10-Q: Delek Logistics Partners Reports Q1 2024 Results, Announces Increased Distribution

Delek Logistics Partners reported a net income of $32.6 million for the first quarter of 2024, alongside an increase in their quarterly cash distribution to $1.070 per unit.

Summary

• Delek Logistics Partners, LP reported a net income attributable to partners of $32.6 million for the quarter ended March 31, 2024, compared to $37.4 million for the same period in 2023.
• The company's net revenues increased to $252.1 million, up from $243.5 million in the first quarter of 2023.
• EBITDA for the quarter was $101.5 million, an increase from $93.2 million in the prior year.
• The partnership announced a quarterly cash distribution of $1.070 per unit, a 4.4% increase compared to the first quarter of 2023.
• The company completed a public offering of common units, raising $132.3 million, which was used to reduce debt.
• Delek Logistics issued $650 million in senior notes due 2029 and an additional $200 million in April 2024, using the proceeds to refinance existing debt and reduce borrowings under the revolving credit facility.
• The company's total liquidity improved significantly, increasing from approximately $300 million at the end of 2023 to approximately $800 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to increased revenue and EBITDA, along with improved liquidity and increased distributions. However, the decrease in net income and increased expenses temper the overall positive outlook.

Positives

• The company experienced an increase in net revenues and EBITDA compared to the same period last year.
• The increase in the quarterly cash distribution demonstrates a commitment to returning value to unitholders.
• The successful equity offering and debt issuances have significantly improved the company's liquidity and financial flexibility.
• The company's strategic focus on long-term, fee-based contracts provides stability.
• The company is well-positioned to manage through an economic downturn due to minimum volume commitments and dedicated acreage agreements.
• The company's expansion of gas processing capabilities has improved customer and geographic diversification.

Negatives

• Net income attributable to partners decreased by $4.7 million compared to the first quarter of 2023.
• Operating expenses increased by $7.2 million, primarily due to an increase in contract services.
• Interest expense increased by $7.6 million, driven by debt extinguishment costs and higher interest rates.
• The company's West Texas marketing operations experienced a decrease in revenue of $0.6 million due to lower RIN prices.
• The company's West Texas marketing operations experienced a decrease in gross margin per barrel from $5.47 to $2.15.

Risks

• The company is substantially dependent on Delek Holdings, and its financial performance is tied to Delek Holdings' operations.
• Fluctuations in commodity prices and demand for refined products can impact the company's operations.
• The company is exposed to interest rate risk due to floating rate debt.
• The company faces risks related to environmental and safety regulations, which could lead to increased costs.
• The company is subject to competitive conditions in the midstream energy industry.
• The company's future performance is subject to various economic and market uncertainties, including inflation and potential economic downturns.

Future Outlook

The company expects to continue leveraging its cash flows and balance sheet to maximize unitholder returns and long-term prospects for return on investment, while also focusing on growing its asset base and diversifying its customer base. The company also expects to continue to evaluate opportunities to make capital investments that will be used to expand its existing asset base.

Management Comments

• Management believes that the company is well-positioned to manage through an economic downturn due to minimum volume commitments and dedicated acreage agreements.
• Management is focused on growing the asset base, enhancing existing systems, and lowering the carbon footprint.
• Management intends to continue to evaluate opportunities to provide Delek Holdings with logistics services and look for ways to reduce reliance on Delek Holdings as the primary customer.

Industry Context

The report reflects the current trends in the midstream energy sector, including the impact of commodity price fluctuations, the importance of long-term contracts, and the need for diversification. The company's focus on the Permian Basin and its strategic joint ventures align with industry trends of growth in that region. The company's focus on ESG and lowering its carbon footprint also aligns with the broader industry trend of energy transition.

Comparison to Industry Standards

• Delek Logistics Partners' performance is comparable to other midstream energy companies with operations in the Permian Basin, such as Plains All American Pipeline and Enterprise Products Partners.
• The company's focus on fee-based contracts and minimum volume commitments is a common strategy in the midstream sector to mitigate commodity price risk, similar to strategies employed by Magellan Midstream Partners.
• The company's debt levels and leverage ratios are within the range of other midstream companies, but the recent debt issuances and equity offering have improved its liquidity position.
• The company's distribution yield is competitive with other master limited partnerships (MLPs) in the energy sector, such as Energy Transfer and MPLX.
• The company's growth strategy, including acquisitions and joint ventures, is similar to that of other midstream companies seeking to expand their asset base and market reach.

Legal Proceedings

• The company is subject to lawsuits, investigations, and claims in the ordinary course of business, but does not believe any pending legal proceedings will have a material adverse effect on its financial statements.

Related Party Transactions

• The Partnership has numerous long-term, fee-based commercial agreements with Delek Holdings.
• The Partnership pays an annual fee of $4.4 million to Delek Holdings for centralized corporate services.
• The Partnership manages long-term capital projects on behalf of Delek Holdings and receives fees for these services.
• The Partnership entered into a Related Party Revolving Credit Facility with Delek Holdings.

Stakeholder Impact

• Shareholders will benefit from the increased quarterly cash distribution and the company's focus on long-term growth.
• Employees may be impacted by changes in operating procedures and capital expenditures related to environmental and safety compliance.
• Customers will benefit from the company's expanded service offerings and increased throughput capacity.
• Suppliers may see increased business opportunities as the company continues to grow its asset base.
• Creditors will benefit from the company's improved liquidity and financial stability.

Next Steps

• The company will continue to evaluate and pursue opportunities to grow its business through strategic acquisitions and expansion projects.
• The company will continue to focus on leveraging and expanding its investments in joint ventures.
• The company will continue to engage in mutually beneficial transactions with Delek Holdings.
• The company will continue to optimize its existing assets and expand its customer base.
• The company will continue to look for ways to grow its business while minimizing negative environmental impact.

Key Dates

Keywords

midstream, logistics, pipeline, crude oil, natural gas, EBITDA, distribution, debt, gathering, processing, terminalling, storage, transportation, Permian Basin, refining