Good afternoon, everyone. My name is Kristine Kzerian. I'm the Head of the Midstream and Refining Equity Research teams here at CS. This afternoon, I have the pleasure of introducing Uzi Yamin, the Chairman and CEO of Delek. Delek is an independent refiner with an integrated asset base and strategically located assets with Permian exposure.
But I won't say too much because I'd like to turn it over to Uzi today. So thanks so much for joining us in Vail.
Thank you. Well, thank you and good morning. I always enjoy coming to the Credit Suisse even though this wasn't your conference in the past, but I'll give you credit for it. I think this is my, I don't know, tenth or eleventh year. And I come here, I try to say what I say, but usually mood here is not great as much as it is now actually, but everybody is upbeat about refining.
And I won't change that mood today. I actually try to help it. Manav, I see that you're already taking notes. Okay, what am I going to do with you? So I've been doing it seventeen years, so I earned my no hair for a reason.
And I guess we'll talk a little bit about the market, we'll talk about a little bit about us, we'll talk about a little bit about capital structure and the things that we are planning to do and the things that you probably want us to do. And with that being said Keith, are you eating? What are you doing over there? He can't eat and listen at the same time. Know him for seven years now.
Okay. Well, do you want me to read this? It will take about twelve minutes out of my twenty eight minutes. So I guess I read it, you understood it and we move on. A little bit about some numbers, have these numbers, you don't need me.
Keith is as I told you, he doesn't do too many things at the same time. He put here 32.14%. I think the last I looked, sometimes this morning, it was above 33%. Manav, find me a new IR guy. He's doing a shitty job for us.
I know I'm being recorded, so I'm not going to say shitty anymore. And market cap of $2,700,000,000 will prove to you today why it needs to be higher. Of course, we have our own opinion. And then flexible financial situation, at the end of the third quarter, we had what some people call the war chest or over $800,000,000 of cash. I'm going to promise you that in the fourth quarter, we made money.
So you shouldn't expect the $830,000,000 to be lower in the fourth quarter. Third quarter performance was 1.29 adjusted $81 EBITDA of less than $200,000,000 And then the acquisition closed the Alon Energy acquisition on July 1. When that was annoying me for two years, closed it, closed it, closed it. And then we closed it finally, many of you did. And then immediately after that, we came with the idea of closing the ALDW.
And last week, we closed the ALDW. By the way, somebody told me that we were busy lately. I'm going just to make the comment, you don't even know how much we are busy and leave it to that. The assets, five segments, refining, four refineries, we all know these four refineries, some of them are more than 75,000 barrels. We run them at 75,000 or less to enjoy the small refinery sales.
And so you don't need to expect us to increase capacity on these refineries. Logistics segment, pipelines, terminals, all under DKL, we'll talk about that because this is the main focus for us. The alpha terminals, 14 of them, as we announced on Monday, five of them were or 4.5 of them were sold to we signed an agreement to sell them to Endeavor for $75,000,000 We'll talk about the California strategy in a whole. Retail, 300 stores, we'll talk about their strategy over that. And Renewables, three biodiesel plants, one in California and two one in Arkansas, one in Texas.
So the one big theme and let's talk about the macro situation for a second. The one big theme for Delek is what most people call Brent TI and we call Brent Midland. I know that historically everybody talks about Brent TI, that's the product or the crude that is being traded on the NYMEX. But actually, if we want to be honest about stuff, we need to look at Midland. And if you look at the forward curve, this is the forward curve Midland Brent, there is forward curve, you can actually buy it.
You see that we're pretty much around the $6 mark. We'll talk about in just one minute, we'll talk about what we think this can do in the next eighteen months to twenty four months. But just for us to remember that this $6 is being impacted by three or four components. The first one is the OPEC behavior. And I want to be as clear, in 2014 I'm sorry, in twenty fifteen, twenty sixteen, when OPEC decided that they're going to flood the market, that spread went to zero and Delek U.
S. Didn't do very well. In an environment of $58.59000 dollars growing production in the Permian area, especially in light of the fact that this is light production. What comes out of the ground, we can't change it. It's light.
And in light of the fact that producers are rushing to lower their cost and by doing that, it makes sense for them to drill more, then this structure is very helpful for us. Most people focus on the offtake capacity. It is an important point and we'll talk about that. But at the same time, we just need to remember that once the barrel is coming to The Gulf or somewhere, it needs to clear the refining sector. And to our knowledge, and I think we have pretty good knowledge, most refineries are tapped with the amount of light barrels they can run.
So it needs to clear the export market. When it clears the export market, this is a completely different economics. By no means I'm an export expert, but I know it needs to clear the market differently than when it clears the local market. And we see it in the forward curve. At the lower graph here, we see the upper graph, we see all these number of rigs growing like there is no tomorrow in the area, but the coiled production is 2,800,000 barrels in the basin.
And if we take the conservative outlook of 600, then we are at 3.4 as we're exiting 2018. There are if you look at the forward curve of Midland TI, today, the differentials are $0.40 The third quarter and the fourth quarter are about $0.40 as we speak. And if we take midpoint of 700,000,000 then there's a good chance that we will see the two handle and maybe three handle with the Midland PI. And why we believe so? This graph illustrates the current off take capacity, while the dark whatever it is, dark I'm sorry, light gray or light blue, the top section of this graph on the right is two pipelines that were announced, the Sunrise as well as Cactus that were announced by the MLPs.
Now MLPs, as we all know, are under pressure right now with their capital cost. So in order more pipelines to be built, they need somebody to sign up for offtake or MVCs or T and Ds or take or pay, whatever the name is. And it's hard for MLPs, even though there were announcements of six or seven pipelines, to get people to sign up for off take capacity or for takeaway capacity capacity, because they need to commit for five, seven or ten years. So if we look at 2018 and 2019 until Cactus and Sunrise are coming online, we will see that this black line shows that the production is over the offtake capacity. And that's the reason we think that the pressure between Midland and Cushing will widen.
Obviously, this Brent TI or Brent Midland brings with it something that is very good for all refineries and good for us as well. Crack spreads are going up. The trend is for crack spreads to go up. The inventory situation is not as bad as it used to be several years ago. Obviously, the Mexican situation helps us a lot as an industry.
It helps Delek as well because we export to Mexico as well. The Mexicans right now are taking around 1,000,000 barrels from us and that 1,000,000 barrels clears the market. So the inventory stay, for the most part, intact. So what are we doing about ourselves? We basically put our money where our mouth is.
And if you look at our four refineries, all of them are running for the most part, WTI, Midland. Obviously, that debt didn't pay off in 2015 and 2016, but the second part of 2017 and mainly in 2018, we are very optimistic about the situation. And if we see the number $6 or so between Midland and Brent, it's going to these refineries have a bright future. So we don't sit on our path and do nothing waiting for the market just to give us the differential. We want to help the market.
So we have four areas that we focus on. And we have to think that these areas are twelve to eighteen months, while we think these areas are six to eight months now. We are hoping to achieve all this during 2018. Let's talk about them one by one. First, we need to simplify the corporate structure.
We'll talk about that in just one minute. Second, we promised the market synergies. We want to beat them. Third, we need to improve the operation, mainly at Croats. And lastly, we need to unlock the logistics value that are in the our loan legacy assets.
Let's cover this. Corporate structure. We announced and we closed the A and PW deal. That will allow us, first, obviously, to have one less public company second, to enjoy the EBITDA coming from Big Spring. I'm just going to tell you that Salomon's study ranks Big Spring refinery as the number one refinery from profitability standpoint in The United States, number one.
No wonder just because of the fact that we buy crude as delivered below Midland and the margins in West Texas, you can look at the office, are $6 or $7 today over gold cost. So we enjoy very cheap crude. As a matter of fact, I want to tell you something, a story that the Howard County is one of the best counties in the country. Big three refineries in Howard County. We actually have two wells.
We actually collect royalty from crude production from wells that are inside the fence, inside the refinery itself. That's how close the production is. Second, that will allow us and Kevin is working very hard to improve the capital structure of the company and enjoy the synergies. ALDW was paying 9.5% coupon on their financing. Third one, it will allow us to do drop down.
We mentioned the drop down in our Monday press release that we expect $40,000,000 around $40,000,000 of drop down coming from the Big Spring assets. Synergies. Well, Keith, am I recorded here? So I can say whatever I want, right? I can say my opinion about you.
Okay. $85,000,000 is not in the numbers anymore. Our synergies are more than $85,000,000 And we expect to update the market extensively in the next two weeks in our conference call. Mainly the bid will come from commercial as well as financing. The commercial side, we didn't expect to enjoy as much as we are enjoying from the gathering side of the barrels to our Big Spring and then from there to our refineries.
Also the product side, as you see in the margins in West Texas, we enjoy that margin back to the heydays of $5.06 dollars $7 a barrel on the wholesale side. And at the same time, the capital structure and Kevin and his team are working very hard to simplify it and to lower the cost of capital. So 85,000,000 is probably too low. Croats. Christine, I read your question very carefully.
So I said I'm going to answer each one of them. Croats has rightfully so, by the way, not great reputation because it wasn't doing very well. Now just as a point of reference, since we took over the first quarter, Quartz made $25,000,000 EBITDA in that quarter, we'll see what it made in the fourth quarter. We had three initiatives in that area. The first one is to bring cheaper crude, lower the cost of transportation.
Cost is running light barrels. So right now, the Brent TI situation helps us a lot and we take advantage of that. The second is improving the operation itself and we'll talk about that. And the third one is improve the product netbacks along the Colonial pipeline. Now let's be honest or clear, the Colonial pipeline is not a good market for anybody right now.
Colonial doesn't do good. But the that's the time to get into that and acquire new customers and lower or increase the wholesale margin and lower the RINs cost that we have at Croft. So if we look at the Alki project and by the way, we already said in the past that the CapEx for us, we're targeting 200,000,000 to $250,000,000 that includes this portion of the Alki project. The Alki project is not price sensitive. It's sensitive to price of crude and the depression between isobutane and gasoline.
By the way, other companies are doing the same project. So we expect to see $40,000,000 this is probably on the conservative side, dollars 40,000,000 crude stays at $60 or $58 and gasoline will stay with a crack spread of $12 or $13 And that project will be ready by the end of the first quarter next year, a year from today. So if we look at the twenty five million dollars what we did in the third quarter, we'll see what we did in the fourth quarter and then start improving that with the Alke and other initiatives, you see all of a sudden that this refinery is actually a pretty good refinery. California. I stood here a year ago and said that once we buy a loan at the time we had an agreement, not close, that California is not a real business for us.
So first deal was done was to sell California or sell the Afra Terminal, the 4.5 Afra Terminal to Endeavor. By the way, I think Endeavor did great deal for themselves. This is their core market and they will enjoy great synergies. For us, there was no synergies and it doesn't make sense to be in California. That's the one thing that we already did.
And I'm going to tell you that during the next few months, we will get rid of more assets in California that makes sense for other companies. Now the negative EBITDA for California was 20,000,000 to $40,000,000 That was negative. Why 20,000,000 to 40,000,000 depends on the tax credit, the BTC, the biodiesel tax credit. But it would be a great idea to get money for negative EBITDA. That was the first step.
And as I said, that is not the last one. We are on a mission to not to be in areas that we don't make money and don't make sense for us. So Paramount, Long Beach, Bakersfield are all things that we deal with. And if you read our level of confidence around it, you know already that Paramount and Long Beach are in the from accounting standpoint, are in discontinued ops, which means we think that we can sell them within one year from the day we put it together. That was four, five months ago.
So where are we going to obviously, we have a big six to eight months ahead of us. We've simplified the corporate structure. We need to improve the capital structure. We need to capture the synergies. We need to get rid of California.
What are we going to do next? So I can cover all these assets here, but for me, the main thing in this map is to show that our focus is West Texas and the areas around our refineries. So we want what we want to do in the next twelve to eighteen months is to make sure that our DKL asset, which performed reasonably okay, but still with a cost of capital that is 9%, which is much, much, much too high compared to our peers that are between 7% to 8%, is performing and absorbing the value into that structure. So the first thing is to do the drop down, that's the easiest thing. We already said that the $41,000,000 are coming in the first half of this year.
Obviously, it's much easier now when we have no ASVW problem. So Kevin is working very hard on these dropdowns and then that $41,000,000 or $40,000,000 will come pretty soon. Then we have the Croats, 32,000,000 that after the Alki situation comes into play just to make sure that Crocs can support the dropdowns. But there are other things that we can do. First of all, the gathering.
So two years ago, I told you Manav that we're going to start gathering. Today, we gather more than half of what we produce process. There's no reason to believe that we won't gather more barrels. More and more producers are coming to us because they know we have the refining and we have the capacity. So our goal is to continue to gather.
We enjoy two things here. First, we don't pay other people and we collect the fees ourselves. And second, we enjoy the quality of the barrel. Let me just tell you one thing that most of you probably know, that cushion prices, there's cushion A and cushion B. And cushion A is what you see on the screen.
And cushion B is actually what people process. And what people process is more expensive what is on the screen because of the quality of the barrel. That quality of the barrel right now is around $0.80 So continue to gather. You will see continued improvement on our utilization and our operations similar to what you saw in the third quarter. So together with the two dropdowns, we're close to $200,000,000 That $108 includes Payline, not at great capacity, so Payline is running now at capacity and also not great margins for the first half in West Texas.
Right now, at West Texas are extremely, extremely strong. So we think it's around $200,000,000 after all everything is being done. And then on top of that, we have the gathering and the movement of the net debt in West Texas. I spoke about that. I'm not going to I have only five minutes.
So Payline pipeline in the West Texas are performing very well for us. And if you look at the next slide, you will see that by 2019 or 2020, the numbers that are coming from DKL are very, very strong. Remember that we own 5% of the GP and 62% of the LP, so altogether we enjoy 80% of the growth and these are really strong numbers coming from this asset. And obviously, our track record, the upper graph, we increased distribution every quarter and we already said that for DKL, we commit ourselves to double digit growth in 2018. So there's no reason to believe that this won't continue.
Retail, I'll just say a few words about retail. Many people ask us, are you going to sell retail similar to what you did in with Merco, with the Delek legacy stores? It's not ready. And also, we need to put money into it and it's integrated. So right now, we will keep this asset, keep it under the radar and invest in it.
And one day, we'll see what to do with it. So I'm going to get to the financial situation. And this is our bragging slide. These are our bragging slides. First of all, as we said, dollars $80,000,000,830,000,000 of cash on the balance sheet.
Net debt of all in, including the MLP, five ninety million, MLP is $430,000,000 so very little net debt at the DK level. But if you look at the EBITDA in the last six months, we have $200,000,000 in the third quarter. Consensus for the fourth quarter is $135,000,000 so call it $3.03 $40,000,000 double it by two, then all the improvement, you see that the leverage is very, very low. And then what we did, because we got our confidence grew so much in the business and we think that the business is performing very well and there will be more cash coming to our door, sales of assets or dropdowns or the operation itself because CapEx is only 200,000,000 to $250,000,000 interest rate is only $120,000,000 and then cash tax after the reform is $50,000,000 We have a tremendous amount of free cash flow. And on top of that, all the events that are bringing cash, we actually bought $114,000,000 worth of stock in the last two months.
I don't know many companies that know how to buy four percent of their market cap over two months and nothing happened to them. From a cash standpoint, you will find out that actually it's the opposite when we announced our fourth quarter numbers. So what I want you to remember, and I have one minute and thirty one seconds, I want the bus done. We want you to remember the synergies that we committed more than 85,000,000 We said that we're going to invest in the business, especially the ALKEY. Now we are targeting 50% IRR EBITDA on investment with big projects.
We are hoping to get that with the Alki. The Payline pipeline increase, which or capacity increase, which we increased in the first quarter of this year, twenty eighteen divest non core assets, mainly out of California and enjoying two things eliminating the net negative EBITDA and get cash to the door. And lastly, unlock the logistics value and drop the assets into the MLP and grow that, including investing in gathering and other areas. So with that being said, I'm going to complain. This is my complaint.
I have nineteen seconds. Complain slide. I'm being recorded, right? How the hell I'm below the market? With that, only 6x EBITDA when the market is 77% and change.
This is, by the way, based on consensus. You never heard me talking you down. Thank you.
Great. So I think we probably have time to and we can fit in one question if someone has one. All right. I'll throw one in. A topic you kind of didn't touch on too much, can you talk about your updated thoughts on RFS and small refinery exemptions and just kind of where that sits?
I thought you were going to ask me that or another question. All night I didn't sleep, said, what am I going to tell her? Well, history shows that we got the waiver in the past. We didn't put it in our numbers. There are a lot of talks we already short RINs, so I'm not going to short RINs more, but I don't think RINs will stay where they are.
The exemption of the small refineries gets a lot of attention right now. However, we all know that Sinclair got very specific ruling and that specific ruling was very much in favor of small refineries exemption. Now I'm not going to stand here and commit until we get similar to the biodiesel credit. But the story shows that we got in the past.
Perfect. Thanks. Well, I'll leave it there. Thank you so much for your time today.
Thanks, Pina. Thank you. Thanks for having me.