Delek US to ramp up Q2 rates to capture high refined products cracks

Delek US is currently running its four southern US refineries at more than 100% of their nameplate capacity, with plans to run at 94% capacity in the second quarter, said Ezra Uzi Yemin, the outgoing CEO of Delek US Holdings on the company's May 3 results call.

In Q1, Delek US' total system crude refining throughput was about 272,000 b/d. Q2 estimates are for crude throughput to average between 280,000 b/d and 290,000 b/d, with a large portion of the crude traditionally coming from the Permian Basin.

"With no major turnaround activity for the balance of the year, we are in a good position to capture the elevated market environment," said Todd O'Malley, Delek US' chief operating officer.

Refining margins for Midland-based West Texas Sour are averaging $27.83/b so far in Q2, according to margin data from S&P Global Commodity Insights, compared with the $10.75/b seen in Q1.

Like virtually all of its refining peers, Delek US is looking to take advantage of record-high diesel cracks, which are averaging over $80/b this week for WTS Midland.

As a result, Delek US has been pushing up distillate production as high as 43% of refinery yield to take advantage of the high cracks.

"We are pushing everything we can through the DHTs," said Uzi Yemin, referring to the diesel hydrotreating units at Delek US' refineries.

"We had some room ... both in Tyler and El Dorado," he added, referring to the 75,000 b/d Tyler, Texas, refinery and the 83,000 b/d El Dorado, Arkansas, plant.

Enhancing Delek Logistics operations

The April acquisition of the 3Bear gathering system increased the Permian footprint of Delek Logistics, the master limited partnership midstream arm of Delek US holdings.

Besides crude oil and natural gas gathering operations in the Delaware Basin in New Mexico, 3Bear also has processing, transportation, and water recycling and disposal facilities.

The deal was spurred on by strong demand and increased producer nominations for space on the legacy Delek Permian Gathering system, which reported crude throughput of 100,325 b/d in Q1.

"Strong producer demand drove a significant ramp-up in volumes with a 20% increase sequentially, and we expect volumes to at least double from Q4 2021 to Q4 2022," O'Malley said.

The 3Bear deal is important for Delek Logistics to increase fees from third parties outside its sponsor, Delek US, and also allow it to diversify not only within the Permian Basin by acquiring New Mexico operations, but also with the "expanded product mix into natural gas and water, said Blake Fernandez, head of Delek US' investor relations.

"Collectively, these attributes should further propel [Delek Logistics] toward becoming a true stand-alone entity and enhance [Delek's] interest in the company," he added.