Delek Logistics Partners, LP

DKL

US24664T1034

Oil & Gas Transportation Services

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Delek Logistics Partners LP : Management's Discussion and Analysis ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

November 09, 2020 at 06:05 am EST

OF OPERATIONS
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 condensed consolidated financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and in
the Annual Report on Form 10-K filed with the Securities and Exchange Commission
("SEC") on February 27, 2020 (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," "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% 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 3 of the accompanying
condensed consolidated financial statements 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 2
of the accompanying condensed consolidated financial statements 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 2 of the accompanying condensed
consolidated financial statements for further information.
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 (@DelekUSLogistics). 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 Quarterly Report on Form 10-Q 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 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:
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                                            Management's Discussion and

Analysis


•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 Quarterly Report on Form 10-Q and in
our 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 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.
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                                            Management's Discussion and

Analysis


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. Instead, for purposes of such income taxes, each partner of the
Partnership is required to take into account its share of items of income, gain,
loss and deduction in computing its federal and state income tax liabilities,
regardless of whether cash distributions are made to such partner by the
Partnership. The taxable income reportable to each partner takes into account
differences between the tax basis and the fair market value of our assets and
financial reporting bases of assets and liabilities, the acquisition price of
the partner's units and the taxable income allocation requirements under the
Partnership's Second Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement").
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 nine months to September 30, 2020 in the United States and globally.
Therefore, downward pressure on commodity prices has remained and could continue
for the foreseeable future.
During the third quarter of 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 have 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 have recently experienced
a marked increase in the spread of COVID-19 and many governmental authorities in
such areas have 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 three and nine months ended September 30, 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. And 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 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;
•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
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                                            Management's Discussion and

Analysis


assets, including goodwill, or have other financial statement impacts that
cannot currently be anticipated (see also Note 1 to our Condensed Consolidated
Financial Statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q for additional discussion of specific financial statement risks);
•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 unaudited condensed consolidated
financial statements as of and for the three months ended September 30, 2020,
which are included in Item 1. of this Quarterly Report on Form 10-Q.
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 2020;
•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,
masks are mandatory and our employees have adopted social distancing; 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 our Annual Report on Form
10-K for the fiscal year ended December 31, 2019 and in this Form 10-Q. 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 II, Item 1A. of this Quarterly Report on Form
10-Q 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, Big Spring, Texas and
the Big Spring Gathering Assets. 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
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                                            Management's Discussion and

Analysis


the refined products output of the Tyler and Big Spring refineries, engaging in
wholesale activity at our terminals in West Texas and at 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 our accompanying condensed
consolidated financial statements for additional information.
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 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
During the third quarter ended September 30, 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. 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 adjustments using the FERC indexing increased
approximately 2%, the amount of the change in the FERC oil pipeline index. Under
certain of our other agreements with Delek Holdings and third parties, the fees
adjusted based on the consumer price index increased 1.6%, and the fees adjusted
based on producer price index decreased approximately 1.2%.
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 our accompanying condensed consolidated financial statements 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 condensed consolidated financial statements 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 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 reduces 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 condensed consolidated financial statements
for additional information.
How We Generate Revenue
The Partnership generates revenue by charging fees to Delek Holdings and third
parties for gathering, transporting, offloading and storing crude oil and for
marketing, distributing, transporting, throughputting and storing intermediate
and refined products. We also wholesale market refined products primarily in the
West Texas market. A substantial majority of our contribution margin, which we
define as net revenues less cost of materials and other and operating expenses,
excluding depreciation and amortization, is derived from commercial agreements
with Delek Holdings with initial terms ranging from five to ten years, which
gives us a contractual revenue base that we believe enhances the stability of
our cash flows. As more fully described below, our commercial agreements with
Delek Holdings typically include minimum volume or throughput commitments by
Delek Holdings, which we believe will provide a stable revenue stream in the
future. The fees charged under our agreements with Delek Holdings and third
parties are indexed to inflation-based indices. In addition, the rates charged
with respect to our assets that are subject to inflation indexing may increase
or decrease, typically on July 1 of each year, by the amount of any change in
various inflation-based indices, including FERC, provided that in no event will
the fees be adjusted below the amount initially set forth in the applicable
agreement.
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                                            Management's Discussion and

Analysis


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 and 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 our Annual Report on Form 10-K filed with the SEC on February 27,
2020 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 majority of the gathering system has been
constructed, 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 oversight of the
project design, procurement and construction of project segments and for
providing other related services. See Note 4 to our accompanying condensed
consolidated financial statements for additional information on the DPG
Management Agreement.
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 fixed price ethanol agreements that we enter into to fix the
price we pay for ethanol.
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                                            Management's Discussion and

Analysis


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 these 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.
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 has declared its intent to make a cash distribution to its
unitholders at a distribution rate of $0.905 per unit for the quarter ended
September 30, 2020 ($3.62 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 DKL Credit Facility and any potential
future issuances of equity and debt securities. See Note 8 to the accompanying
condensed consolidated financial statements for a discussion of historic cash
distributions.
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                                            Management's Discussion and

Analysis


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. 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 nine months ended September 30, 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, closed at $39.27 per
barrel on June 30, 2020 and at $40.22 per barrel on September 30, 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 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 third quarter
ended September 30, 2020, we experienced improved margins in the West Texas
area, and better throughput for our assets with improved gross margins, when
compared to the second quarter ended June 30, 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 and third quarter of 2020.
See the chart below for the high, low and average price per barrel of WTI crude
oil for each of the quarterly periods in 2019 and for the three quarterly
periods in 2020.
                     [[Image Removed: dkl-20200930_g3.jpg]]


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                                            Management's Discussion and

Analysis


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 the charts below for the range of prices per
gallon of gasoline and diesel for each of the quarterly periods in 2019 and for
the three quarterly periods in 2020.
                     [[Image Removed: dkl-20200930_g4.jpg]]



                     [[Image Removed: dkl-20200930_g5.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 $0.8 million and $2.3 million of RINs to
Delek Holdings during the three and nine ended September 30, 2020, respectively.
Additionally, we sold approximately $0.3 million and $0.9 million of RINs to
Delek Holdings during the three and nine ended September 30, 2019, respectively.
See below for the high, low and average prices of RINs for each of the quarterly
periods in 2019 and in the three quarterly periods in 2020.
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                                            Management's Discussion and Analysis
                     [[Image Removed: dkl-20200930_g6.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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                                            Management's Discussion and

Analysis


Contractual Obligations
There have been no material changes to our contractual obligations and
commercial commitments during the three and nine months ended September 30, 2020
from those disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. The SEC has defined critical accounting policies as those that
are both most important to the portrayal of our financial condition and results
of operations and require our most difficult, complex or subjective judgments or
estimates. Based on this definition and as further described in our Annual
Report on Form 10-K, we believe our critical accounting policies include the
following: (i) evaluating impairment for property, plant and equipment and
intangibles, and (ii) evaluating potential impairment of goodwill.
Additionally, due to the economic and industry impact of the COVID-19 Pandemic,
we also modified the application of certain of our critical accounting policies
during and as of the three and nine months ended September 30, 2020 as follows:
Goodwill and Potential Impairment
Our annual goodwill impairment analysis is performed during the fourth quarter
of each year. Under ASC 350, Intangibles - Goodwill and Other, goodwill of a
reporting unit shall be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount.
We have identified the COVID-19 Pandemic as a significant event during the three
months ended September 30, 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, and triggered several identified uncertainties, as discussed in the
'Business Overview' section of Management's Discussion and Analysis. Our
assessment was performed based on the events that had occurred through September
30, 2020 and excluded developments that occurred in the subsequent period,
including the impact of a resurgence of COVID-19 cases and re-enactment of
temporary business closures. In order to determine whether these events,
including the developments around such events that had occurred through
September 30, 2020 and our assumptions about future periods based on those
events and related developments, would more likely than not reduce the fair
value of a reporting unit below its carrying amount, we performed certain
analyses on the most significant inputs in our 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 to our
valuation model, 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. Based on our analyses (which, as noted above, were based on the
conditions and events that had occurred as of September 30, 2020), we determined
that there is not an indicator that fair value is more likely than not to have
declined below carrying value of $12.2 million as of September 30, 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.
Other than as described above, for all financial statement periods presented,
there have been no material modifications to the application of these critical
accounting policies or estimates since our most recently filed Annual Report on
Form 10-K. See Note 1 of the condensed consolidated financial statements in Item
1. Financial Statements, for discussion of updates to our accounting policies.

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                                            Management's Discussion and

Analysis


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 condensed 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 condensed 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.
The following table and discussion present a summary of our consolidated results
of operations for the three and nine months ended September 30, 2020 and 2019,
including a reconciliation of net income to EBITDA and net cash flow provided by
operating activities to distributable cash flow.
Statement of Operations Data (in thousands, except unit and per unit amounts)
                                                       Three Months Ended September 30,                 Nine Months Ended September 30,
                                                          2020                    2019                    2020                    2019

Net revenues:
Pipelines and transportation                       $         71,479

$ 44,585 $ 182,872 $ 129,427 Wholesale marketing and terminalling

                         70,789                92,971                   240,434               315,955
Total                                                       142,268               137,556                   423,306               445,382
Operating costs and expenses:
Cost of materials and other                                  60,692                72,594                   205,877               262,713
Operating expenses (excluding depreciation and
amortization)                                                14,230                18,435                    41,423                51,820
General and administrative expenses                           6,122                 5,280                    16,973                15,046
Depreciation and amortization                                 9,459                 6,588                    24,452                19,801
Other operating income, net                                       -                   (70)                     (107)                  (95)
Total operating costs and expenses                           90,503               102,827                   288,618               349,285
Operating income                                             51,765                34,729                   134,688                96,097
Interest expense, net                                        10,360                12,509                    32,854                35,164
Income from equity method investments                        (4,860)               (8,394)                  (16,875)              (14,860)
Other (income) expense, net                                     105                     -                       103                   461
Total non-operating costs and expenses                        5,605                 4,115                    16,082                20,765
Income before income tax expense                             46,160                30,614                   118,606                75,332
Income tax (benefit) expense                                   (168)                   84                        67                   220

Net income attributable to partners                $         46,328

$ 30,530 $ 118,539 $ 75,112 Comprehensive income attributable to partners $ 46,328

$ 30,530 $ 118,539 $ 75,112 EBITDA(1)

                                          $         67,782

$ 51,514 $ 181,320 $ 135,705



Less: General partner's interest in net income,
including incentive distribution rights                           -                 8,895                    18,724                24,244
Limited partners' interest in net income           $         46,328

$ 21,635 $ 99,815 $ 50,868



Net income per limited partner unit:
Common units - basic                               $           1.26          $       0.89          $           3.30          $       2.08
Common units - diluted                             $           1.26          $       0.89          $           3.30          $       2.08

Weighted average limited partner units
outstanding:
Common units - basic                                     36,889,761            24,417,285                30,290,051            24,411,308
Common units - diluted                                   36,894,043            24,420,582                30,292,261            24,417,466

(1) For a definition of EBITDA, please see "Non-GAAP Measures" above.





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                                            Management's Discussion and

Analysis


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)
                                                  Three Months Ended

September

30,

Nine Months Ended September 30,


                                                     2020              2019               2020                2019
Net income                                       $  46,328          $ 30,530          $  118,539          $  75,112
Add:
Income tax (benefit) expense                          (168)               84                  67                220
Depreciation and amortization                        9,459             6,588              24,452             19,801
Amortization of customer contract intangible
assets                                               1,803             1,803               5,408              5,408
Interest expense, net                               10,360            12,509              32,854             35,164
EBITDA (1)                                       $  67,782          $ 51,514          $  181,320          $ 135,705




Reconciliation of net cash from operating activities to distributable cash flow
(in thousands)
                                                   Three Months Ended September
                                                               30,                     Nine Months Ended September 30,
                                                      2020              2019               2020               2019

Net cash provided by operating activities $ 62,273 $ 35,047 $ 134,654 $ 86,871 Changes in assets and liabilities

                    (2,458)            2,451              18,541            11,940
Distributions from equity method investments in
investing activities                                  1,033                 -               2,723               804
Non-cash lease expense                               (1,596)           (1,145)             (2,236)           (2,554)
Maintenance and regulatory capital expenditures
(2)                                                     (27)           (3,728)               (760)           (5,515)
Reimbursement from Delek Holdings for capital
expenditures (3)                                         26             1,223                  81             2,607
Accretion of asset retirement obligations              (106)             (100)               (320)             (298)
Deferred income taxes                                   (47)             (118)               (990)             (115)
Other operating income, net                               -                70                 107                95
Distributable cash flow (1)                       $  59,098          $ 33,700          $  151,800          $ 93,835

(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 three and nine month periods ended September 30, 2020 and 2019, Delek Holdings

reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus


      Agreement (as defined in Note 3 to our accompanying condensed consolidated financial
      statements).





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                                            Management's Discussion and

Analysis



Consolidated Results of Operations - Comparison of the three and nine months
ended September 30, 2020 compared to the three and nine months ended September
30, 2019
The table below presents a summary of our consolidated results of operations.
The discussion immediately following presents the consolidated results of
operations (in thousands):
                                                    Consolidated
                                             Three Months Ended September 30,       Nine Months Ended September 30,
                                                 2020                2019               2020                2019
Net Revenues:
Affiliates                                   $   95,410          $  66,647          $  289,739            191,530
Third-Party                                      46,858             70,909             133,567            253,852
Total Consolidated                              142,268            137,556             423,306            445,382

Cost of materials and other                      60,692             72,594             205,877            262,713
Operating expenses (excluding depreciation
and amortization presented below)                14,230             18,435              41,423             51,820
Contribution margin                              67,346             46,527             176,006            130,849

General and administrative expenses               6,122              5,280              16,973             15,046
Depreciation and amortization                     9,459              6,588              24,452             19,801
Other operating income, net                           -                (70)               (107)               (95)
Operating income                             $   51,765          $  34,729          $  134,688          $  96,097




Net Revenues
Q3 2020 vs. Q3 2019
Net revenues increased by $4.7 million, or 3.4%, in the third quarter of 2020
compared to the third quarter of 2019, primarily driven by the following:
•increased revenues associated with agreements executed in connection with the
Big Spring Gathering System and Delek Trucking acquisitions, which were
effective March 31, 2020 and May 1, 2020, respectively. See Note 2 of the
condensed consolidated financial statements in Item 1. Financial Statements, for
additional information
Such increases were partially offset by the following:
•decreases in the average sales prices per gallon of gasoline and diesel,
partially offset by increases in the average sales volume of diesel in our West
Texas marketing operations.
•the volume of diesel sold increased 1.8 million gallons, partially offset by a
0.1 million decrease of gasoline gallons sold.
•the average sales prices per gallon of diesel and gasoline sold decreased $0.76
per gallon and $0.60 per gallon, respectively.
YTD 2020 vs. YTD 2019
Net revenues decreased by $22.1 million, or 5.0%, in the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019,
primarily driven by the following:
•decreases in the average sales prices per gallon and volumes of diesel gallon
sold, partially offset by increases in the sales volume of gasoline in our West
Texas marketing operations:
•the volume of gasoline sold increased 14.3 million gallons, partially offset by
a 9.7 million decrease of diesel gallons sold.
•the average sales prices per gallon of gasoline and diesel sold decreased $0.51
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. See Note 2 of the condensed
consolidated financial statements in Item 1. Financial Statements, for
additional information.
•increased revenues at our El Dorado Gathering System and Magnolia Pipeline as
result of increased throughput during the nine months ended September 30, 2020
when compared to the nine months ended September 30, 2019.
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                                            Management's Discussion and

Analysis


Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other decreased by $11.9 million, or 16.4%, in the third
quarter of 2020 compared to the third quarter of 2019, primarily driven by the
following:
•decreases in the average cost per gallon of gasoline and diesel sold partially
offset by increases in the volume of diesel sold in our West Texas marketing
operations:
•the volume of diesel sold increased by 1.8 million gallons, partially offset by
a 0.1 million increase in gasoline gallons sold.
•the average cost per gallon of gasoline and diesel sold decreased $0.53 per
gallon and $0.74 per gallon, respectively.
YTD 2020 vs. YTD 2019
Cost of materials and other decreased by $56.8 million, or 21.6%, in the nine
months ended September 30, 2020 compared to the nine months ended September 30,
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 14.3 million gallons, partially
offset by a 9.7 million decrease of diesel gallons sold.
•the average cost per gallon of gasoline and diesel sold decreased $0.44 per
gallon and $0.66 per gallon, respectively.


Operating Expenses
Q3 2020 vs. Q3 2019
Operating expenses decreased by $4.2 million, or 22.8%, in the third quarter of
2020 compared to the third quarter of 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
•decrease in utilities and other variable expenses due to lower throughput.
YTD 2020 vs. YTD 2019
Operating expenses decreased by $10.4 million, or 20.1%, in the nine months
ended September 30, 2020 compared to the nine months ended September 30, 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;
•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 due to lower throughput.


General and Administrative Expenses
Q3 2020 vs. Q3 2019
General and administrative expenses increased by $0.8 million, or 15.9%, in the
third quarter of 2020 compared to the third quarter of 2019, primarily driven by
the following:
•increase in legal and professional consulting fees due to the IDR
Simplification transaction partially offset by reduction in expenses related to
travel, training and other expenses.
YTD 2020 vs. YTD 2019
General and administrative expenses increased by $1.9 million, or 12.8%, in the
nine months ended September 30, 2020 compared to the nine months ended September
30, 2019, primarily driven by the following:
• increases in allocated employee headcount in various operational groups as the
Partnership continues to experience growth; and
•increases in legal and professional consulting fees due to various transactions
undertaken by the Partnership.


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                                            Management's Discussion and

Analysis


Depreciation and Amortization
Q3 2020 vs. Q3 2019
Depreciation and amortization increased by $2.9 million, or 43.6%, in the third
quarter of 2020 compared to the third quarter of 2019, primarily driven by the
following:
•addition of assets to our asset base as a result of the Trucking Assets
Acquisition and Big Spring Gathering Assets Acquisition.
YTD 2020 vs. YTD 2019
Depreciation and amortization increased by $4.7 million, or 23.5%, in the nine
months ended September 30, 2020 compared to the nine months ended September 30,
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
Q3 2020 vs. Q3 2019
Interest expense decreased by $2.1 million, or 17.2%, in the third quarter of
2020 compared to the third quarter of 2019, primarily driven by the following:
•lower floating interest rates applicable to the DKL Credit Facility;
•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 Restructuring Transaction.
YTD 2020 vs. YTD 2019
Interest expense decreased by $2.3 million, or 6.6%, in the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019
primarily driven by the following:
•lower floating interest rates applicable to the DKL Credit Facility;
•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 Restructuring Transaction.


Results from Equity Method Investments
Q3 2020 vs. Q3 2019
We recognized income of $4.9 million from equity method investments during the
third quarter of 2020 compared to $8.4 million for the third quarter of 2019, a
decrease of $3.5 million, or 42.1%. This decrease was primarily driven by the
following:
•there were lower volumes at the Red River Pipeline Joint Venture during the
quarter ended September 30, 2020 compared to the quarter ended September 30,
2019; and
•there was lower demand by refineries at the Caddo Joint Venture during the
quarter ended September 30, 2020 compared to September 30, 2019.
YTD 2020 vs. YTD 2019
During the nine months ended September 30, 2020, we recognized income of $16.9
million from equity method investments, compared to $14.9 million for the nine
months ended September 30, 2019, an increase of $2.0 million, or 13.6%. This
increase was primarily driven by the following:
•an increase in income from our investments in Andeavor Logistics and CP LLC (as
defined in Note 10 of the accompanying condensed consolidated financial
statements), which operate the Rio Pipeline and the Caddo Pipeline System,
respectively, as a result of increased revenues for both pipeline systems; and
•this increase was partially offset by a decrease in income from the Red River
Pipeline Joint Venture due to lower volumes.


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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 11 to our accompanying
condensed consolidated financial statements.
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 Logistic 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 123 tractors and 324
trailers used to haul primarily crude oil and other products for related and
third parties.
The following tables and discussion present the results of operations and
certain operating statistics of the pipelines and transportation segment for the
three and nine months ended September 30, 2020 and 2019:
                                           Pipelines and Transportation
                                            Three Months Ended September 30,       Nine Months Ended September 30,
                                                2020                2019               2020                2019
Net Revenues:
Affiliates                                  $   68,444          $  39,304          $  168,285          $ 112,694
Third-Party                                      3,035              5,281              14,587             16,733


     Total Pipelines and Transportation         71,479             44,585             182,872            129,427

Cost of materials and other                     14,342              4,947              31,622             17,871
Operating expenses (excluding depreciation
and amortization presented below)               10,749             12,547              31,936             36,109
Segment contribution margin                 $   46,388          $  27,091          $  119,314          $  75,447


                                                                Throughputs (average bpd)
                                                     Three Months Ended September 30,                            Nine Months Ended September 30,
                                                  2020                              2019                      2020                              2019

El Dorado Assets:
Crude pipelines (non-gathered)                    78,244                             49,477                   76,750                             43,446
Refined products pipelines to Enterprise
Systems                                           55,740                             43,518                   55,315                             32,242
El Dorado Gathering System                        13,659                             21,632                   13,520                             21,143
East Texas Crude Logistics System                 22,591                             25,391                   15,705                             21,045

Big Spring Gathering Assets (1)                   90,719                                  -                   85,845                                  -
Plains Connection System                         104,314                                  -                   96,961                                  -


(1) Throughputs for the Big Spring Gathering Assets are for approximately 180
days we owned the assets following the Big Spring Gathering Assets Acquisition
effective March 31, 2020.


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                                            Management's Discussion and

Analysis


Comparison of the three and nine months ended September 30, 2020 compared to the
three and nine months ended September 30, 2019
Net Revenues
Q3 2020 vs. Q3 2019
Net revenues for the pipelines and transportation segment increased by $26.9
million, or 60.3%, in the third quarter of 2020 compared to the third quarter of
2019, primarily driven 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. See Note 2 of
the condensed consolidated financial statements in Item 1. Financial Statements,
for additional information.
YTD 2020 vs. YTD 2019
Net revenues for the pipelines and transportation segment increased by $53.4
million, or 41.3%, in the nine months ended September 30, 2020 compared to the
nine months ended September 30, 2019, primarily driven 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. See Note 2 of
the condensed consolidated financial statements in Item 1. Financial Statements,
for additional information; and
•increased revenues at our El Dorado Assets and Magnolia Pipeline as result of
increased throughput during the nine months ended September 30, 2020 when
compared to the nine months ended September 30, 2019.


Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other for the pipelines and transportation segment
increased $9.4 million, or 189.9%, in the third quarter of 2020 compared to the
third quarter of 2019, primarily driven by the following:
•increases in transportation costs related to our trucking assets, including
driver wages and benefits and fuel expenses proportionate to increase in fees,
insurance, supplies and maintenance expenses.
YTD 2020 vs. YTD 2019
Cost of materials and other for the pipelines and transportation segment
increased by $13.8 million, or 76.9%, in the nine months ended September 30,
2020 compared to the nine months ended September 30, 2019, primarily driven 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
Q3 2020 vs. Q3 2019
Operating expenses for the pipelines and transportation segment decreased by
$1.8 million, or 14.3%, in the third quarter of 2020 compared to the third
quarter of 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
•decrease in utilities and other variable expenses due to lower throughputs.
YTD 2020 vs. YTD 2019
Operating expenses for the pipelines and transportation segment decreased $4.2
million, or 11.6%, in the nine months ended September 30, 2020 compared to the
nine months ended September 30, 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
•decrease in utilities and other variable expenses due to lower throughputs.


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                                            Management's Discussion and Analysis

Contribution Margin
Q3 2020 vs. Q3 2019
Contribution margin for the pipelines and transportation segment increased by
$19.3 million, or 71.2%, in the third quarter of 2020 compared to the third
quarter of 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;
and
•decreases in operating expenses.
YTD 2020 vs. YTD 2019
Contribution margin for the pipelines and transportation segment increased by
$43.9 million, or 58.1%, in the nine months ended September 30, 2020 compared to
the nine months ended September 30, 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 tables and discussion below present the results of operations and certain
operating statistics of the wholesale marketing and terminalling segment for the
three and nine months ended September 30, 2020 and 2019:
                                       Wholesale Marketing and Terminalling
                                            Three Months Ended September 30,       Nine Months Ended September 30,
                                                2020                2019               2020                2019
Net Revenues:
Affiliates                                  $   26,966          $  27,343          $  121,454          $  78,836
Third-Party                                     43,823             65,628             118,980            237,119
Total Wholesale Marketing and Terminalling      70,789             92,971             240,434            315,955

Cost of materials and other                     46,350             67,647             174,255            244,842
Operating expenses (excluding depreciation
and amortization presented below)                3,481              5,888               9,487             15,711
Segment contribution margin                 $   20,958          $  19,436          $   56,692          $  55,402


                                                   Operating Information
                                           Three Months Ended September 30,             Nine Months Ended September 30,
                                               2020                 2019                   2020                    2019

East Texas - Tyler Refinery sales volumes
(average bpd) (1)                              73,417               83,953                    70,376               74,607
Big Spring marketing throughputs (average
bpd)                                           78,659               80,203                    73,701               83,608
West Texas marketing throughputs (average
bpd)                                            9,948                9,535                    11,718               11,446

West Texas gross margin per barrel $ 3.42 $ 4.82

         $           2.37          $      4.83

Terminalling throughputs (average bpd)
(2)                                           160,843              170,727                   145,240              160,621

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

Pleasant, Texas, El Dorado and North Little Rock, Arkansas and Memphis and Nashville,

Tennessee terminals.




Comparison of the three and nine months ended September 30, 2020 compared to the
three and nine months ended September 30, 2019
Net Revenues
Q3 2020 vs. Q3 2019
Net revenues for the wholesale marketing and terminalling segment decreased by
$22.2 million, or 23.9%, in the third quarter of 2020 compared to the third
quarter of 2019, primarily driven by the following:
•decreases in the average sales prices per gallon of gasoline and diesel sold
partially offset by increases in the volumes sold in our West Texas marketing
operations.
•the volume of diesel sold increased by 1.8 million gallons, partially offset by
a 0.1 million decrease of gasoline gallons sold; and
•the average sales prices per gallon of gasoline and diesel sold decreased $0.60
per gallon and $0.76 per gallon, respectively.
YTD 2020 vs. YTD 2019
Net revenues for the wholesale marketing and terminalling segment decreased by
$75.5 million, or 23.9%, in the nine months ended September 30, 2020 compared to
the nine months ended September 30, 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
gasoline sold in our West Texas marketing operations.
•the volume of gasoline sold increased 14.3 million gallons partially offset by
decrease of 9.7 million gallons in diesel sold; and
•the average sales prices per gallon of gasoline and diesel sold decreased $0.51
per gallon and $0.71 per gallon, respectively.
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                                            Management's Discussion and

Analysis


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.
[[Image Removed: dkl-20200930_g7.jpg]] [[Image Removed: dkl-20200930_g8.jpg]]
[[Image Removed: dkl-20200930_g9.jpg]] [[Image Removed: dkl-20200930_g10.jpg]]


Cost of Materials and Other
Q3 2020 vs. Q3 2019
Cost of materials and other for our wholesale marketing and terminalling segment
decreased by $21.3 million, or 31.5%, in the third quarter of 2020 compared to
the third quarter of 2019, primarily driven by the following:
•decreases in the average cost per gallon of gasoline and diesel sold, partially
offset by increases in the volumes sold in our West Texas marketing operations.
•the volume of diesel sold increased 1.8 million gallons, partially offset by a
0.1 million decrease of gasoline gallons sold; and
•the average cost per gallon of gasoline and diesel sold decreased $0.53 per
gallon and $0.74 per gallon, respectively.
YTD 2020 vs. YTD 2019
Cost of materials and other for our wholesale marketing and terminalling segment
decreased by $70.6 million, or 28.8%, in the nine months ended September 30,
2020 compared to the nine months ended September 30, 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 14.3 million gallons partially offset by
decrease of 9.7 million gallons in diesel sold; and
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                                            Management's Discussion and

Analysis


•the average cost per gallon of gasoline and diesel sold decreased $0.44 per
gallon and $0.66 per gallon, respectively.
The following chart shows a summary of the average prices per gallon of gasoline
and diesel sold in our West Texas operations for the three and nine months ended
September 30, 2020 and 2019. Refer to the Refined Products Volume chart above
for a summary of volumes impacting our West Texas operations.
[[Image Removed: dkl-20200930_g11.jpg]] [[Image Removed: dkl-20200930_g12.jpg]]


Operating Expenses
Q3 2020 vs. Q3 2019
Operating expenses decreased by $2.4 million, or 40.9%, in the in the third
quarter of 2020 compared to the third quarter of 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 material
costs.
YTD 2020 vs. YTD 2019
Operating expenses decreased by $6.2 million, or 39.6%, in the nine months ended
September 30, 2020 compared to the nine months ended September 30, 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
Q3 2020 vs. Q3 2019
Contribution margin for the wholesale marketing and terminalling segment
increased by $1.5 million, or 7.8%, in the third quarter of 2020 compared to the
third quarter of 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 offset by;
•decreases in revenue due to decreases in average price per gallon of diesel and
gasoline as described above.
YTD 2020 vs. YTD 2019
The increase of $1.3 million, or 2.3%, in contribution margin for the nine
months ended September 30, 2020 compared to the nine months ended September 30,
2019 was due to decreases in cost of materials and other netted off with
decreases in revenue 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 September 30, 2020 our total liquidity amounted to $95.3 million comprised of
$89.3 million in unused credit commitments under the DKL Credit Facility and
$6.0 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 minimum quarterly cash distributions
and operational capital expenditures, and we expect the same trend 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, minimum 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.
We continuously review our liquidity and capital resources. If market conditions
were to change, for instance due to the 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 2020, 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 September 30, 2020. After considering the current and potential effect of
the 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 7 to our accompanying condensed consolidated financial
statements for a complete discussion of our third-party indebtedness.
Cash Distributions
On October 27, 2020, we announced that the board of directors had declared a
distribution of $0.905 per common unit (the "Distribution"), which equates to
$39.3 million per quarter, based on the number of common units outstanding as of
November 6, 2020. The Distribution is expected to be paid on November 12, 2020
to common unitholders of record on November 6, 2020 and represents a 2.8%
increase over the third quarter 2019 distribution. We have set a range for
distribution growth guidance of $0.005 - $0.015 per unit each quarter for 2020.
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.
The table below summarizes the quarterly distributions related to our quarterly
financial results:
                                                                             Total Cash
                                                    Total Quarterly         Distribution,
                             Total Quarterly         Distribution         including general
                             Distribution Per         Per Limited         partner interest
                             Limited Partner         Partner Unit,          and IDRs (in
    Quarter Ended                  Unit               Annualized             thousands)              Date of Distribution           Unitholders Record Date

September 30, 2019           $       0.880          $       3.52          $       30,379          November 12, 2019                November 4, 2019
December 31, 2019            $       0.885          $       3.54          $       30,634          February 12, 2020                February 4, 2020
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 (1)            November 6, 2020

(1)Expected date of distribution.


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                                            Management's Discussion and Analysis


Cash Flows
The following table sets forth a summary of our consolidated cash flows for the
nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30,


                                                                           2020                    2019
Net cash provided by operating activities                          $         134,654          $     86,871
Net cash used in investing activities                                       (116,419)             (141,377)
Net cash (used in) provided by financing activities                          (17,756)               56,337
Net increase in cash and cash equivalents                          $             479          $      1,831




Operating Activities
Net cash provided by operating activities was $134.7 million for the nine months
ended September 30, 2020, compared to $86.9 million for the nine months ended
September 30, 2019, resulting in a $47.8 million increase in net cash provided
by operating activities. The cash receipts from customer activities decreased by
$28.1 million and cash payments to suppliers and for allocations from Delek
Holdings for salaries decreased by $65.4 million. In addition, cash dividends
received from equity method investments increased by $8.4 million and cash paid
for debt interest decreased by $2.1 million.
Investing Activities
Net cash used in investing activities decreased by $25.0 million during the nine
months ended September 30, 2020 compared to the nine months ended September 30,
2019. The decrease in cash used in investing activities was primarily due to
lower contributions to equity method investments during the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019
partially offset by the acquisition of the Big Spring Gathering Assets and
Trucking Assets during the nine months ended September 30, 2020. We disbursed
$11.8 million in additional contributions to our equity method investments
during the nine months ended September 30, 2020 compared to $137.4 million
during the nine months ended September 30, 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 and GP
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 nine months ended September 30, 2019. In
addition there were additions to property, plant and equipment amounting to $6.9
million and distributions from equity method investments amounting $2.7 million
during the nine months ended September 30, 2020 compared to additions to
property, plant and equipment amounting to $5.0 million and distributions from
equity method investments amounting to $0.8 million during the nine months ended
September 30, 2019.
Financing Activities
Net cash provided by financing activities decreased $74.1 million during the
nine months ended September 30, 2020 compared to the nine months ended September
30, 2019. The decrease in cash provided by financing activities 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 and GP unitholders pursuant to the asset acquisitions
under common control guidance and $45 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
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 $172.3 million under the revolving credit facility during the nine
months ended September 30, 2020, compared to net proceeds of $139.6 million
under the revolving credit facility during the nine months ended September 30,
2019. In addition, we paid quarterly cash distributions totaling $97.5 million
during the nine months ended September 30, 2020, compared to quarterly cash
distributions totaling $83.3 million during the nine months ended September 30,
2019.
The sources of cash during the nine months ended September 30, 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 (a wholly owned subsidiary of Delek US Holdings, Inc.).

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                                            Management's Discussion and

Analysis


Debt Overview
As of September 30, 2020, we had total indebtedness of $1,006.1 million
comprised of $760.7 million under the amended and restated senior secured
revolving agreement (the "DKL Credit Facility") and $245.4 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 $3.5 million and $1.1 million,
respectively. The increase of $173.0 million in our long-term debt balance
compared to the balance at December 31, 2019 resulted from the borrowings under
the DKL Credit Facility during the nine months ended September 30, 2020 to
finance 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 September 30,
2020, our total indebtedness consisted of:
•An aggregate principal amount of $760.7 million under the Delek Logistics
Credit Facility ("revolving credit facility"), due on September 28, 2023, with
average borrowing rate of 2.69%.
•An aggregate principal amount of $245.4 million, under the Delek Logistics
Notes (6.75% senior notes), due in 2025, with effective interest rate of 7.22%.
We believe we were in compliance with the covenants in all our debt facilities
as of September 30, 2020. See Note 7 to our accompanying condensed consolidated
financial statements 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. 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,
financial performance and credit ratings.
Equity Units Overview
On August 13, 2020, we closed the IDR Restruction Transaction. To effect this
transaction, our partnership agreement was amended and updated. See Note 3 to
our accompanying condensed 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 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.
On March 31, 2020, we issued 5.0 million 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 3 to our accompanying condensed
consolidated financial statements 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 nine
months ended September 30, 2020 and planned capital expenditures for the full
year 2020 by segment and by major category (in thousands):
                                                           Full Year 2020             Nine Months Ended
                                                              Forecast               September 30, 2020
                                       Pipelines and Transportation
Regulatory (2)                                          $             918          $                318
Maintenance (1) (2)                                                 1,531                           149
Discretionary projects (2) (5)                                     11,124                         2,957
Pipelines and transportation segment total              $          13,573          $              3,424

                                   Wholesale Marketing and Terminalling
Regulatory (3)                                          $           1,311          $              1,085
Maintenance (1) (3)                                                   758                           395
Discretionary (3)                                                   5,409                         2,014
Wholesale marketing and terminalling segment total      $           7,478          $              3,494

Total capital spending (4)                              $          21,051          $              6,918


(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, tanks
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 3 to our accompanying
condensed consolidated financial statements).
(2)The majority of the $0.9 million and $11.1 million budgeted for maintenance
and discretionary projects in the pipelines and transportation segment is
expected to be spent on scheduled maintenance and improvements to certain of our
tanks and pipelines and developments to the Big Spring Gathering Assets,
respectively. Effective March 31, 2020 and May 1, 2020, the pipelines and
transportation segments includes the Big Spring Gathering Assets acquired in the
Big Spring Gathering Assets Acquisition and Trucking Assets acquired in the
Trucking Assets Acquisition, respectively. See Note 2 to our accompanying
condensed consolidated financial statements for further information.
(3)The majority of the $0.8 million and $5.4 million budgeted for maintenance
and discretionary projects in the wholesale marketing and terminalling segment
relates to scheduled maintenance and and improvements to certain of our
terminalling facilities and developments on the Big Spring Refinery to Magellan
Pipeline, respectively.
(4)Capital spending excludes transaction costs capitalized in the amount of $0.3
million and $0.7 million that relate to the Trucking Assets Acquisition and the
Big Spring Gathering Assets Acquisition, respectively.
(5) Excludes rights-of-way spending of a nominal amount.


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. Projects that are not
essential to maintaining the current operations have been suspended and are
expected to resume in 2021. We continue to evaluate the adverse effects of the
COVID-19 Pandemic, and may further revise our forecast as a result of changing
circumstances.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of the filing of this
Quarterly Report on Form 10-Q.

                  51 |   [[Image Removed: dkl-20200930_g2.jpg]]


--------------------------------------------------------------------------------
                                            Management's Discussion and

Analysis

Latest news about Delek Logistics Partners, LP

Delek Logistics Partners, LP Increases Quarterly Cash Distribution, Payable on May 15, 2024	06:13pm	CI
Truist Starts Delek Logistics Partners at Buy With $46 Price Target, Sees 'Compelling Midstream Growth Story With Strong Yields'	Apr. 19	MT
Delek Logistics Partners, LP and Delek Logistics Finance Corp Issue an Additional $200,000,000 in Aggregate Principal Amount of Their 8.625% Senior Notes Due 2029	Apr. 17	CI
Delek Logistics Partners Planning $200 Million Offering of Additional 8.625% Notes Due 2029	Apr. 12	MT
Delek Logistics Partners, LP and Delek Logistics Finance Corp. Intend to Offer $200 Million in Aggregate Principal Amount of Additional 8.625% Senior Notes Due 2029 in Private Placement	Apr. 12	CI
Delek Logistics Partners, LP Enters into Fourth Amendment to that Certain Fourth Amended and Restated Credit Agreement	Apr. 02	CI
Raymond James Upgrades Delek Logistics Partners to Outperform From Market Perform, Price Target is $45	Mar. 19	MT
Delek Logistics Finance Corp. and Delek Logistics Finance Corp Issues $650,000,000 in Aggregate Principal Amount of 8.625% Senior Notes Due 2029	Mar. 13	CI
Delek Logistics Partners Closes $132.5 Million Underwritten Public Offering of Units	Mar. 12	MT
Delek Logistics Partners, LP and Delek Logistics Finance Corp. Announce Results of Tender Offer for Any and All of Their Outstanding 6.75% Senior Notes Due 2025	Mar. 11	CI
Sector Update: Energy Stocks Edge Higher Premarket Friday	Mar. 08	MT
Sector Update: Energy	Mar. 08	MT
Delek Logistics Partners Prices Offering of Common Units	Mar. 08	MT
Delek Logistics Partners Plans to Sell $120 Million Common Units; Shares Slump After Hours	Mar. 07	MT
Delek Logistics Partners, LP Announces Pricing of Upsized Offering of $650 Million of Senior Notes	Feb. 28	CI
Delek Logistics Partners Plans $550 Million Senior Notes Offering	Feb. 28	MT
Delek Logistics Partners, LP and Delek Logistics Finance Corp. Announces Tender Offer for Any and All of Their Outstanding 6.75% Senior Notes Due 2025	Feb. 28	CI
Delek Logistics Partners, LP and Delek Logistics Finance Corp. Announce Proposed Offering of $550 Million of Senior Notes	Feb. 28	CI
Transcript : Delek Logistics Partners, LP, Q4 2023 Earnings Call, Feb 27, 2024	Feb. 27
Delek Logistics Partners' Q4 Earnings, Revenue Decline	Feb. 27	MT
Earnings Flash (DKL) DELEK LOGISTICS PARTNERS LP Reports Q4 Revenue $254.1M	Feb. 27	MT
Delek Logistics Partners, LP Reports Earnings Results for the Fourth Quarter Ended December 31, 2023	Feb. 27	CI
Delek Logistics Partners, LP Reports Earnings Results for the Full Year Ended December 31, 2023	Feb. 27	CI
Earnings Flash (DKL) DELEK US HOLDINGS Reports Q4 Revenue $4.05B	Feb. 27	MT
Delek Logistics Partners, LP Declares Quarterly Cash Distribution for the Fourth Quarter 2023, Payable on February 12, 2024	Jan. 24	CI

Chart Delek Logistics Partners, LP

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Delek Logistics Partners, LP owns and operates crude oil, intermediate and refined products logistics and marketing assets as well as crude oil and natural gas gathering and water processing assets. The Company operates through four segments: Gathering and Processing, Wholesale Marketing and Terminalling, Storage and Transportation, and Investment in Joint Ventures. Its Gathering and Processing segment provides crude oil and natural gas gathering and processing, water disposal and recycling and storage services to Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas. Its Wholesale Marketing and Terminalling segment consists of refined products terminals and pipelines in Texas, Tennessee, Arkansas, and Oklahoma. Its Storage and Transportation segment provides crude oil, intermediate and refined products transportation, and storage services to Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas and Big Spring, Texas.

Sector

Oil & Gas Transportation Services

Calendar

2024-05-06 - Q1 2024 Earnings Release

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Income Statement Evolution

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Ratings for Delek Logistics Partners, LP

Trading Rating

Investor Rating

ESG Refinitiv

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Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

39.32 USD

Average target price

45 USD

Spread / Average Target

+14.45%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

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