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What changed in Delek Logistics Partners, LP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Delek Logistics Partners, LP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+320 added−344 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Delek Logistics Partners, LP's 2023 10-K

320 paragraphs added · 344 removed · 221 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

119 edited+45 added−31 removed367 unchanged
Biggest changeIf any of these events had previously occurred or occurs in the future in connection with any of our refineries, pipelines or refined petroleum products terminals, or in connection with any facilities that receive our wastes or byproducts for treatment or disposal, other than events for which we are indemnified, we could be liable for all costs and penalties associated with their remediation under federal, state, local and international environmental laws or common law, and could be liable for property damage to third parties caused by contamination from releases and spills.
Biggest changeWhen these events occur in connection with any of our refineries, pipelines or refined petroleum products terminals, or in connection with any facilities that receive our wastes or byproducts for treatment or disposal, we have in the past and could in the future be liable for costs and penalties associated with their remediation under federal, state, local and international environmental laws or common law, as well as for property damage to third parties caused by contamination from releases and spills. 33 | Risk Factors A material decrease in the supply of attractively priced crude oil could materially reduce the volumes of crude oil and refined products that we transport and store, which could materially and adversely affect our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to our unitholders.
Whether a pipeline provides service in interstate commerce or intrastate commerce is highly fact-dependent and determined on a case-by-case basis. We cannot provide assurance that the FERC will not, at some point, assert that some or all of the transportation service we provide that is not currently subject to our FERC tariffs within its jurisdiction.
Whether a pipeline provides service in interstate commerce or intrastate commerce is highly fact-dependent and determined on a case-by-case basis. We cannot provide assurance that the FERC will not, at some point, assert that some or all of the transportation service we provide that is not currently subject to our FERC tariffs is within its jurisdiction.
In Louisiana, all pipelines conveying petroleum from a point of origin within the state to a destination within the state are declared common carriers. T he Louisiana Public Service Commission is empowered with the authority to establish reasonable rates and regulations for the transport of petroleum by a common carrier, mandating public tariffs and providing of transportation without discrimination.
In Louisiana, all pipelines conveying petroleum from a point of origin within the state to a destination within the state are declared common carriers. T he Louisiana Public Service Commission is empowered with the authority to establish reasonable rates and regulations for the transport of petroleum by a common carrier, mandating public tariffs and providing transportation without discrimination.
Accordingly, we are indirectly subject to the operational and business risks of Delek Holdings and its assignees, including, but not limited to, the following: • the timing and extent of changes in the costs and availability of crude oil and other refinery feedstocks (including prolonged periods of low crude oil prices that could impact production of inland crude oil and reduce the amount of cost advantaged crude oil available and/or the discount of such crude oil as compared to other crude oil) and in the price and demand for Delek Holdings' refined products; • the risk of contract cancellation, non-renewal or failure to perform by Delek Holdings’ suppliers or customers, and Delek Holdings’ inability to replace such suppliers, contracts, customers and/or revenues; • disruptions due to equipment interruption or failure or other events at Delek Holdings’ facilities, or at third-party facilities on which Delek Holdings’ business is dependent; • the effects of economic downturns on Delek Holdings’ business and the business of its suppliers, customers, business partners and lenders; • changes in global and local economic conditions, e.g., as a result of the outbreak of the COVID-19 Pandemic; • Delek Holdings’ ability to remain in compliance with its contracts; • Delek Holdings’ ability to remain in compliance with the terms of its outstanding and any future indebtedness; • changes in the cost or availability of third-party pipelines, terminals and other means of delivering and transporting crude oil, feedstocks and refined products; • state and federal environmental, economic, health and safety, energy and other policies and regulations, and any changes in those policies and regulations; • environmental incidents and violations and related remediation costs, fines and other liabilities; and • changes in crude oil and refined product inventory levels and carrying costs. 30 | Risk Factors Additionally, Delek Holdings continually considers opportunities presented by third parties with respect to its refinery assets.
Accordingly, we are indirectly subject to the operational and business risks of Delek Holdings and its assignees, including, but not limited to, the following: • the timing and extent of changes in the costs and availability of crude oil and other refinery feedstocks (including prolonged periods of low crude oil prices that could impact production of inland crude oil and reduce the amount of cost advantaged crude oil available and/or the discount of such crude oil as compared to other crude oil) and in the price and demand for Delek Holdings' refined products; • the risk of contract cancellation, non-renewal or failure to perform by Delek Holdings’ suppliers or customers, and Delek Holdings’ inability to replace such suppliers, contracts, customers and/or revenues; • disruptions due to equipment interruption or failure or other events at Delek Holdings’ facilities, or at third-party facilities on which Delek Holdings’ business is dependent; • the effects of economic downturns on Delek Holdings’ business and the business of its suppliers, customers, business partners and lenders; • changes in global and local economic conditions, e.g., as a result of the outbreak of the COVID-19 Pandemic; • Delek Holdings’ ability to remain in compliance with its contracts; • Delek Holdings’ ability to remain in compliance with the terms of its outstanding and any future indebtedness; • changes in the cost or availability of third-party pipelines, terminals and other means of delivering and transporting crude oil, feedstocks and refined products; • state and federal environmental, economic, health and safety, energy and other policies and regulations, and any changes in those policies and regulations; • environmental incidents and violations and related remediation costs, fines and other liabilities; and • changes in crude oil and refined product inventory levels and carrying costs. 26 | Risk Factors Additionally, Delek Holdings continually considers opportunities presented by third parties with respect to its refinery assets.
Any failure to remain in compliance with these government regulations may results in enforcement actions which may have a material adverse effect on our business and operations. An impairment of our long-lived assets or goodwill could reduce our earnings or negatively impact our financial condition and results of operations.
Any failure to remain in compliance with these government regulations may result in enforcement actions which may have a material adverse effect on our business and operations. An impairment of our long-lived assets or goodwill could reduce our earnings or negatively impact our financial condition and results of operations.
Our operations are subject to all of the risks and operational hazards inherent in gathering, transporting and storing crude oil and intermediate and refined and other products, including: 31 | Risk Factors • business interruption due to maintenance and repairs or mechanical or structural failures with respect to our assets, or our facilities or with respect to third-party assets or facilities on which our operations are dependent, including Delek Holdings’ assets or facilities; • operational errors that result in a loss of physical integrity or performance in our pipelines and facilities; • deterioration of the condition of our pipelines and facilities through age, use and disuse; • damages to our assets and surrounding properties caused by earthquakes, floods, fires, severe weather, explosions and other natural disasters and acts of sabotage or terrorism; • damages to and loss of availability of interconnecting third-party pipelines, terminals and other means of delivering crude oil, feedstocks and refined petroleum products; • the inability of third-party facilities on which our operations are dependent, including Delek Holdings’ facilities, to complete capital projects and to restart timely refining operations following a shutdown; • curtailments of operations as a result of severe seasonal weather; • inadvertent damage to pipelines from construction, farm and utility equipment; • constrained pipeline and storage infrastructure; • disruption or failure of information technology systems and network infrastructure due to various causes, including unauthorized access or attacks; and • other hazards.
Our operations are subject to all of the risks and operational hazards inherent in gathering, transporting and storing crude oil and intermediate and refined and other products, including: • business interruption due to maintenance and repairs or mechanical or structural failures with respect to our assets, or our facilities or with respect to third-party assets or facilities on which our operations are dependent, including Delek Holdings’ assets or facilities; • operational errors that result in a loss of physical integrity or performance in our pipelines and facilities; • deterioration of the condition of our pipelines and facilities through age, use and disuse; • damages to our assets and surrounding properties caused by earthquakes, floods, fires, severe weather, explosions and other natural disasters and acts of sabotage or terrorism; • damages to and loss of availability of interconnecting third-party pipelines, terminals and other means of delivering crude oil, feedstocks and refined petroleum products; • the inability of third-party facilities on which our operations are dependent, including Delek Holdings’ facilities, to complete capital projects and to restart timely refining operations following a shutdown; • curtailments of operations as a result of severe seasonal weather; • inadvertent damage to pipelines from construction, farm and utility equipment; • constrained pipeline and storage infrastructure; • disruption or failure of information technology systems and network infrastructure due to various causes, including unauthorized access or attacks; and • other hazards.
The long-term impacts of terrorist attacks and the threat of future terrorist on the energy transportation terrorist attacks or vandalism could result in increased costs to our business. In addition, disruption or significant increases in energy prices could result in government-imposed price controls.
The long-term impacts of terrorist attacks and the threat of future terrorist on energy transportation infrastructure or vandalism could result in increased costs to our business. In addition, disruption or significant increases in energy prices could result in government-imposed price controls.
We could also be subject to resulting investigation and remediation costs as well as regulatory enforcement of private litigation and related costs, which could have a material adverse impact on our cash flow and results of operations.
We could also be subject to resulting investigation and remediation costs, as well as regulatory enforcement, private litigation and related costs, any of which could have a material adverse impact on our cash flow and results of operations.
We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive position. 48 | Risk Factors Risks Relating to Our Partnership Structure Our general partner and its affiliates, including Delek Holdings, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders.
We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive position. 46 | Risk Factors Risks Relating to Our Partnership Structure Our general partner and its affiliates, including Delek Holdings, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders.
This 85% threshold will automatically decrease to 80% if at any time our general partner and its affiliates together own less than 77% of our outstanding common units. • Our general partner decides whether to retain separate counsel, accountants or other advisers to perform services for us. 49 | Risk Factors Our Partnership Agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties.
This 85% threshold will automatically decrease to 80% if at any time our general partner and its affiliates together own less than 77% of our outstanding common units. • Our general partner decides whether to retain separate counsel, accountants or other advisers to perform services for us. 47 | Risk Factors Our Partnership Agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties.
"Business and Properties—Delek Holdings' Crude Oil and Refined Products Intermediation Agreement." As we expect to continue to derive the substantial majority of our margins from Delek Holdings, either directly or indirectly, for the foreseeable future, we are subject to the risk of nonpayment, nonperformance or underperformance by Delek Holdings under our commercial agreements.
"Business and Properties—Delek Holdings' Crude Oil and Refined Products Intermediation Agreement." As we expect to continue to derive the substantial majority of our margins from Delek Holdings, either directly or indirectly, for the foreseeable future, we are subject to the risk of nonpayment, nonperformance or underperformance by Delek Holdings under our commercial agreements or its assignees.
If we experience significant claims, or if there are significant changes occur in the number or financial solvency of insurance underwriters for the energy industry, or if other adverse conditions over which we have no control prevail in the insurance market, we may be unable to obtain and maintain adequate insurance at a reasonable cost.
If we experience significant claims, or if significant changes occur in the number or financial solvency of insurance underwriters for the energy industry, or if other adverse conditions over which we have no control prevail in the insurance market, we may be unable to obtain and maintain adequate insurance at a reasonable cost.
We own pipeline assets in Texas, Arkansas, Louisiana and Oklahoma. In Texas, a pipeline, with some exceptions, is required to operate as a common carrier and provide transportation without discrimination. Arkansas provides that all intrastate oil pipelines are common carriers, but it exercises light-handed regulation over petroleum pipelines.
We own pipeline assets in Texas, Arkansas, Louisiana, New Mexico and Oklahoma. In Texas, a pipeline, with some exceptions, is required to operate as a common carrier and provide transportation without discrimination. Arkansas provides that all intrastate oil pipelines are common carriers, but it exercises light-handed regulation over petroleum pipelines.
Any acquisition or investment involves potential risks, including, among other things: • mistaken assumptions about revenues and costs, including synergies; • the assumption of known or unknown liabilities; • limitations on rights to indemnity from the seller; • mistaken assumptions about the overall costs of equity or debt; • the diversion of management’s attention from other business concerns; • ineffective or poor integration of such acquisitions; 43 | Risk Factors • unforeseen difficulties operating multi-customer and product assets in new product areas or new markets; and • customer or key employee losses at the acquired businesses.
Any acquisition or investment involves potential risks, including, among other things: • mistaken assumptions about revenues and costs, including synergies; • the assumption of known or unknown liabilities; • limitations on rights to indemnity from the seller; • mistaken assumptions about the overall costs of equity or debt; • the diversion of management’s attention from other business concerns; • ineffective or poor integration of such acquisitions; • unforeseen difficulties operating multi-customer and product assets in new product areas or new markets; and • customer or key employee losses at the acquired businesses.
The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner. 50 | Risk Factors Our Partnership Agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.
The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner. 48 | Risk Factors Our Partnership Agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.
If Delek Holdings fails to renew these contracts as they come up for renewal, or if Delek Holdings fails to use our assets and services after the expiration of the agreements, or should our agreements be invalidated as a result of our performance failure or for any other reason, and we are unable to generate revenue from third parties with respect to such assets, we could be materially and adversely affected.
If Delek Holdings fails to renew these contracts as they come up for renewal, or if Delek Holdings fails to use our assets and services after the expiration of the agreements, or should our agreements be invalidated as a result of our performance failure or for any other reason, and we are unable to generate revenue from third parties with respect to such assets, our business and results of operations could be materially and adversely affected.
Energy-related assets (which could include refineries, pipelines and terminals) may be at greater risk of future terrorist attacks than other possible targets in the U.S. In addition, the State of Israel, where Delek Holdings Group, the former parent company of Delek Holdings, is based, has suffered armed conflicts and political instability in recent years.
Energy-related assets (which could include refineries, pipelines and terminals) may be at greater risk of future terrorist attacks than other possible targets in the U.S. In addition, the State of Israel, where Delek Holdings Group, the former parent company of Delek Holdings, is based, has suffered armed conflicts and political instability in recent years, including the Israel-Hamas War.
If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss 55 | Risk Factors and deduction among our unitholders. Our counsel has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations.
If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Our counsel has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations.
Transportation of crude oil and products over water, or proximate to navigable bodies of water, involves inherent risks (including risks of spills) and could subject us to the provisions of the OPA, the Clean Water Act and similar state environmental laws should a spill occur from our facilities. See Items 1 and 2.
Transportation of crude oil and products over water, or proximate to navigable bodies of water, involves inherent risks (including risks of spills) and could subject us to the provisions of the OPA, the Clean Water Act and similar state environmental 30 | Risk Factors laws should a spill occur from our facilities. See Items 1 and 2.
Any significant reduction in volumes could adversely affect our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to our unitholders. 39 | Risk Factors An interruption or reduction of supply and delivery of refined products to our wholesale marketing business could result in a decline in our sales and profitability.
Any significant reduction in volumes could adversely affect our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to our unitholders. An interruption or reduction of supply and delivery of refined products to our wholesale marketing business could result in a decline in our sales and profitability.
Delek Holdings is the only customer for a majority of our assets, including but not limited to our assets used to support the Tyler Refinery and the majority of our terminalling assets.
Delek Holdings is the only or primary customer for a majority of our assets, including but not limited to our assets used to support the Tyler Refinery and the majority of our terminalling assets.
Our general partner intends to limit its liability under contractual arrangements, so that the counterparties to such arrangements have recourse only against our assets and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or 52 | Risk Factors other obligations that are nonrecourse to our general partner.
Our general partner intends to limit its liability under contractual arrangements, so that the counterparties to such arrangements have recourse only against our assets and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner.
The extent of such impact will depend on future developments and factors outside of our control, including new information which may emerge concerning the severity or duration of the COVID-19 Pandemic, the evolving governmental and private sector actions to contain the pandemic or treat its health, economic, and other impacts, and the timing and effectiveness of the ongoing rollout of currently available vaccines.
The extent of such impact will depend on future developments and factors outside of our control, including new information which may emerge concerning the severity or duration of such disease, the evolving governmental and private sector actions to contain the disease or treat its health, economic, and other impacts, and the timing and effectiveness of the ongoing rollout of currently available vaccines.
Any adverse effect on our current and future 42 | Risk Factors credit ratings could increase our cost of borrowing or hinder our ability to raise financing in the capital markets, which could impair our ability to grow our business and make cash distributions to our unitholders.
Any adverse effect on our current and future credit ratings could increase our cost of borrowing or hinder our ability to raise financing in the capital markets, which could impair our ability to grow our business and make cash distributions to our unitholders.
We cannot accurately predict the amount and timing of any additional impairments of long-lived assets or goodwill in the future. The Partnership's ongoing study of strategic options could materially impact our strategic direction, business and results of operations.
We cannot accurately predict the amount and timing of any additional impairments of long-lived assets or goodwill in the future. 45 | Risk Factors The Partnership's ongoing study of strategic options could materially impact our strategic direction, business and results of operations.
Should the U.S. and global economies experience weakness, demand for energy may decline. Should growth in global energy production outstrip demand, excess supplies may arise.
Should the U.S. or global economies experience weakness, demand for energy may decline. Should growth in global energy production outstrip demand, excess supplies may arise.
While we are entitled to reimbursement or indemnification from Delek Holdings for certain 34 | Risk Factors environmental liabilities under the Omnibus Agreement, such reimbursement or indemnification may not fully cover any damages we may incur, or Delek Holdings may default on or otherwise fail to satisfy its obligations to us, which could have a material adverse effect on our business, financial condition or results of operations.
While we are entitled to reimbursement or indemnification from Delek Holdings for certain environmental liabilities under the Omnibus Agreement for certain assets which we purchased from Delek Holdings, such reimbursement or indemnification may not fully cover any damages we may incur, or Delek Holdings may default on or otherwise fail to satisfy its obligations to us, which could have a material adverse effect on our business, financial condition or results of operations.
Finally, depending on the severity and duration of any extreme weather events or climate conditions, our operations may need to be modified and material costs incurred, which could materially and adversely affect our business, financial condition and results of operations.
Finally, depending on the severity and duration of any extreme weather events or climate conditions, our maintenance procedures may need to be delayed or expanded, operations may need to be modified and material costs incurred, which could materially and adversely affect our business, financial condition and results of operations.
We may be adversely affected by the effects of inflation. Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.
We have systems in place to manage potential acute physical risks, including those that may be caused by climate change, but if any such events were to occur, they could have an adverse effect on our assets and operations. Examples of potential physical risks include floods, hurricane-force winds, wildfires, freezing temperatures and snowstorms.
We have systems in place to manage potential acute physical risks, including those that may be caused by climate change, but if any such events were to occur, they could have an adverse effect on our assets and operations. Examples of potential physical risks include extreme heat, severe thunderstorms, lightning strikes, floods, hurricane-force winds, wildfires, freezing temperatures and snowstorms.
The ability of these refineries and our suppliers to supply refined products to us could be disrupted by anticipated events, such as scheduled upgrades or maintenance, as well as events beyond their control, such as unscheduled maintenance, the COVID-19 Pandemic, fires, floods, storms, explosions, power outages, accidents, acts of terrorism or other catastrophic events, labor difficulties and work stoppages, governmental or private party litigation, or legislation or regulation that adversely impacts refinery operations.
The ability of these refineries and our suppliers to supply refined products to us could be disrupted by anticipated events, such as scheduled upgrades or maintenance, as well as events beyond their control, such as unscheduled maintenance, regional or global disease outbreaks, fires, floods, storms, explosions, power outages, accidents, acts of terrorism or other catastrophic events, labor difficulties and work stoppages, governmental or private party litigation, or legislation or regulation that adversely impacts refinery operations.
Under the Omnibus Agreement, we will pay Delek 51 | Risk Factors Holdings an annual fee and reimburse Delek Holdings and its subsidiaries for Delek Holdings’ provision of various centralized corporate services.
Under the Omnibus Agreement, we will pay Delek Holdings an annual fee and reimburse Delek Holdings and its subsidiaries for Delek Holdings’ provision of various centralized corporate services.
The revolving credit facility and the respective indentures governing the 2025 Notes and 2028 Notes also have cross-default provisions that would apply to certain other indebtedness we may have. Our debt levels may limit our flexibility to obtain financing and to pursue other business opportunities. As of December 31, 2022, we had approximately $1,670.5 million in debt outstanding.
The revolving credit facility and the respective indentures governing the 2025 Notes and 2028 Notes also have cross-default provisions that would apply to certain other indebtedness we may have. Our debt levels may limit our flexibility to obtain financing and to pursue other business opportunities. As of December 31, 2023, we had approximately $1,711.8 million in debt outstanding.
The ultimate extent of the impact of the volatile conditions in the oil and gas industry on our business, financial condition, results of operation and liquidity will also depend largely on future developments, including the extent and duration of any price reductions, any additional decisions by OPEC and disputes between the members of OPEC+.
The ultimate extent of the impact of volatile conditions in the oil and gas industry on our business, financial condition, results of operation and liquidity will depend largely on future developments which are outside of our control, including the extent and duration of any price reductions, any additional decisions by OPEC and disputes between the members of OPEC+.
Potential difficulties that may be encountered in the integration process include, among others: • the inability to successfully integrate the 3 Bear business into our business in a manner that permits us to achieve the revenue and cost savings that we announced as anticipated from the acquisition; • complexities associated with managing the larger, integrated business; • potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the 3 Bear Acquisition; • integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services; • loss of key employees; • integrating relationships with customers, vendors and business partners; 32 | Risk Factors • performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the acquisition and integration of 3 Bear’s operations into the Partnership; and • the disruption or loss in momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
Potential difficulties that may be encountered in the integration process include, among others: • the inability to successfully integrate the Delaware Gathering business into our business in a manner that permits us to achieve the revenue and cost savings that we announced as anticipated from the acquisition; 28 | Risk Factors • complexities associated with managing the larger, integrated business; • potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Delaware Gathering Acquisition; • integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services; • loss of key employees; • integrating relationships with customers, vendors and business partners; • performance shortfalls at either or both of our existing businesses or the acquired business as a result of the diversion of management's attention caused by completing the acquisition and integration of Delaware Gathering's operations into the Partnership; and • the disruption or loss in momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
Our unitholders may also incur a tax liability upon any such sale of their units to Delek Holdings. At February 24, 2023, Delek Holdings owned 34,311,278 common limited partner units, or 78.8% of our total outstanding common limited partner units. Our unitholders' liability may not be limited if a court finds that unitholder action constitutes control of our business.
Our unitholders may also incur a tax liability upon any such sale of their units to Delek Holdings. At February 21, 2024, Delek Holdings owned 34,311,278 common limited partner units, or 78.7% of our total outstanding common limited partner units. Our unitholders' liability may not be limited if a court finds that unitholder action constitutes control of our business.
An undetected failure of these systems, because of power loss, unsuccessful transition to upgraded or replacement systems, unauthorized access or other cyber breach or attack could result in disruption to our business operations, access to or disclosure or loss of data and/or proprietary information, personal injuries and environmental damage, which could have an adverse effect on our business, reputation, and effectiveness.
A failure of these systems, whether due to power loss, unsuccessful transition to upgraded or replacement systems, unauthorized access or other cyber breach or attack could result in disruption to our business operations, access to or disclosure or loss of data and/or proprietary information, personal injuries and environmental damage, any of which could have an adverse effect on our business, reputation, and effectiveness.
If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
We could also be liable under laws that protect the privacy of personal information, subject to regulatory penalties, experience damage to our reputation or a loss of consumer confidence, or incur additional costs for remediation and modification or enhancement of our information systems to prevent future occurrences, all of which could adversely affect our reputation, business, operations or financial results.
We could also be liable under laws that protect the privacy of personal information, subject to regulatory penalties, experience damage to our reputation or a loss of consumer confidence, or incur additional costs for remediation and modification or enhancement of our information systems to prevent future occurrences, all of which could adversely affect our reputation, business, operations or financial results. 44 | Risk Factors We may be adversely affected by the effects of inflation.
Our unitholders could be held liable for any and all of our obligations as if they were general partners if a court or government agency were to determine that: • we were conducting business in a state but had not complied with that particular state’s partnership statute; or • our unitholders' right to act with other unitholders to remove or replace our general partner, to approve some amendments to our Partnership Agreement or to take other actions under our Partnership Agreement constitute “control” of our business.
Our unitholders could be held liable for any and all of our obligations as if they were general partners if a court or government agency were to determine that: • we were conducting business in a state but had not complied with that particular state’s partnership statute; or • our unitholders' right to act with other unitholders to remove or replace our general partner, to approve some amendments to our Partnership Agreement or to take other actions under our Partnership Agreement constitute “control” of our business. 51 | Risk Factors Unitholders may have liability to repay distributions that were wrongfully distributed to them.
If we do not make sufficient or effective expansion capital expenditures, we will be unable to expand our business operations and may be unable to maintain or raise the level of our quarterly cash distributions.
In order to expand our asset base, we will need to make significant capital expenditures. If we do not make sufficient or effective expansion capital expenditures, we will be unable to expand our business operations and may be unable to maintain or raise the level of our quarterly cash distributions.
With regard to our physical sales of oil or other energy commodities, and any related hedging activities that we undertake, we are required to observe the market-related regulations enforced by these agencies, which hold substantial enforcement authority.
These agencies have imposed broad regulations prohibiting fraud and manipulation of such markets. With regard to our physical sales of oil or other energy commodities, and any related hedging activities that we undertake, we are required to observe the market-related regulations enforced by these agencies, which hold substantial enforcement authority.
Sanctions brought by the United States and other countries against Russia or any of its allies, any escalation of the conflict, including the regional or global expansion of hostilities, and other future developments could significantly affect the global economy, lead to market volatility and supply chain disruptions, have an adverse impact on energy prices, including prices for crude oil, other feedstocks, and refined petroleum products, have an adverse impact on the margins from our petroleum product marketing operations, and have a material adverse effect on our business, financial condition, and results of operations.
Any increase in sanctions, escalation of the conflicts, including the regional or global expansion of hostilities, and other future developments could significantly affect the global economy, lead to market volatility and supply chain disruptions, have an adverse impact on energy prices, including prices for crude oil, other feedstocks, and refined petroleum products, have an adverse impact on the margins from our petroleum product marketing operations, and have a material adverse effect on our business, financial condition, and results of operations.
The FERC's rate-making methodologies may limit our ability to set rates based on our true costs or may delay the use of rates that reflect increased costs. Any of the foregoing could adversely affect our revenues and cash flows.
The FERC's rate-making methodologies may limit our ability to set rates based on our true costs or may delay the use of rates that reflect increased costs. Any of the foregoing could adversely affect our revenues and cash flows. Shippers may protest, and the FERC may investigate, the lawfulness of new or changed tariff rates.
As of February 24, 2023, Delek Holdings owned 78.8% of our outstanding common limited partner units. Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common limited partner units.
As of February 21, 2024, Delek Holdings owned 78.7% of our outstanding common limited partner units. Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common limited partner units.
If, as a result of any of these or other factors, the volumes of attractively priced crude oil available to Delek Holdings’ refineries are materially reduced for a prolonged period of time, the volumes of crude oil and refined products that we transport and store, and the related fees for those services, could be materially reduced, which could materially and adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders. 37 | Risk Factors A portion of our operations are conducted through joint ventures, over which we do not have full control and which have unique risks.
If, as a result of any of these or other factors, the volumes of attractively priced crude oil available to Delek Holdings’ refineries are materially reduced for a prolonged period of time, the volumes of crude oil and refined products that we transport and store, and the related fees for those services, could be materially reduced, which could materially and adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.
We have incurred, and will continue to incur, costs to protect our assets from physical risks, and to employ processes, to the extent available, to mitigate such risks. Any extreme weather events may disrupt the ability to operate our facilities or to transport crude oil, refined petroleum or petrochemical and plastics products in these areas.
We have incurred, and will continue to incur, costs to protect our assets from physical risks and to employ processes, to the extent available, to mitigate such risks. 29 | Risk Factors Extreme weather events may disrupt our ability to operate and maintain our facilities or to transport crude oil, refined petroleum or petrochemical and plastics products, both within and outside affected areas.
In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders.
Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders.
In addition, as technologies evolve, and cyber-attacks become more sophisticated, we may incur significant costs to upgrade or enhance our security measures to protect against such attacks and we may face difficulties in fully anticipating or implementing adequate preventive measures or mitigating potential harm.
In addition, as technologies evolve, work trends change such as the increase in remote work in the wake of the COVID-19 Pandemic, and cyber-attacks become more sophisticated, we may incur significant costs to upgrade or enhance our security measures to protect against such attacks and we may face difficulties in fully anticipating or implementing adequate preventive measures or mitigating potential harm.
If Delek Holdings satisfies only its minimum obligations under, or if we are unable to renew or extend, the various commercial agreements we have with Delek Holdings, our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to unitholders could suffer.
Any reduction, suspension or termination of any of our commercial agreements could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to unitholders. 32 | Risk Factors If Delek Holdings satisfies only its minimum obligations under, or if we are unable to renew or extend, the various commercial agreements we have with Delek Holdings, our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to unitholders could suffer.
See “Risks Relating to Our Partnership Structure—Our general partner and its affiliates, including Delek Holdings, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders.” The COVID-19 Pandemic, any related subsequent waves of the COVID-19 Pandemic or an additional regional or global disease outbreak, and certain developments in the global oil markets have had, may continue to have, or may have an adverse impact on our business, our future results of operations and our overall financial performance.
See “Risks Relating to Our Partnership Structure—Our general partner and its affiliates, including Delek Holdings, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to the detriment of us and our other common unitholders.” Developments which impact the global oil markets have had, may continue to have, an adverse impact on our business, our results of operations and our overall financial performance.
Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.
If successful, such a proposal could eliminate the qualifying income exception to the treatment of publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for federal income tax purposes.
Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. If successful, such a proposal could eliminate the qualifying income exception to the treatment of publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for federal income tax purposes.
Unitholders’ voting rights are further restricted by a provision of our Partnership Agreement providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.
Unitholders’ voting rights are further restricted by a provision of our Partnership Agreement providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter. 50 | Risk Factors Our general partner’s interest in us and the control of our general partner may be transferred to a third party without unitholder consent.
If the FERC were successful with any such assertion, we may be required to pay refunds to customers and the FERC's rate-making methodologies may limit our ability to set rates based on our actual costs, delay the use of rates that reflect increased costs and subject us to potentially burdensome and expensive operational, reporting and other requirements. 41 | Risk Factors Service on the East Texas Crude Logistics System is currently subject to a temporary waiver issued by the FERC.
If the FERC were successful with any such assertion, we may be required to pay refunds to customers and the FERC's rate-making methodologies may limit our ability to set rates based on our actual costs, delay the use of rates that reflect increased costs and subject us to potentially burdensome and expensive operational, reporting and other requirements.
It is difficult to predict how significant the impact of the COVID-19 Pandemic, any related subsequent waves of the COVID-19 Pandemic, an additional regional or global disease outbreak, and any responses to such events, will be on the U.S. and global economies and our business or for how long disruptions are likely to continue.
Such impairment charges could be material. It is difficult to predict how significant the impact of any regional or global disease outbreak and any responses to such events will be on the U.S. and global economies and our business or for how long disruptions are likely to continue.
Supreme Court finding that GHG emissions constitute a pollutant under the Clean Air Act, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, implement New Source Performance Standards directing the reduction of methane from certain new, modified, or reconstructed facilities in the oil and natural gas sector, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States. 44 | Risk Factors Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of GHG emissions.
Supreme Court finding that GHG emissions constitute a pollutant under the Clean Air Act, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, implement New Source Performance Standards directing the reduction of methane from certain new, modified, or reconstructed facilities in the oil and natural gas sector, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States.
Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price. In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community.
In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community.
On June 1, 2022, we completed the 3 Bear Acquisition, which will require management to devote significant attention and resources to integrating the 3 Bear business with our business.
On June 1, 2022, we completed the Delaware Gathering Acquisition, which has required management to devote significant attention and resources to integrating the Delaware Gathering business with our business.
Our general partner’s interest in us and the control of our general partner may be transferred to a third party without unitholder consent. Our Partnership Agreement does not restrict the ability of Delek Holdings to transfer all or a portion of its general partner interest or its ownership interest in our general partner to a third party.
Our Partnership Agreement does not restrict the ability of Delek Holdings to transfer all or a portion of its general partner interest or its ownership interest in our general partner to a third party.
Under these regulations, the “amount realized” on a transfer of an interest in a publicly traded partnership, such as our common limited partner units, will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and such broker will generally be responsible for the relevant withholding obligations.
The Department of the Treasury and the IRS have recently issued final regulations providing guidance on the application of these rules for transfers of publicly traded partnership interests, including transfers of our common limited partner units. 53 | Risk Factors Under these regulations, the “amount realized” on a transfer of an interest in a publicly traded partnership, such as our common limited partner units, will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and such broker will generally be responsible for the relevant withholding obligations.
We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal credit information.
We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal credit information. Despite our security measures, we experience attempts by external parties to penetrate and attack our networks and systems.
Uncertainty surrounding new or continued global hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror, armed conflict or war, may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products.
A direct attack on our assets, or the assets of others used by us, could have a material adverse effect on our business, financial condition and results of operations. 43 | Risk Factors Uncertainty surrounding new or continued global hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror, armed conflict or war, may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products.
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and certain rules and regulations promulgated by the CFTC, the SEC, and other governmental bodies may have a material adverse effect on our ability to hedge our exposure to commodity prices, interest rates and other risks to the extent that we use derivatives to do so. 46 | Risk Factors We rely on information technology in our operations, and any material failure, inadequacy, interruption, cyber-attack or security failure of that technology could harm our business.
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and certain rules and regulations promulgated by the CFTC, the SEC, and other governmental bodies may have a material adverse effect on our ability to hedge our exposure to commodity prices, interest rates and other risks to the extent that we use derivatives to do so.
We are unable to predict whether any changes or proposals will ultimately be enacted, but it is possible that a change in law could affect us and may, if enacted, be applied retroactively.
We are unable to predict whether any changes or proposals will ultimately be enacted, but it is possible that a change in law could affect us and may, if enacted, be applied retroactively. Any such changes could negatively impact the value of an investment in our common limited partner units.
Restrictions in our revolving credit facility and in the respective indentures governing the 2025 Notes and 2028 Notes could adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
Any loss of our key customers, including Delek Holdings, could adversely affect our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to our unitholders. 36 | Risk Factors Restrictions in our revolving credit facility and in the respective indentures governing the 2025 Notes and 2028 Notes could adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
Due to the complexity of rate making, the lawfulness of any rate is never assured. A successful challenge of our rates could adversely affect our revenues. In addition, the FERC issued a final order on March 15, 2018 (Docket No.
A successful challenge of our rates could adversely affect our revenues. In addition, the FERC issued a final order on March 15, 2018 (Docket No.
Shippers may protest, and the FERC may investigate, the lawfulness of new or changed tariff rates. The FERC can suspend those tariff rates for up to seven months. It can also require refunds of amounts collected, based on rates that are ultimately found to be unlawful, and prescribe new rates prospectively.
The FERC can suspend those tariff rates for up to seven months. It can also require refunds of amounts collected, based on rates that are ultimately found to be unlawful, and prescribe new rates prospectively. The FERC and interested parties can also challenge tariff rates that have become final and effective.
When we issue additional units or engage in certain other transactions, we determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner. Our methodology may be viewed as understating the value of our assets.
The IRS may challenge this treatment, which could adversely affect the value of the common limited partner units. When we issue additional units or engage in certain other transactions, we determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner.
One of our business strategies is to evaluate and make capital investments to expand our existing asset base through the development and construction of new or expanded assets.
One of our business strategies is to evaluate and make capital investments to expand our existing asset base through the development and construction of new or expanded assets. At the same time, we also will need to devote significant resources to maintaining our asset base.
The general partner may still take action with respect to any affiliate transactions or the resolution of a conflict of interest without satisfying any of the sub bullets above. In such case, it is not entitled to the presumption of good faith discussed above.
The general partner may still take action with respect to any affiliate transactions or the resolution of a conflict of interest without satisfying any of the sub bullets above.
Any such reduction could adversely affect our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to our unitholders. 36 | Risk Factors We believe that a substantial majority of our gross and contribution margins for the foreseeable future will be derived from the operation of our pipelines, gathering systems and terminal and storage facilities that support the Tyler, El Dorado and Big Spring refineries and are primarily located in Arkansas and Texas and, to a lesser degree, Louisiana and Tennessee.
We believe that a substantial majority of our gross and contribution margins for the foreseeable future will be derived from the operation of our pipelines, gathering systems and terminal and storage facilities that support the Tyler, El Dorado and Big Spring refineries and are primarily located in Arkansas and Texas and, to a lesser degree, Louisiana and Tennessee.
These activities could reduce demand for our products, reduce our profits, increase the potential for investigations and litigation, impair our brand and have negative impacts on our common limited partner unit price and access to capital markets.
The increasing attention to ESG activities and a shift by consumers to more fuel-efficient or alternative fuel vehicles could reduce demand for our products, reduce our profits, increase the potential for investigations and litigation, impair our brand and have negative impacts on our common limited partner unit price and access to capital markets.
If we are unable to make investments in joint ventures or acquisitions on economically acceptable terms, our future growth could be limited, and any investments or acquisitions we may make may negatively impact our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to unitholders.
Fixed rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates. 39 | Risk Factors If we are unable to make investments in joint ventures or acquisitions on economically acceptable terms, our future growth could be limited, and any investments or acquisitions we may make may negatively impact our financial condition, results of operations, cash flows, ability to service our indebtedness and ability to make distributions to unitholders.
Extended periods of such disruption could have an adverse effect on our results of operations. We could also incur substantial costs to prevent or repair damage to these facilities.
Extended periods of such disruption could have an adverse effect on our results of operations. We have incurred, and will continue to incur, substantial costs to prevent or repair damage to our facilities as a result of severe weather events.
While we do not collect significant amounts of personal information from consumers, we do have personal information from our employees, job applicants and some business partners, such as contractors and distributors. 47 | Risk Factors Any failure, whether real or perceived, by us to comply with applicable data protection laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.
Any failure, whether real or perceived, by us to comply with applicable data protection laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.
A portion of our operations are conducted through joint ventures, in which we have been making investments since 2015. We are able to appoint members to the managing boards of each of the joint ventures and maintain certain rights of approval over certain actions of our partners and/or their affiliates.
We are able to appoint members to the managing boards of each of the joint ventures and maintain certain rights of approval over certain actions of our partners and/or their affiliates.
Fixed rate debt, such as the 2025 Notes and 2028 Notes, exposes us to changes in the fair value of our debt due to changes in market interest rates. Fixed rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates.
Fixed rate debt, such as the 2025 Notes and 2028 Notes, exposes us to changes in the fair value of our debt due to changes in market interest rates.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year.
Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us. In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year.
A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community. 45 | Risk Factors These activities include increasing attention and demands for action related to climate change, promoting the use of substitutes to fossil fuel products, and encouraging the divestment of companies in the fossil fuel industry.
A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 17 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, which is incorporated by reference in this Item 3, for additional information.
Biggest changeSee Note 14 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, which is incorporated by reference in this Item 3, for additional information.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDefinition of Available Cash Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter: • less the amount of cash reserves established by our general partner to: ◦ provide for the proper conduct of our business (including cash reserves for our future capital expenditures and anticipated future debt service requirements and refunds of collected rates reasonably likely to be refunded as a result of a settlement or hearing related to the FERC rate proceedings or rate proceedings under applicable law subsequent to that quarter); ◦ comply with applicable law, any of our debt instruments or other agreements; or ◦ provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters; pursuant to the IDR Restructuring Transaction on August 13, 2020, the general partner will no longer receive any cash distributions; • plus , if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
Biggest changeDefinition of Available Cash Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter: • less the amount of cash reserves established by our general partner to: ◦ provide for the proper conduct of our business (including cash reserves for our future capital expenditures and anticipated future debt service requirements and refunds of collected rates reasonably likely to be refunded as a result of a settlement or hearing related to the FERC rate proceedings or rate proceedings under applicable law subsequent to that quarter); ◦ comply with applicable law, any of our debt instruments or other agreements; or ◦ provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters; • plus , if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
See Note 12 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for a discussion of historic cash distributions.
See Note 11 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for a discussion of historic cash distributions.
Our common units trade on the NYSE under the symbol "DKL." There were four holders of record of our common units held by the public as of February 24, 2023. In addition, as of February 24, 2023, Delek Holdings and its affiliates owned 34,311,278 of our common units.
Our common units trade on the NYSE under the symbol "DKL." There were two holders of record of our common units held by the public as of February 21, 2024. In addition, as of February 21, 2024, Delek Holdings and its affiliates owned 34,311,278 of our common units.
Removed
Incentive Distribution Rights Effective August 13, 2020, the Partnership closed on the IDR Restructuring Transaction and the general partner no longer receives any cash distributions. Prior to August 13, 2020, our general partner was entitled to 2.0% of all quarterly distributions that we make prior to our liquidation.
Removed
Our general partner had the right, but not the obligation, to contribute up to a proportionate amount of capital to us to maintain its current general partner interest.
Removed
Our general partner held IDRs that entitled it to receive increasing percentages, up to a maximum of 48.0%, of the cash we distributed from operating surplus (as defined in our Partnership Agreement) in excess of 0.43125 per unit per quarter.
Removed
The maximum distribution was 48.0% and did not include any distributions that our general partner or its affiliates may have received on common or general partner units that it owns. As of August 12, 2020, the IDRs held by our general partner were entitled to receive the maximum distribution.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the years ended December 31, 2022, 2021 and 2020. 77 | Management's Discussion and Analysis Cost of Materials and Other 2022 vs. 2021 Cost of materials and other for the wholesale marketing and terminalling segment increased by $168.1 million, or 52.0% , in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Cost of materials and other for the wholesale marketing and terminalling segment increased by $97.1 million, or 42.9% , in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.
Biggest changeSuch decreases were partially offset by the following: • increase in terminalling and marketing revenue primarily due to increased volume and rates associated with Big Spring marketing operations. 77 | Management's Discussion and Analysis The following charts show summaries of the average sales prices per gallon of gasoline and diesel and refined products volume impacting our West Texas operations for the years ended December 31, 2023, 2022: Cost of Materials and Other 2023 vs. 2022 Cost of materials and other for the wholesale marketing and terminalling segment decreased by $102.9 million, or 20.9% , in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decreased costs of materials and other of $101.9 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the volumes of gasoline and diesel sold: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.74 per gallon, respectively; and ◦ the volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold.
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 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.
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.
As producers continue to ramp up production within the Permian, the Partnership is well positioned to continue to add value through our gathering and processing services as a result of integrating our Delaware Gathering operations which complement our existing Midland Gathering System assets.
As producers continue to ramp up production within the Permian Basin, the Partnership is well positioned to continue to add value through our gathering and processing services as a result of integrating our Delaware Gathering operations which complement our existing Midland Gathering System assets.
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 the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "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.
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 actions of members of the Organization of Petroleum Exporting Countries ("OPEC") and other leading oil producing countries (together with OPEC, "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.
The strategic benefit for each is described below: • The RIO Pipeline is positioned in the Delaware basin and benefits from drilling activity in the area, while also offering producers and shippers connections to Midland, Texas takeaway pipelines; • The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area; and • The Red River Pipeline provides crude oil transportation and optionality from Cushing, Oklahoma to Longview, Texas area and connectivity to our Caddo JV along with DKL Paline pipeline for access to Gulf Coast markets.
The strategic benefit for each is described below: • The RIO Pipeline is positioned in the Delaware Basin and benefits from drilling activity in the area, while also offering producers and shippers connections to Midland, Texas takeaway pipelines; • The Caddo Pipeline provides crude oil logistics connectivity for shippers from Longview, Texas area to Shreveport, Louisiana area; and • The Red River Pipeline provides crude oil transportation and optionality from Cushing, Oklahoma to Longview, Texas area and connectivity to our Caddo JV along with the Partnership's Paline pipeline for access to Gulf Coast markets.
GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods; • the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
Delek Holdings is also required, under certain circumstances, to offer us the opportunity to purchase additional logistics assets that Delek Holdings may acquire or construct in the future.
Delek Holdings is required, under certain circumstances, to offer us the opportunity to purchase additional logistics assets that Delek Holdings may acquire or construct in the future.
Floating interest rate debt is calculated using rates in effect on December 31, 2022. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2022. We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations.
Floating interest rate debt is calculated using rates in effect on December 31, 2023. (2) Amounts reflect future estimated lease payments under operating leases having remaining non-cancelable terms in excess of one year as of December 31, 2023. We also have other non-current liabilities pertaining to environmental liabilities and asset retirement obligations.
We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.
We believe that the presentation of EBITDA and distributable cash flow provide information useful to investors in assessing our financial condition and results of operations. EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
The Midland Gathering Assets support our crude oil gathering activities which primarily serves Delek Holdings refining needs throughout the Permian Basin. The 3 Bear assets support our crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico, and serving primarily third-party producers and customers.
The Midland Gathering Assets support our crude oil gathering activities which primarily serves Delek Holdings refining needs throughout the Permian Basin. The Delaware Gathering Assets support our crude oil and natural gas gathering, processing and transportation businesses, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico, and serving primarily third-party producers and customers.
These financial and operational non-GAAP measures include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income. • Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.
These financial and operational non-GAAP measures include: • Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of marketing contract intangible, which is included as a component of net revenues in our accompanying consolidated statements of income. • Distributable cash flow - calculated as net cash flow from operating activities plus or minus changes in assets and liabilities, less maintenance capital expenditures net of reimbursements and other adjustments not expected to settle in cash.
Additionally, the successful integration of Delek Delaware Gathering further diversifies our logistics customer base to include significantly more third-party customers, it allows us to provide comprehensive logistics services in the Delaware Basin, while also serving as a funnel into our existing midstream Permian activities.
Additionally, the successful integration of Delaware Gathering further diversifies our logistics customer base to include significantly more third-party customers, and it allows us to provide comprehensive logistics services in the Delaware Basin, while also serving as a funnel into our existing midstream Permian activities.
Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements; • our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all; • Delek Holdings' future growth, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution; • industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity; • the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures; • changes in insurance markets impacting costs and the level and types of coverage available; • the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand; • the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business; • the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; • the possibility of inefficiencies, curtailments, or shutdowns in refinery operations or pipelines, whether due to infection in the workforce or in response to reductions in demand as a result of the COVID-19 Pandemic; 59 | Management's Discussion and Analysis • disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber-attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent; • changes in the availability and cost of capital of debt and equity financing; • our reliance on information technology systems in our day-to-day operations; • changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to the COVID-19 Pandemic or future pandemics; • the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to the COVID-19 Pandemic; • 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 Annual Report on Form 10-K.
Important factors that, individually or in the aggregate, could cause such differences include, but are not limited to: • our substantial dependence on Delek Holdings or its assignees and their support of and respective ability to pay us under our commercial agreements; • our future coverage, leverage, financial flexibility and growth, and our ability to improve performance and achieve distribution growth at any level or at all; • Delek Holdings' future growth, strategic priorities, financial performance, share repurchases, crude oil supply pricing and flexibility and product distribution; • industry dynamics, including Permian Basin growth, ownership concentration, efficiencies and takeaway capacity; • the age and condition of our assets and operating hazards and other risks incidental to transporting, storing and gathering crude oil, intermediate and refined products, including, but not limited to, costs, penalties, regulatory or legal actions and other effects related to spills, releases and tank failures; • changes in insurance markets impacting costs and the level and types of coverage available; • the timing and extent of changes in commodity prices and demand for refined products and the impact of the COVID-19 Pandemic on such demand; • the wholesale marketing margins we are able to obtain and the number of barrels of product we are able to purchase and sell in our West Texas wholesale business; • the suspension, reduction or termination of Delek Holdings' or its assignees' or third-party's obligations under our commercial agreements including the duration, fees or terms thereof; • the results of our investments in joint ventures; • the ability to secure commercial agreements with Delek Holdings or third parties upon expiration of existing agreements; 60 | Management's Discussion and Analysis • 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 a public health crisis; • disruptions due to equipment interruption or failure, or other events, including terrorism, sabotage or cyber-attacks, at our facilities, Delek Holdings’ facilities or third-party facilities on which our business is dependent; • changes in the availability and cost of capital of debt and equity financing; • our reliance on information technology systems in our day-to-day operations; • changes in general economic conditions, including uncertainty regarding the timing, pace and extent of economic recovery in the United States due to governmental fiscal policy or a public health crisis; • the effects of existing and future laws and governmental regulations, including, but not limited to, the rules and regulations promulgated by the Federal Energy Regulatory Commission ("FERC") and state commissions and those relating to environmental protection, pipeline integrity and safety as well as current and future restrictions on commercial and economic activities in response to a public heal; • significant operational, investment or other changes required by existing or future environmental statutes and regulations, including international agreements and national or regional societal, 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 complete acquisitions and integrate acquired businesses, and to achieve the anticipated benefits therefrom; • 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 Annual Report on Form 10-K.
Therefore, as we look forward to 2023, we expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment.
Therefore, as we look forward to 2024, we expect that liquid transportation fuels will continue to be in high demand, and we expect to continue to leverage the strength of our cash flows and balance sheet in order to continue maximizing unitholder returns and the long-term prospects for return on investment.
As such, we continue to refine our processes for evaluating risks and returns while maintaining a keen eye on our overarching Long-Term Strategic Objectives and our desire to create long-term operational sustainability. To that end, our 2023 Strategic Focus Areas are as follows: • Generate Stable Cash Flow.
As such, we continue to refine our processes for evaluating risks and returns while maintaining a keen eye on our overarching Long-Term Strategic Objectives and our desire to create long-term operational sustainability. To that end, our 2024 Strategic Focus Areas are as follows: • Generate Stable Cash Flow.
Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable U.S. GAAP financial measures.
Additionally, because EBITDA and distributable cash flow may be defined differently by other partnerships in our industry, our definitions of EBITDA and distributable cash flow may not be comparable to similarly titled measures of other partnerships, thereby diminishing their utility. See below for a reconciliation of EBITDA and distributable cash flow to their most directly comparable GAAP financial measures.
Business and Economic Environment Overview During much of year ended December 31, 2022, domestic markets have experienced an elevated hydrocarbon pricing environment has resulted in a strong demand for hydrocarbons and presented an opportunity for the Partnership to leverage its extensive network of logistics assets, resulting in increased throughputs and higher utilization as compared to the prior year.
Business and Economic Environment Overview During much of year ended December 31, 2023, domestic markets have experienced an elevated hydrocarbon pricing environment that has resulted in a strong demand for hydrocarbons and presented an opportunity for the Partnership to leverage its extensive network of logistics assets, resulting in increased throughputs and higher utilization as compared to the prior year.
Non-GAAP Reconciliations The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable U.S. GAAP measure, or net income and net cash from operating activities, respectively.
Non-GAAP Reconciliations The following table provides a reconciliation of EBITDA and distributable cash flow (which are defined above) to the most directly comparable GAAP measure, or net income and net cash from operating activities, respectively.
See Note 12 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions.
See Note 11 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of historic cash distributions.
We have the ability to increase the DKL Credit Facility to $1.0 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility.
We have the ability to increase the DKL Credit Facility to $1.15 billion subject to receiving increased or new commitments from lenders and meeting certain requirements under the credit facility.
The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its Twitter account (@DelekLogistics).
The Partnership announces material information to the public about the Partnership, its products and services and other matters through a variety of means, including filings with the Securities and Exchange Commission, press releases, public conference calls, the Partnership's website (www.deleklogistics.com), the investor relations section of the website (ir.deleklogistics.com), the news section of its website (www.deleklogistics.com/news), and/or social media, including its X (formerly known as Twitter) account (@DelekLogistics).
Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets. Through our joint venture projects, we have increased our supply network to take advantage of growth opportunities in expanding markets and added additional flexibility which has delivered realized value through the entire Delek Logistics system.
Our positioning allows our customers the ability to control quality and adds optionality to place barrels in a variety of markets. Through our joint venture projects, we have increased our supply network to take advantage of growth opportunities in expanding markets and added additional flexibility which has delivered realized value through the Partnership system.
See further discussion on macroeconomic factors and market trends, including the impact on 2022 and the outlook for 2023, in the ‘Market Trends’ section below.
See further discussion on macroeconomic factors and market trends, including the impact on 2023 and the outlook for 2024, in the ‘Market Trends’ section below.
The MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (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.
The MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K (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.
The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2022, 2021 and 2020.
The following chart shows a summary of the average prices per gallon of gasoline and diesel purchased in our West Texas operations for the years ended December 31, 2023 and 2022.
Continue to focus on leveraging and, when appropriate, expanding our investments in joint ventures, which have contributed to our initiative to grow our midstream business while increasing our crude oil sourcing flexibility. 64 | Management's Discussion and Analysis • Engage in Mutually Beneficial Transactions with Delek Holdings.
Continue to focus on leveraging and, when appropriate, expanding our investments in joint ventures, which have contributed to our initiative to grow our midstream business while increasing our crude oil sourcing flexibility. • Engage in Mutually Beneficial Transactions with Delek Holdings.
If market conditions were to change, for instance due to a significant decline in crude oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings.
We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to a significant decline in crude oil prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. Additionally, it could cause the rating agencies to lower our credit ratings.
The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities. Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 14 to our accompanying consolidated financial statements.
The other Joint Venture owners are usually major shippers on the pipelines resulting in a majority of the revenue of the Joint Venture entities coming from MVC agreements with related entities. Investments in pipeline joint ventures segment include the Partnership's joint ventures investments described in Note 12 to our accompanying consolidated financial statements included in Item 8.
Contractual Rate Adjustments to Keep Pace with Inflation On July 1, 2022, the tariffs on certain of our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustments using FERC indexing increased by approximately 8.7%, which was the amount of the change in the FERC oil pipeline index.
Contractual Rate Adjustments to Keep Pace with Inflation On July 1, 2023, the tariffs on certain of our FERC regulated pipelines and the throughput fees and storage fees under certain of our agreements with Delek Holdings and third parties that are subject to adjustments using FERC indexing increased by approximately 13.3%, which was the amount of the change in the FERC oil pipeline index.
To that end, we have been focused on growing our asset base within our geographic area through acquisitions, project development, joint ventures, enhancing our existing systems and lowering our carbon footprint, as we continued to evaluate ways to provide Delek Holdings with logistics services and look for ways to reduce our reliance on Delek Holdings as our primary customer. 2022 Strategic Focus Areas In service to these overarching Long-Term Strategic Objectives, as we began 2022, we focused on the following Strategic Focus Areas : I.
To that end, we have been focused on growing our asset base within our geographic area, through acquisitions, project development, joint ventures, enhancing our existing systems and lowering our carbon footprint, as we continue to evaluate ways to provide Delek Holdings with logistics services and look for ways to reduce our reliance on Delek Holdings as our primary customer. 64 | Management's Discussion and Analysis 2023 Strategic Focus Areas In service to these overarching Long-Term Strategic Objectives, as we began 2023, we focused on the following Strategic Focus Areas : I.
These adjustments allow us to maintain compliance with FERC regulations as well as to ensure that our results are reflective of current market conditions. 62 | Management's Discussion and Analysis Segment Overview We aggregate our operating segments into four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investment in pipeline joint ventures.
These adjustments allow us to maintain compliance with FERC regulations as well as to ensure that our results are reflective of current market conditions. 63 | Management's Discussion and Analysis Segment Overview We review operating results in four reportable segments: (i) gathering and processing; (ii) wholesale marketing and terminalling; (iii) storage and transportation; and (iv) investments in pipeline joint ventures.
Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by: 65 | Management's Discussion and Analysis • Delek Holdings’ utilization of our assets in excess of its minimum volume commitments; • our ability to identify and execute acquisitions and organic expansion projects and capture incremental volume increases from Delek Holdings or third parties; • our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals; • our ability to identify and serve new customers in our marketing and trucking operations; and • our ability to make connections to third-party facilities and pipelines.
Although Delek Holdings has committed to minimum volumes under certain of the commercial agreements, as described above, our results of operations will be impacted by: • Delek Holdings’ utilization of our assets in excess of its minimum volume commitments; • our ability to identify and execute acquisitions and organic expansion projects and capture incremental volume increases from Delek Holdings or third parties; • our ability to increase throughput volumes at our refined products terminals and provide additional ancillary services at those terminals; • our ability to identify and serve new customers in our marketing and trucking operations; and • our ability to make connections to third-party facilities and pipelines. 66 | Management's Discussion and Analysis Operating and Maintenance Expenses We seek to maximize the profitability of our operations by effectively managing operating and maintenance expenses.
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.
Many of the foregoing risks and uncertainties are, and will be, exacerbated by any worsening of the global business and economic environment.
Liquidity and Capital Resources Sources of Capital We consider the following when assessing our liquidity and capital resources: (i) cash generated from operations; (iii) potential issuance of additional equity; and (ii) borrowings under our revolving credit facility; (iv) potential issuance of additional debt securities.
Liquidity and Capital Resources Sources of Capital We consider the following when assessing our liquidity and capital resources: (i) cash generated from operations; (iv) potential issuance of additional debt securities; and (ii) borrowings under our revolving credit facility; (v) potential sale of assets.
Further, continue to evaluate additional growth opportunities through subsequent dropdowns of logistics assets acquired or developed by Delek Holdings, while factoring in associated impact on our capital structure and critically evaluating anticipated return on investment. • Pursue Attractive Expansion and Construction Opportunities.
Further, we will continue to evaluate additional growth opportunities through subsequent dropdowns of logistics assets acquired or developed by Delek Holdings, while factoring in associated impact on our capital structure and critically evaluating anticipated return on investment.
While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity. Refer to Cash Distributions section for cash distributions made in 2022 and planned distributions for 2023.
Refer to the Cash Flow section for our operating activities spend in 2023. While many of the expenses related to the operating activities are variable in nature, some of the expenditures can be somewhat fixed in the short-term due to forward planning on our level of activity.
It also has additional expansion optionality. 66 | Management's Discussion and Analysis Market Trends Fluctuations in crude oil, natural gas and NGLs prices and the prices of related refined and other hydrocarbon products impact operations in the midstream energy sector.
It also has additional expansion optionality. Market Trends Fluctuations in crude oil, natural gas and NGL prices and the prices of related refined and other hydrocarbon products impact operations in the midstream energy sector.
The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas. 67 | Management's Discussion and Analysis 68 | Non-GAAP Measures Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S.
The charts on the following page provide historical commodity pricing statistics for crude oil, refined product and natural gas. 68 | Management's Discussion and Analysis 69 | Management's Discussion and Analysis Non-GAAP Measures Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our financial information presented in accordance with United States Generally Accepted Accounting Principles ("GAAP").
The increase of $764.0 million in our long-term debt balance compared to the balance at December 31, 2021 resulted from the borrowings under the DKL Credit Facility during the year ended December 31, 2022.
The increase of $41.3 million in our long-term debt balance compared to the balance at December 31, 2022 resulted from the borrowings under the DKL Credit Facility during the year ended December 31, 2023.
Financing The Partnership paid a cash distribution to its unitholders at a distribution rate of $1.02 per unit for the quarter ended December 31, 2022 ($4.08 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.
Financing The Partnership anticipates paying a cash distribution to its unitholders at a distribution rate of $1.055 per unit for the quarter ended December 31, 2023 ($4.22 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, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity as recently experienced due to the impact of the extreme weather events.
As a result, Delek Holdings is a major shipper and customer on certain of the Joint Venture pipelines, with minimum volume commitment ("MVC") agreements, which cushion the Joint Venture entities during periods of low activity.
Refer to the capital spending section for our capital expenditures for 2022 and our planned capital expenditures for 2023. 86 | Management's Discussion and Analysis Off-Balance Sheet Arrangements We have no off-balance sheet arrangements through the date of the filing of this Annual Report on Form 10-K. 87 | Management's Discussion and Analysis Critical Accounting Estimates The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements through the date of the filing of this Annual Report on Form 10-K. 84 | Management's Discussion and Analysis Critical Accounting Estimates The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities.
The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash. EBITDA and distributable cash flow are non-U.S.
The Partnership believes this is an appropriate reflection of a liquidity measure by which users of its financial statements can assess its ability to generate cash.
We believe we were in compliance with the covenants in all debt facilities as of December 31, 2022. See Note 11 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our third-party indebtedness.
We believe we were in compliance with the covenants in all debt facilities as of December 31, 2023. See Note 10 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a complete discussion of our indebtedness. Agreements Governing Certain Indebtedness of Delek Holdings Please read Item 1A.
In providing these services, we do not take ownership of the products or crude oil that we transport. Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers.
Therefore, we are not directly exposed to changes in commodity prices with respect to this operating segment. The combination of these operational assets provides a comprehensive, integrated midstream service offering to producers and customers.
That said, we are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements. Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship.
That said, we are well positioned to manage through an economic downturn because of built-in recessionary protections which include minimum volume commitments on throughput and dedicated acreage agreements. Furthermore, the Partnership benefited from inflationary-linked rate increases effective July 1, 2023, as discussed further below. Additionally, the Partnership has embraced opportunities to enhance our environmental stewardship.
EBITDA 2022 vs. 2021 The change in EBITDA for the year ended December 31, 2022 compared to the year ended December 31, 2021, was immaterial. 2021 vs. 2020 EBITDA for the storage and transportation segment increased by $5.2 million, or 10.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increased EBITDA associated with the Trucking Assets Acquisition. 81 | Management's Discussion and Analysis Investments in Pipeline Joint Ventures Segment The Investments in Pipeline Joint Ventures segment relates to strategic Joint Venture investments, accounted for as equity method investments, to support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system.
EBITDA 2023 vs. 2022 EBITDA increased by $7.6 million, or 13.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by an increase in storage and transportation rates. 80 | Management's Discussion and Analysis Investments in Pipeline Joint Ventures Segment The Investments in Pipeline Joint Ventures segment relates to strategic Joint Venture investments, accounted for as equity method investments, to support the Delek Holdings operations in terms of offering connection to takeaway pipelines, alternative crude supply sources and flow of high quality crude oil to the Delek Holdings refining system.
The cash receipts from customer activities increased by $326.3 million and cash payments to suppliers and for allocations to Delek Holdings for salaries increased by $377.9 million. In addition, cash dividends received from equity method investments increased by $2.1 million and cash paid for debt interest increased by $33.5 million.
The cash receipts from customer activities increased by $14.7 million and cash payments to suppliers and for allocations to Delek Holdings for salaries decreased by $71.0 million. In addition, cash dividends received from equity method investments increased by $5.8 million and cash paid for debt interest increased by $58.3 million.
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.
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.
(2) For the years ended December 31, 2022 and 2021, Delek Holdings reimbursed us for certain capital expenditures pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). 69 | Management's Discussion and Analysis Results of Operations A discussion and analysis of the factors contributing to our results of operations is presented below.
(2) Reimbursement from Delek Holdings for capital expenditures represents amounts for certain capital expenditures reimbursable to us from Delek Holdings pursuant to the terms of the Omnibus Agreement (as defined in Note 4 to our accompanying consolidated financial statements). 71 | Management's Discussion and Analysis Summary of Financial and Other Information A discussion and analysis of the factors contributing to our results of operations is presented below.
Operational Comparison of the Year Ended December 31, 2022 versus the Year Ended December 31, 2021 and the Year Ended December 31, 2021 versus the Year Ended December 31, 2020 Net Revenues 2022 vs. 2021 Net revenues for the wholesale marketing and terminalling segment increased by $175.6 million, or 42.5%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Net revenues for the wholesale marketing and terminalling segment increased by $100.4 million, or 32.1%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average sales prices per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold increased by $0.78 per gallon and $0.83 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.
Operational Comparison of the Year Ended December 31, 2023 versus the Year Ended December 31, 2022: Net Revenues 2023 vs. 2022 Net revenues for the wholesale marketing and terminalling segment decreased by $83.2 million, or 14.1%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decreased revenue of $99.6 million in our West Texas marketing operations primarily driven by decreases in the average sales prices per gallon and the volumes of diesel sold in our West Texas marketing operations: ◦ the average sales prices per gallon of gasoline and diesel sold decreased by $0.46 per gallon and $0.73 per gallon, respectively; and ◦ the average volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold.
See Note 3 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, for additional information.
Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information.
A substantial portion of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our pipeline usage and gathered crude oil barrels are contracted either primarily or exclusively to Delek Holdings in support of its Tyler, El Dorado and Big Spring refineries.
A majority of our existing assets are both integral to and dependent upon the success of Delek Holdings' refining operations, as many of our assets are contracted exclusively to Delek Holdings in support of its Tyler, Texas (the "Tyler Refinery"), El Dorado, Arkansas (the "El Dorado Refinery") and Big Spring, Texas (the "Big Spring Refinery").
See additional information on asset retirement obligations and environmental liabilities in Notes 2 and 17, respectively, to our consolidated financial statements in Item 8. Other Cash Requirements Our other cash requirements consisted of operating activities, cash distributions to unitholders, contributions to investments in joint ventures and capital expenditures.
See additional information on asset retirement obligations and environmental liabilities in Notes 2 and 14, respectively, to our consolidated financial statements in Item 8. Other Cash Requirements Our other cash requirements consisted of operating activities and cash distributions to unitholders. Operating activities included cash outflows related to payments to suppliers for crude and other materials and payments for services.
Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the year ended December 31, 2022.
Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Refer to Consolidated Results of Operations above for details and discussion of the investments in pipeline joint ventures segment for the year ended December 31, 2023.
Investing Activities Net cash used in investing activities increased by $754.1 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. The 3 Bear Acquisition, which closed on June 1, 2022, was partially financed through borrowings under the DKL Credit Facility amount to $625.6 million, which was recorded in investing activities.
Investing Activities Net cash used in investing activities decreased by $680.8 million during the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to the Delaware Gathering Acquisition, effective June 1, 2022, which was partially financed through borrowings under the DKL Credit Facility amounting to $625.6 million.
This increase in the distribution is consistent with our intent to maintain an attractive distribution growth profile over the long term. Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit.
Although our Partnership Agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit.
The table below summarizes the quarterly distributions related to our 2022 quarterly financial results: Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Quarterly Distribution Per Limited Partner Unit, Annualized Total Cash Distribution (in thousands) Date of Distribution Unitholders Record Date March 31, 2022 $0.980 $3.92 $42,604 May 12, 2022 May 5, 2022 June 30, 2022 $0.985 $3.94 $42,832 August 11, 2022 August 4, 2022 September 30, 2022 $0.990 $3.96 $43,057 November 10, 2022 November 4, 2022 December 31, 2022 $1.020 $4.08 $44,440 February 9, 2023 February 2, 2023 Cash Flows The following table sets forth a summary of our consolidated cash flows for the year ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 192,168 $ 275,162 Net cash used in investing activities (770,437) (16,360) Net cash provided by (used in) financing activities 581,947 (258,753) Net increase in cash and cash equivalents $ 3,678 $ 49 Operating Activities Net cash provided by operating activities decreased by $83.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
The table below summarizes the quarterly distributions related to our quarterly financial results: Quarter Ended Total Quarterly Distribution Per Limited Partner Unit Total Cash Distribution (in thousands) March 31, 2022 $0.980 $42,604 June 30, 2022 $0.985 $42,832 September 30, 2022 $0.990 $43,057 December 31, 2022 $1.020 $44,440 March 31, 2023 $1.025 $44,664 June 30, 2023 $1.035 $45,112 September 30, 2023 $1.045 $45,558 December 31, 2023 $1.055 $46,010 Cash Flows The following table sets forth a summary of our consolidated cash flows for the year ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 225,319 $ 192,168 Net cash used in investing activities (89,629) (770,437) Net cash (used in) provided by financing activities (139,905) 581,947 Net (decrease) increase in cash and cash equivalents $ (4,215) $ 3,678 Operating Activities Net cash provided by operating activities increased by $33.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Expand our ESG Consciousness and Lower our Carbon Footprint 2022 Strategic Scorecard Description of Strategic Success Generate Stable Cash Flow Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures Engage in Mutually Beneficial Transactions with Delek Holdings Pursue Attractive Expansion and Construction Opportunities Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint Acquisition of Delaware Gathering X X X X Slurry Clarifying Services Agreement X X X Connectors Expansion Project X X X Co-Developing our ESG Strategy with our General Partner and Issuing our First ESG Assessment Report X Looking Forward: 2023 Strategic Focus Areas As we look to 2023, we continue to believe that our strategic focus areas are the right ones.
This financial stability also allows us to seize emerging opportunities that align with our strategic goals, ensuring that we can continue to deliver value to our unitholders. 2023 Strategic Scorecard Description of Strategic Success Generate Stable Cash Flow Focus on Growing Our Business through Acquisitions and Investments in Joint Ventures Engage in Mutually Beneficial Transactions with Delek Holdings Pursue Attractive Expansion and Construction Opportunities Optimize Our Existing Assets and Expand Our Customer Base Expand our ESG Consciousness and Lower our Carbon Footprint Integration and expansion of Delaware Gathering operations ü ü ü ü Implemented measures to reduce our overall debt profile ü ü ü ü Expansion of our Midland operations ü ü ü Zero lost time injuries ü Continue in Co-Developing our ESG Strategy with our General Partner ü Looking Forward: 2024 Strategic Focus Areas As we look to 2024, we continue to believe that our strategic focus areas are the right ones.
Most of the logistics services we provide (including transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility.
Finally, fluctuations in demand and commodity prices for refined products, as well as the value attributable to RINs, directly impacts our wholesale marketing operations, where we are subject to short-term commodity price fluctuations at the rack. 67 | Management's Discussion and Analysis Most of the logistics services we provide (including transportation, gathering and processing services) are subject to long-term fee-based contracts with minimum volume commitments or long-term dedicated acreage agreements which mitigate most of our short-term financial risk to price and demand volatility.
At December 31, 2022 our total liquidity amounted to $187.5 million comprised of $179.5 million in unused credit commitments under the DKL Credit Facility and $8.0 million in cash and cash equivalents.
(iii) potential issuance of additional equity; At December 31, 2023, our total liquidity amounted to $343.3 million comprised of $269.5 million and $70.0 million in unused credit commitments under the DKL Credit Facility and the Related Party Revolving Credit Facility, respectively, and $3.8 million in cash and cash equivalents.
Looking forward, concerns about inflation and a possible economic downturn as well as initiatives to reduce carbon footprints through energy transition to renewables have softened the forward demand expectations for hydrocarbons and natural gas.
Segment EBITDA for our investments in pipeline joint ventures decreased by $0.3 million. See the “Results of Operations” section below for further discussion. Looking forward, concerns about inflation and a possible economic downturn as well as initiatives to reduce carbon footprints through energy transition to renewables have softened the forward demand expectations for hydrocarbons and natural gas.
Reconciliation of net income to EBITDA (in thousands) Year Ended December 31, 2022 2021 Net income $ 159,052 $ 164,822 Add: Income tax expense 382 153 Depreciation and amortization 62,988 42,770 Amortization of customer contract intangible assets 7,211 7,211 Interest expense, net 82,304 50,221 EBITDA $ 311,937 $ 265,177 Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 192,168 $ 275,162 Changes in assets and liabilities 49,423 (51,429) Distributions from equity method investments in investing activities 1,737 8,774 Non-cash lease expense (16,254) (9,652) Regulatory capital expenditures (1) (9,684) (8,232) Reimbursement from Delek Holdings for capital expenditures (2) 1,176 1,913 Accretion of asset retirement obligations (596) (461) Deferred income taxes (5) (353) Gain on sale of assets 114 59 Distributable cash flow $ 218,079 $ 215,781 (1) Regulatory capital expenditures represent cash expenditures (including for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity.
Reconciliation of net cash from operating activities to distributable cash flow (in thousands) Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 225,319 $ 192,168 Changes in assets and liabilities 29,474 49,423 Distributions from equity method investments in investing activities 9,002 1,737 Non-cash lease expense (9,549) (16,254) Regulatory and sustaining capital expenditures not distributable (1) (7,272) (9,684) Reimbursement from Delek Holdings for capital expenditures (2) 1,280 1,176 Accretion of asset retirement obligations (705) (596) Deferred income taxes (638) (5) Gain on disposal of assets 1,266 114 Distributable cash flow $ 248,177 $ 218,079 70 | Management's Discussion and Analysis (1) Regulatory and sustaining capital expenditures represent cash expenditures (including for the addition or improvement to, or the replacement of, our capital assets, and for the acquisition of existing, or the construction or development of new, capital assets) made to maintain our long-term operating income or operating capacity.
Cost of Materials and Other 2022 vs. 2021 Cost of materials and other increased by $257.0 million, or 66.8%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increase in cost of materials and other totaling $73.0 million as a result of 3 Bear Acquisition, which was completed on June 1, 2022; and • increases in the average cost per gallon of gasoline and diesel sold and increases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.74 per gallon and $1.43 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold increased by 2.0 million gallons and 1.0 million gallons, respectively. 2021 vs. 2020 Cost of materials and other increased by $115.3 million, or 42.9%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in the average cost per gallon of gasoline and diesel sold, partially offset by decreases in the average volumes of gasoline and diesel sold in our West Texas marketing operations: ◦ the average cost per gallon of gasoline and diesel sold increased by $0.83 per gallon and $0.80 per gallon, respectively; and ◦ the average volumes of gasoline and diesel sold decreased by 10.5 million gallons and 8.8 million gallons, respectively.
Cost of Materials and Other 2023 vs. 2022 Cost of materials and other decreased by $108.7 million, or 17.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • decrease in costs of materials and other of $101.9 million in our West Texas marketing operations primarily driven by decreases in the average cost per gallon and the volumes of diesel sold: ◦ the average cost per gallon of gasoline and diesel sold decreased by $0.49 per gallon and $0.74 per gallon, respectively; and ◦ the volumes of diesel sold decreased by 3.6 million gallons, partially offset by a 0.6 million increase in gallons of gasoline sold.
See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for a discussion of our material commercial agreements with Delek Holdings.
Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information.
The amount of our capital expenditure budget is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects. For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects.
For example, we may experience increases in the cost of and/or timing to obtain necessary equipment required for our continued compliance with government regulations or to complete improvement projects. Additionally, the scope and cost of employee or contractor labor expense related to installation of that equipment could increase from our projections.
We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns.
We expect to achieve this objective through ESG-Conscious Investments with Clear Value Propositions and Sustainable Returns. How We Evaluate Our Operations We use a variety of financial and operating metrics to analyze our segment performance.
Pursue strategic acquisitions that both complement our existing assets and provide attractive returns for our unitholders, with a focus on expanding our third-party business. Leverage our current asset base, and our knowledge of the regional markets in which we operate, to target and complete attractive third-party acquisitions. ◦ Investments in Joint Ventures.
Pursue strategic acquisitions that both complement our existing assets and provide attractive returns for our unitholders, with a focus on expanding our third-party business.
Refer to the Refined Products Volume - Gallons chart above for a summary of volumes impacting our West Texas operations. 78 | Management's Discussion and Analysis Operating Expenses 2022 vs. 2021 Operating expenses for the wholesale marketing and terminalling segment increased by $3.1 million, or 19.0%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in variable expenses such as utilities, maintenance and material costs; and • this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets. 2021 vs. 2020 Operating expenses for the wholesale marketing and terminalling segment increased by $3.2 million, or 24.7%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • increases in variable expenses such as utilities, maintenance and material costs; and • this increase was partially offset by lower operating costs associated with allocated contract services pertaining to certain of our assets.
Refer to the Refined Products Volume - Gallons chart above for a summary of volumes impacting our West Texas operations. 78 | Management's Discussion and Analysis Operating Expenses 2023 vs. 2022 Operating expenses for the wholesale marketing and terminalling segment decreased by $1.7 million, or 8.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022.
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 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.
As of December 31, 2022, our total indebtedness consisted of: • An aggregate principal amount of $720.5 million under the DKL Revolving Facility ("revolving credit facility"), due on October 13, 2027, with an average borrowing rate of 7.55%, which was amended and restated on October 13, 2022. • An aggregate principal amount of $300.0 million, under the DKL Term Facility, due on October 13, 2024, with an average borrowing rate of 7.92%. • An aggregate principal amount of $250.0 million, under the Delek Logistics Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.21%. • An aggregate principal amount of $400.0 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.40%.
As of December 31, 2023, our total indebtedness consisted of: 82 | Management's Discussion and Analysis • An aggregate principal amount of $780.5 million under the DKL Revolving Facility, due on October 13, 2027 (which will accelerate to 180 days prior to the stated maturity date of the Delek Logistics 2025 Notes if any of the Delek Logistics 2025 Notes remain outstanding on that date), with an average borrowing rate of 8.46%. • An aggregate principal amount of $281.3 million, under the DKL Term Facility, due on April 15, 2025 (which will accelerate to 180 days prior to the stated maturity date of the Delek Logistics 2025 Notes if any of the Delek Logistics 2025 Notes remain outstanding on that date), with an average borrowing rate of 9.46%. • An aggregate principal amount of $250.0 million, under the 2025 Notes (6.75% senior notes), due in 2025, with an effective interest rate of 7.19%. • An aggregate principal amount of $400.0 million, under the 2028 Notes (7.125% senior notes), due in 2028, with an effective interest rate of 7.39%.
Operating Expenses 2022 vs. 2021 Operating expenses for the storage and transportation segment increased by $3.9 million, or 27.6%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by the following: • increases in employee and outside service costs. 2021 vs. 2020 Operating expenses for the storage and transportation segment decreased by $2.0 million, or 12.5%, in the year ended December 31, 2021 compared to the year ended December 31, 2020, driven primarily by the following: • decrease in contract services.
Operating Expenses 2023 vs. 2022 Operating expenses for the storage and transportation segment increased by $0.3 million, or 1.5%, in the year ended December 31, 2023 compared to the year ended December 31, 2022.
The tariff on FERC regulated system acquired from 3 Bear has been adjusted as of January 1, 2023. Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 7.1% and the fees that are subject to adjustments using the producer price index increased approximately 10.8%.
Under certain of our agreements with Delek Holdings and third parties, the fees that are subject to adjustments using the consumer price index increased 17.6% and the fees that are subject to adjustments using the producer price index increased approximately 18.9%.
Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities. 85 | Management's Discussion and Analysis The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the year ended December 31, 2022 and planned capital expenditures for the full year 2023 by segment and by major category: (in thousands) Full Year 2023 Forecast Year Ended December 31, 2022 Gathering and Processing Regulatory $ 2,857 $ 2,855 Sustaining 61 1,455 Growth 66,156 118,284 Gathering and Processing Segment Total (1) $ 69,074 $ 122,594 Wholesale Marketing and Terminalling Regulatory $ 7,575 $ 156 Sustaining — 24 Growth — 1,368 Wholesale Marketing and Terminalling Segment Total (1) $ 7,575 $ 1,548 Storage and Transportation Regulatory 2,625 — Sustaining 2,066 6,528 Growth — — Storage and Transportation Segment Total (1) $ 4,691 $ 6,528 Total Capital Spending (1) $ 81,340 $ 130,670 (1) There were no capital contributions for the year ended December 31, 2022.
Depending on the magnitude, funding for such projects may include cash generated from operations, borrowings under existing credit facilities, or issuances of additional debt or equity securities. 83 | Management's Discussion and Analysis The following table summarizes our actual capital expenditures, including any material capital expenditure payments made or forecasted to be made in advance of receipt of goods and materials, for the year ended December 31, 2023: (in thousands) Full Year 2024 Forecast Year Ended December 31, 2023 Gathering and Processing Regulatory $ 750 $ 31 Sustaining 3,900 2,016 Growth 49,500 72,636 Gathering and Processing Segment Total $ 54,150 $ 74,683 Wholesale Marketing and Terminalling Regulatory $ 3,300 $ 924 Sustaining 2,379 163 Growth — 1,024 Wholesale Marketing and Terminalling Segment Total $ 5,679 $ 2,111 Storage and Transportation Regulatory $ 1,500 $ 2,005 Sustaining 8,500 2,543 Growth — — Storage and Transportation Segment Total $ 10,000 $ 4,548 Total Capital Spending $ 69,829 $ 81,342 The amount of our capital expenditure forecast is subject to change due to unanticipated increases in the cost, scope and completion time for our capital projects.
Cash Distributions On January 23, 2023, the board of directors of our general partner declared a distribution of $1.020 per common unit (the "Distribution"), which equates to approximately $44.4 million per quarter, or approximately $177.8 million per year, based on the number of common units outstanding as of February 2, 2023.
We believe we were in compliance with the covenants in all our debt facilities as of December 31, 2023. 81 | Management's Discussion and Analysis Cash Distributions On January 24, 2024, the board of directors of our general partner declared a distribution of 1.055 per common unit (the "Distribution"), which equates to approximately $46.0 million per quarter, or approximately $184.0 million per year, based on the number of common units outstanding as of February 5, 2024.
Corporate and Other The corporate and other segment primarily consists of general and administrative expenses not allocated to a reportable segment, interest expense and depreciation and amortization.
Corporate and Other The corporate and other segment primarily consists of general and administrative expenses not allocated to a reportable segment, interest expense and depreciation and amortization. When applicable, it may also contain operating segments that are not reportable and do not meet the criteria for aggregation with any of our existing reportable segments.
When applicable, it may also contain operating segments that are not reportable and do not meet the criteria for aggregation with any of our existing reportable segments. 63 | Management's Discussion and Analysis Strategic Overview Long-Term Strategic Objectives The Partnership’s Long-Term Strategic Objectives have long been focused on maintaining stable cash flows and to grow the quarterly distributions paid to our unitholders over time.
Strategic Overview Long-Term Strategic Objectives The Partnership’s Long-Term Strategic Objectives have been focused on maintaining stable cash flows and to grow the quarterly distributions paid to our unitholders over time.
See Note 4 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K 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.
Refer to Note 8 - Goodwill to our accompanying consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information.
This increase was primarily driven by the following: • increased borrowings under the DKL Credit Facility to fund 3 Bear Acquisition; and • increase in floating interest rates applicable to the DKL Credit Facility and DKL Term Facility due to dramatic market rate increases in 2020. 2021 vs. 2020 During the year ended December 31, 2021 we incurred $50.2 million on interest expense, compared to $42.9 million during the year ended December 31, 2020, an increase of $7.3 million, or 17.1%.
Interest Expense 2023 vs. 2022 Interest expense increased by $60.9 million, or 74.0%, in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily driven by the following: • increased borrowings under the DKL Credit Facility to fund the Delaware Gathering Acquisition; and • higher floating interest rates applicable to the DKL Credit Facility.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+1 added−1 removed3 unchanged
Biggest changeThe annualized impact of a hypothetical one percent change in interest rates on our floating rate debt outstanding as of December 31, 2022 would be to change interest expense by approximately $10.2 million. Inflation Inflationary factors, such as increases in the costs of our inputs, operating expenses, and interest rates may adversely affect our operating results.
Biggest changeThe outstanding floating rate borrowings totaled approximately $1,061.8 million as of December 31, 2023. The annualized impact of a hypothetical one percent change in interest rates on our floating rate debt outstanding as of December 31, 2023 would be to change interest expense by approximately $10.6 million.
In addition, current or future governmental policies may increase the risk of inflation, which could further increase costs and may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales if the prices at which we are able to sell our products and services do not increase in line with increases in costs.
In addition, current or future governmental policies may increase or decrease the risk of inflation, which could further increase costs and may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales if the prices at which we are able to sell our products and services do not increase in line with increases in costs.
Removed
During 2022, our results of operations were negatively affected by higher natural gas costs, higher labor costs and supply chain disruptions, in part, by the COVID-19 Pandemic, the uncertain economic environment, and macroeconomic and geopolitical events and trends. We expect these cost pressures and supply chain challenges to continue into fiscal year 2023.
Added
Inflation Inflationary factors, such as increases in the costs of our inputs, operating expenses, and interest rates may adversely affect our operating results.

Other DKL 10-K year-over-year comparisons