What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-09 · 162 added, 153 removed, 432 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except unit and per unit data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Accounts receivable 65,844 53,314

Accounts receivable from related parties 7,402 —

Inventory 3,078 1,483

31 unchanged sentences

Common unitholders - public;

9,263,842 units issued and outstanding at March 31, 2023 ( 9,257,305 at December 31, 2022)

9,274,898 units issued and outstanding at June 30, 2023 ( 9,257,305 at December 31, 2022)

167,760 172,119

Common unitholders - Delek Holdings;

34,311,278 units issued and outstanding at March 31, 2023 ( 34,311,278 at December 31, 2022)

34,311,278 units issued and outstanding at June 30, 2023 ( 34,311,278 at December 31, 2022)

( 297,262 ) ( 282,819 )

6 unchanged sentences

(In thousands, except unit and per unit data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Affiliate (1)

12 unchanged sentences

Depreciation and amortization 1,258 474 2,599 948

Loss on disposal of assets 142 12

(Gain) loss on disposal of assets ( 455 ) — ( 313 ) 12

Total operating costs and expenses 186,964 224,544 366,557 384,287

22 unchanged sentences

Common - Public Common - Delek Holdings Total

Balance as of March 31, 2023 $ 170,522 $ ( 287,944 ) $ ( 117,422 )

Cash distributions ( 9,496 ) ( 35,168 ) ( 44,664 )

Net income attributable to partners

6,783 25,113 31,896

( 49 ) 737 688

Balance as of June 30, 2023 $ 167,760 $ ( 297,262 ) $ ( 129,502 )

Common - Public Common - Delek Holdings Total

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

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

Net income attributable to partners

6,785 25,379 32,164

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

Common - Public Common - Delek Holdings Total

Balance as of December 31, 2022 $ 172,119 $ ( 282,819 ) $ ( 110,700 )

2 unchanged sentences

Other ( 144 ) 1,183 1,039

Balance as of March 31, 2023 $ 170,522 $ ( 287,944 ) $ ( 117,422 )

Balance as of June 30, 2023 $ 167,760 $ ( 297,262 ) $ ( 129,502 )

Common - Public Common - Delek Holdings Total

4 unchanged sentences

Other ( 129 ) 988 859

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

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

See accompanying notes to the condensed consolidated financial statements

3 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

20 unchanged sentences

Purchases of intangible assets ( 1,367 ) ( 3,797 )

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

Distributions from equity method investments 1,440 1,737

8 unchanged sentences

Payments on financing lease liabilities ( 1,457 ) ( 1,407 )

Net cash provided by (used in) financing activities 783 ( 37,010 )

Net increase (decrease) in cash and cash equivalents 2,994 ( 1,566 )

Net cash (used in) provided by financing activities ( 9,164 ) 535,788

Net (decrease) increase in cash and cash equivalents ( 255 ) 9,518

Cash and cash equivalents at the beginning of the period 7,970 4,292

3 unchanged sentences

Interest $ 65,367 $ 28,275

Income taxes $ 20 $ 40

Non-cash investing activities:

Increase (decrease) in accrued capital expenditures and other $ 8,258 $ ( 1,527 )

Increase in accrued capital expenditures and other $ 53 $ 306

Non-cash financing activities:

8 unchanged sentences

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

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

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

The Delaware Gathering Acquisition was completed on June 1, 2022 (the "Acquisition Date").

16 unchanged sentences

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

For the three months ended March 31, 2023 and 2022, we incurred no incremental direct acquisition and integration costs.

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

Our results of operations included revenue and net income of $ 44.3 million and $ 11.5 million, respectively, for the three months ended March 31, 2023.

For the three and six months ended June 30, 2023, we incurred no incremental direct acquisition and integration costs.

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

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

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

10 unchanged sentences

Purchase Price Allocation

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

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

Assets acquired:

18 unchanged sentences

Fair value of net assets acquired $ 628,300

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

To the extent possible, estimates have been considered and recorded, as appropriate, for the items above based on the information available as of March 31, 2023.

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

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

5 unchanged sentences

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

1 unchanged sentence

Goodwill related to the Delaware Gathering Acquisition is included in the Gathering and Processing segment.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unaudited Pro Forma Financial Information

5 unchanged sentences

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

Three Months Ended March 31,

(in thousands, except per unit data) 2022

(in thousands, except per unit data) Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Net sales $ 314,909 $ 571,849

13 unchanged sentences

Omnibus Agreement

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

The Omnibus Agreement governs the provision of certain operational services and reimbursement obligations, among other matters, between the Partnership and Delek Holdings, and obligates us to pay an annual fee of $ 4.3 million to Delek Holdings for its provision of centralized corporate services to the Partnership.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

There was no reimbursement by Delek Holdings during the three months ended March 31, 2023.

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

There was no reimbursement by Delek Holdings during the three and six months ended June 30, 2023.

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

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

As of March 31, 2023 and December 31, 2022, there was no receivable from related parties for these matters.

As of June 30, 2023 and December 31, 2022, there was no receivable from related parties for these matters.

These reimbursements are recorded as reductions to operating expenses.

There were no reimbursements for these matters in each of the three month periods ended March 31, 2023 and 2022.

There were no reimbursements for these matters in each of the three and six month periods ended June 30, 2023 and 2022.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Transactions

4 unchanged sentences

The agreement extends through December 2023.

Total fees paid to the Partnership were $ 0.4 million for both the three months ended March 31, 2023 and 2022, which are recorded in affiliate revenue in our condensed consolidated statements of income.

Total fees paid to the Partnership were $ 0.4 million for both the three months ended June 30, 2023 and 2022, respectively, and $ 0.8 million for both the six months ended June 30, 2023 and 2022, respectively, which are recorded in affiliate revenue in our condensed consolidated statements of income.

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

5 unchanged sentences

Additionally, the Partnership is required to reimburse Delek Holdings for direct or allocated costs and expenses incurred by Delek Holdings on behalf of the Partnership and for charges Delek Holdings incurred for the management and operation of our logistics assets, including an annual fee for various centralized corporate services, which are included in general and administrative expenses.

In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other.

In addition to these transactions, we purchase refined products and bulk biofuels from Delek Holdings, the costs of which are included in cost of materials and other-affiliate.

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenues $ 132,993 $ 124,366 $ 257,992 $ 248,120

5 unchanged sentences

Quarterly Cash Distributions

In February 2023, we paid quarterly cash distributions of $ 44.4 million, of which $ 35.0 million were paid to Delek Holdings.

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

On April 28, 2023, the board of directors of our general partner declared a quarterly cash distribution totaling $ 44.7 million, based on the available cash as of the date of determination, for the end of the first quarter of 2023, payable on May 15, 2023, of which $ 35.2 million is expected to be paid to Delek Holdings.

Date of Distribution Distributions paid to Delek Holdings (in thousands)

February 9, 2023 $ 34,998

May 15, 2023 $ 35,169

August 14, 2023 (1)

Total $ 105,679

February 8, 2022 $ 33,829

May 12, 2022 $ 33,625

August 11, 2022 $ 33,797

Total $ 101,251

( 1) On July 26, 2023, the board of directors of our general partner declared this quarterly cash distribution based on the available cash as of the date of determination.

Notes to Condensed Consolidated Financial Statements (Unaudited)

13 unchanged sentences

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

Of our $ 941.1 million net property, plant, and equipment balance as of March 31, 2023, $ 338.2 million is subject to operating leases under our commercial agreements.

Of our $ 941.7 million net property, plant, and equipment balance as of June 30, 2023, $ 339.7 million is subject to operating leases under our commercial agreements.

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

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

5 unchanged sentences

Lease Revenue - Affiliate

43,388 12,298 17,400 73,086

Total Revenue $ 93,237 $ 118,827 $ 34,847 $ 246,911

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

5 unchanged sentences

Lease Revenue - Affiliate

38,631 11,025 32,651 82,307

Total Revenue $ 64,826 $ 165,540 $ 36,384 $ 266,750

(1) Net of $ 1.8 million of amortization expense for both the three months ended March 31, 2023 and March 31, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

As of March 31, 2023, we expect to recognize approximately $ 1.2 billion in lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings.

Six Months Ended June 30, 2023

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

Service Revenue - Third Party $ 30,449 $ — $ 3,409 $ 33,858

Service Revenue - Affiliate (1)

6,422 20,157 34,944 61,523

Product Revenue - Third Party 53,277 145,309 — 198,586

Product Revenue - Affiliate 8,343 43,150 — 51,493

Lease Revenue - Affiliate 87,178 22,520 35,278 144,976

Total Revenue $ 185,669 $ 231,136 $ 73,631 $ 490,436

Notes to Condensed Consolidated Financial Statements (Unaudited)

Six Months Ended June 30, 2022

Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Consolidated

Service Revenue - Third Party $ 3,290 $ — $ 6,805 $ 10,095

Service Revenue - Affiliate (1)

8,015 16,787 — 24,802

Product Revenue - Third Party 17,642 197,474 — 215,116

Product Revenue - Affiliate 2,963 58,589 — 61,552

Lease Revenue - Affiliate 74,960 23,466 63,340 161,766

Total Revenue $ 106,870 $ 296,316 $ 70,145 $ 473,331

(1) Net of $ 1.8 million of amortization expense for both the three months ended June 30, 2023 and June 30, 2022 and $ 3.6 million for the six months ended June 30, 2023 and June 30, 2022, related to a customer contract intangible asset recorded in the wholesale marketing and terminalling segment.

As of June 30, 2023, we expect to recognize approximately $ 1.3 billion in lease revenues related to our unfulfilled performance obligations pertaining to the minimum volume commitments and capacity utilization under the non-cancelable terms of our commercial agreements with Delek Holdings.

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

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

Our unfulfilled performance obligations as of March 31, 2023 were as follows (in thousands):

Our unfulfilled performance obligations as of June 30, 2023 were as follows (in thousands):

Remainder of 2023 $ 164,244

4 unchanged sentences

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

As of March 31, 2023, the only potentially dilutive units outstanding consist of unvested phantom units.

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

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

The expected date of distribution for the distributions earned during the period ended March 31, 2023 is May 15, 2023.

As of June 30, 2023, the only potentially dilutive units outstanding consist of unvested phantom units.

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

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

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

Three Months Ended March 31,

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

2023 2022 2023 2022

Net income attributable to partners $ 31,896 $ 32,164 $ 69,263 $ 71,678

Limited partners' distribution 45,112 42,832 89,776 85,436

Earnings in deficit of distributions $ ( 7,297 ) $ ( 3,090 )

Earnings in excess (deficit) of distributions $ ( 13,216 ) $ ( 10,668 ) $ ( 20,513 ) $ ( 13,758 )

Limited partners' earnings on common units:

Distributions $ 45,112 $ 42,832 $ 89,776 $ 85,436

Allocation of earnings in deficit of distributions ( 7,297 ) ( 3,090 )

Allocation of earnings in excess (deficit) of distributions ( 13,216 ) ( 10,668 ) ( 20,513 ) ( 13,758 )

Total limited partners' earnings on common units $ 31,896 $ 32,164 $ 69,263 $ 71,678

5 unchanged sentences

$ 0.73 $ 0.74 $ 1.59 $ 1.65

(1) Outstanding common units totaling 22,632 were excluded from the diluted earnings per unit calculation for the three months ended March 31, 2023.

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

(1) Outstanding common units totaling 11,180 and 35,383 were excluded from the diluted earnings per unit calculation for the three and six months ended June 30, 2023, respectively.

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

Long-Term Obligations

Outstanding borrowings under the Partnership’s debt instruments are as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

DKL Revolving Facility $ 811,000 $ 720,500

15 unchanged sentences

SOFR rate borrowings include a credit spread adjustment of 0.10 % to 0.25 % plus an applicable margin of 3.50 % for the first year and 4.00 % for the second year.

At March 31, 2023 and December 31, 2022, the weighted average borrowing rate was approximately 8.41 % and 7.92 %, respectively.

The effective interest rate was 8.83 % as of March 31, 2023.

At June 30, 2023 and December 31, 2022, the weighted average borrowing rate was approximately 8.41 % and 7.92 %, respectively.

The effective interest rate was 9.98 % as of June 30, 2023.

The DKL Revolving Facility has a total capacity of $ 900.0 million, including up to $ 115.0 million for letters of credit and $ 25.0 million in swing line loans.

2 unchanged sentences

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

As of March 31, 2023 and December 31, 2022, the weighted average interest rate was 7.57 % and 7.55 %, respectively.

There were no letters of credit outstanding as of March 31, 2023 or December 31, 2022.

As of June 30, 2023 and December 31, 2022, the weighted average interest rate was 7.57 % and 7.55 %, respectively.

There were no letters of credit outstanding as of June 30, 2023 or December 31, 2022.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

The carrying values of outstanding borrowings under the 2022 DKL Credit Facility as of March 31, 2023 and December 31, 2022 approximate their fair values.

The carrying values of outstanding borrowings under the 2022 DKL Credit Facility as of June 30, 2023 and December 31, 2022 approximate their fair values.

Our debt facilities contain affirmative and negative covenants and events of default the Partnership considers usual and customary.

As of March 31, 2023, we were in compliance with covenants on all of our debt instruments.

As of June 30, 2023, we were in compliance with covenants on all of our debt instruments.

Our 2028 Notes are general unsecured senior obligations comprised of $ 400.0 million in aggregate principal of 7.125 % senior notes maturing June 1, 2028.

The 2028 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Delek Logistics Finance Corp.) and will be unconditionally guaranteed on the same basis by certain of the Partnership's future subsidiaries.

As of March 31, 2023, the effective interest rate was 7.40 %.

The estimated fair value of the 2028 Notes was $ 365.4 million and $ 359.7 million as of March 31, 2023 and December 31, 2022, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

As of June 30, 2023, the effective interest rate was 7.39 %.

The estimated fair value of the 2028 Notes was $ 372.1 million and $ 359.7 million as of June 30, 2023 and December 31, 2022, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Our 2025 Notes are general unsecured senior obligations comprised of $ 250.0 million in aggregate principal of 6.75 % senior notes maturing on May 15, 2025.

The 2025 Notes are unconditionally guaranteed jointly and severally on a senior unsecured basis by the Partnership's existing subsidiaries (other than Delek Logistics Finance Corp.) and will be unconditionally guaranteed on the same basis by certain of the Partnership's future subsidiaries.

As of March 31, 2023, the effective interest rate was 7.19 %.

The estimated fair value of the 2025 Notes was $ 244.7 million and $ 243.4 million as of March 31, 2023 and December 31, 2022, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Notes to Condensed Consolidated Financial Statements (Unaudited)

We had 9,263,842 common limited partner units held by the public outstanding as of March 31, 2023.

Additionally, as of March 31, 2023, Delek Holdings owned a 78.7 % limited partner interest in us, consisting of 34,311,278 common limited partner units.

As of June 30, 2023, the effective interest rate was 7.17 %.

The estimated fair value of the 2025 Notes was $ 247.0 million and $ 243.4 million as of June 30, 2023 and December 31, 2022, respectively, measured based upon quoted market prices in an active market, defined as Level 1 in the fair value hierarchy.

Equity Activity

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2022 through March 31, 2023.

Common - Public Common - Delek Holdings Total

The table below summarizes the changes in the number of limited partner units outstanding from December 31, 2022 through June 30, 2023.

Common - Public Common - Delek Holdings (1)

Balance at December 31, 2022 9,257,305 34,311,278 43,568,583

1 unchanged sentence

17,593 — 17,593

Balance at March 31, 2023 9,263,842 34,311,278 43,575,120

(1) Unit-based compensation awards are presented net of 2,196 units withheld for taxes as of March 31, 2023.

Issuance of Additional Securities

Our Partnership Agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions determined by our general partner without the approval of the unitholders.

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

Cash Distributions

Balance at June 30, 2023 9,274,898 34,311,278 43,586,176

(1) As of June 30, 2023, Delek Holdings owned a 78.7 % limited partner interest in us.

(2) Unit-based compensation awards are presented net of 5,371 units withheld for taxes as of June 30, 2023.

Our Partnership Agreement sets forth the calculation to be used to determine the amount and priority of available cash distributions that our limited partner unitholders will receive.

1 unchanged sentence

The table below summarizes the quarterly distributions related to our quarterly financial results:

Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Cash Distribution

(in thousands) Date of Distribution Unitholders Record Date

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

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

September 30, 2022 $ 0.990 $ 43,057 November 10, 2022 November 4, 2022

December 31, 2022 $ 1.020 $ 44,440 February 9, 2023 February 2, 2023

March 31, 2023 $ 1.025 $ 44,664 May 15, 2023 (1)

(1) Expected date of distribution.

Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Cash Distribution (in thousands)

March 31, 2022 $ 0.980 $ 42,604

June 30, 2022 $ 0.985 $ 42,832

March 31, 2023 $ 1.025 $ 44,664

June 30, 2023 $ 1.035 $ 45,112

Equity Method Investments

2 unchanged sentences

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

As of March 31, 2023 As of December 31, 2022

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2023 As of December 31, 2022

Current Assets $ 29,766 $ 33,365

1 unchanged sentence

Current liabilities $ 6,069 $ 5,144

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenues $ 18,429 $ 21,449 $ 37,381 $ 44,135

2 unchanged sentences

Net income $ 12,220 $ 13,481 $ 23,693 $ 28,877

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

2 unchanged sentences

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

As of March 31, 2023 As of December 31, 2022

As of June 30, 2023 As of December 31, 2022

Current assets $ 21,449 $ 18,888

1 unchanged sentence

Current liabilities $ 2,370 $ 1,973

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenues $ 13,025 $ 11,558 $ 25,171 $ 20,453

4 unchanged sentences

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

As of March 31, 2023 As of December 31, 2022

As of June 30, 2023 As of December 31, 2022

Red River $ 140,940 $ 149,635

8 unchanged sentences

Our investment in these joint ventures is reflected in our investments in pipeline joint ventures segment.

Notes to Condensed Consolidated Financial Statements (Unaudited)

We aggregate our operating segments into four reportable segments:

4 unchanged sentences

Operations that are not specifically included in the reportable segments are included in Corporate and other segment.

During the fourth quarter 2022, we realigned our reportable segments for financial reporting purposes to reflect changes in the manner in which our chief operating decision maker, or CODM, assesses financial information for decision-making purposes.

The change primarily represents reporting the operating results of our pipeline operations and legacy gathering assets and the operating results of the Delaware Gathering operations within a new reportable segment called gathering and processing.

Prior to this change, the pipeline operations and legacy gathering assets were reported as part of pipelines and transportation segment.

The former pipelines and transportation reportable segment was renamed to storage and transportation.

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.

Corporate and Other primarily includes general and administrative expenses, interest expense and depreciation and amortization.

Additionally, the CODM determined that EBITDA is the key performance measure for planning and forecasting purposes and discontinued the use of contribution margin as a measure of performance.

During the fourth quarter 2022, we realigned our reportable segments for financial reporting purposes to reflect changes in the manner in which our Chief Operating Decision Maker ("CODM") uses financial information to make key operating decisions and assess performance.

The changes primarily represent reporting the operating results of our pipeline operations and legacy gathering assets and the operating results of the Delaware Gathering operations within a new reportable segment called gathering and processing.

Prior to this change, the pipeline operations and legacy gathering assets were reported as part of the pipelines and transportation segment.

The remaining operations of the former pipelines and transportation reportable segment was renamed to storage and transportation.

Unallocated corporate costs, including general and administrative expenses, interest expense and depreciation and amortization, are now presented in corporate and other.

Additionally, the CODM determined that Segment EBITDA is the key performance measure for planning and forecasting purposes and discontinued the use of Contribution Margin as a measure of performance.

While this reporting change did not change our consolidated results, segment data for previous years has been restated and is consistent with the current year presentation throughout the financial statements and the accompanying notes.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Segment EBITDA should not be considered a substitute for results prepared in accordance with GAAP and should not be considered alternatives to net income (loss), which is the most directly comparable financial measure to EBITDA that is in accordance with GAAP.

Segment EBITDA, as determined and measured by us, should also not be compared to similarly titled measures reported by other companies.

The disaggregated financial results for the reporting segments have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for the purposes of assisting internal operating decisions.

The CODM evaluates performance based upon EBITDA.

We define EBITDA for any period 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.

Segment EBITDA, as determined and measured by us, should also not be compared to similarly titled measures reported by other companies.

EBITDA is an important measure used by management to evaluate the financial performance of our core operations.

EBITDA is not a GAAP measure, but the components of EBITDA are computed using amounts that are determined in accordance with GAAP.

A reconciliation of EBITDA to Net Income is included in the tables below.

We define EBITDA as net income (loss) 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.

Assets by segment is not a measure used to assess the performance of the Partnership by the CODM and thus is not disclosed.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following is a summary of business segment operating performance as measured by EBITDA for the periods indicated (in thousands):

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

1 unchanged sentence

Affiliate $ 49,182 $ 52,076 $ 31,735 $ — $ — $ 132,993

$ 52,761 $ 33,751 $ 38,487 $ — $ — $ 124,999

Third party 44,055 66,751 3,112 — — 113,918

7 unchanged sentences

Capital spending $ 18,877 $ ( 2,712 ) $ 3,215 $ — $ — $ 19,380

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

1 unchanged sentence

Affiliate $ 45,605 $ 46,110 $ 32,651 $ — $ — $ 124,366

$ 40,334 $ 52,731 $ 30,689 $ — $ — $ 123,754

Third party 19,221 119,430 3,733 — — 142,384

7 unchanged sentences

Capital spending $ 26,630 $ 96 $ — $ — $ — $ 26,726

(1) Affiliate revenue for the wholesale marketing and terminalling segment is presented net of amortization expense pertaining to the Marketing Contract Intangible Acquisition.

See Note 3 for additional information.

Six Months Ended June 30, 2023

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

Net revenues:

Affiliate $ 101,943 $ 85,827 $ 70,222 $ — $ — $ 257,992

Third party 83,726 145,309 3,409 — — 232,444

Total revenue $ 185,669 $ 231,136 $ 73,631 $ — $ — $ 490,436

Segment EBITDA $ 108,108 $ 49,937 $ 28,400 $ 13,601 $ ( 14,108 ) $ 185,938

Depreciation and amortization 35,248 3,569 4,406 — 1,609 44,832

Amortization of customer contract intangible — 3,605 — — — 3,605

Interest expense, net — — — — 67,680 67,680

Income tax expense 558

Net income $ 69,263

Capital spending $ 51,666 $ 404 $ 3,411 $ — $ — $ 55,481

Notes to Condensed Consolidated Financial Statements (Unaudited)

Six Months Ended June 30, 2022

(In thousands) Gathering and Processing Wholesale Marketing and Terminalling Storage and Transportation Investments in Pipeline Joint Ventures Corporate and Other Consolidated

Net revenues:

Affiliate $ 85,938 $ 98,842 $ 63,340 $ — $ — $ 248,120

Third party 20,932 197,474 6,805 — — 225,211

Total revenue $ 106,870 $ 296,316 $ 70,145 $ — $ — $ 473,331

Segment EBITDA $ 70,578 $ 39,541 $ 25,637 $ 14,099 $ ( 19,346 ) $ 130,509

Depreciation and amortization 14,481 3,046 4,276 — 1,954 23,757

Amortization of customer contract intangible — 3,606 — — — 3,606

Interest expense, net — — — — 31,062 31,062

Income tax expense 406

Net income $ 71,678

Capital spending $ 35,485 $ 327 $ — $ — $ — $ 35,812

Commitments and Contingencies

1 unchanged sentence

Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our financial statements.

See "Crude Oil and Other Releases" below for discussion of an enforcement action.

Environmental, Health and Safety

7 unchanged sentences

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

Crude Oil and Other Releases

During the three months ended March 31, 2023, there were no significant releases.

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

Cleanup operations, site maintenance and remediation of this release have been substantially completed, where such costs incurred as of March 31, 2023 totaled $ 4.7 million.

We believe any additional costs associated with this release will be immaterial.

For other releases that occurred in prior years, we have received regulatory closure or a majority of the cleanup and remediation efforts are substantially complete.

We expect regulatory closure in 2023 for the release sites that have not yet received it and do not anticipate material costs associated with any fines or penalties or to complete activities that may be needed to achieve regulatory closure.

Regulatory authorities could require additional remediation based on the results of our remediation efforts.

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

As of March 31, 2023, we have accrued $ 0.3 million for remediation and other such matters related to these releases.

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

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

Reimbursements are recorded as a reduction to operating expense.

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

During the three months ended March 31, 2023, we recorded a nominal amount of crude oil and other releases remediation expenses, net of reimbursable expenses.

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

We lease certain pipeline and transportation equipment.

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

we recognize lease expense for these leases on a straight-line basis over the lease term.

Certain leases also include options to purchase the leased equipment.

Certain of our lease agreements include rates based on equipment usage and others include rate inflationary indices based increases.

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

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

Three Months Ended March 31,

(in thousands) 2023 2022

Lease Cost (1)

Operating lease cost $ 3,232 $ 2,641

Short-term lease cost 363 319

Variable lease costs 695 936

Total lease cost $ 4,290 $ 3,896

Other Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ ( 3,232 ) $ ( 2,641 )

Leased assets obtained in exchange for new operating lease liabilities $ 2,294 $ —

Leased assets obtained in exchange for new financing lease liabilities $ 1,162 $ —

As of March 31,

Weighted-average remaining lease term (years) for operating leases 3.5 3.2

Weighted-average discount rate (2) operating leases

Weighted-average remaining lease term (years) for finance lease 2.4 1.9

Weighted-average discount rate (2) finance lease

(1) Includes an immaterial amount of financing lease.

(2) Our discount rate is primarily based on our incremental borrowing rate in accordance with ASC 842.

Subsequent Events

Distribution Declaration

On April 28, 2023, our general partner's board of directors declared a quarterly cash distribution of $ 1.025 per unit, payable on May 15, 2023, to unitholders of record on May 8, 2023.

On July 26, 2023, our general partner's board of directors declared a quarterly cash distribution of $ 1.035 per unit, payable on August 14, 2023, to unitholders of record on August 7, 2023.

Management's Discussion and Analysis

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

What changed 10-Q

Item 1. Financial Statements