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. On September 11, 2024, the Partnership acquired 100% of the limited liability company interests in H2O Midstream Intermediate, LLC, H2O Midstream Permian LLC, and H2O Midstream LLC ("H2O Midstream") from H2O Midstream Holdings, LLC (the “Seller"), related to the Seller’s water disposal and recycling operations, in the Midland Basin in Texas (the “H2O Midstream Acquisition”). See Note 3 to our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. On December 11, 2024, we entered into an agreement to acquire 100% of the limited liability company interests in Gravity Water Intermediate Holdings LLC ("Gravity") from Gravity Water Holdings LLC (the "Gravity Purchase Agreement") related to water disposal and recycling operations in the Permian Basin and the Bakken (the “Gravity Acquisition”). The Gravity Acquisition closed on January 2, 2025. See Note 3 to our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. 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 (www.deleklogistics.com/overview), the news section of its website (www.deleklogistics.com/news-releases), 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, including the H2O Midstream and Gravity 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,” "forecasts", “predicts,” "strategy", “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; 60 | Management's Discussion and Analysis of Financial Condition and Results of Operations • the timing and extent of changes in commodity prices and demand for refined products, and the impact of events such as the conflicts in Ukraine and the Middle East, and the global response to such conflicts, and any future public health crisis 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 shift from hydrocarbon energy sources to alternative energy sources; • 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 ability to attract and retain key personnel; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; • the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of 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 health crisis; • the timely receipt of required government approvals and permits; • 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. 61 | Management's Discussion and Analysis of Financial Condition and Results of Operations In light of these risks, uncertainties and assumptions, our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements, and you should not place undue reliance upon them. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise. Executive Summary: Management's View of Our Business and Strategic Overview Management's View of Our Business The Partnership 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 the Tyler Refinery, the El Dorado Refinery and the Big Spring Refinery. Business and Economic Environment Overview During the year ended December 31, 2024, we made significant strides in our commitment to being a full suite crude, gas and water midstream services provider in the Permian Basin, in addition to diversifying our customer base to include more third-party customers. We successfully closed the H2O Midstream Acquisition that expands our gathering footprint in the Midland sub-basin of the Permian, and extended our product offering of wastewater processing and disposal. In addition, in January 2025, the Partnership closed the Gravity Acquisition which includes integrated full-cycle water systems in the Midland Basin, in addition to produced water gathering, and transportation assets in the Bakken, and along with our H2O Midstream Acquisition, provide a strong opportunity for integrated crude and water services to its customers. 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 we have expanded our dedicated crude acreage in our Midland Gathering system. Additionally, in the Delaware Basin, we are expanding our natural gas processing capabilities by constructing a new natural gas processing plant and adding AGI and sour gas processing capabilities. Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets. The Partnership also acquired from Delek Holdings a joint venture with an indirect interest in the Wink to Webster Pipeline. 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. As a result of these efforts, the Partnership saw a $16.4 million increase in net income during the year ended December 31, 2024, as compared to the prior year period. Our EBITDA (as defined in "Non GAAP Measures" section below) decreased $23.4 million in 2024 as compared to 2023. This decrease is largely attributable to a change in classification of certain of our commercial agreements with Delek, which meet the criteria to be classified as sales-type leases. As such, certain throughput and storage fees that were previously recorded as revenue are now recorded as interest income under sales-type lease accounting. Our gathering and processing segment saw a $7.7 million increase in segment EBITDA. Our wholesale marketing and terminalling segment saw a $14.8 million decrease in segment EBITDA. Our storage and transportation segment saw a $15.5 million decrease in segment EBITDA. Segment EBITDA for our investments in pipeline joint ventures increased by $11.9 million with the acquisition of the W2W Investment from Delek Holdings. See the “Results of Operations” section below for further discussion. The near term economic outlook still has some uncertainty with geopolitical instability and commodity market volatility. That said, we are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements. Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship. It is expected that renewables, other than hydrocarbons, will continue to grow as a percentage of total energy consumption; however, a material reduction in the reliance on oil and gas for energy consumption is unlikely in the near term. Therefore, 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 below in 'Other 2024 Developments' detailing the strategic initiatives the Partnership has implemented in order to position ourselves as a premier, full-service midstream provider in the Permian Basin. 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. 62 | Management's Discussion and Analysis of Financial Condition and Results of Operations Other 2024 Developments Gravity Acquisition On December 11, 2024, we entered into the Gravity Purchase Agreement related to water disposal and recycling operations in the Permian Basin and the Bakken for total consideration of $301.2 million. The purchase price was comprised of $209.3 million in cash and 2,175,209 of common units. Upon execution of the Gravity Purchase Agreement, we made a cash deposit of $22.8 million, recorded in other current assets on the consolidated balance sheets, which was credited to the sale upon a successful closing. The Gravity Acquisition closed on January 2, 2025. H2O Midstream Acquisition On September 11, 2024, the Partnership closed the H2O Midstream Acquisition, in which we acquired water disposal and recycling operations, in the Midland Basin in Texas (the "Midland Water Gathering System") for total consideration of $229.7 million, subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness. The purchase price is comprised of approximately $159.7 million in cash and $70.0 million of preferred equity. Wink to Webster Pipeline Investment Acquisition On August 5, 2024, the Partnership acquired Permian Pipeline Holdings, LLC, which holds 50% equity interests in Wink to Webster Holdings, LLC ("W2W Holdings"), (the "W2W Investment") from a wholly owned subsidiary of Delek Holdings. W2W Holdings includes a 15.6% indirect interest in the Wink to Webster Pipeline, LLC joint venture ("Wink to Webster"), and related joint venture indebtedness. 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 $83.9 million in cash (including $2.7 million post-closing adjustment), forgiveness of a $60.0 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 have rate adjustments to be phased in over 2025 and 2026. The amendments required the embedded leases within these agreements to be reassessed under Accounting Standards Codification 842, Leases . As a result of these lease assessments, certain leases were reclassified from operating leases to sales-type leases. 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 annual EBITDA of approximately $40 million, considering increased production, cost savings, and market conditions. Additionally, in December 2024, the Partnership announced the development of permitted AGI capabilities at the new plant. The sour natural gas treating and acid gas injection capability is enabled by our two existing AGI well permits and amine unit currently under construction. We expect these projects will be completed in the second half of 2025. 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. 63 | Management's Discussion and Analysis of Financial Condition and Results of Operations DKL Revolving Credit Facility On March 29, 2024, the Partnership entered into a Fourth Amendment to the 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. 2029 Notes 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. Net proceeds were used to redeem the 2025 Notes including accrued interest, pay off the DKL Term Loan Facility including accrued interest and to repay a portion of the outstanding borrowings under the DKL Revolving Facility. On April 17, 2024, the Partnership sold $200.0 million in aggregate principal amount of additional 8.625% senior notes due 2029 at 101.25% and on August 16, 2024, the Partnership sold $200.0 million in aggregate principal amount of additional 8.625% senior notes due 2029, at 103.25% (collectively, 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. Equity Offerings On March 12, 2024, the Partnership 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 $132.2 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility. Underwriting discounts totaled $5.5 million. On October 10, 2024, the Partnership completed a public offering of its common units in which it sold 4,423,075 common units (including an overallotment option of 576,922 common units) to the underwriters of the offering at a price to the public of $39.00 per unit. The net proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $165.6 million and were used to redeem the Preferred Units and repay a portion of the outstanding borrowings under the DKL Revolving Facility. Underwriting discounts totaled $6.6 million. 64 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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 14 to our 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 our pipeline assets, Midland Gathering Assets, Midland Water 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 Midland Water Gathering Assets support our water disposal and recycling operations primarily in the Midland Basin in Texas. 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. 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 mainly 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 four 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 connections from Wink, Texas to Webster, Texas 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. 65 | Management's Discussion and Analysis of Financial Condition and Results of Operations Strategic Overview Long-Term Strategic Objectives The Partnership’s Long-Term Strategic Objectives have been focused on providing a competitive yield and growing our distribution while maintaining healthy coverage and leverage ratios. To that end, we are focused on growing our asset base through a slew of accretive growth opportunities we are seeing in our areas of operation. We are supplementing our organic growth opportunities by accretive bolt-on acquisitions which enhance our full suite services offering to our customers. A secondary benefit of growing our contribution of third-party cash flows is to continue to increase our economic separation with our sponsor Delek USA and to progress deconsolidation. 2024 Strategic Focus Areas In service to these overarching Long-Term Strategic Objectives, as we began 2024, 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 We continue to be focused on growth opportunities in the Permian Basin given our advantageous location in the Midland and the Delaware Basins. We believe that opportunities exist in crude, natural gas and water which will continue to enhance our gathering and processing 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 leverage 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. 2024 Strategic Scorecard Description of Strategic Success Generate Stable Cash Flow Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures Engage in Mutually Beneficial Transactions with Delek Holdings Pursue Attractive Expansion and Construction Opportunities Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint Acquisition of Gravity and H2O Midstream ü ü ü ü Acquisition of indirect interest in Wink to Webster ü ü ü ü Expansion of natural gas processing plant and sour gas processing capabilities ü ü ü Implemented measures to reduce our overall debt profile ü ü ü ü Amended and extended commercial agreements with Delek Holdings ü ü Expansion of dedicated crude acreage in our gathering operations ü ü ü Zero lost time injuries ü Continue in Co-Developing our ESG Strategy with our General Partner ü 66 | Management's Discussion and Analysis of Financial Condition and Results of Operations Looking Forward: 2025 Strategic Focus Areas 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 2025 Strategic Focus Areas are as follows: • Achieve Strong Cash Flow Growth. 2025 is likely to be a transformational year for Delek Logistics as it completes the expansion of the Libby gas processing plant and integrates two free cash flow accretive acquisitions in H2O Midstream and Gravity. The plant expansion and combined crude and water offerings in the Midland Basin are going to increase the Partnership's overall cash flow and improve our distribution coverage ratio. • Pursue Attractive Expansion Opportunities. Continue to evaluate and pursue opportunities to grow our business through several organic growth opportunities and bolt-on acquisitions ◦ Organic growth opportunities. The partnership is in the middle of pursuing several attractive organic growth opportunities enabled by its advantageous position in the prolific Permian Basin. The gas plant expansion and addition of AGI and sour gas processing capabilities is enabling several additional growth options for the Partnership in the Delaware Basin. In the Midland Basin combined crude and water offering is appealing for our customers and bringing additional growth opportunities to our system. ◦ Pursue Acquisitions. Delek logistics will also continue to look for attractive bolt-on acquisitions which are accretive to its free cash flow, EBITDA and leverage profiles. • Engage in Mutually Beneficial Transactions with Delek Holdings. A key tenet of the Partnership's strategy is to continue to increase its economic separation from Delek Holdings and increase the contribution of third-party cash flows in its overall profile. We will continue to evaluate our commercial agreements with Delek Holdings to engage in mutually beneficial negotiations to create incremental value for both ourselves and our sponsor. • Optimize Our Existing Assets and Expand Our Customer Base. We will continue to enhance the profitability of our existing assets by adding incremental throughput volumes, improving operating efficiencies and increasing system-wide utilization. Additionally, we are seeking opportunities to further diversify our customer base by increasing third-party throughput volumes utilizing 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. 67 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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 Financing The Partnership anticipates paying a cash distribution to its unitholders at a distribution rate of $1.105 per unit for the quarter ended December 31, 2024 ($4.420 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 accompanying consolidated financial statements 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; • 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; and • The W2W Pipeline is positioned in the Permian Basin with origin points from Wink to Midland and delivery points at multiple Houston, Texas area locations. 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. 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. 68 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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. 69 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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 Consolidated Statements of Income and Comprehensive Income included in item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. • Distributable cash flow - calculated as net cash flow from operating activities adjusted for changes in assets and liabilities, maintenance capital expenditures net of reimbursements, sales-type lease receipts, net of income recognized 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, 2024 2023 Net income $ 142,685 $ 126,236 Add: Income tax expense 479 1,205 Depreciation and amortization 96,375 92,384 Amortization of marketing contract intangible 4,206 7,211 Interest expense, net 103,168 143,244 EBITDA $ 346,913 $ 370,280 70 | Management's Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 206,339 $ 225,319 Changes in assets and liabilities 48,769 29,474 Distributions from equity method investments in investing activities 4,277 9,002 Non-cash lease expense (8,112) (9,549) Regulatory and sustaining capital expenditures not distributable (1) (12,658) (7,272) Reimbursement from (refund to) Delek Holdings for capital expenditures (2) 335 1,280 Sales-type lease receipts, net of income recognized 11,843 — Accretion (920) (705) Deferred income taxes (479) (638) Gain on disposal of assets 6,410 1,266 Distributable cash flow $ 255,804 $ 248,177 (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 consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K). 71 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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 2023 compared to year-over-year changes from fiscal year 2022 can be found in Part II, Item 7. Management's Discussion and Analysis, "Results of Operations", of our 2023 Annual Report on Form 10-K, filed on February 28, 2024. 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, 2024 2023 Net revenues: Gathering and Processing $ 364,719 $ 371,110 Wholesale marketing and terminalling 451,522 505,701 Storage and transportation 124,395 143,598 Total 940,636 1,020,409 Cost of materials and other 483,735 532,627 Operating expenses (excluding depreciation and amortization presented below) 122,734 118,101 General and administrative expenses 35,944 24,766 Depreciation and amortization 96,375 92,384 Impairment of goodwill — 14,848 Other operating income, net (978) (1,266) Operating income $ 202,826 $ 238,949 Interest income (47,792) — Interest expense 150,960 143,244 Income from equity method investments (43,301) (31,433) Other income, net (205) (303) Total non-operating expenses, net 59,662 111,508 Income before income tax expense 143,164 127,441 Income tax expense 479 1,205 Net income 142,685 126,236 Comprehensive income 142,685 126,236 Less: Preferred unitholder's interest in net income 768 — Net income attributable to limited partners $ 141,917 $ 126,236 EBITDA (2) (3) $ 346,913 $ 370,280 Net income per limited partner unit: Basic $ 2.99 $ 2.90 Diluted $ 2.99 $ 2.89 Weighted average limited partner units outstanding: Basic 47,452,138 43,583,938 Diluted 47,479,248 43,611,314 (1) This information is presented at a summary level for your reference. See the Consolidated Statements of Income and Comprehensive 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 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. 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 of Financial Condition and Results of Operations Results of Operations Consolidated Results of Operations - Comparison of the Year Ended December 31, 2024 versus the Year Ended December 31, 2023 and the Year Ended December 31, 2023 versus the Year Ended December 31, 2022 Net Revenues 2024 vs. 2023 Net revenues decreased by $79.8 million, or 7.8%, in the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily driven by the following: • decreased revenue of $47.3 million in our West Texas marketing operations primarily driven by a decrease in average sales prices per gallon and decrease in RINs revenue: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.19 and $0.40 per gallon, respectively; and ◦ RINs revenue decreased from $11.0 million in the year ended December 31, 2023 to $5.0 million in the year ended December 31, 2024, due to decrease in RINs prices. • decreased revenue in our gathering and processing and storage and transportation segments due to recording certain throughput and storage fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period; and • partially offset by increase in revenue associated with H20 Midstream operations of $19.5 million which began in the third quarter of 2024. Cost of Materials and Other 2024 vs. 2023 Cost of materials and other decreased by $48.9 million, or 9.2%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • decreased costs of materials and other of $40.1 million in our West Texas marketing operations primarily driven by decreased costs per gallon: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.20 per gallon and $0.36 per gallon, respectively. • decrease of $6.1 million in our gathering and processing segment driven primarily by lower natural gas costs. Operating Expenses 2024 vs. 2023 Operating expenses increased by $4.6 million, or 3.9%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • incremental costs of $6.1 million associated with H20 Midstream operations which began in the third quarter of 2024; and • partially offset by a decrease in repairs and maintenance expenses. General and Administrative Expenses 2024 vs. 2023 General and administrative expenses increased by $11.2 million, or 45.1%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by transaction costs associated with the Gravity and H2O Midstream acquisitions, the W2W Investment acquisition, and amendments of certain agreements with Delek Holdings of $11.4 million. 73 | Management's Discussion and Analysis of Financial Condition and Results of Operations Depreciation and Amortization 2024 vs. 2023 Depreciation and amortization increased by $4.0 million, or 4.3%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • increase of $3.7 million associated with the H20 Midstream assets acquired in the third quarter of 2024; • depreciation associated with new projects in-serviced during the period.; and • partially offset by the derecognition of fixed assets in connection with the recognition of sales-type leases in the third quarter of 2024. Other operating income, net 2024 vs. 2023 Other operating income, net decreased by $0.3 million, or 22.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • a decrease of $5.4 million related to a settlement of a dispute; and • partially offset by increase in gain on disposal of assets of $5.1 million, predominantly due to $8.3 million in condemnation proceeds received in the second quarter of 2024. Interest Income 2024 vs. 2023 Interest income increased by $47.8 million, or 100.0%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by income from certain of our commercial agreements with Delek Holdings that met the criteria to be accounted for as sales-type leases during the third quarter of 2024. Interest Expense 2024 vs. 2023 Interest expense increased by $7.7 million, or 5.4%, in the year ended December 31, 2024 compared to the year ended December 31, 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 associated with the 2029 Notes issued in the first quarter of 2024; and • partially offset by a decrease in interest associated with the DKL Revolving Facility due to lower average outstanding borrowings. Results from Equity Method Investments 2024 vs. 2023 Income from equity method investments increased by $11.9 million, or 37.8%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the W2W Investment, which was acquired on August 5, 2024, and contributed income of $9.2 million during the period and increases in throughput at two of our joint ventures which had been negatively impacted by the turnaround at the Tyler Refinery in prior year. 74 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2024 and 2023: Gathering and Processing Year Ended December 31, 2024 2023 Net revenues $ 364,719 $ 371,110 Cost of materials and other $ 77,037 $ 83,118 Operating expenses (excluding depreciation and amortization) $ 80,317 $ 75,136 Segment EBITDA $ 207,150 $ 199,463 Throughputs (bpd (1) ) Year Ended December 31, 2024 2023 El Dorado Assets: Crude pipelines (non-gathered) 69,903 67,003 Refined products pipelines to Enterprise Systems 59,136 58,181 El Dorado Gathering System 11,568 13,782 East Texas Crude Logistics System 34,711 32,668 Midland Gathering System 217,847 230,471 Plains Connection System 333,405 250,140 Delaware Gathering Assets Volumes Year Ended December 31, 2024 2023 Natural Gas Gathering and Processing (Mcfd (2) ) 74,831 71,239 Crude Oil Gathering (bpd (1) ) 123,978 111,335 Water Disposal and Recycling (bpd (1) ) 128,539 108,907 Midland Water Gathering System Volumes Year Ended December 31, 2024 2023 Water Disposal and Recycling (bpd (1) ) (3) 280,955 — (1) bpd - average barrels per day. (2) Mcfd - average thousand cubic feet per day. (3) 2024 volumes include volumes from September 11, 2024, through December 31, 2024. Operational Comparison of the Year Ended December 31, 2024 versus the Year Ended December 31, 2023: Net Revenues 2024 vs. 2023 Net revenues for the gathering and processing segment decreased by $6.4 million, or 1.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to the following: • recording certain throughput fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period; and • partially offset by an increase in revenue associated with the H20 Midstream operations of $19.5 million which began in the third quarter of 2024. 75 | Management's Discussion and Analysis of Financial Condition and Results of Operations Cost of Materials and Other 2024 vs. 2023 Cost of materials and other for the gathering and processing segment decreased by $6.1 million, or 7.3%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, driven primarily by the following: • lower natural gas costs; and • partially offset by incremental costs of $1.2 million associated with H20 Midstream operations which began in the third quarter of 2024. Operating Expenses 2024 vs. 2023 Operating expenses for the gathering and processing segment increased by $5.2 million, or 6.9%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by incremental costs of $6.1 million associated with H20 Midstream operations which began in the third quarter of 2024. EBITDA 2024 vs. 2023 EBITDA increased by $7.7 million, or 3.9%, in the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily driven by the following: • incremental EBITDA of $12.1 million associated with H20 Midstream operations which began in the third quarter of 2024; • impairment of $14.8 million taken in prior year associated with Delaware Gathering reporting unit; and • partially offset by lower revenue related to sales-type lease accounting. 76 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2024 and 2023: Wholesale Marketing and Terminalling Year Ended December 31, 2024 2023 Net revenues $ 451,522 $ 505,701 Cost of materials and other $ 349,049 $ 388,536 Operating expenses (excluding depreciation and amortization) $ 14,820 $ 17,796 Segment EBITDA $ 91,729 $ 106,512 Operating Information Year Ended December 31, 2024 2023 East Texas - Tyler Refinery sales volumes (average bpd) (1) 67,682 60,626 Big Spring marketing throughputs (average bpd) 44,999 77,897 West Texas marketing throughputs (average bpd) 5,828 10,032 West Texas marketing gross margin per barrel $ 3.18 $ 5.18 Terminalling throughputs (average bpd) (2) 154,217 113,803 (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, 2024 versus the Year Ended December 31, 2023: Net Revenues 2024 vs. 2023 Net revenues for the wholesale marketing and terminalling segment decreased by $54.2 million, or 10.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • decreased revenue of $47.3 million in our West Texas marketing operations primarily driven by a decrease in average sales prices per gallon and decrease in RINs revenue: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.19 and $0.40 per gallon, respectively; and ◦ RINs revenue decreased from $11.0 million in the year ended December 31, 2023 to $5.0 million in the year ended December 31, 2024, due to decrease in RINs prices. • decrease due to recording certain throughput fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period. 77 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2024 and 2023. Cost of Materials and Other 2024 vs. 2023 Cost of materials and other for the wholesale marketing and terminalling segment decreased by $39.5 million, or 10.2% , in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • decreased costs of materials and other of $40.1 million in our West Texas marketing operations primarily driven by decreased costs per gallon: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.20 per gallon and $0.36 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 years ended December 31, 2024 and 2023. 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 of Financial Condition and Results of Operations Operating Expenses 2024 vs. 2023 Operating expenses for the wholesale marketing and terminalling segment decreased by $3.0 million, or 16.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, driven primarily by a decrease in outside service costs. EBITDA 2024 vs. 2023 EBITDA decreased by $14.8 million, or 13.9%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily driven by the following: • a decline in wholesale margins partially due to lower RINs prices; • lower revenue related to sales-type lease accounting; and • partially offset by decrease in operating expenses. 79 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2024 and 2023: Storage and Transportation Year Ended December 31, 2024 2023 Net revenues $ 124,395 $ 143,598 Cost of materials and other $ 57,539 $ 63,710 Operating expenses (excluding depreciation and amortization) $ 18,299 $ 18,104 Segment EBITDA $ 48,325 $ 63,850 Operational Comparison of the Year Ended December 31, 2024 versus the Year Ended December 31, 2023: Net Revenues 2024 vs. 2023 Net revenues for the storage and transportation segment decreased by $19.2 million, or 13.4%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to recording certain storage fees as interest income under sales-type lease accounting that were previously recorded as revenue in the prior year period. Cost of Materials and Other 2024 vs. 2023 Cost of materials and other for the storage and transportation segment decreased by $6.2 million, or 9.7%, in the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to decrease in trucking activity. Operating Expenses 2024 vs. 2023 Operating expenses for the storage and transportation segment increased by $0.2 million, or 1.1%, in the year ended December 31, 2024 compared to the year ended December 31, 2023. EBITDA 2024 vs. 2023 EBITDA decreased by $15.5 million, or 24.3%, in the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to decrease in revenue associated with sales-type lease accounting, partially offset by lower cost associated with decrease in trucking activity. 80 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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 13 of our 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, 2024. 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, 2024, our total liquidity amounted to $720.0 million comprised of $714.6 million in unused credit commitments under our third-party revolving credit facility (as discussed in Note 10 of our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K), and $5.4 million in cash and cash equivalents. 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. 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. Cash Distributions On January 24, 2025, the board of directors of our general partner declared a distribution of $1.105 per common unit (the "Distribution"), which equates to an estimated amount of approximately $59.3 million per quarter, or approximately $237.2 million per year, based on the number of common units outstanding as of December 31, 2024. The Distribution was paid on February 11, 2025 to common unitholders of record on February 4, 2025 and represents a 4.7% increase over the fourth 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. 81 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 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 March 31, 2024 $1.070 $50,521 June 30, 2024 $1.090 $51,263 September 30, 2024 $1.100 $56,613 December 31, 2024 $1.105 $59,302 Equity Offerings On March 12, 2024, the Partnership 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 $132.2 million and were used to repay a portion of the outstanding borrowings under the DKL Revolving Facility. Underwriting discounts totaled $5.5 million. On October 10, 2024, the Partnership completed a public offering of its common units in which it sold 4,423,075 common units (including an overallotment option of 576,922 common units) to the underwriters of the offering at a price to the public of $39.00 per unit. The net proceeds received from this offering (net of underwriting discounts, commissions and expenses) were $165.6 million and were used to redeem the Preferred Units and repay a portion of the outstanding borrowings under the DKL Revolving Facility. Underwriting discounts totaled $6.6 million. Cash Flows The following table sets forth a summary of our consolidated cash flows for the year ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 206,339 $ 225,319 Net cash used in investing activities (384,579) (89,629) Net cash provided by (used in) financing activities 179,869 (139,905) Net increase (decrease) in cash and cash equivalents $ 1,629 $ (4,215) Operating Activities Net cash provided by operating activities decreased by $19.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The cash receipts from customer activities decreased by $49.9 million and cash payments to suppliers and for allocations to Delek Holdings for salaries increased by $2.5 million. In addition, cash dividends received from equity method investments increased by $14.2 million and cash paid for debt interest decreased by $19.1 million. Investing Activities Net cash used in investing activities increased by $295.0 million during the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to acquisitions of W2W investment for $83.9 million, H2O Midstream for $159.7 million and deposit for Gravity Acquisition of $22.8 million. Additionally, purchases of property, plant and equipment increased $32.9 million, primarily associated with growth projects in our gathering and processing segment. Partially offsetting these increases was an 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. Financing Activities Net cash provided by financing activities increased by $319.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. This increase was primarily driven by increase in net proceeds from term loans of $546.5 million due to issuance of 2029 Notes net of the extinguishment of 2025 Notes and term facility, partially offset by net payments under our revolving credit facility which increased by $405.1 million due to paydown in conjunction with the issuance of the 2029 Notes. Additionally contributing to this increase was $297.9 million of proceeds received from the equity issuances in October and March 2024. Partially offsetting these increases was the redemption of preferred units issued in as part of consideration for the H20 Midstream acquisition in the amount of $70.8 million, an increase in deferred financing costs paid of $13.7 million associated with the 2029 Note issuances, an increase in distributions paid of $24.7 million and a $6.2 million increase in payments on other financing arrangements. 82 | Management's Discussion and Analysis of Financial Condition and Results of Operations Debt Overview As of December 31, 2024, we had total indebtedness of $1,885.4 million. The increase of $173.7 million in our long-term debt balance compared to the balance at December 31, 2023 resulted from the issuance of the 2029 Notes during the year ended December 31, 2024, which was partially offset by the payments under the DKL Credit Facility and the 2025 Notes. As of December 31, 2024, our total indebtedness consisted of: • An aggregate principal amount of $435.4 million under the DKL Revolving Facility, due on October 13, 2027, with an average borrowing rate of 7.27%. • 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 7.38%. • An aggregate principal amount of $1,050.0 million, under the 2029 Notes (8.625% senior notes), due in 2029, with an effective interest rate of 8.82%. We believe we were in compliance with the covenants in all debt facilities as of December 31, 2024. 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 third-party 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 of Financial Condition and Results of Operations 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, 2024: (in thousands) Full Year 2025 Forecast Year Ended December 31, 2024 (1) Gathering and Processing Regulatory $ — $ — Sustaining 2,715 1,599 Growth 209,300 31,881 Gathering and Processing Segment Total $ 212,015 $ 33,480 Wholesale Marketing and Terminalling Regulatory $ 6,958 $ 791 Sustaining 3,022 1,936 Growth 6,800 — Wholesale Marketing and Terminalling Segment Total $ 16,780 $ 2,727 Storage and Transportation Regulatory $ — $ 1,155 Sustaining 6,515 7,177 Growth — — Storage and Transportation Segment Total $ 6,515 $ 8,332 Total Capital Spending $ 235,310 $ 44,539 (1) 2024 excludes capital spending of $95.5 million related to the new gas processing plant. Refer to 'Other 2024 Developments' section of Item 7. Management's Discussion and Analysis, of this Annual Report on Form 10-K 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. 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, 2024, 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 $ — $ 435,400 $ 1,450,000 $ — $ 1,885,400 Interest (1) 151,219 294,581 223,875 — 669,675 Finance Lease Obligation 283 526 154 — 963 Operating lease commitments (2) 5,924 4,777 1,139 984 12,824 Total $ 157,426 $ 735,284 $ 1,675,168 $ 984 $ 2,568,862 (1) Includes expected interest payments on debt balances outstanding under the DKL Credit Facility and the 2028 and 2029 Notes at December 31, 2024. Floating interest rate debt is calculated using rates in effect on December 31, 2024. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2024. 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 15, respectively, to our consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. 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 2024. 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 2024 and planned distributions for 2025. Refer to the capital spending section for our capital expenditures for 2024 and our planned capital expenditures for 2025. 84 | Management's Discussion and Analysis of Financial Condition and Results of Operations 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. 85 | Critical Accounting Estimates 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. Leases When accounting for leases, we evaluate any new or modified leases to determine their classification. This classification depends on several factors, including the estimated lease term and the fair value of the leased assets. Estimating the lease term, including potential renewals or terminations, is crucial in lease accounting as it affects the recognition and measurement of lease assets and liabilities. Management must consider factors like economic incentives, strategic importance, and significant leasehold improvements. This estimation impacts lease payments, expense recognition, amortization schedules, and interest expenses. Significant assumptions used to estimate the leased assets’ fair value include market information for comparable assets and cost estimates to replace the service capacity of an asset. For newly classified sales-type leases, the net investment in the lease is recorded at the estimated fair value of the underlying leased assets. Leases must be separated into lease and non-lease components if the components are distinct and can be accounted for separately. If there is no clear allocation between lease and service components, we may estimate the fair value of the service component based on historical costs or market benchmarks. 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 deficiency 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. 86 | Critical Accounting Estimates At December 31, 2024, we had two reporting units with goodwill totaling approximately $12.2 million. For our 2024 annual goodwill impairment testing, 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. Therefore, in accordance with GAAP, further testing was not required. For our 2023 annual goodwill impairment testing, 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). 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. 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. 87 | Quantitative and Qualitative Disclosures about Market Risk