increased our supply network to take advantage of growth opportunities in expanding markets and added additional flexibility which has delivered realized value through the entire Delek Logistics system.

Expectations of an economic downturn as well as initiatives to reduce carbon footprints through energy transition to renewables, have softened the demand expectations for hydrocarbons and natural gas.

We are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements.

The Partnership has embraced opportunities to enhance our environmental stewardship.

It is expected that renewables, other than hydrocarbons, will continue to grow as a percentage of total energy consumption;

however, a material reduction in the reliance on oil and gas for energy consumption is unlikely.

Therefore, liquid transportation fuels will continue to be in high demand, and we aspire to be a leader in energy transformation while still providing affordable transportation fuels that improve the standard of living in the communities that we serve.

Our Reporting Segments and Assets

As of June 30, 2022, our business consists of the following four reportable segments:

As of September 30, 2022, our business consists of the following four reportable segments:

Pipelines and Transportation

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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.

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

Management's Discussion and Analysis

Wholesale Marketing and Terminalling

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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.

Our wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek Holdings' 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.

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

3 Bear Operations

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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:

With respect to our 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

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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.

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

In connection with those efforts, management is continuing to:

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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 purchase price for 3 Bear was $628.1 million.

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

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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.

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

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.

On October 13, 2022, we entered into a Fourth Amended and Restated Credit Agreement with Fifth Third, as administrative agent and a syndicate of lenders (the "2022 DKL Credit Facility").

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.

Slurry Clarifying Services Agreement

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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.

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.

See Note 13 for additional information.

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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%.

The tariff on FERC regulated system acquired from 3 Bear has

Management's Discussion and Analysis

historically been adjusted as of January 1 each year.

Commercial Agreements with Delek Holdings

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

Management's Discussion and Analysis

Contribution Margin per Barrel

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

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

Both contribution margin and gross margin per barrel can be affected by fluctuations

Management's Discussion and Analysis

in the prices and cost of gasoline, distillate fuel, ethanol and Renewable Identification Numbers ("RINs").

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

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(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).

The Partnership has declared a cash distribution to its unitholders at a distribution rate of $0.99 per unit for the quarter ended September 30, 2022 ($3.96 per unit on an annualized basis).

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

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Market Trends

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.

Fluctuations in crude oil, natural gas and NGLs prices and the prices of related refined and other hydrocarbon products impact operations 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.

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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.

That said, our recent acquisition of 3 Bear and recent expansion of our gas processing capabilities have 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.

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.

Such conditions could spell a global economic downturn, 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 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.

We are continuously evaluating forward markets and have actively engaged cost and risk mitigation strategies to proactively take advantage of opportunities through disciplined capital allocation.

We are committed to lowering our costs in all aspects of our business and challenging ourselves to achieve operating excellence by improving efficiency.

We are continuously looking to improve our operating and general and administrative cost structure and are exploring a zero-based budgeting process for 2023.

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.

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

Gulf Coast region.

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Management's Discussion and Analysis

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:

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

Business Combinations

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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;

Management's Discussion and Analysis

apply an appropriate discount rate;

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

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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 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.

The following table and discussion present a summary of our consolidated results of operations for the three and nine months ended September 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 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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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

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

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Income from equity method investments (8,567) (7,261) (22,666) (17,952)

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

Other income, net (36) (115) (39) (118)

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

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

Income tax (benefit) 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

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Reconciliation of net income to EBITDA (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

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

Income tax expense 305 166 406 350

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

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

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Reconciliation of net cash from operating activities to distributable cash flow (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

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(2,143) (850) (3,183) (3,712)

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

Reimbursement from Delek Holdings for capital expenditures (2)

19 11 5 1,588

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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 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).

(2) For the three and nine month periods ended September 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 and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021

Consolidated Results of Operations — Comparison of the three and nine months ended September 30, 2022 compared to the three and nine months ended September 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 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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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

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:

Net revenues increased by $104.4 million, or 55.1%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• increased revenues of $60.9 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:

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

◦ the average sales prices per gallon of gasoline and diesel sold increased $0.57 per gallon and $1.44 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:

◦ the volumes of gasoline and diesel sold decreased by 0.8 million gallons and 1.1 million gallons, respectively.

• increases in pipeline throughputs, where the third quarter of 2021 was negatively impacted by the COVID-19 Pandemic.

Net revenues increased by $256.3 million, or 50.2%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increased revenues of $81.5 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:

• increases in the average sales prices per gallon of gasoline and diesel sold and volume of diesel sold, partially offset by a 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 $0.96 per gallon and $1.56 per gallon, respectively;

◦ the average volume of gasoline sold decreased by 2.0 million gallons and the volume of diesel sold increased by 1.9 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.

• increases in pipeline throughputs, where the nine months ended September 30, 2021 were negatively impacted by the COVID-19 Pandemic as well as severe weather events.

Management's Discussion and Analysis

Cost of Materials and Other

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:

Cost of materials and other increased by $72.6 million, or 69.1%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• increase in costs of materials and other totaling $35.1 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:

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

◦ the average cost per gallon of gasoline and diesel sold increased $0.56 per gallon and $1.42 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:

◦ the volumes of gasoline and diesel sold decreased by 0.8 million gallons and 1.1 million gallons, respectively.

Cost of materials and other increased by $205.3 million, or 74.7%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increase in costs of materials and other totaling $48.9 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:

• increases in the average cost per gallon of gasoline and diesel sold and the volume of diesel sold, partially offset by a 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 $0.97 per gallon and $1.55 per gallon, respectively;

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Operating Expenses

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:

Operating expenses increased by $8.3 million, or 47.3%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

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

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• 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:

Operating expenses increased by $17.0 million, or 35.3%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

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

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General and Administrative Expenses

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.

General and administrative expenses increased by $6.1 million, or 102.8%, in the third quarter of 2022 compared to the third 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 $14.9 million, or 93.5%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by transaction costs incurred in connection with the 3 Bear Acquisition.

Management's Discussion and Analysis

Depreciation and Amortization

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:

Depreciation and amortization increased by $9.4 million, or 92.4%, in the third quarter of 2022 compared to the third 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:

Depreciation and amortization increased by $12.4 million, or 40.3%, in the nine months ended September 30, 2022 compared to the nine months ended September 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 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%.

During the third quarter of 2022 we incurred $22.6 million of interest expense, compared to $14.5 million during the third quarter of 2021, an increase of $8.1 million, or 56.0%.

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%.

• increased borrowings under the DKL Credit Facility;

• higher floating rate interests under the DKL Credit Facility.

During the nine months ended September 30, 2022 we incurred $53.6 million of interest expense, compared to $35.9 million during the nine months ended September 30, 2021, an increase of $17.7 million, or 49.3%.

This increase was primarily driven by the following:

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Results from Equity Method Investments

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%.

We recognized income of $8.6 million from equity method investments during the third quarter of 2022 compared to $7.3 million for the third quarter of 2021, an increase of $1.3 million, or 17.8%.

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%.

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

During the nine months ended September 30, 2022 we recognized income of $22.7 million from equity method investments, compared to $18.0 million for the nine months ended September 30, 2021, an increase of $4.7 million, or 26.1%.

This increase was primarily driven by the following:

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• 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:

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

Pipelines and Transportation

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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Throughputs (average bpd)

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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Management's Discussion and Analysis

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:

Comparison of the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021

Net revenues for the pipelines and transportation segment increased by $9.1 million, or 11.9%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• increases in throughputs, where the third quarter of 2021 was negatively impacted by the COVID-19 Pandemic as well as severe weather events impacting Delek Holdings.

Net revenues for the pipelines and transportation segment increased by $30.1 million, or 14.2%, in the nine months ended September 30, 2022 compared to the nine months ended September 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 six months ended June 30, 2021 compared to the six months ended June 30, 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 nine months ended September 30, 2021 compared to the nine months ended September 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 $4.3 million, or 30.1%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

Cost of materials and other for the pipelines and transportation segment increased by $4.8 million, or 31.9%, in the third quarter of 2022 compared to the third 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:

Cost of materials and other for the pipelines and transportation segment increased by $15.7 million, or 36.8%, in the nine months ended September 30, 2022 compared to the nine months ended September 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 $2.7 million, or 24.7%, in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the following:

Operating expenses for the pipelines and transportation segment decreased by $2.4 million, or 17.5%, in the third quarter of 2022 compared to the third 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;

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• 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:

Operating expenses for the pipelines and transportation segment increased by $3.1 million, or 8.9%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increases in employee and outside service costs.

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Contribution Margin

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:

Contribution margin for the pipelines and transportation segment increased by $6.6 million, or 14.0%, in the third quarter of 2022 compared to the third 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:

Contribution margin for the pipelines and transportation segment increased by $11.3 million, or 8.4%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

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

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

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

Wholesale Marketing and Terminalling

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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Operating Information

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

Comparison of the three and 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:

Comparison of the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021

Net revenues for the wholesale marketing and terminalling segment increased by $34.4 million, or 30.4%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

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

◦ the average sales prices per gallon of gasoline and diesel sold increased $0.57 per gallon and $1.44 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:

◦ the volumes of gasoline and diesel sold decreased by 0.8 million gallons and 1.1 million gallons, respectively.

Net revenues for the wholesale marketing and terminalling segment increased by $144.8 million, or 48.4%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.96 per gallon and $1.56 per gallon, respectively;

◦ 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.

Management's Discussion and Analysis

◦ the average volume of gasoline sold decreased by 2.0 million gallons and the volume of diesel sold increased by 1.9 million gallons.

The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations.

Cost of Materials and Other

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:

Cost of materials and other for our wholesale marketing and terminalling segment increased by $32.7 million, or 36.3%, in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

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

◦ the average cost per gallon of gasoline and diesel sold increased $0.56 per gallon and $1.42 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:

• 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:

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

◦ the volumes of gasoline and diesel sold decreased by 0.8 million gallons and 1.1 million gallons, respectively.

Cost of materials and other for our wholesale marketing and terminalling segment increased by $140.7 million, or 60.6%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

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 and six months ended June 30, 2022 and 2021.

◦ the average cost per gallon of gasoline and diesel sold increased by $0.97 per gallon and $1.55 per gallon, respectively;

◦ the volume of gasoline sold decreased by 2.0 million gallons and the volume of diesel sold increased by 1.9 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 and nine months ended September 30, 2022 and 2021.

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

Operating Expenses

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.

Operating expenses for our wholesale marketing and terminalling segment increased by $3.0 million, or 77.9% in the third quarter of 2022 compared to the third quarter of 2021, primarily driven by the following:

• 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 for our wholesale marketing and terminalling segment increased by $4.1 million, or 30.6%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily driven by the following:

• increases in employee and outside service costs;

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

Contribution Margin

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.

Contribution margin for the wholesale marketing and terminalling segment decreased by $1.3 million, or 6.4%, in the third quarter of 2022 compared to the third 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.

The change in contribution margin for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was immaterial.

Management's Discussion and Analysis

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3 Bear Operations

Period from June 1 through June 30, 2022

Three Months Ended September 30, 2022 Period from June 1 through September 30, 2022

Net Revenues:

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Segment contribution margin $ 18,103 $ 22,778

Period from June 1 through June 30, 2022

Three Months Ended September 30, 2022 Period from June 1 through September 30, 2022

Natural Gas Gathering and Processing (Mcfd (1) )

64,429 115,721

Crude Oil Gathering (bpd (2) )

86,483 164,891

Water Disposal and Recycling (bpd (2) )

69,411 125,127

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

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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.

As a result, there is no comparative financial and operating data related to the three months and nine months ended September 30, 2021, and the Partnership's consolidated results of operations for the three and nine months ended September 30, 2022 only reflect segment operations since June 1, 2022.

The revenues and contribution margin for the period from the Acquisition Date through September 30, 2022 are largely driven by production volumes and gathering activities, 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.

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

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

Investments in Pipeline Joint Ventures Segment

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(iv) potential issuance of additional debt securities.

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.

At September 30, 2022 our total liquidity amounted to $208.0 million, comprised of $193.1 million in unused credit commitments under the DKL Credit Facility and $14.9 million in cash and cash equivalents, which represented an increase of $75.1 million from June 30, 2022.

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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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.

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

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

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

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

We continuously review our liquidity and capital resources.

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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 June 30, 2022.

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

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

Amendments to DKL Credit Facility

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

On October 13, 2022, we entered into a Fourth Amended and Restated Credit Agreement with Fifth Third, as administrative agent and a syndicate of lenders (the "2022 DKL Credit Facility").

The 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

Management's Discussion and Analysis

(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.

Cash Distributions

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.

On October 25, 2022, the board of directors of our general partner declared a distribution of $0.99 per common unit (the "Distribution"), which equates to approximately $43.1 million per quarter, based on the number of common units expected to be outstanding as of November 4, 2022.

The Distribution is expected to be paid on November 10, 2022 to common unitholders of record on November 4, 2022 and represents a 4.2% increase over the third 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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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

June 30, 2022 $ 0.985 $ 3.940 $ 42,832 August 11, 2022 August 4, 2022

September 30, 2022 $ 0.990 $ 3.960 $ 43,057 November 10, 2022 (1)

November 4, 2022

(1) Expected date of distribution.

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,

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

Nine Months Ended September 30,

Net cash provided by operating activities $ 297,482 $ 222,276

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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

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.

Net cash provided by operating activities was $297.5 million for the nine months ended September 30, 2022, compared to $222.3 million for the nine months ended September 30, 2021, resulting in a $75.2 million increase in net cash provided by operating activities.

The cash receipts from customer activities increased by $250.1 million and cash payments to suppliers and for allocations from Delek Holdings for salaries increased by $164.3 million.

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Investing Activities

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 $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.

Net cash used in investing activities increased by $697.1 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The 3 Bear Acquisition, which closed on June 1, 2022, was partially financed through borrowings under the DKL Credit Facility amounting to $625.4 million, which was recorded in investing activities.

There were no acquisitions during the nine months ended September 30, 2021.

In addition, there were additions to property, plant and equipment amounting to $76.9 million, purchases of intangible assets amounting to $4.7 million and distributions from equity method investments amounting $1.7 million during the nine months ended September 30, 2022 compared to additions to property, plant and equipment amounting to $12.4 million, purchases of intangible assets amounting to $0.7 million and distributions from equity method investments amounting to $6.2 million during the nine months ended September 30, 2021.

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

Management's Discussion and Analysis

Financing Activities

Net cash provided by (used) in financing activities amounted to $418.3 million during the nine months ended September 30, 2022 compared to $213.7 million net cash provided by financing activities during the nine months ended September 30, 2021.

We had net borrowings of $548.9 million under the revolving credit facility during the nine months ended September 30, 2022, compared to net repayments of $485.7 million under the revolving credit facility during the nine months ended September 30, 2021.

We had no proceeds from senior notes during the nine months ended September 30, 2022, compared to proceeds of $400.0 million during the nine months ended September 30, 2021.

We paid quarterly cash distributions totaling $128.0 million during the nine months ended September 30, 2022, compared to quarterly cash distributions totaling $120.4 million during the nine months ended September 30, 2021.

In addition, we made payments on finance lease liability in the amount of $1.9 million during the nine months ended September 30, 2022, compared to payments on finance lease liability in the amount of $1.4 million during the nine months ended September 30, 2021.

Debt Overview

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.

As of September 30, 2022, we had total indebtedness of $1,448.8 million comprised of $806.4 million under the amended and restated senior secured revolving agreement (the "DKL Credit Facility"), net of deferred financing costs, $247.4 million of 6.75% senior notes due 2025 (the “2025 Notes”), net of deferred financing costs and original issue discount, and $395.0 million of the 2028 Notes, net of deferred financing costs.

Deferred financing costs on the DKL Credit Facility amounted to $0.5 million.

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Deferred financing costs on the 2028 Notes amounted to $5.0 million.

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%.

The increase of $549.8 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 nine months ended September 30, 2022:

• An aggregate principal amount of $806.4 million under the DKL Credit Facility ("revolving credit facility"), due on September 28, 2023, with an average borrowing rate of 5.64%, which was amended and restated on October 13, 2022.

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

• An aggregate principal amount of $247.4 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.19%.

• An aggregate principal amount of $395.0 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 June 30, 2022.

We believe we were in compliance with the covenants in all of our debt facilities as of September 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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These expenditures have historically been and will continue to be financed through cash generated from operations.

Management's Discussion and Analysis

• 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.

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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

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 nine months ended September 30, 2022 and planned capital expenditures for the full year 2022 by segment and by major category (in thousands):

Full Year 2022 Forecast Nine Months Ended September 30, 2022

Pipelines and Transportation

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Discretionary (2)

25,862 14,889

3 Bear operations segment total $ 25,862 $ 15,642

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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.

The current year spend excludes approximately $12.0 million of capital expenditures that were prepaid in the fourth quarter 2021, but which assets were received and placed in service in 2022.

(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.

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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.

(3) There were no capital contributions to equity method investments for the nine months ended September 30, 2022.

(4) The current year spend excludes approximately $8.1 million for equipment purchased during the nine months ended September 30, 2022 to be used in future expansion projects.

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.

Management's Discussion and Analysis

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):

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

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

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Total $ 909,796 $ 353,974 $ 58,540 $ 429,718 $ 1,752,028

(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.

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

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

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

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis