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Delek Logistics and Delek US announce midstream growth and increased crude oil flexibility

Published by , Editorial Assistant
World Pipelines,

Delek Logistics Partners, LP (“Delek Logistics”) and Delek US Holdings, Inc. (“Delek US”) have announced an acquisition to provide additional midstream growth and improved crude oil flexibility. An indirect, wholly-owned subsidiary of Delek Logistics purchased a 33% ownership interest for approximately US$128 million in Red River Pipeline Company, LLC (“Red River”) from an affiliate of Plains All American Pipeline, L.P. to form a new joint venture that owns capacity on the Red River pipeline.

Red River intends to proceed with an expansion project to increase the capacity of the pipeline from 150 000 bpd to 235 000 bpd. Also, Delek US will increase its direct access to crude oil originating in Cushing, Oklahoma from 35 000 bpd to 100 000 bpd utilising a portion of the new capacity through a throughput and deficiency (“T&D”) agreement with the Red River joint venture.

Uzi Yemin, Chairman and Chief Executive Officer of Delek Logistics' general partner and Chairman, President and Chief Executive Officer of Delek US, remarked: “This joint venture supports our initiative to grow the midstream business, while increasing our crude oil sourcing flexibility. For Delek Logistics, this joint venture is expected to generate approximately US$13.5 to US$15.5 million of annualized adjusted EBITDA in its first year, which is expected to increase to approximately US$20 to $25 million of annualised adjusted EBITDA following an expansion in the first half of 2020. From a midstream standpoint, this investment, combined with our current operations, the development of our gathering system and long-haul crude oil pipeline strategy, increases our 2023 midstream adjusted annualized EBITDA goal to US$370 to US$395 million from our previous range of US$350 to US$370 million. This investment also increases our crude oil sourcing flexibility with additional direct access to a wide array of Cushing, Oklahoma crude oil grades. First, it will build from our current 35 000 bpd of Cushing crude oil in our system that has benefited our refining system gross margin. Second, it further enhances our crude slate optionality for three of our four refineries. Finally, it gives us the ability to ship to the US Gulf Coast at very attractive tariffs. Following the pipeline expansion project, our 302 000 bpd refining system should have access to approximately 125 000 bpd of crude oil priced on a Cushing basis, which will further diversify our crude oil slate.”

Red River joint venture

Delek Logistics has purchased a 33% ownership interest in the Red River pipeline joint venture from Plains Pipeline, L.P. for approximately US$128 million. This investment will be financed by borrowings on the Delek Logistics revolving credit facility. The Red River crude oil pipeline is a 16 in. pipeline running from Cushing, Oklahoma to Longview, Texas with a current capacity of 150 000 bpd. Currently, the joint venture has access to 60 percent of the capacity from Cushing to Hewitt, Oklahoma and 100 percent of the capacity from Hewitt to Longview. An approximately US$51 million expansion project to increase the pipeline capacity to 235 000 bpd is expected to be completed during the first half of 2020. Delek Logistics will contribute approximately US$20 million, of which approximately US$3.5 million was paid with the initial investment, to the joint venture for this expansion. Upon completion of the expansion project, the joint venture will have access to approximately 69% of the capacity from Cushing to Hewitt and 100% of the capacity from Hewitt to Longview.

Improved crude oil flexibility

In conjunction with the joint venture, Delek US entered into a 10 year T&D agreement for 65 000 bpd on the Red River pipeline which will begin upon the completion of the expansion project. Combined with Delek US’ existing T&D agreement, this new agreement will increase direct access from Cushing, Oklahoma to Longview, Texas from 35 000 bpd to 100 000 bpd. From Longview, crude oil can be delivered into Delek US’ Tyler, Texas, El Dorado, Arkansas and Krotz Springs, Louisiana refineries using various Delek Logistics pipeline assets that support those operations, including the east Texas crude logistics system, Paline pipeline, Caddo pipeline and other third-party systems. In light of IMO 2020, and the current forecast of new pipeline projects being built out of the Permian Basin, this commitment will provide Delek US access to a growing number of segregated crude oil grades and pricing available in the Cushing, Oklahoma trade hub.

Krotz Springs refinery update

The Army Corps of Engineers is considering the opening of the Morganza Spillway in Louisiana in early June. Delek US has begun preparation ahead of this opening to minimise the potential effect on the operations at the Krotz Springs refinery. Our focus is to keep the employees and the facilities safe from the potential increase in water levels. Currently, based on Army Corps of Engineers flood inundation maps, water levels are not expected to impact the refinery. During 2011, the refinery did not sustain any water damage, and since that time levees around the refinery have been built and maintained. At this time, the impact is expected to be minimal to the refinery operations as steps are being taken to optimise inventory levels, prioritise barge movement and ensure product movement with a third party pipeline company.

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