© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Delek Logistics Partners Fourth Quarter and Full year 2017 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Mr. Keith Johnson, you may begin your conference.
Thank you, Jessa. Good morning. I would like to thank everyone for joining us on this webcast to discuss Delek Logistics Partners fourth quarter and full year 2017 financial results. Joining me on today's call will be Uzi Yemin, our General Partner's Chairman and CEO; Kevin Kremke, CFO; as well as other members of our management team.
As a reminder, this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.
You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release which is posted on Investor Relations section of our website. On today's call, Kevin will begin with a financial overview and Uzi Yemin will offer a few closing strategic remarks.
With that I'll turn the call over to Kevin.
Thanks Keith. Our operating performance continued to benefit from our Permian Basin and related operations and crude oil price differentials in the market during the fourth quarter of 2017. We had a strong margin increase year-over-year in West Texas and performance of our Paline Pipeline improved from fourth quarter of 2016 as crude oil differentials continued to support volumes on that line.
Our distributable cash flow was approximately $21.9 million in the fourth quarter of 2017, compared to $20.5 million in the fourth quarter of 2016. And the coverage ratio was 0.97 times for the third quarter of this year. Our DCF coverage ratio was 0.96 times for the fourth quarter of 2017.
EBITDA increased to $31.2 million compared to 24.4 million in the prior year period. For full year 2017, our EBITDA was $115 million, compared to 97.3 million in the prior year period. The DCF was 85 million, compared to 83.1 million in 2016. For 2017, the DCF coverage ratio was 0.97 times.
Based on our performance, we increased our quarterly distribution to $0.725 per limited partner unit for the quarter ended December 31, 2017. This distribution was paid on February 12 to unit holders of record as of February 2 and is a 1.4% increase from our third quarter 2017 distribution per unit.
This is our 20th consecutive quarterly increase and its 6.6% higher than our fourth quarter of 2016 distribution per unit. For 2017, we declared distributions of $2.84 per limited partner unit, which is a 10.1% increase over the $2.58 per unit declared in 2016.
At December 31, DKL had approximately $511 million of available capacity on our $700 million credit facility. Our total debt was $422.6 million and the total leverage ratio of 3.8 times is well within the 5 times currently allowable under our credit facility. Taking into consideration the recently announced joint venture and the proposed Big Spring drop down, our availability would be an estimated $139 million.
For the fourth quarter of 2017, Delek Logistics reported net income attributable to all partners of $18.9 million, which compares to 15.3 million in the prior year period. Limited partner's interest in net income was 13.9 million or $0.57 per diluted comment limited partner unit, compared to 11.4 million or $0.47 in the prior year period.
Next, I will review our operating segments. In our Pipelines and Transportation segment, the fourth quarter of 2017 contribution margin was $18.7 million, compared to 16.8 million in the fourth quarter of 2016. This increase was primarily attributable to improved performance on the Paline Pipeline as there was near capacity and the Lion Pipeline System, partly offset by lower volume on the SALA gathering system.
The fourth quarter of 2017, the Paline Pipeline was a FERC-regulated pipeline with a tariff established for potential shippers compared to the prior year period when 10,000 barrels per day of pipeline capacity was contracted to third-parties through a fixed monthly fee. Operating expenses increased to $8.6 million in the fourth quarter of 2017 from 6.9 million in the prior year period, primarily due to outside services, variable costs and employee expenses.
In our Wholesale Marketing and Terminalling Segment, the contribution margin was $14 million in the fourth quarter of this year, which was an increase from 10.3 million in the prior year period. This increase was primarily due to improvements in the west Texas gross margin and in the east Texas marketing agreement. Operating expenses increased to $3.7 million in the fourth quarter of 2017 from 1.8 million in the prior year period, primarily due to outside services and employee expenses.
Our West Texas wholesale gross margin was $5.18 per barrel in the fourth quarter of 2017, compared to $1.96 per barrel in the fourth quarter from the prior year. Throughput in West Texas increased to 14,322 barrels per day compared to 13,906 barrels per day in the prior year. We've continued to see strong margins in west Texas into the first quarter and during January the gross margin in west Texas averaged approximately $5.60 per barrel and volumes averaged approximately 12,400 barrels per day.
During the fourth quarter of 2017, our equity income from these joint venture pipelines was approximately $1.9 million compared to a loss of $435,000 in the prior year period. We received a distribution in the fourth quarter of 2017 of approximately $1.6.
Capital expenditures were approximately $9.7 million in the fourth quarter of 2017, and included 3.9 million of discretionary spending and 5.8 million of maintenance. During the fourth quarter approximately $1.7 million was reimbursed by Delek US.
For 2018, our total gross CapEx forecast is $17.5 million, which includes 4.9 million of discretionary and 12.6 million of maintenance capital before reimbursement by Delek US. We expect approximately $2.1 million of the maintenance CapEx to be reimbursed in 2018. In 2017, total gross CapEx was $18.4 million.
With that I'll turn the call over to Uzi for his closing comments.
Thank you, Kevin. We achieved a record quarter of EBITDA during the fourth quarter of 2017. Over the last three quarters, our operations have generated approximately $30 million of EBITDA per quarter. Our plan is to build from this level to the extension of the Paline Pipeline, recently announced joint venture with Green Plains Partners and the drop down of logistics assets from Big Spring.
Crude oil differentials continued to support volumes that were near capacity on the Paline pipeline during the fourth quarter. In order to support the increased shipment in the future, a project to increase the capacity on this pipeline from 35,000 barrels a day to 42,000 per day is expected to be completed in early March.
The joint venture with Green Plains Partners fits our growth strategy, as it will allow us the opportunity to work with a great partner to acquire assets in areas that we are very familiar with in our geographic foot print.
The drop down of logistics assets from Delek US Big Spring refinery is expected to close in March with an effective date of March 1. These assets consist of storage tanks and terminals. In addition, a new marketing agreement would be entered into between Delek and Delek Logistics for projects for Delek at Big Spring.
The annual expected EBITDA from these assets is approximately $40.2 million. The purchase price is approximately $315 million and will be paid with cash on hand and borrowings on our revolver.
We continue to focus on creating long-term value for our unit holders and believe that the joint venture, proposed Big Spring drop down and growth initiative should continue to support our annual distribution growth per limited partner unit of at least 10% through 2019, while maintaining good distribution coverage.
With that, Jessa, would you please open the call for questions?
[Operator Instructions] Your first question comes from the line of Justin Jenkins from Raymond James. Please go ahead.
Great, thanks, good morning guys. Congrats on all the announcements here today, I guess if I could start maybe on both the drop down and the KGP joint venture financing. Uzi or Kevin, could you remind us may be what your comfort level is in terms of the leverage profile and if you'd expect to maybe raise any equity overtime here, some of the other alternative?
Yes, thanks Justin. Obviously the leverage profile today is more than comfortable. We've got plenty of capacity under the DKL revolver to do the drop down and the new joint venture. And, we would expect to see leverage increase as we plan to fund both of these 100% under the revolver. So we'll take leverage up with the intent of bringing it back down to around 4 times overtime. And to answer the question on equity, MLP equity markets as we all know are a little choppy today and we don't have any near term plans to do any DKL public equity, given our sufficient capacity under the revolver.
Perfect, I appreciate that color Kevin and then thinking on any organic opportunities that come with the Big Spring drop down, thinking of building across the existing asset base, does that unlock any other opportunities for you?
Obviously, we know that the location of Big Spring is great; we are looking very carefully on expanding our logistics assets in that area and behind that. That would be done in partnership with DK, but don't be surprised if there would be more things to come around the Permian as we continue to gather and continue to build our foot print in the area.
Perfect, thanks for that Uzi, and may be last one if I could on Paline expansion. I think we've talked in the past about bringing it up even to a higher volume number than the 42,000 barrels a day. Any progress on that or is that more of a longer term plan?
It's more longer term, but it's not the two year project. We are thinking about 12 months, we are looking at that again, don't be surprised, if we announce it over the next couple of months that we have made a decision on that, because this asset continues to be full.
Perfect, I'll leave it there. Thanks guys.
[Operator Instructions] Your next question comes from the line of Ned Baramov from Wells Fargo. Please go ahead.
Good morning.
Good morning, Ned.
So, quick question on your original plans for the drop down of the Asphalt assets, I think that was scheduled for Q4, obviously that went to a third party. So maybe can you just talk about what happened internally that drove the change in plan since the original announcement?
That's a great question. Ned, we said all along that California is not a core market for us. So, when the opportunity came to sell it to a third party and I think that this third party will do great work with these assets as they are good assets. It fits them more because they are in that area. At the same time we didn't feel that we are losing any much EBITDA, because we got the Big Spring drop down at higher EBITDA. And also we picked two assets in our area. And together with the partnership of - our partnership with GPRE, we feel that that fits our profile better than having Asphalt terminals in areas that we don't have much operation in.
Got it, and then moving on to the Big Spring logistics assets, is there any reason why DK is not taking any units in this transaction. And then maybe you can just quantify the EBITDA that's generated by marketing within that strength of salt wells as well?
I actually don't have the marketing breakdown in front of me. I'll just say that the reason DK doesn't take units is because as we all know the MLP market is challenging now. We don't want to dilute our unit holders, we believe that we will show the market great path for growth and then that will allow the yield to come down. And then - at the same time, it wasn't necessary as we have enough capacity on our revolver to drop down the assets.
Got it, and then a couple of housekeeping items if I may, so number one, there was a significant increase in your inventory in Q4 relative to historical levels. I was just wondering what drove the increase.
Assaf, you want to take that?
I think some of it was related to the fact that we ended our agreement with Vital and now with noble [ph], and now we are bringing our inventory directly from third party or from Delek in to our terminal.
Okay, got it.
Expect this to normalize overtime.
Okay understood, and then if you can just provide an update on the progress on the 30 million buyback program at DK?
We did not buy units this quarter, one of the reasons is that we didn't want to decrease the flow even more and we want - one of our strategic initiatives both from DK and DKL obviously level is to increase the DKL to bigger vehicle. So we didn't think it makes sense to buy units.
Got it, that makes sense. That's all I had today, thank you.
Thank you, Ned.
There are no further questions at this time. I'll turn the call back over to management.
Well, I would like to thank - first Jessa thank you for helping us this morning. I'd like to thank the unit holders, the analysts, the investors that trust us. I'd like to thank my colleagues around the table, but mostly I'd like to thank our employees who make this company what it is and deliver this great year with wonderful growth in many, many aspects. Let's hope that 2018 will be a similar year. Thank you and have a great day.
This concludes today's conference call. You may now disconnect. Thank you.