Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US Holdings' third quarter 2021 financial results.

Joining me on today's call is Uzi Yemin, our Chairman, President, and CEO; Reuven Spiegel, EVP and CFO, and Todd O'Malley, EVP and Chief Commercial Officer, as well as other members of our management team. The presentation materials used during today's call can be found on the Investor Relations section of the Delek US website.

As a reminder, this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws. Please see Slide 2 for the Safe Harbor statement.

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 the Investor Relations section of our website.

Our prepared remarks are being made assuming that the earnings release has been reviewed, and we are covering less segment and market information that is incorporated into the third quarter release. On today's call, Reuven will review financial performance; I will cover capitalization and guidance; Todd will cover operations and CapEx; and then Uzi will close with a few closing strategic comments.

With that, I'll turn the call over to Reuven.

Thank you, Blake. On an adjusted basis for the third quarter of 2021, Delek US reported net income of $9.9 million or $0.13 per share, compared to a net loss of $99.5 million or a loss of $1.35 per share in the prior year period.

Our adjusted EBITDA was $110 million in the third quarter, compared to a loss of $11 million in the prior year period. The second paragraph of the press release highlights $11 million of after-tax tailwind, or $0.15 per share of items included in adjusted results.

Page 10 of the release provides a breakdown of inventory hedging impacts, and Page 14 provides other inventory impacts in the quarter. On slide 4, we provide the cash flow waterfall.

In the third quarter of 2021, we had a positive cash flow of approximately $75 million from continuing operations, which includes a working capital detriment of $42 million. With that, I will turn it over to Blake.

Thanks, Reuven. Slide 5 highlights our capitalization.

We ended the third quarter with $831 million of cash on a consolidated basis and $1.39 billion of net debt. Excluding net debt at Delek Logistics of $896.5 million, we had net debt of approximately $495 million at September 30, 2021.

Moving to Slide 6, we provide fourth quarter guidance for modeling. Operating costs are forecasted to be in the range of $150 million to $160 million.

This reflects the impact of elevated natural gas prices and assumes no impact from ongoing insurance proceeds. Before turning it over to Todd, I would refer you to Slide 7 where we illustrate our cost structure relative to peers.

Due partially to different permissible classification methodologies, our G&A tends to screen high, while our assets screens low. Based on investor feedback, we thought it would be helpful to combine the two expenses, just to pose against different metrics including enterprise value, refining capacity and number of employees to gauge competitiveness of our overall cost structure against peers.

As you can see, we screened very competitively. With that, I will now turn the call over to Todd to discuss operations and CapEx.

Thanks, Blake. During the third quarter, our total refining system crude oil throughput was approximately 282,000 barrels per day.

Krotz Springs incurred a planned shutdown due to Hurricane Ida, but was one of the first facilities back online resulting in a fairly minimal impact of throughput base during the quarter. In the fourth quarter of 2021, we expect crude oil throughput to average between 280,000 to 290,000 barrels per day or approximately 94% utilization at the midpoint.

The next major planned turnaround is at our Tyler facility, which is currently scheduled for 2022. On Slide 8, capital expenditures during the third quarter were $29 million representing a significant decline from the first half spending levels.

The full year 2021 capital program is expected to be in the range of $205 million to $210 million, on a gross basis, which is consistent with previous guidance that contemplated the potential net impact of insurance proceeds. I will now turn the call over to Uzi for closing comments.

Thank you, Todd, and good morning. The significant EBITDA improvement reflects their operational performance and reliability compared to the first half of the year.

With no major turnarounds planned until next year, our system is well positioned to capture the improving macro environment. Ongoing insurance proceeds and potential for more refinery exemptions offer tailwinds into the fourth quarter.

DKL units recently reached an all-time high, which lowers their cost of capital and reinforces the value embedded within the Delek’s portfolio. As we move into 2022, Wink to Webster should provide a positive contribution throughout the year.

Finally, later today we plan to publish our 2021 sustainability report. We encourage investors to review our progress on our ESG report.

With that, operator, will you please open the call for questions?

Yes, thanks. Congrats on the results.

Maybe a first question, Uzi, you’ve done a great job stabilizing and strengthening DKL over the past couple of years, which I know was one of the things you were initially focused on. But the market still doesn’t appear to really do reflect and valuation of DK.

We continue to see numerous of your peers consolidate their MLP affiliates. Can you give us the latest on whether you still see DKL serving a useful purpose, at least as an entity, thoughts on consolidation and minimum thoughts on selling down part of your stake in DKL to try to force the market to reckon with the valuation discount.

Good morning, Ryan. Hi.

Thanks for taking the time to ask us these questions this morning. Let us take them one-by-one.

The strategy all along three years ago and I remember couple of notes coming from you guys saying, it will take time to unfold that strategy, well, it’s coming to fruition. DKL is hitting all time high.

The cost of capital of DKL is on the low end of our MLP if you will and also the situation with the dropdown that is – the Wink to Webster that is starting and maybe in the future drop down, as well as the fact that DPG from an organic standpoint is coming up because of all the activities in the Permian. We feel that DKL is a very strong tool in our toolbox.

We are not going to limit ourselves to any of the options you mentioned. We are looking at it carefully.

We thought that $50 is a fair value for DKL, at the same time DK has got any means of cash or anything like that. I know that some – in the market sometimes is anxious for actions, but sometimes the best actions are no actions until things clarify.

We know the value is in DKL. We are not dumb.

We see the difference between the valuation of both companies while there is an arbitrage, but we are not in a hurry to do anything just because of the fact that we want to protect DKL and also with DK, turning to positive cash flow as you saw and turning the corner. And the outlook for SREs which we continue to believe that we are - strongly deserve them.

I don’t know that we are in a rush to do anything or not to do anything. We just continue to value our options.

Okay. Thanks.

And maybe, I mean, you just mentioned the inflection in cash flow and in free cash. As we think about looking into next year, any thoughts on what the CapEx budget could look like and priorities for the use of – how would you think about the priorities for the year to net excess cash?

Should you continue to generate meaningful free cash flow?

Absolutely. I’ll let Blake earn his nickel for this morning and answer this question.

Yes, Ryan. I’ll take the CapEx piece.

So, obviously, we need Board approval and I think next quarter we’ll come out with a more formalized budget. But the way I would just help frame it up for you in terms of having the placeholder in the model, if you look historically, we’ve said maintenance capital plus turnaround is roughly $175 million to $200 million.

Obviously, during periods like COVID, you go through a deferral process and you go to the low end of that. So, I think it’s fair to think coming out of this we are probably trending toward the upper end, so call it $200 million in terms of maintenance and CapEx.

There are some additional projects now that we are generating free cash and I think we are going to probably look to have some minor growth. And examples of that will be systems upgrades that I think is going to help us from an efficiency standpoint.

There is some small quick hit projects that are very low capital, but quick returns on EBITDA and of course, we have the retail build out. So, again, without giving you a formalized number, I think you are at the upper end on maintenance and then maybe a little bit of growth.

The final thing I just want to make sure and point out on CapEx is, keep in mind as DKL is becoming a much larger entity and coming into growing on its own. That’s a self-sustaining entity.

So, whatever the CapEx is for that going forward, it’s really not impacting the cash flow to DK. So, again, we’ll give more formalized guidance on what the spending numbers look like next year.

But hopefully that helps in terms of framing up something.

Thanks a lot. And it’s great.

Hey, Uzi. I wanted to extend my condolences to the entire Delek family on the sad and untimely demise of Louis as I only met him once or twice.

He was a very nice gentleman. So, I am sorry for your loss, Uzi.

Thank you, Manav. Thank you.

We really feel sorry about it. I was planning to say something by the end of the call, but I’ll say it now.

Louis was a great leader, great friend and the entire Delek family feels – feel very sad about him going away too early. And we keep him and his family in our thoughts and prayers.

Go ahead, Manav. Thank you for your kind words.

Uzi, quarter-over-quarter, El Dorado, excellent improvement whether it’s gross margin, whether it’s OpEx, both fronts. So, help us understand what you did different?

How things came together? Because this is a very strong improvement quarter-over-quarter if you look at that refinery.

Well, Manav. We just came out of the turnaround at El Dorado.

Remember, the turnaround in two tranches, actually 2.5, if you will. We think that refinery and I think the refinery manager Mike Reed is doing excellent job over there.

We are running the refinery more than 75,000 now. Actually, close to 80,000 this month.

Now, obviously, we will continue to optimize that. Now, the second part to do a fair job over there is to improve the commercial initiatives.

You see in the refining organization a big number of refining. These are initiatives or things that we do on the commercial side and that’s something that will continue to happen in El Dorado or Krotz because we want them to be as competitive.

Now, one thing we need to remember. We do believe that both Krotz and El Dorado, specifically, we do believe others as well, but specifically these are SREs.

As we continue to work with the administration and we strongly believe that we deserve these two like we got them in the past. So, if you think about that and you add the strong operation change after the turnaround led by Mike Reed, the commercial part that is changing as we speak and the SREs, which we believe that we should get them.

You are looking at very competitive assets also for Krotz. So, thank you for that question.

Thank you for taking my question, Uzi.

Hi, good morning. Thanks for taking the questions.

My first one is just around refining profitability in the quarter. It’s great to see the inflection there.

Are you able to talk about what is reflected in sort of the other refining bucket, I guess, if we think about the earnings from the four core refineries. Results were probably more in line with our forecast and the other bucket was a very positive contributor.

So, any colors on that would be helpful,

First, Carly, I want to thank you for the vote of confidence lately and as we said, we will do everything we can and not to disappoint you. Vis-à-vis, the refining organization as a whole and I can let Todd talk about that, well, I’ll just say a few words before him.

This is – we run our refining organization is a integrated system. And somewhere, sometimes find themselves in one place versus the other.

We are looking at our obligations vis-à-vis third parties. We are looking at our wins and sometimes we move things around.

It’s very difficult to allocate that or that activity to specific refineries always. Now, sometimes these numbers are small, sometimes they are actually taking a hit and sometimes they are more or bigger than that.

So, in this world, there are several activities that – as a result of us taking steps ahead of the market in different areas that are contributing to that. I’ll leave it with that and let Todd wants to add anything to that.

No, I think, Uzi covered it very well, Carly. It’s a number of different things that all add up in small little pieces and we are obviously watching that every day and making sure that we are managing it actively in the market.

Great. That’s helpful.

And then, the follow-up is just a bit higher level. I guess, as we think about where we are on the macro, curious how you would frame the path towards the company inflecting back to positive earnings.

Refining margins have certainly improved here. But on the other side you’ve got Brent TI has compressed a bit.

So, if you could talk a little bit about some of those moving pieces and how it ultimately impacts your ability to get back to that kind of more normalized refining earnings profile?

Yes, optimum to quality and we don’t look at Brent TI as a normal thing. We look at Brent Midland.

Only three weeks ago, Midland was at positive, what, Todd? $0.75 and now we are at breakeven – around breakeven.

So, if you look at that, we can move between Midland and TI pretty easily. And that’s what we do on a daily basis and that’s what actually you expect us to do.

So, I don’t know that we are too concerned about Brent TI versus Midland TIs because of our ability to go back to Midland. Now, please remember you know it and we see it every day.

I know that producers are saying that they are going to be very disciplined. Our DPG gathering system is growing by the day.

So, if we thought a few months ago, that the growth here for Midland will be 500 or 600. We are changing our mind as we speak, because of price of oil being at around $80, I know that it was little lower yesterday.

But just to answer your question, or point Blink, we are not concerned about Brent TI, because we think that if it compresses, then Midland should come into negative territory. Otherwise the arbitrage won’t make sense for export.

That’s one thing. Second, vis-à-vis the price spreads.

We always thought that 2021 will be a year that things will change and actually changing. And I saw that Pfizer came today with an idea that they have a medicine for this pandemic.

I think the world will start working toward the solution here. Also, let’s be clear, people are tired of sitting at home and also employers are tired of people not coming to the office.

So, there is a chance that 2022 in our mind will be a very, very strong demand year. That also on top of the idea that in Europe, the energy prices or the energy crisis that led or lead to the energy prices don’t make refineries over there as compared to.

So, I think that we are pulling out of the downturn as we speak. That was a long answer to a short question.

But I hope I covered everything.

That’s great. Thanks so much, Uzi.

Yes. Hey.

Good morning everybody. Just, I guess, in some ways I would like to follow-up a little on the last question, Uzi.

It’s been a long time as we’ve been in a market where we didn’t have an inland desk and obviously, I’d say, obviously, but I don’t think we are seeing production growth to really change that any time soon. So, when you started the company, first acquired the Tyler unit, that was a kind of market we are in.

so, as you look at it today, what changes if any would you make in terms of – where you are trying to sell the product or any other crude sourcing opportunities besides switching between Midland and TI to help you on the feedstock side?

That’s a great one. Do you want to take that one Todd?

Yes. Sure.

So, Roger, I think, again, we’ve talked about this on a couple of previous calls. But one of the beauties of having the DKL systems surrounding all of our assets means that we have just incredible netted optionality and that optionality is not just simply to run sweet barrels.

We have the steel on the ground that gives us the capability to optimize across grades, across sweet and sour. So, on the crude side, we are looking actively at a lot of the dislocations that are happening in the market as we speak and shifting our crude slate around.

On the product side of it, obviously, with the unfortunate circumstances in the rent market being overvalued, we are also looking at how we can optimize the product slate in terms of pushing more of the selling arms to wait from the bulk supply region in the refining system and out into the rack availability that surrounds in Pad 3 and other pads. So, from that perspective, we are looking at that every single day.

We are actively working with partners. We look at exchanges and obviously different crude slates.

So, hope that answers your question.

Yes, it’s definitely helpful and kind of the unrelated follow-up, closing in on the completion of that renewable diesel facility in Bakersfield or at least I imagine they are closing it on it. I was just curious how that looks to you and as you look at other opportunities in renewable fuels, I know you do a little bit already, but what are some of the other things that are out there some other opportunities that you’d be considering, yes, it would be a good way to put it at this point.

So, Roger, I’ll just give you a quick update and really there is no frankly pivot from what we said in the past, which is that the facility needs to become operational we have a 90-day free look. And so, I think stay tuned.

1Q of that where we could potentially exercise that option. Obviously, we have our three biodiesel plants.

We are exploring other opportunities to look at different feedstock options around the country. But I think, Uzi has been pretty consistent in the past saying that, renewable diesel is a bridge, but not necessarily a solution to the global transition.

And I think anything outside of what we have in front of us would be extremely capital-intensive and I think we want to be mindful of where we are spending our money. So, we will continue to evaluate.

But I think for the time being, we are going to stick with our capital light approach, which is kind of what the market already sees. So, hope that answers your question.

Thank you.

Hi. Good morning.

Thanks for taking the question. First one was just on the SREs that is broader landscape.

There is various litigations going on against the EPA. I was curious sort of big picture, could you guys just help us to understand where things stand?

I think, there were some news or some expectations that one of those cases we could hear something this week and that might start to give us some clarity or some line of sight into resolution of those application to that litigation in the coming weeks. So, you guys are lot closer to that.

So I was just wondering if you could help us sort of walk us through what you see out there and kind of what the prospective timeline could be on that front in terms of what we should be looking for in the market?

Great question, Prashant. But, good morning, I didn’t say good morning.

Well, I didn’t say good morning to you, maybe I should say good morning to everybody. So, anyway, around SREs, we continue to believe, by the way, we do continue to work with the administration answering questions if they have one.

We do believe that the SREs should come soon. It is been past due, long past due, almost 700 days that we are behind the deadline.

I think that many people in the – of the inspection understand that SREs are something that help them give gasoline prices low. We all heard the President Biden asking OPEC to lower or to increase the inputs in order to lower crude prices.

I do believe that they should come soon. Now, how soon?

I don’t know this is in the hands of the administration. We continue to believe that we deserve several of them.

I am going to remind you again that we – over the last year, eight times out of – of course, we guided seven times out of eight that we submitted and that El Dorado five times, out of six times, in Tyler, five times out of eight. So, we certainly believe that we are more impacted than others and we do believe that the deadline for compliance are on the SRE or the wins on our market for more refineries is by the end of November.

November 30, we are one month away from that. So, we believe that they should come very soon.

And again, as I said, we think that we are entitled to several of them like we discussed with the administration.

Okay. Thanks, Uzi.

So, end of the month, sometime in the next few weeks. That’s helpful.

Second question, maybe a different fact and that was asked earlier. The existing biodiesel production that you have could you maybe help us understand there is lot of RD or this is called BBD capacity coming on-stream in over the next couple of years.

Your existing biodiesel production, could you help us two things, one, give us an update on what production levels have been like this year and what you expect for next year? And two, where do you think it sits sot of competitively with some of the new production facilities are coming on-stream the incremental supply?

Do you feel comfortable with the CI score you get there and the netbacks you get out of that biodiesel?

That’s a great question for one thing, what rents will do. And if rents stay high, then every plant is comparative.

If rent goes down then the refining – all refining of course will enjoy. So, it’s a play between the two.

Now, these are very low cap or very low capital demand. They have been very low capital demand in these assets.

I think that the person that runs them Mark is doing excellent job running them as efficiently as close to full capacity. We will just need to see how – will price next year and how rents will react to that.

We do believe that rent should come down and if rents come down, then we will need to look at the – how competitive these assets are. Blake, I don’t know if you want to add anything to that?

Prashant, I guess, on a longer term kind of mid-cycle basis, if you are asking like what kind of profitability this should have. We have said to investors before that in general $0.20 a gallon on a full year basis times 40 gallons a year.

You are basically at $8 million to $10 million a year of EBITDA. So, I mean, hopefully that helps you from a general modeling standpoint.

Obviously that ebbs and flows per quarter.

Okay. Thanks a lot.

Appreciate the time guys. I’ll turn it over.

Thank you, Prashant.

Hey, good morning. This is actually John Royall sitting in for Phil.

He is traveling today. Is there any update you can share on your views on capital allocation?

I know you spoke about the CapEx piece but given the improvement in your profitability in the macro environment looking better going into next year, just any updated thoughts on returns to shareholders?

Yes, first, thanks for taking the time. I would like to add something to the mix here that our cash position while we are adjusting our earnings down, our cash position is improving more just because of one-time events that are helping the cash position.

And I am just going to use several of them as an opportunity to give you a background about the capital allocation that you ask. We do have insurance that we got $21 million this quarter and we expect significantly more amounts coming in the upcoming quarters.

Now, of course, we will adjust with that, but that of course is cash coming to the door. Also, the settlement that we had with the WTW not building the connector, this quarter will be cash.

In the fourth quarter, there will be $25 million - $24 million coming our way. Also of course, SREs may impact the cash position dramatically.

So, if you look at all these events, on top of the movement in the underlying business, if you will we’ll start to look to think about capital allocation. And honestly, we are of a company right now and we will see how we pay debt how we reinstate the dividend, we don’t want to reinstate the dividend too soon and then change our mind.

We want to think about that and also how we look at the market with the energy transformation. Generating free cash flow is something that many companies don’t have and when we have that, we want to use it prudently.

That’s really helpful. Thank you.

And then, I know you touched on inland differentials a couple different times. But just specifically, thinking about the low levels of cushing inventories, how do you think the cushing in U.S.

crude flow situation is going to play out in the next couple of months? And then, how do you think that’s going to impact, I guess, the Midland will be more important for you guys, but Brent TI, your thoughts there as well.

Yes, I’ll let Todd to take that one.

Yes. John, so, obviously, this guy is falling according to the market in cushing.

But if you look at what happened this week, we saw builds, high prices cure high prices and the differentials in cushing are attracting barrels into that market. This is ultimately going to cause that banks to fill back up again.

To Uzi’s point earlier today, we really are not super exposed to the cushing market. We prefer to look at the market in terms of the Midland to Brent differential and that differential has been performing in our favor coming back to kind of flat.

In fact, a couple of weeks ago, we even thought trade fairly significantly negative for a day or two. So, we feel pretty good about where things are, where they are headed and in addition to that obviously, again make reinforcing the comment around DPG volumes that we see coming on much faster than we believe the market is anticipating I think gives us a lot of potential tailwinds as we move into next year with a strong margin environment and relatively weak Midland differentials.

Helpful. Thank you very much.

Hey, good morning, Uzi.

Hey, Matt.

Just given the increasing activity in the Permian, I guess, I would have thought that your retail segment was been a little bit stronger. It looks like your retail fuel volumes were down both quarter-over-quarter as well as year-over-year and then you merchandize sales per store were also down quarter-over-quarter and year-over-year.

So, I guess, could you talk about dynamics in the retail segment?

Absolutely. First, as you see, we elected to close some stores.

But if you look at same-stores, we are still recovering from the pandemic. We are starting to see the recovery and if you look at September and October, of course, you don’t have the numbers.

We see the recovery coming on the gallon side. We – and that will bring the merchandize.

We always manage that business very carefully in terms of profitability because we want this year to be a profit year. Now, please remember, as we continue to bring online the MTIs the new stores that will improve.

But you are absolutely correct that we elected this quarter to keep our margins high and to wait for the market do the activity in the Permian to pick up. It will pick up and then, like that’s happened in 2014, we are certainly expecting 2022 very, very strong year for retail.

Got it. And then, circling back to the conversation on valuation.

So, Uzi, on our numbers, Delek is the only company where refining trading for free. You are sitting on the big stake in DKL.

You also have the interest in the higher multiple retail and the stock has lagged year-to-date. So, what, I guess, I am just not sensing much of an urgency to monetize these parts and could you just talk about what actions you are looking at to improve the valuation here?

Look, that’s a great question, Matt. And as you know, the market is many times – I have a friend that became a CEO of a public company and he texted me a week ago saying, hey, I’ve been a public company CEO for a week.

How did you do that for 20 years? So, and over my career here, I have finished up and down with valuation and markets change dramatically.

I think that what the market was expecting us to do to start producing the free cash flow which we obviously continued to prove especially with – as I mentioned the insurance, SREs and the improvement in the underlying business. We believe that valuation will improve with that.

With that being said, all options are on the table vis-à-vis other assets is that doesn’t happen. So, by the end of the day, we will wait for the market to improve, but if it doesn’t we will act.

Got it. Thank you.

Hi, good morning, everyone. And let me second and ask the condolences to you.

So, Uzi, a lot has been covered here. I am just going to ask you about crude differentials.

But you’ve pointed us pretty clearly at the Midland Brent differential there. One thing that’s changed since we had a couple of moments of history and it was the natural gas price.

Can you talk a bit about how that’s changing things for you and the industry? And we are particularly thinking about some of the crude differentials and the flair being affected by the change in natural gas prices and the change between particularly natural gas prices firstly here, obviously in the U.S.

much higher, but secondly the major arbitrage between here and Europe. Thanks.

Paul, first thank you for your kind words and vis-à-vis Louis. And also, in regard to the natural gas situation, if I told myself or anybody a year ago that natural gas would be at $6, somebody would have told me that – anybody that I would have telling that would have said to me, you lost your mind.

And we are here we are at $6. I think that this is while it is a unique situation.

I don’t think that it will last more than a year or two. And I don’t know that we change our biz, especially in light of the fact that we are very well positioned in terms of our natural gas.

We are getting very cheap natural gas because of our proximity to the source of that gas. So, I don’t know that we are changing our business much.

With that being said, if it continues then we will need to look at it very carefully. And especially in the Permian, with the associated gas to see what to do with it.

I don’t know if you want to add anything to that, Todd?

The only thing I would say, Paul, is obviously, with the elevated prices in Northwest Europe now trading, let’s call it roughly about $22 an MMBTU, maybe slightly higher today. That really puts a bid under the crack as you see fuel switching around the world mainly focused in Northwest Europe and then in Asia.

So, from that perspective, you are seeing headwinds probably of $3 to $4 a barrels in Northwest European cracks because of that. And then, again as a result of that, we see pretty good solid foundational base being built in the – that could set up for very robust crack environment – margin environment here in the U.S.

continuing through 2022 and out the curve into 2023 if that persists.

Got it. Just a final follow-up.

Could you just explain it for me, like I am a – but you expect Midland to go to a much bigger discount next year. Can you just because it’s so important for you guys.

Could you just run through that?

Right. I don’t know that is going to be – we never said much bigger.

What we see is that, if Brent TI accrual is then, still the Midland barrels needs to leave Midland and to go to their export markets. So, if it’s closer then, something needs to give otherwise producers – the cost should be reflected somewhere.

So, I don’t know that we think of much bigger discount, but we’ve already saw it at the minus 10, minus 20, minus 30. That’s especially – and we are especially surprised with that with the Wink to Webster coming online right now.

So with the lion fill and still Midland is weak. So will see if Brent TI opens up to $8 then there is a chance that Midland will go to a premium and vice versa.

That’s how we look at it.

I am going to have to stay around the room. My head on my hands thinking about that, Uzi.

But thanks. Appreciate the defense.

Hey, good morning, guys. I’m standing in for Doug.

So, thanks for taking the question. I had a couple here.

The first one is on the value of the refining business. So, the perception based on that refining is free, but ex-DKL, wondering what you see as the sustainable free cash flow for the standalone refining business without the SREs and fully loaded for additional drop downs in DKL that burden the cost of the refining business.

And of course, applying what your thoughts are on maintenance capital. So what does that number look like on a mid-cycle basis, perhaps assuming, I don’t know, a $3 WTI rent differential.

Well, okay, let’s go one-by-one here, Clay. First, you ask about the maintenance CapEx.

I think Blake mentioned that it’s between $150 million to $200 million depends on the year. So, that’s our number, if you will.

And you can write it down. Second, vis-à-vis, the ability to maintain free cash flow regardless of SREs.

First we think that we are down to SREs, and the administration thought that we were, that the SREs because we were granted them year after year after year. So, I don’t know that this assumption is the right assumption is like assuming that BTU doesn’t exist.

So all these are renewable diesel should go away. I don’t know that this is an assumption that as a CEO, I should think.

But let’s just put it aside for just one minute and assume that this will go back to $0.10 or $0.20 or $0.30 regardless of SREs just because the RVO will be normalized. We said it and we continue to say it again and again and again under $15 of cracks would no – or Contango, i.e., zero, neutral which is now I know we are in – of the FMEs and in $1.

I know that. But under $15 and with the cost structure we have, and the rents being normalized numbers and Midland being at zero, no differentials.

We are – we think that we can generate $500 million of EBITDA refining only. So it takes $15 with the cost structure that we have today and Wink to Webster there is no burden on refining.

So I don’t know why there will be burden on refining will dropdown. And with Midland zero, it’s a CMA of zero, which right now, it is negative $1.

So I tell you it won’t suggest us, what in our mind $500 million. I don’t know, Blake, if you want to add anything to that?

Clay, the only thing I would add and I think you and Doug were asking about mid-cycle earnings for the last quarter. If you go through this quarter and isolate refining EBITDA, and you kind of back out the headwinds from Midland, Contango natural gas, et cetera, we generated about $50 million to $60 million of EBITDA.

And obviously, I think the messaging there is, our $10 breakeven seems to be holding up. So, as Uzi said, I think, as you kind of escalate toward more of a $15 rent adjusted crack, on a mid-cycle basis, the earnings power of refining is going to exacerbate quite dramatically.

Got it. I appreciate that.

So the nuance there is that, the $500 million in mid-cycle EBITDA depends on a normalized rent environment. I hope we get back there one day.

Now, let’s be honest. If it’s not normalized, and the cracks will go up, but also we do not – in that number, we didn’t not include the SREs, which we – anybody can assume whatever they want.

But if we are getting them year after year after year, I don’t think that we should assume that we won’t get them.

Got it. Thanks for that clarification.

The second question is on the strategic rationale of Delek Logistics. It’s really a question about governments.

So the pushback that we get is that the free cash flow capacity at the refining business has been burdened by the fixed cost that have been added to it by DKL. So, in a trough, DK doesn’t pay a dividend, but DKL does and that rate is to concern about the governance, where management owns a little bit of both entities, but maybe influenced by the dividend mix of where it gets paid out.

We are sure a lot of this came up in the meeting and they challenged you on a number of things. But I think the market likes to hear if you guys addressed it.

Well, I don’t know that management is being – our compensation as management is largely vis-à-vis DK, very little – or very small group of people which is very little are being compensated and if anything around DKL, so I don’t know that there is anything that impacts our management with DKL or anything like that. This is the typical structure that we have a sponsor – with the sponsor MLP.

Now, please remember, DK has a very well with the cost of capital. So DK is very well with all these drop downs that allowed us over the years to take that cash pay dividend and buy shares at the DK level.

So, I don’t know where it’s coming from that DKL is our management favors DKL. Also, the ideas were eliminated 18 months ago.

So I am not sure what concerns there are if any and we look surprising with the question.

Underneath you want to ask it, but I appreciate the answer, Uzi. Thank you.

Good morning. Thanks for taking my question.

I have couple of quick ones. It seems like a lot of the very material stuff is being covered.

First on sweet to sour switching, it seems like some of the impact from higher natural gas prices is weakening sour. Can you just discuss your ability to switch between Midland and WTS crude and if you capture kind of that full dip or if there is an offset in terms of the yield?

And then, the second one, just a clarification on your cash flow number that I think you had discussed getting a CARES ACT benefit in 3Q. Did any of that come through or has that moved to 4Q?

Thanks.

So, Jason, this is Todd. I’ll take the first part of that question regards to the sweet to sour.

Obviously, the market is moving right now. So we are not going to go heavily into detail around exactly where we are executing just simply because it’s obviously very commercially sensitive information.

But suffice it to say, again, that we have the kit on the ground between DKL and between refining assets to be able to optimize around those streams. We’ll capture a 100% of that uplift.

And in reality the natural gas is not really a headwind when you look at that. It’s already kind of factored into that based on what we are running today.

So, incremental uplift I think is what you would assume.

I mean, and you maybe tell us how much sour you’ve run at the maximum level and kind of what the ranges that you can do?

Well, it depends on us to reversing couple of pipelines that we own. We have not made that decision, obviously if it persists, we will do that.

But remember, we are just coming out of the pandemic right now. And the activity in Midland is just now picking up.

So, give it some time to the sweet barrels to come back to the market. I know that everybody is anxious, let’s do it in a six months or 12 months.

But that’s not how you run your business. Our outlook for the production over the long-term is that the Permian will continue to produce at high levels.

I know that the pandemic put a halt into starts for the last couple of years. But give it some time.

The activity will pick up.

And Jason, just to quickly answer your question on the tax refund. So that was received and booked within working capital.

So, that is reflected in the cash flow waterfall that’s on Page 4.

Thanks.

Hey guys. Good morning.

Hey, Mr. Chang.

Let me first send my condolence to you and Louis’ family. So, I was really sorry to hear the news.

Uzi, a number of quick questions. First, maybe, what is your natural gas price sensitivity to the OpEx and also the margin catch up rate for FE per dollar currently have changed, on a per barrel basis.

Paul, it’s Blake. I’ll tackle that.

So, basically, every dollar per MCF equates to $20 million of annual sensitivity or impact for natural gas. And the corresponding impact of that for us is roughly $0.50 per barrel, distillate crack moves would essentially offset that.

So, in this environment, where you are seeing escalating gas prices, the distillate crack what we have seen has been more than enough to offset that. So, we will take our prices on operating costs any day to get a higher margin like we see.

Hey, Blake, the $20 million is all in OpEx, how about in the margin catch-up since that you consume natural gas for hydrogen – on hydrogen crack or hydro chipping. So what is the piece for the margin catch-up?

Paul it’s de minimis. There is a very small amount at El Dorado.

But it’s frankly not, I guess, less than $1 million. So, basically, it’s all in the OpEx line.

Alright. Secondly, that can you share with us that what is in the third quarter the rent mark-to-market gain that you booked?

And also that what is the curve that we are all sitting on the balance sheet at the end of the third quarter. [Indiscernible]

Paul, we never disclose that. We consider that as part of our ongoing business.

Obviously, we are not building positions one way or another because that’s not our business model, but if we are long or short, a little bit here or there, we are not disclosing that to the market.

Okay.

That’s part of our ongoing business.

Sure. Can you tell me what is the third quarter net win expense or net of the mark-to-market and the ongoing 2021 expense?

What’s that number?

Paul, we don’t disclose that. We just historically have not given that.

So, unfortunately, I don’t have that data to give to you.

Alright. And two final questions.

First, Uzi, I think you all knew about that refining has been changing somewhat over the past several years. I think at one point, you were aiming to increase the refining capacity to get better economy of scale.

And I think in the last couple quarters, I think the question you are receiving is, you sort of fail maybe that you are not going to focus on that anymore. There is a lot of, quite a number of refinery up for sale in the Gulf Coast.

So, how you view today? Do you think that you are still interested in expanding the refining capacity for inorganic mean or that really that that no longer part of your strategy?

And then the final question is, with your gasoline system, what you heard from your customer in the Permian in terms of their activity level over the next, say, six to 12 months? If there are any insights you can share.

Thank you.

Yes. Absolutely.

I’ll take the last – the second one, first, because it’s easy. We hear from every producer that they are going to increase their activity.

Every producer today and on top of that new producers are signing up for the acreage dedication to coming to the system. So the activity is picking up certainly.

I mentioned that on the DKL call that, we think that we will see – we will get to the – toward the MVC by the second part of next year of 120 which is an increase of 50% versus what we have right now. So, that’s an easy one.

On the other one, which is a little more or a little longer, you ask a great question. And we need to weigh in several factors here.

First, the energy transformation, second, the fact that we think that our company is too small. It is too small but, and we need to grow it.

Third, the fact that we have now, we are back to free cash flow. Fourth, if we buy refinery can we improve the operation and what is the sustainability of that refinery long-term in light of what’s going on with the ESG.

So, all these factors are being considered as we look at the future. And we – buying a refinery is not like buying a T-shirt tomorrow in the marketplace.

That’s a strategic decision that we need to weigh into all – into our metrics. And we look at that almost on a daily basis to take the next strategic steps for our company.

And Uzi, if you do form a candidate that you want to – you would be willing to acquire, what is the maximum nippage that you will allow DK to go to?

Yes. I don’t think that DK should go on a normalized basis, more than 1.5 times.

That’s ex DKL. So, if we look at the net debt for DK is now $500 million – roughly, $500 million.

We won’t – I don’t think that we should allow this to be more than 1.5 times on a normalized basis. Now, if there is an acquisition and then all of a sudden we deleverage over a year or two, that’s fine.

But long-term, I don’t think that we should be above that 1.5 times mid-cycle.

Alright. Thank you.

Well, I first, Jason, thanks for working us this morning. I’d like to thank everybody that participated in the call or on the call.

I’d like to have my colleagues around the table, thanking them for making this company what it is. Obviously, we all mentioned Louis and his family, please keep him - I need all your thoughts and prayers, but mostly I’d like to – actually I want to thank investors and Board of Directors, but mostly, I’d like to thank the employees of this company who make it the great company it is.

We’ll talk to you soon. Have a great day.