Delek US Holdings, Inc.

Good morning, and welcome to the DELIC-US Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Rosie Zuklik, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to the DELIC-US Second Quarter Earnings Conference Call. Participants on today's call will include Abigail Sorek, President and CEO, Joseph Israel, EVP Operations, Reuben Spiegel, EVP and Chief Financial Officer, Mark Hobbs, EVP Corporate Development. Today's presentation material can be found on the Investor Relations section of the DELIC U.S. website. Slide 2 contains our safe harbor statement regarding forward-looking statements. We'll be making forward-looking statements during today's call. These statements involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Abigail for opening remarks.

Good morning and thank you for joining us today. During the second quarter, we delivered solid financial results. Our team executed well and stayed focused on our key objectives. we continue to do what we said we would do. We kept our commitment to return value to shareholders. We target a dividend that is competitive and sustainable. Giving the market outlook, our share buyback program gives us the ability to further reward our investors in the near and mid-term. Year-to-date, we have returned $95 million towards dividend and share buybacks. Since June of last year, To the end of this week, we have returned close to $275 million to investors. We also recognize there is a value in a strong balance sheet and financial flexibility. We continue to improve the efficiency of our cost structure. G&A improving the quarter and OPEX will follow. I'm pleased with our progress. Rosie will give more details in the financial section. Turning to the operation during the quarter, we ran well through most of our system. Improving the safety and reliability of our refining system is fundamental. During the quarter, we made steps in the right direction. We continue to make good progress. Our refining segment reflects strong contribution for our wholesale and asphalt businesses, driven by local market demand. In addition, our oil sales business benefited from higher location differentials. We see these trends continuing. From a macro standpoint, in the month of July, our benchmark U.S. Gulf Coast crack spread improved by approximately $5 per barrel, which further improved our outlook for the year. Crude is also a good story for us. We see the heavy light differential continue to compress which is favorable for our configuration as our system is fully balanced at 95% light with no excess naphtha. In addition, with the growth we see in the permanent production, we expect to be favorable in the midland differential. Our logistics segment delivered strong results with adjusted EBITDA of $91 million this quarter. Our prime acreage is outperforming the permanent basin. We now forecast around $100 million a quarter from this segment starting in Q4 of this year. Retail also posted a solid quarter. This was driven by higher fuel volume, increased average margin, and higher inside store sales. In closing, our team continued to successfully advance our strategy. I want to thank each and every team member for their contribution. There is still value to unlock as we continue to execute on our strategic initiative. Now, I would like to turn the call over to Joseph, who will provide additional color on our operation.

Thank you, Avigal. In the second quarter, our team safely processed 295,000 barrels per day of total throughput. Supported by favorable market conditions in our markets, the refining system generated $201 million of adjusted EBITDA. In Tyler, our throughput in the second quarter was approximately 77,000 barrels per day. Production margin in the quarter was $13.87 per barrel, and operating expenses were $3.78 per barrel. In the third quarter, the estimated total throughput in Tyler is in the 74 to 78,000 barrels per day range. In El Dorado, total throughput in the quarter was approximately 73,000 barrels per day. and short of our guidance, mainly due to a third-party transformer failure, which led to a power outage-related shutdown. Our production margin was $6.06 per barrel, including an unfavorable impact of approximately $1.50 per barrel due to the power outage. Operating expenses were $5 per barrel Estimated throughput for the third quarter is in the 76,000 to 80,000 barrels per day range. In Big Spring, total throughput for the quarter was approximately 62,000 barrels per day, approximately 8,000 barrels per day under our guidance, mostly due to unplanned diesel hydrotreater catalyst change and vacuum unit maintenance. Production margin was $11.55 per barrel, including an estimated unfavorable $4.30 per barrel impact from the unplanned events. Operating expenses in Big Spring were $8.91 per barrel, including approximately 50 cents per barrel of the unplanned maintenance activities. To support safe and reliable operations in Big Spring, we are investing this year in mechanical integrity and sustaining regulatory items. In the second quarter, approximately $2.30 per barrel of our reported operating expense were related to that important initiative. Our planned cost going forward is approximately $1 per barrel through the third and fourth quarter of this year. The estimated third quarter throughput in Big Spring is in the 64 to 70,000 barrels per day range. In Crowd Springs, total throughput was approximately 83,000 barrels per day. Our production margin was $6.21 per barrel, and operating expenses were $4.74 per barrel. Plant throughput in the third quarter is in the 78,000 to 82,000 barrels per day range. Compared with the first quarter, the system benefited mainly from the improved gasoline crack spreads and reduced RVO cost in the second quarter, while jet fuel and MGL crack spreads provided some heathering. Strong asphalt and wholesale marketing added $82 million to our second quarter refining segment earnings outside of our reported margins at each of the refineries and their associated capture rates. Approximately $30 million of that added value was generated in cross springs driven by light cycle oil, high sulfur diesel, and alkylate cells. $14 million were generated by Tyler Wholesale Marketing. Approximately $27 million were generated in Eldorado, and close to $11 million in Big Spring, both driven by Asphalt and Wholesale Marketing. Overall, estimated system throughput in the third quarter is in the 292 to 310,000 barrels per day range. We continue to focus on safety, reliability, and environmental compliance as our top priorities, and we expect margin capture and cost performance to follow. With regards to DKL, as mentioned by Avigal, we are clearly beneficiaries of the strong Permian Basin growth, also at the logistics business level. The Midland Gathering System volumes has more than doubled from a year ago, and our team has demonstrated solid operations and growth, which are well reflected in the financial results. I will now turn the call over to Rosie for the financial variance.

Thanks, Joseph. I'll start on slide five of our presentation material. For the second quarter of 2023, Delic US had a net loss of $8 million, or 13 cents per share. Adjusted net income was $65 million, or $1 per share, and adjusted EBITDA was $259 million. Cash flow from operations was $95 million. On slide 6, we provide a waterfall of our adjusted EBITDA by segment from the first quarter to the second quarter of 2023. The decrease was primarily from lower results in refining, largely reflecting the decrease in crack spreads. The Gulf Coast 532 crack averaged $25.54 for the quarter, down from $32.55 in the first quarter. Strong performance from our wholesale and asphalt businesses, as well as draws on inventory at quarter end, partly offset the lower cracks. Retail improved versus last quarter as crude prices fell, improving pricing at the retail level. In addition, volumes were higher consistent with the season. Moving to slide seven to discuss cash flow. We drew $43 million in cash during the quarter, ending the second quarter with $822 million in cash. The $95 million in operating activities includes approximately $80 million of cash outflows for the inventory draws executed late in the quarter. The timing of the inventory draws is the primary reason net debt increased this quarter. We received the cash for these sales in July. Investing activities of $58 million is mainly for capital expenditures. Financing activities of $81 million primarily reflects return to shareholders. This includes $40 million in buybacks, $15 million in dividends, and $10 million in distribution payments. On slide eight, we show capital expenditures. Year to date, we have spent $253 million. We estimate the full year to remain at approximately $350 million. Net debt is broken out between DELIC and DELIC Logistics on slide nine. During the quarter, consolidated net debt increased by $79 million. The last slide covers outlook items for the third quarter of 2023. In addition to the throughput guidance Joseph provided, we expect operating expenses to be between $210 and $220 million. This includes $10 to $15 million related to the mechanical integrity work at the Big Spring Refinery, GNA to be between $65 and $70 million, DNA to be between $85 and $90 million, And we expect net interest expense to be between $80 and $85 million. Before we open the line for questions, a comment on our cost initiative efforts. Second quarter G&A, as reflected on the income statement, is $75.8 million. This includes $4.3 million of restructuring costs. Excluding this one-time expense, adjusted G&A for second quarter was in line with the first quarter of 2023. As provided in the guidance, we expect third quarter G&A to be lower in the range of $65 to $70 million, and now expect fourth quarter 2023 to be approximately $65 million. We are on track to meet our annual run rate cost savings of $90 to $100 million as we exit 2024. We will now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Manav Gupta with UBS. Please go ahead.

Good morning, guys. My only question here is the other inventory impacts was a big number, about $96 billion. Can you help us understand all the components that went into that $96 billion other inventory number? Thank you.

Hey, Manav. Good morning. How are you? It's Avigar. Thanks for joining us today.

Thank you, sir.

Manav, you know that we are working at FIFO. And the whole point of the inventory is to bring us back to LIFO. So when we are showing the adjusted DBI 260, that's the way to compare ourselves to our peers. So that's the headline here, right? The headline is we are FIFO. We want to go back to LIFO to be comparable. That's what we actually did on the adjustment. Simple and easy.

So just to be clear, no other adjustments, just from FIFO to LIFO?

Correct.

Thank you so much for taking my question.

The next question is from Matthew Blair with Tudor Pickering Holt. Please go ahead.

Hey, good morning. Is there any update to the sum of the parts efforts? Is the goal still to get the DKL debt off the DK balance sheet? Are there some smaller things you can do in the meantime? And is there any update on the timing of all this?

Yeah, Matt, thank you for joining us today. I'm going to start and I'm going to let Mark Holt He's sitting here with me to follow. But just to give you kind of high-level comments, we are extremely focused on some of the parts, some of the management compensation related to some of the parts. And we are very well aware for the inherent value of our asset, mainly logistics, retail, but also W2W and the biodiesel plant we have. And we are actively working to execute the plan. But then I would like to, Mark, to... Yeah, sure, Avigal.

And thanks for the question, Matt. As we've said in the past, and this is still the case, we continue to believe that our current share price does not fully reflect the value of our respective business segments. And in evaluating the sum of the parts, we've analyzed and looked at all the options that are available to us and And we do believe that there's a clear path on the actions that we need to take, and we are working hard to execute on that plan. We're not in a position to announce anything at this time, but I can tell you that we're working hard on the initiative, and it's complicated. It takes time. We're not going to rush into anything across unlocking the value across any of our business segments, as we've talked about in the past. But we are committed to unlocking the value. We're committed to doing what's in the best interest of all of our stakeholders. And so when you think about whether it's across, you know, midstream, retail, Wink to Webster, all the things that we've discussed in the past, you know, all of those things are things that we're evaluating. And as I said, you know, we do have a clear path forward that we're working on. I'll leave it at that.

Okay, sounds good. And then the trading and supply contribution of $115 million in Q2 seemed quite large, especially relative to the loss in Q1. Could you talk about what drove that gain? For example, was the wholesale side, was that due to better retail fundamentals? And then the asphalt contribution, was that due to just the falling crude price in the quarter? Could you also talk about how that's trending in Q3? And then finally, would you say that this is your regular business operations, or does it involve taking some risks on your side? Thank you.

Yeah, so very comprehensive question. I'll try to give you as much clarity as we possibly can. I think Joseph did a great job on his prepared remarks of giving some color around $82 million of the $114 million. and actually outlined it by asset and by business stream. All of those assets, we see them as a core business, so assets that support the refinery, so it's very well something that it's repeatable. But now Joseph got into that area very well, and I will let him have some comments on it as well. Please, Joseph.

Yeah, Matt, we mentioned the numbers per site. in our prepared remarks. Let me add to you some information as we are making progress with visibility here and transparency. So we move around 210,000 barrels per day of light products through our rack in a typical quarter. We make $45 to $50 million of contribution coming from the wholesale marketing. Obviously, different things create some volatility, ups and downs. This quarter was really good at $60 million of the 82 was wholesale related. Most of it is really just the location advantage that we have in the markets we operate in. And then on the asphalt side, we do have 750,000 tons per year type of asphalt. Approximately 75% of it is in the El Dorado, driven by Oklahoma, Arkansas, potent type of pricing. 25% left is more of a big spring. In a good quarter, obviously in the season, we're making approximately $20 million dollars of contribution. And in the off season, the way our transfer price work, it's probably around $5 million of positive contribution. This will give you a good start for the modeling efforts. I hope you all see it's real. The numbers outside the 82 are more inventories and derivatives type of numbers. Did I answer your question? Got it.

Thank you very much. Thank you. Yes. Thank you, Joseph.

The next question is from Neomata with Goldman Sachs. Please go ahead. Hi.

This is Nicolette Slusser on for Neomata. Thanks for taking the time. So the first question here is on the more macro side of things. Just any views you can share on the current product market and any additional thoughts around Midland spreads and where differentials may be trending.

Thank you.

Okay.

First of all, thanks so much for joining us today. We see the trend positive. We see diesel at close to a five-year low. We see gasoline at five-year low. We see demand pick up. We see the recession field that was very well during the first half of the year fading out just a little bit. That's also improved the crack spread for the right way. We see heavy turnaround season coming Q3, that we are not Q3 and Q4, that we are not part of this, as you are very well aware. So it seems that we see the heavy light differentials compressing, which is obviously going our way. So it seems that it's a good day to be refiners those days. We see that trend continue. We see a strong crack spread. So we are very positive around that. Around midland differentials, I think when the market is a bit underestimate the production and what can it make to differentials, at some point I'm sure that we'll see that movement and we'll widening the midland differential. We see production coming up, which is positive. We see that on our own acreage. Obviously in our own acreage we were more than doubling versus last year. But generally speaking, we see the acreage the midland production coming up. So it's a very positive news for us as well. So we're well positioned. Our configuration is good for this time being. And the demand looks solid and the inventory looks low. So overall, very constructive.

That's very helpful, Keller. Thank you. And then the follow-up here is unrelated, but just wanted to ask about shareholder returns and the $25 million of share repurchases seen here subsequent to quarter end. Can you share any thoughts around the buyback cadence and what you may be seeing from either the macro or in the current share price that is contributing to the repurchase levels?

Yeah, Nicole, I will give more of a broader view around capital allocation. So, you know, we see a dividend, first of all, competitive and sustainable through the cycle, and we are planning to maintain it and to hold it. And if we have opportunity in the future even to upgrade that, So that's something we are looking at pretty consistently. Obviously, we gave guidance for buyback, and if there are opportunities, we'll absolutely execute them. But we have also balanced approach between buyback and that reduction. So again, we are seeing a constructive 2023, which allow us to have a good return to investors in all the three ways that I mentioned.

Great. Thank you.

The next question is from Doug Legate with Bank of America. Please go ahead.

Thanks. Good morning, everyone. Good morning. Abigail or Joel, I'm not sure who wants to take this, but Joel, you've been there now for, I guess you've been there for about four months now. You've had, obviously, a pretty good chance to take a look at the operations by asset. I just wonder if you could share your high-level thoughts on on what you might do differently going forward. What have you seen that provides margin opportunities, cost reduction opportunities, or maybe even portfolio high-grading opportunities, any color you could offer from your observations? And I've got a follow-up, please.

So, Doug, that's a great question for Joseph. He's excited about it. Thanks for joining us today. Please, Joseph.

Thank you, Doug. And I'll take the operations angle of it. So we spoke about the two events in Big Spring this quarter, right? So we made the appropriate repairs and we moved on. But I think more importantly, we have shifted gears with a much more proactive reliability approach here. And we are fully, fully focused on three key aspects of our operations. People, processes, and the equipment. With regards to people, we were able to Phil, key positions in the past couple of months with really strong industry talent and with more people around who understand what good looks like. The foundation is very sound to really build on it, right? Procedures, training, very important, especially with young force, workforce training. And really, lastly, equipment. In our prepared remarks, we discussed the $2.3 per barrel spent into Q under mechanical integrity. Most of the scope has been around inspections and eliminations of bad actors, really to mitigate our risk. The plan is to continue in this second half of 23 with approximately $1 per barrel. of budget to knock the high priority items out really off the list. When you look back, DELEC has gone through a similar program in El Dorado in the past with really good results. El Dorado really runs well these days. In KSR, mechanical availability has trended up in the past couple of years, and you can see high rates more consistently. I personally ran Big Spring as a chief operating officer 15 years ago under a different company, and I know what Big Spring and its workforce are capable of. So take everything together, Doug. I'm very confident about our direction here, and I'm sure reliability and capture will follow.

I appreciate the call, Joseph. Thanks so much. My follow-up, this might actually be for Rosie, but whoever wants to try and tackle it. The supply and trading contribution has already been addressed by a number of my peers, but I want to ask about the July movement. On a go-forward basis, is there a different level, a different magnitude that we should be thinking about, or do you consider what's happened here recently, including July, to be more one-off in nature? How should we think about that going forward?

Hey, Doug. It's Avigal. So Joseph was trying to give some highlights around how to look at it going forward. And most of the assets over there are sustainable and enjoying from an each market. But I'm sure that once you read Joseph's answer, it will make perfectly sense. And if not, I'm sure Rosie would love to follow up.

Yeah, we want you guys to understand 2Q results, and we want you to be able to model them going forward, and Rosie has all the tools to support you there.

All right. Okay, I'll follow up. Thanks, guys.

The next question is from Ryan Todd with Piper Sandler. Please go ahead.

Good, thanks. Maybe a question on CapEx to start. I know 2023 CapEx is front-end loaded because of the turnaround work, but Are you still on pace to hit your $350 million target for 2023? And then I know it's a little early, but if you look forward to 2024, how are you thinking about the puts and takes in terms of what the 2024 budget may look like?

Yeah, so thanks for the question. We said that 350 is the number that we are at. And for 2024 numbers, it's a bit early to talk about it. We're obviously just starting budget season now. So I'm sure that we will be able to disclose that later on in the process. So thanks for the great question.

Okay.

Thanks. And I guess one on the expense side, operating expense and corporate expense were both lower than we expected this quarter. I know you talked some about the G&A trends expected to the end of the year. OpEx backed up a little higher on guidance in 3Q. I mean, can you talk about directionally what you saw in second quarter, you know, the trend on operating expenses going forward and how all of this fits within the context of your cost reduction and efficiency goals? How far along are you on hitting those targets?

Yeah, absolutely. So Ruben here, the CFO, will give some highlights around what we call internally zero-based budget. And then maybe Joseph will add some comments around OPEX. Please, Ruben.

Thank you. And thank you for the question. So during the discovery process, we looked at DK and DKL, and we challenged the organization structures and how we can streamline them by using technology implementation, too many functions, various operation initiatives such as stream and system improvement, heater health, and maintenance and reliability. In addition to that, we worked on optimizing our transportation segment, trucking specifically, And we divided the execution to three stages, as some of the projects require more preparation and technology implementation and execution time. Phase one was executed in June, with most of the impact on the GNA. We're working on execution on phase two in the fourth quarter and phase three in the first half of 24. For 23, as Rosie said in her prepared remarks, we expect to achieve approximately 46 million in cost savings, a split of 40 to 60% between GNA and operations. And those initiatives plus the one plan for the first half of 24 will put us on track for a run rate of approximately $100 million savings.

Great. I'll take it from the OPEX and the CITES level. $5.43 per barrel might be competitive when you look at the peers. but it's really not acceptable for us. We find our run rate closer to the $4.75 to $5 per barrel type of range for our entire system. Obviously, in Tokyo, the elephant in the room was Big Spring. I want to make sure... We all know how to model that going forward. The $0.50 per barrel related to the outage is non-recurring. And then the $2.30 per barrel related to the mechanical integrity, non-recurring. You take those from the $8.90 that we reported, and we are at approximately $6. Six is still $1 per barrel higher than the run rate in Big Spring. Most of it is really just the low throughput and the inefficiencies around it, right? You cannot bring down a variable cost as efficiently. You cannot turn down heaters, et cetera. So $5 per barrel in Big Spring run rate higher. El Dorado, also with the outage type of works, was approximately $1 per barrel higher than the run rate. KSR and Tyler had a good quarter in the range.

And as you think about the 3Q guidance, are you implying that those are still relatively elevated in the third quarter, or is there anything else driving the OPEX guidance there?

Yeah, we mentioned the dollar per barrel left in Big Spring for the second half. So take the five in Big Spring, add one dollar. So $6 there is probably a good way to go. And the rest of the system, yeah, should be in the run rate.

Okay.

Thank you. Thank you. The next question is from Roger Reed with Wells Fargo. Please go ahead.

Yeah, good morning. I think to go down, continue down the road on the cost savings, but maybe thinking even the next steps if it's not too premature to ask. But, you know, obviously you want to get your costs under control. You want to run well. But have you started to look at or consider, you know, something on the optimization side? I know feedstock wise, there's not as much flexibility for you given inland units and pipelines in a lot of cases. But To the extent you could do something on the feedstock side or anything you can do on sort of the yield or commerciality side, I'm just curious how that's starting to shape up.

Yeah, Roger, we obviously, once we announce something and executing something, we are thinking about the next step. So we have other plans coming up, but we are not going to give numbers and timelines for that just yet. But we have a few other plans. other initiatives that we are working extremely diligently in order to be able to share with you guys. And once we feel that it's mature, like the zero-based budget process was, before it's mature, we will come back to you with another leg of initiative, the numbers, and be more diligent around it and specific. So the answer is yes, and we'll come back to you when it's ready. Joseph, you want to add to this?

Yeah, so correcting our reliability, Roger, is definitely our best project, right? So we are doing it, and we feel good about it. For the 24 CapEx, we will bring some great ideas. We have several projects that are 50% and up in IRR and return. Most of them are refining-related, like prior units and liquid recovery type of upside for our plants. We do have those optimization projects lined up for us in the next year to two years to execute.

Okay, that's helpful. Thanks. I think my other question is along the lines of increasing the dividend rate Yet, if we looked at sort of the cash flow statement balance sheet this quarter, it didn't really, maybe I should say really, it didn't to me necessarily justify an increase in the dividend. So I'm just curious, Avgal, what's going on behind the numbers that provides the confidence to raise the dividend here?

Yeah, so I will start and then I will let Ruben follow. So we see a very strong... cracks for the environment. We see our performance coming very well. We see the cash flow can dance just a little bit because of timing of a product receivable and payable. So it's nothing that we are looking on that too much. It's just a minor tweaks in a few days. So it doesn't need to change our view on the business, which it isn't. That's the reason we feel confident very confident around the business and around the ability to increase dividends.

Well, just one add-on. You know, the June 30th is a cutoff date. With the inventory draw of $82 million in the last couple of days of the quarter, we had the $82 million already coming in July, so that kind of made us determine that there should not be any change in our policy.

Okay, so cash flows are stronger than what they look like in terms of the cutoff there.

Correct.

Okay, appreciate that. Thank you.

Thank you, Woojoo.

The next question is from Paul Chang with Scotiabank. Please go ahead.

Hi, good morning.

Morning, Paul.

I think that two questions. One, we're short. With all your cost reduction initiative and all that, so when we're looking at what you brand as the corporate adjusted EBITDA, on maybe looking out by 2024, what will be the kind of normal runway that we should assume in that line?

Hey, Paul. It's Avigar. Good morning. Thank you for joining us today. So if we're looking on the GNA basis, if you remember like two quarters ago, we gave the guidance that we're going to be 70 or lower for exiting there. Now we upgrade there. the guidance and we are saying a better number. We're probably going to come back to you next quarter with some more tighter guidance for 2024. In terms of GNA, it's a bit early. We want to see that all the projects that we are lining up are actually materialized the way we want it, and then we're probably going to give you more tight guidance for GNA for 2024.

Okay. And second one is also real short. Have you made a decision or that when that you will make a decision on the R&D, whether you're going to make the investment there in the Paramount Refinery in California. And also that one of your peers recently decided to get out from the inventory arrangement with their vendor. And because they're saying that the cost or the financing cost is much higher, and then they will be able to do better by themselves. So have the company consider whether you should continue to have that inventory management arrangement from the outside?

Yes, so let me answer the first first and the second second. So in terms of Bakersfield and the renewable diesel over there, it's obviously a free option. And we are obviously looking on that. At this point, we didn't make any decision. We didn't make any decision, but once there is a decision around it, we'll obviously let you know. At this point, it's not a major item on our list. It's a pre-option. If opportunity presents itself, we definitely... We'll definitely be there. Around the intermediate agreement, we obviously improve our situation by moving from one vendor to another. We are looking on the capital allocation extensively, and if we'll assume that we have better ways, we'll act around it. Obviously, that agreement is shorter, and the reason it's shorter is part of that is to allow us flexibility in the future if we choose to.

Hey, Eric, for the option on the biggest field facility, is there a timeline in terms of when you have to make a decision or that you lose the option or the effort? Can you remind us?

Yeah, there is no timeline for that. The option exists and there is no real timeline for us to make a decision. It's more when the opportunity presents itself, if we find that the constructive and beneficial for shareholders, we do it and vice versa.

All right, we do it. Thank you.

Thank you.

The next question is from Jason Gabelman with Cowen. Please go ahead.

Thanks. Hey, morning. I just wanted to clarify something on Paul's question. Is the Bakersfield renewable diesel asset, is that up and running? Because I thought there was the kind of option is once it's up and running. So just to clarify that.

No, it's not. Okay.

All right. Thanks. My questions, the first one is going back to the trading supply and other line item. And I appreciate all the color and the run rate guidance forward is helpful. But I guess if I look last year, you know, 1Q22 was over negative $100 million each quarter. versus kind of the $60 million positive run rate you would expect. So I was hoping you could elaborate on what drove that massive delta between the expected run rate and what you reported in the first half of 22 and even in 1Q23. That would be helpful. Thanks.

Yeah, so we changed a few ways. We are showing DKDS in the last year and a half or so. So I think that the guidance that Joseph gave going forward is more going to allow you to model that better going forward versus looking on the past. In the past, it had different objectives around the tentatives. And when we streamlined processes, we made it a bit more clear. And that's part of the reasoning that Joseph gave a much more clear guidance around that. You can all feel comfortable around the asset. And there is a big part of that is sustainability.

Okay, so if I understand what you're saying, there were other activities within that bucket that you're no longer engaging in to the same extent you were over the past year and a half. Is that fair?

That's fair.

Okay. Thanks. And then my follow-up is just on the strategic reorg. Mark, thanks for the color. Should we expect an update before the end of the year? Is that a reasonable expectation for the market?

You know, so I said in my remark earlier that executive compensation has a big component around some of the parts. So you understand that everyone's motivation is around that, and everyone's focus is around that. But we are going to make the right transaction for the company, and we try to balance between fast and the right transaction. So we are on the same boat. So we want it. We have the right incentive in place to make everyone want it. We have the right planning place to make it work. We just need to make sure that that's what we committed and that's what we want to happen. So it's a big decision. We're going to make it right.

Okay.

Thanks for that.

This concludes our question and answer session. I would like to turn the conference back over to Abigail Sorek for any closing remarks.

Thank you. I want to thank my friends around the table here, the executive team, all of DELEC employees that had a very good quarter. Very proud of safe and reliable operation. Our ability to be safe and reliable is key and I'm very proud of the great progress that the operation team is doing this quarter. I want to thank the board of directors for the support and for you shareholders for the great support. DELEC is up for a A great journey, and we are all very excited, and we'll talk soon in the next quarter. Thank you so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.