Refining & Midstream

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Delek US(DK) - 2025 Q1 - Earnings Call Transcript
2025-05-07 16:02
Financial Data and Key Metrics Changes - Delek reported a net loss of $173 million or negative $2.78 per share for Q1 2025, with an adjusted net loss of $144 million or negative $2.32 per share and adjusted EBITDA of $26.5 million [21][22] - The refining segment saw a $42.2 million increase in EBITDA due to a higher margin environment and increased throughput compared to Q4 2024 [21] - Logistics segment delivered $117 million in adjusted EBITDA, a $9 million increase over the previous record [22] Business Line Data and Key Metrics Changes - Total throughput in Tyler was approximately 69,000 barrels per day in Q1, with a production margin of $7.82 per barrel [14] - El Dorado's throughput was approximately 76,000 barrels per day with a production margin of $3.83 per barrel [15] - Big Spring's throughput was approximately 59,000 barrels per day, with a production margin of $4.86 per barrel [16] - Cross Springs achieved a record throughput of approximately 85,000 barrels per day, with a production margin of $6.40 per barrel [18] Market Data and Key Metrics Changes - The refining margin environment was reported to be around $4 below mid-cycle levels [5] - Supply and marketing contributed a loss of $23.7 million in Q1, driven by seasonal low demand trends [19] - Crack spreads improved to $3 to $4 in recent weeks, indicating positive market conditions [42] Company Strategy and Development Direction - The company is focused on its Enterprise Optimization Plan (EOP) aiming for cash flow improvement of $120 million annually starting in the second half of 2025 [10] - Delek is advancing its midstream deconsolidation goal, with third-party cash flow at DKL increasing to around 80% [8] - The company is committed to a disciplined capital allocation strategy, including share buybacks and dividends [10][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational improvements and the potential for a strong year ahead, particularly in the context of the Permian Basin activity [32] - The company remains optimistic about the support from the EPA for small refinery exemptions, which could provide significant financial relief [51][55] - Management highlighted the importance of free cash flow and the positive trajectory of operational metrics [34][68] Other Important Information - The company paid $16 million in dividends and repurchased $32 million of its shares during the quarter [10] - Capital expenditures for Q1 were $133 million, with a significant portion allocated to logistics and refining segments [23] Q&A Session Summary Question: Discussion on DKL and full year EBITDA guidance - Management reiterated confidence in DKL's performance and the positive outlook for Permian activity [30][32] Question: Capital returns strategy and sustainability of dividend yield - Management emphasized a balanced approach between share buybacks and dividends, focusing on free cash flow generation [33][38] Question: Improvement in supply and marketing for Q2 - Management noted strong demand and improving market conditions, expecting further improvements in wholesale marketing and asphalt categories [40][42] Question: Dynamics in the Southwest market - Management reported strong crack spreads in the Southwest, particularly in Arizona markets, countering concerns about sluggishness [46] Question: Small refinery exemptions (SREs) and potential retroactive claims - Management confirmed that they are pursuing both retroactive and forward-looking SREs, with significant potential value [51][55] Question: Opportunities for upside beyond EOP targets - Management acknowledged potential for exceeding the $120 million target due to ongoing operational improvements [60] Question: Intercompany transactions and their impact - Management clarified that recent intercompany transactions are aimed at optimizing asset allocation and enhancing deconsolidation efforts [72][76] Question: OpEx guidance and trends - Management explained that increased OpEx guidance is primarily due to the addition of a new natural gas plant, with expectations for further improvements [99][100]