Delek Logistics Partners Third Quarter 2026 Earnings Call - DELEK LOGISTICS PARTNERS LP

Explicit Guidance:

• Full-Year 2026 Adjusted EBITDA: Raised to a range of $530 million to $560 million, up from prior guidance, driven by continued strong performance in the BKL segment.
• 2026 Capital Program: Maintained at $180 million to $190 million; expected to generate up to $50 million in run-rate EBITDA in 2026 (corrected from initial $15 million figure mentioned in Avigal's remarks to align with Robert's detailed segment guidance).
• 2027 EBITDA Growth: Projected to add an additional $60 million in run-rate EBITDA growth.
• Distribution Increase: 55th consecutive quarterly distribution hike to $1.14 per unit.
• Third-Party Revenue Mix: 2026 pro forma outlook expects approximately 80% of run-rate EBITDA to originate from third-party customers.
• Capital Efficiency: Recent $185 million organic investment expected to yield ~$75 million in combined EBITDA in 2026–2027.

Business-Segment Outlook:

• Gas (Delaware Basin): First sour gas compressor station and AGI well at the Libby Complex currently in commissioning; full startup expected within "a few weeks" to one month. Anticipated to cause a "substantial jump" in gas volumes and plant utilization as wells wait for capacity. Future evaluations ongoing for expanding sour gas processing capacity to meet customer demand.
• Crude (Delaware & Midland): Slight Q3 volume dip attributed to well connection timing; outlook is positive with growth expected to continue. The three-stream platform is driving increased activity in the Delaware Basin.
• Water: Q3 volume decline due to production timing and well start-ups expected to reverse by year-end and continue growing through the Permian Basin as water handling needs increase.
• Backlog/Pipeline: New takeaway capacity coming online is stabilizing local gas markets (Waha prices turning positive), which supports sustained upstream activity and demand for midstream services.

Market and Competitive Outlook:

• Upstream Activity: Rig activity in the Permian is near yearly highs; producers are actively securing acreage and future drilling locations, particularly in the northern Delaware Basin.
• Commodity Prices: Crude and NGL prices remain elevated due to Middle East conflict; Waha gas prices have stabilized as positive, contrasting with H1 negative pricing.
• Competitive Position: The company claims a unique differentiator via its three-stream (crude, gas, water) offering in the Delaware Basin, positioning it to capture more volume as production grows.

Macro / Industry Outlook:

• Economic/Industry Drivers: Continued high rig counts and elevated commodity prices are expected to sustain upstream production growth, directly driving demand for the company's midstream services.
• Regulatory/Geopolitical: Mention of Middle East conflict as a driver for sustained crude/NGL pricing levels.

Strategic Initiatives:

• Capacity Expansion: Continued build-out of new sour gas gathering infrastructure; evaluating options for further expansion at the Libby Complex.
• Capital Allocation: Discipline on leverage (ended Q3 at 3.85x, the lowest of the year) and coverage ratios (~1.11x) to fund growth while maintaining strong liquidity ($1.3 billion).
• Balance Sheet Strengthening: Completed largest primary follow-on equity offering by a midstream MLP in a decade ($220M net proceeds) and refinanced 2028/2029 senior notes to extend maturities.
• M&A Stance: No immediate appetite to buy or sell assets; management views current seller market valuations as high ("nine handle" target for unit price) and prioritizes funding organic projects on time.
• Strategic Shift: Economic separation from sponsor (Delic) increasing, with third-party business continuing to grow.

Risks and Headwinds to Outlook:

• Volume Timing: Volumes are subject to well connection timing and the ramp-up schedule of new facilities (e.g., sour gas solution).
• Production Declines: Natural production declines in existing wells could impact volumes if not offset by new drilling.
• Execution Risk: Forward-looking statements regarding future investments and capacity expansions are subject to market conditions and internal evaluation timelines.
• Commodity Price Sensitivity: Sustained upstream activity is dependent on the continued elevation of crude, NGL, and gas prices.

Management Tone on the Future:

• Confidence Level: High confidence in the earnings trajectory and ability to deliver sustainable growth.
• Language: Uses terms like "tremendous growth potential," "uniquely positioned," "exceptional achievement," and "very good spot."
• Guidance Change: Explicitly raised full-year EBITDA guidance, signaling strong execution and better-than-expected volume trends in Q3 and Q4.

Miscellaneous:

• Financial Metrics: Q3 Adjusted EBITDA was $143 million; Distributable Cash Flow (DCF) was $73 million (1.11x coverage).
• Sponsor Ownership: Post-equity offering, Delic's ownership of DKL common units decreased to approximately 58%.
• Liquidity: Ended the quarter with approximately $1.3 billion in liquidity.