What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 192 added, 117 removed, 396 unchanged (44% of the section changed)

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and any of its subsidiaries, other than the Partnership and its subsidiaries and its general partner.

On August 2, 2024, the Partnership entered into a Purchase and Sale Agreement with H2O Midstream Holdings, LLC (the “Seller”) to purchase 100% of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the “Purchased Interests” or "H2O Midstream), related to Seller’s water disposal and recycling operations, in the Midland Basin in Texas (the “Purchase Agreement”).

For further information, see Note 10 to our condensed consolidated financial statements in Item 1.

Financial Statements, of this Quarterly Report on Form 10-Q.

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).

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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.

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, including the H2O Midstream acquisition, 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.

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• the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements;

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;

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• 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;

• our ability to successfully complete acquisitions and integrate acquired businesses, and to achieve the anticipated benefits therefrom, including the planned H2O Midstream acquisition;

• 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 undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Management's Discussion and Analysis

Executive Summary:

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Business and Economic Environment Overview

During the three months ended March 31, 2024, 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.

During the six months ended June 30, 2024, 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, 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.

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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 Partnership system.

While we experienced a $4.7 million decrease in net income for the three months ended March 31, 2024, our EBITDA (as defined in "Non GAAP Measures" section below) increased $8.3 million in 2024 as compared to 2023.

Net Income for the Partnership increased $4.4 million during the six months ended June 30, 2024, as compared to the prior year period.

Our EBITDA (as defined in "Non GAAP Measures" section below) increased $18.0 million in 2024 as compared to 2023.

This improvement can be attributed to the strong financial and operational performance achieved across all of our operating segments.

Our gathering and processing segment saw a $4.3 million increase in segment EBITDA.

Our wholesale marketing and terminalling segment saw a $5.5 million increase in segment EBITDA.

Our storage and transportation segment saw a $6.5 million increase in segment EBITDA.

Segment EBITDA for our investments in pipeline joint ventures increased by $2.8 million.

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Therefore, 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.

Further, in order to position ourselves as a premier, full-service midstream provider in the Permian Basin, the Partnership has implemented several strategic initiatives, as discussed in detail below in 'Other 2024 Developments'.

These actions not only enhance our standing in the market but also move to align us as an independent, largely third-party cash flow company with a robust growth profile.

See further discussion on macroeconomic factors and market trends, including the impact on 2024, in the ‘Market Trends’ section below.

Other 2024 Developments

Equity Offering

On March 12, 2024, we completed a public offering of its common units in which it sold 3,584,416 common units (including an overallotment option of 467,532 common units) to the underwriters of the offering at a price to the public of $38.50 per unit.

The proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $132.3 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

Underwriting discounts totaled $5.5 million.

Planned H2O Midstream Acquisition

On August 2, 2024, the Partnership entered into a Purchase and Sale Agreement with H2O Midstream Holdings, LLC (the “Seller”) to purchase 100% of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC (the “Purchased Interests” or "H2O Midstream"), related to the Seller’s water disposal and recycling operations, in the Midland Basin in Texas (the “Purchase Agreement”) for total consideration of $230.0 million, subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness (the "H2O Transaction").

The purchase price is comprised of approximately $160.0 million in cash and $70.0 million of preferred equity.

The closing of the H2O Transaction is currently anticipated to occur by the end of 2024.

Wink to Webster Pipeline Investment Acquisition

On August 5, 2024, the Partnership acquired a 50% investment in W2W Holdings LLC which includes a 15.6% indirect interest in the Wink to Webster Pipeline, LLC joint venture ("Wink to Webster"), and related joint venture indebtedness, from a wholly owned subsidiary of Delek Holdings.

W2W Holdings LLC was originally formed by Delek Holdings and MPLX Operations LLC to obtain financing and fund capital calls associated with its collective and contributed interests in Wink to Webster.

Wink to Webster owns and operates a long-haul crude oil pipeline system with origin points at Wink and Midland in the Permian Basin and delivery points at multiple Houston area locations.

Total consideration was comprised of $86.6 million in cash, forgiveness of an approximately $60 million receivable from Delek Holdings and 2,300,000 of common units representing limited partnership interest in us.

Commercial Agreements with Delek Holdings

On August 5, 2024, the Partnership amended and extended expired, or soon to be expired, commercial agreements with subsidiaries of Delek Holdings under which we provide various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings.

These agreements have an initial term of five to seven years, with the ability to extend for an additional five years at Delek Holdings' option.

In addition, certain of these contracts had rate adjustments to be phased in over 2025 and 2026.

In addition, the Partnership entered into an assignment agreement with Delek Holdings.

As a result of these agreements with Delek Holdings, we redeemed 2,500,000 common units representing limited partnership interest in us held by Delek Holdings to assign the Big Spring Refinery Marketing Agreement to Delek Holdings.

We also entered into an amended and restated Omnibus Agreement with Delek Holdings that provides Delek Holdings an option to purchase certain critical assets from us at market value during the period beginning upon any change in control or sale of substantially all assets involving us and extending (i) in the case of a transaction involving a third party, for six months following closing, and (ii) for any other transaction for four years following closing.

Natural Gas Plant

In the second quarter of 2024, the Partnership made the final investment decision to build a new natural gas processing plant adjacent to its plant in the Permian Basin.

The plant is expected to have a capacity of approximately 110 MMcf/d (as defined below) and aims to meet the rising demand for natural gas in the region.

We have engaged specialists to oversee the process, including permits, equipment procurement, and construction.

Financial projections estimate an EBITDA of approximately $40 million, considering increased production, cost savings, and market conditions.

The expansion also aligns with our commitment to sustainability, integrating advanced technologies to minimize emissions and optimize energy efficiency.

This strategic move positions us as a key player in the energy sector, contributing to regional economic growth and sustainability.

This expansion project will also increase the Partnership's third party revenue.

Contractual Rate Adjustments to Keep Pace with Inflation

On July 1, 2024, 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 1.3%, which was the amount of the change in the FERC oil pipeline index.

The tariff on FERC regulated system acquired from Delaware Gathering was adjusted as of January 1, 2024, 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 3.3% and the fees that are subject to adjustments using the producer price index increased approximately 0.8%.

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

DKL Revolving Credit Facility

On March 29, 2024, the Partnership entered into a Fourth Amendment to the fourth amended and restated senior secured revolving credit agreement (the "DKL Revolving Facility") which among other things increased the U.S.

Revolving Credit Commitments (as defined in the DKL Credit Facility) by an amount equal to $100.0 million resulting in aggregate lender commitments under the DKL Revolving Credit Facility in an amount of $1,150.0 million, including up to $146.9 million for letters of credit and $31.9 million in swing line loans.

This facility has a maturity date of October 13, 2027.

On March 13, 2024, the Partnership sold $650.0 million in aggregate principal amount of 8.625% Senior Notes due 2029 (the “2029 Notes”), at par.

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The net proceeds were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

Management's Discussion and Analysis

DKL Revolving Credit Facility

This facility has a maturity date of October 13, 2027.

As a result of these transactions, our liquidity significantly improved, with an increase from approximately $300.0 million as of December 31, 2023, to approximately $800.0 million.

The improvement in liquidity demonstrates the success of our financial strategies and the positive impact of our transactions, positioning us for future growth and strengthening our financial stability.

Management's Discussion and Analysis

Equity Offering

The proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $132.2 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

Underwriting discounts totaled $5.5 million.

Segment Overview

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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 8 to our condensed consolidated statements of income in Item 1.

to this Quarterly Report on Form 10-Q.

Segment reporting is discussed in more detail in Note 8 to our condensed consolidated financial statements in Item 1.

Financial Statements, of this Quarterly Report on Form 10-Q.

Gathering and Processing

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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.

Management's Discussion and Analysis

2024 Strategic Focus Areas

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However, sustained depressed demand/prices over the longer term could not only curb exploration and production expansion opportunities under our agreements, it could also impact our customers' willingness or ability to renew commercial agreements or result in liquidity or credit constraints that could impact our longer term relationship with them.

Management's Discussion and Analysis

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.

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The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas.

Management's Discussion and Analysis

Non-GAAP Measures

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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 condensed consolidated statements of income in Item 1.

to this Quarterly Report on Form 10-Q.

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Reconciliation of net income to EBITDA (in thousands)

Three Months Ended March 31,

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

2024 2023 2024 2023

Net income $ 41,058 $ 31,896 $ 73,706 $ 69,263

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Net cash provided by operating activities $ 87,639 $ 34,612 $ 131,497 $ 63,802

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Reimbursement from Delek Holdings for capital expenditures (2)

(4) 674 282 1,011

Accretion of asset retirement obligations (186) (176) (373) (352)

Deferred income taxes (103) (518) (204) (629)

Loss on disposal of assets (567) (142)

Gain on disposal of assets 7,197 455 6,630 313

Distributable cash flow $ 67,809 $ 60,450 $ 135,800 $ 122,212

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.

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Financial Statements, of this Quarterly Report on Form 10-Q).

Management's Discussion and Analysis

Summary of Financial and Other Information

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Summary Statement of Operations Data (1)

Three Months Ended March 31,

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

2024 2023 2024 2023

Net revenues:

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Depreciation and amortization 24,207 23,727 50,702 44,832

Impairment of goodwill — —

Loss on disposal of assets 567 142

Other operating income, net (1,744) (455) (1,177) (313)

Operating income $ 68,461 $ 59,947 $ 133,003 $ 123,879

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(1) This information is presented at a summary level for your reference.

See the Condensed Consolidated Statements of Income for more detail regarding our results of operations.

See the condensed consolidated statements of income and comprehensive income in Item 1.

to this Quarterly Report on Form 10-Q for more detail regarding our results of operations.

(2) For a definition of EBITDA, see "Non-GAAP Measures" above.

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Management measures the operating performance of each of its reportable segments based on the segment EBITDA.

Management's Discussion and Analysis

Results of Operations

Consolidated Results of Operations — Comparison of the three months ended March 31, 2024 compared to the three months ended March 31, 2023

Net revenues increased by $8.6 million, or 3.5%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Consolidated Results of Operations — Comparison of the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023

Net revenues increased by $17.7 million, or 7.2%, in the second quarter of 2024 compared to the second quarter of 2023, primarily driven by the following:

• increased revenue of $11.4 million in our West Texas marketing operations primarily driven by increases in volumes sold, partially offset by a decrease in average sales prices per gallon and decrease in RINs revenue:

◦ the volumes of gasoline and diesel sold increased by 3.6 million and 3.4 million gallons, respectively;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.14 and $0.06 per gallon, respectively;

◦ RINs revenue decreased from $3.2 million in the second quarter of 2023 to $1.3 million in the second quarter of 2024, due to decrease in RINs prices.

• increase in terminalling and marketing revenue primarily due to rate increases and increased volumes.

Net revenues increased by $26.3 million, or 5.4%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase was primarily driven by the following:

• increase in terminalling and marketing fees due to rate increases as well as higher volumes associated with Tyler Refinery operations which were negatively impacted in prior year as a result of turnaround activities.

Such increases were partially offset by the following:

• decreased revenue of $0.6 million in our West Texas marketing operations primarily driven by decreases in RIN prices.

• increased revenue of $10.8 million in our West Texas marketing operations primarily driven by increases in volumes sold, partially offset by a decrease in average sales prices per gallon and decrease in RINs revenue:

◦ the volumes of gasoline and diesel sold increased by 7.6 million and 3.9 million gallons, respectively;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.19 and $0.19 per gallon, respectively;

◦ RINs revenue decreased from $5.6 million in the six months ended June 30, 2023 to $2.4 million in the six months ended June 30, 2024, due to decrease in RINs prices.

• increase in terminalling and marketing revenue primarily due to rate increases and increased volumes.

Cost of Materials and Other

Cost of materials and other decreased by $2.4 million, or 1.9%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by

Cost of materials and other increased by $9.9 million, or 7.8%, in the second quarter of 2024 compared to the second quarter of 2023, primarily driven by the following:

• increased costs of materials and other of $14.4 million in our West Texas marketing operations primarily driven by increases in the volumes of gasoline and diesel sold, partially offset by decreases in the average cost per gallon:

◦ the volumes of gasoline and diesel sold increased by 3.6 million and 3.4 million gallons, respectively;

◦ the average cost per gallon of gasoline sold decreased by $0.14 per gallon, partially offset by an increase in average cost per gallon of diesel sold of $0.03 per gallon.

Such increase was partially offset by the following:

• decrease of $2.2 million in our gathering and processing segment driven primarily by lower natural gas costs.

Such decrease was partially offset by the following:

• increase in costs of materials and other of $1.8 million in our West Texas marketing operations primarily driven by increases in the average volumes of gasoline and diesel sold, partially offset by decreases in the average cost per gallon:

Cost of materials and other increased by $7.5 million, or 3.0%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by

• increased costs of materials and other of $16.2 million in our West Texas marketing operations primarily driven by increases in the average volumes of gasoline and diesel sold, partially offset by decreased costs per gallon:

◦ the volumes of gasoline and diesel sold increased by 7.6 million and 3.9 million gallons, respectively;

◦ the average cost per gallon of gasoline and diesel sold decreased by $0.21 per gallon and $0.10 per gallon, respectively.

Such increase was partially offset by the following:

• decrease of $7.4 million in our gathering and processing segment driven primarily by lower natural gas costs.

Operating Expenses

Operating expenses increased by $7.2 million, or 29.0%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by an increase in contract services.

Operating expenses increased by $0.7 million, or 2.3%, in the second quarter of 2024 compared to the second quarter of 2023.

Operating expenses increased by $7.8 million, or 14.6%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by an increase in contract services.

General and Administrative Expenses

General and administrative expenses decreased by $2.6 million, or 35.2%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by a decrease in contract services.

General and administrative expenses decreased by $0.6 million, or 9.0%, in the second quarter of 2024 compared to the second quarter of 2023.

General and administrative expenses decreased by $3.2 million, or 23.0%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

• decrease in lease expense;

• decrease in contract services.

Depreciation and Amortization

Depreciation and amortization increased by $5.4 million, or 25.5%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the following:

Depreciation and amortization increased by $0.5 million, or 2.0%, in the second quarter of 2024 compared to the second quarter of 2023.

Depreciation and amortization increased by $5.9 million, or 13.1%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

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

Management's Discussion and Analysis

Other operating income, net

Other operating income, net increased by $1.3 million, or 283.3%, in the second quarter of 2024 compared to the second quarter of 2023, primarily driven by the following:

• increase in gain on disposal of assets predominantly due to $8.3 million in condemnation proceeds received in the second quarter of 2024;

• partially offset by $5.4 million related to settlement of payment dispute.

Gain on disposal of assets increased by $0.9 million, or 276.0%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

• increase in gain on disposal of assets predominantly due to $8.3 million in condemnation proceeds received in the second quarter of 2024;

• partially offset by $5.4 million related to settlement of payment dispute.

Interest Expense

Interest expense increased by $7.6 million, or 23.5%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the following:

Interest expense increased by $0.2 million, or 0.5%, in the second quarter of 2024 compared to the second quarter of 2023.

Interest expense increased by $7.8 million, or 11.5%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

• debt extinguishment costs of $3.6 million associated with the payoff of the DKL Term Loan Facility and the 2025 Notes with proceeds from the 2029 Notes issued in March 2024;

• interest of $2.8 million associated with the 2029 Notes;

• an increase in interest rates associated with the DKL Revolving Facility.

• interest associated with the 2029 Notes issued in the first quarter of 2024;

• partially offset by a decrease in interest associated with the DKL Revolving Facility due to lower average outstanding borrowings.

Results from Equity Method Investments

Income from equity method investments increased by $2.2 million, or 34.4%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to increases in throughput at two of our joint ventures that were negatively impacted by the turnaround at the Tyler Refinery in prior year.

Management's Discussion and Analysis

Income from equity method investments increased by $0.6 million, or 8.2%, in the second quarter of 2024 compared to the second quarter of 2023.

Income from equity method investments increased by $2.8 million, or 20.4%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to increases in throughput at two of our joint ventures that were negatively impacted by the turnaround at the Tyler Refinery in prior year.

Operating Segments

Gathering and Processing Segment

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, 2024 and 2023:

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, 2024 and 2023:

Gathering and Processing

Three Months Ended March 31,

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

2024 2023 2024 2023

Net Revenues $ 92,643 $ 93,237 $ 188,526 $ 185,669

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Throughputs (average bpd)

Three Months Ended March 31,

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

2024 2023 2024 2023

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,

2024 2023 2024 2023

Natural Gas Gathering and Processing (Mcfd (1) )

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(2) bpd - average barrels per day.

Operational comparison of the three months ended March 31, 2024 compared to the three months ended March 31, 2023:

Net revenues for the gathering and processing segment increased by $3.5 million, or 3.7%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Operational comparison of the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023:

Net revenues for the gathering and processing segment decreased by $0.6 million, or 0.6%, in the second quarter of 2024 compared to the second quarter of 2023.

Net revenues for the gathering and processing segment increased by $2.9 million, or 1.5%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Cost of Materials and Other

Cost of materials and other for the gathering and processing segment decreased by $5.2 million, or 22.4%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, driven primarily by lower natural gas costs.

Cost of materials and other for the gathering and processing segment decreased by $2.2 million, or 10.1%, in the second quarter of 2024 compared to the second quarter of 2023, driven primarily by driven primarily by lower natural gas costs.

Cost of materials and other for the gathering and processing segment decreased by $7.4 million, or 16.4%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, driven primarily by lower natural gas costs.

Operating Expenses

Operating expenses for the gathering and processing segment increased by $5.5 million, or 38.5%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by increase in contract services.

Management's Discussion and Analysis

EBITDA increased by $2.3 million, or 4.2%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Management's Discussion and Analysis

Operating expenses for the gathering and processing segment decreased by $1.1 million, or 5.3%, in the second quarter of 2024 compared to the second quarter of 2023.

Operating expenses for the gathering and processing segment increased by $4.4 million, or 12.6%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by increase in contract services.

EBITDA increased by $2.0 million, or 3.8%, in the second quarter of 2024 compared to the second quarter of 2023.

EBITDA increased by $4.3 million, or 4.0%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Wholesale Marketing and Terminalling Segment

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, 2024 and 2023:

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, 2024 and 2023:

Wholesale Marketing and Terminalling

Three Months Ended March 31,

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

2024 2023 2024 2023

Net Revenues $ 135,600 $ 118,827 $ 254,870 $ 231,136

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Operating Information

Three Months Ended March 31,

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

2024 2023 2024 2023

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.

Operational comparison of the three months ended March 31, 2024 compared to the three months ended March 31, 2023:

Net revenues for the wholesale marketing and terminalling segment increased by $7.0 million, or 6.2%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the following:

Such increases were partially offset by the following:

• decreased revenue of $0.6 million in our West Texas marketing operations primarily driven by decrease in RIN prices.

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, 2024 and 2023.

Management's Discussion and Analysis

Operational comparison of the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023:

Net revenues for the wholesale marketing and terminalling segment increased by $16.8 million, or 14.1%, in the second quarter of 2024 compared to the second quarter of 2023, driven primarily by the following:

◦ the volumes of gasoline and diesel sold increased by 3.6 million and 3.4 million gallons, respectively;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.14 and $0.06 per gallon, respectively;

◦ RINs revenue decreased from $3.2 million in the second quarter of 2023 to $1.3 million in the second quarter of 2024, due to decrease in RINs prices.

• increase in terminalling and marketing revenue primarily due to rate increases and increased volumes.

Net revenues for the wholesale marketing and terminalling segment increased by $23.7 million, or 10.3%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

◦ the volumes of gasoline and diesel sold increased by 7.6 million and 3.9 million gallons, respectively;

◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.19 and $0.19 per gallon, respectively;

◦ RINs revenue decreased from $5.6 million in the six months ended June 30, 2023 to $2.4 million in the six months ended June 30, 2024, due to decrease in RINs prices.

• increase in terminalling and marketing revenue primarily due to rate increases and increased volumes.

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, 2024 and 2023.

Cost of Materials and Other

Cost of materials and other for the wholesale marketing and terminalling segment increased by $4.4 million, or 5.1% , in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the following:

Cost of materials and other for the wholesale marketing and terminalling segment increased by $15.0 million, or 16.9%, in the second quarter of 2024 compared to the second quarter of 2023, driven primarily by the following:

◦ the volumes of gasoline and diesel sold increased by 3.6 million and 3.4 million gallons, respectively;

◦ the average cost per gallon of gasoline sold decreased by $0.14 per gallon, partially offset by an increase in average cost per gallon of diesel sold of $0.03 per gallon.

Cost of materials and other for the wholesale marketing and terminalling segment increased by $19.4 million, or 11.0% , in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the following:

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◦ the average cost per gallon of gasoline and diesel sold decreased by $0.21 per gallon and $0.10 per gallon, 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, 2024 and 2023.

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, 2024 and 2023.

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 decreased by $0.8 million, or 16.9%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

EBITDA increased by $3.3 million, or 15.1%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by the following:

• increases in terminalling and marketing revenue, partially offset by lower wholesale margins.

Management's Discussion and Analysis

Operating expenses for the wholesale marketing and terminalling segment decreased by $0.6 million, or 14.9%, in the second quarter of 2024 compared to the second quarter of 2023, driven primarily by a decrease in outside service costs.

Operating expenses for the wholesale marketing and terminalling segment decreased by $1.4 million, or 16.0%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

EBITDA increased by $2.2 million, or 7.9%, in the second quarter of 2024 compared to the second quarter of 2023, driven primarily by the following increase in terminalling utilization, partially offset by a decline in wholesale margins due to lower RINs prices.

EBITDA increased by $5.5 million, or 11.1%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by increase in terminalling utilization, partially offset by a decline in wholesale margins due to lower RINs prices.

Storage and Transportation Segment

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, 2024 and 2023:

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, 2024 and 2023:

Storage and Transportation

Three Months Ended March 31,

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

2024 2023 2024 2023

Net revenues $ 36,385 $ 34,847 $ 73,307 $ 73,631

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Segment EBITDA $ 16,752 $ 14,978 $ 34,879 $ 28,400

Operation comparison of the three months ended March 31, 2024 compared to the three months ended March 31, 2023

Net revenues for the storage and transportation segment decreased by $1.9 million, or 4.8%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Operation comparison of the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023

Net revenues for the storage and transportation segment increased by $1.5 million, or 4.4%, in the second quarter of 2024 compared to the second quarter of 2023.

Net revenues for the storage and transportation segment decreased by $0.3 million, or 0.4%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Cost of Materials and Other

Cost of materials and other for the storage and transportation segment decreased by $4.7 million, or 25.3%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Cost of materials and other for the storage and transportation segment decreased by $2.9 million, or 16.5%, in the second quarter of 2024 compared to the second quarter of 2023 primarily due to decrease in trucking activity.

Cost of materials and other for the storage and transportation segment decreased by $7.6 million, or 21.1%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to decrease in trucking activity.

Operating Expenses

Operating expenses for the storage and transportation segment decreased by $0.5 million, or 9.7%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

EBITDA increased by $4.7 million, or 35.1%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily driven by a decrease in operating costs.

Management's Discussion and Analysis

Operating expenses for the storage and transportation segment increased by $0.4 million, or 10.5%, in the second quarter of 2024 compared to the second quarter of 2023.

Operating expenses for the storage and transportation segment decreased by $0.1 million, or 1.1%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

EBITDA increased by $1.8 million, or 11.8%, in the second quarter of 2024 compared to the second quarter of 2023.

EBITDA increased by $6.5 million, or 22.8%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to favorable rate escalations associated with pipeline and rail movement and lower cost associated with decrease in trucking activity.

Investments in Pipeline Joint Ventures Segment

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Financial Statements, of this Quarterly Report on Form 10-Q.

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, 2024.

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, 2024.

Liquidity and Capital Resources

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(iii) potential issuance of additional equity;

At March 31, 2024, our total liquidity amounted to $594.5 million comprised of $584.8 million in unused credit commitments under our third-party revolving credit facility (as discussed in Note 5 of our condensed consolidated financial statements in Item 1.

At June 30, 2024, our total liquidity amounted to $824.9 million comprised of $819.8 million in unused credit commitments under our third-party revolving credit facility (as discussed in Note 5 of our condensed consolidated financial statements in Item 1.

Financial Statements, of this Quarterly Report on Form 10-Q), and $5.1 million in cash and cash equivalents.

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There are no ratings triggers that would accelerate the maturity of any borrowings under our debt agreements.

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, 2024.

Cash Distributions

On April 25, 2024, the board of directors of our general partner declared a distribution of $1.070 per common unit (the "Distribution"), which equates to approximately $50.5 million per quarter, or approximately $202,056 per year, based on the number of common units outstanding as of May 8, 2024.

The Distribution will be paid on May 15, 2024 to common unitholders of record on May 8, 2024 and represents a 4.4% increase over the first quarter 2023 distribution.

On July 30, 2024, the board of directors of our general partner declared a distribution of $1.090 per common unit (the "Distribution"), which equates to an estimated amount of approximately $51.5 million per quarter, or approximately $205.9 million per year, based on the number of common units outstanding as of June 30, 2024.

The Distribution will be paid on August 14, 2024 to common unitholders of record on August 9, 2024 and represents a 5.3% increase over the second quarter 2023 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.

Management's Discussion and Analysis

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

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June 30, 2023 $1.035 $45,112

September 30, 2023 $1.045 $45,558

December 31, 2023 $1.055 $46,010

March 31, 2024 $1.070 $50,521

June 30, 2024 (1)

$1.090 $51,481

(1) On July 30, 2024, the board of directors of our general partner declared this quarterly cash distribution, payable on August 14, 2024, to unitholders of record on August 9, 2024.

The total cash distribution was estimated based on the number of common units outstanding as of June 30, 2024.

Equity Offering

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Underwriting discounts totaled $5.5 million.

The following table sets forth a summary of our condensed consolidated cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

The following table sets forth a summary of our condensed consolidated cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended June 30,

Net cash provided by operating activities $ 131,497 $ 63,802

Net cash used in investing activities (15,421) (54,893)

Net cash (used in) provided by financing activities (28,080) 783

Net increase in cash and cash equivalents $ 5,917 $ 2,994

Net cash used in financing activities (114,720) (9,164)

Net increase (decrease) in cash and cash equivalents $ 1,356 $ (255)

Operating Activities

Net cash provided by operating activities increased by $14.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The cash receipts from customer activities decreased by $9.6 million and cash payments to suppliers and for allocations to Delek Holdings for salaries decreased by $32.3 million.

In addition, cash dividends received from equity method investments increased by $0.3 million and cash paid for debt interest increased by $8.3 million.

Net cash provided by operating activities increased by $67.7 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The cash receipts from customer activities increased by $21.2 million and cash payments to suppliers and for allocations to Delek Holdings for salaries decreased by $28.6 million.

In addition, cash dividends received from equity method investments increased by $2.1 million and cash paid for debt interest decreased by $15.8 million.

Investing Activities

Net cash used in investing activities decreased by $17.1 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to decrease of $16.6 million in purchases of property, plant and equipment primarily associated with growth projects in our gathering and processing segment, a nd a $0.7 million increase in distributions from equity method investments.

Net cash used in investing activities decreased by $39.5 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to decrease of $29.0 million in purchases of property, plant and equipment primarily associated with growth projects in our gathering and processing segment, a nd a $9.1 million increase in proceeds from sale of property, plant and equipment predominantly due to $8.3 million of condemnation proceeds received from eminent domain proceedings in Texas in the current period.

Additionally, distributions from equity method investments increased $1.2 million.

Financing Activities

Net cash provided by financing activities decreased by $28.9 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Net cash provided by financing activities decreased by $105.6 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

This decrease was primarily driven by net payments under our revolving credit facility which increased by $540.8 million due to paydown in conjunction with the issuance of the 2029 Notes.

Additionally contributing to this decrease was an increase in deferred financing costs paid of $10.5 million associated with the 2029 Note issuance and a $6.2 million increase in payments on other financing arrangements.

Additionally contributing to this decrease was an increase in deferred financing costs paid of $12.6 million associated with the 2029 Note issuance, an increase in distributions paid of $7.7 million and a $6.2 million increase in payments on other financing arrangements.

Partially offsetting these decreases was an increase of $132.2 million due to proceeds from the equity issuance in March 2024, and an increase of $328.8 million in net proceeds from term debt primarily due to the issuance of the 2029 Notes.

Debt Overview

As of March 31, 2024, we had total indebtedness of $1,615.2 million.

The decrease of $96.6 million in our long-term debt balance compared to the balance at December 31, 2023 resulted from the payments under the DKL Credit Facility and the 2025 Notes, which was partially offset by the issuance of the 2029 Notes during the three months ended March 31, 2024.

As of March 31, 2024, our total indebtedness consisted of:

As of June 30, 2024, we had total indebtedness of $1,580.2 million.

The decrease of $131.6 million in our long-term debt balance compared to the balance at December 31, 2023 resulted from the payments under the DKL Credit Facility and the 2025 Notes, which was partially offset by the issuance of the 2029 Notes during the six months ended June 30, 2024.

As of June 30, 2024, our total indebtedness consisted of:

• An aggregate principal amount of $330.2 million under the DKL Revolving Facility, due on October 13, 2027, with an average borrowing rate of 8.00%.

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• An aggregate principal amount of $850.0 million, under the 2029 Notes (8.625% senior notes), due in 2029, with an effective interest rate of 8.95%.

Management's Discussion and Analysis

On April 17, 2024, the Issuers sold $200.0 million in aggregate principal amount of additional 8.625% senior notes due 2029 at 101.25% (the "Additional 2029 Notes").

The Additional 2029 Notes were issued under the same indenture as the 2029 Notes and formed a part of the same series of notes as the 2029 Notes.

The net proceeds were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility.

On May 2, 2024, the Boards of Directors of Delek Holdings and our general partner authorized the termination of the intercompany loan agreement between Delek Holdings and the Partnership, with the termination expected to be effective on or around May 31, 2024.

We believe we were in compliance with the covenants in all debt facilities as of March 31, 2024.

We believe we were in compliance with the covenants in all debt facilities as of June 30, 2024.

See Note 5 of our condensed consolidated financial statements in Item 1.

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

Management's Discussion and Analysis

The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the three months ended March 31, 2024:

(in thousands) Full Year 2024 Forecast Three Months Ended March 31, 2024

(in thousands) Full Year 2024 Forecast (1)

Six Months Ended June 30, 2024

Gathering and Processing

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Total Capital Spending $ 69,829 $ 25,352

(1) Excludes estimated 2024 costs of $90 million to $100 million related to our new natural gas processing plant.

Refer to 'Other 2024 Developments' section of Item 2.

Management's Discussion and Analysis, of this Quarterly Report on Form 10-Q for further information.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis