Delek Logistics Partners, LP 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is management’s analysis of our financial performance and of significant trends that may affect our future performance. The MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (the ''Annual Report on Form 10-K''). Those statements in the MD&A that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See "Forward-Looking Statements" below for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Logistics Partners, LP," the "Partnership," “we,” “us,” or “our” or like terms, may refer to Delek Logistics Partners, LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless otherwise noted or the context requires otherwise, references in this report to "Delek Holdings" refer collectively to Delek US Holdings, Inc. and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner. The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its X (formerly known as Twitter) account (@DelekLogistics). The Partnership encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. Forward-Looking Statements This Annual Report on Form 10-K (including information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act. These forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, statements regarding the effect, impact, potential duration or other implications of, or expectations expressed with respect to, the actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "OPEC+") with respect to oil production and pricing, and statements regarding our efforts and plans in response to such events, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements; • our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all; • Delek Holdings' future growth, 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; • the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures; • changes in insurance markets impacting costs and the level and types of coverage available; • the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand; • the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business; • the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; 60 | 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 a public health crisis; • disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber-attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent; • changes in the availability and cost of capital of debt and equity financing; • our reliance on information technology systems in our day-to-day operations; • changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to governmental fiscal policy or a public health crisis; • 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 a public heal; • significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional societal, legislation; and regulatory measures to limit or reduce greenhouse gas emissions; • competitive conditions in our industry including capacity overbuild in areas where we operate; • actions taken by our customers and competitors; • the demand for crude oil, refined products and transportation and storage services; • our ability to successfully implement our business plan; • inability to complete growth projects on time and on budget; • our ability to successfully 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; • changes in the price of RINs could affect our results of operations; • future decisions by OPEC+ regarding production and pricing and disputes between OPEC+ regarding such; • changes or volatility in interest and inflation rates; • labor relations; • large customer defaults; • changes in tax status and regulations; • the effects of future litigation or environmental liabilities that are not covered by insurance; and • other factors discussed elsewhere in this Annual Report on Form 10-K. Many of the foregoing risks and uncertainties are, and will be, exacerbated by any worsening of the global business and economic environment. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. 61 | Management's Discussion and Analysis Executive Summary: Management's View of Our Business and Strategic Overview Management's View of Our Business The Partnership provides gathering, pipeline and other transportation services primarily for crude oil and natural gas customers, storage, wholesale marketing and terminalling services primarily for intermediate and refined product customers, and water disposal and recycling services through its owned assets and joint ventures located primarily in the Permian Basin (including the Delaware sub-basin) and other select areas in the Gulf Coast region. A majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, Texas (the "Tyler Refinery"), El Dorado, Arkansas (the "El Dorado Refinery") and Big Spring, Texas (the "Big Spring Refinery"). Business and Economic Environment Overview During much of year ended December 31, 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. Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets. Through our joint venture projects, we have increased our supply network to take advantage of growth opportunities in expanding markets and added additional flexibility which has delivered realized value through the Partnership system. While we experienced a $32.8 million decrease in net income for the year ended December 31, 2023, our EBITDA (as defined in "Non GAAP Measures" section below) increased $58.3 million in 2023 as compared to 2022. Our gathering and processing segment which had segment EBITDA of $199.5 million in 2023 compared to $175.3 million in 2022, benefited from additional EBITDA associated with the Delaware Gathering Acquisition as well as rate increases and new connections in our Midland Gathering operations. Our wholesale marketing and terminalling segment saw a $23.4 million increase in segment EBITDA. Segment EBITDA for our investments in pipeline joint ventures decreased by $0.3 million. See the “Results of Operations” section below for further discussion. Looking forward, concerns about inflation and a possible economic downturn as well as initiatives to reduce carbon footprints through energy transition to renewables have softened the forward demand expectations for hydrocarbons and natural gas. That said, we are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements. Furthermore, the Partnership benefited from inflationary-linked rate increases effective July 1, 2023, as discussed further below. Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship. It is expected that renewables, other than hydrocarbons, will continue to grow as a percentage of total energy consumption; however, a material reduction in the reliance on oil and gas for energy consumption is unlikely in the near term. Therefore, as we look forward to 2024, we expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment. See further discussion on macroeconomic factors and market trends, including the impact on 2023 and the outlook for 2024, in the ‘Market Trends’ section below. Other 2023 Developments Related Party Revolving Credit Facility On November 6, 2023, the Partnership and certain of its subsidiaries, as guarantors, entered into a certain Promissory Note (the “Related Party Revolving Credit Facility”) with Delek Holdings. The Related Party Revolving Credit Facility provides for revolving borrowings with aggregate commitments of $70.0 million comprised of a (i) $55.0 million senior tranche and a (ii) $15.0 million subordinated tranche (the “Subordinated Tranche”), with the initial borrowings under the Subordinated Tranche conditioned upon the Partnership and Delek Holdings reaching an agreement with Fifth Third Bank, National Association, as administrative agent under the DKL Credit Facility, on subordination provisions and other material terms related to the Subordinated Tranche. The Related Party Revolving Credit Facility will bear interest at Term SOFR (as defined in the Related Party Revolving Credit Facility) plus 3.00%. The Related Party Revolving Credit Facility proceeds will be used for the Partnership’s working capital purposes and other general corporate purposes. The Related Party Revolving Credit Facility will mature on June 30, 2028. The Related Party Revolving Credit Facility contains certain affirmative covenants, mandatory prepayments and events of default that the Partnership considers to be customary for an arrangement of this sort. The obligations under the Related Party Revolving Credit Facility are unsecured. 62 | Management's Discussion and Analysis DKL Credit Facility On November 6, 2023, the Partnership entered into a First Amendment, a Second Amendment and a Third Amendment to the DKL Credit Facility (together, the “Amendments”) which among other things: extended the maturity of the DKL Term Loan Facility to April 15, 2025, (ii) added a maturity acceleration clause which will accelerate the maturity of the DKL Term Loan Facility to 180 days prior to the stated maturity date of the 2025 Notes if any of the 2025 Notes remain outstanding on that date, (iii) increased the U.S. Revolving Credit Commitments (as defined in the DKL Credit Facility) by an amount equal to $150.0 million, resulting in aggregate lender commitments under the DKL Revolving Credit Facility of $1.050 billion and (iv) increased the limit allowed for general unsecured debt (as defined in the DKL Credit Facility) by an amount equal to $95.0 million, resulting in an unsecured general debt limit of $150.0 million. 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) was adjusted as of January 1, 2023, but adjustments under agreements 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. 63 | Management's Discussion and Analysis Segment Overview We review operating results in four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investments in pipeline joint ventures. Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment EBITDA, except for the investments in pipeline joint ventures segment, which is measured based on net income. Segment reporting is discussed in more detail in Note 13 to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Gathering and Processing The operational assets in our gathering and processing segment consist of Midland Gathering Assets and Delaware Gathering Assets. The Midland Gathering Assets support our crude oil gathering activities which primarily serves Delek Holdings refining needs throughout the Permian Basin. The Delaware Gathering Assets support our crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico, and serving primarily third-party producers and customers. Finally, our gathering and processing assets are integrated with our pipeline assets, which we use to transport gathered crude oil as well as provide other crude oil, intermediate and refined products transportation in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas, as well as to certain third parties. In providing these services, we do not take ownership of the 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. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers. Wholesale Marketing and Terminalling Our wholesale marketing and terminalling segment provides wholesale marketing and terminalling services to Delek Holdings’ refining operations and to independent third parties from whom we receive fees for marketing, transporting, storing and terminalling refined products and to whom we wholesale market refined products. In providing certain of these services, we take ownership of the products and are therefore exposed to market risks related to the volatility of commodity and refined product prices in our West Texas operations, which depend on many factors, including demand and supply of refined products in the West Texas market, the timing of refined product deliveries and downtime at refineries in the surrounding area. Storage and Transportation The operational assets in our storage and transportation segment consist of tanks, offloading facilities, trucks and ancillary assets, which provide crude oil, intermediate and refined products transportation and storage services primarily in support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. Investments in Pipeline Joint Ventures The Partnership owns a portion of three joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets primarily in the Permian Basin and Gulf Coast regions and with strategic connections to Cushing, Midland and other key exchange points, which provide crude oil and refined product pipeline transportation to third parties and subsidiaries of Delek Holdings. Corporate and Other The corporate and other segment primarily consists of general and administrative expenses not allocated to a reportable segment, interest expense and depreciation and amortization. When applicable, it may also contain operating segments that are not reportable and do not meet the criteria for aggregation with any of our existing reportable segments. Strategic Overview Long-Term Strategic Objectives The Partnership’s Long-Term Strategic Objectives have been focused on maintaining stable cash flows and to grow the quarterly distributions paid to our unitholders over time. To that end, we have been focused on growing our asset base within our geographic area, through acquisitions, project development, joint ventures, enhancing our existing systems and lowering our carbon footprint, as we continue to evaluate ways to provide Delek Holdings with logistics services and look for ways to reduce our reliance on Delek Holdings as our primary customer. 64 | Management's Discussion and Analysis 2023 Strategic Focus Areas In service to these overarching Long-Term Strategic Objectives, as we began 2023, we focused on the following Strategic Focus Areas : I. Generate Stable Cash Flow II. Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures III. Engage in Mutually Beneficial Transactions with Delek Holdings IV. Pursue Attractive Expansion and Construction Opportunities V. Optimize Our Existing Assets and Expand Our Customer Base VI. Expand our ESG Consciousness and Lower our Carbon Footprint Since acquiring Delaware Gathering in 2022, the Partnership has been dedicated to achieving organic growth in our operations. This strategy has proven to be successful, as we have seen substantial growth from new connections in our Midland Gathering operations, as well as continued growth in our Delaware Gathering operations. We continue to be focused on growth opportunities in the Permian Basin given its prime acreage and extensive production history and believe that opportunities exist in crude, natural gas and water which could enhance our gathering and process segment. The Partnership prioritizes safe and reliable operation of its assets to maintain financial stability and growth. We have successfully avoided lost time injuries for four years, demonstrating our strong safety protocols and adherence to regulations. This commitment protects employees, assets, and operations, minimizing financial losses and maintaining stakeholder trust. Additionally, we have prioritized reducing our leverage ratio, providing us with more financial flexibility to pursue opportunities and expand operations. By reducing our debt profile and maintaining a strong financial position, we are better equipped to navigate challenges that may arise. This financial stability also allows us to seize emerging opportunities that align with our strategic goals, ensuring that we can continue to deliver value to our unitholders. 2023 Strategic Scorecard Description of Strategic Success Generate Stable Cash Flow Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures Engage in Mutually Beneficial Transactions with Delek Holdings Pursue Attractive Expansion and Construction Opportunities Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint Integration and expansion of Delaware Gathering operations ü ü ü ü Implemented measures to reduce our overall debt profile ü ü ü ü Expansion of our Midland operations ü ü ü Zero lost time injuries ü Continue in Co-Developing our ESG Strategy with our General Partner ü Looking Forward: 2024 Strategic Focus Areas As we look to 2024, we continue to believe that our strategic focus areas are the right ones. As such, we continue to refine our processes for evaluating risks and returns while maintaining a keen eye on our overarching Long-Term Strategic Objectives and our desire to create long-term operational sustainability. To that end, our 2024 Strategic Focus Areas are as follows: • Generate Stable Cash Flow. Continue to pursue opportunities to provide logistics, marketing and other services to Delek Holdings and third parties pursuant to long-term, fee-based contracts. In new service contracts, endeavor to include minimum volume throughput or other commitments, similar to those included in our current commercial agreements with Delek Holdings. • Focus on Growing Our Business. Continue to evaluate and pursue opportunities to grow our business through both strategic acquisitions and expansion and construction projects, both internally funded or in combination with potential external partners and through investments in joint ventures. Additionally, where possible, leverage our strong relationship with Delek Holdings to enhance our opportunities to grow our business. ◦ Pursue Acquisitions . Pursue strategic acquisitions that both complement our existing assets and provide attractive returns for our unitholders, with a focus on expanding our third-party business. Leverage our current asset base, and our knowledge of the regional markets in which we operate, to target and complete attractive third-party acquisitions, which will enhance our third-party revenues and margin, further diversifying our customer and product mix. 65 | Management's Discussion and Analysis ◦ Investments in Joint Ventures. Continue to focus on leveraging and, when appropriate, expanding our investments in joint ventures, which have contributed to our initiative to grow our midstream business while increasing our crude oil sourcing flexibility. • Engage in Mutually Beneficial Transactions with Delek Holdings. Delek Holdings is required, under certain circumstances, to offer us the opportunity to purchase additional logistics assets that Delek Holdings may acquire or construct in the future. Further, we will continue to evaluate additional growth opportunities through subsequent dropdowns of logistics assets acquired or developed by Delek Holdings, while factoring in associated impact on our capital structure and critically evaluating anticipated return on investment. As certain of our commercial agreements with Delek Holdings have expired or are set to expire soon, we are currently engaged in negotiations to renew these contracts and ensure continued value for both ourselves and our sponsor. • Pursue Attractive Expansion and Construction Opportunities. Continue to evaluate, and when appropriate in the context of our return on investment and risk assessment criteria, pursue organic growth opportunities that complement our existing businesses or that provide attractive returns within or outside our current geographic footprint. Continue to evaluate potential opportunities to make capital investments that will be used to expand our existing asset base through the expansion and construction of new logistics assets to support growth of any of our customers', including Delek Holdings', businesses and from increased third-party activity. These construction projects may be developed either through joint venture relationships or by us acting independently, depending on size and scale. • Optimize Our Existing Assets and Expand Our Customer Base. Continue seeking to enhance the profitability of our existing assets by adding incremental throughput volumes, improving operating efficiencies and increasing system-wide utilization. Additionally, continue to seek opportunities to further diversify our customer base by increasing third-party throughput volumes running through certain of our existing systems and expanding our existing asset portfolio to service more third-party customers. • Expand our ESG Consciousness and Lower Our Carbon Footprint. Continue to look for ways to grow our business whilst staying conscious of and minimizing the negative environmental impact, while also seeking opportunities to invest in innovative technologies that will reduce our carbon emissions as we achieve our growth objectives and sustainably improve unitholder returns. We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns. How We Evaluate Our Operations We use a variety of financial and operating metrics to analyze our segment performance. These metrics are significant factors in assessing our operating results and profitability and include: ■ volumes (including pipeline throughput and terminal volumes) ■ operating and maintenance expenses ■ cost of materials and other ■ EBITDA and distributable cash flow (as such terms are defined below) ■ net income of joint ventures Volumes The amount of revenue we generate primarily depends on the volumes of crude oil and refined products that we handle in our pipeline, transportation, terminalling, storage and marketing operations. These volumes are primarily affected by the supply of and demand for crude oil, intermediate and refined products in the markets served directly or indirectly by our assets. Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by: • Delek Holdings’ utilization of our assets in excess of its minimum volume commitments; • our ability to identify and execute acquisitions and organic expansion projects and capture incremental volume increases from Delek Holdings or third parties; • our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals; • our ability to identify and serve new customers in our marketing and trucking operations; and • our ability to make connections to third-party facilities and pipelines. 66 | Management's Discussion and Analysis Operating and Maintenance Expenses We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of said expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow. Cost of Materials and Other These costs include: (i) all costs of purchased refined products in our wholesale marketing and terminalling segment, as well as additives and related transportation of such products; (ii) costs associated with the operation of our trucking assets, which primarily include allocated employee costs and other costs related to fuel, truck leases and repairs and maintenance; (iii) the cost of pipeline capacity leased from any third parties; and (iv) gains and losses related to our commodity hedging activities. Financing The Partnership anticipates paying a cash distribution to its unitholders at a distribution rate of $1.055 per unit for the quarter ended December 31, 2023 ($4.22 per unit on an annualized basis). Our Partnership Agreement requires that the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to its unitholders quarterly. As a result, the Partnership expects to fund future capital expenditures primarily from operating cash flows, borrowings under our revolving credit facility and any potential future issuances of equity and debt securities. See Note 11 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions. How We Evaluate Our Investments in Pipeline Joint Ventures We make strategic investments in pipeline joint ventures generally when it provides an economic benefit in terms of pipeline access we can use for our existing or future customers and when we expect a rate of return that meets our internal investment criteria. Our existing investments in pipeline joint ventures all provide a combination of strategic benefit and return on investment. The strategic benefit for each is described below: • The RIO Pipeline is positioned in the Delaware Basin and benefits from drilling activity in the area, while also offering producers and shippers connections to Midland, Texas takeaway pipelines; • The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area; and • The Red River Pipeline provides crude oil transportation and optionality from Cushing, Oklahoma to Longview, Texas area and connectivity to our Caddo JV along with the Partnership's Paline pipeline for access to Gulf Coast markets. It also has additional expansion optionality. Market Trends Fluctuations in crude oil, natural gas and NGL prices and the prices of related refined and other hydrocarbon products impact operations in the midstream energy sector. For example, the prices of each of these products have the ability to influence drilling activity in many basins and the amounts of capital spending that crude oil exploration and production companies incur to support future growth. Exploration and production activities have a direct impact on volumes transported through our gathering assets in the geologic basins in which we operate. Additionally, the demand for hydrocarbon-based refined products and related crack spreads significantly impact production decisions of our refining customers and likewise throughputs on our pipelines and other logistics assets. Finally, fluctuations in demand and commodity prices for refined products, as well as the value attributable to RINs, directly impacts our wholesale marketing operations, where we are subject to short-term commodity price fluctuations at the rack. 67 | Management's Discussion and Analysis Most of the logistics services we provide (including transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility. However, sustained depressed demand/prices over the longer term could not only curb exploration and production expansion opportunities under our agreements, it could also impact our customers' willingness or ability to renew commercial agreements or result in liquidity or credit constraints that could impact our longer term relationship with them. That said, our recent expansion of our gas processing capabilities have improved both our customer and geographic diversification which lowers concentration risk in those areas, in addition to adding service offerings to our portfolio. Furthermore, our dedicated acreage agreements provide significant growth opportunities in strong economic conditions (e.g., high demand/high commodity prices) without incremental customer acquisition cost. Given all of these factors, we believe that we continue to be strategically positioned, even in tougher market conditions, to sustain positive operating results and cash flows and to continue developing profitable growth projects that are needed to support future distribution growth. The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas. 68 | Management's Discussion and Analysis 69 | Management's Discussion and Analysis Non-GAAP Measures Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our financial information presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These financial and operational non-GAAP measures include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of marketing contract intangible, which is included as a component of net revenues in our accompanying consolidated statements of income. • Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash. The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash. EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and distributable cash flow have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable GAAP financial measures. Non-GAAP Reconciliations The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable GAAP measure, or net income and net cash from operating activities, respectively. Reconciliation of net income to EBITDA (in thousands) Year Ended December 31, 2023 2022 Net income $ 126,236 $ 159,052 Add: Income tax expense 1,205 382 Depreciation and amortization 92,384 62,988 Amortization of marketing contract intangible 7,211 7,211 Interest expense, net 143,244 82,304 EBITDA (1) $ 370,280 $ 311,937 (1) EBITDA includes $14.8 million of goodwill impairment expense for the year ended December 31, 2023. Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information. Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 225,319 $ 192,168 Changes in assets and liabilities 29,474 49,423 Distributions from equity method investments in investing activities 9,002 1,737 Non-cash lease expense (9,549) (16,254) Regulatory and sustaining capital expenditures not distributable (1) (7,272) (9,684) Reimbursement from Delek Holdings for capital expenditures (2) 1,280 1,176 Accretion of asset retirement obligations (705) (596) Deferred income taxes (638) (5) Gain on disposal of assets 1,266 114 Distributable cash flow $ 248,177 $ 218,079 70 | Management's Discussion and Analysis (1) Regulatory and sustaining 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) Reimbursement from Delek Holdings for capital expenditures represents amounts for certain capital expenditures reimbursable to us from Delek Holdings pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). 71 | Management's Discussion and Analysis Summary of Financial and Other Information A discussion and analysis of the factors contributing to our results of operations is presented below. A detailed discussion of the fiscal year 2022 compared to year-over-year changes from fiscal year 2021 can be found in Part II, Item 7. Management's Discussion and Analysis, "Results of Operations", of our 2022 Annual Report on Form 10-K, filed on March 1, 2023. 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 provides summary financial data (in thousands, except unit and per unit amounts): Summary Statement of Operations Data (1) Year Ended December 31, 2023 2022 Net revenues: Gathering and Processing $ 371,110 $ 305,427 Wholesale marketing and terminalling 505,701 588,884 Storage and transportation 143,598 142,096 Total 1,020,409 1,036,407 Cost of materials and other 532,627 641,363 Operating expenses (excluding depreciation and amortization presented below) 118,101 88,307 General and administrative expenses 24,766 34,181 Depreciation and amortization 92,384 62,988 Impairment of goodwill 14,848 — Gain on disposal of assets (1,266) (114) Operating income $ 238,949 $ 209,682 Interest expense, net 143,244 82,304 Income from equity method investments (31,433) (31,683) Other income, net (303) (373) Total non-operating expenses, net 111,508 50,248 Income before income tax expense 127,441 159,434 Income tax expense 1,205 382 Net income attributable to partners $ 126,236 $ 159,052 Comprehensive income attributable to partners $ 126,236 $ 159,052 EBITDA (2) (3) $ 370,280 $ 311,937 Net income per limited partner unit: Basic $ 2.90 $ 3.66 Diluted $ 2.89 $ 3.66 Weighted average limited partner units outstanding: Basic 43,583,938 43,487,910 Diluted 43,611,314 43,511,650 (1)This information is presented at a summary level for your reference. See the Consolidated Statements of Income included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for more detail regarding our results of operations. (2) For a definition of EBITDA, see "Non-GAAP Measures" above. (3) EBITDA includes $14.8 million of goodwill impairment expense for the year ended December 31, 2023. Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information. We report operating results in four reportable segments: • Gathering and Processing • Wholesale Marketing and Terminalling • Storage and Transportation • Investments in Pipeline Joint Ventures Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each of its reportable segments based on the segment EBITDA. 72 | Management's Discussion and Analysis Results of Operations Consolidated Results of Operations - Comparison of the Year Ended December 31, 2023 versus the Year Ended December 31, 2022 Net Revenues 2023 vs. 2022 Net revenues decreased by $16.0 million, or 1.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily driven by the following: • decreased revenue of $99.6 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the volumes of gasoline and diesel sold: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.46 per gallon and $0.73, respectively; and ◦ the volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold. Such decreases were partially offset by the following: • increase in revenue as a result of our Delaware Gathering operations, which began in June 2022; and • increase in volumes associated with Midland Gathering operations primarily due to new connections finalized during 2022. Cost of Materials and Other 2023 vs. 2022 Cost of materials and other decreased by $108.7 million, or 17.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decrease in costs of materials and other of $101.9 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the volumes of diesel sold: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.74 per gallon, respectively; and ◦ the volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold. Such decreases were partially offset 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 2023 vs. 2022 Operating expenses increased by $29.8 million, or 33.7%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by incremental expenses associated with our Delaware Gathering operations which began in June 2022. General and Administrative Expenses 2023 vs. 2022 General and administrative expenses decreased by $9.4 million, or 27.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • higher outside services associated with the Delaware Gathering Acquisition in the prior year; and • partially offset by lower allocated employee related expenses. 73 | Management's Discussion and Analysis Depreciation and Amortization 2023 vs. 2022 Depreciation and amortization increased by $29.4 million, or 46.7%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • the acquisition of property, plant and equipment and customer relationship intangible as part of the Delaware Gathering Acquisition; and • depreciation associated with new projects in-serviced during the period. Impairment of Goodwill 2023 vs. 2022 Impairment of goodwill was $14.8 million for the year ended December 31, 2023. The goodwill impairment is related to our Delaware Gathering reporting unit due to significant increases in interest rates and timing of system connections with our producer customers. The Partnership's long-term outlook of its Delaware Gathering system remains unchanged. Refer to Note 8 to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information. There was no asset impairment in the year ended December 31, 2022. Interest Expense 2023 vs. 2022 Interest expense increased by $60.9 million, or 74.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • increased borrowings under the DKL Credit Facility to fund the Delaware Gathering Acquisition; and • higher floating interest rates applicable to the DKL Credit Facility. Results from Equity Method Investments 2023 vs. 2022 Income from equity method investments decreased by $0.3 million, or 0.8%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. 74 | Management's Discussion and Analysis Operating Segments Gathering and Processing Segment The following table and discussion present the results of operations and certain operating statistics of the gathering and processing segment for the years ended December 31, 2023 and 2022: Gathering and Processing Year Ended December 31, 2023 2022 Net Revenues $ 371,110 $ 305,427 Cost of materials and other $ 83,118 $ 81,525 Operating expenses (excluding depreciation and amortization) $ 75,136 $ 48,211 Segment EBITDA (1) $ 199,463 $ 175,250 (1) EBITDA includes $14.8 million of goodwill impairment expense for the year ended December 31, 2023. Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information. Throughputs (average bpd) Year Ended December 31, 2023 2022 El Dorado Assets: Crude pipelines (non-gathered) 67,003 78,519 Refined products pipelines to Enterprise Systems 58,181 56,382 El Dorado Gathering System 13,782 15,391 East Texas Crude Logistics System 32,668 21,310 Midland Gathering System 230,471 128,725 Plains Connection System 250,140 183,827 Delaware Gathering Assets Volumes Year Ended December 31, 2023 2022 (1) Natural Gas Gathering and Processing (Mcfd (2) ) 71,239 60,971 Crude Oil Gathering (bpd (3) ) 111,335 87,519 Water Disposal and Recycling (bpd (3) ) 102,340 72,056 (1) Volumes for the year ended December 31, 2022 are for the period from June 1, through December 31, 2022, for which we owned the Delaware Gathering Assets. (2) Mcfd - average thousand cubic feet per day. (3) bpd - average barrels per day. Operational Comparison of the Year Ended December 31, 2023 versus the Year Ended December 31, 2022: Net Revenues 2023 vs. 2022 Net revenues for the gathering and processing segment increased by $65.7 million, or 21.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, driven primarily by the following: • incremental revenues as a result of our Delaware Gathering operations, which began in June 2022, partially offset by lower natural gas prices; and • increase in throughput associated with Midland Gathering operations primarily due to new connections finalized during 2022. 75 | Management's Discussion and Analysis Cost of Materials and Other 2023 vs. 2022 Cost of materials and other for the gathering and processing segment increased by $1.6 million, or 2.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, driven primarily by the following: • incremental cost of materials and other as a result of our Delaware Gathering operations which began in June 2022; and • partially offset by lower natural gas costs. Operating Expenses 2023 vs. 2022 Operating expenses for the gathering and processing segment increased by $26.9 million, or 55.8%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • increase due to additional expenses associated with our Delaware Gathering operations, which began in June 2022; and • increase in outside services associated with Midland Gathering operations. EBITDA 2023 vs. 2022 EBITDA increased by $24.2 million, or 13.8%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven 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; and • partially offset by the impairment of goodwill associated the Delaware Gathering Acquisition. 76 | Management's Discussion and Analysis Wholesale Marketing and Terminalling Segment The table and discussion below present the results of operations and certain operating statistics of the wholesale marketing and terminalling segment for the years ended December 31, 2023 and 2022: Wholesale Marketing and Terminalling Year Ended December 31, 2023 2022 Net Revenues $ 505,701 $ 588,884 Cost of materials and other $ 388,536 $ 491,452 Operating expenses (excluding depreciation and amortization presented below) $ 17,796 $ 19,458 Segment EBITDA $ 106,512 $ 83,098 Operating Information Year Ended December 31, 2023 2022 East Texas - Tyler Refinery sales volumes (average bpd) (1) 60,626 66,058 Big Spring marketing throughputs (average bpd) 77,897 71,580 West Texas marketing throughputs (average bpd) 10,032 10,206 West Texas marketing gross margin per barrel $ 5.18 $ 4.45 Terminalling throughputs (average bpd) (2) 113,803 132,262 (1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount Pleasant, Texas terminals, our El Dorado and North Little Rock, Arkansas terminals and our Memphis and Nashville, Tennessee terminals. Operational Comparison of the Year Ended December 31, 2023 versus the Year Ended December 31, 2022: Net Revenues 2023 vs. 2022 Net revenues for the wholesale marketing and terminalling segment decreased by $83.2 million, or 14.1%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decreased revenue of $99.6 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the volumes of diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.46 per gallon and $0.73 per gallon, respectively; and ◦ the average volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold. Such decreases were partially offset by the following: • increase in terminalling and marketing revenue primarily due to increased volume and rates associated with Big Spring marketing operations. 77 | 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 years ended December 31, 2023, 2022: Cost of Materials and Other 2023 vs. 2022 Cost of materials and other for the wholesale marketing and terminalling segment decreased by $102.9 million, or 20.9% , in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decreased costs of materials and other of $101.9 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the volumes of gasoline and diesel sold: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.74 per gallon, respectively; and ◦ the volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold. The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2023 and 2022. Refer to the Refined Products Volume - Gallons chart above for a summary of volumes impacting our West Texas operations. 78 | Management's Discussion and Analysis Operating Expenses 2023 vs. 2022 Operating expenses for the wholesale marketing and terminalling segment decreased by $1.7 million, or 8.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. EBITDA 2023 vs. 2022 EBITDA increased by $23.4 million, or 28.2%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • increases in terminalling utilization and improved wholesale margins. 79 | Management's Discussion and Analysis Storage and Transportation Segment The table and discussion below present the results of operations and certain operating statistics of the storage and transportation segment for the years ended December 31, 2023 and 2022: Storage and Transportation Year Ended December 31, 2023 2022 Net revenues $ 143,598 $ 142,096 Cost of materials and other $ 63,710 $ 66,953 Operating expenses (excluding depreciation and amortization presented below) $ 18,104 $ 17,843 Segment EBITDA $ 63,850 $ 56,269 Operational Comparison of the Year Ended December 31, 2023 versus the Year Ended December 31, 2022: Net Revenues 2023 vs. 2022 Net revenues for the storage and transportation segment increased by $1.5 million, or 1.1%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. Cost of Materials and Other 2023 vs. 2022 Cost of materials and other for the storage and transportation segment decreased by $3.2 million, or 4.8%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. Operating Expenses 2023 vs. 2022 Operating expenses for the storage and transportation segment increased by $0.3 million, or 1.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022. EBITDA 2023 vs. 2022 EBITDA increased by $7.6 million, or 13.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by an increase in storage and transportation rates. 80 | Management's Discussion and Analysis Investments in Pipeline Joint Ventures Segment The Investments in Pipeline Joint Ventures segment relates to strategic Joint Venture investments, accounted for as equity method investments, to support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system. As a result, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity. The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities. Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 12 to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the year ended December 31, 2023. Liquidity and Capital Resources Sources of Capital We consider the following when assessing our liquidity and capital resources: (i) cash generated from operations; (iv) potential issuance of additional debt securities; and (ii) borrowings under our revolving credit facility; (v) potential sale of assets. (iii) potential issuance of additional equity; At December 31, 2023, our total liquidity amounted to $343.3 million comprised of $269.5 million and $70.0 million in unused credit commitments under the DKL Credit Facility and the Related Party Revolving Credit Facility, respectively, and $3.8 million in cash and cash equivalents. We have the ability to increase the DKL Credit Facility to $1.15 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility. Historically, we have generated adequate cash from operations to fund ongoing working capital requirements, pay quarterly cash distributions and operational capital expenditures, and we expect the same to continue in the foreseeable future. Other funding sources, including the issuance of additional debt securities, have been utilized to fund growth capital projects such as dropdowns and other acquisitions. In addition, we have historically been able to source funding at rates that reflect market conditions, our financial position and our credit ratings. We continue to monitor market conditions, our financial position and our credit ratings and expect future funding sources to be at rates that are sustainable and profitable for the Partnership. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us. We believe we have sufficient financial resources from the above sources to meet our funding requirements in the next 12 months, including working capital requirements, quarterly cash distributions and capital expenditures. Nevertheless, our ability to satisfy working capital requirements, to service our debt obligations, to fund planned capital expenditures, or to pay distributions will depend upon future operating performance, which will be affected by prevailing economic conditions in the oil industry and other financial and business factors, including crude oil prices, some of which are beyond our control. At December 31, 2023, the DKL Credit Facility was classified as long-term in the accompanying consolidated balance sheets in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K as we currently have the ability and intent to refinance the 2025 Notes on a long-term basis through available capacity under the DKL Revolving Facility, Related Party Revolving Credit Facility or new funding sources. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in crude oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings. There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements. Such actions include seeking alternative financing solutions and enacting cost reduction measures. Refer to the Business Overview section of this MD&A for a complete discussion of the uncertainties identified by management and the actions taken to respond to these uncertainties. We believe we were in compliance with the covenants in all our debt facilities as of December 31, 2023. 81 | Management's Discussion and Analysis Cash Distributions On January 24, 2024, the board of directors of our general partner declared a distribution of 1.055 per common unit (the "Distribution"), which equates to approximately $46.0 million per quarter, or approximately $184.0 million per year, based on the number of common units outstanding as of February 5, 2024. The Distribution will be paid on February 12, 2024 to common unitholders of record on February 5, 2024 and represents a 3.4% increase over the fourth quarter 2022 distribution. This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit. The table below summarizes the quarterly distributions related to our 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 September 30, 2022 $0.990 $43,057 December 31, 2022 $1.020 $44,440 March 31, 2023 $1.025 $44,664 June 30, 2023 $1.035 $45,112 September 30, 2023 $1.045 $45,558 December 31, 2023 $1.055 $46,010 Cash Flows The following table sets forth a summary of our consolidated cash flows for the year ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 225,319 $ 192,168 Net cash used in investing activities (89,629) (770,437) Net cash (used in) provided by financing activities (139,905) 581,947 Net (decrease) increase in cash and cash equivalents $ (4,215) $ 3,678 Operating Activities Net cash provided by operating activities increased by $33.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The cash receipts from customer activities increased by $14.7 million and cash payments to suppliers and for allocations to Delek Holdings for salaries decreased by $71.0 million. In addition, cash dividends received from equity method investments increased by $5.8 million and cash paid for debt interest increased by $58.3 million. Investing Activities Net cash used in investing activities decreased by $680.8 million during the year ended December 31, 2023 compared to the year ended December 31, 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 $625.6 million. There were no acquisitions during the year ended December 31, 2023 . In addition, there was a $45.0 million decrease in purchases of property, plant and equipment primarily associated with growth projects in our gathering and processing segment, and a $7.3 million increase in distributions from equity method investments. Financing Activities Net cash provided by financing activities decreased by $721.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was primarily driven by net borrowings under the revolving credit facility which decreased by $402.5 million, primarily associated with financing of the Delaware Gathering Acquisition in the prior year. Also contributing to the decrease was a decrease in net borrowings on the term loan of $317.3 million and a $8.9 million increase in cash distributions paid. Debt Overview As of December 31, 2023, we had total indebtedness of $1,711.8 million. The increase of $41.3 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 year ended December 31, 2023. As of December 31, 2023, our total indebtedness consisted of: 82 | Management's Discussion and Analysis • An aggregate principal amount of $780.5 million under the DKL Revolving Facility, due on October 13, 2027 (which will accelerate to 180 days prior to the stated maturity date of the Delek Logistics 2025 Notes if any of the Delek Logistics 2025 Notes remain outstanding on that date), with an average borrowing rate of 8.46%. • An aggregate principal amount of $281.3 million, under the DKL Term Facility, due on April 15, 2025 (which will accelerate to 180 days prior to the stated maturity date of the Delek Logistics 2025 Notes if any of the Delek Logistics 2025 Notes remain outstanding on that date), with an average borrowing rate of 9.46%. • An aggregate principal amount of $250.0 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.19%. • An aggregate principal amount of $400.0 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.39%. As of December 31, 2023, the DKL Revolving Facility and DKL Term Facility were classified as long-term in the accompanying consolidated balance sheets in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K as we currently have the ability and intent to refinance the 2025 Notes on a long-term basis through available capacity under the DKL Revolving Facility, Related Party Revolving Credit Facility or new funding sources. We believe we were in compliance with the covenants in all debt facilities as of December 31, 2023. See Note 10 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our indebtedness. Agreements Governing Certain Indebtedness of Delek Holdings Please read Item 1A. "Risk Factors—Risks Relating to Our Business—Delek Holdings’ level of indebtedness, the terms of its borrowings and any future credit ratings could adversely affect our ability to grow our business, our ability to make cash distributions to our unitholders and our credit profile. Our current and future credit ratings may also be affected by Delek Holdings' level of indebtedness and financial performance and credit ratings.” Capital Spending A key component of our long-term strategy is our capital expenditure program, which includes strategic consideration and planning for the timing and extent of regulatory maintenance, sustaining maintenance, and growth capital projects. These categories are described below: • Regulatory maintenance projects in the gathering and processing segment are those expenditures expected to be spent on certain of our pipelines to maintain their operational integrity pursuant to applicable environmental and other regulatory requirements. Regulatory projects in the wholesale marketing and terminalling segment relates to scheduled maintenance and improvements on our terminalling tanks and racks at certain of our terminals in order to maintain environmental and other regulatory compliance. These expenditures have historically been and will continue to be financed through cash generated from operations. • Sustaining capital expenditures represent capitalizable expenditures for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are expenditures for the repair, refurbishment and replacement of pipelines, tanks and terminals, to maintain equipment reliability, integrity and safety and to maintain compliance with environmental laws and regulations. Delek Holdings has agreed to reimburse us with respect to certain assets it has transferred to us pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). When not provided for under reimbursement agreements, such activities are generally funded by cash generated from operations. • Growth projects include those projects that do not fall into one of the two categories above, and could include committed expansion projects under contracts with customers as well as other incremental growth projects, but are generally expected to produce incremental cash flows in accordance with our internal return on invested capital policy. Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities. 83 | Management's Discussion and Analysis The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the year ended December 31, 2023: (in thousands) Full Year 2024 Forecast Year Ended December 31, 2023 Gathering and Processing Regulatory $ 750 $ 31 Sustaining 3,900 2,016 Growth 49,500 72,636 Gathering and Processing Segment Total $ 54,150 $ 74,683 Wholesale Marketing and Terminalling Regulatory $ 3,300 $ 924 Sustaining 2,379 163 Growth — 1,024 Wholesale Marketing and Terminalling Segment Total $ 5,679 $ 2,111 Storage and Transportation Regulatory $ 1,500 $ 2,005 Sustaining 8,500 2,543 Growth — — Storage and Transportation Segment Total $ 10,000 $ 4,548 Total Capital Spending $ 69,829 $ 81,342 The amount of our capital expenditure forecast is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections. Long-term Cash Requirements Information regarding our known contractual obligations of the types described below, as of December 31, 2023, is set forth in the following table (in thousands): <1 Year 1-3 Years 3-5 Years >5 Years Total Long term debt and notes payable $ 30,000 $ 501,250 $ 1,180,500 $ — $ 1,711,750 Interest (1) 136,972 204,009 94,325 — 435,306 Finance Lease Obligation 583 551 417 — 1,551 Operating lease commitments (2) 7,515 6,349 2,104 1,111 17,079 Total $ 175,070 $ 712,159 $ 1,277,346 $ 1,111 $ 2,165,686 (1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2025 and 2028 Notes at December 31, 2023. Floating interest rate debt is calculated using rates in effect on December 31, 2023. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2023. We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations. With the exception of amounts classified as current, there is uncertainty as to the timing of future cash flows related to these obligations. As such, we have excluded the future cash flows from the contractual commitments table above. See additional information on asset retirement obligations and environmental liabilities in Notes 2 and 14, respectively, to our consolidated financial statements in Item 8. Other Cash Requirements Our other cash requirements consisted of operating activities and cash distributions to unitholders. Operating activities included cash outflows related to payments to suppliers for crude and other materials and payments for services. Refer to the Cash Flow section for our operating activities spend in 2023. While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity. Refer to Cash Distributions section for cash distributions made in 2023 and planned distributions for 2024. Refer to the capital spending section for our capital expenditures for 2023 and our planned capital expenditures for 2024. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements through the date of the filing of this Annual Report on Form 10-K. 84 | Management's Discussion and Analysis Critical Accounting Estimates The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. We prepare our consolidated financial statements in conformity with GAAP, and in the process of applying these principles, we must make judgments, assumptions and estimates based on the best available information at the time. To aid a reader's understanding, management has identified our critical accounting estimates. These estimates are considered critical because they are both most important to the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments. Often they require judgments and estimation about matters which are inherently uncertain and involve measuring at a specific point in time, events which are continuous in nature. Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which we may have little or no control. Business Combinations We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date. Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase. The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity-specific differences. We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ materially from the projected results used to determine fair value. Goodwill Goodwill in an acquisition represents the excess of the aggregate purchase price over the fair value of the identifiable net assets. Goodwill is reviewed at least annually for impairment, or more frequently if indicators of impairment exist, such as disruptions in our business, unexpected significant declines in operating results or a sustained market capitalization decline. Goodwill is evaluated for impairment by comparing the carrying amount of the reporting unit to its estimated fair value. In assessing the recoverability of goodwill, assumptions are made with respect to future business conditions and estimated expected future cash flows to determine the fair value of a reporting unit. We may consider inputs such as a market participant weighted average cost of capital ("WACC"), forecasted operating performance, volumes and capital expenditures, all of which are subject to significant judgment and estimates. We may also consider a market approach in determining or corroborating the fair values of the reporting units using a multiple of expected future cash flows, such as those used by third-party analysts. The market approach involves significant judgment, including selection of an appropriate peer group, selection of valuation multiples, and determination of the appropriate weighting in our valuation model. If these estimates and assumptions change in the future, due to factors such as a decline in general economic conditions, sustained decrease in the crack spreads, competitive pressures on sales and margins and other economic and industry factors beyond management's control, an impairment charge may be required. The most significant risks to our valuation and the potential future impairment of goodwill are the WACC and the volatility of volumes, which is based on internal forecasts and depend, in part, on assumptions about our customers’ drilling activity which is inherently subjective and contingent upon a number of variable factors (including future or expected pricing considerations). We may also elect to perform a qualitative impairment assessment of goodwill balances. The qualitative assessment permits companies to assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying amount. If a company concludes that, based on the qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company is required to perform the quantitative impairment test. Alternatively, if a company concludes based on the qualitative assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it has completed its goodwill impairment test and does not need to perform the quantitative impairment test. At December 31, 2023, we had three reporting units with goodwill totaling approximately $12.2 million. Our annual goodwill impairment testing was performed on a quantitative basis for our Delaware Gathering reporting unit during the fourth quarter of 2023. As part of our annual assessment, we recorded a $14.8 million impairment charge in the fourth quarter of 2023 related to our Delaware Gathering reporting unit within the gathering and processing segment, which brought the amount of goodwill recorded within this reporting unit to zero. The impairment was primarily driven by the significant increases in interest rates and timing of system connections with our producer customers. The estimated fair value of our Delaware Gathering reporting unit was derived using a combination of both income and market approaches. The income approach reflects expected future cash flows based on anticipated gross margins, operating costs, and capital expenditures. The market approach includes both the guideline public company and guideline transaction methods. Both market approach methods use pricing multiples derived from historical market transactions of other like-kind assets. These fair value measurements involve significant unobservable inputs (Level 3 inputs). 85 | Management's Discussion and Analysis Significant judgment is involved in performing these fair value estimates since the results are based on forecasted assumptions. Significant assumptions include: • Future volumes . Our estimates of future throughput of crude oil, natural gas, and water volumes are based on internal forecasts and depend, in part, on assumptions about our customers’ drilling activity which is inherently subjective and contingent upon a number of variable factors (including future or expected pricing considerations), many of which are difficult to forecast. Management considers these volume forecasts and other factors when developing our forecasted cash flows. • Discount rate. We apply a discount rate to our cash flows based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. This discount rate is also compared to recent observable market transactions, if possible. A higher discount rate decreases the net present value of cash flows. • Future capital requirements . These are based on authorized spending and internal forecasts. If estimates for future cash flows, which are impacted primarily by future volumes and EBITDA projections, were to decline, the overall reporting units’ fair value would decrease, resulting in potential goodwill impairment charges. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the impairment tests will prove to be an accurate prediction of the future. For our other reporting units in 2023, we assessed qualitative factors such as macroeconomic conditions, industry considerations, cost factors, and reporting unit financial performance and determined it was not more likely than not that the fair value of our reporting units were less than the respective carrying value. For the 2022 annual impairment assessment, we performed a qualitative assessment on all reporting units, as we determined it was more likely than not that the fair value of the reporting units exceeded the carrying value. Therefore, in accordance with GAAP, further testing was not required. An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions (e.g., pricing, volumes and discount rates) that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions. New Accounting Pronouncements See Note 2 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of new accounting pronouncements applicable to us.