Delek US Holdings (DK) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Aug. 5, 2026 at 11:00 a.m. ET

CALL PARTICIPANTS

• Executive Vice President and Chief Financial Officer - Robert Wright
• President and Chief Executive Officer - Avigal Soreq
• Executive Vice President, New Energy, Strategy and Investor Relations - Mohit Bhardwaj
• Management Team Member - Mark Hobbs

TAKEAWAYS

• Net Income -- $170 million, or $2.71 per share, for the second quarter of 2026.
• Adjusted Net Income -- $344 million, or $5.48 per share, representing performance before specific adjustments such as the Renewable Volume Obligation.
• Adjusted EBITDA -- $639 million for the second quarter, which includes a 50% RVO adjustment.
• RVO-Adjusted EBITDA -- $490 million, reflecting adjusted earnings when excluding the full impact of the 50% RVO adjustment.
• RVO-Adjusted EPS -- $3.64 per share, excluding the 50% RVO adjustment.
• Enterprise Optimization Plan (EOP) Contribution -- $60 million in the second quarter, progressing toward an annual run-rate target of $220 million.
• Logistics Segment Adjusted EBITDA -- $144 million, the highest quarterly result in the company's history, driven by performance in Permian Basin crude, gas, and water offerings.
• Delek Logistics Partners (DKL) Guidance -- $520 million to $560 million for full-year 2026 EBITDA.
• Logistics Third-Party EBITDA -- 80% on a pro forma basis, reflecting the economic separation of the midstream business.
• Cash Flow from Operations -- $263 million for the quarter, including a $138 million net outflow from changes in working capital.
• Shareholder Returns -- $16 million in dividend payments and $20 million in share buybacks during the quarter.
• Share Repurchase Total -- 10% of the company since the beginning of 2025, according to management.
• Term Loan Refinancing -- Reduced from $920 million to $850 million, contributing to a $72 million decline in standalone net debt.
• Q3 Throughput Guidance -- 296,000 to 316,000 barrels per day across the refining system.
• Refinery-Specific Guidance -- Tyler at 72,000 to 77,000 barrels per day; El Dorado at 78,000 to 83,000 barrels per day; Big Spring at 68,000 to 73,000 barrels per day; and Krotz Springs at 78,000 to 83,000 barrels per day.
• Q3 Operating Expenses Guidance -- $220 million to $230 million.
• Q3 G&A Guidance -- $50 million to $55 million.
• Q3 Net Interest Expense Guidance -- $75 million to $85 million, with $28 million to $33 million from DK and $47 million to $52 million from DKL.
• Supply and Marketing Improvement -- $60 million increase quarter over quarter, primarily driven by a $25 million contribution from wholesale marketing.
• Capital Expenditures -- $61 million at Delek Logistics for growth projects and $55 million in the refining segment.

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RISKS

• Soreq stated, "RVO costs remain elevated and the absence of SREs created a significant burden on small refineries like us," noting that the lack of exemptions impacts the economic viability of smaller operations.

SUMMARY

Management reported second quarter results characterized by record performance in the logistics segment and the successful execution of refining turnarounds. The company continues to advance its Enterprise Optimization Plan to improve free cash flow across various market conditions, while maintaining a disciplined capital allocation strategy focused on dividends, buybacks, and debt reduction. Management also emphasized the strategic importance of the Sum of the Parts initiative, highlighting the increasing economic separation of the midstream business and its exposure to the Delaware Basin. Discussions regarding the Renewable Fuel Standard underscored the company's proactive stance on seeking small refinery exemptions to mitigate elevated compliance costs.

• CEO Soreq characterized the Enterprise Optimization Plan as more than a project, stating, "EOP, it's not a project. It's a lifestyle. That's something we do."
• Management indicated that the company does not intend to hold excess cash, with Soreq stating, "We don't have any plan to have excess cash on our balance sheet. So I want to make it very clear on that."
• Hobbs noted that the Libby gas complex is nearing completion of its sour gas gathering and compression offering, which is expected to drive a step change in gas volumes.
• Bhardwaj reported that the company's confidence in its mid-cycle free cash flow profile of $650 million to $700 million is increasing following the next phase of EOP.
• CEO Soreq stated that all options remain on the table for the Sum of the Parts strategy, including potential asset sales, bolt-on acquisitions, or buybacks between the parent and logistics entities.
• Management observed a shift in refining market dynamics, with CEO Soreq noting that a $1.50 backwardation in the current curve is significantly flatter than the $6 to $7 seen in the second quarter.
• The company continues to pursue 2025 Small Refinery Exemptions, citing a previous successful petition for the Krotz Springs refinery based on disproportionate economic harm.

INDUSTRY GLOSSARY

• AGI: Acid Gas Injection, a process used to dispose of hydrogen sulfide and carbon dioxide by injecting them into underground formations.
• Backwardation: A market condition where the current price of an asset is higher than prices trading in the futures market.
• Crack Spread: The differential between the price of crude oil and the petroleum products extracted from it, representing the gross refining margin.
• DKL: Delek Logistics Partners, LP, the company's master limited partnership that owns and operates midstream energy assets.
• EOP: Enterprise Optimization Plan, a Delek initiative aimed at increasing annual cash flow through operational efficiencies.
• RFS: Renewable Fuel Standard, a federal program that requires transportation fuel sold in the U.S. to contain a minimum volume of renewable fuels.
• RINs: Renewable Identification Numbers, credits used by refineries to demonstrate compliance with RFS quotas.
• RVO: Renewable Volume Obligation, the specific amount of renewable fuel a refinery is required to blend into its products.
• SRE: Small Refinery Exemption, a provision that allows smaller refineries to be excused from RFS obligations if they can prove disproportionate economic hardship.
• Sum of the Parts: A valuation method that evaluates a company by determining what its individual divisions would be worth if they were spun off or sold.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Delek US Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Robert Wright, EVP and CFO. Robert, go ahead.

Robert Wright: Good morning, and welcome to the Delek US Second Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President and CEO; Mohit Bhardwaj, EVP, New Energy, Strategy and Investor Relations; as well as other members of our management team. Today's presentation materials can be found on the Investor Relations section of the Delek US website. Slide 2 contains our safe harbor statement regarding forward-looking information. As a reminder, this conference call will contain forward-looking information as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's comments.

Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal?

Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. I'm extremely pleased with our strong execution in the second quarter. The quarter further demonstrates our enhanced execution capabilities. First, we successfully navigated the volatility in crude and product markets caused by the event in the Middle East. Second, we made further progress in increasing our free cash flow profile and reducing our overall cost structure. This quarter reinforced the importance of discipline in maintaining safe and reliable operations and making thoughtful capital allocation decisions. This is especially important during periods of strong margins.

We will continue to apply the same prudent approach across our business, capital deployment and corporate culture as we are creating sustainable long-term shareholder value. As I mentioned during the last earnings call, the events in the Middle East and East Europe has created many ripple effects in the markets. We continue to see steep liquidation, swing in crude differentials and shortage of transportation fuels. In the current environment, we continue to believe that access to crude, high distillate yield and, most importantly, the ability to respond quickly to changing in the market conditions are critical to maintaining operational flexibility and delivering strong performance.

We plan to continue navigating this environment with measured approach by, first, mitigating risk; and second, capturing the opportunities offered by the market. Now I will cover some of our second quarter highlights and strategic initiatives in detail. Starting with refining. Our refining system operated well, demonstrated by all 4 refineries. Big Spring has been running to our expectations since its turnaround. Post turnaround, we are seeing improved reliability, higher crude slate flexibility, improvement in overall product yields and higher octane and blending capabilities. We are very pleased with this improvement and are looking at finding additional opportunities to further improve this important asset in our portfolio.

With no planned turnarounds for the rest of the year, our refining system is well positioned to capture the strength in the market. Moving to EOP. Enterprise optimization plan continue to drive significant value. As a reminder, our enterprise optimization plan target to increase our cash flow by at least $220 million on an annual run rate basis. During the second quarter of 2026, we estimate approximately $60 million of EOP contribution to our P&L. We are currently working on further advancing EOP to create an additional meaningful step change to our free cash flow profile. We'll provide more details on this in the near future.

Our Sum of the Parts initiative also continued to progress with raising strength of our midstream business. DKL today reaffirmed its 2026 EBITDA guidance of $520 million to $560 million. The tailwinds we have been seeing in DKL business continue to rise, and we are working hard to capture these opportunities. DKL is close to completing its comprehensive gathering, treatment, processing and acid gas injection solution. The sour gas solution will provide DKL the ability to fully capitalize on its growth opportunities in the Delaware Basin and maintain its best-in-class EBITDA growth and yield. In 2026, on a pro forma basis, we continue to expect DKL third-party EBITDA to exceed 80%.

This level of economic separation is a cornerstone of our Sum of the Parts strategy and continue to bring us closer to our deconsolidation goal. DKL is on the right path, and we continue to work hard to write the next chapter in its growth story. As mentioned last quarter, we are pursuing a proactive strategy to manage our obligation under the RFS. The SRE provision in the RFS served the important purpose of mitigating the impact felt on small refineries from the RFS burden. RVO costs remain elevated and the absence of SREs created a significant burden on small refineries like us.

We expect the EPA to continue to provide relief to small refineries for the year of 2025 and beyond. Finally, we believe that the current administration, Senate, Congress and EPA realize the importance of small refinery exemptions, not only for the refineries which qualify under the program but also for the local communities they serve. The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividend and $20 million in buybacks. Our strong balance sheet, improved reliability, EOP and confidence in our outlook continue to support disciplined approach to capital allocation through continued dividend and buybacks.

We remain committed to a balanced and disciplined capital allocation strategy and look forward to continuing to reward our shareholders. In closing, thank you for our team for their hard work and dedication. I'm immensely proud of the progress Delek has made, and I look forward to building on the momentum for the remainder of the year and beyond. Now I will turn the call over to Robert, who will provide additional color on the quarter.

Robert Wright: Thank you, Avigal. For the second quarter, Delek reported net income of approximately $170 million or $2.71 per share. On an adjusted basis, net income came in at approximately $344 million or $5.48 per share, with adjusted EBITDA of approximately $639 million. Turning to Slide 4, we provide the breakout of adjusted EBITDA and adjusted EPS for the quarter. When we exclude the 50% RVO adjustment, adjusted EBITDA was approximately $490 million and adjusted EPS was approximately $3.64 per share. Slide 5 walks through the bridge in adjusted EBITDA, excluding the 50% RVO adjustment from the first quarter to the second quarter. The breakdown shows that there were 3 main drivers for the increase in EBITDA.

Quarter-over-quarter, performance was led by stronger refining margins, helped by our robust distillate yields, along with higher throughput following the successful completion of the turnaround at Big Spring. In Supply and Marketing, we saw a $60 million increase versus the prior quarter. This improvement was driven primarily by wholesale marketing, which contributed $25 million to the improved results, partially offset by a $3 million reduction in asphalt contribution with the remainder of the change coming from supply. Our Logistics segment posted its best quarterly results in our history, delivering approximately $144 million in adjusted EBITDA as momentum continued across all 3 of our Permian Basin offerings, crude, gas and water.

Let's move to Slide 15 for a review of cash flow. Cash flow from operations was $263 million for the quarter. This reflects net income for the period adjusted for noncash items, along with $138 million net outflow from changes in working capital. Investing activities was a use of $176 million, reflecting our continued investment in growth. This includes second quarter capital purchases of $61 million at Delek Logistics, primarily for growth projects and $55 million of purchases in refining, along with a quarter-over-quarter reduction of capital accruals, primarily related to the payments on the final expenditures of the Big Spring turnaround, which we completed safely, on schedule and on budget.

Financing activities was an outflow of $82 million, which reflects the paydown associated with the successful refinancing of our term loan from $920 million down to $850 million. It also includes approximately $16 million in dividend payments and approximately $22 million in DKL distribution payments to public unitholders. Slide 16 breaks out our net debt position between Delek and Delek Logistics. On a stand-alone basis, excluding Delek Logistics, Delek net debt declined by $72 million, driven primarily by the term loan paydown completed as part of the successful refinancing of that facility. Now turning to Slide 17 and our outlook for the third quarter.

Our throughput guidance is as follows: Tyler, 72,000 to 77,000 barrels per day; El Dorado, 78,000 to 83,000 barrels per day; Big Spring, 68,000 to 73,000 barrels per day; and Krotz Springs, 78,000 to 83,000 barrels per day. Taken together, this implies a system throughput target of 296,000 to 316,000 barrels per day for the third quarter. In addition to the throughput guidance, for the third quarter of 2026, we expect operating expenses to be between $220 million and $230 million, G&A between $50 million and $55 million and D&A to be between $110 million and $120 million. Additionally, beginning this quarter, we will provide interest expense guidance at both the DKL and stand-alone DK levels.

This added disclosure reflects our continued focus on economic separation and capital discipline and underscores the progress we have made on both fronts. We expect net interest expense between $75 million and $85 million, with DK contributing between $28 million and $33 million and DKL contributing between $47 million and $52 million. With that, we will now open the call for questions.

Operator: [Operator Instructions] Your first question comes from the line of Doug Leggate with Wolfe Research.

Unknown Analyst: This is Ayush Gupta on behalf of Doug Leggate at Wolfe Research. He sends his apologies for not making the call today. Congrats on a great quarter. I have a few questions, and I'll start off with the SREs. So can you offer any update on the current timing of 2025? And specifically, can you clarify if SREs are awarded, what are the restrictions on value? Can you sell 2025 credits at 2026 prices? And related, you recently were awarded Krotz Springs having previously been denied. Can you share the process that led to the change in decision and implications for what it might mean across the portfolio for 2026 going forward?

Avigal Soreq: Yes. First of all, thank you for joining us, and please send our regards to Doug. So let's start with a bigger discussion about small refinery exemptions. First, small refinery exemption related to 2025, it's not a Delek situation. It's an industry, it's probably impact like, I would guess, around 40 refineries across the nation and probably impact half of the industry. So it's well beyond us. The issue of small refinery exemptions, and I want you to remember one line here is disproportionate economic harm. And the idea is to maintain high-paying jobs, local communities and affordable fuels.

It supports the administration energy dominance, the administration understand it very well, Senate, Congress and EPA and they all understand that it need to be resolved in a timely manner that allow us to comply as needed. And Mohit, I'll let you chime in to give more color around this.

Mohit Bhardwaj: Yes. Thanks, Avigal, and thanks, Ayush, for joining the call. Avigal is absolutely right. The SRE issue is about disproportionate economic harm. And you rightly pointed out in your question, the grant for KSR reflects that. Like our petition was strong and EPA and the DOE, they both agree that we have disproportionate economic harm because of RFS, and that's why our petition was overturned. So as far as we are concerned, we are very excited about our 2025 petitions as well in terms of the strength of them, and we are looking forward to that announcement.

Unknown Analyst: Perfect. And I have a follow-up. Your refining profitability is generally higher cost versus peers and the cost allocated to DKL, can DK hedge margin spread? And what could that really look like?

Avigal Soreq: Yes. Thank you for that question. Generally speaking, some of our investors sees us in getting into the refinery industry and for DK share specifically is to get exposure to crack spread. So we're going ahead and hedging, that is taking some of the teasers investment. So we are not doing it in any meaningful way, and we want to make sure that our investors are well rewarded and awarded for investing in our share, both on what we do on the capital allocation and not blocking the teasers around it. I hope it makes sense to you.

Operator: Your next question comes from Alexa Breno with Goldman Sachs.

Alexa Petrick: We wanted to ask first, could you just talk a little bit more about your capital allocation strategy? You've got a good amount of tailwinds coming in from a cash perspective. So how should we think about that, whether that be buybacks, a dividend or any other M&A consideration or any other allocation considerations?

Avigal Soreq: Yes, absolutely. Alexa, first of all, thank you for joining this call, and thank you for your support. So I will be very clear around that, right? We had a very clear capital allocation strategy that they're working very well for us. We maintain dividend through the cycle very well towards that. And then we have a balanced approach between taking care of our balance sheet and buyback. We need to put things in perspective. We bought around 10% of our company since the beginning of 2025, and we are one of the leading companies among our peers around returning capital to our investors.

We believe that being friendly to our investor and giving a good return to their investment is cornerstone in our strategy, and we'll keep doing that going forward.

Alexa Petrick: That's helpful. And then just on a follow-up, can you talk a little bit more about EOP? Any places that it's surprising to the upside? And as you kind of think about -- you always talk about it being ongoing in the next leg, like where are areas for further improvement?

Avigal Soreq: Yes, absolutely. EOP, it's a big deal, very big deal in our shop. And we spoke about it many times you and I, how proud we are about the fact that the entire organization is behind it and showing a very good results. EOP, it's not a project. It's a lifestyle. That's something we do. We push the entire organization and the organization love it and come up with more and more idea initiative as we speak.

You need to remember, and I'm sure you know that the whole point of EOP is to create a free cash flow at all market conditions in DK, and we helped you during the presentation we put together, we put a slide that show what happened in terms of EBITDA and free cash flow in a similar market condition and how well it position us going forward. Obviously, we started the program with around $100 million. We more than doubled that as we stand now. And I mentioned that in my prepared remarks, and I'm going to reiterate that we are not stopping here, not even closely.

We are working more about the more exciting things around EOP, and you need to stay tuned and expect some more good news to come after that. Mohit, why don't you chime in?

Mohit Bhardwaj: Yes. And Alexa, I think Avigal is absolutely right. So from an upside standpoint, our confidence in our free cash flow profile on a mid-cycle basis is increasing. And we show in our slide deck around $650 million to $700 million in free cash flow, including DKL distributions, and I think our confidence in that free cash flow, which is close to like a 15% to 20% free cash flow yield at current prices is increasing. So we are very happy about EOP. As Avigal pointed out, we are very happy about the next phase of it, and we are very excited about the free cash flow situation that we have coming along for us post EOP environment.

Operator: Your next question comes from Manav Gupta with UBS.

Manav Gupta: I'll pivot a little bit to midstream. You have a very strong sour gas presence. Can you give us an update on in terms of completion of the Libby gas complex, when do you expect to get completed? And then should we expect a ramp into the fourth quarter and year-end? And how that further increases your position in the Permian sour gas opportunity?

Avigal Soreq: Manav, thank you for joining us. It's a great question. We are very excited about the progress we are doing at DKL. DKL today on a pro forma basis, 80% third party. We have a clear, clean strategy of being a premier provider of crude, water and gas in the most prolific area of the Permian Basin. We have a very good growing engine, which is the gas that you just mentioned. We are very close to completing it. We see increase quarter-over-quarter on the gas reprocessing. And lately, Mark took himself that responsibility of leading DKL together with Chris, as I mentioned on my prepared remarks.

So that's a very good story for us, and we are very excited about the generation. It's both showing on the DK and the DKL unit and share. So Mark, why don't you take it from here?

Mark Hobbs: Yes. Thanks, Manav. Thanks for the question. Look, what I'll start with is both our plants are running well, both Libbey 1 and Libbey 2. And as you know, we've discussed in the past, we are seeing increasingly more sour gas production from our customers versus sweet, and this trend does continue. As you know, we've added not only the Libby 2 processing capacity, we've completed our AGI well and are now nearing completion of our sour gas gathering and compression offering. providing us with a much needed and unique sour gas solution in the Northern Delaware, which will help our customers continue to grow their production because we're capable of handling that.

And look, we do see this driving a step change in our gas volumes as we move through the rest of the year, and it positions us very well for future growth in the region.

Manav Gupta: Perfect. My quick follow-up is a little bit on the refining macro. Given the amount of global capacity that's down, do you expect the product markets to remain tight? And if you could provide some commentary on how, given your high diesel yield, it really benefits you guys?

Avigal Soreq: Yes, absolutely. And that topic, Manav, as you know, was very well discussed over many calls. And the high-level comment I will provide is we have like 5 million barrels that are off capacity all in. Obviously, we believe that once the event ends, it's going to take a few quarters probably to everything to normalize. So it's not going to end very quickly in terms of the fact that we are short of refined product across the world actually. We obviously see a steep liquidation versus historical standard. We have wide swing in crude differentials.

And we believe that the structural shortage of product is going to last a little bit longer Obviously, larger E&P are more disciplined than smaller, smaller. We show an increase in terms of production. We saw the rigs count increase by around 20 since the event started, which is also another tool in our toolbox. And we obviously saw Brent TI widening in lieu of the different country risk we see now versus beginning of the year. So what does it mean for us? Let's bring it back on. We have a very good access to product, both Gulf Coast and Mid-Continent, which is a positive. We have the highest among our peers.

We provide you a slide, distillate and jet fuel, and that's very good for us to be outside of turnaround cycle and be able to capture that. We have obviously excess of domestic crude, which doesn't put us in working capital issues or in any other supply problems. And we have a very good midstream Permian exposure that allows the holder of DK share to enjoy both. So we are very well positioned around that, and we are very happy about where we are. Mohit, do you want to chime in?

Mohit Bhardwaj: Yes. Avigal, I think you covered a lot of ground there. I just want to emphasize some of the points that you talked about specifically to us. You're absolutely right. With this macro environment that we have seen, we have seen that our producers have started at least completing their wells and production outlook has increased both in the Midland and in the Delaware Basin. Mark talked about that, which is beneficial for our midstream business, and this is obviously very beneficial for our refining business as well because they have access to these barrels. Flexibility is the name of the game that Avigal talked about.

So having high distillate yield, high jet yield, having different sourcing patterns that really helps us. And last thing I really want to talk about is that there are a lot of product pipelines being talked about, which is going to clear our markets. That's also going to have a very positive impact. It has nothing to do with the crisis, but that is some of the macro trends that we are seeing in our markets. Hopefully, that answers your question.

Operator: Your next question comes from Jason Gabelman from TD Cowen.

Jason Gabelman: I wanted to go back to the SREs and specifically on crops and the recent award, how should we think about monetizing that award and the magnitude of cash you'll think you could get from that? And where is the priority in terms of where that cash goes?

Avigal Soreq: Yes. First of all, Jason, thank you for joining our call. We're going to keep -- stick to our capital -- very strict capital guidance we provided about the dividend to maintain it all cycle and balanced approach between taking care of the balance sheet and buy back our shares. As Mohit alluded earlier, even in a mid-cycle basis, we are showing $600 million to $700 million free cash flow, which is 15% to 20% yield. So there is a lot of room in our share price to go up. We don't have any plan to have excess cash on our balance sheet. So I want to make it very clear on that.

We are not going to hold excess cash just for the sake of holding it. So all of that coming together is pretty clear where it's going to come from this point on. Our strategy is to stay always with compliance, and I will let Mohit to finish it.

Mohit Bhardwaj: Yes. And Jason, as Avigal just pointed out, we don't have a strategy of holding excess cash on our balance sheet. So you've seen our history, we have done a lot of return to capital -- return of capital to shareholders, and that's something that will continue. As far as KSR and the petition is concerned, we are very happy with the outcomes. And this shows the point around disproportionate economic harm that I was making earlier. As far as we are concerned, that reflects well as far as our petitions for 2025 are concerned, and we are excited to see what EPA says.

It's important to understand for people like us who stay in compliance, we buy RINs, and this is a return of those rents RINs to us. So it is important that it's not like somebody is giving us cash. It's the cash that we have already invested and is being returned to us.

Jason Gabelman: Okay. Yes. I guess I'm wondering, is there any friction time in terms of receiving those RINs and then monetizing them? Or is that a pretty immediate event?

Mohit Bhardwaj: Yes. So Jason, I think we've gone through this rodeo based upon how this plays out last time. We have a very good strategy around this. We have a very good team who manages our RIN purchases and disposals, if any required. So we have a very good strategy around it. We are not concerned about it. But as I said, SREs is an issue around disproportionate economic harm, and we are glad that EPA took the right decision.

Jason Gabelman: Okay. And then my follow-up is just on kind of near-term refining margin capture dynamics. Obviously, 2Q, you had a pretty steep backwardation. It seems like the curve has eased here in 3Q. Should we expect that to be kind of a one-to-one benefit in terms of kind of the backwardation in 2Q going to easing in 3Q flowing to your refining margin?

Avigal Soreq: Yes, that's pretty much it. You got it right. So $1 in the backwardation is dollar that doesn't reflect itself into the crack and vice versa. You are absolutely right. We see a pretty flat curve now. Maybe on the front, we see like around $1.50 or something like that. So that's pretty flat versus the $6, $7, even more we have seen in Q2, and that's obviously reflected in the crack spread. So you're absolutely right.

Operator: Your next question comes from Joe Laetsch with Morgan Stanley.

Joseph Laetsch: So I wanted to start on the Sum of the Parts side. Could you just talk through how you're thinking about the current deconsolidation and value unlock options here? You've done a good job with bolt-ons and organic growth in the past at DKL and the currency at DKL has certainly strengthened this year. So curious about the M&A landscape as well.

Avigal Soreq: Yes, absolutely. So I will start by saying the journey of Sum of the Parts. We need to remember the objective is to make sure that the value that we are creating in DKL show both in the share price and unit price. We obviously made progress with that, and there is more steps that we are doing as we speak. What we need to remember here that today, we are standing with around 80% third-party income on the DKL side on a pro forma basis.

We are standing in a very, very good location, both on the Delaware side and in the Midland side, and Mark gave his remark about the gas plant, which is a very good unique opportunity. We obviously have very good asset quality as we stand now on all aspects, DPG on DGG on the crude side, DB on the gas side and also the former H2O and Gravity that we brought in around 5 to 6x, probably the valuation now is around 10, I would guess.

Another dynamic in the market, Joe, that you're probably aware of that we have seen the recent transaction are low to mid-teens that if you're doing the intrinsic value, there is very high upside about where we are. As I said in the past, all options are on the table, and we are promoting one or more of them, either the DK asset sale, obviously, continue doing a bolt-on acquisition or do a buyback like between DK and DKL like we did in the past, which is, to remind you, a free tax exercise. In terms of the M&A itself, the market is very good for sellers today, and you can take that comment wherever you believe to.

And on the top of that, we are not going to do acquisition if it's not accretive to leverage, coverage ratio and it's going to be strategic. So we are looking at all options, and we are staying very, very tuned.

Joseph Laetsch: That's helpful. And then shifting to refining, just on the utilization side. So it looks like the system ran well overall across all of the refineries. And you've had some initiatives and turnarounds in recent years to improve the competitiveness of the assets. As we think about the path forward, is there more work to conduct across the system? Or is it in a place now where it's more about just operational execution?

Avigal Soreq: Yes. I will tie 2 answers together. The one answer, we are obviously happy about where we are in terms of reliability and the progress we have done. We have completed the third successful turnaround on budget, on time and most importantly, safely. So we are happy about that. But now I'm going to take the other portion of the answer is enterprise optimization plan is well tied into that. And Joe, you know that we are never going to be happy about where we are with EOP. We made progress $220 million, $60 million this quarter. But the entire organization, and it's coming from all levels, are fully committed to bring -- to write the next chapter of EOP.

And don't be surprised if we will come back to you quickly with another level of improvement that we see either in the gross margin, in the products we make, in the location we are selling them in the more area of the business. So stay tuned.

Operator: Your next question comes from Matthew Blair with TPH.

Matthew Blair: So for marketing and supply in the second quarter, apologies if I missed this, but do you have the breakout that includes the details on wholesale marketing, asphalt and your supply activities? And then for the third quarter, do you have any general commentary on the trends that you're seeing, for example, with crude prices moving back up, would that be a headwind to asphalt so far in Q3?

Avigal Soreq: Go ahead, Mohit.

Mohit Bhardwaj: Yes, Matt, thanks for the question. So as we have talked about multiple times, our supply and marketing line item, which we call internally the DKTS is doing very well. We have new leadership in place. We have done -- as we've talked about multiple times, we have tried to improve our wholesale business, our asphalt business, trying to create more value out of it. And you saw the results in the second quarter where versus where we were in the first quarter, results improved markedly despite all the volatility that we are seeing, which is you're also referring to as far as your ask for the 3Q forecast is concerned. Wholesale is doing very well.

We are very optimistic about the improvements that we've been making, and they should continue in the third quarter as well. Asphalt, we still have to see as to how prices settle. Prices have seen a lot of volatility. But as far as even asphalt is concerned, you should have some catch-up based upon the time that has passed since the start of the conflict, but it's all going to depend upon the volatility. So overall, we are very happy with how the business is performing, both in wholesale and asphalt, and we expect improvements all along. Just cannot talk about the volatility around it.

Matthew Blair: Okay. Sounds good. And then on the SRE proceeds, could you just clarify -- so for like 2025, I think we're estimating that if you receive partial waivers at all 4 refineries, it's just about $600 million. If you receive full waivers, it would be double like $1.2 billion. Is there a tax that you would have to pay on that just because you bought RINs at a lower price and then theoretically be selling them at a higher price? So do you have any estimates on what a potential tax impact might look like?

Avigal Soreq: Yes. So obviously, we are not going to give a specific guidance around that. We still need to make sure 2025 come as we expected, and we're going to follow the capital allocation strategy that we have. And let's stay tuned around that, and we are very optimistic about those sufficient. Mohit, why don't you finish?

Mohit Bhardwaj: Yes. Avigal, thanks for that. And Robert will answer the exact strategy around tax management, which is not just tied to SREs. But as far as your comments were concerned, so we have given the number out for -- total RVO obligation in 2025 was $468.4 million, and that was around a RIN price of $1 a gallon. So you can make your own assumptions beyond that. That was the 2025 pricing in that number. As far as our overall tax allocation strategy is concerned, we're not going to discuss it on the call, but Robert, do you have any comments to make on that?

Robert Wright: No, I think Avigal addressed it right. I think we have a lot of levers that we can play to minimize our tax expense on this and obviously, the current economics and profitability that the business is seeing. So nothing to model or share right now, but tax minimization is a key strategy of ours, and we'll employ that on any SREs that were granted.

Mohit Bhardwaj: Yes. It's just a whole -- it's just not tied to the SREs, but overall tax minimization is our strategy. And for us, we are very happy about our cash flow situation and where we are in the cycle right now.

Operator: There are no further questions at this time. I will now turn the call back to Avigal Soreq, CEO, for closing remarks.

Avigal Soreq: I want to thank my colleagues here around the table for another great quarter. I want to thank the Board of Directors trusting us, to thank you the investors of sticking to the story and supporting us and most importantly, to our employees who make this company, the great company we are privileged to manage. We'll talk again in the next quarter, and have a safe day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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