How Does Delek Logistics Company Work?

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How Does Delek Logistics Company Work?

Delek Logistics Partners, LP (NYSE: DKL) is a key midstream energy company with a strong presence in the Permian Basin and Gulf Coast. It owns and operates essential logistics assets like pipelines and terminals.

The company focuses on crude oil and refined products, supporting its sponsor and growing its third-party services. This dual approach, combined with strategic growth, makes it a vital part of the energy supply chain.

Delek Logistics generates revenue through fees for transporting and storing crude oil and refined products. Its operations are structured around a network of pipelines, terminals, and storage facilities that facilitate the movement of these commodities. A significant portion of its business involves providing these services to its sponsor, Delek US Holdings, Inc., ensuring a stable base of operations. However, the company also actively seeks and secures contracts with third-party customers, diversifying its revenue streams and expanding its market reach. This strategy is further supported by ongoing investments in infrastructure development and strategic acquisitions, which enhance its capacity and service offerings. For a deeper understanding of the external factors influencing its business, consider a Delek Logistics PESTEL Analysis.

Delek Logistics Company operations are centered around providing essential midstream services for crude oil and refined products. Its business model focuses on gathering, transporting, storing, and marketing these commodities, creating value through a robust network of infrastructure.

Core Operations: Gathering and Transportation

The company manages extensive gathering systems and pipelines, crucial for moving crude oil from production areas to processing facilities. For instance, its Midland Gathering System reported throughput volumes of 217,847 bpd in 2024, highlighting its significant role in the Permian Basin.

Core Operations: Storage and Marketing

Delek Logistics also offers vital storage solutions through tanks and terminals, facilitating the efficient movement and sale of refined products. This integrated approach ensures a seamless supply chain for its diverse customer base.

Natural Gas and Water Services Expansion

Beyond crude oil and refined products, the company has expanded into natural gas gathering and processing, with assets like the Libby and Tanya plants. Recent acquisitions have also bolstered its water disposal and recycling capabilities, positioning it as a comprehensive midstream provider.

Value Proposition: Integrated Midstream Solutions

Delek Logistics' value proposition lies in its 'full suite' strategy, offering integrated crude, gas, and water midstream services. This comprehensive offering, supported by long-term contracts and strategic infrastructure, provides customers with reliable, cost-effective, and environmentally conscious solutions.

Key Assets and Strategic Focus

The company's operational strength is derived from its strategically located infrastructure, particularly in the Permian Basin and Gulf Coast regions. This includes significant pipeline networks and processing plants, such as the Libby 2 plant, which added approximately 100 MMcf/d of natural gas processing capacity.

• Midland Gathering System throughput: 217,847 bpd (2024)
• Expansion of natural gas processing capacity
• Acquisitions of water midstream assets in late 2024 and early 2025
• Strategic focus on Permian Basin and Gulf Coast regions
• Growing third-party EBITDA contribution, projected around 80% by early 2025

Understanding Delek Logistics Partnership structure reveals a commitment to providing a complete range of midstream services, from initial gathering to final marketing. This integrated approach enhances operational efficiency and strengthens its market position. The company's growth strategy is evident in its continuous infrastructure development and strategic acquisitions, aiming to be the preferred provider in its operational areas. The Marketing Strategy of Delek Logistics plays a crucial role in leveraging these assets and services to attract and retain a diverse customer base, including its significant affiliate and an increasing number of third-party clients.

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Delek Logistics Company's operations are structured around four primary revenue-generating segments: Gathering and Processing, Wholesale Marketing and Terminalling, Storage and Transportation, and Investments in Pipeline Joint Ventures. These segments are the backbone of its monetization strategies, largely relying on fee-based services and the volume of products moved through its infrastructure.

Gathering and Processing

This segment is a significant contributor to Delek Logistics' revenue. In Q1 2025, it reported an Adjusted EBITDA of $81.1 million, a substantial increase from $57.8 million in Q1 2024. This growth was fueled by the addition of Midland Water assets and increased throughput volumes.

Wholesale Marketing and Terminalling

While this segment is crucial for Delek Logistics' business model, its performance can fluctuate. In Q1 2025, Adjusted EBITDA was $17.8 million, down from $25.3 million in Q1 2024. This decrease was attributed to lower wholesale margins and the effects of intercompany agreements.

Storage and Transportation

This segment provides essential services for Delek Logistics Company operations. However, its Adjusted EBITDA saw a decrease to $14.5 million in Q1 2025 from $18.1 million in Q1 2024, largely due to contract renegotiations.

Investments in Pipeline Joint Ventures

The company benefits from its strategic investments in joint ventures, including the Wink to Webster (W2W) pipeline. These investments contributed $10.2 million to Adjusted EBITDA in Q1 2025, an increase from $8.5 million in the prior year's quarter.

Fee-Based Monetization

Delek Logistics primarily monetizes its assets by charging fees for gathering, processing, transportation, and storage of crude oil and natural gas. This fee-based business model provides a stable revenue foundation.

Diversification and Third-Party Growth

A key aspect of Delek Logistics' growth strategy is increasing its third-party cash flow contribution, which reached approximately 80% on a pro-forma basis by early 2025. This diversification reduces reliance on its sponsor and broadens its revenue base.

The overall financial performance of Delek Logistics Company is further illustrated by its distributable cash flow. In Q1 2025, this figure was $75.1 million, and in Q2 2025, it was $73 million. These amounts covered distributions by approximately 1.27x and 1.22x, respectively, demonstrating the company's ability to generate sufficient cash to support its distributions to unitholders. The company's distribution network and terminal operations are key components of its ability to efficiently manage and transport refined products, contributing to its overall financial performance factors.

Key Revenue Drivers and Financial Health

Delek Logistics reported a total revenue of $249.93 million in the first quarter of 2025, exceeding expectations. The company's business model is designed to generate consistent revenue through its extensive infrastructure and services. Understanding the Target Market of Delek Logistics is crucial to appreciating how these revenue streams are sustained.

• Gathering and Processing revenue increased significantly due to asset additions and higher throughput.
• Wholesale Marketing and Terminalling revenue was impacted by market margin dynamics.
• Storage and Transportation revenue experienced adjustments due to contract renegotiations.
• Pipeline joint ventures, like W2W, continue to be a growing source of income.
• The company is focused on increasing third-party revenue to enhance diversification.
• Distributable cash flow consistently covers distributions, indicating financial stability.

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Delek Logistics has strategically expanded its operations through key acquisitions and infrastructure development, enhancing its position as a full-service midstream provider. These moves, particularly in water management and gas processing, underscore a commitment to growth and diversification within the energy sector.

Acquisition of H2O Midstream

In September 2024, Delek Logistics completed the acquisition of H2O Midstream for $230 million. This strategic move significantly broadened its water management services, solidifying its role as a comprehensive midstream provider in the Permian Basin.

Gravity Water Midstream Acquisition

Further bolstering its water midstream capabilities, the company acquired Gravity Water Midstream in January 2025. This acquisition has exceeded initial expectations and contributed to enhanced operational capacity.

New Gas Processing Plant Expansion

A final investment decision was made for a new gas processing plant adjacent to the existing Delaware plant. The Libby 2 gas processing plant began commissioning in Q1 2025 and was successfully completed in Q2 2025, adding approximately 100 MMcf/d of natural gas processing capacity.

Strategic Agreements and Financings

Agreements with Delek US were amended and extended for up to seven years in August 2024. The company also acquired Delek US's interest in the Wink to Webster pipeline and raised approximately $298 million in 2024 through two primary offerings, alongside a $700 million senior notes offering in June 2025 to improve liquidity.

Competitive Edge and Growth Strategy

Delek Logistics' competitive advantages stem from its extensive asset network, strategic positioning in key basins like the Permian and Gulf Coast, and robust customer relationships. The increasing contribution from third-party business, representing approximately 80% pro-forma, diversifies revenue and strengthens its economic independence.

• Consistent distribution growth, with the 49th consecutive increase in Q1 2025 to $1.110 per unit and the 50th in Q2 2025 to $1.115 per unit, highlights financial stability and commitment to unitholders.
• Expansion into full-service offerings, including advanced water management and sour gas treating, aligns with evolving industry demands and enhances operational efficiencies.
• The company's strategic focus on accretive growth projects and financial discipline, evidenced by its successful financings, supports its long-term business model.
• Understanding Delek Logistics Partnership structure is key to appreciating its integrated operations and market position.

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Delek Logistics Partners, LP maintains a robust standing in the midstream energy sector, particularly within the Permian Basin, solidifying its role as a comprehensive provider of crude oil, natural gas, and water services. The company’s strategic asset base, encompassing extensive pipeline networks, terminals, storage facilities, and gas processing plants, supports its operations. By early 2025, third-party cash flow represented approximately 80% of its total, indicating a growing independence from its sponsor.

Industry Position and Strengths

Delek Logistics Partners, LP is a key player in the midstream energy sector, especially in the Permian Basin, offering integrated crude, natural gas, and water services. Its extensive infrastructure, including pipelines and terminals, underpins its market presence.

Key Risks and Challenges

The company faces risks related to its historical reliance on its sponsor, commodity price volatility, and significant debt levels. High leverage, with over $2 billion in debt maturing by approximately 2028, largely at floating rates, presents a considerable challenge if interest rates increase.

Future Growth and Strategy

Delek Logistics is targeting strong cash flow growth in 2025, driven by acquisitions and the expansion of its Libby gas processing plant, expected to be fully operational by late 2025. The company aims to expand its customer base and pursue new growth opportunities.

Operational Focus and ESG Commitment

The company is committed to being a leading midstream services provider in the Permian Basin and maintaining consistent distribution growth. Enhancing ESG initiatives to reduce its carbon footprint is also a key objective for sustainable growth.

Delek Logistics Company Operations and Outlook

Delek Logistics Company operations are centered around its extensive midstream infrastructure, facilitating the transportation and processing of crude oil and natural gas. The Delek Logistics business model relies on a fee-based structure, generating revenue from the volume of commodities moved and processed through its assets. Understanding Delek Logistics Partnership structure reveals a focus on stable, long-term contracts.

• The company's primary relationship with Delek US Holdings, Inc. provides a foundational customer base, though diversification into third-party business is a strategic priority.
• Key assets include pipelines, terminals, and storage facilities, crucial for Delek Logistics transportation and storage solutions.
• The integration of recent acquisitions, such as H2O Midstream and Gravity Water Midstream, is vital for the Delek Logistics Company growth strategy.
• Delek Logistics Company revenue streams are diversified across gathering, processing, and transportation services, contributing to its overall financial performance factors.
• Future outlook emphasizes organic growth, asset optimization, and expanding its customer reach, all while managing financial flexibility and debt levels. For a deeper dive into its origins, explore the Brief History of Delek Logistics.

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