Afternoon, everyone. My name is Kristina Kazarian, and I'm the head of the Midstream and Refining Equity Research teams here at CS. This afternoon, I have the pleasure of introducing Uzi Yemin, the Chairman and CEO of Delek. Delek is an independent refiner with an integrated asset base and strategically located assets with Permian exposure. I won't say too much because I'd love 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, 10th or 11th year. I come here, I try to say what I say, but usually mood here is not great as much as it is now, actually. Everybody's upbeat about refining, and I won't change that mood today. I actually try to help it. Now I see that you're already taking notes. Okay, what am I going to do with you? I've been doing it 17 years, so I earned my no hair for a reason. I guess we'll talk a little bit about the market. We'll talk a little bit about us.
We'll talk 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. With that being said, Keith, are you eating? What are you doing over there? He can't eat and listen at the same time. I know him for 7 years now. Okay. Do you want me to read this? It will take 12 minutes out of my 28 minutes. I guess I read it, you understood it, and we move on. A little bit about some numbers. You have these numbers, you don't need me. Keith, 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. So, 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. Market cap of $2.7 billion. We'll prove to you today why it needs to be higher. Of course, we have our own opinion. Then flexible financial situation. At the end of the third quarter, we had what some people call the war chest or over $800 million of cash. I'm going to promise you that in the fourth quarter, we made money, so you shouldn't expect the $830 million to be lower in the fourth quarter. Third quarter performance was $1.29, adjusted $0.81. EBITDA was a little less than $200 million. Then the Alon acquisition closed the Alon Energy acquisition on July 1st. Manav was annoying me for 2 years.
Close it." We closed it finally, many of you did. Immediately after that, we came with the idea of closing the ALDW, 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're busy, and leave it to that. The assets, 5 segments. Refining, 4 refineries. We all know these 4 refineries. Some of them are more than 75,000 barrels. We run them at 75 or less to enjoy the small refinery exemptions. 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 asphalt terminals, 14 of them, as we announced on Monday, 5 of them, or 4 and a half of them, we signed an agreement to sell them to Andeavor for $75 million. We'll talk about the California strategy in a whole. Retail, 300 stores. We'll talk about the strategy over that. Renewables, 3 biodiesel plants, one in California and two, one in Arkansas, one in Texas. The one big theme, let's talk about the macro situation for a second. The one big theme for Delek is what most people call Brent-WTI, and we call Brent Midland. I know that historically, everybody talks about Brent-WTI. That's the product or the crude that is being traded on the NYMEX. Actually, if we want to be honest about stuff, we need to look at Midland.
If you look at the forward curve, this is the forward curve Midland Brent. There's forward curve you can actually buy. You see that we're pretty much around the $60 mark. In just 1 minute, we'll talk about what we think this can do in the next 18 months to 24 months. Just for us to remember that this $6 is being impacted by 3 or 4 components. The first one is the OPEC behavior. I want to be as clear. In 2015, 2016, when OPEC decided that they're going to flood the market, that spread went to zero, Delek US didn't do very well. In an environment of $58, $59 and 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.
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. 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. To our knowledge, and I think we have pretty good knowledge, most refineries are tapped with the amount of light barrels they can run. It needs to clear the export market. When it clears the export market, this is 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.
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's no tomorrow in the area. The current production is 2.8 million barrels in the basin. If we take the conservative outlook of 600, then we are at 3.4 as we exiting 2018. If you look at the forward curve of Midland-WTI, today the differences are $0.40. The third quarter and the fourth quarter are above $0.40 as we speak. If we take midpoint of 700, then there's a good chance that we will see the two handle and maybe three handle with the Midland-WTI. Why we believe so?
This graph illustrates the current offtake capacity, while the 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. MLPs, as we all know, are under pressure right now with their capital cost. In order more pipelines to be built, they need somebody to sign up for offtake, or MVCs, or T&Ds or take or pay, whatever the name is. It's hard for MLPs, even though there were announcement of six or seven pipelines, to get people to sign up for takeaway capacity because they need to commit for five, seven or 10 years.
If we look at end of 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. That's the reason we think that the difference between Midland and Cushing will widen. Obviously, this Brent-WTI 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 million barrels from us, and that 1 million barrels clears the market.
The inventories stay, for the most part, intact. 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 bet didn't pay off in 2015 and 2016, but this second part of 2017 and mainly in 2018 We're very optimistic about the situation. If we see the number $6 or so between Midland and Brent, these refineries have a bright future. We don't sit on our butts and do nothing, waiting for the market just to give us the differential. We want to help the market. We have four areas that we focus on, and we used to think that these areas are 12 to 18 months. Well, 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 that. Third, we need to improve the operation, mainly at Krotz Springs. Lastly, we need to unlock the logistics value that are in our legacy assets. Let's cover this. Corporate structure. We announced, we closed the ALDW deal. That will allow us, first, obviously, to have one less public company. Second, to enjoy the EBITDA coming from Big Spring. I just want to tell you that Solomon 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 at delivered below WTI Midland, and the margins in West Texas, you can look at the offers, are $6 or $7 today over Gulf Coast. 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. The Big Spring Refinery is 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, 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. A third one, it will allow us to do drop-down.
We mentioned the drop-down in our Monday press release that we expect $40 million, around $40 million of drop-down coming from the Big Spring assets. Synergies. Keith, am I recorded here so I can say whatever I want, right? I can say my opinion about you?
Yes. It's recording.
85 is not in the numbers anymore. Our synergies are more than $85 million. We expect to update the market extensively in the next two weeks in our conference call. Mainly, the beat 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, $6, $7 a barrel on the wholesale side. At the same time, the capital structure, Kevin and his team are working very hard to simplify it and to lower the cost of capital. 85 is probably too low. Krotz Springs. Kristina Kazarian, I read your question very carefully.
I said I'm going to answer each one of them. Krotz Springs. Krotz Springs has, rightfully so, by the way, not great reputation because it wasn't doing very well. Just as a point of reference, since we took over the third quarter, Krotz Springs made $25 million 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. Krotz Springs is running light barrels. Right now, the Brent Midland situation helps us a lot, and we take advantage of that. The second is improving the operation itself, and we'll talk about that. The third one is improve the product netback along the Colonial Pipeline. Let's be honest or clear. The Colonial Pipeline is not a good market for anybody right now. Colonial doesn't do good.
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 Krotz Springs. If we look at the Alky project, and by the way, we already said in the past that the CapEx for us, we're targeting $200 million-$250 million. That includes this portion of the Alky project. The Alky project is not crack spread 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. We expect to see $40 million. This is probably on the conservative side, $40 million, if crude stays at $60 or $58, and gasoline will stay with the crack spread of $12 or $13.
That project will be ready by the end of the first quarter next year, a year from today. If we look at the $25 million, what we did in the third quarter, we'll see what we did in the fourth quarter and then start improving that with the Alky 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 Alon, at the time we had an agreement, not closed, that California is not a real business for us. First deal was done was to sell California or sell the asphalt terminals, the four and a half asphalt terminals to Andeavor. By the way, I think Andeavor 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. 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. The negative EBITDA for California was $20 million-$40 million. That was negative. Why $20 million-$40 million? Depends on the tax credit, the BTC, the biodiesel tax credit. It would be a great idea to get money for negative EBITDA. That was the first step, as I said, that is not the last one. We are on a mission not to be in areas that we don't make money and don't make sense for us. Paramount, Long Beach, Bakersfield are all things that we deal with.
If you read our level of confidence around it, you know already that Paramount and Long Beach, 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. 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? 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.
What we want to do in the next 12-18 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%-8%, is performing and absorbing the value into that structure. The first thing is to do the drop-downs. That's the easy thing. We already said that the $41 million are coming in the first half of this year. Obviously, it's much easier now when we have no ALDW problem. Kevin is working very hard on these drop-downs, and then that $41 million or $40 million will come pretty soon. We have the cross, $32 million that after the Alky situation comes into play, just to make sure that cross can support the drop-downs.
There are other things that we can do. First of all, the gathering. Two years ago, I told you, Manav, that we're going to start gather. Today, we gather more than half of what we 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. 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. Second, we enjoy the quality of the barrel. Let me just tell you one thing that most of you probably know, that Cushing prices, there's Cushing A and Cushing B. Cushing A is what we see on the screen. Cushing B is actually what people process.
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. Continue to gather. You will see continued improvement on our utilization and our operation similar to what you saw in the third quarter. Together with the two drop-downs, we're close to $200 million. That $108 includes Paline, not at great capacity. Paline is running now at capacity and also not great margins for the first half in West Texas. Right now, margins at West Texas are extremely strong. We think it's around $200 million. After all, everything is being done. On top of that, we have the gathering and the movement of the netbacks in West Texas. I spoke about that. I have only 5 minutes.
Paline Pipeline in the West Texas are performing very well for us. If you look at the next slide, you will see that by 2019 or 2020, the numbers that are coming from DKL are very strong. Remember that we own 100% of the GP and 62% of the LP, altogether we enjoy 80% of the growth, these are really strong numbers coming from this asset. Our track record, the upper graph, we increase distribution every quarter, we already said that for DKL, we commit ourselves to double-digit growth in 2018. 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 with MAPCO, with the Delek legacy stores?" It's not ready, we need to put money into it's integrated. Right now we will keep this asset, keep it under the radar, invest in it, one day we'll see what to do with it. I'm going to get to the financial situation. This is our bragging slide. These are our bragging slides. First of all, as we said, $830 million of cash on the balance sheet. Net debt of all in, including the MLP, $590 million, MLP is $430, very little net debt at the DKL level. If you look at the EBITDA in the last 6 months, we have $200 million in the third quarter.
Consensus for the fourth quarter is $135, call it $340 million, double it by two, all the improvements, you see that the leverage is very low. What we did, because our confidence grew so much in the business, we think that the business is performing very well, there will be more cash coming to our door. Sales of assets or drop-downs or the operation itself, because CapEx is only $200 million to $250 million. Interest rate is only $120 million, cash tax after the reform is $50 million. We have a tremendous amount of free cash flow, on top of that, all the events that are bringing cash, we actually bought $114 million worth of stock in the last 2 months.
I don't know many companies that know how to buy 4% 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 announce our fourth-quarter numbers. What I want you to remember, and I have 1 minute and 31 seconds, I won't bust that. We want you to remember the synergies that we committed more than 85. We said that we're going to invest in the business, especially the Alky. Now, we are targeting 50% higher EBITDA on investment with big projects. We are hoping to get that with the Alky. The Paline Pipeline capacity increase, which we increased in the first quarter of this year, 2018. Divest non-core assets, mainly out of California, and enjoying two things, eliminating the net negative EBITDA and get cash to the door.
Lastly, unlock the logistics value and drop the assets into the MLP and grow that, including investing in gathering and other areas. With that being said, I'm going to complain. This is my complaint. I have 19 seconds. Complaint slide. I'm being recorded, right? How the hell I'm below the market with that only six times EBITDA when the market is seven and change? This is, by the way, based on consensus. You never heard me talking you down. Thank you.
Great. I think we probably have time, 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 in another question. All night I didn't sleep. I 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're 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 a 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 it, similar to the biodiesel credit. History shows that we got it in the past.
Perfect. Thanks. Well, I'll leave it there. Thank you so much for your time today.
Kristina, thank you. Thanks for having me.