Delek Logistics Partners, LP (NYSE: DKL) (“Delek Logistics”) and
Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) announced today an
acquisition to provide additional midstream growth and improved
crude oil flexibility. An indirect, wholly-owned subsidiary of
Delek Logistics purchased a 33 percent ownership interest for
approximately $128.0 million in Red River Pipeline Company, LLC
(“Red River”) from an affiliate of Plains All American Pipeline,
L.P. (NYSE: PAA) to form a new joint venture that owns capacity on
the Red River pipeline. Red River intends to proceed with an
expansion project to increase the capacity of the pipeline from
150,000 barrels per day to 235,000 barrels per day. Also, Delek US
will increase its direct access to crude oil originating in
Cushing, Oklahoma from 35,000 barrels per day to 100,000 barrels
per day utilizing a portion of the new capacity through a
throughput and deficiency (“T&D”) agreement with the Red River
joint venture.
Uzi Yemin, Chairman and Chief Executive Officer
of Delek Logistics' general partner and Chairman, President and
Chief Executive Officer of Delek US, remarked: “This joint venture
supports our initiative to grow the midstream business, while
increasing our crude oil sourcing flexibility. For Delek Logistics,
this joint venture is expected to generate approximately $13.5 to
$15.5 million of annualized adjusted EBITDA in its first year,
which is expected to increase to approximately $20.0 to $25.0
million of annualized adjusted EBITDA following an expansion in the
first half of 2020. From a midstream standpoint, this investment,
combined with our current operations, the development of our
gathering system and long haul crude oil pipeline strategy,
increases our 2023 midstream adjusted annualized EBITDA goal to
$370 to $395 million from our previous range of $350 to $370
million. This investment also increases our crude oil sourcing
flexibility with additional direct access to a wide array of
Cushing, Oklahoma crude oil grades. First, it will build from our
current 35,000 barrels per day of Cushing crude oil in our system
that has benefited our refining system gross margin. Second, it
further enhances our crude slate optionality for three of our four
refineries. Finally, it gives us the ability to ship to the US Gulf
Coast at very attractive tariffs. Following the pipeline expansion
project, our 302,000 barrel per day refining system should have
access to approximately 125,000 barrels per day of crude oil priced
on a Cushing basis, which will further diversify our crude oil
slate.”
Red River Joint VentureDelek
Logistics has purchased a 33 percent ownership interest in the Red
River pipeline joint venture from Plains Pipeline, L.P. for
approximately $128.0 million. This investment will be financed by
borrowings on the Delek Logistics revolving credit facility. The
Red River crude oil pipeline is a 16 inch pipeline running from
Cushing, Oklahoma to Longview, Texas with a current capacity of
150,000 barrels per day. Currently, the joint venture has access to
60 percent of the capacity from Cushing to Hewitt, Oklahoma and 100
percent of the capacity from Hewitt to Longview. An approximately
$51.0 million expansion project to increase the pipeline capacity
to 235,000 barrels per day is expected to be completed during the
first half of 2020. Delek Logistics will contribute approximately
$20.0 million, of which approximately $3.5 million was paid with
the initial investment, to the joint venture for this expansion.
Upon completion of the expansion project, the joint venture will
have access to approximately 69 percent of the capacity from
Cushing to Hewitt and 100 percent of the capacity from Hewitt to
Longview.
Improved Crude Oil
FlexibilityIn conjunction with the joint venture, Delek US
entered into a 10 year T&D agreement for 65,000 barrels per day
on the Red River pipeline which will begin upon the completion of
the expansion project. Combined with Delek US’ existing T&D
agreement, this new agreement will increase direct access from
Cushing, Oklahoma to Longview, Texas from 35,000 barrels per day to
100,000 barrels per day. From Longview, crude oil can be delivered
into Delek US’ Tyler, Texas, El Dorado, Arkansas and Krotz Springs,
Louisiana refineries using various Delek Logistics pipeline assets
that support those operations, including the east Texas crude
logistics system, Paline pipeline, Caddo pipeline and other
third-party systems. In light of IMO 2020, and the current forecast
of new pipeline projects being built out of the Permian Basin, this
commitment will provide Delek US access to a growing number of
segregated crude oil grades and pricing available in the Cushing,
Oklahoma trade hub.
Krotz Springs Refinery
UpdateThe Army Corps of Engineers is considering the
opening of the Morganza Spillway in Louisiana in early June. Delek
US has begun preparation ahead of this opening to minimize the
potential effect on the operations at the Krotz Springs refinery.
Our focus is to keep the employees and the facilities safe from the
potential increase in water levels. Currently, based on Army Corps
of Engineers flood inundation maps, water levels are not expected
to impact the refinery. During 2011, the refinery did not sustain
any water damage, and since that time levees around the refinery
have been built and maintained. At this time, the impact is
expected to be minimal to the refinery operations as steps are
being taken to optimize inventory levels, prioritize barge movement
and ensure product movement with a third party pipeline
company.
About Delek Logistics Partners,
LPDelek Logistics Partners, LP, headquartered in
Brentwood, Tennessee, is a growth-oriented master limited
partnership formed by Delek US Holdings, Inc. (NYSE: DK) (“Delek
US”) to own, operate, acquire and construct crude oil and refined
products logistics and marketing assets.
About Delek US Holdings,
Inc.Delek US Holdings, Inc. is a diversified downstream
energy company with assets in petroleum refining, logistics,
renewable fuels and convenience store retailing. The refining
assets consist of refineries operated in Tyler and Big Spring,
Texas, El Dorado, Arkansas and Krotz Springs, Louisiana with a
combined nameplate crude throughput capacity of 302,000 barrels per
day. The logistics operations primarily consist of Delek Logistics
Partners, LP (NYSE: DKL). Delek US Holdings, Inc. and its
affiliates own approximately 63% (including the 2 percent general
partner interest) of Delek Logistics Partners, LP. Delek Logistics
Partners, LP is a growth-oriented master limited partnership
focused on owning and operating midstream energy infrastructure
assets. The convenience store retail business is the largest
7-Eleven licensee in the United States and operates approximately
281 convenience stores in central and west Texas and New
Mexico.
Safe Harbor Provisions Regarding
Forward-Looking StatementsThis press release contains
forward-looking statements that are based upon current expectations
and involve a number of risks and uncertainties. Statements
concerning current estimates, expectations and projections about
future results, performance, prospects, opportunities, plans,
actions and events and other statements, concerns, or matters that
are not historical facts are “forward-looking statements,” as that
term is defined under the federal securities laws. These statements
contain words such as “possible,” “believe,” “should,” “could,”
“would,” “predict,” “plan,” “estimate,” “intend,” “may,”
“anticipate,” “will,” “if,” “expect” or similar expressions as well
as statements in the future tense. These forward-looking statements
include, but are not limited to, statements regarding future growth
at Delek US and Delek Logistics, including midstream growth and
expected adjusted EBITDA resulting therefrom; expected returns on
investments; completion of the expansion of the pipeline and
results therefrom; future access to crude oil grades; and future
crude oil supply at our refineries. Investors are cautioned that
the following important factors, among others, may affect these
forward-looking statements: the fact that a substantial majority of
Delek Logistics' contribution margin is derived from Delek US,
thereby subjecting Delek Logistics to Delek US' business risks;
risks relating to the securities markets generally; risks and costs
relating to the age and operational hazards of our assets
including, without limitation, costs, penalties, regulatory or
legal actions and other effects related to releases, spills and
other hazards inherent in transporting and storing crude oil and
intermediate and finished petroleum products; the impact of adverse
market conditions affecting the utilization of our assets and
business performance; an inability of Delek US to grow as expected
as it relates to Delek Logistics’ potential future growth
opportunities, including dropdowns, and other potential benefits;
risks and uncertainties with respect to the quantities and costs of
crude oil we are able to obtain and the price of the refined
petroleum products we ultimately sell; the results of our
investments in joint ventures; adverse changes in laws including
with respect to tax and regulatory matters; and other risks as
disclosed in Delek US’ and Delek Logistics’ Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and other reports and filings
with the United States Securities and Exchange Commission.
Forward-looking statements should not be read as a guarantee of
future performance or results and will not be accurate indications
of the times at which, or by, 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. Neither Delek US nor Delek
Logistics undertakes any obligation to update or revise any such
forward-looking statements to reflect events or circumstances that
occur, or which Delek US or Delek Logistics becomes aware of, after
the date hereof, except as required by applicable law or
regulation.
Non-GAAP Disclosures: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 GAAP financial information presented in accordance
with U.S. GAAP. These financial and operational non-GAAP measures
are important factors in assessing our operating results and
profitability and 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 customer contract intangible assets,
which is included as a component of net revenues in our
accompanying condensed consolidated statements of income.
- Adjusted earnings before interest, taxes, depreciation and
amortization ("Adjusted EBITDA") - calculated as EBITDA adjusted
for distributions from operations of non-controlled entities in
excess of earnings.
Delek Logistics Partners, LPReconciliation
of Forecasted Incremental U.S. GAAP Net Income (Loss) to Forecasted
Incremental AdjustedEBITDA for the Red River Pipeline Joint
Venture |
|
|
|
|
|
|
|
($ in
millions) |
Pre-Expansion Range |
|
Post-Expansion Range |
|
|
|
|
|
|
|
|
Forecasted
Incremental Net Income |
$ |
1.4 |
$ |
3.4 |
|
$ |
5.8 |
$ |
10.8 |
|
Add Forecasted
Incremental Amounts for: |
|
|
|
|
|
|
Interest Expense,
net |
|
6.6 |
|
6.6 |
|
|
7.6 |
|
7.6 |
|
Depreciation and
amortization |
|
-- |
|
-- |
|
|
-- |
|
-- |
|
Forecasted
Incremental EBITDA |
$ |
8.0 |
$ |
10.0 |
|
$ |
13.4 |
$ |
18.4 |
|
Adjustments: |
|
|
|
|
|
|
Add Forecasted
incremental distributions from operations of non-controlled
entities in excess of earnings |
|
5.5 |
|
5.5 |
|
|
6.6 |
|
6.6 |
|
|
|
|
|
|
|
|
Forecasted
Incremental Adjusted EBITDA |
$ |
13.5 |
$ |
15.5 |
|
$ |
20.0 |
$ |
25.0 |
|
Investor Relations Contact:Keith JohnsonVice
President of Investor Relations615-435-1366
Media/Public Affairs Contact:Michael P.
RalskyVice President - Government Affairs, Public Affairs &
Communications615-435-1407
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