ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 theU.S. Securities and Exchange Commission ("SEC") onFebruary 25, 2022 (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 toDelek 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. OnApril 8, 2022 ,DKL Delaware Gathering, LLC (the "Purchaser"), a subsidiary of the Partnership, entered into a Membership Interest Purchase Agreement with 3 Bear Energy -New Mexico LLC (the "Seller") to purchase 100% of the limited liability company interests in 3Bear Delaware Holding -NM, LLC (the "Purchased Interests"), related to Seller's crude oil and gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in theDelaware Basin inNew Mexico (the "Purchase Agreement"). The Partnership also entered into a guaranty agreement with the Seller in order to guaranty the payment obligations of the Purchaser under the Purchase Agreement. See Note 14 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 theSecurities 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 Securities Exchange Act of 1934, as amended (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 theOrganization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together withOPEC , "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:
•our substantial dependence on
•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;
21 | [[Image Removed: dkl-20220331_g2.jpg]] -------------------------------------------------------------------------------- Management's Discussion and
Analysis
•industry dynamics, including
•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
•the suspension, reduction or termination of
•the results of our investments in joint ventures;
•the ability to secure commercial agreements with
•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,
•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 inthe United States due to the COVID-19 Pandemic or future pandemics; •the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by theFederal 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; •significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional legislation and regulatory measures to limit or reduce greenhouse gas emissions;
•competitive conditions in our industry including capacity overbuild in areas where we operate;
•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, natural disasters, casualty losses, severe weather patterns, such as freezing conditions, cyber or other attacks on our electronic systems, and other matters beyond our control which might cause damage to our pipelines, terminal facilities and other assets and could impact our operating results through increased costs and/or loss of revenue;
•changes in the price of RINs could affect our results of operations;
•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 or environmental liabilities that are not covered by insurance; and
•other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.
22 | [[Image Removed: dkl-20220331_g2.jpg]] -------------------------------------------------------------------------------- Management's Discussion and
Analysis
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. 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 southeasternUnited States andTexas forDelek Holdings and third parties. A substantial majority of our existing assets are both integral to and dependent upon the success ofDelek Holdings' refining operations, as many of our assets are contracted exclusively toDelek Holdings in support of itsTyler ,El Dorado andBig 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 economy continues to recover from the impact of the COVID-19 Pandemic, both globally and domestically. Improved consumer demand resulting from stabilization in cases of COVID-19 and decreasing mortality rates during much of the period and across much of the country, and corresponding to the availability of vaccines, have contributed to improvements in domestic refining margins. However, onFebruary 24, 2022 Russia launched a military invasion onUkraine (the "Russia -Ukraine war"). In response to the unprovoked invasion, among other sanctions imposed, many countries, including the US, have banned the import of Russian commodities, including oil and gas.Russia is one of the world's top oil and gas suppliers, responsible for providing more than 40% of the natural gas supply toEurope and more than 8% of the world's oil supply. To combat record high oil prices, the Biden administration recently announced the largest release of oil inU.S. history from the nation's strategic stockpiles, followed by a smaller, but still sizable, release from European countries. While these events have contributed to additional uncertainty in the global market, it's impact on supply of crude oil and refined products has caused significant increases in demand for our customers' products which is expected to continue for much of 2022. Management has actively responded to the continuing impact of these economic disruptions on our business. To the extent warranted, we continue to monitor the impact and implement measures to mitigate the risk. Such efforts include (but are not limited to) the following:
•Reviewing planned production throughputs at our refineries and planning for optimization of operations;
•Coordinating planned maintenance activities with possible downtime as a result of possible reductions in throughputs;
•Searching for additional storage capacity if needed to store potential builds in crude oil or refined product inventories;
•Finding additional suppliers for key or specialty items or securing inventory or priority status with existing vendors;
•Continued monitoring of capital expenditures;
•Suspending the share repurchase program and dividend distributions until our internal parameters are met for resuming such activities;
•Adopting modified remote working where possible and when immediate exposure risk warrants, and where on-site operations are required, taking appropriate safety precautions;
•Identifying alternative financing solutions as needed to enhance our access to sources of liquidity; and
•Enacting cost reduction measures across the organization, including reducing contract services, reducing overtime and other employee related costs, and reducing or eliminating non-critical travel.
The combination of these efforts has served to mitigate other negative factors impacting our cash flows and operations, and has improved our liquidity positioning, operational flexibility and ability to respond to the continued economic impact of the COVID-19 Pandemic, the Russia-Ukraine War, and other events. 23 | [[Image Removed: dkl-20220331_g2.jpg]]
-------------------------------------------------------------------------------- Management's Discussion and
Analysis
See also 'Risk Factors' in Part I, Item 1A. of our Annual Report on Form 10-K for further discussion of risks associated with the COVID-19 Pandemic.
Our Reporting Segments and Assets
Our business consists of three reportable segments:
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 ofDelek Holdings' refining operations inTyler, Texas ,El Dorado, Arkansas andBig Spring, Texas . Additionally, the assets in this segment provide crude oil transportation services to certain third parties. In providing these services, we do not take ownership of the products or crude oil that we transport or store. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment.
Wholesale Marketing and Terminalling
The assets in our wholesale marketing and terminalling segment consist of refined products terminals and pipelines inTexas ,Tennessee ,Arkansas andOklahoma . We generate revenue in our wholesale marketing and terminalling segment by providing marketing services for the refined products output of theTyler andBig Spring refineries, engaging in wholesale activity at our terminals inWest 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 andDelek Holdings .
Investments in
The Partnership owns a portion of three joint ventures (accounted for as equity method investments) that have constructed separate crude oil pipeline systems and related ancillary assets, which serve third parties and subsidiaries ofDelek Holdings .
2022 Strategic Developments
Slurry Clarifying Services Agreement
We executed a series of agreements withDK Trading & Supply, LLC ("DKT&S") andAlon Refining Krotz Springs , whereby the Partnership will operate and maintain a facility, located within theKrotz Springs, Louisiana refinery , to process slurry for DKT&S. Using a process that incorporates horizontal and vertical centrifuges, we will remove metals, ash, and other solids from the slurry. The clarified product can then be sold to DKT&S or one of its affiliates. As consideration for the processing services, we will receive a fixed rate per barrel processing fee in addition to a margin-based payment. The Partnership and DKT&S have agreed to a minimum delivery commitment volume to be processed in the facility. The initial term of the agreement is for a period of three years, and thereafter, will continue a year-to-year basis unless canceled by either party.
3 Bear Energy -
OnApril 8, 2022 ,DKL Delaware Gathering, LLC (the "Purchaser"), a subsidiary of the Partnership, entered into a Membership Interest Purchase Agreement with 3 Bear Energy -New Mexico LLC (the "Seller") to purchase 100% of the limited liability company interests in 3Bear Delaware Holding -NM, LLC (the "Purchased Interests"), related to Seller's crude oil and gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, in theDelaware Basin inNew Mexico (the "Purchase Agreement"). The Partnership also entered into a guaranty agreement with the Seller in order to guaranty the payment obligations of the Purchaser under the Purchase Agreement. The purchase price for the Purchased Interests is$624.7 million , subject to customary adjustments under the Purchase Agreement for net working capital and indebtedness. The Purchaser paid a deposit under the Purchase Agreement of approximately$31.2 million . The deposit may be retained by the Seller upon certain termination events described in the Purchase Agreement. At closing, the deposit will be applied to the purchase price to be paid under the Purchase Agreement. The transactions contemplated by the Purchase Agreement are expected to close around mid-year 2022. The closing is subject to customary closing conditions set forth in the Purchase Agreement, including regulatory approvals. The Purchase Agreement also contains representations and warranties of the parties, indemnification obligations, termination rights, and other covenants and agreements.
Expansion of connectors project
In connection with the Permian Gathering System Acquisition (formerly known as the Big Spring Gathering Acquisition), we agreed to expend$33.8 million to construct additional Receipt Points to our gathering pipeline at the request ofDelek Holdings producers with which we have dedicated acreage agreements, to be owned and operated by the Partnership. Such Receipt Points, once completed, result in 24 | [[Image Removed: dkl-20220331_g2.jpg]]
-------------------------------------------------------------------------------- Management's Discussion and
Analysis
incremental pipeline revenues, subject to the minimum volume commitments and other terms of the throughput and deficiency commercial agreement withDelek Holdings , entered into in connection with this Acquisition. Additionally, bothDelek Holdings and the Partnership continue to identify and secure dedicated acreage and producer agreements that require construction of receipt points and also provide the opportunity for additional pipeline volumes, but that are not required under the original commitment. Related to these incremental agreements, the Partnership has begun construction or otherwise separately committed to construct receipt points where the estimated remaining costs to complete totaled$45.8 million as ofMarch 31, 2022 , all of which is expected to be expended during 2022. See Note 12 for additional information.
How We Generate Revenue
The Partnership generates revenue by charging fees toDelek 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 theWest 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 withDelek 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 withDelek Holdings typically include minimum volume or throughput commitments byDelek Holdings , which we believe will provide a stable revenue stream in the future. The fees charged under our agreements withDelek 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 onJuly 1 of each year, by the amount of any change in various inflation-based indices, includingFERC , provided that in no event will the fees be adjusted below the amount initially set forth in the applicable agreement.
Commercial Agreements with
The Partnership has a number of long-term, fee-based commercial agreements withDelek Holdings under which we provide various services, including crude oil gathering, crude oil, intermediate and refined products transportation and storage services, and marketing, terminalling and offloading services toDelek Holdings , andDelek 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 theSEC onFebruary 25, 2022 for a discussion of our material commercial agreements withDelek Holdings .
Other Transactions
The Partnership manages long-term capital projects on behalf ofDelek Holdings pursuant to a construction management and operating agreement (the "DPG Management Agreement") for the construction of gathering systems in thePermian Basin (the "Delek Permian Gathering Project "). The majority of the gathering systems has been constructed, however, additional costs pertaining to a pipeline connection that was not acquired by the Partnership continue to be incurred and are still subject to the terms of the DPG Management Agreement. The Partnership is also considered the operator for the project and is responsible for the oversight of the project design, procurement and construction of project segments and for providing other related services. See Note 2 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:
?volumes (including pipeline throughput and terminal volumes) ?contribution margin per barrel ?operating and maintenance expenses ?cost of materials and other ?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. AlthoughDelek 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;
25 | [[Image Removed: dkl-20220331_g2.jpg]] -------------------------------------------------------------------------------- Management's Discussion and
Analysis
•our ability to identify and execute acquisitions and organic expansion
projects, and capture incremental volume increases from
•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, except for the investments in pipeline joint ventures segment. Contribution margin is defined as net revenues less cost of materials and other and operating expenses, excluding depreciation and amortization. For our wholesale marketing and terminalling segment, we also measure gross margin per barrel. Gross margin per barrel reflects the gross margin (net revenues less cost of materials and other) of the wholesale marketing operations divided by the number of barrels of refined products sold during the measurement period. Both contribution margin and gross margin per barrel can be affected by fluctuations in the prices and cost of gasoline, distillate fuel, ethanol and Renewable Identification Numbers ("RINs"). Historically, the profitability of our wholesale marketing operations has been affected by commodity price volatility, (specifically as it relates to changes in the price of refined products between the time we purchase such products from our suppliers and the time we sell the products to our wholesale customers), and the fluctuation in the value of RINs. Commodity price volatility may also impact our wholesale marketing operations when the selling price of refined products does not adjust as quickly as the purchase price. Our wholesale marketing gross margin may also be impacted by the fixed price ethanol agreements we enter into to fix the price we pay for ethanol.
Operating and Maintenance Expenses
We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses include the costs associated with the operation of owned terminals and pipelines and terminalling expenses at third-party locations, excluding depreciation and amortization. These costs primarily include outside services, allocated employee costs, repairs and maintenance costs and energy and utility costs. Operating expenses related to the wholesale business are excluded from cost of sales because they primarily relate to costs associated with selling the products through our wholesale business. These expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of said expenses. Additionally, compliance with federal, state and local laws and regulations relating to the protection of the environment, health and safety may require us to incur additional expenditures. We will seek to manage our maintenance expenditures on our pipelines and terminals by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow. Cost of Materials and Other These costs include: (i)all costs of purchased refined products in (ii)costs associated with the operation of our our wholesale marketing and terminalling trucking assets, which primarily include segment, as well as additives and related allocated employee costs and other costs transportation of such products; related to fuel,
truck leases and repairs and
maintenance; (iii)the cost of pipeline capacity leased from (iv)gains and losses related to our commodity any third parties; and hedging activities. Financing The Partnership has declared its intent to make a cash distribution to its unitholders at a distribution rate of$0.98 per unit for the quarter endedMarch 31, 2022 ($3.92 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 7 to the accompanying condensed consolidated financial statements for a discussion of historic cash distributions.
How We Evaluate Our Investments in
We make strategic investments in pipeline joint ventures generally when it provides an economic benefit in terms of pipeline access we can use for our existing or future customers and when we expect a rate of return that meets our internal investment criteria. Our existing
26 | [[Image Removed: dkl-20220331_g2.jpg]] -------------------------------------------------------------------------------- Management's Discussion and
Analysis
investments in pipeline joint ventures all provide a combination of strategic benefit and return on investment. The strategic benefit for each is described below: •The RIO Pipeline is positioned in theDelaware basin and benefits from drilling activity in the area, while also offering producers and shippers connections toMidland, Texas takeaway pipelines;
•The Caddo Pipeline provides crude oil logistics connectivity for shippers from
•The Red River Pipeline provides crude oil transportation and optionality fromCushing, Oklahoma toLongview, Texas area and connectivity to our Caddo JV along with DKL Paline pipeline for access toGulf Coast markets. It also has additional expansion optionality. 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 three months endedMarch 31, 2022 , theU.S. economic activity continued its recovery path resulting in increases in consumption and demand for crude oil and refined products, although heightened uncertainty still remains due to the on-going COVID-19 Pandemic and the spread of new variants of the virus. Compared to the three months endedMarch 31, 2021 , crude oil prices during the three months endedMarch 31, 2022 were steadily increasing. The price of oil (WTI Cushing) closed at$100.28 per barrel onMarch 31, 2022 ,$41.12 per barrel higher than onMarch 31, 2021 . The openingJanuary 2022 price of oil (WTICushing ) was$76.08 and reached theJanuary 2022 high closing price of oil of$88.15 per barrel. Due to the sustained increase in oil prices, during the three months endedMarch 31, 2022 , we experienced improved margins in theWest Texas area, and better throughput for our assets with improved gross margins, when compared to the same period in 2021. We remain positively cautious about the recovery in demand and price of crude oil as it is not without volatility. The COVID-19 Pandemic, future OPEC+ decisions, global geopolitical and economic uncertainty continue to contribute to volatility in the financial and commodity markets. Our exposure to crude oil production, demand and commodity price fluctuations in our pipelines and transportation segment and our joint venture entities was limited due to minimum volume commitments under existing throughput contracts with customers, 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 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 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 theWest Texas area and the value attributable to RINs can affect the results of ourWest Texas operations. For example, demand for and prices of crude oil and related refined products increased as economic activity began to recover during 2021 due to the increase in vaccinations. As discussed above, theU.S. economic activity continues to recover and demand for and prices of crude oil and related refined products continued on the rise during the three months endedMarch 31, 2022 , as consumption of oil increased, spurred by easing of COVID-19 related restrictions. Although we expect the direct effects from the pandemic onU.S. oil consumption to decrease, some consumption patterns may be more lasting, including increased working from home and changes in travel behavior, which could limit growth in gasoline and jet fuel consumption. See the chart below for the high, low and average price per barrel of WTI crude oil for each of the quarterly periods in 2021 and for the quarterly period in 2022. 27 | [[Image Removed: dkl-20220331_g2.jpg]]
--------------------------------------------------------------------------------
Management's Discussion and Analysis [[Image Removed: dkl-20220331_g3.jpg]] The volatility of refined products prices may impact our margin in theWest 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 2021 and for the quarterly period in 2022. [[Image Removed: dkl-20220331_g4.jpg]] 28 | [[Image Removed: dkl-20220331_g2.jpg]]
--------------------------------------------------------------------------------
Management's Discussion and Analysis [[Image Removed: dkl-20220331_g5.jpg]]
Contractual Obligations
There have been no material changes to our contractual obligations and
commercial commitments during the three months ended
Critical Accounting Estimates
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. TheSEC has defined critical accounting estimates 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 estimates include estimates related to equity method investments impairment assessment.
© Edgar Online, source