What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-09 · 208 added, 121 removed, 484 unchanged (40% of the section changed)

21 unchanged sentences

• 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;

• Delek Holdings' future growth, strategic priorities, 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;

7 unchanged sentences

Management's Discussion and Analysis

• 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;

• 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;

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• 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;

• changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to governmental fiscal policy or a public health crisis;

and regulatory measures to limit or reduce greenhouse gas emissions;

• competitive conditions in our industry including capacity overbuild in areas where we operate;

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• inability to complete growth projects on time and on budget;

• our ability to successfully integrate acquired businesses;

• our ability to successfully complete acquisitions and integrate acquired businesses, and to achieve the anticipated benefits therefrom;

• 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;

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

In June 2022, we acquired 100% of the interest in 3 Bear Delaware Holding – NM, LLC ("3 Bear") (subsequently renamed to Delek Delaware Gathering ("Delaware Gathering"), 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").

In June 2022, we acquired 100% of the interest in 3 Bear Delaware Holding – NM, LLC ("3 Bear") (subsequently renamed to DKL Delaware Gathering - NM, LLC ("Delaware Gathering")), 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.

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Business and Economic Environment Overview

During much of three months ended March 31, 2023, 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.

During much of six months ended June 30, 2023, domestic markets have experienced an elevated hydrocarbon pricing environment that 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 Delaware Gathering further diversifies our logistics customer base to include significantly more third-party customers, and 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 Basin, 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.

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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 $27.2 million in 2023 as compared to 2022.

Our gathering and processing segment which had EBITDA of $55.4 million in 2023 compared to $32.1 million in 2022, benefited from additional EBITDA associated with the Delaware Gathering Acquisition.

Our wholesale marketing and terminalling segment saw a $1.2 million increase in EBITDA.

EBITDA for our investments in pipeline joint ventures decreased by $0.7 million.

While we experienced a $2.4 million decrease in net income for the six months ended June 30, 2023, our EBITDA (as defined in "Non GAAP Measures" section below) increased $55.4 million in 2023 as compared to 2022.

Our gathering and processing segment which had segment EBITDA of $108.1 million in 2023 compared to $70.6 million in 2022, benefited from additional EBITDA associated with the Delaware Gathering Acquisition as well new connections in our Midland Gathering operations.

Our wholesale marketing and terminalling segment saw a $10.4 million increase in segment EBITDA.

Segment EBITDA for our investments in pipeline joint ventures decreased by $0.5 million.

See the “Results of Operations” section below for further discussion.

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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.

Furthermore, the Partnership will benefit from inflationary-linked rate increases effective July 1, 2023, as discussed further below.

Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship.

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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.

Therefore, as we look forward to the second half of 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.

Management's Discussion and Analysis

Contractual Rate Adjustments to Keep Pace with Inflation

On July 1, 2023, 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 13.3%, which was the amount of the change in the FERC oil pipeline index.

The tariff on FERC regulated system acquired from Delaware Gathering (formerly 3 Bear) will be adjusted as of January 1, 2023, but adjustments under agreement already in place will be capped at 3.0%.

Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 17.6% and the fees that are subject to adjustments using the producer price index increased approximately 18.9%.

These adjustments allow us to maintain compliance with FERC regulations as well as to ensure that our results are reflective of current market conditions.

Management's Discussion and Analysis

Segment Overview

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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.

In providing these services, we do not take ownership of the refined products or crude oil that we transport.

While we do not take ownership of gas that is gathered we sell the processed gas at a market price which we remit to the producer, net of our fees.

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

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See our Annual Report on Form 10-K filed with the SEC on March 1, 2023 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

Management's Discussion and Analysis

Other Transactions

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.

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

The Partnership anticipates paying a cash distribution to its unitholders at a distribution rate of $1.025 per unit for the quarter ended March 31, 2023 ($4.10 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.

The Partnership anticipates paying a cash distribution to its unitholders at a distribution rate of $1.035 per unit for the quarter ended June 30, 2023 ($4.140 per unit on an annualized basis).

Our Partnership Agreement requires that the Partnership distribute all of its available cash (as

Management's Discussion and Analysis

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 7 to the accompanying condensed consolidated financial statements for further discussion.

Management's Discussion and Analysis

How We Evaluate Our Investments in Pipeline Joint Ventures

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• The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area;

• 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.

• 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's Paline pipeline for access to Gulf Coast markets.

It also has additional expansion optionality.

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The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable GAAP measure, or net income and net cash from operating activities, respectively.

Reconciliation of net income to EBITDA (in thousands) Three Months Ended March 31,

Reconciliation of net income to EBITDA (in thousands)

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

2023 2022 2023 2022

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

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EBITDA $ 92,780 $ 64,506 $ 185,938 $ 130,509

Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Three Months Ended March 31,

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

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

2023 2022 2023 2022

Net cash provided by operating activities $ 34,612 $ 85,137 $ 63,802 $ 133,057

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

674 1 1,011 (14)

Accretion of asset retirement obligations (176) (123) (352) (247)

Deferred income taxes (518) — (629) —

Loss on disposal of assets (142) (12)

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

Distributable cash flow $ 60,450 $ 49,363 $ 122,212 $ 101,089

Management's Discussion and Analysis

(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 three months ended March 31, 2023 and 2022, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

(2) For the three and six months ended June 30, 2023 and 2022, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 3 to our accompanying condensed consolidated financial statements).

Management's Discussion and Analysis

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

The following table and discussion present a summary of our consolidated results of operations for the three months ended March 31, 2023 and 2022, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

The following table and discussion present a summary of our consolidated results of operations for the three and six months ended June 30, 2023 and 2022, including a reconciliation of net income to EBITDA and net cash flow provided by operating activities to distributable cash flow.

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Statement of Operations Data:

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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

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

Effective in the fourth quarter 2022, we have revised our reportable segments accordingly.

Effective in the fourth quarter 2022, we revised our reportable segments.

The new reportable segments consist of Gathering and Processing, Wholesale Marketing and Terminalling, Storage and Transportation, and Investments in Pipeline Joint Ventures.

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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.

Consolidated Results of Operations — Comparison of the three months ended March 31, 2023 compared to the three months ended March 31, 2022

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

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

Three Months Ended March 31,

Consolidated Results of Operations — Comparison of the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022

The table below presents a summary of our consolidated results of operations (in thousands).

The discussion immediately following presents the consolidated results of operations.

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

2023 2022 2023 2022

Net revenues:

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Income from equity method investments (7,285) (7,073) (13,601) (14,099)

Other (income) expense, net (2) (1)

Other expense, net (19) (2) (21) (3)

Total non-operating expenses, net 27,795 9,737 54,058 16,960

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

Net revenues increased by $36.9 million, or 17.9%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Net revenues decreased by $19.8 million, or 7.4%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following:

• decreased revenue of $50.9 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the average volumes sold:

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.93 per gallon and $1.53 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 0.6 million gallons and 1.5 million gallons, respectively.

• partially offset by an increase in revenue as a result of our Delaware Gathering operations, which began in June 2022.

Net revenues increased by $17.1 million, or 3.6%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The increase was primarily driven by the following:

• increased revenues of $44.3 million as a result of our Delaware Gathering operations, which began in June 2022;

• increase in revenue as a result of our Delaware Gathering operations, which began in June 2022;

Management's Discussion and Analysis

• increase in volumes associated with Midland Gathering operations due to new connections finalized during 2022;

• increase in trucking transportation revenue primarily due to new third-party revenue streams;

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

• partially offset by decreased revenue of $66.3 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and 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 decreased by $0.58 per gallon and $0.79 per gallon, respectively;

◦ the volume of gasoline and diesel sold decreased by 2.8 million gallons and 0.9 million gallons, respectively.

Management's Discussion and Analysis

◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively.

Cost of Materials and Other

Cost of materials and other decreased by $0.1 million, or 0.1%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

• increase in cost of materials and other of $22.6 million as a result of our Delaware Gathering operations, which began in June 2022;

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

Cost of materials and other decreased by $48.2 million, or 27.4%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following:

• decrease in costs of materials and other of $53.2 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold:

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.32 per gallon and $0.12 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 0.6 million gallons and 1.5 million gallons, respectively.

• partially offset by increase in costs of materials and other as a result of our Delaware Gathering operations, which began in June 2022.

Cost of materials and other decreased by $48.3 million, or 16.0%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• decrease in costs of materials and other of $69.4 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.27 per gallon and $0.11 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively.

• partially offset by increase in cost of materials and other as a result of our Delaware Gathering operations, which began in June 2022.

Operating Expenses

Operating expenses increased by $6.6 million, or 36.6%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by operating expenses associated with our Delaware Gathering operations which began in June 2022.

Operating expenses increased by $8.0 million, or 38.0%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by incremental expenses associated with our Delaware Gathering operations which began in June 2022.

Operating expenses increased by $14.6 million, or 37.3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by incremental expenses associated with our Delaware Gathering operations which began in June 2022.

General and Administrative Expenses

General and administrative expenses increased by $2.4 million, or 47.4%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by additional expenses associated with our Delaware Gathering operations which began in June 2022.

General and administrative expenses decreased by $7.2 million, or 52.0%, in the second quarter of 2023 compared to the second quarter of 2022 primarily due to higher outside services associated with the Delaware Gathering Acquisition in the prior year.

General and administrative expenses decreased by $4.7 million, or 25.2%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• higher outside services associated with the Delaware Gathering Acquisition in the prior year;

• partially offset by lower allocated employee related expenses.

Management's Discussion and Analysis

Depreciation and Amortization

Depreciation and amortization increased by $10.8 million, or 104.2%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

Depreciation and amortization increased by $10.3 million, or 76.8%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following:

• depreciation amortization associated with assets acquired as part of the Delaware Gathering Acquisition;

• deprecation associated with new projects in-serviced during the period.

Depreciation and amortization increased by $21.1 million, or 88.7%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• the acquisition of property, plant and equipment and customer relationship intangible as part of the Delaware Gathering Acquisition;

• deprecation associated with new projects in-serviced during the period.

Interest Expense

During the three months ended March 31, 2023 we incurred $32.6 million of interest expense, compared to $14.3 million during the three months ended March 31, 2022, an increase of $18.3 million, or 128.6%.

During the second quarter of 2023 we incurred $35.1 million of interest expense, compared to $16.8 million during the second quarter of 2022, an increase of $18.3 million, or 108.8%.

This increase was primarily driven by the following:

• increased borrowings under the DKL Credit Facility;

• higher floating interest rates applicable to the DKL Credit Facility.

During the six months ended June 30, 2023 we incurred $67.7 million of interest expense, compared to $31.1 million during the six months ended June 30, 2022, an increase of $36.6 million, or 117.9%.

This increase was primarily driven by the following:

• increased borrowings under the DKL Credit Facility to fund the Delaware Gathering Acquisition;

• increase in floating interest rates applicable to the DKL Credit Facility and DKL Term Facility.

• higher floating interest rates applicable to the DKL Credit Facility.

Results from Equity Method Investments

During the three months ended March 31, 2023 we recognized income of $6.3 million from equity method investments, compared to $7.0 million during the three months ended March 31, 2022, a decrease of $0.7 million, or 10.1%.

We recognized income of $7.3 million from equity method investments during the second quarter of 2023 compared to $7.1 million for the second quarter of 2022, an increase of $0.2 million, or 3.0%.

This increase was primarily driven by the following:

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

During the six months ended June 30, 2023 we recognized income of $13.6 million from equity method investments, compared to $14.1 million during the six months ended June 30, 2022, a decrease of $0.5 million, or 3.5%.

This decrease was primarily driven by the following:

• decrease in income from our Red River and Caddo equity method investments due to lower throughput volumes and resulting revenue increases;

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

• decrease in income from our Red River and CP LLC equity method investments;

• partially offset by an increase from our Andeavor Logistics equity method investment due to higher throughput volumes and resulting revenue increases.

Management's Discussion and Analysis

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• assets acquired in the Delaware Gathering Acquisition

The following tables and discussion present the results of operations and certain operating statistics of the gathering and processing segment for the three months ended March 31, 2023 and 2022:

The following tables and discussion present the results of operations and certain operating statistics of the gathering and processing segment for the three and six months ended June 30, 2023 and 2022:

Gathering and Processing

Three Months Ended March 31,

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

2023 2022 2023 2022

Net Revenues $ 93,237 $ 64,826 $ 185,669 $ 106,870

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Throughputs (average bpd)

Three Months Ended March 31,

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

2023 2022 2023 2022

El Dorado Assets:

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Delaware Gathering Assets Volumes

Three Months Ended March 31,

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

2023 2022 (1)

Natural Gas Gathering and Processing (Mcfd (2) )

73,309 51,292 74,008 51,292

Crude Oil Gathering (bpd (3) )

117,017 78,011 110,408 78,011

Water Disposal and Recycling (bpd (3) )

127,195 57,625 107,848 57,625

( 1) Volumes for the three and six months ended June 30, 2022 are for period from June 1 through June 30, 2022 we owned Delaware Gathering Assets.

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

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Management's Discussion and Analysis

Comparison of the three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net revenues for the gathering and processing segment increased by $50.4 million, or 119.8%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, driven primarily by the following:

• increased revenues of $44.3 million as a result of our Delaware Gathering operations, which began in June 2022;

Comparison of the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022

Net revenues for the gathering and processing segment increased by $28.4 million, or 43.8%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• increase in revenue of $26.7 million as a result of our Delaware Gathering operations, which began in June 2022;

• increase in volumes associated with Midland Gathering operations due to new connections finalized during 2022.

Net revenues for the gathering and processing segment increased by $78.8 million, or 73.7%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, driven primarily by the following:

• increase in revenue of $71.0 million as a result of our Delaware Gathering operations, which began in June 2022;

• increase in volumes associated with Midland Gathering operations due to new connections finalized during 2022.

Cost of Materials and Other

Cost of materials and other for the gathering and processing segment increased by $21.8 million, or 1,707.2%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, driven primarily by the following:

• increase in cost of materials and other totaling $22.6 million as a result of our Delaware Gathering operations, which began in June 2022.

Cost of materials and other for the gathering and processing segment increased by $6.7 million, or 43.7%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• increase in cost of materials and other as a result of our Delaware Gathering operations which began in June 2022.

Cost of materials and other for the gathering and processing segment increased by $28.4 million, or 172.3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, driven primarily by the following:

• increase in cost of materials and other as a result of our Delaware Gathering operations which began in June 2022.

Operating Expenses

Operating expenses for the gathering and processing segment increased by $5.4 million, or 61.9%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

Operating expenses for the gathering and processing segment increased by $9.7 million, or 88.8%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• increase due to additional expenses associated with our Delaware Gathering operations, which began in June 2022.

EBITDA increased by $23.4 million, or 72.8%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

• Additional EBITDA associated with the Delaware Gathering operations.

Operating expenses for the gathering and processing segment increased by $15.1 million, or 76.8%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• increase due to additional expenses associated with our Delaware Gathering operations, which began in June 2022.

EBITDA increased by $14.2 million, or 36.8%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• additional EBITDA associated with the Delaware Gathering operations, which began in June 2022;

• increase in throughput associated with new connections in our Midland Gathering operations.

EBITDA increased by $37.5 million, or 53.2%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• additional EBITDA associated with the Delaware Gathering operations, which began in June 2022;

Management's Discussion and Analysis

• increase in throughput associated with new connections in our Midland Gathering operations.

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 following tables and discussion present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three months ended March 31, 2023 and 2022:

The following tables and discussion present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the three and six months ended June 30, 2023 and 2022:

Wholesale Marketing and Terminalling

Three Months Ended March 31,

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

2023 2022 2023 2022

Net Revenues $ 118,827 $ 165,540 $ 231,136 $ 296,316

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Operating Information

Three Months Ended March 31,

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

2023 2022 2023 2022

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

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(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.

Comparison of the three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net revenues for the wholesale marketing and terminalling segment decreased by $18.5 million, or 14.1%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

• decreases in the average sales prices per gallon and the average volumes of gasoline and diesel sold in our West Texas marketing operations:

Comparison of the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022

Net revenues for the wholesale marketing and terminalling segment decreased by $46.7 million, or 28.2%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• decreased revenue of $50.9 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the average volumes sold:

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.93 per gallon and $1.53 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 0.6 million gallons and 1.5 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 three months ended March 31, 2023 and 2022.

Net revenues for the wholesale marketing and terminalling segment decreased by $65.2 million, or 22.0%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• decreased revenue of $66.3 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and 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 decreased by $0.58 per gallon and $0.79 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively.

Management's Discussion and Analysis

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 three and six months ended June 30, 2023 and 2022.

Cost of Materials and Other

Cost of materials and other for the wholesale marketing and terminalling segment decreased by $19.4 million, or 18.1% , in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

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

Cost of materials and other for the wholesale marketing and terminalling segment decreased by $54.3 million, or 37.9%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• decreased costs of materials and other of $53.2 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold:

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.32 per gallon and $0.12 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold increased by 2.8 million gallons and 0.9 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 three months ended March 31, 2023 and 2022.

◦ the average volumes of gasoline and diesel sold decreased by 0.6 million gallons and 1.5 million gallons, respectively.

Cost of materials and other for the wholesale marketing and terminalling segment decreased by $73.6 million, or 29.4% , in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by the following:

• decreased costs of materials and other of $69.4 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the average volumes of gasoline and diesel sold in our West Texas marketing operations:

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.27 per gallon and $0.11 per gallon, respectively;

◦ the average volumes of gasoline and diesel sold decreased by 3.4 million gallons and 2.4 million gallons, respectively.

Management's Discussion and Analysis

The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the three and six months ended June 30, 2023 and 2022.

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

Operating Expenses

Operating expenses for the wholesale marketing and terminalling segment increased by $0.1 million, or 1.7%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

EBITDA for the wholesale marketing and terminalling segment increased by $1.2 million, or 5.9%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Operating expenses for the wholesale marketing and terminalling segment decreased by $1.0 million, or 20.7%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• decrease in outside service costs.

Operating expenses for the wholesale marketing and terminalling segment decreased by $0.9 million, or 9.9%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, driven primarily by the following:

• decrease in allocated employee related costs.

EBITDA increased by $9.2 million, or 48.8%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by the following:

• Increase in terminalling throughputs and East Texas - Tyler refinery sales volumes;

• increase in gross margin per barrel associated with our West Texas operations;

• partially offset by a decrease in volumes sold in our West Texas operations.

EBITDA for the wholesale marketing and terminalling segment increased by $10.4 million, or 26.3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

• increase in gross margin per barrel associated with our West Texas operations;

• partially offset by a decrease in volumes sold in our West Texas operations.

Management's Discussion and Analysis

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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 following tables and discussion present the results of operations and certain operating statistics of the storage and transportation segment for the three months ended March 31, 2023 and 2022:

The following tables and discussion present the results of operations and certain operating statistics of the storage and transportation segment for the three and six months ended June 30, 2023 and 2022:

Storage and Transportation

Three Months Ended March 31,

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

2023 2022 2023 2022

Net revenues $ 34,847 $ 36,384 $ 73,631 $ 70,145

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Segment EBITDA $ 14,978 $ 14,529 $ 28,400 $ 25,637

Comparison of the three months ended March 31, 2023 compared to the three months ended March 31, 2022

Net revenues for the storage and transportation segment increased by $5.0 million, or 14.9%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, driven primarily by the following:

• increase in trucking transportation revenue primarily due to new third-party revenue streams.

Comparison of the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022

Net revenues for the storage and transportation segment decreased by $1.5 million, or 4.2%, in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by the following:

• Decrease in trucking revenue primarily as a result of lower production at Delek Holding's refineries;

• partially offset by an increase in storage revenue primarily due to rate increases.

Net revenues for the storage and transportation segment increased by $3.5 million, or 5.0%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, driven primarily by the following:

• Increase in storage revenue primarily due to rate increases.

Cost of Materials and Other

Cost of materials and other for the storage and transportation segment increased by $0.3 million, or 1.5%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Cost of materials and other for the storage and transportation segment increased by $0.1 million, or 0.6%, in the second quarter of 2023 compared to the second quarter of 2022.

Cost of materials and other for the storage and transportation segment increased by $0.4 million, or 1.1%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Management's Discussion and Analysis

Operating Expenses

Operating expenses for the storage and transportation segment increased by $1.4 million, or 33.1%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

• increases in lease expense.

EBITDA increased by $2.3 million, or 20.8%, in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily driven by the following:

• Additional third-party revenue streams from trucking transportation.

Operating expenses for the storage and transportation segment decreased by $0.7 million, or 13.9%, in the second quarter of 2023 compared to the second quarter of 2022, driven primarily by decrease in contract services.

Operating expenses for the storage and transportation segment increased by $0.7 million, or 8.1%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by an increase in repairs and maintenance costs.

EBITDA increased by $0.4 million, or 3.1%, in the second quarter of 2023 compared to the second quarter of 2022.

EBITDA increased by $2.8 million, or 10.8%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by increase in storage revenue primarily due to rate increases.

Management's Discussion and Analysis

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Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 8 to our accompanying condensed consolidated financial statements.

Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the three months ended March 31, 2023.

Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the three and six months ended June 30, 2023.

Liquidity and Capital Resources

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(i) cash generated from operations;

(iii) potential issuance of additional equity;

(ii) borrowings under our revolving credit facility;

(iv) potential issuance of additional debt securities;

At March 31, 2023 our total liquidity amounted to $140.4 million comprised of $129.4 million in unused credit commitments under the DKL Credit Facility and $11.0 million in cash and cash equivalents.

(ii) borrowings under our revolving credit facility;

(v) potential sale of assets.

(iii) potential issuance of additional equity;

At June 30, 2023 our total liquidity amounted to $96.7 million comprised of $89.0 million in unused credit commitments under the DKL Credit Facility and $7.7 million in cash and cash equivalents.

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

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

We believe we were in compliance with the covenants in all our debt facilities as of March 31, 2023.

We believe we were in compliance with the covenants in all our debt facilities as of June 30, 2023.

See Note 6 to our condensed consolidated financial statements for a complete discussion of our third-party indebtedness.

Cash Distributions

On April 28, 2023, the board of directors of our general partner declared a distribution of $1.025 per common unit (the "Distribution"), which equates to approximately $44.7 million per quarter, or approximately $178.7 million per year, based on the number of common units outstanding as of May 8, 2023.

The Distribution will be paid on May 15, 2023 to common unitholders of record on May 8, 2023 and represents a 4.6% increase over the first quarter 2023 distribution.

We have set a distribution growth guidance of 5% for the full year 2023.

On July 26, 2023, the board of directors of our general partner declared a distribution of $1.035 per common unit (the "Distribution"), which equates to approximately $45.1 million per quarter, or approximately $180.4 million per year, based on the number of common units outstanding as of August 7, 2023.

The Distribution will be paid on August 14, 2023 to common unitholders of record on August 7, 2023 and represents a 5.1% increase over the second quarter 2022 distribution.

This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term.

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Management's Discussion and Analysis

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

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

March 31, 2023 $1.025 $4.10 $44,664 May 15, 2023 (1)

(1) Expected date of distribution

The following table sets forth a summary of our consolidated cash flows for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

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)

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

The following table sets forth a summary of our consolidated cash flows for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended June 30,

Net cash provided by operating activities $ 63,802 $ 133,057

Net cash used in investing activities (54,893) (659,327)

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

Operating Activities

Net cash provided by operating activities decreased by $18.7 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Net cash provided by operating activities decreased by $69.3 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The cash receipts from customer activities increased by $13.7 million and cash payments to suppliers and for allocations to Delek Holdings for salaries increased by $49.2 million.

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Investing Activities

Net cash used in investing activities increased by $14.5 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Purchases of property, plant and equipment increased $17.2 million primarily associated with growth projects in our gathering and processing segment.

Such increase was partially offset by $1.8 million decrease in purchases of intangibles and $0.9 million increase in distributions received from equity method investments.

Net cash used in investing activities decreased by $604.4 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to the Delaware Gathering Acquisition, effective June 1, 2022, which was partially financed through borrowings under the DKL Credit Facility amounting to $621.8 million.

There were no acquisitions during the six months ended June 30, 2023.

In addition, there was a $2.4 million decrease in purchases of intangibles.

Such decrease was partially offset by purchases of property, plant and equipment increased by $19.9 million primarily associated with growth projects in our gathering and processing segment.

Financing Activities

Net cash provided by financing activities increased by $37.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

This increase was primarily driven by net borrowings under the revolving credit facility which increased $44.0 million.

Partially offsetting this increase was an increase in net payments on term loan of $3.8 million and a $2.0 million increase in cash distributions paid.

Net cash provided by financing activities decreased by $545.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

This decrease was primarily driven by net borrowings under the revolving credit facility which decreased by $532.4 million, primarily associated with financing of the Delaware Gathering Acquisition in the prior year.

Also contributing to the decrease was an increase in net payments on the term loan of $7.5 million and a $4.1 million increase in cash distributions paid.

Debt Overview

As of March 31, 2023, we had total indebtedness of $1,716.9 million.

The increase of $46.1 million in our long-term debt balance compared to the balance at December 31, 2022 resulted from the borrowings under the DKL Credit Facility during the three months ended March 31, 2023.

As of March 31, 2023, our total indebtedness consisted of:

As of June 30, 2023, we had total indebtedness of $1,753.5 million.

The increase of $83.2 million in our long-term debt balance compared to the balance at December 31, 2022 resulted from the borrowings under the DKL Credit Facility during the six months ended June 30, 2023.

As of June 30, 2023, our total indebtedness consisted of:

• An aggregate principal amount of $811.0 million under the DKL Revolving Facility ("revolving credit facility"), due on October 13, 2027, with an average borrowing rate of 7.57%, which was amended and restated on October 13, 2022.

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• 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 7.39%.

We believe we were in compliance with the covenants in all debt facilities as of March 31, 2023.

We believe we were in compliance with the covenants in all debt facilities as of June 30, 2023.

See Note 6 to our condensed consolidated financial statements for a complete discussion of our third-party indebtedness.

Management's Discussion and Analysis

Agreements Governing Certain Indebtedness of Delek Holdings

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

Management's Discussion and Analysis

Capital Spending

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

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 three months ended March 31, 2023 and planned capital expenditures for the full year 2023 by segment and by major category:

(in thousands) Full Year 2023 Forecast Three Months Ended March 31, 2023

The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the six months ended June 30, 2023 and planned capital expenditures for the full year 2023 by segment and by major category:

(in thousands) Full Year 2023 Forecast Six Months Ended June 30, 2023

Gathering and Processing

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We have no off-balance sheet arrangements through the date of the filing of this Quarterly Report on Form 10-Q.

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 2. Management’s Discussion and Analysis