Delek US Holdings, Inc.

and Odeli Sakazi, SVP, Delic Logistics. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call 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 in our SEC filings. The company assumes no obligation to update any forward-looking statements, I will now turn the call over to Avigol for opening remarks. Avigol?

Thank you, Robert. DELEC Logistics partners had another record quarter. We reported approximately $107 million in quarterly adjusted EBITDA. We are pleased with DELEC Logistics' continued strong performance. DKL is a premier full-service crude, natural gas, and water provider in the prolific Permian Basin, and our recent actions have significantly enhanced our position. In Q3 of 2024, we closed several important transactions. First, on August 5th, we amend and extend contracts between DKL and DK for a period of seven years. Second, we completed the acquisition of DELEX portion in Wink to Webster pipeline. W2W is a premier crude oil pipeline backed by investment-grade counterparties. It increases the overall asset quality at DKL and enhance DKL permanent position. Third, on September 11, we closed the acquisition of H2O Midstream. We're excited about our combined offering in the Midland Basin. While it's still early, this combination is already a more attractive option for our customers and is presenting several cross-sell opportunities. In the Delaware Basin, we are also making good progress on our processing plant expansion and still expect to complete the expansion on time and on budget in the first half of 2025. As discussed previously, the plant is highly subscribed and we are making progress on completion. We are already seeing additional opportunities around sour gas treatment. On October 29, the Board of Directors approved an increase in the quarterly distribution to $1 and 10 cents per unit. We are very excited about the prospects of DELEC Logistics. DKL is seeing several organic and inorganic growth opportunities, and we are taking a prudent approach to growth. DKL has shown a strong track record of delivering value to unit holders. We expect to continue on our value creation path moving forward, and we will continue to grow our distribution in the future. I will now hand it over to Ruben.

Thank you. As Abigail mentioned, we are growing Delic Logistics with prudent management of liquidity and leverage. We have managed liquidity throughout the year by accessing debt and equity markets. We currently have approximately $780 million of liquidity post the recent equity offering. We are also managing our leverage as we get into core spending period on our new gas processing plant expansion. Moving on to our third quarter results. The third quarter adjusted EBITDA was approximately $107 million compared to $98.2 million in the same period of 23. Distributable cash flow, as adjusted, was $62 million, and the DCF coverage ratio was approximately 1.1 times. We expect this ratio to steadily move back above our long-term objective of 1.3 times in the second half of 2025 as we realize the benefit of the various initiatives Avigar just spoke about. As for gathering and processing segment, adjusted EBITDA for the quarter was $55 million compared to $52.9 million in the third quarter of 2023. The increase was primarily due to higher throughput from Delic Logistics' premium base and assets and small contribution from H2O post the transaction which was closed in mid-September. Wholesale, marketing, and terminaling adjusted EBITDA was $24.7 million compared with $28.1 million in prior years. The decrease was primarily due to lower wholesale margins. Storage and transportation adjusted EBITDA in the quarter was 19.4 million compared with 17.9 million in the third quarter of 23. The increase was mainly driven by higher storage and transportation rates. And lastly, the investment in pipeline joint venture segment contributed 15.6 million this quarter compared with 9.3 million in the third quarter of 23. The increase was primarily from the WIC to Webster drop-down contributions. Moving on to capital expenditures. The capital program for the third quarter was $65.2 million, of which $53.4 million was allocated to the new gas processing plant. The remainder of the spend in the quarter was the growth projects, namely advancing new connection in the Midland and Delaware gathering systems. Along with our previously announced capital budget for 2024, We expect to spend a total of 90 to 100 million in the second half of 24 on the new gas processing plant. With that, we can open the call for questions.

Thank you. The floor is now open for questions. If you dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute while asking your question. Your first question comes from the line of Doug Irwin of Citi. Your line is open.

Hey, thanks for the question. I just wanted to start with the processing plant. Looks like you've already spent over half of the expected capex there. Just wondering if you could talk about the progress and any updated expectations on timing. And then just curious if you could talk about the potential sour gas opportunities with this plant and DKL's ability to potentially take advantage of the need for some more sour gas treating in the Delaware.

Thank you, Doug, for the two great questions. So first of all, progress around the plant goes very well We are very happy with the construction and the commercial side of that, so that's absolutely going the right way. Obviously, as you heard on my prepared remarks, we see opportunity around Sauer and which are very attractive, I would put it this way, and expect that we'll come back to you about that sooner than later. Odedi, do you want to be more specific about the progress of the gas plant?

Yes, please, Abigail. Thank you. And Doug, good morning. Appreciate the question. So regarding the progression, as we mentioned before, everything is going very well, both from schedule and also from a cost perspective. As we mentioned, we are looking to have the plant ready on the first half of 2025, which is still the projection. Everything has progressed very well. From a construction standpoint, all civil work has already been started, major equipment is there, so we're really happy about the progress about it and also on the schedule and also on the cost. On the sour side, as Abigail mentioned, it's an opportunity, it's something that is really interesting and we're excited about it. Part of the tree bear acquisition, which now is DDG, we have the two AGI wells permits that we are looking to continue to use that, and as Abigail mentioned, more to come around that, but we're very excited about that opportunity for us, for DKL.

Doug, as you probably saw, we see a very attractive valuation for those assets over there. And that's something that will come back to you sooner than later.

Great. Thanks for that. And then my second question is just on mid-length volumes. It took a little bit of a step lower this quarter. Could you maybe just talk about what trends you're seeing there? And then maybe if you could also provide some more details on the acreage dedication that was announced last month, just any sort of guideposts around MVCs or volume expectations moving forward would be helpful. Thanks.

Yeah, absolutely. So, Doug, we are really fortunate to have the system, the DPG on the location we have. We see a great value in the area. The acreage dedication deal that we did when we announced is extremely accurate for us, and Odeli will give more color around it.

Yeah. Thank you, Avigal. So, Doug, as you mentioned, we've done around 185 in the third quarter. This is kind of a mix of two things. One, the project timing execution. And also, as we mentioned before, we saw consolidation in the GPN landscape. So we see optimization around the rigs for our producer and also moving some of the rigs to a new acreage. So we are still looking to be around 190 in DPG by the end of the year and above 200 in 2025. As mentioned, the 50,000 acreage that we just add in DPG is something that we're really excited about because of the fact that we're able to continue to grow the acreage that's dedicated to us in DPG in an area that's like the Midland area where it's a very mature area from that standpoint. So from a volume standpoint, this is where we're going to see an incremental to go above the 200 and also getting even further beyond for 2026 as well.

Got it. Thank you.

Thank you, Doug.

I appreciate you. Your next question comes from the line of Neil Dingman of Truth Security. Your line is open.

Morning, all. My name is just on the H2O mission, a really unique acquisition. I'm just wondering, again, you talked a little bit on the integration. I'm just wondering, how do you envision this? You mentioned kind of the upside that it'll mean. I guess I have two questions here. How this will sort of integrate with the three bear assets and, you know, how much quicker do you think you'll envision sort of call it incremental third party cash flow as a result of having this combination?

Yeah. So H2O midstream is on the DPG side of the area and goes very well with the system we have built over time. Integration is pretty much done. We can say that the people of H2O are part of the DELEC logistics team. They are part of our partnership. We are very pleased with the integration, both on the G&A side, the accounting and IT system, and the business development side, and also the operations side. For example, yesterday we just had a great meeting with their team, and we are really blessed to have them on our shop. On a more strategic basis, obviously having the water and the crude in this area give us a bundling sale opportunity and take our discussion with our customer to the new level. And we are very pleased about it. So that's a really good one.

No, I can't wait to see that. And then second question is on capital allocation specifically. How do you all think about potential distribution growth versus you know, debt payment or where you would like, you know, your leverage or distribution coverage to be.

Yeah, so we are very proud, Neil, about the fact that we increased our distribution 47 times in a row. With that said, we will, I said it very clearly that our goal is to continue with the increase of distribution and we are, we're going to push that forward. The long-term leverage ratio that we are targeting is three and a half times. Our job, Our job is obviously to balance between the growth opportunity, the liquidity, the leverage ratio, and the coverage ratio, and that's what we are doing. We gave a lot of growth opportunities around our area and Odeli, do you want to talk about it more?

Yeah, absolutely. And as Avigal mentioned, we are in a growth mode in Deloc Logistics and kind of managing all of that and make it in a very sustainable way as well. We did mention about the additional acreage that we got in DPG, also the implement of H2O and associate synergy around that in the DPG area. along with also the gas plant or the new gas plant, along with a lot of need for infrastructure that we see in the Delaware, along with also sour. So all those opportunities is something that we have two assets in the most prolific location in the United States, both on the Midland side and also on the Delaware side. So we're really excited about those opportunities.

Makes sense. Thank you all.

Thank you, Nick. With no further questions, that concludes our Q&A session. We'll now turn the conference back over to the President, Avigal Sodak, for closing remarks.

Avigal Sodak So I want to take my friends around the table for the great progress we are doing with our partnership, to the Board of Directors that support the progress we are doing, and to the investors that join our call and invest in our share and trust in us, and first and foremost to our great employees that makes this company great to work for. Thank you, and we'll talk again in the next quarter.

This concludes today's conference call. You may now disconnect.