Avigal Soreq: Yes. So I will start, Paul, with your permission, and then I will allow Joseph to give some more colors around that question. Great question. So first of all, we need to start, the wholesale is a strategic key part of a downstream integrated business unit. So we see the value in that. We see our ability to place product in a different market condition. So we need to remember that when we are looking in wholesale, right. That’s the first part. The second part, it’s a bit more tricky to model also because of the nature dynamic of that business. That business is changing every day and the market are very dynamic. So it’s not as simple to model it. And that’s the reason we are not giving always a clear guidance about that. But I know that Joseph put a lot of thinking into that topic so please.
Joseph Israel: Yes. Paul, first to answer your question, I think the real answer is no. I mean, that range is probably not a good place to be. When you look at the full year 2023, supply and marketing still made a positive $50 million, right. So statistically we averaged slightly over $10 million positive contribution per quarter. However, it’s a very hard number really to model. Like Avigal said, it’s very important to realize we are an integrated downstream company and the wholesale marketing is playing a strategic role to connect between our refineries right to the customers. We move around 210,000 barrels per day of light products through that wholesale marketing, which is approximately 800 million gallons per quarter. So high level, it takes a negative $0.075 per gallon margin between the pricing differential and range to get to a $60 million loss type of number.
And I’m sure you and others will follow the screen. Remember the negative $0.30, $0.35 per gallon back in January through the Mid-Con freeze. So I think our team is doing great job in mitigating this risk going forward, diversifying our pricing exposure and footprint, and hopefully we’re going to do better in this type of situations in the future.
Paul Cheng: All right, thank you.
Avigal Soreq: You’re welcome.
Operator: Your next question will come from the line of John Royall with JPMorgan. Please go ahead.
John Royall: Hi, good morning. Thanks for taking my question. So I just had a follow up on capital allocation. I guess, it’s a two-parter. One is you’ve hiked your dividend now, I think, seven quarters in a row, up 25% over that time period. Should we expect that to continue with the more frequent but smaller hikes? Or will you get to the point where you move to more of a once a year type cadence? And then the second part is just on the buyback which you talked about, the reasoning for turning it off in 1Q. What’s a reasonable expectation for when you might be back in the market for buybacks?
Avigal Soreq: Yes. So I will answer both of those questions more broadly, and I will not be as specific. As I said all along, being a shareholder friendly company is a key priority for us, as long as maintaining a strong balance sheet. So we definitely will maintain that. And as I said a few times, having a consistent and growing dividend over time is something that we value and we believe our investor valued as well. So both of them are very key priorities for us, around the buyback, I want to make a point very clear. We see a lot of value in our share price, but we elected not to do it because of development in the strategic initiative and the progress we did made around it.
John Royall: Great. Thank you. And then can you talk about the timing of separating retail? And I realize these processes don’t just kick off overnight, but it’s a little bit of a tougher time fundamentally now, at least over the short-term on fuel margin and also on merchandise sales. Do you think the enthusiasm for this business in the asset sale market is maybe what it was six or 12 months ago? Or do you think buyer expectations have adjusted at all?
Avigal Soreq: Yes. We obviously are not going to be specific around the process. We have a great asset, a unique market position, a unique market. And we are making good progress.
John Royall: Okay. Thank you.
Avigal Soreq: Thank you.
Operator: Your next question will come from the line of Ryan Todd with Piper Sandler. Please go ahead.
Ryan Todd: Thank you. Maybe if we think about your refining EBITDA over the last four quarters, I think you’ve generated around $580 million of EBITDA in an environment that was generally above historical mid-cycle margins. As you think about your refining business going forward, what do you believe is the mid cycle EBITDA or earnings power of the business is currently constituted? And how do you maybe think about the bridge of where it is versus where you want it to be? Whether in terms of cost reductions, reliability improvements, ability to repatriate EBITDA out of DKL back into DK. Like, how do you want the market to think about – how should we be thinking about the mid cycle earnings power of your refining business?
Avigal Soreq: Ryan, thank you for the great question. As we said in the past, we believe that our earning power in the refining is improving as we speak. We have seen better capture rate, you have seen that in all refineries and we have seen that we demonstrate lower and lower LPO. That’s a key part of that. Joseph, put a lot of time into that. So maybe, Joseph, you want to take this one?
Joseph Israel: Yes. We think on a mid-cycle basis, our mid cycle EBITDA is between $750 million to $800 million.
Ryan Todd: At the refining level?
Joseph Israel: No, this is for the entire company and this is considering a stable refining statement with minimum surprises as we position it.
Ryan Todd: Okay, perfect. Thank you. And maybe, I guess it probably feeds into that some, but I can’t – I don’t know if I missed it earlier or not. But can you update us as to like progress to date on the cost reduction target? I know you talked about the $90 million to $100 million kind of run rate for 2024. Are you there? Where have you seen the greatest improvement so far? What’s worked well? What still remains to be done? Maybe just an update in terms of the process there.
Avigal Soreq: Absolutely. So we are focusing to be at around $90 million to $100 million exiting 2024. We have found additional opportunities towards 2025 and that goes very well. Reuven and his team is doing an amazing job around it. Reuven, do you want to add anything?
Reuven Spiegel: Well, we have executed most of the steps that were planned thus far. We have two more steps in the second quarter and third quarter that will put us on track for the $90 million to $100 million. We have identified opportunities between $15 million to $20 million that will be executed in 2025.
Ryan Todd: Thank you.
Avigal Soreq: Thank you.
Operator: Your next question will come from the line of Matthew Blair with TPH. Please go ahead.
Matthew Blair: Thank you and good morning. There’s some reports that Wink to Webster will be offline in January for up to two weeks, is that correct? And what kind of market impact would you anticipate? And if that did widen out Midland spreads, do you think Delek would be in a position to benefit there?
Avigal Soreq: Yes. So Matthew, thank you for the question. Obviously, I’m not going to comment about W to W operation. We are not the operator of the line and we are not commenting on those kind of rumors or news. Regarding the spread, I think that everyone can see that the long haul spread, i.e., Midland MEH is widening pretty nicely. We see it in June widening all the way to back 20 in the second half of the year. Q4, I think it’s like $0.75 now. That’s a demonstration of increase in production. We see the production in Midland 65,000, 66,000 million barrels per day and probably going to go up this year on the additional 250,000 to 300,000 barrels a day. So that’s put the Midland differentials going into the next valve, which is the basin and i.e., cushion. So that’s going to wide the differential just a little bit. So that’s obviously a very good development for us.
Matthew Blair: Sounds good. And then circling back to the commentary on supply and marketing, you mentioned you’re seeing some seasonal demand improvement you’re rolling off the very negative values in January, but we also see RINs 10% to 15% lower. And so putting that all together, do you think supply and marketing can be positive EBITDA contribution in Q2 after the $65 million loss in Q1?
Avigal Soreq: Yes. Matthew, so listen, it’s still early in the quarter. We believe in the business, but I’m not going to give guidance for that. We gave a lot of guidance that help you to model really well. It’s really hard to predict the dynamic in the market at this 10 seconds, so I’m going to stay out of that guidance.
Matthew Blair: Okay, sounds good. Thanks.
Avigal Soreq: Thank you.
Operator: Your next question will come from the line of Jason Gabelman with TD Cowen. Please go ahead.
