DELEK LOGISTICS PARTNERS LP : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is management's analysis of our financial performance and of
significant trends that may affect our future performance. The MD&A should be
read in conjunction with our consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K (the "Annual Report on
Form 10-K"). Those statements in the MD&A that are not historical in nature
should be deemed forward-looking statements that are inherently uncertain. See
"Forward-Looking Statements" below for a discussion of the factors that could
cause actual results to differ materially from those projected in these
statements.
Unless otherwise noted or the context requires otherwise, references in this
report to "Delek Logistics Partners, LP," the "Partnership," "we," "us," or
"our" or like terms, may refer to Delek Logistics Partners, LP, one or more of
its consolidated subsidiaries or all of them taken as a whole. Unless otherwise
noted or the context requires otherwise, references in this report to "Delek
Holdings" refer collectively to Delek US Holdings, Inc. and any of its
subsidiaries, other than the Partnership and its subsidiaries and its general
partner.
Effective August 13, 2020, the Partnership closed the transaction contemplated
by a definitive exchange agreement with the general partner to eliminate all of
the incentive distribution rights ("IDRs") held by the general partner and
convert the 2.0% economic general partner interest into a non-economic general
partner interest, all in exchange for 14.0 million newly issued common limited
partner units and $45.0 million in cash ("IDR Restructuring Transaction").
Contemporaneously, Delek Holdings purchased a 5.2% ownership interest in our
general partner from certain affiliates, who were also members of our general
partner's management and board of directors. See Note 4 to the accompanying
consolidated financial statements in Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for further information.
Effective May 1, 2020, the Partnership, through its wholly-owned subsidiary DKL
Transportation, LLC, acquired Delek Trucking, LLC consisting of certain leased
and owned tractors and trailers and related assets (the "Trucking Assets") from
Delek Holdings, such transaction the "Trucking Assets Acquisition." See Note 3
to the accompanying consolidated financial statements in Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form 10-K for further
information.
Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary
DKL Permian Gathering, LLC, acquired from Delek Holdings a crude oil gathering
system located in Howard, Borden and Martin Counties, Texas (the "Big Spring
Gathering Assets"), and certain related assets, such transaction the "Big Spring
Gathering Assets Acquisition." See Note 3 to the consolidated financial
statements in Item 8 Financial Statements and Supplementary Data of this Annual
Report on Form 10-K for further information.
Effective March 1, 2018, the Partnership acquired from Delek Holdings certain
logistics assets primarily located at or adjacent to Delek Holdings' Big Spring,
Texas refinery (the "Big Spring Refinery"). See Note 3 to the consolidated
financial statements in Item 8 Financial Statements and Supplementary Data of
this Annual Report on Form 10-K for additional information on the acquisition.
The Partnership announces material information to the public about the
Partnership, its products and services and other matters through a variety of
means, including filings with the Securities and Exchange Commission, press
releases, public conference calls, the Partnership's website
(www.deleklogistics.com), the investor relations section of the website
(ir.deleklogistics.com), the news section of its website
(www.deleklogistics.com/news), and/or social media, including its Twitter
account (@DelekLogistics). The Partnership encourages investors and others to
review the information it makes public in these locations, as such information
could be deemed to be material information. Please note that this list may be
updated from time to time.
Forward-Looking Statements
This Annual Report on Form 10-K (including information incorporated by
reference) contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Exchange Act. These forward-looking statements reflect our
current estimates, expectations and projections about our future results,
performance, prospects and opportunities. Forward-looking statements include,
among other things, statements regarding the effect, impact, potential duration
or other implications of, or expectations expressed with respect to, the
COVID-19 Pandemic and the actions of members of OPEC+ with respect to oil
production and pricing, and statements regarding our efforts and plans in
response to such events, the information concerning our possible future results
of operations, business and growth strategies, financing plans, expectations
that regulatory developments or other matters will not have a material adverse
effect on our business or financial condition, our competitive position and the
effects of competition, the projected growth of the industry in which we
operate, the benefits and synergies to be obtained from our completed and any
future acquisitions, statements of management's goals and objectives, and other
similar expressions concerning matters that are not historical facts. Words such
as "may," "will," "should," "could," "would," "predicts," "potential,"
"continue," "expects," "anticipates," "future," "intends," "plans," "believes,"
"estimates," "appears," "projects" and similar expressions, as well as
statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by, which such performance or results will be achieved.
Forward-looking information is based on information
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available at the time and/or management's good faith belief with respect to
future events, and is subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in the
statements. Important factors that, individually or in the aggregate, could
cause such differences include, but are not limited to:
•our substantial dependence on Delek Holdings or its assignees and their support
of and respective ability to pay us under our commercial agreements;
•our future coverage, leverage, financial flexibility and growth, and our
ability to improve performance and achieve distribution growth at any level or
at all;
•Delek Holdings' future growth, financial performance, share repurchases, crude
oil supply pricing and flexibility and product distribution;
•industry dynamics, including Permian Basin growth, ownership concentration,
efficiencies and takeaway capacity;
•the age and condition of our assets and operating hazards and other risks
incidental to transporting, storing and gathering crude oil, intermediate and
refined products, including, but not limited to, costs, penalties, regulatory or
legal actions and other effects related to spills, releases and tank failures;
•changes in insurance markets impacting costs and the level and types of
coverage available;
•the timing and extent of changes in commodity prices and demand for refined
products and the impact of the COVID-19 Pandemic on such demand;
•the wholesale marketing margins we are able to obtain and the number of barrels
of product we are able to purchase and sell in our West Texas wholesale
business;
•the suspension, reduction or termination of Delek Holdings' or its assignees'
or third-party's obligations under our commercial agreements including the
duration, fees or terms thereof;
•the results of our investments in joint ventures;
•the ability to secure commercial agreements with Delek Holdings or third
parties upon expiration of existing agreements;
•the possibility of inefficiencies, curtailments, or shutdowns in refinery
operations or pipelines, whether due to infection in the workforce or in
response to reductions in demand as a result of the COVID-19 Pandemic;
•disruptions due to equipment interruption or failure, or other events,
including terrorism, sabotage or cyber attacks, at our facilities, Delek
Holdings' facilities or third-party facilities on which our business is
dependent;
•changes in the availability and cost of capital of debt and equity financing;
•our reliance on information technology systems in our day-to-day operations;
•changes in general economic conditions, including uncertainty regarding the
timing, pace and extent of economic recovery in the United States due to the
COVID-19 Pandemic;
•the effects of existing and future laws and governmental regulations,
including, but not limited to, the rules and regulations promulgated by the
Federal Energy Regulatory Commission ("FERC") and state commissions and those
relating to environmental protection, pipeline integrity and safety as well as
current and future restrictions on commercial and economic activities in
response to the COVID-19 Pandemic;
•competitive conditions in our industry;
•actions taken by our customers and competitors;
•the demand for crude oil, refined products and transportation and storage
services;
•our ability to successfully implement our business plan;
•inability to complete growth projects on time and on budget;
•our ability to successfully integrate acquired businesses;
•disruptions due to acts of God, including natural disasters, weather-related
delays, casualty losses and other matters beyond our control;
•future decisions by OPEC+ regarding production and pricing and disputes between
OPEC+ regarding such;
•changes or volatility in interest and inflation rates;
•labor relations;
•large customer defaults;
•changes in tax status and regulations;
•the effects of future litigation; and
•other factors discussed elsewhere in this Annual Report on Form 10-K.
Many of the foregoing risks and uncertainties are, and will be, exacerbated by
the COVID-19 Pandemic and any worsening of the global business and economic
environment. In light of these risks, uncertainties and assumptions, our actual
results of operations and execution of our business strategy could differ
materially from those expressed in, or implied by, the forward-looking
statements, and you should not place undue reliance upon them. In addition, past
financial and/or operating performance is not necessarily a reliable indicator
of future performance, and you should not use our historical performance to
anticipate results or future period trends. We can give no assurances
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that any of the events anticipated by the forward-looking statements will occur
or, if any of them do, what impact they will have on our results of operations
and financial condition.
All forward-looking statements included in this report are based on information
available to us on the date of this report. We undertake no obligation to revise
or update any forward-looking statements as a result of new information, future
events or otherwise.
Business Overview
The Partnership primarily owns and operates crude oil, intermediate and refined
products logistics and marketing assets. We gather, transport, offload and store
crude oil and intermediate products and market, distribute, transport and store
refined products primarily in select regions of the southeastern United States
and Texas for Delek Holdings and third parties. A substantial majority of our
existing assets are both integral to and dependent upon the success of Delek
Holdings' refining operations, as many of our assets are contracted exclusively
to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries.
The Partnership is not a taxable entity for federal income tax purposes or the
income taxes of those states that follow the federal income tax treatment of
partnerships. See "Part 1-Items 1 and 2. Business and Properties-Company
Overview" for further details.
The COVID-19 outbreak and its development into a pandemic in March 2020 (the
"COVID-19 Pandemic" or the "Pandemic") has resulted in significant economic
disruption globally, including in the U.S. and specific geographic areas where
we operate. Actions taken by various governmental authorities, individuals and
companies around the world to prevent the spread of COVID-19 through both
voluntary and mandated social distancing, curfews, shutdowns and expanded safety
measures, have restricted travel, many business operations, public gatherings
and the overall level of individual movement and in-person interaction across
the globe. This has in turn significantly reduced global economic activity and
resulted in airlines dramatically cutting back on flights and a decrease in
motor vehicle use, leading to a substantial decrease in consumer demand for
gasoline and other hydrocarbons. As a result, there has also been a decline in
the demand for refined petroleum products and most notably gasoline and jet
fuel. There is continued uncertainty about the duration of the COVID-19 Pandemic
which caused reduced consumer demand for gasoline and other hydrocarbons during
the year ended December 31, 2020 in the United States and globally. Therefore,
downward pressure on commodity prices has remained and could continue for the
foreseeable future.
In October 2020, governmental authorities in various states across the U.S.,
particularly those states in our Permian Basin and U.S. Gulf Coast regions,
lifted many of the restrictions created by actions taken to slow down the spread
of COVID-19. These actions resulted in an increase in the level of individual
movement and travel and, in turn, an increase in the demand and market prices
for some of our products relative to late March 2020. However, many of the
states where such restrictions were lifted subsequently experienced a marked
increase in the spread of COVID-19 and many governmental authorities in such
areas responded by re-imposing certain restrictions they had previously lifted.
In addition, certain countries globally recently re-imposed previously lifted
restrictions due to worsening effects of the increased spread of COVID-19. This
response, as well as the increased infection rates, impacts regions that we
serve and could significantly impact demand in ways that we cannot predict.
Additionally, increased infection rates could impact our logistics operations,
particularly in high-infection states, if our employees are personally affected
by the illness, both through direct infection and quarantine procedures.
During the year ended December 31, 2020, both our West Texas wholesale marketing
business and many of our pipeline and transportation customers have experienced
the impact on demand and pricing of these unprecedented conditions. Our
pipelines and transportation revenue streams were largely protected by minimum
commitments under existing throughput contracts with customers during the
current period, but continued pressure on our customers could present risks to
our existing and new business opportunities as well as on collectability on our
receivables. We continue to experience operational constraints as well,
including COVID-19 infections at certain of our company locations that have
resulted in re-imposed or expanded remote policies and quarantine protocols. We
continue to be faced with risk from our suppliers and customers who are facing
similar challenges.
We have identified the following uncertainties resulting from the COVID-19
Pandemic and other events, including the impact related to crude storage space
shortages:
•Customers directly impacted by the COVID-19 Pandemic and other events in terms
of demand for refined product may reduce throughputs which could, likewise,
impact the throughput demand for our pipelines, and may seek to renegotiate
minimums under contractual force majeure provisions. Such reductions could have
a significant impact on our revenues, cost of sales, operating income and
liquidity, as well to the carrying value of long-lived or indefinite-lived
assets;
•Customers may experience financial difficulties which could interrupt the
volumes ordered by those customers and/or could impact the credit worthiness of
such customers and the collectability of their outstanding receivables;
•Equity method investees may be significantly impacted by the COVID-19 Pandemic
and/or other events, which may increase the risk of impairment of those
investments;
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•The decline in demand and pricing on our wholesale marketing segment and a
decline in demand for pipelines and transportation impacting current results
and/or forecasts could result in impairments in certain of our long-lived or
indefinite-lived assets, including goodwill, or have other financial statement
impacts that cannot currently be anticipated;
•While our current liquidity needs are managed by existing credit facilities,
sources of future liquidity needs may be impacted by the volatility in the debt
market and the availability and pricing of such funds as a result of the
COVID-19 Pandemic and other events; and
•The U.S. Federal Government has enacted certain stimulus and relief measures
and is continuing to consider additional relief legislation. To the extent that
the provisions do not directly impact the Partnership in the current period or
are intended to stimulate or provide relief to the greater U.S. economy and/or
consumer, the impact and success of such efforts remains unknown.
Other uncertainties related to the impact of the COVID-19 Pandemic and other
events may exist that have not been identified or that are not specifically
listed above, and could impact our future results of operations and financial
position, the nature of which and the extent to which are currently unknown.
Actions taken by OPEC+ in April and June 2020, including the agreement for
management of crude oil supply in the hopes of contributing to market
stabilization (the "Oil Production Cuts"), as well as the U.S. Federal
Government's passage and/or enactment of additional stimulus and relief
measures, may impact the extent to which the risk underlying these uncertainties
are realized. To the extent these uncertainties have been identified and are
believed to have an impact on our current period results of operations or
financial position based on the requirements for assessing such financial
statement impact under U.S. generally accepted accounting principles, we have
considered them in the preparation of our consolidated financial statements as
of and for the year ended December 31, 2020.
In addition, management continues to actively respond to the impact of the
COVID-19 Pandemic and other events on our business. Such efforts include (but
are not limited to) the following:
•Reducing planned capital expenditures for 2021;
•Identifying alternative financing solutions to enhance our access to sources of
liquidity;
•Enacting cost reduction measures across the organization, including reducing
contract services, reducing overtime and reducing or eliminating non-critical
travel which serves the dual purpose of also complying with recommendations made
by the state and federal governments because of the COVID-19 Pandemic;
•Implementing regular site cleaning and disinfecting procedures;
•Adopting remote working where possible. Where on-site operations are required,
appropriate safety precautions taken; and
•Working with our employees to implement other site-specific precautionary
measures to reduce the risk of exposure.
The extent to which our future results are affected by COVID-19 Pandemic will
depend on various factors and consequences beyond our control, such as the
duration and scope of the Pandemic; additional actions by businesses and
governments in response to the COVID-19 Pandemic; and the speed and
effectiveness of responses to combat the virus. The COVID-19 Pandemic, and the
volatile regional and global economic conditions stemming from the Pandemic,
could also exacerbate the risk factors identified in this Annual Report on Form
10-K. The COVID-19 Pandemic may also materially adversely affect our results in
a manner that is either not currently known or that we do not currently consider
to be a significant risk to our business.
See also 'Risk Factors' in Part I, Item 1A. of this Annual Report on Form 10-K
for further discussion of risks associated with the COVID-19 Pandemic.
Our Reporting Segments and Assets
Our business consists of two reportable segments:
(i) Pipelines and Transportation
The assets and investments in our pipelines and transportation segment consist
of pipelines, tanks, offloading facilities, trucks and ancillary assets, which
provide crude oil gathering and crude oil, intermediate and refined products
transportation and storage services primarily in 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, we do not take
ownership of the products or crude oil that we transport or store. Therefore, we
are not directly exposed to changes in commodity prices with respect to this
operating segment.
(ii) Wholesale Marketing and Terminalling
The assets in our wholesale marketing and terminalling segment consist of
refined products terminals and pipelines in Texas, Tennessee, Arkansas and
Oklahoma. We generate revenue in our 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 our terminals
in West Texas and at
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terminals owned by third parties, whereby we purchase light products for sale
and exchange to third parties, and by providing terminalling services at our
refined products terminals to independent third parties and Delek Holdings.
2020 Developments
Restructuring Transaction
Effective August 13, 2020, the Partnership closed the transaction contemplated
by a definitive exchange agreement with the general partner to eliminate all of
the IDRs held by the general partner and convert the 2% economic general partner
interest into a non-economic general partner interest, both in exchange for
14.0 million newly issued common limited partner units and $45.0 million in cash
(the "IDR Restructuring Transaction"). See Note 3 to the consolidated financial
statements in Item 8 Financial Statements and Supplementary Data of this Annual
Report on Form 10-K for additional information.
In August 2020, we filed a shelf registration statement with the U.S. Securities
and Exchange Commission, which subsequently became effective, for the proposed
re-sale or other disposition from time to time by Delek Holdings of up to 14.0
million common limited partner units representing limited partner interests in
the Partnership. We will not sell any securities under this shelf registration
statement and we will not receive any proceeds from the sale of the securities
by Delek Holdings.
Red River Expansion project
In August 2020, Red River, a joint venture equity method investment which owns a
crude oil pipeline running from Cushing, Oklahoma to Longview, Texas, completed
a planned expansion project to increase the pipeline capacity from 150,000 bpd
to 235,000 bpd. The expansion project commenced operations on October 1, 2020.
Inflation Adjustments
On July 1, 2020, the tariffs on our FERC regulated pipelines and the throughput
fees and storage fees under certain of our agreements with Delek Holdings and
third parties that are subject to adjustment using the FERC indexing increased
by approximately 2%, which was the amount of the change in the FERC oil pipeline
index. Under certain of our other agreements with Delek Holdings and third
parties, the fee adjusted based on the consumer price index increased 1.6% and
the fees adjusted based on producer price index decreased approximately 1.2%.
See "Part 1-Items 1 and 2. Business and Properties-Company Overview-2020
Developments" for further details.
Trucking Assets Acquisition
Effective May 1, 2020, the Partnership, through its wholly-owned subsidiary DKL
Transportation, LLC, acquired Delek Trucking, LLC consisting of certain leased
and owned tractors and trailers and related assets from Delek Holdings. See Note
2 to the consolidated financial statements in Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for additional
information.
Big Spring Gathering Assets Acquisition
Effective March 31, 2020, the Partnership, through its wholly-owned subsidiary
DKL Permian Gathering, LLC, acquired the Big Spring Gathering Assets from Delek
Holdings, located in Howard, Borden and Martin Counties, Texas. See Note 2 to
our accompanying consolidated financial statements, in Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form 10-K for
additional information.
IDR Waiver
On March 31, 2020, in connection with the completion of the Big Spring Gathering
Assets Acquisition, the Board of the general partner waived distributions in
respect of the Incentive Distribution Rights ("IDRs") associated with the 5.0
million newly issued common limited partner units ("Additional Units") for at
least two years, through at least the distribution for the quarter ending March
31, 2022 ("IDR Waiver"). The IDR Waiver essentially reduced the distribution
made to the holders of the IDRs during this period, as the holders would not
receive a share of the distribution made on the Additional Units. An additional
waiver letter was signed that waived all of the distributions for the first
quarter of 2020 on the Additional Units with respect to base distributions and
the IDRs. The Restructuring Transaction on August 13, 2020, permanently
eliminated all of the IDRs. See Note 3 to our accompanying consolidated
financial statements, in Item 8 Financial Statements and Supplementary Data of
this Annual Report on Form 10-K for additional information.
Business Strategies
Our objectives are to maintain stable cash flows and to grow the quarterly
distributions paid to our unitholders over time. We are focused on growing our
asset base within our geographic area through acquisitions, project development,
joint ventures and enhancing our existing systems. While we will continue to
evaluate ways to provide Delek Holdings with logistics services, our emphasis
will be to increase the logistics services that we offer to third parties. We
intend to achieve these objectives through the following business strategies:
•Generate Stable Cash Flow. We will continue to pursue opportunities to provide
logistics, marketing and other services to Delek Holdings and third parties
pursuant to long-term, fee-based contracts. In new service contracts, we will
endeavor to include minimum volume throughput or other commitments, similar to
those included in our current commercial agreements with Delek Holdings.
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•Focus on Growing Our Business. We intend to evaluate and pursue opportunities
to grow our business through both strategic acquisitions and expansion and
construction projects, both internally funded or in combination with potential
external partners and through investments in joint ventures. Additionally, we
believe that our strong relationship with Delek Holdings will enhance our
opportunities to grow our business.
•Pursue Acquisitions. We plan to pursue strategic acquisitions that both
complement our existing assets and provide attractive returns for our
unitholders. As we continue to grow through acquisitions, we believe we will be
able to increase our third party business. In addition to those opportunities to
acquire assets from Delek Holdings described below, we believe that our current
asset base, and our knowledge of the regional markets in which we operate, will
enable us to target and complete attractive third-party acquisitions.
•Investments in Joint Ventures. We have grown our asset base to include
investments in joint ventures, which have contributed to our initiative to grow
our midstream business, while increasing our crude oil sourcing flexibility. We
intend to continue evaluating growth opportunities through these investments.
•Engage in Mutually Beneficial Transactions with Delek Holdings. Delek Holdings
has granted us a right of first offer on certain logistics assets. We intend to
review our right to purchase any such assets as they are offered to us under the
terms of the right of first offer, from time to time. Delek Holdings is also
required, under certain circumstances, to offer us the opportunity to purchase
additional logistics assets that Delek Holdings may acquire or construct in the
future. Further, we anticipate additional growth opportunities through
subsequent dropdowns of logistics assets acquired or developed by Delek
Holdings. For example, Delek Holdings anticipates offering us certain gathering
and logistics assets. However, there can be no assurance as to the timing of any
such transaction or whether or on what terms dropdowns will be offered to us by
Delek Holdings. We continue to evaluate options with respect to dropdown
transactions, which may include changes in capital structure.
•Pursue Attractive Expansion and Construction Opportunities. We intend to pursue
organic growth opportunities that complement our existing businesses or that
provide attractive returns within or outside our current geographic footprint.
We plan to evaluate potential opportunities to make capital investments that
will be used to expand our existing asset base through the expansion and
construction of new logistics assets to support growth of any of our customers',
including Delek Holdings', businesses and from increased third-party activity.
These construction projects may be developed either through joint venture
relationships or by us acting independently, depending on size and scale.
•Optimize Our Existing Assets and Expand Our Customer Base. We seek to enhance
the profitability of our existing assets by adding incremental throughput
volumes, improving operating efficiencies and increasing system-wide
utilization. We also expect to further diversify our customer base by increasing
third-party throughput volumes running through certain of our existing systems
and expanding our existing asset portfolio to service more third-party
customers.
Commercial Agreements with Delek Holdings
The Partnership has a number of long-term, fee-based commercial agreements with
Delek Holdings under which we provide various services, including crude oil
gathering, crude oil, intermediate and refined products transportation and
storage services, and marketing, terminalling and offloading services to Delek
Holdings, and Delek Holdings commits to provide us with minimum monthly
throughput volumes of crude oil, intermediate and refined products. Generally,
these agreements include minimum quarterly volume, revenue or throughput
commitments and have tariffs or fees indexed to inflation-based indices,
provided that the tariffs or fees will not be decreased below the initial
amount. See Note 4 to the consolidated financial statements in Item 8, Financial
Statements and Supplementary Data, of this Annual Report on Form 10-K for a
discussion of our material commercial agreements with Delek Holdings.
Other Transactions
Starting in 2018, the Partnership manages a long-term capital project on behalf
of Delek Holdings pursuant to a construction management and operating agreement
(the "DPG Management Agreement") for the construction of a 250-mile gathering
system in the Permian Basin (the "Delek Permian Gathering Project"). As of
December 31, 2020, approximately 178 miles of the gathering system were
completed and operational, however, additional costs pertaining to a pipeline
connection that was not contributed to the Partnership continue to be incurred
and are still subject to the terms of the DPG Management Agreement. The
Partnership is also considered the operator for the project and is responsible
for the oversight of the project design, procurement and construction of project
segments and for providing other related services. See Note 4 to the
consolidated financial statements in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K for additional
information on the DPG Management Agreement.




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Analysis

How We Evaluate Our Operations
We use a variety of financial and operating metrics to analyze our segment
performance. These metrics are significant factors in assessing our operating
results and profitability and include:
(i)volumes (including pipeline throughput and terminal volumes);
(ii)contribution margin per barrel;
(iii)operating and maintenance expenses;
(iv)cost of materials and other; and
(v)EBITDA and distributable cash flow (as such terms are defined below).
Volumes
The amount of revenue we generate primarily depends on the volumes of crude oil
and refined products that we handle in our pipeline, transportation,
terminalling, storage and marketing operations. These volumes are primarily
affected by the supply of and demand for crude oil, intermediate and refined
products in the markets served directly or indirectly by our assets. Although
Delek Holdings has committed to minimum volumes under certain of the commercial
agreements, as described above, our results of operations will be impacted by:
•Delek Holdings' utilization of our assets in excess of its minimum volume
commitments;
•our ability to identify and execute acquisitions and organic expansion projects
and capture incremental volume increases from Delek Holdings or third parties;
•our ability to increase throughput volumes at our refined products terminals
and provide additional ancillary services at those terminals;
•our ability to identify and serve new customers in our marketing and trucking
operations; and
•our ability to make connections to third-party facilities and pipelines.
Contribution Margin per Barrel
Because we do not allocate general and administrative expenses by segment, we
measure the performance of our segments by the amount of contribution margin as
generated in operations. Contribution margin is defined as net revenues less
cost of materials and other and operating expenses, excluding depreciation and
amortization.
For our wholesale marketing and terminalling segment, we also measure gross
margin per barrel. Gross margin per barrel reflects the gross margin (net
revenues less cost of materials and other) of the wholesale marketing operations
divided by the number of barrels of refined products sold during the measurement
period. Both contribution margin and gross margin per barrel can be affected by
fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and
Renewable Identification Numbers ("RINs"). Historically, the profitability of
our wholesale marketing operations has been affected by commodity price
volatility, (specifically as it relates to changes in the price of refined
products between the time we purchase such products from our suppliers and the
time we sell the products to our wholesale customers), and the fluctuation in
the value of RINs. Commodity price volatility may also impact our wholesale
marketing operations when the selling price of refined products does not adjust
as quickly as the purchase price. Our wholesale marketing gross margin may also
be impacted by the fixed price ethanol agreements we enter into to fix the price
we pay for ethanol.
Operating and Maintenance Expenses
We seek to maximize the profitability of our operations by effectively managing
operating and maintenance expenses. These expenses include the costs associated
with the operation of owned terminals and pipelines and terminalling expenses at
third-party locations, excluding depreciation and amortization. These costs
primarily include outside services, allocated employee costs, repairs and
maintenance costs and energy and utility costs. Operating expenses related to
the wholesale business are excluded from cost of sales because they primarily
relate to costs associated with selling the products through our wholesale
business. These expenses generally remain relatively stable across broad ranges
of throughput volumes, but can fluctuate from period to period depending on the
mix of activities performed during that period and the timing of said expenses.
Additionally, compliance with federal, state and local laws and regulations
relating to the protection of the environment, health and safety may require us
to incur additional expenditures. We will seek to manage our maintenance
expenditures on our pipelines and terminals by scheduling maintenance over time
to avoid significant variability in our maintenance expenditures and minimize
their impact on our cash flow.




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                                            Management's Discussion and 

Analysis

Cost of Materials and Other
These costs include:
(i)all costs of purchased refined products in our wholesale marketing and
terminalling segment, as well as additives and related transportation of such
products;
(ii)costs associated with the operation of our trucking assets, which primarily
include allocated employee costs and other costs related to fuel, truck leases
and repairs and maintenance;
(iii)the cost of pipeline capacity leased from any third parties; and
(iv)gains and losses related to our commodity hedging activities.
Financing
The Partnership paid a cash distribution to its unitholders at a distribution
rate of $0.910 per unit for the quarter ended December 31, 2020 ($3.64 per unit
on an annualized basis). Our Partnership Agreement requires that the Partnership
distribute all of its available cash (as defined in the Partnership Agreement)
to its unitholders quarterly. As a result, the Partnership expects to fund
future capital expenditures primarily from operating cash flows, borrowings
under our revolving credit facility and any potential future issuances of equity
and debt securities. See Note 12 to the consolidated financial statements in
Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K for a discussion of historic cash distributions.
Market Trends
Business Environment
Fluctuations in crude oil prices and the prices of related refined products
impact our operations and the operations of other master limited partnerships in
the midstream energy sector. In particular, crude oil prices and the prices of
related refined products have the ability to influence drilling activity in many
basins and the amounts of capital spending that crude oil exploration and
production companies incur to support future growth. Throughout the majority of
2018, the prices of crude oil and related refined products remained relatively
consistent. Nevertheless, during the fourth quarter of 2018 the prices of crude
oil and related refined products decreased significantly due to seasonal
impacts. During the first half of 2019, the prices of crude oil and related
refined products increased but fell slightly in the third quarter of 2019.
During the first quarter of 2020, reduced demand for crude oil and refined
products related to the COVID-19 Pandemic, combined with production increases
from OPEC+, led to a significant reduction in crude oil prices. While OPEC+
reached an agreement to cut oil production, the uncertainty about the duration
of the COVID-19 Pandemic continues to slow down the recovery of demand for
gasoline and other hydrocarbons. Therefore, the downward pressure on commodity
prices has remained and could continue for the foreseeable future. Oil prices
have been extremely volatile during the year ended December 31, 2020. The
January 2020 high closing price of oil (WTI Cushing) was $63.27 per barrel,
which declined to close at $20.48 per barrel on March 31, 2020, reached a second
quarter 2020 low of $10.01 per barrel on April 21, 2020 and closed at $39.27 per
barrel on June 30, 2020. The WTI Cushing oil price recovered slightly to close
at $40.22 per barrel on September 30, 2020 and at $48.40 on December 31, 2020.
In response to the rapid decline in commodity prices, some companies in the
Permian Basin acted swiftly to reduce drilling and completion activity starting
late in the first quarter and continued into the second and third quarter of
2020. The current market conditions have resulted in lower refinery utilization
which in turn has impacted the throughput for our assets and operations. This
has impacted our operations leading to a decrease in revenues albeit with at
least an equivalent decrease in cost and expenses in some instances. Due to the
stabilization in oil prices, albeit at lower prices, during the second half of
the year, we experienced improved margins in the West Texas area, and better
throughput for our assets with improved gross margins, when compared to the
first half of 2020. We believe we are strategically positioned, in these tougher
market conditions, to continue developing profitable growth projects that are
needed to support future distribution growth in the midstream energy sector and
for the Partnership.
West Texas Marketing Operations
Overall demand for gathering and terminalling services in a particular area is
generally driven by crude oil production in the area, which can be impacted by
crude oil prices, refining economics and access to alternate delivery and
transportation infrastructure. Additionally, volatility in crude oil,
intermediate and refined products prices in the West Texas area and the value
attributable to RINs can affect the results of our West Texas operations. For
example, as discussed above, drilling activity and the prices of crude oil and
related refined products increased in the first half of 2019 and in spite of a
slight decrease in prices in the third quarter of 2019, demand for refined
products from our West Texas operations to industries that support crude oil
exploration and production began to rebound early in the first quarter of 2020.
However due to the impact of the COVID-19 Pandemic there was lower demand and
sales of refined products during later part of the first quarter and remained
down during the second quarter of 2020. However, during the third quarter and
fourth quarter of 2020, demand and sales of the refined products began to
rebound from the second quarter lows.
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                                            Management's Discussion and 

Analysis

See chart below for the high, low and average price per barrel of WTI crude oil
for each of the quarterly periods during the years ended December 31, 2020 and
2019.
[[Image Removed: dkl-20201231_g5.jpg]]



Also, the volatility of refined products prices may impact our margin in the
West Texas operations when the selling price of refined products does not adjust
as quickly as the purchase price. See below for the range of prices per gallon
of gasoline and diesel for each of the quarterly periods during the years ended
December 31, 2020 and 2019.
[[Image Removed: dkl-20201231_g6.jpg]]


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                                            Management's Discussion and 

Analysis

[[Image Removed: dkl-20201231_g7.jpg]]

Our West Texas operations can benefit from RINs that are generated by ethanol
blending activities. As a result, changes in the price of RINs can affect our
results of operations. The RINs we generate are sold primarily to Delek Holdings
at market prices. We sold approximately $3.4 million and $1.2 million of RINs to
Delek Holdings during the years ended December 31, 2020 and 2019, respectively.
See below for the high, low and average prices of RINs for each of the quarterly
periods during the years ended December 31, 2020 and 2019.
[[Image Removed: dkl-20201231_g8.jpg]]


All of these factors are subject to change over time. As part of our overall
business strategy, management considers aspects such as location, acquisition
and expansion opportunities and factors impacting the utilization of the
refineries (and therefore throughput volumes), which may impact our performance
in the market.


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Non-GAAP Measures
Our management uses certain "non-GAAP" operational measures to evaluate our
operating segment performance and non-GAAP financial measures to evaluate past
performance and prospects for the future to supplement our GAAP financial
information presented in accordance with U.S. GAAP. These financial and
operational non-GAAP measures are important factors in assessing our operating
results and profitability and include:
•Earnings before interest, taxes, depreciation and amortization ("EBITDA") -
calculated as net income before net interest expense, income tax expense,
depreciation and amortization expense, including amortization of customer
contract intangible assets, which is included as a component of net revenues in
our accompanying consolidated statements of income.
•Distributable cash flow - calculated as net cash flow from
operating activities plus or minus changes in assets and liabilities, less
maintenance capital expenditures net of reimbursements and other adjustments not
expected to settle in cash. Delek Logistics believes this is an appropriate
reflection of a liquidity measure by which users of its financial statements can
assess its ability to generate cash.
EBITDA and distributable cash flow are non-U.S. GAAP supplemental financial
measures that management and external users of our consolidated financial
statements, such as industry analysts, investors, lenders and rating agencies,
may use to assess:
•our operating performance as compared to other publicly traded partnerships in
the midstream energy industry, without regard to historical cost basis or, in
the case of EBITDA, financing methods;
•the ability of our assets to generate sufficient cash flow to make
distributions to our unitholders;
•our ability to incur and service debt and fund capital expenditures; and
•the viability of acquisitions and other capital expenditure projects and the
returns on investment of various investment opportunities.
We believe that the presentation of EBITDA and distributable cash flow provide
information useful to investors in assessing our financial condition and results
of operations. EBITDA and distributable cash flow should not be considered
alternatives to net income, operating income, cash flow from operating
activities or any other measure of financial performance or liquidity presented
in accordance with U.S. GAAP. EBITDA and distributable cash flow have important
limitations as analytical tools, because they exclude some, but not all, items
that affect net income and net cash provided by operating activities.
Additionally, because EBITDA and distributable cash flow may be defined
differently by other partnerships in our industry, our definitions of EBITDA and
distributable cash flow may not be comparable to similarly titled measures of
other partnerships, thereby diminishing their utility. For a reconciliation of
EBITDA and distributable cash flow to their most directly comparable financial
measures calculated and presented in accordance with U.S. GAAP, please refer to
"Results of Operations" below.
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                                            Management's Discussion and 

Analysis

Results of Operations
A discussion and analysis of the factors contributing to our results of
operations is presented below. The financial statements, together with the
following information, are intended to provide investors with a reasonable basis
for assessing our historical operations but should not serve as the only
criteria for predicting our future performance.
Non-GAAP Reconciliations
The following table provides a reconciliation of EBITDA and distributable cash
flow to the most directly comparable U.S. GAAP measure, or net income and net
cash from operating activities, respectively.
Reconciliation of net income to EBITDA (in thousands)
                                                            Year Ended December 31,
                                                              2020               2019
Net income                                            $     159,256           $  96,749
Add:
Income tax expense                                              223                 967
Depreciation and amortization                                35,731              26,701
Amortization of customer contract intangible assets           7,211               7,211
Interest expense, net                                        42,874              47,328
EBITDA (1)                                            $     245,295           $ 178,956



Reconciliation of net cash from operating activities to distributable cash flow
(in thousands)
                                                                          Year Ended December 31,
                                                                          2020                   2019
Net cash provided by operating activities                         $     193,016              $  130,399
Changes in assets and liabilities                                        19,777                    (571)

Distributions from equity method investments in investing activities

                                                                2,741                     804
Non-cash lease expense                                                   (6,075)                   (193)
Maintenance and regulatory capital expenditures (2)                      (1,296)                 (8,569)
Reimbursement from Delek Holdings for capital expenditures (3)              263                   5,828
Accretion of asset retirement obligations                                  (427)                   (397)
Deferred income taxes                                                      (401)                   (496)
Other operating income, net                                                  66                     197
Distributable cash flow (1)                                       $     207,664              $  127,002

(1) For a definition of EBITDA and distributable cash flow, please see "Non-GAAP Measures"

above.

(2) Maintenance and regulatory capital expenditures represent cash expenditures (including

expenditures for the addition or improvement to, or the replacement of, our capital

assets, and for the acquisition of existing, or the construction or development of new,

capital assets) made to maintain our long-term operating income or operating capacity.

Examples of maintenance and regulatory capital expenditures are expenditures for the

repair, refurbishment and replacement of pipelines and terminals, to maintain equipment

reliability, integrity and safety and to address environmental laws and regulations. (3) For the years ended December 31, 2020 and 2019, Delek Holdings reimbursed us for

certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined

      in Note 4 to our accompanying consolidated financial statements).






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                                            Management's Discussion and 

Analysis

Critical Accounting Policies and Estimates
The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend our business activities. We
prepare our consolidated financial statements in conformity with GAAP, and in
the process of applying these principles, we must make judgments, assumptions
and estimates based on the best available information at the time. To aid a
reader's understanding, management has identified our critical accounting
policies. These policies are considered critical because they are both most
important to the portrayal of our financial condition and results, and require
our most difficult, subjective or complex judgments. Often they require
judgments and estimation about matters which are inherently uncertain and
involve measuring at a specific point in time, events which are continuous in
nature. Actual results may differ based on the accuracy of the information
utilized and subsequent events, some over which we may have little or no
control.
Property, Plant and Equipment and Definite-lived Intangibles Impairment
Property, plant and equipment and definite-lived intangibles are evaluated for
impairment whenever indicators of impairment exist. An indicator exists when
events or conditions indicate that it is more likely than not that the future
cash flows associated with an asset group will be insufficient to recover the
carrying value. Accounting standards require that if an impairment indicator is
present, we must assess whether the carrying amount of the asset is
unrecoverable by estimating the sum of the future cash flows expected to result
from the asset, undiscounted and without interest charges. We derive the
required undiscounted cash flow estimates, including salvage values (when
applicable), from our historical experience and our internal business plans,
which requires judgment. We use quoted market prices when available and our
internal cash flow estimates discounted at an appropriate interest rate to
determine fair value, as appropriate. If the carrying amount is more than the
estimated recoverable amount, an impairment charge must be recognized based on
the fair value of the asset.
In late 2018, we began the process of decommissioning certain common carrier
pipelines on the El Dorado Gathering System. The decommissioning entailed taking
certain pipelines out of service in an effort to improve the safety and
integrity of the El Dorado Gathering System. The project was completed in August
2019. The pipelines that were decommissioned remained physically in place, and
the decommissioning did not have a material effect on our financial results. We
performed an impairment analysis of our rights-of-ways ("ROWs") associated with
the decommissioning project. As a result of the analysis, we determined that
certain of the ROWs were impaired. This impairment, however, did not have a
material effect on our 2019 financial results.
We have identified the COVID-19 Pandemic as a significant event during the year
ended December 31, 2020 that adversely affected the global economy and the oil
and gas industry. The COVID-19 Pandemic has resulted in government-imposed
temporary business closures and shelter-at-home directives. This has had the
secondary effect of impacting prices of crude oil and refined products as well
as supply and demand for crude oil and refined products, where such conditions
may impact our cash flows either directly through our West Texas wholesale
operations or indirectly because those prices and supply/demand may impact our
customers' needs for our logistics assets/services. Additionally, the Pandemic
has given rise to other identified uncertainties, as discussed in the 'Business
Overview' section of Management's Discussion and Analysis. For these reasons, we
have considered the uncertainties and the related risks in our consideration of
the recoverability of Property, plant and equipment and definite-lived
intangibles. Factors impacting our evaluation include the favorable factor that
many of our assets were acquired from entities under common control, and
therefore were recorded at their original amortized book value instead of their
higher fair value on acquisition, as well as the presence of minimum volume
commitments in our Commercial Agreements with customers. Judgment is required to
assess the credit worthiness of our customers as well as contractual risk which
may not always be visible (depending on the customer). Because approximately 90%
of our throughput Commercial Agreements are with Delek Holdings, a related
party, we believe we had adequate information to reasonably assess these risks.
Based on these factors and our judgments about their impact, we concluded that
we did not have an indicator of impairment with respect to our property, plant
and equipment and definite-lived intangibles. In response to the identified
significant event relating to the COVID-19 Pandemic, we assessed whether the
carrying amount of our Property, plant and equipment and definite-lived
intangibles were recoverable by comparing the expected future cash flows to our
carrying amount. Based on our analyses, we determined that the Property, plant
and equipment of $464.8 million and definite-lived intangibles of $123.8 million
were not impaired as of December 31, 2020.
Goodwill and Indefinite-lived Intangible Assets Potential Impairment
Goodwill in an acquisition represents the excess of the aggregate purchase price
over the fair value of the identifiable net assets. Goodwill is reviewed at
least annually for impairment, or more frequently if indicators of impairment
exist, such as disruptions in our business, unexpected significant declines in
operating results or a sustained market capitalization decline. Goodwill is
evaluated for impairment by comparing the carrying amount of the reporting unit
to its estimated fair value. Accounting Standards Codification ("ASC") 350,
Intangibles - Goodwill and Other, provides that companies may first apply an
optional qualitative approach to test indefinite-lived intangible assets for
impairment. The qualitative assessment permits companies to assess whether it is
more likely than not (i.e., a likelihood of greater than 50%) that the fair
value of a reporting unit is less than its carrying amount. If a company
concludes that, based on the qualitative assessment, it is more likely than not
that the fair value of a reporting unit is less than its carrying amount, the
company is required to perform the quantitative impairment test. Alternatively,
if a company concludes based on the qualitative assessment that it is not more
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                                            Management's Discussion and 

Analysis

likely than not that the fair value of a reporting unit is less than its
carrying amount, it has completed its goodwill impairment test and does not need
to perform the quantitative impairment test. We perform our annual goodwill
impairment assessment during the fourth quarter.
When applying the quantitative approach to assessing the recoverability of
goodwill, assumptions are made with respect to future business conditions and
estimated expected future cash flows to determine the fair value of a reporting
unit. We may consider inputs such as a market participant weighted average cost
of capital ("WACC"), estimated growth rates for revenue, barrels per day
sold/throughput, rates including FERC regulated rates, contribution margin,
capital expenditures, and long-term growth rate based on history and our best
estimate of future forecasts, all of which are subject to significant judgment
and estimates. We may also corroborate the fair values of the reporting units
using a multiple of expected future cash flows, such as those used by
third-party analysts. If these estimates and assumptions change in the future,
due to factors such as a decline in general economic conditions, sustained
decrease in rates, competitive pressures on sales and margins and other economic
and industry factors beyond management's control, an impairment charge may be
required. The most significant risks to our valuation and the potential future
impairment of goodwill are the WACC and the throughput and rates, which are
mostly driven by the minimum throughput on our commercial agreements with Delek.
Because of the significant historical cushion by which the fair value of our
reporting units exceeded our carrying value and the relative insignificance of
our total goodwill balance ($12.2 million as of December 31, 2020 and 2019) to
our balance sheet as a whole, we elected to perform a qualitative assessment for
purposes of our annual goodwill impairment test during the fourth quarter in
2020, 2019 and 2018. Our assessment was performed based on the events that had
occurred through our annual assessment date, and included certain analyses on
the most significant inputs in our most recent valuation model to evaluate the
impact of these events on the fair value of our reporting units. This included
sensitivity analysis and stress testing on certain of our inputs, including the
weighted-average cost of capital and the barrel per day ("BPD") sold/throughput,
which is driven by demand for crude oil and refined products. Except for West
Texas, our throughput volume is primarily driven by the minimum throughput in
our commercial agreements with Delek Holdings. Additionally, our 2020 assessment
included consideration of the effects of the COVID-19 Pandemic, including its
effect on the prices of crude oil and refined products as well as supply and
demand for crude oil and refined products, where such conditions may impact our
cash flows either directly through our West Texas wholesale operations or
indirectly because those prices and supply/demand may impact our customers'
needs for our logistics assets/services (see further discussion of the Pandemic
and related uncertainties as discussed in the 'Business Overview' section of
Management's Discussion and Analysis). Factors impacting our evaluation include
the favorable factor that many of our indefinite-lived intangible assets were
acquired from entities under common control, and therefore were recorded at
their original carrying amount instead of a higher fair value at acquisition, as
well as the presence of minimum value commitments in our Commercial Agreements
with customers. Judgment is required to assess the credit worthiness of our
customers as well as contractual risk which may not always be visible (depending
on the customer). Because approximately 90% of our throughput Commercial
Agreements are with Delek, a related party, we believe we had adequate
information to reasonably assess these risks.
Based on our annual assessment which involved these qualitative analyses, we
determined that there was no indicator that fair value was more likely than not
to have declined below carrying value of our reporting units as of our annual
assessment dates during each of the years ended December 31, 2020, 2019 or 2018.
Therefore, the quantitative approach was not required. Accordingly, our annual
assessment of goodwill and indefinite-lived intangible assets did not result in
an impairment charge during the years ended December 31, 2020, 2019 or 2018.
December 31, 2020.
Additionally, because conditions and events are rapidly changing, we continue to
monitor developments with these events and their impact on our valuation.
However, there is uncertainty in and around the impact of the COVID-19 Pandemic
and other events that have not yet occurred or for existing conditions and
events that may have future ramifications that cannot yet be anticipated.
Continued or sustained adverse change to these factors may result in potential
future impairment of some or all of our goodwill balance.
New Accounting Pronouncements
See Note 2 to the consolidated financial statements in Item 8, Financial
Statements and Supplementary Data, of this Annual Report on Form 10-K for a
discussion of new accounting pronouncements applicable to us.
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                                            Management's Discussion and 

Analysis

Consolidated Results of Operations - Comparison of the Year Ended December 31,
2020 versus the Year Ended December 31, 2019
The following table presents a summary of our consolidated results of operations
and our segment operating performance for the years ended December 31, 2020 and
December 31, 2019 (in thousands). The discussion of the year-over-year changes
immediately following presents the consolidated results of operations for the
year ended December 31, 2020. A detailed discussion of the fiscal 2019
year-over-year changes can be found in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations section of the Form
10-K filed on February 28, 2020.
                                               Consolidated
                                                                          Year Ended December 31,
                                                                          2020                   2019
Net revenues:
Affiliate                                                         $     382,666              $  261,014
Third-Party                                                             180,752                 322,978
Total Consolidated                                                      563,418                 583,992
Cost of materials and other                                             269,094                 336,473

Operating expenses (excluding depreciation and amortization presented below)

                                                         56,279                  74,157
Contribution margin                                                     238,045                 173,362
General and administrative expenses                                      22,587                  20,815
Depreciation and amortization                                            35,731                  26,701
Other operating expense, net                                                (66)                     34
Operating income                                                  $     179,793              $  125,812
Interest expense, net                                                    42,874                  47,328
Income from equity method investments                                   (22,693)                (19,832)
Other expense, net                                                          133                     600
Total non-operating expenses, net                                        20,314                  28,096
Income before income tax expense                                        159,479                  97,716
Income tax expense                                                          223                     967
Net income attributable to partners                               $     159,256              $   96,749




Net Revenues
Net revenues decreased by $20.6 million, or 3.5%, in the year ended December 31,
2020 compared to the year ended December 31, 2019. The decrease was primarily
driven by the following:
•decreases in the average sales prices per gallon and volume of diesel gallons
sold, partially offset by increases in the sales volume of gasoline in our West
Texas marketing operations:
•the volume of gasoline sold increased 12.6 million gallons, partially offset by
a 8.1 million decrease of diesel gallons sold.
•the average sales prices per gallon of gasoline and diesel sold decreased $0.49
per gallon and $0.71 per gallon, respectively.
Such decreases were partially offset by the following:
•increased revenues associated with agreements executed in connection with Big
Spring Gathering System and Delek Trucking acquisitions, which were effective
March 31, 2020 and May 1, 2020, respectively; and
•increased revenues at our El Dorado Gathering System and Magnolia Pipeline as
result of increased throughput during the year ended December 31, 2020 when
compared to the year ended December 31, 2019.




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                                            Management's Discussion and 

Analysis

Cost of Materials and Other
Cost of materials and other decreased by $67.4 million, or 20.0%, in the year
ended December 31, 2020 compared to the year ended December 31, 2019, primarily
driven by the following:
•decreases in the average volumes of diesel sold and average cost per gallon of
gasoline and diesel sold, partially offset by increases in the average volumes
of gasoline sold in our West Texas marketing operations:
•the average volumes of gasoline sold increased 12.6 million gallons, partially
offset by a 8.1 million decrease of diesel gallons sold.
•the average cost per gallon of gasoline and diesel sold decreased $0.43 per
gallon and $0.66 per gallon, respectively.


Operating Expenses
Operating expenses decreased by $17.9 million, or 24.1%, in the year ended
December 31, 2020 compared to the year ended December 31, 2019, primarily driven
by the following:
•decrease in employee and outside services costs due to measures implemented to
respond to COVID-19 including delaying non-essential projects; and
•lower operating costs associated with allocated contract services pertaining to
certain of our assets.


General and Administrative Expenses
General and administrative expenses increased by $1.8 million, or 8.5%, in the
year ended December 31, 2020 compared to the year ended December 31, 2019,
primarily driven by the following:
•increases in allocated employee headcount in various operational groups as the
Partnership continues to experience growth due to the Big Spring Gathering
Assets Acquisition and the Trucking Assets Acquisition; and
•increases in legal and professional consulting fees due to various transactions
undertaken by the Partnership.


Depreciation and Amortization
Depreciation and amortization increased by $9.0 million, or 33.8%, in the year
ended December 31, 2020 compared to the year ended December 31, 2019, primarily
driven by the following:
•addition of assets to our asset base as a result of the Trucking Assets
Acquisition and the Big Spring Gathering Assets Acquisition.


Interest Expense
Interest expense decreased by $4.5 million, or 9.4%, in the year ended December
31, 2020 compared to the year ended December 31, 2019, primarily driven by the
following:
•lower floating interest rates applicable to the DKL Credit Facility; and
•partially offset by increased borrowings under the DKL Credit Facility as a
result of our Big Spring Gathering Assets Acquisition, the Trucking Assets
Acquisition and the IDR Restructuring Transaction.


Results from Equity Method Investments
Income from equity method investments increased by $2.9 million, or 14.4%, in
the year ended December 31, 2020 compared to the year ended December 31, 2019,
primarily driven by the following:
•an increase in income from our investments in Andeavor Logistics, Red River and
CP LLC (as defined in Note 14 of the accompanying consolidated financial
statements in Item 15, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K), which operate the RIO Pipeline, Red River Pipeline
and the Caddo Pipeline System, respectively, as a result of increased revenues
for both pipeline systems.
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                                            Management's Discussion and 

Analysis

Operating Segments
We review operating results in two reportable segments: (i) pipelines and
transportation and (ii) wholesale marketing and terminalling. Decisions
concerning the allocation of resources and assessment of operating performance
are made based on this segmentation. Management measures the operating
performance of each reportable segment based on the segment contribution margin.
Segment reporting is discussed in more detail in Note 15 to our accompanying
consolidated financial statements. Segment contribution margin is defined as
follows:
Segment contribution                            Cost of materials and   Operating expenses, excluding depreciation
margin =                   Net revenues -       other -                 and 

amortization

Pipelines and Transportation Segment
Our pipelines and transportation segment assets provide crude oil gathering and
crude oil, intermediate and refined products transportation and storage services
to Delek Holdings and third parties. These assets include:
•the pipeline assets used to support Delek Holdings' El Dorado refinery (the "El
Dorado Assets")
•the gathering system that supports transportation of crude oil to the El Dorado
Refinery (the "El Dorado Gathering System")
•the Paline Pipeline System
•the East Texas Crude Logistics System
•the Tyler-Big Sandy Pipeline
•the El Dorado Tank Assets and El Dorado Rail Offloading Racks
•the Tyler Tank Assets and Tyler Crude Tank
•the Greenville-Mount Pleasant Pipeline and Greenville Storage Facility
•refined product pipeline capacity leased from Enterprise TE Products Pipeline
Company ("Enterprise") that runs from El Dorado, Arkansas to our Memphis
terminal and the Big Spring Pipeline
•pipelines and storage assets acquired in the Big Spring Logistics Assets
Acquisition
•assets acquired in the Big Spring Gathering Assets Acquisition
•assets acquired in the Trucking Assets Acquisition
In addition to these operating systems, we own or lease 264 tractors and 353
trailers used to haul primarily crude oil and other products for related and
third parties.
The following table and discussion present the results of operations and certain
operating statistics of the pipelines and transportation segment for the years
ended December 31, 2020 and 2019. A detailed discussion of the fiscal 2019
year-over-year changes can be found in Item 7, Managements' Discussion and
Analysis of Financial Condition and Results of Operations section of the Form
10-K filed on February 28, 2020.
                                       Pipelines and Transportation
                                                                           Year Ended December 31,
                                                                           2020                   2019
Net Revenues:
Affiliate                                                          $     233,873              $ 155,211
Third-Party                                                               17,596                 23,107
Total Pipelines and Transportation                                       251,469                178,318
Cost of materials and other                                               45,934                 22,826
Operating expenses (excluding depreciation and amortization)              42,267                 54,827
Segment contribution margin                                        $     163,268              $ 100,665


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                                            Management's Discussion and Analysis
                                             Throughputs (average bpd)
                                                                               Year Ended December 31,
                                                                         2020                             2019
El Dorado Assets:
Crude pipelines (non-gathered)                                           74,179                            49,485
Refined products pipelines to Enterprise Systems                         53,702                            37,716
El Dorado Gathering System                                               13,466                            15,325
East Texas Crude Logistics System                                        15,960                            19,927
Big Spring Gathering System (1)                                          82,817                                 -
Plains Connection System (1)                                            104,770                                 -

(1) Throughputs for the Big Spring Gathering System and the Plains Connection System are for approximately 275 days we owned the assets following the Big Spring Gathering Assets Acquisition effective March 31, 2020.

Operational Comparison of the Year Ended December 31, 2020 versus the Year Ended
December 31, 2019
Net Revenues
Net revenues for the pipelines and transportation segment increased by $73.2
million, or 41.0%, in the year ended December 31, 2020 compared to the year
ended December 31, 2019, driven primarily by the following:
•increased revenues associated with agreements executed in connection with the
Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition,
which were effective March 31, 2020 and May 1, 2020, respectively; and
•increased revenues at our El Dorado Assets and Magnolia Pipeline as result of
increased throughput during the year ended December 31, 2020 when compared to
the year ended December 31, 2019.


Cost of Materials and Other
Cost of materials and other for the pipelines and transportation segment
increased by $23.1 million, or 101.2%, in the year ended December 31, 2020
compared to the year ended December 31, 2019, driven primarily by the following:
•increases in transportation costs related to our trucking assets, including
driver wages and benefits and fuel expense proportionate to increase in fees,
insurance, supplies and maintenance expenses.


Operating Expenses
Operating expenses for the pipelines and transportation segment decreased by
$12.6 million, or 22.9%, in the year ended December 31, 2020 compared to the
year ended December 31, 2019, primarily driven by the following:
•decrease in employee and outside services costs due to measures implemented to
respond to the COVID-19 Pandemic including delaying non-essential projects.


Contribution Margin
Contribution margin for the pipelines and transportation segment increased by
$62.6 million, or 62.2%, in the year ended December 31, 2020 compared to the
year ended December 31, 2019, primarily driven by the following:
•increases in revenues associated with agreements executed in connection with
the Big Spring Gathering Assets Acquisition and the Trucking Assets Acquisition,
Magnolia Pipeline, and El Dorado Assets; and
•decreases in operating expenses.

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                                            Management's Discussion and 

Analysis

Wholesale Marketing and Terminalling Segment
We use our wholesale marketing and terminalling assets to generate revenue by
providing wholesale marketing and terminalling services to Delek Holdings'
refining operations and to independent third parties.
The table and discussion below present the results of operations and certain
operating statistics of the wholesale marketing and terminalling segment for the
years ended December 31, 2020 and 2019. A detailed discussion of the fiscal 2019
year-over-year changes can be found in Item 7, Managements' Discussion and
Analysis of Financial Condition and Results of Operations section of the Form
10-K filed on February 28, 2020.
                                  Wholesale Marketing and Terminalling
                                                                         Year Ended December 31,
                                                                         2020                   2019
Net revenues:
Affiliate                                                        $     148,793              $  105,803
Third-Party                                                            163,156                 299,871
Total Wholesale Marketing and Terminalling                             311,949                 405,674
Cost of materials and other                                            223,160                 313,647

Operating expenses (excluding depreciation and amortization presented below)

                                                        14,012                  19,330
Segment contribution margin                                      $      74,777              $   72,697



                                         Operating Information
                                                                        Year Ended December 31,
                                                                       2020                  2019
East Texas - Tyler Refinery sales volumes (average bpd) (1)             71,182                74,206
Big Spring marketing throughputs (average bpd)                          76,345                82,695
West Texas marketing throughputs (average bpd)                          11,264                11,075
West Texas marketing gross margin per barrel                     $        2.37          $       4.44
Terminalling throughputs (average bpd) (2)                             147,251               160,075

(1) Excludes jet fuel and petroleum coke. (2) Consists of terminalling throughputs at our Tyler, Big Spring, Big Sandy and Mount

Pleasant, Texas terminals, our El Dorado and North Little Rock, Arkansas terminals

      and our Memphis and Nashville, Tennessee terminals.




Operational Comparison of the Year Ended December 31, 2020 versus the Year Ended
December 31, 2019
Net Revenues
Net revenues for the wholesale marketing and terminalling segment decreased by
$93.7 million, or 23.1%, in the year ended December 31, 2020 compared to the
year ended December 31, 2019, primarily driven by the following:
•decreases in the volume of diesel sold and in the average sales prices per
gallon of gasoline and diesel, partially offset by increase in the volume of
gasoline sold in our West Texas marketing operations.
•the volume of gasoline sold increased 12.6 million gallons partially offset by
a decrease of 8.1 million gallons in diesel sold; and
•the average sales prices per gallon of gasoline and diesel sold decreased by
$0.49 per gallon and $0.71 per gallon, respectively.
The following charts show summaries of the average sales prices per gallon of
gasoline and diesel and refined products volume impacting our West Texas
operations for the years ended December 31, 2020 and 2019.
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                                            Management's Discussion and 

Analysis

[[Image Removed: dkl-20201231_g9.jpg]] [[Image Removed: dkl-20201231_g10.jpg]]

Cost of Materials and Other
Cost of materials and other for the wholesale marketing and terminalling segment
decreased by $90.5 million, or 28.8%, in the year ended December 31, 2020
compared to the year ended December 31, 2019, primarily driven by the following:
•decreases in the volume of diesel sold and in the average cost per gallon of
gasoline and diesel sold, partially offset by increase in the volume of gasoline
sold in our West Texas marketing operations.
•the volume of gasoline sold increased 12.6 million gallons partially offset by
a decrease of 8.1 million gallons in diesel sold; and
•the average cost per gallon of gasoline and diesel sold decreased by $0.43 per
gallon and $0.66 per gallon, respectively.
The following chart shows a summary of the average prices per gallon of gasoline
and diesel purchased in our West Texas operations for the years ended December
31, 2020 and 2019. Refer to the Refined Products Volume - Gallons chart above
for a summary of volumes impacting our West Texas operations.
                    [[Image Removed: dkl-20201231_g11.jpg]]




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                                            Management's Discussion and 

Analysis

Operating Expenses
Operating expenses decreased by $5.3 million, or 27.5%, in the year ended
December 31, 2020 compared to the year ended December 31, 2019, primarily driven
by the following:
•lower operating costs associated with allocated contract services pertaining to
certain of our assets; and
•decreases in variable expenses such as utilities, maintenance and materials
costs.


Contribution Margin
Contribution margin for the wholesale marketing and terminalling segment
increased by $2.1 million, or 2.9%, in the year ended December 31, 2020 compared
to the year ended December 31, 2019, primarily driven by the following:
•decreases in cost of materials and other due to decreases in average cost per
gallon of diesel and gasoline sold as described above.
Such decreases were partially offset by:
•decreases in revenue due to decreases in average price per gallon of diesel and
gasoline as described above.
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                                            Management's Discussion and 

Analysis

Liquidity and Capital Resources We consider the following when assessing our liquidity and capital resources:

                                                 (iii) potential issuance of additional equity;
(i) cash generated from operations;              and

(ii) borrowings under our revolving credit (iv) potential issuance of additional debt facility;

                                        securities.


At December 31, 2020 our total liquidity amounted to $107.6 million comprised of
$103.4 million in unused credit commitments under the DKL Credit Facility and
$4.2 million in cash and cash equivalents. We have the ability to increase the
DKL Credit Facility to $1.0 billion subject to receiving increased or new
commitments from lenders and meeting certain requirements under the credit
facility. Historically, we have generated adequate cash from operations to fund
ongoing working capital requirements, pay quarterly cash distributions and
operational capital expenditures, and we expect the same to continue in the
foreseeable future. Other funding sources, including the issuance of additional
debt securities, have been utilized to fund growth capital projects such as
dropdowns. In addition, we have historically been able to source funding at
rates that reflect market conditions, our financial position and our credit
ratings. We continue to monitor market conditions, our financial position and
our credit ratings and expect future funding sources to be at rates that are
sustainable and profitable for the Partnership. However, there can be no
assurances regarding the availability of any future financings or additional
credit facilities or whether such financings or additional credit facilities can
be made available on terms that are acceptable to us.
We believe we have sufficient financial resources from the above sources to meet
our funding requirements in the next 12 months, including working capital
requirements, quarterly cash distributions and capital expenditures.
Nevertheless, our ability to satisfy working capital requirements, to service
our debt obligations, to fund planned capital expenditures, or to pay
distributions will depend upon future operating performance, which will be
affected by prevailing economic conditions in the oil industry and other
financial and business factors, including the current COVID-19 Pandemic and
crude oil prices, some of which are beyond our control.
Our largest customer is Delek Holdings, a related party, with whom we have
various commercial agreements. Delek Holdings has initiated several steps as
part of a strategic plan to navigate the current volatile markets and preserve
or enhance its liquidity, including re-negotiating and extending financing
arrangements, temporary suspension of growth and non-essential projects,
reductions in capital and operating expenditures, divesting of non-strategic and
underperfoming assets, suspension of its stock repurchases and dividends, and
exploring other potential financing opportunities. We believe such actions will
allow Delek Holdings to continue to honor its commercial agreements with us. In
addition, we eliminated the IDRs which helped lower our cost of capital and
preserve our liquidity.
We continuously review our liquidity and capital resources. If market conditions
were to change, for instance due to a significant decline in crude oil prices or
uncertainty created by the COVID-19 Pandemic, and our revenue was reduced
significantly or operating costs were to increase significantly, our cash flows
and liquidity could be reduced. Additionally, it could cause the rating agencies
to lower our credit ratings. There are no ratings triggers that would accelerate
the maturity of any borrowings under our debt agreements. Management continues
to actively respond to the impact of the COVID-19 Pandemic to enhance our
liquidity position. Such actions include reducing planned capital expenditures
for 2021, seeking alternative financing solutions and enacting cost reduction
measures. Refer to the Business Overview section of this MD&A for a complete
discussion of the uncertainties identified by management and the actions taken
to respond to the COVID-19 Pandemic.
We believe we were in compliance with the covenants in all our debt facilities
as of December 31, 2020. After considering the current and potential effect of a
significant decline in oil prices and uncertainty created by the COVID-19
Pandemic on our operations, we currently expect to remain in compliance with our
debt covenants. See Note 11 to our consolidated financial statements for a
complete discussion of our third-party indebtedness.
Cash Distributions
On January 22, 2021, we announced that the board of directors had declared a
distribution of $0.910 per common unit (the "Distribution"), which equates to
approximately $40 million per quarter, or $158.1 million per year, based on the
number of common units outstanding as of February 2, 2021. The Distribution was
paid on February 9, 2021 to common unitholders of record on February 2, 2021 and
represents a 2.8% increase over the fourth quarter 2019 distribution. We have
set a range for distribution growth guidance of $0.005 - $0.015 per unit each
quarter for 2021. This increase in the distribution is consistent with our
intent to maintain an attractive distribution growth profile over the long term.
Although our Partnership Agreement requires that we distribute all of our
available cash each quarter, we do not otherwise have a legal obligation to
distribute any particular amount per common unit.





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                                            Management's Discussion and 

Analysis

The table below summarizes the quarterly distributions related to our 2020
quarterly financial results:
                                                                                     Total Cash
                                                      Total Quarterly              Distribution,
                           Total Quarterly            Distribution Per           including general
                           Distribution Per           Limited Partner           partner interest and
     Quarter Ended       Limited Partner Unit         Unit, Annualized          IDRs (in thousands)           Date of Distribution            Unitholders Record Date
March 31, 2020                  $0.890                     $3.56                      $30,878                     May 12, 2020                      May 5, 2020
June 30, 2020                   $0.900                     $3.60                      $35,969                    August 12, 2020                  August 7, 2020
September 30, 2020              $0.905                     $3.62                      $39,308                   November 12, 2020                November 6, 2020
December 31, 2020               $0.910                     $3.64                      $39,533                   February 9, 2021                 February 2, 2021


Cash Flows
The following table sets forth a summary of our consolidated cash flows for the
years ended December 31, 2020 and 2019 (in thousands):
                                                                            

Year Ended December 31,

                                                                           2020                  2019
Net cash provided by operating activities                                  193,016               130,399
Net cash used in investing activities                                     (123,138)             (147,416)
Net cash (used in) provided by financing activities                        (71,180)               18,040
Net (decrease) increase in cash and cash equivalents                 $      (1,302)         $      1,023




Operating Activities
Net cash provided by operating activities increased by $62.6 million for the
year ended December 31, 2020 compared to the year ended December 31, 2019. The
increase in cash provided by operations was primarily due to lower cash paid out
to suppliers for inventory (as opposed to cash received from customers) during
the year ended December 31, 2020 compared to the year ended December 31, 2019 as
a result of a decrease in volumes sold for the marketing operations. In addition
there were decreases in operational expense payments and increase in cash
dividends from the Equity Method Investments. These cash flow increases were
offset by the decrease in net cash receipts from customers.
Investing Activities
Net cash used in investing activities decreased by $24.3 million during the year
ended December 31, 2020 compared to the year ended December 31, 2019. The
decrease in cash used in investing activities was primarily due to lower
contributions to equity method investments during the year ended December 31,
2020 compared to the year ended December 31, 2019, partially offset by the
acquisition of the Big Spring Gathering Assets and Trucking Assets during the
year ended December 31, 2020. We disbursed $12.2 million in additional
contributions to our equity method investments during the year ended December
31, 2020 compared to $139.3 million during the year ended December 31, 2019. The
Big Spring Gathering Assets Acquisition was partially financed with cash from
drawdown of the DKL Credit Facility amounting to $100.0 million and the Trucking
Assets Acquisition was financed with cash from drawdown of the DKL Credit
Facility amounting to $48.0 million of which $0.5 million was recorded as
investing activity with $47.6 million recorded in financing activities as a
distribution to Delek Holdings and general partner unitholders pursuant to the
asset acquisitions under common control guidance. Transaction costs paid
amounting to $1.0 million were capitalized for the Big Spring Gathering Assets
Acquisition and the Trucking Assets Acquisition. There was no asset acquisition
during the year ended December 31, 2019. In addition there were additions to
property, plant and equipment amounting to $13.3 million and distributions from
equity method investments amounting $2.7 million during the year ended December
31, 2020 compared to additions to property, plant and equipment amounting to
$9.1 million and distributions from equity method investments amounting to $0.8
million during the year ended December 31, 2019.
Financing Activities
Net cash provided by financing activities decreased by $89.2 million for the
year ended December 31, 2020 compared to the year ended December 31, 2019. The
decrease was primarily due to the $47.6 million excess of purchase consideration
over the carrying amount of the assets acquired in the Trucking Assets
Acquisition treated as a distribution to Delek Holdings and general partner
unitholders pursuant to the asset acquisitions under common control guidance and
$45.0 million paid to the general partner in the IDR Restructuring Transaction
to eliminate the general partners' IDRs, convert the general partners economic
interest to non-economic interest and issue 14.0 million common limited units.
This was partially offset by the increase in net proceeds under the revolving
credit facility (defined below). We received net proceeds of $158.2 million
under the revolving credit facility during the year ended December 31, 2020,
compared to net proceeds of $131.7 million under the revolving credit facility
during the year ended December 31, 2019. In addition, we
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                                            Management's Discussion and 

Analysis

paid quarterly cash distributions totaling $136.8 million during the year ended
December 31, 2020, compared to quarterly cash distributions totaling $113.7
million during the year ended December 31, 2019.
The sources of cash to finance the asset acquisitions from Delek Holdings during
the year ended December 31, 2020 primarily consisted of the $100.0 million
drawdown under the DKL Credit Facility to part-finance the Big Spring Gathering
Assets Acquisition and $48.0 million drawdown to finance the Trucking Asset
Acquisition. The Big Spring Gathering Assets Acquisition was also financed by
the issuance of 5.0 million units to Delek US Energy, Inc. (a wholly owned
subsidiary of Delek US Holdings, Inc.).
Debt Overview
As of December 31, 2020, we had total indebtedness of $992.3 million comprised
of $746.6 million under the amended and restated senior secured revolving
agreement (the "DKL Credit Facility") and $245.7 million of 6.75% senior notes
due 2025 (the "2025 Notes"), the latter net of deferred financing costs and
original issue discount. Deferred financing costs and original issue discount on
the 2025 Notes amounted to $3.3 million and $1.0 million, respectively. The
increase of $159.2 million in our long-term debt balance compared to the balance
at December 31, 2019 resulted from the borrowings under the DKL Credit Facility
in 2020, primarily driven by the Big Spring Gathering Assets Acquisition, the
Trucking Assets Acquisition, the IDR restructuring and amortization of the
deferred financing costs and original issuance discount under our 2025 Notes. As
of December 31, 2020, our total indebtedness consisted of:
•An aggregate principal amount of $746.6 million under the Delek Logistics
Credit Facility ("revolving credit facility"), due on September 28, 2023, with
average borrowing rate of 2.44%.
•An aggregate principal amount of $245.7 million, under the Delek Logistics
Notes (6.75% senior notes), due in 2025, with an effective interest rate of
7.45%.
In September 2018 the DKL Credit Facility was amended to, among other changes,
increase the lender commitments from $700 million to $850 million. The
obligations under the DKL Credit Facility remain secured by first priority liens
on substantially all of the Partnership's and its subsidiaries' tangible and
intangible assets. Additionally, Delek Marketing, a subsidiary of Delek
Holdings, had provided a limited guaranty of the Partnership's obligations under
the DKL Credit Facility. Delek Marketing's guaranty was (i) limited to an amount
equal to the principal amount, plus unpaid and accrued interest, of a promissory
note made by Delek Holdings in favor of Delek Marketing (the "Holdings Note")
and (ii) secured by Delek Marketing's pledge of the Holdings Note to the lenders
under the DKL Credit Facility. Effective March 30, 2020, Delek Marketing's
limited guaranty and pledge of the Holdings Note was terminated pursuant to a
guaranty and pledge release approved by the required lenders under the DKL
Credit Facility.
In connection with the IDR Restructuring Transaction, the Partnership entered
into a First Amendment to the DKL Credit Facility (the "First Amendment") which,
among other things, permitted the exchange of the IDRs and the general partner
interest in the Partnership for the noneconomic general partner interest, the
newly issued limited partner interests in the Partnership, plus $45.0 million in
cash. The First Amendment also modified the total leverage and senior leverage
ratios (as defined in the DKL Credit Facility) calculations to reduce the total
funded debt (as defined in the DKL Credit Facility) component thereof by the
total amount of unrestricted consolidated cash and cash equivalents on the
balance sheet of the Partnership and its subsidiaries up to $20.0 million.
The DKL Credit Facility has a maturity date of September 28, 2023. Borrowings
denominated in U.S. dollars bear interest at either a U.S. dollar prime rate,
plus an applicable margin, or the London Interbank Offered Rate ("LIBOR"), plus
an applicable margin, at the election of the borrowers. Borrowings denominated
in Canadian dollars bear interest at either a Canadian dollar prime rate, plus
an applicable margin, or the Canadian Dealer Offered Rate, plus an applicable
margin, at the election of the borrowers. At December 31, 2020, the weighted
average interest rate for our borrowings under the facility was approximately
2.44%. Additionally, the DKL Credit Facility requires us to pay a leverage ratio
dependent quarterly fee on the average unused revolving commitment. As of
December 31, 2020, this fee was 0.35% per year.
On May 23, 2017, the Partnership and Delek Logistics Finance Corp., a Delaware
corporation and a wholly owned subsidiary of the Partnership ("Finance Corp."
and together with the Partnership, the "Issuers"), issued the 2025 Notes at a
discount. The 2025 Notes are general unsecured senior obligations of the Issuers
and rank equal in right of payment with all existing and future senior
indebtedness of the Issuers, and senior in right of payment to any future
subordinated indebtedness of the Issuers. Interest on the 2025 Notes is payable
semi-annually in arrears on each May 15 and November 15, commencing November 15,
2017.
Beginning on May 15, 2020, the Issuers may, subject to certain conditions and
limitations, redeem all or part of the 2025 Notes at a redemption price of
105.063% of the redeemed principal for the twelve-month period beginning on May
15, 2020, 103.375% for the twelve-month period beginning on May 15, 2021,
101.688% for the twelve-month period beginning on May 15, 2022 and 100.00%
beginning on May 15, 2023 and thereafter, plus accrued and unpaid interest, if
any. In the event of a change of control, accompanied or followed by a ratings
downgrade within a certain period of time, subject to certain conditions and
limitations, the Issuers will be obligated to make an offer for the purchase of
the 2025 Notes from holders at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest.
On April 25, 2018, we made an offer to exchange the 2025 Notes and the related
guarantees that were validly tendered and not validly withdrawn for an equal
principal amount of exchange notes that are freely tradeable, as required under
the terms of the original indenture.
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                                            Management's Discussion and 

Analysis

The terms of the exchange notes that were issued in May 2018 as a result of the
exchange (also referred to as the "2025 Notes") are substantially identical to
the terms of the original 2025 Notes.
We believe we were in compliance with the covenants in all debt facilities as of
December 31, 2020. See Note 11 to our consolidated financial statements in
Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K for a complete discussion of our third-party indebtedness.
Agreements Governing Certain Indebtedness of Delek Holdings
Although we are not contractually bound by and are not liable for Delek
Holdings' debt under its credit arrangements, we are indirectly affected by
certain prohibitions and limitations contained therein. Specifically, certain of
Delek Holdings' credit arrangements require that Delek Holdings meet certain
minimum covenant levels for (i) consolidated shareholders' equity and (ii) a
ratio of consolidated shareholders' equity to adjusted total assets. Delek
Holdings, due to its majority ownership and control of our general partner, has
the ability to prevent us from taking actions that would cause Delek Holdings to
violate these and any other covenants in its credit arrangements or otherwise be
in default under any of its credit arrangements. As a result we cannot assure
you that such covenants will not impact our ability to use the full capacity
under our revolving credit facility in the future. Please read Item 1A. "Risk
Factors-Risks Relating to Our Business-Delek Holdings' level of indebtedness,
the terms of its borrowings and any future credit ratings could adversely affect
our ability to grow our business, our ability to make cash distributions to our
unitholders and our credit profile. Our current and future credit ratings may
also be affected by Delek Holdings' level of indebtedness and financial
performance and credit ratings."
Equity Units Overview
On August 13, 2020, we closed the IDR Restructuring Transaction. To effect this
transaction, our Partnership Agreement was amended and updated. See Note 4 to
our accompanying consolidated financial statements for additional details.
In August 2020, we filed a shelf registration statement, which subsequently
became effective, with the U.S. Securities and Exchange Commission for the
proposed re-sale or disposition from time to time by Delek Holdings of up to
14.0 million common limited partner units. We will not sell any securities under
this shelf registration statement and we will not receive any proceeds from the
sale of the securities by Delek Holdings.
On March 31, 2020, we issued 5.0 million common limited partner units to Delek
Holdings as part of the consideration for the Big Spring Gathering Assets
Acquisition. In connection with the issuance of these units and in accordance
with the Partnership Agreement, we issued additional general partner units in an
amount necessary to maintain the 2% general partner interest as defined in the
Partnership Agreement.
Contemporaneous with the above issuance, the Board of the general partner waived
distributions in respect of the IDRs associated with the 5.0 million Additional
Units for at least two years, through at least the distribution for the quarter
ending March 31, 2022 ("IDR Waiver"). The IDR Waiver essentially reduced the
distribution made to the holders of the IDRs during this period, as the holders
would not receive a share of the distribution made on the Additional Units. An
additional waiver letter was signed that waived all of the distributions for the
first quarter of 2020 on the Additional Units with respect to base distributions
and the IDRs. The IDR Restructuring Transaction on August 13, 2020, permanently
eliminated all of the IDRs. See Note 4 to our consolidated financial statements
in Item 8, Financial Statements and Supplementary Data, of this Annual Report on
Form 10-K, for additional details.
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                                            Management's Discussion and 

Analysis

Capital Spending
A key component of our long-term strategy is our capital expenditure program.
The following table summarizes our actual capital expenditures for the year
ended December 31, 2020 and planned capital expenditures for the full year 2021
by segment and by major category (in thousands):
                                                               Full Year 2021             Year Ended
                                                                  Forecast            December 31, 2020
                                      Pipelines and Transportation
Regulatory (2)                                                $        5,404          $           626
Maintenance (1)                                                        2,705                    1,106
Discretionary (2)                                                      6,905                    5,899
Pipelines and Transportation Segment Total                    $       15,014          $         7,631

                                  Wholesale Marketing and Terminalling
Regulatory (3)                                                $        3,589          $         1,317
Maintenance (1) (3)                                                    2,195                      395
Discretionary (4)                                                          -                    6,106
Wholesale Marketing and Terminalling Segment Total            $        

5,784 $ 7,818

Total Capital Spending                                        $       

20,798 $ 15,449

(1) Maintenance capital expenditures represent cash expenditures (including
expenditures for the addition or improvement to, or the replacement of, our
capital assets, and for the acquisition of existing, or the construction or
development of new, capital assets) made to maintain our long-term operating
income or operating capacity. Examples of maintenance capital expenditures are
expenditures for the repair, refurbishment and replacement of pipelines and
terminals, to maintain equipment reliability, integrity and safety and to
address environmental laws and regulations. Delek Holdings has agreed to
reimburse us with respect to certain assets it has transferred to us pursuant to
the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying
consolidated financial statements).
(2) The $5.4 million budgeted for regulatory projects in the pipelines and
transportation segment is expected to be spent on certain of our pipelines to
maintain their operational integrity. The majority of the $6.9 million for
discretionary projects in the pipelines and transportation segment is expected
to be spent on scheduled maintenance and improvements to certain of our tanks
and development of our DPG assets. These expenditures have historically been and
will continue to be financed through cash generated from operations.
(3) The majority of the $3.6 million and $2.2 million budgeted for regulatory
and maintenance projects in the wholesale marketing and terminalling segment
relates to scheduled maintenance and improvements on our terminalling tanks and
racks at certain of our terminals. These expenditures have historically been and
will continue to be financed through cash generated from operations.
(4) There is no spending budgeted for discretionary projects in the wholesale
marketing and terminalling segment due to the fact that the budget is focused on
pursuing projects that are higher priority in the regulatory and maintenance
category.


The amount of our capital expenditure budget is subject to change due to
unanticipated increases in the cost, scope and completion time for our capital
projects. For example, we may experience increases in the cost of and/or timing
to obtain necessary equipment required for our continued compliance with
government regulations or to complete improvement projects. Additionally, the
scope and cost of employee or contractor labor expense related to installation
of that equipment could increase from our projections.
Contractual Obligations and Commitments
Information regarding our known contractual obligations of the types described
below, as of December 31, 2020, is set forth in the following table (in
thousands):
                                     <1 Year        1-3 Years      3-5 Years      >5 Years         Total
Long term debt and notes payable    $      -      $  746,600      $ 250,000      $      -      $   996,600
Interest (1)                          35,355          65,952         25,313             -          126,620
Finance Lease Obligation               2,060           3,487              -             -            5,547

Operating lease commitments (2) 7,989 16,213 9,299

        1,736           35,237
Total                               $ 45,404      $  832,252      $ 284,612      $  1,736      $ 1,164,004


(1) Includes expected interest payments on debt balances outstanding under the
DKL Credit Facility and the 2025 Notes at December 31, 2020. Floating interest
rate debt is calculated using rates in effect on December 31, 2020.
(2) Amounts reflect future estimated lease payments under operating leases
having remaining non-cancelable terms in excess of one year as of December 31,
2020.


                    76  [[Image Removed: dkl-20201231_g2.jpg]]

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                                            Management's Discussion and 

Analysis

We also have other non-current liabilities pertaining to environmental
liabilities and asset retirement obligations. With the exception of amounts
classified as current, there is uncertainty as to the timing of future cash
flows related to these obligations. As such, we have excluded the future cash
flows from the contractual commitments table above. See additional information
on asset retirement obligations and environmental liabilities in Notes 2 and 17,
respectively, to our consolidated financial statements in Item 8.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of the filing of this
Annual Report on Form 10-K.

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