• Adjusted EBITDA: Approximately $107 million for the third quarter.
• Distributable Cash Flow (DCF): $62 million, with a coverage ratio of approximately 1.1 times.
• Liquidity: Approximately $780 million post recent equity offering.
• Gathering and Processing Segment Adjusted EBITDA: $65 million, up from $52.9 million in Q3 2023.
• Wholesale Marketing and Terminating Adjusted EBITDA: $24.7 million, down from $28.1 million in Q3 2023.
• Storage and Transportation Adjusted EBITDA: $19.4 million, up from $17.9 million in Q3 2023.
• Pipeline Joint Venture Segment Contribution: $16.6 million, up from $9.3 million in Q3 2023.
• Capital Expenditures: $65.2 million for the third quarter, with $53.4 million allocated to the new gas processing plant.
• Quarterly Distribution: Increased to $1.10 per unit.

• Warning! GuruFocus has detected 7 Warning Signs with DKL.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Delek Logistics Partners LP (NYSE:DKL) reported a record quarterly adjusted EBITDA of approximately $107 million, indicating strong financial performance.
• The company successfully completed several important transactions, including the acquisition of a portion in the Wink to Webster pipeline, enhancing asset quality and positioning in the Permian Basin.
• DKL increased its quarterly distribution to $1.10 per unit, reflecting confidence in future cash flows and commitment to returning value to unit holders.
• The integration of H2 Midstream is complete, providing bundling sales opportunities and enhancing customer discussions.
• DKL has a strong liquidity position with approximately $780 million available post-recent equity offering, supporting future growth initiatives.

Negative Points

• Wholesale marketing and terminaling adjusted EBITDA decreased to $24.7 million from $28.1 million in the prior year, primarily due to lower wholesale margins.
• The distributable cash flow coverage ratio was approximately 1.1 times, below the long-term objective of 1.3 times, indicating potential pressure on cash flow coverage.
• Midwin volumes saw a decline this quarter, attributed to project timing and consolidation in the GP landscape, which could impact future throughput.
• Capital expenditures for the third quarter were significant at $65.2 million, with a large portion allocated to the new gas processing plant, indicating high ongoing investment requirements.
• The company is managing leverage as it enters a core spending period, which could impact financial flexibility if not carefully balanced.

Q & A Highlights

Q: Can you provide an update on the progress of the gas processing plant and any potential opportunities for sour gas treatment? A: Avigal Soreq, President, stated that the construction and commercial progress of the gas processing plant is on track, with completion expected in the first half of 2025. The plant is progressing well both in terms of schedule and cost. There are also attractive opportunities for sour gas treatment, particularly with the acquisition of Triber assets, which includes permits for AGI wells. More details will be shared soon.

Q: Could you discuss the trends in Midland volumes and the recent acreage dedication? A: Reuven Spiegel, CFO, explained that Midland volumes were around 185 in the third quarter due to project timing and rig optimization. They expect to reach 190 by year-end and over 200 in 2025. The recent 50,000-acre dedication in the Midland area is expected to drive further growth beyond 2026.

Q: How is the integration of H2 Midstream progressing, and what are the expected benefits? A: Avigal Soreq noted that the integration of H2 Midstream is complete, with its team now part of Delek Logistics. The acquisition enhances bundling sales opportunities and customer discussions, particularly in the DPG area, providing strategic advantages.

Q: What is the company's approach to capital allocation, particularly regarding distribution growth and leverage? A: Avigal Soreq emphasized their commitment to increasing distributions, having done so 47 times consecutively. The target leverage ratio is 3.5 times, balancing growth opportunities, liquidity, and coverage. Reuven Spiegel added that they are in growth mode, focusing on sustainable management of assets in prolific locations.

Q: Can you elaborate on the strategic benefits of the recent acquisitions and expansions? A: Avigal Soreq highlighted that the acquisitions and expansions, such as the Wink to Webster pipeline and H2 Midstream, enhance asset quality and position in the Permian Basin. These moves provide significant growth opportunities and strengthen their market position.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.