Business context and reporting period
Delek Logistics Partners, LP (NYSE: DKL) filed this Form 10-K for the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report. The partnership provides crude oil and natural gas gathering and processing, transportation, storage, wholesale marketing, terminalling, and water services, primarily in the Permian Basin and Gulf Coast region. Many assets support Delek US Holdings’ refineries, and Delek Holdings remains its largest customer and controlling unitholder.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $1,020.4 million | $1,036.4 million |
| Operating income | $238.9 million | $209.7 million |
| Net income | $126.2 million | $159.1 million |
| Diluted net income per unit | $2.89 | $3.66 |
| EBITDA (non-GAAP) | $370.3 million | $311.9 million |
| Net cash from operating activities | $225.3 million | $192.2 million |
| Distributable cash flow (non-GAAP) | $248.2 million | $218.1 million |
EBITDA includes a $14.8 million goodwill impairment in 2023. Net income declined despite higher operating income, primarily because net interest expense rose $60.9 million to $143.2 million, alongside higher depreciation and the impairment. The filing does not provide a single consolidated gross-margin figure; West Texas wholesale marketing gross margin was $5.18 per barrel, up from $4.45.
At year-end, total debt was $1,711.8 million and cash was $3.8 million. Total stated liquidity was $343.3 million, including $269.5 million of unused DKL credit commitments, $70.0 million under a new related-party facility, and cash. Floating-rate debt was approximately $1,061.8 million; a one-percentage-point rate change would affect annual interest expense by about $10.6 million. The partnership reported a $161.9 million total deficit and $90.6 million in current liabilities against $76.3 million in current assets.
Operating cash flow exceeded 2022, while investing cash outflow fell to $89.6 million from $770.4 million, largely because the prior year included the Delaware Gathering acquisition. 2023 capital spending was $81.3 million. Cash distributions paid during 2023 totaled $180.0 million.
Changes versus the prior comparable period
- Revenue fell 1.5%, mainly as lower West Texas gasoline and diesel prices and lower diesel volumes reduced marketing revenue. Lower product costs largely offset the revenue decline.
- EBITDA rose $58.3 million. Gathering and processing segment EBITDA increased to $199.5 million from $175.3 million, supported by Delaware Gathering and new Midland connections, despite the impairment. Wholesale marketing and terminalling EBITDA rose to $106.5 million from $83.1 million on improved wholesale margins and terminalling utilization. Storage and transportation EBITDA rose to $63.9 million from $56.3 million; joint venture income was broadly stable.
- Delek Holdings accounted for 55.3% of revenue, compared with 46.3% in 2022. Affiliate revenue increased while third-party revenue declined.
- Interest expense increased 74.0%, reflecting acquisition-related borrowing and higher floating rates. The partnership recorded no goodwill impairment in 2022.
Outlook, commentary, risks and unusual items
Management expects continued hydrocarbon demand in the near term and views minimum-volume commitments and dedicated-acreage contracts as protection against downturns. It plans to focus in 2024 on stable cash flow, acquisitions and organic growth, asset utilization, customer diversification, and sustainability-conscious investments. The filing does not provide numerical earnings or EBITDA guidance. Management forecasts 2024 capital spending of $69.8 million, including $49.5 million of gathering and processing growth capital.
The board declared a $1.055-per-unit distribution for the quarter ended December 31, 2023, or $4.22 annualized. This was 3.4% above the fourth-quarter 2022 distribution; payment was scheduled for February 12, 2024. Management stated it believes available resources are sufficient for the next 12 months, including distributions and planned capital spending, and reported compliance with debt covenants at year-end.
Key financing and contract matters include the November 2023 amendments increasing DKL revolving commitments to $1.05 billion and extending the term facility maturity to April 15, 2025. The term facility and revolver have provisions that can accelerate maturity in relation to the 2025 Notes. The $250 million 2025 Notes mature in May 2025. The new unsecured Delek Holdings revolving facility has $70 million of commitments and matures in June 2028; no amount was drawn at year-end. Management says it intends and is able to refinance the 2025 Notes, but refinancing remains an important execution and liquidity consideration.
Several significant Delek Holdings agreements were due to expire March 31, 2024; expired and near-expiry contracts continue month-to-month while renewal terms are negotiated. The partnership also faces concentration and counterparty risks tied to Delek Holdings and its refineries, wholesale fuel-price and volume exposure, high debt and interest-rate sensitivity, operational and environmental liabilities, regulation, severe weather, cybersecurity, and the energy transition. Delek Holdings’ board is evaluating strategic alternatives; the filing cautions that the process may create uncertainty and does not assure a transaction or outcome.
The $14.8 million goodwill impairment related to Delaware Gathering reflected higher discount rates and the timing of producer connections; management said its long-term outlook for the system was unchanged. Pending legal proceedings were not believed by management to be material, although environmental compliance, remediation, and enforcement matters may require future spending. The financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting.
Important facts for investors to verify
- Progress and terms of renewals for the Delek Holdings agreements expiring or recently expired, particularly those due March 31, 2024.
- Refinancing plans and costs for the $250 million 2025 Notes and the $281.3 million term facility, including the acceleration provisions and floating-rate exposure.
- Whether Delaware Gathering achieves forecast volumes and connections after the goodwill impairment, and whether Midland growth continues.
- Distribution coverage and cash generation relative to the $1.055 quarterly distribution and 2024 capital program.
- Delek Holdings’ financial condition, refinery operations, strategic review, and continued ability and willingness to meet commercial commitments; it accounted for 55.3% of 2023 revenue and owned 78.7% of units.
- Environmental remediation obligations, regulatory costs, and any material changes to litigation, insurance coverage, or operational risks.