Delek Logistics(DKL) - 2022 Q4 - Annual Report

Acquisition and Growth - The acquisition of 3 Bear Delaware Holding – NM, LLC is expected to enhance growth opportunities and financial benefits for the company[14] - The company completed the acquisition of 3 Bear Delaware Holding - NM, LLC for $628.3 million, enhancing its logistics customer base and diversifying its operations in the Delaware Basin[38] - The company has a history of successful acquisitions, including the Midland Gathering Assets Acquisition for approximately $100 million, which includes 200 miles of gathering assets and a storage capacity of 650,000 barrels[41] Operational Capacity and Infrastructure - The company operates primarily in the midstream energy sector, providing services such as gathering, pipeline transportation, and storage for crude oil and natural gas[22] - The company has approximately 1,120 miles of crude oil gathering systems and 450 miles of refined product pipelines, indicating significant logistical capacity[27] - The company reported a water disposal capacity of approximately 200 MBbl/d and gas processing capacity of about 88 MMcf/d, showcasing its operational capabilities[27] - The Delaware Gathering Assets consist of approximately 485 miles of pipelines and have a crude gathering capacity of 140 MBbl per day[67] - The company operates 10 light product distribution terminals, enhancing its market reach and operational efficiency[27] Financial Performance and Revenue - A substantial portion of the company's assets are contracted to Delek Holdings, which is critical for its revenue generation and operational success[29] - The company’s ability to pay quarterly distributions to unitholders may be impaired if it fails to generate sufficient cash flow[17] - The company has a total aggregate commitment of $1.2 billion under its 2022 DKL Credit Facility, which includes $900 million in senior secured revolving commitments and a $300 million senior secured term loan[45] - The company’s revenue from the Storage and Transportation segment is primarily derived from long-term commercial agreements with Delek Holdings, providing a stable revenue base[107] - Delek Holdings accounted for 46.3%, 59.8%, and 67.4% of total revenues for the years ended December 31, 2022, 2021, and 2020, respectively[133] Risk Factors - The company has identified risks including potential impairments of long-lived assets and the impact of the COVID-19 pandemic on its financial performance[17] - The ongoing war between Russia and Ukraine may impact the company's business and growth strategies[14] - The company is dependent on Delek Holdings as its primary customer, with a substantial majority of contribution margin derived from fee-based agreements[132] - The COVID-19 Pandemic has significantly destabilized global economic activity, impacting demand for oil and gas products, which may lead to prolonged economic slowdown[177] - The company faces risks from climate change and severe weather, which could disrupt operations and lead to significant costs for asset protection and risk mitigation[195] Environmental and Regulatory Compliance - The company is subject to extensive federal, state, and local environmental and safety laws, which may require ongoing capital investments to comply with existing and new regulations[153] - The company is committed to ESG-related goals, with oversight from the Board of Directors and various committees focused on sustainability and risk management[138] - Compliance with environmental and safety regulations may require substantial expenditures, impacting financial condition and operational results[202] - The company maintains spill prevention control and countermeasure plans to comply with the Clean Water Act and related regulations[166] Strategic Initiatives - The company has identified overarching objectives within its Long-Term Sustainability Framework, focusing on operational, economic, and environmental sustainability[36] - The company has implemented a digital transformation strategy aimed at operational optimization and improved margin capture[39] - The company is focused on identifying ESG-conscious investments that offer clear value propositions and sustainable returns[39] Market Conditions and Pricing - The tariffs on certain FERC regulated pipelines increased by approximately 8.7% as of July 1, 2022, reflecting changes in the FERC oil pipeline index[48] - Fees under agreements with Delek Holdings increased by 7.1% using the consumer price index and approximately 10.8% using the producer price index[48] - A decrease in wholesale fuel margins or sales volume could negatively impact financial condition and cash flows, influenced by external market factors[210] Integration and Management Challenges - Integration challenges from the 3 Bear Acquisition may include operational errors, maintenance issues, and potential unknown liabilities[188] - The company completed the 3 Bear Acquisition on June 1, 2022, which requires significant management resources for integration[187]