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Delek US says dividends and buybacks will not suffer from logistics investments

Delek US Holdings Inc. executives said Aug. 5 investments toward growing logistics EBITDA will not interfere with capital returns to shareholders.

During the second quarter, the oil refiner returned $80.1 million to investors, including $58.6 million of share repurchases.

In releasing second-quarter results, the company announced it would acquire a 15% stake in the Wink to Webster crude oil pipeline for a net investment of between $340 million and $380 million as part of the company's plan to grow logistics EBITDA to between $370 million and $395 million by 2023. The project will connect oil production areas in West Texas with refining and export centers on the Texas Gulf Coast. Delek said it is evaluating multiple options to finance at least 75% of the project, including project financing and/or expanding existing credit facilities.

"We are well ahead of our plan, and if anything, we may up these numbers in the future," Delek CEO Ezra Uzi Yemin said during the company's second-quarter earnings call. "For example, we're evaluating the Paline Pipeline expansion idea and creating another hub at Longview, [Texas]. [Those projects] are not in the numbers. … So we feel good, especially in light of the fact that both gathering and the Wink to Webster [projects] meet handsomely our [minimum threshold of] 15% unleveraged [returns]."

Yemin pointed to the company's ability to produce free cash flow despite narrowing West Texas crude oil discounts to Cushing, Okla.

"Even in an environment that the Midland differentials were $1.70 [per barrel] or so in the quarter we produced above $200 million in EBITDA," Yemin said. "And this is in a quarter that we had [scheduled maintenance]. So let's just not lose sight that the free cash flow coming from the company is substantial, so there's no reason to believe that we won't do a gathering [project], Wink to Webster, and continue to buy shares."