Delek Logistics Partners, LP (NYSE:DKL) today announced its financial results for the third quarter 2016. For the three months ended September 30, 2016, Delek Logistics reported net income attributable to all partners of $13.2 million, or $0.41 per diluted common limited partner unit. This compares to net income attributable to all partners of $18.6 million, or $0.70 per diluted common limited partner unit, in the third quarter 2015. Distributable cash flow (“DCF”) was $19.1 million in thethird quarter 2016, compared to $22.6 million in the prior-year period. Based on the declared distribution for the third quarter 2016, the distributable cash flow coverage ratio was 0.99x for the third quarter and 1.16x on a year-to-date basis through September 2016.
Uzi Yemin, Chairman and Chief Executive Officer of Delek Logistics’ general partner, remarked: “During the third quarter, our focus on cost savings initiatives played a role in the year-over-year decline in operating and general and administrative expenses and partially offset lower operating performance in the Pipelines and Transportation segment. The hydro test of the Paline Pipeline required every five years was successfully completed in August, but its $1.0 million cost did contribute to a lower DCF during the quarter. We have a FERC tariff in place for Paline and have been actively marketing the excess capacity, which has led to increased shipper interest from Delek and third parties for the available space. We maintained financial flexibility, ending the quarter with approximately $319 million of capacity on our credit facility and a leverage ratio of 3.70 times. This financial position supported the 14.9 percent year-over-year increase in our declared third quarter distribution.”
Yemin concluded, “During the third quarter, the RIO pipeline joint venture project in west Texas began operating in September with shipments under the T&D contract beginning in October and the joint venture continues to look at opportunities for additional growth. Our second joint venture project, the Caddo pipeline, is expected to be completed in January 2017. We expect the combination of these projects to provide additional growth in 2017. We remain focused on creating long term value for our unit holders as we continue to evaluate potential third party acquisition opportunities and explore options to partner with Delek US in the future. We believe that our balance sheet provides the flexibility to support these initiatives, as well as achieve our targeted growth in our distribution per limited partner unit of 15% in 2016.”
Distribution and Liquidity
On October 25, 2016, Delek Logistics declared a quarterly cash distribution for the third quarter of $0.655 per limited partner unit, which equates to $2.62 per limited partner unit on an annualized basis. This distribution is payable on November 14, 2016 to unitholders of record on November 7, 2016. This represents a 4.0 percent increase from the second quarter 2016 distribution of $0.63 per limited partner unit, or $2.52 per limited partner unit on an annualized basis, and a 14.9 percent increase over Delek Logistics’ third quarter 2015 distribution of $0.57 per limited partner unit, or $2.28 per limited partner unit annualized. For the third quarter 2016, the total cash distribution declared to all partners, including IDRs, was $19.3 million.
As of September 30, 2016, Delek Logistics had total debt of approximately $375.0 million. Additional borrowing capacity, subject to certain covenants, under the $700.0 million credit facility was approximately $318.5 million.
Revenue for the third quarter 2016 was $107.5 million compared to $165.1 million in the prior year period. The change in revenue is primarily due to lower prices and volume in the west Texas wholesale business. Total operating expenses were $9.3 million compared to $11.6 millionin the third quarter 2015. This reduction in operating expenses was primarily due to lower maintenance costs on a year-over-year basis, partly as a result of a higher level of maintenance projects that were completed in the prior year period. Total segment contribution margin decreased to $24.7 million in the third quarter of 2016 compared to $29.1 million in the third quarter 2015 primarily due to lower performance in the Pipeline and Transportation segment. General and administrative expenses decreased to $2.3 million for the third quarter 2016compared to $2.7 million in the prior-year period, which was primarily due to lower outside services and employee related expenses. For the third quarter 2016, EBITDA was $22.0 million compared to $26.1 million in the prior-year period.
Pipelines and Transportation Segment
The contribution margin in the third quarter 2016 was $16.1 million compared to $20.4 million in the third quarter 2015. This change was primarily due to reduced performance in the Paline Pipeline as a result of a reduction in both the amount of capacity that is leased and the lease fee on a year-over-year basis. Also, lower volume on the SALA gathering system on a year-over-year basis was a factor in the change in contribution margin. This was partially offset by a decline in operating expenses to $7.7 million in the third quarter 2016, which included expenses for the Paline Pipeline hydro test, compared to $8.4 million in the prior year period.
During the third quarter 2016, approximately $1.0 million was spent during the hydro test on the Paline Pipeline. This test is required every five years by the Pipeline and Hazardous Materials Safety Administration. Of this amount, approximately $0.5 million was included in operating expenses for the hydro test and $0.5 million was included in capital expenditures for planned work that was completed while the pipeline was not operating during this period.
Wholesale Marketing and Terminalling Segment
During the third quarter 2016 contribution margin was $8.6 million, compared to $8.7 million in the third quarter 2015. Lower performance in the west Texas wholesale operations and under the east Texas marketing agreement was offset by lower operating expenses on a year-over-year basis. Operating expenses were $1.6 million in the third quarter 2016, compared to $3.2 million in the third quarter of 2015.
In the west Texas wholesale business, average throughput in the third quarter 2016 was 12,162 barrels per day compared to 18,824 barrels per day in the third quarter 2015. The wholesale gross margin in west Texas decreased year-over-year to $1.16 per barrel and included approximately $1.8 million, or $1.57 per barrel from renewable identification numbers (RINs) generated in the quarter. During the third quarter 2015, the wholesale gross margin was $1.50 per barrel and included $1.0 million from RINs, or $0.57 per barrel.
Average terminalling throughput volume of 120,099 barrels per day during the quarter decreased on a year-over-year basis from 126,051 barrels per day in the third quarter 2015 primarily due to lower throughput at the Tyler and Big Sandy, Texas terminals, partially offset by higher volumes at the El Dorado, Arkansas terminal. During the third quarter 2016, average volume under the east Texas marketing agreement with Delek US was 67,812 barrels per day compared to 75,313 barrels per day during the third quarter 2015.
Project Development Update
In March 2015, Delek Logistics, through wholly owned subsidiaries, entered into two joint ventures (Caddo Pipeline and RIO Pipeline). Delek Logistics’ total projected investment for the two joint ventures to build the pipelines, which is subject to change pending any revisions in construction schedules and remaining costs in the Caddo project, is expected to be approximately $101.0 million and is being financed through a combination of cash from operations and borrowings under its revolving credit facility. Through September 30, 2016, approximately $95.8 million has been invested in these projects. The RIO Pipeline began operating in September and construction on the Caddo Pipeline is expected to be completed in January 2017.
Third Quarter 2016 Results | Conference Call Information
Delek Logistics will hold a conference call to discuss its third quarter 2016 results on Tuesday, November 1, 2016 at 7:00 a.m. Central Time. Investors will have the opportunity to listen to the conference call live by going to www.DelekLogistics.com. Participants are encouraged to register at least 15 minutes early to download and install any necessary software. For those who cannot listen to the live broadcast, a telephonic replay will be available through February 1, 2017 by dialing (855) 859-2056, passcode 49469875. An archived version of the replay will also be available at www.DelekLogistics.com for 90 days.
Investors may also wish to listen to Delek US’ (NYSE:DK) third quarter 2016 earnings conference call on Tuesday, November 1, 2016 at 8:00 a.m. Central Time and review Delek US’ earnings press release. Market trends and information disclosed by Delek US may be relevant to Delek Logistics, as it is a consolidated subsidiary of Delek US. Investors can find information related to Delek US and the timing of its earnings release online by going to www.DelekUS.com.
About Delek Logistics Partners, LP
Delek Logistics Partners, LP, headquartered in Brentwood, Tennessee, was formed by Delek US Holdings, Inc. (NYSE:DK) to own, operate, acquire and construct crude oil and refined products logistics and marketing assets.