Delek US Holdings, Inc., has announced financial results for its third quarter ended September 30.
Delek operates a petroleum pipeline network in Columbia and Union counties, and a refinery in El Dorado.
Delek US reported third quarter 2019 net income of $51.3 million, or 68 cents per diluted share, versus a net income of $179.8 million, or $2.03 per diluted share, for the quarter ended September 30, 2018.
On an adjusted basis, Delek US reported adjusted net income of $58.7 million, or 78 cents per diluted share for the third quarter 2019. This compares to adjusted net income of $186.4 million, or $2.15 per diluted share, in the prior-year period.
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $163.1 million compared to Adjusted EBITDA of $325.5 million in the prior-year period. Reconciliations of net income reported under U.S. GAAP to adjusted net income and Adjusted EBITDA are included in the financial tables attached to this release.
Adjusted quarterly results include a net income benefit of approximately $5.6 million or $0.07 per share. This consists of a net before tax gain of $20.7 million related to RIN waivers, partially offset by a refining inventory valuation headwind of $13.5 million, separate from the effect of a lower of cost or market loss.
The overall decrease in year-over-year results were primarily driven by a lower crude differential environment where the realized Midland to Cushing differential declined from $10.40 per barrel in the third quarter 2018 to $0.94 per barrel in the third quarter of 2019. The effect from a lower crude oil differential was partially offset by the alkylation unit at Krotz Springs that began operating in the second quarter 2019 and an increase in income from joint ventures.
Uzi Yemin, chairman, president and CEO of Delek US, said, "Cash generation in the quarter was significant and allowed us to fund an approximate investment of $75.3 million in the Wink to Webster project and return cash to shareholders. We continue evaluating project financing as a funding option for Wink to Webster and, if successful, we expect limited equity contributions beyond the investments in the third quarter.
“Our Big Spring Gathering system continues expanding, where we now have over 275,000 dedicated acres. Our gathering system build-out positions us uniquely among refiners with access to crude, in excess of our refining capability. The Wink to Webster pipeline compliments this ‘long crude position’ by providing increased optionality to place barrels at the most attractive destination points, including the Gulf Coast."
"The macro environment is moving toward our competitive advantage underpinned by strong distillate margins. With a design change completed at El Dorado at the beginning of October, this facility is now positioned to run at improved utilization rates with enhanced product yield, largely driven by higher distillate output.
“Finally, we remain committed to returning cash to shareholders. Our quarterly dividend is being increased by 3.5 percent from the second quarter 2019, marking the sixth increase since the dividend paid during the first quarter of 2018. We have continued to repurchase shares, which resulted in a 16% reduction in our weighted average share count in the third quarter 2019, compared to the peak in the second quarter 2018. As we continue to balance our capital allocation program between investing in our business and returning cash to shareholders, we expect to repurchase approximately $30 million of our common stock in the fourth quarter 2019."
Refining segment contribution margin was $127.5 million in the third quarter 2019 compared to $319.5 million in the third quarter 2018. On a year-over-year basis, results were negatively impacted by a lower crude differential environment. Taking into account the timing effect between the purchase price of Permian Basin crude oil and when it is realized as finished products are sold, the Midland-Cushing differential in the reported results was a realized discount of approximately 94 cents per barrel in the third quarter 2019 compared to a realized discount of approximately $10.40 per barrel in the prior year period. Contango in the oil futures market was $0.08 per barrel in the third quarter 2019, compared to backwardation of $1.27 per barrel in the third quarter 2018.
Third Quarter results were negatively impacted by planned downtime at El Dorado. A design change was completed on the vacuum tower at the end of the quarter. The facility is now positioned to run at higher utilization rates, with potential to improve the distillate yield over 4 percent, along with increased flexibility to run West Texas Sour crude.
In August 2019, the El Dorado, AR, Krotz Springs, LA and Tyler, TX refineries received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. This waiver resulted in approximately $20.7 million of benefit with $7.4 million of RINs expense reduction at El Dorado, $4.9 million at Krotz Springs and $8.4 million at Tyler.
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