Ladies and gentlemen, thank you for standing by, and welcome to the third quarter earnings call for Delek US Holdings, Inc. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Blake Fernandez, Senior Vice President of Investor Relations Market Intelligence. Thank you. Please go ahead.
Thank you, Jerome. Good morning. I would like to thank everyone for joining us on today's conference call and webcast to discuss Delek US Holdings' third quarter 2019 financial results. Joining me on today's call is Uzi Yemin, our Chairman, President, and CEO, Assi Ginzburg, Executive Vice President and CFO, Fred Green, EVP and COO, as well as other members of our management team. The presentation materials we'll be using 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 that term is defined under the Federal Securities laws. Please see slide two 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 earnings press release has been reviewed, and we are covering less segment and market information than is incorporated into the third quarter press release. On today's call, Assi will review financial performance and Fred will cover operations for the quarter. Uzi will offer a few closing strategic comments. With that, I'll turn the call over to Assi.
Thanks, Blake. We had strong financial results this quarter, despite a lower Midland differential and planned maintenance at our El Dorado refinery. As you can see on slide three, on an adjusted basis for the third quarter 2019, Delek US reported net income of $58.7 million, or $0.78 per diluted share, compared to net income of $186.4 million or $2.15 per diluted share in the prior year period. Our adjusted EBITDA was $163.1 million in the third quarter 2019, compared to $325.5 million in the prior year period. Adjusted results this quarter include a $20.7 million pre-tax benefit from RIN waivers granted for Krotz Springs, El Dorado, and Tyler refineries. However, this was partially offset by a negative refinery inventory impact excluding LCM of $13.5 million. I would like to highlight that year-to-date adjusted earnings and EBITDA are above year-ago level, despite a compressing Midland differential.
On slide four, we provide a cash flow waterfall. In the third quarter of 2019, we generated significant cash flow of approximately $213 million from continuing operation, which include a working capital benefit of $81 million. This strong cash generation allow us to fund cash capital expenditure of $106 million, along with a $75.3 million contribution to Wink to Webster. We are on track to complete project financing by as early as year-end for Wink to Webster, the remaining contribution should be funded to that vehicle on a non-recourse basis. As a reminder, we expect total net investment for Wink to Webster of $340 million-$380 million. Finally, we returned approximately $65 million of cash to our shareholders between buybacks and dividend. Slide five highlight our capitalization. We ended the third quarter with over $1 billion of cash on a consolidated basis and $994 million of net debt.
Excluding net debt at Delek Logistics of $834 million, we had net debt of approximately $159 million at September 30, 2019. On slide six, we provide fourth quarter guidance. We estimate, based on the forward curve, that our realized Midland differential in our gross margin will be in a range of $0.15-$0.35 per barrel premium to WTI. With that, I will now turn the call over to Fred to discuss our operation.
Thanks, Assi. During the third quarter, our total refining system crude oil throughput was approximately 274,000 barrels per day, which reflects downtime at El Dorado. As shown on slide six, for the fourth quarter 2019, we expect crude oil throughput to average between 275,000 and 280,000 barrels per day. Separately, I'd like to point out that in the first quarter of 2020, we have a turnaround planned at our Big Spring refinery. Crude oil throughput for Big Spring in the first quarter should be in the range of 30,000 to 35,000 barrels per day. On slide seven, I want to highlight our capital spending. Capital expenditures during the third quarter of 2019 were $111 million, compared to $86 million in the third quarter of 2018. Our full year 2019 capital expenditures are forecast to be $415 million.
This amount includes $247 million in our refining segment, $10 million in our logistics segment, $21 million in retail, and $137 million at the corporate level. The Big Spring Gathering System is included at the corporate level, and will comprise approximately $132 million this year. As a reminder, CapEx excludes joint venture investments like Red River and Wink to Webster. While CapEx for 2019 is expected to come in about 5% above our prior forecast, this is mainly a function of pulling forward spending from 2020, as the timing of the Big Spring turnaround was moved from March to January. We now expect CapEx next year to be meaningfully lower on a year-over-year basis. Next, I'll turn the call over to Uzi for closing comments.
Thanks, Fred. Good morning, everybody. Cash generation was significant in the quarter. I'm pleased with the progress on our strategic ambition of building out our midstream business and increasing utilization of our own logistics assets versus third parties. Moving to slide eight. Big Spring Gathering acreage continues expanding. Now we have more over 275,000 dedicated acres on the system, up from 250,000 acres previously. With ongoing progress at Big Spring Gathering, we now expect $20 million-$25 million of EBITDA from that system next year. As gathering continues to grow, it places Delek in a unique position among refiners with availability to equity crude in excess of our refining capacity. This dynamic underpin our decision to enter Wink to Webster JV. It offered fuller integration potential.
Once the project is complete, we will have optionality to place barrels at our own refineries, selling into local markets or accessing the premium Gulf Coast market. Moving to El Dorado. We're excited about the vacuum tower upgrade that was completed at the end of the third quarter. We're now positioned to run at increased utilization rates with a substantial improvement in product yield, including increased distillate output. These improvements should allow El Dorado to take advantage of potential IMO benefits, including strong distillate cracks and increased capacity to run West Texas sour feedstock. As shown on slide nine, cash return to shareholders remains a priority. Year to date, we have repurchased $147.8 million of our stock. Our share count has been reduced by 16% from the peak in the second quarter of last year. Our capital allocation program balances cash to shareholders with potential opportunities for growth.
We intend to repurchase $30 million of Delek stocks in the fourth quarter of 2019. In addition, our board of directors approved a 3.5% increase in our regular quarterly dividend from the second quarter 2019 level. This marks our sixth consecutive increase since the first quarter of 2018. With that, operator, could you please open the call for questions?
Ladies and gentlemen, at this time, I would like to remind everyone, in order to ask a question, simply press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Okay, we have a question from the line of Roger Read of Wells Fargo. Your line is open.
Hey, thank you. Good morning, everybody. Apologies for any background noise. I am on my way through an airport right now. Uzi, I just wanted to, I guess, first ask, or maybe this is for you, Assi. Cash flow in the quarter was pretty good, especially the recapture off the working capital. You gave pretty good idea of what the gathering and processing system should add in EBITDA. As we think about a relatively modest or even maybe slightly negative Midland versus Cushing premium, how should we think about cash flow generation as we look at 2020 and 2021? If not an absolute number, maybe sort of a rough contribution as we think about the three segments of the company.
Good morning. I think it's too early to talk about contribution for 2020. We do know that we have a meaningfully decreasing our 2020 CapEx plan below our 2019 plan in order to make sure we have a material available cash flow to continue our dividend growth and buyback program. With that being said, we do think that our gathering business, through other aspects of it, can generate much more money next year than what we have on our base case. There is a good chance that some of the Wink to Websters will start producing cash as early as next year. We are very confident in our performance of our logistics segment, our retail segment, and even our refining segment. When you look at the 2019 numbers.
Please remember that El Dorado ran almost every quarter in the first three quarters of the year below 65,000 barrels a day, producing a distillate yield of 37%. When you look at the IMO environment, we're going to be in a much better place because, as we mentioned on our call earlier, we're looking at higher distillate yields. I think there is yet to be seen, but Delek will be a big beneficiary of the increase in distillate cracks, something we haven't seen as much in 2019, especially in El Dorado.
Yeah, fully agree. Distillate market looks tight pretty much everywhere. I was just curious, without getting too deep into that particular project, do you see other similar type tweaks into your system, whether at Tyler or Krotz Springs, that you can affect changes like this in short order and get a better product yield? I mean, your yield's pretty solid already, but I was just curious if there's any other tweaks you have there.
Well, first, we are very excited about El Dorado. Increasing El Dorado distillate yield by at least 4% is something that we are very excited. We always work on other projects. Sometimes they do require downtime, like it happened in the third quarter with El Dorado. That's something that you need to balance between, hey, how big is the benefit versus the downtime. For sure, there are several projects that will enhance our system. I just want to make sure, or we just want to make sure that we balance the downtime and the returns. Obviously, with El Dorado, it was no-brainer to take the vacuum tower down for 45 days, because of the enormous benefit from that.
Great. Thank you.
Your next question comes from the line of Manav Gupta of Credit Suisse. Your line is open.
Hey, Uzi, a quick clarification. When you initially announced Wink to Webster, the CapEx was $340 million-$380 million. Now what you're saying is after this spend of $75 million, which is already done, there is no more spend associated with Wink to Webster as you secure project finance. Am I understanding that right?
Let's start with the facts. If you use 20% need for the project and use the midpoint of the project of $360 million, you'll end up with roughly equity needs for the project of $72 million. Already in Q3, we invested $75 million. We haven't secured yet the project financing, but we believe that we are on track to close it as early as the end of 2019. Therefore, meaningfully, we shouldn't have too much outlay of cash when you look at the continuation of the project. I will say that there is actually a situation that we will even have a cash inflow when we complete the project, because at that point, if we elect, potentially we can reduce the equity in the business or in the investment to 15%. Right now we are on track to close the financing. It's not secured yet.
We're going to launch it in the next two weeks. The markets are good, and we have good, secured, I would say, commitment from some banks.
The midstream, refining spend you said would be down next year. If there is no material contribution, we should also assume that the midstream spend at DK next year would be lower because Wink to Webster would be hopefully project finance. Is that the right way to think about it?
Correct. When we talk about CapEx, just to be clear, Wink to Webster is not CapEx, it's investment in a JV. You are right. First, we don't have any burden of Wink to Webster next year. It may be even generate free cash flow back to us. On top of it, we do expect overall DK CapEx to go down meaningfully, including the DPG portion, which is the gathering system.
Okay. Next question is more on the line of El Dorado. You indicated besides the higher diesel yield, you're also increasing utilization. Can you help us quantify in your terms, if you look at the forward cracks, the change you made at El Dorado? Are we looking at a $15 million-$20 million EBITDA uplift? What kind of EBITDA uplift are we looking at from the change you made, if you can help us quantify the benefit?
Let's start with the facts. When you look at this quarter, just this quarter, the lost profit opportunity was $20 to $25 million. When you look year to date, on average every quarter, that was the number, anywhere from $15 to $20 million every quarter year to date of basically impact on us. That's before we're using the new curve. This can be a significant number when you just look at this year compared to next year.
Last question, asking Uzi, every quarter, we're getting a 3.5% increase in dividend, which is very good. I think your dividend from 2017 end is up like 90% or so. I'm just trying to understand how does this game go on? Is it all about getting to a competitive yield or is it balancing dividend and buyback share?
Manav, that's a great question. We continue to generate significant cash flow. You see it even in this quarter, the cash flow that we generated, we told you, not you personally, but we told the market that there will be a reversal of working capital drain that happened in the first quarter and the second quarter. Now we see that this came in. Even after we spend the $75 million, that which we believe is what we need to put as equity for the Wink to Webster project, we see that we have continued to generate cash flow. We will not stop hiking the dividend yield in the foreseeable future, just because of the fact that we are committed to returning cash to shareholders.
As Assi said, the combination of better performance at El Dorado, which includes eliminating the fuel oil or eliminating almost completely the fuel oil make, together with IMO, together with cash flow from the gathering. We are committed to return that cash to our shareholders. I wouldn't, from modeling standpoint, just assume that these dividend hikes will continue for the foreseeable future.
Right. Congrats, Uzi, on a good quarter again. Take care. Bye.
Thank you. Thanks again, Manav.
Your next question comes from the line of Benny Wong of Morgan Stanley. Your line is open.
Hey, guys. Good morning. Just had a quick question regarding your balance sheet. Obviously, important to know you have $1 billion in cash. Sounds like you guys are going to be generating a higher level of cash flow next year potentially. Just how are you thinking about that strategically? Is there a target level of cash you'd like? Is the rest more of kept dry powder to be opportunistic, or is it more cushion to be defensive? How are you thinking about that?
Good morning, Benny. First, we're very proud about our ability to continue and produce cash flow every quarter. Even when we invest in CapEx like we did this quarter and the Wink to Webster, we're still able to generate and have cash of more than $1 billion. There is no secret amount of what is that number that we need to be at. With that being said, we always like to have probably more cash flow as a percentage of the balance sheet or the equity value of the company compared to the others. With that being said, the reason why we're doing it's folded of two, and you answered it. One, opportunity. Second, cushion.
We want be able to use our balance sheet when needed to continue the buybacks, to continue the dividends, to continue investing in the company. That allow us to operate the company in a way that two, three, four bad quarters doesn't impact our ability to basically continue with our capital allocation program. Hopefully, I answered the question.
No, you did. I appreciate the color there. Just the second question is really around your upgrading of El Dorado. I mean, 4% increase in distillate yield sounds pretty good. I'm just wondering, for you guys to do the upgrade, should we read as your view in IMO has changed? I remember previously you kind of had a view that it was going to be relatively short-lived. For you guys to make a decision to go forward with this, is that IMO based, you're seeing something different, you think it might be a little long-lived? How do I reconcile that?
Hey, Benny, it's Blake. Good morning. I guess I'll just address the broader IMO question and then tie it in. For one, two components to IMO, and as you know, we have very little high sulfur fuel oil production, and so we're not in a situation where we're forced to recycle that through the system. Moving to the distillate side, which is really where we have significant leverage as you know, we're actually seeing market dynamics drive the distillate crack right now, and it's hard to say for sure, but there's no real evidence that IMO is necessarily driving this. There's some broader market factors. For one, we've got heavy global maintenance. You see the Saudi strike took a lot of the distillate-rich volumes off the market.
We have PES off the market, and now with cold weather, we're actually seeing a fairly wide arbitrage to send ULSD from the Gulf Coast over to the East Coast. In our view, the distillate margin is very strong, but it's not necessarily reflecting all of the IMO benefits. Some of these decisions that we're taking to improve the distillate yield is partially driven just by fundamentals, but then also tying in potential uplift from IMO going forward.
Great. Thanks, guys.
Your next question comes from the line of Prashant Rao of Citigroup. Your line is open.
Hi. Good morning. Thanks for taking the question.
Hey, good morning.
All right. I wanted to ask first on the gathering project and sort of a broader question. Uzi, we've been hearing in the upstream, we've seen rig counts come down where there's some concerns about production levels sort of maybe bottoming out here and maybe some change in, call it the next 12 months, of what supply will be in the overall U.S. shale base. I just wanted to get a sense of your gathering as it sits in the context of that background, and as we look forward to further gathering enhancements, maybe if you could talk a little bit to remind us about the nature of your gathering projects and how they might be differentiated from maybe some of the production declines that most of us are expecting in the greater shale play in the U.S. in the upstream.
Well, that's a great question. First, let me give you our perspective as it stands today. We made, years ago, a decision that our gathering will focus on, if you will, the best counties in the Permian. Only now people are starting to understand that there's a difference between different counties. Our counties are Martin County, Martin, Midland, and Howard counties. These barrels that are coming from these counties are 37, 38 APIs. We watch it every day. We have a report comes from every producer. As you know, we have dozens of producers. We don't see any slowdown in these three counties. Also, we checked, in light of the last talk, the political talk about fracking and federal land, there's a very minimum impact in these three counties on us.
With the price of crude at $55, $56, in these three counties, we see 0 slowdown from producers at any given moment. As a matter of fact, the projections they gave us for next year meet what they told us a year ago. These are really good barrels. We spoke about that now we are basically, come the end of the year, we will be long crude oil. Delek will be in a unique situation that we will have quality barrels, and we are long both crude and end products. For me or for us, that's the best position to be, especially in these three counties that are so good to produce. Obviously we just said that we increased the dedicated acreage this quarter to more than 275,000 acres.
I'm just going to remind you and others that similar gathering systems are being sold for hundreds and hundreds of millions of dollars. We just saw the last deal. We continue to believe that there will be more production coming from the, if you will, best counties, and we don't hear anything from any producers. That was a long answer, but I hope I answered every angle of your question.
No, that was very helpful. Thanks, Uzi. Just one quick follow-up on the cash flow statement. The working capital benefit, just wanted to confirm that we should be thinking of that more as sort of a reversal of maybe some of the working capital build in the first half, and then a further confirmation sort of how to think about it for 4Q, that it doesn't turn into a headwind going forward unless you're perhaps, depending upon crude purchases or something else that might change it. As it stands, that doesn't reverse into some sort of a headwind in 4Q or 1Q.
Correct. When you look at the year-to-date numbers, you'll see there was basically no material change in working capital. In Q1 and Q2 when prices of oil came up, we had a FIFO inventory gains basically that we reported that doesn't come with cash flow. This quarter, when prices came down, we actually collected some of that cash basically through the working capital changes. We don't see right now any tailwind or headwind for Q4. Like you said, if we're going to run less or more barrels, there may be some change, but we don't anticipate one.
Okay. Thanks very much for the time, guys. Appreciate it. Turn it over.
Your next question comes from the line of Paul Sankey of Mizuho. Your line is open.
Hi, everyone. Apologies for the short-term question, Uzi. The Keystone Pipeline, we're highlighting that you guys would be a relative winner, if we can say that, from the outage. Can you just talk a bit about what's happening from your perspective and how it affects your markets? Thanks.
Yeah. I'll let Avigal, our Chief Commercial Officer, take that one as he watches it.
Hey. How are you, sir?
As he watches it very carefully.
We believe that Cushing is still a long build. Obviously, when the market presents opportunity, everyone wants to use the last logistics aspect that they can. We still remain very optimistic about the investment we made in the area, and most of our investment from Red River is based upon P&Ds and a firm supply. All in all, Cushing is still long builds, and that's obviously something that every midstream would like to look how to utilize the last piece of pipe. Around our investments, we are very optimistic.
There's a perspective that you're going to suffer from Keystone the longer it's out. Is that misguided or how would we get to that? Because my understanding obviously is that you're not a big user of the pipeline.
No. We obviously are not user of that pipeline, but there's another pipeline that take volume out of Cushing, and that's something that change the balance of Cushing, but it's not something that's material for what we do, because we are mostly mid-continent around it.
If I could switch slightly to another big announcement this quarter, which is the work that you've done on improving distillate yields. That really kind of is surprising, the scale to which you've managed that. Can you just talk a bit more about it? Because it's obviously going to be very important in terms of profitability given current market conditions.
Well, I want to introduce to everybody our President of Refining, the guy that actually constructed all that, Louis LaBella . I don't think the market has seen you, but welcome to the call. Go ahead, Louis.
Thank you, Uzi. Yes, during our IMO scenario planning, we recognized a potential opportunity to take advantage of the oversized design of the crude vac unit at the El Dorado refinery. In Q3, we plan to slow down the refinery to go after a design change and an upgrade to the vacuum tower. Preliminary test results have shown to be very effective. The design change allow more lift in the vacuum tower to produce own spec asphalt straight off the tower, as well as increase in gas oil and distillate make yield, while we minimized our fuel oil production. These results will provide us the flexibility of what type crude we like to run, whether it's light, medium or heavy crudes, depending on the LP model, how it predicts going into IMO.
As we look at it, our current models and also our field test run all indicate that we have consistently shown above 4% distillate yield increase.
Got it. Finally, Uzi, on the market, there's a view that the Keystone effect will be one to narrow the Brent WTI spread. I know you've always got a view on these things. I'll leave it there. Thank you.
Obviously, there are some competing factors here. First, the world needs to absorb all that crude that is coming from the U.S. We're doing huge work right now to understand what destinations for light crude exist in the world. Also the shipping cost is going up and at the same time, Keystone obviously impacting into the other side. We believe that the market found that around $6 benchmark as we stand. Still, I'm not smart enough, or we are not smart enough to know what the impact of trying to dump on another two, three million barrels on the world light pool. I assume that there will be some impact to that. In our model, we always assume $5-$6 Midland-Brent, and that's what we see right now.
Thank you.
Your next question comes from the line of Brad Heffern of RBC. Your line is open.
Yeah. Hey, everyone. Sorry to harp on the El Dorado questions, but just one further one on the yield. When I look at the yield structure of the refinery, it's like 8% asphalt yield, something like that, and maybe 1% petchem and 1% other. Where is that 4% yield coming from? Is it that the overall production of the refinery is going up some or is it taking some out of the asphalt category? Just any color you can give me as to how that's gonna be accounted for going forward.
This is Louis again. Looking at the design, the crude vac unit's designed for 100,000 barrels, for medium sour design. With the new upgrades to the tower, we actually have the choice not to make fuel. We drive everything into the gas oil yield, as well as making spec product of asphalt. It's really splitting the tower up to drive up the tower to capture the distillate yield straight off the tower.
Okay. Thanks for that. Sorry if I missed this, but Assi, did you give the exact working capital number for the quarter? That's all I have. Thanks.
Yeah. It was a benefit of $80 million. Brad?
That's it for me. Thanks.
Thank you.
Okay, the next question comes from the line of Neil Mehta of Goldman Sachs. Your line is open.
Hey. Thank you, team, and good morning. One of the things that we've talked about with you guys lately is the transformation of your business and how you're shifting away from being heavily levered to refining and switching increasingly into non-refining businesses. Can you just provide sort of that big picture perspective of what you're trying to accomplish over the next three to five years? Kind of quantify how big you want to get in non-refining and what the path is. There's a lot there, but I think it's probably the most important strategic question for you guys.
As usual, Neil, your questions are spot on. We are in the middle of creating or expanding our integrated business model. More and more, we want to rely on our logistics asset versus third party. Right now, as we look at it, we expect in the next three or four years to get to midstream around $400 million. This quarter, obviously, we had a decline of $52 million, which was a record quarter. We're probably going to see this trend continue to evolve higher as more and more assets we get out of our third party commitment and enjoy our assets. Together with the gathering, our gathering is picking up steam very nicely. We already have positive returns on a monthly basis. As Blake said, next year, we gave guidance of $20 million-$25 million only from gathering.
The number that we have in our head is around $400 million in three years, [by the end of 2020]. That doesn't take into account any other ideas that we have. These are only the projects that we are involved as we speak. I hope I answered your question, Neil.
Yeah. That's helpful, Uzi. The focus right now is to focus on sort of the core midstream growth platform. Is there another area or avenue of diversification that the company would look at? Historically, you guys have played in retail. I think that's less of a focus now, but just trying to understand, again, what Delek is going to look like in a couple of years.
We are dipping our toe into renewables, even more. We used to have two plants, two value disciplines. Now we have a third one. We just bought another one a month ago. Obviously, none of the numbers include any benefit from BTC, which who knows what's going on in Washington. The prospects look pretty good. We look at renewables. At the same time, we need to continue to develop our integrated business model. We're not shy of making acquisitions, as you know. The multiples should be right. Right now, what we look at around is too expensive. We will continue the course of developing our organic growth.
All right. Thanks, Uzi.
Your next question comes from the line of Phil Gresh of JP Morgan. Your line is open.
Hey, good morning. I guess sort of a follow-up to what Neil was asking, maybe slightly differently. There are a lot of refining assets on the market, many of which are outside of the region in which you operate, but they are out there nonetheless. I guess as you look at those opportunities and your desire to grow midstream in other areas, are you ruling out the idea of refining M&A at this point to grow your footprint, or is it primarily just the other midstream growth?
Well, we are not ruling out anything if it's the right opportunity and the right multiple. I read somewhere that Kenai is for sale. As much as I love Alaska, I don't think that we're going to buy Kenai. We were very loud and clear about other opportunities came to the market that we thought the prices were too high. When you buy a refining asset, and we have done several acquisitions, as you know, Phil, you watched us over the years. Anybody can write a big check and buy a refinery. In order to buy a good refining asset, and that last example is along with the two refineries we bought. You need to have the opportunity to improve the crude slate or the cost of the crude. That's what we did in both Big Spring.
In Krotz Springs, when we lowered the cost of crude with the gathering or other means using pipelines. Second, you need to be able to improve operation. That's what we did in Krotz Springs, and a little bit in Big Spring. Of course, obviously with the running the refinery there and building the Alky that is now giving us $50 million on a yearly basis. You need to do better in selling your products. Other than that, if you just write a big check and the multiples or the EBITDA is high, then you don't do yourself a good favor. As long as these criteria are not being met, we don't want to be in the acquisition mode.
If there are opportunities that we think that there will be assets that are in reasonable price, and we can improve the operation day in, day out, then we'll look at it.
Sure. Yeah. I was not thinking of Alaska more, just there are several opportunities in PADD IV. Obviously, you don't operate in PADD IV today. That was more the line of the questioning there. I don't know if you have any views on diversification of footprint in that regard.
Absolutely. As we diversify the company. That's a great question, Phil. By the way, you're more than welcome to come with me to Alaska, if you like Alaska. We can just go and look at bears. We don't need to buy a refinery. On a serious note, we do understand that the market perceives us as Midland company, and it was very good and tremendous benefit to our company as we grow it. There will be a point in the future that we will need to look at diversification of our portfolio. We're doing it with the midstream right now, but maybe in the future, we'll look at diversifying our refining portfolio.
Yeah, sure. Okay. That makes sense. I guess on the capital spending, I know it doesn't sound like you want to give a number for next year, but perhaps you could just remind us of what a normalized level of spending looks like in a given year as we try to frame out where your spending was this year and where it might go over time.
Let's start. When you look at the CapEx this year, we expect to spend roughly $450 million. Including in that number, $250 million in the refining segment. These are the big numbers. Between retail and logistics, roughly $30 million. On other, which is mostly the discretionary CapEx related to the gathering, we're talking about $135 million. When you add it all up, you'll see that, this year, with a lot of spend at the refining, a big spend on the gathering, we are over $400 million. Now, please remember that this year's CapEx, when we look at the refining side, includes the project in El Dorado that we mentioned earlier. Includes the completion of the Alky. Also we brought back turnaround costs from 2020 associated related to the Big Spring. We don't think refining should be $250 million.
More like somewhere around $200 million, when you include the turnaround and maintenance CapEx. Between retail and logistics, I think our $30 million that we did this year is something that makes sense. That puts us at $230 million. The question is how much we want to spend on gathering. We mentioned that next year we're going to spend less on gathering than this year. That puts you in a much lower number compared to the $415 million that we spent this year. When I say much more, it's significant. Significant for me, it's not 5%. I will say for us, it is significant is not even a 10% decline. We're looking at meaningful decline next year.
Okay. Very helpful. Last one, was not on the DKL call, but just wondering about your desire to leverage DKL as the growth vehicle here for the midstream growth and possible drop-downs. Not just in 2020, but maybe over the next couple of years. Thanks.
Well, DKL, as we all know, the MLP market is not functioning the way we want the MLP market to function. We are still looking at what to do with DKL, because we want to continue to grow our midstream segment. Maybe we shouldn't do it at the DKL level. We look at it as a combined situation. DKL is still an option, and we don't want to eliminate that option at this point. We look at the midstream segment between what is sitting at DK and DKL as a combined segment and not just DKL.
Would you ever buy it in?
That's a possibility. VLP or Valero have done it. I don't want to say that we're going to do it, but it is a possibility.
Okay. Thank you.
Your next question comes from the line of Paul Cheng of Scotiabank. Your line is open.
Hey, guys. Good morning.
Morning, Paul.
Uzi, on the M&A, if it is refining, what will be the two or three most important valuation metrics that you're going to use?
Valuation? Well, first, I wouldn't assume that we're buying a refinery tomorrow morning. We are not engaged in any discussion with anybody, to my knowledge, about buying a refinery. That's a question that belongs to the past and maybe to the future, but doesn't belong to the present. As I mentioned, the three criteria is that improving the crude slate or the cost of crude, improving the operation, and improving the midstream economics. These are the three criteria that we look at when we buy a refinery. Also, we just need to make sure that we don't pay too high multiple if this is going to be dilutive to our shareholders.
Right. I understand. I guess my question is that when you're talking about you don't want to overpay or paying too high multiple, what valuation metric, what multiple that you will be looking at?
Paul, I don't think that I can give you, on a theoretical deal, what the multiple is without knowing if we can improve the operation or not. At the time, we paid 10 times for growth. Today, it looks really cheap.
Mm-hmm. Okay. I think this is for Assi. For Big Spring Gathering, let's assume next year that you are $20 million, $25 million. Given that the spending is actually in the C corp, not in the MLP. That earning, is that going to show up in the Big Spring refinery? Where that we should assume the earning going to show up?
Right now, those numbers, as you know, are not material. In this quarter, it actually showed up in the corporate and other. The contribution margin for DPG, which is the Delek Permian Gathering, was around $3 million this quarter in corporate and other. As it grows, and next year it's going to be meaningful, we will look into what percentage needs to be in Big Spring or in the logistics. We haven't made that decision, but I want to share with you that this quarter it was in the corporate and other, and it was a benefit of $3 million. When you look at 2018, when we just had a spend, that number was a negative $1 million on corporate and other. We do see an improvement, and we will look into it.
Is it going to be in Big Spring corporate and other or maybe even part of the Logistics segment?
I see. You haven't make up your mind where that you're going to put it?
Correct. Probably by year-end, when we'll start having meaningful numbers, we'll have to make that decision. As you know, at this point, $3 million in a quarter, it's not material, and that's why it's part of corporate and other.
For Fred. In El Dorado, you talk about the different yield changes and all that. How does it change in terms of your crude slate? I think you guys several years ago that have re-sized it, even though the crude unit is 100, effectively, I think you re-sized into 80 and to one light sweet. How that may change under the new design, whether that unit operating cost is going to have any changes?
Okay. That's a tricky question. I'll take the first part, and then Louis will answer the technical part. In regard to running more barrels in El Dorado, absolutely we can run more than 75,000. We actually can run more than 80,000. Enjoy the same yield. However, there's a game here between running 80,000 and the RINs, or waivers, or small refinery exemptions. As you know, if we're running more than 75, then the RINs waiver doesn't exist for us. That's something that we need to watch both ends. As you know, I know that you excluded that in others from our earnings, but at the same time, this is a real cash flow that we get every year. That's something that we need to watch. To answer your question, running more than 75, we can do it easily any day.
Running even more than 80, it's easy. We just need to understand the economics. In regard to the crude slate and the product slate, Louis, I'll let you take that one.
Yeah. It really opens up our flexibility of the crude that we can run, and it all drives to minimizing fuel oil make. As we minimize the fuel oil make, we can draw the diesel up the tower into the gas oil, and we actually yield diesel off the vacuum tower itself. It opens up to a wide range of what the market would tell us which crude to run.
Final one for me. Either for Assi or for you, Uzi. J. Aron deal. As the company become bigger, and your cash flow position, your balance sheet is stronger, why we still have that deal? I mean, is it better off that you don't have that deal, or you think that it's still advantageous?
Great question. First, we can actually terminate all of the J. Aron deal as early as Q2 2020. With that being said, the capital cost that being allocated for inventory, just to put another $450 million of debt on the balance sheet and add leverage is not something that we're ignoring. Therefore, it's all a question of cost. We're targeting basically to move the J. Aron deal to the same cost of our debt. From a cash flow perspective, it means that overall, we will have the benefit of not having it as part of our debt on one hand, and on the other hand, reduce materially our interest cost. We do hope that in the next renewal, including alternative that we have in the market to renew such a deal, we'll be able to reduce materially those costs.
I see. Thank you.
Okay. Thank you, ladies and gentlemen. I would now like to turn the call back over to your presenters today. Please go ahead.
Yeah, thank you. I'd like to thank my friends around the table here for the hard work that they put together, the board of directors for their trust in us. Obviously, I'd like to thank everybody that listened to the call this morning. I'd like to thank our list investors for your trust and belief in us. Mainly, I'd like to thank each one of the employees of this great company. I appreciate everybody's hard work every day. Thank you. Have a great day.