Delek Logistics Partners, LP Stock

Delek Logistics Partners, LP primarily owns and operates crude oil, intermediate and refined products logistics and marketing assets, as well as crude oil and natural gas gathering and water processing assets. Delek Logistics GP, LLC serves as the general partner of the company.

The company gathers, transports, offloads, and stores crude oil and intermediate products; and markets, distributes, transports and stores refined products primarily in select regions of the southeastern United States and Texas for Delek Holdings (Delek US Holdings, Inc.) and third parties. In June 2022, the company acquired 100% of the interest in 3 Bear Delaware Holding – NM, LLC (‘3 Bear’), which expands the company’s third-party revenue and includes crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in the Delaware Basin of New Mexico.

The company’s operational assets are integral to and dependent on the success of Delek Holdings' refining operations, as the majority of the company’s assets are contracted exclusively to Delek Holdings in the support of Delek Holdings' refineries located in Tyler, Texas (the ‘Tyler Refinery’), El Dorado, Arkansas (the ‘El Dorado Refinery’) and Big Spring, Texas (the ‘Big Spring Refinery’). Delek Holdings is the company’s primary customer and is responsible, directly and indirectly, for the majority of the company’s contribution margin.

Segments

The company operates through four segments: Gathering and Processing; Wholesale Marketing and Terminalling; Storage and Transportation; and Investment In Pipeline Joint Ventures.

Gathering and Processing segment

The assets in the company’s Gathering and Processing segment consist of pipelines, tanks, offloading facilities, which provide crude oil and natural gas gathering and processing, water disposal and recycling and storage services primarily in the support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, the company does not take ownership of the products or crude oil that the company transports or stores.

The operational assets in the company’s Gathering and Processing segment, consist of assets acquired in connection with the Midland Gathering Assets Acquisition, including approximately 200 miles of gathering assets, approximately 65 tank battery connections, terminals with total storage capacity of approximately 650,000 barrels and applicable rights-of-way assets, as well as operational assets the company acquired in connection with the 3 Bear Acquisition, consist of approximately 485 miles of pipelines, 88 million cubic feet (‘MMCf’) per day (‘MMCf/d’) of cryogenic natural gas processing capacity, 140 thousand barrels (‘MBbl’) per day (‘MBbl/d’) of crude gathering capacity, 120 MBbl of crude storage capacity and 200 MBbl/d of water disposal capacity located primarily in the Delaware Basin (‘Delaware Gathering Assets’).

The Midland Gathering Assets support the company’s crude oil gathering activities, which primarily serves Delek Holdings refining needs throughout the Midland Basin. The 3 Bear assets support the company’s crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico, and serving primarily third-party producers and customers. Finally, the company’s gathering and processing assets are integrated with the company’s pipeline assets, which the company uses to transport gathered crude oil gathering as well as provide other crude oil, intermediate and refined products transportation in the support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas, as well as to certain third parties. In providing these services, the company does not take ownership of the products or crude oil that the company transports or stores. Therefore, the company is not directly exposed to changes in commodity prices with respect to this operating segment. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers.

Revenue Streams and Customers

With respect to the company’s gathering and processing segment, the company generates two principal types of revenues:

Product Sales – consisted of residual products as a result of the company’s gathering services where 3 Bear meets the definition of the principal rather than an agent, and where such revenue is recognized upon satisfaction of the performance obligation, which is generally upon delivery.

Gathering and Processing Services – consisted of fees charged for one or more of the following services under dedicated acreage and other long-term fee-based contracts: gathering, processing and transportation of natural gas; gathering, transportation and storage of NGLs; gathering, recycling and disposal of wastewater; and transportation, storage and distribution of crude oil, and other hydrocarbon-based products. The contractual fees are generally related to the volume of natural gas, NGLs, water, crude oil that is gathered, transported, stored or processed and therefore is not directly impacted by commodity prices.

Pipeline Throughput Fees - consisted of fees to customers, generally based on throughput or other relevant volumetric measures, for transporting crude oil and refined products via the company’s pipeline assets. A substantial majority of these revenues (and also contribution margin) is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years, which gives the company a contractual revenue base that enhances the stability of the company’s cash flows. These commercial agreements with Delek Holdings typically include minimum volume or throughput commitments by Delek Holdings, which provides protection from market volatility related to commodity prices.

Seasonality

The volume and throughput of crude oil and refined products transported through the company’s pipelines, particularly those originating from the company’s Permian Gathering activities, are directly affected by the level of supply and demand for related products in the markets served directly or indirectly by the company’s assets. Supply and demand for such products fluctuates during the calendar year (year ended December 2022). Demand for gasoline, for example, is generally higher during the summer months than during the winter months due to seasonal increases in motor vehicle traffic. In addition, the company’s refining customers, such as Delek Holdings, occasionally reduce or suspend operations to perform planned maintenance, which is more typically scheduled during the winter, when demand for their products is lower. Accordingly, these factors affect the need for crude oil or refined products by the company’s customers and therefore limit the company’s volumes or throughput during these periods.

The rates and terms and conditions of service on certain of the company’s pipelines are subject to regulation by the FERC under the Interstate Commerce Act (the ‘ICA’) and by state regulatory commissions in the states in which the company transports crude oil, intermediate and refined products, including the Texas Railroad Commission, the Louisiana Public Service Commission, the Arkansas Public Regulation Commission and the New Mexico Public Regulation Commission. Certain of the company’s pipeline systems are subject to such regulation and have filed tariffs with the appropriate authorities. The company also complies with all applicable reporting requirements for these pipelines.

Midland Gathering Assets

The company owns a system of common carrier pipelines that primarily gathers and transports crude oil. The Midland Gathering System (the ‘Midland Gathering System’) includes approximately 200 miles of crude oil gathering and transportation lines with approximately 350,000 bpd capacity located primarily near the Big Spring Refinery in Texas, which provide access to hydrocarbons directly from wellheads located in the Midland Basin.

Delaware Gathering Assets

Delaware Gathering Assets is anchored by a high-quality diversified customer base across approximately 350,000 dedicated acres, it has integrated crude, gas and water infrastructure concentrated in the central Lea County, New Mexico core. These assets consist of approximately 485 miles of pipelines, 88 million cubic feet (‘MMCI’) per day (‘MMCI/d’) of cryogenic natural gas processing capacity, 140 thousand barrels (‘MBbl’) per day (‘MBbl/d’) of crude gathering capacity, 120 MBbl of crude storage capacity and 200 MBbl/d of water disposal capacity. These assets support the company’s crude oil and natural gas gathering, processing and transportation business, as well as water disposal and recycling operations.

Pipeline Assets

The company’s East Texas Crude Logistics System includes five owned or leased crude oil storage terminals, at which the company stores crude oil owned by Delek Holdings for the Tyler Refinery.

El Dorado Assets

The company owns a system of common carrier pipelines that primarily gathers and transports crude oil and condensate that is purchased from various crude oil producers in Arkansas, Texas and Louisiana by Delek Holdings or a third party to whom Delek Holdings has assigned certain of its rights (the ‘El Dorado Gathering System’). The El Dorado Gathering System includes approximately 700 miles of two to eight inch crude oil gathering and transportation lines located primarily within a 60-mile radius of the El Dorado Refinery in southern Arkansas and northern Louisiana. In addition, the gathering system transports small volumes of crude oil that are received from other sources and condensate that is purchased from a third party in east Texas. All such crude oil and other products are ultimately transported to the El Dorado Refinery for processing. In addition, a pipeline within the El Dorado Gathering System transports minimal crude oil for third party shippers pursuant to a common carrier tariff.

The El Dorado Gathering System includes 59 crude oil storage tanks and breakout tanks with a total combined active shell capacity of approximately 0.6 million barrels (including Tank 120, Tank 192), 17 truck receipt locations, approximately 500 pipeline gathering and receiving stations and 17 relay stations to deliver crude oil to the Magnolia Station, the El Dorado Pipeline System or directly to the El Dorado Refinery. The company also has approximately 0.6 million barrels of combined shell capacity that is not in service.

The company has a pipelines and tankage agreement with Delek Holdings to provide throughput on the East Texas Crude Logistics System. Delek Holdings has a 10-year agreement, with an initial term expiring in 2023, with third parties to transport a substantial majority of the Tyler Refinery’s crude oil requirements on this pipeline system. As a result of the third parties' ability to transport crude oil on the pipeline system directly to the Tyler Refinery, the crude oil supplied through the Nettleton and McMurrey Pipelines is generally below the minimum aggregate throughput requirements of the company’s pipelines and tankage agreement with Delek Holdings. However, under its commercial agreement with the company, Delek Holdings is required to pay the company throughput fees in an amount equal to the fees it would pay were the company to throughput 35,000 bpd, based on the per barrel fees in the company’s agreement. The current term of this agreement expires in March 2024.

Wholesale Marketing and Terminalling segment

The operational assets in the company’s Wholesale Marketing and Terminalling segment consist of refined products terminals and pipelines in Texas, Tennessee, Arkansas and Oklahoma. The company generates revenue in its Wholesale Marketing and Terminalling segment by providing marketing services for the refined products output of the Tyler and Big Spring refineries, engaging in wholesale activity at the company’s terminals in West Texas and at terminals owned by third parties, whereby the company purchases light products for sale and exchange to third parties, and by providing terminalling services at the company’s refined products terminals to independent third parties and Delek Holdings.

The company’s Wholesale Marketing and Terminalling segment provides wholesale marketing and terminalling services to Delek Holdings’ refining operations and to independent third parties from whom the company receives fees for marketing, transporting, storing and terminalling refined products and to whom the company wholesale market refined products. In providing certain of these services, the company takes ownership of the products and is therefore exposed to market risks related to the volatility of commodity and refined product prices in the company’s West Texas operations, which depend on many factors, including demand and supply of refined products in the West Texas market, the timing of refined product deliveries and downtime at refineries in the surrounding area.

Revenue Streams and Customers

The company generates revenue in its Wholesale Marketing and Terminalling segment by providing marketing services for the refined products output of the Tyler Refinery and the Big Spring Refinery, engaging in wholesale activity at the company’s Abilene and San Angelo, Texas terminals, as well as at terminals owned by third parties, whereby the company purchases light products for sale and exchange to third parties, and providing terminalling services to independent third parties and Delek Holdings.

Seasonality

The volume and throughput of crude oil and refined products sold through the company’s terminals and to third parties are directly affected by the level of supply and demand for all of such products in the markets served directly or indirectly by the company’s assets. Supply and demand for such products fluctuates during the calendar year. In addition, the company’s refining customers, such as Delek Holdings, occasionally reduce or suspend operations to perform planned maintenance, which is more typically scheduled during the winter, when demand for their products is lower. Accordingly, these factors affect the need for crude oil or refined products by the company’s customers and therefore limit the company’s marketing and terminalling activities during these periods.

Wholesale Marketing

East Texas

Pursuant to a marketing agreement with Delek Holdings, the company markets 100% of the refined products output of the Tyler Refinery, other than jet fuel and petroleum coke.

West Texas

In the company’s West Texas marketing operations, the company generates revenue by purchasing refined products from independent third-party suppliers and from Delek Holdings for sale and exchange to third parties at the company’s Abilene and San Angelo, Texas terminals and at third-party terminals located elsewhere in Texas.

The company owns approximately 100 miles of product pipelines in West Texas that connect the company’s Abilene and San Angelo, Texas terminals to the Magellan Orion Pipeline. The company purchases products from Delek Holdings and third parties at its Abilene and San Angelo terminals. To facilitate these purchases, the company constructed a pipeline into its Abilene Terminal to receive product from the pipeline owned by Holly Energy Partners, L.P. (HEP) through which Delek Holdings shipped product that was produced at the Big Spring Refinery. The company completed constructing a connection to a Magellan Midstream Partners, L.P. (‘Magellan’) pipeline that allows Magellan to supply the company’s Abilene and San Angelo terminals with product transported from the Gulf Coast. The company also has active connections to the Magellan Orion Pipeline that enable the company to ship product to the company’s terminals and to acquire product from other shippers.

Terminalling

The company provides terminalling services for products to third parties and Delek Holdings through light products terminals the company owns in Nashville, Tennessee and to Delek Holdings, or certain third parties to whom Delek Holdings has assigned its rights, through the company’s light products terminals in Memphis, Tennessee; Tyler, Texas; Big Sandy, Texas; Mount Pleasant, Texas; Duncan, Oklahoma; El Dorado, Arkansas; and North Little Rock, Arkansas.

Storage and Transportation segment

The operational assets and investments in the company’s Storage and Transportation segment consist of tanks, offloading facilities, trucks and ancillary assets, which provide crude oil, intermediate and refined products transportation and storage services primarily in the support of Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, the company does not take ownership of the products or crude oil that the company transports or stores.

Revenue Streams and Customers

The company generates revenue in its Storage and Transportation segment by charging fees to customers, generally based on throughput or other relevant volumetric measures, for services associated with transporting, offloading and storing crude oil and refined products. Furthermore, a substantial majority of the company’s Storage and Transportation segment revenues is derived from commercial agreements with Delek Holdings with initial terms ranging from five to ten years.

Seasonality

The volume and throughput of crude oil and refined products transported through the company’s other segments and sold through the company’s terminals and to third parties are directly affected by the level of supply and demand for all of such products in the markets served directly or indirectly by the company’s assets. Supply and demand for such products fluctuates during the calendar year.

The rates and terms and conditions of service on certain of the company’s pipelines are subject to regulation by the FERC under the Interstate Commerce Act (the ‘ICA’) and by state regulatory commissions in the states in which the company transports crude oil, intermediate and refined products, including the Texas Railroad Commission, the Louisiana Public Service Commission, the Arkansas and the New Mexico Public Service Commission. Certain of the company’s pipeline systems are subject to such regulation and have filed tariffs with the appropriate authorities. The company also complies with all applicable reporting requirements for these pipelines.

Other Transportation Assets

The company also owns additional assets or leases capacity on additional assets that are used to support Delek Holdings' refineries or that are used in the company’s operations but may not be adjacent to or directly on the properties owned by such refineries. These include tankage assets and trucking assets, such as five tanks with an aggregate active shell capacity of approximately 180,000 barrels at a terminal in North Little Rock, Arkansas; and 264 tractors and 353 trailers, which are owned or leased, and used to haul primarily crude oil and other products for related and third parties.

Investments in Joint Ventures segment

The company owns a portion of three joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets primarily in the Permian Basin and Gulf Coast regions and with strategic connections to Cushing, Midland and other key exchange points, which provide crude oil and refined product pipeline transportation to third parties and subsidiaries of Delek Holdings.

Revenue Streams and Customers

The company does not directly earn revenues from its joint venture investments. Rather, the company earns income (loss) from the equity method investment, which is inclusive of the company’s proportionate share of net income (loss) of the joint venture for each period. These pipelines serve numerous customers and generally charge spot or contractual rates pursuant to FERC regulations.

Seasonality

The volume and throughput of crude oil and refined products transported through the company’s pipelines, including those in which the company owns a joint venture interest, are directly affected by the level of supply and demand for all of such products in the markets served directly or indirectly by the company’s assets. Supply and demand for such products fluctuates during the calendar year. In addition, the company’s refining customers, such as Delek Holdings, occasionally reduce or suspend operations to perform planned maintenance, which is more typically scheduled during the winter, when demand for their products is lower.

The company’s investments in pipeline joint ventures include the following:

Andeavor Logistics Rio Pipeline LLC (‘Andeavor Logistics’): Joint venture that operates a 109-mile crude oil pipeline with a capacity of 145,000 bpd, that originates in north Loving County, Texas near the Texas-New Mexico border and terminates in Midland, Texas (the ‘Rio Pipeline’).

Caddo Pipeline LLC (‘CP LLC’): Joint venture that operates an 80-mile crude oil pipeline with a capacity of 80,000 bpd that originates in Longview, Texas, with destinations in the Shreveport, Louisiana area (the ‘Caddo Pipeline’).

Red River Pipeline Company LLC (‘Red River’): Joint venture that operates a 16-inch crude oil pipeline between Oklahoma and Texas with prior capacity of 150,000 bpd and increased capacity of 235,000 bpd after completion of the expansion project in October 2020 (the ‘Red River Pipeline’).

The Rio Pipeline, which was completed in September 2016, is strategically located to benefit from increased drilling activity in the Delaware Basin area. This pipeline, which offers connection to the Midland takeaway pipelines.

The Caddo Pipeline, completed in January 2017, strategically provides essential additional logistics support to nearby refineries with a third crude supply source.

The company acquired a 33% ownership stake in Red River in May 2019. The expansion project to increase the crude oil pipeline capacity from 150,000 bpd to 235,000 bpd was completed in October 2020. Delek Holdings is a major shipper on the Red River Pipeline. Following the completion of the expansion project, Delek Holdings increased its crude oil options, increasing the flow of Cushion crude oil into Longview, TX. Strategically, at Longview TX the company has access to the Delek Holdings refining system providing ability to reduce dependence on Midland crude oil at Tyler, El Dorado and Krotz Springs, Gulf Coast markets through Paline and other third-party pipelines and increases potential WTI Brent exposure with limited cost to the company.

Commercial Agreements

Commercial Agreements with Delek Holdings

The company has a number of long-term, fee-based commercial agreements with Delek Holdings under which the company provides various services, including crude oil gathering and crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services to Delek Holdings. Most of these agreements have an initial term ranging from five to ten years, which may be extended for various renewal terms at the option of Delek Holdings.

Major Customers

The company is dependent upon Delek Holdings as its primary customer. The company’s other customers include major oil companies, independent refiners and marketers, jobbers, distributors, utility and transportation companies and independent retail fuel operators. Delek Holdings, directly or indirectly, accounted for 46.3% of the company’s total revenues for the year ended December 31, 2022.

Governmental Regulation and Environmental Matters

The rates, terms and conditions of service on certain of the company’s pipelines are subject to regulation by the FERC under the ICA and by state regulatory commissions in the states in which the company transports crude oil, intermediate and refined products, including the Texas Railroad Commission, the Louisiana Public Service Commission, the Arkansas Public Service Commission, and the New Mexico Public Regulation Commission. The FERC regulates interstate transportation under the ICA, the Energy Policy Act of 1992 and the rules and regulations promulgated under those laws. The ICA and its implementing regulations require that tariff rates for interstate service on oil pipelines, including pipelines that transport crude oil, intermediate and refined products in interstate commerce (collectively referred to as ‘petroleum pipelines’), be just and reasonable and non-discriminatory and that such rates and terms and conditions of service be filed with the FERC.

The Pipeline and Hazardous Materials Safety Administration (‘PHMSA’) of the United States Department of Transportation (‘DOT’) regulates the design, construction, testing, operation, maintenance, safety and reporting and emergency response of crude oil, petroleum products and other hazardous liquids pipelines and other facilities, including certain tank facilities used in the transportation of such liquids. These requirements are complex, subject to change and, in certain cases, costly with which to comply. The company’s operations are in compliance with these regulations.

Environmental, Health and Safety

The company is subject to extensive federal, state and local environmental and safety laws and regulations enforced by various agencies, including, but not limited to, the Environmental Protection Agency (the ‘EPA’), the United States Department of Transportation, the Occupational Safety and Health Administration, as well as numerous state, regional and local environmental, safety and pipeline agencies. These laws and regulations govern the discharge, release, and spillage of materials into the environment, waste management practices, pollution prevention measures, as well as the safe operation of the company’s pipelines and the safety of the company’s workers and the public.

A number of the company’s operations are subject to the Clean Air Act (the ‘CAA’) and its regulations and comparable state and local statutes.

In the course of the company’s ordinary operations, the company generates waste that falls within CERCLA’s (Comprehensive Environmental Response, Compensation and Liability Act) definition of a ‘hazardous substance’.

The company also generates small quantities of solid wastes, including solid wastes that are also considered hazardous wastes, that are subject to the requirements of the federal Resource Conservation and Recovery Act (‘RCRA’), and comparable state laws.

The transportation and storage of crude oil and refined products over and adjacent to water involves risk and subjects the company to the provisions of the Oil Pollution Act of 1990 (the ‘OPA’), the Water Pollution Control Act of 1972 (the ‘Clean Water Act’), and related state requirements.

Regulations under the Clean Water Act, the OPA and state laws also impose additional regulatory burdens on the company’s operations. For example, the Clean Water Act requires the company to maintain spill prevention control and countermeasure plans at many of the company’s facilities. The company maintains such plans, and where required have submitted plans and received federal and state approvals necessary to comply with the OPA, the Clean Water Act and related regulations.

The company’s facilities contract with third parties for wastewater disposal, discharge to local Publicly Owned Treatment Works, or discharge to identify receiving waters under the terms of a National Pollutant Discharge Elimination System permit for wastewater, stormwater or both.

History

Delek Logistics Partners, LP, a Delaware limited partnership, was founded in 2012. The company was incorporated in 2012.