Delek Logistics Partners (DKL) Q4 2022 Earnings Call Transcript

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Delek Logistics Partners (DKL 0.77%)
Q4 2022 Earnings Call
Feb 28, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Delek Logistics Partners fourth quarter 2022 earnings call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Rosy Zuklic, vice president of investor relations. Please go ahead.

Rosy Zuklic -- Vice President, Investor Relations and Market Intelligence

Good afternoon, and welcome to the Delek Logistics Partners fourth quarter earnings conference call. Participants on today's call will include Avigal Soreq, president; Todd O'Malley, EVP and chief operating officer; Reuven Spiegel, EVP and chief financial officer; as well as other management team members. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including, without limitation, statements regarding guidance and future business outlook. These statements involve risks and uncertainties that may cause actual results to differ from our forecast.

For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, along with the press release associated with this call. The company assumes no obligation to update any forward-looking statements or information, which speak as of their respective date. I'll now turn the call over to Avigal for the opening remarks.

Avigal Soreq -- President

Thanks, Rosy. Delek Logistics Partners ended a great year with a record quarter. Our logistics system ran extremely well this quarter, contributing to a record EBITDA of $92.5 million, 33% higher than a year ago. A big driver for the increase was the successful integration of the 3 Bear Delaware assets.

We are very pleased with the integration of 3 Bear and consider the integration phase complete. Delek Logistics had a safe and reliable operation all year long. This was a direct result of dedicated employees and contractors. We achieved 3 million man-hour work without a lost time injury, a great milestone we aim to continue.

Our board approved an increase in the quarterly distribution to $1.02 per unit for the fourth quarter. This marks 40 consecutive quarterly distribution increases. We successfully achieved our goal to deliver a 5% distribution increase in 2022 and expect to continue this trend into 2023. From a macro perspective, we are optimistic on the outlook for the midstream business.

Delek Logistics is well positioned to continue its strong track record to grow and to be a long-term significant midstream player. I will now hand it over to Todd.

Todd O'Malley -- Executive Vice President and Chief Operating Officer

Thanks, Avigal. Starting this quarter, we changed our reporting segments to better align our financial reporting with how we manage the business. Change, primarily centered around reporting the results from our Delek Permian gathering system and 3 Bear assets and one new segment called gathering and processing. Total EBITDA for DKL was $92.5 million for the fourth quarter of '22 compared with $70 million for the same period of 2021.

The fourth quarter of 2022 distributable cash flow is $51 million, and the DCF coverage ratio was 1.16 times. For the gathering and processing segment, EBITDA this quarter was $48 million compared with $34 million in the fourth quarter of '21. The increase was primarily driven from strong contributions by the Delek Permian gathering system, as well as the 3 Bear assets. Wholesale marketing and terminalling segment contributed $23 million of EBITDA this fourth quarter compared with 19 million in the same period last year.

The main driver for the increase year over year was due to our West Texas wholesale business. Storage and transportation segment had an EBITDA of $16 million this fourth quarter, in line with the fourth quarter of '21. And lastly, the investments in pipeline joint ventures segment contributed $9 million for the fourth quarter of '22 compared with 7 million in the fourth quarter of '21, primarily due to increased volumes at the Red River and Caddo joint ventures. Moving to capital expenditures, for the full year of '22, we spent $131 million, excluding the 3 Bear acquisition, of which 120 million is earmarked for growth.

For 2023, we have a capital budget of $81 million, of which 66 million is earmarked for growth. With that, operator, we can open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Doug Irwin from Citi. Please go ahead.

Doug Irwin -- Citi -- Analyst

Hi. Thanks for the question. Just wanted to start with the '23 outlook and the Permian G&P segment. As you've already achieved the prior target of doubling the legacy Permian volume, I'm just curious what your expectations are around volume growth moving forward from here.

And then, on 3 Bear, curious if you're able to provide an update around where those assets are trending relative to the 100 million EBITDA that was implied by the initial valuation multiple.

Avigal Soreq -- President

Yeah. Doug, it's Avigal. Good afternoon. Thank you for joining us today.

So, the DPG is extremely a good asset. We are very pleased. This is what we are seeing. I'm not going to give you a specific number for 2023, but I'm going to give you some highlights around the asset.

We do have 325,000 acreage with a line of sight of -- line of sight for more. But just organically, we see an increase, just talking to producer, and a very nice percentage, well exceed what the rest of the Permian Sea -- we have 25 weeks on the acreage, which is very nice and a prolific number versus the rest of the basin. And we expect it to be very nice coast, well exceed the average of the market over here during the rest of the year. Probably, in the first quarter, we'll try to give you more specific number around the gulf.

But that asset and that ROC is extremely well, and we are very fortunate with that asset and that investment. And on 3 Bear, all this [Inaudible] very clear. We have -- we see the integration phase complete. We actually changed the name to Delaware gathering system to reflect that completion of the integration.

And we are well positioned to continue the trend to hit our target. So, this is as simple as it could be.

Doug Irwin -- Citi -- Analyst

Great. That's some helpful detail. Then as my second question, I was just wondering if you could talk about how you're thinking about the general partner kind of in the context of the sum-of-the-parts review at the detail level. Is the GP structure something that you view as an obstacle to potentially being able to consolidate the DKL debt on the balance sheet? And if so, could you maybe talk about some of the different options that are out there to potentially address that?

Avigal Soreq -- President

Yeah. So, let's be clear. First, every deal that we might put together is, first and foremost, to it to the benefit of the unitholders. We are very proud of having 40 quarters that we increased distribution time after time after time.

And we are taking a lot of pride in our ability to serve our unitholders. So, we will start with that consideration. First, what's the right thing to do for the investor -- investment community. And then we'll understand what is the right thing to do for the business.

I'm sure when there is will, there is a way, and with the structure and the right deal and the right corporate government to allow us to do the right deal for the investors and for the company.

Doug Irwin -- Citi -- Analyst

Got it. That is -- that's all for me. Thanks for the time.

Avigal Soreq -- President

Thank you. Thank you for joining us today.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Avigal Soreq for any closing remarks.

Avigal Soreq -- President

Yeah. So, first of all, I want to thank the management team around the table of working hard to make the partnership as good as it can be. I want to thank the board of director for starting in us, the investor community of -- sticking with us and trusting in our performance. And first and foremost, to our dedicated employees, walking days, nights, rain, and sunny days.

Thank you so much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Rosy Zuklic -- Vice President, Investor Relations and Market Intelligence

Avigal Soreq -- President

Todd O'Malley -- Executive Vice President and Chief Operating Officer

Doug Irwin -- Citi -- Analyst

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