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Delek US views Texas oil production growth as catalyst to transform business

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Delek US views Texas oil production growth as catalyst to transform business

Delek US Holdings Inc. plans to transform its business by taking advantage of growing west Texas light oil production.

"It's clear that refining is not growing," Delek CEO Ezra Uzi Yemin told investors at the Barclays CEO Energy-Power Conference on Sept. 3. "It doesn't make sense for us to … start spending more money on refining … in a flat market. So … we are taking the refining assets we have ... and basically using that as leverage to get introduced to the producers and to create value for our shareholders through the changing market."

Yemin said around 20% of Delek's EBITDA comes from its logistics and retail businesses today, and they plan to grow that share to around 40% over the next two to three years.

Yemin said between $143 million and $168 million of the planned $202 million to $227 million in EBITDA growth will come from its Big Spring gathering system, its 15% stake in the Wink-to-Webster crude oil pipeline that will connect oil production areas in West Texas with refining and export centers on the Gulf Coast, and projects that have yet to be announced.

"There's still a piece that is missing. We have that piece in our head. We just didn't advertise that piece just yet," Yemin said.

Today, Delek is working with around 35 oil producers in Howard, Martin and Midland Counties in West Texas that produce crude oil at a gravity of around 37 or 38 API, Yemin said, noting that Delek's gathering system "is actually exceeding what we were expecting."

Yemin, who had previously said logistics investments would not interfere with capital returns to shareholders, noted the logistics investments will support commercial initiatives.

"Everybody here is used to refineries being short crude oil and long products," Yemin said. "Delek U.S. is in a unique situation because of our gathering. … We will have more barrels next year than the barrels we can run in our system. … We're going to fill up our refineries. Then we can sell some into Midland. … We can sell some to other refineries along the system. … We can send it to the [U.S.] Gulf [Coast]. In every aspect, we'll make money. … As the number of the barrels grow, the commercial initiatives are expected to grow with them."

"If our strategy is to buy a mega refinery that is running heavy sour crude, I think we're doing the wrong thing," Yemin said. "The fundamental thing is that what comes out of the ground is sweet, what goes away from the market because of Iran, Venezuela, the Saudis, other factors, is heavy sour."