Delek Logistics Partners, LP — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; the filing does not provide a complete set of Q4-only financial results.
Business context
The Partnership owns and operates crude oil and refined-products pipelines, gathering and storage assets, trucking operations, wholesale marketing and terminals, and interests in three pipeline joint ventures. Its assets primarily serve Delek US Holdings’ Tyler, El Dorado and Big Spring refineries. Delek Holdings was the primary customer, accounting for 59.8% of total revenue and 86% of contribution margin in 2021.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $700.9 million | $563.4 million |
| Contribution margin (non-GAAP) | $255.8 million | $238.0 million |
| Operating income | $190.5 million | $179.8 million |
| Net income | $164.8 million | $159.3 million |
| Net income per common unit | $3.79 | $4.18 |
| Net cash from operating activities | $275.2 million | $193.0 million |
| Distributable cash flow (non-GAAP) | $215.8 million | $207.7 million |
Revenue increased 24.4%; operating income rose 6.0% and net income rose 3.5%. Net income per unit declined as the weighted-average unit count increased following the 2020 IDR restructuring and unit issuance. Operating margin was approximately 27.2% of revenue and net margin approximately 23.5%. Distributable cash flow covered the $164.5 million of distributions earned by common unitholders by approximately 1.31x; this is a calculation from the filing’s non-GAAP DCF and distribution figures.
Segment trends: Pipelines and transportation contribution margin increased 12.7% to $184.0 million, supported principally by a fuller year of the 2020 Permian gathering and trucking acquisitions and increased BSR Crude Pipeline revenue. Wholesale marketing and terminalling contribution margin decreased 4.0% to $71.8 million: higher West Texas selling prices and gross margin per barrel were offset by higher product costs, operating expenses and lower volumes. Joint-venture income increased 8.3% to $24.6 million, with higher Red River results partly offset by lower RIO income following a major customer contract ending in 2021.
At year-end, cash was $4.3 million and unused revolving-credit commitments were $592.0 million, for reported total liquidity of $596.3 million. Current assets were $23.0 million versus current liabilities of $96.8 million. Debt was approximately $899.0 million on the balance sheet, net of financing costs and discount; disclosed principal debt was $908.0 million: $258.0 million drawn on the revolver, $250.0 million of 6.75% notes due 2025 and $400.0 million of 7.125% notes due 2028. The 2028 notes were issued in May 2021, with proceeds used to repay revolving borrowings. Management reported covenant compliance. Capital expenditures were $27.5 million, excluding equity-method investment contributions.
Material changes and distributions
- Operating cash flow increased $82.1 million year over year, while net cash used in investing activities fell to $16.4 million, largely because the prior year included acquisitions and greater joint-venture contributions.
- Financing activities used $258.8 million of cash. The Partnership issued $400 million of 2028 notes, repaid $488.6 million net under the revolving facility, and paid $161.7 million in cash distributions during 2021.
- Revenue and costs in West Texas wholesale marketing rose with higher product prices; sales volumes declined. Severe February 2021 freezing conditions and scheduled Paline Pipeline maintenance also reduced throughput outside minimum commitments.
- The quarterly distribution rose during 2021 to $0.975 per unit for Q4, or $3.90 annualized. Management stated 5% distribution-growth guidance for full-year 2022.
Outlook, risks and unusual items
Management described an improving 2021 demand and pricing environment but emphasized continuing uncertainty from COVID-19 and variants, oil-market volatility, weather, inflation, labor and supply-chain pressures, and climate-related developments. It expects available resources to meet funding needs over the next 12 months, including distributions and capital spending, while noting that future cash flow depends on operating conditions and financing availability. The 2022 capital-spending forecast was $70.8 million, including $58.7 million of discretionary pipelines and transportation projects, mainly tank work and Permian gathering development; actual spending may vary.
The principal structural risk is dependence on Delek Holdings, its refineries and related commercial agreements. Many agreements include minimum-volume commitments, but renewal options and some suspension, force-majeure or refinery-closure provisions may affect payments and volumes. The filing also identifies leverage and debt covenants, regulated pipeline tariffs, commodity exposure in wholesale marketing, aging assets, pipeline safety and environmental obligations, and conflicts of interest with the controlling sponsor as material risks.
A Greenville pipeline finished-product release occurred in August 2021. Cleanup and remediation remained ongoing; $2.7 million had been incurred and $0.8 million accrued at year-end. The Partnership reported no currently pending legal proceeding expected to have a material adverse effect. It performed an impairment assessment of its RIO joint-venture investment after a significant customer contract was not renewed; management concluded there was no other-than-temporary impairment. The annual goodwill review also identified no impairment.
Important facts for investors to verify
- Whether Delek Holdings continues to meet minimum commitments and renews agreements as key terms approach expiry, including agreements with terms extending to 2022–2024.
- Debt principal and maturity profile, revolver availability, covenant headroom, and the effect of refinancing or higher interest rates.
- Whether distributable cash flow supports the distribution and the stated 2022 growth guidance, especially after planned capital spending.
- Progress, final costs and any regulatory action related to the Greenville release; also review environmental contingencies and the extent of Delek Holdings’ indemnification.
- RIO’s replacement customer contracts and throughput assumptions underlying the investment valuation, and whether subsequent performance supports the no-impairment conclusion.
- Exposure to Delek Holdings: it held 79.8% of the units at year-end, and sponsor sales do not provide proceeds to the Partnership.