Delek Logistics Partners, LP 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (the 'Annual Report on Form 10-K'). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," “we,” “us,” or “our” or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner. The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its Twitter account (@DelekLogistics). The Partnership encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. Forward-Looking Statements This Annual Report on Form 10-K (including information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the COVID-19 Pandemic and the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "OPEC+") with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements; • our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all; • Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution; • industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity; • the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures; • changes in insurance markets impacting costs and the level and types of coverage available; • the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand; • the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business; • the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; • the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic; 59 | Management's Discussion and Analysis • disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber-attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent; • changes in the availability and cost of capital of debt and equity financing; • our reliance on information technology systems in our day-to-day operations; • changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic or future pandemics; • the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic; • significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions; • competitive conditions in our industry including capacity overbuild in areas where we operate; • actions taken by our customers and competitors; • the demand for crude oil, refined products and transportation and storage services; • our ability to successfully implement our business plan; • inability to complete growth projects on time and on budget; • our ability to successfully integrate acquired businesses; • disruptions due to acts of God, natural disasters, casualty losses, severe weather patterns, such as freezing conditions, cyber or other attacks on our electronic systems, and other matters beyond our control which might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through increased costs and/or loss of revenue; • changes in the price of RINs could affect our results of operations; • future decisions by OPEC+ regarding production and pricing and disputes between OPEC+ regarding such; • changes or volatility in interest and inflation rates; • labor relations; • large customer defaults; • changes in tax status and regulations; • the effects of future litigation or environmental liabilities that are not covered by insurance; and • other factors discussed elsewhere in this Annual Report on Form 10-K. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 Pandemic and any worsening of the global business and economic environment. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. Executive Summary: Management's View of Our Business and Strategic Overview Management's View of Our Business The Partnership primarily owns and operates crude oil, intermediate and refined products logistics and marketing assets as well as crude oil and natural gas gathering and water processing assets. We gather, transport, offload and store crude oil and intermediate products and market, distribute, transport and store refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings and third parties. In June 2022, we acquired 100% of the interest in 3 Bear Delaware Holding – NM, LLC ("3 Bear"), which expands our third-party revenue and includes crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin of New Mexico (the “Delaware Gathering” business). As we continue the process of integrating these operations into our existing businesses and assessing the long-term impact to our business, management (including the designated Chief Operating Decision Maker or “CODM”) has changed the way that the business is managed and reviewed, including from a financial reporting perspective. As a result, effective in the fourth quarter 2022, we have revised our reportable segments accordingly. The new reportable 60 | Management's Discussion and Analysis segments consist of Gathering and Processing, Wholesale Marketing and Terminalling, Storage and Transportation, and Investments in Pipeline Joint Ventures. The primary change in our segmentation as compared to prior presentations is that, now that we have substantially expanded our gathering activities, certain legacy gathering activities and operations are now managed as part of the Gathering and Processing segment. Additionally, we are also now segregating out certain non-segment specific costs and expenses and, when applicable, immaterial operating segments that may not fit into our existing reportable segments as Corporate and Other activities. A substantial portion of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our pipeline usage and gathered crude oil barrels are contracted either primarily or exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries. The Partnership is not a taxable entity for federal income tax purposes or the income taxes of those states that follow the federal income tax treatment of partnerships. See "Part 1—Items 1 and 2. Business and Properties—Company Overview" for further details. Business and Economic Environment Overview During much of year ended December 31, 2022, domestic markets have experienced 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 as compared to the prior year. Additionally, the successful integration of Delek Delaware Gathering 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 Delaware Gathering operations which complement our existing Midland 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. As a result, we saw an increase in EBITDA (as defined in "Non GAAP Measures" section below) of $46.8 million in 2022 as compared to 2021. Our gathering and processing segment which had EBITDA of $175.3 million in 2022 compared to $126.8 million in 2021, benefited from additional EBITDA associated with the 3 Bear Acquisition. Our wholesale marketing and terminalling segment saw a $3.5 million increase in EBITDA largely as a result of higher volumes of product sales in our West Texas wholesale operations partially offset by lower gross margin per barrel. EBITDA for our investments in pipeline joint ventures increased $7.1 million as a result of strong throughputs particularly on the Red River Pipeline and Caddo Pipeline. See the “Results of Operations” section below for further discussion. Looking forward, concerns about inflation and a possible economic downturn as well as initiatives to reduce carbon footprints through energy transition to renewables have softened the forward demand expectations for hydrocarbons and natural gas. That said, 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. Additionally, 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 in the near term. Therefore, as we look forward to 2023, we expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment. See further discussion on macroeconomic factors and market trends, including the impact on 2022 and the outlook for 2023, in the ‘Market Trends’ section below. Other 2022 Developments Increasing Unitholder Value and Long-term Sustainability Through Acquisitions: 3 Bear Acquisition On June 1, 2022, the Partnership, through its subsidiary DKL Delaware Gathering, LLC, acquired 100% of the limited liability company interests in 3 Bear related to the Seller’s crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico (the "3 Bear Acquisition"). The purchase price for 3 Bear was $628.3 million. The 3 Bear Acquisition was financed through a combination of cash on hand and borrowings under the Partnership's existing credit agreement. Through this strategic transaction, the Partnership expects to significantly increase its third-party revenue and further diversify its customer and product mix, expand its footprint into the Delaware sub-basin of the Permian, and provide immediate accretion to Distributable Cash Flow. Additionally, we believe the addition of 3 Bear may provide access to expanded carbon capture opportunities. 61 | Management's Discussion and Analysis Right-sizing Leverage to Achieve Strategic Growth Objectives: Amendments to DKL Credit Facility In May 2022, we entered into Second and Third Amendments to our DKL Credit Facility (as defined in Note 11 of our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on form 10-K), 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 our DKL Credit Facility to, among other things, 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 $1.0 billion. The exercise of the accordion feature gave us the flexibility to utilize borrowings under the Credit Agreement to help fund the 3 Bear Acquisition 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. Expanding Innovation Through Diversification: Slurry Clarifying Services Agreement We executed a series of agreements with DK Trading & Supply, LLC (“DKT&S”) and Alon Refining Krotz Springs, Inc. whereby the Partnership will operate and maintain a facility, located within the Krotz Springs, Louisiana refinery, to process slurry for DKT&S. Using a process that incorporates horizontal and vertical centrifuges, we will remove metals, ash, and other solids from the slurry. The clarified product can then be sold to DKT&S or one of its affiliates. As consideration for the processing services, we will receive a fixed rate per barrel processing fee in addition to a margin-based payment. The Partnership and DKT&S have agreed to a minimum delivery commitment volume to be processed in the facility. The initial term of the agreement is for a period of three years, and thereafter, will continue a year-to-year basis unless canceled by either party. Continued Investment in Logistics Footprint: Connectors Expansion Project In connection with the Midland Gathering Assets Acquisition (formerly known as the Permian Gathering Assets Acquisition), we agreed to expend $33.8 million to construct additional receipt points to our gathering pipeline, at the request of Delek Holdings for producers with which they have dedicated acreage agreements, to be owned and operated by the Partnership. Such receipt points, once completed, result in incremental pipeline revenues, subject to the minimum volume commitments and other terms of the throughput and deficiency commercial agreement with Delek Holdings, entered into in connection with this acquisition. Additionally, both Delek Holdings and the Partnership identified and secured dedicated acreage and producer agreements that required construction of receipt points and also provided the opportunity for additional pipeline volumes, but that were not required under the original commitment. Related to these incremental agreements, the Partnership has completed construction of these receipt points as of December 31, 2022. Contractual Rate Adjustments to Keep Pace with Inflation 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 been adjusted as of January 1, 2023. 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%. These adjustments allow us to maintain compliance with FERC regulations as well as to ensure that our results are reflective of current market conditions. 62 | Management's Discussion and Analysis Segment Overview We aggregate our operating segments into four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investment in pipeline joint ventures. Operations that are not specifically included in the reportable segments are included in Corporate and other, consisting primarily of general and administrative expenses, interest expense and depreciation and amortization. Gathering and Processing The operational assets in our gathering and processing segment, consist of assets acquired in connection with the Midland Gathering Assets Acquisition, including approximately 200 miles of gathering assets, approximately 65 tank battery connections, terminals with total storage capacity of approximately 650,000 barrels and applicable rights-of-way assets, as well as operational assets we acquired in connection with the 3 Bear Acquisition, consist of approximately 485 miles of pipelines, 88 million cubic feet ("MMCf") per day ("MMCf/d") of cryogenic natural gas processing capacity, 140 thousand barrels ("MBbl") per day ("MBbl/d") of crude gathering capacity, 120 MBbl of crude storage capacity and 200 MBbl/d of water disposal capacity located primarily in the Delaware Basin (“Delaware Gathering Assets”). The Midland Gathering Assets support our crude oil gathering activities which primarily serves Delek Holdings refining needs throughout the Permian Basin. The 3 Bear assets support our 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, and serving primarily third-party producers and customers. Finally, our gathering and processing assets are integrated with our pipeline assets, which we use to transport gathered crude oil as well as provide other crude oil, intermediate and refined products transportation in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas, as well as to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers. Wholesale Marketing and Terminalling 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. Storage and Transportation The operational assets in our storage and transportation segment consist of tanks, offloading facilities, trucks and ancillary assets, which provide crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. Investments in Pipeline Joint Ventures The Partnership owns a portion of three joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets primarily in the Permian Basin and Gulf Coast regions and with strategic connections to Cushing, Midland and other key exchange points, which provide crude oil and refined product pipeline transportation to third parties and subsidiaries of Delek Holdings. Corporate and Other The corporate and other segment primarily consists of general and administrative expenses not allocated to a reportable segment, interest expense and depreciation and amortization. When applicable, it may also contain operating segments that are not reportable and do not meet the criteria for aggregation with any of our existing reportable segments. 63 | Management's Discussion and Analysis Strategic Overview Long-Term Strategic Objectives The Partnership’s Long-Term Strategic Objectives have long been focused on maintaining stable cash flows and to grow the quarterly distributions paid to our unitholders over time. To that end, we have been focused on growing our asset base within our geographic area through acquisitions, project development, joint ventures, enhancing our existing systems and lowering our carbon footprint, as we continued to evaluate ways to provide Delek Holdings with logistics services and look for ways to reduce our reliance on Delek Holdings as our primary customer. 2022 Strategic Focus Areas In service to these overarching Long-Term Strategic Objectives, as we began 2022, we focused on the following Strategic Focus Areas : I. Generate Stable Cash Flow II. Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures III. Engage in Mutually Beneficial Transactions with Delek Holdings IV. Pursue Attractive Expansion and Construction Opportunities V. Optimize Our Existing Assets and Expand Our Customer Base VI. Expand our ESG Consciousness and Lower our Carbon Footprint 2022 Strategic Scorecard Description of Strategic Success Generate Stable Cash Flow Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures Engage in Mutually Beneficial Transactions with Delek Holdings Pursue Attractive Expansion and Construction Opportunities Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint Acquisition of Delaware Gathering X X X X Slurry Clarifying Services Agreement X X X Connectors Expansion Project X X X Co-Developing our ESG Strategy with our General Partner and Issuing our First ESG Assessment Report X Looking Forward: 2023 Strategic Focus Areas As we look to 2023, we continue to believe that our strategic focus areas are the right ones. As such, we continue to refine our processes for evaluating risks and returns while maintaining a keen eye on our overarching Long-Term Strategic Objectives and our desire to create long-term operational sustainability. To that end, our 2023 Strategic Focus Areas are as follows: • Generate Stable Cash Flow. Continue to pursue opportunities to provide logistics, marketing and other services to Delek Holdings and third parties pursuant to long-term, fee-based contracts. In new service contracts, endeavor to include minimum volume throughput or other commitments, similar to those included in our current commercial agreements with Delek Holdings. • Focus on Growing Our Business. Continue to evaluate and pursue opportunities to grow our business through both strategic acquisitions and expansion and construction projects, both internally funded or in combination with potential external partners and through investments in joint ventures. Additionally, where possible, leverage our strong relationship with Delek Holdings to enhance our opportunities to grow our business. ◦ Pursue Acquisitions . Pursue strategic acquisitions that both complement our existing assets and provide attractive returns for our unitholders, with a focus on expanding our third-party business. Leverage our current asset base, and our knowledge of the regional markets in which we operate, to target and complete attractive third-party acquisitions. ◦ Investments in Joint Ventures. Continue to focus on leveraging and, when appropriate, expanding our investments in joint ventures, which have contributed to our initiative to grow our midstream business while increasing our crude oil sourcing flexibility. 64 | Management's Discussion and Analysis • Engage in Mutually Beneficial Transactions with Delek Holdings. Delek Holdings has granted us a right of first offer on certain logistics assets. We intend to review our right to purchase any such assets as they are offered to us under the terms of the right of first offer, from time to time. Delek Holdings is also required, under certain circumstances, to offer us the opportunity to purchase additional logistics assets that Delek Holdings may acquire or construct in the future. Further, continue to evaluate additional growth opportunities through subsequent dropdowns of logistics assets acquired or developed by Delek Holdings, while factoring in associated impact on our capital structure and critically evaluating anticipated return on investment. • Pursue Attractive Expansion and Construction Opportunities. Continue to evaluate, and when appropriate in the context of our return on investment and risk assessment criteria, pursue organic growth opportunities that complement our existing businesses or that provide attractive returns within or outside our current geographic footprint. Continue to evaluate potential opportunities to make capital investments that will be used to expand our existing asset base through the expansion and construction of new logistics assets to support growth of any of our customers', including Delek Holdings', businesses and from increased third-party activity. These construction projects may be developed either through joint venture relationships or by us acting independently, depending on size and scale. • Optimize Our Existing Assets and Expand Our Customer Base. Continue seeking to enhance the profitability of our existing assets by adding incremental throughput volumes, improving operating efficiencies and increasing system-wide utilization. Additionally, continue to seek opportunities to further diversify our customer base by increasing third-party throughput volumes running through certain of our existing systems and expanding our existing asset portfolio to service more third-party customers. • Expand our ESG Consciousness and Lower Our Carbon Footprint. Continue to look for ways to grow our business whilst staying conscious of and minimizing the negative environmental impact, while also seeking opportunities to invest in innovative technologies that will reduce our carbon emissions as we achieve our growth objectives and sustainably improve unitholder returns. We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns. Commercial Agreements with Delek Holdings The Partnership has a number of long-term, fee-based commercial agreements with Delek Holdings under which we provide various services, including crude oil gathering, crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings, and Delek Holdings commits to provide us with minimum monthly throughput volumes of crude oil, intermediate and refined products. Generally, these agreements include minimum quarterly volume, revenue or throughput commitments and have tariffs or fees indexed to inflation-based indices, provided that the tariffs or fees will not be decreased below the initial amount. See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of our material commercial agreements with Delek Holdings. Other Transactions The Partnership manages long-term capital projects on behalf of Delek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of gathering systems in the Permian Basin (the "Delek Permian Gathering Project"). The majority of the gathering systems has been constructed, however, additional costs pertaining to a pipeline connection that was not acquired by the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement. The Partnership is also considered the operator for the project and is responsible for the oversight of the project design, procurement and construction of project segments and for providing other related services. See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information on the DPG Management Agreement. How We Evaluate Our Operations We use a variety of financial and operating metrics to analyze our segment performance. These metrics are significant factors in assessing our operating results and profitability and include: ■ volumes (including pipeline throughput and terminal volumes) ■ operating and maintenance expenses ■ cost of materials and other ■ EBITDA and distributable cash flow (as such terms are defined below) ■ net income of joint ventures Volumes The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations. These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets. Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by: 65 | Management's Discussion and Analysis • Delek Holdings’ utilization of our assets in excess of its minimum volume commitments; • our ability to identify and execute acquisitions and organic expansion projects and capture incremental volume increases from Delek Holdings or third parties; • our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals; • our ability to identify and serve new customers in our marketing and trucking operations; and • our ability to make connections to third-party facilities and pipelines. Operating and Maintenance Expenses We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of said expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow. Cost of Materials and Other These costs include: (i) all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products; (ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance; (iii) the cost of pipeline capacity leased from any third parties; and (iv) gains and losses related to our commodity hedging activities. Financing The Partnership paid a cash distribution to its unitholders at a distribution rate of $1.02 per unit for the quarter ended December 31, 2022 ($4.08 per unit on an annualized basis). Our Partnership Agreement requires that the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to its unitholders quarterly. As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our revolving credit facility and any potential future issuances of equity and debt securities. See Note 12 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions. How We Evaluate Our Investments in Pipeline Joint Ventures We make strategic investments in pipeline joint ventures generally when it provides an economic benefit in terms of pipeline access we can use for our existing or future customers and when we expect a rate of return that meets our internal investment criteria. Our existing investments in pipeline joint ventures all provide a combination of strategic benefit and return on investment. The strategic benefit for each is described below: • The RIO Pipeline is positioned in the Delaware basin and benefits from drilling activity in the area, while also offering producers and shippers connections to Midland, Texas takeaway pipelines; • The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area; and • The Red River Pipeline provides crude oil transportation and optionality from Cushing, Oklahoma to Longview, Texas area and connectivity to our Caddo JV along with DKL Paline pipeline for access to Gulf Coast markets. It also has additional expansion optionality. 66 | Management's Discussion and Analysis Market Trends 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. Exploration and production activities have a direct impact on volumes transported through our gathering assets in the geologic basins in which we operate. Additionally, the demand for hydrocarbon-based refined products and related crack spreads significantly impact production decisions of our refining customers and likewise throughputs on our pipelines and other logistics assets. Finally, fluctuations in demand and commodity prices for refined products, as well as the value attributable to RINs, directly impacts our wholesale marketing operations, where we are subject to short-term commodity price fluctuations at the rack. Most of the logistics services we provide (including transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility. However, sustained depressed demand/prices over the longer term could not only curb exploration and production expansion opportunities under our agreements, it could also impact our customers' willingness or ability to renew commercial agreements or result in liquidity or credit constraints that could impact our longer term relationship with them. That said, our recent 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. The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas. 67 | Management's Discussion and Analysis 68 | Non-GAAP Measures Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income. • Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash. EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA and distributable cash flow have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable U.S. GAAP financial measures. Non-GAAP Reconciliations The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable U.S. GAAP measure, or net income and net cash from operating activities, respectively. Reconciliation of net income to EBITDA (in thousands) Year Ended December 31, 2022 2021 Net income $ 159,052 $ 164,822 Add: Income tax expense 382 153 Depreciation and amortization 62,988 42,770 Amortization of customer contract intangible assets 7,211 7,211 Interest expense, net 82,304 50,221 EBITDA $ 311,937 $ 265,177 Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 192,168 $ 275,162 Changes in assets and liabilities 49,423 (51,429) Distributions from equity method investments in investing activities 1,737 8,774 Non-cash lease expense (16,254) (9,652) Regulatory capital expenditures (1) (9,684) (8,232) Reimbursement from Delek Holdings for capital expenditures (2) 1,176 1,913 Accretion of asset retirement obligations (596) (461) Deferred income taxes (5) (353) Gain on sale of assets 114 59 Distributable cash flow $ 218,079 $ 215,781 (1) Regulatory capital expenditures represent cash expenditures (including for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity. Examples include expenditures for the repair, refurbishment and replacement of pipelines and terminals, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. (2) For the years ended December 31, 2022 and 2021, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). 69 | Management's Discussion and Analysis Results of Operations A discussion and analysis of the factors contributing to our results of operations is presented below. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations but should not serve as the only criteria for predicting our future performance. Consolidated Results of Operations - Comparison of the Year Ended December 31, 2022 versus the Year Ended December 31, 2021 and the Year Ended December 31, 2021 versus the Year Ended December 31, 2020 The following table presents a summary of our consolidated results of operations and our segment operating performance for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 (in thousands). The discussion immediately following presents the consolidated results of operations. Consolidated Year Ended December 31, 2022 2021 2020 Net revenues: Affiliate $ 479,411 $ 418,826 $ 382,666 Third-Party 556,996 282,076 180,752 Total Consolidated 1,036,407 700,902 563,418 Cost of materials and other 641,363 384,409 269,094 Operating expenses (excluding depreciation and amortization presented below) 88,307 61,820 56,279 General and administrative expenses 34,181 21,460 22,587 Depreciation and amortization 62,988 42,770 35,731 Other operating income, net (114) (59) (66) Operating income $ 209,682 $ 190,502 $ 179,793 Interest expense, net 82,304 50,221 42,874 Income from equity method investments (31,683) (24,575) (22,693) Other (income) expense, net (373) (119) 133 Total non-operating expenses, net 50,248 25,527 20,314 Income before income tax expense 159,434 164,975 159,479 Income tax expense 382 153 223 Net income attributable to partners $ 159,052 $ 164,822 $ 159,256 Net Revenues 2022 vs. 2021 Net revenues increased by $335.5 million, or 47.9%, in the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily driven by the following: • increased revenues of $123.7 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 increases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the volume of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. • increases in pipeline throughputs, where the year ended December 31, 2021 was negatively impacted by the COVID-19 Pandemic as well as severe weather events. 2021 vs. 2020 Net revenues increased by $137.5 million, or 24%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increased revenues associated with agreements executed in connection with the Midland Gathering Assets (formerly referred to as the Permian Gathering Assets Acquisition) and the Trucking Assets acquisitions, which were effective March 31, 2020 and May 1, 2020, 70 | Management's Discussion and Analysis respectively. See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information; • increased revenues at our BSR Crude Pipeline, as a result of new contracts executed in the second quarter of 2020; and • increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.78 per gallon and $0.83 per gallon, respectively; and ◦ the volume of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively. Such increases were partially offset by the following: • decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments during the year ended December 31, 2021 when compared to the year ended December 31, 2020; and • decreases in throughputs at the Paline Pipeline due to scheduled pipeline maintenance. Cost of Materials and Other 2022 vs. 2021 Cost of materials and other increased by $257.0 million, or 66.8%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increase in cost of materials and other totaling $73.0 million as a result of 3 Bear Acquisition, which was completed on June 1, 2022; and • increases in the average cost per gallon of gasoline and diesel sold and increases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Cost of materials and other increased by $115.3 million, or 42.9%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively. Operating Expenses 2022 vs. 2021 Operating expenses increased by $26.5 million, or 42.8%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increase due to additional expenses associated with 3 Bear, which was acquired on June 1, 2022; • increases in employee and outside service costs; and • increases in variable expenses such as maintenance and materials costs due to higher throughput. 2021 vs. 2020 Operating expenses increased by $5.5 million, or 9.8%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in employee and outside service costs after cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended; • increase in energy costs due to higher natural gas prices; and • increases in variable expenses such as maintenance and materials costs due to higher throughput. 71 | Management's Discussion and Analysis General and Administrative Expenses 2022 vs. 2021 General and administrative expenses increased $12.7 million, or 59.3%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by transaction costs incurred in connection with the 3 Bear Acquisition. 2021 vs. 2020 The changes in general and administrative expenses for the year ended December 31, 2021 compared to the year ended December 31, 2020 were immaterial. Depreciation and Amortization 2022 vs. 2021 Depreciation and amortization increased by $20.2 million, or 47.3%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • the acquisition of property, plant and equipment and customer relationship intangible as part of the 3 Bear Acquisition. 2021 vs. 2020 Depreciation and amortization increased by $7.0 million, or 19.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • addition of assets to our asset base as a result of the Trucking Assets Acquisition and the Midland Gathering Assets Acquisition; and • higher asset additions in the current year compared to prior year as some projects which had been temporarily suspended when COVID-19 induced liquidity conservation were commenced. Interest Expense 2022 vs. 2021 During the year ended December 31, 2022 we incurred $82.3 million of interest expense, compared to $50.2 million during the year ended December 31, 2021, an increase of $32.1 million, or 63.9%. This increase was primarily driven by the following: • increased borrowings under the DKL Credit Facility to fund 3 Bear Acquisition; and • increase in floating interest rates applicable to the DKL Credit Facility and DKL Term Facility due to dramatic market rate increases in 2020. 2021 vs. 2020 During the year ended December 31, 2021 we incurred $50.2 million on interest expense, compared to $42.9 million during the year ended December 31, 2020, an increase of $7.3 million, or 17.1%. This increase was primarily driven by the following: • higher fixed rate interest on the new 2028 Notes issued during second quarter of 2021 compared to our floating interest rates under the DKL Credit Facility; • increased borrowings under the DKL Credit Facility as a result of our Midland Gathering Assets Acquisition, the Trucking Assets Acquisition and the IDR Restructuring Transaction; and • partially offset by a decrease in floating interest rates applicable to the DKL Credit Facility. Results from Equity Method Investments 2022 vs. 2021 During the year ended December 31, 2022 we recognized income of $31.7 million from equity method investments, compared to $24.6 million during the year ended December 31, 2021, an increase of $7.1 million, or 28.9%. This increase was primarily driven by the following: • increase in income from our Red River and Caddo equity method investments due to higher throughput volumes and resulting revenue increases; and • partially offset by decrease in income from Rio equity method investment. 72 | Management's Discussion and Analysis 2021 vs. 2020 During the year ended December 31, 2021 we recognized income of $24.6 million from equity method investments, compared to $22.7 million during year ended December 31, 2020, an increase of $1.9 million, or 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; and • partially offset by decrease in income from Caddo and Rio equity method investments and lower income from our equity method investments in the first quarter of 2021 due to lower volumes as the impact of the February 2021 severe freezing conditions was pervasive across all of our equity method investments' pipeline systems. The Rio equity method investment income was also impacted by a major customer contract termination during the third quarter of 2021, resulting in lower revenues for the year. 73 | Management's Discussion and Analysis Operating Segments We review operating results in four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investments in pipeline joint ventures. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment EBITDA, except for the investments in pipeline joint ventures segment, which is measured based on net income. Segment reporting is discussed in more detail in Note 15 to our accompanying consolidated financial statements. Gathering and Processing Segment Our gathering and processing segment assets provide crude oil gathering services to Delek Holdings and third parties. These assets include: • the pipeline assets used to support Delek Holdings' El Dorado refinery (the "El Dorado Assets") • the gathering system that supports transportation of crude oil to the El Dorado Refinery (the "El Dorado Gathering System") • the Paline Pipeline System • the East Texas Crude Logistics System • the Tyler-Big Sandy Pipeline • the Greenville-Mount Pleasant Pipeline • refined product pipeline capacity leased from Enterprise TE Products Pipeline Company ("Enterprise") that runs from El Dorado, Arkansas to our Memphis terminal and the Big Spring Pipeline • pipelines acquired in the Big Spring Logistics Assets Acquisition • assets acquired in the Midland Gathering Assets Acquisition • assets acquired in the 3 Bear Acquisition The following table and discussion present the results of operations and certain operating statistics of the gathering and processing segment for the years ended December 31, 2022, 2021 and 2020. Gathering and Processing Year Ended December 31, 2022 2021 2020 Net Revenues $ 305,427 $ 161,852 $ 140,288 Cost of materials and other $ 81,525 $ 5,139 $ 5,065 Operating expenses (excluding depreciation and amortization) $ 48,211 $ 29,830 $ 26,213 Segment EBITDA $ 175,250 $ 126,818 $ 108,752 Throughputs (average bpd) Year Ended December 31, 2022 2021 2020 El Dorado Assets: Crude pipelines (non-gathered) 78,519 65,335 74,179 Refined products pipelines to Enterprise Systems 56,382 48,757 53,702 El Dorado Gathering System 15,391 14,460 13,466 East Texas Crude Logistics System 21,310 22,647 15,960 Midland Gathering System (1) 128,725 80,285 82,817 Plains Connection System (1) 183,827 124,025 104,770 (1) Throughputs for the Midland Gathering System (formerly known as the Permian Gathering System) and the Plains Connection System are for approximately 275 days we owned the assets following the Midland Gathering Assets Acquisition effective March 31, 2020. Delaware Gathering Assets Volumes Period from June 1 through December 31, 2022 Natural Gas Gathering and Processing (Mcfd (1) ) 60,971 Crude Oil Gathering (bpd (2) ) 87,519 Water Disposal and Recycling (bpd (2) ) 72,056 (1) Mcfd - average thousand cubic feet per day. (2) bpd - average barrels per day. 74 | Management's Discussion and Analysis Operational Comparison of the Year Ended December 31, 2022 versus the Year Ended December 31, 2021 and the Year Ended December 31, 2021 versus the Year Ended December 31, 2020 Net Revenues 2022 vs. 2021 Net revenues for the gathering and processing segment increased by $143.6 million, or 88.7%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, driven primarily by the following: • increased revenues of $123.7 million as a result of the 3 Bear Acquisition, which was completed on June 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 year ended December 31, 2021 compared to the year ended December 31, 2022; and • increased revenues at our BSR Crude Pipeline, as a result of Luther Station becoming operational in 2021. 2021 vs. 2020 Net revenues for the gathering and processing segment increased by $21.6 million, or 15.4%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increased revenues associated with agreements executed in connection with the Midland Gathering Assets Acquisition, which was effective March 31, 2020. See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information; • increased revenues at our BSR Crude Pipeline, as a result of new contracts executed in the second quarter of 2020, during the year ended December 31, 2021 when compared to the year ended December 31, 2020; and • partially offset by decreases in throughputs due to the impact of the severe freezing conditions that affected most of the regions where we operate resulting in lower volumes outside of contractual minimum volume commitments and decreases in throughputs at the Paline Pipeline due to scheduled pipeline maintenance during the year ended December 31, 2021 when compared to the year ended December 31, 2020. Cost of Materials and Other 2022 vs. 2021 Cost of materials and other for the gathering and processing segment increased by $76.4 million, or 1,486.4%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, driven primarily by the following: • increase in cost of materials and other totaling $73.0 million as a result of 3 Bear Acquisition, which was completed on June 1, 2022. 2021 vs. 2020 Cost of materials and other for the gathering and processing segment increased by $0.1 million, or 1.5%, in the year ended December 31, 2021 compared to the year ended December 31, 2020. Operating Expenses 2022 vs. 2021 Operating expenses for the gathering and processing segment increased by $18.4 million, or 61.6%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increase due to additional expenses associated with 3 Bear, which was acquired on June 1, 2022; and • increases in employee and outside service costs. 2021 vs. 2020 Operating expenses for the gathering and processing segment increased by $3.6 million, or 13.8%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increase in energy costs due to higher natural gas prices; and • increases in employee and outside service costs after cost cutting measures implemented to respond to the COVID-19 Pandemic, including delaying non-essential projects, ended. 75 | Management's Discussion and Analysis EBITDA 2022 vs. 2021 EBITDA increased by $48.4 million or 38.2%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • Additional EBITDA associated with the 3 Bear acquisition; • increases in revenue due to higher throughput volumes as explained above; and • partially offset by increases in operating expenses. 2021 vs. 2020 EBITDA increased by $18.1 million or 16.6%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in revenues associated with agreements executed in connection with the Midland Gathering Assets Acquisition and the BSR Crude Pipeline; and • partially offset by the increase in operating expenses. 76 | Management's Discussion and Analysis Wholesale Marketing and Terminalling Segment 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 table and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the years ended December 31, 2022, 2021 and 2020. Wholesale Marketing and Terminalling Year Ended December 31, 2022 2021 2020 Net Revenues $ 588,884 $ 413,257 $ 312,891 Cost of materials and other $ 491,452 $ 323,350 $ 226,223 Operating expenses (excluding depreciation and amortization presented below) $ 19,458 $ 16,357 $ 13,117 Segment EBITDA $ 83,098 $ 79,597 $ 79,602 Operating Information Year Ended December 31, 2022 2021 2020 East Texas - Tyler Refinery sales volumes (average bpd) (1) 66,058 68,497 71,182 Big Spring marketing throughputs (average bpd) 71,580 78,370 76,345 West Texas marketing throughputs (average bpd) 10,206 10,026 11,264 West Texas marketing gross margin per barrel $ 4.15 $ 3.72 $ 2.37 Terminalling throughputs (average bpd) (2) 132,262 138,301 147,251 (1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, our El Dorado and North Little Rock, Arkansas terminals and our Memphis and Nashville, Tennessee terminals. Operational Comparison of the Year Ended December 31, 2022 versus the Year Ended December 31, 2021 and the Year Ended December 31, 2021 versus the Year Ended December 31, 2020 Net Revenues 2022 vs. 2021 Net revenues for the wholesale marketing and terminalling segment increased by $175.6 million, or 42.5%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Net revenues for the wholesale marketing and terminalling segment increased by $100.4 million, or 32.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.78 per gallon and $0.83 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively. The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the years ended December 31, 2022, 2021 and 2020. 77 | Management's Discussion and Analysis Cost of Materials and Other 2022 vs. 2021 Cost of materials and other for the wholesale marketing and terminalling segment increased by $168.1 million, or 52.0% , in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Cost of materials and other for the wholesale marketing and terminalling segment increased by $97.1 million, or 42.9% , in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively. The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2022, 2021 and 2020. Refer to the Refined Products Volume - Gallons chart above for a summary of volumes impacting our West Texas operations. 78 | Management's Discussion and Analysis Operating Expenses 2022 vs. 2021 Operating expenses for the wholesale marketing and terminalling segment increased by $3.1 million, or 19.0%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in variable expenses such as utilities, maintenance and material costs; and • this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets. 2021 vs. 2020 Operating expenses for the wholesale marketing and terminalling segment increased by $3.2 million, or 24.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in variable expenses such as utilities, maintenance and material costs; and • this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets. EBITDA 2022 vs. 2021 EBITDA for the wholesale marketing and terminalling segment increased by $3.5 million, or 4.4%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • Increase in volume of gasoline and diesel sold in our West Texas marketing operations; and • this increase was partially offset by lower West Texas gross margin per barrel. 2021 vs. 2020 The change in EBITDA for the year ended December 31, 2021 compared to the year ended December 31, 2020, was immaterial. 79 | Management's Discussion and Analysis Storage and Transportation Segment Our storage and transportation segment assets provide transportation and storage services to Delek Holdings and third parties. These assets include: • El Dorado Rail Offloading Racks • the El Dorado Tank Assets • the Tyler Tank Assets and Tyler Crude Tank • storage assets acquired in the Big Spring Logistics Assets Acquisition • assets acquired in the Trucking Assets Acquisition • Greenville Storage Facility Additionally, we own or lease 264 tractors and 353 trailers used to haul primarily crude oil and other products for related and third parties. The table and discussion below present the results of operations and certain operating statistics of the storage and transportation segment for the years ended December 31, 2022, 2021 and 2020. Storage and Transportation Year Ended December 31, 2022 2021 2020 Net revenues $ 142,096 $ 125,793 $ 110,239 Cost of materials and other $ 66,953 $ 54,682 $ 40,869 Operating expenses (excluding depreciation and amortization presented below) $ 17,843 $ 13,987 $ 15,988 Segment EBITDA $ 56,269 $ 56,929 $ 51,704 Operational Comparison of the Year Ended December 31, 2022 versus the Year Ended December 31, 2021 and the Year Ended December 31, 2021 versus the Year Ended December 31, 2020 Net Revenues 2022 vs. 2021 Net revenues for the storage and transportation segment increased by $16.3 million, or 13.0%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, driven primarily by the following: • increased trucking transportation associated with higher refinery volumes. 2021 vs. 2020 Net revenues for the storage and transportation segment increased by $15.6 million, or 14.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increased revenues associated with agreements executed in connection with the Trucking Assets Acquisition which was effective May 1, 2020. See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information. Cost of Materials and Other 2022 vs. 2021 Cost of materials and other for the storage and transportation segment increased by $12.3 million, or 22.4%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, driven primarily by the following: • increased trucking transportation associated with higher refinery volumes; and • increases in driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses. 80 | Management's Discussion and Analysis 2021 vs. 2020 Cost of materials and other for the storage and transportation segment increased by $13.8 million, or 33.8%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in transportation costs related to our Trucking Assets due to the Trucking Assets Acquisition, which was effective May 1, 2020; and • increases in driver wages and benefits and fuel expense proportionate to increases in fees, insurance, supplies and maintenance expenses. Operating Expenses 2022 vs. 2021 Operating expenses for the storage and transportation segment increased by $3.9 million, or 27.6%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in employee and outside service costs. 2021 vs. 2020 Operating expenses for the storage and transportation segment decreased by $2.0 million, or 12.5%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • decrease in contract services. EBITDA 2022 vs. 2021 The change in EBITDA for the year ended December 31, 2022 compared to the year ended December 31, 2021, was immaterial. 2021 vs. 2020 EBITDA for the storage and transportation segment increased by $5.2 million, or 10.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increased EBITDA associated with the Trucking Assets Acquisition. 81 | Management's Discussion and Analysis Investments in Pipeline Joint Ventures Segment The Investments in Pipeline Joint Ventures segment relates to strategic Joint Venture investments, accounted for as equity method investments, to support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system. As a result, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity as recently experienced due to the impact of the extreme weather events. The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities. Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 14 to our accompanying consolidated financial statements. Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the year ended December 31, 2022. Liquidity and Capital Resources Sources of Capital We consider the following when assessing our liquidity and capital resources: (i) cash generated from operations; (iii) potential issuance of additional equity; and (ii) borrowings under our revolving credit facility; (iv) potential issuance of additional debt securities. At December 31, 2022 our total liquidity amounted to $187.5 million comprised of $179.5 million in unused credit commitments under the DKL Credit Facility and $8.0 million in cash and cash equivalents. We have the ability to increase the DKL Credit Facility to $1.0 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility. 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. Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns and other acquisitions. In addition, we have historically been able to source funding at rates that reflect market conditions, our financial position and our credit ratings. We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at rates that are sustainable and profitable for the Partnership. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us. We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures. Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including crude oil prices, some of which are beyond our control. If market conditions were to change, for instance due to the uncertainty created by the COVID-19 Pandemic or the Russia-Ukraine War, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be unfavorably impacted. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in crude oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements. Such actions include seeking alternative financing solutions and enacting cost reduction measures. Refer to the Business Overview section of this MD&A for a complete discussion of the uncertainties identified by management and the actions taken to respond to these uncertainties. We believe we were in compliance with the covenants in all our debt facilities as of December 31, 2022. See Note 11 to our consolidated financial statements for a complete discussion of our third-party indebtedness. Amendments to DKL Credit Facility In May 2022, we entered into Second and Third Amendments to our Third Amended and Restated Credit Agreement, which provided for the transition from a LIBOR benchmark to a term Secured Overnight Financing Rate benchmark (“Term SOFR”) and also amended certain financial covenant calculations in order to provide flexibility in connection with the timing of the 3 Bear Acquisition. Additionally, on May 26, 2022, we entered into a Fourth Amendment to Third Amended and Restated Credit Agreement to, among other things, 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. The exercise of the accordion feature gave us the flexibility to utilize 82 | Management's Discussion and Analysis 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 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. Cash Distributions On January 23, 2023, the board of directors of our general partner declared a distribution of $1.020 per common unit (the "Distribution"), which equates to approximately $44.4 million per quarter, or approximately $177.8 million per year, based on the number of common units outstanding as of February 2, 2023. The Distribution was paid on February 9, 2023 to common unitholders of record on February 2, 2023 and represents a 4.6% increase over the fourth quarter 2021 distribution. We have set a distribution growth guidance of 5% for the full year 2023. This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit. The table below summarizes the quarterly distributions related to our 2022 quarterly financial results: Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Quarterly Distribution Per Limited Partner Unit, Annualized Total Cash Distribution (in thousands) Date of Distribution Unitholders Record Date March 31, 2022 $0.980 $3.92 $42,604 May 12, 2022 May 5, 2022 June 30, 2022 $0.985 $3.94 $42,832 August 11, 2022 August 4, 2022 September 30, 2022 $0.990 $3.96 $43,057 November 10, 2022 November 4, 2022 December 31, 2022 $1.020 $4.08 $44,440 February 9, 2023 February 2, 2023 Cash Flows The following table sets forth a summary of our consolidated cash flows for the year ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 192,168 $ 275,162 Net cash used in investing activities (770,437) (16,360) Net cash provided by (used in) financing activities 581,947 (258,753) Net increase in cash and cash equivalents $ 3,678 $ 49 Operating Activities Net cash provided by operating activities decreased by $83.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The cash receipts from customer activities increased by $326.3 million and cash payments to suppliers and for allocations to Delek Holdings for salaries increased by $377.9 million. In addition, cash dividends received from equity method investments increased by $2.1 million and cash paid for debt interest increased by $33.5 million. Investing Activities Net cash used in investing activities increased by $754.1 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. The 3 Bear Acquisition, which closed on June 1, 2022, was partially financed through borrowings under the DKL Credit Facility amount to $625.6 million, which was recorded in investing activities. There were no acquisitions during the year ended December 31, 2021. In addition, there were purchases of property, plant and equipment amounting to $141.1 million, purchases of intangibles assets amounting to $5.6 million and distributions from equity method investments amounting to $1.7 million during the year ended December 31, 2022, compared to additions to property, plant and equipment amounting to $23.1 million, purchases of intangible assets amounting to $1.0 million and distributions from equity method investments amounting to $8.8 million during the year ended December 31, 2021. Additionally, 83 | Management's Discussion and Analysis there were no contributions to our equity method investments during the year ended December 31, 2022 compared to $1.4 million during the year ended December 31, 2021. Financing Activities Net cash provided by (used in) financing activities decreased by $840.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. We had net borrowings of $462.5 million under the revolving credit facility during the year ended December 31, 2022, compared to net repayments of $488.6 million under the revolving credit facility during the year ended December 31, 2021. We had no proceeds from senior notes during the year ended December 31, 2022 compared to proceeds of $400.0 million during the year ended December 31, 2021. We paid quarterly cash distributions totaling $171.1 million during the year ended December 31, 2022, compared to quarterly cash distributions totaling $161.7 million during the year ended December 31, 2021. In addition, we made payments on finances lease liability in the amount of $2.9 million during the year ended December 31, 2022, compared to payments on finance lease liability in the amount of $2.2 million during the year ended December 31, 2021. Debt Overview As of December 31, 2022, we had total indebtedness of $1,661.6 million, net of deferred financing costs and debt discount of $7.0 million and $2.0 million, respectively. The increase of $764.0 million in our long-term debt balance compared to the balance at December 31, 2021 resulted from the borrowings under the DKL Credit Facility during the year ended December 31, 2022. As of December 31, 2022, our total indebtedness consisted of: • An aggregate principal amount of $720.5 million under the DKL Revolving Facility ("revolving credit facility"), due on October 13, 2027, with an average borrowing rate of 7.55%, which was amended and restated on October 13, 2022. • An aggregate principal amount of $300.0 million, under the DKL Term Facility, due on October 13, 2024, with an average borrowing rate of 7.92%. • An aggregate principal amount of $250.0 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.21%. • An aggregate principal amount of $400.0 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 debt facilities as of December 31, 2022. See Note 11 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our third-party indebtedness. Agreements Governing Certain Indebtedness of Delek Holdings Although we are not contractually bound by and are not liable for Delek Holdings' debt under its credit arrangements, we are indirectly affected by certain prohibitions and limitations contained therein. Specifically, certain of Delek Holdings' credit arrangements require that Delek Holdings meet certain minimum covenant levels for (i) consolidated shareholders’ equity and (ii) a ratio of consolidated shareholders' equity to adjusted total assets. Delek Holdings, due to its majority ownership and control of our general partner, has the ability to prevent us from taking actions that would cause Delek Holdings to violate these and any other covenants in its credit arrangements or otherwise be in default under any of its credit arrangements. As a result, we cannot assure you that such covenants will not impact our ability to use the full capacity under our revolving credit facility in the future. Please read Item 1A. "Risk Factors—Risks Relating to Our Business—Delek Holdings’ level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness and financial performance and credit ratings.” Equity Units Overview On November 14, 2022, we entered into an Equity Distribution Agreement with RBC Capital Markets, LLC (the “Manager”) under which we may issue and sell, from time to time, to or through the Manager, as sales agent and/or principal, as applicable, common units representing limited partner interests, having an aggregate offering price of up to $100.0 million. The Equity Distribution Agreement provides us the right, but not the obligation, to sell common units in the future, at prices we deem appropriate. The net proceeds from any sales under this agreement will be used for general partnership purposes. For the year ended December 31, 2022, we sold 59,192 common units under the Equity Distribution Agreement for net proceeds of $3.1 million. Underwriting discounts were immaterial. On April 14, 2022, we filed a shelf registration statement with the SEC, which was declared effective on April 29, 2022, which provides the Partnership the ability to offer up to $200.0 million of our common limited partner units from time to time and through one or more methods of distribution, subject to market conditions and our capital needs. On December 20, 2021, Delek Holdings announced a program to sell up to 434,590 common limited partner units representing limited partner interests in the Partnership in open market transactions. For the years ended December 31, 2022 and 2021, Delek Holdings sold 385,522 and 49,068 units, respectively, for gross proceeds of $16.4 million ($13.6 million, net of taxes) and $2.1 million ($1.7 million, net of taxes). See Note 4 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional details. 84 | Management's Discussion and Analysis On August 13, 2020, we closed the IDR Restructuring Transaction. To effect this transaction, our Partnership Agreement was amended and restated. See Note 4 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional details. In August 2020, we filed a shelf registration statement, which subsequently became effective, with the U.S. Securities and Exchange Commission for the proposed re-sale or disposition from time to time by Delek Holdings of up to 14.0 million common limited partner units. We will not sell any securities under this shelf registration statement and we will not receive any proceeds from the sale of the securities by Delek Holdings. On March 31, 2020, we issued 5.0 million common limited partner units to Delek Holdings as part of the consideration for the Midland Gathering Assets Acquisition. In connection with the issuance of these units and in accordance with the Partnership Agreement, we issued additional general partner units in an amount necessary to maintain the 2% general partner interest as defined in the Partnership Agreement. Contemporaneous with the above issuance, the Board of the general partner waived distributions in respect of the IDRs associated with the 5.0 million Additional Units for at least two years, through at least the distribution for the quarter ending March 31, 2022 ("IDR Waiver"). The IDR Waiver essentially reduced the distribution made to the holders of the IDRs during this period, as the holders would not receive a share of the distribution made on the Additional Units. An additional waiver letter was signed that waived all of the distributions for the first quarter of 2020 on the Additional Units with respect to base distributions and the IDRs. The IDR Restructuring Transaction on August 13, 2020, permanently eliminated all of the IDRs. See Note 4 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional details. Capital Spending A key component of our long-term strategy is our capital expenditure program, which includes strategic consideration and planning for the timing and extent of regulatory maintenance, sustaining maintenance, and discretionary capital projects. These categories are described below: • Regulatory maintenance projects in the gathering and processing segment are those expenditures expected to be spent on certain of our pipelines to maintain their operational integrity pursuant to applicable environmental and other regulatory requirements. Regulatory projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals in order to maintain environmental and other regulatory compliance. These expenditures have historically been and will continue to be financed through cash generated from operations. • Sustaining capital expenditures represent capitalizable expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to maintain compliance with environmental laws and regulations. Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). When not provided for under reimbursement agreements, such activities are generally funded by cash generated from operations. • Growth projects include those projects that do not fall into one of the two categories above, and could include committed expansion projects under contracts with customers as well as other incremental growth projects, but are generally expected to produce incremental cash flows in accordance with our internal return on invested capital policy. Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities. 85 | 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 year ended December 31, 2022 and planned capital expenditures for the full year 2023 by segment and by major category: (in thousands) Full Year 2023 Forecast Year Ended December 31, 2022 Gathering and Processing Regulatory $ 2,857 $ 2,855 Sustaining 61 1,455 Growth 66,156 118,284 Gathering and Processing Segment Total (1) $ 69,074 $ 122,594 Wholesale Marketing and Terminalling Regulatory $ 7,575 $ 156 Sustaining — 24 Growth — 1,368 Wholesale Marketing and Terminalling Segment Total (1) $ 7,575 $ 1,548 Storage and Transportation Regulatory 2,625 — Sustaining 2,066 6,528 Growth — — Storage and Transportation Segment Total (1) $ 4,691 $ 6,528 Total Capital Spending (1) $ 81,340 $ 130,670 (1) There were no capital contributions for the year ended December 31, 2022. The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections. Long-term Cash Requirements Information regarding our known contractual obligations of the types described below, as of December 31, 2022, is set forth in the following table (in thousands): <1 Year 1-3 Years 3-5 Years >5 Years Total Long term debt and notes payable $ 15,000 $ 535,000 $ 720,500 $ 400,000 $ 1,670,500 Interest (1) 123,269 209,257 154,020 14,250 500,796 Finance Lease Obligation 2,807 344 — — 3,151 Operating lease commitments (2) 9,058 10,200 2,164 1,235 22,657 Total $ 150,134 $ 754,801 $ 876,684 $ 415,485 $ 2,197,104 (1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 and 2028 Notes at December 31, 2022. Floating interest rate debt is calculated using rates in effect on December 31, 2022. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2022. We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations. With the exception of amounts classified as current, there is uncertainty as to the timing of future cash flows related to these obligations. As such, we have excluded the future cash flows from the contractual commitments table above. See additional information on asset retirement obligations and environmental liabilities in Notes 2 and 17, respectively, to our consolidated financial statements in Item 8. Other Cash Requirements Our other cash requirements consisted of operating activities, cash distributions to unitholders, contributions to investments in joint ventures and capital expenditures. Operating activities included cash outflows related to payments to suppliers for crude and other materials and payments for services. Refer to the Cash Flow section for our operating activities spend in 2022. While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity. Refer to Cash Distributions section for cash distributions made in 2022 and planned distributions for 2023. Refer to the capital spending section for our capital expenditures for 2022 and our planned capital expenditures for 2023. 86 | Management's Discussion and Analysis Off-Balance Sheet Arrangements We have no off-balance sheet arrangements through the date of the filing of this Annual Report on Form 10-K. 87 | Management's Discussion and Analysis Critical Accounting Estimates The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. We prepare our consolidated financial statements in conformity with GAAP, and in the process of applying these principles, we must make judgments, assumptions and estimates based on the best available information at the time. To aid a reader's understanding, management has identified our critical accounting estimates. These estimates are considered critical because they are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments. Often they require judgments and estimation about matters which are inherently uncertain and involve measuring at a specific point in time, events which are continuous in nature. Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which we may have little or no control. Business Combinations We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date. Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase. The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity-specific differences. We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ materially from the projected results used to determine fair value. New Accounting Pronouncements See Note 2 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of new accounting pronouncements applicable to us.