Ladies and gentlemen, the program is about to begin. Reminder that you can submit questions at any time via the Ask Questions tab on the webcast page. At this time, it is my pleasure to turn the program over to your host, Doug Leggate.
Thank you, Eric, I'm delighted to welcome Delek to our afternoon session. Rosy Zuklic, who has recently joined as Investor Relations, an old friend of our firm. We're delighted to have her facilitate this session. Guys, thank you for being here. Our guest speakers, we have Todd O'Malley and Mark Hobbs from the company. Basically, I'm gonna hand this one over to Khalid for a lot of the micro questions. Guys, I did wanna kick off with one big picture question, which I think is on everybody's mind. There's been some management changes. There is a sense that things are changing at Delek. I wonder if you could just kind a walk us through from a corporate level thought on what the right business structure is.
What message do you wanna get to the market right now? What are you thinking in terms of the go-forward strategy for the company?
Yeah, Doug. This is Todd. I'll kick it off and then hand it over to Mark to maybe delve a little deeper into the details. I think you're spot on. You know, we've had a CEO transition with Avigal coming back into the company. Indeed, it's a new day here at Delek. We've obviously reworked our financial reporting structure, which we kind of finalized and just rolled out on this most recent earnings call. Look, we're in full growth mode, right? We've been very public about the fact that we're subscale in the refining segment. We have a lot of opportunities in front of us on the retail side of the business.
I think as I'll let Mark talk about, you know, unlocking that sum of the parts value disconnect that we've been suffering from over the last, I don't know, couple of years at a minimum. You know, really has us energized, it has the management team laser-focused, and we're looking forward to coming back to you as well as the investors with a lot of exciting announcements in the coming, you know, future.
Yeah. I appreciate that, Todd. Doug, looking forward to the conversation today. I joined the company, as you know, the first week of October.
Yeah.
I'm just about five months in. After spending over 20 years covering this sector on the investment banking side, working on a lot of the transformational consolidation which took place, you know, over the years, frankly, with a lot of entities that Todd worked for, over the years as well. I was really energized to come into this situation because I think the foundation of what the management team over the years has built here is one where, you know, it positions us uniquely to take advantage and be very proactive around growth opportunities. Both, you know, the senior management team here is on board with that. Our board of directors understands that and is on board with that.
Really engaged and looking forward to taking this company to the next level.
Well, guys, I don't wanna dwell too much on things that, you know, you haven't maybe completely finalized yet. Let me ask big picture-wise. Is there anything off the table in terms of things that you may or may not consider? For example, the retail organization has been a topic of discussion as to how you might position that either to get bigger or to sell it. What are the other kind of major buckets of potential initiatives that you think could release value?
Yeah. When we talk about the sum of the parts broadly, as an initiative and what has been my sole focus since joining the company and just looking at our business, across, you know, refining, midstream, and retail. Obviously on our fourth quarter call, we specifically mentioned midstream and retail as areas of focus for us around what we call the sum of the parts initiative. We clearly have two publicly traded vehicles. We own the GP and almost 79% of our midstream company. There's a very visible public marker kind of out there as far as valuation on that business. Like the reality is it's in a very illiquid position, right?
Right.
When we comp out, you know, we comp out. If you just look at the metrics on a consolidated basis, is a very levered refining company, right? What our objectives are around just beyond, you know, do we grow or sell retail, is really a bigger initiative for us, if I can say it that way, is around how do we crystallize or illuminate the value in a midstream business which has grown well beyond a drop-down refiner-sponsored midstream MLP, right? Unlock that value and think about it. Right now, we understand why the look-through value, in our opinion, isn't manifesting itself in the stock price.
We also believe that there's some moves that we can make, to unlock that and illuminate that value.
I don't wanna spend too much time on this because obviously it's evolving. Have you gone so far as to evaluate things like tax leakage?
Absolutely.
Yeah.
No, look, Doug, we're taking everything into account, as we think about how the chess pieces can move around. I mean, clearly, we have, very strong advisors that are helping us think through, you know, what are the tax implications of different avenues that we can take. We obviously were a drop-down story.
We need to think about, you know, if we do go down a path that ultimately results in any sort of a deconsolidation, you know, kind of what does the standalone refining company look like? Make sure that it's not overburdened contractually.
Yeah.
Supporting a midstream company that we now, in that scenario, don't necessarily control and have, you know, potentially a smaller ownership. Yeah, we're taking all of those things into account.
I think, you know, the interests are, for better or for worse, Doug, aligned, right? Because of the simple fact that right now the parent company owns 80% of the drop-down vehicle, right? It wouldn't be doing a good service to the shareholders at Delek if, you know, we didn't turn every stone over in terms of looking at tax leakage and looking at permutations on how we put things together. We're myopically focused on putting as much value to the bottom line for both companies as humanly possible.
Okay. Well, we're I guess I was gonna say, well, we're gonna watch with interest. Is there a timeline that you want to commit to in terms of when you expect to have some decisions made?
No. No, look, I mean, we want to be as transparent as we possibly can. You know, a lot of the things that we are considering, basically will run their course on their own timeframe. We'd like to be back to everyone as soon as possible because we're realistic about it. You know, our CEO has been talking about this for some time now, so we realize that there were some expectations, even on our call earlier this week, where we would come out and be a lot more, direct in what we're intending to do, and we're just not in a position to do that.
I don't really wanna get ahead of ourselves and commit to a timeline, but I can tell you that we're focused on it, we're working hard on it, and we hope to be back before too long on what we intend to do. Well, what we're going to do, not just what we intend to do.
Sure. I apologize. I've got one more on this, and then I'm done.
No, no problem. Happy to answer.
You've been at Delek, Todd, since early, I guess 2021, right?
Yes.
If I recollect.
Correct.
Why now? Why is this all happening now?
I think a very fair question, Doug Leggate. Look, part of it is the leadership transition. You know, new people with new and different ideas. Part of it is obviously, you know, rolling into 2021, you know, we were still suffering heavily from the impacts of the pandemic. It wasn't just unique to Delek, obviously, that was industry-wide. You know, I think, you know, for many of the same reasons that Mark joined, those were some of the reasons that drove me to, you know, to come into Delek. You know, I thought there was an immense amount of opportunity. We've got a good asset base. We have the ability to grow it, pretty much across that base.
You know, I think now, you know, the time is right. We've had a management team change. The margins, you know, have helped overcome the terrible.
Sure.
Events of the pandemic.
Right.
You know, I think right now we also see an opportunity that in my career I've maybe only seen one other time in terms of. You know, we've seen this huge wave of consolidation on the refining side, maybe for the wrong reasons. Some of those people I think are, you know, in a position now where they wanna rationalize some of their fleets. You know, retail again has, you know, strong demand in the U.S. The reality of it is you know, before Mark joined, we made the step of really diluting the revenue generated from the parent company at the MLP level through the Three Bear transaction. I think that was kind of the foundational step.
Right.
Digesting that gave us the ability to now dream bigger and say, "Well, you know, we've actually done what we needed to do to get ourselves on that path, and now we have the ability to really truly work on unlocking the, you know, the value that's inherent in our ownership stake and the value in the business that we're just not being recognized for right now.
Sure. I know those are tricky questions to answer, elegantly done, guys. Thanks very much indeed for taking them.
Yeah.
Let's turn to the micro. Khalid, do you wanna take it from there?
Maybe before-
Thanks for having us, Doug. We really appreciate it, by the way.
No, Well, we're not done yet. We got some time. Khalid, go ahead, please.
Maybe before jumping in straight into the macro, if you'll allow me, I'll take two attempts at prying more information from Mark. Mark, you touched on this, and I think it's very key. What does the refining business fully burdened for corporate look like? To put you on the spot, when you run through your mid-cycle analysis, what does the free cash flow capacity look like for DK?
Yeah. Look, we're not going to touch on that specifically, right? I mean, one of the things that we are hypersensitive to, as I mentioned earlier, and I'll build upon that a little bit here. The one thing is I don't want to commit to is what exactly free cash flow at what the go-forward mid-cycle looks like for this business because I think our view on that is still evolving. I think one thing that's safe to say is that our view is strongly in the camp that the go-forward mid-cycle level is gonna be substantially higher than what's historical. Mid-cycle levels look like for margins in the U.S., just given some of the structural things that have taken place over the last four or five years.
I mean, the way that I would answer that is we're thinking about. The chess piece is moving around potentially in what we're trying to achieve to unlock the what we see as the sum of the parts discount in our stock. The one thing that we are super focused on is making sure that each one of our businesses, whether that's midstream or refining, is set up structurally from a liquidity standpoint to continue to be growth vehicles because we see opportunities out there to do that. As we think about, and I think this may be where the question is going, is if you have a standing up the refining business as a standalone entity, right? You have this drop-down MLP business out there where we're clearly like everybody else that had a refiner-sponsored MLP.
We're dropping all kinds of refining, associated or re-refining affiliated assets into that MLP and contractually burdening the refining business to pay that going forward. I mean, we're focused on making sure that we take that into account in anything that we do, such that the standalone refining business is well positioned to weather any cyclical storm that we tend to see kind of in our business, right? They're not overburdened by a cost structure, if you will, for lack of a better term, that puts them at a disadvantage. That's kinda how we're thinking about it. I don't wanna commit to a mid-cycle free cash flow right now.
I appreciate that. I think when you think about the midstream business perhaps being undervalued and the refining business, perhaps being in need of the cash flows that were dropped down to DKL previously, there's a lot of room to rearrange things. We'll keep our eyes open there.
Yeah.
On the retail, when Marathon and Suncor both went through the exercise of trying to identify whether or not this is an asset that they want to split out, their bias was towards keeping it. It took a 14 x multiple to pry MPC Speedway business away from it. When you're going through your analysis of whether or not retail could stand alone, what's the integration value that you're wrestling with? Does it make sense for that business to stand alone, or is there an argument that says it makes sense for Delek to keep this because it's a natural outlet for its own product?
You take the first part.
Yeah, you take the first part, I'll take the second.
I'll talk about the integration piece of it, Clay, and then, I think Mark can talk about the, you know, the kind of broader implications of M&A or divestiture. Look, I mean, it's no secret that we are, let's say, on a completely different scale than either, Suncor's retail or, Marathon's retail. We did, however, if you remember, have a significant retail package that we did sell for thirteen and a half times in the form of MAPCO, that we used the proceeds to, you know, consummate the final acquisition of the balance of Alon that we didn't own. You are right in your statement that there is a lot of intrinsic value for us having the wet barrel outlet direct to the street, right? Why is that important?
We're operating in niche markets, and a lot of those markets, those outlets are, you know, critical pieces of clearing the refinery. We also get the benefit of the RIN capture, by, you know, going direct to our own company-owned and op stores. In addition to that, as, you know, we regularly share with you and the investors, the margin on the street, over the last couple of years has been robust, right? Even the margin inside the C stores, has been very solid. We're actually upgrading the value of that barrel, by owning that retail. Sure.
The question is, with 250-ish company-owned and operated stores and 5 new to industry stores that we've built out, is that the right scale and scope of the operation, or do we need to look at something bigger, or do we need to look at, you know, potentially divesting it? I'll let Mark jump in and talk about that.
Yeah. No, I'm happy to. This is one that's sort of near and dear to my heart, just given my history. When I was a banker, I actually worked with a team that advised Marathon on looking at a separation Speedway the first time when they ultimately decided not to do it. They decided to retain it and then worked with Valero. Valero took a different course from what Marathon actually ended up doing with Speedway and selling it, as you rightfully said, for a really high multiple, 100% cash, which really reset Marathon's balance sheet, right? Again, they, you know, a much bigger version of what we have, obviously, but they were copping out with MPLX being such a big sized midstream company relative to Marathon is having quite a bit of leverage.
Bringing in all of that cash allowed them to not only return a bunch of it to shareholders through buybacks but also de-lever the parent company significantly. You know, Valero took a different course, right? Spinning it off to their shareholders and retaining, you know, a 20% stake and then selling that later, which I was fortunate enough to work on them on selling the equity into the market after the spin-off. In both of these cases, you know, the companies got comfortable separating the retail businesses by entering into long-term fuel supply agreements.
What I would say in anything that we would do around retail, the one thing that is critically important for us is exactly what Todd was talking about, and that's, you know, maintaining, you know, connectivity, maintaining that integration through either wholesale branded or otherwise, you know, to those sites on a longer term basis so that we can effectively evacuate those barrels out of our system and potentially even grow that, as those if we were to do that, if that business grows in the future, you know, having the ability to supply that larger company and having effectively like a product shortening of those markets. Having that connectivity is exactly what Valero did and what Marathon did when they separated them. We would take a similar tact if we were to go down that path.
Yeah, look, Clay, I mean, there's a precedent, right? We've sold the retail before. You know, if somebody wants to back the brick truck up to the front door and dump it there, we're certainly gonna have a look at it. There may be some other strategies that we want to assess in terms of potential growth opportunities.
Look, the reality is, you know, we see retail businesses going for, you know, 10-12x in the private market. You know, that business right now. Like I'm not saying ours necessarily would fetch that kind of a multiple, but that is right now being, you could argue being capitalized in our stock at, you know, sub 5x, right? There's clearly some value there, potentially, you know, to unlock. If we say that our midstream company is appropriately valued in the form of DKL and how it trades either on a multiple or on a yield perspective, you know, we don't believe that we're getting that good look through value in our stock either.
That's really how we think, and I use the term moving chess pieces around, but how we think what are some things that we can do to unlock that value? I think there are things that we can be proactive around doing of illuminating that value and setting up all of our business segments on a path to be growth vehicles and to be successful going forward.
Thanks for all the details there, guys. That makes a lot of sense. I'm gonna take a 3rd attempt at extrapolating, extracting some information from Mark here. If you can talk about for DK.
Wait for this one. Sorry.
About what mid-cycle margins are for DK Refining.
I'm sorry, I missed the question. I think maybe somebody else spoke.
If you cannot talk to us about the mid-cycle EBITDA for DK, can you talk to us about the mid-cycle margins for DK?
Maybe I could add, Mark, before you answer that.
Yeah.
Let me add to that question.
Sure.
Our whole theme, if you like, for the last couple of, you know, last year, is this idea of a regional golden age of U.S. refining.
Yep. Okay.
Our thesis is that whatever you thought the historical mid-cycle was, there's a lot of advantages that U.S. refining has today, whether it be natural gas, incremental dependency on imports, and the overall continued tightening, especially we're gonna see LyondellBasell shut their Texas refinery at some point this year. When we're thinking about mid-cycle, we're not really necessarily looking for you to tell us what do you think Delek can do going forward. It's really your view on what do you think your mid-cycle earnings capacity is going forward relative to what it used to be based on the macro environment, if you see what I mean.
Yeah, I appreciate that, and I'm completely aligned with your way of thinking about it. Maybe I'll kick it off and then have Todd speak a little bit, maybe more specifically about Delek. My view, having looked at this sector for over the last couple of decades, is that we're going into a period here with where we are, frankly, from a product supply standpoint, structurally short in this market for a couple of reasons. You know, one, if you go back to around the time that the Philadelphia refinery went out, you can argue that we've permanently idled about 8% of the refining capacity in this country. If you look at where exports were out of this country, and net exports are back to and above where they were pre-COVID, right?
If you take in that volume, that's probably close to another 8% of the capacity that we have the ability to supply in the U.S. that's moving to Latin America, in particular South America and Mexico. Look, I think that the demand and pull on that side is going to continue to be strong and effectively grow. I do truly believe that we're going into an elongated cycle here where the normalized margins or mid-cycle cracks, whatever you wanna call it, is gonna be substantially higher than what we've seen, you know, historically. We need to think about our company or ways that we can position ourselves to operate reliably, consistently and take advantage of those opportunities.
To Todd's point earlier, you know, this is a segment or a sector, as you guys well know, that benefits from economies of scale and geographic diversification. You know, we as a company right now don't necessarily have much of that. I do think as some of the larger peers of ours, whether they're major integrateds, or some of our larger downstream peers that have grown significantly over the last 10 years through consolidation, will be looking to concentrate their resources on what they view as the core of their core assets. That'll create, you know, opportunities potentially for us to grow ourselves and increase our geographic diversification. Being proactive around that is something that I'm very focused on as well. Maybe I'll let Todd weigh in on his view.
Yeah, sure. I mean, look, Clay, I think you probably remember, you know, a year ago, we would, you know, sit and talk about. Okay, what is, you know, what is mid-cycle? Is it an $18-ish five-three-two? You know, are there RIN costs that need to be deducted from that? Are there op costs that need to be deducted from that? Do we assume that, you know, Midland is flat, there's no backwardation, you know, and that gets us to, you know, the refining segment earning $400 million-$500 million a year kind of ratably. I think, you know, to Mark's point, structurally, things have obviously changed in the market, vis-à-vis inventory levels, demand's been robust. We actually see relatively low flat price at the pump right now going into driving season.
We've seen a lot of turnarounds, renewable diesel projects that took actual refining capacity off the market and are not, even when they come online, gonna add back on a one-to-one basis, you know, are actually not coming online or if they are, they're running at, you know, 15%-25% of what their capacity is because of feedstock issues. you know, we feel very good about that. We think, from a, you know, a Midland perspective, Midland is being tied more and more every day to the Brent marker, right? it's becoming more and more of a pull of that barrel out of the U.S. That's a tailwind for us, right? yes, we pay higher flat, you know, higher price on crude because the differential goes up.
At the same time, because of the transportation, et cetera, to get that crude to Europe or other markets and then run it, the product pricing is more than compensating for that, right? We're seeing crack expansion because we're paying WTI-linked and payment term-based pricing on that crude, but we're ultimately selling our products in a market that's being set by, you know, delivered Brent vis-à-vis the Gulf Coast, you know, products markets. I think that's a benefit to us. Structurally, that $18, you know, should be higher. Natural gas costs, which were elevated on a relative basis, have now completely corrected themselves. I mean, we recently saw a couple of days of Waha, you know, where it was basically at zero.
Mm.
you know, in the middle of February. Natural gas costs or lack thereof, even on a relative basis now becomes even more of a tailwind for us. Obviously, you know, we're doing things internally inside of our system to help optimize the business, right? Looking at converting on-road fuel type material, think kind of a naphtha-esque barrel into a, you know, a chemical type net back and margin barrel, right? Getting an uplift there. Looking at optimizing our clean fuels portfolio, selling incrementally more premium gasoline, than we have in the past. I think, again, all of those to say the market's giving us some of it. We're doing self-help to give ourselves some of it. You know, is the mid-cycle higher for longer? We firmly believe that's the case.
Do we wanna put a hard number on it? Not really. I mean, right now, the five-three-two swap is trading, you know, 30-ish, $30-$35 for the balance of the year. You know, when you blend it together, you know, does that seem like fair value for right now? I think it does. I would argue that there's, in my view, a good opportunity for gasoline to outperform and surprise the market as we go into, you know, into real driving season. I think we'll leave it there.
Mark.
All right.
Sorry. There's a lot there to unpack, let's stay here for a second. Delek has always been a preferred vehicle to get exposure to inland U.S. crude spreads. You touched on this, that there's a bigger pull from Europe going on today because of what's happening with Russia. You need to replace those barrels, they're looking here to the U.S. to get those supplies. Perhaps you can help quantify for us. Before I think the consensus was WTI Brent should be anywhere between $3 and $5. Given this new normal, what does that look like today?
Yeah, I mean, look, I think there's no question it needs to be higher than that, right? There's obviously some risk premium that needs to be built in. Freight costs have been, you know, relatively high, although they've eased here in the recent past. You know, there aren't as many bottlenecks anymore, especially at the dock level. You know, in our view, we think Brent-WTI probably sitting somewhere between that $550-$750 range, depending on, you know, what kind of geopolitical events are out there that might cause it to, you know, move a bit wider. You know, pretty firm floor under it here, kind of around that $550 level.
you know, again, depending on what happens in rest of world, as China ramps up, maybe we even see, you know, a return to levels higher than that $7.50 level.
Guys, can I pick up on one of the things you said there, Todd, about I guess gasoline could surprise to the upside? It wouldn't surprise you to hear we're of a similar mindset, but you guys Have got the highest diesel yield of your peers. How are you running your system right now? Because cracks are still favoring diesel over the margin.
Yeah. They definitely are, Doug. We're in max distillate, like I would more or less expect everybody to be still across the industry. I think for us, the interesting kicker has been the outsized performance in jet. Right? Both in the Gulf Coast cash market as well as in the New York Harbor cash market. I think everybody got caught a little flat-footed. There was some off-spec jet during the fourth quarter.
Mm.
that caused supplies to be very, very tight. We then had some refining issues, obviously, during the freeze. you know, values have come down from, you know, $0.50-$0.70 per gallon premiums, but they're still very robust. they're outperforming, honestly, under any metric, anything out there on the board. We've seen demand in our system go, actually back over 2019 levels on the jet side. We've actually, you know, effectively been able to move barrels that maybe we were sloughing into the gasoline pool, back up into the distillate, you know, cut because of the jet, the jet rebound. We think that's gonna continue, right?
We think China reopening, I don't know if you saw the stats earlier this week, but, you know, the flights are back, you know, over pre-COVID levels.
Yep.
In Asia. We think there's gonna be, based on the people we talked to, very strong demand as we head into the traditional summer travel, air travel season. As long as jet continues to outperform versus diesel, and even on an RVO adjusted basis, you know, that probably goes a long way towards keeping people in max distillate mode and ultimately creating, you know, again, what we think is gonna be a constructive summer driving season for gasoline.
Yeah. I appreciate.
Uh-
The perspective. Go ahead, Clay. Sorry.
Do you think we have enough low sulfur materials globally to keep markets balanced? I mean, you're painting a picture where, diesel demand has been strong, jet demand is increasing as China reopens, and gasoline demand seems like it's normalizing as well. There seems to be a pull from three different areas on this low sulfur stuff. Do we have enough? If we don't, how do we balance?
Yeah, look, I think a very good question. You know, you obviously don't even throw into the equation that you just mentioned the fact that, you know, we're not there yet, but soon we'll be in hurricane season. You know, any weather disruptions further add, you know, potential fuel to the fire. You know, we recently saw a dip in diesel margins coming off, you know, the kind of the highs that they were at for the Q1 strip, at least. A lot of that was based on inventories being built in anticipation of the go live of the prohibition of shipping Russian clean products, largely distillate, into the Northwest European market. I think you're seeing those barrels start to be weaned down.
You're seeing floating storage come onshore and be consumed. I think by the end of March, especially now that April forecasts are starting to trend colder, you could also see a sneaky little pop in the distillate cracks as you head into kind of like the beginning of Q2. How do we balance? I think, you know, look, the U.S., as Mark said, is gonna continue to be the export engine, especially given what natural gas here in the domestic market has done recently. You know, I think it's rest of world that's ultimately gonna have to balance. I think domestically, you know, we'll be okay, but I think it, it ultimately means higher prices across the board for longer, you know, in terms of rest of world's gonna call out for the barrel.
The arb will open, people will load vessels and move them, and the U.S. market's gonna have to try and catch up to that in order to keep barrels domestically and satisfy that demand. I think you'll also, you know, depending on what levels we get to, you'll also probably, like you always do in these scenarios, see, you know, some form or fashion of cheating over and above what's happening right now vis-à-vis, you know, Russian products getting into the market.
Let's turn our attention to the refinery maintenance season here in the United States. We've aggregated some data, it looks like this season is gonna be one of the most intense turnaround cycles in a very long time.
Yep.
You are obviously finished with your turnaround at Tyler and are well positioned for the balance of the year. When you look at your peers and what they're planning to do you see a lot of outages ahead of the summer when things are about to tighten up? Or how would you characterize the season?
No, I think you're spot on, Clay. It's very much as you've laid out and as the research that you've compiled kind of depicts. You know, we had a view that we wanted to be early in the turnaround season because we felt like there was gonna be some softening, you know, kind of in the traditional doldrums of the January-February timeline. We completed the Tyler turnaround on time, on budget. Most importantly, no safety incidents, no process safety incidents. You know, so love to give, you know, a shout-out to the employees who worked in very difficult winter conditions to make that happen, as well as our contractor partners.
We are, I believe, from everything, all the research I've done, set up to have the cleanest slate ahead of us from now, with our next major planned turnaround, not until sometime in Q4 of 2024. I do think that's also another reason that for me, it's easy or relatively easy to be constructive to market. In addition to that, you throw in things like, you know, the unfortunate circumstances in Toledo, where that plant continues to not, you know, come back online. You've got, you know, still some niggling issues in the Gulf Coast on the back of the winter freeze. You know, I think, again, it's just a little more fuel to the fire, if you will.
All right, make sure I'm off mute. Guys, we're one of the things we've been trying to understand today is the portfolio strength or the variability within the portfolio. You talked about, you know, your 300 plus thousand barrels a day, and you think you're subscale. It seems to me that a lot of your peers are quite happy with their portfolios. My first question would be, if you think there's opportunities to grow refining, are we thinking private or are we thinking portfolio high grading for the public? I guess that'd be my first question. My second follow-up related to that, we don't get access to the Solomon Associates data. How would you characterize where your refineries sit, and what's the spread between them in the portfolio?
I'll take the first part.
Yeah. I'll take the first part, Doug Leggate, and I'll turn it over to Todd O'Malley to address the Solomon side. I think it's really more the former than the latter, if I got that right in kind of how you laid it out. We believe that there will be opportunities, and I truly believe that personally, amongst the larger public refiners and larger public energy companies to, as Todd O'Malley said earlier, to look at their portfolio. I mean, they grew significantly, going into COVID. You know, kind of hunkered down, borrowed some money. They're now doing well. They like their portfolio, as you rightfully said, but I do think there's some areas where they could pare back and rationalize some of that portfolio.
Right.
They're, you know, maybe smaller, maybe inland refineries that they want to focus on the larger export, coastal refineries. That can create an opportunity for us, and potentially, you know, for them, going forward, is where they concentrate their focus. You know, our focus is solely on the U.S.. You know, we've had some questions over the course of today where would we look international. I don't think that's the right strategy for us, given the opportunities that we believe are gonna be in front of us, in the US.
It's, it's not really much in the way of private companies because there's not really a lot of, you know, refining assets that we think would be attractive to us, that are privately held, in the U.S. It's really more of some of our larger peers, rationalizing their portfolio and opening up opportunities for us to get some scale and geographic diversification and extract some synergies across our portfolio. That's kinda how we're looking at it.
Yeah.
It's on, Todd.
Doug, on the Solomon side of it, look, you know, Solomon is a great metric. One thing I would say is it's always backward-looking, right? In light of the comments that we opened up with in terms of we have a new management team, new focus, new energy around the business, I'm not sure I would draw a direct correlation between what Solomon says versus what, you know, what we see as the future state of the business or even the current state of the business. Because of the way Solomon works, you know, we're not at liberty to necessarily discuss exactly where our rankings fall. I will point this out. Krotz Springs, you know, just celebrated 5 million man-hours without a lost time injury.
We just had the site in the fall recertified as a VPP Star site. What that means is it's one of the safest sites in the country. That's a rating that comes between the refinery and OSHA working together and a very rigorous process to get that certification. I think everybody on this call is aware that safety has direct correlation to reliability, and ultimately, reliability has direct correlation to profitability. We have a plan in place to begin the certification of our other three sites going down that VPP Star path. For me, again, you know, we have that plan in place. We've just finished our major turnaround on time, on budget, and most importantly, with a clean bill of safety. And we're very, very well set up to capture the macro.
I think if you look at us in 2022, you know, we ran above nameplate capacity. We ran hard, we ran safe, we ran reliable, you know, through challenging weather conditions, through, you know, excessive heat. You know, we had, you know, an unfortunate performance at Big Spring, there's no question about that, during the fourth quarter. We've, you know, we've fixed that. The plant's back up to full rate. I think Tyler coming out of turnaround that was 8+ years in the making, has a lot of potential to surprise to the upside. I feel very good about where we're at now. We've got, you know, the right personnel in place. We've got, you know, the kit really, fine-tuned and ready to run to capture the macro.
Well, guys, thank you for that. We've got about six or seven minutes left, so I've just got a couple more that I'm gonna throw back to Khalid to close us out. My first one is kind of an obvious question perhaps, but one that just occurred to us. When we look at some of the discussions we've had today with some of your peers, Marathon in particular, they talked about how they're really making efforts with their commercial organization. They've opened a Houston office, a Singapore office, a London office, yada, yada. And it's actually a question that came in on the line. You've just hired a commercial officer. Was that a replacement position, a new position, or what are the implications of that? Are you trying to trade around assets?
What are you trying to achieve with that?
Yeah. No. Great, great question, Doug, and I'm glad someone, you know, saw the announcement about us adding Patrick Reilly. You know, he's a, he's a very experienced executive, coming from the optimization side of the business at BP. Chemical engineer by training, but has morphed his career into being, you know, on the trading side and helping build out teams. That responsibility previously fell under me, but, you know, with me taking on more responsibility inside the company, honestly, I didn't have enough time to adequately, you know, help manage that business. We felt it was the right time and place to bring in a highly qualified candidate. I think, look, built into the DNA of Delek over the years has been a very entrepreneurial, very optimization-focused kind of commercial culture.
Does that mean to say that we were always the best? No. Can you always improve and get better? Absolutely. I think much like adding Mark, Pat is another very, very critical piece of the puzzle for us to bring in and help take the company to the next level. Yeah, we're constantly focused on optimization all around the refining assets, right? Whether that's on the crude input side, whether that's the energy side, vis-à-vis natural gas. Whether that's looking at how we, you know, how we place our clean products in the market. Whether that's, as I mentioned before, thinking about how do we shift, you know, an existing stream like a naphtha type material into a higher margin, higher net back chemical feedstock.
Mm-hmm.
You know, so I think, again, it's, you know, for a company our size, you know, we need somebody in that role, and, I think Pat was the perfect fit. We're very happy and excited to have him here.
I appreciate the answer. It's, I mean, we've seen it with some of the very large integrated, you know, what they can do with their trading businesses, so we'll watch with interest. The last one from me, and then I am gonna throw it back to Khalid, is it goes back to what we were talking about earlier, but asked slightly differently. What does the right balance sheet look like for you guys when you're done with your, hopefully your repositioning of the company?
Maybe I'll take that one, Doug. When we think about the balance sheet from a leverage perspective, right? You know, where we are coming out of the fourth quarter on the midstream side of the business or anything we do around midstream, you know, we're gonna wanna make sure. We see that vehicle as a consolidator going forward. We had a very positive experience with the 3Bear acquisition. Integration's going well. Coming out of the fourth quarter, you know, that's on an LTM basis, that's sort of in the high fours, you know, total debt to EBITDA.
If you think about the go forward as we move our way through 2023, we think that's naturally going to decline back into the high threes as we add a full year of 3Bear into the LTM numbers. We spent growth capital, you know, last year, where a majority of our growth capital that we put forward in the $350 billion number earlier this year, is targeting growth at the midstream level. We see a lot of rigs and a lot of activity with our customers in the Midland crude gathering business as well as in the Delaware basin and our gathering business there.
We think that sort of in the 3.5-4 range is appropriate for a midstream company that is increasingly a third-party business and not just a sponsored business from the refined parent. We think that's appropriate. At the refining level, you know, over the years as I think about this business, we need to be flexible not only to weather cyclical storms. Look, we never know what's gonna happen. Obviously, nobody foresaw something like COVID happening. You know, I hope we never go through something like that again. Look, we need to be from a liquidity standpoint, you know, net debt to kind of EBITDA, in my opinion, frankly, no more than 1x and hopefully somewhat inside of that from a leverage perspective.
Because I wanna be able to be very opportunistic around growth opportunities that we see that we truly believe are going to present themselves for us. We don't want to have to be approaching that, you know, from a position of being overburdened from a leverage perspective and being somewhat constrained. Look, we do believe that the margin environment is gonna be very supportive for us, so we need to focus on not only returning cash to shareholders, but where appropriate, you know, de-leveraging our refining business side of things so that we can take advantage of opportunities.
Okay. Well, Khalid, do you wanna take the last one?
Yeah, maybe just to pick it up there. The buybacks are obviously positioned as your flywheel. In the fourth quarter, you guys opted to do the buyback but not the debt repayment. Can you talk about the logic behind that, and does it speak to your strategy going forward? For example, would you continue to buy back shares rather than put the balance sheet back to where it was prior to the fourth quarter?
I think from a going forward perspective, the way we're thinking about it, with everything that Mark has, you know, effectively trying to do, the thought process is, you know, buybacks are still definitely important. Getting the balance sheet in order is important, but we wanna have the flexibility for anything and everything that Mark is going to be undergoing. Hence the $75 million-$100 million of guidance that Abigail stated. You know, with current market conditions, we see a pathway to be able to do that, you know, sometime this year. That would be balanced with, you know, debt reduction. Again, that's knowing that we have this, you know, pathway with the sum of the parts, we wanna have that flexibility.
Okay. guys, I think we are out of time, and that's a good place to leave it. I wanna say...
I wanna say, thank you very much indeed for, you guys, joining us. We, we owe you a visit up in Nashville, and we're delighted to have the opportunity to hear what you guys are thinking. Thanks very much indeed for being here. Lucy, thanks for setting it up. Todd, great to see you again.
Doug, thanks very much. Khalid, thanks very much. We appreciate you guys putting on this conference. It was a great day today, and we look forward to continue telling our story, and more importantly, we look forward to hosting you guys here in Nashville.
Look forward to it. Thanks, fellas.
All right. Cheers. Thanks.