8-K: Delek US Holdings Reports Mixed Q4 2023 Results Amidst Refining Challenges, Announces 2024 Capital Program

Delek US Holdings reported a net loss for the fourth quarter of 2023, despite record refining throughput and strong logistics performance, while also outlining its 2024 capital expenditure plans.

Summary

• Delek US Holdings reported a net loss of $164.9 million, or $2.57 per share, for the fourth quarter of 2023, compared to a net loss of $118.7 million in the same period of 2022.
• Adjusted net loss for the quarter was $93.2 million, or $1.46 per share, compared to an adjusted net income of $52.4 million in the prior year.
• The company's adjusted EBITDA for the quarter was $60.6 million, a significant decrease from $209.8 million in the fourth quarter of 2022.
• For the full year 2023, Delek US reported a net income of $19.8 million, or $0.30 per share, and an adjusted net income of $196.6 million, or $2.98 per share.
• Full year adjusted EBITDA was $949.7 million, down from $1,169.8 million in 2022.
• The company returned $35.4 million to shareholders through dividends and share buybacks in the fourth quarter and $145.7 million for the full year.
• Delek US reduced its debt by $38.2 million in the fourth quarter and $453.9 million for the full year.
• The refining segment experienced a significant decrease in adjusted EBITDA, reporting a loss of $10.4 million in Q4 2023 compared to a profit of $170.9 million in Q4 2022, primarily due to lower refining crack spreads.
• The logistics segment saw an increase in adjusted EBITDA to $99.4 million in Q4 2023 from $90.6 million in Q4 2022, driven by strong performance in the Midland and Delaware gathering systems.
• The retail segment's adjusted EBITDA increased to $9.3 million in Q4 2023 from $7.8 million in Q4 2022, due to higher inside store margins and fuel sales.
• Delek US estimates its 2024 capital expenditures to be approximately $330 million, with $220 million allocated to refining and $70 million to logistics.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the significant net loss and decreased profitability in the refining segment, despite some positive operational achievements and debt reduction. The market will likely react negatively to the worse than expected results.

Positives

• Delek US achieved record total throughput in refining, demonstrating operational efficiency.
• The logistics segment delivered a record quarter, indicating strong growth in that area.
• The company increased its regular quarterly dividend, signaling confidence in future cash flow.
• Delek US successfully executed a major turnaround at the Tyler Refinery, improving its operational capabilities.
• The company significantly grew logistics gathering and processing volumes, expanding its midstream business.
• Delek US reduced its debt by $453.9 million in 2023, strengthening its financial position.
• The company returned $145.7 million to shareholders through dividends and share buybacks in 2023.
• The retail segment saw increased adjusted EBITDA due to higher inside store margins and fuel sales.

Negatives

• Delek US reported a net loss of $164.9 million for the fourth quarter of 2023.
• Adjusted net loss for the quarter was $93.2 million, a significant decrease from the prior year.
• Adjusted EBITDA for the quarter was $60.6 million, a substantial drop from $209.8 million in the same period last year.
• The refining segment experienced a significant decrease in adjusted EBITDA, reporting a loss of $10.4 million in Q4 2023.
• Refining crack spreads were down an average of 50.7% from prior-year levels, impacting profitability.
• The company incurred $31.4 million in restructuring costs in Q4 2023.
• Delek US recorded a $23.1 million impairment related to leased crude oil tanks in Canada.

Risks

• The company is exposed to fluctuations in crude oil prices and refining crack spreads, which can significantly impact profitability.
• The refining segment is subject to operational risks, including turnarounds and maintenance, which can affect throughput and costs.
• The company faces competition in the refining, logistics, and retail sectors.
• Changes in regulations, particularly those related to renewable fuels, could impact the company's operations and financial results.
• The company's performance is subject to general economic and business conditions in the regions where it operates.
• There are risks associated with the integration of acquired businesses, such as the Delaware Gathering business.
• The company is exposed to risks related to its Permian Basin crude oil operations, including supply, pricing, and transportation capacity.
• The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially.

Future Outlook

Delek US is focused on executing its strategic initiatives, maintaining safe and reliable operations, and delivering shareholder value in 2024. The company anticipates a lower capital program in 2024 compared to 2023 and is focused on improving cost and process efficiencies.

Management Comments

• Avigal Soreq, President and CEO, stated that the company operated well during the fourth quarter, achieving record total throughput in refining, despite a less favorable market environment.
• Soreq also noted that employees delivered a strong performance in 2023, managing both opportunities and challenges to drive results.
• Management emphasized a focus on execution and disciplined capital allocation in 2024.
• Soreq believes the company is well-positioned to deliver competitive returns from both an operational and financial standpoint.

Industry Context

The results reflect the challenges faced by the refining industry in Q4 2023, with lower crack spreads impacting profitability. However, Delek's logistics segment continues to perform well, aligning with the trend of increased midstream activity in the energy sector. The company's focus on cost reduction and operational improvements is consistent with industry efforts to enhance efficiency and profitability.

Comparison to Industry Standards

• Delek's refining segment performance in Q4 2023 was significantly below the prior year, reflecting the broader industry trend of lower crack spreads, similar to what other independent refiners such as Marathon Petroleum (MPC) and Valero Energy (VLO) experienced.
• The logistics segment's strong performance is comparable to other midstream companies like Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP), which have also benefited from increased gathering and processing volumes.
• Delek's focus on debt reduction and shareholder returns aligns with the strategies of other large energy companies, such as ExxonMobil (XOM) and Chevron (CVX), which are also prioritizing financial discipline and capital allocation.
• The planned capital expenditures for 2024 are in line with the industry trend of focusing on sustaining and regulatory projects, while also investing in strategic growth opportunities, similar to the capital allocation strategies of Phillips 66 (PSX) and HollyFrontier (HFC).
• The company's throughput rates are comparable to other mid-sized refiners, but the profitability was impacted by the lower crack spreads, which is a common challenge across the industry.

Stakeholder Impact

• Shareholders will be impacted by the net loss and decreased profitability, but may be encouraged by the increased dividend and debt reduction.
• Employees may be affected by the restructuring costs and process improvements.
• Customers may see continued reliable operations and service.
• Suppliers may experience changes in demand based on the company's capital program and operational adjustments.
• Creditors will be positively impacted by the company's debt reduction efforts.

Next Steps

• Delek US will complete a major turnaround at the Krotz Springs Refinery in the fourth quarter of 2024.
• The company will continue to execute its strategic initiatives to improve cost and process efficiencies.
• Delek US will focus on a disciplined approach to capital allocation and delivering shareholder value.
• The company will evaluate opportunities in the energy transition.

Key Dates

Keywords

Refining, Logistics, EBITDA, Crack Spreads, Capital Program, Debt Reduction, Shareholder Returns, Throughput, Crude Oil, Dividends