Good day, and welcome to the Delek 2023rd Quarter Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Blake Fernandez.
Mr. Fernandez, the floor is yours, sir.
Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US Holdings' Q3 2020 financial results. Joining me on today's call is Uzi Yemin, our Chairman, President and CEO Ruben Spiegel, EVP and CFO and Louis Lavela, EVP and President of Refining as well as other members of our management team. Presentation materials used during today's call can be found on the Investor Relations section of the Delek US website. As a reminder, this conference call may contain forward looking statements as the term is defined under federal securities laws.
Please see Slide 2 for the Safe Harbor statement. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, we report certain non GAAP financial results. Investors are encouraged to review the reconciliation of these non GAAP financial measures to the comparable GAAP results, which can be found in the press release, which is posted on the Investor Relations section of our website. Our prepared remarks are being made assuming that the earnings press release has been reviewed and we are covering less segment and market information than is incorporated into the Q3 release. On today's call, Ruben will review financial performance, I will cover capitalization and guidance, Louis will cover operations and CapEx, then Uzi will offer a few closing strategic comments.
With that, I'll turn the call over to Ruben.
Thank you, Blake. On an adjusted basis for the Q3 of 2020, Delek US reported a net loss of $74,000,000 or a negative $1.01 per share compared to net income of $77,000,000 or $1.01 per diluted share in the prior year period. Our adjusted EBITDA was $22,000,000 in the Q3 of 2020 compared to $184,000,000 in the prior year period. The second paragraph of this press release highlights $31,000,000 of after tax benefit or $0.42 per share of items included in adjusted results. I would like to highlight the table on Page 13 of the release providing other inventory impacts by refinery in the quarter.
This may be helpful in terms of modeling the refining segment. On Slide 4, we provide the cash flow waterfall. In the Q3 of 2020, we had a negative cash flow of approximately $77,000,000 from continuing operation, which includes a working capital detriment of $40,000,000 Cash capital expenditure in the quarter were approximately 5,000,000 dollars Finally, during the quarter, we announced the elimination of the incentive distribution rights and conversion of the 2% general partner interest in BKL into a non economic interest in exchange for $14,000,000 newly issued DKL units and $45,000,000 in cash. This brings the DKL ownership of DKL up to 80%. With that, I will turn it over to Blake.
Thanks, Ruben. Slide 5 highlights our capitalization. We ended the Q3 with $808,000,000 of cash on a consolidated basis and $1,700,000,000 of net long term debt. Excluding net debt at Delek Logistics of $1,000,000,000 we had net long term debt of approximately 6.6 $6,000,000 at September 30, 2020. I would remind you that we expect a federal tax refund of approximately $165,000,000 for the first half of 2021.
Moving to Slide 6, we provide 4th quarter guidance for modeling. We remain on track to exceed our cost reduction targets of $100,000,000 for the year. Additionally, through a combination of workforce reductions and tactical initiatives, including Krotz Springs, we anticipate another $80,000,000 reduction in 2021 versus 2020 levels. This is comprised of $70,000,000 in operating costs and $10,000,000 of G and A. Lastly, during the quarter, the Wink to Webster project achieved mechanical completion on the main segment connecting the Permian Basin to Houston, Texas.
The main segment of the pipeline system was commissioned with Permian crude oil from Midland to Houston in October and service is expected to be available to shippers in the Q4. As a reminder, we own 50% interest in a financing JV that has a 30% interest in the pipeline JV. Additional segments offering shippers further service are expected to be in place in 2021. With that, I will turn the call over to Louis to discuss our operations and CapEx. Thanks, Blake.
During the Q3, our total refining between 225,000 to 235,000 barrels per day or approximately 76% utilization at the midpoint. This assumes Krotch Springs throughput of 20,000 to 30,000 barrels per day. In light of difficult macro conditions, we elected to perform turnaround work at the Krotz Springs refinery that will be conducted on a straight time basis beginning in November. This will allow us to continue running the Reformer and the Alky unit and should help improve economics toward a breakeven level. The cost to perform this work is estimated at $10,000,000 and is included in our CapEx program.
After this work is completed toward the end of Q1 of next year, the facility will be capable of moving back to full utilization should the macro environment improve. On slide 7, I want to highlight our capital spending. Capital expenditures during the Q3 were $5,000,000 We remain confident that we will achieve or come in below our full year 2020 capital guidance of approximately $249,000,000 The 2020 capital program is broken down by segment as outlined in the slide. For 2021, we expect CapEx to be approximately $95,000,000 lower than the 2020 levels with the guidance for the full year of $150,000,000 to $160,000,000 including turnarounds. Next, I will turn the call over to Uzi for closing comments.
Thank you, Louis, and good morning, everybody. We're taking aggressive steps to improve the cash flow profile of our company with visibility over $200,000,000 of collective improvements next year. This will be achieved through a combination of CapEx reductions, decreased operating costs and G and A expenses, optimizing on Port Spring's Refinery operations as well as other initiatives. Our Board has suspended dividend payment at this time to maintain a flexible balance sheet given the macro environment. Based on market conditions, share repurchases would be given priority over a resumption in the dividend or growth capital as we see a significant disconnect between the value of our underlying assets versus the equity market.
Lastly, I would like to encourage you to review our new sustainability report published in September. Delek has well recognized responsibility to the community and our stakeholders, and we are pleased to share our ESG journey, including disclosing year end 2019 statistics, detailing actions the company took in 2020 and describing some of the steps we are planning to take in the future. With that, operator, will you please open the call for questions?
Yes, sir. We will now begin the question and answer And the first question we have will come from Neil Mehta of Goldman Sachs. Please go
ahead. Good morning, Lucy. Good morning, team. Lucy, the first question is just around capital allocation. Today, you're making the decision to suspend the dividend to repurchase shares.
And so I guess the question is, implicit in that is a view that you think the stock is attractively valued here despite some of the refining headwinds that we're seeing right now. So talk about the calculus, the math that goes into why you think it's time to be buying back stock. And then also talk about timing and sizing given the uncertainty in the market out there, recognizing you have some cash inflows coming in next year.
Appreciate the question, Neil. Let's start with something a little different and then we'll answer that directly. If you look at what we said, we said that between OpEx, CapEx and other initiatives that with the other initiatives being fee based, we're talking about $100,000,000 coming in. If you look at CapEx, CapEx is coming down around $95,000,000 call it $100,000,000 So it's going down to around $150,000,000 to $160,000,000 So let's talk about the free cash flow of the company once things normalize a little bit. If we look at 2018, 2019, the total OpEx and G and A in 2018, 2019 for DK was somewhere around 9 $20,000,000 $930,000,000 That was the number.
If you go ahead and apply what we just gave you guidance for the OpEx and G and A for 2021, we are around $730,000,000 $740,000,000 So you see around $200,000,000 of savings compared to what used to be 2018, 2019, which you may call at that time elevated or normalized, whatever the definition is. That's first $200,000,000 The second is if you look at $100,000,000 of DKL improvement because of all the investments that we have done in 2017, 2018 and 2019 in midstream. DKL today is $270,000,000 used to be $170,000,000 in 2018, 2019. So that's if you take the $200,000,000 of savings plus another $100,000,000 of $200,000,000 savings of OpEx and G and A, another $100,000,000 of DKKL, now you're at a 300 The normalized CapEx in 2018, 2019 was around 350,000,000 DAS, 370,000,000 DAS. Today, we're telling you $150,000,000 to $160,000,000 That's another $200,000,000 So all in, you're talking about $500,000,000 I'm not talking about the crack spread for just one second.
I know that crack spread are much lower. Midland benefit in 2018, 2019 was $4 a barrel. If you take it times 75,000,000 barrels, you're talking about benefit of Midland of 300. So the 500 that we are showing is more than offset all the Midland benefit we had in 20 eighteen-twenty 19. So we feel that we achieved our goal to overcome this Midland overhang.
Now going back to your question, knowing all that in what goes to our head, we feel that we are starting to generate free cash flow, generate free cash flow not from the tax return, but actually generate free cash flow under the assumption of $120,000,000 of interest and $150,000,000 of CapEx, we start generating that at around 3 I'm sorry, dollars 8.50 crack to $9 crack. Let's just call it 8.75 dollars And so and today, we are around $7 So once we see that, we think that we are starting to generate free cash flow. And because of the cushion we have, the $800,000,000 that we have, the tax return that is coming back And the fact that DKL continues to perform NWCW is coming online, that will be something that you should expect us to approach very quickly. I hope I answered your question. That was a long answer, but
Yes, that
was great. You did the
modeling for us. So here's the follow-up around that. When you talk about an $8.50 crack is where you get to free cash flow sort of breakeven and free cash flow positive, at which point you're repurchasing shares. When you talk about that, are you talking about like a benchmark crack, like a Gulf Coast 321 Brent plus a WTI Brent spread or Midland spread on top of that? Or just trying to understand the
is We assume Midland 0 and we assume Part 32, Gulf Coast, WTI crack. Okay.
And embedded in that calculus is Wink to Webster as well?
Well, the part of the other that we mentioned is related to commercial agreements around Wink to Webster that the first phase was completed few weeks ago. So the $30,000,000 of other is mainly that part. So you get only benefit of $30,000,000 at this point. Obviously, Winter Western will be fully completed by the end of next year, and then you'll start seeing the full benefit.
Great. Thanks, Susie. Thank
you. Next, we have Brad Heffern of RBC Capital Markets.
Yes. Hey, good morning, everyone. Just to follow on on Neil's question about the dividends. You called it a suspension. So is the likelihood that the dividend comes back at some point once the market normalizes?
Or is this a more of a deferral and until maybe the equity performance gets much better, more in line with where you think it should trade, the cash will continue to go to the repurchase rather than some reinstitution of the dividend?
Okay, Brett. Thanks for the question. I'll go by the history. If you look at 2018, 2019, our market cap today is $800,000,000 If you look at 20 eighteen-twenty 19, and I just walked Neil through the numbers why if crack has normalized, our situation will be very even with Midland not being even with Midland being 0 because we don't count on Midland anymore. That was our strategy all along, to go to Midstream to offset the benefit of Midland because we never thought that Midland should stay at $4 So if you go back to 2018, 2019, we returned a combination of buyback and dividend.
We returned $700,000,000 during these 2 years to shareholders. Today, our market cap is $800,000,000 If we can get Kraftwerk that is normalized, call it $12,000,000 $13,000,000 $14 then you should expect similar numbers coming. Now obviously then you need to play between how much you are actually buying the shares because at $11 obviously it feels completely towards buyback. But if the shares or the stock price recovers, then you go back to dividend. But for us, the biggest or the most important thing is the free cash flow that we think once we have some kind of normalized Kraftwerk, and I just mentioned $850,000,000 is the where we think that we are going to start generating free cash flow, then it depends on the share price.
Lower share price, more buyback. Higher share price, more dividend. I hope I answered your question.
Okay. Yes, that's very clear. And then just on Crotz. So I guess, first of all, can you talk about how we should think about modeling it during this time period where it's just the alkane and the reformer running? Is it should we just sort of take the octane spread and multiply by the capacity of those units?
And then beyond that, is this kind of the minimum level of activity that you would ever expect at Crotch just because there's a lot of value in those two units? Or is there a chance that if the market stays like this for longer than we expect that Crocs could ultimately be closed?
Crocs is a good asset. In today's market, it doesn't make money. So we, being nimble, being a small company, we have our disadvantages, but we have a couple of advantages being quick. So we sat down and we said, what are we going to do? And we knew that next year, there was supposed to be a turnaround.
So we said, let's take the straight line turnaround or straight time turnaround over the next 3 months. We don't expect crack to recover to a level that it makes sense to run the entire refinery. At the same time, both the reformer and the ALKI have value in them and also other activities that we're doing in that refinery. So as we said in the press release, we from modeling standpoint, you should expect cost to be towards breakeven, even in today's environment. This is after you take into account the reduced OpEx.
Come February or March, if they recover, then obviously, we'll flip the switch because we just completed Theravon, which cost only $10,000,000 Obviously, normal Theravon usually costs much more than that. And we go back to normalcy. If it's not, then we'll continue with this operation. I honestly don't see a situation at this point that costs are is being shut completely.
And Brad, just to help you from a modeling perspective, if you need help to get toward that breakeven level of that $70,000,000 of OpEx reduction that we articulated, about 40% to 45% of that is associated with Crocs. So basically, you can shave your operating cost there to help you move toward that breakeven level, if that's helpful.
Okay. Thank you, everyone.
And next we have Ryan Todd of Simmons Energy.
Thanks. Good morning. Maybe if I could follow-up on one of the earlier questions. I appreciate the thorough run through on a lot of the moving pieces on cash and the cost side. But I mean clearly, with Delek's market cap below its valued holdings in DKL, The market seems to be pricing the refining business will destroy value over some period of time.
You've done a tremendous amount to lower the cost structure there going forward. But how much maybe can you talk about how much flexes is there any flex left in the budget for next year? And maybe as we look forward, the sustainability of cost savings, both CapEx and OpEx into 22? How much of it is sustainable as we think about the longer term value of the refining business?
Okay. So first, Ryan, I think you asked 2 questions. I'll try to answer both of them. And if I miss something, please follow-up. So the first question is how sustainable in my mind, what you asked is how sustainable the OpEx, G and A and CapEx.
So let's start with the easy part. CapEx, if you look at the history, that was all along our CapEx on the on normalized basis without growth and without special projects. So we are just not going to do any growth projects in this environment. It doesn't make sense. In that number, there are 2 turnarounds.
One across that was moved up and the other one is the El Dorado. So you knocked down 2 turnarounds in the same $150,000,000 $160,000,000 So it's absolutely sustainable in this environment. And just remember, we invested 100 of 1,000,000 in each refinery. So we feel from a reliability standpoint, and we can demonstrate that we are ready to run the refineries at very high utilization because we just invested all that money in the past. I think that's the first question.
The second question was OpEx and G and A. Again, if you look at what we're trying to do, in this environment, there's not much that we want to do besides returning cash to shareholders. At $11 there's no growth project or no study or no things or not many things that you should do that bring value more than the share price being at $10 or $11 It just doesn't make sense. We just said it. So that's why we're if you listened to us a year ago, 2 years ago, and we had all these discussions, we felt at the time that we needed to invest money in physical assets, which we did.
And that's why DKL is now, like you mentioned, it flipped. It's $1,300,000,000 $1,400,000,000 versus DKL being 800, which again doesn't make sense. The 3rd component of you asking the question is refining it for free. Actually, we think that refining, if you do some of the parts, is negative. Now I find it hard to understand why the refining assets for DK are negative when we have other refining assets in the market and these companies are not ready that negative value.
So there's a disconnection, which we aim to correct by the move of shifting from dividend and growth CapEx to buyback. I hope I answered all these questions.
Yes. Sorry, we didn't intend to ask so many at the same time. Maybe one separate unrelated follow-up. I mean, can you remind us about your option on the potential Bakersfield renewable diesel facility and maybe how that project is progressing from what you've been told? And maybe remind us what the buy in would it tell, whether there's any capital involvement and how you'd be able to whether you'd be able to offset your RVO obligations
after that?
So Ryan, it's Blake. I'll take that. So I would defer you to Global Clean Energy, who is operating and constructing the project. We have an option to participate with a 33% interest. I think it's a 90 day window after the facility is operational that we can execute that.
So at this point, we're basically in standby mode. We can see how the macro unfolds. We have not disclosed what the capital commitment would be. But I think by and large, I would just tell you would be fairly de minimis. It is not it's an absolute dollar amount.
It is not a percentage of the total construction cost of the project. So I believe the time frame is toward year end 2021, maybe early 2022. And that is basically our optionality for renewable diesel at this point.
Great. Thanks, Blake.
Yes.
And next we have Manav Gupta of Credit Suisse.
Hey, Uzi, can you help us feel a little more technically what exactly are you doing at Crocs that will help you lower the breakeven, bring the refinery to profitability? And is that something that you can take across to Tyler and El Dorado, if there is a need to do similar work over those 2 refineries to make them a little more profitable?
As usual Manav, you always ask smart questions because we have done exactly what you asked. We sit down and so let's go 1 by 1. Crocs, we're cutting expenses like Blake said by several $1,000,000 which we already happened and a portion of it you will see in the Q4 and then the full benefit next year on the OpEx side and then we are taking the other units that were scheduled to have turnaround by the end of next year and do turnaround here. So and that we should go close to breakeven at Crocs. El Dorado, because of the asphalt is actually and you can see it in the numbers, is actually making good money even in this environment.
So there's no reason to do it in El Dorado. There will be though a turnaround in the Q1 in El Dorado that we are planning to do and this is part of the $150,000,000 Big Spring, as you know, there's little noise in the numbers this time. But as you know, especially with the RINs and the niche market at West Texas, big spring is and buying below Midland and no shipping. Big Spring is one of the best refineries that exist. So you shouldn't touch Big Spring, especially in light of the fact that now you have the in DKL, the gathering system as well as a Wink to Webster portion is coming online.
And then in the future there will be more income coming around the hub of Big Spring, which is not just a refinery. And Tyler, you're very familiar with Tyler. You've been there many years when we bought. You know that this facility even in today's environment tends to make money. So shouldn't touch it besides tweaking the expenses, which we tweak expenses across the company.
I think I answered it 1 by 1.
No, perfect. A quick follow-up here is, when you look at Delek, there are 2 parts which are working perfectly fine, logistics, which is actually doing great and retail, which is actually doing very well and then refining which is not doing so well. Now when you're lowering your CapEx, you're also lowering your growth projections for the retail businesses. At one time, we see you were very bullish about building bigger stores, getting more sales in, getting a more merchandise sales. So I'm just trying to understand as you pull back on the CapEx, which is fine on refining side, are you pulling back a little too hard on the retail side because your retail business was actually doing very well even until date?
So the question is on the retail expansion front, sir.
That's a great question Manav. But look, again, capital allocation is art. It's something that we need to look every day. And that's why I'm being paid. And you look at the share price, which is $11 You do some of the parts and you have a market for DKL and DKL reported another record the quarter.
And as we told you, all these investments over the last few years will continue to bring more and more dollars to DKL. So DKL is doing very well because of the investment. Retail is doing very well, but the share price of DKL is $11 So in terms of capital allocation, you say to yourself, where should I put my chips? And the chips should go towards more buyback in our mind at this very moment. Obviously, if stock price goes back to $50,000,000 then capital allocation should change towards growth projects.
That's a very fair interpretation. Thank you for taking my question.
Thanks, Randell.
Next, we have Roger Read of Wells Fargo.
Yes. Thank you. Good morning. How are you all doing?
Good, Roger. Hey, Roger.
Hey, Uzi and Blake. Two questions for you. 1 on the kind of financial balance sheet side. Seems to me the OpEx thing has been beaten pretty good here. And the other is going to be on kind of market fundamentals and so forth.
So I'll hit that one first, come back to the balance sheet. If we look at Cushing inventories, they obviously spiked pretty high back in the spring, came down and then they've been steadily increasing. Yet we haven't seen any real widening in either MEH or LOS differentials. So I was curious how do you think about the market structure out there given that a lot of times we hear about tank tops, you're not hearing about that right now, but whether or not we may see some of that in coming months or quarters. So I'll leave it with that and then come back on the balance sheet, if that's all right.
Roger, how are you today, Sabigas? So it's a great question about the potentials. And obviously, most of the pipeline in the infrastructure in the U. S. Is overbuilt.
So with that come, some level of stability in the differentials. We see that stability coming all along since Q2, both on the LLS and for sure on the MEH. Crucial is really what you just said, but we don't see the time spread of CMA open as quickly as it was before because it's more manageable than in the past. Doesn't mean that it cannot be opened here in the next future, but it's not going to be as extensive as rapid as level 1 was in Q2 because of the panic that hit the pandemic. That makes sense?
Okay. Yes, it does. And then the other question I had again, kind of just thinking about the balance sheet in Slide 5 in the presentation. I think some of the reasons we've seen a little debt depression in the stock is obviously and true across the space, net debt has increased. I was just wondering, Uzi, as you've talked about what you would want to use excess cash for, how do you think about using excess cash to delever recognizing that some of that debt maybe even a significant portion of the increase is in DKL, so it's not necessarily debt you either need to delever or can delever on.
But just how you think about it overall as a structure of interest expense as a call on cash, total debt, debt to cap, debt to EBITDA, that kind of thing?
Roger, as you I'm sure you remember, our mid cycle target is very simple. For DKL, for logistics, and yes, of course, the year levels goes up because the assets of DKL and the EBITDA of DKL is going up. So that's but at the same time, the market cap of DKL goes up as well. So if you look at logistics, we target 3.5% to 4.5%, even though the covenants we have or the max leverage, not covenants, but the max leverage, according to our credit facility is $5,500,000,000 So we are in the middle of the range. We are $3,900,000,000 in that area, dollars 1,000,000,000 The second part, which we are not there obviously today, we thought that the entire rest of the business should be between retail and, of course, refining should be not more than one time EBITDA, which right now it's around $600,000,000 but that EBITDA doesn't exist in refining as we know.
So we believe that with the steps we are taking, we're preserving the cash and we're protecting the balance sheet. It needed protection to start with $800,000,000 and the tax return coming sometime early next year. But the mid cycle, we really want we prefer it to be one time. So if this is for your modeling thing.
No, that's helpful. And we'll just, I guess, wait on market conditions as to when kind of how we're
going to get Well, you asked that question. I think the first step will be when vaccine is being found, but full recovery is when people feel safe to go back. I think we are talking about between 12 to 18 months from now. So we do not expect to see full recovery to $15 crack before 2022.
Okay. Thanks. That's helpful.
And next we have Phil Gresh of JPMorgan.
Hey, good
morning. Hey, Phil. Good morning.
First question is just related to unlocking value, which others have kind of pointed at. 1 of your peers has a big midstream business, retail business and refining company, they sold retail to unlock the value. So you've done it in the past. I think you've indicated more recently that these retail assets are more important to you. But is this something as you look at your stock price that you consider?
First, we should look at everything in this environment. Retail, as you know, is around $45,000,000 EBITDA based on one of our peers selling their portion. It's, I don't know, 10, 11 times, whatever the number is. The question what we are going to do with the money with market cap of $800,000,000 We don't need CapEx. We don't have CapEx.
So that's a good question. And when you say to yourself market cap is $800,000,000 and retail is $500,000,000 you can buy the entire company for retail, it's tempting to look at it. At the same time, retail is not maturing just yet. We have ways to go, and we think we can get more value. Madam asked a question earlier about being in stores.
Some of the stores that we build are doing very well. So at this point, I don't see us jumping on the wagon with retail just to add more cash to the balance sheet for a company that the market cap is only $800,000,000 Okay.
Second question, if you could just remind me with the start up of Wink to Webster, is that something that exists at the parent company level that gets dropped to DKL or is the ramp up of Wink to Webster directly at DKL?
No, it is at DK.
And are you seeing that?
And there was no benefit to that until now. There was nothing in
it. Right. So is that a DK level? So are you thinking about a potential drop? Do you feel like you have the capacity to do that or you just keep that at the DK levels for now?
Well, we need to be patient, Phil. You always said that it's a transition story, and we feel that transition story is unfolding. And obviously, the market the environment is it is what it is. We are where we are with the environment, but it didn't change the strategy of continuing to grow logistics. However, W2W, as we said all along, there is a ramp up period.
So we will need to make a decision at what point that a drop down, if it makes sense, at what point we should do it.
Got it. Okay. And just to clarify on the buybacks, I guess at this point in time, you're assessing buyback potential, but you don't feel comfortable doing it now, opportunistically, you'd rather wait or just to clarify that? Thank you.
I said very clearly that we believe that once we start generating free cash flow, which according to our model, it's around $8.50 we shouldn't wait. When I say $8.50 the market, the $5.32 is $8.50 And when I say free cash flow, I mean after interest and after CapEx.
Yes. Okay. Very clear. Thank you.
Yes. Next, we have Jason Gabelman of Cowen.
Yes. Hey, good morning. Good morning, Jason. Two questions. First, just a clarification.
On the $25,000,000 on other initiatives. I'm not sure if I heard you right, if that's mostly the Wink to Webster contribution or if that's something else. And then secondly, kind of a more strategic question. It seems like it's a unique opportunity where you could kind of take a step back and you've pulled back spending across your assets and kind of assess what you want the future of the company to be and moving forward to deploy capital as you see fit. So I wonder as you're looking at your portfolio, if when you think about increasing spending again, if you're thinking about deploying it in new business segments, maybe segments that generate higher multiples than refining historically has given that energy demand in the U.
S. And globally seems to be changing? Thanks.
The answer to the first question is yes. The answer to the second question, we absolutely need to look. That's the reason we have the biodiesel plant and that's the reason we invested or we have the option to invest in that 1 third asset in California in Bakersfield. I've been doing it long time. I've been CEO of this company 19 years, probably too long.
And I've seen it ups and downs. And every CEO is expected, that's why I'm being paid, I said it earlier, to allocate the capital based on the best returns at the time. And for sure, we needed to fix our refineries in the past, and we invested 100 of 1,000,000, if not 1,000,000,000 in our refineries. But now they are in good shape. And we do need to look at the future and say what is next.
And is investing in this refinery the right thing or doing something different? And that's what we're actually doing. And once we have a clear path for the 3 to 5 years, we'll notify the market.
Got it. Thanks.
Thank you.
The next question we have will come from Kalaik Amin of Bank of America. Please go ahead.
Hey guys, good morning. It's filling in for Doug here. I've got two questions. They're both on Crocs. First question, so Crocs is about 45% of the $70,000,000 savings.
It sounds like some of this is related to lower utilization. So what I'm trying to figure out is whether some of this I'm trying to figure out whether this OpEx is mainly coming from 1Q when the plant will be offline for an extended period of time for maintenance and whether there's any sustainable cost savings that we'll be able to see once the plant comes on normally?
So, Kalei, it's Blake. At the end of the day, we're going to start the turnaround work here in November and that will spill through into March. So really the utilization of the crude there's going to be no utilization of the crude unit or the FCC. We'll be running the alkylation unit and the reformer. So at the end of the day, the OpEx savings will be embedded in 1Q.
And what I would suggest to you from a modeling standpoint is to just keep that OpEx removed for the year. If the margin environment improves and we feel we can offset the operating cost reductions with improved cash flow from the margins, we'll restart it. But at the end of the day, the cash generation will be there in some form or fashion. Does that help you out?
Got it. That makes sense. And second question also on Crods. Have you guys explored operating the plant as maybe a terminal and whether that would be value accretive? And I guess what I'm thinking about is the aversion of maintenance capital.
Maybe asked another way, what is maintenance CapEx today and what does that look like ex Krausz?
Usually, maintenance CapEx in a refinery by the size of Kratz is around $15,000,000 to $20,000,000 a year. It's not $100,000,000 it's not $200,000,000 Please remember, we build the Alky. So maintenance CapEx is not outside turnaround. And obviously, we're doing the turnaround now on straight times, so we take advantage of not so good environment. But you can in terms of modeling, it's $15,000,000 to $20,000,000 It's not $200,000,000 I think that's the question, Clayton, right?
Indeed. I appreciate the answers, guys. Thanks.
Well, at this time, we're showing no further questions. We'll then conclude our
Well, thank you, Mike. Thanks for holding us this morning. I'd like to thank my friends around the table, my colleagues. I'd like to thank you listening to us this morning. I'd like to thank the great employees of this company.
We have been through a lot here together, and they are great to work with. I'd like to thank the Board of Directors. These are not easy times, but we are taking the right steps. Thank you, and have a great day.
And we thank you also, sir, for your time today and to the rest of the management team. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care and have a wonderful day.